2020 Global Architecture Conference

2020 Vision Papers

Table of Contents

A Scenario for Running the World By Ann Florini, Carnegie Endowment for International Peace Governing the world economy: the challenges of globalization By Ngaire Woods, University College, Oxford Vision 2020: Towards better Global Governance By Adil Najam, Department of International Relations, Boston University A Global Architecture for 2020 By Shridath Ramphal, UN Commission on Globalization Global Architecture: Vision 2020 By Waliur Rahman, Institute of Law and International Affairs A Manageable World: Taking Hold of the International Public Sector By Shepard Forman, Center on International Cooperation International Financial System Reform: Lessons From the 1997-8 East Asian Crises By Jomo K. S, University of Malaya Globalization and Global Governance in 2020 --Our Vision on International Organizations in 2020 By Xu Mingqi and Wu Yikang, The Institute of World Economy, Shanghai Academy of Social Sciences Multilevel Economic Governance through Subsidiarity: Remodelling the Global Financial Architecture By W. Andy Knight, University of Alberta Redesigning the International Financial Architecture: Voting and Power Sharing in the IMF By Mark W. Zacher, Institute of International Relations, University of British Columbia

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Vision 2020: A Sustainable Livelihoods Perspective Tariq Banuri, Tellus Institute and Stockholm Environment Institute
2020 Global Architecture Seminar -Seven questions to be considered as debate-opening remarks. By Bertrand de La Chapelle, Institut Franais des Relations Internationales

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The IMF's Role and Policy Conditionality: The Relationship between Ownership, Conditionality, Appropriateness of Policy and Governance, and the Way Forward By Martin Khor, Third World Network

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A Scenario for Running the World Ann Florini Carnegie Endowment for International Peace
Paper prepared for the 2020 Visions Conference Sponsored by Centre for Global Studies, University of Victoria Dunsmuir Lodge Victoria, Canada August 29-31, 2001 Draft: not for citation or quotation without permission of the author. Please note: this paper is written as a future history looking back from the year 2020. Comments welcome.

Introduction
In 2001, the world faced a seemingly insurmountable gulf between the needs for collective action on a global scale and the woefully underdeveloped mechanisms for meeting those needs. Poverty afflicted half of humanity. New and resurgent diseases threatened millions. Environmental degradation on a massive scale endangered everyone. And sharply contending views about what should be done about it all increasingly led to violence. Political leaders gathered for frequent gabfests but seemed unable or unwilling to commit themselves to serious action on any subject other than promoting ever -deeper economic integration. The systems for making and enforcing global rules were generally feeble, and where strong they were widely seen as unfair.

Now in 2020, the widespread riots and sense of despair of this centurys first few years are a rapidly fading memory. Although serious problems persist, an extraordinary range of mechanisms have developed that offer real hope that humanity may at last have found ways to live together in peace and growing prosperity on a planet no longer divided by sharply demarcated borders. This paper describes those mechanisms and how they came about. The global problematique
To see how far we have come in just two decades, we need to start by reviewing where global governance s tood at the opening of the century. If one merely looked at numbers of efforts, global governance seemed to be thriving. In thousands of bilateral and multilateral treaties and statements, governments offered repeated declarations of their determination o t do something. A vast array of international organizations had been created, holding regular meetings and generating an extraordinary quantity of documents. But a closer look at all the steps needed to make global collective action work made clear that, with a few notable exceptions, all the sound and fury was not accomplishing much.
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Simply picking which problems would get priority on the global agenda was no easy matter. Most global problems failed to inspire a sense of crisis that would mobilize the kinds of ingenuity and commitment of resources the world had seen after World War II. No system existed to force a ranking of issues or an allocation of resources. Citizens could lobby their governments to put issues on the international agenda, but many governments lacked the capacity and sometimes the desire to serve as effective representatives of their citizens interests in the wide range of transnational issues. Priorities reflected a hodgepodge of the interests of the most powerful states (or their most powerful constituents), the effects of a handful of various civil society campaigns, and the whims of the media spotlight. Negotiating fora were dominated by a handful of rich and powerful countries (often reflecting the preferences of rich and powerful corporations). Their say in running the world was wildly disproportionate to their share of the worlds population. And the richest and most powerful of all, the United States, was increasingly refusing even to make a good-faith effort to participate in global negotiations. When governments did manage to reach agreements, implementation often fell far short. Some crucial environmental treaties, such as the Convention on Biological Diversity, had essentially no effect on the problem they were meant to address. Often governments signed on to agreements they had little capacity to implement. Even in those areas where treaties had teeth and international organizations were playing a serious substantive role, success sometimes seemed to engender as m any problems as it solved. This was particularly notably in the international arrangements governing trade. Having created a trade regime that largely served their own economic interests, the worlds rich countries seemed perplexed by the vehement objections to that regime that emerged both from other governments and from an increasingly vociferous network of civil society organization. Developing countries argued that the rich countries were failing to live up to promises made years ago, and civil society groups raised complaints that the rules and procedures favored private over public interests. Countries flocked to join the WTO not necessarily because they believed the new trade regime served their interests but because the alternative was to remain excluded from the only trade system available. The need for major reform of the systems of global governance was clear, and proposals abounded. At one extreme were calls for humanity to repeat its experience with government at the national level, with codified agreements serving as laws and with coercive mechanisms in place to ensure compliance with those laws. Demands that environmental and labor standards be included in trade agreements, to take advantage of the WTO dispute resolution procedure, were of this ilk. Such suggestions foundered over questions of how to make such processes both effective and broadly legitimate. At the other extreme were occasional calls for the reversal of globalization, with a retreat to national borders. But despite the frequent mislabeling of the public backlash as antiglobalization, in fact relatively few people were demanding a retreat to impermeable national borders. Most critics objected to specific rules and institutional behaviors, not to the whole idea of integration.

The emergence of innovation in global governance

Despite the apparent impasse over how to improve global governance, there were glimmerings of better ideas for running the world. Experiments with using transparency and public pressure to change government and corporate behavior were beginning to bear fruit, providing a new and flexible instrument of governance that did not rely on the coercive power of governments. Growing public scrutiny of inter -governmental organizations was making it increasingly difficult for rich-country governments to treat these organizations as mere instruments for achieving purely national ends, as they had long been wont to do. Corporations were increasingly adopting an ethos of corporate social responsibility that had the potential to reduce the need for direct governmental supervision by eliminating numerous negative externalities. Proliferating civil society networks gave voice to people from all parts of the world who shared grievances about the rules governing global
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economic integration. Transparency: By the year 2001, transparency ran second only to globalization as prominent buzzword, touted as the solution to everything from financial volatility to environmental degradation to corruption. It seemed as though everyone was calling for everyone else to be transparent. Civil society groups demanded transparency from inter-governmental organizations, corporations, and governments, which in turn began demanding it of civil society groups. Transparencys popularity varied in inverse proportion to its distance: Those who demanded disclosures from others often resisted providing detailed information about themselves. But all those demands did lead to real changes in behavior that in turn provided the foundation for a major shift in patterns of governance. Those changes included three that proved to be of fundamental importance. First, national and local governments increasingly adopted and implemented legislation providing their citizens with access to information about the governments. Often such legislation came about in response to grassroots demands from citizens fed up with corruption. The new laws enabled civil society groups working on all kinds of issues to hold their governments accountable for how tax funds were spent and how decisions were made. As norms of governmental accountability and citizens right to know spread and became entrenched, national governments changed for the better. The incidence of corruption decreased substantially, and open political debates upgraded the quality of governmental policies. Those improvements contributed mightily to an increased capacity on the part of a wide range of national governments to engage meaningfully in intergovernmental negotiations, to implement the resulting agreements, and to participate effectively in the growing number of crossborder networks encompassing civil society and the private sector. Second, intergovernmental organizations began disclosing information previously kept secret, from Country Assistance Strategies at the World Bank to Letters of Intent at the International Monetary Fund. In addition, the IMF established data dissemination standards calling on its member governments to release all kinds of economically important information. The release of all these data made it far easier for outsiders to evaluate the terms of loans and to assess how well intergovernmental organizations and national governments were balancing competing interests in promulgating economic policies. Almost immediately, such scrutiny raised the performance of those intergovernmental organizations. As the organizations found themselves forced to defend their policies to an ever-larger and more attentive public, bureaucratic rigidities and power politics alike withered under the glare. Third, new agreements began to codify the emerging transparency norms at the global level. The model was the United Nations Economic Commission for Europe Convention on Access to Information, Public Participation in Decision-Making, and Access to Justice in Environmental Matters, better known as Europes Aarhus Convention.1 Unlike the multitude of largely ineffective environmental agreements that had focussed on specific environmental problems, the Aarhus Convention set out to change the process by which environmental decisions were made. Aarhus become so important a model that it is valuable to review its structure in some detail: Aarhus had three pillars. One set requirements for governments to disclose relevant information to the public. Relevant information included data on the state of the environment, planned or operational policies and measures, international conventions and other documentation, institutional mandates, and information on institutional performance. It also required its adherents to establish Pollutant Release and Transfer Registries, under which corporations that released toxic emissions would have to report publicly on the extent of those emissions. Similar registries in other countries had already dramatically reduced the level of toxic emissions without the need for further governmental regulation, proving that
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The following is drawn from Elena Petkova with Peter Veit, Environmental Accountability Beyond the Nation-State: The Implications of the Aarhus Convention, Environmental Governance Notes (Washington, DC: World Resources Institute, April 2000) 4

corporations could be shamed by public pressure into improving their environmental performance even in the absence of specific government regulations requiring such improvements. The second Aarhus principle laid out ground rules for civil society participation in environmental decision making. All sorts of activities that had particularly significant environmental consequences, from the energy sector to the chemical industry to waste management, were subject to public review and consultation. Governmental environmental policies and programs related to the environment, such as national environmental action programs or waste management policies, also had to undergo public consultation. Together, the requirements aimed to push public authorities at all levels to ensure that the full range of competing interests would enjoy fair representation in decision making. The third Aarhus pillar provided civil society groups with the right to seek judicial remedies for noncompliance with the first two pillars by governments and corporations. All the rights and rules applied across borders, without discrimination as to citizenship, nationality, or domicile and, in the case of a legal person, without discrimination as to where it has its registered seat or an effective center of its activities. In other words, groups from one country had the legal and enforceable right to demand Aarhus-related information from public authorities and private entities in another. Thus, the broad trend toward transparency took on a new capacity to provide what might be called horizontal accountability, effectively matching the cross-border patterns of economic integration.

Corporate social responsibility: Major corporations found themselves subjected to relentless demands that they become more transparent and adopt new standards of corporate social responsibility, in keeping with their growing ability to operate relatively free from effective governmental oversight. Initially, most simply paid lip service to one of a bewildering variety of Codes of Conduct, refusing to allow any independent verification of their actual behavior. But a few enlightened corporate leaders seized the opportunity to please customers and other stakeholders by undertaking more dramatic action. Some adopted meaningful codes of responsible corporate conduct on environment and human rights, with their performance verified by independent external bodies. Others established new practices that preceded and/or exceeded governmental requirements, such at BPs and Shells internal emissions trading mechanisms. Over time, these corporations found their good deeds amply rewarded both by customers, who flocked to buy products and services provided by reliably certified companies, and by investors in the rapidly growing socially responsible investing movement. Their success led other major companies to emulate their example, setting off a virtuous cycle of rising corporate standards of behavior. Transnational networks: The massive protests that surrounded every inter -governmental gathering related to economic integration actually represented merely the tip of a large iceberg of transnational networks of civil society groups that were becoming active in an extraordinary range of global governance activities. Such groups helped to negotiate and draft the Aarhus convention. Others deserved credit for spearheading the public pressure that led inter -governmental organizations such as the IMF, the WTO, and the World Bank to adopt increasingly forthcoming disclosure policies. National civil society networks took the lead in lobbying for national freedom of information policies, and over time those national networks began to link up across borders to share resources and lessons. A wide variety of civil society networks constituted the force behind the corporate social responsibility trend, as their naming and shaming strategies sparked significant changes in corporate behavior. And transnational civil society networks increasingly came to redefine the international agenda by means of campaigns on issues ranging from debt relief to trade reform to human rights. Leadership: Political theory and historical experience alike had long led most observers to assume that effective global governance depended on the willingness of the major power of the day to lead, directing the agenda and bearing a sometimes disproportionate share of the costs. But when the
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leading power, the United States, proved recalcitrant, new patterns of global governance emerged. Civil society networks and governments of other countries began discovering their mutual power to set and act on an international agenda without the participation of the worlds 800-pound gorilla. The phenomenon of alternative leadership started in the 1990s with the International Criminal Court and the Landmine Treaty, and was much strengthened when the US rejected the Kyoto Protocol, only to find itself outside a regime that included almost every other country in the world. Participation: By the turn of the century, it had become apparent that large constituencies were no longer willing to allow public authorities to sneak public policy past the public. Calls to enable those constituencies to participate in the making of decisions that affected them were receiving an increasingly sympathetic hearing, even from national governments. For example, the Declaration adopted by the Heads of State attending the 1996 Summit of the Americas proclaimed that the signatories would support and encourage, as a basic requirement for sustainable development, broad participation by civil society in the decision-making process, including policies and programs and their design, implementation and evaluation." But it took time for that rhetoric to translate into reality. Early in the century, the first response of befuddled functionaries to the massive protests (and the accompanying violence) was to throw up walls, as they did in Davos, Quebec City, and Genoa in 2001, or to move to isolated locations such as Doha. Such moves did little to alter widespread perceptions that global governance had become the province of aloof, remote elites. But over time policy makers came to understand that unless they wanted to relocate their meetings to Antarctica, they needed to provide civil society groups with meaningful channels for voice in global decision making. They found a variety of models for how to do participation well. The original plan for the International Trade Organization back in the 1940s, for example, envisaged that non-governmental organizations would receive documents, propose agenda items, and even speak at conferences. Many environmental agreements already contained language allowing non-governmental groups that were technically qualified in areas related to the agreement to be admitted as observers and/or to assist the secretariat of the organization charged with overseeing implementation of the treaty. To permit broad participation while keeping out the lunatic fringe, non-governmental groups were allowed in unless a super-majority of member states voted to exclude them.

Global Governance in 2020

Twenty years into the 21st century, the major development in global governance comes less in the form of institutional changes than in the answer to the question: Governance for what purpose? Early in the century, conventional thinking saw the purpose of global governance as being to facilitate free trade, freedom of capital movements, and unrestricted access by multinational firms to markets around the globe.2 Such thinking confused means with ends. It forgot that those steps are merely instruments toward what should be the purposes of governance: solving dilemmas of collective action and dealing with negative externalities in just and legitimate ways. The ultimate end, as Amartya Sen argued, is to advance the ability of those being governed to develop fully their capacities to achieve. 3 Earlier in the century, we saw years of controversy about whether global economic governance, as it was being practiced, would in fact lead from those steps to the broader ends. As the debate grew more heated, the growing strength of the doubters forced substantial changes in the processes by which intergovernmental organizations and other instruments of global governance operate. The institutions of global governance superficially resemble those of the beginning of the century. We still have a World Trade Organization, a World Bank, an International Monetary Fund, the various G-groups, and only a handful of new or substantially expanded international organizations. Governments still negotiate international treaties that are crucial to establishing the
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Robert Gilpin, Global Political Economy: Understanding the International Economic Order (Princeton: Princeton University Press, 2001), p. 401. 3 Amartya Sen, Development as Freedom (New York: Knopf, 1999). 6

rules by which the world runs. But, while governments remain the ultimate sources of legitimate authority in global rule-making the processes by which those rules are made and those institutions function have become far more transparent, and a much wider variety of actors regularly participate.

One major change is the eclipsing of the G -8 by the G -20. All the various groupings of governments (the G-5, G-7, G-8, and G-10 of the worlds richer countries, and the G-24 and G-77 of the poorer countries) continue to meet. The G -7/G-8 reverted to its original role as a small and informal forum for a handful of world leaders. The G-20 became recognized as the most globally legitimate forum to bring together world leaders in manageably small groups, given its inclusion of both North and South. It is the primary mechanism through which the world sets priorities for the global agenda (albeit heavily influenced by massive lobbying from all sides). Because it now includes a wider range of high-level officials from ministries other than finance in the meetings, it is a ble to forge connections across issue areas and understand tradeoffs between them. Its small but efficient permanent secretariat has wellfunctioning mechanisms in place for regular consultations with both the private sector and civil society groups, as do virtually all inter-governmental organizations. Fortunately, however, the world now has such a broad range of channels for conducting collective action that far more priorities can receive significant attention, so that the G-20 is not overwhelmed by the impossible task of running the world or trying to function as a world government.
All members of the G-20, along with many other national governments, are parties to the Economic Information Convention, modeled loosely on the Aarhus Convention described above. Originally promoted primarily by the IMF and the United States, the Economic Information Convention builds on IMF data dissemination standards but also includes a broader range of information of interest to citizens as well as investors. The information flows fostered by that convention have gone far to reduce the suspicion and ignorance in which earlier debates over global economic governance were conducted. Intergovernmental organizations: Beyond the G-groups are the various well-staffed intergovernmental organizations, such as the United Nations, the World Bank, the IMF, and the WTO. These provide important fora within which all the many types of actors on the global scene governments, corporations, civil society groups, and international civil servants try to persuade one another about what rules should be made and how they should be implemented. The series of Financing for Development conferences that the United Nations began in 2002, for example, mattered despite the lack of success in inc reasing the transfer of capital from Northern governments to Southern ones. Those conferences brought together staff and government officials from the United Nations, the IMF, and the World Bank in a public setting that required them to defend publicly their views about what economic policies should be adopted and why. Those discussions had two unexpected and highly beneficial side effects. First, they equipped developing countries governments with strong intellectual arguments for pursuing a variety of policies truly appropriate to their national circumstances. Second, some governments found themselves embarrassed by the inability of their national representatives to engage effectively in such public debates, sparking a growing tendency to search out leading thinkers to serve in the executive boards and governing councils of the institutions. That improved oversight in turn changed the atmosphere within the organizations, as staff and management were required to make rigorous and persuasive arguments in defense of their plans and policies.

For the most part, these organizations still do not act independently of governments in setting the rules and are not evolving into supranational authorities telling governments what to do. In one sense their enforcement capacities have actually declined. The two-decade experiment with ever-moreintrusive conditionality attached to loans from the international financial institutions has been widely acknowledged a failure, since the conditions generated great bitterness and did little good. The World Bank now makes few loans, giving most of its help in the form of grants and technical assistance.
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The IMF still serves as lender of last resort for the international system, but its conditions are now broad outcome requirements (e.g., holding international reserves above a certain level) without prescribing how countries should achieve those outcomes. Parts of the negotiations between the IMF and country officials are still often confidential, but they are no longer e ntirely secret talks between IMF staff and finance ministry officials. The WTO dispute resolution mechanism has evolved substantially to incorporate a much wider range of perspectives on whether a given measure is truly a protectionist trade barrier or a e l gitimate measure serving a non-trade-related end. The push to do away with all national regulations that might impede trade or foreign investment has given way to a more balanced assessment that allows equal standing to other goals. Thanks to such measures as the Economic Information Convention and the Environmental Information Convention (a geographically expanded version of the Aarhus Convention), inter governmental organizations are also playing a more extensive version of their long-standing role as monitors of the state of the world. In this role, they provide a vital early warning function, combining data flows with crucial analysis of emerging problems. They also frequently monitor compliance with international agreements (often in association with non-governmental organizations, although sometimes in competition with them). To a limited extent they serve as the mechanisms for resource transfers, although (with the exception of the Global Health Fund, described below) much of this function has been taken over by private sector and civil society actors. The institutions of environmental governance have taken on greater relative weight in the international system than they had two decades ago, even though years of sporadic discussions about the creation of a World Environment Organization led nowhere. One major development came with the negotiation of the Environmental Information Convention mentioned above, which built on Principle 10 of the agreement that emerged from the 1992 UN Conference on Environment and Development. Most countries are now party to that convention (although many have not accepted the optional protocol allowing anyone to seek juridical remedies in cases of governmental noncompliance). This convention, like many other advances in transparency, came about after a sustained transnational civil society campaign conducted in alliance with a number of like-minded governments. That campaign began as the Access Initiative, an alliance of four leading environmental NGOs from around the world, and quickly blossomed into a network of thousands.4 As a result, most governments are now committed to releasing vast quantities of information on their environmental negotiations, plans, policies, and activities. The convention also called for additional funds to support efforts to monitor the state of the global environment. Although, as always, the response to requests for funding to address a global public good is less than ideal, both governments and private actors contributed enough that monitoring has improved significantly. UNEP, in association with a number of NGOs such as the World Resources Institute, is the primary keeper of the worlds environmental database, although secretariats for a number of environmental conventions also play that role in their specific areas. One of the few new formal organizations is the Global Health Program, an outgrowth of the global health fund first proposed by then-United Nations Secretary General Kofi Annan in 2001. At the time, despite repeated governmental proclamations of the goal of universal basic health, the previous centurys progress in extending lifespans and improving the health of the worlds citizens was severely threatened. Factors such as the collapse of some public health systems and the spread of AIDS were dramatically reducing life expectancies in many regions. Much of the previous centurys improvement in life expectancy could be traced to the widespread use of antibiotics, but massive misuse of those antibiotics in both health care and agriculture had created the chilling phenomenon of microbes resistant to most, or all, known treatments. Vast numbers of people still lacked such basic prerequisites of health as safe drinking water. And global expenditures on health care were extremely skewed, with most health research funds dedicated to diseases that affected only 10 percent of the
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The four founding members of the Access Initiative were the World Resources Institute (Washington, DC); the Environmental Management and Law Association (Budapest); the Corporacion PARTICIPA (Santiago); and the Thailand Environment Institute (Bangkok). Information is available at www.wri.org/wri/governance/access_summary.htm. 8

worlds population. The consequences were already becoming grave, particularly in sub-Saharan Africa where the human and social capital of an entire generation was disappearing. The global health fund became the catalyst for the only significant official North-South transfer of resources in this century (other than environmental funds, described below). Rich-country governments initially responded poorly to Annans call for serious funds to address the AIDS crisis and other health catastrophes afflicting the developing countries. But, urged on by World Health Organization head Gro Harlem Brundtland, an effective transnational civil society campaign soon mobilized around the issue. Responding both to social pressures to do something about an increasingly visible catastrophe and to fears of the potentially uncheckable spread of incurable diseases, governments and corporations alike contributed. Within a few years, the fund was receiving the $7-10 billion a year Annan had said was necessary to begin creating the infrastructure that could deliver health services effectively. But the money was not simply transferred to governments to spend as they would. Instead, much of it was channeled through a wide array of non-governmental organizations, international organizations, and private companies. Although inevitably some of the funding was lost to mistakes and corruption, by and large the fund operated transparently and with a high degree of accountability. In time, it evolved into a formal organization that helped developing countries to create effective and efficient health services. Some of its funds went to the World Health Organization, which worked in partnership with private groups to establish a fully effective surveillance capability to monitor outbreaks of infectious diseases around the world and to promote the development of vaccines. The money also enabled the Global Health Fund and the World Health Organization together to take on a leading policy role in key global governance debates. They successfully challenged the international financial institutions claims about the virtues of privatizing health care provision and charging access fees for health care. And they spearheaded the fight against the common, but absurd, agriculture practices of feeding massive quantities of antibiotics to livestock to compensate for the disease-prone conditions in which livestock were kept. Although it may still a t ke decades for the countries hardest hit by AIDS and other health catastrophes to recover fully, and although antibiotic resistance continues to plague us, the Global Health Program clearly constitutes an enormous advance over the situation two decades ago. It took even longer for serious funds to start flowing into helping developing countries address global environmental issues such as climate change. Not until a series of killer hurricanes devastated the state of Texas and swarms of disease-laden mosquitoes made their lethal way up Americas east coast did the United States adopt serious policies on climate change. The new environmental commitment of the United States, in conjunction with the roles played by civil society groups and the private sector as described below, has significantly improved global environmental governance. Now, the Global Environmental Facility has been expanded beyond recognition, able to offer assistance to nearly every worthwhile project proposed to it on both climate change and biodiversity. The World Bank and other development funders have become far more careful about assessing the environmental implications of projects they support, and environmental impact statements are routinely conducted independently and made public. The Kyoto protocol, like the Montreal protocol on ozone depletion, has served as the basis for a steadily more demanding set of agreements. Unfortunately, all this comes too late to stave off significant climate change humanity inevitably will confront over the next several decades, or to rescue the nearly one million species driven to extinction in this century alone. Non-governmental organizations: The systems of global governance consist of a much wider range of actors than just governments and the inter-governmental organizations they create. Both the private sector and civil society groups are key participants in all the stages of global collective action. It still frequently falls to transnational civil society networks to raise new issues for the international agenda. Such groups bear much of the burden of gathering and disseminating information vital to the global public good. They are working ever more closely with poor-country governments, not just providing information but even serving on national delegations at the request of governments. Where
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international organizations and governments do an inadequate job of monitoring governmental compliance with international agreements, civil society groups are there to keep an eye on things, and to publicize vigorously any perceived shortcomings. Although governments may object heatedly when they get criticized, in calmer moments many officials acknowledge that the NGOs are playing a politically vital role of saying publicly what otherwise could only be whispered. This watchdog role has become much easier and more effective thanks to all the national information disclosure laws and the spread of Aarhus -like conventions. Although there are still frequent complaints about the lack of formal accountability mechanisms for this sector, the problem has proved somewhat self-correcting. Transparency has become so widespread and the perspectives represented in transnational civil society so diverse that the various groups are now monitoring one another as avidly as they monitor everyone else. The creation and widespread adoption of codes of appropriate conduct for non-governmental organizations has also helped. Corporations: The many changes in global governance described in this paper have affected the behavior of private business in ways that have proved highly beneficial. Although large corporations in particular still speak with a loud voice in international negotiations, that voice is now better balanced by the presence of citizens groups speaking on behalf of a wider range of interests. National-level debates also enjoy a better balance, thanks to the improvements in national governance described above that have created much more transparent and participatory systems. The oncepopular (in some circles) notion that a corporations only social responsibility was to maximize shareholder return within the limits of legality, often stretching those limits as far as possible, is now rarely heard. The bewildering array of corporate codes of conduct has now been winnowed down to a handful of relatively well-designed and widely adopted ones, making it easier for customers, communities, employees, and other stakeholders to monitor corporate behavior. But perhaps the most important shift has come not in how well corporate behavior is circumscribed, but in what a growing number of businesses are setting out to do. One key change has been the revolution in the attitude of big corporations toward the poor. Rather than seeing them as merely occasional targets for corporate charity, businesses began to recognize that even quite poor people could constitute a profitable market if products and production methods were geared toward what they could afford. With nearly half the world living on two dollars a day or less, sheer size made that potential market too large to ignore. This attitude has helped draw the poor out of the informal sector into more regularized economic activity, strengthening their position and providing new opportunities for government revenue collection. Another major development came in the form of a few key inter-governmental agreements, such as the Kyoto Protocol and the treaty restricting persistent organic pollutants. Such clear signals from governments, along with pressure from transnational networks environmental groups and consumer demand, spurred extraordinary innovation on part of certain enlightened sectors of the business community aimed at creating new technologies and production processes. Those technological innovations are coming together in a trend called natural capitalism, with industrial production systems designed so that they generate no environmental externalities at all. These will take time to diffuse completely, but already they have made it much easier for governments to agree on steadily improving global environmental standards.

Assessment
Over the past two decades, it became clear that global decision making required the combined efforts of governments, inter-governmental organizations, business, and civil society. The private sector and civil society have shown themselves capable of helping to devise and implement global rules that serve the broad public interest. Corporations and civil society organizations now routinely join with governments in setting the international agenda, negotiating and implementing agreements (formal or informal), and monitoring and enforcing compliance with the standards of behavior set by those agreements. All of this has required an extraordinary degree of transparency, and a broad
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acceptanc e of the right of the various actors to participate in making the rules that govern us all. The new reliance on transparency and participation as fundamental principles of global governance does not work perfectly. A transparency-based system of governance is vulnerable to misinformation and deliberate deception. The voices of the rich still too often speak more loudly than the voices of the poor. And as technology, the physical realities of living on a single planet, and deliberate policy choices continue to tie people more closely together into a community of shared fate, we may find it necessary in time to devise more systematically coercive methods of running the world. But in the meantime, global governance is now far more legitimate and far more ef fective than was the case a mere two decades ago. We have found that, as the cliches have it, sunlight really is the best disinfectant and honesty really is the best policy. In the process of trying to figure out which border crossing problems really matter and how to deal with them, even with the best of intentions everyone involved is bound to make many mistakes. Certainly the world would be blessed could we find a few brilliant and compassionate philosopher-kings able to make all the necessary decisions and painful tradeoffs on behalf of the public interest. We could put them in charge of the national governments or the international organizations and wait for the rules to be handed down. But absent such wisdom from on high, the messy muddle of trans national governance, quite different from traditional patterns of national government, is probably the best we can do. It is hard to see what alternatives, at this point in human history, would better reconcile the sometimes -competing demands for effectiveness, efficiency, fairness, and legitimacy in global governance.

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Governing the world economy: the challenges of globalization A note by Ngaire Woods Fellow in Politics and International Relations University College, Oxford

Globalization has created two different imperatives for policy-makers. The more `technical challenge is to adapt, reform and establish international institutions to manage new actors, forces, and vulnerabilities in the global economy. The second, more political challenge is to find a way to `connect or reconnect these institutions to voters and to a large number of citizens who increasingly see globalization as a threat to welfare and democracy in many parts of the world. This note explores both these challenges and seeks to explain how and why the two are linked. It is tempting as scholars and practitioners of international relations to assume that global problems should have global solutions. In other words, to come up with rational solutions and to all upon international organizations to implement them. This paper challenges that assumption. The desired outcome is doubtless noble, however, the proposed means are anti-democratic - as has been recognized by both policy-makers and the stone-throwing public on the streets expressing public anxiety about globalization. The technical and political challenges of global governance are inseparable. The thoughts below do not offer a comprehensive survey of what the world or institutions of global governance will look like (or should look like) in 2020. Rather, the note attempts to make sense of: -why we need institutions in a globalizing world economy; -what kinds of governance are emerging to manage globalization; and -on this basis how we might think more critically about the nature and scope of new institutions.

Introduction: why the debate about governance and institutions?

Trillions of dollars worth of investments, capital flows, goods and services now make their way around the world economy. With the new opportunities, come new risks and powerful reasons for policy-makers to worry about globalization and its impact. What is globalization? Globalization is the product of three changes: internationalization, liberalization, and a technological revolution. Internationalization has been occurring over a long period of time as states forge more links with one another as well as more international institutions to pursue mutual goals. Liberalization has accelerated since the 1980s with governments the world over adopting policies which integrate their economies more closely into the world economy. For some countries this is more of a genuine `choice than for others who have liberalized under intense pressure from bilateral donors, and international institutions such as the WTO, the IMF and the World Bank. A revolution in technology
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and communications has fuelled change, making it easier for market actors, companies, nongovernmental organizations and the like - not to mention criminal gangs - to operate transnationally. The global economy is one in which policy-makers and their constituencies are less sure of what can be managed in the world economy and how. In the face of both new opportunities and threats, people across the world are beginning to focus more on governance in the world economy. Policy-makers worry that they are losing yet more control over their own economies and policy choices as key policy instruments seem to dangle just out of reach. They are turning increasingly to regional or international institutions in the hope that coordinated solutions will provide some respite. On the streets, however, critics argue that policy-makers are wrong to seek refuge in international institutions. They argue that in so doing, governments are removing key decisions from the people and deciding them in a secretive and undemocratic way. At the popular level, we see this argument in the actions of protesters venting their fury on international organizations like the WTO, the IMF and the World Bank. Protesters accuse the international institutions of accelerating globalization primarily (if not purely) in the interests of big business. For this reason, globalization, injustice, and international fora have become synonymous and targets of an anti-globalization movement. The serious point here is that more issues are now being dealt with at the international level, posing a sharp question as to whether existing institutions of governance adequately represent the wide range of people and countries they now affec t, and whether the agencies are adequately accountable to those they affect.

New forms of governance and how they might be used

Before moving to discuss specific institutions and their reform, it is worth stepping back and considering what kinds of governance are emerging in the world economy. This helps to identify the kinds of institutions which can be drawn upon in managing a new global economy. Four models are presented below: US unilateralism; multilateral institutions; networks of experts; global democracy. The discussion highlights the way the world economy is now managed not just through government-centred institutions but also through market-oriented networks. At the same time, while all forms of global governance are now largely dominated by the United States (both government and private sector actors), the post-cold war embrace of democracy has fuelled new idealized visions of a global democracy. These models are worth examining in order to analyze their effectiveness as well as their legitimacy. US leadership or unilateralism? One strand of governance, currently dominating debate amongst analysts of world affairs, is the role, or better said the nature of US leadership. In the wake of the financial crises mentioned above, one strand of response was more US -unilateral than multilateral. Indeed, when the US Congress debated whether or not to allocate more resources to the IMF in 1997-1998, they made their approval conditional on the creation of an International Financial Institution Advisory Commission. The Commission considered the future roles and structures of the IMF, the World Bank and other institutions and reported back (the so-called `Meltzer Commission Report) in 2000. Notable about this approach to the multilateral institutions was the fact that the Commission undertook no consultation with other countries nor in particular those most affected by the work of the international financial institutions. Rather, this statement of how the institutions should be reformed is framed in an overall p resumption (comparable to US positions on other UN agencies) that if the US is not `tough with multilateral institutions, then foreigners will take US taxpayers for a ride. The instincts are not isolationist (as some would describe them), but rather solidly unilateralist. The goal is for the US to bring the institutions, single-handedly under control. The new administration has already begun to set down its own new unilateralist terms for the international financial institutions: see the remarks of Paul ONeill, Secretary of the Treasury 27 June 2001 (www.treasury.gov). The democratic rationale for the unilateralist approach is that the American people elect their
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government to look after their own interests. Rather underplayed in this rationale is the fact that as the most powerful country in the world, the US is the only country which can (at least attempt) unilaterally to define multilateralism and international cooperation so as to meet its own interests. Democracy, stability, and growth in other countries may well be impinged upon by US policies. From anywhere else in the world, and indeed in many of parts of the US which now depend upon a globalizing world economy, this democratic rationale is strictly limited. More importantly, given the new challenges of globalization, unilateralism is unlikely to work to fulfill even US objectives. Put bluntly, having more power than other countries does not mean that you can always control outcomes, bending other countries to the US will. This was learnt at great cost by the US in Vietnam. Coercion is a costly and often ineffective tool to extract compliance from others. It may work on some issues and with countries most directly within the US sphere of influence. However when it comes to the world economy, the aspirations of US businesses, investors, and consumers go beyond this, extending to countries and markets the US has to win over by persuasion not force. For this reason, participation in the multilateral institutions is essential to the US. For other countries, international institutions are vital as a way of ensuring that their own interests are considered. The extent to which they are depends upon the structure and efficacy of such institutions. In summary, for reasons of both effectiveness and legitimacy US unilateralism is simply not an option for most aspects of a new global economic governance. US leadership and support will certainly be required if new institutions are to be created. The new administrations attitude should not be assumed to be all-constraining. As a former US Executive-Director to the IMF once remarked, every Washington DC administration starts out with a passive or negative view of the international financial institutions, until propelled by experience they begin to take a more favorable attitude. The challenge for policy-makers is to balance the need for US support in fashioning a new global governance against disproportionate US influence and unilateralism which will erode both the legitimacy and effectiveness of new institutions. The experience of existing institutions suggests that both existing and new institutions can be reconfigured in a process of political bargaining which trades off the elements listed below: Box 1: Dealing with US unilateralism: a new bargain about international institutions Rather than chip away with ideas about efficacy and accountability, perhaps the time has come for an avowedly political approach to reorganizing multilateralism which puts all the politicized elements of organizations on the table and creates new bargains about apportioning the following benefits: -the location of the headquarters (where the institution will be based accrues many spin-off advantages) -locations of other parts of the organization -headship of the organization (from which countries/region?) -senior posts in the organizations -decision-making rules (in whose favour) and capacity to veto decisions (who has the right?) -seats on the governing Council or Board (how apportioned, who do they represent, how are they accountable?) -voting rights of each member -financial structure (who pays what to which part of the organization and at the behest of what kinds
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of political conditionality or agreement)

Cooperation among states A second strand of governance which has played a central role in managing the new strains of globalization involves strengthened and institutionalized cooperation among governments. We have seen a new emphasis being put on institutions such as the IMF, the BIS, the World Bank, and the WTO, in the hope that through multilateral negotiation and technical expertise, solutions can be found to new vulnerabilities and these can be implemented through these agencies. Enthusiasts of international technical cooperation have proposed the creation of new institutions, suc h as a global financial regulator, a global bankruptcy court, global money and a global central bank to deal with the challenge of globalization. The democratic rationale for this approach to governance is that it forges a cooperation which is in everyone s interests. International institutions enhance the mutual benefits to be gained from globalization. Agencies such as the IMF, the World Bank and the WTO smooth over the gaps and failures in the operation of markets, ensuring a more robust and stable global economy from which all benefit. Furthermore, this kind of governance is purportedly `democratic in the sense that each multilateral institution has a Board or governing Council which represents member governments. Beneath this Board, experts get on with the business of fostering greater cooperation and growth in the world economy. The problem with this rationale is that it skips too lightly and quickly over the issues of representation and accountability. Large sections of the public do not buy the idea that they are represented in institutions such as the IMF, the World Bank and the WTO. And they are not altogether wrong. In reality, representation and accountability have always been weak in these institutions. Now, however, the weaknesses are glaring b ecause the institutions are being called upon by their powerful members to intrude much more deeply into areas which were previously the preserve of national governments. The IMF and the World Bank now seek to ensure `forceful, far-reaching structural reforms' in the economies of their members (IMF, 1998). Trade negotiations within the WTO already include many issues-related domestic policy matters and working groups in the WTO are now working on issues such as competition policy, government procurement, and the environment for possible inclusion. In both G-7 and developing countries, people are beginning to ask: by what right are these international institutions stepping into domestic policy? And when they do so, to whom are they accountable? The structures of the IMF and World Bank reflect their origins as essentially technical agencies dealing with issues of international coordination. The institutions are supposedly accountable to their member governments through representatives on the Executive Boards. Yet there are deep flaws in this structure. Only 8 countries are directly represented. As argued elsewhere (Woods, 2001), if their accountability is to come closer to matching their functions, the institutions need at least to have properly representative executive boards which actively control and monitor and are accountable for the work of the institutions, as well as open and legitimate processes for the appointment for the heads and staffs of the institutions. Indeed the UK government has been active in recognizing this imperative (DFID, 2000). Similar arguments can be made in respect of the WTO (Woods and Narlikar, 2001). Multilateral institutions ideally provide opportunities for genuinely international debate and cooperation. In this they are a vital aspect of governance in the world economy. The challenge for policy-makers is to ensure that multilateral organizations not only take-up and institute new norms of governance, representation, and accountability, but that at the same time these institutions do not unnecessarily overstep their legitimacy by intruding into areas of policy better dealt with at more
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local, national or regional levels.

Box 2: Reforming multilateral organizations Four principles must guide reform -representation (especially of less powerful states whose cooperation is required for institutions to be effective) -accountability and formal redress -transparency and openness -subsidiarity and devolution of power The importance of the representative role of multilateral organizations is highlighted by contrasting them to the new `networks of experts which are emerging as a form of governance on some issues. Enthusiasts of these networks argue that they are a crucial remedy to the failure of international institutions to engage more directly with market-based actors such as investors and regulators as well as non-governmental organizations (NGOs). Lets explore this argument. Networks of experts A new strand of governance in the world economy draws upon less institutionalized f orms of regulation and rule-making - the emergence of so-called `networks of market actors and governments in different combinations who enjoy the flexibility, expertise and a shared mind-set so as to be able to forge the kinds of rules and institutions which are necessary in a modern, globalizing economy. One (albeit rather state-centred and institutionalized) example is the Financial Stability Forum which brings together representatives of the G-7, the IMF, the World Bank, the Basle Committee on Banking Supervision, the International Organizations of Securities Commissions, the International Association of Insurance Supervisors, the BIS, the OECD, the Committee on Payment and Settlement Systems, and the Committee on the Global Financial System (formerly the Euro-currency Standing Committee). The membership of the Financial Stability Forum highlights the great variety of institutions which has emerged in the international financial system, including networks of regulators and supervisors. An example of a more exclusively market-based network is the International Accounting Standards Committee (IASC), a London-based voluntary group of private-sector accountants primarily drawn from OECD countries. In a recent study, one scholar has detailed the way in which this market-based group edged out inter -governmental efforts to promulgate accountancy standards and subsequently became the key actor in standard setting in the global regulatory regime, with explicit recognition of this role being given to the group and i ts members by the G-7, the IMF and the World Bank in 1998 (Martinez, 2001).
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The democratic legitimacy of `network governance relies on a new way of conceiving of democracy which some describe as `deliberative democracy which shifts the focus from the `inputs of the decision-making system (i.e. elections and representative government) to the quality of the `outputs of the system. In this vision, networks of experts provide the opportunity for high-quality deliberation which improves outputs and governanc e. This is because the process of deliberation is (ideally) one in which the best ideas can be aired, genuinely expert participants can partake (without the limitations of a representative system), and in deliberating participants can learn and come to understand alternatives and modify their own starting positions. For these reasons, scholars are using this framework to justify the inclusion of non-governmental organizations (NGOs) as well as private sector actors in multilateral negotiations. For example, in trade delegations we have seen private sector actors such as American Express taking part under the US auspices in negotiations over financial services. The argument is now being used to push for the inclusion in trade negotiations of environmentalists and other transnational NGOs seeking influence on specific issues. The weakness of this rationale lies in its lack of concern about who defines the rules and outcomes of deliberation. Those who focus on `outputs pay too little attention to inputs and who sets the rules, such as: who determines who can participate in the exercise?; who sets the agenda?; and who sets the parameters within which acceptable outcomes must fall? In so doing, the network governance enthusiasts overlook deep problems of legitimacy and accountability which arise from these processes. Let us take, for example, the FSF mentioned above. Although clearly an expert group, politically it is controlled by the G -7. In June 1999, the G7 broadened representation in the forum by inviting senior representatives from Hong Kong, Singapore, Australia and the Netherlands to participate. However, there is no question that the G -7 remains in control of the membership and the agenda of the group. Likewise the IASC remains heavily OECD dominated. Does this matter? The significance of who controls networks lies in the content and impact of their work. The FSF has been working on three issues: capital flows, off-shore financial centres, and highly-leveraged institutions (see www.fsforum.org). All three have a direct impact on developing countries who are vulnerable to the systemic risks and issues involved, and some of whom will be directly affected by regulation in this area, such as that which would reduce offshore financial activities upon which some small developing countries rely. Likewise, the work of the IASC feeds into the assessments of investors, multilateral institutions, and bilateral donors upon whom developing countries rely. Doubtless all these issues needs investigation. Some could benefit from standards, others from regulation. However, the participation and commitment of `recipient states will be required to implement the findings of the FSF or the standards of the IASC and here there is a question of whether this is to be achieved through coercion or cooperation. Some would argue that participation in deliberations from an earlier stage make cooperation more possible, and a satisfactory and sustainable solution more likely. Network governance has an important contribution to offer in managing the world economy, bringing as it does, considerable and varied expertise on increasingly complex issues. However, even in seemingly technical areas such as accounting standards, the nature and choice of outcomes are affected by the interests of those who control the process. In essence, network governance proposes substituting expertise for democratic accountability. The problems with this argument have been aired in popular concerns about the lack of accountability of the European Central Bank. These problems magnify when network governance is expanded to encompass wider policies which have the potential to create yet larger groups of winners and losers. This is not simply a normative problem. Strong public reactions against an institution or policy (or simply a lack of `buy-in) can quickly render it powerless.

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Box 3: Experts are useful but not `apolitical Expertise and consensus-building need to be distinguished from accountability. Where the deliberations and consensus of a group produces the basis of policy directly affecting other groups, the mechanisms of accountability of decision-makers - for what they are accountable, to whom, and how is that accountability enforced - need to be clear. This may be relatively simple in the case of a Central Bank with a narrow mandate which is easily monitored. However, democratic decisionmaking can seldom be purely `output-oriented. Most policy needs substantial `buy-in to be effective. Global democracy Perhaps the most radical proposal for governance in the global economy is made by those who argue that globalization presents us with the opportunity - if not the need - to establish a more global democracy, or at the very least to enshrine human rights as the corner-stone of governance. From the bottom-up this means expanding the ways people can participate in decisions which affect them, and how they can shape and hold international institutions accountable. In recent debates we see this expressed in arguments for `mainstreaming human rights, for i mproving the participation of NGOs, for ensuring that development strategies are empowering (see WDR 2000), and in a new questioning about how to enhance voice and accountability in economic decision-making (see framework of HDR 2002). The real tension for the global democracy advocates lies in how they justify tradeoffs between means and ends. The global democracy case typically includes both a strong case for the implementation of a universal set of moral values - a `law of peoples - and a clear set of principles regarding the nature and composition of implementing institutions (Held, 2001). However, in implementing the human rights agenda, some advocates heavily privilege the ends over the means. In other words, they propose that existing institutions such as the IMF, the World Bank, and the WTO, however unfairly or unaccountably constituted, should be used to push a further agenda of conditionality in the area of human rights. Their critics argue that this smacks of imperialism, pointing out that international institutions already have too much power vis-a-vis their developing country (borrowing) members and are too unaccountable and too unrepresentative to impose further conditionality. The implication is that advocates of global democracy through a human rights approach need carefully to distinguish their argument from, say the unilateralist assertions of the US Congress. Using effective power and leverage to achieve `good ends casts profound questions not just about whether the ends are appropriate b ut equally as to whether there will be unintended consequences (which may cancel out the `good ends). This is not to say that might and right are always at odds, but rather that advocates of this position have carefully to pick their way into this argument. One solution proposed by advocates of global democracy is to reform from the bottom-up as well as from the top-down by creating a new over -arching political institution - such as an Economic and Social Security Council - which would oversee and monitor the work of the IMF, the World Bank, the WTO and all other institutions of global economic governance, holding them accountable to particular human rights goals (Commission on Global Governance, 1995; Stewart and Daws, 2000). Such an ESSC would be more representative and accountable than the existing institutions, hence mitigating some of the means/ends problems discussed above. However, an ESSC would not necessarily mitigate the more powerful sense of political alienation and powerlessness currently being expressed in the anti-globalization movement.
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In summary, as a set of ends or goals it is difficult to see by what means global democracy might be brought about. As a process, it is hard to envisage a form of global democracy that might overcome the sense of political alienation lying at the heart of public scepticism about globalization.

Box 4: Can global governance be democratic? No! But it can be more `legitimate. It is important to consider both `top-down and `bottom-up legitimacy. An Economic a nd Social Security Council might confer greater top-down legitimacy if it could conform to principles of adequate representation and accountability (as set out above, see Box 2). `Bottom-up legitimacy, however, requires a closer political connection between the governors and the governed: global institutions and citizens of nation-states.

Principles derived from the emerging forms of governance Overall, the above discussion of emerging governance highlights three principles which should guide our consideration of new or reformed international institutions for 2020. These are: 1. Local democracy (or a new version of `subsidiarity): decisions should be made and implemented at as local a level as possible, since global institutions have the least potential to fulfil the requirements of democracy. This is particularly important in responding to the public angst and alienation from global economic governance. Do new institutions and the roles ascribed to them meet this criteria? 2. Representation: global institutions should adequately represent all their member -shareholders, as well as ensuring mechanisms by which those most directly affected by the decisions of the institution have some voice in decision-making. 3. Accountability: minority shareholders without recourse to formal decision-making should be able to hold global institutions to account; to different degrees so should other affected parties.

What new institutions or reforms are required in the global economy?

Globalization demands strengthened coordination, a better institutional response, or new institutional arrangements in a number of areas a few of which are highlighted below. It is worth now looking at the new exigencies which international organizations are being called upon to manage. In each case, we might measure up (against the above principles) the necessary institutional developments. 1. Managing the new financial crises The debate over how to manage financial crises has shifted dramatically in the last decade. At the end of 1994, the Mexican peso plummeted (depreciating by 50 percent within one week) causing reverberations in Washington DC and New York, as well as in other Central and South American countries worried about a `Tequila' effect - a contagious loss of confidence in economies across the region which would cause the crisis to spread (Ffrench-Davis, 1997). In the case of Mexico, the US Treasury and the IMF were able rapidly to put together a large assistance package in order to shore up confidence in the Mexican economy - a reaction facilitated by the magnitude of US interests in Mexico. However, the Mexican case immediately raised concerns about how to deal with financial crises if they occurred in other parts of the world. Who would provide the resources for an orderly debt workout? Should there be a global lender of last resort? Policy-makers' concerns about financial instability proved well-founded. In 1997 a financial crisis
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sparked by the devaluation of the Thai baht spread across East Asia. This was soon followed by a crisis in the Russian rouble in the summer of 1998 and a financial disaster within the Unites States the collapse of an investment group called `Long Term Capital Management' (LTCM). Each of these events focussed attention on how rapidly the volume of international capital flows was increasing and how immediately such flows could reverse. When crises occur, it has become clear that an avalanche of claims on public funds is risked unless some more orderly way of working out such crises is established. In the early 21st century the G-7 governments have voiced a determination to limit the use of public funds in financial crises. This means that some form of standstill or workout procedure in an crisis is now, perforce, on the agenda. In other words there has been a fundamental shift from the 1980s when any talk of `default or `moratorium was taboo. The new orthodoxy on debt workouts reflects the fact that globalization has broadened the kinds of debtors who have access to international finance well beyond bond-issuing governments. The crises of the 1990s were marked by international flows into the private sectors of emerging markets. Globalization has also broadened the range of investors attracted into the whirlpool of these markets. Banks have now been joined by investment houses, security brokerages, hedge funds and asset managers in the new financial crises. At the same time policy-makers (and their voters) have become increasingly aware of the unfairness of the 1980s `adjust and continue to pay model. In using the IMF to sponsor and enforce adjustment in debtor countries, G-7 policy-makers have too often let creditors off the hook. In the early 21st century there is a new determination to ensure that the burdens of bad loans are shared by investors and borrowers alike. A more equitable or symmetrical debt workout requires not just public financing to `tide over the debtors and creditors whilst debts are rescheduled, but legal arrangements which permit a `standstill (a freezing of all parties commitments), and an arbitrator of some kind to make impartial judgements as to what constitutes a symmetrical apportionment of losses and adjustment. Several proposals have been made in this regard.

New or reformed institutions? Some kind of arbitration in debt workouts is now needed. This might take one of two forms. An international arbitrator or bankruptcy court on government debt (as proposed by Jubilee Plus/Ann Pettifor, Raffer 2001). An alternative is to use a reformed IMF. Obviously the IMF as it stands is not impartial (since it is a creditor in most crises). However, some kind independent arm of the IMF such as an independent affiliate, Committee, or ombudsman within the IMF could be envisaged which is appropriately accountable to all members (WG3 of GFGI). In addition to considering a new institutional role, it is worth thinking about parallel institutions for developing countries so as to further a more balanced debate and innovation. For example, a Financial Stability Forum for developing countries (to discuss overarching standards and codes etc), and stronger regional monetary institutions would be two ways to ensure better critical input into the evolving debate. Crucial to this latter point is the question of what are the necessary pre-conditions (regional and global) for such institutions to emerge.

2. Making genuine progress towards free trade It has been estimated that trade barriers (and most especially barriers to the largest industrialized country markets such as the agricultural and textile markets of the European Union and the United States) are costing developing countries at the very least around $130 billion per year, a figure which
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dwarfs aid flows. (Anderson, Francis, et al, 2001; Francois, 2000) These trade barriers are the traditional agenda of international negotiations pursued in the GATT and now in the WTO. Yet these institutions have failed to deliver free trade in huge tracts of international commerce and thus developing countries remain closed out of markets in much of what they produce. Industrialized countries are now pressing for an ever broader, agenda for the WTO including trade in services, intellectual property, trade-related investment measures, and labour and environmental concerns. Many of these issues either do not necessarily need resolving at the international level, or can (and should) be dealt with by other international institutions (such as the International Labour Organization). Until the WTO delivers on the core, international trade issues for which it was founded, its agenda should not be further broadened. The WTO is also now the target of protests which demand that it be more participatory, open and equitable. The protesters are right in pointing to severe limitations in the WTO in these regards (see Woods & Narlikar, 2001). For this reason, the reforms below are advocated as part of a 2020 vision.

Reforming the WTO A focussed free trade agenda needs to be imposed on the industrialized members of the WTO so as to ensure that liberalization in agricultural products and a full retraction of the MFA occurs before any `new issues are added. Developing countries need better advocacy in the WTOs dispute resolution functions, as argued in the Zedillo Panel Report which proposes legal aid for the smallest and poorest countries. Better representation of developing countries is also required within the informal mechanisms of decision-making which dominate the WTO. Here clearer processes of consultation and mechanisms of transparency and accountability would be advantageous, at the same time as better informed and better organized group bargaining by developing countries. This proposal clearly rejects calls for `constitutionalizing the WTO or moving towards a more `expert and `output-oriented characterization of the organization and its various arms on the grounds that the items above are pre-requisites for any such move.

3. More effective alleviation of under-development and poverty Poverty and indebtedness have achieved more public attention than any other issue on the global economic agenda. The success of Jubilee 2000 and the ongoing public support for debt relief in poor countries highlights public concern about globalization and its potential to marginalize the poor. Proper trade access is probably the most important aspects of a global development strategy which might alleviate poverty in developing countries. Equally important for the many countries relying on trade in commodities is provision for emergency financing or insurance against fluctuations in global commodity market prices which can wipe out gains in a poor economy faster than any amount of aid flows or debt relief can replenish. At the same time a sensible debt relief strategy is vital. At present the Highly Indebted Poor Countries initiative is proceeding in its new `Poverty Reduction phase. However, the institutional features of the this are inadequate. In spite of all the talk of better `donor coordination, over-burdened poor countries are still finding that their time is spent in debt renegotiations rather than in the policy planning and development they are being urged to pursue. For example, debtors with approved HIPC
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debt relief programs still have to negotiate with each of their Paris Club partners. More generally in respect of aid a plethora of aid-giving agencies, each requiring multitudinous conditionalities, monitoring and negotiation, are all over -stretching highly precious time and resources. Here there is a need not only for genuine coordination among donors but also for some independent monitoring of their actions and their follow-through on commitments. The UN/Zedillo Panel Report propose a reestablishment of ODA targets and the reaching of those targets as well as a new approach and content to conditionality, and to the provision of public goods through common pools of resources. (UN/Zedillo Panel Report, 2001) These proposals hint at a vision of a future in which donors are more coordinated, and in which development funds might be more efficiently channelled.

Helping the poor At least three elements of the institutional framework should be developed: - further trade liberalization through a refocused WTO; - commodity price insurance or protection for dependent countries who can be wiped out by fluctuations in global commodity markets (the World Bank should develop this); - rationalization of debt relief and better independent monitoring of creditors and aid -givers.

4. Taxation in a globalizing world One aspect of the globalizing economy which has only just begun to receive the attention it deserves is the need for global tax coordination. Individuals, corporations, hedge funds and international criminal organizations can all exploit globalization so as to avoid a plethora of responsibilities. Taxation is one of them and is particularly significant if states are to maintain the capacity properly to govern their own economies. The UN/Zedillo Panel Report proposes study of an International Tax Organization. This idea should be further explored and elaborated. 5. Environmental protection Others will surely focus on this. Obviously proposals abound for more global coordination and cooperation on climate change and economic incentives/sanctions related to the mitigation of environmental degradation. The UN/Zedillo Panel Report proposes a Global Environment Organization (including a carbon tax-collecting capacity: UN/Zedillo Panel Report, 2001). But can a global strategy substitute for local strategies? In the wake of the US refusal to ratify Kyoto, various scholars highlighted the Pyrrhic nature of the treaty if it were not followed up with local level initiatives, funding and progress on these issues (Victor, 2001). Here there is a danger of overlooking the subsidiarity issue - necessary not for legitimacy but for basic effectiveness.

Conclusions
Anarchists and vandals aside, the anti-globalization movement poses two serious challenges about governing the global economy which many other commentators have expressed in less newsworthy ways. The first challenge is for politicians and policy-makers to spell out their endgame, or at least
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their assumptions, about globalization. The second is to turn their minds to the processes by which globalization is governed. Already G-7 countries (and many others) are actively pushing measures which accelerate globalization, through increased capital flows, freer transnational investment and production, increasing liberalization, incentives for the wider dispersion of new technologies, and a broadening of trade access into services, trade-related investment and so forth. It is not unfair of their electorates to ask, what are they aiming for? What are their assumptions about the impact of these changes? Nobody is persuaded by a first-year economics textbook answer that the goal is a free market in which an invisible hand will produce benefits for all. Yet this kind of assumption still underpins a lot of policy-making. Policy-makers often seem to be opting to muddle along towards a more global economy, managing whatever unfortunate side-effects they can along the way. But experience demonstrates that markets become freer not as a matter of inevitability but as a matter of political choice and priorities. Witness the failure to open agricultural markets in the EU and USA after fifty years of trade liberalization, or the reluctance to free up immigration and permit the free movement of people. On the flip -side, we might note the considerable energy being expended by some G-7 members to open up trade in financial services. There is a vision, or at least a scenario in respect of the world economy underpinning these choices which politicians have not spent much time expressing or justifying to their constituencies. As I understand the challenge of the 2020 Vision project, it is to think about a vision both of the endgame of globalization and of the management and governance of globalization. This seems to me to break down into three questions: (1) What can be managed? Which of the new actors and flows can and should be regulated? (2) At what level of governance? Does the problem require international management or can it be dealt with at local or regional level? On this issue we need to develop a principle of international subsidiarity. (3) By whom? Which international institutions should be involved and how should they be constituted? What are the yardsticks we should use to assess their legitimacy and effectiveness? This note argues that we cannot answer these questions individually, and sketches out how we might bring them together.

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Vision 2020: Towards Better Global Governance Adil Najam

There is nothing more difficult to carry out, nor more doubtful of success, nor more dangerous to handle, than to initiate a new order of things. Niccolo Machiavelli

This essay sets a rather arrogant goal for itself: To define a vision of what the international organizational architecture should look like in the year 2020; to be innovative, but realistic, in this enterprise; and to push the envelope of the feasible well beyond the merely probable, but not out of reach of the actually possible. The goal is arrogant not only because it implies that one can actually undertake a task of such intellectual enormity, but even more so because it assumes that whatever attributes we assign to our best of all worlds are likely to be shared by the rest of the world. It is quite evident that, beyond the level of general platitudes, there is no meaningful consensus on what a good world might actually look like; nor are we likely to reach such consensus anytime soon. On the other hand, such a consensus is probably not entirely necessary and arguably not even desirable. The above notwithstanding, and arrogant as it might be, the challenge that this paper responds to is worthwhile nonetheless. It is worthwhile not because there is any danger of our dream-world coming true; but because in imagining a world that could be, we just might stumble upon realities of the world that is which we otherwise refuse to confront. (Besides, playing czar of the international system is bound to be fun!). We begin, in the next section, by taking a quick snapshot of what the world of 2020 might look like given the trends of the past and indications of the present. This is not an exercise in prediction as much as one of establishing the key assumptions about the future we are designing for. In the following section we set for ourselves a set of key parameters that should guide us both in designing our program for organizational change in the international system, and in evaluating any such proposal. We then outline a vision for what the international system should look like in 2020, both in terms of the broader structural reform that needs to be put into place and some exemplars of the organizations changes this might entail.

Some unflattering confessions about the future

GLENDOWER: I can call spirits from the dusty deep HOTSPUR: Why so can I, or so can any man; But will they come when you do call for them? William Shakespeare (Henry IV) Trying to predict, project, propose and sometimes preempt the trajectories of the planets future has become somewhat of a growth industry. Tarot-card readers, astrologers and palmists have been joined by a whole army of scholars and academics who claim expertise in being able to read the signs of the starsor certainly the data spreadsheetsto tell us not only where the planet is heading, but where it should be going instead, and how to get there. While some future-mongerers do indeed
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border on the absurd, there is also significant work in this genre that is not only s ensible but absolutely essential. The utility and relevance of such scholarship tends to be directly proportional to the rootedness of ones projections in an understanding of the constraints and the predicaments we face today as much as in their talent from conjuring up new opportunities for tomorrow. It is in this sense that this essay seeks to focus on the near future. Presenting a comprehensive picture of what the world is likely to look like in the year 2020 is neither the goal nor the mandate of this paper. However, outlining some sense of our key assumptions in this regard seems necessary as context for the discussion that is to follow.

Demographically, the inbuilt population momentum will ensure that despite falling growth rates, the planet wi ll be home to considerably more people; possibly a billion more. The impact of these people will be a function not only of how many there are but of who they are and where they live. Economically, they will be mostly poor; socio-culturally, they will be nearly entirely non-white (i.e., non-Western); and politically; they will mostly be in the South (i.e., developing countries). In essence, they are likely to compound rather than sooth the existing faultlines in todays global society.

Economically, there are fair grounds for optimism that the world as a whole will be a richer and more prosperous planet (as measured by global GDP). Trends indicate that markets will, indeed, expand. One might safely predict that at least some corporations that do not even exist today will be global giants in products that have not even been conceived yet. However, in economic terms, ours will remain a horribly fractured planet. The world despite its net prosperityis likely to be as, or more, unequal in 2020 as it was i n 2000. While the rich will most likely be richer, the number of poor will nearly certainly be more. The distance between the richest and the poorestmeasured nationally and internationallywould have increased. There may, indeed, be changes in the actual composition of the rich, but the essential feature of a widening gulf between the gluttonous affluent and the barely surviving would most likely increase; and so would the attendant social and political pathologies that go with gross inequity.

Technologically, immense advancements are nearly certain in terms of gadgetry and are more than likely in the sciences. It is likely that technology would have solved, or made redundant, a number of the technological challenges that we face today. One would like to believe that the greatest of these advancements would be in health related technologies. It is equally likely that it would have created possibly an equal number of equally daunting new challenges that we possibly cannot imagine today. It is nearly c ertain that the benefits of technology will remain as unevenly distributed as ever. In the health domain, for example, the persistent misery of millions was entirely and affordably avoidable in the last twenty years, and will remain so in the next. The global challenge in terms of technology is not about the providing opportunities for technological advancement; that will happen of its own accord, without need of assistance from the international system. The challenge relates to the creation of politic al and social will so that technology and its benefits are shared wide and equitably.

Environmentally, twenty years is too short a period for planetary changes. However, catastrophe can always strike suddenly and trends tend to exacerbate over time. The world would not have become a greenhouse, just yet; biodiversity would not have all gone extinct; the forest cover would not have been all cleared. However, each of these and other vital
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ecological systems would most likely have gone somewhat worse even though technological and policy interventions may well make some minor headway in certain areas. However, the two most important environmental tests for the near future relate not to environmental indices but to political and social choices. First, would the leadership of the world North and Southhave mustered the political will to meaningfully respond to these and such challenges? Second, would the affluent classes North and South, but obviously more in the formerbe willing to change their excessive-consumptive lifestyles? Much as one would be like to wrong, there is little evidence to suggest that, absent a major ecological crisis, either of those questions could be answered in the affirmative in the year 2020.

Politically , neither war, nor violence, nor authoritarianism, nor the abject use of power (military, political or economic) in the pursuit of self-interest is likely to go out of currency. The essential nature of the North-South distinction will remain relevant in global politics, although minor changes in the particular makeup of each might take place. Southern unity (i.e., the G77) is unlikely to disappear despite internal differences. If anything, Northern solidarity will face mounting stress. Nations will be no more willing to cede on sovereignty; the powerful will be no less inclined to impose their clout; and the weak will be as wary as ever of the motivations of the powerful. A most significant change, which is at least in the realm of the probable, is likely to be in the evolution of civil society rather than of the state. It is not clear how the increasing north-south tensions within the ranks of the global civil society will eventually manifest themselves; however, this might well be the most important political change of the next twenty years.

Bleak as it might sound, the above assessment is based on past trends and current indications. It suggests that the world of 2020 is likely to be vastly different in the specifics not only from our world today but also from any world we can imagine today. Yet, in terms of broader aspects, it is likely to be a world that is strikingly similar to our own. Just as the basic pathologies of the planet have not changed at all significantly in the last twenty years; they are also unlikely to change dramatically in the next twenty. Sure enough, there will be innumerable changesmany of them positivein the gadgets and gizmos some of us would be using, or the brands and products that would be holding sway, or the nature and means of interpersonal communications. But the fundamental questions that the international system will be faced with are unlikely to be at all different from what they are today: How do we establish global governance, in the absence of a global government, which can lead to economic well-being for all, global social justice, human development, and meaningful world peace? The central challenge to the international system, then as today, is not about how best to cope with emerging issues, but how to tackle the enduring fundamental problems. Indeed, the key lesson of this little exercise only reinforces the lesson of the last fifty years of global change and international organizationthe more things change, the more they remain the same!

A design brief for the year 2020 Would you tell me, please, which way I ought to go from here? That depends a good deal on where you want to get to, said the Cat. I dont much care where said Alice. Then it doesnt matter which way you go, said the Cat. so long as I get somewhere, Alice added as an explanation. Oh, youre sure to do that, said the Cat, if you only walk long enough. Alices Adventures in Wonderland

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Although the previous section raises doubt about our ability, or even the desirability, of predicting a comprehensive picture of the future, it does not undermine the considerable value of envisioning alternative futures. Indeed, it serves to underscore the urgency of thinking in terms of tomorrow which, if left unattended, is likely to mimic and possibly magnifythe fundamental challenges of today. More importantly, it helps make the case that our visions of what the international system should look like in the future should be based not on fancies about exciting new issues that might (or might not) emerge at some later date, but should be focused on how the key burdens that the international system is already saddled with can be eased between now and then. The nature of the challenge, of course, becomes very different. The focus moves away from predicting em ergent and yet unknown issues, and towards designing for resolving known and persistent problems. In responding to this challenge, it seems useful to begin by outlining the key design parameters that define our vision of change. What are the rules, constraints and goals that our design effort will respond to? It is proposed that the following parameters should guide us both in designing our program for organizational change in the international system, and in evaluating any such proposal. #1. Reality must be respected, but never feared. One must begin with the somewhat painful recognition that a number of reform proposals that are extremely desirable may not be worth pursuing because they are not entirely feasible. Pursuing ideas that have little prospec t of realization, worthwhile as they might well be, can also spell doom for those other elements of the reform agenda that might otherwise stand a chance. For example, the current structure of the Security Council (based on the principle that all animals are born equal, but some more equal than others) is a blatant disgrace not only to the international system, but also to the permanent members themselves. Any proposal to strip the shameful veto powers of the P5 is conceptually desirable but politically impossible because those who can implement such a proposal have every reason not to. The reality of politics, therefore, has to be always kept in mind and feasibility has to be a prime criteria for design. Having said that, it is equally important not o t confuse feasibility with ease. Existing reality must not become an excuse for inertia. To be meaningful, the reform agenda has to be bold in its vision as well as execution. While it should steer away from that which is obviously impossible, it must never shy from the merely difficult.

#2. The status quo is not worth sustaining. There is a prevailing undertone in most proposals for international reform which assumes that the basic structure of the international system is generally sound and the task of global governance is to maintain and sustain the status quo but providing some minimal safety net to those left out or adversely affected by the status quo. The dialogue on reforming the international system is, therefore, intrinsically conservative. Yet, it seeks to conserve something that is not only outdated today but was outdated 50 years ago. The reason that the United Nations does not seem to fit in our times is that it was never designed for our times. A most telling example is that the n i ternational system is designed to preserve and maintain a global power balance that might have been real in the first few years after World War II, but has not reflected the true state of international relations for most of the last half century. The status quo in the international system is not worth sustaining not only because it is grossly out of step with the realities of today but, as the previous section argued, because it has failed persistently. While throwing out the international system, as we know it, is obviously in the realm of the unfeasible, meaningful initiatives for reforming the international system should be willing, if not eager, to embrace proposals that will ultimately challenge the status quo in its fundamental design. In practical terms, this element of our design brief assumes an openness to proposals that call for systematic reform in the UN Charter. This is not a call for revolution; it is a call for evolution.

#3. Zero tolerance for imposing the costs of reform on the already underserved. Most recent changes in the international structure have imposed direct or indirect costs on the already underserved countries and populations. A good example is the rapid development of international environmental
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governance since the 1972 Stockholm conference, but particularly since the 1992 Rio Conference. In and of themselves, these have been generally positive developments. However, it is now quite clear that the emerging system of global environmental governance has not only imposed significant direct implementation costs on developing countries but is a manifestation of the Norths environmental agenda and a realization of the Norths environmental priorities. This has come at the cost of the Souths agenda for sustainable development, which has either been ignored or turned into mere rhetoric. The development of international trade law under the auspices of what is now the World Trade Organization (WTO) has followed a very similar and even more stark trajectorythe poorest countries and communities have been consistently and systematically forced to accept changes that provide immediate benefits to the richest countries and corporations, in lieu of vague promises that their concerns would be addressed at some later (often unspecified date). In case after case, the tendency to focus immediate attention on the concerns of the richest countries and corporations serves to not only distract attention from the immediate (and often survival) agendas of the most vulnerable countries and communities but also diverts and dilutes resources away from the concerns of the already underserved. Prioritization is a key task before any reform agenda; this element of our design brief implies that proposals that directly address the needs of the already underservedi.e., issues relating to global justice, sustainable development, and human dignitymust always take precedence. In practical terms, this means that in designing a future organizational chart of the international system any one activity should not be judged on its own terms alone, but in terms of its priority in terms of other competing activities. For example, while it is easy to argue that establishing a world organization for intellectual property is a good thing, it is not intuitively obvious that it is a better thing than investing the same resources into, say, malaria eradication. This is not a case of mixing software with apples; it is a question of determining whether the future of the planet is better served by cracking down on those who sell fake software or by providing an apple a day to undernourished children.

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#4. The international system must not be allowed to become any more messy or cluttered than it already is. The international system particularly the United Nationshas been remarkably good about expanding its mandate to tackle new and emerging challenges. Its failure lies principally in its inability to resolve the existing challenges. While this expansion of effort makes full sense in principle, its practical effect has been to dilute the attention (and proportional resources) invested in the most persistent and chronic challenges faced by global society. Since actually reforming any given element of the international system at any moment in time in immensely m ore difficult than creating a new organization or program, past reformers have taken the easy route and left us a trail of generally haphazard, often overlapping, sometimes redundant, and nearly always poorly integrated organizations. Whether done with well-meaning intentions or for self-serving reasons, this has contributed to making the international system ever more mushy and ever less coherent. As a result, organizational fiefdoms have proliferated and issue balkanization is rampant. Thirty years ago, Australian diplomat Sir Robert Jackson likened the UN to some prehistoric monster incapable of intelligently controlling itself. This is not because it lacks intelligence and capable officials, but because it is so organized that managerial direction is impossible. The United Nations system is plagued by overlapping and duplicative programs, with various departments and agencies competing for resources or authority. To be at all considered a success, any reform initiative must leave the international system as less messy and less cluttered than it is today. The organizational effort over the next twenty years should focus on consolidating, streamlining, and strengthening existing international organization. Only under very rare and very special circumstances should we even consider setting up new agencies, organizations or programs; indeed, an explicit goal for 2020 should be to have a much less cluttered organizational chart for the international system than we have today.

#5. Reform must be designed and evaluated for its system-wide impacts . Unfortunately, the sum of a number of good organizations need not necessarily amount to a good organizational system. On the other hand, it is unlikely to have a good system that is composed of component organizations that are less than good. It is not enough, therefore, to focus on creating organizations that are good at what they are supposed to be doing. Explicit attention must be focused on ensuring that they add up to a system that is coherent, integrated, and coordinated. Indeed, the existing international system has a whole host of component organizations that perform at remarkably high levels of competence, or have done so at various points in their history (e.g., WHO, FAO, UNEP, UPU, ILO). Yet, the individual performance of these organizations often fails to gain momentum because the system as a whole is not conducive to creating a synergous organizational environment. Organizational reform initiatives should, therefore, keep an eye not only on specific problems and how they are addressed by specific organizations (new or old) but also on how these organizations relate to other elements of the international system. Indeed, the key to bringing about meaningful change in an organization can often lie outside that organization; for example, improving the performance of UNEP is less likely to be a function of structural changes within UNEP and more related to the attitude and behavior of the UN General Assembly towards UNEP.

Towards an improved organizational architecture

We shall not cease from exploration, And the end of all our exploring, Will be to arrive where we stared, And know the place for the first time. T.S. Eliot There have been so many failed efforts to reform the international system that the UN is said to suffers from re-structuring fatigue. Box 1 presents an incomplete sampling of just a few of the many reports on UN reform that have been written over the years. What is striking in pursuing these reports is that the problems that they identify as well as the solutions they propose have really not
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changed much in over half a century. It is not that the definition of problems or the identification of solutions was misplaced. It was the political will to change that has consistently, and insistently, been absent in the member states of the United Nations, and particularly in the Permanent Five of the Security Council. There is, of course, no simple recipe to conjure up such will. However, the recent rise of public demonstrations at any event seen as advancing the cause of globalizationincluding recent G8 meetings should serve as a wakeup call to the industrialized powerhouses of the world. There is a disturbing and deep-seated resentment about and distrust of the international system growing amongst ordinary people and civil society forces all over the world. Whether there grievances are well-founded or not, it is now clear that they are not going to disappear simply because world leaders try to shoo away these concerns as they recently did in Italy, or try to hide deep in the forestfar away from the protestersas they plan to do next year in Canada. A very first recommendation, therefore, would be to convene a world conference on reforming the international system with act ive participation from civil society and a stated upfront commitment for reform from the world powers. Given the momentum of prevailing civil society sentiment, it is to be hoped that holding such a conference today might actually force the hands of governments who would be less able to turn it into the mere talk-shop that previous attempts have turned into.

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Box 1: Reforming the international system A rich legacy of proposals Carnegie Endowment. The Budget of the United Nations. United Nations Studies, 1. New York: Carnegie Endowment for International Peace, 1947. Grifalconi, John Weik. What kind of Revision? A Liberal Program for U. N. Charter Reform. Cincinnati: American Federation of World Citizens, 1955. Martin, Andrew. The Changing Charter: A Study in the Reform of the United Nations. London: Sylvan Press, 1955. Salter, Arthur, Baron. The United Nations: Reform, Replace, or Supplement? London: David Davies Memorial Institute of International Studies, 1957. Logue, John. The Great Debate on Charter Reform: Proposal for a Stronger United Nations. New York: Fordham University Press, 1958. Louis B. Sohn (chairman), et al. The United Nations: The Next Twenty-Five Years. Report of the Commission to Study the Organization of Peace. New York: United Nations, 1969. Villanova University. United Nations Reform and Restructure: The proceedings of the MidAtlantic Conference on President Carter's Report on the Reform and Restructure of the UN System, held at Villanova University, November 10-12, 1978. Villanova, PA: Common Heritage Institute, 1978. Newcombe, Hanna. Reform of the UN Security Council. Dundas, Ontario: Peace Research Institute, 1979. Renninger, John P. ECOSOC, Options for Reform. New York: United Nations Institute for Training and Research, 1981. Beigbeder, Yves. Management Problems in United Nations Organizations: Reform or Decline? London: F. Pinter, 1987. Formuth, Peter (editors). A Successor Vision: The United Nations of Tomorrow. Lanham, MD: United Nations Association of the United States of America, 1988. Ashby, Lowell D. The United Nations' Economic Institutions and the Need for Restructuring. Washington, D.C.: The Center for UN Reform Education, 1991. Nordic UN Project. The United Nations in Development: Reform Issues in the Economic and Social Fields: A Nordic perspective. Stockholm: Almqvist & Wiksell International, 1991. South Commission. The United Nations at a Critical Crossroads: Time for the South to Act. Geneva, Switzerland: South, 1992. Muller, Joachim W. The Reform of the United Nations (in two volumes). New York: Oceana Publications, 1992. Jakobson, Max. The United Nations in the 1990s: A Second Chance? New York: UNITAR/Twentieth Century Fund, 1993. Thornburg, Robert. Reforming the United Nations: A Report to the Secretary General. New York: United Nations, 1993. Erskine Childers with Brian Urquhart. Renewing the United Nations System. Uppsala, Sweden: Dag Hammarskjold Foundation, 1994. The Commission on Global Governance. Our Global Neighborhood. New York: Oxford University Press, 1995.

However, conferences alone are not enough to turn around unwieldy organizational systems. To be meaningful and sustainable, reform must take place both at the level of the system and of its component organizations. The following subsections will sketch out some key elements of our vision in both domains. Structural Reform: The Big Picture System -wide reform, although more difficult, is a prerequisite for the success of reform in specific organizations. Nearly all that has to be said for structural reform in the international system, and particularly the UN system, has already been said. However, little has actually been done. This is
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partly because of the already mentioned lack of political will on the part of the UNs custodians (key member states) and partly because creating new institutions is both easier and more self-aggrandizing than actually reforming and reviving existing institutions. One result of this abject neglect is the disfiguringly cluttered international organizational chart that we are now saddled with. More importantly, in the absence of meaningful structural reform, whatever organizational tinkering has taken place has been unable to live up to its potential; most often, the net impact has been little more than that of rearranging the chairs on the deck of the Titanic. Three areas of structural reform are generally considered to be of particular salience and urgency: Security Council reform, UN Secretary General, and UN financing. Meaningful progress on the first remains unlikely since the great powers of our time remain adamantly unwilling to entertain the notions of democracy in international governance. While progress on the other two is also not likely to be easy, it is nonetheless within the realm of the possible and all effort should be made in this direction. Former Finnish ambassador to the UN, and once himself an aspirant to the office, Max Jakobson, described the job of the UN Secretary General as being chained to that proverbial rack of torture, the Procrustean bed, alternately stretched beyond reason by the demands of we the people in whose name the UN Charter has been written, and cruelly cut down to size by the realities of power. Trygve Lie, the first Secretary-General of the United Nations, considered his post to be the most impossible job on earth and Kurt Waldheim characterized it as being at the same time one of the most fascinating and one of the most frustrating jobs in the world. The Secretary Generals job is characterized by almost unlimited responsibilities, but correspondingly little practical authority; it is expected to exert immense moral influence, but is denied any real politic al power. 5 However, as the term of Dag Hammarskjold demonstrated, a leader with vision and initiative can achieve much while working within the existing framework. On the other hand, the career of Kurt Waldheim highlights how a Secretary General who sees himself beholden to the P5 rather than the peoples of the world can not only demean the sanctity of the office but actually do lasting harm to the stature of the world organization. While placing the selection of the Secretary General directly into the hands of the General Assembly through an open and transparent process and without the possibility of veto intervention from the P5 would be the obvious step to take, it may not be feasible to do so at this point. However, what is certainly feasible and certainly desirable is to amend the tenure of the Secretary General so that it is limited to a single, longer (possibly of seven years), term in office . This would be a first step towards providing the Secretary General with greater independence by ridding him of the necessity to appease the permanent members who can veto his reappointment. Term limit changes, however, are not enough to convert the current role of the Secretary General as the Chief Administrative Officer to one of the Chief Executive Officer of the international system. The situation today is compounded by a General Assembly which, for political reasons, places too much emphasis on micro-managing everyday administrative decisions. Reduced to being a mere caretaker, the Secretary-General is inundated by the number of doors that open directly into his office and is swamped by mundane administrative procedures. One proposal in this regards is to allow each Secretary General to put in place their own management team rather than relying mostly on career UN bureaucrats. A more important step is to discourage the General Assembly from interfering in administrative minutia of UN administration. The GA does so partly because it has
5

That the mandate of the most important civil servant is comprehensive in responsibility but restricted in real authority, is not an accident. The contradiction between expectations and constraints was written into the original mandate of the office by the founding fathers. In 1945, the Big Five still believed they would jointly run the world organization and therefore wrote in the role of an office manager, not a policymaker. Franklin Roosevelt wanted the post to be called that of moderator and at one point in the San Francisco discussions, it was proposed that the Secretary-General and four Deputy Secretaries-General be nationals of the five major powers, each elected for a two-year term and rotated so that within a decade each of the Big Five would be guaranteed a turn at the post. 32

precious else to do since it has been relegated into nothing more than a global Hyde Park. It is hoped that the expanded mandate we envisage for the General Assembly later in this paper will go some way in diverting the attention of national delegates towards more substantive issues than UN hiring and firing. One envisions that by 2020 the Secretary General will be seen, and be able to act, as the executive head of the entire UN family . Right now, the international system is rather medieval in its structure with each agency and organization behaving as a fiefdom that might commit nominal allegiance to the Secretary General but behaves politically independently. International organizations not only routinely duplicate each others mandates but actively pursue opposed agendas; national governments actively contribute to this process by creating their own spheres of influence and pitting international organizations against each other. The UN Secretary General needs to be given more direct authority over the component organizations of the system. This can come through enlarging the role of the Secretary General in management and budgetary decisions of the component organizations. By 2020, the international organizational chart should look like a well-knit system of interconnected organizations rather than the loosely put-together federation of disparate entities. One way to enhance the independence and performance of the Secretary General, and of the UN system, is to provide a stable and independent source of funding for the world body . Many variants of the so-called Tobin Tax have been proposed as a means to resolve this problem. While the word tax is an unfortunate choice in an environment where nations see demons of sovereignty threat around every corner, the notion of raising funds for the UN system by charging a miniscule user fee for services that are truly global makes much senseespecially in a world still enamored by market-based solutions. Many variants of such schemes have been in currency. Amongst the most promising is the idea of charging a very nominal user fee (to the tune of one US dollar per international flight) to passengers undertaking international travel. Such a scheme would be non-regressive, would target an activity that is obviously international and benefits from international cooperation, and the charge would be so small that it would have no price impacts on the end user. However, it could generate significant amounts of money for a cash-strapped UN system. The notion that such a charge would be a breach of sovereignty is rather facetious; arguably, it is no more a breach of sovereignty than the very act of international travel itself. However, member stateseven, and especially, those that regularly fail to pay their UN duesare likely to put up a fight to such proposals. They will do so not because it threatens their sovereignty in any real way, but because it takes away the extraordinary level of influence they now have over the world agenda by virtue of controlling the UN purse strings. The political problem of getting their support is non-trivial. However, one could begin by taking small steps. For example, if global emission trading to curb climate change is to become a reality it should be housed in the UN system (and certainly not the World Bank) and at least some of the revenue generated from such trade can be funneled into funding relevant UN activities.

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Uncluttering the Organizational Architecture

International InternationalCourt Court of ofJustice Justice
(Incl. UN Tribunals and (Incl. UN Tribunals and Disputer Resolution Panels) Disputer Resolution Panels)

Economic Economicand and Social SocialCouncil Council

General GeneralAssembly Assembly

Security SecurityCouncil Council

The Secretary General

UN UNCommissions Commissions and andConferences Conferences

Specialized Specializedand and other otherAgencies Agencies and andPrograms Programs

Peacekeeping Peacekeepingand and related relatedmissions missions

One way to reduce the confusion and clutter that now characterizes inter-organizational relationships is to revert to the original organizational chart of the United Nations as it emerged from the Dumbarton Oaks Conference. The diagram above builds on that original conception of the organizational chart but adds some modifications based on the proposals contained in this paper. Key elements to note are as follows:

The General Assembly is placed back at the very center of the organization, as it was originally supposed to be. The GA has been reduced to a book-keeper for the UN Secretariat because it has very few substantive decisions to take. The proposal here is t o revert to it the substantive role that was originally envisaged for it. As the final custodian for the entire UN system, one envisions that by 2020 the General Assembly should be responsible for directing and approving the detailed work program of the entire UN system and would have replaced the general bodies of many, if not most, specialized and other agencies. It is envisaged that by 2020 the General Assembly will be the organ responsible forvia the office of the Secretary General--all specialized a gencies, related organizations, programs and funds, other UN entities and research and training institutes (see current UN system organization diagram, above). It is also envisaged that this would spur, or lead to, some consolidation within the UN organizational architecture. For example, it makes full sense for the United Nations University to consolidate with the various UN Research and Training Institutes (INSTRAW, UNITAR, UNIDIR, UNICRI, and UNRISD). Right now, each is so small and under -funded that none makes a significant contribution. Pooled together, they would at least have enough resources to make a meaningful contribution in some areas. Similarly, there is an obvious case to be made for merging the Food and Agriculture Organization (FAO), with the International Fund for Agriculture Development (IFAD) and the World Food Programme (WFP).

The Economic and Social Council will also revert to the role originally envisaged for it. Right now it has become the most hodge-podge organ with an unwieldy membership and an unmanageable mandate. By placing the executive ownership of all specialized agencies
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directly under the General Assembly one hopes to free up the time and resources of the ECOSOC to play a more meaningful role as the equivalent of the Security Council in the realm of Economic and Social issues. Its task would not be to manage the line agencies of the UN but to advance the goals laid out in the Charter and respond to new and emerging issues. As such, it would have executive ownership of all UN Commissions and Conferences. The commissions had been originally envisaged as the cutting edge of the UN system; they have since been reduced to mere talk-shops. UN conferences have already taken on a new salience as the place where civil society meets (and pushed upon) intergovernmental organizations. As the executive owner of UN Commissions as well as UN Conferences, ECOSOC can serve as the bridge between civil and intergovernmental societies. The proposal here is to revert them to their o riginal intent, this will hopefully be assisted by the fact that the ECOSOC could now focus exclusively on them. Once again, the hope is that by 2020 the Commissions would have been consolidated into a smaller number of more active and more influential commissions that do actually symbolize the cutting edge of the international agenda.

The Security Council will essentially remain as is. It will be remain responsible for peacekeeping missions and related activities but the responsibility for special international criminal tribunals (even those established by the Security Council) will move to the International Court of Justice, where they logically belong.

By 2020 the Secretary General should be operating as the chief executive of the entire UN system; and all agencies, commissions, etc. will report to the General Assembly, Security Council and ECOSOC via the Secretary General. A key task of the Secretary General will be to prepare for the General Assembly the workplans and budgets for the entire UN system so that agencies and programs are forced to coordinate their activities. This would, of course, be a far cry from the current situation where the Secretary General is a nominal moral voice of the system. The specialized agencies, which have gotten used to operating as fiefdoms, will obviously not accept such a change without a fight. To be implemented, such a policy would require a phased strategy that brings different organizations under the direct influence of the Secretary General in step with a side-by-side process of organizational consolidation. The purpose is not to move to a centralized system; but to evolve into a coherent and integrated system. While UNESCO, WHO and UNICEF should certainly continue their separate implementation programs, there is more overlap and inter-linkage in their work programs than the current level of cross-agency coordination can handle.

By 2020, the International Court of Justice should be revitalized and become the central pillar of global governance that it was originally supposed to be. Of all the organs of the UN system, the fate that has befallen the International Court of Justice is probably the saddest. Born amidst much hope and optimism, it has been relegated to a near non-entity. National governments have used spurious arguments about sovereignty to usurp from it even that authority which they themselves had given it half a century ago. Indeed, its mandate has been left so bankrupt that activities that would have ordinarily have fallen under its purview are now placed in other organizations that are ill-suited to the task. A particularly painful example is that of the World Trade Organization, which never tires of telling anyone who would listen that it is a rules based organization. More importantly, the WTO derives a significant portion of its organizational clout from the fact that its dispute resolution panels can, in fact, impose real penalties on nation-states; something that has long been considered inappropriate for the ICJ to implement! Similarly, criminal tribunals which would have been better housed within the ICJ have evolved elsewhere in the
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system. A key, and immediately implementable, component of our vision for 2020 is to give back to the ICJ what has always been its duei.e., make it the central place where inter-national disputes are resolved whether it be through court cases, dispute resolution panels, or special tribunals. In an age of international treaty proliferation, the ICJ should also become the point or arbitration for treaty non-compliance. Indeed, without a functional and functioning ICJ the governance in global governance is a rather meaningless clause. Placing all dispute resolution functions within the ambit of the ICJ would not only strengthen the Court but, even more importantly, will contribute to easing the sense of distrust and disdain that the global citizenry now feels for the international system. For example, many critics of the WTO fault its dispute resolution panels for being shortsighted and outright biased. Placing this function within the ambit of the ICJ would not only benefit the court but also ally some of the criticism about WTO. Similarly, the International Center for Settlement of Investment Disputes (ICSID), which is now placed within the World Bank Group, would move to the ICJ. The single most important element of this papers vision for the year 2020 is to make the International Court of Justice a respected arbiter of the international system where nations as well as civil society watchdogs can bring their grievances. This would involve clumping all existing dispute resolution systems into the ICJ and possibly adding new elements of dispute resolution to it such as, for example, an International Bankruptcy Tribunal, an International Regulator of Hedge Funds, an International Communication Commissioner, etc. In essence, an expanded ICJ would serve as the independent judicial arm of the international system and a safety net for global and globalizing processes.

Organizational Reform: Some Examples It should be obvious to the reader that this essay does not intend to propose new organizations. Indeed, such band-aid organizational solutions tend to only add to the clutter in the system and often exacerbate the larger problems. We seek instead, ways by which the international organizational architecture can be streamlined and uncluttered so that it can better respond to the existing challenges of global justice and sustainable human development. However, it is obvious that the systematic change that this paper envisions will come from a culmination of many smaller reform processes within individual organizations. In particular, the vision articulated above calls for a sustained process of organizational streamlining and consolidation. This is not the place to undertake a detailed analysis of the type of particular changes that particular organizations might need to undertake. However, we present here some examples of the types of changes that might need to be taken over the next twenty years if this vision is to be realized. It should be noted that the program of reform would have to be strategically paced. It is suggested that all the changes suggested here are, in fact, feasible but none is easy; it would not be possible to bring about these changes in one broad stroke but it is also not impossible to bring them about in a period of twenty years.

International Environmental Governance . The proliferation of global environmental treaties has not only led to significant negotiation fatigue, but also to a dispersed set of organizations dealing with environmental issues. Some have called for creating a new environmental supra-organization. However, the more obvious answer is to strengthen UNEP and enable it to perform the coordination task that is already in its mandate rather than just to add to the organizational clutter. Contrary to popular misinformation, UNEP has been one of the most impressive UN organizations in terms of its actual achievements and has already been entrusted by Agenda 21 (at the Rio Earth Summit) with the task of
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consolidating disparate treaty secretariats, etc. While placing the Global Environmental Facility in the World Bank rather than at UNEP was a major mistake, it is a mistake that can be rectified. One would envision that by 2020, UNEP would have become what it was originally mandated to bea global environmental coordinator and the environmental conscience of the world. In this process, treaty proliferation could be tackled through clustering of treaty regimes and negotiation fatigue could be addressed by consolidating various treaty secretariats at one central locationpreferably Nairobiand by moving towards a more streamlined negotiation calendar.

International Trade Governance. The fact that UNCTAD and WTO are both simultaneously part of the UN family can be explained by the tortured political histories of both these organizations. It is, nonetheless, a painfuland wastefulcoexistence. The good news, however, is that consolidation seems on the card as WTO, which was born out of the very non-UN-like GATT, is turning more and more into a UN-like organization. Consider, for example, the fact that WTO membership rose by more than a third in the period during which the Uruguay Round was negotiated and has risen by more than half between when that process started and now. More importantly, the new members are mostly from the developing countries. They do not have a history of operating by GATT rules and are more familiar with UN styles and agendas. Moreover, the agenda of the WTO is becoming more UN -like than GATT-like (in terms of emphasis on development issues). With the addition of China, WTO would become even more UN-like. The tussle between WTOs lingering GATTness and emerging UNness was most apparent at the Seattle Ministerial and is again evident in the run-up to Qatar. At some point in the next two decades, it is to be hoped, WTO will begin seeing itself as a Trade and Development organization and waste of having a separate WTO, a separate UNCTAD, and a separate International Trade Center (ITC)all within the UN systemcould be averted.

International Development. Convergence and consolidation in the international development assistance regime, while very desirable, seems rather unlikely. Conceptually, there is very little basis for having a World Bank Group separate from UNDP. In a logical world the World Bank would be one part of UNDP. In the political world, however, the golden rule is sacrosancthe who has the gold, makes the rule! Unfortunately, politics trumps logic, and gold still trumps politics. While meaningful consolidation in this area may not be feasible, even with a two -decade time frame, some steps in rationalizing the international development regime might nonetheless be possible. One obvious place to start is to better coordinate the UNs own development efforts. Enhancing the role of the Secretary General in the executive managementincluding program and budgetary decisionsof the specialized agencies could provide the basis of such change. A key step that could be taken at the World Bank is to move it towards operating like an actual bank certainly in the sense of ceasing to dictate policy to its borrowers. In other cases, however, the challenges over the next twenty years relate not as much to consolidation as to diversification. For example, the AIDS epidemic provides a new and immediate challenge to WHO. The response should not be to create a new agency or program, but to strengthen WHO to be able to respond to this crisis. Similarly, UNESCO needs to be strengthened to play a more active role as a disseminator of access to information technology as a development tool. In yet other cases, the need may be for better coordination rather than just consolidation or diversification. For example, the issue of genetically modified organisms (GMOs) is gaining prominence. It is already being tackled separately by the biodiversity convention and by FAO. There is an obvious need for global scientific standard setting. However, there is no need for a new organization to do soit can and should be done within the FAO in a coordinated UN-wide effort.
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While these examples are necessarily brief and general, the point to be made here is one that reinforces the thrust o f this entire essayour vision for 2020 must be rooted in trying to improve the system as it now exists rather than simply adding new components to it because fixing old ones is too difficult. The crisis faced by most international organizations and by the UN system as a whole is not one of competence or even pertinence, it is a crisis of neglect. It is not simply that the mandates of existing organizations are inappropriate to deal with the challenges of tomorrow, but that the resources and political will invested in these organizations are insufficient to deal even with the problems of today. Absent that fundamental willingness, no amount of organizational tinkering will lead to meaningful global governance.

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A Global Architecture for 2020 Contributed by Shridath Ramphal

PART I AN OUTLINE OF IDEAS

1.

Any vision of a global architecture for 2020 must be premised on how humanity will perceive itself at that time. If the perception is as it is now - a world of nation states driven by the quest for national prosperity through economic and military power, with only minimal concern for the powerless in the world and for the global environment - the present global architecture is likely to resist significant change.

2.

If there is a change of p erception towards a world in which nation states remain, but perceive national self interest to require shared empowerment in a less unequal global society and a sense of caring for the planet, a new global architecture can emerge to facilitate human needs . It is in that latter context only that we can envisage a reform of our present outmoded institutions and the attitudes that sustain them.

3.

In this context, a new global architecture should have among its prominent features the following:

a) a reinforcem ent of the spirit of the Charter of the UN through reform that equips it for the needs of 2020. Prominent among these is the reform of the Security Council to make it more representative and free of the dead hand of the veto;

b) a new global financial architecture is needed which establishes representative superintendence of the global economy, directed towards enlargement of social and economic justice worldwide. Neither existing international financial institutions nor the market can fulfil this essential function;

c) larger participation of global civil society within the institutional architecture - both within a reformed UN system and new institutions outside it. The elements of enlightened protest that currently seek to be heard, however overwhelmed by elements that simply seek violence, must be brought into the councils of global policy-making.

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d) A much stronger institution must be designed charged with securing the survival of a planetary environment that will sustain human habitation with enforcement powers no less effective than those that pertain to preserving security in its conventional sense. e) There must be an authority to facilitate the provision of global resources for global needs. Not to achieve at the international level what tax revenue aims to provide at the national level will result in an architecture that is largely dysfunctional. 4. Realists will assert that the global change of perception identified in paragraph 2 above as the precondition of a new global architecture is unlikely to occur by 2020. They will assert that 20 years ago in the early 1980s when the Brandt Commission on International Development Issues produced its Report North-South: A Programme for Survival, the prospect for such change was better than it is now. How then do we make progress toward a global architecture for 2020. 5. My answer is that we cannot surrender to realism. I do not discount its negative force, but the challenge it generates is to redouble our efforts to induce a more propitious environment for change. In fact, effort to change reality. That is easier said than done, but it must be attempted and not just with desperate hope but with belief in the ultimate triumph of rationality as homo sapiens confronts survival. The very fact of this E ncounter and the enlightenment that drives it are a sign of that rationality which justifies the effort in advancing towards a new global architecture for 2020.

PART II
EXTRACTS FROM THE EXECUTIVE SUMMARY OF THE REPORT OF THE COMMISSION ON GLOBAL GOVERNANCE This Part contains succinct extracts from A Call to Action which was the Executive Summary of Our Global Neighbourhood - the 1995 Report of the Commission on Global Governance - to the extent that they are relevant to the identified paragraphs of the Outline. Extracts from the Outline are in bold; extracts from the Executive Summary are in italics. 2. If there is a change of perception towards a world in which nation states remain, but perceive national self interest to require shared empowerment in a less unequal global society and a sense of caring for the planet, a new global architecture can emerge to facilitate human needs. It is in that latter context only that we can envisage a reform of our present outmoded institutions and the attitudes that sustain them. A Call to Action - pg 5 At the same time, nation-states find themselves less able to deal with the array of issues - some old, some new - that face them. States and their people, wishing to control their destines, find they can do so only by working together with others. They must secure their future through commitment to common responsibility and shared effort. A Call to Action - pg 9 States remain primary actors but have to work with others. The United Nations must play a vital role, but it cannot do all the work. Global governance does not imply world government or world federalism. Effective global governance calls for a new vision, challenging people as well as governments to realize that there is no alternative to working together to create the kind of world they want for themselves and their
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children. It requires a strong commitment to democracy grounded in civil society. A Call to Action - pg. 20 A great challenge to leadership today is to harmonize domestic demands for national action and the compulsions of international co-operation. It is not a new challenge, but it has a new intensity as globalization diminishes the capacity to deliver at home and enlarges the need to combine efforts abroad. Enlightened leadership calls for a clear vision of solidarity in the true interest of national well-being - and for political courage in articulating the way the world has changed and why a new spirit of global neighbourhood must replace old notions of adversarial states in eternal confrontation. In a real sense the global neighbourhood is the home of future generations; global governance is the prospect of making it better than it is today. But that hope would be a pious one were there not signs that future generations come to the task better equipped than their parents. They bring to the next century less of the baggage of old animosities and adversarial systems accumulated in the era of nation-states. The new generation knows how close they stand to cataclysms unless they respect the limits of the natural order and care for the earth by sustaining its life-giving qualities. They have a deeper sense of solidarity as people of the planet than any generation before them. They are neighbours to a degree no other generation has been. In this context, a new global architecture should have among its prominent features the following: 3a) a reinforcement of the spirit of the Charter of the UN through reform that equips it for the needs of 2020. Prominent among these is the reform of the Security Council to make it more representative and free of the dead hand of the veto; A Call to Action - pg. 15 Reform of the Security Council is central to reforming the UN system. Permanent membership limited to five countries that derive their primacy from events fifty years ago is unacceptable; so is the veto. To add more permanent members and give them the veto would be regressive. We propose a process of reform in two stages. First, a new class of five standing members should be established to serve until the second stage of the reform process. We envisage two from industrial countries and one each from Africa, Asia, and Latin America. The number of non-permanent members should be raised from ten to thirteen, and the votes required for a decision of the Council from nine to fourteen. To facilitate the phasing out of the veto, the permanent members should enter into a concordat agreeing to forgo its use save in exceptional and overriding circumstance. The second stage should be a full review of the membership of the Council, including these arrangements, around 2005, when the veto can be phased out, the position of the permanent members reviewed, and
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account taken of new circumstances - including the growing strength of regional bodies. 3b) A new global financial architecture is needed which establishes representative superintendence of the global economy, directed towards enlargement of social and economic justice worldwide. Neither existing international financial institutions nor the market can fulfil this essential function . A Call to Action - pg. 13 The time is now ripe to build a global forum that can provide leadership in economic, social and environmental fields. This should be more representative than the Group of Seven or the Bretton Woods institutions, and more effective than the present UN system. We propose the establishment of an Economic Security Council (ESC) that would meet at high political level. It would have deliberative functions only; its influence will derive from the relevance and quality of its work and the significance of its membership.

The ESCs tasks would be to: continuously assess the overall state of the world economy and the interaction between major policy areas; provide a long-term strategic policy framework in order to promote stable, balanced and sustainable development; and
secure consistency between the policy goals of the major international organizations, particularly the Bretton Woods bodies and the World Trade Organization [WTO].

The ESC should be established as a distinct body within the UN family, structured like the Security Council, though not with identical membership and independent of it. 3c) Larger participation of global civil society within the institutional architecture - both within a reformed UN system and new institutions outside it. The elements of enlightened protest that currently seek to be heard, however overwhelmed by elements that simply seek violence, must be brought into the councils of global policy-making. A Call to Action - pg. 15 UN reform must reflect the realities of change, including the new capacity of civil society to contribute to global governance. The General Assembly should be revitalized as a universal forum. Regular theme sessions, effective exercise of budgetary authority, and the streamlining of its agenda and procedures should be part of the process of revitalization. We also propose an annual Forum of Civil Society consisting of representatives or organizations to be accredited to the General Assembly as Civil Society Organization. It should be convened in the General Assembly Hall sometime before the Annual Session of the Assembly. International civil society should itself be
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involved in determining its character and functions. A Call to Action - pg. 18 For such a process to have the best prospect of securing agreement on a new system of global governance, there will need to be careful preparation. Civil society must be involved in the preparatory process, which should reach out to even wider sections of society than the processes leading up to recent world conferences. Many views must be examined, and many ideas allowed to contend.. 3d) A much stronger institution must be designed charged with securing the survival of a planetary environment that will sustain human habitation with enforcement powers no less effective than those that pertain to preserving security in its conventional sense. A Call to Action - pg. 15 The Trusteeship Council should be given a new mandate over the global commons in the context of concern for the security of the planet. 3e) There must be an authority to facilitate the provision of global resources for global needs. Not to achieve at the international level what tax revenue aims to provide at the national level will result in an architecture that is largely dysfunctional. A Call to Action - pg. 14 It is time for a consensus on global taxation for servicing the needs of the global neighbourhood. A start must be made in establishing schemes of global financing of global purposes, including charges on the use of global resources such as flight-lanes, sea lanes, and ocean fishing areas and the collection of revenues agreed globally and implemented by treaty. An international tax on foreign currency transactions should be explored as one option, as should the creation of an international corporate tax base among multinational companies 5. My answer is that we cannot surrender to realism. I do not discount its negative force, but the challenge it generates its to redouble our efforts to ind uce amore propitious environment for change. In fact, effort to change reality. That is easier said than done, but it must be attempted and not just with desperate hope but with belief in the ultimate triumph of rationality as homo sapiens confronts survival. The very fact of this Encounter and the enlightenment that drives it are a sign of that rationality which justifies the effort in advancing towards a new global architecture for 2020.

A Call to Action: pg. 19 Whatever the dimensions of global governance, however renewed and enlarged its machinery, whatever values give it content, the quality of global governance depends ultimately on leadership. Throughout our
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work, we have been conscious of the degree to which the realization of our proposals depends on leadership of a high order at all levels. As the world faces the need for enlightened responses to the challenges that arise on the eve of the new century, we are concerned at the lack of leadership over a wide spectrum of human affairs. At national, regional, and international levels, within communities and in international organizations, in government and in non-governmental bodies, the world needs credible and sustained leadership., It needs leadership that is proactive, not simply reactive, that is inspired, not simply functional, that looks to the longer term and future generations for whom the present is held in trust. It needs leaders made strong by vision, sustained by ethics and revealed by political courage that looks beyond the next election. This cannot be leadership confined within domestic walls. It must reach beyond country, race, religion, culture, language, life-style. It must embrace a wider human constituency, be infused with a sense of c aring for others, a sense of responsibility to the global neighbourhood.

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PART III REFLECTIONS ON THE WAY FORWARD

1. In 1998, in advance of the Millennium Summit, the Commission had an assessment made of progress to date. The following was the conclusion then:

Of the four substantive areas covered in the report, the security recommendations have had the best track record in terns of implementation. Clearly the Commissioners were attuned to the major arms control and disarmament movements in recent years, many of which have borne fruit. The biggest setback, from the Commission's perspective, has been the Security Council's retreat from peacekeeping responsibilities. The picture has been much more mixed on the economic recommendations. A number of suggestions for the WTO, IMF, and World Bank relating to trade, development, and debt have been at least partially implemented. On the other hand, movement on Agenda 21 has been modest, ODA is slipping, and the notion of an Economic Security Council has received mixed reviews at best. Many of the UN reform proposals have been debated and studied seriously during the inter-governmental deliberations and several have received positive attention (women, General Assembly budget authority, reviews of Regional Economic Commissions, UNCTAD, and UNIDO). There has been some progress on the appointment process for the Secretary-General, General Assembly themes, the Trusteeship Council, financial obligations, and coordination between the Second and Third Committees. The member states have wrestled intensively with a variety of proposals for reforming the Security Council. For all the progress that has been made on working methods, there has been remarkably little on composition or the veto. The suggestion for a right of petition and the creation of a Council for Petitioners apparently has not made headway. While there has obviously been substantial progress toward realizing an international criminal court, little has changed on the other international law ideas put forward by the Commission.

2. Despite the glimpses of progress, it was not overall a reassuring picture. The Millennium Summit, despite the Secretary-Generals Report (We, The Peoples) calling for change in many areas, did not provide or result in a blueprint of a glo bal architecture for the new century. Matters were to get worse as the US Presidential election in 2000 and political trends in the United States had produced setbacks in critical areas of international cooperation, such as weapons control and environmental protection. These setbacks both represent in themselves and contribute to an international climate unpropitious to multilateralism. If the Commission on Global Governance were working in 2001, it is likely that its Report would be more pessimistic than it was in 1995. The glass seemed half full then seems half empty now and, in truth, it is less full.

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3. Accentuating the positive, however, account must be taken of the assertion by people worldwide of their disaffection with the international status quo and in particular, with the implications of liberalisation and globalisation for many of the worlds people. However much the violence that marked international gatherings from Seattle to Genoa is rightly deplored, the protests represent a reality of which i nternational leaders must take account. And that is beginning to happen. The prospects for more genuine progress towards democracy in international decision-making, whether on trade, international finance, the environment, AIDS, or drugs, are more encouraging. The large downside is in international security and the unravelling of post-war progress in weapons control.

4. The UN Secretary-General had called his Report to the Millennium Assembly We, The Peoples. The developments mentioned in the preceding paragraphs do not imply increasing ownership of global governance by the worlds people. The very reverse. And this is a major area of disappointment - just when Civil Society seemed to be occupying more space in global affairs. It was an illusion. Global Civil Society has not occupied meaningful space in decision-making at either the national or global levels; and the fault does not lie entirely with governments, a few of whom have been serious about co-opting Civil Society into decision-making processes. We, the Peoples has remained a shibboleth. A global architecture for 2020 will have to be creative both in providing space for civil society and encouraging its occupation.

5. What this points to is the need for a new global architecture in which those more democratic processes can be nurtured. Some of this progress will have to come from existing institutions, eg. the WTO. In other cases, more radical reform may be required. The Security Council remains an area of weakness in the international system and t i is a weakness (notably the dominance of the veto powers) that discourages progress in other areas. The fact that some are more equal than others in the central area of peace and security works against wider empowerment in other areas.

6. At least one new institution needs to be developed. The Commission on Global Governance called it an Economic Security Council. That might not have been the best name for it; but the concept was right: more democratic superintendence of the global economy. The reform of the Security Council would help progress in this direction too, but such progress cannot await Security Council reform. It has to be a central feature of a global architecture for 2020. The G8 appears to be recognising its powerlessness as a global directorate. Perhaps reform can begin in a more genuine way than so far attempted through its democratisation, ie, not the G8 consulting with others, but the G8 reconstituting itself by enlisting others. After all, if it is indeed powerless, it surrenders little in embracing change.If the Commission were working in 2001, I feel as well that it would have worked harder at institution building in relation to the environment. In 1995 it was valid to have had at least modest hope for the Commission on Sustainable Development and, as the years went on, such developments as the Kyoto Protocol (following on the earlier example of the Montreal Protocol) gave additional reason for hope. Now, with the Kyoto Protocol severely damaged, we need to think again of the environment in the context of a global architecture for 2020. The Commission had proposed restructuring the UN Trusteeship Council into a Council for the Environment. This idea repays further investigation.

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7. The Commission had been courageous in advancing the case for the first steps toward international taxation. A global architecture for 2020 must incorporate these ideas. It should provide appropriate institutions though which a start might be made in raising global revenues for global purposes - in ways that do not generate alarm. The persistence of gross poverty, the perverse decline in development aid and the unreliability of foreign private investment make the case for global revenues stronger. This is, perhaps, the biggest challenge of all. It is the counterpart globally of the change within states from feudal to democratic structures.

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Global Architecture: Vision 2020 - Waliur Rahman

Leave to Robert Browning Beggars, fleas and vines; Leave to Ruskin, Popish Apennines, Dirty stones of Venice and his Gas-Lamps seven; We've the stones of Snowdon and the Lamps of heaven!" Charles Kinsley (1819-1875) While doing my paper on Global Energy Crisis at Oxford in September 1974, my moderator Prof Peter Oppenheimer of Christ Church asked me to read Charles Kinsley. I was amused, though Charles Kinsley has been one of my favorite poets of the time. In reality, however, stones of Snowdon and the Lamps of heaven don't add to a nation's material wealth although its spiritual significance can in no way be underestimated. The year 1776 that produced Gibbon's historic work on the Roman Empire also yielded Adam smith's Wealth of Nations. Adam smith's work without question towered over his contemporaries like Target and Physiocrats, who most indubitably represented individual economic freedom---- and to use Smith's own word "the system of natural liberty". The Wealth of Nations, however, was not Smith's first book. About Seventeen years before the Wealth of Nations, Smith wrote the Theory of Moral Sentiments. At that time Smith was still under the influence of his Glasgow teacher Francis Hutchenson, a devout follower of Shaftsbury and put emphasis on Passions" towards altruism and cooperation that make for society's growth and development. A great deal of the Theory of Moral Sentiments is perhaps best understood in the context of Hutchenson's teaching. But a discerning reader however, will not fail to discover throughout the book the emphasis on "individual self-interest" that would become overriding in the Wealth of Nations. At the same time Smith must have read Mandevilles the `Fable of the Bees', first published in 1974, later in enlarged editions in 1723 and 1728 (Subtitle-Private vices and Public benefits). Thus Mandevilles thesis that "it is through complex interplay of individuals egoisms and self-interests that both the stability and the prosperity of society emerge." But it is in the Wealth of Nations that Mandevillian theme of "self-interest as the only reliable mainspring of human behaviour and society at large" is to be found in the most celebrated passage of the Wealth of Nations. It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages" It is "Private vices, Public benefits". In the canvas of the idea of progress----it had a dramatic impact and rightly so. It is coincidental but important that in the same year--1776, the American Declaration of Independence was made and Jefferson's mind (the drafter) was full of faith in human progress----- in the idea of progress. But we must not also overlook what Turgot said in his Researches into the causes of the Progress and Decline of the Science and Arts: "Carthage did what Thebes had done and what America will do some day". Rather pessimistic ------ but Target also said that "America is the hope of the human race."

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Vision 2020: Organization Chart

If we contrast the above with what Alfred Marshall and Prof Lionel Robbins said respectively, "Economics is the study of man in his ordinary business of life" and "Economics is a study of human behaviour as a relationship between unlimited end and scarce resources, which have alternative uses," we find a roadmap towards our goal. Thus when we think about the state of the world in 2020, we find meaning in the thoughts of all three gentlemen who influenced world's development paradigm in more than one way------- in development economics as well as in politics. The relevance of these thoughts will be felt for many more years and many more decades to come. While I am still trying to prepare the base of my paper, it would not be fair if I do not recall the 16th century French philosopher-economist Jean Bodin who basically laid down perhaps more graphically than anybody else in history of human civilization that the idea of progress is the most important element in human history and this progress is slow and evolutionary but it is inevitable. He suggested that without the Monasteries and Guilds of the Middle Ages, the learning of the ancient world would have been totally lost at the hands of barbarians, the Ostogoths and the Visigoths or later day Halagu Khans! Sitting at the beginning of a new millennium, it is quite right to think that our comfort of today is the hard work of yesterday and comfort of the future is the hard work of today. The two World Wars happened because of suspicion, greed and lust for power. When the Germans and the British lost over 1/2 million people in 72 hours in the killing fields of LaSomme and Verdun, the generals sat down and pondered. The League Nations was becoming a reality. Austro-Hungarian Empire was gone but the crisis of confidence continued to haunt the world configuration created by the First World War. Diplomat-scholar Salvador Madariega was heard crying on the placid and tranquil Lelac Geneve when the League of Nations broke apart. But the Second World War assumed new ferocity because mankind by now enhanced its ability to wage a more bloody war than ever before. From U-boats to Zeppelin and Zeppelin to Submarines and finally the bombing of Hiroshima and Nagasaki- all changed the human psyche to our civilization. Hitler's gas chambers and murder of 6 million Jews only added to the moral outrage of humankind. The United Nations Charter was almost a certainty: as somebody said, even if there was no Wilson or Roosevelt, the Charter would have been reinvented in one form or the other. Together with the IMF, World Bank, WTO, UNDP, UNEP, ILO, FAO, UNGA created a collective sense of responsibility. With that the mutual balance of terror Mutually Assured Destruction (MAD) ironically helped maintain and preserve the peace in the world! From 1945 till the beginning of the new millennium, apart from the phenomenal increase in the standard of living and decolonization of the countries in Asia, Africa, and Latin America, the most significant event was the breakup of Soviet Union. When I was listening to Mr. Yakovlev in the small conference room of the Italian parliament elaborating the thoughts of Gorvachev, sometimes towards the end of 80's (Perestroika and Glashnosht), who had imagined that a mighty empire of Soviet Union will just evaporate like a house of cards ? When I look back, the bombardment of the Moscow White House by the forces of democracy and freedom perhaps symbolize the greatest manifestation of mankind's desire to be free and freed. In its short span of the past 50years, I am quite ready to agree that the institutions like IMF, World Bank, GATT (WTO) have functioned well within the parameters of the intended purpose. Of course there have been ups and downs, stories of successes and failures: when IMF suggested to President Anwar Sadat to increase the price of bread there were bloody riots on the streets of Cairo, thus actually weakening him to a point from where he never recovered. His assassination was almost inevitable. World Bank has its own story to tell. The World Bank and IMF should own up a portion of responsibility of South Asian economic crisis of the late 90's. While Mahathir Mohammad of Malaysia has been targeted as a fall guy, there is a great deal of merit in what he said. The miseries of Indonesia also owes a lot to MDBs when corrupt military-bureaucratic combine not only was supported but was encouraged to remain in power till popular outburst overthrew Soeharto much like Ferdinand Marcos of the Philippines or President Ershad and President Zia-ur Rahman of Bangladesh. In Bangladesh, MDBs and donor countries kept on pumping

49

millions of dollars to those military rulers while they were destroying the nascent democratic institutions of the country. This is an element that has to be borne in mind so that MDBs don't support any regimes that come to power through usurpation or by extra constitutional means. Because in the long run it is bad for the country and its democratic values. One point of interest must be noted. One of the largest bridges in Asia was built connecting the Eastern and Northwestem parts of Bangladesh which the World Bank initially opposed. They described it as `pipe dream'! Today it is the lifeline of two parts of Bangladesh. The GDP growth of 6.2% has been possible largely because of the connectivity that the bridge created. Similarly the World Bank opposed any subsidy or grant in the agricultural sector. The government of Bangladesh did not pay heed to their advice. The result? For the first time in the history of Bangladesh, there is now a surplus of over one million tons of food grain. In the past 21 years this country was deficit in food grain to the tune of 2 million tons on average. Somebody said that democracy crawls on its stomach: a hungry man is an angry man. Bangladesh is an example of that if one is needed. For the first time in its history, the Government of Bangladesh has completed full 5 years of its constitutional mandate. This is no mean achievement. Identification of the problem areas in the concept paper has been quite focused. Conflicts will be there as long as mankind inhabits the globe. When we talk about post armed conflict recovery, one cannot but put a question mark on the intention of the suppliers of the arms. Before we can think about the post-armed conflict, we have to think in terms of who controls the supply of arms around the globe. UN, I believe has set up a Body called Depository of Arms Suppliers to control of supply of arms and military hardware. This Body has to be strengthened. Defensive weapons may not be questioned but suppliers of offensive weapons must be accountable. Besides, the Rwanda massacre and prior to that, genocide in Bangladesh in 1971 couldn't have taken place if the United Nations or the international community had taken sufficient preventive measures. Small Arms: According to a UN meeting there are 500 million small arms being traded illegally today. I am confident that in this decade, we shall be able to sign a Treaty banning such illegal Trade in small arms so that a tragedy like Sierra Leone or Congo or Kashmir can be averted Financial and Economic Crisis: The safeguards given to Mexico and later Argentina and to a lesser extent to Thailand, South Korea and Indonesia by the MDBs need to be appreciated. But there has to be greater communication between the donor and developing countries. The development paradigm of every country should be based on local ownership, which will allow local expertise to conduct their own business. Till today a lions share of the Aids are taken away by foreign experts, which are more often than not a precondition for development assistance! Climate Change and Declining Environmental Condition: The Kyoto Protocol should be taken as global lighthouse. Pointing fingers will not help. We all must own up individual responsibility. The donor countries have responsibility in making sure that environmental consideration takes priority in their countries first, before developing countries. But at the same time one must note the recent empirical studies that suggest that Global Warming is a cyclical phenomenon; it happens because of world tectonic movement. Every ice age is followed by warmer time and vice-versa. The position of US, Canada, Australia may therefore be given consideration. What is needed is cooperation and collaboration between and amongst the countries. In the event of further global warming, Bangladesh will be one of the first victims. But there should be no panic; a well-thought out plan has to be devised so that countries like Bangladesh and Maldives can tackle the situation properly. International Crime: This is one area where we should create an international body to control crime by keeping tab on Narco-traffic movement and black money from continent to continent: The US Congressional Task Force Report is our best guideline, which shows how Taliban Afghanistan and its

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neighbour have become the gateway to world's greatest Narco-traffic movement. It is suggested in the same report that the narco-trade money is being used generously in many neighbouring countries including Shinziang province of China. International Criminal Court (ICC): The ICC Treaty would be ratified in the next few years. The idea of ICC was mooted on December 29, 1974 at Bangladesh Institute of Law and International Affairs (BILIA), Bangladesh. Poverty, Conflict and Migration: Following the First World War about 20 million people migrated to the United States of America from Europe and another 30 million followed after the Second World War. This migration was welcomed by the New World because it created a `melting pot'! But today when labour from developing countries want to go to developed world there are all kinds of barriers standing in the way. Global Equipoise or Global Equilibrium: WTO should put more emphasis on eliminating non tariff barriers and facilitating labour movement between the developed and developing countries. WTO will become non-functional if this problem is not addressed urgently. After Seattle, Davos and Gotenburg, WTO will become dysfunctional if the real problems are not addressed. Recently Germany has asked for 50 thousand labourers every year only to keep the machines moving. Canada and the USA have been the harbingers in this area. Italy and the UK are the second best and others should take notice that in a globalised world you cannot isolate yourself. Perhaps the creation of a body to control the job market and labour movement from the developing countries should help. It is no longer in the realm of a vision, it has become an imperative. 2020 is too far. Population: While it is a problem in some countries it can be turned into an asset. Developed world is having a zero population growth and a number of developing countries including Bangladesh drastically reduced their population growth rate. In the last 20 years, population growth rate reduced from 4% to 1.6% in Bangladesh. While UNEP has done an admirable job, it has not done enough . Due to our resource constraint we are facing problems in reaching our target. Education will play a paramount role in leadership and governance as Bangladesh has shown in the past 5years. Energy: If California is an example to go by, energy should indeed be our biggest problem particularly for the developing world sooner than later. It is already a problem. In an international conference held in New Delhi in India i n mid-April this year which I attended, it was suggested that in the next 15 years, Asia will become the largest consumer of energy, headed by India, China and Japan. The population of 2 billion will become 31/2 by 2020 between India and China. Therefore attention must be shifted from non-renewable to renewable sources of energy. As a matter fact, together with International Arbitration Court, which I fully support, there should be an International Energy Forum, perhaps under the auspices of the United Nations to play a role that will be in commensurate with the need of the hour. AIDS: It is a problem of sub-Saharan area today but Asia particularly Thailand, India and China will face a tremendous increase in number of AIDS victims if precautionary measures a re not taken immediately. I think of the recent example in South Africa where generic drugs for HIV control are being made available. Of course by 2020 there will certainly be more invention against HIV as well as against cancer to be available at a much cheaper rate. It is a matter of time that human genes will become available to us to either improve the quality of life or its longevity. This also should be controlled under an International Convention. The founding fathers of the United Nations had one p redominant thought in their mind i.e., how to `save succeeding generations from the scourge of war'. To the extent that a global war has been averted, since 1945, the Charter has been a successful instrument in maintaining and pressing peace. The Chatter

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notwithstanding, wars have been fought and conflicts are taking place all over the world. It is estimated that over hundred wars have been fought with the loss of millions of lives since the adoption of the UN Charter. Questions have, therefore, been asked as to the efficacy of the UN in avoiding wars and conflicts. For a moment it was perceived that the balance of power concept had been thrown to the dustbin of history, but then article 51 of the Charter did work, albeit in a more modified form, to some kind of balance of power concept for ensuring the security of the small states. It is for this reason that the small states seek so earnestly membership of the United Nations and take the deliberations at the various organs of the UN so seriously. UN membership gives the small states a degree of confidence and dignity unequalled in any period of their history. Furthermore, there are built-in restrictions on the capacity UN to act as an organ of collective security. The pragmatic framers of the UN Charter were all able to understand that the UN would not work without the veto right for the great powers. Moreover, it is doubtful that the collusion of the great powers would have been more favorable to the small states' security. The way in which three great European powers-Russia, Austria and Prussia- colluded in 1772, 1792 and 1795 to divide Poland among themselves shows that the concerted action of several powers might actually be harmful to the independence and territorial integrity of smaller states. From 1939 to 1940, Stalin achieved his territorial objectives in the Baltic region and Eastern Europe in alliance with Hitler. The collusion of the Allied powers during the closing days of the Second World War provided another disheartening example. While the Atlantic Charter was being issued, the allied powers were dividing Europe and Korea into their respective spheres of influence without any reference to the peoples concerned. In any case, given the conflicting ideologies and interests of the great powers, any concerted action by them would not have lasted long, without the provision of the veto power. It is not always emphasized that the framers of the UN Charter did provide a prescription for dealing with grave international crises involving the great powers. This is to be found in Article 51 of the UN Charter which recognizes `the inherent right of individual and collective self defense'. After having failed to provide for the ideal of collective security on pragmatic and practical ground, the framers of the Charter advised the states, through Article 51 to establish alliances for collective defense to deal with the aggression or threat of aggression by the great powers (or their protgs) who are able to take cover under the veto rule to avoid the UN sanctions. In other words, as second best, the Charter recommends the system of the balance of power to ensure the security of states. We thus find the preambles of such international alliances as the North Atlantic Treaty Organization, now dissolved Warsaw Pact, the Charter of the Organization of American states, and the Charter of the Organization of the African Unity are all based on `the purposes and principles of the United Nations'. The Smaller States at least some of them like Libya have tried to redress the a l cunae, as it were, in the Charter by amending it particularly its provisions relating to the veto power of the 5 permanent members of the United Nations. This move, however, is likely to be unsuccessful since the whole concept and philosophy underlining t he framing of the Charter of the United Nations pre-supposes weighted power for the 5 permanent members. There is already a resolution purported to strengthen the Collective Security Provisions of the UN Charter all these efforts tend to put renewed trust of the smaller states in the world body: it is a demonstration of their confidence in the UN since the UN has lent a new dimension to the respect and dignity of the small states hitherto unknown in the history of mankind. Besides, the present demand to further democratize that UN system should be heeded carefully. The G-20 countries would do well to acknowledge that today's world is different from the 50 ' or 30 s ; countries like the largest functioning democracy India, Egypt, Brazil, Germany and Italy must be given permanent membership to the United Nations. Without them the UN looks askewed. This is doable in the next 5 to 10 years.

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The adoption of the resolution in the 41" Session of the UNGA declaring that decision on financial matters will be taken by consensus is indeed a milestone. The small states, while not wishing to sacrifice the principle of one country one vote, the philosophy of democratization underlying the Charter, did not at the same time want to be seen as irresponsible in not adequately responding to the worst ever financial crisis faced by the UN system. The adoption of this resolution has, therefore, been termed and rightly so as historic by the President of the 415` session of the UNGA. It is not only a victory of the common-sense, but also a victory of the UN in bestowing upon itself greater resilience in meeting the felt needs of the international community in general and the small states in particular.

Concluding remarks:
We are therefore coming to some kind of inevitability on the q uestion of the 2020 vision and so called Global Architecture. Nobel Laureate Amartya Sens remarks carried by International Herald Tribune on July 14-15 seem relevant in this regard. He exhorted the international community that if we want to narrow down the North South divide we must face the reality as it is: he said

Globalization in not new, nor is it just Westernization: Over thousands of years, globalization has progressed through travel, trade, migration, spread of cultural influences and dissemination of knowledge and understanding (including of science and technology)
Globalization is not in itself a folly: It has enriched the world scientifically and culturally and benefited many people economically as well. Pervasive poverty and lives that were nasty, brutish and short as Thomas Hobbes put it, dominated the world not many centuries ago, with only a few pockets of rare affluence. In overcoming that penury, modern technology as well as economic interrelations have been influential. The predicament of the poor across the world cannot be reversed by withholding from them the great advantages of contemporary technology, the well-established efficiency of international trade and exchange, and the social as well as economic merits of living in open, rather than closed, societies. What is needed is a fairer distribution of the fruits of globalization. Thus both policy and institutional changes are needed The MDBS like the World Bank and UN must respond to the ground reality, sooner than later. World Banks James Wolfensun and UNs Kofi Annan have shown leadership and courage. But one extra mile has to be traversed: the present institutional architecture needs to be reexamined. Globalized protests should hasten rather than slow down the needed change. When Bangladesh Prime Minster Sheikh Hasina was invited for the first time to the G-8 Summit in Genoa, Italy on July 20, 2001, it was indeed a timely decision. Italian Prime Minster Mr. Silvio Burlusconi will go down in history as a ground breaker. Together with Bangladesh Prime Minister, the Presidents of South Africa, Mali, El Sal Vador, Nigeria, Senegal and Algeria were also invited. Sheikh Hasina was the only leader representing South Asia and Asia: but she has been pioneering in sensitizing the world leaders for a long time about the need of greater cooperation between the developing and the developed countries and greater need for Trade than AID. She further said they must assist the developing world to increase their purchasing power so that they can buy more goods and services from the developed North. Globalization is therefore the other name of interdependence between the North and the South. Bangladesh is asking for duty free entry of RMG to the United States which has already given the same facility to the Caribbean and African countries. Even if a country like Bangladesh wishes to enter into a

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unilateral commercial agreement with the USA for free trade, the US may not agree to such an accord because of her internal political dynamics. The WB and IMF have failed to sensitize public opinion in their own countries (developed North ) although they are very generous in giving developing countries advice to further liberalize their trade and commerce! As the spokesman of the LDC countries, Bangladesh has a great responsibility. But Bangladesh as a country which has potential for substantial economic development is been left out of these facilities, because Bangladesh is not as poor as many African and Caribbean countries who are even poorer. In the recently concluded G-8 summit only the African countries have been given special facilities regarding poverty alleviation to the exclusion of Bangladesh whereas the EU has readily agreed to give duty free access to LDC countries export with only one condition: Everything But Arms (EBA). As a noted economist in Bangladesh Prof. Wahiduddin Mahmud stated recently while speaking on the Genoa G -8 Summit organized by BILIA on July 28, Bangladesh has the largest concentration of poor people following China and India. Bangladesh is also a victim of brain drain. Because of the global warming caused by the so called fossil fuel civilization of the west, Bangladeshs coastal areas are likely to be most affected because of the indecision of the G-8 Summiteers on the Kyoto protocol.

In this connection, the remarks of Prof. Jeffrey Sachs of the Harvard Institute for International Development is also relevant: When the global financial crisis broke out last year, the Group of Seven largest rich nations was quick to seize on Asian Misdeeds as the source of the crisis. This blame-the-victim approach was not only erroneous but extremely harmful. the G7s rhetoric against Asian crony capitalism backed by the International Monetary Funds demands for abrupt bank closures, swinging budget cuts, and sky-high interest rates in the Asian countries, convinced the G7s own capitalists to cut and run, helping to launch a worldwide panic.
The G7 has stopped blaming the victims for the global financial crisis. Jeffrey Sachs argues that now it must give them a bigger say in reform. The aim would be to ensure that a real community of nations works to solve global problems. The G7 declaration looks forward to its next summit in Cologne in 1999. For the good of the world, that summit should be a dialogue of rich and poor together, not just a communion of the rich pretending to speak for the world. Corruption: Some individuals and institutions are bent savaging the developing countries by dishing out half-baked perceptions about developing countries. One such organization is Transparency International based in Germany. The report published in 2001 has begged the question: how transparent is the TI itself ? When Western leaders are corrupt it is no news. But TI for example goes to any length, sometimes politically motivated, to prove how corrupt the developing world is ! The President of TI Peter Eigen during his visit to Bangladesh in 1994 said that the donor countries themselves are corrupting the developing world. When he launched TI in 1994, he said together with corruption perception, he will also publish the Bribe Givers Index (BGI). But obviously there may be a hidden agenda, we are not privy to! No BGI has been published!

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John Strachey, War Minister in the British Labour government in his book, the End of Empire 1959 made some interesting revelations about Bengal: Lord Clive, in an effort to lessen the rampant corruption of the East India Company officials, legalized their right to private trade even though they were paid servants. Every officer got his share strictly according to seniority- a colonel got 7000 a year, a major 2000 (about 90,000 and 40,000 in present day value). The extortion from the Begum of Oudh by governorgeneral Warren Hastings brought forth impeachment on him.

Before Plassey, the British in the absence of any other goods for which there was a market in India, were exporting gold and silver to buy our cotton, piece-goods, cotton yarn, muslins, indigo, redwood, silk etc. The exchanges of these precious metals was a kind of net investment in our country. But following Plassey this transfer stopped. The unrequited value of the drain from India between 1757-1815 according to some researchers, amounted to 1 billion (todays value of over 20 billion)
With the G -8 Summit efforts in Genoa the real beginning has been made. And particularly when the IT revolution is wiring the entire world, the universe is really becoming a global village. The fundamental point we must remember is that nations behaviour is shaped in the same way as human behaviour, i.e. self-interest. Mutual cooperation between nations should be further enhanced to ensure benefit to the developed and the developing countries. Of primary importance should be G-20s ability to increase the purchasing power of the developing countries which will eventually benefit the developed world as well. 2020 in actually at our doorstep. We can very well set an agenda for our leaders to the benefit of all mankind. Both John Maynard Keynes and Barbara Ward need to be remembered again who so aptly said, the power of vested interests is vastly exaggerated compared to the power of ideas, and we learn from the visionaries, we do not learn from the practical men of affairs. They were not in the forefront in the 19th century and they were not in forefront in the 20th century.

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A Manageable World: Taking Hold of the International Public Sector* Shepard Forman Center on International Cooperation New York University Draft- August 6, 2001

I.

Defining the International Public Sector

Multilateral cooperation has been a hallmark of the 20th Century, an historic reckoning of the nation state with a growing number of transnational economic, social and security issues and increased interstate interdependence. During the last hundred years, and especially since World War II, sovereign countries acceded to thousands of bilateral and multilateral treaties and established layers of global and regional organizations to monitor these agreements and to fulfill their goals. By the beginning of this new century, over two thousand multilateral agreements had been negotiated and more than 1800 intergovernmental bodies were operating at various levels of vitality. 6 This broad pattern of post-war international policy set in motion a development of profound global importance: the gradual emergence of a substantial international public sector that today affects virtually every aspect of international affairs and domestic well being around the globe. 7 The composition of this international public sector is heterogeneous and evolving. It consists of a broad array of institutions and actors that set the legal and normative framework for the conduct of international affairs and also provide a range of goods and services on which people around the world have come to depend. These institutions range from larger global organizations that are household names, such as the UN and the World Bank, to small, somewhat obscure regional organizations consisting of just a few member countries, such as the West African Health Community. Together with a rapidly growing number of non-governmental and private
* This paper was prepared for an August 30-31 meeting of the Centre for Global Studies, University of Victoria. It draws on the authors concluding essay, Multilateralism as a Matter of Fact: U.S. Leadership and the Management of the International Public Sector, in Stewart Partick and Shepard Foreman, eds., Multilateralism and U.S Foreign Policy, Lynne Rienner Publishers, forthcoming, Fall, 2001. I am grateful to Maurizio Iacopetta for hisanalysis of international pulbic expecditures and to Charles Graybow for general research assistance and for his review of the literature on alternative sources of financing. 6 Union of International Associations, Yearbook of International Organizations, 2000-2001, p.2406. Calculations by the Center on International Cooperation, at New York University, suggest that the U.S. is signatory to about 7% of the intergovernmental bodies and to more than 5,000 conventions and treaties, including bilateral agreements. Over 500 conventions and treaties are deposited with the UN Secretary-General. United Nations, Millennium Summit Multilateral Treaty Framework. Bowen & Harris, Multilateral Treaties Index and Current Status (1984), Annual supplement 2000 lists multilateral treaties. 7 The Center on International Cooperation has identified 26 areas of multilateral cooperation, which it groups into 7 major sectors: economic development; economic and political cooperation; social development; international law; security; science, technology and communications; and the environment. This public sector consists of some 1,800 intergovernmental organizations, at least 200 of them operating at the regional level; tens of thousands of international civil servants; and equal numbers of private voluntary agencies and their staffs. The Center estimates that the annual expenditures of international organizations amount to approximately $200 billion (excluding loan disbursements).

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sector organizations, they provide the frameworks and processes for functional international cooperation in diverse fields, ranging from peace and security to trade and finance, environmental management, human rights, education, law enforcement, health, science and technology, and the use of the global commons. This global architecture designed to govern these multiple spheres of international cooperation is undergoing considerable change. It is at once decentralizing as global multilateral organizations seek to devolve a set of peacekeeping and development functions and as regional and sub-regional organizations claim to assume more responsibility for the provision of these and other goods and services;8 and it is privatizing as non-state actors increase their interest and influence in international affairs. These two sets of changes decentralization and privatization run counter to the trends of homogenization, universalism and great power domination that characterized the intergovernmental system over the past half-century. Instead they represent patterns of fragmentation, regionalism and a potential for heightened competition that are profoundly altering the conduct of international affairs in the undefined space created by the end of the Cold War. While multilateral organizations account for the lions share of international public expenditures, international public sector activity increasingly occurs outside the institutional framework of global and regional organizations, including bilateral assistance. It emerges in diverse intergovernmental mechanisms for promoting policy objectives among like-minded states, such as the G-24 and the G -8, and in the coalitions of the willing on which much of peacekeeping has come to depend. It also manifests itself through the kinds of public-private partnerships that Wolfgang Reinicke identifies as functionally based public policy networks,9 and in the transnational networks of public servants described by Anne Marie Slaughter.10 Moreover, it exists in the growing expectations of individuals and non-governmental organizations around the globe that have come to believe that the international system has an obligation and should have the capacity -- to respond to a range of needs that individual governments can no longer or lack the will to meet. There are few if any studies that examine the structure, organization, governance and financing of the international public sector per se. Most treatments of the subject focus either on defining the nature of international public goods and services -- that is, identifying those activities that qualify for the label 11 --or on assessing the structure and performance of particular international organizations tasked with providing these goods -- that is, examining their capacity to deliver.12 A few more recent studies have begun to consider whether these public goods are most effectively provided at the national, regional or global level 13 and what roles the private sector should play in their delivery. 14 Although there is a growing literature on alternative sources of financing, much of it devoted to advocacy for particular schemes or sectors, the field
8

These architectural shifts are occurring differentially across the worlds regions, most aggressively in Europe and Africa where there h as been a multiplication of regional and subregional organizations, as well as across sectors. It is most evident in peacekeeping, but has begun to occur in the fields of humanitarian assistance, human rights, environmental management, and international crime control, and has been broached as a modality for dealing with financial crises. It is also reflected in debates on regional trade associations as building blocks or stumbling blocks on the way to global markets. 9 The Global Public Policy website, www.globalpublicpolicy.net, describes a diverse number of these public private collaboratives, including the World Commission on Dams, Global Networks for Democracy Promotion, and Jubilee 2000. Our own Center has proposed the creation of a Strategic Recovery Facility that would have at hand the expertise and financial resources necessary for reconstructing war-torn societies, economies and polities. See Forman, Patrick and Salomons. Recovering From Conflict: Strategy For An International Response. 10 Slaughter, The Real New World Order. 11 Kaul, Grunberg, and Stern, Global Public Goods. 12 Forman and Patrick, eds., Good Intentions. 13 Kaul, Grunberg, and Stern, eds., Global Public Goods; Kanbur and Sandler, The Future of Development Assistance. 14 Reinicke, Global Public Policy.

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of international public finance is almost non-existent.15 The Center on International Cooperation at New York University, a policy research institute that examines the legal, political, financial and management issues that impede or a dvance mulitilateral action, has been mapping the international public sector over the last several years. An initial survey identified more than twenty areas of broad-based international cooperative activity, taking note of their goals and beneficiaries, the institutions and actors involved in their fulfillment, costs and sources of financing, methods of action, and performance. These have been grouped into 6 major categories of international public goods and services: (1) Political and Administrative Cooperation, including arms control and peace operations; (2) International Justice and Law, including international crime control; (3) International Cooperation for Development, which includes social and economic development assistance, trade and monetary cooperation; (4) Regional Cooperation; consisting of various regional and sub-regional economic integration organizations and the UN regional economic commissions; (5) Science, Technology and Education, including research and development as well as training activities; and (6) Human Rights and Humanitarian Affairs, comprised of a set of global and regional agencies, committees and treaty bodies providing protection and services to refugees, displaced persons and victims of human rights abuse. Some of these goods and services are the product of binding international treaties; others are obligations implied by less formal international norms; and still others reflect mere aspirations. Some of them, such as those provided by international postal agreements or the International Meteorological Organization, are by and large simply taken for granted, since they serve rather technical ends and proceed in fairly neutral contexts. Others, such as peacekeeping and humanitarian assistance, are highly politicized and often contested. In all cases, national interest calculations intervene, either in claims to sovereignty or in anticipated gains and losses in the global bargain that these arrangements represent. Yet, this international public sector persists and expands. In addition to the formal institutions established by states, it has come to include a broad range of non-state actors, both corporate and not-for-profit. Contrary to generally held opinion, costs are not high. Preliminary research suggests that the goods and services provided by the major inter-governmental organizations demand annual public expenditures approximating $200 billion a modest amount in relation to most national accounts, yet significant enough to warrant more careful evaluation and better accountability than is now the case. Policy makers and the general public are only beginning to appreciate the dimensions and implications of this international public sector. Yet, it grows in importance as accelerated globalization and everincreasing transnational phenomena create greater interdependence among states, none of which are able to take full advantage of new opportunities or address new problems on their own. It also takes on greater significance in relation to shifting ideas about the nature of sovereignty and citizenship over which intergovernmental bodies often prompted by transnational civil advocacy groups -- are claiming broader writ to intervene in domestic situations, such as human rights abuses or forced migrations, that spill over borders and destabilize neighbors and regions. These and other changes in the international operating environment, in particular the increased roles of regional and sub-regional organizations and non-state actors, are prompting considerable debate on the legal, political and ethical dimensions of international public policy. What is less in evidence are muchneeded efforts to address in a pragmatic and systematic way the structure, functions, governance and financing of the international public sector per se. While various efforts are underway to promote reforms within specific multilateral organizations, such as the UN, the World Bank and the IMF, a broader examination of the constituent parts of the international public sector, their cost structures and their capacity
15

Cite Mendez, others .

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to deliver needs to be undertaken if the sector is to respond effectively to the growing global needs and opportunities that no single nation, not even the worlds most powerful, can attend to on its own.

II.

Tracking Changes in the Global Architecture: Institutions and Processes

Most of the architecture for managing and financing the international public sector was developed in the aftermath of World War II with a set of global organizations, particularly the United Nations and the Bretton Woods institutions, being masterminded by the victors to ensure a stable and peaceful political and economic environment. These global institutions were accompanied by similar-purpose regional organizations in Western Europe, in Africa in the wake of decolonization, and in Latin America. For a variety of reasons, in part reflecting the strength of regional hegemons and dominant U.S. interests, Asia remained largely exempt from these trends, while Eastern bloc countries were drawn into multilateral organizations that largely served Soviet interests. All of these organizations, global and regional alike, are undergoing a set of important shifts as an increased number of state and non-state actors alter the structure of demand for goods and services in the aftermath of the Cold War. The number of sovereign states has increased significantly as a result of decolonization and the break-up of the Soviet Union. These new states place increasing demands on international organizations to meet an ever-widening set of expectations for goods and services. They also dramatically increase the membership of multilateral organizations and seek to alter their decision-making procedures in ways that would countermand weighted voting in the financial institutions and the use of the veto in the UN Security Council. While their intention is to share in the authority that previously rested with a few key states, their assertiveness has made consensus difficult. For example, they have blocked some peacekeeping and humanitarian assistance programs which they deem interventionist, thereby reinforcing still prevalent perceptions of a North-South divide16 that in fact belie the diverse interest configurations that increasingly emerge in among developed and developing states. These shifting interest alignments notwithstanding, a rather generalized dissatisfaction with the decision-making arrangements of global multilateral organizations has set in among developed and developing countries alike, resulting in weakened political and financial support for them, as well as in a growing interest in devolving responsibility to regional and sub-regional organizations. For developed countries, this dissatisfaction is most evident in the well-publicized U.S. pattern of late payments and arrears, but is manifest overall in the tight operating budgets under which most international organizations are forced to work and in the use of bilateral assistance and special trust funds to advance particular states objectives.. At the same time, the failure of global multilateral organizations to meet the demands made on them by many of their member states -- coupled with the desire of weaker states to control the international agenda in smaller, more proximal institutions -- has led to the establishment of a large number of regional and sub-regional organizations. Most of these organizations were founded largely with economic integration objectives but are increasingly asserting their authority over activities that affect their member states, especially in social and political areas such as peacekeeping and humanitarian assistance. 17 While regional
16

A recent example can be found in the debates surrounding the Report of the Panel on United Nations Peace Operations, the so-called Brahimi report, which was endorsed by the Security-Council with much prodding from the Permanent Representative of the United States, Richard Holbrooke, but seriously eviscerated by the General Assembly. 17 The Center is undertaking a broad-based policy research effort on the roles of regional and sub-regional organizations as public goods providers. See Graybow, Iacopetta and OBrien, A Geographically Based Introduction

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organizations and the principle of subsidiarity attending to problems closer to their source are envisioned in the UN Charter, the effective relationship between these layers of organizations needs still to be worked out. Moreover, the number and effectiveness of these organizations varies considerably across regions and by sector.18 Elsewhere, I have argued that the world may be heading toward an interregnum in the trend toward globalism, a period in which regionalism and sub-regionalism will be the organizing principle for multilateral action.19 Across the board, in areas as diverse as economic development humanitarian assistance, peacekeeping and even the management of financial crises, a discussion is proceeding rather quickly and without sufficient consideration of its ramifications about shifting responsibility from global to regional and sub-regional organizations. This shift is being driven in large part by cost-containment and burden-sharing imperatives and has serious implications for issues of governance, participation, standards and equity. In order to ensure that decentralization does not result in simple burden-shifting, major donors and better-endowed countries in each region need to ensure that regional and sub-regional organizations have the resources they need to meet adequately the responsibilities they are increasingly being asked (or in some cases desire) to assume. Otherwise, divergences and inequities are likely to increase in the provision of international public goods and services between rich regions and poor ones, with potentially calamitous social and political consequences. To avoid these regional inequities, the OECD countries need to formulate a new approach to development assistance that goes beyond current bilateral modalities to include far greater coordination between and among national aid agencies, the various UN development and humanitarian assistance agencies, the international financial institutions, including the regional development banks, and non-state actors, both commercial and voluntary. 20 Most importantly, the subsidiarity principle needs to be applied in a way that truly vests responsibility and accountability in those regional and sub-regional actors (including the recipients themselves) that are closer to the problems being addressed and better able to deal with their cross-border implications.21 This must include some consideration of the appropriate use of local assets,22 and a level of conditionality for the accountable use of revenues freed up by debt relief, as posited by Oxfam and other organizations concerned with poverty alleviation and sustainable development. Nothing short of a radical reformulation of the concept and practice of overseas development assistance will reverse the tide of diminishing international aid. Just as these shifts in the fortunes of intergovernmental organizations are taking place, a second major change in the international operating environment is occurring as non-state actors seek to extend their influence and the effectiveness of their advocacy roles. Transnational corporations, non-governmental
to Regional Intergovernmental Organizations, and Graybow and OBrien, Review of Research: Regional Organizations and their Roles in Peace and Security, Humanitarian Assistance, Human Rights and Democracy Promotion, Center on International Cooperation working papers available at www.cic.nyu.edu/publications 18 Regional organizations are most developed in Europe. They have proliferated in Africa, and are present in significant numbers in Lain American and the Caribbean. Their absence is most notable in Asia. 19 An Interregnum for Globalism, a talk given at a colloquium on Managing Global Issues, Carnegie Endowment for International Peace, 2000. Available on the Center on International Cooperation website at http://www.cic.nyu.edu 20 Lancaster, Redesigning Foreign Aid, p.80. The coordination efforts should be pressed within the OECDs Development Assistance Committee. 21 Kanbur and Sandler, The Future of Development Assistance, p. 2. 22 A one-percent diminution in African governments military expenditures would yield $150 million for development purposes (see OBriend, ), a sum larger than the annual expenditure of the African Development Bank and more than half of the annual multilateral assistance targeted to sub-Saharan Africa.

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organizations and civil society movements, have become major players in the global marketplace. 23 This private sector, including both its profit-making and not-for-profit components, accounts for a vast number of the international transactions that drive globalization and interdependence, even while the intergovernmental organizations and mechanisms established to manage such transactions continue to be dominated by states, many of which remain suspicious of NGO participation. For their part, multilateral organizations find themselves caught between the coveted principle of state sovereignty and the permeability that globalization brings to their members borders. An increasing number of the multilateral responses to conflicts in recent years have their roots in the advocacy activities of these transnational humanitarian, human rights and environmental activists, who call international attention to events previously considered to be within the sole purview of the nation-state. The capacity of these NGOs (and individuals) to influence public policy debates is evident in the recent mobilization efforts to establish an International Criminal Court, to ban landmines, and to reprogram the WTO and Bretton Woods institutions to cope with the detrimental effects of globalization. Loosely organized as transnational movements, they are placing increased performance demands on inter-governmental organizations, and they are setting a reform agenda that is having some effect on the ways in which these organizations set their policies and programs. Of course, their influence is felt in diverse ways as the anti- gun control lobby has demonstrated in the course of recent international talks on limiting the trade in small arms. The potential ramifications of these advocacy activities increase, however, as NGOs and other civil society actors clamor to extend democratic principles to the conduct of international affairs and, particularly, to the decision-making chambers of multilateral organizations. Since calls to establish citizen bodies within the UN and other multilateral agencies are unlikely to be accommodated by those state-based organizations anytime soon, other, more collaborative channels will have to be developed. The NGO forums that ran parallel to the UN conferences during the 1990s represent one such modality, although access to them was limited and they tended to be dominated by a few wealthier and western-based NGOs.24 The recent invitations to a few humanitarian, peace and HIV/AIDS organizations to speak before the Security Council advance the process further, but are too limited in frequency and represent opportunities for a few wellchosen NGOs to present their viewpoints rather than a broader opening for participation in decision-making. The aforementioned public-private policy networks may well present the most effective means to date to involve non-governmental actors more directly in the formulation and implementation of international public policy. The 1990s were marked by an increasing privatization of international affairs. This takes the form of contracting NGO services by national governments and intergovernmental organizations, as well as efforts to extend traditional corporate philanthropy and new ideas about corporate social responsibility into formal public-private partnerships for the provision of international public goods and services.25 Today, more than 30,000 international and community-based non-governmental organizations (NGOs) operate programs around the world. In the fields of economic development and humanitarian assistance alone, more than 4000 Northern-based NGOs disburse over $4 billion in foreign aid. Approximately 60% of U.S. foreign disaster assistance is programmed through NGOs,26 which are facing increased competition from for-profit companies interested in a share of the multi-billion dollar humanitarian industry. While contracting out is a well-known mechanism for improving efficiency and cost-effectiveness in the operations of national public
23

Florini, ed., The Third Force; Mathews, Delinquent Diplomacy. These NGO forums -- on the environment, population and development, social development, human rights, women rights and human habitats -- did a great deal to establish non-state actors as serious players in international affairs who were often able, either as members of country delegations or through extensive lobbying, to advocate for progressive ideas and programs. 25 Austin, The Collaboration Challenge; Levy, Give and Take. 26 Forman and Stoddard, International Assistance.
24

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sectors, almost no attention has been paid to the phenomena internationally. In addition to contracting of services, there is a very strong effort to reach out to the corporate community. Both the United Nations and the World Bank now have fledgling corporate programs intended to induce financial contributions, to develop partnerships for the delivery of goods and services, or, in the case of the Global Compact launched two years ago by the UN Secretary-General at the World Economic Forum, to encourage business and industry to promote human rights, labor standards and environmental concerns in their for-profit activities. As important as these efforts are, they have not been accompanied as yet by any sharing of authority for agenda setting or policy-making or by the development of criteria to deal with potential conflicts-of-interest that may occur in the gray area between corporate interests and individual philanthropy. Privatization of international affairs has taken a more dramatic turn with the direct funding of international activities by private individuals, as in the case of Ted Turners $1billion gift over ten years to the United Nations, Bill Gates support of the International AIDS Vaccine Initiative, and George Soros extensive assistance to transitional countries in Eastern Europe and Central Asia. 27 These private gifts inevitably raise questions regarding the derogation of public responsibility as well as issues of possible special access and accountability, in this case for three corporate barons who all happen to be citizens of one country. Moreover, their extraordinary generosity notwithstanding, it would take two thousand Ted Turners each year to meet the $200 billion in annual international public expenditures. III. Shaping and Financing the International Public Sector

It is important that policy makers and the public focus more purposefully and pragmatically on the management and financing of the evolving international public sector and work to shape it so that it can respond effectively to changing needs. We need to examine in a disciplined way the vast array of institutions and functions that now comprise the international public sector; to determine those that are essential; and to figure out how to advance with key public and private-sector partners on the provision of those public goods that truly require broad-based multilateral c ooperation. A critical part of this inquiry would be to ascertain how and where essential international public goods can best be provided and the most cost-effective ways to pay for them. This will entail a systematic review of existing multilateral organizations and what in fact they do deliver. It also will require further experimentation with new hybrid organizations that share interest and responsibilities in particular issue areas, such as the Global Environmental Facility that is co-managed by the United Nations Environment Program, the United Nations Development Program and the World Bank. And, it will demand innovative responses such as the public -private policy networks that are now emerging to assume many of the functions previously reserved to i ntergovernmental organizations.28 CICs own recommendation to establish a Strategic Recovery Facility to ensure a more timely and effective response to peacebuilding in societies emerging from conflict follows this modality. Of course, there will continue to be differences of opinion and interest concerning what constitutes a public good, who is entitled to it, and how the burdens should be apportioned in producing and providing it. Finding answers to these questions -- and agreement on effective solutions to the global problems that now reach across every countrys borders -- will require a more open and inclusive dialogue among governments,

27

It is interesting to note that these three most visible players are all U.S. citizens with global commercial interests. Moreover, to meet the estimated $300 billion estimated annual costs of the international public sector would require three thousand gifts of the size of Ted Turners! 28 See Reinicke, op cit. Also, visit the website of the Centre for Global Studies, University of Victoria, at http://www.globalcentres.org.

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corporations, international civil servants, NGOs and other members of civil society. 29 A good place to begin is with the financial facts and figures that represent both the symbolic and real expression of intent in the allocation of public funds for international public goods and services. Over the past year, staff at the Center on International Cooperation have begun the laborious process of estimated the size of public expenditures for international public goods and services provided multilaterally. After examining the OECD data base and several national accounts, we concluded that the most efficient calculus would be to examine the revenues and expenditures of the major multilateral organizations. To do so, we surveyed some 300 intergovernmental organizations, both global and regional, in an effort to ascertain both aggregate expenditures and allocations by sector and region. In the end, we obtained budgetary data on 263 of the largest IGOs, providing the basis for a preliminary analysis of cost structures, sources of revenue and priorities with regard to resource allocations. As suggested earlier, annual international public sector expenditures, which we estimate at some $200 billion, including loans and credits, are not great in absolute or relative terms, representing approximately 10 percent of the 1999 U.S. federal budget and only 2/3ds of one percent of gross world product. Whether this level of expenditure is enough to do the job and to do it effectively are difficult questions to answer since no international public finance accounting system exists and, unlike the General Accounting Office in the US, there is no public audit of international public expenditures and their effectiveness. Disaggregating these expenditures by region and sector, however, tell a remarkable story regarding priorities and gaps in the distribution of public goods and services by sector and by region. The lions share of these expenditures, or about 40%, is spent by the European Union on agricultural subsidies and transfers to poorer countries within Europe. These expenditures, amounting to more than $80 billion annually in recent years, dwarf the less than $14 billion that multilateral organizations spent annually on other regional programs during the same period. To put these discrepancies in stark relief, sub-Saharan Africa received only $267 million, or thirteen percent of funds available through multilateral agencies in 19--. Overall, multilateral organizations expended fourteen times more money in relation to Latin America and the Caribbean than Africa, which also trailed far behind Asia and the Middle East in international public sector largesse. These regional discrepancies also have a profound impact on sectoral distribution. For example, slightly over half of all multilateral funding is earmarked for development cooperation, but this includes the huge intra-European agricultural subsidies and transfers. Exempt the intra-European expenditures, transfer payments from wealthier to poorer nations through multilateral organizations amounts to less than $30 billion annually in recent years. Surprisingly, at nearly thirty percent of the total, regional cooperation accounts for the second largest category of multilateral expenditure. Expenditures through multilateral organizations for research and training in science and technology is approximately eight percent of total annual expenditures, and human rights and humanitarian assistance amounts to little more than one percent. As a prime example of how the world is managing on the cheap, the entire international court system costs approximately $500 million annually, with regional courts in the European Union and the ad hoc war crimes tribunals for the former Yugoslavia and Rwanda accounting for well over half of these expenditures. The bulk of these funds come from relatively few sources the EU, the United States, Japan and, to
29

UNAIDS is the only UN organization in which NGOs sit on the Executive Board. The participating NGOs are selected by regional NGO bodies and rotate every few years. The Gates Foundation is represented on the WHO vaccine program board, and both the Ford and Rockefeller foundations are members of the International Agriculture Research Centers chaired by the World Bank.

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a lesser extent from other OECD countries. Some revenues are derived form interest payments on loans from the international financial institutions, and there are a few self-financing ventures such as the World Intellectual Property Organization and, perhaps eventually, the International Seabed Authority. However, it is clear that in terms of public finance a handful of major donors are determining the terms of trade in the international public sector. The Center on International Cooperation is seeking to undertake a systematic review of the cost structure of each of these areas of international public sector activity, their actual and potential sources of financing, and the legal and political issues that surround them. It is important that these facts b e on the table in order to stimulate a more informed debate about the costs of providing essential goods and services internationally and the most effective means for their provision. These facts and figures are also important in assessing the various proposals for alternative sources of financing that emanate from concerns that certain categories of international public goods and services suffer shortfalls and unpredictability in funding. In recent years, several such proposals have been put forward to finance these goods and services through taxes or user fees on international commercial activities, including trade and foreign exchange transactions; through charges for use or despoliation of the global commons; or through increased liquidity supplied by the International Monetary Fund through sale of gold reserves or new allocations to the fund for Special Drawing Rights. Other less developed proposals include charges for access to the Internet, levies on the price of aviation fuel, UN and airline lotteries, a tax on passports, and the use of seized proceeds from international crime. These proposals are highly controversial. In addition to citing exaggerated levels of current international expenditures, critics argue that many of the proposals would infringe on national sovereignty, run counter to free market principles, and be logistically difficult and costly to implement. Others say that independent financing would make the UN less accountable to member countries. They point to the experience of the World Intellectual Property Organization, which collects half of its revenue through fees from private owners of industrial property rights that use WIPO services. Many WIPO member governments have complained that the organizations director general is too independent and that they have lost control of the agencys agenda, even though half of WIPOs budget comes from member governments. Still other critics are concerned about the issue of taxation without representation, although revenues collected through national agencies could make them more subject to public scrutiny and oversight than the current methods for transferring funds from national budgets. Some proponents of alternative financing measures say that for such proposals to overcome sovereignty and market efficiency concerns, the taxes or fees would have to be low enough so as to have a negligible impact on markets and commerce. They would also need to be collected by national governments rather than by the United Nations directly. Further, any burdens would have to be shared equitably among countries and revenues would have to be earmarked for specific, internationally recognized needs for example a carbon tax that would be used to mitigate effects of global warming, a tax on arms trade for peacekeeping, or seized assets from international criminal activity applied to the costs of maintaining the international court system. To make any of these propositions more palatable, however, will require a prior assessment of current expenditures against a measure of outcomes in each sector. While a sector by sector audit would be an advance over current speculation, a cross-sectoral and comparative analysis of expenditures would allow for a more systematic sharing of experiences and best-practices from one area to another. IV. A special responsibility for the United States.

Because of its unprecedented economic, political and military presence, U.S. interests cut across and ultimately influence the full range of international issue areas. It therefore has both a responsibility and a

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sound rationale to play a leading role in helping to fashion the multilateral architecture for the new century. The choice is not to lead or be left behind. Whether or not the U.S. is party to a land mines treaty, the Kyoto protocols or the International Criminal Court, they become part of the international framework in which it must operate. There are both material and normative reasons for the U.S. to seize the initiative to help shape this new global architecture. First, financial crises, extreme poverty, environmental degradation, and regional conflicts, no matter how distant, all have a direct affect on our shores. Add to these the looming dangers posed by terrorism and infectious diseases, and the case for the cooperative management of global problems becomes abundantly clear. As Stewart Patrick notes, For all its overwhelming power, the United States cannot by itself stem the proliferation of weapons of mass destruction, preserve regional stability, enforce international law and human rights standards, maintain an open and nondiscriminatory trading system, ensure the stability and liquidity of global financial markets, protect the global commons, stop global warming, stem transnational trafficking in narcotics, thwart organized crime syndicates, slow global population growth, regulate immigration flows, respond to humanitarian catastrophes, stem pandemics, or promote sustainable development.30 Second, the processes of decentralization described earlier require the United States to deal both with a larger number of members in existing global institutions as well as with a far larger and more diverse set of institutional actors on the world stage. How the United States chooses to deal with these changes will greatly affect the efficacy of multilateralism as well as matters of equity and universality in the distribution of global goods. It is no longer possible for the U.S. to control the agenda, either in the current global institutions or in closed negotiations among a small number of powerful players, like the G-8. Rather, future multilateralism will need to rely on more open and inclusive frameworks. The United States should take the lead in promoting an international dialogue on the subject, encouraging creative discussion on the shape and scope of the international public sector. That will require the U.S. to work closely with both traditional allies and a range of other states, with regional and sub-regional organizations, and with the non-state actors now active in international affairs, including NGOs, transnational social movements, and multinational corporations. As Global Trends 2015 notes, the U.S. will have to heed the advice not only of a few powerful states like Russia and China, but also of other emerging players, such as India, Mexico and Brazil. 31 These countries are demanding more of a voice in the international system, and the U.S. will need increasingly to rely on them, not as clients but as partners seeking common solutions to common problems. As Jacobson points out in chapter 16, developing countries demands for shared benefits, say from research in biotechnology, are likely to increase and may be more effective in the future. And the interests of these countries in achieving quids-pro-quo i n Kyoto-like protocols and negotiations at the WTO and other intergovernmental venues will become more difficult to dismiss, especially as the U.S. grows to rely on them for (among other things) genetic source material, access to territorial waters and sea lanes, and markets for U.S. exports. The United States, true to its democratic and pluralist ideals, also should work with other democratic states to make the conduct of international affairs more open and accountable; to ensure that interactions between policy makers and the public are more than testy encounters; and to develop modalities of global governance that extend beyond the passive consent of the governed to include their active participation. This is a process that needs to begin at home with Congress and the executive branch demonstrating
30 31

Patrick, Americas Retreat from Multilateral Engagement, p. 439. Global Trends 2015.

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leadership before the American public. It has become commonplace in the United States to say that domestic political interests trump international concerns. But the dividing line between domestic and international is fast disappearing, and it is the ultimate deceit to play the one off against the other. Of course, multilateralism is but one of a range of strategies that countries employ in pursuit of international goals and international problem solving, and the United States as a particularly powerful nation, has the luxury of employing it selectively. It can choose among global and regional alternatives and between formal and informal mechanisms to achieve different ends in different functional areas. Conditioned by ideas of cultural and historical exceptionalism as well as domestic political constraints, the U.S. has evidenced substantial ambivalence in its use of multilateralism, especially when it binds the U.S. to the will of others and limits its scope for independent action. For the most part, however, the United States has recognized the functional benefits of multilateral cooperation. Indeed, no country has championed multilateral institutions more than the United States or used them more effectively in the advancement of long-term national interests. The United States is unlikely to move forward in developing more effective responses to the collective action problems the world now faces if it finds itself stuck in an endless foreign policy debate over the wisdom of unilateral vs. multilateral approaches, or what constitutes the national interest. There may well be instances when the national interest calls for unitary action, but there will increasingly be others in which the national interest is coterminous with the global common good. If it is to be prepared for these inevitabilities, the U.S. needs to develop a far more coherent and systematic policy approach to the management and financing of the international public sector. V. Conclusions

To say that the U.S. should play a leading role in helping to shape the international public sector is not to say that it should play a singular role. Indeed, as the foregoing should make clear, managing the response to global and transnational problems requires collaboration among many actors, including richer and poorer states, global and regional inter-governmental agencies, non-governmental organizations, and corporate and civil society entities. Unfortunately, while the solution to todays problems c ry out for shared leadership, contested leadership often in opposition to U.S. policies seems to be the organizing principle of the day. This is likely to increase if indeed the U.S. insists on doing the worlds business in an ad hoc and narrowlydefined interest driven manner under the casual policy rubric of a la carte multilateralism.32 A more consequential public policy is needed for these inchoate times. Recognizing the existence of the international public sector and working collaboratively to improve its capacity to deliver essential public goods and services would be a good place to start.

Further Thoughts 1) A Commission on the International Public Sector has been established, modeled loosely on the reconstructed European Commission; and a Global Accounting Office has been instituted, along the lines of the U.S. General Accounting Office, to monitor international public expenditures and assess their effectiveness. Both of these are overseen by a mix of public and private appointees. Legal questions revert to the International Court of Justice which is refashioned as an appellate body.

32

Richard Haass, describing the Bush approach to U.S. Foreign Policy, quoted in Thom Shanker, Spinning a la mode, New York Times, Week in Review, August 5, 2001, p. 5.

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2) The UN Secretariat's functions are narrowed to law -making and standard setting. Limited peace and security functions are exercised through an enlarged Security Council, acting in close consultation with regional organizations. Decisions regarding deployment are effectively taken by regional and sub-regional organizations, "sanctioned" by the S-C. The UN ceases to be an operational agency; its field presence is limited to liaison offices in regional organizations. 3) Functional operations in the areas of health, social development, human rights, humanitarian assistance are carried out through a significantly reduced number of UN specialized agencies, which are by then virtually autonomous, and by a much larger group of public/private and hybrid organizations, like IAVI and the Strategic Recovery Facility. Primary economic planning and development activities are undertaken by the World Bank and the regional development banks working in contractual arrangements with host/recipient governments. 4) International commercial activity, including R&D, in areas such as science and technology that affect the general public weal is regulated by boards comprised of industry officials and government appointees (not unlike our public utilities), with civilian interests represented through special "shareholder" meetings. A major task is to regulate "boundary issues" between competing electronic nebula containing the missile defense shield and the internet. In short, a much more managed world, but one still troubled by issues of equity, access and participation. These later issues should be major concerns in any of our discussions at our upcoming meeting

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International Financial System Reform: Lessons From The 1997-8 East Asian Crises Jomo K. S., Faculty of Economics and Administration, University of Malaya
This paper seeks to offer a vision of alternative international financial institutions more conducive to and facilitative of late industrialization and development more generally by drawing upon the recent experience of East Asia, especially Southeast Asia. The next section will critically review the East Asian crises of 1997-8 as well as some aspects of the ensuing institutional and policy debate which led temporarily to some rhetoric on reforming the international financial architecture, the establishment of the Financial Stability Forum as well as other initiatives to address issues raised by the crises and their aftermath. This leads into some discussion of an agenda for international financial system reform in the interests of developing countries, although reform prospects have worsened with economic recovery and the apparently receding threat of fresh crises despite recent developments in Argentina, Turkey and elsewhere.
Lessons From the 1997-8 East Asian Crisis In the wake of the Mexican crisis in early 1995, even the IMF stepped back momentarily from its earlier post-Bretton Woods advocacy of virtually unfettered financial liberalization. Unfortunately, the shorttermism of financial markets extends to human and institutional memories as well as to related policy making and advocacy. The recent crises 33 have also seen market corrections overshooting well in excess of alleged misalignments many times over. Further evidence of market-induced anarchy can be found in the herd behaviour underlying so-called contagion or domino effects. While affected government and economies have been badly affected by t he crisis since mid-1997, there is little evidence that the private sector culprits have suffered most as a consequence. Perceiving the Southeast Asian region as much more integrated than it actually is (e.g. in terms of trade links excluding Singapore, the regional entrept), the panicky investment decisions of fund managers, often based outside the region e.g. in Wall Street or the City of London have often been herd-like,34 causing contagion or domino effects throughout the region. The very logic and magnitude of hedge fund operations 35 have tended to exacerbate these phenomena, with disastrous snowballing consequences for the region and beyond. Other international, regional and, increasingly, local currency speculators and hedgers have also been responsible, but mainly by reacting in their own self-interest to perceived market trends 36.

33

34

35

In Kaminsky and Reinharts (1996) study of 71 balance of payments (BoP) crises and 25 banking crises during the period 1970-95, there were only three banking crises associated with the 25 balance of payments crises during 1970-79. However, there were 22 banking crises -- which coincided with 46 payments crises -- over 1980-95, which they attribute to financial liberalization from the 1980s, with private lending booms culminating in banking crises and then currency crises. In the face of limited information and a novel, rapidly changing situation, such behaviour is often considered rational by market players, even if unfortunate. Hedge funds may, however, go in different directions, for instance, when one funds currency sell-off provokes another fund to snap up bargain equities, e.g. foreigners were often persistent net buyers of Japanese stocks throughout the bursting of the bubble there in the 1990s. Rather than as part of some grand conspiracy.

36

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There is little point in arguing that the crisis should not have happened since East Asian economic fundamentals were fine, even if that were true (for a nuanced contrarian position, see Jomo ed. 2001: chapter 2). In some instances, such denial exacerbated the problem as authorities did not recognize and respond to problems with any great sense of urgency. Unfortunately, as East Asia has painfully learnt, financial markets are driven by sentiments more than by fundamentals. Hence, although much more serious current account deficits elsewhere have not always resulted in crisis, it does not mean that an economy can maintain such deficits indefinitely without being vulnerable to speculative attacks or loss of confidence due to circumstantial factors. One cannot, for example, liberalize the capital account, and then complain when short-term portfolio investors suddenly withdraw due to their whims and fancies. As is well known, even Chile, once the darling of the Chicago monetarists, has long made it difficult and costly to rapidly withdraw capital from its economy, and treats foreign direct investment very differently from portfolio investment. Some authorities try to distinguish between portfolio investments that are simply short-termist from, say, pension funds with a more medium-term orientation. Financial liberalization means investors have a choice as to when they come and go37. In the decade before 1997, the crisis-affected East Asian economies, especially those which sought and received IMF emergency credit, became excessively reliant on such short-term capital inflows to finance their current account deficits. This problem was exacerbated by excessive imports to make more nonexportables such as buildings and infrastructure. Ostensibly prudent financial institutions often preferred to lend for real property and stock purchases, and thus secure assets with rising values as collateral, rather than to provide credit for more productive purposes. While foreign banks were happy to lend US dollars at higher interest rates than available elsewhere, Southeast Asian banks and businesses were keen to borrow at lower interest rates than available domestically. The costs of hedging a hundred basis points or so for ringgit-dollar, a few hundred for bahtdollar or rupiah-dollar now look cheap in hindsight, but were avoided by borrowers to maximize their rentier margins as they generally expected their central banks to defend their currencies unofficial pegs to the US dollar. The existence of a well-developed swap market allowed some Southeast Asian companies to tap into foreign capital markets, at reasonable cost, by swapping away currency risk. Hence, the problem was ultimately one of greed: the combination of lower foreign interest rates and seemingly fixed exchange rates caused most foreign exchange borrowers to gamble without prudently hedging. Hence, most such loans remained un-hedged as the Southeast Asian currencies seemed pegged to the US dollar since the mid-eighties devaluations despite official fictions of exchange rates moving with the basket of currencies of major foreign trading partners. The banking boom in the region with international financial liberalization led to competitive lending reminiscent of loans to Third World governments in the late seventies (which built up to the debt crises of the early eighties). However, the new fiction in international policy-making circles then was that such accumulation of private sector debt did not matter as long as public sector debt was reined in. Meanwhile, portfolio investors moved into the newly emerging stock markets of Southeast Asia with encouragement from the International Finance Corporation (IMF), a World Bank subsidiary. In Malaysia, for example, they came in a big way in 1993, only to withdraw even more suddenly in early 1994, leaving most retail stockholders in the lurch. But policy-makers seem to have short memories and did not learn the lessons from that experience as the new unsustainable build-up from 1995 sent stock prices soaring
37

Of course, the very existence of that choice may encourage them to stick around in certain circumstances.

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once again despite fast declining price-earnings ratios. Thus, the Southeast Asian currency and financial crises from mid-1997 were primarily due to financial liberalization and its consequent undermining of monetary and financial governance. The quasipegs of the regions currencies to the US dollar and the encouragement of short-term38 foreign capital inflows into the stock markets as well as in the form of borrowings to close the current account deficit, also ensured that foreign savings supplemented the already high domestic savings rate to raise investment rates in the region. The quasi-pegs not only encouraged un-hedged borrowing from abroad, but also became targets for currency speculators as regional currencies appreciated with the US dollar despite declining export competitiveness as well as output and export growth. There is little evidence that such short-term capital flows contributed much to growth in the region. Growth had been rapid in East Asia mainly due to the high savings and investment rates without much need for foreign savings as well. In Southeast Asia, foreign direct investment has been important for industrialization and growth by providing access to foreign technology and markets, rather than for capital per se. Following Palma (2000), it seems that the additional capital inflows in the form of loans as well as portfolio investments mainly contributed to: 1. asset price bubbles, especially in the stock and property markets (especially Thailand and Malaysia). 2. consumption booms, which exacerbated the current account deficits due to the related increase in luxury consumption items rather than intermediate goods for re-export (e.g. Thailand, Malaysia, Indonesia). 3. over-investment, with too much money chasing too few good investment opportunities (e.g. South Korea). Meanwhile, financial liberalization facilitated lucrative opportunities for taking advantage of falling currencies, thus encouraging currency and other related speculation, exacerbating currency volatility and eventually accelerating the collapse of regional currencies and share markets. All this, together with injudicious official responses, transformed the inevitable corrections of the overvalued currencies in the region into major collapses of the currencies and stock markets of the region as panic set in, exacerbated by herd behaviour and contagion. Although the financial systems in the region are quite varied (often reflecting colonial as well as post-colonial legacies and other influences) and are hardly clones of the Japanese main bank system, as often wrongly alleged, they have nevertheless become prone to similar financial-property bubble phenomena, albeit for somewhat different reasons. Arguably, the more bank-based systems of Thailand, Korea and Indonesia had stronger nexus of this sort compared to, say, Malaysias much more stock market oriented financial system 39. With the currency collapses, the assets acquired by short-term portfolio and other investors in the region depreciated sharply in value, precipitating an even greater sell-out and panic, causing herd behaviour and contagion to spread across national borders to the rest of the region. Further property market and stock market collapses followed due to earlier uncoordinated over-building and the property-finance nexus as well as the consequent liquidity squeeze. Thus, financial interests were generally badly hit by this triple whammy from the currency, stock and property markets. The higher interest rates demanded by the financial markets in 1998 added salt to the wound, but had limited success in attracting short-term capital inflows once again. But even when higher interest rates succeed in doing so, such flows can only be temporarily sustained and retained, at great and permanent cost
38

39

Short-termism encouraged by financial liberalization has also accentuated the bias against longer term productive investments. Rapid growth, on the basis of export-oriented industrialization from the late 1980s, gave rise to unregulated financial expansion, which contributed to a property boom and asset price bubbles, both in the more marketoriented or Anglo-Saxon Malaysia as well as the more bank-oriented Thailand.

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to productive investments in the real economy so important for realizing economic growth and development. And when inflows are eventually reversed in the precipitous manner experienced by East Asia from the second half of 1997, much collateral damage to the real economy can be expected as with the region-wide recession of 1998. As a consequence of these developments associated with external financial liberalization, Southeast Asia has faced four major domestic policy reform challenges, namely greater exchange rate flexibility, the urgency of financial sector reform, as well as handling asset-price bubbles and current account deficits. Without the advanced economies stabilizing exchange rates with regards to one another, the virtual or quasipegging of a developing economys foreign exchange rate had clearly become very dangerous, as the crisis demonstrated. The continued large movements among the US dollar, the Euro and the Japanese yen threaten the monetary stability desired by countries unofficially pegging their currencies against any one currency, invariably the US dollar except for most former French colonies. Also, though short-term capital inflows may temporarily supplement domestic savings, the reversal of such flows can create severe disturbances. While such flows may be influenced by economic fundamentals in the long term, they are usually determined by speculative sentiments in the short term. Short-term exchange rate adjustments with disruptive consequences for domestic prices and wages are then deemed necessary to stem sudden outflows, but these, in turn, offer opportunities for currency speculators. Financial sector reform has to be thought of, not primarily with a view towards further liberalization, as usually encouraged, if not insisted upon by international financial interests, but instead, in terms of the prudential regulation needed to anticipate and respond to new challenges. While the problems caused by excessive as well as inappropriate regulation are often emphasized by advocates of liberalization, liberal banking policies have resulted in weak domestic banking sectors40 unable to withstand competition from abroad, and even the collapse or costly bail-out of weak banks. For most developing economies, policies of financial restraint are still needed to direct credit 41 to finance productive investments, especially in priority areas instead of, say, asset acquisition or consumption purchases (Chin and Jomo 2001). Recent trends involving greater capital account convertibility, innovative financial instruments, and the proliferation of offshore financial centres, non-bank finance companies as well as private banking also pose new challenges for financial regulation in the face of diminished transparency. Undoubtedly, easy credit, partly due to capital inflows, resulted in meteoric rises in real property as well as share prices desired by most of those involved. Banking regulation to minimize such asset price inflation deserves the highest priority, and is always difficult to achieve in good times without precipitating an asset price meltdown, but was probably easier to achieve right after the asset price bubble had burst. As in many other fast growth situations, current account deficits came to be considered natural in Southeast Asia in the nineties before the crisis, as they supposedly simply reflected the excess of investments in the national economy over domestic savings. Hence, they were not seen as a cause for major concern in certain policymaking circles. However, their persistence in Southeast Asia became an indicator undermining financial confidence in the region, thus indirectly contributing to the crisis. However, the

40 41

As in Chile in the early 1980s. These can involve savers being encouraged with tax policies that do not punish them for putting money away. While banks should still make lending decisions based on economic criteria alone, systemic biases towards shorttermism need to be mitigated. The government can prioritize and favor certain types of investments by subsidizing them through taxes or loan guarantees for those sectors or activities it deems important.

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macroeconomic records of the four e conomies of Thailand, Indonesia, Malaysia and South Korea show that despite persistent pre-crisis current account deficits in Thailand and Malaysia, the crises cannot be attributed to macroeconomic profligacy42 (Jomo 1998). Instead, inappropriate financial liberalization, investor sentiment, herd behaviour, trans-border contagion and the reversal of short-term capital inflows were primarily responsible for the crises throughout the region43. With more foreign bank debt liabilities and greater proportions of short-term debt, Thailand, South Korea and Indonesia were compelled to seek IMF emergency credit facilities and thus became subject to its conditionalities, which clearly exacerbated their economic contractions. While deflationary fiscal and monetary policies were temporarily introduced in late 1997, they were less severe and of shorter duration. Instead, contrarian rhetoric and policy initiatives were probably far more important in exacerbating the economic decline in Malaysia. Thus, financial market expectations also served to exacerbate the crises. Throughout the region since the crises, there have been fire-sales going on at bargain basement prices, with foreign investments taking up the best assets available for a song. If one accepts that the currency as well as more general financial crisis means that these assets have been grossly under-priced by international standards, one cannot expect any management improvement (Krugman 1998b), given the likelihood that the new foreign owners need not be more efficient to be able to buy up these assets. The currency and financial crises in Southeast Asia suggest that the regions economic miracle had been built on some shaky and unsustainable foundations. Recent growth in both Malaysia and Thailand had been increasingly heavily reliant on foreign resources, both capital and labour. Limited investments and inappropriate biases in human resource development had held back the development of greater industrial and technological capabilities throughout the region. 44 Southeast Asias resource wealth and relatively cheap labour sustained production enclaves for the export of agricultural, forest, mineral and, more recently, manufactured products, but much of the retained wealth generated was captured by the business cronies of those in power, who contributed to growth by also re-investing captured resource and other rents in the protected domestic economy in import-substituting industries, commerce, services and privatized utilities and infrastructure. Later, recovery in the region, especially in Korea and Malaysia, was principally due to successful Keynesian reflationary efforts. The recoveries suggest that the emphasis by the IMF and the financial media on the prior necessity of corporate governance reforms has been misguided, i.e. such reforms are not a precondition for economic recovery. Instead of the Anglo-American-inspired corporate governance reforms promoted, corporate governance, international financial system and other reforms should create new conditions for renewed growth, development and catching up.

42

43

44

Since the debt crises of the early and mid-eighties, the cutting of government fiscal deficits had gained top priority at the behest of the Bretton Woods institutions and others. Malaysia was less vulnerable thanks to pre-crisis restrictions on foreign borrowings as well as stricter central bank regulation. However, it was more vulnerable due to the greater role of its capital market unlike the other three economies with more bank-based financial systems. While the low productivity growth critique popularized by Krugman (1994) may be theoretically and methodologically faulted, there is little doubt that East Asian growth has generally been boosted by high savings and investment rates. While this might give the impression of all perspiration, no inspiration, as suggested by total factor productivity (TFP) critics, the dominance of FDI in the internationally competitive export-oriented industries suggests the transfer or import of inspiration embodied in new plant and equipment as well as the necessary technological learning to get the jobs done.

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A Crisis of a New Type

With the benefit of hindsight, it now seems fair to say that no one really anticipated the crisis in East Asia. There were, of course, sceptics who regarded the claims of an East Asian economic miracle as somewhat exaggerated, albeit for different reasons, e.g. because they had not achieved much productivity growth and would eventually run up against diminishing returns (Krugman 1994); others argued that the performances of the Southeast Asian newly industrializing countries were significantly inferior compared to Japan and the first-tier newly industrializing economies (Jomo et al. 1997). It is now clear that the East Asian crisis differs from conventional currency crisis scenarios in at least several important ways (Krugman 1998a):45
a)

the absence of the usual sources of currency stress, whether fiscal deficits or macroeconomic indiscipline; 46 b) the governments did not have any incentive to abandon their pegged exchange rates, e.g. to reduce unemployment; c) the pronounced boom-bust cycles in asset prices (real property and stock markets) preceded the currency crisis, especially in Thailand, where the crisis began; d) financial intermediaries have been key players in all the economies involved; e) the severity of the crisis in the absence of strong adverse shocks; f) the rapid spread of the initial crisis in Thailand, even to economies with few links or similarities to the first victims. Very importantly then, the traditional indices of vulnerability did not signal a crisis as the source of the problem was not to be found in the governments per se or in national income accounts. The (mainly private) financial intermediaries were not part of the governments visible liabilities until after the fact. Hence, one cannot adequately make sense of the crisis in terms of conventional currency crisis models (Krugman 1998a).47 Instead, Montes (1998) attributed the Southeast Asian currency crisis to the twin liberalizations of domestic financial systems and opening of the capital account, as
45

46

47

Paul Krugmans (1998a) attempt at theoretical catch-up is particularly worthy of consideration in light of his own previous attempts at understanding related international economic phenomena as well as East Asian economic growth. As the crisis is still unfolding, such an attempt can hardly be definitive, especially since we do not even have the advantage of complete hindsight. Yet, as policy is very much being made on the hoof, his attempt to highlight certain relationships may well be illuminating. Hence, Krugman argues that: it is necessary to adopt an approach quite different from that of traditional currency crisis theory. Of course Asian economies did experience currency crises, and the usual channels of speculation were operative here as always. However, the currency crises were only part of a broader financial crisis, which had very little to do with currencies or even monetary issues per se. Nor did the crisis have much to do with traditional fiscal issues. Instead, to make sense of what went wrong we need to focus on two issues normally neglected in currency crisis analysis: the role of financial intermediaries (and of the moral hazard associated with such intermediaries when they are poorly regulated), and the prices of real assets such as capital and land. None of the fundamentals usually emphasized seem to have been important in the affected economies: all the governments had fiscal surpluses and none were involved in excessive monetary expansion, while inflation rates were generally low. For Krugman, the crisis was mainly about bad banking and its consequences, and only incidentally about currencies. Krugman (1998a) argued: The boom-bust cycle created by financial excess preceded the currency crises because the financial crisis was the real driver of the whole process, with the currency fluctuations more a symptom than a cause. And the ability of the crisis to spread without big exogenous shocks or strong economic linkages can be explained by the fact that the afflicted Asian economies were highly vulnerable to self-fulfilling pessimism, which could and did generate a downward spiral of asset deflation and disintermediation.

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liberalizing the capital account essentially guaranteed non-residents ease of exit as well as fewer limitations on nationals holding foreign assets, thus facilitating capital flight.

Consequences of International Financial Liberalization

The prevailing system of flexible exchange rates was introduced in the early seventies, inaugurating a new international monetary regime with very mixed consequences. Hence, the current regime is relatively new, only beginning after US President Richard Nixons 1971 unilateral withdrawal from and destruction of -- the post-war Bretton Woods system of fixed exchange rates which had pegged the US dollar to gold at US$35 per ounce and the ringgit to the US dollar at RM3. Under the new regime, the volume of foreign exchange spot transactions had grown to more than 67 times the total value of the international commodity trade by 1995, or more than forty times the value of all international trade (including invisibles or services).48 Viewed from a historical perspective then, such currency trading is hardly natural, inevitable or even desirable49. An explosion of international financial flows has followed the substitution of the Bretton Woods system of fixed exchange rates with a new system of flexible exchange rates. Strong speculative motives can generally be ascribed to most such international capital flows. However, the abandonment of fixed exchange rates has also been associated with a retreat from capital controls -- which was the international norm before the seventies -- permitting many investors to diversify to their advantage. In any case, the trend picked up momentum from the 1980s, leading to a US$1250 billion daily foreign exchange market by 1997, and the proliferation of new financial instruments. With foreign exchange spot transactions now worth so much more than the total value of international commodity trade transactions, the financial sector has become increasingly divorced from the real economy. With the recent proliferation of n ew financial instruments and markets, the financial sector has an even greater potential to inflict damage on the real economy. Ever since Lord Keynes advocated throwing sand into the financial system to check the potentially disastrous consequences of u nfettered liberalization, Keynesians and others have been wary of the financial liberalization advocated by ideological neo-liberals and their often nave allies. But the lobby for financial liberalization remains much stronger and far more influential, dominating most of the business media and the key financial institutions internationally, especially in the US. More importantly, many of the alleged benefits of financial liberalization have not been realized, as the following summary of findings by Eatwell (1997) shows. a) Financial liberalization was expected to move resources from capital-rich to capital-poor countries,50 when, in fact, net flows of finance and of real resources have been very modest, and mainly toward the

48

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Since trade-related currency trading is greatly exceeded by investment-related currency trading, it is not surprising that the volume of currency trading is so large. One key question is how much of those investmentrelated trades are healthy, appropriate, or desirable, which is hard to determine. International investors want to hedge their personal income and wealth by spreading their investments across many countries and adjusting them quite frequently as conditions change, thus contributing to market volatility. For most of human history, including that of capitalism, it has not been integral to global trade in goods and services, as claimed by then US Treasury Secretary Robert Rubin. In fact, as is well known, various critics have offered various alternatives to the present system such as returning to fixed exchange rates, the gold standard and so on. Recent results show that national savings tend to equate national investment, suggesting that flows of capital to the best possible use are far from universal and much smaller than simple theories predict. Lack of information or other risks and uncertainties tend to reduce cross border capital flows.

50

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capital-rich. 51 Of course, until the 1997 crises, most net flows to the capital-poor were mainly to emerging markets in East Asia which, arguably, contributed to asset price bubbles and, eventually, to financial panic as well as currency and stock market collapse. b) While liberalization was expected to enhance opportunities for savers and lower costs to borrowers, savers have benefited most from higher real interest rates.52 c) The new financial derivatives expected to improve risk management have actually generated new systemic risks, especially vulnerable to sudden changes in sentiment.53 d) Improved macro-economic performance with greater investment and growth expected from better allocative efficiency has not been realized; in fact, overall macroeconomic performance has been worse than before liberalization.54 e) Financial liberalization has introduced a persistent deflationary bias on economic policy as governments try to gain credibility to avert destabilizing capital flows, instead of the supposedly healthy discipline on governments which was expected to improve macroeconomic stability. Financial markets seem to function in such a way as to impose their own expectations on the real economy, thus defining their own fundamentals and logic, which in turn become self-fulfilling prophecies. In other words, they do not just process information in order to efficiently allocate resources. Since financial markets operate like Keynes beauty contests and the real economy has no automatic tendency to converge to full-employment growth, the presumptions of market participants are imposed on the economy. The threat of instability in the now massive capital market forces both government and private investors to pursue risk-averse strategies, resulting in lower growth and employment creation. A deflationary bias in government policy and the private sector emerges in response to the costly risks of violating the rules of the game. This is exacerbated by the high costs of debt due to high real interest rates owing to efforts to maintain financial stability in a potentially volatile world. Thus, long term price stability supersedes a high and stable level of employment as the policy priority. Theoretically, such a monetarily stable system, involving relatively slow growth and high unemployment, can last indefinitely. Also, a sophisticated liberalized financial system in an emerging market, prioritizing flexibility or the possibility of easy exit, is almost necessarily fragile, as reflected in: a) liquidity crises, reducing real output;

51

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Eatwell suggests a negative correlation between dependence on foreign savings and economic performance. This is true if we do not break down the nature of foreign savings. The numbers are strongly biased by the inclusion of short term money market flows, which may include efforts by governments to prop up their currencies with high interest rates which temporarily suck in money from overseas. Mexico, Brazil, and especially Venezuela typified this a few years ago. If only long term direct investment or equity investment was considered, a lot of poorly performing Latin American economies would be screened out. Southeast Asian countries, especially Singapore and Malaysia, would then rank high on both foreign savings (measured appropriately) and economic performance. High interest rates have slowed economic growth in the region. They have been intended, in part, to prop up the currencies to maintain confidence but, perhaps more importantly, to allow local companies to pay off their foreign debts. The cost has been slower growth. Liberalization is generally associated with higher interest rates. Lower interest rates could be due to a combination of pegged exchange rates, capital controls, and effective deployment of funds in such economies. One could argue that some of this is the result of greed, stupidity, and lack of education or regulation. If used carefully, derivatives are ultimately insurance contracts. There is evidence of a strong positive correlation between financial openness, foreign investment, GDP growth, and per capita income driven by the performance of the Asian countries.

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b) private sector risk aversion, encouraging short-termism;55 c) public sector risk aversion, resulting in a deflationary policy bias; d) persistent pressures for ever greater flexibility, increasing the ease of exit. The benefits that the deregulation of financial controls have brought to emerging markets must therefore be weighed against increased instability due to enhanced ease of exit. While increased flows of (real) foreign direct investment generally require agreement to unrestricted profit repatriation, this s i quite different with different implications -- from the instant exit conditions demanded by financial markets.56 There is considerable evidence that, in the longer term, most post-war economic development has been associated with developmental states. Also, the post-war Golden Age which saw high levels of output and employment as well as short-run efficiency was premised on active macroeconomic management under the Bretton Woods system. Post-war European reconstruction was achieved with tight capital controls. On the other hand, the recent rush to convertibility and capital control deregulation in Eastern Europe has resulted in Russia becoming a significant net capital exporter!57 Some dangers associated with financial liberalization have now become quite evident, but most are not sufficiently recognized in the public discourse surrounding the subject, let alone debated and addressed. Most initiatives in this regard cannot be undertaken unilaterally without great cost58. The very few options available for unilateral initiatives need to be carefully considered, and only implemented if deemed desirable on balance. Selectively invoking instances of bad or incompetent policy making or implementation does not justify leaving things to liberalized markets that render systematic policy-making impossible. Instead, such instances emphasize the importance of creating an environment and developing the capability for good and competent policy to be effective. Many need to be actively pursued through multilateral initiatives, for which governments usually need the support of regional neighbours and others sympathetic. Given the power of the dominant ideology about the international financial system, it is virtually impossible to assert control over the financial system without a fundamental change in priorities and thinking by the major governments involved. The currencies of a small number of major governments the US, Japan, Germany and the UK were involved in over three-quarters of currency transactions in 1995. Thus, acting together, they have the capability to control capital flows.

International Reform?

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Due to the separation of ownership and management of portfolio investments, though it may be in the interest of investors to buy and hold, it is difficult to write contracts to motivate pension managers, mutual funds, and other intermediaries to stay put. Of course, liquidity is one of the features that induces otherwise risk averse investors to buy into a situation. Furthermore, in any transaction, there is a buyer for every seller. Of course, capital flight is not an inevitable consequence of financial liberalization, but may reflect the fears and consequent hedging behaviour of locals. As market and other reactions to Malaysian Prime Minister Mahathirs critical remarks about the international financial system made clear.

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Liberalization should not be allowed to frustrate the sound development of the financial system and improvements in the productivity of investment. As we have seen, sound macroeconomic fundamentals do not guarantee immunity from contagion and crisis. The scope for monetary independence partly depends on the soundness of macroeconomic management as well as political will.

Financial Liberalization Versus Development

Three closely related arguments involving liberalization and governance have been made (Jomo 1998). First, financial liberalization has undermined previously existing governance institutions and mechanisms without creating adequate alternatives in their place. Second, domestic governance arrangements, including those involving the financial system, have been shaped or abused by those with influence for their own advantage. Third, in some instances, especially in Thailand, Malaysia and Indonesia, in the absence of adequate crisis response arrangements, official responses have been unduly influenced and compromised by vested interests as well as other considerations (e.g. see Jomo 2001). The roots of the crisis can usefully be summed up in terms of various challenges of financial liberalization and governance, at both international and national levels. At the international level, governance issues have been raised by the transformation of financial, especially capital markets. Flexible exchange rates and other related developments have increased the scope for and activity in currency speculation. Increased international flows of investment funds have also contributed to currency volatility. Most of these funds are of a portfolio nature, and hence, are more liable to enhance volatility, while the share of foreign direct investments continues to decline. Financial liberalization has also reduced monitoring and supervision of financial, including banking operations and transactions, including those of a prudential nature. There has also been a significant increase in lending as well as other banking transactions across borders with the proliferation of international offshore financial centres and other international banking facilities. The still growing dominance of the US dollar in the world economy, especially international finance, despite the creation of the Euro, has also skewed the nature of these developments in important ways. Liberalization of financial services as well as of investment regulations, including liberalization of the capital account, have otherwise also reduced national oversight and management of financial flows, which created the conditions conducive to the Southeast Asian and South Korean crises. The scope for national macroeconomic including monetary management has been considerably reduced by various dimensions of financial liberalization. Options for developmental as well as rentier (Khan and Jomo 2000, especially Chin and Jomo) initiatives have also been significantly reduced as a consequence.

Post-Crisis International Trends

The challenge at the international level is formidable, especially with the vested interests underlying American as well as European positions on systemic reform. Yet, there have been many misgivings elsewhere too about the nature and volatility of the international financial system, with renewed attention to particular aspects with each new crisis. The developing world needs to work with others who are likeminded to draw upon the rich critiques that have developed over the years in developing reform proposals are likely to gain broad international support. Incredibly, at the September 1997 Hong Kong annual meetings of the IMF and World Bank, the IMFs policy-making Interim Committee which represents all 181 IMF member countries via 24

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ministers gave the IMF a mandate to alter its Articles of Association so that it would have additional jurisdiction over the capital account as well as over the current account of members balance of payments, which it has had for many decades.59 In December 1997, the World Trade Organization also concluded its financial services agreement that basically commits member countries to scheduled accelerated liberalization of the trade in financial services. The Wall Street J ournal noted that the agreement would primarily benefit the United States and Europe since it is most unlikely that the South is in a position to export financial services to the North. It is therefore likely that countries of the South will face even greater problems with their balance of payments as their services, and hence current account deficits worsen. Much of the nascent financial services that have emerged under protection in these countries are unlikely to survive international competition from transnational giants enjoying economies of scale and other advantages.

IMF Reform
There has been widespread international scepticism about the IMFs role in and prescriptions for the ongoing East Asian crisis. Perhaps partly out of force of habit in dealing with situations in Latin America, Africa, Eastern Europe and elsewhere, where fiscal deficits have been part of the problem, the same prescription (one size fits all) seemed to underlie the IMF interventions in East Asia. Past IMF consultations with various governments have been unable to prevent major financial turmoil, with the frequency of currency and financial crises increasing, rather than decreasing with financial liberalization in the last two decades. Despite its grudging acceptance of the effic acy of capital controls in Chile, Colombia and elsewhere, the Fund has been reluctant to urge countries to control short-term inflows before a crisis occurs. Many of its crisis response programmes were pro-cyclically contractionary in consequence, with little regard for the social and other adverse consequences of swallowing its medicine. Thus, what started of as a currency crisis led, partly due to IMF-recommended policy responses, to economic recession. For example, although all the affected East Asian e conomies had been running fiscal surpluses in recent years (except Indonesia which had a small deficit in 1996), the IMF forced all the governments to slash public expenditure and increase their budgetary surpluses. There has been considerable doubt as to whether the IMF actually recognized the novel elements of the crisis and their implications, especially at the outset. The apparent failures of the IMF to anticipate the current crisis in its generally glowing recent reports on the region, and also to stem, let alone reverse the situation despite interventions in Thailand, Indonesia and Korea have certainly not inspired much confidence. Nor has the fact that though the Philippines had long been under an IMF programme, it was not

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I am grateful t o Anthony Rowley for confirming these details with Kunio Saito, director of the IMFs new Tokyo regional representative office on 17 December 1997. The executive board of the Fund is currently holding a series of meetings to discuss the detailed implementation of this mandate and will report again to the Interim Committee on the modus operandi at the spring meeting. Thereafter, individual member governments have to ratify the change, but a simple majority will be sufficient. In other words, a unanimous vote is not needed to approve the change in the Funds articles. However, other colleagues including Professor Gerald Helleiner of the University of Toronto and Dr Yilmaz Akyuz of UNCTAD suggest that the situation is not as dire as the above account suggests because the approval process is much more complicated.

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spared the contagion.60 The Fund did not seem to be sufficiently cognizant of the subjective elements contributing to the crisis, and seemed to approach the crisis as if it were solely due to macroeconomic or other weaknesses. For instance, by closing down banks in Indonesia, the IMF undermined the remaining shreds of confidence there, inducing wholesale panic in the process. Also, while the IMF insisted on greater transparency by the affected host government and those under its jurisdiction, it continued to operate under a shroud of secrecy itself. The IMFs double standards, as reflected by its apparent priority for protecting the interests of foreign banks and governments, has also compromised its ostensible role as an impartial party working in the interests of the host economy. The burden of IMF programmes invariably fell on the domestic financial sector and, eventually, on the public at large through the social costs of the public policy response, usually involving bail-outs of much of the financial sector if not the corporate sector more generally who thus bore most of the costs of adjustment and reform, while commitments to foreign banks were invariably met, even though both foreign and domestic banks may have been equally irresponsible or imprudent in their lending practices 61. Thus, foreign banks emerged from the crisis not only unscathed, but also relatively stronger. Some merchant banks and other financial institutions also made lucrative commissions from marketing sovereign debt as the short-term private borrowings which precipitated the crisis were converted into longer-term government-guaranteed bonds under the terms of the IMF programmes. Thus, the bail-out programmes were primarily for the foreign banks, rather than the East Asian economies or people. The limited willingness of the USA to contribute to the IMF bailout packages to Thailand, Indonesia and South Korea also reflected new US priorities in the post-Cold War context. Despite its own unwillingness to commit more, the US administration also blocked Japanese and other regional initiatives to develop a regional facility for fear that it might enhance the Japanese role and leadership in the region and diminish the USs standing. However, after the end-October 1997 global stock market panic and then the A ugust 1998 Russian and LTCM crises, the US administration briefly seemed willing to take a leading role despite the limited exposure of US banks to the region. US concerns about a possible global financial meltdown, the US dollars role as the leading reserve currency and the opportunities for US banks and other investors to take advantage of the situation seem to have influenced this change of stance. Almost in tandem with financial liberalization, IMF intervention is generally recognized to

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Arguably, the Philippines currency has not taken quite as hard a hit, in part because their (colonial-inherited) banking and accounting standards are considered relatively better, but also because short-term capital inflows have been relatively less, given the recentness of its economic recovery. As the Bank of International Settlements (BIS) noted in its January 1998 Report on the Maturity and Nationality of International Bank Lending (Raghavan 1998; Vadarajan, 1998), In spite of growing strains in Southeast Asia, overall bank lending to Asian developing countries showed no evidence of abating in the first half of 1997. In the year from mid-1996 to mid-1997, South Korea received US$15 billion in new loans, while Indonesia received US$9 billion. Short-term lending continued to dominate, with 70 per cent of lending due within a year, while the share of lending to private non-bank borrowers rose to 45 per cent at the end of June 1997. The banks were also actively acquiring non-traditional assets in the region, e.g. in higher yielding local money markets and other debt securities. Most of this lending was by Japanese and continental European banks.

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undermine and limit national economic sovereignty. 62 Particularly damning is the clear abuse of imposed IMF conditionalities in the Korean aid package to resolve outstanding bilateral issues in favour of the US and Japanese interests (Chossudowsky 1998). Legislation and other new regulations enabling greater foreign ownership of as well as increased market access to the Korean economy which have little to do with the crisis or its immediate causes were forced upon the Korean government. Even more damaging was the further dismantling of many key institutional features that had made possible the Korean economic miracle since the 1960s. Taking advantage of Korean vulnerability, Japanese banks also insisted that the Korean government guarantee repayment as a condition for rolling over Korean short-term debt.

New International Financial Architecture 63 Governance

Current proposals for reform of international financial governance include the call for a new international institution such as a World Financial Organization (WFO) proposed by the UNs Economic and Social Committee (ECOSOC) in 1998, or a World Financial Authority (WFA) proposed by Lord Eatwell and Professor Lance Taylor. Such a proposal would need to revisit many of the underlying considerations and rationale for Keynes original Bretton Woods proposals in 1944 as well as the many important lessons from subsequent post-war experience as well as the new challenges raised by recent and proposed measures for further international financial liberalization. The specific implications of these proposals should be distinguished from the call to establish a permanent United Nations Conference on Finance and Development in conjunction with the 2002 UN conference on Financing for Development to be held in Mexico. A compromise proposal would be to broaden the current mandate of UNCTAD to include finance issues more systematically, although UNCTAD has already been providing some logistical and other support for the increasingly ineffective and marginalized Washington-based G24 on International Monetary and Financial Issues. To be more effective, however, UNCTADs earlier greater role and influence in advising and supporting the developing countries has to be restored. An even weaker option would be a forum on the same theme comparable to the Financial Stability Forum set up after the serious of international financial crises in 1997-8. Related to the WFO/WFA proposal, but not necessarily under the same roof, is the need to establish a new international bankruptcy or insolvency mechanism. For guidance, most current suggestions refer to the US Bankruptcy Code for corporations, though others point to the greater appropriateness of the chapter for municipal authorities. There have also been calls for some new arbitration mechanism outside of existing institutions to resolve the range of new problems emerging. Most such calls expect these new institutions to be representative and transparent. The capacity of the Bretton Woods institutions to respond effectively and appropriately to developmental needs and emergency financing requirements has been subject to much criticism. One important criticism has been a tendency of these institutions to adopt universalistic criteria and solutions in their dealings. Hence, there is now a greater appreciation of and desire for similar institutions at the regional and sub-regional levels. While such arrangements and institutions will undoubtedly bring about some
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However, invoking national economic sovereignty may become very dubious when it is clearly hijacked by special interests. This section draws heavily on Akyuz (2000a; 2000b).

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duplication, if not ambiguity, they will also introduce some desirable competition. The IMF, in particular, seems to have resisted such plurality, e.g. the Japanese governments Asian monetary facility proposal of the third quarter of 1997. New institutional initiatives and roles in crisis management have been increasingly discussed64. While Article 8 (2) (b) of the IMFs Articles of Agreement is meant to offer some protection in the event of crisis, it is now widely considered to be too ambiguous for debtor governments to rely upon. Ex ante conditions65 -- such as binding arbitration procedures (used in some joint venture agreements) or collective action clauses (in the case of government bonds) -- might enhance the capacities of debtors and creditors to proceed with orderly workouts. However, most debtor governments are concerned that if they invoke such clauses while other do not, their own subsequent access to international capital markets will become more expensive. While the IMF is widely regarded as an obvious institution to be involved in many existing international monetary and financial affairs, there appears to be a number of pre-conditions for its role in these regards to be more broadly acceptable. First, it will have to reform its own governance in order to be seen as more legitimately performing this function. The IMF often has a conflict of interest, being itself a creditor, and usually privileging foreign creditors. The GFGI Working Group on Institutional Reform is considering several proposals to develop a mechanism or institution within the IMF that could be more neutral, including: create an affiliate in the IMF with its own governance structure (like MIGA); create an ombudsman within the IMF, independent of the staff, reporting to the Executive Board, with a dispute settlement capacity -- which can arbitrate impartially amongst parties -- like the WTOs Dispute Settlement Board; create a Committee within the IMF with its own decision-making rules, much in the same way as the (unused) Committee on Interpretation in the IMF with its one member, one vote procedure. Governance of the IFIs needs to be altered to give equal, if not greater voice and voting rights to debtor country representatives. This is likely to be a necessary condition for many other fundamental reforms to the Bretton Woods institutions, which were originally structured b y the Anglo-American alliance towards the end of the Second World War at a time when colonial empires were largely still in intact. This will be crucial for the adequate and non-onerous future provision of emergency assistance and restoring development finance flows. When the current Managing-Director of the Fund came into the job, he voiced sympathy with developing country claims for better representation. Since then, however, the issue has received little attention. Jadhav (2000) has shown how the origins of the Bretton Woods institutions as well as the quota system as well as various historical accidents have resulted in a heavily biased system of voting rights which are unlikely to serve developing country interests unless radically restructured to, among other things, significantly increase developing country seats on the Board besides fundamental quota reform, which is likely to be very difficult to achieve. Besides unequal voting rights, other factors have also undermined effective participation by
64

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This paragraph draws heavily from my experience in the GFGI working group on Institutional Reform (see Woods 2001). Opponents argue that ex ante rules are likely to increase moral hazard and cannot possibly anticipate all aspects of specific situations.

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developing countries in the IFIs. As with so many other international economic issues, developing country capacity leaves a lot to be desired. Greater demonstrated knowledge of and sympathy for developing countries should be a criterion for recruitment to and appointment of staff, especially at crucial policymaking levels. There is also an urgent need to strengthen capacity building efforts of developing country personnel, especially those involved in negotiations. Pro-active efforts must be taken to ensure greater developing country participation in all aspects of policy-making and implementation. The quality and relevance of IFI work should also benefit from greater appreciation of developing country experience, e.g. with more mid-career staff and consultant hiring, as well as workload reallocations (Evans and Finnemore 2001). The GFGI Working Group on Institutional Reform (Woods 2001) has strongly endorsed the idea of minority shareholders within the IMF and the World Bank having the right to audit the performance of both institutions at individual country level and that such audits should be open and public 66. Analogous to minority shareholder rights in corporate governance, developing country government members of the IFIs would enjoy the following rights: 1. to avoid conditionalities irrelevant to the immediate problems for which they have involved an international financial institution; 2. to maintain some minimum standard of social protection beyond which requirements for adjustment should not be made while adjusting during a crisis; 3. to obtain a statement from the IMF Board (and other relevant international financial institutions) when a standstill on payments is justified67. Just before the Prague IMF-World Bank meetings in September 2000, the then new IMF Managing Director announced that countries would no longer be subject to policy conditionalities. Instead, governments would be presented by the IMF staff with various policy options to choose from. One might add that program design should also include discussion of the likely socio-economic implications of different policy options. However, there is no evidence that this has become IMF policy and cynics suspect that this was a sop to defuse protests.

Crisis Prevention
As noted above, recent trends in the IMF and the WTO after the East Asian crises began are unlikely to make prevention of future crises any easier. By insisting on opening the capital account and allowing
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As noted by the GFGI Working Group (Woods 2001), several existing mechanisms have the potential for development along these lines such as: - the newly-formed Office of Independent Evaluation (OIE) at the IMF and its potential to play an auditing role; - a Sub-Committee of the Development Committee of the IMF and World Bank could make a six monthly statement to the Executive Boards; - the provision for special majorities within the institutions already provides a veto right for groups such as developing countries, e.g. in the IMF, an increase in charges requires a 70% majority. For example, a super-majority could be required for all decisions having significant impact on minority shareholders or on disputes involving overintrusiveness. - the development of a transparent procedure for the selection of all senior management positions (since these have a particularly significant impact on borrowing countries). 67 When the IMF (and other IFIs) does not provide a country in distress with the requisite funds, then bailing-in the international private financial sector becomes unavoidable.

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unrestricted freedom for trans-border movements of funds, it becomes difficult not only to have measures to prevent financial crises, but also to introduce effective financial safety nets at the national level. Soon after the East Asian crises, there seemed to be widespread agreement that short-term capital flows need to be regulated. But while developing countries currently have the right to control short-term capital flows, the lack of international endorsement for such measures serves as a major deterrent for those considering their introduction. Developing countries are currently b eing encouraged to either fix (through a currency board system or even dollarization68) or freely float their currencies, but are being discouraged from considering intermediate alternatives. However, studies have shown that a float system is associated with the same degree of volatility as a fixed system (Akyuz 2000a; 2000b), with the principal difference between the two being that of how external shocks work themselves out. Countries should be allowed to choose their own exchange rate regime, which should not be imposed as an IMF conditionality, for instance. Since the East Asian crisis, the international discussion on international financial reform to prevent future crises has emphasized questions of transparency and greater supply of information. However, there is no evidence that having more information will be enough to prevent crises. Also, efforts seem to be directed mainly to getting more information from governments, especially from the developing countries, with little done to get information on the various financial markets, especially the most volatile and vulnerable ones such as those involving highly-leveraged institutions and offshore markets. Also, too little attention has been paid to the policies of the developed countries, especially the major economic powers, despite their impact on exchange rates in the rest of the world, especially in developing countries. Akyuz (2000a) has noted that all emerging-market crises of the last two decades have been associated with large changes in the exchange rates of the major industrial economies. Developing countries seem generally incapable of maintaining exchange rate stability while the major currencies experience big fluctuations. Hence, currency co-ordination among the US, Europe and Japan is desperately needed for the stability of their own currencies as well as other currencies in the world today. Despite frequent G7 meetings, existing arrangements leave much to be desired. Consequently, there are fluctuations of up to 20 per cent within a week. The effects of such huge swings on smaller open economies are not well understood, though they are expected to simply adjust to such changes. A global system of prudential controls should accommodate the existing diversity of national conditions as well as regional arrangements. However, the currently favored approach to prudential regulation is to formulate international standards for countries to implement and enforce. In the recent past, such standards have usually been set by the Bank of International Settlements (BIS), which serves banks in the OECD economies. There are several problems with this approach (Akyuz 2000a; 2000b). First, such standards do not specifically take into account the risks associated with international lending. Currently, credit rating agencies are relied upon to fill the vacuum, but they have a tendency to be
68

While acknowledging that money is not just another commodity, the Wall Street Journal, for example, continues to promote dollarization and currency boards (instead of central banks), while giving lip service to free floats, as the only viable corner solutions, while attacking other international monetary alternatives. Needless to say, it has not acknowledged the advantages that dollar pegs have given to the US, such as having the rest of the world finance its huge deficits.

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pro-cyclical, thus exacerbating -- rather than checking -- fluctuations. Second, the standards have mainly been designed to protect creditors, not debtors, and the countries they belong to. A similar level of exposure may imply different risks to different creditors as well as debtors. Third, the one-size-fits-all approach implicit in setting standards tends to gloss over important variations, thus undermining the efficacy of this approach. Although there is currently agreement that the IMF should not set standards, it is likely to be involved in policing the enforcement of such standards, which would raise similar concerns.

Capital Controls
There are many different types of capital control measures, with different consequences, often varying with circumstances as much as the nature of the instruments. Until capital account liberalization from the eighties, most countries retained some such controls despite significant current account liberalization in the post-war period. Most such measures can only be understood historically, in terms of their original purposes, and there are no ready-made packages available for interested governments. Economists favoring capital account liberalization have made three main arguments in favor of such a policy. It is argued that capital will tend to flow from capital-rich to capital-poor economies, or between economies with different savings rates, investment opportunities, risk profiles or even demographic patterns. Capital flows thus enable national economies to trade imports in the present for imports in the future, i.e. to engage in inter-temporal trade. Capital flows also allow national economies to offset pressures to reduce imports by borrowing from abroad or by selling assets to foreigners. Such imports and borrowings may be used to enhance national economic output capacity, i.e. a countrys ability to increase production in the future. The foregoing arguments are similar to those for international trade liberalization. Foreign direct investment is also expected to involve technology transfer, which should enhance industrial capabilities. Restrictions on capital flows are considered undesirable by advocates of capital account liberalization because they prevent capital from being utilized where it is most demanded. On the other hand, advocates of capital controls emphasize the adverse effects of free capital flows on national economic policy-making and implementation, or worse still, by undermining economic stability. Any policy intended to restrict or redirect capital account transactions can be considered a capital control. These would include taxes, price or quantity controls, including bans on trade in certain kinds of assets. Hence, there are many different kinds of capital controls, which may be introduced for various reasons. The effects of specific controls may change over time and could become quite different from what may have been intended. The major reasons advanced for the introduction of capital controls have included the following: 1. Achieve greater leeway for monetary policy, e.g. to reflate the economy. 2. Enhance macroeconomic stability by limiting potentially volatile capital inflows. 3. Secure exchange rate stability, e. g. protect a fixed exchange rate or peg. 4. Correct international payments imbalances, both deficits and surpluses. 5. Avoid inflation due to excessive inflows. 6. Avoid real currency appreciation due to monetary expansion. 7. Reduce financial instability by changing the composition of -- or limiting -- capital inflows. 8. Restrict foreign ownership of domestic assets, which might cause nationalistic resentment. 9. Ensure the domestic utilization of national savings by restricting outflows. 10. Enable governments to allocate credit domestically without risking capital flight. 11. Enable domestic financial houses to attain scale economies in order to better compete internationally. 12. Facilitate revenue generation, particularly taxation of wealth and interest income; by allowing higher inflation, more revenue can be generated.

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Capital controls may well be the most acceptable alternative to the destabilizing effects of capital flows on inadequately regulated financial systems characteristic of developing economies. Effective regulation may be compromised by limited capabilities and experience, inadequate personnel and other resources as well as politically or otherwise compromised regulatory capacity. When a country with a fixed exchange rate experiences a net capital outflow, it can either raise interest rates or devalue. But with a sudden large capital outflow, usually associated with easily reversible capital inflows, either option is likely to exert strong recessionary pressures due to higher interest rates or further capital flight. Monetary contraction may not only dampen economic activity with higher interest rates, but may also adversely affect the economy through the (invariably government-guaranteed) banking system, which may be exposed to foreign borrowings (Kaminsky & Reinhart 1999). Capital controls may be used to limit capital flow volatility to achieve greater economic stability by checking outflows in the event of crisis or influencing the volume or composition of inflows. Sudden massive capital outflows -- usually a ttributable to herd behavior -- are more likely to occur in developing countries for various reasons. The greater likelihood of asset price changes to cause further changes in the same direction increases the likelihood of greater volatility as well as boom-bust cycles. Discouraging capital inflows would reduce the quantity of capital that might take flight at short notice. But changing the composition of capital inflows -- e.g. to favor foreign direct investments as opposed to more liquid portfolio investments -- may well better reduce such instability. Different types of capital controls may be distinguished by the types of asset transactions they affect as well as by the very nature of the control measure itself, e.g. tax, limit, or ban. Capital controls are not identical with exchange controls though the two are often closely related in practice. Exchange controls mainly involve monetary assets (currency and bank deposits), and may be used to control the current account of the balance of payments rather than the capital account. While exchange controls function as a type of limited capital control, they are neither necessary to restrict capital movement nor are they necessarily intended to control capital account transactions (Neely 1999: 21-2). Some of the major differences among the types of capital controls involve: 1. Taxes versus quantitative controls: Taxes rely on price or market mechanisms to deter certain types of flows. Such taxes may be on certain types of transactions or returns to foreign investment, or may even involve mandatory reserve requirements, which raise the cost of the flows concerned. Quantitative controls may involve quotas, authorization requirements or even outright bans. 2. Controls on inflows as opposed to outflows: Limits o n inflows may allow for higher interest rates, to check money supply and inflation. Checks on outflows allow lower interest rates and greater money supply than would otherwise be possible, and have often been used to postpone hard choices between devaluation and tighter monetary policy, as with Malaysias September 1998 controls. 3. Controls on different types of inflows, especially in terms of expected duration: Governments may seek to encourage long-term inflows (e.g. foreign direct investment) while discouraging short-term (e.g. bank loans or money market instruments) or easily reversible (portfolio investments) inflows. It is important to establish at the outset what particular controls seek to achieve. With the benefit of hindsight, it is crucial to determine to what they extent the measures actually achieve their declared objectives as well as their other consequences, intended or otherwise. For instance, it is important to know whether specific controls are meant to avert crisis or to assist recovery. In its 1998 Trade and Development Report, the United Nations Conference on Trade and Development (UNCTAD) recommended capital controls as means to avoid financial crises. Almost as if endorsing the 1st September 1998 Malaysian measures, Paul Krugman recommended capital controls in his Fortune magazine column to create a window of opportunity to facilitate economic recovery which is a different objective, though some of the mechanisms or processes involved may not be altogether different. On the other hand, Montes (1998) has

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argued that capital controls and other efforts to prop up a currency under attack are largely ineffective and may actually serve to subsidize further speculative actions. Jomo (2001) has argued that while too late to prevent the massive capital flight for 14 months from the outbreak of the crisis, i.e. from July 1997 to August 1998, the September 1998 Malaysian currency and capital control measures were probably necessary to check the possibility of further flight with the dollar peg, then intended to raise the ringgits value and restore monetary stability and greater monetary policy independence. Various analysts suggest that subsequent measures were biased towards crony corporate interests closely connected to the political leadership (Johnson and Mitton, 2001; Aslam 2001). Kaplan and Rodrik (2001) have argued that the September 1998 Malaysian controls averted a looming crisis which they claim had been building up in mid-1998. As they emphasize, the Malaysian policy package was certainly superior to the IMF alternative69 -- as imposed in Thailand, Indonesia and South Korea. International co-operation and co-ordination have often been the best response during such episodes, but are also important for effective prudential and regulatory i nitiatives as well as to reduce policy arbitrage. Measures to insulate the domestic banking system from short-term volatility through regulatory measures and capital controls as well as stricter prudential regulation for the region. James Tobin has called for a tax on foreign exchange spot transactions to enable more independent national monetary policy, discourage speculative capital movements, and increase the relative weight of long-term economic fundamentals against more short-termist and speculative considerations. As a bonus, the tax collected would also more than adequately fund the United Nations system and programmes, not leaving it hostage to the whims of US leadership, as has long been the case. Another Nobel Laureate, Lawrence Klein has mentioned two other options to be considered besides the Tobin tax, namely regional monetary arrangements as well as the introduction of circuit-breakers into the system a suggestion also made by the World Banks then Senior Vice President and Chief Economist, Joseph Stiglitz.

Crisis Management In managing crises, the recent East Asian experiences highlight the crucial importance of ensuring international liquidity by quickly providing foreign funds to economies experiencing crisis. Currently, such international liquidity provision is being frustrated because: Multilateral institutions generally do not have the necessary finances readily at their disposal. Although the IMF nominally has the requisite facilities, it lacks the required funds, which have to be raised with the approval and active support of its principal shareholders. Unlike the World Bank, it does not go to financial markets to raise funds. This de facto requirement subjects the process to undue political influence, as was clear in the international financial communitys changing responses to the East Asian crises as it unfolded from mid-1997. The IMF-imposed policy conditionalities accompanying the provision of such emergency liquidity have also been onerous. The East Asian experiences suggest that these conditionalities actually exacerbated the macroeconomic crises.

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Jomo (2001) has argued that while the contractionary December 1997 policy package associated with then Finance Minister Anwar Ibrahim and influenced by IMF advisers undoubtedly exacerbated the subsequent Malaysian recession, Anwar later sought to reverse these policies through expansionary fiscal and monetary measures from mid-1998 before he was sacked for seemingly challenging Prime Minister Mahathirs leadership.

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Such funds should be used to support a currency against speculation, but instead, currencies have been allowed to collapse first, with emergency funds going to pay off creditors.

Recent experiences underline the crucial importance of facilitating fair and orderly debt workouts to restructure debt payments due. Existing arrangements tend to treat debtor counties as if they are bankrupt without providing the protection and facilities of normal bankruptcy procedures 70. With such an internationally credible bankruptcy procedure institutionalized, a debtor would have certain rights, including getting a temporary standstill on debt payments, continued financing for on-going operations, and orderly debt restructuring. While the IMF's Articles of Agreement allow for such temporary standstills, this has not actually occurred. Despite the IMFs Articles of Agreement providing for a temporary standstill, in the recent South Korean case, the creditors got together and struck an agreement with the government after a private meeting, raising three problems: The government was thus coerced to take over responsibility for private debt. The creditors thus got better debt restructuring terms, whereas debtors would be more likely to get better terms in a bankruptcy court. The new finance went to the creditors, instead of supporting the debtor.

Unlike the seventies, when developing country solidarity ensured effective voice and a number of reforms which promised to advance their interests such as the New International Economic Order, the Global Common Funds and so on, their increasingly divergent interests real as well as imagined have been a major stumbling block to more effective collective action to reprioritize development and its implications for the international financial architecture debate. Some major sources of divisions include: - conditionalities: middle-income countries have been much less willing to accept and more able to resist onerous conditions than lower income countries; - debt standstills: countries with access to the capital market have different interests from those reliant on official debt. the heavily indebted poor countries (HIPC) initiative: middle-income countries have been opposing G7 efforts to deploy net income from borrowing charges paid by them for IFI loans for HIPC debt relief as the richer countries try to minimize their own contributions.

Conclusion
Drawing from the experiences of the 1997-8 East Asian crises, five major lessons for international financial reform can be drawn. First, existing mechanisms and institutions for financial crisis prevention are grossly inadequate. Recent trends in financial liberalization are likely to increase rather than decrease -- the likelihood, frequency and severity of currency and financial crises, as recent experiences suggest. There has been too little done to discourage short-term capital flows and too much emphasis on the expected protection from international adherence to codes and standards 71 (Rodrik 1999). Financial liberalization has also
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Henderson (1999) has argued that rather than invoke US bankruptcy procedures for private firms (Chapter 11) (see Cui 1996), the more relevant and appropriate reference point for developing country governments are the provisions for municipal authorities (Chapter 14). 71 Pistor (2000) has demonstrated that international legal standards are unlikely to have the desired outcomes.

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reduced the macroeconomic instruments available to government for crisis aversion, and instead left governments with little choice but to react pro-cyclically, which tends to exacerbate economic downturns. National macroeconomic policy autonomy needs to be assured to enable governments to be able to intervene counter-cyclically to avoid crises, which have had much more devastating consequences in developing countries than elsewhere. Recognition of the exaggerated effects of currency movements at the international level should also lead to greater surveillance and coordination among the three major international currency issuers. Second, existing mechanisms and institutions for financial crisis management are also grossly inadequate. The greater likelihood, frequency and severity of currency and financial crises in middle-income developing countries in recent times with devastating consequences for the real economy and also for innocent bystanders in the neighbourhood, as in the East Asian crises makes speedy crisis resolution imperative. There is an urgent need to increase emergency financing during crises and to establish adequate new procedures for timely and orderly debt standstills and workouts72. IFIs, including regional institutions, should be able to provide adequate counter-cyclical financing, e.g. for social safety nets during crises 73 (Ocampo 2000). Instead of current arrangements which tend to privilege foreign creditors, new procedures and mechanisms are needed to ensure that they too share responsibility for the consequences of their lending practices. Third, the agenda for international financial reform needs to go beyond the recent preoccupation with crisis prevention and resolution to address the declining availability and provision of development finance, especially to small and poor countries (Mosley 2001; Ocampo 2000) which have very limited and expensive access to capital markets. There is growing pressure on the IMF, in particular, to return to its supposedly core function of providing emergency credit and core competencies (sic) of crisis prevention and mitigation74. Furthermore, the World Bank and other multilateral development banks have either abandoned or sharply reduced industrial financing, for example, further limiting the likelihood of developing countries securing funding to develop new manufacturing capacities and capabilities. It is not clear that the United Nations Conference on Financing for Development in Mexico in mid-2002 will satisfactorily address this challenge in light of the modest proposals of the Zedillo group report commissioned by the UN Secretary-General. Fourth, inertia and vested interests stand in the way of urgently needed international institutional reforms. There is a need to reform the governance of existing international financial institutions to ensure greater and more equitable developing country participation and decision-making -- and hence, ownership in operations, research and decision-making at all levels in various tasks old and new which the new international financial system must begin to address more adequately. There is also a related need to reduce the concentration of power in, and of, some peak institutions, such as the IMF, by delegating authority to other agencies (e.g. WFO or WFA), as well as encouraging decentralization, devolution, complementarity and competition75 (with other IFIs including regional IFIs). The G7 must consult developing countries more
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There is a growing consensus on the need to set up standstill and other procedures for international debt akin to US bankruptcy provisions for corporations and municipal authorities. Social safety nets should not be seen as a substitute for social policy, which should be adequate to ensure a decent standard of living within a governments means besides developing human resources for development. Then US Treasury Secretary and former World Bank Vice President and Chief Economist Lawrence Summers is a prominent proponent of this view, e.g. see his speech at the London Business School on 14 December 1999, reported in the Financial Times the next day. The full text is available at www.lbs.ac.uk/newsevents/scripts/summers. As Ocampo (2000) put it, The required financial architecture should in some cases have the nature of a network of institutions that provide the services required in a complementary fashion (in the areas of emergency financing, surveillance of macroeconomic policies, prudential regulation and supervision of domestic financial systems, etc.),

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seriously in matters of international economic governance to avoid insensitive and potentially disastrous oversights as well as further loss of policy legitimacy (Rodrik 1999). Finally, the reforms should restore and ensure national economic authority and autonomy -- which have been greatly undermined by international liberalization as well as regulation -- which is essential for more effective macroeconomic management and developmental initiative. Policy conditionalities 76 accompanying IMF financing must be minimized, if not eliminated altogether. It is now clear that one size does not fit all and imposed policies have not contributed much to either economic recovery or growth (Weisbrot et al. 2000), let alone sustainable development. Such ownership will ensure greater legitimacy for public policies and must include regulation of the capital account as well as choice of exchange rate regime77. Since it is unlikely that international financial reforms in the foreseeable future will adequately provide the global public goods and other international financial services needed by most developing countries, it is imperative that while reforming the international system to more adequately serve their needs, national policy independence is also assured to better address regulatory and interventionist functions beyond global and regional purview.

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Woo Wing Thye (2000b). Coping with Accelerated Capital Flows from the Globalization of Financial Markets. ASEAN Economic Bulletin, Special issue, April. Wood, Angela (2001). From capital account liberalisation to the real economy: Putting people first. In Go with the flows? Capital account liberalisation and poverty. London: Bretton Woods Project and Oxfam: 1 12. Woods, Ngaire (2001). Improving Governance in Global Financial Institutions. Report of the GFGI working group on Institutional Reform meeting, 2 8-29 June, IDRC, Ottawa. Processed, University College, Oxford. World Bank (1998). East Asia: The Road to Recovery. World Bank, Washington, D.C. World Bank (2000). East Asia: Recovery and Beyond. World Bank, Washington D.C. World Bank. World Development Report, various issues. World Bank/Oxford University Press, New York.

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Globalization and Global Governance in 2020 --Our Vision on International Organizations in 2020 Xu Mingqi and Wu Yikang The Institute of World Economy, Shanghai Academy of Social Sciences
I. Globalization and Global Governance
1. The Challenge of Global Issues and the need for global governance Since 1980s, economic globalization has been gaining momentum. More and more countries have integrated themselves into the world market in order to gain more welfare and interests, no matter willingly or reluctantly. Interdependence among nations all over the world has reached to an unprecedented level. One country's domestic policy making is increasingly constrained or influenced by external and international situations and vice visa. More and more domestic social and economic issues emerged with international impacts. So national governments can no longer overlook the international impacts and background when they deal with domestic social, economic and even political issues. They need international cooperation and coordination to solved domestic problems with international source and backgrounds. Sometimes, a national government will seek international coordination only for more efficient results of its domestic policy because of increasing interdependence. At the same time, globalization brought numerous challenges in today's world with many worldwide-scaled issues, which is impossible to be solved by individual countries. These so-called global issues are the issues not only faced by individual country, but by many and the world as a whole. The feature of these issues lies in the indivisibility of the issues, for example, transborder pollution and crimes. The damaged result of these issues is impossible to be contained and divided by the b order. All these global issues call for international cooperation and coordination. As these global issues become worse and more serious, the need for international cooperation will be increasing. The global issues can be mainly categorized into three kinds: the first, political and security issues such as nuclear weapon spreads and international terrorism; the second, economic issues such as energy shortage, financial crisis and poverty relief; the third environmental issues such as pollution and global warming. All of above mentioned issues need international efforts to deal with. However, in the first category, the question is mainly to strengthen the international cooperation among nations through negotiations and common actions. It is not yet a matter o f global governance as the political sensitivity and state sovereignty usually involves in this regard. Differences among nations usually are more than consensuses if politics and state sovereignty are involved. Although international organization plays a role in dealing with these issues, for example, the United Nations, especially the UN Security Council is the principal body in dealing with international political and security issues, common interests are mainly reached through negotiations and compromise among conflicting parties and nations. The international organizations usually can not "govern" the issues. So it is not recommended to strengthen and improve the international organizations to deal with the first category issues. The second and the third category issues are somewhat different from the first category. There are more common interests for global action. If the world society neglects the issues and takes less action to deal with them, there will be damages to almost all countries. Thus we b elieve there is an increasing need for global governance in this regard and international organizations should play an increasing important role to deal these global issues.

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That the global issues brought challenges to all countries and raised the urgent need for global actions does not necessarily mean that the international cooperation will take place automatically. However, the development of global governance evolves very slowly. Narrow national interests, traditional perceptions and unilateral hegamonism all checked the development of international cooperation. All countries in the world should realize the urgent need, adopt a principle of mutual benefit and win-win cooperation and establish a fair, reasonable and acceptable-by- all-party mechanism of global governance. Common interests need collective action while collective action needs initiatives. Many international political scientists and economists have pointed out the difficulties in international cooperation. Garrett Hardin's tragedy of the commons (Garrett Hardin, 1968) and the free rider problems (Charles Kindleberger, 1981; Mancur Olson, 1991) are typical examples of them. We do not agree Hegemonic Cooperation Theory (Seyom Brown, 1992). But we think initiatives in international cooperation are necessary. The initiative does not necessarily linked to hegemony and should not combine with big powers' force and central authority. But rather come from the sense of obligation and mission. Big players in the world society, no matter rich or poor should have an urgent missionary sense to take cooperative measures to meet the challenge. Why? Because they are the main gainers of the collective actions. From the cost and benefit analysis, most of the global issues would harm the weak and small nations the most as they have less ability to meet the challenge, yet they have less to loose. Big wealthy nations although in a better position in the absence of collective action, they pay comparatively high cost if the damage of all mentioned global issues is done to them. Hence, they should take the initiatives even with some starting cost. The overall benefit they gain from international cooperation will be much more than those small nations who will even though be free riders. Examples can be given in preventing international financial crisis and eliminating the air and water pollution. If the world society had not helped East Asian Countries in 1997 financial crisis, many more countries including those creditor-developed countries would have suffered a lot more than crisis hit countries assuming that they declared bankruptcy and stopped repaying the debts. If there is not any consensus efforts made in reducing carbon dioxide exhaustion, the cost paid by developed countries for global warming and climate changing will be much more than those of developing countries as the latter are lots more used to already deteriorated climate. 2. Roots of all global issues and importance of poverty relief in meeting the challenges All global issues and challenges in the second and third categories are deeply rooted from increasing divergence between rich and poor nations and between social stratum. Population issue is mainly a development issue, which is increasingly worsened in underdeveloped nations. More and more studies showed that the population growth rate keeps high in low -income countries. Only when a country starts a real economic growth, population problem can be gradually solved. Take China as an example, in 1990 the annual population growth rate was 1.44%. In 1999 the rate dropped to 0.88%. The decade of 1990s witnessed the highest average economic growth rate of 9.2% per annual. Financial crisis is often triggered by financial crocodiles speculations in the rich countries. Its direct impact is to reduce developing countries wealth and create more poverty in these countries. The developing countries now have become increasingly the target hit by financial speculators. No matter how many internal factors you can give in crisis hit countries, no one can deny the external factor of deliberate manipulation by those strong financial powers. People often mention that China was immune from crisis in 1997 mainly because china did not open its financial market although China had similar structural and financial system problems. This actually proved that the external factor is decisive in the break-up of financial crisis. The argument in this regard is clear that international efforts to prevent financial crisis should focus on helping the poor and developing countries to be immune from crisis rather than urging the poor and developing countries to exercise all rules played by rich developed countries.

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Energy shortage is directly linked with the lifestyle set up by industrialized rich countries and followed up by most developing c ountries with huge populations. When the industrial countries accumulated the wealth through industrialization and exploited crude oil excessively, poor developing countries misleadingly believed that rich means wastefully consuming energy and to be rich is to consume more energy by the way industrialization. When more countries developed in the sense of old type industrialization, the speed of depletion of energy resources is inevitable. Also take China as an example, Chinas imports of petroleum is increasing year by year, as many Chinese believe that private car is the symbol of wealth and more and more of them save money to buy one. If we follow the life style of what developed countries have today, energy shortage problems will be worsened in the near future. Air pollution and global warming are thus increasing. If the rich countries are not willing to change the life style of excessive consumption of energy and to help the developing countries and especially most underdeveloped countries with energy saving and pollution reduction technology, the energy and air pollution issue would be impossible to solve. For other challenges, such as species extinction, water shortages, forest depletion, and environmental pollution are all linked with poverty issues. When a country is poor and focused on producing enough food and consuming goods to support its population, it usually has no interests to protect its environment, but rather taking the destructive or environmental polluted measures to develop its economy. Although in the long run, the measure may force the country to pay high cost, the country would have been inclined to neglect it for the time being as they are facing the most important issue of poverty. With gap of income disparity increasing, poor countries would be more inpatient and would adopt even worse measures to exploit their natural resources and destroy the forest and life species in an unprecedented seed. Without effective poverty relief policy and measure in these countries, natural resource depletion and environmental issues cannot be really eased up. Even infectious diseases and Aids problems have something to do with disparity of wealth distribution among nations and social groups. Globalization increased international flow of goods as well as human beings. Diseases spread worldwide at faster pace. Newly emerged infectious diseases threaten all countries time and again. Science and technology development actually has the potential power to combat the threat. However, poor countries and poor people cannot afford the high price of new and effective medicine as medicine and pharmaceutical research and production become more and more money making oriented in rich countries. Sanitary education and infrastructure building that are crucial for disease reduction also need huge amount of money to invest. Poor developing countries lack this kind of resources. They need international efforts to help them. Therefore, we consider that most of the global challenges should be dealt with the international efforts to the poverty relief. There will not be any real solution to the issue without a significant relief of poverty in developing countries. As for transnational organized crime and international financial crisis, although they are not mainly the outcome of p overty, they add to the instability and the poverty of poor countries and the world as well. We believe that rich countries that benefit the most from globalization need to take initiative to deal with all these challenges. 3. Global Governance and global mechanism as international public goods If consensus can be reached in above points and rich countries are willing to provide more resources for strengthening the international public goods, the international mechanism and organizations to deal with all these challenges would possibly be improved by 2020. In the sense of international politics, global governance is a kind of international public goods, which usually should be provided by government. But it is impossible to have a world government in the foreseeable future. International organization should provide these kind of public goods in stead. Thus every country in the world has the obligation to pay for the goods. However, just like in one country, taxpayers income is different. The rich usually pay more than the

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poor do. International taxpayer should pay for the public goods according to each country's income. In this sense, rich developed countries should have more obligations to take initiatives to improve the international organizations and contribute more resources. In the real world of today, problems lie both in the cost sharing and the providing of such public goods. As we mentioned earlier, most of the developed countries now have not much interest to make real contributions to improve international organizations. Many of them agree to enhance the world governance, but fear free rider problems. They do not want to recognize the fact that they are the principal gainers of globalization and they should have more obligations and share more cost in meeting the global challenges. They are concerned over the impacts brought by all those global issues and often blame the developing countries. They promise to support the developing countries but usually gave less than they promised. So common effort is often difficult to be launched when it comes to the cost sharing issue. The other problem is that some big rich nations often try to control and manipulate the agenda and action of international organizations although they have a kind of missionary sense a nd are willing to take initiatives. They believe that the big contributor of the resources has big say and the right to decide. They ignore the democratic principle in international society. Owing to their power, these big rich nations can sometimes push ahead the global governance in right direction and enhance the effectiveness of international organizations, while at many other times they arouse conflicts and doubts as they neglect the rights of developing countries. As we mentioned earlier, the cost of public goods offering should be shared by all taxpayer according to ones income. The rich who have paid more do not necessarily have more votes in a country. The same democratic principle should be applied in the world society. This may be too ideal. However, we should accept this principle in theory and try to work out more fair and reasonable mechanism. We should oppose discriminations among nations, oppose bullying weak small nations by big strong nations, and oppose manipulating international organization by a few big powers. We should not neglect the rights of participation and decision making of developing countries. When we make rules of the game, we should understand the weak ability of developing countries to undertake certain obligations and invite all parties to negotiate the solution. We believe that to continuously promote the North and South Dialogue is important in establishing an effective and workable mechanism of world governance.

II. Reform Vision of main International Organizations in 2020

1. International Organizations: an overview of inevitable reform As we mentioned already that the world governance should be embodied in the work of international organizations but not a few countries privilege. To meet the challenge of global issues, we need to enhance the whole architecture and the function of international organizations. Many scholars in international politics tried to define the words of international institution, international regime and international organization. (Hidemi Suganami, 1983; Friderich Kratochwil and John Ruggie, 1989; Andreas Hsenclever, Peter Mayer and Volker Rittberger, 1993) To us, international institutions, international system and international regime are similar and they are a set of rules and regulations set forth by participating countries through negotiation and agreement. The international organizations are the executing entities that are responsible to implement or supervise these rules. To enhance the international organizations means at same time to reform the international institutions and international system. Although we believe the necessity of reform of international system, we think that there is only a few area where needs to establish a totally new international organizations in dealing with the global challenges. We have already had the United Nations, its functional organs, International Monetary Fund (IMF), the World

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Bank, World Trade organization (WTO), World Health Organization (WHO), Food and Agricultural Organization (FAO) and several other specialized agencies of the UN. Almost all the international efforts in governing the above mentioned issues can be embodied in current already established organizations. Then why we are increasingly challenged by all these global issues. The reason we think that lies in the out-ofdate aims and structures of these international organizations. Most of the international organizations were established in the post Second World War period and were founded by a small group of countries. These organizations including the UN were designed to maintain the peace and stability after the Second World War. The UN was designed to oversee the political and security conflicts and maintains a peaceful order among nations. IMF was planned to adjust international monetary and financial relations while an international trade organization, which was unable to form up until 1995 and was acting by GATT, to deal with international trade issues. On a whole the design was wise and the principal purposes of these organizations were correctly oriented. They made great contributions in maintaining the world peace, promoting the economic development and enhancing the welfare of all countries. However, after half a century, the world political and economic situation has changed a great deal. Especially after cold war, the main threat to peace and the focus of risk have been changing. Some specific aims of the international organizations and rules to realize them are obsolete. For instances, the UN peace keeping target is blurred and process is questionable; GATT was substitute by the WTO and the principal purpose of IMF to maintain free Multinational payment system is no longer necessary. Reform according to the new situation in the 21st century is inevitable. Structural adjustment is also very important. As many of the current international organizations were founded under the initiatives of small group of countries several decades ago, the structure of the organizations more or less reflected the power structure of these countries at that time. For instance, the voting rights were not properly allocated according to democratic principle; the setting of agenda is usually controlled by a few developed countries. If an international organization is going to play a more active role in meeting the c hallenge of globalization, it needs to reform in order to mobilize its all members initiatives and support. Of course, this kind of reform is not easy. It needs all countries cooperation and especially the developed countries endorsement. Disagreements among nations are common at beginning. However, if all countries are aware of the challenges we are facing and the benefit we will get in solving the above-mentioned issues, we believe that most of the countries in the world will cooperate at bearable cost. Chinese government was not an active player in international system two decades ago. It regarded many international organizations as the means of developed countries to control developing countries. It was the believer of absolute state sovereignty and held the stand to oppose any of the action it considers would erode the state sovereign power. However, as we observe, it changes its attitude gradually on many of the issues in international mechanism. It still believes non-violation of state sovereignty in international cooperation but is not as rigid as before and willing to consider the exceptions that to exchange rights for interests. It tries to join most of the international organizations and to be an active member. We believe, as academic scholars, that China has become a responsible member of international society and will actively promote the effective global governance in the 21st century. The reason for Chinas change is not only the reform and opening up policy adopted by Chinese government, but also the globalization trend that made China be fully aware of the challenges it is facing in the new century. So we believe that with deep going trend of globalization, the international system is going to be reshaped in the first 20 years of the 21st century. Our vision of 2020 is that current organizations will be strengthened and given more mandates to oversee the issues respectively.

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2. International monetary system and the IMF in 2020 The so-called international monetary system is the systematic arrangements and rules concerning international monetary and financial relations. The current international monetary system was established in Bretton Woods, New Hampshire, the USA in 1944 and evolved through Jamaica agreement amendment. The IMF is the carrier of the international monetary system. The system worked well it broke down in early 1970s. After that, the setting of exchange arrangements and the status of reserve currency have been adjusted according to new economic climate in Jamaica meeting. However, the organization structure and the principal aim of the IMF were inherited. Before the Second World War, international monetary order was in chaos and foreign exchange controls were prevailing in international transactions. This did a great harm to international trade and economic development in most of the countries. Therefore it was necessary for IMF to pursued primarily the aim of promotion and assist in the establishment of a multilateral system of payments and elimination of foreign exchange restrictions in the after war period. In Article? of the IMFs articles of Agreement, there are six purposes of the Fund. Five of them deal with aspects of balance of payments of members and the multilateral payments. Thus the IMF can be regarded as the organization managing free payment problems. The IMF did a good job in promoting the multilateral system of free payment and hence promoted the international trade and economic development for more than two decades. But since 1980s, the main issue in international finance is no longer the risk of foreign exchange control but the risk of financial crisis. The momentum of financial deregulation and open-up of financial market in 1980s and early 1990s, greatly reduced the possible threat of foreign exchange control. At present, currency current account convertibility has been almost universally achieved, although some of the IMF members still remain under the transitional provisions of Article? ? . Under this circumstance, IMF should shift its focus of adjustment to preventing financial crisis in order to maintain international financial stability. But it failed to fit itself to the new situation. It still adhered to the free payment purpose. It not only encouraged free payment towards the capital account, but also tries to make the capital account convertibility as the obligation of the IMF members. In September 1997, at its Hong Kong Meeting, the Interim Committee of the IMF agree that the Funds Article should be amended to make the promotion of capital account liberalization a specific purpose of the Fund and to give the Fund appropriate jurisdiction over capital movement. That is, it agreed to introduce what is known capital account convertibility as a part of the obligations of the IMF members (see peter Lloyd, 1998). Only the spread over of Asia financial crisis stopped this trend and aroused the doubts about free capital movement. After Asia financial crisis, many crisis hit Asian countries attributed their crises to capital mobility, particularly the short-term capital free movement. Some countries such as Malaysia and Pakistan even have reintroduced capital control. Many western economists also reconsider the effects of freedom of capital movement and supported view of negative effects (Bhagwati, 1998; Cooper, 1998 and Rodrik, 1998) Some even supported the capital control measures employed by developing countries (Simone and Sorsa, 1999; Stigliz, 1999 and Ito and Edwards, 1999). All these show that the main purpose of the IMF is no longer suitable to the present situation. As a result, the Interim Committee of the IMF has backed away from the proposal and appeal for surveillance on short-term capital float has arisen. In fact, not only the main purpose of the IMF is to blame, but also the whole arrangement of current international monetary system is responsible for the frequent breakout of financial crises in 1990s. Exchange rate arrangement is one of such. After amendments in 1978, the IMF gave up the surveillance on exchange regime. Members can adopt whatever exchange regime they think is suitable to them. So all kind of floating and pegging emerged. Distortions of exchange rates among currencies become a common phenomenon, which are the seeds of potential currency crisis. Many scholars blamed the developing countries exchange policy as the main factor for currency crisis. However, we believe that under current international situation,

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it would be impossible for a small open developing country to practice a flexible exchange regime without distortion. If a small open economy adopted a totally flexible exchange rate regime, the exchange rate of its currency would be fluctuating all the time and the currency would eventually loose its credibility. Money substitution would occur, usually in the form of dollarization. If it pegged its currency to the dollar, it bound to be rigid and distortion of exchange rate is unavoidable. This kind of dilemma is brought by the disorder of current system. As for the Funds primary means to maintain monetary stability, the IMF provides s hort-term loans at concessional rates to members. The lending facilities and conditions changed over time, but the principal function of loans remained the same as before, that is to assist the member to overcome short term difficulties in balance of payments. It has no obligation to provide the funds for members to maintain exchange level or long term structural adjustment. In early July 1997, when the crisis first broke out in Thailand, the IMF did not provide any help; because it assumed Thailand would n ot loose its repaying ability. Many economists criticized its late action in Asia Financial crisis. But in fact, the IMF was not design to act as international lender of last resort. Only after Asian crisis, the IMF tried to be so. However, if the IMF play the role of lender of last resort, it should enlarge its Funding base. Many scholar proposed to expand its quota and the agreement has been reached in this regard (Sachs and Woo, 1999; Fischer, 1999; Fernandez-Arias and Hausman, 1999). But even if the Fund expand its quota to 90 billion US Dollar, its comparative funding ability is small. The quota to membersGDP ratio is only one third as compared with that in 1945. If the Fund would allocate quota according to the criteria at that time, the present volume of the quota would be five times lager and would be nine times larger if measured according to trade volume. This means the IMF lending ability is comparatively decreased. Some scholars also criticized the conditionality of the IMF loans because the conventional conditionality usually will worsen the economic situation as the contraction policy improves balance of payments while deepen and prolong the recession. Many Asian countries complained about the IMFs rigid policy. Eichengreen pointed out that the IMF should not only make more loans, but also should remove its lending conditions. He thought that the IMFs lending condition is not transparent and usually arbitrary. Strict restriction would make many countries refuse to accept IMFs loan. We support the view points put forward by above mentioned economist and hold the view that IMF should be strengthened not only by enlarging its quotas, but rather be given the surveillance to supervise international short-term capital movements. It should has three main tasks: first, an international lender of last resort; second, international supervisor on capital movement; third, advisor for member countries on international financial issues. Its main focus at present should be shifted to supervising member countries solvency, and giving the warning when it thinks necessary. The reason is clear. When the majority members realized current account convertibility and free capital movement became a prevailing trend, it is no longer important for IMF to pursue free payment purpose. The challenges for today are crises in financial markets with associated problems of capital flight, debt relief, banking supervision and corporate governance. The IMF should be the principal regulator in this area. It should work together with the World Bank in financial crisis resolution. The World Bank should shift some of its development loan business to commercial financial institutions. Its role in this area should focus on guarantee and participation. It should spare some resources to financial crisis rescuing. Owing to its expertise in economic development, it should cooperate the IMF in drawing lending plans when helping a member country in difficulties. This could help the IMF avoid traditional mistakes that analyze the problem only from short-term monetary point.

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As IMF is mainly participated by member countries' central banks, it should cooperate with the Bank of International Settlement (BIS) and act as an International Regulator of Hedge Funds. The BIS has longer history than the IMF as it was create in 1930 to mange the payment of German reparations after the First World War. Its objectives and roles evolved through time. Now the main objectives of the BIS are to promote the cooperation of central banks and to provide facilities for international financial cooperation. For most of its history, the membership was restricted to developed countries central banks and Eastern Europe but in recent years it has admitted central banks from Asia, Latin America and the Middle East. So it is more a world scale organization than a rich countries club. The BIS has several important roles. It is a meeting place for central bankers. It provides the secretariat for Basle Committee on Banking Supervision yet the Basle Committee is not formally a part of the BIS; this committee provides a forum for the discussion of banking supervision and issued the Core Principles of Banking Supervision. The BIS has established an Institute for Financial Stability. It also collects and collates the statistics and data of all kinds of transactions in financial markets. In all of these activities, the IBS either overlaps or supplements with the work of the IMF. If the IMF establishes a kind of formal working relationship with the IBS and shares their comparative advantages, the surveillance of financial market will and debt relief will be greatly improved. The IMF has the advantage of its lending facility resources, which are critical to debt relief and bailouts, but it lacks experience in surveillance. While the IBS has the experience and expertise in banking and financial market supervisions but has limited lending resources. Cooperation and coordination between them is badly needed and a kind of mechanism to insure the cooperation should be established. The IMF should also work closely with International Organization of Securities Commissions (IOSCO) in international financial market supervision. IMF may create a liaison section in charge of coordination with all other international financial organizations. The IOSCO is an international organization for securities regulators and was found in early 1970s and now its membership comprises regulatory bodies from 91 countries, who have day to day responsibility for securities regulation and administration of securities laws. The main objectives of the IOSCO are: to cooperate together to promote high standard regulation in order to maintain just efficient and sound markets; to exchange information on their respective experiences in order to promote the development of d omestic market; to unite their efforts to establish standards and an effective surveillance of international securities transactions; and to provide mutual assistance to promote the integrity of the market by a rigorous standards and by effective enforcement against offenses. The IOSCO also holds international conference on securities supervision every year and issues resolution as the code for securities supervision. As international securities transactions become more and more important in financial activities, the IOSCO is paying an increasing important role in surveillance on financial markets. If the IMF is going to be international supervisor for capital movements, it needs the IOSCOs expertise and coordination. If possible, combine IMF, IBS and even IOSCO. Let it become a supreme international financial supervisory body. This suggestion may be too bold as many central banks in industrialized countries are no longer responsible for financial market supervision and an independent official body is in charge of it. There will be difficulties for member countries to send representatives to this unified international supervisory body. However, a close working relationship of these three organizations should be established before 2020. 3. Health issues and WHO reform in 2020 Thanks to the continuous economic development of most countries in the world, living standard of peoples has been raising and the health conditions in most cases and of most of the people have been improving. But the disparities exist among nations and regions just as economic development. Problems in nutrition, housing, sanitation and in other aspects of hygiene can easily been seen in developing countries. Infectious

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diseases remained a threat to peoples life in many underdeveloped countries. AIDs spreads faster and kills more people in Africa and some Asian countries. National governments should allocate more financial and human resources in education and medication. However, as we mentioned in the first part, issues in health are closely linked with divergence of world wealth allocations. Developing countries need the help of international efforts, while this kind of efforts should be embodied in an international organization, that is World Health Organization (WHO). WHO was established in 1948 and was a specialized agency of the UN. It is defined by its Constitution as the directing and coordinating authority on international health work. Its aim is "the attainment by all peoples of the highest possible level of health". The detail functions of WHO are set out in its article ? . They are listed as following: - to assist governments, upon request, in strengthening health services; - to establish and maintain such administrative and technical services as may be required, including epidemiological and statistical services; - to provide information, counsel, and assistance in the field of health; - to stimulate the eradication of epidemic, endemic, and other diseases; - to promote improved nutrition, housing, sanitation, working conditions, and other aspects of environmental hygiene; - to promote cooperation among scientific and professional groups which contribute to the enhancement of health; - to propose international conventions and agreements on health matters; - to promote and conduct research in the field of health; - to develop international standards for food, biological and pharmaceutical products; - and, to assist in developing an informed public opinion among all peoples on matters of health. From the full coverage of health matters on its operations, one could imagine that WHO have already contributed a lot for the improvement of heath of human kind. But we could also notice that WHO does not have mandatory power of surveillance and only assist governments on request. As globalization brings greater risk of wider and faster spread of infectious diseases across border, there should be an international body to oversee the matter. WHO should be given this mandate of surveillance. It should not only provide a forum for professional expertise to discuss health issues, but also provides a forum for government official regularly to discuss heath policy and make common efforts to eradicate fatal diseases. Proposed forum of this kind would be annual ministerial meeting of health, which deals one of crucial issues of health every year and draws plan and policy for inter-governmental cooperation. As a specialized agency of the UN, WHO should be given more resources to deal with infectious disease and Aids problems. Member countries should contribute more funds for WHO to conduct research. As we mentioned earlier, pharmaceutical research in private companies is for the profit ends. Their products usually are too expensive for the developing countries owing to the monopoly that are protected by patents. Enhancing governmental research is one way. But more effective way is to help WHO to get more resources for research. Any of the achievements and results of WHO research would immediately be made public and serve for the greatest majority of people in the world. For this reason, WHO should work more closely with the UN Economic and Social Council (UN-ECOSOC) and coordinates all programs concerning international health issues. The UN-ECOSOC should help WHO to organize international conferences on important health issues. WHO should also work more vigorously with member countries and Non-Governmental Organizations (NGOs) in seeking the solutions on Aids and other fatal diseases. Nowadays, NGOs are growing rapidly in many countries and they can play very important role in education and health enhancing. Some NGOs also

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have financial and human resources devoted to health promotion. If all these resources can be put together or coordinates with WHOs programme, we would have a better prospect in fighting Aids and other f atal diseases. In its more than ten operational functions, WHO has a function to propose international conventions and agreements on health matters. But it seemed to have done a little in this area, especially on the matters of genetic engineering and the clone of human creatures. There is growing concern about the potential impacts of genetic products and genetic diseases on human beings. Fear of cloned human creature is even more serious. Some countries passed a law to prohibit the clone of human creature. But we need an international convention on all these matters. WHO should take initiatives and work with all countries health authorities to adopt similar legal actions. There should be an international agreement on genetic engineering and clone matters. WHO has the responsibility to make the proposal to the UN and its member countries. 4. Food security and the FAO Although we are living in a world with increasing wealth and the living standard is continuously rising, poverty and hunger still exist in many developing countries. Secured provision of enough food for all people still remains a serious problem. According to the statistics provided by the Food and Agriculture Organization (FAO), there were more than 80 low -income countries are short of food, 31 of them were facing food crisis. Altogether there were more than 800 million people suffering from hunger and lack of nutrition, among them there were 200 million children under age of 5 years old. It was in this background that the FAO organized a World Summit Conference of Food Security in November 13-17 in Rome. The Summit Conference passed two documents, Rome Declaration for Food Security and the Action Programme of the World Food Summit Conference. Its aim was to reduce by half of 800 million who l ack nutrition. Since then food security become a hot topic in the international society. The FAO is the principal international organization active in pursuing food security. It was established in 1945 when 44 governments indicated their acceptance of the constitution. It is one of the specialize agency of the UN. At present the FAO has 175 members. Its purposes are defined as: to promote the common welfare by furthering separate and collective action---for the purposes of raising levels of nutrition and standards of living of the peoples under their respective jurisdictions; securing improvements in the efficiency of the production and distribution of all food and agricultural products; bettering the condition of rural populations; and thus contributing toward an expanding world economy and ensuring humanitys freedom from hunger Although the FAO has conducted a lot of activities in pursuing its purpose, the world food security problem has not been improved since 1996 Summit Conference. The Declaration a nd the Plan for Action passed in the Conference have no any mandates in member countries. The aim set forth in the Conference and promises made during the Conference was more symbolic than practical. The developed and developing countries actually have had different standpoints. The developed countries hold that the most important thing for reducing hunger is the free trade of grain. They argued that with free trade of grain, the comparative advantage of developed countries in grain production would stimulate the export of grain, thus expands the production and supply of grain in the world market. Developing countries concerned more about the stable supply source of their imports and hoped the developed countries transferring more technology in grain production so as to produce more grain domestically. They criticized developed countries as only cared about their grain trade profit. So different attitudes hindered the common efforts and cooperation among countries. Therefore the FAO needs to continuously coordinate among different groups of member countries and seek compromises. It should launch some new programmes aiming at securing the supply sources for poor developing countries as the WTO negotiation further promote the free trade in agricultural products.

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As food and agricultural issue will remain for a long time, the FAO will still be the important organization adjusting the relation in agriculture and food products in the future. Its relation with the UN and especially with World Food Programme (WFP) should be made simpler. WEP was established in 1961 as the food aid organization of the UN system. Its Executive director should be jointly appointed by UN Secretary General and the FAO Director general. Its main task is to provide food aid to low income, food-deficit countries, to assist in the implementation of economic and social development projects and to meet relief needs of victims of natural and other disasters. Besides its food aid activities, many of its operations overlap with the FAO. We suggest that all issues concerning food and agriculture within the UN be governed by the FAO and WFP be made independent from ECOSOC and become a subordinated body under the FAO. We think this will enhance the efficiency of WFP and add credibility to the FAO. 5. Environmental protection and possible establishment of the World Environmental Organization (WEO) As we are facing more and more issues of environmental deterioration: air and water pollution, global warming, desert expansion, energy and forest depletion, water shortage, species extinction and ozonosphere destruction, protection for environment become a crucial issue for every country. The prevailing of the concept of sustainable development reflects the consciousness of environmental protection by our human beings. Since early 1970s, the UN has launched several initiatives and programmes to arouse the attention of the world to the importance of environmental protections. In June 1972, the UN organized the Stockholm Conference on Human environment, in which the famous declaration on environment was announced. Following this conference, the United Nations Environmental Programme (UNEP) was established. The mission of the UNEP is to provide leadership and encourage partnership in caring for the environment by inspiring, informing and enabling nations and people to improve their quality of life without compromising that of the future generations. Through time, changing agenda has revitalized the UNEP. Now the following six aspects are the focuses of its operations: - To analyze the state of the global environment and asses global and regional environmental trends, provide policy advice, early warning information on environmental threats and to catalyze and promote international cooperation and action, based on the best scientific and technical capacities available. - To further the development of its international environmental law aiming at sustainable development, including the development of coherent interlinkages among existing international environmental conventions. - To advance the implementation of agreed international norms and policies, to monitor and foster compliance with environmental principles and international agreements and stimulate cooperative action to respond to emerging environmental challenges. - To strengthen its role in the coordination of environmental activities in the UN system in the field of the environment, as well as its role as an implementing agency of the Global Environmental Facility, based on its comparative advantage and scientific and technological expertise. - To promote greater awareness and facilitate effective cooperation among all sectors of society and actors involved in the implantation of international environmental agenda, and to serve as an effective link between scientific community and policy makers at the national and international levels. - To provide policy and advisory services in key areas of institution-building to governments and other relevant institutions. We can see from above that UNEP has become a principal organ in environmental protection. However, its status is not legally insured and it lacks mandates to launch negotiations among its members. In April 1987, the UN held the first Conference for Environment and Development, in which issued the report of Our Common Future. It was in this report that the concept of sustainable development was first

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formally raised and defined. Since then, people and governments in all countries have paid increasing attention to the issue of environment protection. In June 1992, another UN Conference for Environment and Development was held in Rio. This conference passed five documents concerning environmental protection and appealed to member states for implementation of the policy of sustainable development. In order to further implement the agenda set in Rio Conference, the Economic and Social Council of the UN (UNECOSOC) established the Commission on Sustainable Development (CSD) in 1993. Since then many efforts have been made within the UN system in promoting sustainable development. At present, almost every country in the world has enacted relevant laws on environmental protection. In developed countries, Eco-agriculture and Eco-industry have been put to important position in economic development. A new industry, environmental protecting industry become a sun-rising industry. Strict regulations on pollution such as control of waste water, carbon dioxide and other wastes discards; control of pesticide and other poisonous elements. Developing countries also adopted many similar legal framework and measures in protecting their environment. Many countries prohibited the hunting of precious species and the felling of their forests. Some also passed laws on waste discards and pollution punishment. China adopted the concept of sustainable development in early 1990s was put to the document of Agenda of 21st Century issued by the State Council. Many laws concerning environmental protection have been passed since then. The Bureau of environmental protection in the government at each level is the most fast growing government department during 1990s. Recently, large-scale forest rehabilitation in the west is underway. Green plantation projects can be seen in many cities. Many pollution-produced factories have been shut down and some of them were forced by law to change to less polluted method of protection or engaged in waste processing project. Environmental protection and sustainable development have never been so attached importance to by the people and the government. However, as we mentioned earlier, environmental issue is closely related to economic development level of a country. Usually a low income developing countries has more serious environmental pollution and has less ability to protect its environment. That is why China still has many environmental problems in spite of efforts made by government since early 1990s and we still need to work hard towards the better position. But owing to the integration of global climate and interdependence of environmental impacts, deterioration of the environment in one part of the world would influence the other parts of the world. International efforts and cooperation is very important in this regard. The UNs efforts showed this importance. However the international cooperation in environmental issues is not promising. Some developed countries pay greater attention to their own environmental protection while overlook the problems in the developing countries. Some of them even destroy other countries and the global environment for their own economic interests. For example, remove the pollution producing factories and industry to developing countries. They protect their own natural resources while excessively consume developing countries resources. They do not want to reduce the carbon dioxide pouring volume by reducing the consumption of petrochemical energy. The recent U.S refusal of Kyoto Protocol is a typical example. Some of the developed countries are not willing to provide resources in help the developing countries. They do not want to transfer technology of environmental protection to developing countries and set forth many obstacles in technology transferring. Therefore, although sustainable development become an inevitable trend in the 21st century, but the core issues of fairness of generations, fairness of the use of resources and fairness in cost sharing in environmental protection still remain as a question. The United Nations has made many efforts to promote the international cooperation in environmental protection. Above mentioned conferences and programmes are such examples of these efforts. But these are far from enough. There is an increasing need for a more forceful and effective international mechanism and a specialized institution to p the task of the world environmental protection. The UNEP lacks mandatory power and resource. We suggest establishing a new organization, the World Environmental Organization

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(WEO), to take the charge of governance and coordination of environment protection issues among nations. The UNEP should be combined with WEO and CSD. The WEO should be give the mandates to initiate negotiations among member countries and draw international convention on environmental protection and sustainable development issues just as WTO does in trade area. It should also be an international provider of technology and financial help of environmental protection, so the UNEP can be responsible for this task under WEO. All environmental issues, including natural resource depletion, pollution, global warming should be discussed in the WEO and member countries may reach some consensus and take common measures to meet the challenges. In this way, CSD can work as a Standing Committee for the WEO and meets more frequently than annually or biannually. Next summit meeting of Group Eight, which will be held in Canada, may start the discussion of this proposal and the UN-ECOSOC may start the inquiry among its members. We believe that a more effective international mechanism will come out before 2020 as we are facing increasing threat of world environmental deterioration.

III. Political Cooperation vis-a- vis Economic Cooperation

Although we regard the global governance mainly an economic issue, we are aware that political element involves in every aspect we discussed above. Some growing challenges are more political than economic, which was defined as first category global issues in the first part in this paper. Actually, all solutions to the issues, especially to the issue of the first category, need political will of international cooperation. Some times, common interests for all parties are obvious, but international cooperation is difficult to realize owing to political, including cultural and religious obstacles. Political leaders of all countries bear the utmost responsibility to find the solution to all the issues and to improve our world. Effective global governance of all the global issues cannot be really achieved without a good international political cooperation among all countries. We advocate political cooperation among nations, but we do not agree to establish an international organization to govern the political issue. Political issue can only be solved through international cooperation and negotiation among sovereign states. Mutual respect for the indignity of sovereignty is the base for political cooperation among nation states. It is not like some other economic issues, in which cooperation and action can be mobilized among different entities, including NGOs and enterprises. Political issues can only be solved among national governments The issue of nuclear control is a pure matter of political cooperation that needs a far-reaching sight of political leaders of nuclear countries. The UN could make some contributions on this matter but no single international organization can govern the issue. As for the issue of transnational crime, there is already an international cooperation among public security agencies of nations. This kind of cooperation sometimes is discouraged by political reasons. Although the UN should deal with this issue and draw some rules and a convention governing the anti-crime efforts, the mechanism will be different from that of other economic issues. It will be very difficult to establish a special international body to govern it. So we think it is also a political matter. We think that the UN is a ready organization to embody increasing international political cooperation. Any disrespectful action towards the UN or any intention to make replacement by any other organization and international mechanism is in vain. History of more than half century after the Second World War has proved that in most cases, the UN system is useful and effective. This system should be strengthened and be made full used of, but not weakened and sabotaged. Clubs of big countries or industrial countries, such as Group Eight and OECD should work as supplement to the UN, but not substitute of the functions of the UN. Our vision on the UN in 2020 is optimistic. The UN will still be playing an important role in international relations, if not more.

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As we mentioned earlier, economic and social issues are increasingly related with political factors nowadays, there should be an international body to coordinates these aspects. Vested with the function of promoting the economic and social progress and development under General Assembly, the UN-ECOSCO is a ready organization. We suggest that the UN-ECOSOC establish a sub-committee of global challenges. This committee should discuss all crucial issues facing us in the process of globalization and hold a conference every year to draw attention from member countries' government and make suggestions to UNECOSOC and to UN Assembly. It should also has mandate power to present the issue to IMF, FAO, WTO and to the forth coming WEO and work together with them to find the solution.

IV. Conclusions
We are aware that Globalization brought numerous challenges in todays world, most of them are worldwide scaled and impossible to be solved by individual countries. We believe that there is a need of international cooperation and international mechanism to deal with them. Big players in the world society, no matter rich or poor should have an urgent missionary sense to take cooperative measures to meet the challenge. All global issues and challenges are deeply rooted from increasing divergence between rich and poor nations and between social stratum. Therefore, we consider that most of the global challenges should be dealt with the international efforts to the poverty relief. Rich countries that benefit the most from globalization need to take initiative and contribute more resources to deal with all these challenges. If consensus can be reached in above points and rich countries are willing to provide more resources for strengthening the international public goods, the international mechanism and organizations to deal with all these challenges would possibly be improved by 2020. In a sense, global governance is a kind of international public goods. International taxpayer should pay for the public goods according to its income. We think that there is only a few area where needs to establish a totally new international organizations in dealing with the global challenges. We have already had the UN, its functional organs, the IMF, the World Bank, the WTO, the WHO, FAO and several other specialized agencies of the UN. Almost all-international efforts in governing the above mentioned issues can be embodied in current already established organizations. Our vision of 2020 is that current organizations should be strengthened and given more mandates to oversee the issues respectively. The IMF should be strengthened not only by enlarging its quotas, but rather be given more supervisory functions of international short-term capital movements. Its main task should be shifted to supervising international financial markets and giving the warning when it thinks necessary. The reason is that when the majority members realized convertibility in current account and free capital movement become an inevitable trend, it is no longer important for the IMF to pursue the main aim of promoting free and multilateral system of payments and eliminating of foreign exchange restrictions. It should work together with the World Bank in financial crisis resolution. As IMF is mainly participated by member countries central banks, it should cooperate with IBS and act as an International Regulator of Hedge Funds and the international lender of last resort. It should also work closely with the IOSCO in international financial market supervision. IMF may create a liaison section in charge of coordination with all other international financial organizations. If possible, combine the IMF, the IBS and even the IOSCO. Let it become a supreme international financial supervisory body. The WHO should be given more resources to deal with infectious deceases and AIDs problems. It should work more closely with UN-ECOSOC and coordinate all programs concerning international health issues. It should work more vigorously with member countries and NGOs in seeking solution on AIDs and other fatal diseases.

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FAO is active in pursuing food security. It will still be a main organization in agriculture and food products in the future. Its relation with the UN and especially with the WFP should be made simpler. We suggest that all issues concerning food and agriculture within the UN be governed by FAO and the WFP be made independent from ECOSOC and become a subordinated body under FAO. Establish a new organization, the World Environmental Organization (WEO), to take the charge of governance and coordination of environment protection issues among nations. The UNEP should be combined with the WEO as the former lacks mandatory power. The WEO can initiate negotiations among member countries and draw international convention on environmental protection and sustainable development issues just as the WTO does in trade area. It should also be an international provider of technology and financial help of environmental protection, so the UNEP can be responsible for this task under the WEO. All environmental issues, including natural resource depletion, pollution, global warming should be discussed and overseen in the WEO. The economic and social issues are increasingly related with political factors nowadays. Effective global governance of all the global issues cannot be really achieved without a good international political cooperation among all countries. But political cooperation can only be achieved among national governments under the base of mutual respect for the indignity of sovereignty. Politics related issues such as nuclear control and transnational crime, should be solved through governmental negotiation and cooperation. They are difficult to be govern by an international organization.

UN-ECOSCO is a ready organization to deal with both economic and political related issues. We suggest that the UN-ECOSOC establish a sub-committee of global challenges and play a more active role.

References
Bhagwati, Jagdish, The Capital Myth: The Difference Between Trade in Widgets and in Dollars, Foreign Affairs, Vol.77, 1999. Brown, Seyom, International Relations in a Changing Global System: Toward A Theory of World Polity, Boulder: Westview Press, 1997. Cooper, Rechard N., Should Capital Account Convertibility Be a World Objective? in Should the IMF Pursue Capital Account Convertibility? Princeton Essays in International Finance, No.207, 1998. Edwards, Sebastian, How Effective Are Capital Account Controls? NBER Working Paper Series No.7413, 1999. Fernadez-Arias and Richardo Hausmann, Whats Wrong with International Financial Markets? A Paper Presented at Tenth International Forum on Latin American Perspectives, November 26-26, 1999. Fischer, Stanley, On the Need of International Lender of Last Resort, a Paper Presented at the Joint Luncheon of American Economic Association and the American Financial Association, New York, January 1999. Hardin, Garrett, The Tragedy of the Commons, Science, Vol.168, December 1968. Ito, Takatoshi and Ric hard Ports, Crisis Management, European Economic Perspective, CEPR EEP 17, 1999. Kindleberger, Chalse P., Dominance and Leadership in the International Economy:
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Exploitation, Public Goods, and Free Riders, International Studies Quarterly, Vol.25.No.2, June 1981. Mayer Peter, et al., Regime Theory: State of Art and Perspectives in Volker Rittberger ed., Regime Theory and International Relations, Oxford: Clareton Press, 1993. Olson, Mancur, and Richard Zeckhauzer, An Economic Theory of Alliances, in George T Crane and Amawi Abla eds. The Theoretical Evolution of International Political Economy: A Reader, Oxford University Press, 1991. Rittberger, Volker, ed., Regime Theory and International Relations, Oxford: Clarendon Press, 1999. Rodrik, Dani, Who Needs Capital Account Convertibility? In Should the IMF Pursue Capital Account Convertibility? Princeton Essays in International Finance, No.207, 1998. Sachs, Jeffery, and Wing Thy Woo, The Asian Financial Crisis: What Happen and What Is to Be Done? Brookings Papers on Economic Activity, I: 1999. Stigliz, Joseph, Bleak Growth Prospects for the Developing World, International Herald Tribune, April 10-11, 1999. Suganami, Hidemi, The Structure of Institutionalism: An Anatomy of British Mainstream International Relations, International Relations, May 1983.

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Multilevel Economic Governance through Subsidiarity: Remodelling the Global Financial Architecture W. Andy Knight University of Alberta
Introduction
We find ourselves, at the beginning of the twenty-first century, in a world beset with critical transnational problems which cannot be resolved without serious reflection, ingenuity, and political will on the part of individuals and institutions at all levels of governance viz. local, national, regional, and global. The solution to many of these problems may well hinge on our ability to forge new or amended structures, mechanism, or institutions of global governance. Our specific task at this Vision 2020 workshop is to draw up the blueprints for the kind of global economic architecture we envision could be feasibly built by the year 2020. As such, this is a speculative and subjective exercise. However, we were instructed to envision a desirable and practicable architecture. Thus, it should not be all that surprising if the reader finds within my proposals a strong normative underpinning that pushes the envelop as far as possible. It should also not come as a surprise that the proposed vision is tempered by the realities of the ideational, institutional and material structures (as well as of the possible resistances from status quo forces), which could be expected to act as a constraint on the implementation of the proposed global economic architecture. To envisage and design what might be considered appropriate institutional requirements (principles, norms, rules and decision-making procedures) for future global economic governance is a major challenge. But it is even more daunting to begin the process of crafting effective and legitimate processesprocesses that are participatory and fairto move the world toward what would be considered by others as a desirable new governance system. Therefore, I make no claims about intersubjective consensus over the proposals in this paper. The only claim I do make is that underlying my proposals is a normative concern that whatever global economic architecture is built, it should have as a focus poverty eradication, equity, sustainability, inclusiveness and justice. If the global rules system is to be harmonised through deeper integration among national economies within an agreed overall framework, as many currently advocate, consideration must be given first and foremost to the development of discursive democratic mechanisms as the rules and framework are created and implemented. There can be no global harmonisation without representation. Accountability guarantees need to be at the centre of any vision for a new global economic governance system.78 It is for this reason that at the centre of this blueprint for a global economic architecture lies a bottom-up model of subsidiarity. The bottom-up subsidiarity model is based on the notion that lower levels of governance should not be denied their competencies as long as they are capable of carrying out specific tasks assigned to them. This particular model of governance allows the more immediate levels (those most affected by a decisionmaking fall-out) to be responsible for carrying out tasks for which they have certain competence. 79 This paper is divided into four parts. Part One provides the backdrop for the speculative exercise. It
78

See the argument made by August Reinisch, Securing the Accountability of International Organizations, Global Governance, vol.7, no.2 (April-June 2001), pp.131-150. 79 W. Andy Knight, A Changing United Nations: Multilateral Evolution and the Quest for Global Governance (Houndmills: Palgrave/Macmillan Press, 2000), p.171.

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succinctly lays out the history and evolution of international financial architectures since roughly 1870 until the present period. It also pinpoints the flaws in the design and structure of the post-World War II international financial and economic system as it tried to weather the turbulence and transition of a rapidly globalizing world. Part Two then examines critically the intensification of globalisation, the impact of this phenomenon on the international financial architecture, and the calls for reform of this system of economic governance. Part Three deals with the emerging structure of what some have called a new international financial architecture (NIFA) and enumerate the problems with this emerging governance structure. Part Four offers a blueprint for a new Global Economic Architecture (GEA) that ought to be seen, not so much as a replacement of the extant international financial architecture as much, as an attempt at remodelling. Finally, I conclude by reiterating the need for an overhaul of existing international economic governance and demonstrating why proposals such as mine could be feasibly implemented by the year 2020.

The Backdrop: Formation and Evolution of International Financial Architectures

According to Leslie Armijo, there have been at least four major financial architectural structures present in the world over the past century and a half.80 Between 1870 until the First World War, an embryonic international financial architecture was designed around the classical gold standard. It was embryonic in the sense that finance was still governed exclusively by national authorities (both public and private). 81 The inter-war period saw a re-configuration of the financial governance structure, even though attempts were made through international conferences to re-establish the gold standard. In practice, the financial architecture consisted of a combination of floating exchange rates, capital controls, limited intergovernmental co-operation and national macroeconomic policy aimed at meeting domestic needs. In 1944, at Bretton Woods, New Hampshire, representatives from 44 nation-states met to design yet another international financial architecture. This multilateral post-war system was intended to regulate trade and monetary relations between states so as to avoid the economic depression and instability that resulted in World War II. The policymakers at Bretton Woods believed that the length and severity of the Great Depression was exacerbated by the lack of commitment by individual states to the maintenance of a stable world economic regime and the absence of formal international rules to guide state action. 82 In essence, the Bretton Woods system (BWS) was a financial and monetary regime whose main pillars included the twin international financial institutions (IFIs) of the World Bank (IBRD) and the International Monetary Fund (IMF), and the General Agreement on Tariffs and Trade (GATT). The World Banks primary role was conceived as one of a financial intermediary to assist in the post-war reconstruction of European states whose economies were devastated by World War II. The Bank also provided creditworthy countries with access to international capital markets. As colonies gained their independence during the 1960s, the Banks role was modified somewhat. It provided many Third World states with major loans for large-scale infrastructural projects such as roads, dams, bridges and airfields. In the late 1950s the Bank created the International Finance Corporation (IFC) to help states obtain finance for major project from private lenders. In 1960, an International Development Association (IDA) was formed to
80

For a more detailed survey see Leslie Elliott Armijo, The Geography of World Financial Reform: Who wants what and why? Global Governance, vol.7, no.4 (2001), pp. 81 Randall Germain argues, that global financial governance did not exist under the international gold standard of the 19th century, since finance was governed at the time exclusively by national authorities such as the Bank of England, the Banque de France and Germanys Reichsbank, along with the finance ministries and treasury boards of national governments like the US. See Randall D. Germain, New Departures: The Emerging Structure of Global Financial Governance, Global Governance, vol.7, no.4 (2001), pp. 82 Susanne Soederberg, International Financial Institutions, in Janine Brodie (ed.), Critical Concepts: An Introduction to Politics , 2nd edition (Toronto: Prentice Hall Canada, Inc., 2001), p.423.

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finance projects in the poorer developing countries. By the 1970s, the World Bank turned its attention to fighting poverty and got into the business of providing aid to Third World countries willing to undertake specific economic and social reforms. One should note that during this period a number of regional multilateral development banks, modelled on the World Bank, sprung up in Asia, the Caribbean and Africa. 83 They also formed important components of the international financial architecture. The IMFs role was conceived as one of overseeing exchange rate relationships in a fixed, but adjustable, exchange rate system and to prevent international financial instability by managing national liquidity and currency crises. The GATTs role was to prevent discriminatory trade practices and to facilitate freer trade through multilateral negotiations (known as rounds). The architectural form of the BWS was designed to exclude a vast majority of states. The main architect was the United States whose structural power and liberal imprint became embedded in this international financial edifice.84 Not only has the US remained at the centre of this international financial governance; the manner in which the BWS has operated also served US hegemonic purposes (Pax Americana) and neo-colonial expansionism. The oil shocks of the 1970s, coupled with the emergence in importance of the Eurodollar markets rattled the very foundation of the BWS. The US unilaterally abandoned the fixed exchange rate regime of the BWS as it saw its political and economic scaffolding around the international financial architecture become undone. In the US itself, economic stagflation led to growing balance of payment problems which forced the US government, under President Nixon, to revert initially to protectionism and beggar-theyneighbour policies. The US also chose to suspend the dollars gold convertibility, which meant that national currencies could be determined by forces of supply and demand in the world market. The immediate postBretton Woods regime was therefore distinguished by floating exchange rates, the easing of controls on private capital movements, and the end of embedded liberalism. It is the post-Bretton Woods international financial architecture that is under scrutiny today by many economist and political analysts. What are the structural weaknesses and flaws of this edifice? One only has to look at the string of bank failures in the 1970s and 1980s, the debt crisis of the 1980s, the Mexican peso devaluation in 1994/95, the Asian financial crises of 1997/98, falling rates in profits in the productive sphere to realise the overall crisis in global capitalism.85 These symptoms are indicative of a set of larger problems, i.e. the failure of international economic governance in a world gripped by the intensification of the globalisation phenomenon, and the need for a remodelling the extant international financial structural design into a truly global and multilevel economic architecture.

The Impact of Globalisation and the Emerging Structure of Global Financial Governance The collapse of the BWS coincided with the advent of intensification in the processes of globalisation. Much has been written about the phenomenon of globalisation so it is not necessary to regurgitate the various positions on this subject. Suffice it to say, as Camdessus does, that globalisation brings with it both
83 84

The Asian Development Bank, the Inter-American Development Bank, and the African Development Bank. John Ruggie, International Regimes, Transactions, and Change: Embedded Liberalism in the Postwar Economic Order, Stephen Krasner (ed.), International Regimes (Ithaca, NY: Cornell University Press, ) 85 See Robert Cox, Production, Power, and World Order: Social Forces in the Making of History (New York: Columbia University Press, 1987)..

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opportunities and risks.86 Like a two edged sword, the impacts of hyper-liberal globalisation has been both positive and negative. Since the 1980s, many countries have realised the benefits of globalisation. Apart from the main industrialised countries, countries like Chile, India, Poland and Turkey joined the newly industrialising East Asian Tigers in efforts to integrate their domestic economies more firmly into the global economy. They were able to attract significant foreign investment and take advantage of the technological advances that accompanied the intensification of the globalisation phenomenon. Some of these countries had export growth rates in the vacinity of 5% per year and they began to diversify their domestic economies. On the other hand, there were many other countries that benefited little from globalisation, the expanding markets or advanced technologies. Among them were countries like Madagascar, Niger, the Russian Federation and the Commonwealth of Independent States (CIS). In sum, the global economic opportunities derived from globalisation are unevenly distributed between countries and people.87 One of the negative impacts has been the unequal global distribution in income. As Robert Wade correctly points out, if the worlds income distribution was more equal in the past few decades, this would be powerful evidence that globalisation works to the benefit of all. It would give developing countries good reason to integrate their economies closely into the world economy, as the IMF and the World Bank and their mostly rich-country shareholders urge them to do.88 The reality, however, has been that global inequality is worsening at a rapid pace. The annual average income of the majority of the populations of Africa, India, Indonesia, and rural China is approximately $1,500 as compared with $11,500 in countries like the US, Japan, Germany, France, Britain and Italy. As Wade puts it, if incomes were measured using actual exchange rates, the range from poorest to richest would be much larger.89 The UNDPs Human Development Report of 1999 presents some startling facts about the impacts of globalisation. The income g ap between the fifth of the worlds people living in the richest countries and the fifth living in the poorest countries was 74 to 1 in 1997. This was an increase from 60 to 1 in 1990 and 30 to 1 in 1960. By the late 1990s the fifth of the worlds population living in the highest-income countries had 86% of the worlds GDP while the bottom fifth had only 1%. Similarly 74% of the worlds telephone lines can be found among the top fifth of the worlds people living in the highest income countries, while the bottom fifth had only 1.5%. OECD countries with 19% of the global population have 71% of global trade in goods and services, 58% of foreign direct investment, and 91% of all Internet users. The assets of the top three billionaires in the world are more than the combined GNP of all the least developed countries (with a population of approximately 600 million people).90 What these alarming statistic show is that there is a problem with the way in which global economics and finance are governed. The policy makers in the major industrialised countries began to realise the seriousness of the problem in the 1990s when a series of high profile financial crises threatened to dismantle the existing international financial architecture and to spread their effects globally. In 1992-93 the German government lost about $1 billion and the Swedish government about $26 billion due to problems associated with the Western European Exchange Rate Mechanism (ERM). In 1994-95, the Mexican peso crisis, dubbed the tequila effect created havoc particularly amongst the emerging market economies of Latin America.

86

Michel Camdessus, The IMF at the End of the 20th Century: Can we establish a humanized gobalization? Global Governance, vol. 7, no.4 (2001), p 87 United Nations Development Programme, Human Development Report 1999 (New York: Oxford University Press, 1999), p.2. 88 Robert Wade, Global Inequality: Winners and Losers, The Economist (28 April 2001), p.72. 89 Robert Wade, Global Inequality: Winners and Losers, p.72. 90 see UNDP, Human Development Report 1999, pp.2-3.

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Finally, between 1997-99 the East Asian financial crisis not only brought down Suharto regime in Indonesia but also rocked the economies of the so-called Asian tigers. By 1988, for instance, Indonesia, Korea, Malaysia, and Thailand each saw a drop in their GDP of between 5.7 and 13.7 percent.91 These are the kinds of problems that have forced a rethinking of the global financial governance system. At the centre of that system today is the Group of 7 (G-7). Germain calls the G-7, the engine room of the global economy.92 The policy-makers within the G-7 have recognised that the health of their economies may be directly linked to the financial systems on the periphery of the global economy. Under the leadership of Bill Clinton, a new element of the international financial architecture was added in 1998 with the creation of the G -22 a group with significant representation from emerging markets, although most of its recommendations clearly reflect US preferences. The unhappiness of the Europeans with continued American dominance over these international financial institutions (IFIs) led in 1999 to the creation of yet another cog in the wheel of international economic governance, viz. the Financial Stability Forum (FSF). Initially, there was no developing country representation in this body. Later Hong Kong, Singapore, the Netherlands, Australia and SAR were added. While not adhering to the principle of inclusion, the FSF was envisaged as a response of the international community to global financial contagion after the Asian crisis. Emerging market economies (EMEs), naturally outraged by the obvious exclusivity exhibited in the FSF, pushed for a G-20 (with representation from the EMEs). This latter body, created by the G-7 grouped together finance ministers and central bank governors from the G-7 countries, from Australia and eleven of the large emerging market economies, as well as representatives from the European Union and the Bretton Woods institutions. As Porter notes, the G-20 is envisioned as a place for developed and developing countries to develop genuine dialogue about long-range international financial architecture questions in a relatively informal process modelled on the G7.93 Some observers are optimistic that the G-20 provides a forum for bringing the emerging market economies into the decision-making structure of the global financial system.94 However, others are not as sanguine. Armijo, for instance, prefers to withhold judgement for the time being on the G-20 arguing that rich countries hold significant control over the G20s agenda.95 Clearly, these new additions to the architecture of international finance have been made possible because of the so-called Washington consensus. The IMF, the World Bank, and now the WTO, are viewed by the US as still necessary component parts of the international financial architecture. The IMF utilises its structural adjustment policy (SAP) programmes to discipline countries in the South into accepting the hyper-liberal position of that is at the heart of the Washington Consensus. As a result, the Fund is now the main organiser of international debt agreements with countries in the developing world. And, the track record has not been all that good. After almost two decades of IMFs SAPs there has been increased poverty in the developing world. The former Managing Director of the IMF, Michael Camdessus, has called for corrections to the financial architecture as a means of dealing with the issue of poverty reduction. He notes that more than 1.2 billion people live on less than US$1 per day, more than 1.4 billion people have no access to clean

91 92

Leslie Elliott Armijo, The Geography of World Financial Reform: Who wants what and why?, p Randall Germain, New Departures: The Emerging Structure of Global Financial Governance, Global Governance, vol.7, no.4 (2001), p. 93 Tony Porter, The Democratic Deficit in the Institutional Arrangements for Regulating Global Finance, Global Governance, vol.7, no.4 (2001), p 94 Randall Germain, New Departures: The Emerging Structure of Global Financial Governance, p 95 Leslie Elliott Armijo, The Geography of World Financial Reform: Who wants what and why?, p.

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drinking water, 0.9 billion people are functionally illiterate and 0.8 billion suffer from hunger or are malnourished. In his words, the widening gaps between the rich and the poor within nations, and the gulf between the most affluent and most impoverished nations, are morally outrageous, economically wasteful, and socially explosive. It is not enough to increase the size of the cake; the way it is shared is deeply relevant to the dynamism of development.96 It is to this latter point that I now turn in my effort to sketch out a rough blueprint for the kind of global economic architecture which, in my opinion, is desirable at this point in our history. Blueprint for a Multilevel Economic Governance Arrangement Despite all of the add-ons to the existing international financial architecture, the problems that beset the international communitys system of economic governance still remain. Helleiner asserts that serious efforts to prepare appropriate governance arrangements (international financial architecture, not plumbing) for the global monetary and financial system have scarcely begun. He continues that the main multilateral institutions concerned with the overall functioning of the global economy and the global monetary and financial system continue to be the IMF and the World Bank Group. In these institutions, formal voting power is determined by a formula assigning primary weight to economic strength with the result that their governance is, by far, the least democratic of the major multilateral bodies.97 The US also retains its blocking voting power in the principal decisions of the Bretton Woods institutions. This democratic deficit is even greater in most of the newer institutions and regimes of international financial governance such as the G-7, the G-10, the BIS, the OECD, and the G-20. Germain argues that there is a new principle of inclusion at work in some of these newer institutions. However, if one examines them carefully, one notes that the inclusive efforts are extended only to a few countries, and these are mostly the emerging market economies. This is nothing more than a symbolic gesture on the part of the major industrial states in an attempt to have these institutions retain some element of legitimacy. Despite these attempts, it has been noted that the G -20 is severely flawed in that it has no representation from the poorest of the developing countries. In any case, most of the decisions on the issue of democratisation of international financial institutions are being made by the G-7 a body that itself lacks legitimacy. The G-20 also lacks any mechanism for reporting o r for accountability to the broader international community; its origins in the G-7 reduce its legitimacy; its membership is not fully representative; its mandate is narrow; its procedures are not inclusive enough to allow for participation by non-governmental organisations; and, its operations are not all that transparent either. The first step in crafting a new global economic architecture by 2020 is to sketch out multilevel governance scaffolding that would allow one to introduce the component part of the architecture. Those component parts can be viewed as the principles, norms, rules and decision-making procedures around which the actors involved in the economic and financial issue area cohere. I see that scaffolding as comprising a subsidiarity form of global economic governance. As noted in the introduction, a subsidiarity framework is based on the notion of multiple levels of governance. In the case of economic governance, one can envision micro, meso and macro governance levels at the local, the state, the region, and the globe. As this is a speculative exercise, it is useful for a moment to think outside the box, especially since the past international financial architecture has proven to be flawed in a number of ways. A scaffolding of
96 97

Michael Camdessus, The IMF at the End of the 20th Century: Can we Establish a Humanized Globalization?, p Gerald Helleiner, Markets, Politics and Globalization: Can the Global Economy be Civilized? Global Governance, vol.7, no. 3 (2001), p.

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subsidiarity could allow one to remodel the existing architectural form into something that is more relevant and more desirable. What seems most desirable at this point is the reduction of poverty. Even the World Bank and the IMF have listed the fight against poverty as a priority item on their agendas. In 1999, the IMF and the World Bank agreed to replace the Enhanced Structural Adjustment Facility with the Poverty Reduction and Growth Facility (PRGF). This development was based on the recognition of a link between debt and poverty. It would be desirable if, by the year 2020, this PRGF could become a mechanism that would respond adequately to the needs of the poor. To do so, some attention should be paid to creating consultative and discursive forums (CDFs) at the local, national, regional and trans-regional levels that would channel the needs of the impoverished to the global Facility. Doing so would strengthen the subsidiarity element of global economic governance and adhere to the principle of inclusiveness and democracy that is so lacking in the current international financial architecture. One of the main concerns of the Highly Indebted Poor Countries (HIPCs) has been the heavy burden that they have had to bear as a result of heavy debt and an absence of relieve from that debt. The HIPC initiative, established back in 1996 and modified recently, has the potential of offering debt relief to these countries. Today, about 22 countries have negotiated a debt write-off of $14 billion. There is no reason why this possibility of a debt forgiveness mechanism should not be extended to other countries that are heavily riddled with debt. The blueprint for a new global economic architecture by the year 2020 should take this point into consideration and allow for the development of a global Debt Relief Fund (DRF) that can be provided on a case by case basis through local, government, and regional banks. The situation of poverty and inequity is so dire in some of the least developed countries that, from time to time, there may b e a need for a pool of contingency funds to help such countries when they find themselves in economic crisis or require assistance with the clean up of an environmental disaster, and so on. Already there are already a number of suggestions as to how such a pool of funds can be attained. One of the more popular suggestions is the crafting of some form of neo-Marshall Plan for the globe. 98 Other funding proposals which ought to be considered include: extracting a global carbon tax on the users of fossil fuels which is projected to yield as much as US$28 billion annually in the US alone; imposing a tax on the trillion dollars a day volume of foreign exchange transactions which could raise an enormous sum of money annually; and, payment of rent by the developed industrialised countries to developing countries as a means of compensating the latter for the formers disproportionate use of the global commons. 99 While tax proposals are generally a hard sell, it is quite possible that by the year 2020 there could be sufficient political will in the industrial North to implement some of them. In any event, if such taxes are to be collected, there should be a Global Structural Adjustment Facility (GSAF) to secure and allocate these funds. The key principle which ought to be central to the operations of the above additions to a remodelled global economic architecture is democracy. By democracy, I am not referring simply to a formal procedure of elections and voting. Instead, I take the position of Tony Porter who argues that contemporary problems, actors, and institutions have outgrown traditional formal democratic procedures and that there has been a noticeable shift in the location of authority away from elected officials.100 Porter explains that there are for types of authority in this era of intensified globalisation: 1) private authority that is generated through
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See for instance, Philip Shabecoff, A Marshall Plan for the environment, The New York Times , 3 May 1990. For more of these schemes see Morris Miller, Where is Globalization taking us? Why we need a new Bretton Woods, p.136. 100 Tony Porter, Democratic Deficit in the Institutional Arrangements for Regulating Global Finance, Global Governance, vol.7, no.4 (2001), p

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collaborative institutions of market actors; 2) technical authority that is generated through bodies of scientific and technical knowledge (a point also made in several places by Tim Sinclair); 3) supranational authority that is generated by the creation of global institutions with a degree of autonomy from nationstates; and, 4) popular authority that is generated when citizens support or comply with a set of political prescriptions that are generated by non-governmental organisations and social movements rather than by legislatures.101 It would be useful if by the year 2020 all of the institutions within the global economic architecture could adhere to the principle of democracy in their policy-making process. There ought to be a number of Consultative Councils (CCs) created at every level of governance in which serious discussions and discourses can be held regarding changes to the global economic architecture. The input must come from all levels if the add-ons to this architecture are considered legitimate.

Conclusion
Essentially, the above blueprint for a new global economic architecture is not all that radical. It does not call for a dismantling of the existing international financial structure. Instead, it opts for remodelling, albeit paying specific attention to principles of democracy, inclusion, transparency, and accountability. After all, no attempt at creating such an architecture would be considered legitimate today if all of the players involved in global governance, in one capacity or another, did not have some say in how this architecture was crafted. In offering my proposals, I was cognisant of the fact that the year 2020 is not too far away from the present moment. Thus, one should not expect a major overhaul of the global economic architecture. One can assume that with the US still at the core of the existing global financial arrangements, the main pillars of that structure will endure for sometime. Thus, the G-7/8, the IMF, the World Bank, and the WTO will continue to be central to this architecture by the year 2020. In addition, newer elements of the architecture which include the FSF and the G-20, while not as inclusive as they should be at the moment, will remain in place. I expect to see changes to these bodies as increasing pressure is applied by antiglobalisation protesters for a more transparent and democratic/representative process of decision-making in these bodies. The new features which I have added to this architecture are designed to address the main problems still facing the existing international financial structure, i.e. the instability that could be caused if nothing is done about poverty in the HIPC countries, excessive debt, global economic inequities, and the democratic deficit in most IFIs. Central to these new institutions is the notion of discursive and consultative mechanism that will ensure proper input from below. Finally, a scaffolding of bottom-up subsidiarity is offered as a means of ensuring that whatever feature is added to the future global economic architecture will be supported by those who are most likely to be affected by the economic decision-making fallout.

Poverty alleviation must be the centrepiece of any strategy for creating a new global economic architecture. But suggestions for such strategies must come from the poor and marginalized people themselves. The approach must be local/national specific not top-down (i.e. not coming from IMF and World Bank officials. Whatever global economic architecture is designed for the future must be aimed at reducing the heightened insecurity which a large segment
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Tony Porter, Democratic Deficit in the Institutional Arrangements for Regulating Global Finance, p..

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of the global population is experiencing as a result of unemployment, job insecurity, poverty, inequality, marginalization and exclusion.

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Redesigning the International Financial Architecture: Voting and Power Sharing in the IMF Mark W. Zacher Institute of International Relations University of British Columbia mzacher@interchange.ubc.ca
Prepared for the Conference on the International Financial Architecture, Centre for Global Studies, University of Victoria, 29-30 August 2001

Outline of paper: Introduction The reconciliation of norms in the design of international institutions Autonomy International order Power Democracy Accountability Efficiency Transparency The IMF/World Bank decision-making system: past developments and future prospects Conclusion

Introduction
This paper addresses one issue with which this conference on the international financial architecture is concernednamely, rules and practices concerning the sharing of power in the International Monetary Fund. In large part the paper focuses on formal voting arrangements, but it also discusses some non-voting practices that affect the sharing of power. These latter practices are often viewed as being of minor importance, but this is not the case. Changes in practices that enhance the ability of poorer states to understand their interests better and to present their views more effectively can have major impacts. One of the most notable developments in international relations over the past century and a half has been the growth of international organizations that have been central to rule-making and collaborative activities in international politics. In our modern era of growing international exchanges and interdependencies states have found it necessary to develop rules of the road and joint enterprises to secure a variety of values; and international organizations are basically a prerequisite for the development and supervision of these rules and collaborative endeavors. Because of the growing importance of international institutions states have a strong interest in their formal decision-making arrangements and their informal

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power-sharing practices; and they, of course, differ on the arrangements that they prefer. Their varied patterns of interests and power shape the institutions that they create. Sometimes their conflicts are intense, and this has been evident at times in the conflicts over voting and decision-making practices in the IMF as the international flow of money and the roles of international financial institutions have increased markedly. The first section of this paper is a rather long discussion of the framework for analyzing decisionmaking structures. It focuses on the norms states support that concern their policies toward institutional design. The priorities that different groups of states assign to these norms change with time and influence their policies concerning institutional reform. In the case of the voting rules of international organizations there are clear tensions between state autonomy vs. a concern for international order and between a need to recognize differences in states power vs. support for democratic egalitarianism. There are other tensions as well, but these are certainly the main ones. Recognition of the centrality of these normative tensions is very helpful in tracing the evolution of international institutions and analyzing how these bodies might be reformed in order to improve their ability to promote certain values and manage international problems. The second section analyzes the present character of the decision-making arrangements of the IMF, and it also looks at some reforms that might be accepted. It highlights in particular the normative tradeoffs that are inherent in states acceptance of institutional rules. One thing that is important to recognize is that the battles that are being waged in the Fund are being waged in many international institutional settings. However, the Fund occupies an importance in international economic relations that goes considerably beyond that of almost all other international economic organizations. The concluding section comments generally about the possible directions and implications of international institutional change.

The reconciliation of norms in the design of international institutions

The design of international institutions, like the making of public policy in a host of areas, involves the reconciliation of different values or norms that are held by political participants. The weight that groups of states assign to different norms, of course, depends on their interests, and the outcome of their deliberations is affected by both their pattern of interests and their power. There are a significant number of norms that are discussed in analyses of the decision-making systems of international institutions. Some of them are in direct conflict with each other, and the politics of designing institutions generally focuses on the relative weight that should be given to these norms. Each of the most important norms is briefly discussed.

1.

The autonomy norm: states should not be bound by the decisions of other states without their approval. This has been a foundational norm of the interstate system starting in the 17th century, and it still has important impacts on the design of international organizations and treaties. However, with the development of increased international interdependence and a burgeoning number of international organizations since the middle of the 19th century it is not assigned the weight that it once was. Some of the rules that implement this norm are: Requirement of unanimity for the passage of resolutions (i.e., a veto for all member states);

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 2.

Recommendatory (as opposed to legally binding) status of resolutions passed by international organizations and conferences; Requirement that states ratify or accept a treaty in order for them to be bound by it; Requirement that in order for legal prescriptions to assume the status of customary law they must be judged to be legally binding by the community of states.

The international order norm: there should not be serious barriers to the ability of international institutions and conferences to formulate legally binding rules for the society of states (e.g., very high majority requirements for passage of resolutions). In an era of increasing international interdependence states have recognized that in order to realize mutual interests it is necessary to have substantive rules that govern many of their interactions, and in order to do this international institutions must have voting rules that do not require high majorities. Taken to its logical extreme, the international order norm could mean the acceptance of a global government, but it is not taken to its extreme since states still give considerable weight to their policy autonomy. Some of the rules which implement this norm are: Acceptance of majority decisions as legally binding on all organizational members; Requirements of very high majorities for the passage of resolutions; Stipulations in treaties that they enter into force with the acceptance by a reasonable number of states; Stipulations in treaties that amendments are binding on states as long as they do not explicitly reject them; Settlement of disputes by arbitration or international courts.

3.

The power norm: states influence over international decisions should be correlated with their material importance in the issue area. This is based on a realization that decisions will not be implemented as long as the most powerful states do not support them and by the leverage that the most powerful states are able to exert on the weaker states. Rules that implement this norm are: A veto power for great powers; Weighted voting that correlates states number of votes with their material importance in the issue area; Special majority requirements (possibly combined with weighted voting) that give powerful states a veto over the passage of resolutions and the entry into force of treatiesand possibly the voting power to secure the approval of resolutions or the entry into force of treaties; Permanent membership of the most powerful states in the executive bodies of the international organizations.

4.

The international democracy norm: states should have equal voting status in international institutions, and it should be possible to make legally binding decisions with support from a low majority of states. (Another norm that will not be discussed is what might be called the popular democracy norm, i.e., votes should be determined by the size of states populations.) Some of the rules that would implement the international democracy norm are: One state/ one vote; Majority requirements in the range of 51-67 percent; Including a significant number of the less powerful states in executive bodies (e.g., requirements that each region is allowed to choose a certain number of members); Assuring that informal negotiating sessions are not confined to the most powerful states;

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 5.

Allowing states to participate in executive bodies even if they are not members when they have important interests in the issue.

The accountability norm: international organizations should communicate openly with different stakeholder groups (e.g., donor states, recipient states, NGOs, local groups influenced by loans) and should take their views seriously. In a sense this norm is a dimension of the international democracy norm, but it focuses on relations with stakeholder groups rather than decision-making rules. Some of the ways in which the norm can be furthered are: Providing states that give and receive loans or grants with thorough information on the objectives and results of those loans or grants; Communicating with NGOs and local groups concerning their views on the impacts of loans and grants.

6.

The transparency norm: efforts should be made to improve states understanding of the nature of international problems and each others policies. Some of the ways that this could be done are: Making the debates of executive bodies public or open to scrutiny by non-members; Increasing knowledge of problems by producing more studies on issues; Disseminating documents from executive bodies to all member states; Requiring that states report on compliance with treaties.

7.

The efficiency norm: states should seek to reduce the time involved in producing organization decisions. Some of the ways that this could be promoted are: Keeping the number of members of negotiating and decision-making bodies small; Improving the quality of information available to participants.

The major tensions in the design of international institutions concern the autonomy vs. the international order norm, the autonomy vs. the international norm, and the power vs. the democracy norm. There is also a lesser tension between the democracy norm and the efficiency norm over the number of states to be involved in decision-making. The following discussion provides further elaboration on the nature of the seven norms and the conflicts between them prior to the analysis of IMF decision-making structures.

Autonomy Norm
The autonomy norm, needless to say, occupies a central importance in states approaches to international collaboration. Inis Claude notes that traditional international law upheld the rule that every state has an equal voice in international proceedings; and that no state can be bound without is consent. (Claude 1964, 112) Several writers have pointed out that the more important international issues are to states, the more likely they are to cling to the autonomy norm. (Claude 1964, 115; Zamora 1980, 595) In fact, Stephen Zamora has noted that in the case of international agreements where states apparently have sacrificed significant autonomy, one finds the highest incidence of voting safeguards. (Zamora 1980, 589) That is to say, states do not stray very far from maintaining a veto over their international commitments. It is because of the continuing import of states desire to maintain a high degree of autonomy that Robert Keohane has remarked that Global governancewill have to be limited and somewhat shallow if it is to be sustainable. (Keohane 2000, 7)

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International order norm

The problem, of course, with states insistence on maintaining complete autonomy is that it prevents the development of international institutions and treaties that assist states with realizing mutual interests through adherence to international norms and rules. After all, differences of interest and judgment make universal agreement a rare phenomenon, and insistence on unanimity for international collaboration is to admit that among nations no real organization is possible. (Claude 1964: 113) States have clearly opted for accepting some incursions on their autonomy, although they have certainly not completely turned their back on their desire to maintain a high degree of independence. Bergsten, Berthoin, and Mushakoji have accurately written that This tension between, the imperatives of international interdependence and the quest to retain adequate degrees of national autonomy, appears likely to remain the basic issue of international relationships for some time to come. (Bergsten et al. 1976: 2) Despite the endurance of this struggle by states to maintain a high level of autonomy, the multitude of international organizations and treaties indicates that states are committed to developing rules that facilitate their realization of mutual interests. This is a manifestation of a significantbut not a blanket commitment to the norm of international order. Political leaders overridingly realize that A lesson from the past is that international institutions can make the world safe for interdependence and indeed are necessary to avoid efforts by individual nations to export their international problems to each other.(Bergsten et al. 1976: v) Such problems encompass issues such as transnational environmental damages and a decline in international comparative advantage of national industries. Important manifestations of states attempts to reconcile the norms of autonomy and international order are the rules governing most treaties. First, treaties are formulated by conferences that require the support of two-thirds of the states in attendance and, second, no states are legally bound by treaties if they do not ratify or accept it. What these rules do is to encourage states to formulate treaties that are acceptable to a large number of states since to do otherwise is to assign treaties to irrelevance and to undermine the realization of some absolute gains through regulated interdependence. Still, the right of states to remain apart from any treaty provides important protection for states sovereign rights to avoid international obligations.

Power Norm
Apart from the tension between states attachment to autonomy and their desire to realize gains from international accords, there is another major tension in the design of international institutionsbetween the desire of the most powerful states to realize a significant control over the rules of international collaboration and the desire of the less powerful states to push for the democratic values of equal voting power and majoritarian voting. There have clearly been tradeoffs between the t wo groupings of states, and the large grouping of weaker states (especially from the developing world) have made modest gains over time. Until World War I international institutions and conferences were dominated by the rule one nation, one vote. In the interwar era there was a gradual movement toward giving the most powerful states privileged positionsespecially permanent memberships on the executive bodies of international organizations (e.g., the League Council and the ILO Governing Body). With the e xplosion in the number of international institutions in the post-1945 era, various types of international voting arrangements emerged. The major three ways for bestowing privileged status on the most powerful states are selective representation on executive organs, special majorities, and weighted voting. (Zamora 1980: 590-95) These are often combined. For example, the IMF gives membership on the Executive Board to the countries with the largest economies; it gives different numbers of votes to states on the basis of their financial contributions, and it requires different majorities for different types of votesgiving de facto veto power to the wealthiest countries.

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While most such voting arrangements have been strongly supported by the developed countries in global bodies, the most powerful developing countries have pressed hard and successfully for privileged voting power in regional organizations. The wealthiest members of the Asian, African, and Inter-American Development Banks have all secured shares of total votes on the basis of their financial contributions. The same is true for the developing country members of the International Fund for Agricultural Development. In the case of international commodity organizations exporters, and importers are given votes on the basis of their shares of exports and imports, and the major developing exporters and importers have certainly been major advocates of these arrangements. (Zamora 1980: 575-95; Finlayson and Zacher 1988: 1988) While greater voting power for the most powerful states is generally seen (with some justification) as a product of these states refusal to join an organization unless they receive greater voting power than other states, it is not the only reason. Others are that support of the major p owers enhances the likelihood that organizational decisions will be implemented and that the organization will not be discredited by a lack of success. (Claude 1964, 139) A propos of this latter point, equal voting power makes for unrealism by masking the tremendous differences in the capacities, resources, interests, and involvements of states, and bestows upon lesser states a disproportionate influence in international agencies which discourages powers whose role is thus artificially minimized from taking the agencies seriously or entrusting important functions to them. (Claude 1964,113) There is another issue that should be taken into account in discussing the power norm, namely, it is often viewed as dangerous not to recognize changes in power relations through membership and voting requirements in international organizations. To quote Bergsten, Berthoin, and Mushakoji, History has shown that the greatest dangers to international stability often arise from those nations whose real power is inadequately reflected in the relevant sets of international arrangements and symbols of status therein. (Bergsten 1976, vi) This problem is, of course, highlighted now by the standstill in negotiations to alter the membership and veto powers of UN Security Council members.

International Democracy Norm

The growth of international institutions and law since the middle of the nineteenth century has occurred simultaneously with the growing acceptance of democratic ideology and institutions, and it would have been very strange if this transformation in political values had not had major impacts on international institutions. Democratic values, of course, have had a major influence on the growing acceptance of majoritarian voting in international organizations and treaty conferences (which generally required twothirds majorities). They have also led to the inclusion of significant numbers of small and weak states on the executive bodies of international organizations (e.g., WHO, WMO, UNESCO, IMF). In fact, coalitions of both the most powerful and the least powerful have veto power in many bodies. Of course, what happens at the informal level is that some of the most important decision-making occurs among the most powerful states in particular issue areas and organizations. Twenty-five years ago Bergsten, Berthoin, and Mushakoji proposed a model for negotiations based on three concentric circles. At the center are those major powers who are central to developments in an issue area and have the greatest influence over developments; then there are a good number of states who have moderately important roles; and finally there is a large number of countries who have somewhat minor roles in the issue area. The second group is almost always likely to include some important non-Western states, and of the large number of developing countries within the third concentric ring they have some influence because of their roles in legitimizing international accords. (Bergsten et al. 1976: 27) To quote the three authors: Such a system can be both effective and legitimate, if implemented through continuous consultations among different countries in the different circles and if individual countries are willing to be represented by others at some levels of discussion. (Bergsten et al., 1976: vi) In fact, negotiations in international bodies with large memberships

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tend to reflect this model. It is certainly the case that democratic majoritarianism does not prevail in those areas where voting decisions are legally binding or large sums of money are given as grants and loans. (Claude 1964, 115; Cox and Jacobson 1973, chs. 1 and 11) However, this does not mean that the large majority of poor or weak states are excluded from positions of influence. They often have a veto power if they cooperate and act as a group. In addition, the industrialized nations are often reluctant to impose decisions on the developing states regardless of their respective formal voting powers. They may be willing to veto or block decisions, but they are more reluctant to force resolutions or programs on weaker nations. (Woods refers to resolving the tradeoff between power and international democracy as achieving a balance between requirements of effectiveness and universality. 2000b: 828)

The Accountability, Transparency, and Efficiency Norms

These three norms do not conflict with other norms as clearly as do the autonomy, international order, power, and international democracy norms. The accountability norm does conflict with the power norm, but the conflict is not as clear as the tension between the international democracy norm and the power norm. The accountability norm relates basically to the responsiveness of an international organization to member states as well as civil society groups. Generally the concern of commentators has been with the responsiveness of the organization to its weaker members as well as civil society, but accountability to richer donor states is also an issue. In fact, the industrialized states are definitely concerned about international organizations communicating with them about the effectiveness of their financial contributions. In a sense the transparency norm can be regarded as a component of the accountability norm since it is impossible for states and nongovernmental groups to evaluate organizational programs without adequate information. It is unquestionably the case that the literature on the reform of international institutions refers more to accountability and transparency than anything else. (Woods 2000b, 823) In part, this is the case because it appears that they are values that can be promoted to the benefit of all. One also often sees references to the desirability of promoting efficiency although its precise meaning is often not provided. At its heart the efficiency norm refers to the desirability of coming to good decisions quickly. In other words there is a concern for minimizing the expenditure of resources in producing the key outputs of organizations.

The IMF Decision-Making System: Past Developments and Future Prospects

The IMF is an excellent institution to study conflicts between groups of states over the importance that they assign to different norms of international decision-making. In international monetary relations the industrialized states assign a very high priority to the international order norm (in particular the need for rules to govern problems of international indebtedness) and the desirability of giving greater voting power to the large donor states. On the other hand, the developing countries are not quite as supportive of the need for a strong regulatory order, and they clearly support democratic egalitarianism over the bestowal of dominant decision-making power on the wealthiest states. An additional interesting feature of the politics of IMF decision-making is that it is certainly possible to see that influence lies not just in voting rules -- but in a host of practices that affect the knowledge and persuasiveness of national delegates. In fact, it is possible that the most meaningful changes for a redistribution of influence lies in these non-voting practices. The IMFs Articles of Agreement were originally adopted at the 1944 Bretton Woods conference, and they have been amended on two occasions--the First Amendment of 1969 and the Second Amendment of 1978. In these two accords the decision-making provisions of the IMF were only altered in modest ways.

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In recent decades there have also been some less formal ways that the distribution of influence within the IMF has been changed. A central aspect of the decision-making structure concerns the distribution of votes on the basis of the size of states capital subscriptions or quotas that are determined largely by the size of countries economies. While all states receive 250 votes, they receive an additional vote for every 100,000 SDRs of subscriptions. Originally the 250 votes accounted for 11 percent of total votes; today they account for only 3 percent. Resolutions are passed in the Board of Governors (all member states) and the Executive Board (24 members) by different majorities: originally there were five (??) different majorities for varied issues; and today there are three (50, 70, and 85 percent). Under the Second Amendment there are 53 different issues where special majorities of 70 or 85 percent are required. (Buira 1996: 44-45) According to Stephen Zamora, the increase in the number of special majorities dictated by theSecond Amendment of the Fund appearsto be a response to developing country pressure for at least a veto power over decisions taken by the developed country majority. (Zamora 1980, 596) This is certainly the case. The Developed countries as a group have the voting power to block all decisions requiring simple majorities, and subgroups of the developed have the ability to block decisions requiring 70 and 85 percent majorities. (Gold 1984: 404-06) The IMF Board of Governors meets once a year and approves very general policy directives. The 5 largest economies have 45.47 percent of the total votes (2,166,739) in the Board of Governors. The other members of the Western European and Others Group have 21.42 percent; the Eastern European and Soviet successor states have 7.73 percent; the Latin American and Caribbean states have 7.73 percent; the African states have 6.01 percent; and the Asian states have 11.07 percent. Most of the on-going work of the IMF is supervised by the Executive Board which now has 24 members. The 5 largest economies (United States, Japan, Germany, France and the United Kingdom) have the right to appoint members to the Board. Also, Saudi Arabia, China and Russia have this right as well as a result of Board decisions. The remaining 14 members are elected by the Board of Governors, and within the Executive Board they possess the total votes of the states that they represent. . The distribution of Executive Directors is: 12 from the Western European and Others Group (including the five largest economies); 3 Latin American, 3 African, and 7 Asian. (Gold 1984: 386-89) The Executive Directors from the Western European and Others Group have 63.36 percent of the votes in the Executive Board; Russia 2.76 percent; the Latin American and Caribbean 8.76 percent; African 7.34 percent; and Asian 14.15 percent. (IMF website) Despite the complexity of the IMF voting scheme the IMF members seldom take formal votes. Rather, they generally rely on consensus decision-making. A 1980 study noted that a formal vote, either in the Board of Executive Directors or in the Board of Governors, is a relatively rare occurrence; most decisions are made by a form of consensus, or sense of meeting. (Zamora 1980, 568) The same practice has been noted in a paper written recently. (Evans and Finnemore 2001, 3) Peter Evans and Martha Finnemore note an interesting implication of this attachment to consensus decision-making, namely, it increases the importance of effective voice since significant opposition undermines consensus claims. (Evans and Finnemore 2001: 3) By this they mean that the ability of states to articulate arguments well provides a real deterrent to decisions that challenge their interests since other members are reluctant to impose resolutions on them. In fact, the key message of their article is that the best chance for the developing countries to enhance their influence lies in strengthening of their voice (as opposed to votes) in IMF deliberations. Ngaire Woods provides some other perspectives on the prevalence of consensus decision-making. First, she notes that it undermines transparency and accountability in that states a nd NGOs that do not participate in the deliberations find it very difficult to determine what has transpired. (Woods 2000b, 836) Second, she comments that Consensus decision-making does not suppress the underlying structure of voting power.Even where formal voting is not used to make decisions, formal powers have an underlying

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force of which all participants in meetings are aware (Woods 2000b, 829) During deliberations the Secretary of the Executive Board or its committees keeps a tally of votes for and against a proposal for the Chair. (Woods 2000b, 829) There is undoubtedly a significant measure of truth to this evaluation, but at the same time there is probably something to Evans and Finnemores point about how consensus decisionmaking gives significant weight to poor states with well articulated arguments. Turning to the earlier discussion of norms that underline international decision-making structures, it is clear that states attachment to the international order norm has been given precedence over the autonomy norm. Equally states backing for the power norm has had a much greater impact than the international democracy norm. At the heart of the regime is a commitment by the advanced capitalist states to prevent serious indebtedness by states from undermining the international financial and commercial systems. Of course, over the past three decades these developed countries have not been subject to IMF conditionality packages whereas a great majority of the developing countries have. The constraints of the IMF regulatory regime on the industrialized states (and their banks) have been in the realm of committing financial resourcesnot having to restructure their economies. At the same time it is important to recognize that the financial elites in many developing countries are cognizant of the value of IMF loans and restructuring programs for their own economies and the global economy. The progress in implementing the democracy norm in the IMF decision-making system has been modest, but it has occurred. There has been little change in developing countries share of votes. However, they have obtained greater representation in the Executive Boardfrom 5? out of 12 in 1945 to 11 (excluding Russia) out of 24 in 2001. [In 1945 two of the five states with the right to appoint members were India and China; an additional two were American Republics; and 1(?) out of the 5 elected members was a developing country. It has always been true that voting power is structured so that the Fund is incapable of taking any action that the industrialized countries feel contradicts their national interest (Evans and Finnemore 2001, 13). However, almost a half of the Executive Directors are from developing countries, and they possess the voting power to veto most major decisions if they collaborate. Also, reliance on consensus decision-making enhances their leverage since other states will seek to accommodate poorer states if they have good arguments. In fact, Evans and Finnemore claim that the consensus process of decision-making on the Executive Board is one of the important democratizing features of Fund governance (Evans and Finnemore 2001, 27) At the same time it would be foolish not to recognize that in an organization whose main function is the lending of money, a veto power for the donors is more important than a veto power for the recipients. As Evans and Finnemore (2001)as well as Woods (2000a, 2000b) have argued, the key strategies for enhancing developing country influence lie in interjecting more people into the decision-making process who are sensitive to developing-country interests and in increasing the information at the disposal of all participants in the IMF decision-making process. Pertinent to this argument, Evans and Finnemore have written that Having more votes is an empty victory without a well-developed set of policy proposals that can in turn be effectively harnessed to the machinery of policy implementation. (2001: 2) Third World countries have already achieved some gains in these realms, but more progress can be achieved. Here are some strategies that can be further promoted. More IMF officials from developing countries (one-third presently) More IMF officials with field experience in developing countries Better information on developing countries, e.g., through resident representatives and reports (e.g., the Public Information Notices on states economies) (Woods 2000b: 826) More IMF officials with training outside of North American and British graduate programs especially in developing countries More access for NGOs to IMF decision-makers

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More staff attached to Executive Directors from developing countries More developing country Executive Directors (without changing the number of votes of individual countries)

An interesting dimension of the democracy norm is what is often referred to as accountability. That is to say, international institutions should describe and explain their policies to those who financially support the organizational programs and those who are influenced by them. Of course, real accountability only occurs when organizations are responsive to the interests of the whole range of stakeholders who have financed programs and are influenced by them. This must include responsiveness to the concerns of the donor countries as well as the recipient governments and the local groups influenced by particular programs. With regard to the donor states the IMF has secured agreement by a large number of recipient states to publish information on their economies and their compliance with IMF conditionality programs. Donor states now have a much better understanding of the practices and success of recipient countries than was formerly the casewhat Woods refers to as fiscal transparency. (Woods 2000b: 825-26) At the same time the IMF, and e ven more the World Bank, are much more active in consulting with local groups influenced by loans than was formerly the case. In part, their responsiveness has been pushed by nongovernmental organizations (NGOs)often from the developed world. A serious problem that the IMF and all international institutions face is: how representative are NGOs of the actual concerns of local groups in developing states? A great deal of research has to be done on this matter since NGOs are growing fast and are increasingly strident in making their views known. The World Bank has initiated a number of efforts to promote greater responsibility, and the IMF can seek to learn from them. On the other hand, it is easier to seek feedback from local groups in the case of specific development projects as opposed to debt rescheduling packages and structural adjustment loans. The key World Bank body was created in 1993, namely, the Inspection Panel which receives complaints from local groups and NGOs. Also, in 1999 the World Bank created the Office of Compliance Adviser/Ombudsman for the International Finance Corporation (IFC) and the Multilateral Invest Guarantee Agencytwo components of the World Bank. It was created to respond to environmental and social concerns of local populations and NGOs. It engages in mediation between the IFC and MIGA and local parties, and it reports directly to the president of the Bankgiving him information that is needed in restructuring general World Bank policies. (Woods 2000a: 93-94) An interesting issue is: how can the IMF adopt greater receptivity to the concerns of local populations in recipient countries? Its clientele for loans is the entire population of developing countries not a limited number of local groups. It needs to interact with a broad range of civil society groups. This raises the very difficult problem of how seriously it should consider the views of different organizations when they represent very different groups and have very varied levels of expertise. In part, interactions by the IMF must be directed as much to education as to being educated. It has to explain to local and transnational NGOs why it has established different conditionality policies. It cannot leave this role to national governments and NGOs. It must however do this with a commitment to listen hard to the very real social messages that are emanating from social groups. The line between being accountable and promoting greater transparency is a very thin one.

Conclusion
In reflecting on the reform of IMF decision-making it is important to keep several things in mind. First, it is very unlikely that the major donor states (namely, the Western industrialized countries) are going to sacrifice their veto power (15, 30 and 50 percent of total votes depending on the issue) over the amount of money that they contribute or the policies concerning loans and grants to recipient countries. They may be willing to make some modest changes in the distribution of votes and the majorities that are required for

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particular types of decisions; but they are not going to sacrifice their ability to block decisions that concern contributions to the IMF and the IMFs dispersements of these funds. The industrialized countries are not, in fact, particularly concerned about the developing countries obtaining a veto power in financial bodies such as the IMF. After all, the developing countries possess a little less than 40 percent of total votes Second, the major influence of international institutions lies in their impact on states understanding of their interests and the problems that they are addressing. To quote Robert Cox and Harold Jacobson, International organizations facilitate the orderly management of intergovernmental relations without significantly changing the structure of power that g overns these relations, at least in the short term and somewhat beyond. Over their longer history, the greatest potential for change from international organizations may lie in the opportunity they give the less powerful to influence the climate of opinion and the accepted values according to which action is determined (Cox and Jacobson 1973: 428) They go on to note that learning best takes place in oligarchic organizations where the powerful are involved. Such involvement can lead to a diffusion of influence. (Cox and Jacobson 1973: 436) What these points imply is that observers concerned with the welfare of the developing countries should not focus on overturning the voting arrangements in the IMF. Rather, they should try to promote the ability of both developing and developed to understand the complexities of the situations that they face and the network of communications linking stakeholders. As noted above, some important steps have already been taken in this direction. To further understanding of IMF decision-making it is valuable to classify international organizations according to their commitment to international governance (or the relative prominence of the autonomy and international order norms) and the diffusion of power in their voting arrangements (or the relative prominence of the international democracy and power norms). The four types of international organizations are portrayed in Figure 1.

Figure 1

International Organizations Classified by Commitment to Governance and Diffusion of Influence

Diffusion of Influence Commitment to International Governance Autonomy Norm International Democracy Norm Power Norm Order Norm

Weak multilateral (ex: UN General Strong multilateral (ex: International Assembly, UNESCO, FAO) Maritime Organization, International Telecommunication Union, WTO ) Weak oligopolistic (ex: Group of 8, Strong oligopolistic -- generally with UN Security Council) participation of the less powerful (ex: IMF, World Bank)

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The organizations that give considerable weight to state autonomy and international democracy are weak multilateral bodies such as the UN General Assembly. Their decisions are purely recommendatory. The most powerful states will quite simply not give legally binding legal power to an organization with one nation, one vote and a requirement of a two-thirds majority. In fact, many of the less powerful states would not support such bodies. The international institutions that give dominant weight to the autonomy and power norms are best viewed as weak oligopolistic bodies such as the Group of 8 and the UN Security Council. They do facilitate ad hoc accords on a variety of problems, but they are not generally central actors in the issue areas where they operate. Next, there are strong multilateral bodies that give prominence to the international democracy and international order norms. That is to say, the voting arrangements tend to be based on two-third majoritarian voting. Yet, they produce legally binding treaties that govern relations in their assigned issue area. The reason that this is possible is that the major powers are generally central to the negotiating process and all participating states recognize that if they want to formulate a treaty that will be effective, they have to elicit the political backing and ratifications of the major powers as well as a two-thirds majority of the conference. Compromises have to be struck. It would, however, be foolish not to recognize that in an area such as international shipping the consent of the major ship-owning and trading states has to be secured. There is an oligopolistic element in such organizations. There are finally the strong oligopolistic organizations that give precedence to the international order and power norms. That is to say, there is a clear commitment to effective collective action and a weighting of influence in favor of the most powerful states. Such oligopolies tend to exist where organizational decisions are generally involve financial outlays. Above all else, the most powerful states demand a veto over decisions; they are less concerned with approval power over the passage of resolutions. The IMF and the World Bank are quintessential examples of strong oligopolistic organizations. It is, however, very important to recognize what was noted above: such organizations can be very important learning institutions for both the most powerful countries and the majority; and it is probably to the features of the decision-making process where our attention should be focused.

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Bibliography
Bergsten , C. Fred, Georges Berthoin, and Kinhide Mushakoji. 1976. The Reform of International Institutions. New York: Trilateral Commission. Buira 1996 Claude, Inis L. 1964. Swords into Plowshares. New York: Random House. Cox, Robert W. and Harold K. Jacobson, eds. 1973. The Anatomy of Influence: Decision-Making in International Organizations. New Haven, CN: Yale University Press. Finlayson, Jock A. and Mark W. Zacher. 1988. Managing International Markets: Developing Countries and the Commodity Trade Regime. New York: Columbia University Press. Gold, Joseph. 1984. Legal and Institutional Aspects of the International Monetary Fund: Selected Essays. Vol. 2. Washington, DC: IMF. Keohane, Robert O. 2000. Governance in a Partially Globalized World. ASPA Presidential Address, August 31, 2000. Peter Evans and Martha Finnemore, 2001. Organizational Reform and the Expansion of the Souths Voice at the Fund. unpublished paper. Szasz, Paul. 2001. Alternative Voting Systems in International Organizations and the Binding Triad Proposal to Improve UN General Assembly Decision-Making. New York: Center for UN Reform Education. Woods, Ngaire. 2000a. Making the IMF and World Bank more accountable. International Affairs 77, 1, 83100 Woods, Ngaire. 2000b. The Challenge of Good Governance for the IMF and World Bank. World Development 28, 5, 823-41. Zamora, Stephen. Voting in International International Law, Vol. 74 (1980). Economic Organizations, American Journal of

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Vision 2020: A Sustainable Livelihoods Perspective

Tariq Banuri, Tellus Institute and Stockholm Environment Institute
Every point of view must be a point of view. Anthony Giddens

The point of this essay is that of the rural communities of the so-called developing world, communities that have been excluded from the development process, and indeed affected adversely by many of the entailments of this process. This is not necessarily the ideal vantage point to talk about creating, modifying or sustaining the edifice of global finance, but it is nevertheless a perspective that cannot be accommodated directly into the discussions that start with the global concerns. However, the problematique, so to speak, is not necessarily different from mainstream expositions, namely that the existing structure does not serve societal goals: it is unstable, expensive, environmentally and socially irresponsible, and unable to channel resources or spread risk in an acceptable manner. More specifically, the approach used here is that of sustainable livelihoods, namely the goal of ensuring economic and social autonomy to disadvantaged populations without endangering their resources or other bases of livelihoods. The focus of this approach is on the assets rather than the deprivations of the poor and the goal to ensure that policy and institutions strengthen the coping and adaptive strategies of the poor. More importantly, this approach places much greater emphasis on practice that on structure. As a background, the sustainable livelihoods approach distances itself from the current perception of development, in which economic and technological change is supposed to start from the economically and technologically advanced areas and spread gradually to other areas. In practice, this has meant the steady outflow of resourcesnatural, human, financial, technological, and entrepreneurialfrom the rural and disadvantaged areas to urban areas and metropolises. In contrast to this approach, the innovative programs of poverty eradication (micro-credit, appropriate technology, community development, digital empowerment, collaborative management of natural resources) seek to reverse or at least block this outflow of resources. However, these efforts are, in a manner of speaking, the pushing of water uphill using the energy of social reformers and charismatic leaders, and like the analogous physical processes, these too are subject to entropy and decay. The goal must therefore include the conversion of these innovative programs into market-led processes akin to water flowing downhill under its own energy, albeit with none of the destructive consequences of the latter phenomenon. A second point in this connection is the fact that the sustainable livelihoods approach has hitherto concerned itself almost exclusively with micro-level issues and programs. To view this process at a macro-level, namely as a global or national process, it may be useful to place it in a context. We do se below by invoking two themes: global governance (of which the global financial architecture is a component), which leads us to argue that the financial structure has to play a technocratic as well as a social role; and the metaphor of the world as a third world country, which enables us to conceptualize global governance in terms of practice rather than structure.

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Global Governance The word governance has a long and interesting pedigree. Although it has come into fashionable use only since the late 1980s, the present meaning of the term is almost identical to the traditional meaning of the word government, namely the form and manner of governing. In this century, as government has come to be used more and more as a concrete noun, there is a search for a new word to capture the abstract notion of governance. Plato offers an interesting classification of approaches to governance. In The Statesman, a stranger asks Socrates about the ideal quality of the statesman or ruler. Socrates replies that the ruler should be like a shepherd, tending to every sheep in the flock, but he soon backs off from this definition, since no man could have the reach and power to act thus. In The Republic, Plato offers another metaphor for the ruler, he should be like the helmsman, steering the boat safely and protecting it from reef and storm. (Interestingly, the old Greek word for helmsman, kybernn, is the root for all the terms that pertain to governancegovern, governor, government). Over the centuries, these two metaphors, the helmsman and the shepherdconcerned respectively with order and fairnessprovided the basis for competing visions of governance. The neoclassical vision of limited government is rooted in the helmsman tradition, which interprets governance as a technocratic responsibility to be exercised by professionals. On the other hand, the ascription of social responsibilities to the stateto tend to the poor, the environment, the children, and others that require detailed targetingcan be argued to be derived from the pastoral tradition of governance. In the 20th century, the northern countries claim to be based on the tradition of limited government, but have far-reaching technologies of surveillance that create both the capacity and the will to undertake historically unprecedented levels of pastoralism; on the other hand, the selfperception of most if not all southern governments appears to have evolved out a pastoral orientation, they lack the institutional and technological capacity to exercise this function effectively. In other words, northern governments are far more pastoral than they claim, and southern governments far less pastoral than they wish. Be that as it may, in the neoclassical vision, the realm of finance is located firmly in the technocratic tradition of helmsmanship. It is argued to be above politics, concerned only about order and not about fairness. As George Bernard Shaw once said, You can be as romantic as you want about love, but when it comes to money, you better not be romantic. Indeed, governments have acted foolishly far more often than wisely when they sought to control finance. Yet, the political economy of finance does not begin and end in fiscal imprudence or populist spending policies. It is precisely the goal of financial architecture to ensure that fiscal prudence does not conflict with the larger equity and social goals of the countrynotwithstanding the tendency of governments to act foolishly or even criminally.

The world as a third world country The second point we wish to make here is that in envisioning the global financial system,

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we should look not only at the structure but also the practice. Indeed, as Michel Foucault has argued, governance the pattern of reveals itself not through the structure, often idealized and divorced from reality, but in the practices of the state. In this regard, it may be useful to remember that the world is a third world country, messy, unpredictable, and with considerable dissonance between theory and practice. One should therefore avoid the danger of designing a system as if it were it were ISO 9000 certified. Imagine the world as a single country. It is immediately notable that it is not one of the well-ordered countries of the first or even the third world, such as Sweden or Singapore. It resemble most what would be referred to derisively as a basket case: unequal, unjust, conflict prone, corrupt, badly governed, and characterized by resource degradation as well as social exclusion. It has become commonplace to refer to the world as if it were a single country unified by the multifaceted processes of globalizationeconomic, financial, cultural, and communicative (Micklethwait and Thorpe 1999; Held et al 2000; Friedman 2000). What has been less remarked upon is that this country carries all the mythical characteristics ascribed to developing countries in academic as well as popular literature. Not surprisingly, therefore, there is a strong overlap between the themes evoked in the literatures on globalization and development (Banuri 2001). Both literatures are partial to what Bahabha calls performative concerns, to the almost complete neglect of normative concerns. They invoke the promise of sustained economic growth and structural change to legitimize envisaged futures and systems of governance. Both hint at the inevitability of the process as well as the need for creating an enabling environment to sustain and expand its reach. Both have their share of critics who point to the normative concerns, as reflected in the associated social and ecological disruption, and the need at least to de-couple the adverse entailments from the change agenda. Like many developing country, the world is also a multi-national country in which different nationalities and grouping co-exist uneasily, vying for power and hegemony and lacking an overarching political structure that orders and guides the exercise of political power. More significantly, it houses widely divergent economic, cultural, and political systems within itself. The system of governance is perhaps closer to the current model in Afghanistan, in which while there is a semblance of central authority, its writ and legitimacy derive mainly from the agreements it can forge with independent warlords. It is the most unequal country in the world and the only one that is becoming more and more unequal over time. The UN Secretary Generals Millennium Report shows that in 2000, the richest global quintile received over 80 times the income received by the poorest quintilefar in excess of the corresponding ratio in any country of the worlda massive increase over the 30-fold level in 1950, and even the 60-fold level in 1989. In the average country, in contrast, the level of inequality has remained more or less constant over decades of economic growth and structural transformation. In other words, the world lacks the shared sense of a political or moral community that has historically placed restraints upon the process of economic concentration. It is an apartheid country. As in apartheid-era South Africa, the natives are confined to reservations, and allowed into elite areas for special tasks and with special permits that they are

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enjoined to carry at all timesalthough these do not protect them from arbitrary harassment by an arrogant and insular bureaucracy. The philosopher Zygmunt Baumann describes this trend in terms of the emergence of two social groups at t he global level, the tourists and the vagabonds, the former being culturally heterogeneous, geographically mobile, and economically prosperous, and the latter culturally threatened, economically deprived, and involuntarily mobile. The same trends that have made it easier for the first group to acquire a global identity and treat the entire world as their home have made it difficult for the second group to protect their identity and to exercise an choice at all regarding geographical mobility. Even when they stay put, they can have the earth pulled out literally from beneath their feetbecause of dams, roads, deforestation, civil war, and myriad other sources of human-made insecurity. It manifests what Robert Kaplan has termed the coming anarchy. Like Kenya or Cote dIvoire or many others, the writ of the government extends only to well-lit metropolitan areas (mainly but not exclusively in the North), while governance over large tracts of the hinterlands is relegated to marauding warlords, often protected by the combined coercive power of metropolitan governments and protecting in return the access of metropolitan business interests to natural resources in the hinterland. This pattern of governance is redolent of the corruption and degradation illustrated for example in the literary tracts of the Gilded Age in the United States (c. 1875-1914). Participation in governance is viewed by local elites simply as a license to siphon public resources for private ends. It is a country in which the common natural resources are being depleted and degraded rapidly, while policy makers seek to escape responsibility by making empty announcements. At the level of the global elite, there is little commitment to the broader issues of public interest: resource conservation, equity and justice, civic Finally, analogous to the phenomenon described in the development literature as economic and social dualism, the world economy and society is also characterized by dualism. Conventional treatment of development has tended to focus on the distinction between the North and the South. However, a more significant difference separates the metropolitan components of the economic and social structure in the South from the vast rural and sub-metropolitan hinterland in Asia, Africa, Latin America, and East Europe. For ease of exposition, instead of the South, we refer to this region as Ruralalthough we recognize that this is a somewhat idiosyncratic use of the term, given that it covers many areas that would be considered as towns or cities. The problematique of globalizationi.e. global developmentis therefore analogous to the problematique of national development programs in the previous half-century. It is on to structure the institutional environment in such a way that on the one hand economic prosperity is sustained and protected and on the other hand it is ensured that the benefits of prosperity are shared equitably and do not endanger the basis of life and livelihoods.

The Livelihoods question

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This background is used to make the point simply that I wish to concern myself with the question of global finance only to the extent that it affects the prospects of (sustainable) development; within development, with the conditions in sub-metropolitan areas; and within these areas with practices rather than structures. With this background, we can turn to the question of the nature of financial arrangements that can service poor communities and regions. Rural sustainable development requires public investment (i.e., the building of capacity, social capital, and human resources) as well as commercially viable private investment. By public investment, we mean here the creation of local and global public goods that are necessary for supporting the process of economic growth; while private investment refers to that which is sustainable financially (even if it is undertaken by the state). However, except where there are natural resources to be extracted, the attraction of these areas for either type of investment is very limited. Even in natural resource-rich areas, the conditions for public investment are not favorable. This is in part a dynamic problemgiven that the income levels are low, there is little demand, and therefore little investment. In part, it is a problem of the practice of investment. Prahalad and Stuart have argued recently (2000) that the large scale production and investment activity caters mainly to the top 5 per cent of the income pyramid; yet, there are significant counterexamples to suggest that it is within the reach of t he corporate structure to provide for the bottom of the pyramid. After a century of unprecedented technological growth, the vast majority of the communities living in rural areas have only a bicycle, a transistor radio, and in some areas the green revolution technology to show for this effort. Second, it is a public goods problem: the investment in institutions and regimes that support investment and growth is distributed unequally across the rural-urban divide. These institutions and regimes are being created not only by governments and inter-governmental bodies but also and increasingly so by independent groups (especially NGOs). They include norms of standards of conduct, development of collective action, formalization of social practice, and others. Finally, it is also a problem inherent in the financial structure, which inevitably discriminates between the two regions because of differences in assets prices. The cost structure of credit is such that it is almost impossible for it to reach rural communities. The classic counterexample, Grameen Bank, has to its credit mainly the lowering of costs to such an extent that a bank can offer loans of Tk 1,000 (about $1) and still remain profitablealbeit with the occasional subsidy to overcome force majeur. Similarly, given this cost structure, rural savings will necessarily gravitate towards metropolitan areas. More importantly, while rural communities do not benefit greatly from the financial structure that is in place today, they are affected adversely by the instability of global finance. In other words, we can parse the problem into the four components. Those deriving from the behavior of business enterprises; those pertaining to the behavior of public institutions (including governments as well as NGOs and even business agencies); those pertaining to the behavior of assets markets institutions, including banks and financial institutions; and those pertaining to the behavior of policy makers (i.e. regarding the operation of fiscal and monetary policies).

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At the level of the large corporation, which undertakes the bulk of the global investment, the rural areas are by and large invisibleexcept as the supplier of natural resources, a role that is increasingly being viewed as secondary to the development process. However, as mentioned a number of enterprises have introduced what Prahalad and Stuart call operational innovation (as opposed to process innovation) in order to produce for this market. The expansion of such practices requires training, technological development, and creation of local demand. A good example in this regard, and one that may hold the key to the future is the potential of information technology. To date, its reach has remained confined to the urban sector, and the vast rural hinterland has remained beyond its reach. However, the main reason is that it is viewed as an area for public investment rather than commercially viable private investment. At the level of public institutions, one needs to ask how finance can be channeled to the goal of capacity building in rural areas. While there are myriad institutions of disclosure, rating, training, social learning and others that support the needs of the private sector for entrepreneurship and finance, there are hardly any for the public sector. In this regard, thinkers and advocates have placed their trust solely in the respective governments. However, governance is distributed very unevenly across the global and in particular across the rural-urban divide that is our central concern. The result is that the capacity (and therefore the demand) for financing public investment is low. This is not a traditional public finance issue. We need to examine it in the light of recent experience in which the leadership in the creation of public goods has come to rest increasingly in the independent sector. Unfortunately, the leadership of this sector has focused its attention largely to the substantive goals of poverty eradication and community development, and has acquired neither the expertise nor the interest in creating a favorable investment climate for its own work. The present exercise can be helpful in opening this area for discussion and creative solutions. We may think of analogies to the process of financial disclosure for public agencies, the creation of an analog of the stock market for such investment, and training programs for philanthropic institutions, financial institutions, government personnel, and social entrepreneurs. Finally, the existing financial arrangements are linked to the development agenda primarily through international financial institutions, structured on the pattern of transnational corporations, with the cost structure and salary levels consistent with the assets prices in urban areas. An average officer of the World Bank costs say $1,000 per day, which in the rural area is a fortune. Transnational banks have a similar cost structure. Even national banks in many countries have cost and salary structures that are far above the assets prices in rural areas. The result is that investment activities in the rural areas have generally not benefited from formal financial institutions. This phenomenon is well known. Notwithstanding myriad government- or NGO-led programs of microcredit, very few have actually been able to reach the poor. As mentioned, Grameen Bank has been successful mainly by developing a social and management system that keep low service costs. This is analogous to Prahalad and Stuarts observation on operational innovation in the corporate sector; indeed, they cite Grameen as one of their successful examples.

Low service costs have two mechanisms: low salaries (without low motivation), or more efficient service delivery. The livelihoods programs have considerable examples of both mechanisms at work.

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Another well-known consequence is that the introduction of development in rural areas (mainly dams and highways) skews the assets prices structures completely and often introduces real estate speculation as a way of life. Much of the opposition to such projects stems from an awareness of the impact of this type. The rural region is also affected adversely by the unpredictability create by economic policies and the resources that these policies and the attendant institutions drain away. First, the impact of inflation on rural areas has been considerably underestimated. The absence of effective financial institutions means that much of the liquid assets are in the form of cash balances, which depreciate rapidly in most developing countries. Second, the extent to which financial institutions do operate in this area, they transfer the savings to more remunerative uses in the urban region. What is to be done? The problems mentioned are fairly straightforward and quite well known and well understood. They derive from the practices of the institutions and agencies mentioned rather than the structure per se. However, a number of possibilities do suggest themselves in terms of institutional structuring that could affect institutional practice. First, we need again to conceive of a decentralized financial structure, both internationally and intra-nationally. The United States has had a highly successful experience with a decentralized structure in which inter-state banking was disallowed, and as a result local savings and loan associations (and consequently house building) flourished. Developing countries generally have a highly integrated financial structure, which is becoming even more centralized with the recent technological and commercial innovations. This would retain savings in the rural area, and make targeting of credit more effective. It would also enable the lowering of service costs by creating a barrier against high-cost institutions. Second, we need to think creatively about investment in public resources. Both the supply and demand for the resources for such investment has moved out of the treasury, but the institutional basis needed to streamline and expand it are missing. Information technology provides a new opportunity to develop the requisite social capital. Third, the issue of inflation requires a concerted response from academics and policy makers. The Keynesian response to aggregate demand was equivocal on the matter of inflation, in part because of Keyness focus on the industrial society (remember his admonition that we should not ask labor to play the role of the central bank). However, the primary division today is not between labor and capital but between the two regions. Here, inflation has the capacity to drain resources from the hinterland.

Fourth, there is a need for a training program to build social and economic capacity to respond to the economic and social needs of the rural region. However, it would be a mistake to assume that existing multilateral financial institutions

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can champion such an agenda. It is, by and large, inconsistent with their institutional imperatives, ways of thinking, and cost structures. An alternative is to pull together a group of sustainable livelihoods practitioners to constitute a consultative groupon the model of the Consultative Group on Integrated Agricultural Researchand lead the process of development of the institutional basis as well as economic structure that can sustain it.

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2020 GLOBAL ARCHITECTURE SEMINAR Seven questions to be considered as debate -opening remarks. Bertrand de LA CHAPELLE Institut Franais des Relations Internationales Victoria - 29/31 August 2001
I - Reform or Refoundation ?
Reforming international institutions was a Loch Ness Monster for years: talked about a lot but never seen. Only recently has it gained momentum. Why is now becoming a real subject? A world unification is under way under the auspices of trade and financial deregulation on one hand and transport and communications revolutions on the other. We did not plan it, it came as the result of convergent evolutions, each with its own momentum. But it is a deep underlying trend. In many respects this change is comparable to the industrial revolution. And as the industrial revolution ultimately brought changes in governance models (representative democracies replacing traditional monarchies) we feel the new world order needs new institutions. So do the so-called antiglobalization protesters who in fact demand a world regulation more than they oppose the world unification. So the first question is : how much does the system need to be modified ? Is the present world evolution so important that fully new structures are needed ? Or do existing institutions only need a facelift ? Are we talking reform or refoundation ?

II - An Architecture ?
Identifying such a trend is one thing. Deciding what to do with it is another. Most people fear today that globalization and world unification are processes we can only watch unfold but not master nor control. But we are not gathered here to guess what the world will look like in 2020 (an educated weather report on social trends). The very word of "architecture" in our seminar title implies something more voluntary, a mission to help create mechanisms, rules or structures to organise the evolution of the global society. So the second question is the purpose assigned to such man-made governance structures. Should they simply help organise an inevitable evolution and smoothen the ride ? or should they empower the human society to take (or keep ?) control of its destiny ?

III - How Global ?

Some "exclusive" intergovernmental structures can be limited to certain countries by design. Depending on their purpose, it is well accepted or not. The European Union for instance is recognised as a regional grouping accepting no members from Latin America or Asia and dealing with these regions through special co-operation agreements. But the closed nature of the G8 is criticised when it is perceived as playing the role

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of a world directorate. Other institutions are "inclusive", universal by vocation, like the United Nations system. But we must remember they were not born universal. The permanent members of the Security council are a testimony to the origins of the UN in the ruins of W.W.II and Communist China had to wait before being accepted, just like today in the WTO. So the third question is about universality : is it a goal or a prerequisite ? In other terms : should reforms be drafted and adopted by consensus or be based on core principles shared by founding members with a principle of non-exclusion and adhesion rules for all others ?

IV - A Critical Mass ?
Like any endeavour, building a coalition around global principles requires two precautions : avoid excluding the "indispensables"; like it or not, some players cannot be kept out if their influence or endorsement is needed; this was a strong lesson from the Society of Nations reach a "critical mass" where the number of representative players involved is enough to make the project viable, without creating a group of opponents strong enough to derail it

In the present case, this probably translates into : no new global architecture can be designed without most developed countries, particularly the members of the G8; but representatives from other regions with various country sizes and economic development levels are also needed. The selection of developing countries representatives in the DOT Force process was a typical attempt at reaching such a critical mass on the specific subject of the Digital Divide. So the fourth question is about weight. What is the minimum critical mass of countries necessary to draft and give birth to a new global architecture ?

V - Only Governments ?
Until recently, international relations were exactly that : relations between nations. Hence global institutions being mostly intergovernmental organisations. But today, global corporations have turnovers bigger than most countries GNP and a global civil society emerges. Some technical institutions in the UN system, like the ITU, have associated private sector representatives for many years. And almost all intergovernmental organisations now claim they want a closer dialogue with NGOs and civil society - the Seattle-Genoa effect. Any debate on a global architecture has to take into account the growing importance of such economic and social actors. All the more so because most global issues involve the three categories of stakeholders. So the fifth question is about legitimacy. Should governments be considered the only legitimate actors in the global debate, or should the private and associative sectors be granted or recognised a new and equal status ? If the latter, how can these new players designate legitimate representatives, especially for civil society ? And in what type of forums ?

VI - Global Government or Governance Mechanisms?

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The very idea of a global government raises fears as much as hope. Already at the nation-state level, a centralised government seems ill-adapted to solve everyday's life problems and fears of undue control of citizens brings a desire to reinforce local authorities, considered closer to the population. Within the European Union, federalists and nationalists clash over the issue of "subsidiarity" with no clear definition of the term. Repartition of power between different levels seems difficult from a theoretical point of view. On the other hand, some technical subjects are more and more frequently handled by specialised agencies : health and food security, telecom regulation, antitrust and competition... Furthermore, international cooperation between such bodies increases and seems more and more necessary. As a matter of fact, most global issues are both implying multiple disciplines or actors and defining specific sectors of their own. Sometimes regulations can be implemented for one specific industry (for instance the wood and paper industry) more easily than in comprehensive approaches and treaties. So the sixth question is about the nature of the global architecture we are talking about. What blend if any between generic structures (a global government) and specific ones (dedicated governance mechanisms) ? Can a global architecture be built progressively, subject by subject ? And what would be the first fields to initiate such a process ?

VII - What Role for Technology?

The digital revolution accelerates the globalization process. Without computers and networks, no unified financial markets, no supply-chain systems and no outsourcing of manufacturing in lower wage countries. Similarly, steam engines and transportation (railroads in particular) were key factors in the industrial revolution. But they also were instrumental in the coming of age of parliamentary democracy. Thanks to new means of transportation, deputies could come back to their provinces in days instead of weeks and keep contact with their constituents through quick and regular postal mail. The same could happen with IT. We see Internet as a technological and economical revolution. We only begin to understand how big a social change it brings and its potential impact on policy-making. The web requests more transparency from politicians. The anti-globalization movement would not be able to organise and co-ordinate without the web and mobile phones. Some recent international structures (the World Wide Web consortium in particular or ICANN) are experimenting new decision-making processes based on IT and many companies explore it everyday. Such interactive and ubiquitous technologies will allow new types of interaction, participation and representation : documents on the positions of various actors become available any time and anywhere; online forums allow consultation of all interested parties in new ways; webcast conferences or debates improve transparency and reach a global audience without the constraints of teleconferencing or television. So the seventh question is about digital democracy. What new participative governance mechanisms become possible through an innovative use of IT ? Could they sometimes - and when should they complement or replace today's democratic system based on representatives and majority votes ? Given the fact that any part of the world is now one day away from any other by plane, what combination of physical presence (summits and other conferences) and online participation ?

Conclusion

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Discussions in various fora beyond ours address the issue of a Global Architecture. All adopt of course the perspective of their respective members. But no one has the full legitimacy to treat it alone. The European Union is facing the same dilemma in trying to draft a Constitution. If the lessons from the "European Declaration of Rights" are any indication, a wide preliminary debate is a minimum condition for legitimacy but no formula for representation of all interested parties has yet been broadly accepted. So, whatever the answers to the points above are in our group, here lies the last and probably core question . Where will the mandate for drafting new institutions come from ? How can it be indisputable and how can it handle the question of a fair and legitimate representation of the numerous stakeholders from public, private and associative sectors ? In this respect, the coming World Summit on the Information Society, organised in December 2003 in Geneva under the auspices of the ITU will be a first and interesting test case for new criterias of representation.

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The IMF's Role and Policy Conditionality: The Relationship between Ownership, Conditionality, Appropriateness of Policy and Governance, and the Way Forward Martin Khor Third World Network
1. INTRODUCTION

The convening of this meeting to look at streamlining conditionality comes at a time when the IMF is facing a crisis of legitimacy. There is a crisis of legitimacy of the IMF with the public; problems of the IMF's credibility (including regarding appropriateness of its policies) in relation to many recipient countries; erosion of confidence in the IMF within the establishment (policy making, academic, media) of major shareholder countries; and also debate on IMF policy and strategy within the IMF staff themselves. The IMF management would like recipient countries to "own" the policy conditionalities much more than they have done. But genuine ownership can only be derived if the countries themselves participate in the making of the policies; and this is generally not the case as the policies are usually imposed by the IMF, often against the wishes of the governments or people. Still, the policies would be more acceptable if they work. But generally they have not worked. Instead of recovery, growth and getting out of debt, many recipient countries have experienced stagnation or worse, and many are still trapped in debt. Thus, more "country ownership" of IMF programmes does not simply mean improving the methods of getting countries to really accept and internalise IMF policies which, it is assumed, are good though tough. It is not a communications or public relations task. Ownership can or should be increased only if there is genuine participantion by the government and people of recipient countries; and only if the content of conditionality (ie the policies) are appropriate and bring about good outcomes. Thus, the key issues are the democratic (or rather non-democratic and non-participatory) process of IMF policy making, and the appropriateness (or rather inappropriateness) of the IMF policies. Unless these issues are resolved, no amount of persuasion or arm-twisting (ultimatums such as "convince us before hand that you are a believer or we won't agree to giving you a loan") will bring about genuine ownership. The issues of non-participation and inappropriate policies are not academic but of life and death dimensions. Like many others in this room, I lived through the financial crisis, in this case in Asia. I closely followed the events, policy debates and policies in the different affected countries, saw the effects of the market practices and the IMF-led policies, the social and political upheavals, the traumatic financial crash and economic downturn, the devastating effect on the lives of millions

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of people and on the viability of thousands of local firms, big and small. Due to the evidence of recent events, there is a crisis also in development thinking and the development paradigm, and a major change is under way. In the past there was a bias or blind faith in predominantly relying on the state for development. Then, there was a swing to the other extreme of having total reliance and blind faith in the private sector and on globalisation (rapid opening up to international finance and trade). Now the pendulum is swinging back. The emerging view is that openness can have good or bad effects, depending on the specific condition and stage of development a country is in, for example, whether the local firms and banks are prepared for external competition, whether there are regulations or knowledge on managing and utilising foreign loans so that they can be repaid, whether there is reciprocal benefits from opening up, whether there are opportunities for increasing exports or if the capacity to produce and market for export has been built up, and what are the balance of payments effects of opening up given the conditions the country finds itself in. Although if conditions are right there can be many benefits from opening up, there are also great risks and costs to be borne if the conditions are not right. For many countries, the conditions are not or may not be right, at least not yet. If they nevertheless open up, they may suffer the risks and the costs. Thus, the balance, degree, timing, sequence of liberalisation must be tailored to each country. Though it may become the new wisdom in rhetoric, this principle has not yet been translated into policy by international agencies like the IMF and WTO, nor into national policy of most developing countries. Many countries are unable to do so, even if they want to, due to conditionality or binding rules. Many, if not most, developing countries are neither growing nor developing. The situation is bleak for many. Business as usual cannot be the response, as it has generally failed. The issue of conditionality and ownership should be viewed in a broad perspective, and this includes looking critically not only at the roads taken by the IMF but also at the roads not taken. II. THE IMFS ORIGINAL MISSION AND THE DEVIATION

The raison detre of the IMF at its creation and in the era of the Brettons Wood system is to ensure global financial stability. This arose from the recognition that left to itself the financial institutions, markets and players can become a too-powerful force with the potential of destabilising the financial system itself as well as undermining the real economy. The IMF's implicit mission included taming and regulating global and national finance so that finance would serve the real sector objectives of growth of output, income and employment. The original Post WW2 framework supported this function. It included a system predominated by fixed exchange rates (which could be adjusted with IMF assistance when needed by objective conditions), BOP adjustment through country-IMF discussion when needed, limited crossborder financial flows, and the normality of national capital controls. Policy was influenced by an understanding of the need for caution on the potential for instability, volatility and harm to the real economy that can be caused by unregulated finance and by speculative activity. .

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This regulatory system and the period of relative financial stability ended with the 1972 Smithsonian Agreement. Floating replaced fixed exchange rates, financial deregulation and liberalisation took off in the OECD countries, new financial instruments developed, there has been a massive explosion in crossborder short term capital flows and in speculative financial activity. There has also been the spread of capital liberalisation to developing countries, to which advice from developed countries and from the IMF contributed. These developments underlie the frequent occurance of financial crises. The failure of the IMF and other international financial agencies to prevent such crises should be recognised as one of its major flaws, and this should be rectified. Indeed, the failure of the IMF in preventing the global financial system from going down the road of such rapid deregulation and liberalisation (with the consequences of currency instability, volatility of capital flows and financial speculation), and instead presiding over this road that was taken, is a major mistake. It also goes against the original role of the IMF to establish and maintain a stable financial order. THE ROAD THAT SHOULD BE TAKEN: CRISIS PREVENTION III. MEASURES IN A NEW FRAMEWORK FOR FINANCIAL STABILITY There needs to be a backtracking to the crossroads and take a new turning which is more true to the IMF's original mission of establishing financial stability. That is the road of crisis prevention through establishment of greater stability through better understanding and regulation of capital flows and capital markets; and a more stable system of exchange rates (including among the major reserve currencies, and in the currencies of developing countries). There is need to understand capital markets and the role and methods of players like highly leveraged institutions (for example hedge funds) which are now non-transparent and unaccountable but have major impact on global and national finance and real economy. There is need especially to curb manipulative financial activity. Recently the Fund's Managing Director announced he had encouraged his staff to get knowledge of how capital markets work. This is a statement to be welcomed. It also implies the Fund's previous and current lack of knowledge of capital markets. It is a serious blind spot for the world's premier international financial institution to have. How could the Fund have given good advice on handling the recent financial crises arising from the workings of the capital markets when its knowledge of these markets was limited? There is need to understand the behaviour and potential and real effects of various kinds of capital flows to developing countries -- including credit (to the public and private sectors), portfolio investment, foreign direct investment (and its varieties, such as mergers and acquisitions, greenfield investment, and FDI that produces for the domestic or the foreign market). There is need to look at inflows and outflows arising from each, including the potential for volatility of each and the effects, especially on reserves and the balance-of-payments. What are implications for policy and what guidelines should be given? For example, when should (or should not) a government or company borrow in foreign currency? Regulations and guidelines are needed because the market lacks a mechanism that can ensure appropriate outcomes. One guideline that is most relevant could be that local companies should be allowed to borrow in foreign currency only if (and to the extent) the loan is utilised for projects that earn foreign exchange to repay the debt. This was a regulation that the Malaysian Central Bank had maintained, and it had helped Malaysia avoid falling into the kind of debt trap that Thailand, Indonesia and South Korea had got into, when

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the private sector borrowed heavily in foreign currency denominated loans. The potential for devastating effects of shortterm capital flows should be recognised and acted on, to prevent developing countries from the dangers of falling into debt traps. The IMF must recognise this and have an action plan (or at least be part of a coordinated action plan) that includes the following elements: (i) regulate global capital flows, through international regulations or through currency transaction taxes; (ii) surveillance and disciplines on countries that are major sources of credit so that the authorities in these countries monitor and regulate the behaviour and flows emanating from their capital markets and institutional sources of funds; (iii) provide warnings for developing countries of the potential hazards of accepting different types of capital inflows and provide guidelines on the judicious and careful use of the various kinds of funds ; (iv) educate members and the public of how capital markets work and establish surveillance and accountability mechanisms to guide and regulate the workings of the markets; (v) appreciate and advise countries on the functions and selective uses of capital controls at national level, and helping them establish the capacity to introduce or maintain such controls; (vi) identify and curb the use and abuse of financial instruments and methods that manipulate prices, currencies and markets, and prevent the development of new manipulative or destabilising instruments and methods; (vii) stabilise exchange rates at international and national levels, which could include mechanisms to stabilise the three major currencies, and measures that can provide more stability and more accurate pricing of currencies of developing countries; (viii) provide sufficient liquidity and credit to developing countries to finance development. The prevention of crises through a more stable global financial order is more beneficial and cost effective than allowing the continuation of a fundamentally unstable and crisis-prone system which would then throw up the need of frequent bail-outs with accompanying conditionality. PROBLEMS IN CRISIS MANAGEMENT AND IN THE PROCESS AND IV. SUBSTANCE OF IMF'S CONDITIONALITY In the absence of prevention measures, or even if such measures are in place, crises will occur. Better management of financial crises is needed. The present system of managing crises by the IMF has many asymmetries and flaws. (a) Absence of debt resolution system puts debtor country at losing end At present, debtor countries are at losing end. They are not organised among themselves, and are often caught in a crisis without enough time or sufficient knowledge to think and plan properly. In contrast, creditors and creditor countries are well organised among themselves, and they organise to obtain maximum return for their loans. At present there does not exist a system where at the start of a crisis the debtor country and the creditors get together within a framework to coordinate their response in an orderly and fair manner. Instead there is usually a stampede for the exit by creditors and investors. The debtor country faces massive capital flight by foreigners and locals, especially in the absence of controls on capital outflows.

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What is required is a comprehensive system of debt arbitration and workout. This could include a declaration of debt standstill by the indebted country, and its having recourse to an international debt review procedure (an international extension of a bankruptcy court) presided over by an independent international court or panel. The procedure would involve an orderly and fair debt workout, including writing down of some loans, loan rescheduling, and provision of fresh loans to finance recovery. The burden is shared fairly between debtor and creditor, and among the different creditors, according to established criteria and procedures. "Bailing in" of the private sector implies that creditors take a fair share of the loss, and a rescheduling of some loans. This should be done without transferring the responsibility of private sector loans to the public sector through government guarantees, which has been a most unfair practice that has been done in the past under IMF conditionality. In the absence of a standstill and orderly workout mechanism, debtor countries are usually at the mercy of creditors and creditor countries. The burden of adjustment and repayment falls most heavily on the debtor. As the IMF presides over this process, it is perceived as a debt collector, operating in an unfair system. Such a role, and the public perception of this role, undermines the Fund's ability to be seen as a honest broker and thus as a creator of fair conditionality. (b) Flawed Process in IMF conditionality In relation to the IMF's loan conditionality and the ownership question, there are a number of issues. First are the "process" issues. Although letters of intent are signed by the recipient country's government, it is well known that in most cases the conditions are n i the main established by the Fund and recipient countries do not have significant leeway or space to successfully negotiate to remove or to really reshape most conditions. Since participation is so limited, and since in many cases the recipient does not really agree with many of the conditions, it is difficult or impossible to have genuine national ownership. And even in the cases where the national authorities genuinely agree, various groups in the country may not, and may oppose the policies. (c ) Content and Quality of IMF Policies: Indicators and Types of Problems Second are the issues relating to the content and quality of the policies themselves. There are acute problems regarding this, thus leading to a crisis of credibility and legitimacy of the policies as well as of the process of conditionality. There are many indicators of policy failure. Countries that became indebted in the more traditional mode (through trade and current account deficits and through repayment problems in public sector loans) underwent conditionality policies in the 1980s and 1990s. Many of them have not experienced economic growth nor social development nor a successful exit from debt crisis. UNDP's Human Development Report data show that only 15 countries experienced relatively good per capita growth in the two decades up to the mid-1990s. Most of these countries had not been in a debt crisis and thus did not follow structural adjustment type policies. On the other hand, 89 developing countries in the mid-1990s were worse off in per capita income than ten years previously, and 70 of these countries had an income per capita level in the mid-1990s lower than in the 1960s and 1970s. The decline in most of these countries was far deeper and longer than that

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experienced in the 1930s Great Depression. And then some of the 15 countries that had had the best performance also fell into crisis in 1997-8, with the crisis caused by developments in their capital account. These countries also fell into deep recession and it is widely believed that the IMF policies for this type of crisis were inappropriate. Indeed it is believed that the IMF policy prescription for both kinds of countries and crises were not counter-recessionary but excessively contractionary, thus failing to generate growth that could have helped lead the countries to recovery, but instead suppressing the potential for growth. IMF conditionality policies have come under severe criticism for at least three reasons: -- (i) that there has been "over-reach" in that the conditions widened in range through time to include "structural policies" not needed for managing the crisis;

-- (ii) that the policies in the core economic and financial areas of IMF competence have also been inappropriate as they were contractionary and did not generate growth; and

-- (iii) that the policies were designed in ways insensitive to social impacts, and the burden of adjustment fell heavily on the poor and at the expense of social and public services. These three categories of problems are briefly discussed below. (d) Scope of conditionality too broad The scope of IMF policy conditions has been increasing through the years and has become far too broad. Many of the conditions were not relevant or critical to the causes or the management of the crisis the countries found themselves in. Some of these conditions were were put into the conditionality package under the influence or pressure of major IMF shareholders for their own interest or agenda, rather than in the interests of the debtor country. On many areas where conditions are set, neither the IMF nor the World Bank has the expertise to give proper advice, and thus the potential to commit a blunder is high and the negative effects can also be high. This includes the area of political conditionality and issues relating to "governance". During the Indonesia crisis, the IMF advice to the government to close 16 banks, without first assuring the public that their deposits in the banking system were safe, led to large deposit withdrawals and capital flight from the country. This is now recognised as a blunder. Even in a major economic area of structural conditionality, i.e. that of trade policy and reform, the potential of mistakes can be high. The IMF and World Bank are well known for advising developing countries under their charge to undergo rapid trade liberalisation. The appropriateness of the advice to undergo "big-bang" or rapid liberalisation is now contentions. In many countries, import liberalisation has led to domestic firms and industries having to close down as they were unable to compete with cheaper imports, and de-industrialisation has been the result. There is now strong emerging evidence that trade liberalisation can successfully work only under

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certain conditions. Factors for success or otherwise include the ability of the country's enterprises and farms to withstand import competition, its production and distribution capacity to export, as well as the state of commodity prices and the degree of market access for its products. In the absence of positive factors, import liberalisation may cause the country into deeper problems. The implications for conditionality are significant. Evidence is emerging that wrongly sequenced and improperly implemented trade liberalisation is adding to developing countries' trade deficits. On average the trade deficit of developing countries (excluding China) worsened by an average of 3 percentage points of GNP between the 1970s to the 1990s. The IMF should thus review its trade liberalisation conditionality to take account of the need to enable countries to tailor their trade policy to their partricular conditions and their development needs. (e) In areas of its core competence, there are also serious problems with IMF policies The problems with conditionality do not lie only in "new areas" outside the traditional areas of the IMF's concern. The criticism is now widespread that even in the areas of the IMF's core competence (macroeconomic, financial, monetary and fiscal policies), there are major problems of appropriateness of policy and conditionality. Policy objectives and assumptions and policy instruments on how to obtain them are under question, given the poor record of outcome. This questioning of the appropriateness and outcomes of policy had already been going on for several years (especially in relation to policies and results in Africa), but the doubts and criticisms grew much more intense as a result of the IMF handling of the Asia crisis. The IMF policies tend to be biased towards restrictive monetary policies (including high interest rates) and fiscal contraction, both of which tend to induce or increase recessionary pressures in the overall economy. The contraction in money supply and high interest rates decrease the inducement for investment as well as consumption (thus reducing effective demand). The high interest rates also increase the debt-servicing burden of local enterprises and cause a deteriortaion in the banking system in relation to non-performing loans. The Fund has also maintained the strong condition for financial liberalisation and openness in the capital account. Thus, the country is subjected to free inflows and outflows of funds, involving foreigners and locals. The country's exchange rate is in most cases open to the influence of these capital flows, to the level of interest rate, and to speculative activity. Often, there are large fluctuations in the exchange rate. Given the fixed assumption that the capital account must remain open, there is thus the need to maintain the confidence of the short-term foreign investor and potential speculators. A policy of high interest rate and lower government expenditure is advised (imposed) in an effort to maintain foreign investor confidence. But since this policy causes financial difficulties to local firms and banks, and increase recessionary pressures, the level of confidence in the currency may also not be maintained. The narrow perspective on which the restrictive policies are based neglects the need to build the domestic basis and conditions for recovery and for future development, including the survival and recovery of local firms and financial institutions, the encouragement of sufficient aggregate effective demand , the retention of the confidence of local savers, consumers and investors. Most IMF policies imposed on countries that face financial problems and economic slowdown are opposite to the policies adopted by (and encouraged for) developed countries, such as the US, which normally reduce interest rates to as low a level as needed and which boost

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government expenditures, so as to increase effective demand, counter recessionary pressures and spark a recovery. Thus there have been criticisms by mainstream and renowned Western economists (including Paul Krugman and Joseph Stiglitz) that criticise the IMF for imposing policies on developing countries that are opposite to what the US does when facing a similar situation. An important policy option, i.e. the use of capital and exchange rate controls (even if done selectively, in a limited way, and over a limited time period), is not considered a legitimate instrument in the IMF range of policies and is in fact prohibited in some letters of intent. This has been the position until now, although recent statements have been made by the IMF secretariat that indicate it is more willing to look at capital controls as a possible option. By using capital and exchange rate controls, the country is better able to de-link interest rates from exchange rates and capital outflows, and is thus in a better position to reduce the interest rate without the unintended effects of capital outflow and a weakening currency. It would thus be in a much better situation to take recovery-oriented monetary and fiscal policies, including of the type that the US adopts when facing recessionary conditions. The Malaysian experience is instructive in this regard. During the Asian crisis, Malaysia did not seek IMF crisis loan assistance. However it initially undertook IMF-style policies for about a year, raising interest rates, introducing restrictive monetary policies and sharply reduced government expenditure, whilst also maintaining an open capital account and a floating exchange rate system. The economy spun into deep recession, local corporations were faced serious difficulties servicing their loans due to the jump in interest rates, the banks' non-performing loans rose correspondingly, there was a credit squeeze, and the currency and stock market plummeted. In September 1998, a new policy package was introduced, which included fixing the currency's exchange rate to the US dollar, deinternationalising the local currency (preventing its speculative trade abroad), selective capital controls affecting the capital account in some ways, though the current account remained open; the sharp reduction of interest rates, and expansionary monetary and fiscal policies, as well as restructuring bad corporate and banking loans. The domestic prorecovery policies regarding interest rates, monetary and fiscal policies could be carried out without the potential negative effect on the exchange rate and on capital flight because of the prior introduction of the selective capital controls and the fixed exchange rate mechanism. The policy package seems to have worked well for Malaysia, as the economy recovered and the financial position of banks and many local corporations improved in 1999 and 2000. The Malaysian experience may or may not be suitable for other countries facing a similar crisis, as an appropriate policy package would have to be one that is tailored to the specific features of the country and the specific problems it faces. The point being made here is that policies that would be considered "unorthodox" by the IMF (and would in all probability not have been considered an option by the IMF if suggested by a client country) can work. In other words, there are alternatives to the IMF policy package and these alternatives can be effective, and even more effective than the IMF's policies. Since the type of policies that are linked to IMF conditionality have been increasingly criticised for not working, including because they are contractionary and recessionary in nature and effect, it is no wonder that there is a lack of credibility and confidence in the substance of IMF

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conditionality, even in its core areas of competence. There is thus a need for IMF to review its macroeconomic package, re-look the policy objectives and assumptions, compare the trade-offs in policy objectives with the number and effects of policy instruments, and widen the range of policy options and instruments. This review should be made in respect of government budget and expenditure, money supply, interest rate, exchange rate, and the degree of capital account openers and regulation, in the periods prior to crisis (to prevent one) and during crisis (to manage it). (f) IMF policies badly designed from the social development perspective The IMF has also been heavily criticised, especially by civil society, for the inappropriate design of their policies from the viewpoint of social impact, including reducing access of the public to basic services, and increasing the incidence of poverty. The adverse social impacts are caused by several policies and mechanisms. The contractionary monetary and fiscal policies induce recessionary pressures, corporate closures, lower or negtaive growth rates, retrenchments and higher unemployment. Cutbacks in government expenditure lead to reduced spending on education, health and other services. The switch in financing and provision of services from a grant basis to user-pay basis impacts negatively on the poorer sections of society. The removal or reduction of government subsidies jacks up the cost of living including the cost of transport, food, and fuel. These and other policies have contributed to higher poverty, unemployment, income loss and reduced access to essential goods and services. It is not a coincidence that countries undergoing IMF conditionality have been affected by demonstrations and riots (popularly called "IMF Riots"). The social impact of IMF policies is another major cause of the crisis of credibility in IMF conditionality. (g) Brief conclusion

This section of the Note describes the problems regarding the process and especially the policy substance or content of IMF conditionality. It must be recognised by the IMF that the major problem with its conditionality is that the policies associated with it are seen to be inappropriate and harmful. This view is not confined to critical academics or NGOs but is now adopted by renowned mainstream scholars, by parliamentarians of many countries (including the US), and also by policy makers of the countries taking IMF loans and undergoing IMF conditionality. The growth of the criticism is caused mainly by the poor record of the policies adopted, and not so much by the lack of implementation of the policies. Therefore, the most urgent t ask is not so much to "sell" the old conditionality better to the client governments or to the public, but to review the content of conditionality itself and to come up with a better and more appropriate framework and approach. V: PERCEPTIONS OF INADEQUACY OF KNOWLEDGE AND OF DOUBLE STANDARDS IN FUND POLICY Other factors that have affected the credibility of conditionality are the perception that the Fund lacks adequate knowledge and understanding of some critical issues on which it gioves advice, and the perception of double standards in policy.

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Regarding the lack of adequate knowledge, the section above has outlined some inappropriate policies in relation to the domestic macroeconomy. The Fund has also shown inaequate understanding of the nature and workings of international capital markets. This was shown during the Asian crisis, which is now accepted as a crisis related to the opening of the capital account by the affected countries. Speculative funds, including the hedge funds, played a major role in catalysing the initial devaluation in Thailand. When called upon by ASEAN leaders to study the role of hedge funds, the IMF initially denied that they had any significant role. The IMF's then managing director maintained (in December 1997) that the crisis in Asia was due to inadequate capital liberalisation and that speculative funds and activities did not play any causative role. It was only after the LTCM meltdown that the IMF took the role of hedge funds (and their great leverage) seriously. As mentioned earlier, the present IMF managing director has admitted earlier this year that IMF staff do not adequately understand the capital markets and he urged them to get to know the markets better. This is a remarkable admission, which is very much to be welcomed. For years the IMF secretariat had been advocating that developing countries open their capital account, which would open them more directly to the forces of international capital markets. Also, there were strong moves to add capital account liberalisation to the mandate of the IMF through an amendment to the articles of association. This advocacy that developing countries open themselves to the full force of global capital markets, when the Fund itself had inadequate knowledge of the capital markets, was surely remarkable, and in hindsight a great mistake with so many adverse consequences. With the recent admission of lack of knowledge, let us hope the Fund is starting a learning process that will lead to recognition of previous errors and a more appropriate, cautious approach with a change in policy advice to developing countries. Regarding double standards, the following are some examples. The IMF insisted as part of the policy package that local firms and banks should not be bailed out (on the ground of moral hazard) but there was a perception that foreign creditors were being bailed out (thus the moral hazard argument did not apply to them). Governments of developed countries often arrange rescue operations for institutions and corporations facing financial crisis (eg the savings and loans crisis, the LTCM crisis, both in the US); yet government intervention to rescue important national firms was frowned on by IMF. Developed countries facing recessionary conditions typically make use of Keynesian-type counter-recession measures; however the opposite measures were applied to the affected Asian countries. Moreover, there is the perception that some demands included in conditionality were placed there by major shareholders and reflected their interests and not the interests of the affected country which had to accept such conditions under duress. The element of double standard is also there: why is it that major shareholders' narrow interests are accommodated rather than the interests of the affected country? These questions affect the ownership of conditionality. VI: SOME GENERAL POINTS In examining the relation between ownership and conditionality, there can be the following scenarios. First, the conditionality policies are inappropriate and the country owns them fully and implements effectively. Secondly, the policies are inappropriate and the country is reluctant to own

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them and implementation is not so good. Thirdly, the policies are appropriate but the country does not own them and does not implement well. Fourthly, the policies are good, the country owns them and implements fully. In the first case there is ownership but adverse results. In the second case there is no ownership or reluctant ownership and the results are perhaps not as adverse as in the first case. In the third case the problem is not the policies but how to get them accepted. The fourth case is the ideal. It should be recognised that there is also a major difference between "acceptance" and "genuine ownership." In most official discussions, the "ownership" problem refers to how to get the recipient country to accept and internalise the policies (which are as usual made by the IMF and not the country) so that there is a better implementation rate. In t he context of such discussions, a more accurate term would be "acceptance". Genuine ownership implies that the recipient country is allowed rights to participate in policy formulation itself, so that the conditionality package is truly "owned" by the country. The feeling of ownership comes with the right and practice of participation in policy making. It should go without saying that appropriateness of conditionality policies in terms of being in the interests of the debtor countries is the key issue to be resolved. Acceptance of externally imposed conditionality by the debtor countries is secondary and dependent on it. Moreover, the right to participate in policy making, and thus genuine ownership, is a critical element in ensuring appropriate conditionality and its implementation. The role of the Secretariat is important in whether the process, the policy formulation and the outcome is successful. For that to happen, the Secretariat must be seen to be impartial, working for the interests of the recipient country, possessed with adequate knowledge of the international situation, of the domestic situation and conditions, and the ability to help the country come up with appropriate policies. If the Fund is to be perceived to be playing this role, much has to be done to earn the credibility and confidence. The role of the major shareholder countries is even more important. The public perception is that they would like to make use of the Fund for their interests, often at the expense of recipient countries and their people. The perception is that the major shareholders (who are also the home countries of the major creditor and investor institutions) make use of their position to skew the policy conditions in a manner that is biased in favour of creditors and investors. Is there a conflict of interest in their making use of the vulnerable state that debtor countries find themselves in, as leverage for imposing policies that are in their own narrow interests, even if these are against the interests of the debtor countries? Finally, it is difficult or even impossible to ensure that the interests of debtor countries will be adequately reflected in conditionality and Fund decisions when the voting rights in the Fund are so skewed towards the creditor countries. Thus, the issue of the relationship between ownership and conditionality has to face up to the issue of the ownership of the IMF itself. When decision-making rights are so imbalanced as they now are, it is not a wonder that the

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developed countries are perceived to be controlling the Fund's policies, and in a manner that reflects their own interests rather than the interests of the whole membership. This situation is likely to continue until there is a fairer balance in the decision-making system. There is a dire need for the modernisation and democratisation of the governance system, including a revision of the quota and voting system. This can be accompanied by genuine reform of IMF policies and priorities. The issue of "ownership and conditionality" can then be better resolved in that context.

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