Reforms afoot at IMF
But Manuel’s dream of redistributing its voting powers won’t figure
FINANCE MINISTER Trevor Manuel seems a lot closer – technically – to seeing a major global change he’s long urged come to fruition. That relates to sweeping reforms in the make-up and powers of the International Monetary Fund. However, the current situation is coated in quantities of bittersweet irony.
Manuel is certainly not going to get what he really wants in his long-time urging of fundamental redistribution of voting powers at the IMF. What Manuel actually seeks is major change that will ostensibly give a greater voice to South Africa and, to a lesser extent, to continental Africa – crucially, sub-Saharan Africa – generally.
Well, there may well be massive reconstruction work ahead at the IMF – but not along Manuel’s lines. First, there are more powerful IMF “reformists” than SA. And they have their own agendas. Second, some developing nations – above all, China – have precisely what that lobby wants injected into the IMF: vast new reserves of foreign currency. That’s also just what SA – running an enormous deficit on the current account of its balance of payments – hasn’t got.
Still, in one of many other ironies, current main headline-hunters – Prime Minister Gordon Brown of Britain and President Nicolas Sarkozy of France – may well also find their publicity-seeking ventures ultimately turned against them.
Those two world leaders have both called for a “new Bretton Woods”. That was the venue in New Hampshire in the United States where both the IMF and the World Bank were created in 1944 as the Second World War moved towards closure.
What Brown and Sarkozy have both effectively proposed is a new era of “regulated capitalism”. Further, they have both put forward a “new look” IMF as the suggested arch-regulator. Their demands, made in the midst of a massive global financial crisis, have naturally attracted much favourable support. But there’s little indication that idea has been thought through in any detail at all.
Far from working closely together, Brown and Sarkozy are in many ways competing against each other. There are clear political self-interest reasons for that.
The world financial crisis has – most unusually – actually proved a big boon, at this stage, to Brown. The British economy was already facing huge problems before the financial crisis erupted. Further, Brown was personally responsible for much of that as Chancellor (finance minister) for 10 years after New Labour came to power in 1997.
So there are vital potential political gains for Brown from arguing (a) that Britain is now simply caught up in a world calamity (“Nothing to do with me”) and (b) that Brown has precisely the qualities of leadership and experience that Britain (and everyone else) crucially needs.
Sarkozy also has his own motives. His popularity within France plunged to record lows earlier this year after the highs following his presidential victory in 2007. He was quickly and painfully reminded the French are not free marketeers (except when it’s patently to their own advantage).
So Sarkozy switched to the kind of nationalistic paternalism that usually does well with French voters. • He made clear France would ignore any directives from the European Union promoting more competition if those threatened any perceived, significant French interests. He also announced France would set up its own “sovereign wealth fund” – primarily, to block foreign ownership of any “strategic” national economic interests. Meanwhile, Germany had been leading EU opposition to any operations by “secretive” Asian sovereign funds taking important stakes in the European economy.
So France and Germany – with Britain going its own way – are once again fighting for economic/political leadership of the EU. Britain won’t even join the euro single-currency area and France disregards the EU whenever it believes the stakes are high enough. How absurd, then, for either Brown or Sarkozy to pretend they’d submit their sovereignty to the IMF.
Sebastian Mallaby, director of the Centre for Geoeconomic Studies and a former senior writer at The Economist and The Washington Post, adds yet more irony.
He observes: “The credit bubble that has wreaked havoc on world financial markets has its origin in a two-headed monetary order. Over the past five years China kept its currency cheap. This new version of competitive currency manipulation inflated a credit bubble that has now popped disastrously.”
Mallaby continues: “But the British and French leaders who have pushed most strongly for the global economic summit in the US on 15 November (Manuel will be there) will hardly mention the currency issue. That’s because China isn’t going to give up its export-led strategy for the sake of the international system – unless it gets a much bigger stake in that system.”
Mallaby adds, critically: “That would mean a much bigger Chinese voice in the IMF and a reduction in Europe’s exaggerated influence. Naturally, the Europeans aren’t proposing this.”