FINANCE: World Bank Head Acknowledges Shifting Global Order

• by Eli Clifton (washington)
• Monday, September 28, 2009
• Inter Press Service

'The old international economic order was struggling to keep up with change before the crisis,' Zoellick told an audience at the Paul H. Nitze School of Advanced International Studies of the Johns Hopkins University in Washington. 'Today's upheaval has revealed the stark gaps and compelling needs. It is time we caught up and moved ahead.'

Zoellick repeated the G20 leaders' decision last week to work on a new model for growth - including the world's poorest countries - that would emphasise not just balanced financial growth but also stability in financial markets and cooperative monitoring between nations.

The Pittsburgh G20 summit last week took many observers by surprise when the leaders announced the G20 would supplant the G8 as the primary venue for economic diplomacy. Zoellick echoed the calls of many of the world's poorest countries and NGOs in endorsing the greater inclusiveness of the G20 but calling attention to the poor countries still left on the sidelines.

'As agreed in Pittsburgh last week, the G20 should become the premier forum for international economic cooperation among the advanced industrialised countries and rising powers. But it cannot be a stand-alone committee. Nor can it ignore the voices of the over 160 countries left outside,' said Zoellick.

The speech addressed the best policies to ensure stable financial growth as well as reaffirming the reforms undertaken by the G20 leadership last week.

Zoellick didn't shy away from politically controversial topics here in Washington, addressing head-on the debate over the role of the federal government in regulating financial markets and curtailing the culture of 'quick kills' - as President Barack Obama has often said - which had pervaded the financial industry.

'In the United States, it will be difficult to vest the independent and powerful technocrats at the Federal Reserve with more authority,' said Zoellick. 'My reading of recent crisis management is that the Treasury Department needed greater authority to pull together a bevy of different regulators. Moreover, the Treasury is an Executive department, and therefore Congress and the public can more directly oversee how it uses any added authority.'

At the core of his comments were a reflection on the inevitable power shift within international financial institutions (IFI's) as western powers gradually hand over increasing amounts of voting influence to emerging market countries.

The World Bank president said that while the U.S. has a history of recovering from financial crises, the U.S. recovery will be measured by its ability to address large deficits, recovery without inflation and successfully overhaul its financial system.

Even if completing a successful recovery and reform of its financial industry, the U.S. should be aware that the dollar's dominance may be slipping. '[T]he United States would be mistaken to take for granted the dollar's place as the world's predominant reserve currency,' Zoellick said. 'Looking forward, there will increasingly be other options to the dollar.'

'The current assumption is that the post-crisis political economy will reflect the rising influence of China, probably of India, and of other large emerging economies. Supposedly, the United States, the epicentre of the financial crisis, will see its economic power and influence diminish,' said Zoellick.

The rising influence of China and the emerging market countries was a theme both last week at the G20, in Zoellick's speech this week and will likely be a major topic at the World Bank's annual meeting next week.

The G20 agreed to initiate a reform of voting power in the International Monetary Fund (IMF) that would diminish the votes held by Western European powers and increase the votes held by China and possibly other emerging economies.

While widely seen as an important first step towards engaging the emerging economies in IFI's, the move was seen by many poor countries and NGOs as not going far enough.

'As emerging countries become more influential through the rising pace and weight of G20 summits, they must be held responsible for efforts to both meet their own country's needs and the needs of others,' said a statement by World Vision, a Christian development NGO, at the conclusion of the G20 summit.

'As World Vision has seen from its work in communities in dozens of developing countries, each nation's government and communities bear primary responsibility for addressing the rights and needs of their citizens,' the group said.

Zoellick's comments, the G20's supplanting of the G8 and the IMF reforms all reflect the shift in the global economic order emerging as the dust settles from the global financial crisis.

Zoellick and G20 members seem to be acknowledging that leadership of IFI's and participation in multilateral economic diplomacy can no longer be dominated by Western, developed economies.

While the power shifts may seem a positive step for democratising economic decision-making, serious questions remain about how development aid will be delivered and globalisation harnessed to help countries left behind in the last wave of market expansion.

Zoellick wrapped up his speech by calling for a new 'multi-polarity' in growth and a need 'to modernise multilateralism and markets' in order to give a voice to the world's poorest.

'Bretton Woods is being overhauled before our eyes. This time, it will take longer than three weeks in New Hampshire,' he concluded. 'It will have more participants. But it is just as necessary. The next upheaval, whatever it may be, is taking form now. Shape it or be shaped by it.'

The World Bank meeting next week will be the next test of how IFI leaders will adapt to a new emerging economic order and a top-down initiative from G20 leaders to make global economic diplomacy a more inclusive process.

© Inter Press Service (2009) — All Rights ReservedOriginal source: Inter Press Service

Where next?

Advertisement