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Dharam Shourie
United Nations, Sept 16: A United Nations report has advocated stricter capital controls to rectify the inherent problems in the international financial system and proposed an investment-export nexus to increase production capacity and competitiveness to lift the depressed world economy.
The financial crisis in east Asia is the result of "Big Bang" liberalisation, the report released on Tuesday said, while predicting growth rate of less than 2.5 per cent in 1998 for developing nations, apart from a slump in the United States economy.
Japan and east Asia are likely to witness a prologned recession and trade imbalances in major industrial countries would increase, it said.
Briefing newspersons on the report prepared by the United Nations Conference on Trade and Development (UNCTAD), an official said it proposes a safeguard being incorporated in rules governing international finance which would help a country facing an attack on its currency to impose an automatic, unilateral standstill on debtservicing.
The report says an independent panel could sanction the decision, but it does not favour International Monetary Fund (IMF) being the sanctioning authority as it itself is creditor and its decisions are dictated by creditors.
The Asian crisis has also greatly affected commodity prices, which have fallen to levels not seen in two decades, UN official Yilmaz Akyuz said.
So far the impact has been favourable on industrialised countries, which have gained considerable terms of trade advantages due to collapse of commodity prices, he added.
An economic expert, professor Robert Wade, said the world might be at the edge of an economic slump and the crisis was no longer an Asian one. There were now full-scale Latin American and Russian crises and these crises were feeding upon each other, leading to a deflationary wave, which is spreading over the world economy. The only exception, for the moment, is the United States.
Until recently, Wade said, the main thrust of policy by the IMF, and adoptedby Asian governments, was one of contraction -- a policy of high interest rates to keep their currencies from collapsing. It also included a policy of increasing fiscal surplus by raising taxes and cutting government expenditure.
But a major backlash is being seen in Asia where one government after another is turning away from the IMF strategy and towards a policy of expansion. This includes lower interest rates and increasing fiscal deficit to expand demand to raise liquidity in the system, he added.
Besides, some countries are imposing exchange controls to prevent domestic expansion from leading to "a stampede of exits by foreign investors and domestic savers," which then could lead to collapse of the currency.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
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