Debt restructuring and dispute resolution
In a major address, IMF First Deputy Managing Director Anne Krueger unveiled the newest element of her proposed sovereign debt restructuring mechanism—namely, a dispute resolution forum (see excerpts from speech, page 193). If accepted by the IMF’s membership, this forum would provide a framework within which sovereign debtors and their creditors could restructure debts in an orderly way. Creditors with disputes among themselves could also avail themselves of this forum.
The proposed forum would have no authority to challenge decisions by the IMF’s membership as to the adequacy of policies or the sustainability of debt. The forum’s credibility and legitimacy would be based on its capacity to resolve disputes among creditors—and between creditors and the debtor—in a way that is demonstrably fair to all parties, Krueger explained. “In a world in which sovereign borrowers have diffuse and diverse creditor bases,” she said, “we need a way to overcome the coordination and collective-action problems that stand in the way of timely and efficient restructuring.... We believe that a dispute resolution forum—small in size, limited in role, and demonstrably independent in its membership and operation—is the best way to achieve this.”
Trans-Atlantic trade friction
Do current disagreements between the United States and the European Union threaten to disrupt their key economic partnership? What potentially can be done to calm things down? Representatives from the two sides did their best to come up with some answers. Grant Aldonas, Undersecretary for International Trade at the U.S. Department of Commerce, indicated that the upcoming Doha trade round would be the appropriate venue for resolving such disputes. Gerard Depayre, Deputy Head of the European Union (EU) delegation in Washington, D.C., emphasized that trans-Atlantic trade disputes over agriculture and steel should not distort the larger, more cooperative commercial partnership between the United States and the European Union. What particularly concerned EU members of late, however, was that recent U.S. actions to subsidize domestic agriculture threaten to undercut nascent efforts to reform Europe’s Common Agricultural Policy. Echoing Aldonas, Depayre urged both parties to use the Doha negotiation framework to resolve the current impasse.
New aid consensus?
Turning to an area where views seem more clearly to be converging, World Bank President James Wolfensohn declared that the development community had reached an important turning point. Developing countries are now persuaded of the value of open markets, privatization, entrepreneurship, and self-help, he said. And the March 2002 Financing for Development Conference in Monterrey, Mexico, helped developing countries fully recognize that they themselves bear the ultimate responsibility for the success or failure of their economic strategies and for the extent of their participation in the global economy. For their part, industrial countries have begun to recognize that meeting the Millennium Development Goals will require greater effort and generosity. Now the key requirement for both sides is “implementation.” Common action is increasingly necessary, as the world has recognized that “the imaginary wall that divided the rich world from the poor world came crashing down” on September 11. “There are not two worlds. There is only one,” Wolfensohn said.
U.S. Treasury Undersecretary John Taylor also addressed the global development agenda, citing the large productivity gap between rich and poor countries as the key challenge facing developing countries. This gap, he said, is a product of poor governance, insufficient education, and restrictions on business activity. Bridging this gap will require better targeted, results oriented foreign assistance from the donor community.
Social and political obstacles to growth
But while aid can facilitate growth, economic progress is crucially dependent on social and political stability. This fundamental message emerged from separate statements delivered by Richard Murphy, from the Council on Foreign Relations, and José Angel Gurria, former Mexican Finance and Foreign Minister. Focusing on the Middle East, Murphy suggested that the “misery and hopelessness” that lie at the heart of so much recent terrorism in the region will not be rooted out without greater economic development and an “increased stake in the political life of their countries for relatively well educated but disenfranchised and angry youth.”
In remarks titled “Emerging Markets’ Love-Hate Relations with the International Financial Institutions,” Gurria praised the Bretton Woods institutions for their ability to remain “relevant” to the needs of Latin America. He cautioned, however, that recent political trends in the region bear watching, notably popular dissatisfaction with “politics as usual” and the growing influence of unelected nongovernmental organizations (NGOs) in the policy process. Things have reached the point, according to Gurria, where democratically elected leaders are afraid to take action for fear of offending such groups.