The Golgotha of global finance

There is global agreement on the need to reform the international financial architecture, judging from the press releases coming from Sao Paulo, at the end of the preparatory meetings for the G-20 meeting(2) that took place in Washington on November 15th, 2008.

European Union leaders had already agreed on 7 November to four main principles for this so-called reform. The initial three principles establish the necessary regulations and discipline for the global financial markets to operate: universal regulation, with no exceptions (no more fiscal paradises nor offshore banks, regulation of risk management agencies), transparency and common accounting rules that put an end to bank secrecy and risk hiding, and adequate government monitoring of big financial groups to detect future "bubbles" in time.

The fourth European principle aims to give the IMF the task of "preventing the crises" and a "central role in a more efficient financial architecture", given that the institution would have "the necessary legitimacy and universality".

The confidence of the EU in the IMF contrasts deeply with the opinion of participants from the South at the G-20 Summit of 15 November. Argentina, Thailand and Indonesia have notoriously accused the IMF of contributing – not to say causing – to their own financial crisis. Also the ex Finance Minister of India, Yashwant Sinha, said in June -months before the crisis exploded: "I believe that the international financial institutions are terribly inadequate to deal with global challenges. There is a big flaw in how the United States regulates financial operations. And what does the IMF say to the US? Nothing".

There is wide consensus among analysts that the origin of the financial crisis and the consequent recession of global economy occurred in the United States housing market that granted millions in loans to people unable to pay, and later sold those "toxic" bills to banks and other financial institutions worldwide as if they were good. The first principles of the European proposal aim to avoid the propagation of this “disease”, but designating IMF as a regulatory entity is a crude attempt to promote their own interests. Since it was created, the IMF has always been headed by a European (and the World Bank by a US citizen). Europeans have thirty three percent of votes in the institution, and thus have veto power, the same as the United States that has seventeen percent of votes.

When Russia, Asia and Argentina had their financial crisis, the IMF came to the rescue and imposed its conditionalities, in many cases establishing rules and policies that big economic blocks do not even apply in their house. Now that the United States and Europe are in crisis and in need of the reserves of countries such as China, India and big oil exporting countries, the powers that control the IMF not only want poor countries to finance the recovery of the rich ones, they want them to do that through the institution they run!

Concluded the G-20 Summit in Washington the G-192 - that is, the 192 members of the United Nations - will meet at the highest level in Doha, capital city of Qatar, in the Follow-up International Conference on Financing for Development from November 29 – December 2. . But the United States and the UK refuse to discuss global finance or its reform in that context(3).

A UK expert commented his impressions on a meeting with financial advisers of Prime Minister Gordon Brown: "In the short term, they want better global coordination to support countries victim of the financial crisis, but they refuse to acknowledge any responsibility for the British nor US financial sectors in the crisis. They want to re-launch trade negotiations but are against any mandate from the United Nations. They told us the Prime Minister has ambitious ideas, but they presented none and did not want to discuss ours. They said the Prime Minister wants a long lasting systemic change, but announced that in the in next summits they would only discuss short term issues. Very disappointing”

The international financial architecture resembles too much the Golgotha Church. The Sepulchre is guarded by six Christian Churches (Roman Catholics, orthodox Greeks, Copts, Armenians, Syrians and Ethiopian), each of one has exclusive places to use and they administer common places together. Not an easy task. A ladder, placed on a ledge over the entrance sometime in the 19th century, has remained there ever since because of a dispute over who has the authority to take it down. To make matters worse, a place commonly packed with pilgrims and tourists coming from every corner of the world is lacking a fire exit and parts of the rooftop is about to collapse but renovations are delayed due to a spat between Ethiopian and Coptic Christians. Leaders meeting in Washington should reflect on the precarious situation at the Holy Sepulchre, where there is no fire escape and the rooftop is about to collapse because those guarding each sector defend their own selfish privileges instead of preserving the common good.