Annual Meeting 2012: The Cycle of Debt, Stability, and Growth
On Thursday, May 17, the Bretton Woods Committee brought together more than 155 financial sector leaders, development experts, government officials, and others for its 29th Annual Meeting, From Vicious to Virtuous: The Cycle of Debt, Stability, and Growth. During the meeting, participants examined the interconnectivity between managing sovereign debt, ensuring political and financial stability, and jump-starting economic growth.
A Changing Global Landscape. The meeting began with a conversation between World Bank President Robert Zoellick and James Wolfensohn, former World Bank President and current Co-Chair of the Bretton Woods Committee, about the tough choices to promote economic development in an era of constraints.
President Zoellick noted how the relationship between developing and developed nations is rapidly changing and that the Bank and other international financial institutions (IFIs) must evolve as well in order to remain relevant to today's needs. To this end, he suggested that the Bank aims to become more flexible and to seek solutions multilaterally, rather than focusing on problems to be solved bilaterally. President Zoellick also pointed out that the role of private equity and investment in development projects is at an all-time high, a significant evolution not only from Mr. Wolfensohn's time, but also the beginning of his own tenure. Mr. Zoellick emphasized the need for greater transparency and access, along with democratization of the development process. He underscored recent Bank initiatives to provide open access to data and information, such as indexing development projects by country on its website and providing the Bank's extensive data sets to researchers free of charge for the first time. President Zoellick concluded his remarks with his vision of a future in which individuals affected by development projects are able to communicate information and provide real-time feedback to the Bank via mobile technology. Transparency, Mr. Zoellick stressed, is not only a means of addressing critics, but also an important learning process for the IFIs.
Learning from the Developing World's Experiences. Following President Zoellick's remarks, Amar Bhattacharya, Director of the G-24, and Liliana Rojas-Suarez of the Center for Global Development shared the lessons to be learned and perspectives to be gained from past debt crises in emerging markets.
Mr. Bhattacharya discussed the changing nature of global finance, highlighting that most of the world's growth now takes place in developing nations. These nations also boast "significant improvement in savings performance" and in debt-to-GDP ratios compared to their developed counterparts. Yet, despite these facts, he observed a "paradox" of capital: it flows from the developing world into the developed, creating an exportation of safe capital and an importation of risky. Mr. Bhattacharya predicted an increasing role for the IFIs in the future as mediators between developed and emerging markets and as safeguards against potential volatility created by the evolving relationship between them. Dr. Rojas-Suarez focused on commonalities across previous debt crises, arguing that there are strong linkages between debt crises and banking crises. She offered solutions learned from these past events, including the need for ample liquidity, adequate fiscal management, and the stringent enforcement of financial sector regulation.
During a question and answer session, Mr. Bhattacharya reflected that the world today is one of "evolving Gs," such as the G-8 and G-20, and that multilateral financial organizations face the novel challenge of accommodating newly developed nations at the table, while ensuring that these nations are aware that "the table plays by market rules."
Political Challenges in the Developed World. Turning next to the challenges faced by the United States, Senator Tom Coburn (R-OK) and Senator Mark Warner (D-VA) engaged in a frank discussion of the American political process regarding the debt issue. Both men described the disconnect between a "reality" in which politicians understand the seriousness of the issue and are in broad agreement about what steps must be taken to address it and a "political" realm in which it is virtually unfeasible for any representative to compromise for fear of negative electoral consequences. Sen. Coburn in particular decried what he perceives as the "lack of leadership" and vision among American politicians and the inability of elected representatives to clearly describe the dire consequences for the middle-class should the debt issue be left unchecked, stating that America has "lived the next 30 years off of the last." Sen. Warner joined this criticism, and added that if Congress "punts" on the debt issue again before the end of the year "[the American people] should fire us all."
Cautious Optimism for Europe's Future. Next, Moisés Naím, Senior Associate at the Carnegie Endowment for International Peace, moderated a lively discussion on the future of Europe between Ambassador Peter Ammon of Germany, Ambassador Nuno Brito of Portugal, and Larry Kantor, Managing Director and Head of Research for Barclays. When Mr. Naím asked whether each panelist foresaw a Greek exit from the Euro zone by December 2012, Ambassadors Ammon and Brito expressed considerably more optimism than Mr. Kantor. Ambassador Ammon emphasized that Germany in no way desired such an outcome, but noted that the fate of Greece was in the hands of the Greeks. He and Ambassador Brito each stressed that the Euro zone and the European Union are not merely economic projects, but also political endeavors. In response to questions about growing Euro skepticism, Ambassador Ammon asserted that Germany had no wish to be the "sheriff" of Europe, nor was it interested in focusing on austerity for "moral" considerations. Mr. Kantor, however, took the view that Greece leaving the Euro zone might represent a positive outcome, should it be managed in an orderly fashion. Mr. Kantor expressed his belief that the Euro zone system has been "fundamental[ly] flawed" since its inception, because that it incorporates "different debt policies with a single currency and interest rate." In light of the institutional limits of the European Central Bank and Greece's fiscal dissimilarity to other member nations, Mr. Kantor suggested that the inclusion of Greece in the Euro zone had caused predictable problems. However, he was also optimistic that the Euro zone would remain intact and functioning, with Greece being the sole exception.
The Evolving Role of IFIs. The final speaker of the day was Min Zhu, Deputy Managing Director of the International Monetary Fund (IMF). His remarks addressed not only the changing landscape of international finance, but also the role the IMF in an evolving international community. Mr. Zhu began by arguing that the debt issue is much more "deeply-rooted" and "complex" than is traditionally thought. This complexity, he said, is exacerbated by the increased "interconnectedness" of the world economy and the volatility these intrerrelationships create. Along with this heightened level of interconnectedness, Mr. Zhu identified "two speeds of development:" where growth in developing countries averages approximately 5% compared to growth in developed countries at an average of about 1.5%. This dichotomy - coupled with the increased synchronization of the world economy - creates a difficult challenge to maintaining financial stability. Here, Mr. Zhu saw a future role for the IFIs, particularly the Fund, in reducing volatility. Specifically, he envisioned the Fund responding to the new state of the world by becoming more involved in macro-level policy, more invested in multilateral cooperation, and more attentive to preventive, rather than reactionary, policies.
Recognition and Appreciation. The 29th Annual Meeting also recognized Congressman Barney Frank (D-MA) for his long-time support and constructive criticism of the Bretton Woods institutions on the occasion of his impending retirement from the U.S. House of Representatives. Bill Frenzel, Co-Chair of the Committee and former U.S. Representative from Minnesota, presented Congressman Frank with a signed letter of appreciation for his years of dedication to the mission of the IFIs. Rep. Frank has served in the United States House of Representatives since 1980, including as chair of the House Financial Service Committee. He recently co-sponsored the Dodd-Frank Act with Sen. Chris Dodd, a sweeping reform of the financial sector that Mr. Frenzel noted would "keep regulators busy for decades." Mr. Frenzel recognized Rep. Frank's commitment to the IFIs as both a "stern critic and staunch defender," stating that his support of the Bretton Woods institutions has taken the form of a genuine drive to improve. Upon accepting the signed letter, Rep. Frank described his relentless quest for the perfection of the Bank and the Fund as grown out of a "deep belief" in their mission.
Listen to the full audio transcript below
This meeting was made possible by the generous support of: