WEF: radical change to prevent future crises

Wayne Arnold

• Last Updated: November 22. 2009 9:01PM UAE / November 22. 2009 5:01PM GMT

Governments have failed to fix the sources of the economic crisis and will need radical new mechanisms for international co-ordination to solve them, participants at the World Economic Forum’s (WEF) meeting in Dubai said yesterday.

The WEF’s three-day Summit on the Global Agenda ended yesterday with a series of recommendations. Among them were: expanding alternatives to the dollar as the world’s reserve currency; strengthening international oversight of the financial industry; and creating global agencies to monitor financial risks and other threats including weapons of mass destruction, climate change and pandemics.

“We’ve got global economics but local politics,” said Mark Malloch-Brown, a senior adviser at the WEF, which is based in Geneva. “We need to globalise the way we deal with humanity’s challenges and difficulties.”

The summit brought together 700 participants from members of 76 global agenda councils to discuss a wide range of issues from human rights and health to climate change and investment flows.

WEF officials said the recommendations would be submitted to forum members at its annual meeting in late January, then to the leaders of the Group of 20 (G20) developed and emerging economies.The summit’s recommendations lean heavily on the G20 as a new source of authority for setting the global agenda and building consensus.

“It’s important because [the G20] represents 80 per cent of the globe,” said Abdulaziz Sager, the chairman of the Gulf Research Centre in Dubai.

The participants hoped the summit had shattered past assumptions, opening the way for novel new solutions. “The world is in the crazy idea period,” said Richard Samans, a managing director at the WEF.

In the background, however, was a concern that the mood for fresh solutions might be fading as a rally in global financial markets is mistaken for recovery.

“The window for reform is closing,” said Sharan Burrow, the president of the International Trade Union Confederation. “There’s a business-as-usual mentality out there.”

While a firm economic recovery appears to have taken hold in Asia, experts at the summit warned that the global imbalances in trade and investment, which many economists say set the stage for the US subprime mortgage crisis, persist.

“We have still not solved the global imbalance problem that was behind the crisis,” said Howard Davies, the director of the London School of Economics and Political Science. The global recovery remains fragile, Mr Davies said, with high unemployment and weak business activity.

There are also signs that new asset price bubbles are already being created in various markets by these imbalances, at the centre of which is the dispute between China and the US over unequal trade levels and the values of their currencies.

The persistence of these imbalances was also reviving protectionist policies, threatening to reverse free trade and gains made by globalisation, participants said.

Among the recommendations was a call for the IMF to expand issuance of its special drawing rights, a virtual currency based on the currencies of its 186 members, to give countries an alternative to the dollar in which to invest their reserves.

Summit members also called for giving greater authority to the Financial Stability Board, which was established this year by the G20 to develop stronger international regulation and supervision.

Participants also discussed how to tackle longer-term problems such as global warming, poverty and security.

They recommended that mechanisms be devised to encourage sovereign wealth funds (SWFs), pension funds and other institutional investors to shift some assets out of the safety of developed markets and into helping poor countries build infrastructure and battle climate change.

“We have on one hand huge SWFs and pension funds looking for long-term investments and on the other a desperate need for infrastructure in developing economies,” said Sir John Gieve, a senior fellow at the Belfer Centre for Science and International Affairs at Harvard University. “The two don’t come together because of fears among investors of political risk.”

Sir John’s council on systemic financial risk called for these governments to create incentives that would encourage funds to invest in the developing world by assuming these risks in much the same way as the US federal government is guaranteeing certain private-sector debts to revive lending.

Similarly, the council on global climate change called for the creation of a 10-year, €100 billion (Dh546.09bn) fund to finance green investments in the developing world.

But long-term solutions to such problems will require re-evaluating the concept of co-operation between nations, participants concluded. Organisations such as the UN, the IMF and the World Bank have proven largely inadequate, they said.

“Twentieth-century institutions have proven themselves incompetent to deal with 21st century problems,” said Ashraf Ghani, the chairman of the Institute for State Effectiveness in Washington DC.

The forum called for the promotion of more informal, cross-border collaborations of various stakeholders – from governments, companies and non-government organisations to cities and other communities – to seek wider solutions.

“The global financial crisis has impressed on all of us the distance between the way our economy is organised and the way our political culture is organised,” said David Kennedy, the director of the Harvard Law School’s Institute on Global Law and Policy.

“At the global level, we can be confident that politics will be redesigned.”



warnold@thenational.ae