South-South Summit a high priorioty, says Ambassador Wibisono

UNITED NATIONS, June -- As chairman of the Group of 77, Ambassador Makarim Wibisono will place high priority on the convening of a South-South summit. "We plan to hold consultations and make preparations for the convening of the summit," he said.

In an interview with the JOURNAL OF THE GROUP OF 77, Ambassador Wibisono said the Group's other priorities would include preparations for a U.N. conference on financing for development and an active role for the G-77 in the U.N.'s ongoing reform process.

The chairman is also placing high priority on enhanced coordination among the various chapters of the G-77 and the financing of operational activities within the framework of the Triennial Policy Review.

Asked about the currency crisis in Southeast Asia, Ambassador Wibisono said he would not accept the explanation frequently cited in the international news media that the crisis has been caused by poor economic fundamentals.

"After all, the countries affected by the crisis are vibrant contributors to the East Asian miracle in which sustained rapid economic growth and the eradication of povery were major achievements," he said. "To now blame these countries that all the time their fundamentals were not right is not logical," he added. Excerpts from the interview:

JOURNAL: What would be the priorities for the Group of 77 during your term of office this year?

WIBISONO: In his speech on the occasion of the assumption of the chairmanship of the Group of 77, 12 January 1998, H. E. Mr. Ali Alatas, the Minister of Foreign Affairs of Indonesia elaborated on the challenges facing the Group of 77 today which sets the tone for the work of the Group in the coming year. Immediately thereafter, I convened a meeting of the Group of 77 of the Whole to discuss the priority areas for our work. Based on these two inputs I could sum up our priority areas as follows:

• South-South Cooperation including consultations and preparations for the convening of a South Summit.
• Preparations for the United Nations conference on the financing for development as stipulated in Resolution 52/179.
• Reform Process of the United Nations in pursuance of resolutions 50/227 and 52/12 and the review of Functional and Regional Commissions of ECOSOC.
• Enhanced coordination and institutional effectiveness among the Chapters of the Group of 77 including the Group of 24 in Washington.
• Financing of Operational Activities within the framework of the Triennial Policy Review.

JOURNAL: What role can developing nations play in containing the spreading economic crises in Asia?

WIBISONO: Before answering your question, let me briefly summarize the current state of the debate on the Asian financial crisis. This will allow us to identify the problems and therefore search for solutions to these problems. The current crisis is perhaps the most serious of its kind in terms of scope and effects. Its impact is more global than that of the Latin American crises. For the first time, the crisis emanating in the South has had a serious impact on financial markets in the North.

There continuous to be considerable debate over the principal causes and consequences of the recent currency turmoil. Nevertheless, the explanation frequently cited in the international media that it is caused by poor economic fundamentals in the affected countries is not very convincing. After all, the countries affected by the crisis are all vibrant contributors to the East Asian economic miracle in which sustained rapid economic growth and the eradication of poverty were major achievements. To now blame these countries that their fundamentals were not right is not logical. Rather, the currency turmoil in East and Southeast Asia can be blamed on several factors. One of them is the uncontrolled massive movements of international private capital flows in and out of countries often with staggering speed. The sudden loss of confidence which took place indicates the volatility of the situation which had serious consequences for the recipient countries.

This is not to suggest that the fundamentals are alright in these countries. Although high growth has been sustained for decades, some indices suggest that some fundamentals have gone wrong. The export led growth in Southeast and East Asia was followed by a construction and property boom financed by short term loans easily obtainable in international markets. Structurally, the banking system is weak and lacks transparency This in turn contributed to the ballooning of loans and the severity of the crash. The so-called IMF bailouts for the most affected countries was $118 billion, and which may rise to $160 billion, by far the largest ever undertaken by the IMF. It compares to the $30 billion in loans granted Mexico in its 1995 crisis. The bailout was accompanied by harsh terms and conditions including economic, financial and corporate reforms which could lead to slower growth and widespread suffering. As a World Bank economist recently remarked, the Washington consensus on balanced budget and market liberalization drawn up after the Latin American crisis is not entirely applicable to the Asian situation. The social upheaval in Indonesia underscores the importance of taking into account the social implications of fiscal stringency in such crises.

Obviously, the affected countries themselves can do a great deal to alleviate the crisis. The problems of Southeast Asian countries cannot be solved by economics measure alone. Political will is needed to undertake and maintain the bitter economic realities on the road to economic recovery. It is therefore important that political stability be maintained so that the political leadership can concentrate on attempts to alleviate ill-effects of the crisis. This has been emphasized by President Habibie in Indonesia. The achievements of the past decades in these countries are very real and should not be destroyed by a crisis which is temporary in nature.

Collectively, there are measures which countries of the region can take through regional and subregional cooperation. It should be noted that the ongoing economic volatility confronting East and Southeast Asia cannot be explained solely in terms of the similarity of problems: over-investment in infrastructure building and factories, inflated asset prices, poor banking practices, large domestic debt and excessive foreign borrowing. Rather, it should be explained mainly by extensive intra regional linkages at the corporate and financial levels. This suggests that there exists scope for countries working together through regional mechanisms which so far do not exist.

Finally, the developed countries, where most of the loans to South East Asia originate, have a crucial role to play. During the Latin American financial crisis in the 1980's, American banks were literally forced by the U.S. government to remain in Mexico and to rollover the loans. The agreement to defer Indonesia's huge private debt in Frankfurt, Germany is an important step in the right direction. Today, Thailand, Indonesia and South Korea are being pressured to undertake economic reforms in return for bailouts but virtually no conditions are imposed on the lending banks. There must be an adequate burden sharing between lenders and borrowers.

JOURNAL: Since you intend placing heavy emphasis on South-South cooperation, do you think that there is a need for regional economic organizations such as ASEAN, SAARC, MERCOSUR, SADCC and UMA to interact and cooperate more actively among themselves?

WIBISONO: Certainly this will be one of the priority areas for the Group this year. In this connection, the Indonesian Government will host a meeting in December in Bali to discuss ways and means to promote such cooperation between these regional organizations. An exchange of information and experiences among these groupings will by itself already be very useful. The meeting would also explore more concrete possibilities including joint projects and more ambitiously reciprocal reduction in tariff barriers. After all, the North, which is superior economically, still needs to find strength by forging unions such as the European Union and NAFTA. Such cooperation between and within groupings is even more necessary for countries of the South to cope with the challenges of the next millennium.

JOURNAL: Against the backdrop of the Asian economic crisis, do you think it would be feasible to establish an Asian Monetary Fund on the lines of an International Monetary Fund?

WIBISONO: As I stated above, there are a number of avenues for regional cooperation which countries in Asia and other regions can explore to alleviate the present crisis and to avert future recurrences. For instance, the regional corporate and monetary linkages should be better controlled and monitored through regional arrangements. However, it is too early to discuss at the moment the feasibility of creating a Regional Monetary Fund. There are many other forms in which regional cooperation can be advanced short of establishing a fund. ESCAP, the Economic and Social Commission for Asia and the Pacific, in cooperation with the Asian Development Bank and the Bretton Woods Institutions, is undertaking a series of seminars to discuss these issues. The Development Committee of the World Bank and the Interim Committee of the IMF last April discussed measures which could strengthen the supervisory mechanism over private capital flows which have grown by leaps and bounds. According to World Bank figures, during 1990 through 1997, private capital flows to developing countries rose from $46 billion to $256 billion, a sixfold increase. Unfortunately during the same period Official Development Finance (ODF, which is ODA plus non concessionary official flows) continued declining from $56 billion to $44 billion. In August, Indonesia will host a High Level G77 Expert Group Meeting in Jakarta to prepare for the South South summit in 1999. This meeting will discuss among others finance for development as well as other issues of current concern for the South countries.

JOURNAL: What is the single most major economic problem facing developing nations today? Debt? Protectionism? Structural Adjustment Programs? Decline in ODA?

WIBISONO: In my view, the adaptation of countries to the enormous challenges, risks and uncertainties resulting from globalization will be the most important problem in the coming year. No single country can escape the impact of the all pervasive process of globalization. Although globalization has benefited a number of countries, which can take advantage of the broadened opportunities offered by it, many countries are marginalized by the process because the rapid increase in private capital flows only benefit a small number of countries. And, as the Asian crisis so amply demonstrated, even the countries which benefit from these flows can suffer when confidence is suddenly withdrawn by the owners of short term capital flows which moves from place to place. Therefore, how to manage the changes associated with it must be in issue of prime concern for all our countries in their quest to eradicate poverty and achieve sustainable growth and development.