The Trade and Development Report 2015: Making the International Financial Architecture Work for Trade and Development, identifies some of the critical issues to be addressed in order to establish a more stable and inclusive international monetary and financial system which can support trade and development challenges over the coming years. The Report considers existing shortcomings, analyses emerging vulnerabilities and examines proposals and initiatives for reform.
Money makes the world go round, or so the song goes. It can also send it spinning out of control, as witnessed during the 2008 global financial crisis. In response to the soaring economic and social costs that followed, the international community called for a new financial songbook. Gordon Brown, chief conductor of the G20 choir at the time, placed the blame firmly on inadequately regulated financial institutions that had become less “stewards of people’s money” and more “speculators with people’s futures”; what was needed, he insisted, was new global rules underpinned by shared global values. Shortly after, the leaders of the BRIC countries, at their first summit in the Russian Federation, called for more democratic international financial institutions, along with a stable, predictable and more diversified international monetary system. The United Nations General Assembly added its universal voice with a blueprint for reforming the international financial system, noting, in particular, as an urgent priority, “comprehensive and fast-tracked reform of the IMF”.
A number of national legislators joined the chorus with a string of parliamentary hearings and expert commissions, many of which criticized the short-term bias of financial markets, their addiction to toxic and opaque financial instruments, and their failure to adequately service the financial needs of businesses and households. Serious reform, it seemed, was just a matter of time.
Seven years on, and against a backdrop of sluggish global aggregate demand, increasing income inequality and persistent financial fragility, the world economy remains vulnerable to the vagaries of money and finance. It would be wrong to suggest that the reform agenda never got beyond the drawing board; various measures have been adopted, at both the national and international levels, including some with real bite. But so far these have failed to get to grips with the systemic frailties and fragilities of a financialized world. Rather, to date we have, in the words of the Financial Times journalist Martin Wolf, little more than a “chastened version” of the previously unbalanced system.
The persistent short-term and speculative biases of global financial markets, and the inadequate measures to mitigate the risks of future crises, raise important questions about whether the heightened ambition of the international community with respect to a range of new developmental, social and environmental goals can be achieved within the desired time frame. On paper, this new agenda anticipates the biggest investment push in history, but in order to succeed it will require a supportive financial system. Accordingly, this year’s Trade and Development Report examines a series of interconnected challenges facing the international monetary and financial system, from liquidity provision, through banking
regulation, to debt restructuring and long-term public financing. Solutions are available, but dedicated action by the international community will be needed if finance is to become the servant of a more dignified, stable and inclusive world.