LONDON: The International Monetary Fund and the World Bank are not fit for purpose and need to change dramatically in the wake of the worst financial crisis in living memory, British Prime Minister Gordon Brown said yesterday.
Speaking at a seminar to set out the agenda for April’s G-20 leaders’ summit in London, Brown told the assembled academics that a “bold leap forward” was now needed if future crises were to be prevented.
“I believe the IMF and World Bank will have to change their role quite dramatically,” he said. “These institutions were built for a world of local capital flows, not global capital flows. The institutions we have inherited are not equipped for the tasks we have to deal with in the future.”
Leaders of the G-20, which includes industrialized nations like the United States and Britain as well as emerging economies like India and China, will meet in London on April 2 to discuss the financial crisis that is sapping the world economy.
Brown, who is hosting, has billed the London summit — subtitled “Stability, Growth and Jobs” — as a new Bretton Woods after the 1944 conference of 44 nations that created the modern financial system. “I see a big argument about how the IMF and the World Bank are to be financed in the future, one that will require us to talk about the reserves in different countries, talk about what sort of loan or bond facility we can develop, perhaps with the Arab states, perhaps even with Sovereign Wealth Funds,” he said.
The IMF’s Managing-Director Dominique Strauss-Kahn has said it may need more money in six months to finance bailouts of countries that fall victim to the financial crisis. The IMF has already given loans to countries from Iceland to Pakistan in recent months as the credit crunch has pushed the world economy into a sharp downturn. Brown said it was essential that the world had an early warning system to spot future trouble and regulators should also have more power to enforce their recommendations. “We’ve never given anybody sufficient teeth that their views are treated seriously, that people have to act when those warnings are given.”
The prime minister repeated his call that monetary and fiscal action was needed internationally in order to get economies working again.
Britain, along with much of the industrialized world, is already in recession. Policymakers around the world have been slashing interest rates to boost growth. The Bank of England cut borrowing costs to just 1 percent last week. “We have put monetary policy to its toughest test. Because the monetary mechanism is impaired, fiscal policy is absolutely essential,” he said.
Brown’s Labour government already announced a 20 billion pound boost to the economy in November but expectations are rising of a further package of tax cuts or public spending within the next couple of months under cover of the G-20 summit.
