Offshore Capitalist

Excerpts from a speech by World Bank President Robert B. Zoellick

WASHINGTON, September 27. 2009 — The following are excerpts from a speech prepared for delivery on Monday by World Bank Group President Robert B. Zoellick. Entitled “After the Crisis?”, the speech will be delivered at the Paul H. Nitze School of Advanced International Studies of the Johns Hopkins University, in Washington, D.C., in the lead-up to the World Bank/IMF Annual Meetings in Istanbul, Turkey. These excerpts are for immediate use.

“Peer review of a new Framework for Strong, Sustainable and Balanced Growth agreed at last week’s G-20 Summit is a good start, but it will require a new level of international cooperation and coordination, including a new willingness to take the findings of global monitoring seriously. Peer review will need to be peer pressure.”

“As agreed in Pittsburgh last week, the G-20 should become the premier forum for international economic cooperation among the advanced industrialized countries and rising powers. But it cannot be a standalone committee. Nor can it ignore the voices of the over 160 countries left outside. The G-20 should operate as a “Steering Group” that operates across a network of countries and international institutions. It could recognize the interconnections among issues and foster points of mutual interest. This system cannot be hierarchical, and it should not be bureaucratic. If given a push, the topics could be pursued through other negotiating groups, international regimes, or global and regional institutions. The IMF, World Bank Group, WTO, Financial Stability Board, and UN bodies could alert countries to issues, provide analyses, build cooperative solutions, and help execute the policies.”

“We need a system of international political economy that reflects a new multi-polarity of growth. It needs to integrate rising economic powers as “responsible stakeholders” while recognizing that these countries are still home to hundreds of millions of poor and face staggering challenges of development. It needs to engage the energies and support of developed countries, whose publics feel the heavy burdens of debt, competitive anxieties, and feel that the new powers must share responsibilities. It needs to help offer a hand to the poorest and weakest countries, the 1.6 billion people who still live without electricity, and the “Bottom Billion” trapped in poverty because of conflict and broken governance.”

“Bretton Woods is being overhauled before our eyes. This time, it will take longer than three weeks in New Hampshire. It will have more participants. But it is just as necessary. The next upheaval, whatever it may be, is taking form now. Shape it or be shaped by it.”

“The United States would be mistaken to take for granted the dollar’s place as the world’s predominant reserve currency. Looking forward, there will increasingly be other options to the dollar.”

“The last 20 years have witnessed a huge economic shift. The breakdown of the planned economies in the Soviet Union and Central and Eastern Europe, the economic reforms in China and India, and the export-driven growth strategies of East Asia all contributed to a world market economy that vaulted from about 1 billion to 4 or 5 billion people. This was a huge shift in a short time. It offers enormous opportunities. But it has also shaken an international economic system still operating through the arrangements forged in the middle of the 20th Century, with patched-up changes in the decades since.”

“Central banks failed to address risks building in the new economy. They seemingly mastered product price inflation in the 1980s, but most decided that asset price bubbles were difficult to identify and to restrain with monetary policy. They argued that damage to the “real economy” of jobs, production, savings, and consumption could be contained once bubbles burst, through aggressive easing of interest rates. They turned out to be wrong.”

“In the United States, it will be difficult to vest the independent and powerful technocrats at the Federal Reserve with more authority. My reading of recent crisis management is that the Treasury Department needed greater authority to pull together a bevy of different regulators. Moreover, the Treasury is an Executive department, and therefore Congress and the public can more directly oversee how it uses any added authority.”

“Regulators and supervisors of financial institutions were no longer grounded in reality. Financial innovation and competition vastly expanded services – including to companies and families often shunted aside in the past –but the alluringly simple design of “rational markets” theory led regulators and supervisors to take a holiday from the realities of psychology, organizational behavior, systemic risks, and the complexities of markets and humans.”

via News & Broadcast – Excerpts from a speech by World Bank President Robert B. Zoellick.

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