By Abid Aslam
September 17, 1999
Washington - Private investors have launched a counter-offensive after two years at the receiving end of criticism for their part in global financial crises. ''Over the past ten years, private investors and lenders have provided 1,700 billion dollars to major emerging market economies, compared to 320 billion dollars from all official sources,'' says Charles Dallara, managing director of the Washington-based Institute of International Finance (IIF). Dallara's group, representing some 300-plus banks and investment houses, has been chagrined by officials' assertions that skittish investors precipitated crises in Asia, Russia and Latin America. It was downright incensed by suggestions that market players then benefited from international bail-outs in which they had declined to participate.
On Thursday, the IIF struck back in an open letter to finance ministers and central bank governors, who were to convene annual meetings of the 182-nation International Monetary Fund (IMF) and World Bank here later this month.
The lobby group rejected official suggestions that private players share the costs of financial rescues in crisis countries - whether through direct 'bail-ins' or as a result of new rules governing bond contracts or contingency financing. ''The preoccupation with burden sharing is counterproductive,'' Dallara stated in the letter. ''Private lenders and investors have a responsibility to maximise shareholder value. Officials have broader responsibilities to foster global security and to advance social objectives.'' Net bank and capital-markets lending to some 30 'emerging markets' likely would be nil this year so officials, rather than hounding private financiers, should ''focus on actions that will help lay the basis for renewed confidence in emerging markets finance and sustainable private flows,'' he added.
Top among these was ''strong, visible, and articulate support for a purely voluntary, case-by-case approach'' to private sector involvement in crisis resolution.
The former US treasury official also renewed his long-time request that the IMF share with markets more of its data on member countries and stressed the need to make room in policy-making for private sector leaders. His ideas included setting up private-sector subcommittees of the key IMF and World Bank policy-making fora, and three-way consultations between governments and their official and private creditors.
IMF officials dismissed the idea. Said one, ''they (the private players) want carte blanche to conduct insider trading.'' ''That's a red herring,'' Dallara shot back. ''There are always traders who will keep an ear out for insider insights but why shouldn't creditors, governments and the IMF - as the official creditor and adviser, consult one another? ''And don't creditors have a right to be heard on what they think make helpful policies?''
The IIF letter also complained that, over the past two years, the 'official sector' had grabbed headlines for providing rescue funds even though private investors had done more. In Brazil, for example, ''net private capital flows were 35 billion dollars in 1998, even as performance faltered'' and as Brazilian investors themselves abandoned home markets, transferring 24 billion dollars to overseas havens, Dallara said. The official sector mobilised 41.5 billion dollars in bail-out funds in 1998 but by next year Brazil would see 500 million dollars in ''net official outflows'' as public-sector creditors demanded repayment, Dallara said. In contrast, private investments seemed set to rise to about 52 billion dollars, he added.
Dallara conceded, however, that banks remained shy about lending to Brazil, preferring the relative safety of bonds and the profit potential of foreign direct investment - buying up Brazilian assets at depressed prices. For their part, international officials meeting in Paris this week made slow progress on new rules aimed at improving steadiness in global finance. Senior officials from 11 finance ministries and international organisations reached broad agreement on the need for better regulation of hedge funds, tax havens and capital flows, Financial Stabilisation Forum chairman Andrew Crockett told reporters. Consensus on concrete measures eluded them, however, with some favouring new rules and others stressing that old ones never had been enforced. Also, disagreement festered over how standards should be upheld - voluntarily or by imposition - and what, if anything, should be done to punish breaches. Even a plan to publish a list of existing, internationally- accepted financial standards had to be delayed because participants could not agree what should be included, Crockett acknowledged.
In addition to the United States, Forum members included Canada, Britain, France, Germany, Italy and Japan. Also participating were monetary officials from Australia, Hong Kong, the Netherlands and Singapore. Representatives of the IMF, World Bank, Bank for International Settlements, and the rich nations' Organisation for Economic Cooperation and Development also took part in the Paris talks.
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