One year ago, the pressure was on as the world's financial elite gathered in Washington for their biggest annual convocation. With country after country hit by currency panics, a giant New York hedge fund near collapse and political turmoil rocking not a few foreign capitals, bankers and officials made promises for fundamental change in how the world does business.
This week, as many of the same leaders fly in for the 1999 gathering, the question on many minds is how to keep those fears and promises alive.
Economically, it's a different world, on the surface at least: global growth of 3 percent likely this year, financial confidence returning, much of Asia on track again, Brazil not sinking as far as expected, even Russia looking up. Those assessments were all in the International Monetary Fund's World Economic Outlook, released yesterday.
"What happens when things start to look rosy again is that people go back to the same ways of behavior," World Bank President James Wolfensohn cautioned on Tuesday. ". . . That's human, I regret to say." Citing important progress in reforms achieved to date, he called for efforts to keep things moving forward.
The occasion is the annual meeting of the IMF and the World Bank, and a separate meeting of the finance ministers of the Group of Seven industrial countries. The gathering, the world's biggest single assembly of financial firepower, brings together about 12,000 people from 182 countries.
Perhaps the biggest solid news likely to emerge from the meeting could be something that had little to do with last year's financial crisis, the official go-ahead for a program to shave $27 billion off the debt of as many as 33 desperately poor countries, most of them in sub-Saharan Africa.
Finance officials meeting in Cologne, Germany, in June agreed on the package, which many aid and development groups feel is too small but are backing nonetheless. Now comes the horse-trading aimed at deciding which countries and organizations come up with what portion of the money, and how. Though there's no guarantee, many people expect a deal to materialize during the meetings, which end next week.
Russia is not officially on the IMF-World Bank agenda, but back-room talks will explore whether it deserves new IMF money and what to do about corruption there. Among other things, the G7 nations will likely ponder exchange rates, as they always do, and unveil a new "G20" group of countries for discussions about financial reform.
Other discussions will focus on the big-picture questions of how to keep the global recovery going. Nations such as South Korea and Thailand argue that they have made serious progress in eliminating root economic weaknesses, through such steps as closing failed banks and companies. Other analysts, however, see the changes as exercises in public relations.
"Sad to say, the Asian crisis was solved too quickly, in my opinion," said Greg Mastel, director of the global economic policy project at the New America Foundation, a Washington think tank. ". . . You're rebuilding the old system."
Specific proposals for global reform will float through the meeting rooms and hallways. A group sponsored by the Council on Foreign Relations, for instance, will talk up its seven-point proposal for financial change. And the United States will push a three-step agenda that Treasury Secretary Lawrence H. Summers laid out in remarks prepared for delivery at Yale University yesterday.
In view of the past three years, Summers said, "it will be crucial that we not turn our backs on the goal of a safe and sustainable, truly global financial system." Some of the steps he proposed are underway, while others need further negotiation. He outlined three objectives:
* Reduce the likelihood of the kind of panicked withdrawals of foreign investment that so damaged several developing economies in 1997 and 1998. It might help to establish minimum levels of foreign reserves that countries should hold. That's because if a country's central bank is known to have mountains of dollars on hand, foreign investors are less likely to run when trouble comes.
* Discourage governments from promising exchange-rate stability when they can't ensure it. The promise helps bring in foreign money, but governments can go broke trying to defend a certain value of their currencies.
"When trouble came," Summers said, speaking of recent events, "the breaking of the promise has greatly exacerbated the general loss in investor confidence and withdrawal of capital that followed."
* In contemplating international financial rescue packages for troubled economies, the world must distinguish between countries with good prospects for economic recovery and those that probably can never repay their debts.
A South Korea or a Brazil, he suggested, is deserving of a package to keep it in business while it makes financial adjustments. Summers didn't name a country of the opposite type, though Ecuador has been on many bankers' minds lately. "In these rare instances, a debt restructuring or reduction may be warranted," he said.