The Hindu Business Line : The world economic disorder

Despite six decades of their existence, multilateral agencies such as the UN, the World Bank and the IMF, have not been able to make the world a better place in terms of peace, security and development with equal opportunities for all citizens.

COME SEPTEMBER, the United Nations, the embodiment of human hopes and aspirations (however imperfect its role in many a crisis), and key multilateral agencies take stock of the state of the world and the working of the international economic system, which has miserably failed to narrow the rich-poor divide.

These institutions, ushered in at the end of the Second World War, were designed to bring about an era of peace, security and development with equal opportunities for all citizens. Sixty years since, we now see greater problems and challenges than those that had emerged in the post-War world, with terrorism directed against individuals and nations.

The end of the Cold War and the rivalry of the two nuclear superpowers, the US and the Soviet Union, at the close of the l980s had neither produced the much talked of `peace dividend' nor advanced a North-South compact on a new equitable pattern of international relations.

The world is in a mess today, dashing hopes of any equitable sharing of global resources to eliminate poverty and deprivation of billions of people in the developing countries. In its inexorable stride, globalisation — "alive and well," according to one of its champions, Ms Anne Krueger, First Deputy Managing Director of the IMF — has further marginalised the poor, whatever the gains for market forces.

The US President, Mr George W. Bush's indeterminate war against terrorism and unilateral intervention in Iraq has neither made the world safer nor advanced the cause of democracy despite the claims he has made before the American people, who will have to decide on November 2 whether he deserves a second term in preference to his Democratic opponent, Mr John Kerry, who does not appear to have captured their hearts.

The Democrats, critical of the "disastrous" record of Mr Bush, have no credible alternative strategy for national security or a job-creating economy. For both candidates, the world beyond, except insofar as combating terrorism is concerned, does not loom large enough to merit more than a cursory glance.

Poverty and exclusion of billions do not appear to be as threatening for the future of the world as terrorism. Much worse, Mr Bush has dramatically changed the American foreign policy and outlook with his single-point agenda of fighting terrorism, which excludes attention to some of the basic factors that are fuelling militancy.

His unilateralism, underscored by assertion of right to pre-emptive strikes as and when America thinks it necessary, has deeply divided the world. His world vision does not extend beyond combating terrorism and planting democracy in West Asia.

Thus, a re-election of Mr Bush would mean status quo for the rest of the world and barren prospects for creating a more humane and equitable world order or refashioning the post-War international institutions to meet the challenges of the 21st century. Successive administrations have shot down proposals for reforming the Bretton Woods institutions, in which decision-making rests with the richer nations, chiefly the US.

The `democracy deficit' is nowhere more manifest than in the way the IMF and the World Bank are structured. It is to the total lack of a global concert that the Prime Minister, Dr Manmohan Singh, drew attention to in his address to the UN General Assembly and said whatever the gains from globalisation, there is "the phenomenon of widening economic disparities, both within and among countries" and poverty cannot be banished to some "invisible periphery".

The United Nations Millennium Development Goals for 2015 will remain largely unfulfilled, except perhaps a reduction by half the poverty levels in a few countries such as China and India, but in absolute numbers it would be considerably higher. Requisite support from the richer nations is not forthcoming.

Development aid flows have shrunk over the years in real terms, let alone the UN target of 0.70 per cent of GNP which none of the major developed nations has fully accepted as a target, set nearly 25 years ago.

The outlook for increased aid flows, especially the $18 billion additionally pledged by the US, the EU and other nations from 2006 at the Monterey Summit (2002), is far from hopeful as the US' budget deficits are soaring and its strategic priorities are quite different. The World Bank President, Mr James Wolfensohn, has indirectly castigated the US administration for ignoring longer-term issues, in its preoccupations with fighting terrorism.

The US spends $450 billion on defence, half of the global military expenditure of $900 billion, and richer countries subsidise farmers to the extent of $350 billion but a mere $50-55 billion for development assistance. Nor have trade barriers been significantly lowered for poorer countries to strengthen their economies so as to gradually reduce dependence on aid.

Though home to 80 per cent of the world's population, developing countries of Asia, Africa and Latin America account for a mere one-fifth of world output.

Of the Bretton Woods twins, which celebrate their 60th anniversary this year, the IMF was designated as guardian of the international monetary system with fixed exchange rates which had to be given up when the dollar was delinked from gold in the early l970s.

The Fund mainly kept a watch on the economies of member-countries. In the wake of successive debt explosions and capital outflows, it has had to begin monitoring financial markets for crisis prevention. What marred its reputation was the tough conditionality it lays down for credits to countries in serious payments trouble, and the social chaos that often result from austerity measures.

Both the IMF and the Bank have relentlessly advocated policies for developing countries conforming to what was known as the Washington Consensus, embodying liberalisation, privatisation and globalisation.

The Bank, no doubt, evolved itself as the largest multilateral development assistance agency pouring tens of billions of dollars of loans and soft credits over these years. But both institutions controlled by the richer nations, with a determining voice for the US, have to function within limits and spread the free market ideology.

Yet, at sixty, they are called upon to reinvent themselves, learning from lessons of the past, and refashion some of their policies and guidelines which would be more responsive to the concerns of the poorer two-thirds of the world.

However, there can be no expectations that the 2004 Fund-Bank annual meetings in early October would have initiated meaningful reforms of these institutions, including greater representation and an effective voice for developing countries in the decision-making layers of the two institutions.

The UN, which completes 60 years in 2005, is the only universal forum for all nations to debate global issues freely, but the effectiveness of its organs is circumscribed by both budgetary constraints with countries such as the US holding up their annual contributions and insisting on reforms aimed at downsizing the world body's structure as well as seeking to curtail its influence in promoting economic advance and bringing about an equilibrium in the working of the global security and economic systems.

The US has too often felt frustrated that its unilateral posturing did not get resonance in UN chambers and, therefore, tended to downgrade the importance of the world body. The effectiveness of the UN depends to a large extent on how cooperative its members are.

How to overcome its deficiencies and ineffectiveness and meet the newer challenges of the 21st century through radical reform, is now being examined by a high-powered UN Panel whose recommendations would be the high point of the deliberations in the UN's 60th year.

These challenges, in the main, are global poverty, development which ensures a substantial reduction in the income gaps between developed and developing and, of course, the menace of terrorism.

In this context, the Prime Minister, Dr Manmohan Singh's New York visit has opened new vistas both in bilateral co-operation with the US and in the pursuit of composite dialogue with Pakistan — to settle amicably issues that divide them, including Jammu and Kashmir — and in the multilateral context. The new G-4 grouping of India, Brazil, Germany and Japan, which was launched in New York by the four heads of governments, has committed itself to democratisation and reform of the UN and revitalisation of its organs to effectively address present-day challenges.

Even as the four countries support one another for permanent membership of the UN Security Council, the Group can become a powerful nucleus for a grand alliance to accelerate processes leading to a new global economic order for peace, stability and development. India will find countries such as the UK, France and Germany more responsive to developing country concerns.

(The author is a former Chief News Editor of PTI.)