7:48 AM Sep 30, 1994


Geneva 30 Sep (Chakravarthi Raghavan) -- Are the Bretton Woods Institutions reformable at all?

As the IMF and the World Bank and their Governors, and hordes of bankers and NGO opponents, gather this weekend at Madrid for their annual meeting and the 50th anniversary celebrations, these questions and doubts, have been voiced, not only by the NGO activists from North and South who have banded together in recent months, but even by Third World finance officials.

The BWIs have been aggressively pushing and promoting the neo-liberal paradigm of development and economics and this has brought them centre-stage and made them a focus of NGO attacks. The WTO, also propagating this paradigm seems likely to face the same problems.

The views of academics and Third World finance officials, in papers and comments on them, presented at the G-24 sponsored April conference in Cartagena on the 50th anniversary of the Bretton Woods Conference have been published by the UN Conference on Trade and Development as a fourth volume in its series "International Monetary and Financial Issues for the 1990s".

Perhaps, as moot as the question whether BWIs can be resolved, is the question whether G-24 Ministers would raise these issues in the Interim and Development Committees, and at the annual meetings of the Board, or just voice them in the G-24 meetings which don't get any attention.

An introduction to the latest UNCTAD volume, by Gerald Helleiner, Canadian academic and Research Coordinator for the G-24, has provided a personal summary of the major suggestions at Cartagena conference. These call for changes and reforms of economic policy substance in the Fund and Bank policies, as well as on issues of process and governance.

Unintended perhaps, is the publication as the last paper in the volume, a paper by Terrence W. Farrell, Deputy Governor of the Central Bank of Trinidad and Tobago which underlines the inability of the current dominant neo-liberal paradigm to deal with the issue of equity, but leaves open the issue of when and how the paradigm would be superseded.

Farrell outlines the essential elements of the neo-liberal paradigm as: powerful belief that free markets are best allocators of resources, and even when not working optimally, they are superior to any other mechanism; strongly held view that governments should neither get directly involved in economic activities nor encourage or target any particular industry or activity for development; international trade and investment should be free of restrictions imposed by individual States or groups; that growth and development are best secured by export-led production; and Western-style democracy, in form if not in substance, is the best, though not the only way of organizing political activities in the service of economic development.

"Like any other paradigm," Farrell argues, "this existing neo-liberal paradigm has weaknesses and blind spots. Even as it becomes conventional wisdom, the model is being challenged externally by experience and internally by its inherent contradictions.

"One major problem is in its inability to deal effectively with the issues of equity or the economic expression of this principle: the distribution of income and wealth. The inner logic of the model requires that it ignores the problems of the distribution of income and accept a certain level of unemployment as 'natural'. Yet these issues are basic to socio-political stability and hence ultimately, the success with which markets can actually operate.

"The problem is difficult enough to handle within nation Stats with legitimate and active governments. At the level of the world economy, the problem is manifest in the widening gap between the rich and the poor countries, but without the possibility of intervention and amelioration by a supranational authority."

"This constitutes the Achilles heel of the model though how the paradigm will be superseded and when, remains moot," Farrel concludes.

In commenting on "essentially pessimistic" and "depressing" outlook, another leading Caribbean economist, Norman Girvan of Jamaica says that the dominance of neo-liberalism and the 'end of history' seems to mean that developing countries, especially small ones, are powerless to influence existing structures and conditionalities."

Helleiner, in his personal summary, under the 'issues of process and governance' has noted that apart from their large and growing share of global population, the developing countries are now perceived as playing a major role in the world economy -- through the use of purchasing power parity (PPP) exchange rates for measuring GNP.

(According to IMF calculations in 1993, while on the basis of nominal exchange rates, the share of the industrial countries in world GNP rose from 68 percent in 1983 to a little under 74 percent in 1992, with a corresponding decrease for the developing world. But on a PPP based weights, the share of the developing countries increased from a little over 32 percent in 1983 to 37 percent in 1992, while of the industrial world decreased from 55.45 percent to 54.63 percent.)

New environmental concerns and heightened financial market links between North and South also argue for increased participation of the developing countries, and a corresponding enhanced democratization, in the Fund and the Bank and global economic governance more generally, the Helleiner summary continues.

This calls for an intensification of cooperation among developing countries together with small industrialized countries and others in pursuit of joint interests in IFIs, and developing countries functioning more as shareholders than supplicants.

To improve governance of the IFIs, the roles of their Executive Boards should be reconsidered, perhaps by reducing their size or via an Advisory Committee and extending terms of Executive Directors.

The role, functioning and even existence of the so far ineffective Development Committee, which has become a "rubber stamp" of the G-7 should be reconsidered. Staff recruitment policies should be reconsidered in favour of a broader orientation and grater policy experience.

An Evaluation Office should be established for the IMF, and the constituency system for election to the IFI boards should be bettered to consolidate countries with common interests within single constituencies.

The World Bank supported research and advisory activities should be "greatly decentralized so as to reduce over-concentration, unnecessary expense and inefficiency in Washington and to raise their credibility and quality".

The many "nitty-gritty" issues -- such as appropriate levels of reserves, appropriate accounting for building expenses, burden sharing etc -- should be addressed on the basis of independent i.e. non-management, non-G7 study.

As for IMF/Bank relations, the proposals at Cartagena summarised by Helleiner called for consideration of several options:

merging the IMF and the Bank; upgrading the IMF role in global macroeconomic management and attainment of symmetric adjustment and concentrating on the global monetary role en route to global central banking function; upgrading role of the World Bank in all financial issues, short-term and long-term, relating to developing countries primarily dependent on official sources of external finance, particularly low-income and small countries; and in any case, work to achieve consistency between Fund and Bank activities.

To consider and carry out such proposals, an intergovernmental committee with broad representation, like the Committee of Twenty of the 1970s (after US repudiation of the obligations on dollar/gold convertibility at fixed rate) should be mandated to reconsider the functioning of the IFIs after 50 years and their future role in a changing world economy.

In a related area, the summary also calls for clarification of the relative responsibilities of the World Trade Organization and the IFIs, as well as their modes of interaction.

In reference to the G-24 itself, the Helleiner summary calls on the developing countries, despite their widely divergent interests which makes it difficult for them to unite on all or even most issues, nevertheless strive to pursue common interests where they exist and form coalitions where appropriate.

Technical exchanges (among the G-24) unmediated by the IFIs, such as the Cartagena meeting are extremely useful and important.

Also, research papers prepared from outside the IFI system are also extremely important to counter the near "monopoly" of research of the IFI system on the economic problems of developing countries.