The global financial and economic crisis highlights the need for effective means of coordinating complementary national policy responses into workable international action. This seems to me to require in turn an international financial architecture that emphasizes the sustainability of national and cross-border financial institutions, instruments and regulations. The international financial architecture needs a major infusion of transparency and forward-looking regulatory practices. Neither will be simple to conceptualise or implement.
We also need multilateral institutions that have clear mandates, the right tools, and appropriate financial and human capital. This is as true of our regional development banks as it is of the World Bank and the International Monetary Fund. Our multilateral institutions have been left to atrophy – they no longer have the financial muscle or the powers of moral suasion to deliver or commit on comprehensive and global development efforts. Given the skewed nature of the governance structures of these institutions, we have warned for several years now that we run the risk of damaging the capability of these institutions, both in terms of their technical capacity and moral injunction.
This needs to change, and it may be that the present crisis has helped to raise consciousness sufficiently to have more serious discussions about how to scale-up the resources available. The Fund and the Bank should have the capacity to help donors to recommit to their aid pledges, to sustain infrastructure investment, and to ensure accessible emergency financing arrangements for poorer countries. In this regard, I welcome the decision by the G-20 to provide greater resources to these institutions to ensure that they can support sovereign economies, especially developing ones. In addition, we must address the issue of how these institutions are governed and managed. If they are to be truly multilateral institutions, then this must be reflected in their governance arrangements and in their management.
The coordinated nature of monetary and now fiscal responses by governments is a sign of our interdependence and growing maturity to tackle problems collectively. Nevertheless, we still have to create the environment where mutual accountability is fostered. The true test is whether we can convince a country to change its course of action because it would benefit the world economy, even though it may not benefit that particular country. Given what we’ve experienced during the growth of economic imbalances, we are still not yet at that level.
In the post-Bretton Woods era we have lost sight of the implicit multilateralism and mutual accountability of the previous system. We do not necessarily need a system of agreed rules to resurrect those needed qualities, but we do need an international commitment. We might call it a strong form of peer review, or it might be less formally a serious commitment to transparent, public and meaningful dialogue between countries. The communication needs to encompass our common financial and economic challenges and the ways in which national policies and regulatory systems sometimes create negative spillovers, financial inconsistencies, or other types of economic imbalance.
Getting these three aspects of the international economic environment right will help to safeguard the economic progress made by developing economies and emerging markets.
