Every year since 2001, the WTO hosts a two-day Public Forum at its headquarters in Geneva. This year about 1800 delegates from all over the world are attending an impressive number of seminars organized by “civil society” itself within the premises of the WTO. The public is a ragbag of the most varied interest groups. One meets hippie-types with deep-environmental agendas, students with future jobs in minds, academics selling their ideas, and all sorts of business lobbyists in suit-and-tie that are here to network hard. This year’s topic is “How can the WTO help Harness Globalization?”

The opening plenary session  on Thursday morning reflected the very ambiguous position the WTO has driven itself into. I was wondering whether it was still the guardian of a liberal economic world order or drifting towards becoming a development agency? The Secretary General Pascal Lamy displayed – in small – his big political skills. In his opening address, there was mainly talk of “Civil Society” Contributing, Aid-for-Trade, TRIPS, the-WTO and-the-Environment, Fisheries subsidies, Sustainable development, etc. Somewhere he does remind us that the core mission of the WTO is trade liberalisation – oh yeah, really? Almost forgot!

Although Lamy spoke of “civil society” in general his speech was addressed to the vociferous half of civil society that contests globalisation and free global markets. Lamy forgot – deliberately? – that the audience was also made up of people strongly in favour of “opening markets”. Fisheries issues are important, of course. And the problem of overfishing a question of lack of markets and too much subsidies. But the real bread and butter issues – opening markets further – are just stuck in the rut of the stalled “Doha Development” Round.

Lamy was in fact very clever in his choice of panel. He played the perfect “politically correct” game. He chose two women speakers – ah, yeah, gender equality: Tarja Halonen, President of Finland, and Olubanke King-Akerle, Foreign Minister of Liberia. One from a developed country, one from a Least Developed Country. One blond, the other black in traditional costume. Then he chose a man – a Singaporean diplomat-turned academic Kishore Mahbubani. Coloured, as opposed to Lamy’s white maleness. And what did the left-leaning-climate-change-obsessed-worker-right-policy-space-fanatics targeted in Lamy’s opening speech get served? Nothing to please them. Hard business talk. Ms Halonen, as good European, was the most “mainstreamy” speaker. Talking too of worker rights, fair deals, etc. But broadly supportive of the WTO and globalisation. Ms King-Akerle? Of course gender equality and fair and balanced trade deals. But the heart of her long, detailed and lively speech as minister of a postwar country not yet member of the WTO was: market access, business opportunities to raise income. Survival, real life. A “trade, quick!”- of sorts. Not, as one panel only peopled with Northern organisations (see programme) put it: “Slow Trade”.

The high point of the plenary session was the excellent speech of Mahbubani. Core message: contrary to what the theme of the WTO public forum indicates, one should not “harness” globalisation. The question should be: how to “unleash” globalisation! OK, he is Singaporean…. Yet Mahbubani’s speech is full of facts, figures and stories of how integration into the world economy – i.e. globalisation via economic liberalisation – lifted hundreds of millions out of poverty, namely in Asia. High live free markets and related access to mobile phones, TV sets, house and home, so says he. He apologized for his “naïve enthusiasm” for globalisation, but his speech was a reminder of hard, politically incorrect facts. 

Outside the conference room after the plenary session, a lady, hippie-style-deep-environmentalist-fitting-the-cliché, came to me (Why Me?) and said something along the lines of ”with globalisation one forgets about the environment! Millions more can now pollute and send gases into the atmosphere!” I didn’t want to provoke her and kept my thoughts for myself: So you want to keep all those millions in poverty? Environmental problems need to and can be tackled. But complaining about millions of people now polluting because they are finally having a decent life I did think scandalous after having heard the speeches of the Liberian and Singaporean. Some people just never learn.

Today, an innocent press release from the IMF following the visit of its Managing Director to Russia, reveals a lot about Russia’s position and the IMF’s standing in the world…

Russia cleared all its debt towards the IMF a few years ago, and with the clearing of its remaining Paris Club debt last year Russia has no more creditors to whom to report to. Russia is flush with cash, and a well-managed Stabilization Fund ensures that the Russian government will be able to weather a still very hypothetical decline in oil prices (now peaking at around 80$ a barrel…).

The IMF for its part is in crisis and disarray. The finances are not going too well – this is also because, on the contrary, its former debtors are doing well. Let’s say the IMF is a bit victim of its success – with Latin American and other governments being now good at macroeconomic stability and fiscal austerity, they are applying what the IMF was always preaching. More structurally, the Fund’s legitimacy is strongly in doubt. Its errors in the Asian Crisis have cost it dearly. Today, the way European countries refuse to really let loose on the number of seats they have on the managing board (there was recently an appeal to have one single EU seat there), and all the haggling around the nomination of yet another Western European as Managing Director, the French Dominique Strauss-Kahn, show that the fund’s management structure does not reflect the reality of the world economy.

Russia made a point of proposing an alternative candidate to Mr Strauss-Kahn, a Czech former central banker, Josef Tosovksy. This move echoes Putin’s speech at the G8 meeting in July this year, saying that one of the other institutions suffering a lot these days, the World Trade Organization, was “undemocratic, unflexible, and archaic” Coming from a government to whom the same words can be applied, this is blunt. But given the current blip in leadership coming from the US and Europe, this is ammunition for an emerging and assertive Russia. Who can contest Russia’s position in the IMF Managing Director succession issue? It is right to do so. You can’t even criticize Russia on IMF-related grounds. It is probably one of the Fund’s best executrioners – its finances and the way they are management are almost perfect – except a bit of pre-electoral but also much needed social spending. Mr Strauss-Kahn’s country, France, on the contrary, was just declared bankrupt by its Prime Minister!

People who want to see Russia go towards a real rule-of-law based market economy supporting democracy (not a monopolistic Russia Inc favoouring authoritarianism as it is now), are likely to be saddened by De Rato’s relatively weak statements, though. He does call for “priority to measures aimed at diversifying the economy and improving the investment climate, including public administration, banking, utilities reform, and early WTO accession.” De Rato’s visit is obviously politically motivated , aimed at gathering  support for undergoing reforms in the IMF. And the IMF’s role is financial stability, not economic restructuring per se.

Yet there is something troubling about the obvious lack of impact the sentence I just quoted is likely to have…. In the meantime, corruption is on the rise in Russia. Transparency International just released its 2007 Corruption Perceptions Index. Russia slid from rank 121 last year to rank 143 this year…..

There are now two offical candidates for the nomination of a successor to the IMF’s Managing Director Rodrigo de Rato.

Watch DSK’s blog dedicated to his bid to succeed him – political comunication is his strength. If anybody has any statements made by the alternative candidate Tosovsky, nominated by the Russians, please make them known. Is Tosovksy a symbol and a puppet? The Financial Times had a harsh opinion on Strauss Kahn:

The Fund, then, needs an intellectually credible head. But nobody could argue that Mr Strauss-Kahn is the best-qualified candidate in the world by his experience, intellect or training. His insistence that bridging the gap between rich and poor would be one of his priorities shows this. Macroeconomic stability is the Fund’s job. He seems to be running for president of the World Bank, a job taken, again, by a US candidate.

Yet even if Mr Strauss-Kahn were the ideal candidate, the method of his selection would undermine his presidency.

Emerging countries no longer understand why Europeans should determine who might dictate to them in any crisis, as if their old empires still existed. The IMF is either a global institution with a head chosen by the world, or it is an expression of Europe’s will to cling on to every scrap of its prestige and power. In this latter guise, the Fund will be shorn of all ­legitimacy.

Worst of all, no genuine European interest is served by forcing on the Fund a man who is neither qualified nor legitimate. Europe’s insistence on the old carve-up of the Fund and the World Bank with the US is as arrogant as it is foolish. The only interests served are those of politicians determined to preserve a time-worn droit de seigneur.”

Where will the World Bank be heading under its new president Bob Zoellick? What is the real extent of the damage done by Paul Wolfowitz to the Bank? The FT has today a quite amazing analytical piece on the matter (walled for non-subscribers).

Here a few extracts:

The former US trade representative and deputy secretary of state says his immediate priority will be to restore calm and purpose to bank staff, who rebelled against Mr Wolfowitz over his handling of a secondment package for his girlfriend (…).

Mr Zoellick is careful not to set out publicly his initial thinking on the bank’s future, for fear it would be mistaken for an agenda he intends to foist on the bank. Instead, he talks about the need for the bank to adapt. “We are now in a much more networked world. We have got much better regional banks, vertical funds, private foundations, the private sector and non-governmental organisations,” he says. “We have to see how we can work more effectively together.”

Mr Zoellick is keen to bring to bear lessons from his most recent job as a Goldman Sachs investment banker. “You will hear me talk a lot about client focus and working in partnership,” he says. “I also want to connect the asset and liability side of the balance sheet” – using expertise and possibly even the bank’s own balance sheet to develop innovative financial products. This could require changes to bank rules.

On the bank’s multiple roles, Mr Zoellick says: “I think in terms of a portfolio of complementary investments.” He is sceptical of those who argue that it should focus narrowly in an interconnected world. “There are no magic silver bullets – the world is too complicated.”

Beyond that Mr Zoellick is unwilling to go, except to say he hopes to “plant seeds” and allow the debate on the bank’s strategy to grow. However, his conversations with development experts – three of whom have also spoken to the FT – suggest that his early queries revolve around six subject areas.

First, a focus on the poorest countries, particularly in Africa, left behind by the globalisation of trade and private capital flows. Here Mr Zoellick sees the importance of the IDA, the bank’s concessional lending arm. He seems keen the bank should continue its work on social sectors, seeking to help, for instance, countries ravaged by HIV/Aids. But he has also floated a renewed emphasis on infrastructure and growth, with particular focus on regional integration and mobilising African savings through financial sector reform.

Second, work in middle-income and emerging economies, with the bank continuing to lend even to countries such as China that have access to private capital, but contributing most through its know-how in helping to build the infrastructure of a modern economy. Mr Zoellick appears hopeful that by helping address their needs, the bank will be able to build partnerships in third countries, for instance with China in Africa.

Third, a larger role in fragile and post-conflict states – an idea lately pushed by Mr Wolfowitz. This would require the bank to develop a rapid response capability. However, Mr Zoellick has said he is aware this raises difficult questions about how to ensure security for bank staff.

Fourth, a role in providing public goods, which prominently includes climate change but also combating disease or even supporting a trade round with aid for capacity building.

Fifth, Mr Zoellick has told people he is interested in exploring how the bank could better support modernisers in the Arab and Muslim world. Some of the people he has spoken to see this as potentially controversial. However, Mr Zoellick stresses that he envisages the bank working in partnership with local entities and funds, taking the modernisation of Asia as his model.

Finally, he has stressed the bank’s role as a learning institution. He has indicated that finding a world-class chief economist to succeed Mr Bourguignon when he leaves this year is a priority.

On the fundamental error of having had, with outgoing Paul Wolfowitz, a neo-conservative leading a multilateral development institution:

Many bank insiders claim that Mr Wolfowitz’s misadventures stemmed from his reliance on a close circle of like-minded aides with little knowledge of development. “The first thing he did was to isolate himself from the bureaucracy by bringing in three or four Americans who surrounded him – including Robin Cleveland, who operated as a chief operating officer,” a former senior bank official says.

A serving senior official says Mr Wolfowitz’s inner circle did not trust career executives to make decisions. There was “a confidence in their view of the world, a confidence there that is unshakeable almost to the exclusion of facts”. Anyone who raised reservations, for example about the anti-corruption drive, was considered suspect, he adds. “There was a sense that these guys, because they are not on my side, are the enemy.”

Where to find Wolfi next? The FT announces that he will be working at the American Enterprise Institute think tank…. Watch that space.

The big international financial and economic institutions are in crisis.

You know what I mean:

The Greek-tragedy-like Wolfowitz drama at the World Bank, Chávez’ pull-out of the World Bank and the IMF, Rafael Correa’s kick-out of the World Bank representative from Ecuador, the last rush to bilateral trade agreements by the US and the EU in a context of a faltering Doha round, are symptoms of a fundamental trend: the rise of emerging markets in the global economy and the subsequent erosion of power of the West and the institutions the latter has shaped in the Post-war period (see, on related topics, this post, this post, or this one, err, in fact, this entire blog…).

Fundamentally, all this is excellent news. The IMF is having financial problems in a moment when the global economy is doing well, and especially the countries that have needed its help (and contested its harsh methods) in the 1990s and during the various Asian, Russian, Turkish, Latin American crises have witnessed an unprecedented economic turnaround. Today, global growth is robust, and emerging market catch-up, although mainly concentrated in Asia, is impressive.

But look at the dismal state of the IMF today. There is a perfectly scandalous whiff about the fact that the IMF’s finances tend to depend on the profitability of its lending activities during crisis. The solution of selling gold proposed a few months ago has something Dickensian about it. It reminds of stories one reads as a teenager of ladies going to the pawnshop with the family jewellery in a last-ditch attempt to survive. Obviously, the IMF’s structures are too slow at reforming themselves. A much-publicised increase of the quotas and therefore voting weight of countries such as Mexico and Turkey during the IMF meetings in Singapore last year have not solved the problem of the IMF’s reform, which needs to go beyond restoring its finances. The IMF’s raison d’être is at stake. Set up to sustain the Bretton-Woods system of gold-parity, it evolved into helping out developing countries since the debt crisis of the 1980s. Being the world’s fireman avoided the question of purpose. But now it is obvious. What should the IMF become: a think-tank or economic consultancy? It would become a direct competitor to the OECD, which is no longer a closed rich-country club but includes emerging markets like Mexico, or the EU’s new members. An aid provider for poor countries? This displeases the World Bank. A plain business? Maybe being a plain global investment bank involved in the current global money binge would at least provide for financial reserves for the future if financial needs arise during a financial crash certainly to come at some time in the future. But this would require less politics in the IMF’s working structure. Business profits for a bank whose head would still be appointed by Europe (while the World Bank remains in the hands of politically-appointed US-Americans) is food for Chavistas. A broker in the issue of tackling global imbalances? The question of legitimacy remains, and the isssue seems less urgent than a few months ago….

Indeed, in the current context, Chávez’ recent move to pull out of the IMF and World Bank is farcical. With all his oil money our friend Hugo needs neither advice nor money from these institutions. So it is indeed easy to pull out when oil prices are at their highest. The anti-imperialistic anti-American rhetoric inherited from a long-forgone period of colonial domination and big-stick politics in Latin America is so anachronistic. In recent years, the US has obviously neglected its traditional Latin American backyard due to its concentration on the war against terror and obsession with the rise of China. The US has even obviously failed to push through its hemispheric trade-integration agenda based on a now-dead Free Trade Area of the Americas (FTAA) project. DR-CAFTA is in this context an easy present of ageing Uncle Sam for plying Banana Republic clients. Chavez is doing easy politics. I am not even commenting on el pequeño Rafael, protected by Chavez, el grande.

Beyond finance and aid, the World Trade Organization is also in deep crisis. The Doha round is farcical as well (here a potentially useful post on that matter). Big heavy emerging markets like India like to use outdated third-world rhetoric, but they don’t want to assume the liberalising tasks necessary for them to go a step further in their recent surge bloc trade talks with eroding Europes (and USs) that cling to their as outdated agricultural protection practices instead of spending money on modernising their economies to meet the challenges of a rising Asia. Aware of these difficulties, the EU Commission has embarked upon a “Global Europe” strategy, where it states: “We need to promote our economic interests by activism abroad not protectionism at home.”

Fine. But embarking upon new-generation bilateral agreements with difficult countries like India with enough clout to stop the multilateral Doha Round is not necessarily an easy task and will force the EU to face what it is uneasily facing in the Doha Round (agricultural protection above all, but also issues like the temporary movement of workers in the GATS). So we do agree with Patrick Messerlin when he calls the EU to focus on the multilateral system and get that Doha deal done. Having lost power, a multilateral system that limits individual member state power is in the EU’s best interests. The EU, and the US which have embarked earlier on a more aggressive bilateral strategy the EU is imitating now, still have enough weight in the global economy (still 2/5 of world trade, main destination of exports of the world’s emerging markets and developing countries) to be system-shapers within the WTO. But embarking each on their side onto bilateralism (a debate on bilateralism is here) is only going to accelerate their (in relative terms) economic decline in the midst of growing internal political discontent over globalisation.

The problem with declining countries is that they tend to be in a state of denial until everything falls apart. This is the case of France in its relationship with globalisation and its outdated right-wing nationalism embodied by Sarkozy. Yet denial of the obvious is also what is happening in the US and in the EU. Clinging to past practices – like protecting a politically appointed Wolfowitz who should leave – is damaging and only accelerates the long-term decline. The West should prepare for the future, play fair game now in the international institutions in order to shape it in such a way now to force recalcitrant emerging countries to take on what they often deny in easy and outdated anti-Western rhetorics – a greater responsibility in the global political system that comes with their economic emergence. That is what Chávez is denying his people: a stake in the system and the possibility to shape it, and they are going to pay a high price as soon as the current oil-party is over.