Wednesday, June 24, 2009

The great North South Divide, or reforming the IMF and World Bank

A commentary focuses on an upcoming UN conference that will focus on the global recession. Many are calling on reform of the IMF and World Bank at this conference. Critics say that the policies of the big banks have been ineffective in helping poor nations through the global economic recession.

Next weeks conference is expected to have this debate between poor nations and rich ones, or the north vs the south. The south wants more say in how the IMF and World Bank are run, while the north says that they alone should set the policy.

In his opinion piece for Al Jazerra, Aldo Caliari from the Rethinking Brtetton Woods think tank frames the debate to come.

The continued clash between northern and southern world views about what role the UN should take to tackle the financial crisis was again writ large, as painfully slow negotiations took place earlier this year.

Developing countries say the conference should centre on the causes of the crisis and the need for reforms in the international monetary and financial architecture – namely the IMF and the World Bank.

Northern, or developed, governments demand that a UN-convened conference should stay focused on development issues and how to mitigate the impact of the downturn – i.e. more aid.

The developed nations insist that reform of the financial and monetary systems are best left to G20 leaders and the IMF and World Bank themselves.

If only that separation between reforming the IMF and the World Bank and development was so easy to make.

The reality is that it does not take long to trace the effects of the economic crisis on the developing world, or to see that poorer nations will be hit harder.

In turn, it is a fairly shared view among the main global economic institutions that failures in regulation, loose monetary policy and lax prudential supervision in the world's dominant economies were the proximate cause of the crisis.

So the assertion that "development" aspects should be addressed separately from "systemic" ones is, at best, impractical and, at worst, a simple way to dodge a broader debate on necessary reform.

Besides, allowing the World Bank and the IMF to intervene or even define their own reform would be suspect, to say the least.

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