Introduction After the strikes of several financial crises, domestic economic problems in developing and developed countries are exacerbating. For developing countries, they are frustrated by the aftermath remedies prescribed by the International Monetary Fund (MIFF as they do not bring benefits as promised. To countries In earlier stage of development, launching massive national development projects are Increasingly difficult due to the lack of friendly financial supports from global economic institutions.
To avoid shocks on currency exchange rate, export-led developing countries are bounded to accumulate foreign reserves at high costs. For developed countries, they are offended by major developing countries who have kept their currency exchange rate low, which creates global Imbalance. It Is Important to know that the above problems are not Independent; they Interlock with each other and cannot be considered separately. Therefore, an effective solution to these problems should call for joint efforts from client countries and related state actors.
However, the MIFF does not recognize this logic. Their subject-object approach deters effective communication between developing and developed countries, making them fail to recognize each other’s needs (Martin and Simmons, 2001). As such, major global economic Institutions could not call for global collective actions, which are more effectual than unidirectional prescription suggested by dominant hegemonic countries in global economic institutions. Stilling, 2003) In this paper, a new global organization called Global Economic Development Council (GEED) would be proposed as a solution supplement the defects in the MIFF. It is an independent advisory body insists of a panel of representatives from different countries and areas of expertise, providing consultation materials to other global Institutions, Including the MIFF. A reserves system Is also found under GEED to finance developmental projects. Details of the structural and functional designs of GEED will be discussed In later sections.
Historical conceptualization: how the MIFF did not honor their promises Owing to its voting rights allocated according to the amount of financial contribution a country made, the MIFF is currently reflecting the ideologies to its biggest stakeholders: central Ann. Governors and trade ministers from hegemonic Western countries (Stilling, 2003). As such, policy recommendations of the MIFF are driven mainly by financial and economic Interests of these parties, with side-effects on social aspects being neglected, resulting in incompatibility between the MIFF recommendations and pre- existing domestic policies.
What is more, the economic-indicator-oriented doctrine is found to be infeasible and unrealistic. Cases in East Asian have proven that Miff’s remedies to its client countries were ineffective. In Thailand after the Asian Financial Crisis, IMPs recommendation on stabilizing the Baht by raising Interest rates was proven to worsen the situation: half of the bank loans became nonperforming with Korea also reflect failure of the MIFF in providing down-to-earth remedies to tackle with after-crisis problems.
Moreover, the MIFF could not address the interests of both developing and developed countries. It could hardly draw for full support and trusts from its members, so there is seldom an inclusive forum for discussion. As a result, many of the annual meetings and conferences are called off without any satisfactory outcome (The Guardian, 2010). In short, there is an urgent need to address these defections in the MIFF. Here, a new global economic institution called Global Economic Development Council (GEED) would be proposed.
With its special structural and functional designs, GEED aims at establishing effective and clear communication between countries of different interests. Professional, comprehensive and productive discussion on global economic development issues will also be encouraged. Discussion: Global imbalance, short-sightless and limited insights in global economic institutions The first problem that GEED would address is the global imbalance as a ensconce of trade disparity. Industrialized countries (e. G. He United States (US)), which generally have greater domestic demand, are generally experiencing a current account deficit as an outcome of multilateral trade deficit with countries at later stages of development (e. G. China), which are mostly export-led economies (Outlay, 2010). The foreign reserves generated by trade deficit do not circulate back to the global economy through investment channels, but are accumulating in treasury of trade surplus countries to resist currency appreciation (Montana and Turner, 2006). These accumulated foreign reserves maintained at a high cost could actually benefit the less developed economies (e. . African countries) in forms of development fund. The Special Drawing Rights (SAD) design in the MIFF is possible solution; yet the Sods are distributed according to quota distribution (I. E. How much a country has contributed to the fund); as a result, the poorer developing countries, who are in the biggest need, are sarcastically being allocated the least. The flaw of the SAD should be addressed. The second problem is that existing global economic institutions lack Eng term insights in planning for global economic development.
The MIFF has been criticized for following a wrong sequencing as it develops the rescue plan: after 1997 Asian Financial Crisis, it asks Indonesia and Thailand to open up their markets before strong financial institutions are established locally, such that new problems arouse in the client countries before the old one is solved (Stilling, 2003). This is the result of its will to achieve global economic integration as soon as possible, without considering how to maximize the benefits it could bring to all parties.
There should be a more careful diagnosis and effective prescription guided by a vision to bring actual benefits to all parties. The problem of wrong sequencing reveals the last problem: expertise within the consultation bodies of current global economic institutions lack local insights. For the same case, if the MIFF understands and takes into account the domestic economic situation in Thailand, the rescue plan would be a more effective one. Therefore, global economic institutions should include more local voices and expertise from more disciplines to generate more insightful ideas.
New organization to be proposed: Global Economic Development Council (GEED) Vision GEED will 1) facilitate communication between countries; 2) provide professional suggestions the MIFF and other major global economic institutions; and 3) catalyst The structure of GEED aims to be kept as light as possible to enhance operational efficiency. All countries automatically entitle membership from GEED (unless they opt out), and they are classified to 4 groups according to their national income under the World Bank standard (I. E.
Low-income, Lower-middle-income, Upper-middle-income ND High-income countries) (The World Bank, 2010). The main body of GEED is a panel of expertise from countries of the 4 income groups, with representation more inclined to the developing countries instead of the developed countries. The goal of the panel is to provide comprehensive and credible consultation to major global economic institutions such as the MIFF. Within each income group, local representatives from economic, finance, education, technology, environment and community sectors (etc. Could be freely nominated by president and/or prime ministers of the member countries. These candidates will elect among themselves according to their corresponding sectors. This panel election is carried every 5 years, and no candidate can be re-elected for more than 2 times. Chairman of GEED will be elected among the expertise panel every 5 year without any re-election, and the next chairman cannot share the same citizenship or country of origin with the previous chairman. Beside the chairman and panel of expertise, ad hoc sub-committee may be (Asks and Camille . 002) formed to address important projects, for example, rescue plan for crisis aftermath. Authority The authority of GEED is given by 3 groups of people: 1) President and/or prime ministers of member countries by their nomination; 2) Nominated and/or elected expertise by their votes; and 3) Elected panel by their votes. Resources There are mainly 4 sources of capital of GEED. First, it includes private donation from business entities and other non-state actors. Second, each participating countries are required to make mandatory financial contribution to GEED on yearly basis.
The amount is determined by a certain fixed and universal percentage of national GAP, which would be affordable for all members. Third, additional voluntary contributions are expected from more capable countries, for which donating countries would receive a stable amount of financial incentives which come from the fourth source of capital. Fourth, as part of the reserves will be contribute to a global investment portfolio which includes regional bond funds and developmental loans, income on interests would be expected as a source of capital for GEED (Stilling, 2010).
It is important to note that countries could contribute to the fund with any currencies they wish to. How GEED addresses the 3 major problems discussed To encourage better global circulation of accumulated foreign reserves, a new global reserves system under GEED would be introduced. It encourages the use of reserves as domestic development fund to catalyst developmental projects in developing countries. Countries which quest for withdrawal from the pool of reserves can obtain whatever currency they wish to, and utilize it for whatever projects or plan.
To avoid abusing use of reserves for speculative or malicious purposes, any withdrawals are under the advice and approval from the expertise panel of GEED on case by case basis. In order to give developing countries, which are in greater needs of capital for developmental purposes, more allocation of the reserves, the interest rate for withdrawals is generally at a very low interest rate, while that for developed drafted Jointly by the ad hoc sub-committee, which is formed solely for the case by relevant panel members, and economic ministers of the country seeking for capital.
As such, the withdrawal plan would be expected to bring more benefits to the receiving country. The GEED global reserves system would create a big pool of capital for a more flexible, effective and efficient allocation, and avoid a wasteful accumulation of foreign reserves without fully utilizing them. To raise the quality of recommendation given by the MIFF and other global economic institutions, they will be alleviated by the advisory function of GEED.
As an independent international organization (10), GEED would publish semi-annual consultation reports, based on the discussions in expertise panel meetings on recent focus and highlights on global and domestic economic affairs. The credibility and quality of the reports would be high, as the inclusion of multidisciplinary experts in the panel would facilitate a impressive diagnosis and recommendation to the problems identified. Specifically, the MIFF must address to the reports in their projects on progress.
Even if it decides to not taking the report findings into consideration, they have to make a clearly explanation of their rationales to the public and GEED. Lastly, the incline representation to developing countries in GEED aims to include more local insights. This design acknowledged the problem that ass have not been viewed as independent to international relations, such that global hegemonic power dominates and distorts the representations in ass (Martin and Simmons, 2001).
With such intentional structural design to reflect more the “reality’ in economic situation of developing countries, these originally underprivileged parties would now be bigger stakeholders in GEED. They now able to bring their voices into the discussions held in GEED. Moreover, by introducing more democratic elements in GEED, legitimacy of the council could be boosted up, in turn facilitate global cooperation with more participation of developing countries. (Soon, 2005) Discussion: Obstacles Political The biggest political concern is that GEED may not be political recognized by other ass, in particular, the MIFF.
In order to make these ass responsive to the GEED report findings, GEED should have certain authority over them. However, it is unforeseeable whether these ass would allow any additional parties to control their internal operation, as this is a tremendous decision which may affect the fundamental design of these ass. Another concern is that current hegemony and wealthy industrialized countries would not be happy with their “declined” representation in the council, as they are used to be major stakeholders in most of major ass.
Possible consequences would be retaliatory political actions, for example, specific motion targeted evolving countries in other ass, to compensate their “loss in benefit”. Also, these developed countries may see little benefits in Joining the GEED other than gaining reputation in ethical perspectives, because they may find the interests earned through their contribution to the reserves system not attractive enough. Technical First, it is dubious whether the GEED semi-annual consultation reports would be actually considered by the ass, even they are asked to respond to them.
The purpose of making the MIFF accountable to the GEED semi-annual consultation reports is to include more insightful suggestions and ideas could be adopted. However, the will to make further improvement, as GEED does not have absolute power over these ass in forcing them address to the report findings. Second, it is indeed hard to keep a truly democratic representation within the council. A perfect voting system to ensure democracy is hard to achieved, and there are a number of ways to manipulate the system.
Behind the voting system, there could be internal compromise between presidents of different countries resulting in cartels, which significantly reduce the effectiveness of the voting system-to include diversity and minority voices. Lastly, the establishment of GEED may trigger major reforms in other ass. The need of cooperation between ass would be gradually revealed as GEED promotes communication between countries and organization, and this may prompt restructuring in the MIFF, the World Bank and other ass in order to assist the full functioning of GEED.
Failing in do so may create functional and ideological conflicts between ass, generating chaos in global economic cooperation. Conclusion To conclude, the current focus of global political economy is to maximize benefits of all parties by the means of better cooperation between countries and promotion of velveteen in developing countries. The establishment of GEED would address the problem of global imbalance caused by accumulated foreign reserves, and stagnated development in developing countries due to lack of effective and insightful financial support.
As an advisory body to major ass, panel of expertise in GEED would offer local insights and suggest feasible measures to the MIFF and other global institutions. With inclined representation to developing countries, it would ensure their opinions being heard despite the existence of imbalanced international relations. The serves system would facilitate the circulation of foreign reserves to provide capital for developmental loans offered to developing countries.
