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Creating a sheriff for the global Wild West
WORLD ECONOMY
WHILE some SA delegates to the recent IMF and World Bank annual meetings in the US saw them as a therapy session which merely staked out the problems, Mark Malloch Brown, the World Bank's vice-president for external affairs, said this week he believed much more was achieved, including the establishment of a base for a more a democratic global financial framework. "Financial markets were looking for a big bang solution. But the origin of this crisis is in how big global capital has become, so the resources of the IMF and World Bank to resist these flaws is quite limited. The meetings took place in a state of panic and representatives of many countries wanted to go home with a piece of paper saying everything would change. "While no rabbit was pulled out of the hat, some significant things did happen in Washington," he said. One was a series of interest rate cuts in G-7 countries, an important acknowledgement because for a long time Europe was saying: "This is not our problem." Brown said the talks would also lead to corporate restructuring, rationalisation and more transparent corporate codes on accounting. There was important debate on whether the institutions themselves need to be adjusted. "If the money power of the bank and the IMF is not sufficient, our political status needs to be enhanced so we have bully pulpit power to pre-empt crises," Brown said. According to Brown, the financial world has been through the global equivalent of the US Wild West. "There have been no rules and regulations and the sheriffs have been a bunch of deputised locals who couldn't keep up when the guys left town. We need a global economic framework and we need institutions to oversee that." Commenting on suggestions in some SA quarters that it should not be lumped with other, more fragile, emerging markets, Brown said the structure of the SA economy and the Latin American economies were similar. The killers are volatility, short-term capital flows, risk aversion on the part of foreign investors and a slowdown in world demand. "This crisis ceased to be fair a long time ago - to Brazil, Europe or even South East Asia, which although flawed, was experiencing high growth and set a record for reducing poverty. This is a crisis which is taking out everybody and is cruelly exploiting weaknesses particular to each economy." Brown said the prospects for a world recession - but not necessarily depression - were quite good. He said the World Bank also had to take some blame in the Asian crisis. "We saw them as our model borrowers, putting them on a pedestal." But he said some good would come of the crises and the latest meetings, as economies were starting to think of the importance of global financial stability. "Out of the big knock comes the possibility of a global framework of values and institutions and a much higher degree of democratic accountability." But he warned that if the crisis was not contained, global depression would lead to all sorts of ills, including trade protection barriers, restructuring of capital flows and the closing down of political and information freedom.
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