The Global Financial System in Crisis

Mar 28

Owing to the devastating impact of uncontrolled gyrations and permutations of speculative capital, there were calls for capital controls and a return to strong financial regulation following two of these crises: the Asian financial crisis in 1997 and the dot.com craze of the late 1990s. The first event led to the economic collapse of all the so-called Asian tiger economies that did not impose capital controls, the second to the wiping out of $7 trillion in investor wealth and the US recession of 2001.  I am sure we all still remember how during the Ramos years, some $19.4 billion entered the country between 1994 and 1997 and left in a flash in July and August of 1997, dragging down the peso from 25:1 to 54:1 in the course of the next few months and bringing us to recession in 1998. Nothing came of these demands for capital controls as the global financial elite refused even the weakest regulatory mechanisms that were proposed.  Instead, “self-surveillance” and “self-policing” was the alternative pushed by the private sector, even as it removed the last remaining barriers to capital flows across borders and devised ever more sophisticated financial instruments such as derivatives.  In this connection, just as they said they would be model debtors and pay off all the country’s debt according to the terms of the creditors during the Aquino period, so did our financial authorities dutifully repeat international financial capital’s mantra against the imposition of capital controls during the Ramos presidency and afterwards. What happens when you eliminate or water down state regulation of financial activity is provided by the Wall Street Journal’s summary of a recent report on the subprime crisis by the G7’s Financial Stability Forum: [T]here is plenty of blame to go around for the financial chaos: The US subprime mortgage market was marked by poor underwriting standards and ‘some fraudulent practices.’ Investors didn’t carry out sufficient due diligence when they bought mortgage-backed securities.  Banks and other firms managed their financial risks poorly and failed to disclose to the public the dangers on and off their balance sheets. Credit-rating companies did an inadequate job of evaluating the risk of complex securities.  And the financial institutions compensated their employees in...

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Nothing to Gain, Everything to Lose

Mar 09

The negotiations leading up to the World Trade Organization (WTO) Ministerial in Hong Kong are apparently getting nowhere. The draft ministerial reports on the state of negotiations in agriculture, non-agricultural market access, and services are out, and while all try to put a positive spin that there is a movement toward "convergence" there is very little of that. A close examination of the document shows that there is agreement only, on at the most, 10 per cent on key negotiating points and divergence, indeed, wide divergence on 90 per cent. When the draft ministerial declaration does come out, it is likely to be what the WTO secretariat calls a "heavily bracketed" document like the draft declaration for the Seattle ministerial. Defensive Warfare Since the "July Framework" was rammed through at the General Council meeting in late July 2004, the developing countries have been engaged in what might be characterized as defensive warfare at the WTO. In the three key negotiating areas, services, non-agricultural market access (NAMA), and agriculture, they have had to defend their markets from aggressive efforts to further liberalize them by the developed countries led by the United States and the European Union. In two of these, NAMA and services, owing to their much higher tariff levels than developed countries in manufacturing and industry and preferential treatment for local service providers, they had everything to lose and little to gain by liberalizing. In agriculture, they were also on the defensive but at least they could relieve pressures for further liberalization of their markets by mounting a counterattack on the massive agricultural subsidies that have enabled European Union and United States agricultural interests to dominate and distort global markets. In the three sectoral negotiations, the most immediately threat, from the point of view of developing countries, is the services negotiations. Here, there has been a strong move on the part of the developed countries to replace the flexible request-offer approach with one that has a mandatory element. Let me explain briefly: the negotiating practice in the General Agreement on Trade in Services (GATS) is that a government is free to request another to open up several service sectors but the requested government is also free to offer only...

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The Tragedy of Contemporary Democracy in the South

Mar 09

It is now 25 years since the beginning of the great wave of democratisation that swept away dictatorships from Latin America to Southeast Asia. Yet there is everywhere a palpable sense of disappointment that the new electoral democratic regimes have fallen far short of their promise of not only bringing freedom but also rolling back poverty and social inequality. This disappointment was underlined by a poll conducted by the United Nations Development Program in 2004 that showed that 54.7 per cent of Latin Americans polled said they would support authoritarian regimes over democracy if the shift would resolve their economic woes (1). In Southeast Asia, not a few commentators have noted the marked contrast in the performance between authoritarian Vietnam and democratic Philippines: Vietnam, which started in 1990 with 51 per cent of its people under the UN-defined standard of $1 a day for extreme poverty, had reduced this figure to 8.4 per cent in 2000. The Philippines, on the other hand, barely made any headway, with 11 per cent of its population classified as extremely poor in 2000. (2) What happened? Why have democracies been so ineffective in delivering economic betterment? Elite capture of democratic processes One reason is that electoral democracies of the kind favoured by the West have been extraordinarily vulnerable to being hijacked by elites. The system of democracy re-established in the Philippines after the ouster of the Marcos dictatorship in 1986 illustrates the problem. It is one that encourages maximum factional competition among the elite while allowing them to close ranks against any change in the social and economic structure. The Philippine system is democratic in the narrow sense of making elections the arbiter of political succession. In the principle of "one man/woman, one vote, there is formal equality. Yet this formal equality cannot but be subverted by its being embedded in a social and economic system marked by great disparities of wealth and income. Like the American political system on which it is modelled, the genius of the Philippine democratic system, from the perspective of the elite, is the way it harnesses elections to socially conservative ends. (3) Running for office at any level of government is prohibitively expensive, so that only the...

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Can the Philippines Handle Globalization?

Mar 09

I would like to thank the organizers of this event, particularly my co-awardee of the Right Livelihood Award for 2003, Nicky Perlas, for inviting me to speak at this event. Nicky’s optimism, as many of you know, is infectious, and I do hope all of us will be infected by it today. I think our previous speakers have already alluded to the mood of dispiritedness that shrouds the country today. Perhaps more than at any other time, self doubt has become a chronic collective neurosis. For some the way out is to emigrate, an option that according to the polls is preferred by one out of five Filipinos. As has often been pointed out, once out of the national milieu, Filipinos do indeed excel, and one can hardly keep track of the numbers of Filipinos who have become prominent as entrepreneurs, professionals, NGO leaders, and intellectuals in their adopted countries. Yet one can never really leave the homeland. Even if one is a success abroad, one never really feels complete knowing about the collective failure at home. Many in my generation that left for the US in the late sixties and became successful in their fields do not relish retiring in California or Florida but are now seeking ways to contribute their skills to the task of collective upliftment of the nation. Let me address the crisis of spirit in the Philippines by sharing a witty statement about China that I came across recently: “China has had a few bad centuries, but it’s now back on its feet.” To be a Chinese from the mid-19th century to the mid-20th century was to share in a communal spirit prone to despair and a sense of collective disintegration. To be Chinese at the beginning of the 21st century is to share in a sense of pride in a country that is not only back on its feet but well on the way to becoming an economic superpower. I say this to underline the importance of having the long view, of putting our current travails, both material and spiritual, in perspective. We can say, similarly that we Filipinos have had a few bad decades, but, don’t worry, we’ll get back on our...

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The War and Peace Equation Today:

Mar 09

It is certainly a step forward that there is a growing consensus among us that development, peace-building, and conflict prevention must be undertaken simultaneously if initiatives at peace and security are to take hold and prosper. This is, however, a consensus mainly among United Nations agencies, peace analysts and practitioners, and civil society actors. Moreover, the positive experiences in this area have been mainly at the local, micro level. Negative Global Trends Unfortunately, at the global, macro level, trends are in the opposite direction, towards greater destabilization and thus greater human insecurity. What are these trends? First of all, never since the end of the Second World War have established norms of international law been more under threat than today. And what is disturbing is that the key destabilizer is the most powerful member of the global state system. It is ironic that there is lively debate on whether or not China is, to use the terms of international relations theory, a "status quo" or a "revisionist" power when the focus of the discussion should really be the United States. There can be no doubt, in my view, that the US is a revisionist power, that is, one that seeks to radically alter the correlation of global power even more in its direction, if we take into account the following developments: Under the false pretext of eliminating weapons of mass destruction, the US has attacked the fundamental pillar of the UN system—the inviolability of the sovereignty of the nation-state—by invading and occupying Iraq. The Bush administration has set aside the Geneva Conventions on the treatment of prisoners by creating the new category of "enemy combatants" to allow certain prisoners to be subjected to unlawful punishment, including torture. White House executive orders have unlawfully extended the reach of the US state, allowing CIA agents, for example, to seize individuals in Italy, against Italian law, and bring those individuals to Guantanamo Naval Base in Cuba. The second macro trend countering positive developments on the ground has been the undermining of development by the powerful multilateral economic agencies. Over the last two and a half decades, the stated goal of using trade policy to promote development, which was so well articulated by...

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The Role of the “Coalition of the Willing” in the Violation of International Law and Universal Human

Mar 09

Honorable members of the Jury of Conscience and members of the Panel of Advocates: My brief here today is to outline and detail the specific charges against the "Coalition of the Willing" assembled by the United States government to support its aggression in Iraq. The case against the prime aggressor, the United States, has been laid out by other advocates. I will limit my statements to other members of the Coalition, including the US's main partner, the government of the United Kingdom. The responsibility of the Coalition of the Willing for the invasion, occupation, and destruction of Iraq is that of a willing accomplice. The degree of guilt of course varies, but all the 50 countries that make up this front stand collectively condemned for providing legitimacy to a fundamental violation of international law: the invasion of a sovereign country. Thus all governments participating in this formation must be held accountable and arraigned before the appropriate international legal bodies for prosecution, conviction, sentencing, and assessment of reparations to the Iraqi people. Coalition of the Willing-What, Who, Why? The "Coalition of the Willing" was announced by US Secretary of State Colin Powell shortly before the March 20, 2003 invasion, after the US decided not to push through the famous Second Resolution authorizing war in the United Nations Security Council. At its height in March 2004, the Coalition had about 50 members, including the United States. Thirty four of these had troops deployed in Iraq. Various factors – most prominently, armed attacks at home, the activities of the Iraqi resistance, political pressure from citizens, and international embarrassment – caused 15 countries to withdraw troops as of March 2005. Currently, there are about 23,900 non-US Coalition forces in Iraq, compared to the US contingent of about 130,000 troops. What reasons did governments have for joining the Coalition? These varied. Despite his coming from an ideological and political background different from US President George Bush's, Labor Prime Minister Tony Blair truly appeared to believe in externally imposed "regime change" in Iraq. Much more understandable was the support of Bush's ideological fellow travelers Jose Maria Aznar of Spain and Silvio Berlusconi of Italy, the latter of whom was notorious for having declared that "[T]he...

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