From poverty to power - Oxfam-Québec

5 THE INTERNATIONAL SYSTEM FINANCEcrises almost always increase inequality. In the words of Thai economistPasuk Phongpaichit, ‘For the poor, growth may trickle down – butdisaster sweeps down like an avalanche.’ 39There are numerous sensible ways to avoid such disasters.Countries that have maintained capital controls and have beencautious in opening up to capital flows, such as China, Chile, andIndia, have avoided crises of this kind. Governments raising money oninternational capital markets could link repayments to growth orcommodity prices, so that they can pay more back in good times, lessin bad times. The IMF attempted to devise an orderly process for bailingout governments, similar to a company bankruptcy procedure, toreplace the chaotic and damaging confusion that usually surrounds afinancial crash, only to have its proposals for a ‘Sovereign DebtRestructuring Mechanism’ blocked by a combination of powerfulgovernments and financial interests, as well as some developingcountrygovernments. 40The last point illustrates a serious obstacle to change.Whatever theobvious long-term benefits of managing capital flows to avoid crises,there are profits to be made from volatility. In the middle of themarket mayhem of the late 1990s, NatWest bank happily reported that‘currency and interest rate volatility provided significant tradingopportunities’. 41 Only firm political leadership can overcome suchopposition. Within developing countries, financial sectors wieldincreasing economic and political clout, and constitute a domesticlobby for liberalisation and against the kind of controls that can bringstability but would cut into their profits.While the IMF has backed off from its mid 1990s call for capitalaccount liberalisation to become part of its core business, the push forderegulation continues by means of regional trade agreements. In itsbilateral trade agreements with Chile and Singapore, the USA insistedon the elimination of widely applauded controls aimed at deterringshort-term speculative capital flows and encouraging longer-terminvestment. 42At the time of writing (early 2008), storm clouds are gathering inglobal capital markets, triggered by the sub-prime mortgage collapsein the USA and the bursting of other ‘bubbles’ in rich economies. Thelong, debt-driven boom in the rich world looks increasingly fragile:313