Drive for the New World Financial Organization

By Lazar Bloch, IPS, 28 July 1998

UNITED NATIONS, Jul 28 (IPS)—Some developing nations and UN officials are pushing for the creation of a new World Financial Organisation (WFO) to protect developing nations and provide global economic stability through regulatory action.

The new organisation would help to fill up the gap in the existing structure of the financial system by monitoring and regulating private capital flows, said Nurul Islam, the chairman of the UN Development Planning Committee, which last week recommended creation of the WFO.

The proposal formed part of a report that focused on lessons to be learned from the Asian economic crisis. Among other things, a WFO would set standards for credit-rating agencies and rules for the establishment and operation of international bankruptcy regimes, the committee reported to the Economic and Social Council (ECOSOC).

U.S. delegate Seth Winnick, however, criticised the proposal saying that the Bretton Woods institutions—the World Bank and International Monetary Fund (IMF)—were fully capable of meeting the challenge presented by the current financial crisis.

Johannes Wedenig, the Austrian delegate, speaking on behalf of the 15 European Union (EU) members, echoed Washington’s opposition. Europe was convinced that the range of functions proposed for such a new organisation may, if necessary, be undertaken within existing structures, he said.

Hideki Ito, the Japanese delegate, also agreed. The proposed organisation overlaps with the functions of the existing organisations, to a large extent, he declared.

Defending the proposal, Islam stressed the WFO would draw its membership largely from the private sector and, unlike the IMF, would try to ensure that the private sector helps bear the burden of future crises.

These functions...are not undertaken by the IMF, said Islam who added that it was unlikely it ever would agree to add such additions to its charter.

Islam agreed that some of the regulatory measures that the WFO might enact already were performed by several bodies, but on an ad- hoc basis which failed to protect poorer countries who were on the receiving end of volatile capital flows, and were not part of the existing organisations.

Indonesia’s Bagas Hapsoro, speaking on behalf of the Group of 77 - the coalition of 132 developing nations—was more open to the proposal. He told IPS that a paragraph dealing with the ways a WFO could ensure that foreign private lenders were involved in crisis resolution was very close to our hearts.

Asked what was lacking in the current international organisations, Bagas pointed out that two weeks before the crash of South-east Asian economies last July, the World Bank was predicting growth in Asia well into the next millenium.

Bagas said he understood the hostility of other members toward the plan, because they stand behind the IMF, but added that all nations must do more to explore the issue. To stop the discussion is very naive, I think we can find a middle ground.

The committee made a similar proposal regarding a new financial organization in its 1997 report to ECOSOC but it didn’t draw much attention, said Islam.

He said he was not surprised by the hostile Western reaction to the proposal as people always are afraid of a new idea.

U.N. sources told IPS the WFO proposal faced a long and arduous process of policy development, during which time U.N. members could seek to bring up the issue before committees and working groups.