Global Geopolitics Net Sites / IPS
Wednesday, October 29, 2008

All rights reserved, IPS – Inter Press Service, 2008.

Jim Lobe

WASHINGTON, Oct 29 (IPS) – Two weeks before U.S. President George W. Bush hosts an economic summit to address the six-week-old financial crisis that has wreaked havoc on the world’s capital and stock markets, a coalition of nearly 600 non-governmental organisations (NGOs) from 88 countries is calling for a ”fundamental and far-reaching transformation on the international financial and economic system.”

In a statement released Wednesday, the groups demanded that the upcoming Group of 20 meeting Nov. 15 here to the way for a much broader and more inclusive reform effort in which all of the world’s governments and international civil society should participate.

”It is of course imperative to agree on immediate measures to address the crisis, and we emphasise that priority must be given to responses to the impacts on ordinary employees and workers, low-income households, pensioners and other extremely vulnerable sectors,” according to the statement that was signed by Friends of the Earth, ActionAid, and Social Watch, among other international groups.

”But we are deeply concerned that the proposed meetings will be carried out in a rushed and non-inclusive manner, and, as a result, not address the comprehensive range of changes needed, nor fairly allocate their burden,” it said.

The groups, which also included Civicus, the European Network on Debt and Development (EURODAD), and Jubilee, decried what they called a ”double standard” by which wealthy western governments, in dealing with the crisis, were currently engaged in the kind of government intervention that western-dominated institutions like the World Bank and the International Monetary Fund (IMF) had forbidden their poor-country borrowers.

”The double standard is not only unacceptable, but it also signals the demise of free-market fundamentalism,” the statement said. ”The international financial system, its architecture and its institutions must be completely rethought.”

The statement comes on the eve of the first meeting of a U.N. task force set up by Secretary-General Ban Ki-Moon and chaired by Economics Nobel Laureate and former World Bank Chief Economist Joseph Stiglitz to make recommendations about how to cope with the ongoing crisis.

It also comes as the IMF announced the creation of the a new lending arm, the Short-Term Liquidity Facility (SLF), that will have the authority to lend up to five times a borrowing country’s quota to help it overcome temporary liquidity problems in global capital markets.

”Exceptional times call for an exceptional response,” said the IMF’s managing director, Dominique Strauss-Kahn. ”The Fund is responding quickly and flexibly to requests for financing. We are offering some countries substantial resources on an expedited basis, with conditions based only on measures absolutely necessary to get past the crisis and to restore a viable external position.”

Creation of the SLF, which is similar to the Contingent Credit Line facility created by the IMF during the Asian crisis of 1997-98, has been considered urgent over the last couple of weeks as it became clear that the credit crisis that began with the collapse of Lehman Brothers investment firm last month was rapidly spreading to emerging markets and poor countries whose economies are dependent on commodity exports.

Still, critics have warned that, given the growing line of countries, starting with Iceland, Ukraine, and Hungary and Pakistan, in desperate need of the estimated 250 billion dollars the IMF has available, the SLF may not be sufficient to keep up with demand.

Thus, Strauss-Kahn made a point of welcoming Wednesday’s announcement by the U.S. Federal Reserve and the central banks of Brazil, Mexico, South Korea, and Singapore to set up swap lines of up to 30 billion dollars to boost liquidity in emerging markets. Similar lines have already been set up between the Federal Reserve and the European Central Bank and with the central banks of the Australia and New Zealand.

The Nov. 15 G-20 summit at the National Building Museum will include the leaders of the major industrialised countries and emerging markets, such as China, India, Brazil, and Mexico. It has been billed by some European leaders, notably British Prime Minister Gordon Brown, as a ”new Bretton Woods”, a reference to the New Hampshire resort where in 1944 U.S. and British finance officials laid the groundwork for the post-World War II western-dominated economic order overseen by the IMF and the World Bank.

Bush, who will be a lame duck when the summit convenes, is expected to oppose any moves that could result in big changes in the way those two agencies are run, particularly given the disproportionate voting power Washington — including the ability to veto any major policy changes — enjoys on their governing boards. The Europeans, who also exercise disproportionate power on the boards, appear to be more favourably inclined toward reform.

”There is no doubt that these institutions need reform when Belgium has the same amount of votes as China,” noted Louis Belanger of Oxfam International.

It has been through the combined voting power of the U.S. and other western industrialised powers that the Bank and the IMF have imposed the so-called ”Washington Consensus” — policies that require borrowing countries to implement neo-liberal, ”market-friendly” policies and reduce the role of government in their economies — over the last 30 years.

Grassroots and many international NGOs have long claimed that these policies have mainly benefited western-based multi-national corporations, often to the detriment of the poorest and most vulnerable populations in borrowing countries whose governments were forced to cut their budgets and adopt austerity measures recommended by the Bank and the IMF.

To them, the response to current crisis in both North America and Europe demonstrates the bankruptcy of both the ”Washington Consensus” and the agencies that enforced it.

”To stave off regional and global recessions and restore stability and confidence in the market, northern governments are pursuing a massive and unprecedented program of government intervention, nationalising banks, injecting massive subsidies into ailing institutions and re-regulating their financial sectors,” they said.

These measures stand ”in direct contrast to the austere neo-liberal policies pressed on developing countries by the World Bank, the IMF, and developed countries for the past thirty years.”

”These policies have failed spectacularly,” said Vitalis Meja, coordinator for the African Forum & Network on Debt and Development (Afrodad). ”And now, the response is to bring 20 governments to Washington for a new ‘Washington Consensus’.”

Writing in the Financial Times Wednesday, financier and philanthropist George Soros noted that, ”The so-called Washington consensus imposed strict market discipline on other countries but the U.S. was exempt from it.”

In the NGOs’ view, any attempted reform of the current system should best be pursued under auspices of the United Nations where each country has a vote.

”Since the impacts are likely to be the greatest on the poorest people, and in emerging economies and developing countries,” noted Lidy Nacpil of Jubilee South — Asia/Pacific Movement on Debt and Development, ”shouldn’t all countries — governments and peoples — have a say, not just those responsible for this crisis?”

”Any attempt by the most powerful countries to stitch up a deal with no public consultation and no involvement of the majority of the world’s countries through an inclusive process will only further undermine public trust and confidence,” added Roberto Bissio of Social Watch.