G-15 turns balancing act on crisis

G-15 turns balancing act on crisis

By Nelson Graves

KUALA LUMPUR (Reuters): The Group of 15 (G-15) developing countries has executed a diplomatic balancing act with a statement that weighs deep concern over financial instability with a reluctance to write rules that could hamstring markets.

Delegates to the three-day G-15 summit that started on Monday said the host, Malaysian Prime Minister Mahathir Mohamad, won an important victory by steering through the statement expressing "deep concern" over market volatility and speculative activity.

But other nations led by the large Latin American bloc managed to adjust the statement's language to offset the call for new regulations with support for open markets, delegates said.

The first version of the statement called on the International Monetary Fund and World Bank to study recent developments in currency markets "with a view to making them more open, transparent and regulated".

That squared neatly with Mahathir's drive for new rules to govern currency speculators who he has blamed for dragging down the value of the ringgit and, with it, stock prices.

"A world trading system cannot rely entirely on market forces," Mahathir said in a speech opening the summit. "It is time that we draw up fair rules for the market place."

Mahathir argues that foreign exchange traders are not controlled by the same type of regulations that govern stock or bond markets.

He has said the World Bank is interested in pursuing the problem, and Malaysia's Deputy Prime Minister Anwar Ibrahim said last Saturday that the IMF would make a report on currencies to a meeting of Southeast Asian finance ministers next month.

But the emphasis on new regulations did not sit well with most of the Latin American members, the largest bloc comprised of Argentina, Brazil, Chile, Jamaica, Mexico, Peru and Venezuela. The other members are Algeria, Egypt, India, Indonesia, Malaysia, Nigeria, Senegal, and Zimbabwe. Kenya was admitted as the sixteenth member on Monday.

Argentine Vice President Carlos Ruckauf told Reuters that the statement was adjusted to reflect the concerns of many countries including his own as well as Brazil, Chile and Mexico.

The final version called on the IMF and World Bank to conduct the study "with a view to appropriately regulating them, in order to make them more open and transparent".

"The original text was a policy of regulation, and Argentina supported a policy of transparency and free markets," Ruckauf told Reuters in an interview.

"Of course there is concern, a very real concern about what has happened in emerging markets, but the prescription for this situation is at best more transparency and liberalization," he said.

"The real problem with markets is there still exists too many regulations all over the world."

Delegates said the real challenge would be to try to establish a regulatory framework that would meet the concerns of both Mahathir and the Latin American nations.

A trade minister from a G-15 country said one other concern was that the push for currency regulations could have the effect of putting developing nations' longstanding trade demands on the back burner.

But delegates hailed the statement on currency volatility as a compromise that kept the G-15 intact despite its regional and economic diversity.

"What was most heartening was the level of commitment, particularly at the political level, even from Latin Americans," an Indian delegate said. "This augurs well for the future of G- 15."