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Air Date: May 12, 1998
Program 9819

GLOBAL MONEY AND YOU


Guests:

Enrique R. Carrasco, Professor of Law, University of Iowa

Various members, International Financial Institutions Seminar, University of Iowa


(This text has been professionally transcribed, However, for timely

distribution, it has not been edited or proofread against the tape.)

ENRIQUE CARRASCO: In many cases developing countries find it very difficult to deal with
these very quick inflows and outflows of capital. And it’s called “hot money,” because it can
really create severe economic problems for many of these countries. It happened in Mexico in
1994-95 and it’s happening in the Asian financial crisis as well.

KEITH PORTER: This week on Common Ground, a new resource helps unlock the mysteries
of the World Bank and the International Monetary Fund.

KRISTEN BERG: We decided to go ahead and look at putting an e-book up on the Web. We want
this to be accessible both to people who have the latest in technology and people who have you
know, computers that were built in the ’80s. We also want it to be useful for people who this
might be the first time they’ve been on the World Wide Web and also people who are on there daily.

PORTER: Common Ground is a program on world affairs and the people who shape
events. It’s produced by the Stanley Foundation. I’m Keith Porter.

PORTER: [with sound of modem coming on-line and someone typing on a computer keyboard in
the background] Computers, when used as communication tools, can spread vital information to
people previously shut out of other information loops. A group of legal and financial researchers
from The University of Iowa have taken their own extensive knowledge of the World Bank and the
International Monetary Fund and used new communication technologies to share that information with
the people who need it most.

CARRASCO: One of the important underlying philosophies of the e-book is to make this type
of information accessible to communities around the world. It’s all about access to information.

PORTER: Professor Enrique Carrasco from The University of Iowa College of Law led some of
his students and research associates in creating an electronic, interactive book for the World
Wide Web. The book is titled Global Money, the Good Life and You: Understanding the Local
Impact of International Financial Institutions
.

CARRASCO: Central bankers have easy access to the type of information that we convey in
the e-book. Academics have fairly easy access to this type of information. Lawyers in sophisticated
law firms have relatively easier access to this type of information. So we didn’t want to target
that audience. Of course they are more than welcome to look at the e-book and use it. But we
really had in mind the lay person and particularly those readers in communities around the world,
including the United States, who are interested—who may be interested—in learning more about
how, for example, the international capital markets affect their daily lives.

PORTER: In a nutshell, what is the content of this book?

CARRASCO: The content focuses on a term called “development.” It focuses on international
finance and it also focuses on two institutions, at least currently, two international institutions,
the International Monetary Fund and the World Bank. We hope to expand that in the future. For example
to cover the regional development banks such as the Inter-American Development Bank and the Asian
Development Bank and the African Development Bank. There are two very important interactive features
of this e-book. One is the e-mail feature. The reader can at any time click on an icon—the icon
is, it looks like a little letter coming out of an envelope—click on that icon and send us or
ask us a question. Or send us a story regarding that person’s, that person’s life. And how it relates
to themes of the e-book. And what I envision eventually is a clinical situation where students
will be able to respond to questions from communities around the world, doing research, helping
these communities. And it’s a two-way street by the way. Very important point here. The students
will learn from the feedback we received throughout the world. So in this way the e-book is a
living document if you will. And we’re very excited about that. So it’s a two-way learning opportunity.
And then the other very important feature here is the Web board that we’ve created where people
around the world can post commentary regarding the issues in the e-book and anybody can look at
it and we’re hoping to generate a transnational discussion on issues relating to international
finance and development. And our students will participate in that as well.

PORTER: You had a team of people working on this. Tell us about the team and the group
that you used to put this together.

CARRASCO: A wonderful team of people. First of all this product is the result of a
year-long seminar that I’ve held here at The University of Iowa College of Law. I’ve had seven
students in the seminar and at the outset we discussed what type of written product the students
would generate as a result of the seminar. And that’s a requirement here. So we, after some
discussion, we decided to ditch the typical student written product that would collect dust
somewhere on the shelf and instead come up with this type of electronic product.

BERG: We want this to be accessible both to people who have the latest in technology and
people who have you know, computers that were built in the ’80s. We also want it to be useful for
people who this might be the first time they’ve been on the World Wide Web and also people who
are on there daily.

PORTER: Kristen Berg served as technical producer of the project.

BERG: So taking all those considerations informed my design elements.

PORTER: I know there are a lot of people in developing countries who if they have access
to the Web and they do have access to computers it usually is older equipment.

BERG: Right.

PORTER: And it’s slower access.

BERG: Right. Exactly.

PORTER: So you have to take their needs into account.

BERG: Right.

PORTER: What do you think were the biggest challenges that you faced? Perhaps maybe that
a regular Web designer wouldn’t have in a situation like this?

BERG: Two elements. I use the Web daily. I had to create this site to be very intuitive
for people, I had to remember what it was like the first time, couple of times I was on the Web.
How to make it obvious where things where. How to make it—I tried to keep in mind making it
infinitely navigable, making sense to both new users and current users of the Web. And one way I
did that is I have, know several people who are new to Web use and we sat down and went over a
couple of different design elements.

PORTER: Is this a completely objective work? Or does it include personal opinion and personal analysis?

CARRASCO: That’s a very good question

PORTER: Again, this is Professor Enrique Carrasco.

CARRASCO: I really don’t like to use the word objective because from my perspective
that’s impossible. It’s impossible for someone to have an objective opinion. All of what, everything
we say is informed by our experiences and our outlooks. Instead, and I make this very clear in the
preface to the e-book, we worked very hard to provide a balanced approach to the many controversial
issues addressed in the e-book. So from the very outset I urged the students to take into account
both sides of the argument and they did a very good job of doing that. We want to make sure that
this e-book is useful and that people will use it. And one way of assuring wide access and wide
use is to try to take a balanced approach. And I think we did that.

SAL ALJURF: I was responsible for the section on non-governmental organizations and their
role in development. And another section dealing with the World Bank and IMF and their roles in
combating corruption in developing countries.

PORTER: This is one of the books many authors, Sal Aljurf.

ALJURF: It was sort of an explanation of NGO roles in developing countries and how they’re,
the roles that they’re playing now in environmental law, as far as developing policy as well as
legislation in environmental matters. And as well as human rights. And I also went into a little
bit of detail at the end on the role the NGOs are now playing as far as governance and the fact
that they’ve grown so powerful that they’ve been able to exert their sorts of own roles in
influencing governments. And the problems that they’re having now just because a lot of people,
a lot of experts and analysts, feel that they’re overstepping their bounds by sort of interfering
with governmental business.

PORTER: I think that, we’ve talked about it on this program in the past, the growing
power of NGOs, and especially I think what’s interesting is when you look at organizations like
the World Bank or the IMF which are member-state organizations, your influence in the organization
is largely tied to the amount of money that you give to the organization. How is it that an NGO
has power in a situation like that?

ALJURF: I think the biggest thing about NGOs is their aggressive policy as far as lobbying
tactics, as far as bringing information both to the press and the people. And so it’s not so much
that they’ve got influence as far as monetary influence, if you will, but for instance the World
Bank has found that there’s been a great incentive now to work with them just in order to polish
up their image. Because the World Bank has been criticized severely in the past for not being
attentive to people in the developing world, to environmental issues. And one of the things I
talk about in the section on NGOs is the fact that NGOs have been providing this sort of avenue
for the World Bank to participate in development with developing peoples, ensuring that they’re
not being displaced, or they’re not being displaced unfairly, without just compensation.

PORTER: Professor Carrasco, anything you wanted to add on this topic?

CARRASCO: Well, I think Sal’s description of his section illustrates the balanced approach
we’re trying to take in the e-book. His section on NGOs covers the advantages and disadvantages
of NGO activity. And he’s done so very nicely in that section. He’s quite right that NGOs have
provided a useful function of, relating to information. And disseminating information on behalf
of communities and creating links between institutions like the World Bank and communities throughout
the world. He also wrote a very interesting section on transparency and corruption, which as you
know are two very hot themes in development today. And in fact they were, they’ve been very big
themes in the Asian financial crisis.

ALJURF: When you say transparency you’re basically looking for clear guidelines that
government officials have to use in following procedures for taking required fees for businesses
and things of that nature. A lot of this goes to the fact that developing countries don’t have
this type of transparency. That government officials have way too much power in setting their own
fees and taking bribes, if you will, in order to justify—in order to entrench their power within
the government.

PORTER: We’re talking in this edition of Common Ground about a new resource on the
World Wide Web, titled Global Money, the Good Life and You: Understanding the Local Impact of
International Financial Institutions
. Printed transcripts and audio cassettes of this program
will be available. Listen at the end of the broadcast for details. Common Ground is a
service of the Stanley Foundation, a non-profit, non-partisan organization that conducts a wide
range of programs meant to provoke thought and encourage dialogue on world affairs.

PORTER: Another author from this electronic book is Eric Dorkin.

ERIC DORKIN: I was dealing with the Mexican crisis in the 1990s; what led up to it in
terms of recent Mexican history; the role of large institutional investors; and then the post-IMF
response to the crisis.

PORTER: Is there anything in particular that you think will be helpful to the audience?
I mean, when they read this section what are the lessons that they will learn from studying the
Mexican crisis?

DORKIN: Well, I think there’s a couple of things they can learn. One of the recent things
that’s just happened is the IMF has finished its annual meetings and if you read the communique acute;
from the IMF they mention that one of the things that we really have to start paying attention
to—and they’re writing this in 1998—is private, large private capital flows in and out of
countries. But you have to ask yourself, why is the IMF only now saying “We have to start paying
attention to this?” when you read about the Mexican crisis when that was in large part, the
driving force, is these large institutional investors off the Mexican shore, either in the United
States or in Europe, bringing lots of money in when things look good and then quickly taking
money out when things look not so good. That we have this sort of three year lag where nothing
yet has been done or legislated in either the United States or any of these other countries where
these institutional investors reside, to curb the speed of, given the computer age, these
institutional investors.

PORTER: Professor Carrasco, anything on this topic you want to add?

CARRASCO: Well, the Mexican financial crisis is very important for a number of reasons,
and Eric has outlined many of those reasons. In the e-book we have an extended discussion of the
Mexican financial crisis and we’ve put that before the section on the Asian financial crisis so
that the reader can draw comparisons. Developing countries find it very difficult to deal with
these very quick inflows and outflows of capital. And it’s called “hot money,” because it can
really create severe economic problems for many of these countries. It happened in Mexico in
1994-95 and it’s happening in the Asian financial crisis as well. And this is something that the
International Monetary Fund and the World Bank have to cope with. It’s a new, it’s a new
development and policy makers around the world are wondering what, are asking “What do we do?
What can the IMF and the World Bank do?” And there’s an enormous debate surrounding this issue
with some people arguing that the IMF and the World Bank are dinosaurs, creations of the 1940s,
institutions that cannot possibly cope with these new forces. Others believe, however, that the
IMF should take a strong leadership role in controlling these very significant flows of capital.
In fact there are very important proposals they made as we speak regarding what the IMF can do to
promote development and at the same time control and promote the development of the private
capital markets, which many view to be the key engine for development over the next several decades.

DORKIN: After the Mexican crisis itself, one of the first things that the United States
tried to do with the IMF was to get Mexico back into the private capital markets. So that there
was the understanding that, yes, it may have been the engine for the disaster, but it’s still the
belief of these institutions that it’s the engine for progress; that we had to get them back
there if there was going to be a solution to this problem. Now that may or may not have been the
right thing to do but that was the response that they took. And that does appear to be part, the
dominant belief of a lot of people in policy positions right now.

PORTER: Yeah, right.

CARRASCO: And these themes, the Mexican financial crisis and the emerging role of
institutional investors, all this ties, these themes tie into other sections of the e-book. For
example, we’ve discussed transparency and anti-corruption efforts. The IMF is now pushing the
so-called second generation of reforms. And those reforms focus on improving transparency in
developing countries and ridding developing countries of corruption. Now this is very controversial.
And we cover this in the e-book. Corruption is a very difficult term to define and in many cases
the campaign to improve transparency and rid countries of corruption is really a campaign of
rhetoric that in many cases paints developing countries and policy makers in developing countries,
as corrupt and incompetent. And many view this campaign as a pretext for the interests of foreign
investors. In other words, it’s in the interests of foreign investors to make developing countries
as transparent as possible for investment in the country. And that does not take into account the
best interests of communities in developing countries. So the argument goes.

PORTER: We have another of the authors here with us, Roman Terrill. Roman, tell us about
the part of the book you were responsible for.

ROMAN TERRILL: My portion of the book was confined, at least in part, to the Asian
financial crisis, the most recent topic that has generated concern about the IMF and the World
Bank. I remember from back in the day when the IMF was first starting to generate a plan for
Russian, to convert it from a socialist economy to a capitalist economy. There was kind of a
raging debate in the media between a man named Jeffrey Sachs, who was at Harvard, and a man named
Stephen Cohen, who was at Boston University. And Jeffrey Sachs was advising the IMF on what they
needed to do to create a capitalist economy in Russia. And he came up with a very typical IMF plan.
“You need to privatize your industry, you need to have your banks regulated in such a manner.”
And Stephen Cohen, who is more of a Russia specialist when it comes to history, said, “That is
not the Russia that I know. That is not the Russia that I have studied for 30 years, and I don’t
think it’s going to work.” Interestingly, now that I’m studying the Asian financial crisis,
there is a debate between Jeffrey Sachs at Harvard and Paul Krugman who is at MIT, and Paul
Krugman is saying the capitalist system that they had in Asia was just wrong. It was built on the
wrong foundations; too much input into export industries, not enough attention to efficient
capital allocation, and you know, this, the IMF approach to restructuring these economies is to
create the correct free market. And Jeffrey Sachs, rather ironically, is saying, no, there are
competing ways of having a free market system and the Asian development model is still a valid
one and should not be completely destroyed in the wake of this crisis. And so it all fits together
in a seamless web for me. And it was very interesting to research this and see kind of how people’s
opinions about the free market and the IMF’s roles in developing it have changed. And it’s changed
my outlook on it. When I thought of the IMF, I thought of the IMF as this kind of distant institution
that had the answer. It had the answer for everybody. And it was just a matter of political will
for countries to take their advice and implement it and create the free market. Does the Asian-style
capitalism, the Asian theory of economic development, is that still a valid, is that still an
advisable course for developing countries to take? Or, is there only the IMF approach, which is
very strict adherence to free market principles and their recipe for development.

CARRASCO: I think Roman has hit upon a very important theme in this debate and in the
e-book itself. And that is the profound adjustments that are occurring today in the Asian economies
and elsewhere. We’re not talking about policies of the ’70s and ’80s, adjustment policies of the
1970s and ’80s that focused narrowly on things like tightening the money supply and reducing the
budget deficit. Today when we speak of adjustments in developing countries, in emerging economies,
in the transitioning economies—that is the economies transitioning from a socialist-based system
to market-based system—we’re talking about profound adjustments in the economy. Profound adjustments
in law and policy. And these changes are bound to have very, very deep impacts on the culture of
these societies. We don’t know where it’s going to go but certainly we have to take into account
what these changes will do to society’s view of it’s future as a culture. And there’s again a
raging debate regarding whether we should tolerate the global spread of U.S. culture via these
adjustments or whether there should be some sort of resistance on the part of communities throughout
the world. Resistance to the U.S. brand of development, of culture, of kind of life views themselves.

PORTER: Well, really my last question, and you’ve touched on it over the course of this, but
in summary, what is the next step? What is the future of the project that you’ve been working on
and where do you see it going from here?

CARRASCO: Well, we’re very excited about the e-book and it’s future. We have several
plans that we would like to pursue over the next year or two. First, we would like to translate
the e-book into other languages to make it more accessible. Second, we would like to find computer
equipment—we’re going to aggressively look for funding for this—to buy computer equipment and
have it installed in appropriate places in communities throughout the world. And then have workshops
to introduce communities to the e-book. And we would do this in conjunction with NGOs and educational
institutions in various parts of the world. Then next year here at the College of Law I will
offer this seminar again and I’m hoping to expand the e-book to cover areas such as micro-development,
to cover the activities of the regional development banks, and there are many other topics that
we can look at.

PORTER: If you’d like to find this book on the World Wide Web, please come to this
address: www.commongroundradio.org/globalmoney http://www.uiowa.edu/ifdebook. Make sure you type commongroundradio as one word
and globalmoney as one word. Special thanks to our guests, Enrique Carrasco, Professor of Law at
The University of Iowa. He, along with our other guests, Kristen Berg, Sal Aljurf, Eric Dorkin
and Roman Terrill, helped create this new on-line resource titled Global Money, the Good Life
and You: Understanding the Local Impact of International Financial Institutions
. For Common Ground, I’m Keith Porter.

Cassettes and transcripts of this program will be available. The transcripts are free; cassettes
cost $5.00. To place an order or to share your thoughts about the program, please write to us
at: The Stanley Foundation, 216 Sycamore Street, Suite 500, Muscatine, Iowa 52761. Be sure
to refer to Program No. 9819. That’s program No. 9819. To order by credit card, you can call
us at 319-264-1500. That’s 319-264-1500. Transcripts are also made available on our Web
site. Go to commongroundradio.org. Commongroundradio is all one word. Our e-mail address is
[email protected]. Again, cassettes are $5.00 and
transcripts are free of charge.

Our theme music was created by B. J. Leiderman. Common Ground was produced and funded by the Stanley Foundation.





Copyright © 1998,
The Stanley Foundation


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