Lecture 5: Economic Cultures From Reconstruction to Growth to Instability

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Partial reform has also begun in the International Monetary Fund, which since 1999 has tried to respond more quickly to economies in crisis, and has recognised the need to take into account a wider range of political and social factors in its aid packages. It is now recognised that as conduits of soft power, such international financial institutions can begin to attract states towards stabilising their economies and reducing military and social conflict (Stevenson 2000, p9). The debate and reform in the IMF and World Bank, and concerns about the current pattern of globalisation, have moved to include: -

To support poor countries with continued high levels of debt, from 1996 the IMF and the World Bank started the Highly Indebted Poor Countries (HIPC) initiative, so that countries which were following sound economic policies but which were burdened by unsustainable debt payments could have coordinated debt relief (Stevenson 2000, p27). Through 2005 this has reduced debt servicing costs up to half for some 20 of the poorest African states, on the basis of reform and 'budget transparency', but this is a long term process an cannot intervene in the face of short term crisis (Errington & Van Onselen 2005). Initially some 218 million SDRs (standard drawing rights, = US1.47 in June 2006) was issued, through the late 1990s, with this followed by an enhanced program totally 1.6 billion SDRs by 2006 (IMF 2006).

From 1999, the IMF replaced some of its older structural adjustment programs (ESAF = enhanced structural-adjustment facility) with a more sensitive and coordinated Poverty Reduction and Growth Facility (PRGF), based on a cooperative approach between the IMF and the recipient government (Stevenson 2000, p44).

Over the last decade, the IMF and the OECD have become more cautious about advising developing countries to liberalise foreign investment rules, with credit agencies also concerned about too rapid an opening of markets, e.g. praise for India and China for a gradualist approach (Abdelal & Segal 2007). Thus, in spite of WTO entry, in China access 'to commercial banking, communications, and real estate remains severely limited for foreign investors, and Chinese officials have started giving more scrutiny to potential foreign investment in other sectors' (Abdelal & Segal 2007). The concerns here are in part a rebound to moderate forms of 'economic nationalism', but also more realistic concerns about economic security over key industry, the possible rise of virtual monopolies or oligopolies, and the concern that multinationals may have too much market power, especially in developing or vulnerable economies (Abdelal & Segal 2007).

It is now recognised that careful poverty reduction programs can have a role in preventing conflict and can aid peace-building projects (Stevenson 2000, pp46-59).

Concerns that the current market system may not ensure access to essential energy resources in the future, unless these can be greatly diversified and extended (including the use of new technologies). In one view: -

In response, a number of oil have-nots have taken measures to insulate themselves from a disruption in their oil supply. This helps explain China's seemingly illogical drive to acquire stakes in oil production facilities abroad. So long as oil remains a global commodity, consumers need not own the means of its production; they can simply buy all they need on the world market. China, however, seems to be preparing for a day when oil becomes far harder to acquire and transport and has thus signed various oil and natural gas agreements over the last five years with Angola, Brazil, Iran, Nigeria, Venezuela, and Sudan. This strategy makes so little economic sense that it can only be explained by an expectation that global oil markets will at some point break down, due to either a worldwide recession or a conflict between China and the United States. (Abdelal & Segal 2007)

In turn, it has been suggested that some states have become 'resource nationalists', in that they seek strong government control of major primary energy resources, e.g. diverse patterns in Russia, Venezuela, and Turkmenistan.

The World Bank now recognises that large schemes do not always lead to effective local development. Greater knowledge flows between developed and developing countries is needed, including new skills as well as local traditions. This has moved the World Bank metaphorically into moving towards becoming a knowledge bank, especially in building think tanks such as the Global Development Network (GDN): -

The network is designed to allow greater scope for "home-grown" policy, information sharing, and enhanced research capacity in and between developing countries for the coproduction of local, regional, and global knowledge. The World Bank and other sponsors of the network are promoting the creation and distribution of a global public good--knowledge. Stimulating the supply of both the quantity and quality of policy-relevant research aids the transmission of international "best practices." (Stone 2003)

The push towards open-economic globalisation has been somewhat weakened as even major national economies being to assess new patterns of risk in the 21^st century: -

At the same time, certain barriers will start to rise. The institutional founds of globalization - such as the rules that oblige governments to keep their markets open and the domestic and international politics that allow policymakers to liberalize their economies - have weakened considerably in the past few years. Politicians and their constituents in the United States, Europe and China have grown increasingly nervous about letting capital, goods, and people move freely across their borders. And energy - the most globalized of products - has once more become the object of intense resource nationalism, as governments in resource-rich countries assert greater control and ownership over those assets. (Abdelal & Segal 2007)

At present, more recognition is given to the idea of financial management as part of a wider pattern of development in which the recipient country must be a major participant: -
It is recognized that the countries themselves must take charge of their developmental programs, and governments must consult with their citizens in preparing them. The World Bank has pioneered Comprehensive Development Frameworks (CDF), and the IMF, together with the Bank, requires a Poverty Reduction Strategy Paper (PRSP) in connections with concessional loans and debt forgiveness for Highly Indebted Poor Countries (HIPC). These initiatives are in their infancy, but they show promise and deserve to be encouraged. (Soros 2002, p66)
Likewise, it has been suggested that 'managed globalisation' with strengthened international organisations might still be the key to a more balanced global economy, though this has strong political implications: -
European policy makers, meanwhile, have favored a different tack, trying to drive globalization by creating new overarching rules for the world economy and by empowering international organizations such as the European Union, the Organization for Ecoomic Cooperation and Development (OECD), the International Monetary Fund (IMF), and the World Trade Organization. The European doctrine of managed globalization envisions a world of multilateral rules that will supersede U.S. power. Over the years, the EU alone has compiled over 80,000 pages of regulations to ensure the interdependence of its members - the greatest body of such rules ever produced. (Abdelal & Segal 2007)
Perhaps at a deeper level, local communities and nations will need to step back from the idea that the growth might need to be moderated to sustain future growth (see Mussa 2007). In part this is driven by the idea of rapid growth and instantaneous projects measured in narrow terms. Diversification at the local and national level, the maintenance of local subsistence agricultural, social and national skills, diversification of sources of trade, and careful control of investments to ensure that these are indeed productive, are methods which can at least reduce the negative impact of these global flows and prepare for future, balanced developed. Hence 'barefoot' local economics and global economics often meet at the level of individual human security, local sustainability and in the area of food security. In the end, of course, the national and global groups involved have to learn from recent events, both in terms of financial crises, and in terms of lagging development (1997-2007). This learning at the system level and institutional reform should reduce the losses for both nations and corporations operating globally. Thus it has been suggested that with better management of global financial systems it may be possible 'to the sell the benefits of ongoing globalization to a wary public, to make sure those benefits materialize, and then to ensure that they are distributed more equitably' (Abdelal & Segal 2007). This is a multilateral issue with IGOs, national governments and civil society absorbing many of the problems associated with ongoing poverty and related financial instability. It may also need to involve a 'new global deal' over development and trade, balancing the demands of developed in less developed economies.

6. Bibliography, Resources and Further Reading
Resources
International Monetary Fund Webpage (at http://www.imf.org/external/index.htm), which includes press releases, analysis, statistical data on IMF programmes, articles and research papers.
Financial Times (London) on the Web (at http://www.usa.ft.com/hippocampus/). This service offers good news coverage of economic and political affairs, especially for Europe, America and East Asia. It also has a range of special reports.
The World Economic Forum homepage, with a wide range of issues articles, is found at http://www.weforum.org/
The UNDP (United Nations Development Programme) website has a wide range of useful reports on development and the state of the global community, located at http://www.undp.org.in/
The World Bank homepage and related institutions can be accessed via http://www.worldbank.org/
The Bank of International Settlements webpage, including access to their International Journal of Central Banking, will be found at http://www.bis.org/
Further Reading
ABDELAL, Rawi & SEGAL, Adam "Has Globalization Passed its Peak", Foreign Affairs, January-February 2007 [Access via www.foreignaffairs.org]

ACHARYA, Amitav "Realism, Institutionalism, and the Asian Economic Crisis", Contemporary Southeast Asia, 21 no. 1, April 1999, pp1-29 [Access via Bond Library Databases]

BIRDSALL, Nancy "Asymmetric Globalization", Brooking Review, 21 no. 2, Spring 2003, pp22-28 [Access via Ebsco Database]

BIS BIS 76th Annual Report, Bank of International Settlements, 26 June 2006 [Access via http://www.bis.org/publ/annualreport.htm]

DAVIES, Geoff Economica: New Economic Systems to Empower People and Support the Living World, Sydney, ABC Books, 2004

FERGUSON, Niall The Cash Nexus: Money and Power in the Modern World 1700-2000, N.Y., Basic Books, 2001

HENDERSON, Conway W. International Relations: Conflict and Cooperation at the Turn of the 21^st Century, Boston, McGraw-Hill, 1998, Chapters 8 & 9

MUSSA, Michael Argentina and the Fund: From Triumph to Tragedy, Washington, DC, Institute for International Economics, 2002

MUSSA, Michael Global Economic Prospects 2007/2008: Slowing to Sustainable Growth, Paper Presented at the Semi-annual Meeting on Global Economic Prospects, Peterson Institute, 4 April 2007 [Internet Access via http://www.iie.com/publications/papers/mussa0407.pdf]

PALAST, Greg "Resolved to Ruin: The World Bank/IMF Takeover in Four Easy Steps", Harper's Magazine, March 2003, pp48-51 [Access via Ebsco Database]

ROSENBERGER, Leif Roderick “Southeast Asia’s Currency Crisis: Diagnosis and Prescription”, Contemporary Southeast Asia, 19 no. 3, December 1997, pp223-252 [Access via Bond Library Databases]

STEIL, Benn "The End of National Currency", Foreign Affairs, May/June 2007 [Access via http://www.foreignaffairs.org/20070501faessay86308/benn-steil/the-end-of-national-currency.html]

STEVENSON, Jonathan Preventing Conflict: The Role of Bretton Woods Institutions, Adelphi Paper 336, London, IISS, 2000

STONE, Diana "The "knowledge bank" and the Global Development Network", Global Governance, 9 no. 1, Jan-March 2003, pp43-62 [Access via Infotrac Database]

UNDP Human Development Report 2004: Cultural Liberty in Today’s Diverse World, N.Y., United Nations Development Program, 2004 [Internet Access via http://hdr.undp.org/reports/global/2004/]

UNDP Human Development Report 2005 - International cooperation at a crossroads: Aid, trade and security in an unequal world, N.Y., United Nations Development Program, 2005 [Internet Access via http://hdr.undp.org/reports/global/2005/]

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