NFI is like "mother's love and apple pie"

While the developing countries dither, discussions about a
"new financial architecture" have been appropriated by the
neo-liberal establishment. As the US and the IMF seek to
preclude any fundamental reform of the international
financial system, dissenting voices are often brushed aside,
while the UN system is itself riddled with conflicting views
about the current Washington-driven globalization process.

by Chakravarthi Raghavan

GENEVA: Within a short period of a year or so, a "new financial
architecture" (NFI or nfi) has become what "mother's love and
apple pie" was to Americans of a generation ago: something no
one can oppose without earning public opprobrium, and hence to
be responded to with a "yes, but..."
Now there is hardly any international gathering - official
and intergovernmental or non-official - where this term is not
used. And almost everyone is for a "new financial architecture"
- the three words capitalized in some cases, and in lower case
in others.
In content, the proposals advanced range from another
"tinkering" (as in the Jamaica agreement - see "Leopard doesn't
change its spots", issue No. 204) to fix the IMF-based "non-
system" - with more funds and powers to the IMF management and
officials to bring about "transparency" in countries and
governments of the developing world (and save Goldman Sachs and
others on Wall Street) - to a return to some Keynesian designs
- like a world clearing union and central bank - or even going
back to a "gold standard."
And the voices of those who diagnosed (and even anticipated)
accurately the financial crisis (beginning in Thailand in July
1997) and its spread across the global markets as a symptom of
the deep-rooted failure of the monetary and financial system,
which needed drastic reforms, have been drowned out - almost.


Now the IMF is for an "NFI" and so are the US administration
and Treasury who embraced and hijacked it, but are more coy in
the use of the term, lest it take shape in more fundamental
The G7 finance ministers and officials who want to ensure
their own voice in the outcome, and the private investment
funds and the financial service operators who collectively
created this current mess, also have been promoting their own
"yes, but..." NFI versions.
And so is the World Bank (as Bank President James
Wolfensohn's discussion draft for a comprehensive development
framework shows), which is trying both to distance itself from
the IMF (and its baggage of public and private image) and also
to work with the IMF and the WTO to "integrate" developing
countries into the world economy, and "tie" their policies
fully and completely into the Washington-driven "globalization"
Those opposing "globalization" and the imperialist dreams of
a single world capitalist model are often ridiculed as Luddites
or Don Quixotes tilting at the windmills, what happened to
globalization in the 19th century when it marginalized the
majority and social forces put an end to it having been
And just as in the 1980s, when UNICEF, UNDP and others began
talking about "adjustment with a human face", the Bank is now
talking of the IMF medicine being administered with "social
safety nets".
In industrialized societies, such terms mean giving some
relief to the small minority of "misfits" unable to benefit
from the market, and are unemployed or lose out. But since in
the developing world, the poor and the losers are the vast
majority, and it is so impractical to have "social safety net"
policies and means-tested programmes, the Bank is even willing
to talk of some "subsidies" for the consumption goods of the
But the schemes, when sought to be implemented, will run
against IMF conditionality policies to shrink government
budgets and eliminate deficits, and the WTO rules about
subsidized public distribution systems and the ceiling levels
in their agricultural schedules will prevent "market"
interventions for the better-off to subsidize the poor.


The Group of 24 (developing-country group at the Fund/Bank
institutions), in the aftermath of the Asian crisis, at their
meeting in February 1998 in Caracas, came out in favour of
international arrangements for supervision and regulation of
financial markets and institutions; and for caution on
liberalization of capital accounts under IMF auspices, calling
instead for a "progressive and flexible" approach and "orderly
And they also called for a "wide-ranging" review by a "Task
Force" of industrial and developing countries on a number of
issues relating to the reform of the international monetary and
financial systems.
And while some of these views were reflected in individual
speeches and presentations at the 1998 Spring meeting of the
Interim and Development Committees, the G24 views were totally
ignored by the IMF management (which usually draws up a
communique for the Interim Committee, even before the committee
and its ministers meet). And the G24 did not even attempt to
force a footnoted reference in the Interim Committee communique
to the views contained in their Caracas declaration.
But the Clinton administration and its Treasury Secretary
Rubin (who raised an enormous amount of funds for the Clinton
campaign on Wall Street and went to his job at the Treasury,
sedulously working to promote the interests of Wall Street
firms, partners and bonus-sharing staff) hijacked the
discussion on monetary systemic reform issues into a so-called
"Group of 22" .
At first this was a one-off meeting, but some follow-up
meetings ensued and it may end up a more or less semi-permanent
group outside, managed by the US Treasury.
But the IMF and its staff are fighting back.
The Fund is trying to get the issues back into its ken,
through the Interim Committee process (which functions by at
first reaching policy consensus with the US Treasury, then the
G3, G5 and G7/G10, and subsequently getting it rubber-stamped
at the actual Interim Committee meetings).
Towards this end, the IMF management is trying to lobby
developing countries and their G24 group to get behind the
IMF's ideas of "lender of last resort" - even after the
spectacular failure of the IMF experiment (applying band-aids
and tourniquets to internal haemorrhage caused by the neo-
liberal dogmas) in giving money to Brazil before the crisis,
for when the crisis hit anyway, the (failed) old conditionality
approaches to current account imbalances were applied.
In the process, the IMF and others are advising the
developing countries to set their sights on what is "feasible"
and needs immediate attention. "You have to hurry up with your
views and suggestions; it is already late, and the train is
leaving the station." The whole idea is to coopt the South into
the tinkering reforms that the US Treasury or IMF management
would propose, as was done at the time of the Jamaica amendment
to the IMF articles, and derail the momentum gathering for more
fundamental and equitable reforms as part of a long-haul
process. Given the annual rotation of the chairmanship, it has
taken the G24 nearly a year to try to put together a group of
individual experts from several disciplines to do some more
detailed thinking and planning. And the G24 are not even sure
whether they should set their sights on "influencing" the
immediate tinkering (favoured by the US and the IMF), where
they will have no real say, or look to medium- and longer-term
fundamental reforms and redesigning of the architecture.

Linkages between trade and finance

Nor have the treasuries in important developing countries been
willing to coordinate (and share power) with their trade
colleagues, formulate a coordinated strategy, and speak with
one voice (even if tactics have to be different in different
fora) and create blockages at the WTO to force the US and
others to engage in serious "dialogue" on these interlinked
issues and questions.
In his talks with Harry Dexter White for the post-war system
(that resulted in the Bretton Woods architecture), Keynes saw
the intricate linkages between the financial and trade systems.
In his letter to Lord Addison, he underlined that in the face
of "monetary chaos", it is difficult to make any advance on
multilateral trade.
For a brief while, after Marrakesh, but before the entry
into force of the WTO, it was thought by some that the "rule-
based" trading system will bring some "order" not only into
trade relations, but into a wider framework of the neo-liberal
international economic order.
The dream of a liberal order, which became the Washington
Consensus dogma of the 1990s, collapsed with the Mexican crisis
of 1994. And as the Brazilian representative recently said at
the WTO (at the Dispute Settlement Body in connection with the
banana dispute), the multilateral trading system has fallen
short of expectations, generated when the WTO was "sold" to
Parliaments, of it being strengthened by the rules of the
Marrakesh Agreement.
Nevertheless, the IMF/World Bank/WTO axis for a world neo-
liberal order (where governments will cede power to
corporations) is trying to march on - but on three wobbly legs.

"Plurality" of views

And other international organizations of the UN system,
consciously or unconsciously, have been walking the tightrope -
economists in some advocating basic changes and approaches,
and others following the twists and turns of the "Washington
thinking" and adapting themselves to it, formulating advocacy
economics studies (which no economics professor would tolerate
in a first-term paper from a study) in which "capital" is held
to be like any other commodity amenable to price changes and
market signals, provided governments do not intervene, and
liberalize financial services and investments!
Some claim to be encouraging a plurality of views and
democratic debate. Perhaps they should read what Myrdal wrote
at the UN ECE three decades ago, on the difference between
independent academic economics research and views and those in
international secretariats.
This attempt at plurality is resulting in a confusing
advocacy of policy views and advice from the same secretariat,
and even in the same personalities giving different speeches to
different audiences, depending on the speechwriters and the
"drafts" from the sponsoring divisions.
The cacophony of views is breathtaking.
The UN Secretary-General Kofi Annan was arguing last year,
in New York and elsewhere (picking up what UNCTAD's Trade and
Development Reports have been saying for most of this decade),
for a greater say for the UN in hardcore economics issues and
policies and in drawing up a new financial architecture
(including naming a team, headed by the ECLAC executive
director Ocampo, to work on an NFI).
And just as the report (after revision of two or three
drafts) went to him, Annan went to Davos to propose a "compact"
between the TNCs and the UN: the TNCs promote human rights,
better conditions for workers and environment-friendly
policies, in return for which the UN would provide political
support for an "open global market".
There are other variations too - like some documents of
UNCTAD challenging the globalization thesis and advocating
careful and selective policies and strategies by developing
countries, depending on their particularities; others promoting
liberalization, helter-skelter, of trade and investment and any
other interface of countries and cultures with the outside
(Christian, European) world, and some dismissive of the UN
system's efforts to engage governments in policy dialogues and
discussions or negotiations.
And developing countries, depending on the forum where they
speak (if they do speak at all), advocate policies and
proposals, unaware of and sometimes even contrary to what their
own country representatives do in other fora.
Until the tearing down of the Berlin Wall and the implosion
of the Soviet Union, the ideological battles and arguments were
said to be about "free-market-free-trade" vs. the command
economies, democracy vs. totalitarianism and so on.
But the collapse of the centrally planned economies and
their versions of Marxism as practised led some to think that
like Mao's "let hundred flowers bloom", countries would be able
to develop their own national capitalistic structures, in tune
with their cultures and traditions, and hard and soft
infrastructures and institutions, in their efforts at
But Mao raised the "hundred-flowers-bloom" slogan merely to
identify and cut down all but his own. And neither the blooming
of hundred flowers nor their being cut down did China any good.
From out of Washington have come in this decade in quick
succession the "Washington Consensus" as a set of rules for
economic policies in the developing and transition economies,
followed by the WTO (and its claims of a "rule-based" system
providing trade security to all nations), with the trade body's
reach into the developing and transition economies also pushed
by the IMF and the World Bank (through their conditionality
But each of these doctrines in economic theory and
development economics has been like the fashions in the Paris
haute couture salons - the hemlines going up or falling down
every year to force people to throw away last year's clothes
and buy this year's.
It would, however, be unfair to blame international
functionaries for changing their positions and views to advance
their own careers and advocating the policies favoured by the
dominant powers.
Academics are probably no different.
Prof. Dornbusch has expressed considerable scepticism at
national efforts to regulate and restrict capital flows, and
was one of the prominent speakers at the 1998 Davos symposium.
But his paper at a World Bank Development Conference in 1990
advocated a 50% uniform external tariff, rather than variegated
levels of tariff, and was criticized by discussants for the
major bias involved.
According to the proceedings of that conference, "Dornbusch
cautioned against excessive trade liberalization. He noted that
it is one thing to liberalize imports of capital goods and
intermediate goods, but Milky Way candy bars are a high-gross
item in the Mexican imports, for example, and no one would
argue that they are essential to growth strategy. Hence a 50%
uniform tariff may go halfway toward opening trade; it
introduces the notion of competition but avoids the risk of
having to cut wages to pay for non-essential imports".
When should countries liberalize?
The report of the World Bank conference says: "Dornbusch
cited as impressive the 1958 liberalization in the Federal
Republic of Germany, which took place at a time of a domestic
boom and current account surplus. That is the golden time to
liberalize, he argued, because 'you can pay for it and you want
the [imported] resources.'"
Dornbusch concluded that one might like to liberalize
earlier, but "if you can't pay for it, don't risk the inflation
[and macroeconomic instability] that would come from an
exchange rate collapse."
US academic Prof. Jagdish Bhagwati, a free trade ideologue,
pushed the trade liberalization concept and vigorously lobbied
the government in New Delhi before Punta Del Este to agree to
the launching of the new trade round, with services and
intellectual property issues. After the recent financial
crisis and witnessing the effects of capital liberalization, he
has changed his views. And in some recent writings and
speeches, he has been quite critical of the trading system's
distortion by TRIPS and so on.
As the major developing countries, and their finance and
trade and economic officials and ministers, begin or attempt to
dialogue with the G7, at the Fund/Bank semi-annual meetings and
the November Seattle Ministerial of the WTO, they might do well
to ponder on the past, lest they be forced to repeat it.

The above article first appeared in the South-North
Development Monitor (SUNS) of which Chakravarthi Raghavan is the
Chief Editor.