14 November 2008
editorial
Johannesburg — THE fact that markets are incapable of regulating themselves, the fact that the growth in the euro zone has been revised downwards ... I think there is a role for economic decision makers, finance ministers and central bank governors to examine what is at stake here."
That was Finance Minister Trevor Manuel in 2003, on his way to the annual meetings of the International Monetary Fund and World Bank, talking about the need for a new kind of multilateralism, starting with the reform of the two Bretton Woods institutions themselves.
SA and some of its emerging market peers have been calling for this for a long time. But it has taken a global crisis to get the issue firmly on the global agenda. Ahead of this year's meetings, which took place last month, World Bank president Robert Zoellick said the international financial architecture was "creaking" and called for a new multilateral network to look out for the health of the global economy.
This weekend's Washington meeting of the Group of 20 (G-20) countries may not advance the cause of multilateralism. Nor is it likely to yield much in the way of concrete proposals.
But ideally it will be the beginning of a process in which developed and developing countries work together to find ways to avert financial and economic crises of a scale that the world has not hit. And SA, which has long punched above its weight in forums such as these, is likely to be part of that process.
Indeed, Zoellick called last month for a new "core" steering group for financial and economic co-operation that would add seven emerging markets - SA among them - to the current Group of Seven (G-7) industrial nations.
The G-20, he argued, was too unwieldy. But the fact that outgoing US President George Bush turned to the G-20, rather than to his old buddies in the G-7, is seen as highly significant. And there are high hopes, especially among emerging-market countries, that the Washington meeting will make progress towards a new era of global co-operation in areas such as financial regulation and macroeconomic co-ordination.
In practice, the meeting is likely to be more of a public relations exercise by a US administration that has hardly covered itself in glory and whose failure to regulate its financial sector effectively has done the world huge damage.
But nothing much is going to happen until the new US president takes over next year. And in any event, the G-20 countries don't agree enough among themselves to push through a clear agenda.
But their recent meeting in Sao Paulo provides some pointers, especially on the principles that should underlie a new regulatory framework - transparency and accountability in financial markets, stronger international co-operation to identify and pre-empt systemic risk, better supervision of all financial institutions, and so on.
Details are sketchy, and there will be heated debates on everything from accounting standards and capital requirements to rating agencies and executive remuneration.
The risk is that the panic and the populism engendered by the crisis may lead to over-regulation that, instead of making markets work better, will simply breed new abuses. But at least the range of interests present at this weekend's meeting might help to bring some rationality.
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