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This is the best chance in 60 years for reform

7 November 2008

The world financial summit next week has a great opportunity to help the poor, argues John Madeley

ONE DAY at the end of next week could go down in history. In Washington DC on Saturday 15 November, leaders of the seven most powerful Western countries will sit down with those from Russia, China, India, Brazil, Saudi Arabia, and others that make up the G20 group of countries for a summit meeting. They will begin the process of reshaping the international financial architecture.

The European leaders Nicolas Sarkozy, Gordon Brown, and Angela Merkel called for a summit in the wake of the financial crisis that has hit both developed and developing countries. President George Bush offered to organise the meeting in Washington, spurning an overture from the UN secretary-general, Ban Ki-moon, to host the gathering at the UN in New York.

“I think we are grasping towards a new global order, where there will be far better global co-ordination in the future, and where people will work together to solve common problems,” Mr Brown said last weekend.

Much is at stake. The summit offers the biggest opportunity since the Bretton Woods conference in 1944 to develop international institutions that will serve people’s needs. It was in July 1944, at the New Hampshire town of Bretton Woods in the north-east of the United States, that representatives of 45 governments agreed on a framework for international economic co-operation. They conceived three new financial and economic institutions: the International Monetary Fund, (IMF), the World Bank, and the International Trade Organization (ITO).

But the US Congress refused to ratify the ITO; in its place came the more limited General Agreement on Tariffs and Trade (GATT), which developed in 1995 into the World Trade Organization.

The primary propose of the IMF is to “ensure the stability of the international monetary system”. It extends credit to governments with balance-of-payments difficulties, usually specifying that they agree to sweeping changes in the way they run their economies. The World Bank’s task is to finance development projects in poor countries.

Both institutions are badly in need of reform. The IMF could only react to the current financial crisis rather than help to prevent it. The World Bank has become the world’s largest multilateral aid agency, but its lending is often for grandiose projects that do not help the poor.

The two organisations work closely together. In the early 1980s, they insisted that countries wanting help with credit and aid for development must implement structural-adjustment programmes. These became hugely controversial, as they obliged governments to cut spending on services such as health and education, and to reduce subsidies, on, for example, basic foodstuffs.

While Western countries are now looking for changes in the global system which will prevent crises and give more stability to financial markets, developing countries are looking for reforms that will help overcome the continuing daily crises of poverty. But the voice of the very poorest countries will be missing at the Washington summit.

South Africa will be the only African nation there. The exclusion of the poorest has led more than 600 civil-society organisations worldwide, including Tearfund, the Jubilee Debt campaign, and the World Development Movement, to issue a statement expressing concern that the Washington meeting will not address “the comprehensive range of changes needed”. The statement urges that “all countries have a say in the process to change the international financial architecture”.

The summit is scheduled to last only one day (the Bretton Woods conference took three weeks), and will be followed by a series of meetings over perhaps a year, depending on the progress made. The big question is whether all countries will be involved in the ongoing meetings, and whether a fairer and more stable international economic order will emerge.

“The biggest hope is that the leaders who attend this meeting will start a process of reforming the international economic system that will include all countries,” said Peter Chowla of the Bretton Woods Project, which monitors the World Bank and the IMF.

Tough negotiations lie ahead. Western leaders are likely to accept the need for more regulation, but will press for continuing efforts to promote trade and investment liberalisation — that is, more of the same.

Developing countries will press for a widespread redesign of the international financial and economic system, to produce a system that works to improve people’s lives and to reduce poverty. This would involve either big reforms in the IMF and the World Bank, or the creation of new institutions. It would get to grips with the financial and economic power of transnational corporations.

Many civil-society organisations are stressing that reform should throw out old models of governance and old institutions that have failed in favour of new ones. These could be more transparent, democratically controlled, and accountable. Of specific benefit to millions of poor people would be mechanisms to prevent the wild swings in the prices of primary commodities on which they depend for their livelihoods.

Tinkering with the existing system will not do. Bretton Woods II urgently needs to deliver good news for the poor. In Hebrew, “crisis” also means “birthing stool”. And, as the former Bishop of Oxford, Lord Harries of Pentregarth, said last month: “A crisis is also a time of giving birth to something new.”

John Madeley is the author of 100 Ways to Make Poverty History (Canterbury Press, 2005).