tag:theconversation.com,2011:/us/topics/bretton-woods-11536/articlesBretton Woods – The Conversation2023-10-16T14:12:10Ztag:theconversation.com,2011:article/2156662023-10-16T14:12:10Z2023-10-16T14:12:10ZThe World Bank and the IMF need to keep reforming to become fit for purpose<p>The World Bank and the International Monetary Fund are being challenged to make substantial reforms so that they become fit for purpose in the 21st century.</p>
<p>Some suggest that they cannot be sufficiently reformed and should be shut down. Others, including myself, contend the world needs effective international financial institutions. If they did not exist, we would have to create them. Consequently, we must try to make them more credible, legitimate, inclusive, responsible and effective. The challenge is doing so within the constraints of their founding treaties. </p>
<p>This article is based on my book <a href="https://global.oup.com/academic/product/the-law-of-international-financial-institutions-9780192862839?lang=en&cc=us">The Law of International Financial Institutions</a>. It provides some background on these institutions and discusses the problems they are confronting and their potential for reform. </p>
<h2>Some history</h2>
<p>Prior to 1944, countries fixed the value of their currencies in terms of gold. This system collapsed with tragic consequences in the inter-war years. </p>
<p>The purpose of the <a href="https://2001-2009.state.gov/r/pa/ho/time/wwii/98681.htm">1944 Bretton Woods conference</a> was to create a new international monetary order. It was an exclusive affair. Only 44 out of the then 99 officially recognised countries were represented. A large portion of humanity was living under colonial domination and didn’t take part in the negotiations.</p>
<p>Four characteristics of this new international order are noteworthy. </p>
<p>First, it created the first rules-based international monetary system. The participating states agreed that the IMF would oversee the new order. In return, both the IMF and World Bank offered their member states financing. The financing came with terms and conditions and the IMF and the World Bank could hold the states accountable for failing to comply with them. </p>
<p>Second, the member states accepted that the governance of the institutions would be based on weighted voting, with each member state receiving a vote that corresponded to its economic size and financial contribution. This effectively modified the principle of sovereign equality which is at the core of the international legal order. A state could be outvoted and forced to comply with policies that it opposed. </p>
<p>Third, the legal status and powers of these new institutions was only clarified over time. Most significantly, they were given immunity to mitigate the risk that a member state would use its authority to interfere with their operations in that state. Therefore, they cannot be sued in any court in the world. </p>
<p>Fourth, the treaties are silent on their environmental and social responsibilities. </p>
<h2>Evolution</h2>
<p>By the mid-1970s, the two institutions were operating in a very different world. Many states in Africa and Asia had become independent and had joined them. They had different needs and priorities from the original member states. However, because of their relative level of economic development, they lacked the votes to change policies and priorities. </p>
<p>Second, the system created at Bretton Woods <a href="https://www.imf.org/external/about/histend.htm#:%7E:text=of%20the%20dollar.-,End%20of%20Bretton%20Woods%20system,the%20dollar's%20convertibility%20into%20gold.">collapsed in 1973</a>. It was replaced by a system in which markets played a great role in determining the value of currencies and each state could decide for itself how to conduct its own monetary policy. </p>
<p>Third, concerns about the environmental and social impacts of economic activity were beginning to grow around the world. It resulted in controversies involving projects funded by the World Bank and programmes funded by the IMF. </p>
<p>Fifth, civil society organisations were becoming more important actors. They were concerned that the operations of these institutions were causing substantial harm to local communities and the environment. They began to campaign for the World Bank and IMF to become more transparent and accountable. </p>
<p>The two institutions have made some efforts to respond to these developments.</p>
<p><strong>Governance</strong>. The number of member states increased by over four times between 1946 and 2023. However, the size of their boards of executive directors has only doubled. This means that it is harder for many states to have their concerns about policies, procedures and operations raised at the board level. </p>
<p>Consequently, the institutions are likely to be less responsive to the concerns of their smaller and poorer member states than to their richer and more powerful member states.</p>
<p>This problem is exacerbated by the institutions’ declining financial capacity. When the IMF opened for business, its total resources were equivalent to 3% of a global GDP of about US$10 trillion (in 2011 dollars). Today, they are equivalent to about 1% of a global GDP of about <a href="https://ourworldindata.org/grapher/world-gdp-over-the-last-two-millennia">US$100 trillion</a>. </p>
<p><strong>Responsibility.</strong> The institutions have acknowledged their responsibility for the environmental and social impacts of their operations and that there are some human rights issues that are relevant to their operations. However, they have struggled to develop an effective and sustainable approach to these issues. </p>
<p>One reason is that there is no agreement on which standards they should use in addressing these issues. </p>
<p>A second reason is that understanding these issues requires them to do impact assessments and to consult with affected stakeholders. But both require them to interact with a broader range of stakeholders in their member states than was originally envisaged. It may also require them to engage with groups that are opposed to the projects or policies. </p>
<p>In response, the World Bank has developed its own operational policies and procedures for its staff. They also educate external actors about what they can expect from the bank in regard to environmental and social issues. This is not always acceptable to their member states.</p>
<p>The IMF has maintained that, because it focuses on macro-economic issues and policy based finance, it is difficult to establish causal links between its operations and their environmental and social impacts. But it has <a href="https://academic.oup.com/jiel/article/26/1/17/7003371">now acknowledged that these issues can be “macro-critical”</a> and that it needs to pay attention to them. It has not yet adequately explained how it will do this. </p>
<p><strong>Accountability.</strong> The expanding role and responsibilities of the World Bank and IMF raise complex issues. There is a risk that they will make mistakes that result in some stakeholders having to assume an unreasonably high share of the costs of these projects or policies. </p>
<p>In 1993, the World Bank created an independent accountability mechanism, <a href="https://www.inspectionpanel.org/">the Inspection Panel</a>. Despite its shortcomings, it was an important international legal development.</p>
<p>The IMF has not established its own independent accountability mechanism. It is one of the few international organisations that does not offer its external stakeholders any means for holding it accountable. </p>
<h2>What next?</h2>
<p>The World Bank and IMF need to continue evolving if they are to remain fit for purpose in the 21st century. They need to develop governance arrangements, operational policies based on international norms and standards, and accountability structures that respond adequately to the challenges of climate, poverty, inequality and discrimination. Their richer member states need to provide them with adequate resources to fulfil their mission.</p><img src="https://counter.theconversation.com/content/215666/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Danny Bradlow receives funding from the Open Society Foundation for a project on sovereign debt. He is a compliance officer with the Social and Environmental Compliance Unit of the United Nations Development Programme, UNDP's independent accountability mechanism. </span></em></p>The World Bank and IMF need to continue evolving if they are to remain fit for purpose in the 21st century.Danny Bradlow, Professor/Senior Research Fellow, Centre for Advancement of Scholarship, University of PretoriaLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2022702023-03-24T09:35:26Z2023-03-24T09:35:26ZThe World Bank used to cause untold harm – but 30 years ago it started reforming. What went right<figure><img src="https://images.theconversation.com/files/516958/original/file-20230322-1702-1ribfs.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Photo by Celal Gunes/Anadolu Agency via Getty Images</span></span></figcaption></figure><p>Development projects can have profound impacts on their societies. There are many benefits that flow from building new roads and power plants, and from modernising agricultural practices. But they can also have permanent negative consequences. </p>
<p>For example, communities may be involuntarily relocated to make way for roads or power plants. These projects can change the way natural resources are used in a particular area, making it difficult or impossible for communities to continue their traditional agricultural practices. The job opportunities that they create can challenge traditional values and ways of living.</p>
<p>Historically, many of these projects have been owned or sponsored by governments, eager to bring the benefits of modernisation to their citizens. They have often been funded by multilateral institutions like the World Bank, <a href="https://www.worldbank.org/en/archive/history/exhibits/Bretton-Woods-and-the-Birth-of-the-World-Bank">which was established </a> in 1944 to fund the reconstruction and development of its member states. </p>
<p>These institutions were not unaware of the environmental and social impacts of the projects they funded. However, they maintained that each state had to decide for itself how it wished to manage these impacts. They would argue that they were merely the funders, and so should defer to the government on how to manage them. It would be an affront to the state’s sovereignty for them to interfere with the government’s decisions on these aspects of the project.</p>
<p>The World Bank’s confidence in its ability to avoid responsibility for its project related decisions and actions was bolstered by the fact that it was <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2963050">immune from being sued in any national court</a>.</p>
<p>The result was that the bank supported some projects that were environmentally and socially damaging. As a result, during the 1980s the World Bank was <a href="https://brucemrich.com/book/mortgaging-the-earth-the-world-bank-environmental-impoverishment-and-the-crisis-of-development">the target of sustained protests by affected communities and their allies</a> around the world.</p>
<p>To its credit, 30 years ago the bank, following an international campaign in which this author participated, recognised that its position was untenable. In <a href="https://www.inspectionpanel.org/sites/ip-ms8.extcc.com/files/documents/Resolution1993.pdf">1993 it established</a> the world’s first citizen driven independent accountability mechanism, the <a href="https://www.inspectionpanel.org/">World Bank Inspection Panel</a>.</p>
<p>This article argues that the panel’s 30th anniversary is a moment to celebrate its accomplishments. The panel has significant limitations. Nevertheless, its impact on development and the international development financing institutions has been profound. </p>
<h2>Accomplishments</h2>
<p>The three-member panel is independent of the World Bank’s management. It receives and investigates complaints from communities who allege that they have been harmed or threatened with harm because of the World Bank’s failure to comply with its own policies and procedures in funding a particular project. In other words, the panel’s focus is exclusively on the conduct and decisions of the Bank’s staff and management. </p>
<p>It sends its findings to the bank’s board. In cases of noncompliance, the bank’s management is expected to submit an action plan to the board that explains how it will correct the noncompliance and its consequences. Both the report and the action plan are made public.</p>
<p>Since it was established, the panel’s investigations have resulted in some relief for affected communities. For example, 70,000 people, previously ignored by the World Bank, received compensation for their losses <a href="https://www.inspectionpanel.org/panel-cases/jamuna-new-multipurpose-bridge-project">in a bridge project in Bangladesh</a>. In the <a href="https://www.inspectionpanel.org/panel-cases/transitional-support-economic-recovery-credit-and-emergency-economic-and-social">Democratic Republic of Congo</a>, a forestry project was revised to provide greater protection to indigenous communities who had not been adequately consulted about the project.</p>
<p>The panel has also succeeded in establishing the principle that international financial organisations must be accountable for their own actions to the communities whose lives are affected by the projects and policies they finance.</p>
<p>Since its establishment, over 25 multilateral and national development banks and institutions <a href="https://accountabilityconsole.com/iams/">have established</a> their own independent accountability mechanisms. In total, these mechanisms have received <a href="https://accountabilityconsole.com/complaints/">1,634 complaints</a>, of which about 330 have been from 27 countries in Africa. Forty-five of the African cases have resulted in findings on compliance or noncompliance. </p>
<p>All findings of noncompliance have led to management action plans intended to correct the noncompliance.</p>
<p>The reports of these mechanisms are used both by their own institutions to improve their performance in development projects and to reduce the risk that they repeat old mistakes. They can also help ensure that they are held accountable when they do repeat these mistakes.</p>
<p>Many of these mechanisms now offer dispute resolution services in addition to compliance reviews. Many of them now also publish reports documenting the lessons they have learned about specific aspects of development projects.</p>
<p>It is important to note that many of the issues that arise in these cases also arise in private sector projects. This means that the reports provide guidance and help develop good practice standards for all development projects. They are also used to develop best practice in regard to the human rights and environmental responsibilities of business.</p>
<h2>Challenges</h2>
<p>To be sure, independent accountability mechanisms face significant challenges. </p>
<p>The first is that bringing cases to the mechanisms is not simple. Many of the successful cases have required communities to obtain the assistance of technical experts. This means that the cases that are brought come from communities that have access to sophisticated NGOs and advisers rather than because they are the most urgent cases.</p>
<p>Second, they cannot make binding decisions or determine that the communities should be given a remedy. There have been cases in which those who have been harmed by the action of the banks have been compensated. But this is not the norm. In fact, there is only one case in Africa in which a panel investigation led to victims receiving monetary compensation. The panel’s report <a href="https://www.inspectionpanel.org/panel-cases/transport-sector-development-project-additional-financing">in a case in Uganda</a> resulted in the World Bank developing a new policy on gender-based violence and establishing a trust fund to compensate, and support the girls and women who were the victims of this violence. </p>
<p>Designing and funding remedies that can be used in all similarly situated cases is politically and technically complicated. But it is not acceptable that those who have been harmed by the Bank’s own failures do not receive an effective remedy that compensates them for their loss.</p>
<p>Third, the bravery required to bring complaints to these mechanisms must be noted. They require the complainants to go to an international forum in opposition to their own governments or powerful interests in their own countries who support the projects the banks are funding. It is therefore inevitable that in some cases, the supporters of the project will retaliate against the complainants. This suggests that the mechanisms and the banks have a responsibility to take action to protect the complainants. </p>
<p>To their credit, the banks and the mechanisms have foreseen this problem and do allow for confidential complaints. But the procedures that seek to protect the complainants from reprisals have not always been fully effective.</p>
<p>It is now standard practice for multilateral financing institutions like the World Bank to have an independent citizen driven accountability mechanism that focuses exclusively on the responsibilities of the institution. The only exception to this general rule is the International Monetary Fund.</p>
<p>The mechanisms have also demonstrated that they can evolve and adapt to new challenges. While their limitations have also become clear, we should celebrate the Inspection Panel’s <a href="https://www.inspectionpanel.org/node/4966">30th anniversary</a>.</p><img src="https://counter.theconversation.com/content/202270/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Danny Bradlow receives funding from the Open Society Initiative for Southern Africa (OSISA) for an unrelated project. He is a Compliance Officer in the Social and Environmental Compliance Unit (SECU), the independent accountability mechanism for UNDP. He has also conducted invesitgations for the independent accountability mechanisms at the African Development Bank and the European Bank for Reconstruction and Development and has been a consultant to the World Bank on independent accountability issues.</span></em></p>Thirty years ago the World Bank recognised that its position was untenable. It put in place mechanisms to make the bank more accountable to ordinary people.Danny Bradlow, Professor/Senior Research Fellow, Centre for Advancement of Scholarship, University of PretoriaLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1870412022-07-17T09:46:18Z2022-07-17T09:46:18ZGhana’s return to the IMF within three years underscores its deeper economic problems<figure><img src="https://images.theconversation.com/files/474246/original/file-20220715-16-uz3gl1.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Various political administrations have failed to prudently manage the economy </span> <span class="attribution"><span class="source">Getty Images</span></span></figcaption></figure><p>Ghana is again <a href="https://www.imf.org/en/News/Articles/2022/07/13/pr22256-imf-staff-concludes-visit-to-ghana">seeking assistance</a> from the International Monetary Fund (IMF) to enable the country to meet its <a href="https://www.ons.gov.uk/economy/nationalaccounts/balanceofpayments">payments</a> to the rest of the world and restore the health of government finances. It is the second time in the <a href="https://www.imf.org/en/News/Articles/2015/09/14/01/49/pr15159">past three years</a> and <a href="https://www.imf.org/external/np/fin/tad/extarr2.aspx?memberKey1=350&date1key=2018-05-31">17th since independence</a> in 1957 that Ghana has turned to the IMF for help.</p>
<p>The latest foray reverses the current administration’s earlier stance that it would avoid approaching the multilateral body because of the <a href="https://www.jstor.org/stable/40270954">conditions</a> that come with its assistance. Ghana’s finance minister Ken Ofori-Atta said in <a href="https://www.ghanaweb.com/GhanaHomePage/business/IMF-still-not-an-option-Ofori-Atta-speaks-on-government-s-homegrown-recovery-plan-1537070">May 2022</a> that government was “confident in its homegrown solutions such as the e-levy in getting the economy to recover … seeking a bailout from the IMF is not an option”.</p>
<p>Ghana’s approaches to the IMF, which have averaged every four years over the past 65 years, tell a story of recurrent failure of government to properly build the economy to withstand internal and external shocks. Ghana’s lack of fiscal discipline, and its recent history of dependence on foreign financing – with as much as 48% of the total <a href="https://mofep.gov.gh/sites/default/files/reports/economic/2021-Annual-Public-Debt-Report.pdf">public debt</a> being held by external investors – leaves the country vulnerable to swings in investor sentiment, and accompanying portfolio investment selloffs. </p>
<p>The request to IMF also underscores the fact that Ghana has much deeper structural economic problems. These require a multi-stakeholder approach to resolve. Unfortunately, the pervasive and deeply entrenched nature of the country’s Fourth Republican <a href="https://www.econstor.eu/bitstream/10419/122241/1/682193240.pdf">clientelist politics</a> which manifests in a ‘<a href="https://www.graphic.com.gh/news/politics/winner-takes-all-the-bane-of-ghanaian-politics.html">winner take all</a>’ approach to <a href="https://www.jstor.org/stable/45341706">governance</a> has often distorted a much-needed national debate on what needs to be done and how it must be done. Ghana must fix the structural problems – such as its over-reliance on primary commodity exports – and live within its means. As we argue in an <a href="https://www.researchgate.net/project/The-Political-Economy-of-IMF-Programmes-and-Public-Debt-Management-Under-Ghanas-Fourth-Republic">upcoming research project</a>, there is a greater political leaning towards shorter-term goals of maintaining regime stability or forcing a change in the regime.</p>
<p>Ghana came out of the last <a href="https://citinewsroom.com/2019/04/ghana-officially-exits-imf-programme/">IMF programme in 2019</a> with some <a href="https://www.imf.org/en/News/Articles/2019/03/20/pr1983-ghana-imf-executive-board-completes-the-last-review-of-extended-credit-facility-for-ghana">significant</a> macroeconomic gains. </p>
<p>It had been forced to tap IMF assistance to deal with global and local economic shocks - the same as now. These included the spillovers of the <a href="https://www.brookings.edu/blog/the-avenue/2015/03/31/beneath-chinas-gdp-slowdown/">slowdown</a> in China, the 2014-2017 <a href="https://blogs.worldbank.org/developmenttalk/what-triggered-oil-price-plunge-2014-2016-and-why-it-failed-deliver-economic-impetus-eight-charts">commodities price slump</a>, reckless <a href="https://blogs.worldbank.org/africacan/will-procyclicality-override-ghanas-new-fiscal-responsibility-law">spending</a> in the lead up to often highly contested elections especially in 2012 and 2016, and a prolonged domestic electricity <a href="https://www.ogel.org/article.asp?key=3974">crisis</a> known locally as <em>'dumsor’</em>.</p>
<p>Ghana’s current external shocks are related to the <a href="https://www.imf.org/en/News/Articles/2022/07/13/pr22256-imf-staff-concludes-visit-to-ghana">COVID-19 pandemic</a> and Russia’s <a href="https://www.imf.org/en/News/Articles/2022/07/13/pr22256-imf-staff-concludes-visit-to-ghana">ongoing war</a> against Ukraine. Internally, the government has also recklessly managed its finances with excessive borrowing, resulting in a looming debt crisis. The country now <a href="https://mofep.gov.gh/sites/default/files/reports/economic/2021-Annual-Public-Debt-Report.pdf">spends</a> about a third (27%) of its expenditures in just servicing debt alone, not including principal repayments. This is often more than the <a href="https://mofep.gov.gh/sites/default/files/budget-statements/2022_Budget_Statement_v3.pdf">compensation of workers</a> on the government payroll, estimated at 26% of total expenditure in 2022.</p>
<h2>The depth of Ghana’s mess</h2>
<p>A review of recent economic data shows why it was inevitable that Ghana would seek IMF assistance. </p>
<p><a href="https://www.thebalance.com/what-is-real-gdp-how-to-calculate-it-vs-nominal-3306040">Real GDP</a> growth slowed from an average of 6.9% from 2017-2019 to 0.4% in 2020 during the pandemic but picked up to 4.7% in 2021. The <a href="https://mofep.gov.gh/sites/default/files/budget-statements/2022_Budget_Statement_v3.pdf">November 2021</a> forecast of 5.6% real growth in GDP in 2022 is likely to be lower because of rising price pressures. This is mainly driven by food and refined petroleum products due to the <a href="https://theconversation.com/ukraine-war-how-ghana-is-vulnerable-and-what-can-be-done-178528">Russia-Ukraine war</a> and global supply chain bottlenecks. Ghana’s inflation, as measured by a basket of goods and services, hit <a href="https://www.statsghana.gov.gh/gssmain/storage/img/marqueeupdater/CPI%20June%202022.pptx">29.8% in June 2022</a> - the highest level in 20 years.</p>
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Read more:
<a href="https://theconversation.com/ukraine-war-how-ghana-is-vulnerable-and-what-can-be-done-178528">Ukraine war: how Ghana is vulnerable, and what can be done</a>
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<p>Rising prices have <a href="https://www.bog.gov.gh/mpc_press_release/mpc-press-release-may-2022/">forced</a> the Bank of Ghana to raise its policy rate by 4.5 percentage points to 19% by May 2022 in an attempt to tame inflation. Commercial banks have in turn raised the rate at which they lend to businesses and individuals. The policy rate <a href="https://www.bog.gov.gh/monetary-policy/policy-rate-trends/">last</a> hit 20% in January 2018 and drastically reduced to 13.5% until the recent hikes started in November 2021. The unintended consequence of stemming inflation is a potential stifling of economic activity through crowding out of the private sector by the government and high cost of capital. </p>
<p>In addition, the local currency – the cedi – had depreciated by almost 20% against the US dollar as of <a href="https://allafrica.com/stories/202207040545.html">June 2022</a>, making imports more expensive, forcing prices of goods and services upwards.</p>
<p>Ghana’s economic challenges have been made worse by the country’s reliance on portfolio flows. This is the foreign money that moves in and out of countries in search of the best investment returns. Unlike money that builds factories, these flows are more sensitive to a country’s short-term economic and financial developments. Given Ghana’s significant borrowings from commercial rather than multilateral development financiers, the country has become more vulnerable to the rising cost of debt. Multilateral development institutions lend for longer at more reasonable rates. </p>
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Read more:
<a href="https://theconversation.com/ghanas-debt-the-pros-and-cons-of-borrowing-abroad-versus-at-home-183660">Ghana's debt: the pros and cons of borrowing abroad versus at home</a>
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<p>Of Ghana’s total <a href="https://www.bog.gov.gh/wp-content/uploads/2022/05/Summary-of-Economic-Financial-Data-May-2022.pdf">public debt</a> of US$55.1 billion (78% of GDP) as of March 2022, 40.2% (US$28.3 billion) was owed to external parties. And of the external debt, about 57% was owed to commercial creditors, predominantly in <a href="https://mofep.gov.gh/sites/default/files/reports/economic/2021-Annual-Public-Debt-Report.pdf">Eurobonds</a>.</p>
<p>To add salt to Ghana’s economic wounds, rating agencies <a href="https://www.fitchratings.com/research/sovereigns/correction-fitch-downgrades-ghana-to-b-outlook-negative-21-01-2022">downgraded</a> the country’s sovereign risk scores earlier this year. This significantly limited the governmet’s ability to borrow on the international capital markets to finance the budget. </p>
<p>Ghana’s fiscal policymaking has shown a <a href="https://blogs.worldbank.org/africacan/will-procyclicality-override-ghanas-new-fiscal-responsibility-law">bias</a> towards overspending during good times, with little being saved to help when there are downturns or external shocks. </p>
<p>This is largely driven by commodity price cycles - oil, cocoa and gold - and fiscal excesses during election periods. Ruling parties often overspend ahead of elections to buy votes and then tighten the purse strings afterwards. </p>
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Read more:
<a href="https://theconversation.com/why-ghana-is-likely-to-go-on-needing-the-imf-however-difficult-the-relationship-119094">Why Ghana is likely to go on needing the IMF -- however difficult the relationship</a>
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<p>So, what should Ghana differently this time round?</p>
<h2>Way forward</h2>
<p>The following could be a guide to ensure that Ghana benefits from its new deal with the IMF: </p>
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<li><p>First, Ghana should use the IMF programme to negotiate some debt restructuring with commercial and multilateral creditors. The country failed to take advantage of earlier <a href="https://www.worldbank.org/en/topic/debt/brief/covid-19-debt-service-suspension-initiative">schemes</a> like the Debt Service Suspension Initiative (DSSI). Debt restructuring would create the space to spend on priorities such as food and fuel. However, the country must urgently reinstate the Fiscal Responsibility Act, 2018 - which was suspended during the pandemic - with the 5% cap on fiscal deficits in any given year. It must also publish an updated medium-term debt management <a href="https://mofep.gov.gh/sites/default/files/reports/economic/Ghana%27s-2022-2026-Approved-PFM-Strategy.pdf">plan</a> that either caps or places a moratorium on the contraction of non-concessional loans for a while.</p></li>
<li><p>Second, Ghana must implement fully any agreed structural reforms to put the economy on a sound footing. This includes significant cuts in the largesse and waste in government and public service delivery. The President must cut the size of his government and enforce key performance targets for key socio-economic sectors such as public finances, education, energy, and health, among others. Other reforms should include the aggressive restructuring of <a href="https://ghanafinancialmarket.org/2022/01/31/ghana-state-owned-enterprises-record-gh%C2%A25-3-bln-us843-mln-losses-in-2020/">state-owned enterprises</a> and hiring of competent hands, removing of some, and improvements in the targeting of subsidies as well as trimming the government payroll and <a href="https://www.gna.org.gh/1.21437904">flagship initiatives</a> like free secondary schooling. The government must also insist on a strong social protection element, especially for cash transfer programmes such as <a href="https://leap.mogcsp.gov.gh/">Livelihood Empowerment Against Poverty (LEAP</a>) and capitation grants for public basic schools.</p></li>
<li><p>Thirdly, Ghana must aggressively grow and diversify its small open economy to reduce reliance on primary commodities such as cocoa, gold and oil. These are the major export earners for the country but are subject to significant price volatility. Ghana has a great opportunity to pursue green growth policies in new industrial clusters such as the <a href="https://eiti.org/sites/default/files/2022-06/FINAL%20REPORT_Ghana%20Critical%20Minerals_CLEAN_30.05.22.pdf">critical minerals</a> value chain and renewables. These can be supported by a reinvigorated Ghana Infrastructure Investment Fund <a href="https://www.mofep.gov.gh/economic%20reports/Ghana%20Infrastructure%20Investment%20Fund%20-%20%20Investment%20Policy%20Statement/2017-04-11">(GIIF)</a> and the Minerals Income Investment Fund <a href="https://thebftonline.com/2022/06/14/miif-to-become-most-important-lever-for-devt-ceo/">(MIIF)</a>, among other players.</p></li>
<li><p>Lastly, Ghanaians, especially the two main parties, must stop over politicising the economic issues. Populism is clouding effective decision-making. What the current crisis reveals again is the urgent need for broad-based national development plan or framework.</p></li>
</ul><img src="https://counter.theconversation.com/content/187041/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Theophilus Acheampong is affiliated with the IMANI Centre for Policy and Education, Accra, Ghana.</span></em></p>Ghana hasn’t been able to withstand economic shocks or manage its debt because it hasn’t dealt with structural economic problems.Theophilus Acheampong, Associate Lecturer, University of AberdeenLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1806322022-04-05T12:45:45Z2022-04-05T12:45:45ZWhy Russia has put the rouble on a gold standard – but it’s unlikely to last<p>The Bank of Russia, the country’s central bank, has <a href="https://www.rt.com/business/553099-gold-backed-ruble-gamechanger-west/">surprisingly announced</a> a fixed price for buying gold with roubles. With a price of RUB5,000 (£45.12) for a gram of gold, to my knowledge it’s the first time that a nation’s currency has been expressed in “gold parity” since <a href="https://www.nytimes.com/1999/04/19/world/swiss-narrowly-vote-to-drop-gold-standard.html">Switzerland decided</a> to stop doing so in 1999. </p>
<p>Enacting gold parity was common practice by the world’s major powers for facilitating international trade payments in the era of the <a href="https://www.econlib.org/library/Enc/GoldStandard.html">gold standard</a> in the 19th and early 20th centuries. The same was true in a slightly different way during the Bretton Woods era from 1944 until 1971, which was when US President Nixon decided to end the system by removing the link between gold and the US dollar. </p>
<p>Putin’s new arrangement is envisaged, initially, to hold from March 28 to June 30. It is the latest in a series of rouble-related moves by the Russians, starting with the announcement on March 23 that they would <a href="https://theconversation.com/putins-roubles-for-gas-demand-is-no-serious-threat-to-us-dollar-reserve-status-heres-why-180007">only accept roubles</a> for European gas instead of euros and US dollars. <a href="https://voxeu.org/article/why-paying-roubles-russian-gas-and-oil-might-matter">I predicted</a> that Russia would at least extend this policy to oil, but it has gone further and signalled an intention to <a href="https://www.reuters.com/business/find-roubles-if-you-want-russian-oil-grain-or-metals-top-lawmaker-says-2022-03-30/">make it apply</a> to all the commodities it exports (others include wheat, nickel, aluminium, enriched uranium and neon). </p>
<p>The main goal of these moves is to try to ensure the credibility of the rouble by making it more desirable in the forex market, though it also fits into <a href="https://theconversation.com/putins-roubles-for-gas-demand-is-no-serious-threat-to-us-dollar-reserve-status-heres-why-180007">longstanding attempts</a> by Russia and China to weaken the US dollar’s dominance as global reserve currency (meaning it’s the currency in which most international goods are priced and which most central banks hold in their foreign reserves). </p>
<p>As one can see in the chart below, the rouble collapsed in late February and early March when western sanctions were imposed in response to Russia’s invasion of Ukraine (the collapse looks like a rise in the chart because it’s showing the number of roubles to the US dollar rather than the other way around). </p>
<p><strong>Rouble/USD chart</strong></p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/456200/original/file-20220404-19-zbislv.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="RUBUSD chart" src="https://images.theconversation.com/files/456200/original/file-20220404-19-zbislv.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/456200/original/file-20220404-19-zbislv.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=335&fit=crop&dpr=1 600w, https://images.theconversation.com/files/456200/original/file-20220404-19-zbislv.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=335&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/456200/original/file-20220404-19-zbislv.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=335&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/456200/original/file-20220404-19-zbislv.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=421&fit=crop&dpr=1 754w, https://images.theconversation.com/files/456200/original/file-20220404-19-zbislv.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=421&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/456200/original/file-20220404-19-zbislv.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=421&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption"></span>
<span class="attribution"><span class="source">Trading View</span></span>
</figcaption>
</figure>
<p>After the big drop, the rouble <a href="https://theconversation.com/putins-roubles-for-gas-demand-is-no-serious-threat-to-us-dollar-reserve-status-heres-why-180007">recovered somewhat</a>, which is typical in such situations (known in the literature as “exchange-rate overshooting”). However, the currency strengthened further after the roubles-for-gas announcement (no matter how serious or implementable the plan actually is – so far, there has been resistance to Putin’s new rules). </p>
<p>On the back of the gold announcement, the currency has continued to strengthen to about RUB83 to the dollar. As precious metals analyst <a href="https://www.bullionstar.com/blogs/ronan-manly/russian-ruble-relaunched-linked-to-gold-and-commodities-rt-com-q-and-a/">Ronan Manly has said</a>, this makes sense if you reflect that the market price of a gram of gold is currently about US$62 (£47.20). That’s fairly close to Putin’s announcement that 1 gram of gold equals RUB5,000, which effectively creates a gold-based exchange rate of RUB81 to US$1. </p>
<h2>Previous gold-based systems</h2>
<p>To give a sense of the similarities with the <a href="https://www.econlib.org/library/Enc/GoldStandard.html">gold standard</a> and the <a href="https://www.federalreservehistory.org/essays/bretton-woods-created">Bretton Woods system</a>, let me draw a historical parallel. The UK’s <a href="https://www.chards.co.uk/blog/coinage-act-1816/278#:%7E:text=The%20Coinage%20Act%201816,-In%20order%20to&text=The%20purposes%20of%20the%20Act,for%20transactions%20of%20all%20sizes.">Coinage Act of 1816</a> fixed the value of the pound sterling to 113 grains of pure gold, while the US <a href="https://www.gold.org/sites/default/files/documents/1900mar14.pdf">Gold Standard Act of 1900</a> determined that the dollar should maintain a value of 23.22 grains of pure gold. Taken together, the two acts implied an official gold parity exchange rate of £1 = US$4.87. </p>
<p>It was similar during the post-war Bretton Woods era: 1 ounce of gold was said to be worth US$35, and all other currencies were fixed to and convertible into the US dollar. Gold was at the centre of the system as a way of making money credible. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/456346/original/file-20220405-18-red1by.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/456346/original/file-20220405-18-red1by.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/456346/original/file-20220405-18-red1by.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/456346/original/file-20220405-18-red1by.jpeg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/456346/original/file-20220405-18-red1by.jpeg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/456346/original/file-20220405-18-red1by.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/456346/original/file-20220405-18-red1by.jpeg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/456346/original/file-20220405-18-red1by.jpeg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">No more free-floating rouble.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/russian-rubles-banknotes-gold-bullion-bar-2131373237">Cloudy Design</a></span>
</figcaption>
</figure>
<p>Of course, attaching the rouble to a gold standard comes with certain “rules of the game” that Russia will have to abide by. It should be willing to exchange gold for roubles with anyone who wants to do so. </p>
<p>This was what the US did during the Bretton Woods era, and it led to the system’s demise: with US expenditure rising to wage the Vietnam war, dollar holders became increasingly nervous about the dollar’s value and sought to exchange it for gold. </p>
<p>Nixon’s unilateral decision to end convertibility was for fear that the US would run out of gold, which would have destroyed the credibility of the dollar. Since that decision, the world has moved to a system of floating exchange rates and the price of gold has steadily risen as world currencies have become weaker in relation to it. The system has effectively been supported by <a href="https://bitcoinmagazine.com/culture/the-hidden-costs-of-the-petrodollar">a deal</a> that the Americans struck in the early 1970s to buy oil from the Saudis and give them military support in exchange for the Saudis using the dollars to buy US government bonds. </p>
<p><strong>Gold price (US$/ounce)</strong></p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/456334/original/file-20220405-20-d2c86a.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Gold price chart" src="https://images.theconversation.com/files/456334/original/file-20220405-20-d2c86a.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/456334/original/file-20220405-20-d2c86a.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=162&fit=crop&dpr=1 600w, https://images.theconversation.com/files/456334/original/file-20220405-20-d2c86a.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=162&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/456334/original/file-20220405-20-d2c86a.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=162&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/456334/original/file-20220405-20-d2c86a.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=203&fit=crop&dpr=1 754w, https://images.theconversation.com/files/456334/original/file-20220405-20-d2c86a.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=203&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/456334/original/file-20220405-20-d2c86a.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=203&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption"></span>
<span class="attribution"><span class="source">Gold Hub</span></span>
</figcaption>
</figure>
<p>The problem for Russia is that if it is willing to exchange roubles for gold, it could soon end up in a similar situation to the US circa 1971. Wars are an abnormal state of affairs which come with huge uncertainty: no reliable forecasts are possible, and markets are liable to overreact to new developments – particularly in the short term. If confidence in the rouble falls again, many investors might decide to withdraw gold from the central bank, which could be extremely destabilising for Moscow. </p>
<p>The viability of Russia maintaining a fixed rate of roubles for gold <a href="https://voxeu.org/article/why-paying-roubles-russian-gas-and-oil-might-matter">is closely related</a> to what happens to demand for Russian energy. If the west can only slowly substitute away from <a href="https://theconversation.com/ukraine-im-surprised-the-oil-price-hasnt-hit-us-130-a-barrel-yet-energy-trading-expert-qanda-177942">its dependence</a> on Russia’s oil and gas, then demand for roubles will help to keep the currency propped up (especially if the west does end up paying in roubles). </p>
<p>But if politicians <a href="https://voxeu.org/article/what-if-germany-cut-russian-energy">listen to economists</a> and immediately stop importing Russian gas, oil and other commodities, the rouble could fall dramatically – along with the whole Russian economy. As much as this would cause a further spike in prices and pain all round, it may be the most efficient and perhaps even safest way to induce Russia to stop the war.</p><img src="https://counter.theconversation.com/content/180632/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Alexander Mihailov does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>This is the first time a world currency has been pegged to gold since the Bretton Woods system ended in 1971.Alexander Mihailov, Associate Professor in Economics, University of ReadingLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1659912021-08-13T15:13:08Z2021-08-13T15:13:08ZNixon’s decision to delink the dollar from gold still hounds the IMF, South Africa and Africa<figure><img src="https://images.theconversation.com/files/416028/original/file-20210813-19-18z04vk.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">US President Richard Nixon's decision to end the US promise to convert dollars into gold changed the global financial system</span> <span class="attribution"><span class="source">Getty Images</span></span></figcaption></figure><p>Five decades ago this month, <a href="https://www.youtube.com/watch?v=iRzr1QU6K1o">US President Richard Nixon</a> informed the world that the US would no longer honour its commitment to exchange US dollars for gold on demand. The commitment had been the foundation of the international monetary system created in 1944 at Bretton Woods, a conference established to regulate international financial order after the conclusion of the second world war. <a href="https://www.cvce.eu/obj/agreement_of_the_international_monetary_fund_22_july_1944-en-736e2f6e-fcd2-49d7-8b62-d601a3a8b839.html">This system</a> required each participating state to maintain a fixed par value for its currency in terms of the US dollar. In return, the US promised to freely exchange dollars for gold at the agreed price of US$35 dollars per ounce of gold.</p>
<p>Nixon’s action – announced on 15 August 1971 – had profound and long-lasting effects on the <a href="https://www.imf.org/en/About">International Monetary Fund </a>, South Africa and Africa.</p>
<p>Nixon’s decision breached the US’s treaty obligations. But he had little choice. </p>
<p>By 1970, the rest of the industrialised world had accumulated such large dollar holdings that the US did not have sufficient gold to credibly keep its gold window open. The situation was likely to continue deteriorating because in 1971 the US experienced its <a href="https://www.nytimes.com/1972/01/26/archives/us-trade-deficit-first-since-1888-nations-surplus-of-imports-over.html">first trade deficit</a> of the Twentieth Century.</p>
<p>In short, the US lacked the resources to manage the Bretton Woods system on its own.</p>
<p>Five years after Nixon’s decision, <a href="https://www.elibrary.imf.org/view/books/054/14098-9781451920857-en/ch01.xml">IMF member states</a> agreed to end gold’s monetary role and, in effect, to move to a market-based system of floating exchange rates.</p>
<p>Nixon’s action 50 years ago continues to influence global economic governance. At the time the ripple effects for southern Africa were also profound.</p>
<p>One unintended consequence was that South Africa, at the time the world’s largest producer of gold, lost its position as a central player in the international monetary system. As a result, the South African apartheid regime became less important to the Western world. This contributed to <a href="https://projects.kora.matrix.msu.edu/files/210-808-1051/african_activist_archive-a0a7h9-b_12419.pdf">South Africa colluding with the US</a> to fight the Cubans and the Russians who were supporting the People’s Movement for the Liberation of Angola (MPLA) in their struggle for Angolan independence. </p>
<p>It also made it easier for other nations to support sanctions against South Africa, and, in the 1980s, to oppose future IMF and later commercial bank support for South Africa.</p>
<p>Nixon’s announcement and its aftermath also changed the IMF’s mission. </p>
<h2>Change of direction for the IMF</h2>
<p>During the Bretton Woods era, the IMF would meet annually with each of its member states to establish that they were following policies consistent with the maintenance of the par value of their currency. This placed limits on the issues the IMF would raise during these visits as well as on the range of officials with whom it needed to consult. </p>
<p>It also meant that, since all member states were participants in the same international monetary system, their ability to maintain the par value of their currency were influenced by the same variables. Moreover, since they were all potentially consumers of the IMF’s financial services – and during this time all member states did draw on its finances – they all would need to pay comparable attention to the IMF’s advice. </p>
<p>This was particularly relevant because the conditions that the IMF attached to its financial support was likely to be based on this advice.</p>
<p>The end of the par value system changed all this. If countries had no obligation to maintain any particular value for their currency what exactly was the IMF supposed to be monitoring in its <a href="https://www.imf.org/en/About/Factsheets/IMF-Surveillance">annual mission to each country</a>.</p>
<p>The treaty establishing the IMF had been <a href="https://www.imf.org/external/pubs/ft/aa/index.htm">amended</a>. It now merely stipulated that the IMF should ensure that the member states were contributing to a stable system of exchange rates. This meant that the IMF had to monitor all the factors that could influence each countries’ ability to pay all their international obligations and keep the price of their exports competitive. Since almost any aspect of a state’s economy could affect the exchange rate, the IMF began to slowly expand the range of issues that they raised in their annual country visits. They began to incorporate issues such as food subsidies, labour policies, social spending, regulatory policies, trade policy, and the role of the state in the economy.</p>
<p>While the IMF’s surveillance reports were purely advisory, their impact varied according to the situation of each country. Countries that were rich and knew that they would not need IMF financial support could comfortably ignore its advice. After 1976 no rich country requested IMF financing until the European debt crisis in 2010. They thus regained the monetary sovereignty that they had surrendered to the IMF at Bretton Woods. </p>
<p>On the other hand, countries that anticipated that they would need IMF financing or the IMF’s approval of their policies, were forced to take the advice seriously. They knew it would determine either the conditions the IMF attached to financial support or their access to other sources of finance</p>
<h2>To a differentiated world</h2>
<p>The result was that after 1976 the IMF became an organisation that engaged with member states on <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=928467">a differentiated basis</a>. </p>
<p>Some, knowing they would not need its services, could engage with the IMF essentially on a voluntary basis. Others, anticipating that in one way or another they would need to consume IMF services, were forced to treat the IMF with deference, knowing that that they had limited capacity to oppose its advice. </p>
<p>Unfortunately, given the weighted voting arrangements in the IMF, this differentiation also meant that the states with the dominant voice in the organisation did not depend on its services. Consequently, they could place demands on it without worrying about being accountable to those who would be most affected by their decisions. </p>
<p>This was a situation ripe with potential for abuse. For example, in the 1996 Asian crisis, the IMF’s most influential member states could refuse to support IMF financing for Asian countries unless they <a href="https://www.piie.com/publications/chapters_preview/6741/05iie6741.pdf">adopted</a> economic policies that benefited the rich countries. </p>
<p>The IMF also found a new role for itself in the 1980s as the discipliner of countries in Africa, Asia and Latin America facing <a href="https://www.federalreservehistory.org/essays/latin-american-debt-crisis">debt crises</a>. It offered these states some financial support in return for their other creditors offering them complimentary relief and their compliance with various IMF policy conditions. Given the broad scope of the IMF’s mandate, these conditions were both intrusive into the affairs of their members states and consistent with the <a href="https://economics.rabobank.com/publications/2013/september/the-mexican-1982-debt-crisis/">free market ideological preferences</a> of its rich member states.</p>
<p>This resulted, for example, in the <a href="https://books.google.co.za/books?hl=en&lr=&id=mICuCwAAQBAJ&oi=fnd&pg=PR9&dq=structural+adjustment+in+africa+and+gerry+helleiner&ots=hvrfIl1L8v&sig=ljS6YjSPBzqC1jYIHRtf_vvLDeg#v=onepage&q=structural%20adjustment%20in%20africa%20and%20gerry%20helleiner&f=false">controversial structural adjustment policies</a> that the IMF forced African states to follow in this period. </p>
<h2>Long term impact</h2>
<p>Nixon’s decision marked the end of exclusive US hegemony over the Western world. It also left the IMF without a clearly defined role. Under the leadership of the industrialised countries, it began to fashion a new more intrusive and ideological role as advisor to and financier for developing member states, including in Africa.<br>
In addition, by unshackling exchange rates, Nixon began the process of globalising finance and <a href="https://peri.umass.edu/fileadmin/pdf/programs/globalization/financialization/chapter1.pdf">creating today’s global economy</a>in which companies make decisions based on short term financial considerations rather than on the real needs of people and society.</p><img src="https://counter.theconversation.com/content/165991/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Danny Bradlow's SARCHi chair is funded by the National Research Foundation. He also has received funding from the Open Society Initiative for Southern Africa (OSISA) for a book project on sovereign debt in the SADC region. </span></em></p>Nixon’s decision left the IMF without a clearly defined role. Under the leadership of the industrialised countries, it began to fashion a new more intrusive and ideological role.Danny Bradlow, SARCHI Professor of International Development Law and African Economic Relations, University of PretoriaLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1428222020-10-05T04:59:21Z2020-10-05T04:59:21ZThe Brussels Finance Conference of 1920: a lesson in the perils of focusing on the past<figure><img src="https://images.theconversation.com/files/360243/original/file-20200928-16-4qolbo.jpg?ixlib=rb-1.1.0&rect=71%2C241%2C1473%2C661&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Brussels Gare du Nord.</span> <span class="attribution"><a class="source" href="https://transpressnz.blogspot.com/2016/07/traffic-outside-brussels-gare-du-nord.html">Transpress NZ</a></span></figcaption></figure><p>One hundred years ago officials from nations representing about four-fifths of the world’s population met in Brussels hoping to reset the global economic order, and promote prosperity and peace, after a disastrous world war and pandemic. </p>
<p>The International Financial Conference convened by the new League of Nations and held in Brussels from 24 September to 8 October 1920 was not quite <a href="https://heinonline-org.ezproxy.canberra.edu.au/HOL/Page?collection=journals&handle=hein.journals/leagon1&id=849&men_tab=srchresults">“a gathering unique in the history of the world”</a> as some publicity material claimed. There had been international finance conferences before – four, in fact, between 1867 and 1892, which <a href="https://books.google.com.au/books?printsec=frontcover&vid=LCCN97031991&redir_esc=y#v=onepage&q&f=false">mainly discussed the operation of the gold standard</a>. </p>
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Read more:
<a href="https://theconversation.com/the-slow-recovery-after-the-combined-shock-of-spanish-flu-and-the-first-world-war-recovery-podcast-part-three-140877">The slow recovery after the combined shock of Spanish flu and the first world war – Recovery podcast part three</a>
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<p>But the 1920 conference was by far the most representative, as delegates attended from 39 countries. What they achieved, or failed to achieve, might be judged by the outbreak of the Great Depression within a decade, and another world war within two decades. It’s a lesson for policy makers now about the folly of seeking to recreate an old order, rather than building something fit for the times.</p>
<figure class="align-center ">
<img alt="Map of Belgium" src="https://images.theconversation.com/files/361321/original/file-20201002-14-1879lm5.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/361321/original/file-20201002-14-1879lm5.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/361321/original/file-20201002-14-1879lm5.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/361321/original/file-20201002-14-1879lm5.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/361321/original/file-20201002-14-1879lm5.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/361321/original/file-20201002-14-1879lm5.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/361321/original/file-20201002-14-1879lm5.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="attribution"><span class="source">Shutterstock</span></span>
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<h2>Who went to Brussels?</h2>
<p>The Brussels conference was in a sense the equivalent of the better known <a href="https://insidestory.org.au/bretton-woods-at-seventy-five/">Bretton Woods conference</a> of 1944, which agreed on the framework for the global economic order following World War II. </p>
<p>Memoranda were prepared for the delegates by five eminent economists: <a href="http://resources.huygens.knaw.nl/bwn1880-2000/lemmata/bwn2/bruins">Gijsbert Bruins</a> from the Netherlands; <a href="https://www.nature.com/articles/155167a0.pdf">Gustav Cassel</a> from Sweden; <a href="https://www.hetwebsite.net/het/profiles/gide.htm">Charles Gide</a> from France; <a href="https://www-jstor-org.ezproxy.canberra.edu.au/stable/pdf/2223396.pdf">Maffeo Panetaleoni</a> from Italy; and <a href="https://www.jstor.org/stable/138829">Arthur Pigou</a> from England. </p>
<p>It is a pity none of them participated in person. It might have made for a much livelier debate. Gide was from the left, Cassell and Pigou were then liberals, Bruins more conservative while Panetaleoni became aligned with Italy’s fascists. </p>
<p>As it was, the conference’s delegates held surprisingly homogeneous views.</p>
<figure class="align-right zoomable">
<a href="https://images.theconversation.com/files/361327/original/file-20201002-22-1wtwo8z.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/361327/original/file-20201002-22-1wtwo8z.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/361327/original/file-20201002-22-1wtwo8z.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=905&fit=crop&dpr=1 600w, https://images.theconversation.com/files/361327/original/file-20201002-22-1wtwo8z.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=905&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/361327/original/file-20201002-22-1wtwo8z.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=905&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/361327/original/file-20201002-22-1wtwo8z.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1137&fit=crop&dpr=1 754w, https://images.theconversation.com/files/361327/original/file-20201002-22-1wtwo8z.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1137&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/361327/original/file-20201002-22-1wtwo8z.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1137&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption">British Labour Party poster, 1920. Britain’s first Labour government was formed in 1924.</span>
<span class="attribution"><a class="source" href="https://flashbak.com/greet-the-dawn-labour-party-election-posters-from-the-20th-century-380018/labour-party-poster-1920s/">flashbak.com</a></span>
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<p>Governments had been asked to send experts “conversant with public finance and banking” rather than politicians.</p>
<p>There were no women. Nor were there radicals or trade unionists. The labour parties in Britain and New Zealand had yet to win government while the Australian Labor Party was in opposition. Soviet Russia sent no delegates. Progressive tax policies such as wealth taxes were quickly dismissed. </p>
<p>The British delegation typified the establishment figures sent. It included Robert Chalmers, former head of the UK Treasury; Brien Cokayne (1st Baron Cullen of Ashbourne), the former governor of the Bank of England; and Henry Bell, the general manager of Lloyds Bank. </p>
<p>European powers accounted for two-thirds of the nations represented, they generally sent larger delegations and the proceedings were in English and French. Unsurprisingly, Europeans then dominated the discussion. </p>
<h2>The economics of nostalgia</h2>
<p>The upside to the similar world view of most participants was that it probably helped the conference reach a consensus. The downside was that this consensus reflected much of the conventional wisdom of the time. The delegates were wedded to the fiscal orthodoxies of 19th century “<a href="https://liberalhistory.org.uk/history/gladstonian-liberalism/">Gladstonian liberalism</a>”, which stressed keeping budgets balanced and taxes low. </p>
<p>Implicitly, the delegates paid little regard to the economic rivalries or pressures that had contributed to World War I. Nor did they pay much attention to the significant changes the conflict wrought. The general aspiration was to revert to pre-war arrangements. </p>
<p>The correspondent for the <a href="https://www.newstatesman.com/international">New Statesman </a> (a leading leftist magazine) described the discussion of fiscal policy as producing “a number of platitudes which might have been warmly cheered by a gathering of young politicians in the middle of the nineteenth century”.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/361515/original/file-20201005-18-1t0qavh.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Resolutions of the Brussels International Financial Conference 1920." src="https://images.theconversation.com/files/361515/original/file-20201005-18-1t0qavh.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/361515/original/file-20201005-18-1t0qavh.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=465&fit=crop&dpr=1 600w, https://images.theconversation.com/files/361515/original/file-20201005-18-1t0qavh.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=465&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/361515/original/file-20201005-18-1t0qavh.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=465&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/361515/original/file-20201005-18-1t0qavh.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=584&fit=crop&dpr=1 754w, https://images.theconversation.com/files/361515/original/file-20201005-18-1t0qavh.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=584&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/361515/original/file-20201005-18-1t0qavh.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=584&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Resolutions of the Brussels International Financial Conference, 1920.</span>
<span class="attribution"><a class="source" href="http://www.primeeconomics.org/articles/confronting-twin-perils-of-pandemic-and-austerity">www.primeeconomics.org</a>, <a class="license" href="http://creativecommons.org/licenses/by-nd/4.0/">CC BY-ND</a></span>
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<p>As well as stressing the importance of balanced budgets, the delegates agreed on national currencies returning to the gold standard (which many countries had abandoned during the war). As Cokayne put it:</p>
<blockquote>
<p>If we are to secure that stability of prices which is so essential to the healthy development of trade, we must endeavour gradually to readjust our internal purchasing power so as to bring down our prices to gold prices. </p>
</blockquote>
<p>On monetary policy, the priority was to reduce inflation. This partly reflected concerns about the distortions inflation causes to economic activity. It also reflected the desire to return to pre-war exchange rates (ignoring the advice of Cassel, whose memorandum warned against this). </p>
<p>This was one the few areas where there was enthusiasm for doing things differently. Delegates endorsed independent central banks with the power to resist government pressure to fund extra government spending through printing money. It would be many decades, though, before most governments recognised the value of independent central banks. </p>
<p>With the Great War’s adversaries slow to return to their pre-war trade, the conference also called for trade barriers to be dismantled. There was some progress on this during the 1920s until the Great Depression, which saw many nations revert to tit-for-tat tariffs. </p>
<h2>What did Brussels sprout?</h2>
<p>The conference recommended governments cut spending to balance budgets. The <a href="https://babel.hathitrust.org/cgi/pt?id=mdp.39015080148573&view=1up&seq=64">transcripts</a> of proceedings reveal no shortage of platitudes and calls for austerity. Gerard Vissering, chairman of the Netherlands’ central bank, for example, warned against “the superfluous consumption of dainties, waste of petrol for pleasure drives and excessive illumination of shops”. </p>
<p>Chalmers declared: “We must all work hard, live hard and save hard.” </p>
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<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/lessons-of-economic-history-nixon-obama-and-the-politics-of-austerity-7603">Lessons of economic history: Nixon, Obama and the politics of austerity</a>
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</em>
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<p>More than a decade before his ideas <a href="https://www.imf.org/external/pubs/ft/fandd/2014/09/basics.htm">challenged the orthodoxy</a> of government austerity during economic downturns, English economist John Maynard Keynes was among those who gave the conference little regard. It “did absolutely no harm whatever”, he wrote to a friend in October 1920. </p>
<p>But in retrospect, knowing how the continuation of economic orthodoxies would contribute to more crises, feeding totalitarianism and war, we can see how much harm flowed from wasted opportunities.</p>
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<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/guaranteed-to-lose-money-welcome-to-the-bizarro-world-of-negative-interest-rates-119994">'Guaranteed to lose money': welcome to the bizarro world of negative interest rates</a>
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<p>Some may see a parallel with today. </p>
<p>We live in a period when wage growth has been low for years, with interest rates at record lows and many prices falling. Yet it has taken the coronavirus recession for some to reconsider the shibboleths of fiscal rectitude. </p>
<p>Let us hope policy makers today are more imaginative than those a century ago, with their eyes fixed on the future rather than recreating the past.</p><img src="https://counter.theconversation.com/content/142822/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>John Hawkins does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>the International Financial Conference in Brussels in 1920 hoped to reset the global economic order after a disastrous world war and pandemic. It hold lessons for leaders today.John Hawkins, Senior Lecturer, Canberra School of Politics, Economics and Society, University of CanberraLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1286782019-12-12T12:07:54Z2019-12-12T12:07:54ZWhen China and other big countries launch cryptocurrencies, it will kick off a global revolution<figure><img src="https://images.theconversation.com/files/306575/original/file-20191212-85367-1uu5emz.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Cash of the titans. </span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-vector/global-network-connection-currency-coin-money-1458477173">Artistdesign29</a></span></figcaption></figure><p>One of the hottest topics in cryptocurrencies is the prospect of major economies launching state-backed digital coins. China’s central bank <a href="https://fortune.com/2019/11/01/china-digital-currency-libra-wakeup-call-us/">recently accelerated</a> plans for what is currently known as the Digital Currency Electronic Payment (DCEP). It could launch within the next 18 months, while the European Central Bank <a href="https://www.reuters.com/article/ecb-cryptocurrency/update-1-ecb-could-speed-up-plans-for-public-digital-currency-if-cash-use-drops-idUSL8N28E583">is looking</a> at something similar. </p>
<p>Meanwhile, Russia has been <a href="https://www.coindesk.com/russias-central-bank-is-considering-launching-a-digital-currency">working on</a> a state-backed cryptoruble for several years, and <a href="https://www.finextra.com/newsarticle/32856/swedens-central-bank-prepares-for-cashless-future-with-e-krona">Sweden has</a> its e-krona project. Indeed, several countries have got there already: <a href="https://cointelegraph.com/news/senegal-introduces-cryptocurrency-based-on-its-national-currency">Senegal</a> and the tiny <a href="https://www.internationalinvestment.net/news/4004628/marshall-islands-launches-national-cryptocurrency">Marshall Islands</a> now have digital coins that sit alongside their existing currencies, while others such as <a href="https://www.bloomberg.com/news/articles/2019-05-10/venezuela-s-failed-cryptocurrency-is-the-future-of-money">Venezuela</a> and <a href="https://cointelegraph.com/news/state-issued-digital-currencies-the-countries-which-adopted-rejected-or-researched-the-concept">Ecuador</a> have tried but failed to gain traction. </p>
<p>Make no mistake, these developments will completely change the international monetary system. Today’s system dates to the <a href="http://news.bbc.co.uk/1/hi/business/7725157.stm">Bretton Woods conference of 1944</a>, in which to create a stable trading environment the Allied nations agreed to peg their currencies to the US dollar and the US agreed to peg the dollar to gold. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/306373/original/file-20191211-95159-11f4yop.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/306373/original/file-20191211-95159-11f4yop.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/306373/original/file-20191211-95159-11f4yop.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=424&fit=crop&dpr=1 600w, https://images.theconversation.com/files/306373/original/file-20191211-95159-11f4yop.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=424&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/306373/original/file-20191211-95159-11f4yop.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=424&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/306373/original/file-20191211-95159-11f4yop.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=533&fit=crop&dpr=1 754w, https://images.theconversation.com/files/306373/original/file-20191211-95159-11f4yop.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=533&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/306373/original/file-20191211-95159-11f4yop.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=533&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption">Allies gathering at Bretton Woods in 1944.</span>
<span class="attribution"><a class="source" href="https://www.britannica.com/biography/Edward-Morris-Bernstein">Brittanica</a></span>
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<p>The dollar has been at the heart of the monetary system ever since, despite Bretton Woods being gradually replaced by free-floating exchange rates after the dollar/gold commitment was abandoned by the Americans in the 1970s. Today, <a href="https://www.brookings.edu/research/has-the-dollar-lost-ground-as-the-dominant-international-currency/">around 40%</a> of international payments and <a href="https://www.reuters.com/article/us-forex-reserves/us-dollar-share-of-global-currency-reserves-fell-in-the-fourth-quarter-of-2018-idUSKCN1RA1WH">60%</a> of the world’s total foreign exchange reserves are in US dollars. The euro takes a more minor but still considerable proportion: over 30% of international payments and 20% of reserves. All other currencies are trivial by comparison. </p>
<h2>US on top</h2>
<p>American financial dominance means that the Federal Reserve almost acts as the central bank of the world, since whatever its monetary policy committee decides to do with dollar interest rates has huge consequences everywhere. Together with the dollar’s dominance of the <a href="https://www.investopedia.com/articles/personal-finance/050515/how-swift-system-works.asp">SWIFT international payment system</a>, this was pivotal in maintaining the international monetary order for years by reducing transaction costs and speeding up globalisation. </p>
<p>In recent years, however, the picture has changed. With heightened tensions between the world’s major powers, many commentators <a href="https://www.economist.com/leaders/2015/10/03/dominant-and-dangerous">increasingly accuse</a> the Americans of playing the system to their own economy’s advantage without proper regard for the consequences further afield. There are also serious concerns about the US using international payments as a political tool, for instance by leaning on SWIFT to exclude Iranian banks over the uranium enrichment row – despite objections <a href="https://www.aljazeera.com/news/2018/11/swift-matters-iran-spat-181105172906627.html">even from</a> the EU. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/306374/original/file-20191211-95173-fgksdi.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/306374/original/file-20191211-95173-fgksdi.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/306374/original/file-20191211-95173-fgksdi.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=393&fit=crop&dpr=1 600w, https://images.theconversation.com/files/306374/original/file-20191211-95173-fgksdi.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=393&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/306374/original/file-20191211-95173-fgksdi.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=393&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/306374/original/file-20191211-95173-fgksdi.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=494&fit=crop&dpr=1 754w, https://images.theconversation.com/files/306374/original/file-20191211-95173-fgksdi.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=494&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/306374/original/file-20191211-95173-fgksdi.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=494&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption">Sam’s back yard.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/world-map-made-dollar-bills-isolated-286896983">DmyTo</a></span>
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<p>Arguably, dollar dominance is now <em>hindering</em> the deepening of globalisation. Many countries are making moves that are changing this situation, however. The UK, France and Germany have <a href="https://www.voanews.com/middle-east/voa-news-iran/more-european-nations-join-effort-bypass-us-sanctions-iran">set up INSTEX</a> as an alternative means of trading with Iran, for instance, and six other EU countries have recently joined. </p>
<p>There has been a <a href="https://www.cfr.org/international-finance/central-bank-currency-swaps-since-financial-crisis/p36419#!/">massive rise</a> in the number of bilateral agreements between central banks that allow two countries to swap currencies directly, a large number involving China. Meanwhile, a number of countries, <a href="https://capitalgoldexchange.com/why-are-countries-pulling-their-gold-out-of-america/">including</a> Germany and the Netherlands, have been <a href="http://www.goldtelegraph.com/countries-around-the-world-are-bringing-gold-home/">repatriating their</a> gold reserves from vaults in the US where they had long been stored. </p>
<p>Yet by comparison, major sovereign digital currencies based on blockchain technology would be revolutionary. <a href="https://theconversation.com/five-hurdles-blockchain-faces-to-revolutionise-banking-124536">Blockchains</a> are encrypted ledgers for storing information that are decentralised rather than being under any country’s or company’s control. When applied to international payments, this offers <a href="https://theconversation.com/blockchains-first-revolutionary-product-could-be-online-id-128028">the prospect</a> of much more transparent and cheaper transactions than SWIFT. </p>
<p>It could cut the payments time lag from a couple of days to one second, and the cost from 0.01% to almost nothing. It will have the capacity to handle far higher volumes of payments, partly since they won’t require bank accounts or <a href="https://www.bitrates.com/news/p/offline-transactions-could-be-the-missing-link-between-crypto-and-adoption">even internet access</a>. </p>
<p>Cryptocurrencies like Bitcoin and XRP have been a good experiment <a href="https://medium.com/datadriveninvestor/advantages-of-money-transfer-using-cryptocurrency-9e1f32da4fbe">in using</a> blockchains for international payments. Yet when countries issue equivalents of their own, these will have even more advantages. They will be backed by states, and completely decentralised cryptocurrencies like Bitcoin will not be able to compete with this. </p>
<h2>What the future looks like</h2>
<p>While technological change has been incredibly fast in the information era, the system of international payments has lagged behind. But once sovereign digital currencies start taking off, this will suddenly change. Just like smartphones quickly eliminated most old cell phones, no countries will be able to reject blockchain payments for long. </p>
<p>So while, for example, the US Treasury Secretary Steve Mnuchin <a href="https://www.bloomberg.com/news/articles/2019-12-05/mnuchin-powell-see-no-need-for-fed-to-issue-digital-currency">recently said</a> that his country does not see itself launching a digital dollar in the next five years, there will be a moment when the political centre of gravity will shift and everyone will join the revolution. After the <a href="https://theconversation.com/5g-what-will-it-offer-and-why-does-it-matter-109010">5G network</a> and the <a href="https://www.digiteum.com/internet-of-things-banking-finances">Internet of Things</a> really mushroom in the next couple of years, it will be possible to replace the existing system even faster. </p>
<p>This will be the beginning of a new international monetary era. Instead of passively accepting US dollars as settlement currency in international trade, buyers and sellers will be able to choose freely from a variety of currencies. We are also likely to see a series of new powerful regional currencies, along with opportunities for the currencies of small countries with high credibility and advanced financial industries. Countries and their central banks will be competing freely with one another in this market, knowing that if they implement policies that devalue their currency, international traders will just choose rival currencies instead. </p>
<p>Beyond that, countries will form cryptocurrency unions to regulate currencies and platforms, standardise technology and maintain the stability of the system. New clearing systems will emerge, along with <a href="https://dailyhodl.com/2019/12/10/head-of-digital-banking-at-santander-says-ethereum-powers-full-lifecycle-of-worlds-first-blockchain-bond/">new financial products</a>. In short, it will be a whole new user-centred financial ecosystem. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/306375/original/file-20191211-95125-o4cg8t.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/306375/original/file-20191211-95125-o4cg8t.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/306375/original/file-20191211-95125-o4cg8t.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/306375/original/file-20191211-95125-o4cg8t.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/306375/original/file-20191211-95125-o4cg8t.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/306375/original/file-20191211-95125-o4cg8t.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/306375/original/file-20191211-95125-o4cg8t.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/306375/original/file-20191211-95125-o4cg8t.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Fast future.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/top-view-woman-watching-video-internet-644188654">GaudiLab</a></span>
</figcaption>
</figure>
<p>Whenever there are innovations in payment methods, there always follows a surge in demand. China’s Alipay and WeChat Pay <a href="https://www.zdnet.com/article/wechat-pay-follows-alipay-in-allowing-foreign-visitors-to-make-payments-in-china/">are good examples</a>. More recently we are seeing similar explosive demand for the likes of <a href="https://www.businessinsider.com/apple-pay-transaction-volume-and-revenue-doubled-2019-11?r=US&IR=T">Apple Pay</a> and <a href="https://uxdesign.cc/just-walk-out-amazon-go-the-most-convincing-future-of-retail-469b5794d65c?gi=491d10a7b3ba">Amazon Go</a>. </p>
<p>Yet these are primarily domestic stories. Sovereign digital currencies should produce a surge in international trade and cooperation. There will be new economic growth as more small players join the global market and consumers enjoy a wider range of goods and services at lower costs. </p>
<p>This may seem threatening to those who benefit from the existing system, but it will be more than outweighed by capitalising on what comes next. The question for different countries is whether they embrace change or try and defend the status quo. As Facebook’s Mark Zuckerberg <a href="https://www.cnbc.com/2019/10/22/facebook-ceo-mark-zuckerbergs-prepared-remarks-before-congress.html">told</a> American lawmakers in response to China’s DCEP plan, “while we debate these issues, the rest of the world isn’t waiting”. The sooner countries shift, the better placed they are likely to be for what lies ahead.</p><img src="https://counter.theconversation.com/content/128678/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Liang Zhao receives a PhD scholarship from Handelsbanken. </span></em></p>Stand by for cryptocurrencies 2.0.Liang Zhao, Doctoral Researcher, Lund UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1201052019-07-17T13:43:48Z2019-07-17T13:43:48ZIMF says it cares about inequality. But will it change its ways?<figure><img src="https://images.theconversation.com/files/283718/original/file-20190711-173370-ksyq99.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The IMF headquarters in Washington DC.</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>The International Monetary Fund (IMF) has become increasingly infatuated by the negative <a href="https://www.imf.org/external/pubs/ft/sdn/2015/sdn1513.pdf">consequences</a> of excessive <a href="https://www.imf.org/external/pubs/ft/fandd/2016/06/ostry.htm">inequality</a>. This new-found mission is laudable, but neglects the manifold ways its own policy advice contributed to growing income inequality.</p>
<p>As lender of last resort, the IMF provides countries in economic turmoil with financial support. In return, borrowing countries must often commit to far-reaching policy reforms. While some view this so-called ‘conditionality’ as a necessary instrument to address the root causes of economic crisis, others point to its adverse <a href="https://doi.org/10.1080/09692290.2016.1174953">social implications</a>.</p>
<p>We <a href="https://doi.org/10.1016/j.ssresearch.2019.01.001">examined</a> how policy reforms prescribed in IMF lending programmes affected income inequality for developing countries between 1980 and 2014. We <a href="https://doi.org/10.1016/j.ssresearch.2019.01.001">found</a> increases in income inequality by on average 6.5% a year once the programme commenced. These effects persisted for three years.</p>
<p>Our measure of income inequality was the Gini coefficient. A score of 0 means income is equal for everyone in the country; 1 indicates one person earns all the income. For example, the US had an income Gini of 0.379 in 2014. During the period we <a href="https://doi.org/10.1016/j.ssresearch.2019.01.001">studied</a>, the <a href="https://fsolt.org/swiid/">Gini coefficient</a> for developing countries with IMF programmes ranged from 0.228 (Belarus, in 1996) to 0.571 (Papua New Guinea in 1996).</p>
<p>Our <a href="https://doi.org/10.1016/j.ssresearch.2019.01.001">research</a> advances our understanding of the causes of income inequality, one of the most pressing issues of our time. In particular, we highlight an important yet insufficiently understood international-level determinant of inequality in the developing world: structural adjustment programmes by the IMF.</p>
<h2>The impact of IMF programmes</h2>
<p>In our <a href="https://doi.org/10.1016/j.ssresearch.2019.01.001">work</a>, we detail how IMF lending arrangements affect the income distribution in borrowing countries.</p>
<p>First, the IMF set expenditure reduction targets for borrowing countries. These so-called austerity measures were meant to balance the budget. But cuts in government spending can widen income inequalities because low-income households often depend on government transfers. For example, a lending programme with Togo mandated such reforms between 2008 and 2011. Over this period, income inequality rose by <a href="https://fsolt.org/swiid/">3.7%</a> (from 0.379 in 2007 to 0.393 in 2012).</p>
<p>Second, the IMF repeatedly mandated the removal of restrictions to trade and financial flows. Policies promoting international economic openness can increase demand for skilled labour in developing countries. But low-skilled labour typically loses out, and income inequality increases. Financial development and capital account liberalisation also favours individuals with access to financial capital and services. </p>
<p>In developing countries, these tend to be people with high incomes. For instance, Sri Lanka had to establish a flexible exchange rate regime
to qualify for financial assistance in 2001 (which lasted until 2005). Under the tutelage of the IMF, the Gini coefficient of disposable income increased by <a href="https://fsolt.org/swiid/">5.6%</a> between 2000 and 2006.</p>
<p>Third, the IMF typically called for reforms on monetary policy, initiated the privatisation of financial institutions, and specified targets for the inflation rate. These measures can increase investor confidence, the benefits of which are mostly felt by individuals with high incomes. For example, in 1982, a lending arrangement with Guatemala included restrictions on the growth of bank lending to the private sector, domestic credit, and credit to the public sector. One year after the programme ended, in 1985, the income Gini was 0.482. This was <a href="https://fsolt.org/swiid/">0.8%</a> higher than when Guatemala negotiated lending terms with the IMF in 1981.</p>
<p>Finally, IMF targets limiting the provision of new external debt can force governments to reduce social spending since they are unable to fund it. These lower the income share of poor populations who depend disproportionately on government transfers. For instance, IMF-designed reforms for Indonesia in 1998 included criteria to limit external debt. In 2004, after the programme terminated, income inequality had increased by <a href="https://fsolt.org/swiid/">1.6%</a> .</p>
<p>These findings show that the policy reforms prescribed in lending programmes affect income inequality in multiple ways. Indeed, the Fund appears to have heard the <a href="https://www.imf.org/external/pubs/ft/fandd/2016/06/ostry.htm">criticism</a> of its policy prescriptions and now devotes considerable <a href="https://www.imf.org/external/np/fad/inequality/">attention</a> to inequalities.</p>
<p>But an <a href="https://www.oxfam.org/en/research/great-expectations-imf-turning-words-action-inequality">Oxfam report</a> evaluated IMF pilot projects that were supposed to incorporate inequality analyses and failed to find evidence of policies promoting lower inequality. </p>
<h2>More work to be done</h2>
<p>At their most recent annual Spring meeting in April, the IMF and World Bank hosted a seminar <a href="https://meetings.imf.org/en/2019/Spring/Schedule/2019/04/13/imf-three-chief-economists?src=JointHP">‘Income Inequality Matters’</a>, discussing ways to achieve inclusive growth. </p>
<p>If the IMF is serious about reducing inequality, then it needs to carefully consider the types of conditions included in lending programmes. The 2030 <a href="https://sustainabledevelopment.un.org/?menu=1300">Sustainable Development Goals</a> (SDGs), to which the Bretton Woods institutions remain <a href="https://www.imf.org/en/News/Articles/2019/04/13/communique-of-the-thirty-ninth-meeting-of-the-imfc">committed</a>, offer a window of opportunity to address what is one of the most pressing issues of the day.</p>
<p>With just over a decade left to achieve the SDGs, it’s high time the IMF put words into practice regarding tackling inequality to right its wrongs of the past.</p><img src="https://counter.theconversation.com/content/120105/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The IMF has increasingly turned its focus to growing inequality worldwide. Ironically, research shows that policy reforms it mandated exacerbated income inequalities.Timon Forster, Doctoral candidate in International Relations, Freie Universität BerlinBernhard Reinsberg, Lecturer in International Relations, University of GlasgowThomas Stubbs, Senior Lecturer in International Relations, Royal Holloway University of LondonLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/806302017-07-09T10:59:06Z2017-07-09T10:59:06ZWhat the World Bank’s shift from public to private funding means for development<figure><img src="https://images.theconversation.com/files/177113/original/file-20170706-26465-fr5rnv.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">World Bank President Jim Yong Kim speaks during the Milken Institute Global Conference in the US.</span> <span class="attribution"><span class="source">Mike Blake/Reuters</span></span></figcaption></figure><p>Making economies work for more people is a political task, not a technical exercise. The <a href="http://www.worldbank.org/">World Bank</a> has just conceded this – without meaning to do so.</p>
<p>The bank has taken a <a href="https://www.devex.com/news/world-bank-president-kim-calls-for-a-different-and-difficult-conversation-about-development-finance-90043">new direction</a> which, <a href="https://theconversation.com/the-world-bank-reinvents-itself-and-puts-poverty-reduction-at-risk-79403">its critics say</a>, means that it has given up on making economies work for the poor. </p>
<p>In theory, they are right. In practice, the bank may be recognising that the politics which shape it made it impossible for it to achieve the development which it promised for the poor.</p>
<p>The change was outlined in an April <a href="http://www.worldbank.org/en/news/speech/2017/04/11/speech-by-world-bank-group-president-jim-yong-kim-rethinking-development-finance">speech</a> by bank President <a href="http://president.worldbankgroup.org/home">Jim Yong Kim</a>, and is discussed in a recent <a href="http://siteresources.worldbank.org/DEVCOMMINT/Documentation/23745169/DC2017-0002.pdf">document</a> spelling out the bank’s vision for 2030. It’s meant to change it from a lender for development into a broker which will unlock “trillions” of dollars in private investment. It will seek to help countries by advising them on the policy and governance changes they need to make to attract the money. So the Bank will become a conduit for private investment, not public development funding.</p>
<p>The Bank does not say it is giving up on public funding. But its document declares that:</p>
<blockquote>
<p>Only where market solutions are not possible … would official and public resources be applied. </p>
</blockquote>
<p>So public development funding will be used only where it cannot attract private investors to poorer countries. Since Kim insists it can unlock “trillions” of dollars which can transform developing countries, it seems unlikely to reach for public funding in a hurry. So it seeks now to act as a broker for private investment, not public development.</p>
<h2>Increased poverty and conflict</h2>
<p>The bank’s critics point out that private funding wants returns, not less poverty. They warn that relying on it for development will increase poverty and conflict. Ironically, they are repeating <a href="https://www.theguardian.com/news/2016/aug/11/world-bank-jim-yong-kim">criticism</a> that Kim made when he was a development practitioner – that <a href="https://theconversation.com/the-world-bank-reinvents-itself-and-puts-poverty-reduction-at-risk-79403">development was being shaped</a> by the agendas of private funders.</p>
<p>In principle, the shift does abdicate the World Bank’s mandate. It was a product of the <a href="http://news.bbc.co.uk/2/hi/business/7725157.stm">1944 Bretton Woods conference</a> where its <a href="https://www.jstor.org/stable/24563251">architects</a>, John Maynard Keynes, Henry Morgenthau and Harry Dexter White, all saw an important public sector role in correcting some of the market’s impact. The bank was an instrument of that public role - <a href="https://www.brookings.edu/research/a-new-global-agenda-implications-for-the-role-of-the-world-bank/">one of its functions</a> was “counter cyclical” public funding to stimulate economic activity when dips in the business cycle depressed markets.</p>
<p>The bank’s shift abandons this role and places the fate of the global poor largely in the hands of private wealth. It seeks not to find ways in which private money can serve public needs but how public needs can shift to meet the demands of private money. </p>
<p>It could be seen as the final abandonment of wealthy countries’ obligation to the rest of the planet, US President Donald Trump’s <a href="http://www.bbc.com/news/av/world-us-canada-38698654/donald-trump-america-first-america-first">“America First”</a> translated into a development strategy. </p>
<p>But in practice, it’s debatable whether the shift will change much in the life of the world’s poor.</p>
<h2>A role to markets</h2>
<p>The role the World Bank’s architects had in mind may describe what it did at the beginning when it funded the revival of war-torn Europe. But, when it <a href="http://www.worldbank.org/en/about/history">began to fund </a> development in poor countries, it gave a role to markets well beyond anything its inventors would have endorsed.</p>
<p>In Africa, it demanded <a href="http://www.globalissues.org/article/3/structural-adjustment-a-major-cause-of-poverty">Structural Adjustment Programmes</a> which cut back sharply on public welfare and, in the view of critics (such as Kim in his previous incarnation), caused great suffering. Its determination to ensure that funds went only to the most desperate (cutting the funding burden) once prompted it to recommend, <a href="https://www.theguardian.com/commentisfree/2011/may/25/imf-arab-spring-loans-egypt-tunisia">in Tunisia</a>, a biscuit so unpleasant that only the very hungry would eat it. The World Bank’s private finance arm, the <a href="http://www.ifc.org/wps/wcm/connect/corp_ext_content/ifc_external_corporate_site/home">International Finance Corporation</a> (IFC), whose role will be strengthened by the shift, was fingered as the chief cause of that suffering. </p>
<p>So the bank behaved in much the same way and for much the same reasons as its critics fear it will behave now.</p>
<p>It and its supporters insist it made a <a href="https://books.google.co.za/books?id=A6HKcmoJixIC&pg=PR23&lpg=PR23&dq=the+world+bank+says+International+Finance+Corporation+had+a+positive+impact&source=bl&ots=WbH1DrvtXq&sig=5vixu7qUpi1pGi7DhMyO3GQnkPU&hl=en&sa=X&ved=0ahUKEwiMtdet5vbUAhVrJ8AKHUZyCrsQ6AEIQDAF#v=onepage&q=the%20world%20bank%20says%20International%20Finance%20Corporation%20had%20a%20positive%20impact&f=false">positive impact</a>: they cite data showing a marked drop in global poverty and say it contributed to this. But the figures are hotly debated. Even if they are accurate, there is no clear evidence that the bank helped make them happen. Nor has it created a world in which many more people find a settled role in the economy.</p>
<p>So the bank’s new role may, therefore, be simply its old one, but now with an accurate product description. </p>
<p>This may overstate the case: the bank has, at times, made a serious attempt to listen to critics and to become a conduit of development, not pain. But it was never able to adjust as an organisation – it would often endorse criticisms in theory but not translate them into practice. And so it did not become an effective development engine. The bank’s current shift has probably been prompted by its declining role as a development funder, as poorer countries discover other sources of finance.</p>
<h2>More finance, but more expensive</h2>
<p>The bank failed to do what it promised because it reduced development, a political task, to a technical exercise. It did this because its own political constraints ruled out an effective role.</p>
<p>Effective campaigns against poverty and inequality happen for one of two reasons. Either elites decide it’s in their interests to fight them or, in democracies, poorer citizens use their vote and their rights to achieve change.</p>
<p>Neither condition applied to the World Bank. Its decisions are not made democratically because votes are allocated in proportion to capital invested, not the number of people a government represents. <a href="https://www.theguardian.com/business/2012/apr/16/jim-yong-kim-world-bank-president">America always appoints</a> the bank president because it provides most of the capital and has most of the votes. </p>
<p>The Bretton Woods trio did not see that the <a href="https://livingnewdeal.org/what-was-the-new-deal/">New Deal</a>, the US programme in response to the Great Depression in 1933, had worked partly because it had a solid base of democratic support and that democracy was essential to the development they sought. In the absence of democracy, the elites have decided what the bank should do. Since the focus shifted from Europe to the rest of the world, they have shown little interest in changing a state of affairs from which they benefit.</p>
<p>It’s this political context which has caught up with the bank, first reducing its role and then forcing it to give up on public funding to fight poverty. Ironically, the critics who insisted that it take politics seriously have been vindicated in a way they did not intend or expect. Challenged to recognise politics’ role in development, it has done so by concluding that the politics which govern how it works make an effective role in development impossible.</p><img src="https://counter.theconversation.com/content/80630/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Steven Friedman does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The World Bank has changed direction. It won’t be giving up on public funding, but it will increasingly be trying to attract private investors to developing countries.Steven Friedman, Professor of Political Studies, University of JohannesburgLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/768422017-05-08T13:10:27Z2017-05-08T13:10:27ZThe IMF is at its weakest just as the world needs it most<figure><img src="https://images.theconversation.com/files/168108/original/file-20170505-20986-1dfgm1h.jpg?ixlib=rb-1.1.0&rect=174%2C85%2C1796%2C1226&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><a class="source" href="https://www.flickr.com/photos/aestheticsofcrisis/19758477558/in/photolist-apw9Jf-hfHi9Q-gZubGN-gsxLBc-88Cfvm-jaoCR-743WLy-9XwCCU-hGAjPk-9XtSsB-9Wexua-9XwEuh-9YHK87-9VWL54-oKNJAC-9XRzRC-9YonuM-9XavDN-9WMiDV-9XtRp8-9YEPL4-9WQd7f-9WQc4u-9Who81-otm4KB-oHNMjE-oKNYSJ-oKQs62-otmCaz-otgA5J-oHNDkJ-vBbedr-9ocTy-6wWgWA-w6Zn1b-vySJoQ-wC4aKR-wC3PTM-wjYB5j-wjYcZb-wBzJkF-wjXymo-wk5tuM-vEGxNT-wzfuFs-wASnpb-vExsbE-wk4Dak-uEaLTm-8xsWFB">aesthetics of crisis/Flickr</a>, <a class="license" href="http://creativecommons.org/licenses/by-nc-sa/4.0/">CC BY-NC-SA</a></span></figcaption></figure><p>In a globalised and dynamic economic system, there is a powerful and controversial organisation that has the economic firepower to bail out entire countries: the International Monetary Fund. The IMF plays an important role in the world but recent events have divided its members and weakened its potential to fulfil its role, threatening its very existence. </p>
<p>The creation of the IMF and the World Bank, two distinct but complementary organisations, was signed off at a <a href="http://www.imf.org/external/about.htm">conference in Bretton Woods</a> in July 1944. That was near the end of World War II, when an air of international cooperation and solidarity blew across many nations that had allied to defeat Nazism. The IMF was designed to be independent yet accountable to the member countries – 189 today – that provide funds and elect <a href="http://www.telegraph.co.uk/business/2017/04/20/christine-lagardedont-sow-seeds-trade-war/">its managing director</a>, currently Christine Lagarde.</p>
<p>Its <a href="http://www.imf.org/en/About/Factsheets/IMF-at-a-Glanc">mandate is wide</a> but the most important function is to act as the <a href="http://www.imf.org/en/News/Articles/2015/09/28/04/53/sp010399">lender of last resort</a> for economies that cannot secure borrowing at reasonable rates from the international money markets. </p>
<p>Historically, most clients of the IMF have been developing countries, but <a href="http://www.madamasr.com/en/2016/12/13/feature/economy/imf-intervention-lessons-from-asia-and-latin-america/">the 2008 financial crisis</a> brought a sudden halt to the bank financing that kept the economies of the eurozone periphery ticking over. The IMF was called to help <a href="http://www.imf.org/en/About/Factsheets/Europe-and-the-IMF">a number of these developed countries</a>: Portugal, Ireland, Cyprus and Greece. And this is where the problems started. </p>
<h2>Loss of credibility</h2>
<p>Difficulties in Greece and political pressure from powerful eurozone countries forced the fund to break its long-established and <a href="http://www.thisismoney.co.uk/money/news/article-2336827/IMF-admits-bent-rules-bailout-Greece.html">strict rule</a> never to refinance a country’s debt if that debt is unsustainable. In other words: don’t give money if they won’t pay you back. </p>
<p>The primary objective, then, was to prevent the bankruptcy of a eurozone member, or at least postpone it until the others were strong enough to take the hit. The toxic Greek debt that had <a href="https://dealbook.nytimes.com/2011/10/04/banks-in-europe-face-huge-losses-from-greece/?_r=0">found its way to fragile banks</a> throughout the currency union had to be “managed”, at least until European governments had compartmentalised it and some optimism and investment had returned to their economies.</p>
<p>Some member countries rightly observed that in Greece, the fund was using precious money from poor countries to support a relatively wealthy country. There was also a good chance that the money would be lost when eventually <a href="http://www.reuters.com/investigates/special-report/imf-greece/">the Greek debt is written off</a>. </p>
<p>The economic policies signed off by the IMF were also ineffective and possibly even counterproductive in the Greek case. There were disastrous miscalculations of the impact of various measures and, more importantly, a “quick-fix” approach that primed counterproductive increases in taxation instead of the deep <a href="http://www.telegraph.co.uk/business/2016/07/28/imf-admits-disastrous-love-affair-with-euro-apologises-for-the-i/">structural reforms that were needed</a>. </p>
<p>To be fair, Greek governments doggedly sought to avoid reforms that would <a href="http://www.keeptalkinggreece.com/2017/03/20/one-more-eurogroup-for-greece-as-three-major-reforms-remain-open/">entail political cost</a>, but the IMF seemed to sign off policies that would sweep the Greek problems under the carpet rather than dealing with them. </p>
<h2>Tensions</h2>
<p>The Greek drama has aggravated a longstanding divide between the developed and developing country members of the IMF. For many in these emerging nations, the IMF has acted as a Western Trojan horse to subjugate the sovereignty and <a href="http://www.khilafah.com/imf-and-world-bank-colonial-tools-to-exploit-the-world/">exploit the resources of countries in need</a>. </p>
<p>They have a point. IMF policies invariably cause social dumping – the drafting in of low wage labour – that is beneficial to larger businesses. Former US president, Bill Clinton, criticised the IMF for <a href="http://www.cbsnews.com/news/bill-clinton-we-blew-it-on-global-food/">causing starvation</a> in countries it has been involved with. Robust research has <a href="http://www.cam.ac.uk/research/news/imf-loans-%E2%80%9Cstrongly-linked%E2%80%9D-to-tuberculosis">linked IMF policies</a> to weakening health systems and thousands of deaths, and to the <a href="https://www.theguardian.com/business/2002/jul/06/globalisation">suppression of labour rights</a>. There is even evidence that IMF-sanctioned policies harm the environment, <a href="https://www.theguardian.com/commentisfree/2013/apr/07/ecuador-begins-to-roar">for example in Ecuador</a>. </p>
<p>In granting loans, the IMF will push for trade liberalisation and the opening up of markets <a href="https://theconversation.com/explainer-what-is-protectionism-and-could-it-benefit-the-us-economy-73706**">to international competition</a>. But if this happens under unfavourable conditions it can lead to the extinction of the local industry and unfavourable terms of trade. Not even countries with strong industries have fully liberalised their trade. </p>
<p>The fund also follows a doctrine that views state companies as inherently inefficient and will therefore push for their <a href="https://www.theguardian.com/business/2016/oct/09/the-world-bank-and-the-imf-wont-admit-their-policies-are-the-problem">quick (and cheap) privatisation</a>. However, selling off key public companies can cause <a href="https://www.theguardian.com/business/2007/aug/16/imf.internationalaidanddevelopment">more problems than it solves</a>, leading to monopolies, unreliable services, price hikes and <a href="http://internationalrelations.org/dependency-theory/">dependency on other nations</a>. </p>
<p>Grievances from developing countries are further validated by the IMF’s voting system, which favours the West: European countries together have about a third of the voting rights while their weight in the global economy is much smaller. China controls only about 6% of the votes. It is no coincidence that the managing director, the fund’s boss, is <a href="https://www.imf.org/external/np/exr/chron/mds.asp">invariably a European</a>.</p>
<h2>alt-IMF</h2>
<p>Such concerns have led to the creation of alternative institutions. In 2014, Brazil, Russia, India, China and South Africa established the <a href="http://www.economist.com/news/finance-and-economics/21607851-setting-up-rivals-imf-and-world-bank-easier-running-them-acronym">BRICS Contingency Reserve Arrangement</a> with capital of US$100 billion. In the same year, the <a href="https://www.ft.com/content/671d8ac4-e18a-11e6-8405-9e5580d6e5fb">Asian Infrastructure Investment Bank</a> was set up by China and backed by another 25 nations. Back in 2011, the African Union established the <a href="http://www.african-celebrities.com/the-african-monetary-fund-amf-finally-created-headquarters-yaounde/">African Monetary Fund</a>. </p>
<p>When the IMF recently started to make sounds that it may <a href="http://www.express.co.uk/finance/city/790993/IMF-Christine-Lagarde-Greece-bailout-International-Monetary-Fund-reforms">not continue to fund Greece</a>, some European countries threatened to <a href="http://www.euractiv.com/section/economic-governance/news/berlin-continues-quest-for-european-monetary-fund/">establish their own European organisation</a>. And across the Atlantic, the US government under President Donald Trump now <a href="https://www.bloomberg.com/news/articles/2017-02-22/trump-scorns-the-imf-s-globalism-and-now-he-gets-to-vote-on-it">looks at the IMF with disdain</a>. Trump’s economic philosophy is diametrically opposed to the founding principles of the IMF, and the US appears to be heading towards an <a href="https://www.ft.com/content/4f54a3a2-2319-11e7-8691-d5f7e0cd0a16">isolationist stance</a> which spends dollars in the US, not in foreign states. </p>
<p>These pressures come at a tricky time, for right now you could argue that the IMF has never been so needed in the global economy. In a world that is becoming increasingly dynamic, globalised and at the same time nationalistic, The IMF, the World Bank and the World Trade Organisation are still emblems of global co-operation and confidence. Without an institutional lender of last resort, nations will be at the mercy of panicky and greedy markets or, even worse, at the mercy of other nations. The existence of added risk in the global monetary system will eventually transform into fewer transactions and higher premiums, harming everybody. </p>
<p>Yet if the IMF is to fulfil its role, and indeed survive, it needs to change, and <a href="http://www.thehindu.com/business/India-gets-more-voting-rights-in-IMF-reforms/article14024758.ece">faster than it so far has</a>. A good start would be going back to the ancient Greek basics: more equal voting, policies that respect the needs of local communities and rules that apply to everyone, weak or strong.</p><img src="https://counter.theconversation.com/content/76842/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Alexander Tziamalis does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Where now for one of the great emblems of post-World War II global co-operation?Alexander Tziamalis, Senior Lecturer (Associate Professor) in Economics and Consultant, Sheffield Hallam UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/699632016-12-06T21:09:55Z2016-12-06T21:09:55ZHow the attack on Pearl Harbor shaped America’s role in the world<p>The bombing of Pearl Harbor was a pivotal moment in U.S. and world history. The attack thrust the U.S. into World War II and set in motion a series of events that would transform the country into a global superpower and guardian of international order. Seventy-six years later, this legacy of Pearl Harbor now faces perhaps its biggest challenge.</p>
<p>Japan killed <a href="https://visitpearlharbor.org/how-many-pearl-harbor-deaths-were-there/">2,403 Americans</a> on Dec. 7, 1941. More than <a href="http://www.nationalww2museum.org/learn/education/for-students/ww2-history/ww2-by-the-numbers/world-wide-deaths.html?referrer=https://www.google.com/">400,000</a> U.S. soldiers would die in the four years that followed. Their blood helped purchase the defeat of fascism in Europe and Asia and laid the foundation for a post-war international order made in America’s image.</p>
<p>Whether the U.S. would have entered World War II absent Pearl Harbor is a matter of some debate. Scholars such as John Schuessler of Texas A&M <a href="http://www.mitpressjournals.org/doi/pdf/10.1162/isec.2010.34.4.133">argue</a> that President Franklin D. Roosevelt had long been angling for U.S. intervention. From this view, FDR was very much aware that Japanese expansionism in Asia and German aggrandizement in Europe meant trouble for America.</p>
<p>Yet anti-war sentiment at home meant that FDR had to tread carefully. A succession of <a href="https://history.state.gov/milestones/1921-1936/neutrality-acts">Neutrality Acts</a> restricted the kinds of assistance that could be rendered to the Chinese, French and British governments, while anti-war groups such as <a href="https://theconversation.com/trumps-america-first-echoes-from-1940s-59579">America First</a> boasted hundreds of thousands of members.</p>
<p>We will never know if FDR would have succeeded in maneuvering the U.S. into open hostilities with the fascist powers. Pearl Harbor gave him more than enough cause to declare war on Japan and its allies in Europe. But viewed in historical perspective, it is clear that Pearl Harbor was more than just the gateway to America’s entry into World War II. </p>
<p>Rather, the attack constituted a critical juncture in the history of U.S. foreign relations, sidelining isolationism as a powerful force in domestic politics and making overseas engagement the accepted norm.</p>
<h2>Expanding overseas commitments</h2>
<p>The war effort required a massive mobilization of the U.S. economy and society. By the time of its conclusion in 1945, the U.S. had built for itself the largest <a href="http://www.nationalww2museum.org/learn/education/for-students/ww2-history/ww2-by-the-numbers/us-military.html">fighting force</a> in its history, with a military basing structure that spanned the globe. Japan and large parts of Germany were under U.S. occupation.</p>
<p>After victory, President Truman showed an initial inclination to <a href="https://books.google.com/books?id=PTEV0CPuhRcC&pg=PA574&lpg=PA574&dq=truman+four+policemen&source=bl&ots=noapJ0a9xc&sig=qXilBoOmvjzkY0lI_xCddOGTaiY&hl=en&sa=X&ved=0ahUKEwjCiYGA9t3QAhVnslQKHQPBA3U4ChDoAQgaMAA#v=onepage&q=truman%20four%20policemen&f=false">share responsibility</a> for global order with the country’s wartime allies: Britain, France, the Soviet Union and the nationalist government of China. But extricating the U.S. from world affairs proved difficult, and Truman’s presidency would instead see a marked expansion of America’s overseas commitments.</p>
<p>In <a href="https://books.google.com/books?id=DoSGzXQln_oC&lpg=PP1&dq=Iron%20Curtain%3A%20The%20Crushing%20of%20Eastern%20Europe%2C%201944-1956&pg=PP1#v=onepage&q&f=false">Eastern Europe</a>, the Soviets began to establish political control over the countries that they occupied, like <a href="https://books.google.com/books?id=ZU4EAAAAMBAJ&lpg=PA98&dq=poland%20election%201947%20fraudulent&pg=PA98#v=onepage&q=poland%20election%201947%20fraudulent&f=false">Poland</a> and <a href="https://books.google.com/books?id=qBBcqDludakC&lpg=PA135&dq=czech%20coup%201948&pg=PA135#v=onepage&q=czech%20coup%201948&f=false">Czechoslovakia</a>. These actions fueled <a href="https://www.foreignaffairs.com/articles/russian-federation/1947-07-01/sources-soviet-conduct">consternation</a> in the U.S. that Moscow was not a responsible partner but rather was bent on further expansion, perhaps across <a href="http://dh.oxfordjournals.org/content/22/3/399.short">Western Europe</a> or into the <a href="http://dh.oxfordjournals.org/content/21/3/383.short">Middle East</a>. Fear of communism appeared to be vindicated when, in 1950, North Korean forces <a href="http://www.bbc.co.uk/history/worldwars/coldwar/korea_hickey_01.shtml">crossed the 38th parallel</a> intent on forcibly unifying the Korean Peninsula under communist rule. This act of aggression <a href="http://jcr.sagepub.com/content/24/4/563.abstract">catalyzed</a> a massive military buildup by the Truman administration.</p>
<p>Containment of communism became the organizing principle of U.S. foreign policy for the next four decades, benefiting from broad bipartisanship consensus on the question. What began after Pearl Harbor as an attempt to defeat fascism had morphed by 1950 into an all-out global struggle to resist communism and maintain the independence of nations in the so-called “Free World.”</p>
<p>Ignoring Thomas Jefferson’s <a href="http://avalon.law.yale.edu/19th_century/jefinau1.asp">advice</a> on the perils of “entangling alliances,” the U.S. offered security guarantees – formal and informal – to a host of nations in Europe, Asia and elsewhere. U.S. forces were involved in toppling governments from <a href="http://nsarchive.gwu.edu/NSAEBB/NSAEBB4/">Guatemala</a> to <a href="https://www.theguardian.com/world/2013/aug/19/cia-admits-role-1953-iranian-coup">Iran</a> to <a href="http://abcnews.go.com/International/story?id=82588">Chile</a>. And of course, a costly <a href="https://theconversation.com/the-choice-lbjs-decision-to-go-to-war-in-vietnam-38410">war of choice</a> was waged in Vietnam.</p>
<p>In concert with its allies, the U.S. set about building a liberal international order that would embed international cooperation and create safe spaces for capitalist economies to flourish. The <a href="http://www.brettonwoodsproject.org/2005/08/art-320747/">Bretton Woods financial institutions</a>, the <a href="http://www.un.org/en/sections/history/history-united-nations/">United Nations</a> and the <a href="https://www.wto.org/english/thewto_e/minist_e/min96_e/chrono.htm">General Agreement on Tariffs and Trade</a> (now the World Trade Organization) all can be considered part of this ambitious order-building project.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/148939/original/image-20161206-25749-2rcwo8.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/148939/original/image-20161206-25749-2rcwo8.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/148939/original/image-20161206-25749-2rcwo8.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=396&fit=crop&dpr=1 600w, https://images.theconversation.com/files/148939/original/image-20161206-25749-2rcwo8.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=396&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/148939/original/image-20161206-25749-2rcwo8.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=396&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/148939/original/image-20161206-25749-2rcwo8.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=498&fit=crop&dpr=1 754w, https://images.theconversation.com/files/148939/original/image-20161206-25749-2rcwo8.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=498&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/148939/original/image-20161206-25749-2rcwo8.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=498&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Monetary Conference at Bretton Woods, New Hampshire in July 1944, attended by representatives of 44 nations, including M.S. Stepanov of Russia, Lord John Maynard Keynes and Vladimir Rybar of Yugoslavia.</span>
<span class="attribution"><span class="source">AP Photo</span></span>
</figcaption>
</figure>
<p>The U.S. used its power to shape and reshape the world during the decades that followed 1945. But it is now <a href="http://news.bbc.co.uk/onthisday/hi/dates/stories/december/25/newsid_2542000/2542749.stm">25 years</a> since the Soviet Union voted itself out of existence, and America’s <a href="https://www.amazon.com/Base-Nation-Military-America-American/dp/1627791698?tag=quartz07-20">global footprint</a> remains substantial.</p>
<p>Why has America maintained its deep engagement overseas? Why have its leaders still not seen fit to return U.S. foreign policy to a pre-Pearl Harbor footing?</p>
<h2>Trade and security concerns</h2>
<p>One reason is that the U.S. economy – or, at least, a large segment of it – has <a href="https://ustr.gov/about-us/benefits-trade">benefited</a> enormously from a liberal international architecture that might collapse without the application of U.S. power to keep trade routes open, energy sources flowing and anti-capitalist forces at bay.</p>
<p>Another explanation is that successive presidents have concurred with FDR that national security cannot be divorced from international security. From defeating the Axis powers to containing the Soviet Union to tackling “rogue states” and terrorist organizations, it has appeared more attractive to fight America’s enemies overseas rather than risk another Pearl Harbor.</p>
<p>For 76 years, such arguments for U.S. internationalism have more or less held sway in Washington. Today, however, they are increasingly falling upon deaf ears.</p>
<p>President-elect Donald Trump puts little stock in the open international economy, accusing foreign entities of cheating American workers. He has promised to <a href="http://www.realclearpolitics.com/video/2016/06/28/donald_trumps_seven-point_plan_to_reform_nafta_and_wto_cheaters.html">renegotiate</a> trade deals and <a href="https://www.washingtonpost.com/politics/trump-threatens-consequences-for-us-firms-that-relocate-offshore/2016/12/01/a2429330-b7e4-11e6-959c-172c82123976_story.html">punish</a> businesses for investing overseas. Trump purports to represent not those who have become rich from global capitalism, but those whose livelihoods have been lost to the vicissitudes of foreign competition.</p>
<p>Nor does Trump see the international environment as posing many bona fide security threats. Trump has promised to forge <a href="https://www.bostonglobe.com/news/world/2016/12/05/how-trump-putin-alliance-would-change-world/WRBbyzjIfHCs4xYOyKv7wL/story.html">friendly relations</a> with Russia, for example, and hopes to encourage Moscow to shoulder the burden of defeating the Islamic State. He does not seem to lose sleep over the possibility of conflict with China, baiting the Beijing government over <a href="http://www.cnbc.com/2016/12/05/donald-trump-insults-china-with-taiwan-phone-call-and-tweets-on-trade-south-china-sea.html">Twitter</a>. Trump has questioned cornerstones of U.S. defense policy such as <a href="http://www.theatlantic.com/news/archive/2016/07/trump-nato/492341/">NATO</a>, and has suggested that U.S. allies can look after themselves, perhaps with the aid of their own <a href="http://www.nbcnews.com/news/us-news/what-does-donald-trump-really-think-about-using-nuclear-weapons-n655536">nuclear arsenals</a>.</p>
<p>For better or worse, the post-Pearl Harbor world has been one in which the U.S. always has faced compelling incentives to remain preponderant in international affairs. But there was never anything inevitable or immovable about this internationalist consensus. As the conservative columnist Charles Krauthammer <a href="https://www.foreignaffairs.com/articles/1991-02-01/unipolar-moment">noted</a> at the end of the Cold War, isolationist tendencies on both the right and left of U.S. politics were bound to resurface eventually.</p>
<p>With Trump’s election, Krauthammer’s prophecy is perhaps finally coming to pass. With an avowedly “America First” president occupying the White House, what the attack on Pearl Harbor had banished from American public life will, at last, be mainstream once more.</p><img src="https://counter.theconversation.com/content/69963/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Peter Harris does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The Japanese attack on a US naval base on Dec. 7, 1941 set in motion a series of events that transformed the United States into a global superpower. Will Donald Trump bring that era to an end?Peter Harris, Assistant Professor of Political Science, Colorado State UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/597002016-05-30T14:58:08Z2016-05-30T14:58:08ZBRICS needs to mature before it can challenge current world order<figure><img src="https://images.theconversation.com/files/123236/original/image-20160519-4475-s9x6fg.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">BRICS leaders at a meeting ahead of the G20 summit in Turkey in 2015.</span> <span class="attribution"><span class="source">REUTERS/Mikhail Klimentyev/RIA Novosti/Kremlin </span></span></figcaption></figure><p>The rise of non-Western emerging powers like Brazil, Russia, India and China is a reality that has shaped South Africa’s foreign policy under President Jacob Zuma. </p>
<p>Foreign policy under Zuma has been characterised by his country’s growing closeness with these four countries. The leaders of these countries meet more often than they did in the past. This is the case in the context of their bilateral relationships as well as part of the Brazil, Russia, India, China, South Africa (BRICS) grouping.</p>
<p>Despite criticism that BRICS countries don’t have much <a href="http://qz.com/234903/ten-charts-that-prove-brics-nations-have-little-in-common/">in common</a>, there are clear political objectives these nations seek to pursue. </p>
<p>As a collective they are unhappy with, and critical of, Western dominance of multilateral institutions. This is because they have for many years been on the margins. They’re also dissatisfied with the perceived refusal of the West to share global power. </p>
<p>As a group, BRICS’ disenchantment with the contemporary global system has reinforced its desire to amplify its voice and strengthen its representation in international financial institutions.</p>
<h2>The glue</h2>
<p>The way in which the grouping has evolved broadly conforms to two central ways in which organisations and associations form. Firstly shared ideas, as opposed to material forces, have primacy over determining the structures of human association. Secondly, the identities of purposive actors are a function of shared ideas and are not <a href="https://books.google.co.za/books?hl=en&lr=&id=s2xjEd0ww2sC&oi=fnd&pg=PR13&dq=Wendt+A,+Social+Theory+of+International+Politics.+Cambridge:+Cambridge+University+Press,+1999,+p.1.&ots=UDqCFcHaNt&sig=aRkfM9T9aac9Si2ZqNaTNMXRZ4Q#v=onepage&q=Wendt%20A%2C%20Social%20Theory%20of%20International%20Politics.%20Cambridge%3A%20Cambridge%20University%20Press%2C%201999%2C%20p.1.&f=false">decreed by nature</a>. </p>
<p>An example is the countries that constitute <a href="http://www.cfr.org/international-organizations-and-alliances/group-seven-g7/p32957">the Group of Seven (G7)</a>. They did not begin with positively asserted common interests. They emerged as a reaction to a world whose financial and economic pillars were perceived to be unstable.</p>
<p>The G7 – now the G8 – would later evolve to become the intellectual guardian of the International Monetary Fund, presiding over “nearly all the policy innovations within the <a href="http://www.hup.harvard.edu/catalog.php?isbn=9780674034556">Fund</a>”. The G7 continues to exist as a separate group that influences the G20 – an informal group of finance ministers and central bank governors from 20 influential economies.</p>
<p>In the same vein it is possible to see in the BRICS the potential for policy innovation. This is true in existing multilateral structures and those that it creates in parallel. One such policy innovation is the <a href="http://ndb.int">New Development Bank</a> as well as the emerging global landscape of infrastructure financing.</p>
<h2>The BRICs bank</h2>
<p>The BRICS bank is positioning itself to play a significant role in areas in which international financial institutions are seen to have failed. This includes infrastructure development and improving the international monetary system. Lou Jiwei, China’s Finance Minister, has <a href="http://thebricspost.com/brics-bank-open-for-business/#.Vz2qcJF97IV">remarked</a> that:</p>
<blockquote>
<p>The bank will aim at reform of global economic governance. </p>
</blockquote>
<p>The bank has recently made loans of US$811 million to entities in four BRICS countries towards energy infrastructure. This is made up of: </p>
<ul>
<li><p>$250 million to India’s Canara Bank for on-lending activities in renewable energy projects; </p></li>
<li><p>a $180 million loan to South Africa’s power utility, Eskom, <a href="http://mg.co.za/article/2016-04-21-brics-bank-to-loan-eskom-over-r2-billion">to build</a> transmission lines to connect 500MW of renewable energy from independent power producers to the national grid; </p></li>
<li><p>$300 million allocated to the Brazilian Development Bank for on-lending projects that would generate 600MW of renewable energy; and </p></li>
<li><p>an $81 million loan to a solar panel project in Shanghai spearheaded by Shanghai Lingang Hongbo, an energy development company. </p></li>
</ul>
<p>The New Development Bank doesn’t have the capacity to displace the traditional financial institutions in the immediate future. But it is intent on pushing hard for reforms in these institutions.</p>
<p>And the recent disbursements are too little by the standards of traditional institutions. Still, they are important in signalling a shared economic intent around infrastructure projects. According to Tito Mboweni, South Africa’s former Reserve Bank governor and a non-executive director of the new bank, this initiative is </p>
<blockquote>
<p>driven by a set of shared values and an outlook on development that seeks to counter the current <a href="http://www.bdlive.co.za/opinion/2015/08/20/brics-bank-to-balance-global-order">dominant actors</a>.</p>
</blockquote>
<p>In the African context the new bank, through the BRICS’ <a href="http://www.shanghaidaily.com/article/article_xinhua.aspx?id=321153">Africa Regional Centre</a>, could play a pivotal role in financing infrastructure projects. This is with a view to promoting structural transformation in resource-dependent economies and stimulating progress in regional integration. </p>
<p>In the case of South Africa, the new bank could make a vital contribution in providing an alternative source of finance to address the economy’s increasing development needs and infrastructure bottlenecks. </p>
<p>As such, South Africa sees member countries’ financial contributions to the new bank as an investment in the future. The need to spur growth was central to South Africa’s support for the establishment of the bank. Given that the country’s own budget is insufficient to finance its infrastructure needs, the bank will provide an opportunity for South Africa to obtain additional finance.</p>
<h2>New global order</h2>
<p>As a grouping of influential developing countries, the BRICS are poised to play a key role in reforming the international monetary system and shaping the new development agenda. In our view, this is a new regime order that will not necessarily replace the <a href="http://www.brettonwoodsproject.org/2005/08/art-320747/">Bretton Woods Institutions</a> but will exist parallel to them. </p>
<p>The BRICS countries are thinking beyond merely financing infrastructure gaps. It is possible that they may also be driven by a goal to provide a platform for policy learning in ways that could reduce the significance of the World Bank’s “knowledge partnership” engagement with middle-income countries.</p>
<p>The degree of institutionalisation evolving in the BRICS grouping provides strong, if tentative, pointers that this is indeed a regime order in the making. The countries are well positioned to advocate for the democratisation of global financial institutions to better reflect the voice and needs of all the countries that participate in them. Importantly, they are uniquely placed to build institutions that are more sensitive and responsive to the needs of developing countries.</p>
<p>But there is a long road ahead before these countries can mature into this role. They will first need to accumulate knowledge resources, project credibility in managing their economies, improve their domestic institutions and develop a degree of normative coherence. </p>
<p>Further, a global leadership role by BRICS would have to be balanced with a focus on issues related to inclusive growth and sustainable development.</p>
<p>It will not be enough to seek to correct uneven power relations in the global sphere without addressing socioeconomic vulnerabilities within the BRICS. For these countries to have appeal and project soft power they must also be seen as credible. The power of their voice in global governance processes should echo their transformative actions domestically.</p>
<p><em>This is a shortened and edited version of an article which appears in the latest issue of the <a href="http://www.saiia.org.za/news/new-issue-of-the-south-african-journal-of-international-affairs-223">South African Journal of International Affairs</a>.</em></p><img src="https://counter.theconversation.com/content/59700/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The BRICS bank is positioning itself to play a significant role in those areas in which the international financial institutions are seen to have failed.Mills Soko, Associate Professor, Graduate School of Business, University of Cape TownMzukisi Qobo, Associate Professor at the Pan African Institute, University of JohannesburgLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/587152016-05-04T18:22:42Z2016-05-04T18:22:42ZClinton and Trump: different visions of America abroad<p>Despite the media’s best efforts to keep us guessing, both Hillary Clinton and Donald Trump are now the overwhelming favorites to represent the Democratic and Republican parties in the presidential election in the fall. </p>
<p>And as Donald Trump’s <a href="http://www.nytimes.com/2016/04/28/us/politics/donald-trump-foreign-policy-speech.html?login=email&_r=0">speech</a> last week made clear, they represent two very different potential trajectories for America’s future global role. </p>
<p>Indeed, I believe that no election in recent times has so clearly presented American voters with such a stark choice when it comes to U.S. foreign policy. No longer does politics stop “at the water’s edge” in a bipartisan spirit. </p>
<p>So what are the major differences?</p>
<h2>America’s foreign policy orthodoxy</h2>
<p>Hillary Clinton’s views are embedded in an <a href="http://www.amazon.com/Good-Bye-Hegemony-Influence-Global-System/dp/0691160430/ref=sr_1_1?ie=UTF8&qid=1462300938&sr=8-1&keywords=good-bye+hegemony%21">orthodoxy</a> that has been the bedrock of U.S. foreign policy since the end of World War II. </p>
<p>First, according to this orthodoxy, as the dominant power, America has both a right and responsibility to act as a global leader. Rightly or wrongly, politicians think that foreigners crave American leadership as a bedrock assumption – and nothing important gets done without it. </p>
<p>Leadership entails setting the global agenda whenever possible. That means being active rather than reactive. And that active agenda is comprehensive. </p>
<p>On the current leadership security agenda, for example, is establishing peace in <a href="http://www.bbc.com/news/world-middle-east-36183569">Syria</a>, ensuring stability in Europe in the face of <a href="http://www.bbc.com/news/world-europe-36197856">Russian aggression</a>, and supporting freedom of navigation in the <a href="http://www.bbc.com/news/world-asia-36057358">South China Sea</a>. All this is done in the name of global stability, and promoting the – sometimes contested – American version of <a href="http://www.inquisitr.com/2993568/human-rights-2015-report-released-john-kerry-says-abuse-spawns-terrorism-video/">human rights.</a></p>
<p>To this could be added a multitude of economic agenda issues, like promoting trade agreements in Asia and Europe. </p>
<p>Washington’s politicians generally regard promoting global free trade as sacrosanct, although both Bernie Sanders and Donald Trump have questioned that assumption in recent months, as <a href="https://www.youtube.com/watch?v=xQ7kn2-GEmM">Ross Perot</a> did in 1992. But the fact is that presidents from both parties have occasionally invoked <a href="http://millercenter.org/president/bush/speeches/speech-5526">“free and fair trade” measures</a> – code words for protectionism. Even Ronald Reagan, Republican doyen, <a href="http://www.ontheissues.org/Celeb/Ronald_Reagan_Free_Trade.htm">used them</a> in textiles and cars to safeguard jobs and win votes in the 1980s. </p>
<p>Second, this orthodoxy accepts that America has to pay a price in blood and treasure for its global role.</p>
<p>That price takes several forms. There is, above all, the cost of military intervention in protecting vulnerable populations (think of the <a href="http://www.vox.com/2014/8/8/5982421/yazidis-yezidis-iraq-crisis-bombing">Yazidis</a> in Iraq) or in upholding American national security (<a href="http://www.britannica.com/event/Afghanistan-War">the invasion of Afghanistan</a>). </p>
<p>And the same is true when it comes economic policy. America has acted as a <a href="http://www.investopedia.com/terms/l/lenderoflastresort.asp">“lender of last resort”</a> in time of crisis. It has underwritten <a href="https://www.stratfor.com/weekly/chinas-new-investment-bank-premature-prophecy">the global economic system</a> with the world’s two key financial institutions, the International Monetary Fund and the World Bank, headquartered in Washington, D.C. </p>
<h2>The Washington playbook</h2>
<p>President Obama has, at times, departed from this orthodoxy, or what he recently termed <a href="http://www.theatlantic.com/international/archive/2016/03/obama-doctrine-washington-playbook/473058/">“the Washington playbook.” </a></p>
<p>He has <a href="http://www.newsweek.com/kerry-defends-obama-syria-putin-meeting-377928">refused</a> to commit large-scale combat troops to the war in Syria and Iraq or to do more to protect <a href="http://www.latimes.com/world/europe/la-fg-us-ukraine-20150214-story.html">Ukraine</a>. Similarly, Obama’s rapprochement with Cuba and the Iranian nuclear deal have both breached the contours of routine foreign policy. </p>
<p>On his recent trip to Europe, Obama <a href="https://www.whitehouse.gov/the-press-office/2016/04/25/remarks-president-obama-address-people-europe">made it clear that European governments</a> need to contribute more to the cost of NATO in the spirit of the organization’s agreement about burden-sharing. All presidents in recent times have asked the Europeans to spend more. But none have been as forthright.</p>
<p>Clinton and Obama have disagreed at times. She has suggested, for example, that America should play a more significant role in Syria <a href="http://cnsnews.com/news/article/patrick-goodenough/clinton-differs-administration-syria-no-fly-zone-arming-kurds">by imposing a no fly zone and arming the Kurds</a>. But like Obama, <a href="http://correctrecord.org/hillary-clinton-smart-power-foreign-policy/">Clinton focuses more</a> on a balanced use of diplomacy, sanctions, development and firepower than some presidential predecessors, such as George W. Bush.</p>
<p>Still, whatever marginal differences there are between Clinton and Obama, both have largely worked within the contours of American foreign policy orthodoxy. Their differences pale in comparison to those between Trump and Clinton. </p>
<h2>Tearing up the playbook</h2>
<p>Donald Trump wants to tear up the playbook. His worldview is a trajectory begins with assumptions more common in the world of business than of foreign policy. He wants to broker the best deal. This approach takes three forms.</p>
<ol>
<li><p>Like a negotiator, Trump favors mystique and keeping information “close to his chest” over transparency. So he has a plan to defeat ISIS <a href="http://www.independent.co.uk/news/world/americas/us-elections/donald-trump-isis-foreign-policy-speech-us-election-2016-a7004371.html">“very, very quickly”</a> through an “<a href="http://www.independent.co.uk/news/world/americas/donald-trump-foreign-policy-speech-5-contradictions-in-the-presidential-hopefuls-plan-a7005711.html">unpredictable</a>” strategy. But he is not sharing it with the rest of us because that would give away a strategic advantage. </p></li>
<li><p>Like any businessman (or shopper), Trump values getting the “best bang for the buck.” So he will <a href="http://www.independent.co.uk/news/world/americas/us-elections/donald-trump-isis-foreign-policy-speech-us-election-2016-a7004371.html">reform the military</a> so that it is more efficient. And he will get our current clients to pay for their protection – in Asia and Europe. The <a href="http://www.msnbc.com/msnbc/donald-trumps-big-foreign-policy-speech-was-mess">ultimatum is clear:</a> “The countries we are defending must pay for the cost of this defense, and if not, the U.S. must be prepared to let these countries defend themselves…We have no choice.” So the illusion of “burden-sharing” is over. The U.S. will withdraw its military support from organizations such as NATO if not suitably rewarded, <a href="http://www.reuters.com/article/us-usa-election-trump-idUSKCN0XO10R">much to the alarm of its allies</a>. And China will have to share the load as well, and stop “<a href="http://www.bbc.com/news/election-us-2016-36185012">raping</a>” the American economy.</p></li>
<li><p>And, finally, in the market, your collaborator can instantly become your competitor. So, engaging with countries Trump regards as our “frenemies” – such as Mexico or some Muslim and Arab countries – as if America owes them something is over. They, like our European and Asian allies, will have to prove their worth rather than relying unconditionally on American support. </p></li>
</ol>
<p>Paradoxically, it is some of our competitors that will have a far better time of it. </p>
<p>Vladimir Putin <a href="http://www.cnn.com/2016/04/28/politics/donald-trump-russia-putin/">praised</a> Trump’s recent foreign policy speech. That added to their prior mutual compliments suggests a friendship is blossoming. Trump’s view of Putin is reminiscent of George W. Bush’s statement in 2001 when he suggested that he looked into Putin’s eyes and decided he was “trustworthy.” </p>
<p>Former Ambassador Nicholas Burns summarized his concerns about Trump’s newfound approach last week. Commenting on Trump’s speech, Burns <a href="http://www.pbs.org/newshour/bb/analyzing-trumps-tough-talking-foreign-policy-speech/">said</a>:</p>
<blockquote>
<p>I think it’s naive to think you can sit down with Vladimir Putin and negotiate the future of Europe.</p>
<p>President Obama and President Bush before him dealt with Putin from a position of strength. We now have sanctions against Putin because he crossed the brightest red line in international police. He invaded another country and took over its territory. There was nothing in the speech about that.</p>
<p>There was very little in the speech about Chinese assertiveness in East Asia. And I think, Judy, the thing that bothered me the most about this speech, the lack of humility. Donald Trump castigated 35 years of American foreign policy. That includes George H.W. Bush. It includes Bill Clinton and George W. Bush. </p>
</blockquote>
<h2>Things will get worse before they get better</h2>
<p>The upcoming presidential election process is likely to be as nasty as the Republican primary has been. </p>
<p>So, if you have had a hard time explaining the last six months to your foreign friends, the likelihood is that the next six are going to get harder. </p>
<p>But foreigners, from Mexico City to Moscow, appreciate what is at stake. After all, they too will bear the consequences of the choices of American voters. </p>
<p>The Washington playbook has its problems. Arguably it does need to be torn up. The abiding question is whether this is the way to do it. </p>
<p>It will be ironic if, in retrospect, history judges President Obama’s deviations from the playbook as merely setting the stage for the foreign policy upheaval that followed.</p><img src="https://counter.theconversation.com/content/58715/count.gif" alt="The Conversation" width="1" height="1" />
No election in recent times has so clearly presented American voters with such a stark choice when it comes to U.S. foreign policy. A guide to the major differences.Simon Reich, Professor in The Division of Global Affairs and The Department of Political Science, Rutgers University - NewarkLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/553382016-02-24T16:37:19Z2016-02-24T16:37:19ZSouth Africa’s finance minister tackles wastage, boosts confidence<figure><img src="https://images.theconversation.com/files/112763/original/image-20160224-16416-dpntdp.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">South Africa's Finance Minister Pravin Gordhan delivers his 2016 budget address to parliament in Cape Town.</span> <span class="attribution"><span class="source">Reuters/Mike Hutchings</span></span></figcaption></figure><p><em>A great deal was at stake for South Africa when its Finance Minister Pravin Gordhan delivered his much-anticipated <a href="http://www.treasury.gov.za/documents/national%20budget/2016/speech/speech.pdf">2016 Budget</a> speech. The political stakes for the governing African National Congress are high as it battles charges of corruption and a failure to deliver services to communities. The Conversation Africa Politics and Society editor Thabo Leshilo asked political scientist Keith Gottschalk to highlight the most important elements of the speech, and to assess whether Gordhan addressed the pressing challenges facing the country.</em> </p>
<h2>Corruption, spending cuts and education</h2>
<p>First, the finance minister announced more stringent procedures for state tenders to ensure that there was transparency in the way they are awarded. This will make predation from <a href="http://www.gov.za/tenderpreneurship-stuff-crooked-cadres-fighters">“tenderpreneurs”</a> - business people who enrich themselves through government tenders, often dubiously - and <a href="http://www.news24.com/SouthAfrica/Politics/Political-hyenas-in-feeding-frenzy-20100826">“political hyenas”</a> - the country’s corrupt political elite - more difficult. </p>
<p>It has been <a href="http://www.dailymaverick.co.za/article/2015-08-20-npa-realignment-step-2-willie-hofmeyr-out-of-asset-forfeiture-unit/#.Vs3B0Pl97IU">estimated</a> that funds lost to corruption in South Africa could well have increased to <a href="http://www.corruptionwatch.org.za/why-is-corruption-getting-worse-in-south-africa/">one-fifth of the budget</a>.</p>
<p>Second, the minister announced that the budget deficit will be reduced each year for the next three years.</p>
<p>Gordhan’s formal qualification is as a pharmacist and it’s fair to say that he dispensed exactly the medicine ratings companies and credit agencies are watching for. The cuts on public sector travel, cars, accommodation, and conferences sends the right signals. The freeze on the hiring of public sector workers comprises the bulk of the freeze in expenditure. This will keep the <a href="http://www.brettonwoods.org/page/about-the-bretton-woods-institutions">Bretton Woods</a> institutions at bay.</p>
<p>Third, Gordhan announced the two-decade overdue project to ensure that all schools are built of brick, and supplied with water and electricity. He also announced acceleration in the provision of early childhood development schooling. At the other end of the education spectrum he announced a substantial increase in funding for the National Student Financial Aid <a href="http://www.nsfas.org.za/">Scheme</a>. This provides support for indigent students at colleges and universities.</p>
<h2>Skillful tax hikes</h2>
<p>Fourth, the finance minister committed to unspecified reductions in the cost of doing business, and regulatory challenges that deter investors.</p>
<p>Fifth, there is no increase in VAT. He took this decision in a year in which working class families will be hit badly by inflation as food prices rise due to both the drought and the decline of the rand’s exchange rates.</p>
<p>Instead, Gordhan fell back on that favourite of the <a href="http://www.gresham.ac.uk/lectures-and-events/the-dutch-east-indies-company-the-first-100-years">Dutch East Indies Company</a> - excise duties. New levies on sugar and tyres, and higher levies on fuel and plastics.</p>
<p>Overall, his team has skillfully cut expenditure and raised taxes where it will hurt least. The paragraph seeking to rationalise and privatise certain state-owned enterprises will help concentrate the mind of <a href="http://www.news24.com/Travel/Flights/SAA-leadership-rocked-by-scandal-again-20140521">South African Airways</a>, the troubled national airline.</p>
<p><em>*This article has been republished to correct a misattribution.</em></p><img src="https://counter.theconversation.com/content/55338/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Keith Gottschalk is affiliated with the ANC. This critique is written in his individual capacity as a political scientist.</span></em></p>South Africa’s finance minister delivered a good mix of macro and micro-economic strategies to ensure the country survives economic uncertainty, restores confidence and achieves some growth.Keith Gottschalk, Political Scientist, University of the Western CapeLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/444432015-07-14T04:31:01Z2015-07-14T04:31:01ZBRICS herald new era in international political economy<figure><img src="https://images.theconversation.com/files/88207/original/image-20150713-11836-p942dc.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The rise of the BRICS countries is a case of political life imitating economic art.</span> <span class="attribution"><span class="source">Reuters</span></span></figcaption></figure><p>The global recognition of the economic prowess of the BRICS – Brazil, Russia, India, China and South Africa – has led to the group gaining greater global political influence. But it has also reinforced the regional leadership standing of these nations.</p>
<p>The rise of the BRICS is a story of regional economic powers becoming increasingly important global political actors. With the promise of new global financial institutions to rival the <a href="http://www.economist.com/blogs/economist-explains/2014/06/economist-explains-20">Bretton Woods</a> institutions, we stand on the cusp of a new era of multilateral economic and development politics. </p>
<figure class="align-right ">
<img alt="" src="https://images.theconversation.com/files/88049/original/image-20150710-17439-11achej.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/88049/original/image-20150710-17439-11achej.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=409&fit=crop&dpr=1 600w, https://images.theconversation.com/files/88049/original/image-20150710-17439-11achej.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=409&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/88049/original/image-20150710-17439-11achej.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=409&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/88049/original/image-20150710-17439-11achej.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=514&fit=crop&dpr=1 754w, https://images.theconversation.com/files/88049/original/image-20150710-17439-11achej.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=514&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/88049/original/image-20150710-17439-11achej.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=514&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">New global financial institutions promise to rival the Bretton Woods institutions, the World Bank and the IMF.</span>
<span class="attribution"><span class="source">Reuters/Gary Cameron</span></span>
</figcaption>
</figure>
<p>This global political ascendancy has generally reinforced the standing of BRICS countries as both economic and political leaders in their regions. It was precisely on the political grounds of regional leadership that South Africa was included in BRICS in the first place.</p>
<h2>Erosion of north/south divide</h2>
<p>Coined as an investment meme by a <a href="http://www.goldmansachs.com/our-thinking/archive/archive-pdfs/build-better-brics.pdf">Goldman Sachs</a> bank to help western capitalists make money, the BRICS countries are an interesting case of political life imitating economic art. </p>
<p>The construct worked in the sense that foreign investment flowed into the BRICS. But it also revealed deeper processes of global economic integration reflected by emerging market growth. These are upending traditional patterns of manufacturing, consumption, wealth and financing and beginning to undercut simple north-south divides.</p>
<p>Hence the debate on whether it is the BRICS or <a href="http://www.npr.org/sections/parallels/2014/05/13/311852601/the-global-economy-will-mint-countries-be-the-new-brics">MINT</a> or the <a href="https://www.bbvaresearch.com/wp-content/uploads/2014/05/2014_EAGLEs_Economic_Outllok-Annual.pdf">EAGLES</a> or just India and China that will dominate the world economy must be set against the re-arranging of wealth and poverty in ways that coincide less with national boundaries. </p>
<p>Perhaps one day all billionaires will live in Singapore with the cities of the globe fragmented into sub cities framed along socioeconomic and identity lines. Thus the north–south divide may not so much disappear as be decentralised to sub-national and sub-city level.</p>
<p>In addition, global recognition has clearly reinforced the regional standing of most, if not all, of the BRICS. But the mutually reinforcing logic of global recognition and regional leadership for BRICS does not necessarily mean that the rise of the BRICS is good for the wider regions.</p>
<figure class="align-left ">
<img alt="" src="https://images.theconversation.com/files/87918/original/image-20150709-10879-fsidss.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/87918/original/image-20150709-10879-fsidss.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=401&fit=crop&dpr=1 600w, https://images.theconversation.com/files/87918/original/image-20150709-10879-fsidss.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=401&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/87918/original/image-20150709-10879-fsidss.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=401&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/87918/original/image-20150709-10879-fsidss.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/87918/original/image-20150709-10879-fsidss.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/87918/original/image-20150709-10879-fsidss.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">South Africa’s influence seems mostly limited to southern Africa with other BRICS nations more influential to the north of the continent.</span>
<span class="attribution"><span class="source">Reuters/Ivan Sekretarev</span></span>
</figcaption>
</figure>
<p>Much seems to hang on the nature of economic and political architecture within regions. For example, the ascent of Brazil may arguably harm Argentina while the ascent of China helps South Korea. South Africa’s ascent seems mostly limited to southern Africa with other BRICS nations more influential to the north.</p>
<h2>Wider economic choice?</h2>
<p>There is a closely related debate about where this will lead. Are the BRICS effective serving as sub-imperialists by better integrating the regions into global neoliberal capitalism? Or are they empowering emerging economies by offering a wider range of economic choice? </p>
<p>For example, the BRICS <a href="http://brics6.itamaraty.gov.br/media2/press-releases/219-agreement-on-the-new-development-bank-fortaleza-july-15">bank</a> and <a href="http://brics6.itamaraty.gov.br/media2/press-releases/220-treaty-for-the-establishment-of-a-brics-contingent-reserve-arrangement-fortaleza-july-15">Contingent Reserve Arrangement</a> may introduce greater choice for emerging countries in terms of loans and their conditionalities. This would allow countries to choose policies that are not rigidly neoliberal and more statist. </p>
<p>It also implies that we can expect greater variation in macroeconomic policy with different states and regions making these choices in different ways. However, what constitutes a significant difference from the neoliberal norm is a matter of vigorous debate.</p>
<p>The rise of the BRICS can also be read as symbolising the rise of global capitalism, but not necessarily the neoliberal version embedded in the Washington consensus. This is because at both home and abroad the models of business and development embraced by the BRICs have strong statist elements. They are also informed by an anti-Western identity politics that is important for global political dynamics. </p>
<p>Given the elite bias of most policies, this politics does not necessarily lead to democratic political outcomes such as greater democracy at home. It is better understood in terms of greater pluralism in elite forums of international politics and economics.</p>
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<p><em>This article is based on the BRICS Initiative for Critical Agrarian Studies (BICAS) <a href="http://www.iss.nl/fileadmin/ASSETS/iss/Research_and_projects/Research_networks/BICAS/BICAS_WP_3-Piper.pdf">working paper</a> by the author.</em></p><img src="https://counter.theconversation.com/content/44443/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The working paper on which this article is based was published with support from the Ford Foundation and the National Research Foundation of South Africa</span></em></p>The global recognition of BRICS – Brazil, Russia, India, China and South Africa – has not only led to their greater global political influence, but also reinforced their regional leadership.Laurence Piper, Professor of Political Studies, University of the Western CapeLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/336342014-11-10T19:29:47Z2014-11-10T19:29:47ZA history of crisis: can the G20 save capitalism from itself?<figure><img src="https://images.theconversation.com/files/63838/original/fvdsbd9t-1415248078.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The G20 of today faces a different type of crisis to the one it was founded on.</span> <span class="attribution"><span class="source">Jason Hargrove/Flickr</span>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span></figcaption></figure><p>To understand this week’s <a href="https://www.g20.org/">G20 Summit</a> being held in Brisbane, Australia, and measure its success, requires a sense of the history of economic crisis and change. Recurring crises have shaped global institutions across the interwar gold standard, the Bretton Woods postwar order, the G7 of the 1970s and the expanded G20 of today. </p>
<p>This “family tree” has evolved as crises have reshaped the balance of power and ideas, altering the distribution of economic capabilities and driving debate over four broad phases. Tracing their evolution can help us understand the challenges and choices leaders face today.</p>
<p><em>To navigate the timeline below, hover your mouse on the right (and on the left to move back).</em></p>
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<h2>Stage one: interwar tragedies – from Versailles to the great crash</h2>
<p>First, the pre-Keynesian interwar years of the 1920s and 1930s were marked by deficits of both economic leadership and ideas, as the world economy plunged into depression. </p>
<p>The “original sin” of global economic crisis can be seen to have been committed at the Versailles summit in 1919. Here, states bereft of any appreciation of the common good failed to recognise that, in punishing Germany, they would be depriving themselves of customers and creditworthy borrowers. One needn’t have absolved Germany of all responsibility for the conflict to recognise that what John Maynard Keynes termed “the economic consequences of the peace” were likely to be dire. </p>
<p>Compounding these errors would be a misguided interwar commitment to the gold standard. This locked the world economy into a downwards path, inhibiting potential post-Great Crash efforts to revive the world economy. </p>
<p>Instead, early responses to the market collapse would be marked by calls for austerity. For example, US Treasury Secretary Andrew Mellon urged Herbert Hoover to “liquidate labor, liquidate stocks, liquidate the farmers” and so “purge the rottenness out of the system”. Having done so, Mellon argued, “people will work harder” and “live a more moral life”. </p>
<h2>Stage two: postwar triumphs – from Bretton Woods to the great inflations</h2>
<p>Secondly, it would take another 15 years to witness the construction of the Bretton Woods system in 1944, reflecting the ideas of John Maynard Keynes regarding the “macro” interest of states in cooperating to prevent self-reinforcing market crises. </p>
<p>To be sure, this order could not have stood on Keynes’ ideas alone. It would also require the exercise of a benevolent “American hegemony” to stabilise a system of fixed exchange rates that might enhance postwar economic stability.</p>
<p>Even this order had two weaknesses. First, it had built into it an inflationary bias, as it depended on wage growth to fuel demand. Secondly, the impressive American might of the postwar decades – when the US accounted for nearly half of the world’s GDP – could not be sustained forever. </p>
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<h2>Stage three: cooperation and crisis – the G7 beats inflation, but inflates bubbles</h2>
<p>Something would eventually have to give. The result would be a third economic order, as America’s Keynesian hegemony would yield to a more multilateral Neoliberal order, stabilised by the Atlantic and European powers of the day – with Japan – in what would emerge over a series of mid-1970s summits as the G7. </p>
<p>Initially, the G7 sought to maintain the old Keynesian playbook, balancing a trade-off between growth and inflation. However, as wage-price pressures assumed increasing “lives of their own”, this would prove untenable. At the 1977 London economic summit, states conceded that inflation would have to be tackled – despite the costs for employment. </p>
<p>Over the 1980s and 1990s, this order, too, would manifest its own weaknesses. Specifically, the wage-price spirals of the Keynesian era found new form in recurring asset-price bubbles. These appeared in crises that spanned the Mexican peso crisis of 1994, the Asian crises of 1997-1998 and the dot-com boom of the early 2000s. </p>
<p>To the extent that these crises could not be addressed solely by the North Atlantic powers, the Asian crises in particular spurred a broadening of authority. The G7 would be supplemented as a leaders’ forum by the expanded G20, which provided greater representation for the Asia-Pacific region, albeit still at the ministerial level. </p>
<p>Perhaps this limited role made sense given the essentially regional nature of crises up through the mid-2000s. But the onset of the global financial crisis in 2008 would change that thinking.</p>
<h2>Stage four: balancing recovery and reform at the G20</h2>
<p>In the initial months following the onset of the GFC, policymakers often suggested the global economy had reached a turning point. As former Australian prime minister Kevin Rudd argued, the challenge posed by the 2008 financial crisis was:</p>
<blockquote>
<p>“to save capitalism from itself: to recognise the great strengths of open, competitive markets while rejecting the extreme capitalism and unrestrained greed that have perverted so much of the global financial system”. </p>
</blockquote>
<p>Given this interpretation, just as the great crash of 1929 had spurred the rise of the Keynesian order and Bretton Woods system, the crash of 2008 could spur a new era of recovery and reform – with the G20 leading the way.</p>
<p>Yet such claims were overstated. Each of the above-noted crises led to essentially gradual change. In this light, the G20 has likewise been marked by less punctuated than incremental change – and so the most important successes in Brisbane are likely to be “behind the scenes”. A half-decade out from crisis, officials will engage not in the design of massive economic rescue packages, but rather more measured efforts at constructing new monetary and regulatory tools – as these might enable the revived reconciliation of growth and economic stability.</p><img src="https://counter.theconversation.com/content/33634/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Wesley Widmaier does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>To understand this week’s G20 Summit being held in Brisbane, Australia, and measure its success, requires a sense of the history of economic crisis and change. Recurring crises have shaped global institutions…Wesley Widmaier, Australian Research Council Future Fellow, Griffith UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/292512014-07-16T15:45:58Z2014-07-16T15:45:58ZThe BRICS plan for a new world order begins with a bank<p>Could history one day judge the latest BRICS summit as significant as the Bretton Woods conference of 1944? That is the hope of leaders from Brazil, Russia, India, China, and South Africa as they meet in the city of Fortaleza, Brazil to establish a new institutional architecture to counter (or maybe complement) the Western-controlled finacial system. </p>
<p>The financial crisis of 2008 and its aftermath have fundamentally discredited the post-Cold War international order. With global economic institutions such as the IMF or the World Bank still essentially unreformed and carrying on as if it were still 2007, the BRICS are looking elsewhere. These emerging powers now want to build alternative forms of multilateral economic governance. </p>
<p>In 1944, the new economic order began with a bank and a fund: the International Bank for Reconstruction and Development, which became the World Bank, and the IMF. Today, the BRICS are taking the same approach. The creation of the BRICS’ <a href="http://www.bbc.co.uk/news/business-28317555">Development Bank along with a US$100 billion joint reserve fund</a> is the group’s first significant institutional innovation. </p>
<p>In international development, the BRICS partners offer an alternative approach to development assistance vis-à-vis Western-led frameworks. Their increasingly co-ordinated positions will most definitely shape debates in the UN’s post-2015 development agenda, which is due to replace the soon expiring Millennium Development Goals.</p>
<h2>Solid BRICS in unstable times</h2>
<p>This year’s meeting comes at a time when international politics is particularly complicated and unstable. Syria, Libya, Iraq, Egypt, Israel-Palestine and Ukraine are all putting added pressure on an already exhausted multilateral system and things are unlikely to change. The current stand-off between Russia and the West over Ukraine, and China’s assertive foreign policy and strategic competition with the US in South-East Asia point to great power rivalry increasing throughout this century. </p>
<p>Indeed Ukraine provides a particularly strong example of the BRICS’ independence. None of the other partners criticised Russia for its actions, in sharp contrast to the rhetoric from the US and Western Europe. This is the new geopolitical platform, where emerging powers are increasingly able to operate outside the traditional Western-dominated international decision-making structures. </p>
<p>In that regard, this summit is especially important to Russia. The country the US would like to isolate from polite global society turns out to have friends after all. The Russian president, Vladimir Putin, <a href="http://www.themoscowtimes.com/business/article/putin-wants-measures-to-protect-brics-nations-from-u-s-sanctions/503415.html">called for unity</a>: “Together we should think about a system of measures that would help prevent the harassment of countries that do not agree with some foreign policy decisions made by the US and their allies.”</p>
<p>Putin’s trip to Latin America has led to <a href="http://www.bbc.co.uk/news/world-latin-america-28261746">several strategic agreements</a> with Cuba, Brazil and Argentina, the latter on the development of a nuclear power project. For the US, which still considers the Western Hemisphere as its backyard, this is another snub.</p>
<h2>A new order</h2>
<p>So is the BRICS coalition ready to become the driving force behind the creation of a more representative and equitable post-Western international order?</p>
<p>The answer is (obviously) yes and no. Western attempts to resist reforms will indeed cause links among the BRICS to grow stronger, yet members do not want to see the bloc becoming increasingly controlled by China, the only de facto great power in the group. Furthermore, the group lacks the shared identity and common values which have proved vital to the post-World War II system led by the US. This is, after all, a group <a href="http://www.content.gs.com/japan/ideas/brics/building-better-pdf.pdf">first lumped together</a> by a Goldman Sachs economist based on shared demographics and economic indicators rather than anything cultural. </p>
<p>But the material underpinnings of the coalition are definitely robust and by establishing the group’s first real institutions, they have show political will and leadership. Whether the BRICS Bank will become the new World Bank remains to be seen, but if you were a group of countries looking to reshape the international order this would be a great place to start.</p><img src="https://counter.theconversation.com/content/29251/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Marco Vieira does not work for, consult to, own shares in or receive funding from any company or organisation that would benefit from this article.</span></em></p>Could history one day judge the latest BRICS summit as significant as the Bretton Woods conference of 1944? That is the hope of leaders from Brazil, Russia, India, China, and South Africa as they meet…Marco Vieira, Senior Lecturer in International Relations, University of BirminghamLicensed as Creative Commons – attribution, no derivatives.