By Deepak Nayyar
Herald (Harare)August 15, 2002
The United Nations and the Bretton Woods Institutions today operate on outdated political and economic foundations and need to be overhauled before a crisis induced by globalisation forces the changes required, writes Deepak Nayyar. United Nations, the World Bank and the International Monetary Fund, created at the end of the Second World War, today operate on outdated political and economic foundations. They need to be overhauled before a crisis induced by globalisation forces the changes required. The UN and its Security Council together with the Bretton Woods Institutions (BWIs) need urgent reform to meet globalisation's challenges. It took a world war and a worldwide economic depression to create the UN and the BWIs.
Fifty years on, the international community should not wait for a crisis of such proportions to take action on global governance. The BWIs are the most ardent advocates of economic reform. It is now time to reform the reformers. Both institutions were created to manage the international payments system and to help Europe reconstruct. This was at a time shaped by memories of the Great Depression.
But the world has changed since then. BWI orthodoxy has not resolved the economic problems of borrowing countries - deep poverty and inequality persist. And the BWIs are incapable of effectively managing today's international financial system - in particular the instability and volatility of exchange rates and capital flows. The essence of the problem is international capital flows without any international controls. In fact, globalisation has accentuated the crisis of development. The IMF must manage and stabilise the international financial system, not only through crisis management but also through more crisis prevention. It is high time the IMF practiced what it preaches about transparency. Accountability is an imperative without which the Fund will continue to pursue the interests of a subset of the international community - often to the detriment of the general interest of peoples and governments or the collective interest of the world economy. The World Bank should cease to be a moneylender and transform itself into an institution more concerned with development, focused on development activities in poor countries. Accountability at the World Bank is limited to finance ministries and central banks. An independent evaluation of bank-supported projects and programmes should be a first step to improving its accountability to governments and peoples.
The number of humanitarian crises with their legacy of death, displacement, and destruction has risen dramatically over the past decade. The response of the international community and of the UN - in peace-keeping, helping refugees, mine clearance, reconstruction etc - has been ad hoc, inadequate or simply not forthcoming. There is still no system in place to take care of - let alone prevent - complex humanitarian emergencies. International capital markets have undergone explosive growth since 1944. A new financial architecture is needed to manage global macro-economics and prevent crises.
What are the foundations for a new system of macroeconomic management? The cornerstones must be institutional mechanisms to foster consultation, consistency, and surveillance of national macro-economic policies. This must be supported by more emergency finance, available before (not after) international reserves are depleted in times of crisis. Standstill procedures, or orderly debt workout procedures, must be initiated to deal with country debt problems, in the same way that these procedures handle private-sector bankruptcy procedures. And countries need more support in developing minimum standards in prudential regulation, supervision, and accounting. An international system of governance for transnational corporations is also needed. This should focus not only on the rights - but also the obligations - of transnational corporations. Restrictive business practices should be curtailed, and an international regime of anti-trust laws created. This can build on efforts by the UN Conference on Trade and Development, the experience of the EU, and initiatives by the OECD [Organisation for Economic Cooperation and Development] and the IFC [International Finance Corporation].
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