G20 London 2009

Reforming the world's economy

by Salil  Sarkar

Article published on the 2009-03-31 Latest update 2009-03-31 20:23 TU

Members of Landless Rural Workers Movement and labour union CUT are escorted by mounted riot police during a demonstration next to Central Bank in Brasilia in March
(Reuters)

In the US, the religious-based Jubilee USA and allied groups are lobbying Congress to authorise the IMF to sell some of its tens of billions of dollars worth of gold reserves, and to use the money for debt cancellation for poor countries.

More ambitious proposals for longer-term reform come from the UN commission headed by Nobel-laureate economist Joseph Stiglitz. This commission is proposing a Global Economic Council, an expanded global reserve system and other institutional arrangements – including steady aid to poor countries, that would not be subject to the veto of rich countries as are the IMF and World Bank.

The UN commission recently released its preliminary report which highlights the dangers faced by poorer countries from the global crisis. It estimates that 30 million more people will be unemployed in 2009 compared to 2007. The increase could even reach 50 million.

Progress in reducing poverty may be halted. About 200 million people, mostly in developing economies, could be pushed into poverty if rapid action is not taken to counter the impact of the crisis.

Critical analysts expect the most important reforms to happen at the national and regional levels, bypassing the G7 and the nominally expanded G20. China has in recent months extended multi-billion dollar currency swaps to South Korea, Hong Kong, Indonesia, Malaysia and Belarus, after refusing the rich-country pleas for more money for the IMF in the absence of governance reform.

The Asean + 3 countries (South-East Asian Nations plus China, Japan and South Korea) are moving toward a 90bn euro Asian Monetary Fund. And South America's Bank of the South is expected to be launched in May with 7.5bn euros in start-up capital from Argentina, Brazil, Venezuela, Bolivia, Ecuador, Paraguay and Uruguay.

To top it all, in late March, the government of China announced its support for a new global reserve currency to replace the dollar. If the developing countries are willing to show the rich countries’ governments that they can walk away from any agreements that can harm them, while creating alternatives at the national and regional level, the governments of the rich countries may eventually see the need for serious international financial reforms.