Since 2003 the international financial system has undergone major stress. The existing architecture was evaluated as inadequate towards the systemic crisis tha has happened since 1995 around the world, including Mexico, Asia, Brazil, Russia, Argentina and the US crisis of 2000-2003. The inadequacy lay on two grounds: first it became evident that the architecture designed in 1944 ended in 1971 when the Smithsonian Argeement created a Bretton Woods II stage that was less of a multilateral systema as such and more of a North South insitution, where the G3/G5/G7/G8 countries coordinate their economic policies and converted the IMF into an instrument of those countries and what they wanted to happen in the developing world.
The policies were coerced into all developing countries through IFI conditionality were required as part of the Club of Paris/G7 debt negotiations during the 1980’s and 1990’s. Secondly, the dimensions of the instability created by the policies created and coerced in the 1980’s and 1990’s called the attention of the developing world that perhaps those were not meant for development but only for the benefit of transnational financial capital. The unhappiness with the existing institutionality increased even more after 2003 when the leading world economy turned into the major world debtor, absorbing savings from poor countries and injecting those funds into an increased war effort. Asian nations as well as Latin American, Middle Eastern and African nations finance through international reserves holdings, the US fiscal and external deficit, to a very large extent, instead of them being used for the development of their own nations.
The appearance of the BRICS, –Brazil, Russia, India, China and South Africa– powerful nations from the so called Second World, has changed the international development finance arena. These are official lenders who operate with their own laws international credits and that have a capacity for economic growth and for redesigning the international commodities market such that it appears that the slowdown of the leading economy is not affecting very significantly international commodity prices. In fact the slowdown of the US economy since the early part of the century has been accompanied by a surge in commodity prices. It appears increasingly as if the US hegemony has weakened during the last decade and that the foreign policy pursued is unilateral-military, attempting to destroy multilateralism, with sufficient success as to have sabotaged a process of UN reform and together with the G7 prevented serious IFI reforms. There will be a discussion at Doha on the need of a new debt workout mechanism and the creation of an international financial law that will replace the current system.
The discussion has opened as to the role of taxation in developing countries and the impact of investment policies made to attract foreign capital and to open up international trade while reducing total tax revenues as a proportion of GDP. Further evidence has been discussed as to the role of financial/tax havens where not only do those funds not legally obtained go, but further, they are the platform from where foreign investments are made, thus affecting tax revenues not only in developing nations but also in the G7 countries themselves. These issues will be addressed in the Doha conference.
It is clear that a process of financial regionalization is happening. The volatility of the US$ against all currencies from the G7 and other nations has brought the attention of policy analists, Government officials and academics who are devising regional trade mechanisms that forego the use of a third currency while at the same time, development banks, stabilization funds and units of account are being designed in Asia, Africa, the Middle east, and South America. The European model and experience is being taken into account in order not to repeat the failures of the European monetary System (EMS) as well as shorten the time span for the creation of a more stable architecture international financial architecture that will eventually prevent the expansion of the US crisis while at the same time allowing for the recirculation of domestic savings within the regions. This will accelerate even more intraregional trade, which is a trend of the past two decades. With the high cost of energy, international trade will change shape and the architecture must be in place for the financing of that new development pattern and trade flows. These arguments will be present in Doha.
Most of all, the issues of transparency and accountability of the existing IFIs will be discussed. There is a process of reshaping the voting shares The fact the IMF is bankrupt and that it wants to sell part of its gold to keep running, while at the same time, one fourth of the personnel has left the institution highlights the problems the institution faces. Without credibility, resources nor legitimacy both major IFIs must undergo major changes. These are opposed from two sides. The internal bureaucracy is one and the G7 countries is another. This will also be discussed at Doha.
The richness of the multistakeholder discussions held at the UN in New York under the auspices of Finance for Development office has been a space for discussion of these and other themes with some consensus as to what should change. The Doha challenge will be to have Governments approve the issues and go forward into a new world order rather than holding back to the memory of past power without taking into account existing new actors and trends.
