Every economic crisis buries some practices and gives rise to new ones. What we see today is a move away from what Robert Wade called the “High Command “of global finance and the rise of less formalized institutions. The G-20 may be one of these.
So far the G-20 summit agenda focused heavily on the question of the regulation of international financial markets. In addition, the G-20 leaders made a commitment at their first summit in November 2008 to press on with the reform of the Bretton Woods institutions in order to give greater voice and representation to emerging and developing economies. Two years later the Toronto summit closed on a dull tone.
The G-20 resolved to have all of its members halve their deficits by 2013 and to stabilize overall debt by 2016. Brazil and Argentina along with India and China were strongly against cutting back spending at this early point in the global economic recovery. It was Brazil’s Finance Minister, Guido Mantega, who warned the G-20 not to balance budgets on the backs of the world’s poor. Other agendas remain mostly ignored. As these initiatives move with extreme paucity, it may be that other mechanisms, particularly those at a regional level, gain momentum.
After the East Asian crisis countries in the region made efforts to expand financial cooperation through the Chiang Mai Initiative. With the largest worldwide reserves, these countries have the capacity to create a quite-significant pooling arrangement. In Latin America, after the Argentine meltdown, steps to expand the regional provision of development finance have gained momentum. The Andean Development Corporation has become a major project lender throughout South America while the newly inaugurated Bank of the South with an initial capital of $20 bn is also expected to start operations promptly. (See Vernengo, “Public Banks and Development.”)
Regional development banks have for a long time enabled the existence of alternative windows for access o finance. Many argue that the case for more pluralism may even be stronger in the area of balance of payments support given the controversy over the IMF’s hold and its conditionality.
Western Europe provides a prime example of regional financial cooperation in the post-war period. The U.S, through the Marshall Plan, catalyzed the initial phases of this process, which underwent step by step deepening until the emergence of the European Payments Union (EPU), eventually leading to the current monetary union. In its day the EPU played a reserve-sharing role. Today some supporters of regional institutions have even suggested that the IMF could emerge in the future “as the apex of a network of regional reserve funds – that is, a system closer in design to the European Central Bank or the Federal Reserve System than to the unique global institution it currently is … A denser network of institutions seems better adapted to a heterogeneous international community, and it is likely to provide better services and give stronger voice to smaller countries”.
Hand in hand with the sprucing up of project lending, regional reliance on the IMF has dropped dramatically. In 2005, Latin America made up 80% of the IMF’s lending portfolio, a share which had dropped to 1% by 2008. While IMF loans to Latin America stood at $48 billion in 2003 they dropped to less than $1 billion before the crisis. With the onset of the crisis, three Central American countries, Mexico and Colombia have applied for loans. But the crisis has not changed the long term trend, which has been favored by booming commodity markets. While most countries paid off their debts, Argentina is also refusing to follow precedent and go back to the IMF in order to renew negotiations with the Paris Club. Reversing the trend from borrowers to lenders, in June 2009 Brazil, Russia and China announced that they would buy IMF bonds in order to reduce their dependence on the dollar and diversify foreign currency reserves.
Regional payments clearinghouses are also making progress towards decoupling trade operations from the US dollar. In October 2008, Argentina and Brazil agreed on a local currency payments system. In Brazil, exporters may now operate in the real, while Argentines may operate in pesos. With elimination of the need to go through a third currency exporter can set prices in their home currency, and hence thus being insulated from exchange risk. The system now covers about 20% of trade. In a similar line, in October 2009, the SUCRE, or Unitary System for the Regional Compensation of Payments, was set up among Venezuela, Cuba, Bolivia, Ecuador, Nicaragua, Honduras, the Dominican Republic, Antigua and Barbados, as well as San Vicente and Granada.
If meaningful IMF reform continues to prove politically difficult, the relevance of these arrangements might grow. Not only would they allow for decentralization and greater pluralism in international financial governance. They can also contribute to global stability by reducing the US burden to provide liquidity to the world economy, much in the same way the EPU did in its time. But they might also throw some useful sand into an entirely free-flowing regime of finance.
The Triple Crisis Blog is pleased to welcome Diana Tussie as a regular contributor. She heads the Department of International Relations at FLACSO/Argentina and is the founding director of the Latin American Trade Network (LATN).
We’re not backing down in the face of Trump’s threats.
As Donald Trump is inaugurated a second time, independent media organizations are faced with urgent mandates: Tell the truth more loudly than ever before. Do that work even as our standard modes of distribution (such as social media platforms) are being manipulated and curtailed by forces of fascist repression and ruthless capitalism. Do that work even as journalism and journalists face targeted attacks, including from the government itself. And do that work in community, never forgetting that we’re not shouting into a faceless void – we’re reaching out to real people amid a life-threatening political climate.
Our task is formidable, and it requires us to ground ourselves in our principles, remind ourselves of our utility, dig in and commit.
As a dizzying number of corporate news organizations – either through need or greed – rush to implement new ways to further monetize their content, and others acquiesce to Trump’s wishes, now is a time for movement media-makers to double down on community-first models.
At Truthout, we are reaffirming our commitments on this front: We won’t run ads or have a paywall because we believe that everyone should have access to information, and that access should exist without barriers and free of distractions from craven corporate interests. We recognize the implications for democracy when information-seekers click a link only to find the article trapped behind a paywall or buried on a page with dozens of invasive ads. The laws of capitalism dictate an unending increase in monetization, and much of the media simply follows those laws. Truthout and many of our peers are dedicating ourselves to following other paths – a commitment which feels vital in a moment when corporations are evermore overtly embedded in government.
Over 80 percent of Truthout‘s funding comes from small individual donations from our community of readers, and the remaining 20 percent comes from a handful of social justice-oriented foundations. Over a third of our total budget is supported by recurring monthly donors, many of whom give because they want to help us keep Truthout barrier-free for everyone.
You can help by giving today during our fundraiser. We have 5 days to add 340 new monthly donors. Whether you can make a small monthly donation or a larger gift, Truthout only works with your support.