Out of crisis, opportunity?
Out of crisis, opportunity?
Africa seeks a voice in global financial management
From Africa Renewal:
Africanpictures.net / Marianne Schwankhart
A trading house in Johannesburg, South Africa: As the only African “emerging market” at the Group of 20 summit in Washington, South Africa sought to convey the continent’s policy proposals to the leaders of the world’s biggest economies.Photograph: Africanpictures.net / Marianne Schwankhart
The Chinese word for “crisis” (wei ji) is composed of two characters, notes Senegalese economist Moustapha Kassé. One signifies “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 intervene in international debates over how to overcome the crisis, claims Mr. Kassé, a professor at the University of Dakar. They must become much more active, since these talks “will decide the fate of the world.”
From New York to Washington to Doha, a series of international summits have brought world leaders together to brainstorm. With the depth of the current crisis — and the failure of the most influential financial institutions even to foresee its outbreak — there is now broad consensus that fundamental reforms are needed to avoid future calamities. But beyond that basic understanding, little common ground has yet emerged. What reforms? How far-ranging? And who will decide?
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 presidents and prime ministers took part in an international conference on “financing for development” in Doha, Qatar, two weeks later. Their presence in Doha, said Jean Ping, chairman of the Commission of the African Union, the continental political body, testified to Africa’s interest in reforming global economic arrangements. “How can reforms of the system be envisaged without us?” he asked. “How is it possible to think that Africa can be left out of these negotiations, which concern Africa and the future of its children? Africa’s voice must be heard.”
More seats at the table
While the Washington summit of the G-20, called by outgoing US President George W. Bush, 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. Previously, most major talks about the world economy had been limited to the rich industrialized countries’ Group of Seven (Canada, France, Germany, Italy, Japan, UK, US), joined on some issues by Russia (to form the Group of Eight).
But with those countries’ economies now spiraling downward, it has become clear that on their own they would be hard-pressed to pull out of the crisis, 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 maintain that the dominant international financial institutions, especially the World Bank and International Monetary Fund (IMF), are themselves not working effectively. One criticism is that their decision-making is weighted too heavily in favour of the richest economies. On the IMF board, for example, the US carries 17.1 per cent of the votes and the European Union 32.4 per cent. 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 from the IMF or World Bank.
In this context, the summit in Washington was thrown open to a somewhat broader group of countries. The G-20, established in 1999 in the immediate wake of the Asian financial crisis, was initially comprised of finance ministers and central bank governors from developed countries and from some of the larger developing economies, commonly called “emerging markets.” The developed side included the G-8 countries, Australia and the European Union. The developing countries were Argentina, Brazil, China, India, Indonesia, Mexico, the Republic of Korea, Saudi Arabia, South Africa and Turkey.
The decision to upgrade the G-20 meeting to the level of heads of state — and thereby transform it into a more central body — reflected not only the unprecedented nature of the current crisis, but also a longer-term, underlying shift: the economies of the G-7 are no longer as dominant as they once were. Between 1965 and 2002, the G-7 accounted for two-thirds of world output. That share has now fallen to 52 per cent. According to some projections, it could shrink to 37 per cent by 2030 and 24 per cent by 2050.
Meanwhile, the larger developing economies have grown in influence as trading powers, investors and even providers of foreign aid. As a group, the developing economies will continue to grow by 4.6 per cent in 2009, while the industrialized countries slide deeper into recession, according to forecasts by the UN’s Department of Economic and Social Affairs.
As 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. When Japanese Prime Minister Taro Aso announced in Washington that Japan would offer as much as $100 bn to support IMF rescue packages for financially troubled countries, he added, “Oil-producing countries, China and other countries that have ample reserves could also make their contributions.”
Brazilian President Luiz Inácio Lula da Silva emphasized that developing countries will not be content with simply putting their money on the table. They also want a greater say. “In a globalized world,” he argued, “we need serious and representative forums to take global decisions.... We need to have other countries and other continents for more democratic, more plural decisions.”
For a ‘new multilateralism’
Before the G-20 summit, initial reactions in Africa were somewhat sceptical. President Denis Sassou-Nguesso of the Congo Republic complained that Africa was still excluded from the discussions on international reform. Although South Africa belonged to the group, he said, it was as an “emerging market,” not a representative of Africa.
But just three days before the G-20 met, African finance and planning ministers and central bank governors met in Tunis, Tunisia, to hammer out an initial common stance on the global crisis (see ). They also asked South Africa to convey their views to the G-20.
South African President Kgalema Motlanthe did in fact present Africa’s case in Washington. Beyond relaying Africa’s policy proposals, 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 South Africa’s role within the G-20 “cannot be a substitute for enhanced African participation.... 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.”
That call was echoed at the international conference on “financing for development” in Doha on 29 November–2 December. “We need a new multilateralism,” declared UN Secretary-General Ban Ki-moon. In fact, one of the conference’s main purposes, he said, was to “build a bridge between the G-20 and the rest of the world — the full community of nations.”
Many leaders from Africa and other regions have pointed out that the United Nations — to which all countries belong — is well suited for establishing forums to develop the most inclusive proposals for long-term reform. The Doha conference concluded with a call for the UN to organize a summit on world financial structures.
Reassessing policies . . .
Many specific reform recommendations have already been floated. The G-20 summit alone set up working groups to negotiate proposals on 47 issues. If agreement can be reached, some of those proposals may 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 suggestions, there should be greater scrutiny of multinational banks and investment houses, as well as of the policies of the large industrialized economies.
Beyond financial questions, the G-20 leaders also called for restarting stalled international trade talks and vowed to combat a tendency by some rich countries to protect their domestic industries at the expense of other economies. They urged donor nations to maintain foreign aid programmes for poor countries.
Specifically in response to the current downturn, the G-20 recommended that governments take a more active role in putting up public money to stimulate recovery. When IMF Managing Director Dominique Strauss-Kahn was asked where large stimulus programmes should be attempted, he replied, “Everywhere it is possible.”
. . . and doctrines
For many African analysts, this recent emphasis on the role of governments in overcoming market failures seems to mark a further erosion of the dominant approach of the IMF, World Bank and donor agencies. Over the past few decades, those institutions have obliged many African governments to liberalize their markets and carry out sweeping cutbacks in public spending.
The outcomes 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.”
Similar views have been expressed by members of the incoming US administration of President-elect Barack Obama. According to Lawrence Summers, appointed to head the advisory National Economic Council, “The pendulum will swing — and should swing — towards an enhanced role for government in saving the market system from its excesses and inadequacies.”
Whatever the particular mix of policies and institutions that emerge from the current crisis talks, 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.”
A global crisis demands a global response’
In reaction to the world economic crisis, African ministers of finance and planning and governors of central banks met in Tunis on 12 November to begin developing a continental approach. Their deliberations were chaired by the heads of three major institutions in Africa: President Donald Kaberuka of the African Development Bank (ADB), African Union (AU) Commission Chairperson Jean Ping and UN Economic Commission for Africa (ECA) Executive Secretary Abdoulie Janneh.
The ministers vowed that African governments will continue to deepen their own economic reform initiatives by strengthening financial regulation, improving governance, diversifying economies and better mobilizing domestic resources. They pledged to improve collaboration among the AU, ADB, ECA and other African institutions.
Arguing that “a global crisis demands a global response,” the ministers also made a number of recommendations for action by Africa’s international partners, including:
- A successful conclusion of the Doha round of international trade talks.
- The maintenance of donor commitments to increase aid to Africa, along with steps to improve the effectiveness of the aid delivered.
- Comprehensive reform of international financial institutions, including the International Monetary Fund and World Bank.
On the last point, the ministers emphasized that “emerging and developing economies should have greater voice and representation in these institutions” and that the reforms “should also take into account the interests of the poorest countries.”
