For a little more than two decades there has been a growing consensus, among both governments and independent experts, that existing monetary and financial arrangements need extensive reforms, to enable the international economy to generate and sustain growth at a reasonable rate, in a stable environment. There is also a greater appreciation about improving the quality of growth.
Since 1989 when Guyana signed onto the IMF/World Bank Economic Recovery Programme, we have been bombarded about maintaining monetary stability, macro-economic discipline and efficiently working market mechanisms. These, we were told, were essential for survival and growth in the new world of globalisation.
We have discovered, to our chagrin, however, that while those goals might have been necessary, they are not sufficient. They have to be buttressed by sound policies that promote equity.
In many countries, including ours, the quantum and quality of growth after the initial spurt as the economy was unshackled, produced severe distributional inequalities, high unemployment/underemployment and stagnating wages for both skilled and unskilled workers.
In many countries, also including ours, the issues of poor governance, corruption and crime, have not helped, even though the International Financial Institutions have of recent begun to take cognisance of these drags on economic performance. However, they have neglected the kinks in the global financial markets that cry out for reform.
Overall, the key issues in global financial and monetary reform can be broadly categorised as the management of the global capital market, development finance for low-income countries, the exchange rate system and the role of special drawing rights.
There are several factors which have great effect on our efforts to engender growth. In the management of the global capital market, this has been revolutionised by the elimination of capital controls by industrial countries and many developing countries, as well as the revolution in information and computer technologies.
The management of private capital flows is one of the critical issues of the international financial system.
Paradoxically, due to the fact that we never attracted any of the “hot money”, we have been spared the ravages that flowed from ultra-liberalisation as exemplified by the crises that hit the Mexican, East Asian, Russian, Argentine, and Brazilian economies.
But since we have created one of the most open economies around, policy makers should be forewarned of the constraints on their autonomy in such an environment: they are reduced to the role of spectators as external funds surge in and out overnight.
In view of the fact that the International Monetary Fund (IMF) pushed liberalisation of markets in the first place, some have suggested that the resources available to it should be sufficiently increased to enable it to help affected countries overcome speculative pressures on their balance of payments position.
On the need for development finance for low income countries, the joint IMF-World Bank Ministerial group – known as the Development Committee – has been considering issues connected with the provision of development assistance to low income countries.
Because of its own misguided over-exuberance during the seventies in intermediating the oil windfall funds, the IMF-World Bank threw out the baby with the bathwater on development funding.
In recent years, official development assistance has only achieved about one-third of the stated target percentage of GNP of rich industrial countries. Then, of course, there are the inevitable political strings attached in so many instances.
Additionally, the funds provided by the IMF, World Bank and regional development banks have their famous attached “conditionalities” which, when implemented, often have the effect of creating social upheavals.
In Guyana, for instance, it had been a standing demand since the Hoyte administration, that the public services be downsized. In the circumstance of our polarised politics, this can be assessed as “political or racial victimization”.
With good reason, developing countries also hold that they should be more involved in the decision-making process of the Bretton Woods institutions. It is quite anomalous that China and India do not have an input in proportion to their economic strength.
The presence of developing countries in these councils would lend a greater appreciation for the need for flexibility in the imposition of conditionalities so that trade, employment generation and development efforts are not sacrificed at the altar of “macro-fundamentals”.
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