The Global Monetary Non-System

This kick-off, public lecture will be held at the CIGI Campus Auditorium (67 Erb Street West, Waterloo, Canada) in addition to being broadcast live.

Speaker:
José Antonio Ocampo, Professor, School of International and Public Affairs, Columbia University and former UN Under-Secretary-General for Economic and Social Affairs

Moderator:
Steve Paikin, Anchor and Senior Editor, The Agenda with Steve Paikin

The Short View: The Global Conjuncture and the Need for Cooperation

The opening session will review the near-term economic challenges in the global economy, the risks they pose to the global outlook and the consequences of failing to secure the international cooperation that is needed to deal effectively with these risks. The objective is to identify clear, concrete initiatives that could promote more effective multilateral engagement and cooperation.

Five years on, the global financial crisis continues to cast a pall on a global economy that remains dangerously unbalanced and is threatened by new fragilities. The euro zone remains in crisis, with policy responses to date that address only the symptoms of the problem — not the underlying institutional and governance weaknesses. The result has been higher unemployment that, in some euro zone countries, is now at levels rivalling the Great Depression. In contrast, the US economy has continued its steady — albeit tepid — recovery, with unemployment slowly trending down over time. The US fiscal situation is less encouraging, with public debt on an unsustainable path over the medium term and, absent a resolution of the debt-ceiling impasse, a looming fiscal shock in the form of expiring tax cuts. Taking place days after the US presidential election, set for November 6, CIGI ’12 will be an opportune time to consider the impact of fiscal constraints facing the president, whoever that might be. Although China, Brazil and India rebounded quickly from the crisis, new concerns about the prospects for growth have surfaced, and worries remain about how these dynamic emerging economies would be affected by a new round in the currency wars that erupted in response to the quantitative easing employed by advanced economies’ central banks.

The session will review efforts to secure a timely rebalancing of global demand that promotes strong, sustainable and balanced growth, consistent with the G20’s Mutual Assessment Process. This rebalancing would reduce the risk of insufficient global aggregate demand and dissipate the threat of deflation/disinflation in countries that need to undertake difficult, sustained fiscal adjustments. Failure to achieve these fundamental adjustments could undermine the support for the open, dynamic international trade and payments system that has raised living standards for so many around the globe, as individual countries retreat to policies intended to insulate themselves from global risks, but which, collectively, constitute beggar-thy-neighbour measures, destructive of national and international prosperity.

Chair: James Haley, Inter-American Development Bank, frm. Director, CIGI Global Economy Program

Panellists:

Global Financial Regulation and International Governance of Global Capital Flows

The second session will focus on attaining a suitable international regulatory framework for successful global financial integration. Such a framework would reduce the risk of future crises and ensure financing for the investment and innovation that will drive growth going forward.

If there is one key lesson to be gleaned from the crisis, it is that the evolution of financial markets and the integration of financial systems outpaced the development of international regulatory frameworks for the governance of global capital. In effect, financial markets are internationally integrated, but prudential regulation and supervision is nationally based. In this environment, financial firms exploited gaps in legal and regulatory frameworks in a process of “regulatory arbitrage” to engage in excessive risk-taking that put the entire global economy at risk.

The session will look at international financial regulatory reform, including the implementation of new capital rules, strengthened cross-border resolution regimes and a framework for containing and mitigating potential risks from the so-called “shadow” banking system that operates outside the regulated banking sector. Strengthening the FSB is also key to the success of international financial regulation reforms. Revisions to the FSB Charter, endorsed by the G20 leaders, for placing the FSB on “an enduring organizational footing, with legal personality, strengthened governance, greater financial autonomy and enhanced capacity to coordinate the development and implementation of financial regulatory policies” would be the first step to achieving this goal. Prompt implementation of such Charter changes and a review of the FSB’s representation structure would further reinforce the role of the FSB.

Chair: Pierre Siklos, Wilfrid Laurier University, Balsillie School of International Affairs (confirmed)

Panellists:

Strengthening IFIs to Promote Effective International Cooperation

The third session will focus on the role of the International Financial Institutions (IFIs) as the key institutions of multilateral cooperation, assisting their members through the provision of key public goods.

The International Monetary Fund (IMF) plays a key role in promoting the public good of international financial stability by assisting its members in striking the right balance between financing and adjustment and by encouraging timely policy adjustments and identifying potential risks through its surveillance of members’ policies (issues of key importance in terms of both crisis resolution and crisis prevention). To be effective, however, the Fund must be viewed as legitimate, credible and effective. A key issue here is ensuring that voting quota shares accurately reflect the shifting weight of its members in the global economy.

At the same time, there is a need to complete the institutional arrangements under which the IMF operates to align them with the evolution that has occurred over the past 30 years in global financial markets. As private capital flows have increased in importance, the Fund’s ability to operate under the simple, transparent and incentive-compatible rules of balance of payments adjustment has been impaired. Instead of assisting its members to deal with current account problems, filling balance of payments gaps —thereby providing members time (or breathing space) to smooth the adjustment process — the Fund must now attempt to influence the expectations of a heterogeneous group of private creditors fleeing capital account crises. To do this, the IMF has increasingly operated in a world of discretion, rather than rules, and one in which its traditional policy prescriptions are viewed as both less effective and more intrusive in terms of the fiscal and other adjustment they require.

Similarly, fundamental governance challenges will have to be overcome at the World Bank if it is to be expanded sufficiently to provide the global public goods that will, increasingly, come to the fore over the coming decades. To assist the international community in dealing with such challenges, the World Bank needs to be considered both credible and effective. The institution must be perceived as accountable to the taxpayers of the members providing capital, particularly in an environment in which major new contributors would dilute the managerial prerogatives exercised by existing large shareholders.

Chair: Tom Bernes, CIGI (confirmed)

Panellists:

Sustainable Development and Financing Critical Global Public Goods

The penultimate session will examine the challenges of sustainable development and the financing of critical global public goods.

These challenges underscore the need to revitalize the institutions of international cooperation. A retreat from the architecture of international cooperation would be particularly damaging, given the growing urgency of fostering sustainable development and the huge investments in new technologies and abatement that are required to respond effectively to the challenge of climate change. Mobilizing the necessary collective action will entail a range of measures to price carbon emissions, provide accurate credit ratings for countries on unsustainable development paths, tax environmental “bads” and ensure the enforcement of collective agreements.

The investments needed in global public goods may overwhelm the capacity of governments struggling with the legacy of excessive debt burdens that reflect an excessively lax fiscal policy stance before the crisis or the extraordinary measures to save banking systems and support output and employment during the crisis. Moreover, these governments are unlikely to increase resources for development, with potential implications for international development and poverty reduction.

Chair: Barry Carin, CIGI (confirmed)

Panellists:

The Long View: Shifting Leadership in a Fragile World

The final session will examine the lasting effects of the crisis on global economic and strategic leadership. It will draw on previous sessions by considering the connection between global economic size and the leadership needed to resolve global collection action problems.

The crisis has tarnished the cachet of leadership enjoyed by the advanced economies that have dominated global institutions and international decision making for the past half-century. This is evident in a number of areas, including multilateral surveillance; the issue of global adjustment, in which each player thinks the other is the problem; efforts to provide the resources for the provision of critical public goods; and reforms to the IFIs.

The question of global leadership will not be resolved at CIGI ’12, but it is hoped that the discussions will identify pragmatic, concrete proposals that can begin to close the gaps in global governance revealed by the crisis.

Chair: Paul Heinbecker, CIGI (confirmed)

Panellists: