G7 loses grip on global policy to O5
By Barry Herman
May 9, 2008
http://www.atimes.com/atimes/Global_Economy/JE09Dj03.html
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 member****p, 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 im****tant
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 member****p. 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 leader****p, 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 cu****on 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 op****tunity 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 op****tunity 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 op****tunity 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.
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