EVENTS

Date:	Friday, February 20, 2009
Time:	8:30 AM -- 11:15 AM
Location:	Wohlstetter Conference Center, Twelfth Floor, AEI 1150 Seventeenth Street, N.W., Washington, D.C. 20036

WASHINGTON, MARCH 10, 2009--While the global financial crisis has spurred calls for rethinking global economic institutions, several leading academic and legal experts argued at an AEI Program in International Economics conference on February 20 that it is too soon to offer a full diagnosis of the current system's flaws. 

Panelists at the first event in a series on rethinking global institutions discussed whether the current set of global economic institutions--the World Bank, the International Monetary Fund (IMF), and the World Trade Organization (WTO)--are capable of managing the current crisis and addressing the challenges of the twenty-first century.

T. N. Srinivasan of Yale University pointed out that policymakers and scholars have an incomplete understanding of the current crisis, and thus, he said, it is impossible to conduct causal analysis or propose sensible reforms. He warned against the "temptation to use the crisis to attempt far-reaching structural reforms." Such proposals may promise to alleviate short term worries--but at the expense of an even greater crisis in the long run. Srinivasan recommended:

• Confining the IMF mandate to maintaining stability of the global financial system and dispensing advice to member governments on fiscal, monetary, and exchange rate policies without getting mired in structural adjustment and poverty alleviation issues
• Downsizing the World Bank and limiting its lending and advising functions only to least-developed countries (LDCs) that lack the resources and the capacity to design and implement appropriate policies
• Restricting the WTO mandate to international trade in goods and services and keeping labor and environmental standards, competition policy, and other domestic regulatory issues out of the WTO's purview

Srinivasan also pointed to the need to reform the weighted voting mechanism in the IMF and the World Bank to reflect the new global economic order, but he noted that it was far more urgent to abandon the entitlement of the European Union and the United States, respectively, to choose heads of these organizations. In order to amplify LDCs' already strong voices in the WTO, Srinivasan said that more emphasis should be placed on capacity-building.

Anne Krueger of Johns Hopkins University lamented the excessive focus being placed on institutional governance, particularly with the issue of voting weights and the nationality of organization heads. Krueger stressed that the biggest problem lay in member countries' inability to formulate cohesive agendas, which rendered them incapable of following up on their prior commitments. Responding to moderator Claude Barfield's question about whether the Group of Twenty (G20) might be a better decision-making forum, Krueger noted the empty pledge the G20 made in November 2008 to thwart protectionism. Krueger also agreed with Srinivasan that the interactions between different components that contributed to the current economic crisis were not fully understood and that it would therefore be a big mistake to rush fundamental changes.

Dubbing the WTO the "crown jewel" of the multilateral system, Marc Busch of Georgetown University credited its relative success in the multilateral setting to its willingness to work within the limits set by its charter. He warned against saddling the organization with additional mandates that would broaden its scope.

Brink Lindsey of the Cato Institute argued that the main drivers in the international system are national governments and that international institutions play a minor role in shaping it. However, in response to moderator Philip I. Levy's question about whether the recent limitations on "Buy American" provisions demonstrated the current framework's ability to prevent member nations from reneging on prior international commitments, Lindsey conceded that international institutions do prevent backsliding by providing "extra inhibition to protectionism through internationalizing national-level commitment to open markets."

Kenneth Dam of the Brookings Institution noted that the demand for IMF funds is increasing in the global economic crisis and suggested that the IMF needs to focus not only on macroeconomic issues as it currently does, but also on more actively addressing financial issues.

Grant Aldonas of Split Rock International argued that the main obstacle to effective reform is the difficulty of deviating from the existing architecture. Speaking on the trade policy reform, Aldonas argued for the creation of a "free trade core group" of countries, strong incentives for middle-income countries to liberalize further, and harmonization of preferences for LDCs.

--DHARANA RIJAL