Tag: Bretton Woods

Power Shift in Global Economic Governance


Has the worm finally turned? Reuters today featured a story on the emerging market economies’ push-back against the status quo of Western-dominated global economic governance. The piece features an explicit demand (and overt exercise of financial leverage) for a power shift in the predominant international financial institutions, specifically in the context of the IMF’s recent request for an additional $600 billion in resources from its member states to help bail out Europe.

Former Saudi intelligence chief Prince Turki al-Faisal is quoted in the story as saying:”What we can be certain of is that large developing nations will not agree to provide additional funds without a greater say in the IMF, and this applies to all global economic governance organizations.”

Interesting, the story also highlights the fact that emerging market economies, while demanding more voice and influence in the IFIs, are also turning away from existing international institutions in favor of regional alternatives, such as the Arab Monetary Fund and Islamic Development Bank in the Middle East and the Chiang Mai initiative in East Asia. This fact is neither new or shocking, but the tone of such a public speech is remarkable.

Ironically (or pathetically, depending how you look at it), there was also a recent news story that revealed that Obama is considering the nomination of Larry Summers as the next World Bank president when Robert Zoellick’s term expires in May 2012 (note: thanks to Martin Edwards for alerting me to this one). This would, oh so predictably: (1) sustain the stubborn Western tradition of keeping an American at helm of the World Bank (and by corollary, a European at the head of the Fund); (2) uphold the image of the Bretton Woods institutions as being first and foremost accountable to the Wall Street-Treasury complex, and (3) continue to alienate the very countries upon whose financial generosity these institutions will increasingly depend in the coming years.

Martin Edwards and I are conspiring on an op-ed on that little tidbit of information and its implications for the legitimacy and relevance of the World Bank, so stay tuned.

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The IMF Horse Race

The Western powers are in a rush to quickly confirm Christine Lagarde as the next MD, but there are some very good alternative choices outside of Europe who should be carefully considered. It may also be in the interest of the institution to at least appear more inclusive to the non-European parts of the world.  Here is a very rushed list of candidates whom I think would be viable in the eyes of the major stakeholders at the Fund (although each one has some flaws):

1. Tharman Shanmugaratnam: I remember several years ago attending this Singaporean MP’s meeting with local constituents. The meeting went late into the night as he and his volunteers attempted to sort out the various bureaucratic and some petty and not-so-petty social problems of the residents in the district.  I was surprised to see a senior official (at the time he was the Education Minister, he is currently the Finance Minister and Deputy Prime Minister) in what is essentially a one party dominated state spend so much personal time working with his constituents.  He is smart, tireless, and compassionate. Of course, the main drawback of Singaporean politicians is inexperience in dealing with strong public dissent.

2. Eisuke Sakakibara: Known as “Mr. Yen” and the man who coined the phrase “market fundamentalism” to describe neoliberal economic policies, Sakakibara is a well respected Japanese technocrat and intellectual who is not afraid to speak his mind. Sakakibara was Japan’s nomination for the MD position 11 years ago. His tenure might signal a shift away from economic neoliberalism at the Fund.

3. Ashraf Ghani Ahmadzai: The incorruptible former Finance Minister of Afghanistan under Hamid Karzai has extensive experience in the challenges faced when rebuilding shattered economies. In addition, he worked for a decade in the World Bank and understands the Bretton Woods institutions very well. His drawback is that he can be gruff and does not tolerate fools — which is partly why  he was forced out of office in Afghanistan.

4. Anne Osborn Kreuger: Admittedly, a Westerner, but still quite worthy of consideration. An American economics professor who was the First Deputy Managing Director of the IMF from 2001 to 2006 and a former chief economist at the World Bank. She made a concerted effort to address the pressing issue of sovereign debt restructuring in her time at the IMF.

5. Montek Singh Ahluwalia: A whip smart economist who headed the IMF’s Independent Evaluation Office. He was also part of the team of economists, along with Manmohan Singh, who helped to engineer India’s liberalization policies in the nineties. Montek has said he is not putting his name forward for the position, but I think he could be talked into it. He is a figure who is accustomed to controversy, but at the very least his work at the IEO would make him aware of the many failures of the IMF in recent decades.

I’d be interested to hear other names from my fellow Ducks and our readers…

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Revolution, Revolution until Victory

‎”… Yet the crowds were not placated, and they spent the next hour in the courtyard repeating the classic songs of the uprising, “thowra thowra huta nasr” (revolution, revolution until victory).” –Al Jazeera (4/25/2011)

The revolution which overthrew Hosni Mubarak is in danger. While Western media outlets have given primacy in their coverage of events to speculative discussions about the historic, current, and future role of the Muslim Brotherhood as well as the pivotal role of the Egyptian military, it is the organizations representing the rights of factory workers and allied leftist youth that actually did the heavy lifting from an organizational perspective before and during the revolution (see for example the April 6th Youth Movement). Thus, it is these same groups (whose demands include nationalizing textile factories, improving safety conditions, increasing wages for workers, and a maximum wage for the owners of capital) which will need to be addressed alongside more established political organizations if enduring stability is to be achieved.

But the demands of the workers are scarcely likely to be met given the severe economic challenges which lie ahead for Egypt and the broader global economic context in which this revolution is unfolding. The government has already turned to the IMF for $10-12 billion in financial assistance and $2.2 billion from the World Bank, citing a dramatic decline in revenue from the vital but perennially endangered tourism industry and a wave of worker strikes in recent months. Given the neo-liberal economic ideology and decisionist (Schmittian) political outlook toward developing countries that is prevalent among the Western governments that dominate the Executive Boards of the Bretton Woods institutions, as well as with military leaders and comprador economic elites in deveoping countries, the Egyptian state will undoubtedly face external pressure to repress worker demands. In fact, foreign pressure will most likely be used as a welcome opportunity by comprador elites to pursue preferred policies while placing the blame for repression on an external bogeyman.

As with many other developing countries, Egypt has a complex and politicized history of relations with the IMF (not to mention an even longer and more sordid history of sovereign debt to Western creditors prior to WWII). At times the historical narrative about Egypt-IMF relations has focused almost exclusively on the 1977 food riots that followed an attempt at structural adjustment during the Sadat regime. This narrative has usually been oversimplified by left leaning academics who have all too willingly bought into the military regime’s account of the structural adjustment program as a moral lesson in the political shortsightedness of the mandarins at the Fund and the inhumanity of a ruthless and disembedded neoliberal economic ideology. (In point of fact and as we now know, it was the military regime which proposed cutting food subsidies when the Fund had recommended slashing the unsustainable military budget). An overemphasis on that moment risks ignoring all of the efforts since then to implement neoliberal strategies of privatization, liberalization, and integration — half-hearted, illusory, and lackluster though they may have been.

If we look beyond the kabuki theater of the state’s relations with the Fund and neoliberalism more broadly, we can see that prospects for meeting the workers’ demands and reviving the textile industry, which constitutes about a quarter of both industrial employment and industrial production, are unlikely to emerge through neoliberal strategies. The current challenge to Egypt’s textile industry goes back to the phase out of the GATT/WTO textile quota regime in 2004 and the beginning of genuine global competition. Egypt’s textile industry which is characterized by low productivity simply could not compete against Chinese textile firms. Egypt was able to gain some breathing room by signing on to a tri-lateral preferential trade agreement (the QIZ) with Israel and the US, but the political climate in Gaza and the West Bank has hardly made this a robust alternative for Egypt.

If Egypt hopes to compete against China, it will need to study China’s reform of its own textile sector in the nineties which laid the ground work for its return to profitability in 2000.  The short version of the story is that China cut 2.7 million employees out of 7 million, closed 600 state-owned firms (1/5th of the total), suffered billions in losses while it restructured and updated equipment (Lardy 2002, 23). The real question is what enabled the state and society to endure this restructuring? The answer is far more complex than can be covered here, but at the very least it seems apparent that a set of economic strategies designed to winnow the state is the wrong path to take. To the contrary, the East Asian “model” generally points to the importance of strengthening state capacity in order to compete in the global marketplace. However, while such strategies are often anchored by nationalist ideology, they are rarely kind to the interests and radicalized demands of workers.

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The resurrection

Nothing like a global financial crisis to make the IMF relevant again.

In all seriousness, though, after the 1997 East Asian financial crisis it seemed that the IMF was in danger of irrelevance. Very few countries were willing to accept the conditions required by the IMF for loans. But with the world only a few steps back from the brink, that appears to be changing. And with the outcome of the Ukraine-IMF negotiations pending, we may soon get a sense of how much the IMF is willing to require in exchange for cash infusions.

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Bretton Woods 2.0

If British Prime Minister Gordon Brown and French President Nicolas Sarkozy have their way, the advanced industrialized nations will come together to negotiate a new economic order. But they will do so in a world in which the US and the European Union enjoy roughly equal GDP (with a slight advantage for the EU right now). When Bretton Woods was negotiated, in contrast, the US controlled about half of global economic production.

In other words, any such bargain would be the product less of US hegemony than US-EU comity, with China, Japan, and India as important players in the mix. This is, whatever one thinks of its merits or chances, a bold call to build a multipolar economic institutional order. It signals how much the world has changed not only since 1945, but also since the “unipolar moment” of the 1990s.

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