G7 loses grip on global policy to
O5 By Barry Herman
A
distinct set of global institutions governs the
international economic system: the World Trade
Organization, the International Monetary Fund, and
the World Bank. Each has its specialty, and they
are complemented by a number of even more
specialized institutions with more restricted
membership, such as the Bank for International
Settlements and the Organization for Economic
Cooperation and Development.
Each
institution is aware of the others, but none is
responsible for the overall coherence of their
various policies let alone the achievement of
international objectives. The United Nations does
not play this role, though it sometimes convokes
treaty negotiations on economic affairs, such as
the Law of the Sea and
the Convention against
Corruption. On international economic and
financial issues, the UN serves at best as a
discussion forum. Its major contribution is
considerable technical assistance to developing
countries in specific areas like health and
agriculture.
There is one international
forum able to bring coherence to the different
institutions dealing with trade and financial
policy: the Group of 7. Since 1976, the club of G7
(Group of Seven) countries has met annually at
summit level, and semiannually (or as needed) at
finance minister level. When the G7 reaches a
consensus, it is then generally adopted and
implemented by one or more of the relevant global
institutions, which the club has been able to
control. At least, that's how it used to be.
Although there has always been a variable
geometry of important countries that come together
on specific issues, the G7 is the standing forum
for global economic policy reform and coherence.
It has been, nevertheless, somewhat flexible in
its membership. After the break-up of the Soviet
Union, post-summit meetings began with the Russian
Federation, and Russia was invited into the club
in 1997, creating the G8.
Similarly, the
heads of state of the G8 have invited groups of
developing-country leaders to meet with them on
the fringes of their summits. In 2007, the G8
formulated a more permanent outreach project, the
Heiligendamm Process. Under Germany's leadership,
they brought the governments of Brazil, China,
India, Mexico, and South Africa closer to their
fold as the Outreach 5, at least for a two-year
trial period of discussions on economic policy
matters of mutual concern: investment, research
and innovation, development (particularly Africa),
and energy efficiency to combat CO2 emissions.
This lets the cat out of the bag. The G7
has lost control of global policy and the O5 is
not going to return it to them. WTO negotiations
are stuck. As US negotiating authority has
expired, it is not clear why they even continue to
go through the motions at the WTO headquarters in
Geneva. The IMF has run out of paying customers.
When Turkey repays its last outstanding loan,
there will be very few nonconcessional loans still
outstanding. All former customers are seeking a
large enough cushion of foreign exchange reserves
to prevent having to return to the IMF for help
under its traditional terms. The World Bank is
still recovering from the presidency of Paul
Wolfowitz, who resigned the post in June last year
barely two years in office, and the distrust he
sowed in borrowing countries.
Meanwhile,
the US financial crisis that began in the summer
of 2007 has caused bank failures in Europe as well
as domestically, and it raises the question of
reforming the international financial
architecture. Developing countries so far have not
fallen victim, and they are concerned to prevent
the crisis from spreading. They also want to
protect their overseas financial assets in the
developed world. Taking these factors together,
perhaps it is time for a political meeting on
international economic reform at the global level.
The UN provided an opportunity for just
such a meeting in 2002, six months after September
11, 2001, when a global political gesture on
development was needed. Governments made several
pledges at the International Conference on
Financing for Development in Monterrey,
Mexico:
To reverse the decline in development
assistance
To take account of financial needs to meet
international development goals when reducing
debt
To consider something vaguely resembling a
sovereign bankruptcy regime
To accord greater "voice and participation" to
developing countries in decision making in the
major institutions
The first two were
delivered (at least in part), the third was
considered and rejected, and the fourth has
produced very little despite a lot of talk.
There is a new opportunity for a meeting
on economic reform at the end of 2008, at a second
intergovernmental conference on financing for
development, to be held in Doha, Qatar. That
conference could set the stage to build economic
and financial multilateralism in a new mold.
The world is not ready for a global
conference to redesign the international system.
It is not even ready for a preparatory body to lay
the groundwork for such a conference. The first
step is realizing that the problems in
international economic governance will not be
resolved with small adjustments in the major trade
and financial institutions. The second step has to
be an intensive period of discussion of reform
proposals, until a consensus develops around one
plan or another. Adopting the new structure is the
last major step, and further reforms and revisions
will surely follow as the system is refined.
What the Doha meeting could do is
establish a new place where governments could
start talking to each other about reform of the
international system. One recent proposal that
could facilitate such a discussion was made by
Ambassador Eduardo Galvez of the foreign ministry
of Chile, speaking at the General Assembly's
financing for development review meeting on March
11, 2008.
Galvez proposed creation of "an
integrated multi-stakeholder forum, council, or a
committee on financing for development." It would
include national government representatives who
sit on the policy organs of the UN, IMF, World
Bank, and WTO, plus representatives of UN
agencies, members of civil society, and private
sector organizations. Its objective would be to
undertake an integrated review of the six themes
from Monterrey - domestic resources, foreign
investment, trade, aid, debt, and systemic issues.
It would provide the opportunity for a holistic
and serious cross-ministerial,
cross-institutional, public and private sector
discussion of global economic and financial
concerns.
The Galvez proposal is, in
essence, a call on financing for development
stakeholders to shape his idea into a plan going
forward from Doha. Nothing quite like it has ever
existed. It could be the first step toward more
integrated, effective, and democratic governance
of the world economy.
Barry
Herman is project director of the Carnegie
Council/New School project, Ethics and Debt. He is
a senior advisor in the Financing for Development
Office of the UN Department of Economic and Social
Affairs and was part of the UN Secretariat team
that prepared the Monterrey Summit on Financing
for Development in 2002. He has edited three books
and published articles and chapters in books on
North-South financial issues.
(Published with permission of the Global Policy Innovations
program at the Carnegie Council for Ethics in
International Affairs.
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