Global Policy Forum

By Kalinga Seneviratne

Indian Prime Minister Atal Bihari Vajpayee has re-ignited the campaign for a 'Tobin Tax' on international capital flows, after he called on the Non-Aligned Movement (NAM) Sunday to lead in reforming the international financial architecture. "We know that unstable capital flows can severely disrupt developing economies. There is less ready acceptance of the idea that such flows should be regulated by an international levy. I believe this is a reform whose time has come" Vajpayee told the NAM Business Forum.

"We know that unstable capital flows can severely disrupt developing economies. There is less ready acceptance of the idea that such flows should be regulated by an international levy. I believe this is a reform whose time has come" Vajpayee told the NAM Business Forum.

He pointed out that conservative estimates by recent studies have shown that a token tax of a quarter percent on international capital flows could generate annual revenue of about 300 billion U.S. dollars. "If this were to form the corpus of a Global Poverty Alleviation Fund, we can make dramatic progress towards" tackling the poverty problem in developing countries, he pointed out.

The Tobin Tax was first proposed in 1978 by James Tobin, a Nobel prize-winning U.S. economist. He proposed a very small tax on foreign exchange transactions to deter short-term currency speculation.

Developed countries, especially the United States, call this idea unworkable, but Vajpayee points out that it actually is easier to implement than the stringent measures spelled out in U.N. Security Council resolutions 1373 and 1456 -- passed after Sep. 11 to monitor terrorist financial channels across the globe. The Indian leader said that measures like this, to which all countries are committed by the U.N. charter to do, "would be of far greater magnitude than those required for monitoring and taxing capital flows".

The three-day NAM Business Forum, which opened here Sunday, is an initiative by host Malaysia to create closer links between business persons and groups in developing countries. It will be held parallel to all NAM leaders' summit in the future.

In his opening address, Malaysian Prime Minister Mahathir Mohamad called on NAM business leaders to forge closer links to help developing countries rid themselves of an international order where "a select few dominates the world".

He suggested that NAM countries learn from Malaysia's experience and adopt the 'prosper thy neighbour' policy, under which richer countries help the poorer ones improve their living standards, which will in turn create markets in the poor countries for richer-country products. "Enriching poorer nations including neighbours is not charity. It is enlightened self-interest," said Mahathir.

The leaders of South Africa, Indonesia and Thailand also addressed the NAM business forum. South African President Thabo Mbeki pointed out that levels of inequalities within NAM nations are now worse than 40 years ago when NAM was founded. Yet, he said that developing countries are better placed today to response to these challenges, and can learn from the success stories of fellow member countries. "This country, Malaysia, stands out as one of these" he said. " Its achievements underline that success is possible". "None of us can argue" that success depends solely on cooperating with the rich countries of the North, Mbeki added.

A few months ago, he recalled, he attended the summit of the Association of South-east Asian Nations (ASEAN) in Cambodia to forge closer cooperation between that regional grouping and the African Union. He also said Southern African countries have started to forge closer links with Mercosur in South America. "All these represent a conscious effort further to deepen South-South cooperation on a systematic basis," he added.

Indonesian President Megawati Sukarnoputri said that the reality most NAM countries live in could be described as "politically preoccupied with disarray and economically left behind". Yet, she argued, they should not despair but try to build a new development paradigm.

This new paradigm should encourage the private sector to play a crucial role, particularly in initiatives that will build bridges of cooperation among NAM members, she said. Governments, meantime, should focus on supporting those initiatives.

Thai Prime Minister Thaksin Shinawatra offered his country's "dual track" experience in overcoming the 1997 financial crisis as a lesson for other developing countries. "We must put aside disagreement, but push forward actions and cooperation based on trust. That is precisely the policy my government has put on trial over the past two years in Thailand with considerable degree of success" he said.

He said his two-year-old government has embarked on a dual-track approach of encouraging free market capitalism and letting the business sector enjoy their due profit with social responsibility, while introducing government-assisted programmes to create wealth for those at the grassroots.

Thaksin said that as a result, Thailand experienced 5 percent economic growth last year and will be paying off this year - two years ahead of schedule -- the loans given by the International Monetary Fund during the financial crisis.

Echoing Vajpayee's call for reforms to the international financial system, Thaksin called for the establishment of an Asian regional bond market to make use of international financial reserves of countries in the region. Likewise, he said, ''if we can do it in Asia, let us foster similar cooperation within NAM.''

The four national leaders and commerce ministers from Africa and Asia, who spoke at a later session, agreed that in the new international economic climate, governments must support and facilitate business to grow and network across borders.

Many also pointed out that success stories of the South need to be shared among NAM countries, but that the international media does not always give enough exposure to them. Vajpayee pointed out that for example, Bangladesh's microcredit institutions and Tanzania's malaria-controlling bednets should get more exposure in other developing countries. Because it does not happen, "other developing countries are either re-inventing the wheel or importing inappropriate technologies or services from advance countries for the same applications", he said.