Following several weeks of widespread global financial turmoil, leaders of several of the world’s most powerful countries are planning a summit and a series of meetings to address this burgeoning crisis. The November 15 summit and an accompanying series of smaller meetings will weigh the potential for reforms of the international financial system. Some are calling these meetings “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 8 nations — plus larger emerging markets nations such as India and Brazil — will participate on November 15.
While some countries outside the G8 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 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.
Doha Review
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 last 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 G8 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 by calling 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.”