A distinct set of global institutions governs the international economic system: the World Trade Organization, the International Monetary Fund, and the World Bank. Each has its specialty, and they are complemented by a number of even more specialized institutions with more restricted membership, such as the Bank for International Settlements and the Organization for Economic Cooperation and Development. Each institution is aware of the others, but none is responsible for the overall coherence of their various policies, let alone the achievement of international objectives.
A distinct set of global institutions governs the international economic system: the World Trade Organization, the International Monetary Fund, and the World Bank. Each has its specialty, and they are complemented by a number of even more specialized institutions with more restricted membership, such as the Bank for International Settlements and the Organization for Economic Cooperation and Development.
Each institution is aware of the others, but none is responsible for the overall coherence of their various policies, let alone the achievement of international objectives. The United Nations does not play this role, though it sometimes convokes treaty negotiations on economic affairs, such as the Law of the Sea and the Convention against Corruption. On international economic and financial issues, the UN serves at best as a discussion forum. Its major contribution is considerable technical assistance to developing countries in specific areas like health and agriculture.
There is one international forum able to bring coherence to the different institutions dealing with trade and financial policy: the Group of 7. Since 1976, the club of G7 countries has met annually at summit level, and semiannually (or as needed) at finance minister level. When the G7 reaches a consensus, it is then generally adopted and implemented by one or more of the relevant global institutions, which the club has been able to control. At least, that's how it used to be.
Although there has always been a variable geometry of important countries that come together on specific issues, the G7 is the standing forum for global economic policy reform and coherence. It has been, nevertheless, somewhat flexible in its membership. After the break-up of the Soviet Union, post-summit meetings began with the Russian Federation, and Russia was invited into the club in 1997, creating the G8.
Similarly, the heads of state of the G8 have invited groups of developing-country leaders to meet with them on the fringes of their summits. In 2007, the G8 formulated a more permanent outreach project, the Heiligendamm Process. Under Germany's leadership, they brought the governments of Brazil, China, India, Mexico, and South Africa closer to their fold as the Outreach 5, at least for a two-year trial period of discussions on economic policy matters of mutual concern: investment, research and innovation, development (particularly Africa), and energy efficiency to combat CO2 emissions.
This lets the cat out of the bag. The G7 has lost control of global policy and the O5 is not going to return it to them. WTO negotiations are stuck. As U.S. negotiating authority has expired, it is not clear why they even continue to go through the motions in Geneva. The IMF has run out of paying customers. When Turkey repays its last outstanding loan, there will be very few nonconcessional loans still outstanding. All former customers are seeking a large enough cushion of foreign exchange reserves to prevent having to return to the IMF for help under its traditional terms. The World Bank is still recovering from the presidency of Paul Wolfowitz and the distrust he sowed in borrowing countries.
Meanwhile, the U.S. financial crisis that began in the summer of 2007 has caused bank failures in Europe as well as domestically, and it raises the question of reforming the international financial architecture. Developing countries so far have not fallen victim, and they are concerned to prevent the crisis from spreading. They also want to protect their overseas financial assets in the developed world. Taking these factors together, perhaps it is time for a political meeting on international economic reform at the global level.
The UN provided an opportunity for just such a meeting in 2002, six months after 9/11, when a global political gesture on development was needed. Governments made several pledges at the International Conference on Financing for Development (FfD) in Monterrey, Mexico:
- to reverse the decline in development assistance;
- to take account of financial needs to meet international development goals when reducing debt;
- to consider something vaguely resembling a sovereign bankruptcy regime; and
- to accord greater "voice and participation" to developing countries in decision making in the major institutions.
There is a new opportunity for a meeting on economic reform at the end of 2008, at a second intergovernmental conference on FfD, to be held in Doha, Qatar. That conference could set the stage to build economic and financial multilateralism in a new mold.
The world is not ready for a global conference to redesign the international system. It is not even ready for a preparatory body to lay the groundwork for such a conference. The first step is realizing that the problems in international economic governance will not be resolved with small adjustments in the major trade and financial institutions. The second step has to be an intensive period of discussion of reform proposals, until a consensus develops around one plan or another. Adopting the new structure is the last major step, and further reforms and revisions will surely follow as the system is refined.
What the Doha meeting could do is establish a new place where governments could start talking to each other about reform of the international system. One recent proposal that could facilitate such a discussion was made by Ambassador Eduardo Galvez of the foreign ministry of Chile, speaking at the General Assembly's FfD review meeting on March 11, 2008.
Galvez proposed creation of "an integrated multi-stakeholder Forum, Council, or a Committee on FfD." It would include national government representatives who sit on the policy organs of the UN, IMF, World Bank, and WTO, plus representatives of UN agencies, members of civil society, and private sector organizations. Its objective would be to undertake an integrated review of the six themes from Monterreyâ€”domestic resources, foreign investment, trade, aid, debt, and systemic issues. It would provide the opportunity for a holistic and serious cross-ministerial, cross-institutional, public and private sector discussion of global economic and financial concerns.
The Galvez proposal is, in essence, a call on Financing for Development stakeholders to shape his idea into a plan going forward from Doha. Nothing quite like it has ever existed. It could be the first step toward more integrated, effective, and democratic governance of the world economy.