When the G-7 summit started, it looked as if Canada's top-of-agenda issue of reform of government-sponsored international financial institutions - the IFIs - was about to be lost in the fog of Halifax to more immediate concerns. These included the new French president's in-your-face resumption of nuclear weapons testing, the threat of the ugly U.S.-Japan auto trade dispute undermining success of the newly born World Trade Organization, and the Bosnian conflict's disturbing escalation.
As the sun finally broke through, however, and the leaders got down to their last sessions, it seemed likely some new directions would be set on the role of the IFIs in the new global capital marketplace. But specific measures to avoid duplication and make roles clearer and separate would be left to work out later. Real change to the way institutions such as the International Monetary Fund and the World Bank operate could take ages.
Any progress at all in Halifax was largely due to the determined push Prime Minister Jean Chretien kept giving the issue, being addressed for the first time at a summit. The case for making IFIs more effective also got some new urgency from the sudden fear here that perhaps the global economy is about to go through another downer rather than continued expansion. Warning signals are flashing in an earlier-than-expected slowing of some major economies, such as the U.S. and Canada, a crisis in the Japanese banking system, and continuing problems in Mexico despite the massive U.S.-led rescue package.
With 30% of employable people around the world already unemployed or underemployed, a new global recession could easily become a depression, especially if a new ''random shock'' - one that's unpredictable - hits, like the oil shock of the 1970s.
The IMF, set up originally to stabilize the international monetary system, was unable to act quickly enough to prevent Mexico's recent peso crisis. As the Canadian Chamber of Commerce has pointed out, it seems countries only heed the IMF's advice after a full-fledged crisis has erupted. This is why Canada urged a redirection of the often secretive IMF's role that would include more detailed surveillance of member-country fiscal and monetary developments and much more open disclosure of trouble points to all international market participants.
It's argued this kind of early-warning system would put market pressure on governments to take tough measures to avoid a crisis erupting. The Canadian government has also been among those supporting the IMF's lobbying for more government funding - through GAB, its general arrangement to borrow - to give it greater leverage to respond to a crisis. The IMF wants the ability to use a show of force to back off speculators exacerbating currency declines.
With billions of dollars already committed to the effort to stabilize the peso, the IMF doesn't have the wherewithal to do another big rescue right now if someone else gets into trouble. However, supplementing its resources - some want them doubled - raises many concerns, among them the ''moral hazard'' issue. This is about whether giving the IMF a bigger pile of money will actually encourage bad economic behavior because member governments will know that if they hit the wall, as they say, the IMF will always be there to bail them out. Better to leave it to the discipline of the market, some argue, to force governments to adopt more prudent policies before rather than after a crisis. Some even want a sort of global bankruptcy act to apply to countries - a Chapter 11 style process.
They also want less reliance on public World Bank type funding for development projects in emerging economies and a major thrust to more private-sector financing and privatizations.
Putting sunset provisions on the World Bank and other big regional development banks would be a useful part of this approach. The IMF itself should also be encouraged to sell some of its gold reserves - it's sitting on gains of $35 billion - and do more of its borrowing from the private sector.
(Ed. note) Neville Nankivell is The Financial Post's editor-at-large, based in Ottawa.
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