In other words, just when people most need the state to mitigate against the increased risks of the global economy, the government's power to undertake this role is weakened. In the area of financial markets, moves towards liberalisation, in order to capture globalised investment flows, have led to increased volatility and the occurrence of a number of severe crises. As some of our own BMCs can testify, these crises can threaten the health of the entire financial system, as well as the exchange rate parity. Unanticipated shifts in the value of the currency can lead to high and volatile rates of inflation. Financial crises undermine the public's faith in the integrity of the banking system, and may involve the government in expensive bail-out schemes.
Trade liberalisation threatens the position of regional manufacturers and agricultural producers.
Some will find it difficult to compete against imports from better-capitalised competitors in larger countries who are able to exploit economies of scale, and, in the case of agriculture benefit from subsidies. Others will face competition from foreign firms producing locally through subsidiaries. Economic theory tells us to welcome shifts in trade to more accurately reflect comparative advantage of countries. However, the distributional impact of these changes is likely to be significant. Nor can governments in the region ignore the potential social cost.