The lame duck economic summit
A who’s who of world leaders representing the G-20 – the G-8 industrialized economies plus leading developing countries – descend on Washington this Saturday, invited by the Bush administration, to discuss what should, in theory, become the first step towards a Bretton Woods 2 agreement. The problem is these world leaders would rather be discussing policy with the US President-Elect, Barack Obama, who will dispatch two high-level emissaries to the summit. The disparities among the players may be huge, but the global economy’s profound crisis affects them all. Mark Weisbrot, co-director of the Center for Economic and Policy Research in Washington tells Pepe Escobar the summit will not accomplish much. He also forcefully criticizes the International Monetary Fund (IMF), mostly controlled by the US Treasury, as the coordinator of a huge transfer of wealth from developing to developed economies. Weisbrot argues that any new efforts towards a new global financial architecture would have to explore alternative solutions, and institutions.
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The lame duck economic forum
Pepe Escobar, Washington, DC
PEPE ESCOBAR, SENIOR ANALYST, TRNN: A real who’s who of world leaders is descending on Washington this weekend for the Bush-administration-organized summit on financial markets and the world economy. This is technically a G-20 meeting. The G-20 countries, they are responsible for almost 90 percent of the world’s GDP. So we’re going to have Hu Jintao from China, Dmitri Medvedev from Russia, Nikolas Sarkosy from France, Lula from Brazil, and many other heads of state, plus the head of the IMF right behind me, the head of the World Bank across the street, and the UN Secretary General Ban Ki-moon. There’s a lot of hype in Washington that this may be a first step towards a Bretton Woods II, a reform of the global financial architecture. Well, not so fast. One of the problems [is] that this is taking place in a vacuum: nobody is exactly thrilled to be talking to a lame-duck president; everybody wants to talk to Barack Obama. So Obama designated two emissaries to follow the summit, foreign secretary of state, Madeleine Albright and former Republican Congressman, Jim Leach. Bush, he wants to stress free trade in the final summit communique this Saturday. Obama is not very fond of any trade deals negotiated by the Bush administration. China, for its part, they have announced a $580 billion stimulus package. Bush is against any kind of stimulus package. Obama wants a stimulus package right now, and he’s trying to convince Bush about it. Expectations for this summit around the world are not very high, even though the global economy is [inaudible] by the minute. Lula, from Brazil, meeting with Silvio Berlusconi a few days ago in Rome, he said that from the point of view of the developing world nobody should expect much of the summit. On the other hand, media star, super-adrenaline French President Nikolas Sarkozy has been insisting, I quote, "That the 21st century cannot be governed with institutions of the 20th century." So French diplomatic sources, they tell The Real News that Sarkozy is probably going to be the real superstar of the G20 summit. So to try to make sense of all this, many would say, circus, we talk to Mark Weisbrot, the co-director of the Center for Economic and Policy Research in Washington.
ESCOBAR: Mark, let’s start with the G-20. We have a G-20 meeting set up by a lame-duck president. The president-elect’s not even there—he’s sending two emissaries. Most foreign leaders are coming to Washington to talk to Obama’s emissaries and not to Bush himself. They know that Bush is not going to be able to do anything about it. So what’s the point of this G-20 at this particular juncture?
MARK WEISBROT, CENTER FOR ECONOMIC AND POLICY RESEARCH: Well, I think part of what they’re trying to do is to try and calm the markets, part of it they hope to get some coordination of policy out of it, and then there are people who think you are going to begin the path of trying to create a new financial architecture or second Bretton Woods.
ESCOBAR: How realistic is this expectation that this is the first step towards a Bretton Woods II?
WEISBROT: I don’t think it’s very realistic. You know, it took a Great Depression and a World War to get us the Bretton Woods agreement, and that was a situation where it was more easy to agree. There’s nothing like that in the foreseeable future. One of the underpinnings of any kind of reform that would make a difference would be controls on capital movement between countries. This was a huge part of the Bretton Woods system that existed until 1973. This isn’t on their agenda. I mean, you have Goldman Sachs representing the United States, essentially, and they aren’t going to consider that. And that’s extremely important. I mean, look at Russia, for example: they’ve lost $112 billion in the last few months just defending the ruble.
ESCOBAR: What’s really happening in Russia? And most people in the US have no idea.
WEISBROT: Well, one of the thing that’s going on is there’s been a speculative attack against their currency. It would be much easier for them to use capital controls, which aren’t perfect, of course, but you can actually prevent people from speculating against the ruble, taking large amounts of money out of the country. And this is what I think they’re considering now. And they did it in the late ’90s, and it did work.
ESCOBAR: This is what Malaysia did in ’97, ’98.
WEISBROT: That’s right; they did too. And I think this shows, though, how expensive it is to try and maintain open capital markets in a time of crisis. And this is a fundamental problem with the whole G7 approach to the financial systems is that they are completely against any kind of capital controls. If you don’t have capital controls, you have to have a huge amount of reserves, you know, like China or something. Russia even has a huge amount, and they still haven’t ended it. They had $557 billion dollars in reserve. They lost over $100 billion of that just defending their currency. So this is the kind of thing that you would have to fix if you were really talking about any kind of reform. I think the most important thing right now that’s going on—there’s something very terrible going on, and that is, first, the IMF is being set up as the arbiter for who gets money in the developing world. And so the IMF is mainly run by the US Treasury, with some input from the Europeans. And so they’re using this crisis to reward the countries that have done the things that they want, the developing countries, and punish everyone else. And it’s kind of ironic, because the epicenter of the storm is the United States, and to a lesser extent the rich countries. They’re the ones with the bad loans, the insolvent banking systems, and everything else, and the developing countries don’t have that. But because the rich countries have guaranteed an enormous amount of their banking system right now, their financial system, money is leaving the developing countries and going to the rich countries, and then US Treasury takes advantage of that to try to reward the developing countries they want and punish the others. So that’s a big problem, and the IMF is a huge part of that. And the other thing that’s wrong, of course, with the whole picture is the IMF is the wrong institution to be doing any of this. And they’ve done the wrong thing now for decades. In these crises they tend to recommend policies that are what economists call "pro-cyclical"; that is, they ask them to balance budgets and cut spending and—.
ESCOBAR: Structural adjustments.
WEISBROT: Tight monetary policies, often raising interest rates. And they have these kinds of policies in the agreements that they’re either agreed to or negotiating with so far in Hungary, Ukraine, Iceland, Pakistan. Pakistan tried to get around it. They went to China first to try and get money. So there really have to be alternatives. Somebody has to convince these countries like Saudi Arabia, Abu Dhabi—Gordon Brown just went there to try and get money from them; they have, like, $600 billion to $800 billion in reserves—China, Russia, they have to channel their money through other arrangements, either regional arrangements or bilateral arrangements, so that countries don’t have to go to the IMF. Latin America, so far there’s no reported requests from anyone in Latin America for IMF money, for example. But that could change if it gets worse.
ESCOBAR: So from the point of view of the developing countries sitting at the table in Washington—Brazil, Indonesia, India, China, South Africa, Saudi Arabia—what is their bargaining power?
WEISBROT: Well, they have plenty. You know, all the countries that have reserves, for example, certainly China has an enormous—they have $2 trillion in reserves, and they could go right around the IMF and the G7 countries and create their own stabilization fund for other countries. I don’t think they’re going to do that, but they could contribute in some way. They could refuse to coordinate their policies. They have bargaining power in that sense. But, you know, ironically, they’re the ones that are doing the most right now with the huge fiscal stimulus, over seven percent of GDP. It’s the same thing they did during the Asian crisis. It was very successful back then. And it really shows the difference. I mean, look what happened in 1998. You know, Indonesia, South Korea, Thailand, the Philippines, they all took huge losses in output, employment, big increases in poverty. China just grew right through the whole thing. And a lot of developing countries could do that right now if they follow the right policies. That’s why it’s so dangerous to have the IMF and Treasury in charge of macroeconomic policy in developing countries.
ESCOBAR: And on a more populist/demagogue note, Robert Zoellick from the World Bank, he’s saying openly that we need a new multilateralism. Would that be more or less what you’re sketching?
WEISBROT: Well, there is some multilateralism, and some of it is good. I mean, when the big G7 central banks all cut interest rates at the same time a few months ago, that was a kind of policy coordination that’s positive. They can have coordination on exchange rates. So there’s legitimate coordination that they can do. The part that’s bad is, you know, they have a double standard, right? The IMF has had this double standard for decades: they promote the counter-cyclical, that is, expansionary, policies in a recession for the rich countries—for years they’ve been telling the European central bank to lower its interest rates, even before the crisis; but then they promote the opposite for the developing countries. That’s the real problem. You know, I have to emphasize this, because the biggest change that we’ve had in the international financial system really since the collapse of Bretton Woods 35 years ago has been the collapse of the IMF’s creditors cartel. Their power to impose conditions on developing countries has really fallen apart in the last decade, and now they’re trying to get it all back. They’re trying to take advantage of the crisis. And when I say "they," it’s really not even worth criticizing the IMF, because they really answer to the US Treasury Department. That’s who is trying to reestablish this relationship that they had for all these years, that imposed, basically, on many countries neoliberal economic policy.
Please note that TRNN transcripts are typed from a recording of the program; The Real News Network cannot guarantee their complete accuracy.