WILL ECONOMIC CRISIS MEAN END OF IMF & WORLD BANK?

by Abid Aslam

(IPS) WASHINGTON -- Gone are the mobs in the street. Faced with a global recession, those demanding change from the rulers of the global economy appear to be on the inside as the International Monetary Fund (IMF) and World Bank hold annual talks.

Take Robert Zoellick, the bank's president. In his view, the Group of Seven (G7) finance ministers of industrial countries, long the embodiment of the world economic order, "is not working."

"We need a better group for a different time," Zoellick said this week.

He called for a new "steering group" made up of Brazil, China, India, Mexico, Russia, Saudi Arabia, South Africa, and G7 members Britain, Canada, France, Germany, Italy, Japan and the United States.

Such a group would incorporate more than 70 percent of the world's economic output, 56 percent of world population, and 62 percent of its energy production. It also would bring together major emitters of carbon, aid donors, regional powers, and the primary players in global capital and commodity markets.

The new entity would not replace the current group of seven with a body twice its size, Zoellick insisted. Rather, membership would be fluid and open to up-and-coming powers, "especially if their rising influence is matched by a willingness to help shoulder responsibilities" and to find the trick of financial and economic cooperation.

His counterpart at the IMF, Managing Director Dominique Strauss-Kahn, has taken advantage of this weekend's talks -- including a G7 session that began Friday -- to challenge finance ministers to rise above parochial interests and act "quickly, forcefully, and cooperatively" to avert, or at least contain, a global recession.

"There's no domestic solution to crises like this one," Strauss-Kahn said in comments after some European governments took isolated action. "All kinds of cooperation has to be commended. All lonely acts have to be avoided if not condemned."

As a practical matter, no significant redrawing of the international financial architecture is likely to emerge when the bank-fund talks close on Oct. 13. Even so, the comments from these two financial and development gatekeepers reflect growing concern at a lack of effective global leadership amid the worst financial crisis since the stock market crash of 1929 ushered in the Great Depression.

A televised address by Bush seemed to stoke that concern Friday.

"We know what the problems are. We have the tools to fix them. And we're working swiftly to do so," Bush told U.S. investors -- only to see markets tumble, extending a losing streak that has vaporized trillions of dollars in retirement savings.

This, after finance ministers and central bankers from the G7 countries announced joint interest-rate cuts, individual measures to boost markets' cash on hand, a 700-billion-dollar U.S. bailout, and plans by some governments to take equity stakes in banks failed to restore investor confidence.

While it remained to be seen what further steps G7 governments and those of other major global players would take to head off further catastrophe, Strauss-Kahn said he had asked the IMF's board to reactivate an emergency financing scheme last used following the Asian financial crisis of 1997. This would enable cash-strapped countries to get IMF loans in as little as two weeks, and with fewer strings than the fund would normally attach.

Marita Hutjes, a spokesperson for international charity Oxfam said, questioned the emergency program's suitability for poorer countries and pressed the IMF to make good on promises to increase countries' participation in its own decision-making.

"Recent reforms of the Fund's shock facility for developing countries were underwhelming. They can't borrow as much as they'll need, and most of that money will be subject to high numbers of conditions," said Hutjes.

"An IMF that can really help crisis-hit poor countries fight their global financial warming would need to have those countries sitting at the decision-making table. That is still not the case. Mr. Strauss-Kahn himself said all countries need to be included in the solution. The Fund should swallow its own medicine," she added.

Japanese officials suggested that near-bankrupt Iceland should receive the first emergency loan. As of Friday, the mid-Atlantic nation's government had refused to ask the fund for help.

Whether any developing countries -- already hit by runaway food and fuel prices and now squeezed by slowing Western demand for their exports and shunned by panicked investors -- would turn to the IMF remains to be seen. On Friday, however, the Group of 24 (G24) poor nations demanded again that the global watchdog deliver "stronger surveillance of advanced economies, policies, and financial systems."

Leaders might be able to avert Armageddon if they act in unison, Strauss-Kahn said, but no one at his agency appears to be betting on economic recovery any time soon.

"The world economy is now entering a major downturn in the face of the most dangerous shock in mature financial markets since the 1930s," the IMF said in its latest World Economic Outlook report, released Wednesday. In it, the fund abandoned upgraded forecasts made just a few months earlier.

In its bleakest assessment so far, the IMF cut its 2009 forecast of world economic growth from 3.9 percent to 3 percent. This would be the most anaemic performance since 2002 and hover around the threshold of what the IMF would deem a global recession.