European Affairs

The World Needs Stronger Institutions     Print Email
Michel Camdessus

former Managing Director of the International Monetary Fund

The second half of the last century saw the establishment of the most comprehensive set of international organizations that the world has ever known. For most of that period the general view was that the so-called Bretton Woods institutions - the International Monetary Fund and the World Bank - had done a good job. There was widespread satisfaction when the World Trade Organization was established in the mid-1990s, endowed with greater powers to settle trade disputes than its predecessor, the General Agreement on Tariffs and Trade. Recently, however, all these institutions have come under fire, both from international anti-globalization activists and from isolationists in the United States. Many feel that they need to be adapted to cope with the challenges of the 21st century. Jacqueline Grapin asked Michel Camdessus, the recently retired head of the IMF, what the role of the multilateral institutions should be in the future.


Q: You chose the beginning of the year 2000 to resign. I imagine that you had a certain vision for the new century, perhaps the feeling that a new phase was coming. You said that there was a need for a new generation of leaders. But there is also a need for the leaders who are leaving to say what they have learned from experience. How do you see the world in the next 20 to 25 years?

A: When I resigned I was making the kind of analysis you suggest. We had overcome the Asian crisis and its Russian and Latin-American offspring; world economic expansion was well on track and somewhat better balanced. The time had come to concentrate more on preparing for the longer-term challenges of the new millennium. True, I had - as you say - a certain vision of the challenges of at least the first decade of the 21st century. As a matter of fact I have mentioned them time and again, with particular emphasis on, to use the words of Mexican Finance Minister Jose Angel Gurria, "the ultimate systemic threat" - poverty.

I also saw the need for special efforts to improve crisis prevention as well as to define a strong new architecture for the world financial system. These are two issues on which the staff of the IMF have made, and continue to make, valuable proposals - several of them strongly endorsed by the international community. But a lot remains to be done to address our basic challenge: to humanize globalization. Beyond that, the need to adapt the world system of governance immediately comes to mind.

There is an almost generalized sense of frustration with the present world institutional setting. Look at the Bretton Woods institutions. Many people are confused about who leads them and on what basis. The Europeans are disappointed and feel that their influence is not commensurate with their economic importance. The United States is of the opposite view, and sees Europe as over-represented. No doubt initiatives should be taken, such as the present reflections on the appropriateness of the current national quotas, in order to restructure the executive boards as needed.

Beyond that, the Europeans should take every appropriate step to speak in world fora with a single voice, and to be imaginative and realistic in proposing their own solutions. Then, their influence in these institutions would doubtless be more decisive, even if in many fields their views will frequently coincide with those of the United States. I believe, nevertheless, that owing to its history and special relations with many developing countries, Europe could have a frequent and useful role in offering solutions that reconcile the views of developing and advanced countries.

But a more fundamental question should be raised: Where should we be heading now, particularly when every day we see problems of worldwide dimension being handled by the means available to nation states, which have ineffective structures of coordination among them? This is an essential question. We should consider how to create instances where the coordination of views and strategies would really take place. One of the problems of the world now is the sheer inconsistency of decisions taken by groups of countries or institutions that are poorly coordinated.

Q: For instance?

A: The most striking example was at the end of last year. In September 1999, the U.S. and its allies, in the framework of the Bretton Woods institutions, decided to reduce the debts of the poorest countries by $60 billion or $70 billion. In Seattle two months later, many of the same people who were pressing for debt reduction in Washington were demonstrating against the WTO which, incidentally, is the only institution with the instruments needed to reduce or eliminate obstacles to imports from poor countries.

Exports are essential for development. So, not to give absolute priority to trade liberalization makes nonsense of what the international financial institutions could do through debt reduction. It is quite regrettable that demonstrators have not been more mindful of such a contradiction; but it would be even more deplorable if governments were not soon able to reconcile the positions they take in these two different fora for finance and trade.

Normally speaking, this would seem to suggest the need for a place where trade, social, and development issues would be addressed together with financial issues.

Here is another example. It will be very difficult to resolve the issue of the proposed social clause in WTO negotiations unless we find a forum where trade ministers, finance ministers, and labor ministers meet and work together. The same can be said about environmental issues and many other problems. Let me mention, for instance, another case of dramatic inconsistency: the failure of the international community to implement the many suggestions that have been made to regulate and reduce the export of weapons to the poorest developing countries - particularly in Africa. As wars of all kinds are the most serious obstacle to development in that part of the world, by allowing such exports to flourish, we severely jeopardize the development policies we are doing our best to support.

With one hand we do the opposite of what we do with the other. This kind of incoherence is related to the fact that we live with multilateral instruments dating back 50 years to a time when the interdependence among countries was much more limited, as many countries had not yet emerged as major players. Globalization did not exist - even as a word! This is why we now need to think about new approaches for the 21st century.

Q: Assuming some progress is made, what would be the ultimate system?

A: It would be overly ambitious and certainly unwise to try to define a new system of world governance too precisely, even if the need for "a public authority of universal competence" is much more pressing now than ever. The now celebrated Pope John XXIII was already calling for it in his encyclical, Pacem in Terris, at the beginning of the 1960s.

Today the constructive approach would consist of strengthening the instances where such reflections could take place rather than to prejudge their conclusions. We should consider the process rather than the goal. Jean Monnet never said what the ultimate goal would be for Europe; he was more interested in the process. He was careful not to scare people by defining the objectives up front.

Q: How should the institutions be strengthened?

A: First, all member countries should be invited to behave as active, constructive, and loyal shareholders. This is not always the case.

Some governments occasionally find it convenient not to express their public support for actions they endorse wholeheartedly in the Executive Bodies. This applies to the IMF and the World Bank, and frequently also to the United Nations and other multilateral institutions. In a world where we are blessed with vibrant public opinions, where demagogic campaigns can develop at the speed of light, institutions will be unable to discharge their ever-growing responsibilities if they are not perceived for what they are - the faithful instruments of the community of nations. Therefore, it is essential to ensure that the IMF and other multilateral institutions are seen, far more visibly, to have the legitimate political support of their shareholders.

One reform that I have proposed, the introduction of a supreme decision-making body in the IMF, would respond to this problem. Far from leading to an undue politicization of the IMF, this would simply, in the eyes of the public, place responsibility squarely where it already rests.

This reform would have been very easy to achieve. The IMF articles of agreement provide for transforming the old Interim Committee, composed essentially of the key Ministers of Finance with only an advisory role, into a full fledged decision-making body for the key strategic decisions on world financial issues. The only decision to make is to decide that the time is ripe for it. But governments remain to be convinced.

Q: You are suggesting a rekindling of multilateralism going beyond the Bretton Woods institutions?

A: True, multilateralism is the best way of enhancing the coherence of actions and initiatives across the family of institutions. But it is more. It is also the only avenue to address the broader issue of world economic governance properly, not with the illusion of promoting a Utopian world government, but with the more limited, but necessary ambition of finding a global response to inescapable global problems.

While globalization has, until now, operated at the whim of more or less autonomous financial and technological forces, it is high time that we take on these responsibilities and take the initiative, so that progress toward world unity can be made in the service of humankind. This requires institutions that can facilitate joint reflection at the highest levels, whenever needed, and that are capable of ensuring that globalized strategies are adopted and followed when it appears that problems can be dealt with effectively only at the global level.

Q: Jacques Delors, the former President of the European Commission, once proposed an Economic Security Council within the United Nations. It was not very well received.

A: That is true. This is why I make a less ambitious suggestion which goes, nevertheless, in the same direction, and which could help in the pursuit of coherence. It would consist of replacing the G7-G8 Summit every two years by a meeting of the heads of state and government of the countries - approximately 30 at any one time - who have Executive Directors on the Boards of either the IMF or the World Bank.

Provided such meetings were prepared with the active participation of all the countries that are represented through the constituency system in the two organizations, they would be thoroughly representative of the entire membership of 182 countries. As the meetings would be attended by the Secretary General of the United Nations and by the heads of the relevant multilateral organizations, they would offer a way of establishing a clear and stronger link between the multinational institutions and a representative grouping of world leaders with unquestionable legitimacy.

This suggestion is modest. No doubt we will have to be more imaginative if we want humanity to become better aware of, and to assume responsibility for, the global aspect of its destiny. We must provide the world with institutions adapted to these challenges.

This will also be necessary if we are to be sensitive to the frequently-expressed fear that the treasures of many local cultures and traditions are at risk of being overwhelmed by stronger ones. One of the most pressing responsibilities of the international community will be to make sure that just the opposite occurs, and that local cultures are given a new, stronger chance to contribute their uniqueness to a unifying world. This can be achieved, but it requires the proper institutional responses. Europe and the United States should join forces to define them. Japan would certainly be keen to join such an effort."

 

This article was published in European Affairs: Volume number I, Issue number IV in the Fall of 2000.

 
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