Experts change tune on 'rational' markets -- MAI

International Money Markets punished some countries without serious economic cause, in an irrational manner. (Yet under the proposed Multilateral Agreement on Investment (MAI), foreign investors could sue an Australian government in a new international tribunal if they claim to have been unduly harmed by a policy change. Under a different treaty, a US company successfully sued the Canadian governemnt for $US250 million after it banned the use of a particular additive in petrol.) Experts who now doubt the 'rationality' of the money markets include: Ian Macfarlane, head of Australia's central bank, who in March 1998 endorsed the recent comment of Alan Greenspan, head of the U.S. central bank, that the massive turnaround in internal capital flows to a number of Asian countries was neither measured nor rational. Another Australian banker, Stephen Grenville, noted that the Asian countries which recently ran into severe problems had generally balanced their budgets, kept inflation low, reduced protection, embraced deregulation, and avoided high current account deficits.

International capital's power to punish countries would be increased
under the Multilateral Agreement on Investment (MAI).
The markets decided to punish some countries without any severe change in their circumstances
Condensed from a BRIAN TOOHEY article in The West Australian   After years of being assured that markets always know best, we are now told that they can be deeply irrational and wreak havoc on a grand scale.
  This disturbing assessment of the role of global capital markets in Asia comes from no less an authority than the head of the US central bank, Alan Greenspan, with strong support from his Australian counterpart, Ian Macfarlane. 67 69
Net-On`s Banner Exchange - Business Advertising - some MULTILINGUAL   In a speech in New York last week, Mr Macfarlane endorsed Mr Greenspan's recent comment that the massive turnaround in capital flows to a number of Asian countries was neither measured nor rational.
   According to Mr Macfarlane, the huge falls in the exchange rates of some Asian countries defy economic logic and serve no useful economic purpose.
   These comments were reinforced in a speech on the same day from his deputy, Stephen Grenville, who noted that the Asian countries which recently ran into severe problems had mostly done the things which economists assured them were important.
   These countries had balanced their budgets, kept inflation low, reduced protection, embraced deregulation, and generally avoided high current account deficits.
   Yet the markets decided to punish some countries without any severe change in their circumstances becoming apparent. In 1996, South Korea, Indonesia, Thailand, the Philippines, and Malaysia attracted almost $US100 billion ($150 billion) in foreign capital. But in 1997, foreign capital took fright in a spectacular fashion, resulting in a net outflow of $US12 billion.

14       THE  WEST  AUSTRALIAN  MONDAY  MARCH  16  1998 BRIAN   TOOHEY

   Mr Macfarlane has previously cautioned that markets could behave irrationally, giving the example of the October 1987 sharemaket crash.
   According to Mr Macfarlane, deficiencies in banking supervision and crony capitalism clearly cannot be the cause of the recent crisis because they have been around for decades.
   The point is far from obvious. Indonesia's President Suharto has stubbornly resisted attempts to dismantle some of the more blatant examples of cronyism which enrich his family.
   Nevertheless, the overall thrust of his speech -- that the international financial markets have been guilty of immensely damaging things irrationally -- is scarcely what the Australian Government wants to hear as it tries to defend its support for a new treaty to make foreign capital feel more welcome in Australia.
   The treaty, known as the Multilateral Agreement on Investment, is attracting strong criticism from all parts of the political spectrum.
   There are worries that it will make it hard for Australia to adopt rules which foster local content in television or impose tough environmental regulations.
   There are also concerns that the treaty guarantees rights to foreign investors without imposing commensurate obligations on them -- for example, to pay workers their entitlements if a mine closes.
   Foreign investors could sue an Australian government in a new international tribunal if they claim to have been unduly harmed by a policy change.
   Opponents of the treaty point to a case in which a US company successfully sued the Canadian government, under a different treaty, for $US250 million after it banned the use of a particular additive in petrol.
   Is it going to be any easier to sell the treaty's virtues when the Governor of the Reserve Bank accuses the international capital markets of defying economic logic?
   Why should we be so keen to put out the welcome mat by signing the new treaty?
   It seems unlikely that Australian Treasurer Peter Costello will be quoting extensively from Mr Macfarlane's views about the rationality of the capital markets. ___ THE END ___ If you have facts or opinions on this, you could e-mail The West Australian on   letters@wanews.com.au
Click Australian MAI Community Awareness Site at   http://www.avid.net.au/stopmai/
See MAI-Not! at http://mai.flora.org/, The MAI-Not! Project, OPIRG- Carleton (Ontario Public Interest Research Group), 1125 Colonel By Dr., Room 326, Unicentre, Carleton University, Ottawa, Ontario, K1S 5B6, Canada. Tel (613) 520-2757, Fax (613) 520-3989, E-mail OPIRG at opirg@carleton.ca
Interesting article on the following site: http://www.web.net/~bmilani/MAI.htm The author, Brian Milani, goes beyond usual criticisms of MAI and maintains that society is restructuring itself under prerssure from unstoppable forces, that the restructuring can have a liberating consequence, and that ploys like globalisation/privatisation/deregulation are by and large ploys to resist these structural changes in order to preserve the old power relationships.
And see Canadian Barry Appleton's comparison of NAFTA and MAI at   http://www.appletonlaw.com/MAI/MAI-NAFTA.html
Another International Treaty, CODEX, on a different subject: Should Health Food and general Shops be allowed to SELL VITAMIN AND MINERAL FOOD SUPPLEMENTS? See: International Advocates for Health Freedom at http://www.pnc.com.au/~cafmr/hammell/ CLICK THESE SERVICES
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Newspaper article © by Brian Toohey, in The West Australian; created with TekNet's HTML Pro32© by John Massam,
16 March 1998; 2 A4 pages, last revised 07 August 1998
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DOC 68:   URL = http://www.multiline.com.au/~georgist/maimarket.htm   E-mail: georgist@multiline.com.au
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