Monday, February 1, 2010

Jagdeo among the Early Callers for a New Bretton Woods Agreement

Dr. Prem Misir: Our own President Bharrat Jagdeo and some other Heads of State, time and again, are on record demanding change in the architecture of International Financial Institutions (IFIs). I will return to this point later in this letter.

Nonetheless, most recently, French President Nicholas Sarkozy in his keynote speech at the current World Economic Forum at Davos, Switzerland, echoed a populous call for a new Bretton Woods agreement to control exchange rates and the function of the dollar, according to the Financial Times of London; Sarkozy now has become a member of the team in demanding significant changes at the IFIs.

President Sarkozy intimated that this will be an agenda item when France chairs the G8 and G20 in 2011. He really attacked the archaic and exploitative architecture of the IFIs.

In this vein, the French President issued an incisive assault on the structure of market capitalism, and felt that the currency exchange rate is the cause of serious inequities in the global economy. He argued that exchange instability and the undervaluation of some currencies are the chief culprits for unfair trade practices and unfair competition, including the huge disparities in the global economy; for this reason, he argued for exchange currency control which must involve a new Bretton Woods agreement.

The Financial Times of London recently noted that many significant changes that impacted the management and regulation of the economy were due to cataclysmic upheaval, and eventually the Bretton Woods Pact. For instance, it pointed out that in order to finance military expenditures in Europe, the English came up with the idea of central banking in 1694; to finance the Napolelonic Wars, the British introduced the modern income tax system; and subsequently, the Great Depression between 1929 and 1935 and then the Second World War brought us to the Bretton Woods agreement which created the International Monetary Fund (IMF) for crisis lending, and the World Bank for development aid. But these changes flowing from serious conflicts should not be surprising, as only conflicts generate change. Nonetheless, we have to manage the conflicts, in order to engineer desirable changes. And the early callers for change in the international financial structure are intent upon redesigning the IFIs.

The Financial Times went to say that these IFIs’ weaknesses in managing a changing economy continue unabated to influence decision making; the Financial Times of London asserted “But despite a torrent of rhetoric about a new Bretton Woods, the world ends the decade with much the same system as it began. The lesson is that institutional fiddling is not a substitute for political courage.” Excessive rhetoric and not political will to effect a transformation of the IFIs remain the current strategy of some politicians in both the developed and developing world; and some of these politicians should latch on to Ernest Hemingway’s assertion and assimilate this view in their personal construct: “Courage is grace under pressure.” Or they should take on board Arthur Schopenhauer’s idea that “Change alone is eternal, perpetual, immortal.”

Criticisms of the IFIs abound. Our own President Bharrat Jagdeo at the 64th UN General Assembly in 2009, noted that “because our fear is that if we continue along the same path then we will have a new architecture that caters only for the concerns of the big countries - expanded now to the G-20, and the smaller countries will not see their concerns reflected in that architecture…this is why last year I called for a new Bretton Woods-type conference, where all the countries in this room helped to create that architecture…”

Jagdeo alluded to the inherent weaknesses of the IFIs when he asserted at the United Nations University in Japan in 2007 that “Although it may not be generally known, the IMF measures our countries along the same standards as Brazil and India. Special instruments are required to measure our performance so that development programmes could be suitably tailored. The Multilateral Financial Institutions should not look narrowly at the per capita income of countries and graduate them out of soft loans. Those countries which have been designated as Middle Income Countries still face problems which are magnified because of their small size.” This was one of President Jagdeo’s finest papers which merits official publication at another level.

In his Rio Summit’s opening remarks in 2007, President Jagdeo spoke about reforming the IMF and the World Bank to secure increased democracy in their decision making and that their policies should echo today’s issues.

And then at the Development Cooperation Forum at the Carter Center in 2002, Jagdeo spoke about the dichotomy between the IMF’s public statements and what actually happens at the ground level; and that the IFIs’ missions negotiating power is disproportionate to that of the locals. President Jagdeo noted at this Forum “Many of the policy positions being taken will increase poverty. We are not going to achieve [the Millennium Development Goals]. There is a big dichotomy between public declarations and what actually happens on the ground in countries like ours.” This President made other remarks on the need to reform the IFIs.

There are others. Dr Maurice Odle spoke about the lack of democracy in the IFIs; and at a Georgetown Chamber of Commerce Forum in 2008, he also talked about systemic weaknesses of the financial design of the IMF. Francis Gavin of the University of Texas noted that both the IMF and the World Bank are tools of U.S. economic foreign policy, as the U.S. is one of the largest funding sources to these organizations. The Bretton Woods Projects accused the World Bank of disregarding the poorest countries; for instance, the World Bank reduced cash disbursements to Sub-Saharan Africa by $500 million in the last fiscal year.

The University of Iowa Center for International Finance and Development also indicated a series of criticisms: The World Bank has a top-heavy bureaucratic structure; the World Bank funded projects that destroyed weak eco-systems, resulting in the dislocation of many people; several human rights concerns bedeviled a number of World Bank projects; the World Bank has a counterproductive loan culture where the projects were unresponsive to community needs. And the criticisms go on and on.

For these reasons, it is a welcome signal from President Sarkozy to demand a new Bretton Woods agreement; but President Jagdeo and others were among the early challengers to the structural redesign of the IFIs.

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