The BBC reports, today that Brazil will offer the International Monetary Fund $10 billion in order to improve the accessibility of credit to developing nations. This move represents what could be the beginning of Brazil's true emergence as a great power. Brazil has both a strong military and economy but cannot really be called an "active" power. Until now, it was probably fairer to say that Brazil was at best a regional power. A move like this, part of a greater commitment by BRIC nations, helps Brazil to push past that label and earn the attention it has been receiving lately as a growing power.
Beyond that, by committing such a large amount of money to the IMF, Brazil may be helping to restore legitimacy to an institution that has had a poor track record in South America. With a contribution like this, Brazil will have a lot more influence in the decisions of the IMF because of the institution's structure where the number of votes a state has is dependent on the amount of money it contributes - this contribution would place Brazil as a top 5 contributions and, consequently, influence. What this means for South America is that it can finally have one of its own fighting in its best interests and hopefully work to change the mistrust (and/or hatred) that is the result of detrimental IMF involvement in the past. Also, this must make developing nations worldwide optimistic now that one of their former colleagues is now an influential player in international politics and institutions.
This seems like a good first step for Brazil and may create a little more anticipation for the upcoming BRIC summit.
- blenCOWe
Showing posts with label IMF. Show all posts
Showing posts with label IMF. Show all posts
Thursday, June 11, 2009
Monday, October 13, 2008
A New Bretton Woods An Unlikely Outcome
As the current financial crisis spreads to the corners of the world, many of the world's leaders and important thinkers are throwing out different ideas of how to fix the financial problems that are present in our current markets. This is obviously reasonable because governments will not be able to continuously bailout all the financial institutions that fall into trouble.
One concept that has been proposed that caught my attention was British Prime Minister Gordon Brown's idea to create a new Bretton Woods agreement with the intention to "reshape the world financial system." While this idea has good intentions and might have a beneficial impact, I don't believe that it would be the best response to this financial crisis. A look at the past results of the Bretton Woods system shows that a new agreement would be a short-term response.
The initial agreement helped to restore the international market in the post-World War II reality but this only lasted until 1971 when national interests began to take precedence. When the United States stopped their currency from being converted to gold, the Bretton Woods system crashed. This shows that when it comes to finances, states will usually act in the interests of their citizens before the interests of the international system. This cannot be overcome, simple as that. Domestic politics rule when it comes to the market. So when Prime Minister Brown says that "only by global action can we fully restore the confidence that is needed and build the international financial order", I believe he is wrong.
Instead I believe that more international action will only lead to further problems down the road. If one examines the current financial crisis, it is obvious that the much of the crisis can be traced back to the sub-prime mortgage problems of the United States. The downturn of the US market has affected the foreign markets because of the tremendous amount of foreign investment in the United States. When the US suffers, its investors suffer and thus the trickle down effect occurs.
So what then is the answer?
Well, first of all I do not claim to be an expert or even fairly proficient in terms of economic understanding. I try to avoid economics as much as I can in my studies but as this is almost impossible in studying politics and international relations, I have come to acquire some understanding of basic economics. With this in mind, I believe that the answer to this problem is apparent and is already beginning to show itself.
As of today, the markets are beginning to rebound a little bit across the globe. Much of this has been because of involvement by national governments to invest in their national markets. From this, I conclude that the best way to address the current crisis is for each government to take care of their own markets and not to worry about the economic fortunes of the the international market. I realize this must sound crazy coming from an internationalist and in the current reality of globalization but if each country acts to stabilize their own markets then the international market will begin to stabilize as a by-product. As I said, this has already begun to happen because as national governments begin to act to protect their economies, the markets have begun to rise again.
Furthermore, the already existent international financial bodies (that were created by the original Bretton Woods system) are acting to protect markets. Recently the IMF announced that it would help to protect poorer countries from the fallout of the international financial crisis. This is a tremendous move by a body accused (sometimes by myself) of working for the world's rich countries. The poorer countries of the world are the ones most at risk of suffering from this crisis. They are the ones that would have the greatest difficulty to rebound and so the efforts by the IMF will be extremely beneficial to these already fragile markets. With this in mind, I do not see a reason to create another Bretton Woods organization.
In the end, it is sometimes better to focus on the small things in order to right larger problems. The international crisis is a problem that affects the globe but in order to address it, we must look to our own backyards before building another international financial body.
- blenCOWe
One concept that has been proposed that caught my attention was British Prime Minister Gordon Brown's idea to create a new Bretton Woods agreement with the intention to "reshape the world financial system." While this idea has good intentions and might have a beneficial impact, I don't believe that it would be the best response to this financial crisis. A look at the past results of the Bretton Woods system shows that a new agreement would be a short-term response.
The initial agreement helped to restore the international market in the post-World War II reality but this only lasted until 1971 when national interests began to take precedence. When the United States stopped their currency from being converted to gold, the Bretton Woods system crashed. This shows that when it comes to finances, states will usually act in the interests of their citizens before the interests of the international system. This cannot be overcome, simple as that. Domestic politics rule when it comes to the market. So when Prime Minister Brown says that "only by global action can we fully restore the confidence that is needed and build the international financial order", I believe he is wrong.
Instead I believe that more international action will only lead to further problems down the road. If one examines the current financial crisis, it is obvious that the much of the crisis can be traced back to the sub-prime mortgage problems of the United States. The downturn of the US market has affected the foreign markets because of the tremendous amount of foreign investment in the United States. When the US suffers, its investors suffer and thus the trickle down effect occurs.
So what then is the answer?
Well, first of all I do not claim to be an expert or even fairly proficient in terms of economic understanding. I try to avoid economics as much as I can in my studies but as this is almost impossible in studying politics and international relations, I have come to acquire some understanding of basic economics. With this in mind, I believe that the answer to this problem is apparent and is already beginning to show itself.
As of today, the markets are beginning to rebound a little bit across the globe. Much of this has been because of involvement by national governments to invest in their national markets. From this, I conclude that the best way to address the current crisis is for each government to take care of their own markets and not to worry about the economic fortunes of the the international market. I realize this must sound crazy coming from an internationalist and in the current reality of globalization but if each country acts to stabilize their own markets then the international market will begin to stabilize as a by-product. As I said, this has already begun to happen because as national governments begin to act to protect their economies, the markets have begun to rise again.
Furthermore, the already existent international financial bodies (that were created by the original Bretton Woods system) are acting to protect markets. Recently the IMF announced that it would help to protect poorer countries from the fallout of the international financial crisis. This is a tremendous move by a body accused (sometimes by myself) of working for the world's rich countries. The poorer countries of the world are the ones most at risk of suffering from this crisis. They are the ones that would have the greatest difficulty to rebound and so the efforts by the IMF will be extremely beneficial to these already fragile markets. With this in mind, I do not see a reason to create another Bretton Woods organization.
In the end, it is sometimes better to focus on the small things in order to right larger problems. The international crisis is a problem that affects the globe but in order to address it, we must look to our own backyards before building another international financial body.
- blenCOWe
Tuesday, July 15, 2008
Big Step for Kosovo
Kosovo's succession gained another supporter today when the International Monetary Fund recognized its separation from Serbia and will now go through the membership application process.
The IMF has been the first international institution to recognize the newly independent state but actual membership is no certain thing. Apparently Russia and Serbia are still sore over the independence movement and will attempt to block Kosovo's membership application.
Unfortunately for Russia and Serbia, money matters in the IMF and the United States contributes more SDR's (special drawing rights) than both of them combined. This is important because in the IMF the more money you contribute, the more votes you wield. This gives the United States, who backs the succession of Kosovo, a better chance to ensure IMF membership for Kosovo than Russia and Serbia have to block it.
Money speaks again!
- blenCOWe
The IMF has been the first international institution to recognize the newly independent state but actual membership is no certain thing. Apparently Russia and Serbia are still sore over the independence movement and will attempt to block Kosovo's membership application.
Unfortunately for Russia and Serbia, money matters in the IMF and the United States contributes more SDR's (special drawing rights) than both of them combined. This is important because in the IMF the more money you contribute, the more votes you wield. This gives the United States, who backs the succession of Kosovo, a better chance to ensure IMF membership for Kosovo than Russia and Serbia have to block it.
Money speaks again!
- blenCOWe
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