The Price of Globalist Unilateralism

ASEAN may go ahead with once-scrapped plans to create an Asian Monetary Fund as an alternative to the IMF.

Seems to me like a redundant effort that only makes sense given the extent to which the IMF does not respond effectively to the needs of the majority of its member states.

Multilateralism falls apart if you don’t cultivate it in good faith.

Brazil, the IMF’s A-List, and Currency Swaps

Following up on my earlier post in response to this Guardian story that offered an un-attributed claim that Brazil was appealing to the IMF for loans, it now looks like the Guardian wasn’t so much wrong as just a little inaccurate fuzzy on the details. Whereas the original Guardian story had spun the situation as though the wealthy nations of the Global South had come to D.C. with hat in hand, it looks like a totally different situation is in fact unfolding. The new liquidity fund is meant to offer stable “A-list” economies of the South the chance to strengthen their currency reserves in the event that foreign investment flows continue to run dry. According to the WSJ:

The IMF’s new program, called the Short Term Liquidity Facility, would be used largely to pad a country’s reserves, which could help the recipient defend its currency. But the funds could also be used to help recapitalize banks or cover import bills.

The IMF plan is its clearest recognition that its insistence on tough conditions is driving away potential borrowers that might need its help. But the new plan also puts the IMF in the position of deciding who can have money with few strings attached, and who can’t.

The attempt to draw a bright clear line between “responsible” and “irresponsible” borrowers is certainly new. It will be interesting to see where it leads.

Back to Brazil, though.

Reuters (via the Economic Times of India) actually found someone in Brasilia to do some reporting and added the following:

Brazil welcomes a new liquidity fund proposed by the International Monetary Fund to help emerging markets but does not see a need to draw on the funds for now, a source close to President Luiz Inacio Lula da Silva said on Wednesday.

“I don’t know if we will draw (on the fund) in the future. But we don’t need the money now,” the source said on condition of anonymity. The IMF board is considering a proposal for the Fund on Wednesday and an announcement is expected later in the day.

The Folha de São Paulo added even more critical details in its coverage, also noting that the IMF actions came in conjunction with an announcement that the US Federal Reserve will begin offering Brazil currency swaps at no cost in an effort to help the Lula government pump liquidity into the national economy:

The Central Bank [of Brazil] noted that, “these central banks of emerging economies with responsible fiscal policies and systemic importance,” will now be included in the global network of currency swaps.

The central banks of Australia, Canada, the Euro Zone, Denmark, the U.K., Norway, New Zealand, Sweden, Switzerland, and the U.S. Federal Reserve are currently part of that network. (my translation).

The Folha’s account was reiterated by Bloomberg as well, although the New York-based financial news agency did see fit to print at least one offensive, infantilizing quote that portrayed the poor countries of the world as naughty elementary school students:

“The Fed is there to support large emerging markets that have done their homework over the past several years like South Korea, Brazil, Singapore and Mexico,” said Alonso Cervera, a Latin America economist with Credit Suisse Group in New York.

If the central bankers of the world just needed to do their homework in order to build stable economic systems, I’d like to think that Alan Greenspan wouldn’t have had such a hard time.

Anyhow, if I understand this correctly, the actions taken by the IMF and the Fed signal an effort to treat these four middle income countries with an unprecedented level of parity in response to a crisis that has far exceeded anyone’s expectations. The implications for the post-election day Global Financial Summit are intriguing: will the members of the G22 now have a more substantive place at the bargaining table with an embattled Europe and U.S.? If so, will the Southern super-powers use their authority to defend the interests of their less well-off neighbors or will they merely seek a bigger slice of the pie?

IMF swoops in with cash, conditionalities

Iceland and Hungary are the first recipients of IMF loans as a result of the current global financial crisis.

In a sign of what’s to come, the Fund is already demonstrating its continued willingness to impose policy conditionalities on borrower states.

The Guardian has the story in Hungary:

This week the International Monetary Fund stepped in to stop any more investors from pulling their funds out of the country altogether. Hungary is now set to become the first EU state to receive an IMF lifebelt – of around €12.5bn.

The bail-out announcement received a mixed response in Budapest yesterday. “We have a credit noose around our necks,” declared the rightwing daily Magyar Hirlap, while another paper showed bundles of forint notes being sucked up by a cyclone.

“This is going to be tough,” said the tabloid Blikk, pointing out that a condition of the loan would be a 300bn forint cut in public spending, which will likely lead to high inflation and attacks on social benefits.

And the Financial Times covers Iceland:

The application will be presented to the IMF’s board on Thursday and the central bank said a condition attached to the loan was for a rate rise to 18 per cent.

The move reversed a 3.5 per cent rate cut announced just two weeks ago by David Oddsson, central bank governor, underlining the influence the IMF now has over policymaking in Iceland.

Brian Coulton, managing director at Fitch Ratings, the credit rating agency, said Iceland’s central bank had “no choice but to work very closely with the fund”.

While the policy conditionalities attached to the loans appear less extensive than the intrusive demands the IMF and World Bank used to place on its borrowers, the persistent willingness of the Fund to dictate borrower fiscal policy suggest that the D.C.-based institution has failed to learn from experience. IMF-sponsored structural adjustment policies implemented throughout the 1980’s and 90’s precipitated a string of fiscal crises in the economies of the Global South.

While I’ll have to dig around in the academic journals to assess whether there’s any evidence that IMF-loans caused later crises among borrower countries in the 80’s and 90’s, the historical record in places like Argentina, Mexico, and Brazil is pretty clear: in the process of imposing conditionalities had profound flaws that facilitated the collapse of otherwise strong currencies.

The obvious difference this time around is that the borrowers are in Europe – it will be interesting to see how this affects outcomes.

Global leaders <3 the IMF, but Brazil?

Didn’t see this story until after I had posted earlier today. The lede from the Guardian:

Asian and European leaders today called for more international regulation and a stronger role for the International Monetary Fund in response to the worst financial crisis since the 1930s.

No surprise there. All the questions I outline in my post below still apply.

Meanwhile, the story goes on to include at least the second mention I’ve seen that Brazil is considering going to the IMF for funds in response to the crisis.

The problem is there is no attribution for this assertion, which (if it were true) would constitute a major about-face for the Lula government and a big news item in Latin America’s most populous nation and most globally integrated economy.

So, did the author just make it up? I don’t know, but I can’t find any evidence to support his claim in the financial section of Brazil’s most reputable paper, the Folha de Sao Paulo. Similarly, other English language publications, such as the Christian Science Monitor, have run stories suggesting that Brazil is among the best prepared countries to weather the crisis in terms of its cash reserves.

Given the sensitivity of global markets right now, I hope the Guardian editors will consider investigating this rumor before it gets out of control. Bond rating agencies read this kind of stuff and they won’t like it even if it is just an irresponsible slip.

Reinventing the IMF?

With the continued decline of financial markets and the threat of radical destablization throughout the Global South, I suspect that a consensus view that the IMF must step in to ensure the solvency of developing countries is already spreading quickly among the punditocracy and major news outlets.

The IMF (photo by Kyrion cc-by-nc-nd)

Given the weakened condition of wealthy states and corporations, the IMF will play a major role in any sort of multilateral bailout. Indeed the crisis presents an opportunity for the Fund to resurrect itself after a number of very, very bad decisions made in the Neoliberal 1980’s and 90’s finally came home to roost, bringing shame upon the organization and its ideas.

The question is what kind of an IMF will we get this time around? The critical work of Joseph Stiglitz, Ngaire Woods, and others has provided ample evidence that the Fund’s proclivities for anti-poor policies were not an accident, but a systematic result of the organization’s structure and culture.

Since 2002 (when such positions first gained widespread traction), there has been much talk of reform – a trend which will no doubt continue well past November’s Global Financial Summit – but precious little action.

The U.S. and Europe still retain a ridiculous share of the voting power within the IMF, World Bank, and the WTO, virtually guaranteeing that they will strong arm through whatever solutions they deem fit. While Ambassadors, Trade Representatives, and their ilk may talk a good game about promoting equality through increased multilateral liberalization, the bottom line is that truly equitable trade will not come about without a substantial sacrifice by the traditional “Great Powers” of the West. The recent trend of the U.S. and E.U. pursuing absurd schemes to evade accountability and transparency by undermining global forums also belies any rhetoric of good will.

Does the IMF have what it takes to bring about a true shift in the underlying structures of the global financial system? I doubt it, but it will be revealing to see just how hard Dominique Strauss-Khan (if he holds onto his job now that he has officially held onto his job despite a sex scandal) and his colleagues will try.

Has the Global Financial Crisis stalled ACTA?

I was working on a short article this morning that looks at some of the recent global governance conflicts over Access to Knowledge when I realized that it’s been a while since I’ve heard of new developments in the Anti-Counterfeiting Trade Agreement (ACTA) negotiations.

Ever since Senators Pat Leahy (D, VT) and Arlen Specter (R, PA) voiced their concerns to the USTR and the Australian Department of Foreign Affairs and Trade let on that the future of the agreement might be at risk, my RSS feeds and email lists appear to have gone silent on the issue.

Even the USTR has not had anything to say since this October 10 statement (pdf) issued immediately following the Civil Enforcement negotiations meeting.

The best theory I can come up with (absent any evidence whatsoever) is that the trade representatives and negotiators have been a little busy lately dealing with the trade-related complications of the global financial crisis.

Anybody out there know what the USTR’s been up to these days or have new information about ACTA?

Sebastian Mallaby on the Bretton Woods Redux plans

Mallaby’s editorial in today’s WP echoes some of the broad points I tried to make in my last post, but goes into greater detail on some plausible concrete outcomes from the proposed Bretton Woods Redux.

The key points are in the following paragraphs:

So what might a new Bretton Woods conference usefully do? Well, it could reform the IMF, which has evolved from its original role into a rescue fund for collapsing currencies. During the emerging market crises of a decade ago, the IMF was central to all the bailouts. Its status has since dwindled…

Reestablishing the IMF as the agreed provider of bailouts would be a worthwhile project. The IMF puts economic conditions on its loans while governments place political ones; we don’t want to revive the cronyism of the Cold War, when countries from Cuba to Zaire could pursue absurd policies and know they would be bailed out because they were strategically useful.

The irony is that Britain and France will be the first to resist a serious effort to revive the IMF. British Prime Minister Gordon Brown talks vacuously about giving the organization the role of creating an early-warning system for crises, even though this is what thousands of economic forecasters already try to provide. What Brown does not stress is that serious IMF reform needs to begin with the modernization of its board. Rising powers such as China and India deserve more say. Declining powers need to give up some influence — and that includes France and Britain.

Like I said, we’re heading for Doha all over again…

Laying a new foundation for the global economy?

The Mt. Washington Hotel, Bretton Woods, NH, site of the creation of the current global economic governance arrangement (photo by robdebsgreen cc-by-nc-nd)

We have now seen first full week of trading since last weekend’s Euro-American attempt to stop the bleeding in the world’s financial markets. From any perspective, the results have been sobering.

Among the economic punditosphere, some consensus seems to be emerging (sweetheart bailouts = bad); however economists of various ideological stripes still offer competing explanations of the causes and effects of the crisis (for examples, see Tyler Cowen #1 and #2, Daniel Davies, and Arnold King), as well as a whole range of propositions about how to fix it.

Meanwhile, Mssrs. Bush and Sarkozy have announced plans to initiate a sort of Bretton Woods Redux at Camp David after the U.S. elections.

Taken together, these signs suggest that the captains of the global political economy may attempt to plot a bold new course in the coming months. Nevertheless, I remain suspicious that we’re really witnessing little more than a noisy shuffling of deck-chairs on a badly listing ship.

Certainly, the deluge of analogies linking the present era to the time when the Bretton Woods Conference was held are incomplete at best. The original conference did not happen at the first signs of global financial collapse (circa 1930-something), but rather in the midst of the resulting violence and global destruction of World War II (1944).

That era was one in which the U.S. and U.K. could quasi-legitimately claim to represent the core of the global financial system. The result was a naked demonstration of military and economic power thinly disguised as diplomacy. Richard Peet describes in his (richly detailed, but theoretically unsatisfying) book, Unholy Trinity: The IMF, World Bank and WTO how the outcomes of the New Hampshire meetings reflected their origins in back-room deals between U.S. Deputy Secretary of the Treasury Harry Dexter White and his counterparts working under Lord John Maynard Keynes. It was no coincidence that the resulting institutional arrangements so blatantly favored European and American interests. The event had been carefully engineered to ensure such an outcome.

What will the upcoming round of global economic talks look like? In a somewhat non-analytical, but nonetheless provocative piece published yesterday morning, DailyKos editor Devilstower gets to the heart of the matter. Here are three key quotes (emphasis added):

“While we are fretting about our plans to restore the broken economy, there’s one point that isn’t making the debates, and only rarely making the news. In many ways, we will no longer be the masters of our own economic ship. The factors that will most affect us in the future may no longer be under our control, or in the hands of those inclined to place our needs very high on their list of concerns.”

“After sixty years of Bretton Woods, the world is looking for a less dollar-centric alternative to our current fiscal system. And they’re not begging for our permission.”

“As the world meets in global summit to “rebuild capitalism,” the United States may host the event, but don’t expect the rest of the world to turn to America for ideas. Instead, they will try and sort out if we are AIG — salvageable, and possibly too large to fail — or Lehman Brothers — a former titan allowed to crash on the rocks.”

I agree with this assessment, although Devilstower’s claim that Europe will play a bigger role this time around ignores a more profound shift in the balance of global economic power. Given their current over-leveraged positions, the U.S. and the E.U. will be forced to cede some authority to the big players and creditors of the Global South (China, India, Brazil, Saudi Arabia, U.A.E. etc.). Thus, the analogy between the U.S. and AIG or Lehman is appropriate, but mis-specified: it will not be Europe that decides whether or not to make the call on this nation’s accumulated fiscal warrants.

My intuition is that these summits will look a lot more like the recently collapsed Doha round of negotiations at the WTO. In the foreground, the U.S. and European leaders will carry on a great shadow-play of magnanimity and cooperation. The opening gambit has already been made in the World Bank, where the U.S. has recently surrendered its long-cherished “right” to appoint the organization’s President.

At the bargaining table, however, these same U.S. and E.U. negotiators will flatly refuse to accept the fact that they are no longer the masters of the universe. Instead, they will bully, threaten, and backstab their way to a total impasse – or at best a watered-down statement of “principles” with no real institutional teeth to back it up (sound familiar?). This has been the pattern for a few years now, and I would be pleasantly surprised if it were to suddenly disappear when big issues made their way onto the table.

US will no longer appoint World Bank President

Wow.

The Guardian has the story.

This may be too little too late to mean anything in the context of the current financial crisis, but it is a very important step that was long overdue.

h/t Bretton Woods Project

ACTA: bad for the innovation economy

Haven’t written about ACTA in a little while, but I couldn’t help myself from responding to this piece on the Intellectual Asset Magazine website.

Taking a short-term perspective shared by many large IP owning firms, the author Joff Wild argues:

My view is that countries in which IP is a very valuable asset are perfectly entitled to get together to work out ways in which it can be better protected.

The problem with this argument, and with much of the ACTA proceedings thus far, is that the countries involved have not integrated the competing interests of stakeholders into the negotiation processes in an effective way.

Even if you, like Joff, are not compelled by the claim that ACTA will be bad for global governance, bad for developing countries, and bad for global equality (which it almost certainly will), it is crucial to recognize that many of the most important and innovative firms in the U.S. and Europe are also likely to suffer from this agreement.

Don’t take my word for it, though.

Check out this letter recently submitted by AT&T, Amazon.com, Computer and Communications Industry Association (CCIA), Consumer Electronics Association, eBay, Information Technology Association of America, Internet Commerce Coalition, NetCoalition, US Internet Service Provider Association, US Telecom Ass., Verizon Communications, and Yahoo! Inc.

The letter is addressed to US Trade Representative Susan Schwab and leaves no doubt that these Telecom and IT giants do not appreciate the cavalier IP extremism on offer from the ACTA proponents thus far (all emphases are mine):

We appreciate your objective of protecting the intellectual property of American
rightsholders from infringement overseas. However…there is a very real possibility that an agreement that would require signatories to increase penalties for “counterfeiting” and “piracy” could be used to challenge American companies engaging in online practices that are entirely legal in the U.S., that bring enormous benefit to U.S. consumers, and that increase U.S. exports.

and later:

…because ACTA risks having such an adverse impact on intermediaries operating
in full compliance with U.S. law, the negotiating process should be as open and
transparent as possible.

and last but not least:

…given the importance and complexity of the issues under discussion, we urge you
to proceed with the negotiations at a more deliberate pace. It is critical that there be
sufficient time to ensure that the agreement is in the broad national interest.

Unless Schwab, the USTR office, and other negotiating parties recognize this reality soon, the results of their well-intentioned actions will be bad for the Internet economy, bad for innovative industries, and generally bad for society as a whole.

If, as Wild puts it, ACTA faces “a long and tortuous path to ratification” that might be the best news yet about this half-baked proposition.