by Nicola Bullard*
In spite of the economic maelstrom threatening to engulf the world, this year’s IMF and World Bank meetings were notably subdued. It was clear to everyone that the global economy was in trauma: Long Term Capital Management, one of the world’s biggest hedge funds, had just been bailed out by what the New York Times described as ‘Wall Street cronyism’ (with some arguing that not to so would have threatened world financial markets). Asia’s economies are showing little sign of recovery in spite of massive IMF intervention. Russia, suddenly and catastrophically, has been reduced to a cashless pariah (not that anyone dared speak about Russia – obviously its spectacular collapse is not a topic for polite company!). Brazil, meanwhile, is desperately trying to keep the speculators from the door, and Japan is seemingly unable to muster the political will to restructure its failing banks. Things were looking bad, and no one knew what to do.
Everyone was hoping that the G7 could pull a rabbit out of the hat. But all the G7 could come up with was that "the balance of risks on a global basis has shifted" (meaning, "oops, this is getting serious, it’s starting to effect us folks in the North). In their final statement, the G7 called on its members to lower interest rates, urged Japan to fix up its banks, reaffirmed the central role of the IMF (with some concessions to improved transparency and accountability) and made a commitment to continue our efforts to "strengthen the world open trading system, with free trade flows and open capital markets." Pretty uninspiring stuff: no magic wand, no puff of smoke and not a rabbit in sight.
By the end of the week, people were left wondering what had happened. There were no world-grabbing headlines, no major revelations, no visionary to lead us through the troubled waters. In fact, it seemed that nothing had happened.
Viewed differently, however, this year’s meetings heralded a sea-change. For the first time in twenty years questions are being asked, people and institutions are changing the way they think about the global economy and, importantly, there were critical changes in power relations, political alignments and paradigm shifts. And this has opened a whole new realm of political possibilities for significant reform of the way international institutions operate.
Are there reasons to be so up beat and optimistic? Yes, many. For one, the fact that the G7 or the US didn’t pull a rabbit out of a hat is good news. It means that there is a lot of talking still to be done and a lot of questions left unanswered. Second, the apparent parting of the ways between the IMF and the World Bank is good news. President Wolfensohn, who is a brilliant public performer, and his equally brilliant and refreshingly humane sidekick and chief economist, Joseph Stiglitz, did an amazing job of making it clear that they are not the IMF. The World Bank, says Wolfensohn, has a heart. "We have focussed too much on economics… if we act now with realism and foresight, if we show courage… we can give our children a more peaceful and equitable world. One where poverty and suffering will be reduced. Where children everywhere will have a sense of hope."
Meanwhile, the IMF was left standing, rather like the Tin Man, with no heart at all. Dry, unflinching and unapologetic to the last, Managing Director Michel Camdessus and Chief Economist Stanley Fisher, are the anti-thesis of Wolfensohn and Stiglitz. The differences, interestingly, even extend to physical appearance. Wolfensohn and Stiglitz are dishevelled and cuddly, Camdessus and Fisher, elegant, steely and acerbic. And they lost at every stage of the PR stakes. No mea culpas for terrible policy advice in Asia, hardly any movement on the question of capital controls, and an over-arching attitude of defensive arrogance. However, the rift might be more apparent that real, simply a perfection of the ‘good cop, bad cop’ routine that the Fund and Bank have deployed so effectively in the past. Certainly, the coat-of-paint reforms proposed thus far are designed to maintain the status quo by controlling some of the nasty side-effects of economic globalisation and to stop anyone from asking hard questions, like whose interests are being served, who is making the decisions or is there another way to organise the way we do things? Regardless of whether or not the rift is real, Wolfensohn and Stiglitz have committed themselves to discussing alternatives and finding ways of bringing ‘more people to the table.’ We should take up the offer.
Another bright moment was the growing assertiveness of European Union member countries. After months of unquestioning acceptance of US and IMF leadership, UK Prime Minister Tony Blair called for ‘sweeping reforms’ of the Bretton Woods Institutions in the week before the annual meetings and his Chancellor, Gordon Brown, arrived in Washington with some wide-ranging suggestions about how this might be done. And in what seemed to be an attempt to dilute the power of the IMF Board of Directors and the US, France proposed up-grading the role of the IMF Interim Committee to give it more policy making power. This was supported by Michel Camdessus, who may well be happy to have a buffer zone between himself and the US Treasury. Now that a majority of EU member countries have left or quasi-left governments, there is an expectation that they could take a more decisive role. The introduction of the Euro in January 1999 will pose a challenge to the dominance of the US dollar and the Social Democrat-Green coalition in Germany has the clout to exercise progressive policy leadership on these issues. Again the challenge is to make the most of this political opportunity.
In the meantime, everyone is talking about a new global financial architecture but, at the risk of mixing metaphors, at present the global elites are merely shifting the deck chairs on the Titanic while the global economy is sinking. But, for the first time in almost two decades, fundamental issues are on the agenda, there is growing public awareness that things are not working, and there are important cracks in the institutional armour. Now is the time to push the cracks wide open, and not simply accept the new wallpaper being offered by the present bunch of neo-liberal decorators who are trying to pass themselves off as new-age architects.
* Nicola Bullard is a senior associate with Focus on the Global South