Trevor Manuel urges fairer global economic system
Ethics and governance need to be taken much more seriously if a fairer and more equitable global economic system is to be achieved, says Trevor Manuel, Minister in the Presidency in charge of the National Planning Commission.
Speaking on Thursday at a three-day Globalisation and Governance Conference hosted by the Mandela Institute at the University of the Witwatersrand's School of Law, Manuel said the Bretton Woods institutions, including the International Monetary Fund and the World Bank, also need to be comprehensively reformed to reflect the shift in economic and political power around the world.
"The challenge is in relation to the ethics of governance. How do we get leaders to deliver on commitments, how do we balance domestic constituencies and global demands,
how do we organise developing countries for voice and representation, how do we dislodge the vested privileges, and how do we balance efficacy against representation," said Manuel.
The world's longest serving Finance Minister during his stretch from 1996 to 2009, he questioned the "ease with which" commitments to development assistance have been made to reducing imbalances in the world economy.
He said that in 1969, developed countries had committed to contributing 0.7% of GDP to undeveloped economies, but only six countries have met these targets.
He also referred to the Gleneagles G8 meeting in 2005 where $50 billion a year had been committed to investment in Africa and climate change by 2010.
While eight heads of state signed this agreement, it has not been honoured and the targets have not been reached.
"What is the value of commitment if signatures of heads of state are not honoured, this breeds room for distrust and cynicism," said Manuel, adding that the cumulative shortfall in the developed world's funding promises to the developing world amounted to around four trillion dollars between 1970 and 2009.
"One of difficulties is that countries make commitments, but don't bother meeting them, $9.9 billion was pledged to Haiti after its earthquake, Europe, Venezuela, US have been the biggest contributors so far, but when I last checked, only about 2% of total pledges had been realised."
Manuel said that if governance is a system of rules with checks and balances and penalties, "then we do not have a system of global economic governance."
"We strive towards a more fair and just world through the evolution of a rules based system with sanction and accountability remaining our goal."
According to Manuel, economic inequality is a threat to global peace and stability, perpetuated through highly unequal trade patterns.
"Countries like our own have a challenge: we invest at a rate much higher than our savings rate, we always have to attract savings from elsewhere which places us in a precarious position; either invest at lower rates, or offer higher returns."
The Bretton Woods institutions, formed in 1945, have not kept pace with changes in the world, said Manuel, explaining that in the IMF, 61% of votes are held by 14 members, the other 172 members getting the remaining 39%.
"These institutions are skewed and inequitable - the head of IMF has always been European; the president of the World Bank has to be a US citizen.
"These institutions are outdated," he added.
"While there is a lot of intellectual support for reform of these institutions, who is going to give up what to deliver a better balance."
Manuel said it was a step in the right direction that the G20 has emerged as the premier forum for economic policy coordination, formed after Asian crisis in 1997-98, no longer the G7 or the G8.
This includes countries seen to be systemically important to the world economy, but even in G20, there is not full agreement.
Significantly, said Manuel, reserve accumulation in Asian countries after the 97/98 crisis, has contributed to global reserve accumulation imbalances.
This includes a $120 billion reserve fund established by the Asian bloc. China's reserves alone are around $2.5 trillion, $940 billion of which is in US treasuries.
On the vexing subject of climate change, Manuel said that without a clear deal on climate change finance, the world is unlikely to strike a deal on emissions reduction, $1000 billion a year by 2020 has been set as a target.
"It can be done, but political will is needed - some countries are trying to get out of it. If we can't finance it, it won't happen," he said.
While globalisation has had immense benefit for some developing countries, particularly China and India, Manuel said big vulnerabilities exist, particularly in Africa where there are 53 different nations with different problems.
Of 13 developing countries that averaged GDP growth of 7% or more for 15 years, in 12 cases this was mainly due to openness, the ability to import knowledge, leverage resources, expand markets, and attract capital.
This article was originally posted on South Africa Business Communities