A Weekend to Start Fixing the World
Friday, April 11, 2008
Financial markets are tumbling. The world economy is starting to sputter. Food prices have shot up so far, so fast, that there are riots in the streets of many poor nations.
It's a hard time to be one of the masters of the global economy.
Those leaders -- finance ministers from all over the world -- are gathering in Washington this weekend to sort out their reactions to the most profound global economic crises in at least a decade. The situation could reveal the limitations that international economic institutions face in dealing with the risks inherent to global capitalism.
"There's got to be something coming out of the weekend, a way to visibly assume public responsibility for trying to limit the damage that financial markets can do to our society," said Colin Bradford, a senior fellow at the Brookings Institution. "The pressure is on politicians this weekend to come up with an answer. . . . What is the power structure going to do about this?"
The Group of Seven finance ministers of major industrialized countries meet today, and the governing boards of the International Monetary Fund and World Bank will meet tomorrow and Sunday. Their agendas: in the case of the G-7 and IMF, countering the breakdown in financial markets; in the case of the World Bank, food inflation that threatens to drive more of the world's poorest people into starvation.
But these problems don't have obvious solutions, and it may be hard to achieve consensus on even modest steps that might improve the situation.
For example, as the leaders of major industrial economies meet today, they will look at ways to strengthen the regulation of banks and other financial institutions to try to lessen risks to the global system. They have indicated they will embrace recommendations of the Financial Stability Forum, an international group of bank regulators and other government officials. The forum urges such steps as encouraging banks to be more open with their information and pushing government agencies to coordinate better and respond more aggressively to risks.
Actions like those may not do much in the short run to prevent the problems in financial markets from slowing the world economy.
"They are going to share a lot of information, but I don't think there is going to be a coordinated policy response," said Domenico Lombardi, president of the Oxford Institute for Economic Policy. That's partly because European and Asian economies are in better shape than that in the United States, and thus leaders of those nations might be reluctant to undertake bold action.
U.S. officials have played down the possibility of action by governments to buy up mortgage securities or take other big steps. Addressing the idea of "an injection of public money in a very significant way," David McCormick, a Treasury Department undersecretary, said in a briefing Wednesday, "We're not at all certain that that would make sense or would even have the desired public policy outcome."
The IMF has taken a stronger stance in urging central banks and governments to consider unusual action. Many analysts would like the IMF to take the lead in trying to prevent future disruptions in financial markets.
"The IMF should orchestrate a worldwide response to this," Bradford said. "They can provide a table around which you bring the various national officials, and you bang heads. You say to people, look, we've got to come up with some codes and practices that will keep this from happening again."