If the developing countries think that they have scored a great victory by demanding that IMF and World Bank should examine the recent instability in currency markets world-wide, they are sadly mistaken. The host to the seventh G-15 summit, Malaysia, can congratulate itself on forcing the participants to veer round to the declared perceptions of its political leadership, but the consensus of yet another talk shop is going to do pretty little by way of providing the required stability. Neither rhetoric nor sabre rattling by people like Mahathir Mohammad is going to help currencies that are under mounting pressure. The Malaysian prime minster has, in recent months, taken a tough stand on rabid speculation, but whimsical market play is only one factor in the emergence of chaotic conditions in different parts of the globe. While one must accept that macro economic fundamentals do not provide the whole explanation, finance managers in developed and developing alike would be better placed to manage speculation if their economies are performing well and are also moving on an orderly course.

Politically, it may be good tactics for Third World leaders to toe the Mahathir line against the free play of market forces, but developing countries stand to gain in the long run by promoting free enterprise and simultaneously creating regulatory mechanisms that would curb aberrations. Hot money flows are unavoidable in a free global system. Rather than demanding, as Mahathir has been doing, a stop to such flows across countries, the wiser course for the emerging economies would be to have in place a structure that would moderate the inflow and outgo of capital.

Developing countries need to have strategies that would work effectively against turbulent movements in currency markets. The basis of this approach, obviously, would be to strengthen the macro economic fundamentals. Growth should be steady as well as orderly and prices should be stable. As for trade, the thrust should be on developing a competitiveness in cost and quality terms that would adequately take care of currency movements having an adverse impact on export performance and on import flow critical to growth. While an undue appreciation of a domestic currency will hurt exports, a sharp depreciation will push up the cost of imports. While the ideal policy prescription to growth should be a reasonable measure of currency stability, this can be obviated provided the economy is resilient.