Profiting from the global economic meltdown
Africa seeks a voice in global financial management
The Chinese word for “crisis” (wei ji) is made up of two characters, notes Senegalese economist Moustapha Kassé. One means “danger”; the other, “opportunity.” In reacting to the current global economic crisis, Mr. Kassé argues, African governments have too often seen only the first meaning. “But it is the second that is essential: every crisis carries within itself an opportunity, a chance for change, for adaptation.”
So far African political leaders, experts and researchers, have not done nearly enough to get involved in international debates over how to overcome the crisis, claims Mr. Kassé, a professor at the University of Dakar.
Only one African country, South Africa, was invited to the 15 November emergency summit in Washington of the Group of 20 (G-20), a high-level consultative body. But a number of African leaders took part in an international conference on “financing for development” in Doha, Qatar, two weeks later, at which leaders called for the UN to organize a summit on the world financial systems. Africa’s presence in Doha, said Jean Ping, chairman of the Commission of the African Union, was evidence of Africa’s interest in reforming global economic arrangements. “How can reforms of the system be envisaged without us?” he asked.
More seats at the table
While the Washington summit of the G-20 put off any real decisions until a follow-up meeting in London in April, the simple fact that it took place broke at least one barrier. Up to then, most major talks about the world economy were open only to the rich industrialized countries’ Group of Seven (Canada, France, Germany, Italy, Japan, UK, US), with Russia joining on some issues (to form the Group of Eight).
But those countries’ economies are now spiraling downward and it has become clear that they will find it difficult to pull out of this crisis on their own, let alone develop any credible reform proposals. “The G-7 is not working,” acknowledged World Bank President Robert Zoellick. “We need a better group for a different time.”
In fact, many critics from developing countries say that the main international financial institutions, especially the World Bank and International Monetary Fund (IMF), are themselves not working effectively. One criticism is that their decision-making favours the richest economies too much; the US and EU alone account for 49.5 per cent of votes on the IMF board. As a result, critics argue, the interests of developing countries are not well reflected. And while poor nations must often carry out painful economic reforms in order to qualify for financial assistance, the policies of the rich economies have faced little, if any, scrutiny.
The growing role of the G-20 reflects an underlying shift in a world economy in which the countries of the G-7 are no longer so dominant. Between 1965 and 2002, they accounted for two-thirds of the goods and services produced in the world. That share has now fallen to 52 per cent. According to some projections, it could shrink to 37 per cent by 2030. Meanwhile, the larger developing economies – like Argentina, Brazil, China, India, Indonesia, Mexico, the Republic of Korea, Saudi Arabia, South Africa and Turkey which belong to the G-20 — have grown in influence as trading powers, investors and even providers of foreign aid.
While the industrialized nations grapple with ways to stimulate the global economy, the financial resources at the disposal of these “emerging markets” are a major attraction. But Brazilian President Luiz Inácio Lula da Silva for one has argued that developing countries will not be content with simply putting their money on the table; they also want a greater say.
For a ‘new multilateralism’
Just three days before the G-20 met, African finance and planning ministers and central bank governors met in Tunis, to hammer out a common position on the global crisis and asked South Africa to convey their views to the G-20. At the meeting, President Motlanthe argued that reform should “entail far better representation for African countries in the international financial institutions than is currently the case.”
The ministers in Tunis had stressed the same point, stating that “a new global accord must be inclusive and reflect the interests of all in negotiations and decision-making. We call for a ‘new multilateralism’ that fully reflects current realities.”
The G-20 summit set up working groups to negotiate proposals on 47 possible areas of reforms. If there is agreement, some of the proposals could be taken up at the London meeting in April. The issues ranged from reforming the IMF and World Bank to taking a variety of measures to better regulate and monitor financial and investment activities. According to some, there should be greater scrutiny of multinational banks and investment houses, as well as of the policies of the large industrialized economies.
Among other issues, the G-20 leaders urged donor nations to maintain foreign aid programmes for poor countries and recommended that governments take a more active role in putting up public money to stimulate recovery.
For many African analysts, the emphasis on the role of governments in overcoming market failures seems to mark a reversal of the long-time approach of the IMF, World Bank and donor agencies. Over the past few decades, those institutions have caused many African governments to liberalize markets and make large cutbacks in public spending.
The results of those policies have often been disastrous, noted the internationally renowned economist Joseph Stiglitz. In developing countries, “capital and financial market liberalization has often not brought the promised benefits of enhanced growth, but has increased instability,” he told a panel on the global financial crisis in late October organized by UN General Assembly President Miguel d’Escoto. The current crisis, Mr. Stiglitz added, should provide an opportunity to reassess “prevalent economic doctrine.”
Whatever reforms eventually emerge, the specific concerns of poor Africans must not be forgotten, argue former UN Secretary-General Kofi Annan, former IMF Managing Director Michel Camdessus and former US Treasury Secretary Robert Rubin, who are members of the Africa Progress Panel, an advocacy group. Similar ideas for reforming global economic management were previously raised after the Mexican and Asian financial crises of the 1990s, they noted in a joint statement in October. “That moment of opportunity to put in place a robust global regulatory system was lost; let us not lose this one.”