DEVELOPMENT: Bretton Woods II
Published on IPS, Analysis by John Vandaele, Oct. 28, 2008.
… Europe, by way of the hyperactive French President Nicolas Sarkozy, demands a Bretton Woods II, that is, a major shake-up of the International Monetary Fund (IMF) and the World Bank. This is as much a rescue operation for two organisations that have lost muscle as a call for a new financial architecture.
Up until mid-October 2008 the IMF, the world’s most important financial institution, did not play a role in the unfolding credit crisis. The G7 (the seven industrialised nations, the United States, Canada, France, Britain, Germany, Italy and Japan) had given the task to make recommendations to the Financial Stability Forum dominated by the G7 countries, effectively bypassing the Fund …
… Developing countries and civil society for many years criticised the power distribution at the BWIs. How is it possible that small European countries like Switzerland or Belgium had more votes then India, Brazil or Mexico? The reason was that power was based upon the money countries put into the BWIs, and that again was based on the economic weight of a country.
That weight was determined through rather vague formulae. The unequal power distribution is under pressure now: last April it was decided that rich countries at the IMF would give in 3 percent of the votes; 2 percent went to emerging countries and 1 percent to other developing countries. For developing countries this is just a start.
This lack of voice in both institutions and the adverse conditionality, especially during the Asian financial crisis, stimulated developing countries to turn away from the BWIs. China, and to a lesser degree, other emerging countries, partly overtook the role of the World Bank in financing big infrastructural works in developing countries. Developing countries also tried to avoid the IMF if one day they would have currency problems. That’s why many of them have built large foreign currency reserves.
With the credit crunch deepening, Iceland and Pakistan approached the IMF but not after first negotiating deals with Russia, China or Arab countries. The IMF-Iceland package was less conditional than the usual IMF stuff.
Sarkozy’s call for a second Bretton Woods is timely. Crises are opportunities. Some of his ideas – tighter supervision of the international banking system, a crackdown on international tax havens to attack unfair tax competition between states … have been demanded for many years by large swaths of the global civil society. Why not add a currency transaction tax?
But if Sarkozy is serious about a Bretton Woods II, he’d better keep in mind that developing countries want more voice. The first victim of this will be the European countries which are overrepresented at the Fund. Why, for that matter, should the managing director of the Fund always be a European? And what is the credibility of the Fund if big countries can ignore the Fund’s recommendations and in so doing, create a global financial crisis? So, there’s a lot of ground to be covered. That discussions will start with a Group of 20 with a majority of developing countries is a good sign.
*This is one of a set of four articles on the global institutions by John Vandaele, journalist with the Belgian magazine Mo*, and author of several books on globalisation, most recently ‘The Silent Death of Neoliberalism, 2007. (END/2008). (full text).