Global Macroeconomic And Financial Coordination System Needs To Act Collectively – Part 1

By Pedro Sousa

* The first in a series of five articles

The effort to revive international macroeconomic coordination began in response to the 2008 global financial crisis. The G20 then became the preeminent global economic grouping. It would be somewhat expected that global economic crises reignite the need for effective global economic governance and international cooperation. Failure to do so, creates a vacuum that breeds protectionism and the consequential domino effect – trade wars and currency wars, as we saw after the Great Depression. Shortsighted policies are not what the global economy needs. Plus, we don’t need misguided strategies of the financial sector and its regulators that can put us in a position where the international financial system is on the brink of collapse again like in 2008. We have seen that what happens in one part of the world tends to have spillover effects on the global economy. No wonder citizens all around the world increasingly express dissatisfaction towards their elected representatives, as they demand more efficient and effective institutions. These colossal crises, like the global financial crisis of 2008, uncover some important mistakes and the need to improve, not dismiss, the international system. Multilateral institutions are key to address global public goods issues in a time where there are significant challenges to the world economy. We have been witnessing a transition where economic power is shifting from west to the south and east. And this is a growing multi-polarity driven by global economic shifts, with a number of States becoming key players at the regional or global level. With a rising degree of interconnectedness, it is imperative to manage the rules of the game and reduce negative spillover effects. We see new actors coming to the fore such as regional governance configurations, globally connected cities, private foundations, multinational corporations, and global civil society movements. A growing regionalism is increasingly shaping the international landscape and the global policy agenda. The authority and ability for tackling global problems still resides with States, but the sources of problems and potential solutions are increasingly situated at the transnational or global level. Thus, international coordination of macroeconomic policy should be back on policymakers’ agendas. No matter how protectionist a government thinks it should to be to protect the national interest, no matter how much governments indulge in a race to the bottom driven by a multipolar economic disorder, it is inevitable and unavoidable for XXI century governments to constructively participate in international economic governance, with full commitment. Current and future leaders will have to finally realize that there are important global public goods to be delivered. As global crises continue to manifest and economic power continues to shift, actors like the G20 must take the lead and embrace the responsibility and accountability that comes with it. The G20 has become critical for managing the world economy and, especially, for dealing with economic disruption and financial instability.

Further references:

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Carmichael, Kevin, (2015), “A Christmas Miracle: Obama Finds A Way To Save IMF Reform”, Kevin Carmichael’s Observer, Centre For International Governance Innovation, Waterloo: https://www.cigionline.org/blogs/kevin-carmichaels-observer/christmas-miracle-obama-finds-way-save-imf-reform

Frankel, Jeffrey, (2015), “International Macroeconomic Policy Coordination”, VOX CEPS’s Policy Portal: http://www.voxeu.org/article/international-macroeconomic-policy-coordination

Goodman, Matthew P., (2015), “An adaptable order: global economic governance in 2015”, in Global Economics Monthly, Center for Strategic and International Studies (CSIS), Vol. IV, Issue 12, Washington DC: http://csis.org/files/publication/151217_Global_Economics_Monthly_V4.pdf

Sainsbury, Tristram, (2015), “IMF: The Hard Yards On Reform Are Still To Come”, Lowy Interpreter, Lowy Institute for International Policy: http://www.lowyinterpreter.org/post/2015/12/23/IMF-the-hard-yards-on-reform-still-to-come.aspx

Shafik, Nemat, (2013), “Smart Governance: Solutions for Today’s Global Economy”, Deputy Managing Director, International Monetary Fund, Oxford, United Kingdom, IMF: https://www.imf.org/external/np/speeches/2013/120513.htm

Stiglitz, Joseph E., (2016), “The New Geo-Economics”, Project Syndicate: https://www.project-syndicate.org/commentary/hope-for-better-global-governance-by-joseph-e–stiglitz-2016-01

Subacchi, Paola, (2015), “The AIIB Is a Threat to Global Economic Governance”, Foreign Policy: http://foreignpolicy.com/2015/03/31/the-aiib-is-a-threat-to-global-economic-governance-china/

Woods, Ngaire, (2016), “Why Can’t The World Agree On Monetary Policy?”, World Economic Forum: https://www.weforum.org/agenda/2016/03/why-cant-the-world-agree-on-monetary-policy?utm_content=buffer9aa9c&utm_medium=social&utm_source=facebook.com&utm_campaign=buffer

Woods, Ngaire, (2016), “How to Save the World Bank”, Project Syndicate: https://www.project-syndicate.org/commentary/saving-the-world-bank-by-ngaire-woods-2016-01?barrier=true