Wanted: New IFI rule set for Globalization IV
ARTICLE: “Booming Economy Leaves the IMF Groping for Mission: With Fewer Global Deadbeats, The Agency Loses Clout, And a Source of Income,” by Matt Moffett and Bob Davis, Wall Street Journal, 21 April 2006, p. A1.ARTICLE: “World Bank Failed in Fight Against Malaria, Health Experts Say,” by Celia W. Dugger, New York Times, 25 April 2006, p. A5.
The IMF is looking for a job--again.
It was created through the Bretton Woods agreement following WWII as a currency regulator and stabilizer. That role lasted until Nixon took the U.S. off the gold standard and the current floating currency system began to spread (now it laps up on the shore of China, waiting on the yuan to “convert”).
So in the 1970s the IMF searched for and eventually found a new job: lender of last resort.
It did okay in that role, but then traded it in for the rescuer of last resort in the 1990s, as states began suffering sovereign bankruptcies.
Meanwhile, the World Bank has undergone less career changes than fads in its approach to development, shifting from one focus to the next over the decades. Now we see it dabbling in health--and accomplishing little (my old mentor Hank Gaffney says it’s good that Wolfowitz now runs the WB, because there he has control over only about $20 billion, instead of the $500 billion he was screwing around with in the Pentagon!).
It would seem that both institutions are searching for new roles in a global economy where their rule enforcement roles no longer hold the same sway. In short, the global economic rule set has largely passed them by.
The IMF is particularly adrift in this unprecedented global economic expansion (4% growth a year) that my bud Larry Kudlow keeps braying about on his show. No sovereign economic meltdowns to manage right now, this George Bailey of the international financial institutional world is watching its portfolio--and its income--shrink. If it’s not loaning, it can’t tell countries what to do, plus there’s less interest to earn, meaning it’s looking at losses of $600 m a year over the next three years--unless business picks up, as it were.
With so many experts calling for a new global economic rule set, and naive neo-liberals like myself calling for a new IFI that’s dedicated to post-conflict/disaster/invasion/whatever reconstruction efforts, you’d think the IMF and WB would be seeking out more advice on where to go next in their respective evolutions.
But for now, that dialogue seems missing, despite the realization growing in the national security realm that successfully processing failed states will be the key task of winning the GWOT, taming population growth and pandemics, controlling illegal immigration, and finding high-enough yields for all that aging Boomer money in the Old Core. Clearly, there is a new dynamic to be found and defined in these difficult transitions from war to peace, from disaster to recovery, and from chaos to connectivity.
The WB and IMF served the functions they needed to serve in the past, but the global economy has expanded beyond those once-useful roles, forcing them to consider new challenges that I--and many others--argue are staring them in the face.
Comments
" you’d think the IMF and WB would be seeking out more advice on where to go next in their respective evolutions.
But for now, that dialogue seems missing"
Our current crop of leaders, for all their evident desire to entrench their policies and insure they carry on when they are out of office, are singularly poor at using the oportunities that exist to build institutions that would do that.
Here's where someone like Gingrich, for all his other manifest flaws, would be great, because he excells at perceiving such openings and being willing to shake up current vested interests in order to push them.
(And I see no one on the other side of the asle who wants to do more than build a Social Worker Full-Employment Department). This generation of leaders doesn't seem to have the knack for institution-building (the cobbled-together DHS that the Dems want and Bush followed along with doesn't count IMO).
So we're unlikely to see any of that for at least another decade, barring some major crisis that pushes it forward. (By "Major crisis" I mean one beyond those that we've experienced in, oh, the last 5+ years or so).
Posted by: Porphyrogenitus | April 27, 2006 11:12 AM
Assuming that they don't want to lend lot's of money to people like Robert Mugabe or Kim Jong Il, perhaps the IMF could look for states that are not failed but in bad neighborhoods.
Although someone with better knowlede might correct me if I am showing my ignorance, Ghana seems, for example, to be a relatively stable country in an area with way too much bad stuff going on around it. Sugar is one of the crops that they produce and it seems that they could make a bunch of that sugar into ethanol fuel for their cars and trucks the way the Brazilians do.
As long as any rubber in the fuel system is replaced with neoprene, ordinary gasoline engines can run on 10% ethanol without any noticable change, except that the octane is higher and the exhaust is cleaner. If a country like Ghana used 10% locally produced ethanol in its transportation fuel, that would mean that 10% of its transportation needs were insulated from the type of shock that we are currently experiencing in oil prices.
It's a virtuous cycle and the IMF could help get it going.
Posted by: Mark in Texas | April 28, 2006 9:40 PM
็A paradigm shift occurred in the minds of many Asians during the Asian financial crisis of 1997. The IMF's perceived high-handedness and the US's initial reluctance to intervene have convinced many government elites that the preventive for future crises is not to rely on the IMF's last resort role, but to take matters into their own hands. In recent years we have seen attempts to establish a regional financial architecture in Asia that would be linked to, but not dependent on, the global economy.
The US initially opposed proposals to set up an Asian Monetary Fund, presumably for fear that it would detract from the role of the IMF. But it is clear that the US has no credible alternative to offer East Asia to prevent future financial meltdowns. And so the momentum to reduce Asia's vulnerability to the possible turbulence of global financial markets has been picking up.
The situation is not irreversible. There is still a huge reserve of goodwill for the US in Asia. What the US needs to do is to bring back the feeling that the region can count on the US (and US-dominated institutions such as the IMF) in times of need. Giving the IMF a new mission statement in the manner you prescribe would help restore not only developing countries' faith in IFIs but also in the US.
Posted by: Jak | May 1, 2006 2:50 AM