Translated material
Principles of self-medication
Leading financiers discuss what to do about the crisis in financial markets
Today the finance ministers and heads of central banks of the G7 countries will gather in Washington. In fact, this is the first meeting of top economic officials since the onset of serious instability in the global financial market. And although the possibilities of influence of these people on the capital market should not be overestimated, the meeting of the “financial seven” was expected. Two months ago, French President Nicolas Sarkozy even addressed German Chancellor Angela Merkel as chairwoman of the G8 with a message, insisting that at today's meeting financiers must discuss issues of overcoming the crisis in the markets . Of course, the crisis is the focus of attention of the “financial seven” even without the recommendations of Mr. Sarkozy, and the agenda of the meeting, presumably, was not formed in Berlin.In the “seven”, “clubs of interests” have taken shape quite clearly in relation to risks in financial markets. The French and Germans advocate for taking a closer look at hedge funds and other unregulated financial institutions and ultimately trying to reduce the risks of such investments through regulatory measures. The US and UK, where investors are keen to take similar risks, are trying to steer the debate in some other direction.
For example, today the special topic of the meeting of the “financial seven” will be a discussion of the so-called sovereign wealth funds, which, in particular, includes the Russian stabilization fund. As US Deputy Treasury Secretary David McCormick said the day before, representatives of China, Korea, Kuwait, Norway, Russia, Saudi Arabia, Singapore and the UAE were invited to this part of the discussion. Mr. McCormick explained that the importance of the capital accumulated in such funds for the international financial system, which is based on the principle of efficient use of resources, should be discussed.
According to the US official, the G-7 will declare a shared commitment to maintaining openness to investment and promoting financial stability. From what David McCormick said, it follows that the countries invited to the discussion do not always manage their savings based, firstly, on the principle of efficiency and, secondly, on the interests of global financial stability. It is unlikely that any of those invited will agree with this, but the Americans’ fears are not unfounded: the possible effect of gigantic accumulations in various kinds of stabilization funds, if they do not have clear and transparent investment principles, is difficult to predict. It is possible that the G7 will instruct the IMF to develop some kind of code for the proper management of wealth funds, and it will even be developed. But it will definitely not arouse enthusiasm among the countries to which it will be addressed.
The annual meeting of shareholders of the IMF and the World Bank, which opens tomorrow, is a milestone for both organizations, regardless of the problems in the global economy. The bank has just experienced a serious crisis associated with the resignation of Paul Wolfowitz as president, and the fund is in the midst of an internal crisis. In addition, this meeting is the first for the new head of the World Bank, Robert Zoellick, and the last for the current Managing Director Rodrigo de Rato, who is leaving the IMF. Mr. Zoellick has already formulated his vision of the World Bank’s development strategy; the fund still has a long way to go.
Robert Zoellick's arrival at the World Bank appears to have been a stroke of luck both for the organization itself and for the Bush administration, which has had trouble putting the right person in the right place. In a matter of months, the bank returned from an incapacitated state to normal operations, and Robert Zoellick celebrated his 100 days in office by presenting a very clear strategy. Zoellick's ideas are not innovative, but he was able to very accurately set priorities and emphasis in the bank's work. Thus, he believes that the bank should “contribute to making globalization a sustainable process in the interests of all segments of the population.” In other words, instead of a lapidary fight against poverty, Mr. Zoellick sees opportunities for work both in middle-income countries and in post-conflict states, and separately helping “those who strive to accelerate development in the countries of the Arab world.” The development tool according to Robert Zoellick’s model will be economic growth, and not massive debt write-off and targeted financing of projects in education and health care.
The essence of cooperation with Moscow is determined by Russia’s current capabilities and its role on the world stage. "The World Bank is committed to expanding its partnership with Russia, and in particular helping it move from borrower to donor status," Mr. Zoellick said at a news conference in Washington yesterday. It is noteworthy that the head of the World Bank mentioned that the bank has a lot to learn from countries with high rates of economic development, such as Russia, Brazil and China. “We intend not only to receive support from these countries, but also to learn from their work experience,” Mr. Zoellick said. “Strengthening cooperation with countries whose incomes have increased in recent years, such as Russia, is part of what I want to do at the World Bank.” Robert Zoellick is scheduled to meet tomorrow with the head of the Russian delegation in Washington, Alexei Kudrin.
The new IMF Managing Director, Frenchman Dominique Strauss-Kahn, is yet to take office on November 1. But it seems that he will not have even 100 days to develop a model for the development of the fund. The organization is not going to him in the best possible way. Two key problems - the creation of a fund income model and a model for revising shareholder quotas - Rodrigo de Rato could not be solved and, obviously, will not be able to be solved before leaving. Discussion of both will be on the agenda of the IMF's annual meeting.
The question of the income model has already caused a scandal, and it was provoked by the main shareholders of the fund. A leak appeared in the press that the “financial seven” addressed the fund with a letter containing a proposal to reduce the expenditure side of the budget by 10% at a time. At the same time, the fund has already planned to reduce expenses by 6% over the next three years. In addition, official Washington proposes to strictly link the expenditure model with income, which makes no sense: the work of the fund as an international organization cannot depend on what its income from current operations is. Such initiatives are clear evidence that the IMF's shareholders do not have a single and clear idea of what it should do in a situation where its lending function remains unclaimed.