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Stabilising the Yen Option Japan Won t Use

Stabilising the Yen: Option Japan Won't Use THE major news currently is that the US dollar's exchange rate has touched 150 Japanese yen. Compared with any of the major currencies of the world, the dollar's decline has teen the greatest relative to the yen since September 1985 when it was agreed among G-5, the club of rich countries including Japan, that the dollar's exchange rate would be allowed to adjust downwards. It was hoped that this would obviate the need for the US to seek other less desirable ways of correcting its balance of payments deficit. A weak dollar, it was thought, will raise the cost of US imports while making US exports more competitive.

SDR in the Dumps

SDR in the Dumps ISG IT is now a little over ten years since it was agreed at Jamaica in January 1976 that the members of the IMF should collaborate in making the Special Drawing Rights (SDRs) "the principal reserve asset" of the international monetary system.

Grim Prospect for the Poor

Grim Prospect for the Poor ISG WHAT are the economic prospects for the developing countries over the coming few years? Several organisations make these forecasts every year. The IMF is one such organisation. Its latest projections, for the short as well as medium terms, hold little comfort for the poor countries, principally because the industrial countries would not set their own house in order and grow a little faster so that developing countries can export and import more and also because while the private financial market would simply not make much additional finance available to the developing countries the official flows hold little promise of increasing, thanks to the Reagan blight they have suffered from ever since the early 1980s.

Cross-Conditionality Fears Real or Imaginary

Cross-Conditionality Fears: Real or Imaginary?
ISG CROSS-CONDITIONALITY has come to the fore in recent months with the emergence of increasing concensus that the payments difficulties of the developing countries in general and in particular of those who are burdened with heavy external debts, are not amenable to the short-term adjustment measures that the Fund tends to prescribe for the borrowing countries. This has led to an increasing demand on the one hand for the Fund to show greater flexibility in the application of its conditionality and, on the other hand, for the World Bank and regional development institutions to extend on a larger scale than before of longer-term payments support to the developing countries in difficulty. Indeed, that is precisely what the US Treasury Secretary, James Baker, called for in what he termed "a programme for sustained growth" before the Seoul meeting of the Fund/Bank, to strengthen international debt strategy.

World Oil Price Prospects

World Oil Price Prospects ISG WORLD oil price declined from $ 28 a barrel towards the end of November 1985 to $ 10 a barrel in the last week of April 1986, thus registering a decline of close to two- thirds. In real terms, the decline was even sharper because this was also the period during which the dollar dropped considerably vis-a-vis the major currencies like the yen and the mark.

A World Monetary Conference, at Last

A World Monetary Conference, at Last?
ISG IN his fifth State of the Union Message to the US Congress, Ronald Reagan announced that he was asking his Treasury Secretary Jim Baker, "to determine if the nations of the world should convene to discuss the role and relationship of our currencies''. Although the US had begun co-ordinating economic and monetary policy among, as he put it, "our major trading partners", "there is more to do". Ronald Reagan couldn't be more emphatic when he observed, in the same address, "we must never again permit wild currency swings to cripple our farmers and other exporters" It is interesting to recall that the Reagan administration had been, until recently, a vigorous opponent of interfering with the foreign exchange market. At the last Economic Summit of the seven major Western industrial countries held in Bonn in May 1985, a bare nine months ago, the US was so stoutly opposed to the idea of holding a world monetary conference for working out, what the French liked to call, a new Bretton Woods agreement that it very nearly wrecked the conference. The French argued for the urgent establishment of "appropriate and stable relations for exchange rates". The European Monetary system with its fixed but moveable exchange rates had demonstrated how a closely managed system could produce greater currency and trade stability. But since the US would not be convinced and continued to swear by the virtues of floating exchange rates, indicating its willingness to consider only limited steps to make the existing system, or non-system, more stable, in the end all that the summit agreed upon was to discuss proposals in the IMF's Interim Committee "with a view to making the international monetary system more stable and more effective". A two-year study commissioned by the industrial countries, which became available soon after the summit, called for enhanced IMF surveillance of the economic policies of the industrial countries to reduce the volatility in currency swings, rejecting the notion that exchange markets had more than a limited role to play in stabilising currency rates. Economic policy convergence with the help of IMF surveillance, the report seemed to be saying, would do the job more efficiently than exchange market intervention. So it appeared that for some time to come the idea of a major conference on the basic problems with the prevailing regime had been put on ice.

Why Fear Free Trade in Services

Why Fear Free Trade in Services?
ISG NOW that it has been agreed that in the preparatory work for the eighth round of global trade negotiations services may also be covered, what sort of issues should the developing countries be focusing on? In addressing this and related questions I shall start with the background to the decision recently taken at GATT.

Foreign Banks in South Africa

Foreign Banks in South Africa ISG "THE banks have accomplished in two weeks what politicians haven't done in years", says the managing director of the Barclays subsidiary in South Africa. The reference is to the recall by the foreign commercial banks of the funds invested in the form of short-term loans made in South Africa. The reference to politicians points to the almost interminable wrangling between Western government and within the US Administration on the matter of economic sanctions in general and on the choice of sanctions, were they to be imposed, in particular.

Whom Will Union Carbide Blame Now

Whom Will Union Carbide Blame Now?
ISG AFTER the disaster in its pesticides plant in Bhopal, Union Carbide, the American multinational which owns the plant, closed its methyl isocyanate (MIC) operations in the United States for several months. MIL is the gas that leaked in Bhopal early last December, killing at least 2,500 persons and causing severe, long-term, injuries to an estimated 200,000 and more.

Making Common Cause with Peru

Making Common Cause with Peru ISG IN taking the oath of office as the newly- elected President of Peru on July 29, Alan Garcia Perez made a major announcement with regard to Peru's external debt. He announced that (1) Peru would like to renegotiate the outstanding of $ 14 billion external debt directly with the banks and creditors, and (2) until the negotiations for debt restructuring were completed, the country would limit its debt servicing to 10 per cent of its export earnings.

Shadow-Boxing in OPEC

Shadow-Boxing in OPEC ISG TWO very interesting developments have taken place with respect to oil. One is that OPEC was put on notice by Saudi Arabia that the organisation must evolve and establish effective procedures, more effective than in the past, to monitor the observance of price and production discipline because the Saudis were unable to play any more the role of a swing producer, i e, of a producer who varies his output with a view to so balance market of oil supply, including supply from other OPEC members, with its demand that the price agreed upon among the producers is possible to maintain. The other development is that Mexico, a non- OPEC net exporter of oil, which until the other day, was observing voluntarily the OPEC discipline, has decided to break rank and unilaterally reduce the price of its oil by an average of $ 1.50 per barrel How does one assess these developments? Do they presage the break-up of the oil cartel and a free fall, as they put it, of the price of oil? Writing on the eve of the OPECs abortive meetings, just ended in Vienna, the Wall Street Journal posed the same issue in the following words: "When the oil ministers of the financially pressed and divided nations meet in Vienna at the end of next week to try to stabilise the sagging oil markets they will be staring over the edge of a precipice. At the bottom: the spectre of a smashed cartel and a $ 20 barrel of oil!' It is true that the share of OPEC in world oil production has declined considerably over the past decade starting with 1974, the year of the first round of oil price rise. The decline has been from a share of over half in 1974 to less than a third in 1984. OPECs share in world net oil exports (defined as the aggregate of oil trade balances of countries that are net oil exporters) has declined during the same period from over 90 per cent to a little below two-thirds.

Making Third World Pay for Overvalued Dollar

Making Third World Pay for Overvalued Dollar ISG IF dollar has to stay overvalued, let us impose an import surcharge. That is the conclusion of the Morgan Guaranty economists. The US Congress has already passed a non-binding resolution urging the President to consider imposing a surcharge on Japanese imports. This shows that even those who are convinced about the substantial overvaluation of the dollar have more or less reconciled themsleves to the view that a major rectification, however desirable, is not practical. Not in the near future, in any case.


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