2011 Bretton Woods Annual Meeting: Risks to the Global System
On May 19, 2011, the Bretton Woods Committee held its twenty-eighth Annual Meeting. The program was held at the International Monetary Fund (IMF) headquarters in Washington, DC, with the theme Risks to the Global System. Participants heard from distinguished speakers regarding development challenges, international financial risks, and the need to meet global responsibilities.
In the first segment of the program, Robert Zoellick, President, The World Bank Group, in a discussion with moderator Chuck Hagel, Distinguished Professor, Georgetown University and former Senator from Nebraska, explored the topic Development Challenges in a Resource Constrained Era. In the following segment, a panel of speakers, namely, Dr. Florence Eid, CEO, Arabia Monitor, and Frank Wisner, International Affairs Advisor, Patton Boggs LLP, moderated by Richard Debs, Chairman of the International Council, Bretton Woods Committee discussed Upheaval in the Middle East: Development Risks and Opportunities.
Role of the World Bank. Zoellick noted that, with the rise of emerging markets, the World Bank is at the heart of the issues and played a key role during the financial crisis and ensuing recovery process. He also described the need for models of success in order to achieve economic development, and the need for institutions to transform. With half of global growth coming from emerging markets and increasing opportunities for South-South investment, he pointed out the need for continued lending to middle-income countries such as China in order to keep them engaged - and in some cases leading - in the global development process and to serve as successful examples. He also addressed Sub-Saharan Africa and the investment opportunity it now presents. With these countries at different stages of development and having different needs, the World Bank is trying to set a pathway to the region for investors with a billion dollar investment fund. Finally, for countries in the Middle East and North Africa (MENA) region undergoing "revolution or fast-paced evolution", Zoellick highlighted the criticality of building good social safety nets and environments that encourage private sector investment.
Sources of Upheaval in MENA. Both Wisner and Zoellick saw common underlying themes causing the upheaval in the MENA region. Zoellick viewed the uprisings as calls for dignity and respect, along with a desire for political freedom. He noted that emphasizing transparency, openness, and anti-corruption efforts were not only good economics, but also good politics. Wisner echoed these sentiments by describing the common experience shared by Arabs living in national security states, and the alienation, humiliation, and lack of a voice and economic prospects. He described these uprisings as a new sort of societal awakening, and argued that the makings of the current crisis were present for a long time.
Governance and Regional Integration in MENA. Eid explained the need for more effective governance in the MENA region and noted that the transition process in the region was taking place in different ways, from revolution to top-down gradual adaptation. She pointed out that inclusive and equitable growth will be necessary but that the MENA countries have the opportunity to learn from mistakes of past emerging markets. Both Wisner and Eid saw a need for increased regional economic cooperation. Eid called for regional "Marshall Plans", intra-regional investment, and regional security mechanisms, while Wisner focused on the need for more effective economic institutions, investment, and markets. He also noted the financial ability of the Gulf nations to affect the economic and political course of the region, but warned that political leadership, determination, and ideas would need to be decisive. He saw a role for the international community in ensuring that non-oil exporting countries have enough liquidity to provide for their people during the first stage of the transition as well as ensuring economic policies in the region do not revert to authoritarian measures as new leaders take power.
During the third segment of the program, a panel consisting of Mark Carney, Governor, Bank of Canada; Ruth Porat, Executive Vice President and Chief Financial Officer, Morgan Stanley; and William Rhodes, Senior Advisor, Citigroup, moderated by James Wolfensohn, Co-Chair, Bretton Woods Committee, discussed the topic Navigating Global Financial Risks. A closing address entitled Summoning the Will to Act from John Lipsky, Acting Managing Director of the IMF, was the fourth and final segment of the morning plenary.
Post-Crisis Reforms. Carney saw the development of macroprudential tools to manage capital inflows, the G-20 agenda on globally systemic institutions, and regulation of derivatives and shadow banking as critical areas of reform. Porat agreed and noted the importance of limiting risk activities through rules such as the Dodd-Frank Act and creating capital and liquidity requirements. Both Carney and Porat cited the importance of the Basel III rules, but cautioned that implementation would be the most difficult aspect in ensuring their effectiveness.
Lipsky described the fragile recovery gaining strength as well as the steps the IMF was taking to incorporate lessons from the financial crisis and the upheaval in the MENA region. He explained the modernization of the Fund's surveillance role, including early warning exercises and financial sector assessment programs, that would increase its effectiveness. He also said the Fund is studying capital flows and gaining a better understanding of the factors driving them and how best to minimize their volatility. With regard to the MENA region, he saw a need to deepen the understanding and appreciation of social factors that can affect macroeconomic stability. Lipsky also underlined the importance of providing safety nets in the form of flexible and precautionary credit lines in order to provide liquidity in times of crisis. He emphasized the need for equitable and inclusive growth, noting that global problems require global solutions, and called for continued collaboration to overcome these challenges.
Global Coordination. All the speakers acknowledged a strong need for continued global cooperation and equal implementation of reforms in order to eliminate opportunities for regulatory arbitrage. Rhodes saw even implementation of Basel III rules as paramount for managing global risk, especially with the increasing speed of markets due to the rapidity of the spread of information. Porat described the difference in speed of implementation between Europe and the United States (U.S.), noting that the U.S. remained ahead and that other countries needed to catch up. She argued that an uneven playing field creates significant risks. Lipsky viewed the G-20 as a key forum for productive policy dialogue that would allow collaboration in addressing global imbalances and possible adjustments.
Contagion. The speakers also agreed on increased risks of spillovers and contagion. Lipsky described new IMF spillover reports with the goal of gaining a better understanding of trade and financial linkages and, thus, facilitating policies that will take the risks of contagion into account. Rhodes noted that the speed of information flow has increased the speed of contagion and that countries no longer have as much time to act. With time increasingly the enemy, Rhodes described the need for strong political leadership to manage risks, including looming debt problems in the U.S. and the ongoing debt crisis in the Eurozone periphery. Porat viewed interconnectivity as critical and the health of neighboring countries as increasingly important factors for economic policymakers to consider.
Just prior to the program adjourning for a working luncheon, William Frenzel, on behalf of the leadership of the Bretton Woods Committee, expressed the Committee's heartfelt gratitude to James Orr, for his 28 years of dedicated service to the Bretton Woods Committee as its Co-Founder and Executive Director. Lael Brainard, Under Secretary for International Affairs, U.S. Department of the Treasury, was later introduced by James Wolfensohn to speak about Meeting Global Responsibilities Head-On for the luncheon address.
U.S. Leadership and Cooperation. Brainard described the need for the U.S. to lead from a strong position. She argued that the U.S. has done so by undertaking the reforms of the Dodd-Frank Act, making progress on regulation of derivatives, and planning to reduce fiscal deficits and debt. She viewed leadership at home as decisive and pointed out the high levels of interconnectivity between the domestic economy and international cooperation. Brainard also noted the need for continued cooperation with trading partners such as China, especially on rebalancing global growth. She also underscored moving forward with new trade agreements, such as those with Korea and Colombia, and pushing hard on green energy and economic transformation to a green economy -- at the same time, working to ensure any subsidies for these are in line with international trade rules and obligations.
Development Aid and MENA. Brainard saw the upheaval in the MENA region as a historic opportunity, in which the U.S. can play a pivotal role. She saw an opportunity for the U.S. to take the lead by revitalizing the multilateral institutions, which have the scale and capacity to help with the political and economic transition process. She addressed the issue of funding for the multilateral institutions by pointing out that such investments provide the best return of any in the budget. She described the need to make aid as effective as possible in addressing the biggest challenges in the region, and viewed the leverage that the multilateral institutions provide as the most effective way to contribute to change and transition in the MENA region.
The Bretton Woods Committee would like to thank our strategic partner,
National Bank of Kuwait (NBK), for its help in making this meeting possible.