The Halifax Prescriptions

June 21, 1995

Things fall apart in the world economy more quickly and on a larger scale thanks to the communications revolution. World institutions need to be equipped to handle bigger emergencies faster. The Group of Seven summit in Halifax last week, acting as the caucus of powers that really run the International Monetary Fund and World Bank, tried to oblige. How well it did will be answered in the next Mexico-scale currency crisis.

The major accomplishment was to recommend doubling the IMF "arrangements to borrow" to $56 billion, for faster and larger action to combat the next major currency collapse. The catch is that some of the nations that would have to put up the money are not in the Group of Seven, and the source of the next $28 billion is unidentified.

To deal with a private sector collapse, like that of Barings Bank of London through rogue trading in Japanese derivatives in Singapore, the Group of Seven called for improved regulatory cooperation across national boundaries. This is not the same as achieving it. The G-7 wisely called for greater transparency of national policies and data through IMF benchmarks on timely disclosure -- another attempt to close the Mexican barn door after the peso has fled.

The G-7 wants the World Bank and regional development banks to link development loans to poverty reduction. But it resisted telling the IMF to sell off its $40 billion gold reserves to lend to the poorest countries. It sensibly questions the continued existence of United Nations development and trade bodies that duplicate the mission of more effective institutions.

French President Jacques Chirac woke people up by calling currency speculation the AIDS of the global economy -- fatal and without a currently known cure. Mr. Chirac, the new boy in the G-7 club and its chairman in Lyons next year, was the acknowledged star of the Halifax show. He was blunt, almost abrasive and brazen about France launching another series of nuclear weapons tests in the South Pacific -- over worldwide objections -- before agreeing to stop.

Mr. Chirac lacks the pomposity of his predecessors while hewing to their visions of French grandeur. He is on the ascendant at home, while President Clinton, Prime Minister John Major, Prime Minister Tomiichi Murayama and their dinner guest President Boris Yeltsin are plummeting in the esteem of their own constituents.

President Clinton won no sympathy from his six colleagues for proposed unilateral trade sanctions against Japan. Americans should note that as the drama is played out this week in Geneva. But if the G-7 deliberation will be seen in the long run to have done anything to bring financial regulation, transparency and currency stabilization up to the technology of currency gyrations and swindling, it will have been worth the exercise.

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