Next Friday, leaders of several of the world's most powerful countries will
gather at the White House to address the burgeoning global financial crisis.
The November 15 summit and an accompanying series of smaller meetings will
weigh the potential for reforms of the international financial system, leading
the meetings to be dubbed a "Bretton Woods II", in reference to the New
Hampshire conference held in 1944 that created today's main global financial
institutions, the World Bank and the International Monetary Fund.
The assumption, thus, is that these meetings could be subject to scrutiny, and
fundamentally challenge conventionally adopted notions of the rationale and
mission of such institutions in the
light of today's world dynamics.
The power imbalance whereby these institutions are able to dictate intrusive
conditions and set the prevailing paradigms for knowledge- and policy-formation
processes in developing countries, in spite of the limited representation those
countries have on their boards, could be up for review. The lack of
international regulation for capital movement - also a feature of the existing
"architecture" - would be scrutinized.
For all the grandiloquent language, however, there's no reason to expect
anything more than limited reforms to the existing system to emerge from this
summit. The countries convening the summit seem likely to support a model that
closely resembles the approach pursued to respond to the series of crises that
shook Latin America, Asia, Russia, and Turkey in the 1990s and the start of
this decade.
Essentially, this model entails a small group of rich countries coming together
to channel their preferred policies through global institutions. Only the Group
of Eight nations (the US, Japan, Germany, UK, Canada, France, Italy and Russia)
- plus larger emerging markets nations such as India and Brazil - will
participate on November 15.
While some countries outside the G-8 are being included, they aren't going to
call the shots. The United States, as the host country, will have significant
influence and discretion in shaping the agenda and outcomes. This much is
clear: whatever method is used for arbitrating differences of position among
participants, there won't be much transparency about it.
New architecture
This isn't the first time we've heard widespread calls for "new global
financial architecture". Such calls abounded in the 1990s, yet nothing came of
them. Now we're paying the price for that. Today's global financial crisis, as
Financial Times columnist Martin Wolf recently said, is the worst anyone alive
has seen - unless you have lived for longer than 100 years.
The distributional results of the approach are also clear as developing
countries start to feel the pain of reduced remittances, lower demand for their
exports, increased costs of debt payments, and threats to future aid. Sadly,
this is happening despite the fact that these countries already sustained
painful reforms of their national financial systems in the name of that earlier
call for new "architecture."
Furthermore, the exclusionary approach pursued in decisions on the global
financial system may have had some credibility - even if it was admittedly
undemocratic - in the late 1990s. Back then, many thought the only threat to
the international financial system was posed by developing countries' outdated
financial institutions, such as supervisory and regulatory bodies, that
couldn't cope with the growing mobility of capital flows.
So much for that theory. Any semblance of its credibility has vanished now that
many developing countries are suffering from a crisis they clearly had no part
in creating.
But more extraordinary than news about the November summit is what's not in the
news so far and, yet, seems to be the reason for such rapid action. There's
another process where the words "Bretton Woods II" have resonated since the
summer. From November 29 until December 2, world leaders will meet in Doha,
Qatar, to review progress in implementing the "consensus" that emerged from the
International Conference on Financing for Development held in Monterrey, Mexico
six-and-a-half years ago.
The reform of the international financial and monetary systems was a key theme
on that conference's agenda. The upcoming review in Doha was poised to deal
with this issue because it was clear that little progress had been made toward
that goal - even before the global credit markets debacle provided a "smoking
gun".
The document currently serving as the basis for negotiations, released in late
July, contains breakthrough language calling for a major review of the
"international financial and monetary architecture, and global governance
structures." This is a proposal that enjoys broad support by the
developing-country governments. Some diplomats have been informally calling it
"Bretton Woods II."
Indeed, the Monterrey Conference established the first multilateral,
North-South consensual framework for reform of the international financial
system. It offers the framework that best meets the needs of the time. Who
can't agree with French President Nicolas Sarkozy when he says "the
21st-century world cannot be governed with the institutions of the 20th
century"?
The Monterrey framework is the one process that can garner the broadly based
knowledge, ownership and political support that needs to be behind reforms of
such magnitude. In a visionary speech delivered during the annual meetings of
the World Bank and International Monetary Fund, Robert Zoellick, the Bank's
president, called for a "new multilateralism" that "must put global development
on a par with international finance."
What could be better suited to this purpose than a process whose central
objective is financing development? Perhaps one like the Monterrey Consensus,
which explicitly stated in 2002 that poverty reduction should be at the center
of efforts to reform international financial architecture.
The Doha review, therefore, offers a perfect opportunity to launch these
discussions. Unless, of course, you represent a government that has controlled
global financial reforms for the past half century, in which case you would
probably not be so keen on a process where you'd have to negotiate with other
actors who may have the chance to put their needs on the table, too.
At the risk of sounding cynical, it's possible that the most compelling reason
for holding the November 15 summit was the simple fact that the Doha review,
scheduled last December, was about to happen. This would also explain the
otherwise incomprehensible fact that not a single one of the leaders who
convened the meeting has even mentioned the upcoming Doha meeting proposal at
all, or pledged to support it.
It's hard to believe this was an inadvertent omission. Unfortunately, the most
plausible explanation is also the worst: that hasty calls for a summit of G-8
and large developing economies aims at undercutting the Monterrey/Doha
financing for development process, and sapping the energy building toward an
inclusive political discussion that could be had in Qatar.
Zoellick called for a "new
multilateralism." Essential to a truly "new"
multilateralism, however, is the courage to allow
scrutiny of reform ideas by more than a few
like-minded partners. Let's hope the 20 leaders
meeting on November 15 in Washington, especially
those representing the rich G8 countries, will
have the vision and courage to put this principle
into practice two weeks later in Doha, including a
call on all heads of state to attend that
conference and commit to shaping a substantive
outcome there. The world only needs one "Bretton
Woods II."
Aldo Caliari, a Foreign Policy In Focus contributor,
is director of the Rethinking Bretton Woods Project at the Center of Concern in
Washington, DC.
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