This past weekend President Bush announced plans to host an “emergency” summit of world leaders to “overhaul the regulatory framework for global finance.” Bush offered few details on what actual policy fixes would be addressed, but British Prime Minister Gordon Brown penned an op-ed in for The Washington Post calling for unprecedented levels of “global governance,” including global standards for accounting and regulation and a “renewal of our international institutions to make them effective early-warning systems for the world economy.” Specifically, Brown wants to enhance the power and authority of the International Monetary Fund and World Bank. The Bush administration should not make the creation of a powerful new international regulatory authority a part of its legacy.
As Heritage fellow Brett Schaefer points out, Brown’s policy proposal is based on erroneous facts. Brown asserts that “we are living through the first financial crisis of this new global age.” But this ignores the numerous banking and financial crises in Latin America over the past few decades, the Asian financial crisis in the late 1990s, and the Russian financial crisis in 1998. In each of these cases, the IMF and World Bank acted successfully help minimize the crisis. Brown even acknowledges that international cooperation on the current crisis is already ongoing and robust, including a recent agreement between the Group of Seven finance ministers on “a global multibillion-dollar package to recapitalize our banks across many continents.”
Brown’s problem seems less that cooperation is not occurring than that it is occurring in a way that is led by national governments rather than being directed by an international authority. Instead of politically accountable elected leaders working to address the crisis, Brown wants the unelected bureaucrats at IMF and World Bank to serve as saviors of the international financial system. These institutions are cumbersome, slow and lack the expertise and standing to fulfill this role effectively. They should not be granted the sweeping authority proposed by Brown, especially when other organizations such as the Organization for Economic Co-operation and Development and the Bank for International Settlements arguably have more experience and expertise with central bank supervisory issues.
The Washington Post‘s Sebastian Mallaby adds:
The irony is that Britain and France will be the first to resist a serious effort to revive the IMF. British Prime Minister Gordon Brown talks vacuously about giving the organization the role of creating an early-warning system for crises, even though this is what thousands of economic forecasters already try to provide. What Brown does not stress is that serious IMF reform needs to begin with the modernization of its board. Rising powers such as China and India deserve more say. Declining powers need to give up some influence — and that includes France and Britain.
There are undoubtedly steps that can and should be taken to make future crises less likely or severe that President Bush should entertain and suggest during his summit. But creating an additional layer of international regulation and oversight with unprecedented authority and power — especially one charged with “ensuring that globalization works not just for some but for all hard-pressed families and businesses in all our communities,” as suggested by Brown — will more likely retard international investment, financial transactions and other economic aspects of globalization that contribute to long-term economic growth in the developed and developing world.
Quick Hits:
- A U.N. task force has uncovered five new cases of corruption, fraud and mismanagement involving $20 million in contracts throughout the international body.
- More than $25 billion of Treasury Secretary Hank Paulson’s forced bank nationalization will be given to shareholders instead of being used to revive credit markets.
- Democrats have announced plans to investigate the failures of Fannie Mae and Freddie Mac, but not until after the election.
- According to Rasmussen Reports, only 25% of voters believe ACORN is not trying to put illegal voters on the rolls.
- While the mainstream media continue to scare voters with false stories of angry Republicans, a district attorney in Manhattan is filing real charges against a Democrat who beat up a McCain volunteer.