Economic crisis is remaking global power relations, Zoellick says: Policymakers need to catch up and move ahead

WASHINGTON, September 28. 2009 — The global economic crisis is contributing to shifts in power relations in the world that will impact currency markets, monetary policy, trade relations and the role of developing countries, said World Bank Group President Robert B. Zoellick.

In a speech ahead of the Annual Meetings in Istanbul, Turkey of the World Bank and IMF, Zoellicksaid leaders should reshape the multilateral system and forge a “responsible globalization” that would encourage balanced global growth and financial stability, embrace global efforts to counter climate change, and advance opportunity for the poorest.

“The old international economic order was struggling to keep up with change before the crisis,” Zoellicktold an audience at the Paul H. Nitze School of Advanced International Studies of the Johns Hopkins University, in Washington, DC. “Today's upheaval has revealed the stark gaps and compelling needs. It is time we caught up and moved ahead.”

In the speech entitled “After the Crisis?”, Zoellick said: “Peer review of a new Framework for Strong, Sustainable and Balanced Growth agreed at last week's G-20 Summit is a good start, but it will require a new level of international cooperation and coordination, including a new willingness to take the findings of global monitoring seriously. Peer review will need to be peer pressure.”

It was also important for the G-20 to remember those countries not at the table. “As agreed in Pittsburgh last week, the G-20 should become the premier forum for international economic cooperation among the advanced industrialized countries and rising powers. But it cannot be a stand-alone committee. Nor can it ignore the voices of the over 160 countries left outside.”

China's strong response during the economic crisis and rapid recovery had underscored its growing influence as a stabilizing force in today's global economy. But its leaders face challenges caused by rapid credit growth and the economy's dependence on exports.

The United States had clearly been hit hard by the crisis. Its prospects depend on whether it will address large deficits, recover without inflation, and overhaul its financial system. The United States has a history of recovering from setbacks. “But the United States would be mistaken to take for granted the dollar's place as the world's predominant reserve currency,” Zoellicksaid. “Looking forward, there will increasingly be other options to the dollar.”

The crisis has brought to the attention of lawmakers the significant role played by central banks. Central banks performed well once the crisis hit but their role in the build-up was less convincing. “In the United States, it will be difficult to vest the independent and powerful technocrats at the Federal Reserve with more authority,” said Zoellick. “My reading of recent crisis management is that the Treasury Department needed greater authority to pull together a bevy of different regulators. Moreover, the Treasury is an Executive department, and therefore Congress and the public can more directly oversee how it uses any added authority.”

Developing countries had already been on the rise before the crisis and their position has been further strengthened because of it. Their growing share of the world economy was a positive development. “Looking beyond, a more balanced and inclusive growth model for the world would benefit from multiple poles of growth,” Zoellicksaid. “With investments in infrastructure, people, and private businesses, countries in Latin America, Asia, and the broader Middle East could contribute to a “New Normal” for the world economy.”