MAIN PAGE | SPEECHES & EDITORIALS | 1999 | EMERGING MARKETS AND GLOBALIZATION
PACIFIC BASIN ECONOMIC COUNCIL
MAIN PAGE | SPEECHES & EDITORIALS | 1999 | EMERGING MARKETS AND GLOBALIZATION
Emerging Markets and the Globalization of the Economy: An Approach to the Ecuadorian CaseJuan José Pons ArizagaPresident of the National Congress of Ecuador Wednesday, May 19, 1999 The Challenges of the Next Century for the Pacific Basin
Ladies and Gentlemen: In the last decade, the international economy has consolidated its trend towards reinforcing interdependence among national economies in several ways, mainly via a significant increase in the international trade of goods and services, growing capital flows, greater linkages and dependency of financial systems, a growing relation between economic growth and technological development, and lowering of trade barriers, This is evidenced in spite of the periods of turmoil faced by the international economy in recent years, perhaps the most serious of which was the recent Asian crisis. However, protectionist remainders still dominant in certain circles have not managed to prevail arid, although slowly, these distortions are being redressed. The return of past protectionist schemes could hinder the global macroeconomic regulation, but developing countries face the problem from a different angle, as international financial maladjustments — and external debt — create additional problems which should be assessed with greater flexibility. Indeed, Latin America and Ecuador in particular have been greatly affected by the lack of confidence shown at a certain point toward the so-called emerging markets, and also due to the volatility of capital movements, which triggered important foreign exchange and balance of payment problems. Brazil is a case in point. Whatever the case, the fact is that experience tells us that greater insertion and openness in the global environment is positive for all countries, especially because it increases the competitiveness of domestic products and ensures the better allocation of resources, generating positive pressure on economic growth, employment and investments. This is evidenced by the experiences of several Pacific Basin countries: on the basis of the enforcement of macroeconomic policies consistent in time and with strong support to foreign investment and export strategies, they succeeded in dramatically changing the conditions of their general well-being and in capturing important segments of the world market. This translated into an accelerated economic growth, at least up until the 1997 crisis, which showed — more than anything else — that lassitude and the relaxation of controls in key sectors, such as the financial, are highly inconvenient. This would confirm the fact that, in terms of well-being, more open regimes are better off than restrictive commercial regimes, although it would also show that the persons in charge of the macroeconomic management of emerging countries cannot incur in temporary inconsistencies in the enforcement of public policies, as their own internal agents and especially their capitals tend very much towards volatility in contexts where there are asymmetries and bias against the rational logic of markets. The developments of recent years have shown that it is true that without adequate macroeconomic conditions all attempts at openness fail. Similarly, It could be said that the enforcement of restrictions on a free market or an increase in protection have been associated with or are the result of deficient macroeconomic policies, that is, they are enforced in economies characterized by high inflation, unsustainable current account deficits and high indebtedness, together with significant fiscal maladjustment. But this does not mean that, faced with internal unbalances, these countries should favor a strategy that fosters isolation; in practice, once goals are defined and if a country is consistent in the operation of its economic policy, openness can offer increasingly greater benefits. It could also be stated that if macroeconomic conditions determine the course of commercial openness, trade policies help discipline macroeconomic policies, because the agents involved always seek their own convenience. But, within this framework, the State must always act to correct market distortions, without affecting laissez-faire, as Professor Jagdish Bhagwati, a distinguished participant in this meeting, told us several years ago already. Therefore, the world seems to be aiming at a logic of greater interdependence and openness although, as I pointed out before, we have learned a few lessons from these past years, including that protectionism is not the best way and that it is better to seek a harmonious liberalization, an issue that highlights the transcendence of regional arrangements — such as this of Pacific Basin countries — without affecting the efforts made at WTO level, particularly in matters of the trade in goods and general services, investments and financial services. This leads me to ask for a global definition of the scope and the objectives of the Millennium Round as regards the development of our peoples and the consolidation of options of growth and development sought by all our countries. Furthermore, the experience of emerging markets shows that it is important to insist on the need of greater international cooperation in monetary and financial issues, with the prospect of correcting maladjustments and risks that could subsist in the aftermath of the crisis in Asia and in some Latin American countries. The region has made efforts towards stabilization in recent years that cannot be lost in the current economic trend. Thus, during the first part of my lecture I opened the possibility of requesting the flexibilization of governments and of the banking system concerning the foreign debt, for example, under a scheme that could be improved on the basis of initiatives that have already been disseminated worldwide. We should also discuss the volatility of capitals, which sometimes becomes a very dangerous restriction for emerging developing countries trying to take advantage of greater external interdependence. Globalization is therefore a very complex and fluid process, affecting indistinctly all the productive sectors of a country and which can alter the national environment in several ways. However, it is also an opportunity that cannot be brushed aside as we approach the 21st century. But we must be aware that the so-called "triangle of perfect compatibility": that is, stable exchange rates, normal capital flows, and autonomous monetary policies has been a passing illusion, and therefore the role of bodies such as the IMF, the World Bank, the WTO and other regional organizations is critical under the new arrangement. Globalization should improve the terms of competition and investment, and should create and generate new competitive advantages in our countries, allowing the exploitation of exporting opportunities on the basis of other technological and profit-generating options that foster economic growth in stable conditions and within a systematic search for greater productivity. In the current state of affairs, this should be our priority. Ecuador and globalization: an approach I have quickly expounded my views on the globalization process in the first part of my presentation — Now I will try to give a general approach to the Ecuadorian case. Ecuador has made important developments in recent years regarding economic openness and is striving to recover its place in the international market through a strategy that includes improving competitiveness and efficiency and matching them to international requirements. The foreign exchange policy enforced by Ecuador has been flexible, but has not been a key factor of our competitiveness abroad. On the other hand, foreign placements, particularly of non-traditional products, have been significantly stimulated in the last few years by gains in productivity. This opens interesting short-term prospects if, in spite of temporary difficulties, we succeed in consolidating a sound and stable macroeconomic management. The adhesion of Ecuador to the WTO at the beginning of 1996 opened a series of new possibilities for the country, but it also required that we enforce several reforms along the line of modernization. In the coming years, the National Government will strive to consolidate this policy of openness by means of improving microeconomic management strategies in the productive and financial sectors, opening the real estate sector and the financial system to foreign investment and fostering their activities in the country, fostering a transparent privatization process, improving the administration of the state sector, improving the market and eliminating state interventionism. These are the bases of modernization and of an improved utilization of the advantages offered by a broader insertion in the world economy. Ecuador is particularly interested in increasing its relations with Pacific Basin countries, which should be the preferred destination for its exports and also its main suppliers. In the last few years, Ecuador has been successful in:
Obviously, once more the main requirement is sound macroeconomic management. International competition has increased and the only possibility to gain market share is through an increase in productivity, within a framework of macro and microeconomic effectiveness. In the next years, our exports will have to accelerate if we wish to increase growth. Our economic policies should establish an environment of stability in order to strengthen investment processes aimed at generating higher productivity levels. With this goal in view, Ecuador will enhance the reforms already undertaken and will improve and liberalize its domestic market, in order to support the liberalization of its economy and to optimize its insertion in the international market via increased exports, a goal it hopes to reach in the shortest term. This extremely important forum is an exceptional opportunity to achieve this goal: therefore, I invite you all to consider Ecuador as an interesting and safe option for your productive and financial investments. Thank you very much. |