Wednesday 15 October 2008, San José, Costa
Rica
ECONOMY: What Role Can
the IMF Play Today?
By Mario Osava
RIO DE JANEIRO (IPS) -
Having failed, to date,
to play an active role
in the current global
financial crisis, the
International Monetary
Fund (IMF) may become a
symbol of the end of an
era and the need for a
different system, more
suitable to today’s new
world order.
But the crisis does not
spell out the demise of
the IMF; instead it
offers it "an
opportunity" to reassert
itself and overcome the
lack of a "mission" that
it has been suffering
for some time now, said
Eduardo Viola, a
professor at the
University of Brasilia’s
International Affairs
Institute.
In view of the evident
"need for global
governance" in the
financial arena, the IMF
could gain "monitoring
and regulatory"
authority over even the
world’s great powers;
but that would only come
in the future, and after
much negotiation, Viola
told IPS.
A "lean and
restructured" IMF could
have a role to play in
the coming new "era of
regulation," as a body
that "would standardise
the rules of an
effective globalisation
process, preventing a
situation like today’s,
where everyone does
whatever they want,"
Carlos Thadeu de Freitas,
a former director of
Brazil’s Central Bank,
concurred.
The financial system, as
it currently stands
internationally and in
many countries, "is
coming to an end," and
it will be necessary to
find "national
solutions," to later
"reinvent a new global
format, building on
whatever survives from
the old one," Ricardo
Carneiro, who teaches
economics at Campinas
University, told IPS.
The IMF -- which
together with its sister
institution, the World
Bank, held their joint
annual meetings Oct.
10-13 -- lost its
capacity to have a
bearing on a major
crisis like the current
one, and lacks resources
to help large nations;
it can "only assist
countries of the
periphery," said
Carneiro.
In 1998, in a major
operation to assist
Brazil, the IMF
contributed 41.5 billion
dollars, 18 billion of
which were from its own
coffers and the rest of
which came from
international
development banks and
wealthy nations, such as
the United States, Japan
and several European
countries.
Today, Brazil has more
than 200 billion dollars
in foreign reserves, an
amount that exceeds the
funds that the IMF has
available to come to the
aid of financially
distressed nations. It
now takes trillions of
dollars to bail out
national financial
systems, and the full
extent of the crisis is
still unknown.
There is a growing
consensus among analysts
that the new tendency
will be towards heavy
regulation, but complex
negotiations will be
necessary to establish
such regulations. "First
we will have to put out
fires and prevent
crashes, before we can
even begin to discuss a
new international
system," Freitas told
IPS.
For now, the way to
reach a solution appears
to be for the central
banks and financial
authorities of the large
economies to act
together, in
coordination, say the
analysts.
"But there is great
uncertainty; we still
don’t know if the way
forward will be based on
cooperation or
conflict," said Viola.
"If it is through
conflict, we could be
facing a dangerous
scenario like in the
1930s, which could, for
example, revive U.S.
isolationism," he
predicted.
In any case, the crisis
hastens a global
rearrangement at least
in economic terms, and
it will affect the
international scene more
than the 9/11 terrorist
attacks in the U.S.,
prompting changes
similar to those seen in
1989, at the end of the
Cold War, said Viola, a
sociologist with a PhD
in international
economics.
A G8 of the most
powerful nations
(Britain, Canada,
France, Germany, Italy,
Japan, Russia and the
United States) that
excludes a China that is
much more powerful than
several of the group’s
members, is no longer
viable, he argued.
China’s participation in
the process of global
restructuring is just as
"decisive" as that of
the U.S., Britain, the
euro zone countries, and
Japan, he maintained.
He added that "second
tier" countries, such as
Brazil, India, Russia,
Canada, Mexico and South
Korea, should also have
a voice in the
coordination efforts.
The G8 may hold an
emergency meeting soon,
and Russia has asked for
several emerging
economies to be
included.
In Viola’s opinion, "no
national solution to
this crisis is
possible," as "national
monetary policies only
make it worse." A reform
of the international
financial system would
require greater
cooperation and
regulation, which in
turn entails
"relinquishing a bit of
national sovereignty."
This would include, for
example, setting rules
for exchange rate
policies that could
limit controls such as
those applied by China,
which maintains a
heavily devaluated yuan,
thus favouring exports.
Would Beijing accept
this? "It may, because
China is also interested
in avoiding a crisis
like the current one,"
Freitas said.
While attempts are being
made to overcome the
acute phase of the
meltdown -- marked by
panic and lack of
confidence -- through
still informal attempts
to coordinate Central
Bank actions, economists
have taken centre stage,
but a new leadership
will be needed to get
globalisation back on
track, said Viola.
As a result of the
crisis, current leaders,
both economists and
politicians, are
suffering an "erosion of
their authority," he
said. "Recent heroes,
like Alan Greenspan
(former chairman of the
Federal Reserve), are
now being blamed for the
disaster," the professor
added.
The immediate future
calls for "a new
generation of
politicians" that is not
contaminated by mistakes
of the past, and the
democratic presidential
hopeful, Barack Obama,
may be the first of that
generation, as the next
"young, open-minded"
president of the United
States, "inspiring
confidence among young
people," he concluded. |
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