By Pedro Sousa
* The fifth in a series of five articles
The standards of global economic governance should not be lowered or undermined
The economic order that was established after two World Wars has since faced numerous challenges of varying complexity. In the 1970s, following the end of the fixed-exchange rate system and the two oil shocks, the International Energy Agency (IEA) was founded to enable oil-consuming countries to cope with supply disruptions. The Group of Five (G5) advanced industrialized economies evolved into the G7, G8, and now G20, widening the table of global economic governance to include large emerging countries. The IMF was created to help achieve a growing world economy and a stable monetary system and stepping in as lender of last resort when countries faced short-term balance-of-payments crises. The World Bank (WB) was created to help in the reconstruction of war-torn economies but quickly evolved into an institution that dealt with development in poorer countries by providing multilateral loans where private capital is not available on reasonable terms. The WTO, which did not come into existence until 1994, became the international trading body that seeks to expand global trade. Undoubtedly, this framework of governance needs to be improved and developed further. Looking back at the fraudulent behaviour and the weak regulation policies that happened in the financial sector before 2008, and what has been happening in the international economic system since, there are worrying signs of erosion of its standards and principles – the very foundations that have paved way for the economic and social progress and well-being we fought to achieve after the Second World War. There are reasons to worry that some recent adaptations have come at the cost of eroding the standards that underpin the existing rules-based order (Goodman, 2015). Whether if it is the IMF’s decision on the SDR – lowering the bar for the RMB to satisfy Beijing’s desire for immediate entry. Or how well the new AIIB will conform to existing multilateral bank lending standards – namely standards of transparency, civil liberties, workers rights and environmental protection. Cutting corners on traditional lending standards could happen in order to compete with the WB and ADB. On trade, in addition to the stubbornness of some governments to even attempt to achieve some progress in the WTO, there is a gap between WTO commitments and practices. A regional path to multilateralism could be applauded, as it may be the pragmatic solution to end such stalling. However, arrangements like the TPP, TTIP and others, should be subject to criticism if they end up undermining rather than bolstering the rules-based multilateral order and the social and economic progress achieved to date. International standards should not be set aside and overlooked. The bar should not be lowered just to accommodate some economic and financial interests – colossal interests in all honesty. This route would only discredit global economic governance, it will put the global economy at risk and will jeopardize the prospects of future generations. The 2008 global financial crisis is evidence of what happens when we do not coordinate economic macroeconomic policies in a more and more interconnected and interdependent system. That means effective international macro coordination at the highest level of commitment. What we have achieved is valuable and worth continuing building upon, not undermining. True visionaries and internationalists are needed to govern the global financial architecture of the XXI century and indeed in the whole international macroeconomic coordination arena so that collective action is achieved.
Further references:
Berglof, Eril, (2015), “Will China Change The World’s Financial Institutions?”, World Economic Forum: https://www.weforum.org/agenda/2015/11/will-china-change-the-worlds-financial-institutions/?utm_content=buffer0b04b&utm_medium=social&utm_source=facebook.com&utm_campaign=buffer
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
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