Gordon Brown’s recent speeches on a “New Deal” for the global economy have been generally welcomed, especially for their suggestions that aid budgets should be increased. But some of his more detailed proposals on the World Bank and IMF are controversial.
The UK Chancellor of the Exchequer’s first speech was made in New York just before the reconvened World Bank/IMF annual meetings last November. The second was in Washington in mid-December. Both made significant references to the World Bank and IMF. Brown suggested that rich countries should provide more aid. This could be pooled in an “International Development Trust Fund” administered by a committee led by the World Bank and IMF. Aid should continue to be linked to policy reform but lent at zero interest rates or given as grants to avoid creating future official debt problems.
Brown directly tackled opponents of the international institutions. He said “we shall not retreat from globalisation. Instead we will advance social justice on a global scale – and we will do so with greater global cooperation not less, and with stronger, not weaker, international institutions. We will best help the poor not by opting out or by cutting cooperation across the world, but by strengthening that cooperation, modernising our international rules and radically reforming the institutions of economic cooperation to meet the new challenges.”
He said there was strong agreement that markets, private investment and the private sector were important. Yet “experience has moved us on from the assumption that, just by liberalising, deregulating, privatising and simply getting prices right, growth and employment would inevitably follow”. Brown emphasised the need for competition, not just privatisation, public as well as private investment, and for proper financial supervision as well as liberalisation. He suggested that all can benefit if the poorest countries pursue stability, open up to more international trade and create the conditions for investment, while rich countries open markets and transfer resources to developing countries. The four foundations of his “new deal” are:
- national codes and standards, particularly for fiscal and monetary policy;
- corporate standards backed-up by the creation of investment forums involving the private and public sectors;
- an improved trade regime, particularly for agricultural products;
- a substantial transfer of additional resources from the richest to the poorest countries through untied aid and debt relief.
Brown suggested that in the longer-term the fiscal and monetary codes and standards should be a condition of IMF lending. Officials and researchers from developing countries have argued against this on the basis that they have not been involved in designing the codes and standards and that the standards are too universal, not reflecting different country circumstances. Brown argued that both rich and poor countries would be required to implement them, but in practice poor countries would be under greatest pressure to do so since they require funds from the IMF and World Bank.
Brown, who chairs the International Monetary and Finance Committee, called for the IMF‘s role be enhanced in order to take on the task of monitoring and reporting on the codes and standards. He suggested the IMF‘s surveillance remit, for example through its annual Article IV reports in each country, be made more “independent of the inter-governmental decision making process and of decisions about crisis resolution”. It is, however, unclear exactly what this would mean for the IMF‘s structure. Brown also called for more effective systems of crisis prevention and management, suggesting the need for an “international bankruptcy procedure” and expand the work of the Financial Stability Forum – which combines the IMF and key regulatory authorities – as an early warning system.