The Tory-led Government is hitting people across the country hard through their reckless cuts which go too far and too fast. Yet at the same time they have chosen to cut taxes for the banks this year.

Did you realise that:

* The VAT rise will cost families with children £450 this year alone

* Tax credits and child benefit will be frozen from April

* Petrol prices are soaring with the VAT rise adding 3p per litre

* Economic growth has stalled

* Unemployment is rising again – now at a 17 year high

* Nearly 1 million young people are now out of workThe British Retail consortium reports the first year-on-year fall in disposable income for 30 years and consumer confidence now being lower than at the height of the recession in 2009.

The decline in retail sales is the worst since records began in 1995, with food and non-food sales declining. High inflation, higher fuel and utility costs, higher VAT, falling property prices and the prospect of further tax rises, cuts in housing benefit hitting the rental market, and job losses and job fears leaving people unwilling to spend and fearful for their future.

These pressure are not going away whilst the Tory Lib-dems continue with their desire to pay the UK mortgage off in 5 years rather than 10, 20 or 25 ( which would spread the load)

Growth has slowed and gone into reverse, pressures on demand are decreasing very fast (no money in the pocket means no demand) this is why inflation has had a surprise fall.  Falling demand has literally pushed down the price of goods, especially food, as the supermarkets are having to compete for business.

Osborne and Alexanders plans appear to be unravelling, they lack experience and what ever they say about Gordon Brown, you have to ask why he is a key note speaker at so many illustrious financial conferences. Osborne and Cameron were mocked by economists at the last DaVos finance meeting they went to…lets hope they have a plan B because for the sake of ideology and revenge on the people who have supported Labours investment in public service they could end up reducing the country to rubble.

It is said the deficit is all Labours fault.  This is a myth.

With hindsight it is true that Banks and other finance companies were not regulated in the right way but both Gordon Brown in 1998 and Ed Balls in 2003 both promoted financial regulation, but their ideas were turned down by the international community.

We could have gone ahead unilaterally, and regulated the banks in the UK, many of the minor parties claim we should have. However at that time, stricter regulation would have pushed financial business elsewhere, where regulation was weaker and we would have lost nearly 12% of our total tax revenues. No government can afford to do this kind of thing alone.  Just look at the recent work on tax havens, to understand this.

Imagine the destruction of public services if we lost 12% of our revenue. In between 1998 and 2008 if we had lost only half we would have been £250 billion out of pocket.  Imagine how few of Labours investments in public services could have been made without this money.

No Uk regulation would have stopped the crisis starting in the USA with missold mortgages, and our hugely increased national debt came from Government borrowing used to save UK banks affected by the USAs finance irregularities and much like a mortgage this debt must be repaid.

Now the others may say before the election Labours plan was similar to the Tories plan for deficit reduction, and Labour is sticking to it.  Yes we did have a plan at that time for deficit reduction and it involved some austerity and belt tightening, and yes it involved cuts, but was not to be introduced before the economy was more robust and also involved some investment in public services in order to kick start the economy.  So the Tory Lib-dems might cut housing benefit and raise VAT where we might have cut the public school grant system and used tax on higher earners.

Our national debt, like any debt, like a mortgage, must be paid.  You take out a package and you pay it back regularly, and although you can’t choose not to pay it, you can choose how fast you pay it or how much you pay at a time, based on what you can afford. who would choose to pay it off at such a high monthly rate that they can’t afford to buy anything else like the train fare, clothes for their kids or a book to read at bedtime, or paying an electrician to fix things so the lights will go on.

Well thats what the Tory Lib-dem government is doing.

The Tories are deciding to pay of the deficit at a monthly rate so high that there’s no money left for the things which the most vulnerable people in society need. Things like bus services in the countryside where there’s no other way for old people to get around, libraries, or even flood defences for whole towns. Things like frontline nurses and police, or repairs to school buildings.

It is self-evident that their decision to pay it off so fast has not helped the economy in any way whatsoever. In fact its put the economy into reverse.

The devastating news is if the Tory Lib-dems had chosen to go just a little bit slower, (according to the Institue of policy reseearch) it wouldn’t have needed to make any new cuts at all. In fact if it had set the target date for eliminating the deficit just three years further into the future, there would be enough money left to prevent all the cuts now being done,  and it would have been able to keep spending constant in real terms in the subsequent three years too.

Put simply: we have to pay it back, but we don’t have to make these cuts… we could raise taxes, we could tax the banks harder, in a few years we can resell the shares the government was forced to buy in Banks.  Labours challenge now is that problems may have got worse as the governments policies are in disarray.  The University fees issue alone will actually cost nearly £1 billion more than expected.

Lets be clear and we keep saying it Lewes Labour are Labour people with Labour Ideals but we are independent thinkers, not party automatons

Lewes Labour is committed to stand up for lewes, fight cuts to local services and protect public services such as the police, education and the NHS.

For more info on the deficit and facts refuting Tory lies see here>>

On May 5th  give Lewes a fighting chance by voting Labour

See our candidates here>>

Reasons to vote Labour here>>

The Tory-led Government is hitting people across the country hard through their reckless cuts which go too far and too fast. Yet at the same time they have chosen to cut taxes for the banks this year.

Did you realise that:

• The VAT rise will cost families with children £450 this year alone?
• Tax credits and child benefit will be frozen from April?
• Petrol prices are soaring with the VAT rise adding 3p per litre?
• Economic growth has stalled?
• Unemployment is rising again – now at a 17 year high?
• Nearly 1 million young people are now out of work?

George Osborne’s decision to cut too far and too fast has threatened the already fragile economic recovery.

Ten wasted months in office and this Government still has no plan for growth.

We need a plan that puts jobs and growth first. Getting more people into work and the economy growing strongly again is the best way to get the deficit down.

Do you want to find out about the impact of the Budget and learn more?

Then join Labour bythe button at the top of this page

We have been persuaded that it is inevitable, that perhaps we are to blame, that we must pay. The Tory ideology is based on servicing the countries debts 80% from public services and 20% taxes an ignorant distortion of the Pareto principle.

So we will get from 10 – 40% less of everything….less police, less teaching staff, less hospital staff, less leisure facilities, less road repair, less environmental care and less community projects. Then we will get  more job losses whilst prices rise.  It won’t hit us yet as VAT will not rise until January (in Greece they have made two VAT rises).  Surely not you say and those in their thirties or less will not remember the last time the Tories began to use their version of balancing the books where the poorest and those least able to speak out are the ones that suffer and cliche after cliche, its big business that profits at the expense of the public sector.

So imagine leisure services from your local council, these days all run by trusts to get them off the books but heavily subsidised…not any more. Imagine anything you like to see done well and done by public bodies like your council, the health service, local schools, the police, fire service all of these will be cut.  But they promised not to cut front line services.  You didn’t believe that did you.  Let me give you an exaggerated scenario to convince you.  I wont cut fireman, but I wont give them any money for uniforms, equipment, new fire engines, fire stations, training and so on, I didn’t cut frontline staff though did I?  Ah I see you voted Liberal and you still want to believe that you didn’t let the dogs out, the dogs of war on public services.  Because you are a left wing liberal, might even be a Labour supporter normally or a labour member perhaps?

And as to one ogf the biggest spends in Governement, safe in their hands? I think not when they are hell bent on restructuring it for the detriment of doctors and the benefit of Virgin, and other private healthcare firms.  No wonder Andy Burnham said it made him feel like weeping.

In all of this who sits by and lets it happen…THE LIBERAL DEMOCRATs.  I will tell you this once here and once more: You CANNOT TRUST A LIBERAL.  Its why the Labour Party was created, because the Liberals did not serve anyone but those Tories who did not wish to vote Conservative.

If you are in your twenties all you will have known is the good times of the Labour Government and a bit of bad near the end.  The Tories will try to say anything bad is Labour’s fault. In your heart you know they (The Liberal Tories) are still the nasty party.  The smooth schmooze of the grinning public school boys ( and I don’t just mean Clegg and Cameron) is not what you should fear, it is the people behind them, the thinkers and tory idealists who hate the public sector and the callous businesses that wish to take advantage.

There is only one way to stop this, make a difference, be an active part of the opposition, don’t just sit at home on the net and take it or think it wont happen.  Men women and children, working or unemployed, employee or small business owner, there is a typhoon coming, a tsunami, and it will wash you away unless you start building the defences now with us.

25% cuts mean you will weep and if they have their way with the NHS there will still be someone to wipe away the tears but it will cost.  With the Tories everything costs and now they are going to be hard to stop as they have their human shield…Liberal-Democrats, so here it is the second time what we all need to remember but forgot, because its been so long: YOU CANT TRUST A LIBERAL.

The national Debt was first created in 1692 and for most of its life up to now its been between 2-3 times the current level.  In Modern times our National Debt has only been below around 40% of our Gross Domestic Product (GDP) a very few times and guess what: most of these were recorded under the last Labour Government between 1999 – 2008.  The National Debt has just never been zero.

So given this why all the cuts, why when this has happened before (world crash, deficit issues etc) a heady mix of tax , economic growth, investment and marginal reductions in public spend have turned it all around?  One word…IDEOLOGY.  They can’t sell privatised industry this time around, so they are selling services, not just inviting bids and dealing with failing schools or hospital services but lock stock and barrel.

Oh and the Lib-dems and their friends the Tories are trying to persuade us there is no alternative, this time its so bad, all those welfare and public benefits have to go, its for our own good, its Labour that made them do it.  The deficit is not unprecedented, their plan is not the only way, nor is it necessarily viable.

It’s not Labour profligacy that caused the deficit – if the last government was spending too much why did the Tories promise, until summer 2008, to match its largesse? Labour needs to become as tireless at making this case as the coalition is at repeating, ad nauseam, that it “inherited this mess”.

Lets look at the facts:

Fact 1: Average annual taxation as a % of GDP was lower in the years 1997- 2010 (35.4%) than in the years 1980-1997 (35.5%) as was average annual public spending (40% and 38%).

Fact 2: The national debt was higher in 57 years of the 20th century than in 2010, when it was 52% of GDP. In 1945 it was 237% of GDP and yet Attlee’s post-war Labour government was able to bear the costs of introducing the welfare state and nationalising the railways, the public utilities and the coal and steel industries. Maybe that was because in 1945 we really were “all in it together”.

Fact 3: As Osborne admitted to the Treasury Select Committee, in 2010 the UK’s national debt was the second lowest of the G7 countries and, at less than 60% of GDP net of bank assets, is within Maastricht Treaty limits. It is expected to peak at around 73%. Germany is already above that level and is expected to exceed 80% in 2013. The debt levels of Japan and Italy exceed 100% of GDP.

Fact 4: In June 2010, the budget deficit was under £155 billion, well below the Treasury’s £178 billion estimate made six months earlier. In other words, the deficit was narrowing after Labour increased spending in 2009.

Fact 5: The budget deficit is no more “structural” than an overdraft in your bank account when you spend more than you earn. There is either a real deficit or not, and if there is, then it is due to either excessive spending or an inadequate tax take. Since it can easily be demonstrated that the problem is not the former, then it must be the latter – which is around 36% compared to an EU average of 40%, has been adversely affected by the financial crisis and consequent recession, and is likely to be further aggravated when taxes are cut later during this parliament to the benefit of high earners, corporations and banks.

Fact 6: Even if you accept the idea of a “structural” deficit, this was only 3.5% of GDP in 2007, compared with the last Conservative government’s structural deficits of 5.2% in 1992, 6.6% in 1993, 6.2% in 1994, 5.6% in 1995 and 4% in 1996. Similarly, the last 3 Labour governments managed to earn enough to cover their spending for 3 of their 13 years in office, whereas Thatcher and Major only managed to balance the books for 2 out of 17 years.

Fact 7: Osborne’s claim that the UK is in danger of having its Triple AAA credit rating downgraded ignores the fact that the UK government is a reliable borrower with zero chance of defaulting, since most of its debt is held by financial institutions in the UK over a very long period of time and at very low interest rates. In fact, according to economist Ray Barrell (National Institute Economic Review, January 2010), government interest payments as a % of annual GDP are around 3.5%, the same as in the last year of Major’s government.

Fact 8: Basing an economic policy on the predictions of the credit ratings agencies is absurd. As happened in the 1930s, when they failed to foresee the Great Depression, these agencies have behaved pro-cyclically – encouraging reckless borrowing when the economy seems to be strong and threatening to slash their ratings when a crisis develops.

Fact 9: Despite Osborne’s fatuous comparison of Britain’s problems with those of Greece, a 2010 IMF study suggested that “the USA and UK could probably increase their debt burden by another 50% of GDP beyond projected 2015 levels without triggering a crisis.”

Fact 10: Osborne has ignored a core principle of Keynesian economics – that government spending should be counter-cyclical. In other words, when growth is slow, you increase public spending and when it is strong you reduce government debt by cutting spending. Governments that reduce spending during a recession, or before full economic recovery, invariably make things worse: Economic growth slows, tax revenues fall, and welfare spending increases as unemployment rises.

Fact 11: The worst recessions of the 20th century have been caused by harsh spending cuts. For example, in 1937, FDR’s premature attempt to balance the US budget helped to plunge the US economy back into recession and Neville Chamberlain’s disastrous deflationary budget of 1932 had a similar effect in Britain.

Fact 12: Even if Osborne’s policies are successful in reducing debt, their only effect will be to transfer it from the government’s books to private households. Although household debt has drastically increased since Cecil Parkinson’s “Big Bang” financial deregulation of the 1980s, and is the highest in Europe, the household debt-to-income ratio fell between 2007 and 2010. But according to the OBR, household debt will rise again (by £245 billion from 2011 to 2015) whilst public debt will fall by only £43 billion – the former the result of rising unemployment, falling wages, cuts in benefits and inflation and the latter the effect of a slump in demand and falling tax revenues.

Fact 13: Three Nobel prize-winning economists (Stiglitz, Krugman and Pissaredes) condemn Osborne’s austerity measures as seriously misguided, as does Martin Wolf of the Financial Times.

Fact 14: In 2007, Cameron promised to stick to Labour’s spending plans. Then came the financial crisis, the damaging effects of which he chooses to ignore. Not surprising, since before the financial crisis he had criticised Gordon Brown for regulating the banks too tightly.

The Tory/lib-dem plan will worsen unemployment, will be bad for the economy and undo every public service investment that Labour made.  You know why, you know in your gut what they are saying doesn’t quite add up.  Its not fair, its not right but it is right wing ideology.

So you want to know more, you would like to know how the deficit was created, what role the banks had and why we are paying so much so quickly and going hungry because of it? If so look at this article here>>

Preventing Financial Crises: The Case for Independent IMF Surveillance

by Edward Balls, Chief Economic Adviser to the British Treasury

Remarks at the Institute for International Economics
Washington, DC
March 6, 2003

Introduction

These are particularly uncertain global economic times. And my argument today—as we prepare the IMFC Deputies meeting in London at the end of this month in advance of the Spring IMFC Meeting of Finance Ministers—is that it is now urgent that we move forward in both implementing agreed reforms and shaping the next steps on both crisis prevention and crisis resolution.

The Institute of International Economics and its fellows have played a central role in this debate about reform. At the Federal Reserve and US Treasury, Ted Truman developed and delivered vital reforms; Fred Bergsten, Morris Goldstein, Michael Mussa, and John Williamson, to name just a few of the Institute’s distinguished fellows, helped to set that reform agenda and continue to shape the debate.

Let me, on behalf of the UK, pay tribute to the role that the IMF has played over the past six years at the forefront of reforms to the international financial system. Michel Camdessus and Stanley Fischer shaped many of the reforms in the period after the Asian crisis of 1998. And I want, in particular, to pay tribute to the leadership of Horst Kohler, and to recognize the great contribution that IMF First Deputy Managing Director Anne Krueger has made with her work leading the debate on crisis resolution and through her strong and compelling arguments for a Sovereign Debt Restructuring Mechanism (SDRM). We must and will make progress on crisis resolution at the Spring meetings—and I will return to that subject later.

But we must also make progress on crisis prevention. And this is my principal topic today. I want to look again at the lessons we learned from the 1997-98 global crisis and the effectiveness of the reforms we introduced. I will argue that the lessons we learned from the Mexican, Asian, and Russian crises were the right lessons—and that these lessons have been reinforced by recent crises such as in Argentina and Turkey, the recent IMF surveillance review and the first report from the new Independent Evaluation Office.

Our work so far has stressed the fundamental importance of strong, credible, and transparent macroeconomic frameworks to provide the foundation for stability and growth; the need for internationally agreed codes and standards for sound policymaking that can be implemented by all countries; the rewards from greater transparency at the national and international level; and the need for a stronger focus on key vulnerabilities and risks, particularly in the financial sector.

But there is more to do. We must implement fully and deeply the ideas we had back in the late 1990s. But learning the lessons from the past—including the more recent past—-demands that we go further and accept the need for a fundamental strengthening of IMF surveillance—making it more independent, authoritative, transparent, and accountable.

The international community has recognized that further reform of IMF surveillance is necessary. Last September’s IMFC communiqué called for “ongoing work to ensure that surveillance in program countries reassesses economic developments and strategy from a fresh perspective.” The challenge—as the UK Chancellor of the Exchequer Gordon Brown said last September—is to make the IMF as credible and independent from political influence in its surveillance of economies as an independent central bank should be in the operation of domestic monetary policy.

So today I want to set out how, in implementing this IMFC remit, the world community of nations can implement new reforms to build a new system of international economic governance and surveillance which can strengthen our ability to prevent crises and advance our shared objectives of stability, development, and prosperity.

Enhanced International Cooperation: IMF Surveillance At Its Center

Before I begin, let me focus on why crisis prevention is so important. The main case for reform does not rest on the need to protect taxpayers in the developed world. (Of course, protecting the interests of taxpayers is a vital objective for any Treasury. But lending to crisis countries is invariably repaid with interest.) The case for crisis prevention rests primarily on the need to promote social justice in the countries worst affected by crises and instability—to ensure that economic dislocation is minimized at times of instability, that private sector investors contribute responsibly to this outcome, and that governments are helped to manage their economies in a way that promotes the interests of all their citizens.

Some argue that it is, in fact, the IMF which is the obstacle to social justice, that its solutions impose the costs unfairly. I do not accept this view. We all recognize that, at times, mistakes have been made. But I believe that a reformed IMF represents one of the clearest expressions of a new internationalism—social justice at the global level. For every country, rich or poor, macroeconomic stability is not an option but an essential precondition of economic success, which is why it is important that the IMF promotes macroeconomic stability, sound and transparent institutions, and the building blocks of long-term sustainable growth as the foundation for development and prosperity. As the new Brazilian Finance Minister Antonio Palocci noted, explaining his government’s commitment to credibility and responsibility in the conduct of economic policy, “Nations are not built in a hurry. They need solid foundations, laid brick by brick, of stability, clear rules, and sound institutions.”

Social justice has been at the heart of our approach to debt relief and development aid for the poorest countries of the world. It is at the heart of the progress made on Highly Indebted Poor Countries and most recently Chancellor Gordon Brown’s proposal for an International Finance Facility. A Facility designed to achieve both the additional finance—raising the amount the developed world spends on aid from the current $50 billion a year to $100 billion a year—and the value for money necessary to meet the internationally agreed Millennium Development Goals by 2015 so that every child has schooling; infant and maternal mortality is reduced and poverty halved. The UK Government hopes to work closely with other governments, business and nongovernmental organizations to develop this proposal further.

But just as social justice has driven our approach to debt relief and development aid, we should be reminded of the social and human cost of a failure to address the challenges of financial crises. The way forward is not to cut cooperation across the world but to strengthen that cooperation, modernizing our international rules and reforming the institutions of economic cooperation to meet the new challenges-and in doing so create a global economic system that recognizes the rights and responsibilities of all the parties involved.

This commitment to prosperity and social justice was, from the beginning, at the core of the Fund’s mandate. As Gordon Brown said in his 1998 Harvard lecture, speaking of the need to rediscover the high ideals which drove the founding fathers of the Bretton Woods institutions:

The leaders of 1944 believed that global action on a new and wider stage could advance a new and worldwide public purpose of high ideals rooted in social justice: to achieve prosperity for all by each cooperating with every other with new international rules of the game that involved a commitment to high levels of growth and employment. In short, the job of every economy was to create jobs for all.

The founders of Bretton Woods resolved that the failed policies of laissez faire which resulted in vast inequities and recurring depression from the 1870s to the 1930s would not be repeated. Untrammeled, unregulated market forces had brought great instability and even greater injustice. In the post war era governments had to work collectively if they were to achieve either justice or stability.

The Challenge to IMF Surveillance and the Making of a New Consensus

Effective IMF surveillance of both global economic risks and national economic policies has been fundamental to that vision from the very start of global economic cooperation. The founders of Bretton Woods recognized that effective surveillance over national policies was critical to the international stability and cooperation on which prosperity and growth depended. The original Articles of Agreement established the importance of exchange of information, and gave the Fund authority to hold consultations with countries that had not lifted exchange restrictions. With the eventual collapse of the fixed exchange rate system and the expansion of capital markets, IMF surveillance or oversight over members’ policies became the centerpiece of international economic cooperation
International economic surveillance was rightly seen an essential tool for strengthening crisis prevention and promoting global stability and growth. It offered a unique means to assess national and global economic prospects, to detect vulnerabilities at an early stage, to provide policy advice, and more broadly to promote international economic cooperation. And, following the Second Amendment of the IMF Articles of Agreement in the 1970s, the IMF was uniquely placed to undertake surveillance with its responsibility under the new Article IV to oversee the international monetary system and the economies of what is today a membership of 184 countries.

The ultimate test of whether surveillance is effective is whether it leads to better policies, both in the country concerned and in the international system more widely, so that risks and vulnerabilities are minimized and growth is more sustainable globally.

An effective surveillance mechanism needs to be authoritative, comprehensive, focused, influential and accountable. This is essential in order to ensure that surveillance detects problems at an early stage, has an appropriate impact on members’ policies, and so helps to strengthen crisis prevention and promote stability and sustainable growth:

• Authoritative: It must command international respect, be a source of international expertise and best practice, and provide sound and credible policy advice;
• Comprehensive: It must cover all the issues that are relevant to economic stability;
• Focused: It needs to be well focused, highlighting the most important risks and vulnerabilities, to ensure problems are detected at an early stage;
• Influential: Its recommendations need to be reflected in the policies of member countries if problems are to be addressed at an early stage, crises averted, and uncooperative practices avoided;
• Accountable: To retain the necessary influence and legitimacy, it must provide a sound basis for its findings and recommendations, be prepared to justify and defend them, and respond to criticisms and suggestions for change.

This need for effective surveillance is even more important in a world of more global capital markets both for countries concerned and for the international system—with faster rewards for success, weaknesses punished harder and faster than before. Globalization does bring new opportunities for all economies. Greater trade and investment flows lead to lower prices and more choice, larger markets and economies of scale and faster adoption of new technology. More competition between firms and exposure to world best practice, free movement of capital generates a more efficient allocation of resources. Thus globalization can play a major role in enhancing growth and living standards.

However there are risks associated with globalization that need to be properly managed by policy makers. Globalization brings new opportunities but also can open new inequalities that need to be anticipated and addressed in developed and developing counties. And recent financial instability demonstrates the risks associated with volatile and liquid global capital markets. Opening up fully to globalization too early and too quickly, without the necessary preparation, is dangerous. Countries must put in place appropriate policies and institutional frameworks first.

So strong macroeconomic frameworks are an essential prerequisite for stability, economic growth and prosperity in a globalized world, a point that we set out in detail in the UK paper Macroeconomic Frameworks in the New Global Economy that we submitted to the November meeting of the G20. And IMF surveillance of these macroeconomic frameworks and policies is even more important today than it was when the system was set up 50 years ago.

Yet, while developments in the global economy and global capital markets have emphasized the need for effective surveillance, so they have also called into question the effectiveness of the Fund’s surveillance and advice. In particular, the succession of primarily capital account crises since the mid 1990s raised concerns about the authority, comprehensiveness, focus, influence and accountability of the Fund’s surveillance.

First, on its comprehensiveness and focus, a common feature of all the crises since late the 1990s is that they started from weaknesses in their domestic economic policy framework in the fiscal or financial systems often combined with unsustainable fixed exchange rate pegs upon which macroeconomic credibility was pinned. In each country—Thailand, Korea, Indonesia, Malaysia, Brazil, and Russia—large and rapid capital outflows exposed inappropriate macro-frameworks and fragile banking sectors, with massive costs for budgets and economies and ultimately their people. But in each case Fund surveillance had not ex ante stressed the weakness of domestic or financial sector frameworks or questioned the sense of linking credibility so clearly to a fixed peg.

Second, the social impact of crises on countries raised questions about the IMF’s approach, its quality of advice and accountability—it was criticized for advocating rapid capital account liberalization and paying insufficient attention to the foundations for stability and growth; for applying a one-size-fits all model that was insensitive to countries’ individual circumstances and needs; for advocating policies that served primarily the interests of creditors; and for being insufficiently open to outside views and advice.

And third, the frequency of crises raised questions about the influence and effectiveness of the IMF’s approach. Traditionally, it had sought to exert influence through peer pressure “behind closed doors”. IMF documents and discussions remained confidential, despite the fact that increasingly the rest of the international community emphasized the role that greater transparency could play in encouraging governments and markets to address risks at an early stage, without compromising candor.

By the Annual Meetings of 1998, there was a clear recognition of the enormity of the challenge we faced to restore stability and confidence in the international financial system and a need for reform. A new consensus began to take shape at those meetings, subsequently expressed in the seminal G-7 statement of October 1998 a few weeks later.

Ministers resolved to put in place a new framework for global stability, including a framework of internationally agreed codes and standards for monetary, fiscal, and financial transparency; greater transparency at the IMF itself; stronger cooperation on financial sector issues, including through the Financial Stability Forum; a new framework for crisis prevention and crisis resolution based on a partnership between public and private sectors; and a stronger focus at the IMF and World Bank on the social costs of crises.

There has been considerable progress since then. There is evidence that the risk of contagion from financial crises is less than might have been the case only a few years ago, and that investors are beginning to discriminate more between countries. The dispersion of spreads on emerging market debt has increased and the high degree of cross-country correlation of financial market returns seen at the time of the Asian crisis and Russia’s default has significantly moderated.

Emerging markets are also adopting strategies to insure themselves against contagion, by, for example, building up reserves, or shifting to more flexible exchange rate arrangements. While bond spreads have risen in some countries in Latin America in response to recent difficulties, the effect has been much less marked in those countries, which are seen to have the strongest policy framework; and there has been little impact on spreads in emerging markets in Asia.

But more needs to be done to educate the private sector and ensure adequate information is available to enable efficient investment decisions to be taken. More recent events in Argentina and Turkey over the past three years, and the instability and risks that many countries still confront, means there can be no complacency.

So let me set out progress we have made and the next steps we need to consider on codes and standards, greater transparency, vulnerabilities and also the institutional changes we need to consider in order to strengthen IMF surveillance.

New Rules of the Game: Codes and Standards

First, the new system of internationally agreed codes and standards. Relevant to all countries-rich and poor-covering fiscal policy, monetary policy, banking supervision and other key aspects of public policy, they emphasize the importance of clear and sound long-term policy objectives; a precommitment to long-term stability through institutional arrangements and procedural rules; and maximum openness and transparency, providing a foundation for stability in the global economy.

As IMFC Chair Gordon Brown has said, “These new rules of the game are not incidental to the financial architecture for the new global economy: they are the financial architecture for the new global economy. This is the way in which we can deliver global financial stability in a way consistent with national sovereignty.”

The codes require an effective and authoritative mechanism to monitor their implementation. To achieve this, the IMF, working with the World Bank, has adopted a program of Reports on the Observance of Codes and Standards (ROSCs). These reports summarize the extent to which countries observe the codes and are becoming an increasingly important part of the IMF surveillance process. In just 4 years, over 300 ROSCs have been completed for more than 80 countries. And of these, over 70 per cent have been published. This is a significant achievement.

And these codes are relevant for developed and developing countries alike. Last week, the Board discussed the UK’s Financial Sector Assessment Program. Under the FSAP, we were assessed against a number of the codes and standards modules, including Banking Supervision, Securities Market Regulation and Insurance Regulation. We were also the first country to be assessed against the new code on anti-money laundering and combating terrorist financing. Our experience of the FSAP process was a very positive one. It highlighted good practice in several areas. But it also identified areas where more work could be done by our authorities, for example in our insurance sector. With the conclusion of the FSAP, the UK has completed 8 of the 12 codes and standards modules, and we have asked to be assessed against the remaining 4—the first country to commit to undertaking all 12.

But there are weaknesses that still need to be addressed. These include:

• First, the uneven take-up of ROSCs-over half of IMF members still have to complete a ROSC module and there are strong regional variations in the take-up. We need to find ways to give other countries greater incentives and capacity to adopt these international best practices; increasing the resources available for technical assistance will be critical to achieve this;
• Second, we need to ensure that ROSCs provide advice that is acted upon: one way to achieve this would be to include in all Article IV reports a summary of which ROSCs a country has undertaken, the extent to which the ROSC criteria were met, and the main follow-up actions; the findings of ROSCS should also be reviewed regularly;
• Third, the need to go further in strengthening the coverage of areas outside the IMF’s core expertise such as the non-financial corporate sector, corporate governance and accounting and auditing. This emphasizes the importance of greater access to outside expertise and cooperation with the World Bank, the FSF, WTO, ILO and other organizations. The IMF has demonstrated that it can provide the organizing framework for the overall surveillance of codes and standards, including those in areas outside its core expertise; and
• Fourth, ROSCs should be published and we need to encourage the private sector to make greater use of ROSC assessments in their pricing of financial instruments. S&P and Fitch now explicitly use them in their rating assessments, but this is a practice that we want to see become more widespread in order to tackle contagion by giving investors the information to differentiate between good and bad policy regimes.

The codes will only be as effective as the quality of the assessment, so it is important that the effectiveness of ROSCs is regularly monitored and assessed as part of a broader assessment of the effectiveness of Fund surveillance.

This is a long-term strategy: the codes and standards challenge governments at all levels of development. We need to build up our capacity to apply international standards at the local level, to provide technical and financial support to countries undertaking difficult reforms, and to help countries use the framework to overcome weaknesses and demonstrate their strengths to the markets.

And we also need to do more to strengthen the incentives for good practice and to tackle contagion. That is why the UK supported the US proposal in 1998 for a Contingent Credit Lines (CCL)—a potentially important part of the Fund’s crisis prevention armory, acting as a precautionary line of defense to be made readily available against balance of payments difficulties arising from contagion. The key insight underpinning it was the need to incentivize good policy. It confirms the principle of using IMF financing proactively to recognize good performance and help safeguard a strong policy framework in the face of turbulence in international capital markets. However, there has been no take-up-due either to issues of design or concerns about market signaling. These issues are being examined in the IMF’s ongoing CCL review. To take forward this review, the Fund has consulted widely with officials from a range of countries (including potential CCL applicants) and private sector participants: we support this approach and look forward to discussing the conclusions of the review. In this ongoing debate, we must ensure that we do not lose sight of the underlying objective—the need to incentivize good domestic policy.

Greater Transparency

Second, enhancing transparency is critical to our work on strengthening crisis prevention, helping to ensure that vulnerabilities are addressed at an early stage and strengthening the accountability of the international financial institutions. Greater transparency would not only benefit countries, but strengthen public confidence in the IMF’s policies and operations—making clear the basis for the Fund’s findings, opening the Fund up to outside critical review, and enhancing its accountability, reputation, and credibility.

And the IMF and its members have made real progress in increasing transparency, with increasing numbers of Article IVs now published. As recently as 1998, Article IV reports could not be published. Between 1999 and last year, over 200 were published for well over 100 members. Statements by the Chairman of the Executive Board and Press Releases are issued routinely following Board discussions of programs, and last year the Board agreed to a presumption that all policy papers will be published.

The UK believes that there would be strong benefits in going further to enhance the transparency of the Fund. Having experimented with the voluntary publication of Article IVs, we believe there is now a strong case for moving to a presumption in favor of publication. We believe there is an even stronger case for IMF missions’ concluding statements to be published immediately after surveillance missions, as in the UK and many other countries. And we believe there is a good case for moving to a presumption in favor of the publication of ROSCs, to increase their effectiveness further.

We need to consider carefully the argument that there is a potential tension between greater transparency and the Fund’s role as a provider of candid and frank advice. It is encouraging that the Fund’s recent review of transparency found no pattern suggesting that publication had led to significant disparities in the coverage of sensitive issues between published and unpublished reports. We believe that candor and transparency can be, and should be, taken forward together. Nevertheless it will be important in the future to continue to assess the impact of transparency on the candor of the Fund’s advice, as part of the broader assessment of the effectiveness of Fund surveillance.

Stronger Focus on Vulnerabilities

Third, it is vital to ensure that IMF surveillance focuses on the key risks and vulnerabilities, paying more attention to the sources of growth (including trade), exchange rate regimes, medium term debt sustainability and external financing needs.

The Fund’s Biennial Surveillance Review in April 2002 and the IMFC meetings identified specific areas where surveillance could be strengthened. These included: more rigorous assessments of potential vulnerabilities, with particular attention to debt sustainability and the private sector’s balance sheet exposure; more candid and comprehensive assessments of exchange arrangements and exchange rates; focusing on the global impact of the policies of systemically important countries, including trade; expanding financial sector surveillance to the entire membership; and stronger coverage of relevant structural and institutional issues. Article IV reports will also now assess the actions taken by authorities in response to past and existing Fund advice.

We welcome the Fund’s work on enhancing its coverage of key risks and vulnerabilities, including making better use of market information, developing a new mechanism for monitoring the risks of capital market crises, improving and applying the framework for assessing debt sustainability, and the continuing expansion of the joint Bank-Fund Financial Sector Assessment Program (FSAP).

The Problem of Surveillance in Program Countries

In each of these areas—codes and standards, transparency, and identifying vulnerabilities—progress has been made, but there is further to go. And critical to achieving our goals in each of these areas in the need to go further in strengthening the institutional arrangements for IMF surveillance.

Recent work by the Fund itself and the Independent Evaluation Office suggest that- particularly for program countries—there is a case for further reform to bring greater independence and objectivity to the surveillance process—what First Deputy Managing Director Anne Krueger has called “the fresh pair of eyes issue.”

To achieve greater objectivity, the Biennial Surveillance Review drew the conclusion that surveillance of countries with active Fund programs should bring a “fresh perspective” to the Fund’s assessment of the country’s policies and prospects.

This requires a stepping back from the program framework. There is wide acceptance that Article IV consultation discussions sometimes failed to do this, thereby limiting the potential effectiveness of surveillance.

The IMF has subsequently agreed a new set of surveillance guidelines, covering surveillance in program countries. This should entail (i) a comprehensive assessment of economic developments, not narrowly focused on program targets; (ii) a candid analysis of the short- and medium-term outlook, including a thorough discussion of risks and vulnerabilities; (iii) a stock-taking of the policy strategy and the effectiveness of the measures taken; and (iv) a candid account of the dialogue between staff and authorities on key policy issues and on the program strategy.

We welcome these changes-but they do not go far enough. We believe it is essential to work up further options for strengthening surveillance in program countries, by providing not just periodic Fund reassessments but regular and independent reassessments of economic developments, prospects, and policies and of the program framework.

The importance of achieving greater objectivity and independence was also highlighted by the Independent Evaluation Office’s first report on prolonged use of IMF resources-countries which have had continuous Fund programs for many years. The report noted that its case studies suggested that “by and large, surveillance failed to play a major independent role in prolonged user cases.” It recommended that steps should be taken to strengthen further surveillance in prolonged user cases, going beyond the revisions to surveillance guidelines, including:

• clarifying the role of surveillance in program cases;
• greater operational separation between Fund program and surveillance activities in prolonged use cases, although this raises delicate trade-offs; and
• seeking a second opinion-including from outside the IMF-on key policy issues that appear to be contributing to prolonged use.

The Independent Evaluation Office report also found that “there is evidence that internal incentives in the IMF encourage overpromising programs. This results from both the relatively short time frame of programs, forcing optimistic assumptions about the pace of adjustment and also from a desire to maximize the program’s catalytic role. This led to a tendency to downplay risks. Even when, as was often the case, they were well identified during the internal review process, the assessment of risks was not candidly presented to the Executive Board.”

The Case For More Fundamental Institutional Reform

These cases and reports highlight, in our view, a deeper structural problem in the current surveillance process. The current structure of the IMF treats program design as an extension of surveillance. Yet there is evidence that the lack of a clear distinction between lending and surveillance activities creates the wrong incentives and diminishes the effectiveness of surveillance.

Working to reach agreement on a program and to restore confidence, there may be incentives and pressures on the Fund to be overoptimistic in its surveillance of the risks. Once it has agreed the program and disbursed the loan, the Fund as the subsequent monitor of performance may face pressures and incentives that prevent it from stepping back to provide a candid assessment of the sustainability of the program framework. And the blurring of the surveillance and program mandates makes it difficult for the Fund to be held accountable over a period of time for the quality and effectiveness of either its surveillance or its program design.

Moreover, there is currently no formal regular mechanism for assessing whether the Fund is providing objective, rigorous, and consistent standards of surveillance across all member countries—program and nonprogram countries. This highlights an additional structural problem.

In principle, the Executive Board discussions of Article IV reports should provide this perspective through peer review. But again there is a blurred division of responsibilities. Executive Directors are responsible for both lending and surveillance decisions. In addition, while responsible for ensuring the effectiveness of the Fund’s activities, Executive Directors have responsibilities to their authorities. The External Evaluation of IMF surveillance (1999) noted that Fund staff observed that Executive Directors tended to be defensive about the countries they represent, and that other Directors deferred to this, partly because they expected the same deference in return in due course. Peer pressure can, in short, become peer protection.

But even if such considerations never affect Board decisions, the case for change remains. There is a clear parallel with central bank independence. The case for an independent central bank is that delegation of responsibility for setting interest rates to an independent body can solve the time inconsistency problem whereby governments are tempted to exploit the short-run output-inflation trade-off for short-run gain. It is not that Finance Ministers are necessarily badly motivated. It is the suspicion that they might be that damages credibility. Similarly the case for moving to an independent surveillance regime is that it would remove the suspicion that surveillance might not be objective and candid.

Some might argue that this parallel does not work-that decisions need to be taken by the IMF Board to give proper legitimacy, while the Board must have the discretion to respond to changing economic events and circumstances without being boxed in by over-rigid rules or procedures.

But the modern case for central bank independence also recognizes that elected Finance Ministers have a proper role underpinning the democratic legitimacy of the central bank—hence in the British model of central bank independence the Chancellor of the Exchequer both sets the inflation target for the Bank of England to pursue and appoints the members of the Monetary Policy Committee.

And the modern case for central bank independence also recognizes the need to go beyond the old debate between rules versus discretion and recognize that a robust framework for policy that maintains stability must also be able to adapt appropriately to shocks.

In a world of fast moving capital, long-term stability requires an overall framework that constrains macroeconomic policy to achieve clear long-term and sustainable goals, but which gives discretion to respond flexibly to shocks. If policymakers have a sufficiently credible commitment to long-term stability, then they will be able to exercise discretion in response to shocks without damaging long-term expectations.

The new British model of central bank independence is neither based on complete discretion, nor fixed rules, but on “constrained discretion”. It recognizes that the discretion necessary for effective economic policy—short-term flexibility to meet credible long-term goals—-is possible only within an institutional framework that commands market credibility and public trust with the government constrained to deliver clearly defined long-term policy objectives and maximum openness and transparency.

So the new British model of central bank independence has five key features:

• a strategic division of responsibilities: with the elected government setting the wider economic strategy and the objectives for monetary policy, while monthly decisions are passed over to the central bank;
• a single symmetric inflation target: with no ambiguity or dual targeting;
• independent expert decisions: with monthly decisions to meet the government’s inflation target taken by an independent Monetary Policy Committee;
• built-in flexibility: with the Open Letter system to allow the necessary flexibility so that policy can respond in the short-term to surprise economic events without jeopardizing long-term goals;
• maximum transparency and accountability: with monthly minutes published and individual vote attributed and with a strengthened role for Parliament.

Central to this framework is the separation between the government setting the objectives for monetary policy in terms of the inflation target whilst monthly decisions on interest rates are passed over to the central bank. This removes the suspicion that policy was being manipulated for short-term motives. As Deputy Governor Mervyn King said in his 1999 Belfast lecture, “the rationale for handing operational responsibility for setting interest rates to the MPC is that it is better qualified to make those decisions than elected politicians, whereas elected politicians have the democratic legitimacy to choose the target.”

I believe we can and should apply this “constrained discretion” approach to global economic management and crisis prevention and resolution.

Just as in domestic economic policymaking, so in international economic policymaking this means breaking from the sterile debate of the 1990s between rules and discretion—the false choice between fixed and rigid rules on the one hand and a completely ad hoc approach on the other.

Crisis prevention or resolution cannot be based on rigid policy. There must be discretion for the Fund Board to act as circumstances dictate.

But credibility, predictability and tackling moral hazard demand that this discretion needs to be constrained by much clearer procedural rules. And that means that, in addition to reforms to crisis resolution currently being discussed and the new rules recently agreed on access to financing from the Fund, learning the lessons from the past, including the more recent past, demands a fundamental strengthening of IMF surveillance to make it more independent, authoritative, transparent and accountable.

As in domestic monetary policymaking so at the international level, IMF surveillance must be—and be seen to be—credible and objective and that means it must operate within an institutional framework that provides a credible guarantee of candor.

The case for making the IMF as independent from political influence in its surveillance of economies as an independent central bank is in the operation of monetary policy is that credibility comes from demonstrating that surveillance is—as a matter of institutional design and procedural rules—impartial rather than influenced by political considerations be they from shareholders, directly from or through the Board or from internal pressures.

I stress that the case for greater independence is not an attempt to fetter the discretion of the Board to make proper program lending decisions more than is sensible to properly guide expectations and tackle moral hazard. The objective is instead to make sure that Board decisions are made—and seen to be made—on the basis of open and candid surveillance about sustainability and risks, and to protect both the Board and IMF management from being dragged into decisions, which—on the basis of objective evidence—they would not want to take or publicly justify.

So we believe there is a strong case for institutional reform. Our objectives must be:

• First to ensure that surveillance is, and is seen to be, independent of decisions about program lending and the use of IMF resources. We should consider the full range of options.
• Second, to establish the IMF as independent from political influence in its surveillance of economies as an independent central bank is in the operation of monetary policy.

Enhanced transparency, both of procedures and substance, is essential to boosting credibility. So there is a case for publishing staff reports at the same time they go to the Board.

But transparency must be matched with clearer procedures and a clear separation between surveillance and program lending. So we need to re-examine and clarify the objectives, procedures and responsibilities of the Executive Board and IMF Management.

How this can be achieved should be a matter for debate and not something to be dictated. Indeed we need a wide-ranging discussion of the best ways to achieve these objectives. The IMF Board paper last year canvassed opinion on various options to achieve greater independence of surveillance in program countries, from clearer guidance by the Board on the role of surveillance to an “institutional firewall” within the IMF-separating program and surveillance activities, including consultation missions headed by a mission chief from a department different from the area department. On the broader question of how to deepen accountability, one way forward would be for the IMF Board or even the IMFC to have a formal responsibility to set an annual surveillance remit, with the IMF staff and management reporting back regularly on their performance against that remit.

For the long-term we also need to consider more radical institutional reforms to achieve the two objectives I have set out. And, while this is not the time for detailed proposals, we can be clear about our long term goal—a surveillance framework would deliver the independence, accountability, authority, and legitimacy on which effective surveillance and international economic cooperation depends.

Lessons from Argentina

I want to end by showing how these arguments apply in a real world example—the recent case of the collapse of the Argentinean currency board over the course of 2001. The scale of the economic and financial crisis that Argentina has experienced over the past few years and the impact of the crisis on the poorest and most vulnerable in Argentina, has again highlighted the very real human impact of crises, and why prevention is better than cure.

The causes of the Argentine crisis have been well discussed, here at the institute and in the recent IMF Article IV. Loose fiscal policy, combined with a rigid, fixed exchange rate peg and a lack of flexibility elsewhere in the economy produced a series of ultimately irresistible pressures. A clear demonstration of the need for credible macroeconomic frameworks.

The experience of Argentina shows how, in a world of mobile capital and open markets, unsustainable policy regimes quickly become unstuck. But the experience of Argentina also clearly demonstrates the case for a further strengthening of IMF surveillance.

Exiting from the convertibility regime was always going to be disruptive and entail a high cost. Unsurprisingly, successive Argentine governments were unwilling to consider moving to alternative exchange rate regimes, given the centrality of convertibility to the policy framework. But we need to examine the effectiveness of Fund surveillance and ask whether, in hindsight, it should have taken a firmer position on policies critical to sustainability.

Indeed, the IEO’s work program for the coming year has already recognized the crisis in Argentina “has raised a number of questions about the effectiveness of the IMF’s crisis prevention efforts and the quality and impact of its policy advice” during a decade in which “Argentina was continuously engaged in IMF—supported programs for most of the period since the adoption of the Convertibility Law in 1991 and was often presented as a success story.”

It will be important that the IEO focuses on the quality, timeliness and impact of the IMF’s policy advice on the currency board and ‘exit’ strategies, fiscal policy and debt sustainability and on the structural policies that were needed to maintain the currency board arrangement.

Had surveillance reports more effectively highlighted Argentina’s problems at an earlier stage the decisions that the Argentine authorities would have faced would not have been any easier. But by forcing the Argentine government and the IMF to face up to them earlier, it might have prevented a crisis on the scale that subsequently emerged.

Nor, with the public availability of more transparent and credible independent surveillance, would there have been such a one-sided public debate throughout the spring and summer of 2001.

This again highlights the point that, while the Board must retain the discretion to make its own program decisions, the availability of transparency and objective surveillance can strengthen the hand of both IMF management and the Board in the face of wider pressure.

Argentina is not the only recent example of a crisis exposing weaknesses in ex ante surveillance. The recent case of Turkey, for example, also demonstrates some of the dangers that can arise when surveillance fails to pick up key risks. As we all know, Turkey’s December 1999 disinflation program ended in crisis when its fixed exchange rate regime collapsed in February 2001, with huge impacts on the balance sheets of a range of banks, which had taken unhedged foreign currency positions. Pre-program surveillance did actually identify some risks in the financial sector. But the link with the proposed exchange rate regime was not adequately made—despite the recent experience of bank losses under a fixed exchange rate regime in the Asia crisis, and despite a World Bank team being in the country to do work on reform of the financial sector.

I am not suggesting that in an alternative world with independent surveillance, these crises would necessarily have been prevented or that difficult decisions for both domestic governments and the Board would have been any easier. But these decisions would have been taken on the basis of a clearer and more transparent understanding of the underlying position-and possibly at least limiting the scale and severity of the crises.

Conclusion

The recent experience of Argentina and Turkey are an important reminder that, however much we try to strengthen our procedures and surveillance, crises cannot be prevented from happening. They are a fact of life in a turbulent world. This is why better crisis resolution mechanisms are important.

Any of us who have lived through the series of emerging market crises over the past decade can recognize that radical improvement in the institutional architecture for crisis resolution is necessary to move beyond the current unsatisfactory and “ad hoc” approach to crisis resolution in order to reduce moral hazard and bring greater certainty to creditors and debtors. Reform can benefit creditors—by allowing the retention of greater value than is currently the case—and debtors—by speeding up the process and reducing the needed level of domestic adjustment during the crisis.

There is probably no single method of achieving our goals on crisis resolution. That is why in September last year, Ministers at the IMFC called for pursuit of a twin track approach to crisis resolution. One track involved encouraging the development and inclusion of Collective Action Clauses in international sovereign bonds to strengthen creditor co-ordination. Significant progress has been made in devising model clauses, with Mexico last week incorporating CACs into a bond issue for the first time which we hope will prove a model for other emerging market issuers. The other track was the development of a ‘concrete proposal’ for a Sovereign Debt Restructuring Mechanism by the IMF to ease orderly debt restructuring. We strongly welcome the progress the Fund has made towards the development of such a proposal and are keenly looking forward to seeing a concrete proposal in advance of the IMFC meeting next month. As the Ministers themselves noted last year, these approaches are truly complementary.

The crisis resolution debate is challenging, raising important and difficult questions as well as strong feelings, and will be a central issue at the IMFC meeting in April. No new procedures will be operational quickly: the legal processes to implement an SDRM will take time; CACs will only bring their full benefits as the debt stock turns over fully. And a code could address a broader range of issues than SDRM, including crisis prevention. In this context, there is a need to clarify the rights and responsibilities of debtors and creditors, not only in times of crisis. That is why private sector and official engagement on a code of good conduct for debtors and creditors is to be encouraged.

And—of course—we must recognize that being clearer ourselves about what the international community can-and cannot-do in a crisis will help to shape the incentives that will in turn make crises less likely. We can do much more to make them less likely, to create the right incentives for the countries themselves and the international financial institutions to take action before a problem becomes a crisis.

That is why we see merit in the case for discussion on crisis resolution to be accompanied—as the private sector make clear in their draft code of conduct—with more effective steps to strengthen crisis prevention. Because—as this draft code also recognizes—the need to send clear signals to avoid moral hazard is only part of the steps we have collectively identified to prevent crises happening in the first place.

So-going with the grain of the reforms of recent years-there is a case for further institutional change to strengthen crisis prevention. We need to ensure surveillance is dispassionate and independent, and not colored by time pressures or program responsibilities. One approach is to provide a fresh pair of eyes for surveillance in key countries with active programs. But, in the longer-term, it might be worth reviewing more fundamentally the institutional architecture of the surveillance and program functions of the Fund and Bank.

People often say that the key institutional change we need to consider is a merger of the IMF and World Bank-because of the growing role of the IMF in development issues and increasing overlap. I am not going to comment on this today other than to say that it has been clear in recent years that the IMF and World Bank have complementary but separate roles in the development agenda and are working increasingly well together.

My argument is that the key institutional issue is not a merger but a greater separation between the surveillance and lending functions—an argument relevant to the Fund and Bank alike.

Experience has shown that it is not possible to prevent all financial crises, but prevention is both better and less costly than picking up the pieces afterwards. Making its surveillance more independent would be a significant step the Fund and its members could take to improve the chances of detecting problems early, and encouraging countries to take the actions needed to prevent financial crisis.

The Fund has complimented the UK for its bold decision in making the Bank of England independent in 1997. Now it is time for the Fund and its members to show that they are not afraid to consider institutional change for the Fund itself to help it play its full role in delivering the stability upon which global prosperity increasingly depends.

HM Treasury News Release

209/98                                    15 December 1998

————————————————————–

REDISCOVERING PUBLIC PURPOSE IN THE GLOBAL ECONOMY

Attached is the text of the lecture that the Chancellor of the

Exchequer, Gordon Brown, will deliver this evening (15th December 1998) at the

Kennedy School, Harvard University.

…

CHANCELLOR OF THE EXCHEQUER’S LECTURE AT THE KENNEDY SCHOOL,

HARVARD UNIVERSITY ON 15TH DECEMBER 1998

“REDISCOVERING PUBLIC PURPOSE IN THE GLOBAL ECONOMY”

INTRODUCTION

THERE CAN BE NO MORE APPROPRIATE COUNTRY TO DISCUSS THE

CHALLENGES FACING THE NEW GLOBAL ECONOMY THAN THE UNITED STATES

OF AMERICA: THE PRE-EMINENT ARCHITECT OF THE POST-WAR GLOBAL

SYSTEM.

THERE CAN BE NO FORUM MORE APPROPRIATE THAN THE KENNEDY SCHOOL,

NAMED AFTER THE PRESIDENT, WHO ON JULY 4th MORE THAN A THIRD OF A

CENTURY AGO, MATCHED THE DECLARATION OF INDEPENDENCE OF 1776 WITH

A NEW DECLARATION OF ECONOMIC INTERDEPENDENCE FOR OUR TIME.

AND THERE CAN BE NO MORE APPROPRIATE INSTITUTION THAN HARVARD

WHERE 50 YEARS AGO, THE MARSHALL PLAN, THE MOST AMBITIOUS

MULTI-NATIONAL EFFORT FOR ECONOMIC RECONSTRUCTION THE WORLD HAS

SEEN, WAS FIRST LAUNCHED.

MORE THAN HALF A CENTURY AGO, LEADERS WHO WERE STILL  ENGAGED IN

WAR TOOK THE TIME TO PREPARE FOR PEACE.  IN A BREATHTAKING LEAP

INTO A NEW ERA, THE WORLD CREATED NOT JUST NEW INTERNATIONAL

INSTITUTIONS – THE IMF, THE WORLD BANK, THE GATT AS WELL AS THE

UN – AND A WHOLE SET OF NEW RULES FOR A NEW INTERNATIONAL

ECONOMY, BUT GAVE EXPRESSION TO A NEW PUBLIC PURPOSE BASED ON

HIGH IDEALS.

A GENERATION OF LEADERS WHO HAD KNOWN THE GREATEST OF DEPRESSIONS

AND THE GREATEST OF WARS KNEW ALSO THAT JUST AS PEACE COULD NOT

BE PRESERVED IN ISOLATION, PROSPERITY COULD NOT BE MAXIMIZED IN

ISOLATION.

WHAT THEY DID FOR THEIR DAY AND GENERATION WAS SO DRAMATIC THAT

DEAN ACHESON SPOKE OF THAT PERIOD AS AKIN TO BEING PRESENT AT THE

CREATION.

ONE OF THE SIGNAL EVENTS WAS THE BRETTON WOODS CONFERENCE – AND I

ASK MYSELF WHY IT WAS HELD NOT IN WASHINGTON, OR NEW YORK, OR

BOSTON, BUT IN THE WHITE MOUNTAINS OF NEW HAMPSHIRE.  IN FACT THE

LOCATION WAS THE PRICE THE ROOSEVELT ADMINISTRATION HAD TO PAY TO

PERSUADE A NEW HAMPSHIRE SENATOR TO ABANDON ISOLATIONISM.  AS TIP

O’NEILL USED TO SAY, “ALL POLITICS IS LOCAL” … EVEN GLOBAL

POLITICS.  IF MASSACHUSETTS AND NOT NEW HAMPSHIRE HAD THREATENED

TO BE ISOLATIONIST WE MIGHT BE TALKING TODAY OF THE CAMBRIDGE

AGREEMENT.  NOTHING COULD MORE VIVIDLY SHOW THE PRACTICAL NATURE

OF THE VISIONARIES WHO CREATED THE NEW WORLD THAN THEIR CHOICE OF

BRETTON WOODS.

BUT AS PRACTICAL AS IT WAS, BRETTON WOODS ALSO DEFINED A NEW

PUBLIC PURPOSE CHARACTERISED BY HIGH IDEALS.  THE CONFERENCE WAS

ABOUT MORE THAN EXCHANGE RATES, THE MECHANICS OF FINANCIAL

ARRANGEMENTS OR EVEN NEW INSTITUTIONS.  AS THE AMERICAN SECRETARY

OF THE TREASURY SAID AT THE VERY START OF THE OPENING SESSION:

“PROSPERITY HAS NO FIXED LIMITS IT IS NOT A FINITE SUBSTANCE

TO BE DIMINISHED BY DIVISION. ON THE CONTRARY THE MORE OF IT

THAT OTHER NATIONS ENJOY THE MORE EACH NATION WILL HAVE FOR

ITSELF.

“PROSPERITY LIKE PEACE IS INDIVISIBLE.  WE CANNOT AFFORD TO

HAVE IT SCATTERED HERE OR THERE AMONGST THE FORTUNATE OR

ENJOY IT AT THE EXPENSE OF OTHERS…..”

IN SHORT, PROSPERITY TO BE SUSTAINED HAD TO BE SHARED.

PRACTICALITY AND MORALITY WENT HAND IN HAND.

GEORGE MARSHALL REAFFIRMED THIS IN HIS OWN HISTORIC SPEECH HERE

AT HARVARD.  WE MUST FIGHT AGAINST “HUNGER, POVERTY, DESPERATION

AND CHAOS”, HE INSISTED, TO SECURE “THE REVIVAL OF A WORKING

ECONOMY IN THE WORLD [THAT WOULD] PERMIT THE EMERGENCE OF

POLITICAL AND SOCIAL CONDITIONS IN WHICH FREE INSTITUTIONS CAN

EXIST”.

SO THE POST-WAR ARRANGEMENTS WERE FOUNDED ON THE BELIEF THAT

PUBLIC ACTION ON A NEW AND WIDER STAGE COULD ADVANCE A NEW AND

WORLDWIDE PUBLIC PURPOSE OF HIGH IDEALS ROOTED IN SOCIAL JUSTICE:

TO ACHIEVE PROSPERITY FOR ALL BY EACH CO-OPERATING WITH EVERY

OTHER: NEW  INTERNATIONAL RULES OF THE GAME THAT INVOLVED A

COMMITMENT TO HIGH LEVELS OF GROWTH AND EMPLOYMENT.  IN SHORT,

THE JOB OF EVERY ECONOMY WAS TO CREATE JOBS FOR ALL.

THE FOUNDERS OF BRETTON WOODS RESOLVED THAT THE FAILED  POLICIES

OF LAISSEZ-FAIRE WHICH RESULTED IN VAST INEQUITIES AND RECURRING

DEPRESSION FROM THE 1870S TO THE 1930S WOULD NOT BE REPEATED.

UNTRAMMELLED, UNREGULATED MARKET FORCES HAD BROUGHT GREAT

INSTABILITY AND EVEN GREATER INJUSTICE.  IN THE POST-WAR ERA

GOVERNMENTS HAD TO WORK COLLECTIVELY IF THEY WERE TO ACHIEVE

EITHER JUSTICE OR STABILITY.

THE INITIATIVES AND INSTITUTIONS OF THAT ERA WERE SHAPED TO THE

CONDITIONS OF THE TIME – A WORLD ECONOMY OF PROTECTED NATIONAL

MARKETS, LIMITED CAPITAL FLOWS, AND FIXED EXCHANGE RATES.  AND

FOR NEARLY THIRTY YEARS THE SYSTEM WORKED, FOR HUNDREDS OF

MILLIONS WHO ENJOYED UNPARALLELED PROSPERITY BRETTON WOODS TOOK

US A LONG WAY.  YET EVEN IN THE 70S WITH HUNDREDS OF MILLIONS

STILL IN POVERTY WE HAD STILL A LONG WAY TO GO.

IN THE FIRST HISTORIC PHASE OF INTERNATIONAL ECONOMIC MANAGEMENT,

NATION STATES SPOKE UNTO NATION STATES, WITH AN UNPRECEDENTED

DEGREE OF CO-OPERATION BETWEEN SEPARATED AND STILL LARGELY

INSULATED ECONOMIES.  THE INTERNATIONAL RULES OF THE GAME THEN

LARGELY CONSISTED OF OPEN CURRENT ACCOUNTS, FIXED EXCHANGE RATES

AND CLOSED CAPITAL ACCOUNTS AND OF COLLECTIVE SUPPORT WHEN

COUNTRIES RAN INTO BALANCE OF PAYMENTS PROBLEMS.

BUT OVER THE NEXT GENERATION, THAT NEW WORLD, TOO, BECAME OLD, AS

THE EXISTING ORDER OF NATION STATES AND COLLECTIVE INTERNATIONAL

ACTION WAS INCREASINGLY BYPASSED BY THE GROWTH AND EVENTUALLY THE

SHEER FORCE OF INTERNATIONAL FINANCIAL FLOWS, SUCCESSIVELY ENDING

DOLLAR CONVERTIBILITY INTO GOLD, THE FIXED EXCHANGE RATE SYSTEM,

AND POST-WAR KEYNESIAN CERTAINTIES, BRINGING IN ITS WAKE AN

OUTBREAK OF INFLATION AND THEN STAGFLATION THAT SPREAD ACROSS THE

WESTERN WORLD.

THE 1980S SAW A NEW CONSENSUS EMERGE, ESSENTIALLY AN ATTEMPT TO

RETURN TO LAISSEZ-FAIRE.  IT FOCUSSED NOT ON WHAT GOVERNMENTS

SHOULD DO, BUT ON WHAT GOVERNMENTS SHOULD NOT DO, EMPHASISING

PRIVATE PURSUITS ALMOST TO THE EXCLUSION OF PUBLIC PURPOSE.

ENLIGHTENED SELF-INTEREST GAVE WAY TO SHEER SELF-INTEREST.

INSTEAD OF RISING TO THE CHALLENGE OF APPLYING THE HIGH IDEALS OF

THE POST WAR WORLD TO A NEW WORLD, INSTEAD OF AIMING FOR HIGH

LEVELS OF EMPLOYMENT AND PROSPERITY FOR ALL, SIGHTS WERE LOWERED,

THE VISION WAS NARROWED.  THE NEW RIGHT CONSENSUS FOCUSSED ALMOST

ENTIRELY ON INFLATION AND MINIMAL GOVERNMENT.

OF COURSE IT WAS AND IS RIGHT TO SAY THAT INFLATION IS COSTLY,

AND ONCE OUT OF CONTROL, IT IS EVEN MORE COSTLY TO REVERSE.

MACROECONOMIC STABILITY, BASED ON LOW INFLATION AND SOUND PUBLIC

FINANCES, IS AN ABSOLUTE  PRECONDITION OF ECONOMIC SUCCESS.

INDEED THERE IS A NEW PREMIUM ON ECONOMIC STABILITY IN THE GLOBAL

ECONOMY.  A NATION STATE RELYING ON INVESTMENT FLOWS FROM ROUND

THE WORLD – AND ALSO VULNERABLE TO THEM – NOW KNOWS THAT

RETRIBUTION FOR GETTING THINGS WRONG IS SWIFT AND TERRIBLE.

THE 1980s CONSENSUS DID UNDERSTAND THE IMPORTANCE OF LIBERALIZING

ECONOMIES FROM EXCESSIVE REGULATION AND BAD GOVERNMENT.  BUT THEY

CONFUSED MEANS WITH ENDS AND SAID IN EFFECT THAT INFLATION ALONE,

NOT JOBS AND GROWTH ALSO, WERE EXCLUSIVE CONCERNS.  AND THEY SAID

THAT ALL  GOVERNMENT WAS BAD: THAT GOVERNMENT CAN’T MAKE A

DIFFERENCE, AT LEAST A POSITIVE ONE, IN JOBS AND GROWTH, AND THAT

GLOBAL MARKETS HAVE TO BE LEFT ENTIRELY TO  MARKET DOGMAS, WHICH

HAVE NO PLACE FOR THE PUBLIC PURSUIT OF HIGH IDEALS.  BUT THIS

1980s CONSENSUS FAILED EVEN IN ITS OWN STATED PURPOSE – BRINGING

THE LARGEST FISCAL DEFICIT IN AMERICAN HISTORY AND REDUCING

BRITAIN TO INFLATIONARY BOOM-AND- BUST.

AND BY 1997, AN INCREASINGLY TURBULENT AND INADEQUATELY

SUPERVISED INTERNATIONAL FINANCIAL SYSTEM THREATENED TO CREATE

BOOM AND BUST ON A GLOBAL SCALE.  NOW BOTH OF THE BRETTON WOODS

OBJECTIVES – NOT ONLY PROSPERITY FOR ALL BUT STABILITY FOR ALL -

WERE AT RISK.  THE POST-WAR HOPE FOR AN INDIVISIBLE PROSPERITY

WAS REPLACED BY THE SUDDEN FEAR OF INDIVISIBLE INSTABILITY.  THE

1980s CONSENSUS COULD NOT ENDURE.

AS THE DOWNTURN IN ASIA REVERBERATED AROUND THE GLOBE, PRESIDENT

CLINTON SAID THAT ‘THE WORLD FACES PERHAPS ITS MOST SERIOUS

CRISIS IN HALF A CENTURY’.

IN RECENT MONTHS AS INTEREST RATES HAVE COME DOWN, AND THE G7

GROUP OF LEADING INDUSTRIALISED NATIONS HAVE SET A TIMETABLE FOR

REFORM, FINANCIAL MARKETS HAVE BECOME LESS UNSTABLE.

BUT THIS IS NO TIME FOR COMPLACENCY. WE MUST RECOGNISE  HOW FAR

WE HAVE COME – IN PURPOSE AS WELL AS TIME – FROM 1945 AND HOW,

WITHOUT PUBLIC PURPOSE IN THIS NEW GLOBAL ECONOMY, ONE SET OF

EVENTS IN ONE CONTINENT COULD INFLICT SO MUCH DAMAGE ON SO MANY

PEOPLE.

THIS YEAR WE HAVE EXPERIENCED EVENTS THAT WERE  UNTHINKABLE JUST

TWO OR THREE YEARS AGO:  FREE ENTERPRISE HONG KONG TAKING

PUBLICLY OWNED STAKES IN ALL ITS PRIVATE COMPANIES; JAPAN

NATIONALISING ITS BANKS; RUSSIA GOING INTO DEFAULT; IN AMERICA

THE MOUNTING OF ONE OF THE BIGGEST EVER EMERGENCY REFINANCINGS

NOT FOR A BANK, BUT FOR A HEDGE FUND; MOST DAMAGING OF ALL, THE

BIGGEST GROWTH ECONOMIES OF THE LAST DECADE IN EAST ASIA

SUFFERING LARGER CONTRACTIONS IN OUTPUT EVEN THAN EXPERIENCED IN

THE GREAT DEPRESSION OF THE 1930S.

THE POLITICAL DIMENSION AS GEORGE MARSHALL FORESAW, IS EQUALLY

FAR-REACHING: IN ONLY ONE YEAR, REVOLUTION IN INDONESIA; CIVIL

STRIFE IN MALAYSIA; THE LOSS OF AUTHORITY IN RUSSIA; AND AS

UNEMPLOYMENT RISES, UNREST IN SOUTH AMERICA, TYPIFIED BY THE

OUTCOME OF LAST WEEK’S VENEZUELAN ELECTION.  IT IS A SIGN OF THE

TIMES THAT ONLY ONE OF THE ASIAN FINANCE MINISTERS I MET WITH IN

BANGKOK LAST SEPTEMBER IS STILL IN OFFICE TODAY.

THE ULTIMATE PRICE OF ALL THIS IS PROFOUND HUMAN SUFFERING.  IN

KOREA UNEMPLOYMENT HAS TREBLED IN ONE YEAR;.IN INDONESIA TEN

YEARS OF GROWTH HAVE BEEN WIPED OUT; AND IN THE ASIAN CRISIS

COUNTRIES AS A WHOLE THE NUMBER OF PEOPLE IN POVERTY IS SET TO

DOUBLE BY 2000.  WE CAN’T SIMPLY DECLARE WHENEVER THE STOCK

MARKET BOUNCES BACK THAT THE CRISIS IS OVER AND WE CAN RETURN  TO

THE STATUS QUO.  WE MUST ACT – BOTH BECAUSE IT IS IN OUR

SELF-INTEREST – TO SAFEGUARD OUR OWN PROSPECTS AND PROSPERITY -

AND BECAUSE IT IS RIGHT.

SO NOW THE RESPONSIBILITY FALLS ON THIS GENERATION TO BE PRESENT

AT A NEW CREATION – OF NEW RULES THAT BREAK WITH THE PAST AND

BOTH EFFECTIVELY AND FAIRLY MEET THE DEMANDS OF THE NEW GLOBAL

ECONOMY.  WE MUST REJECT THE FALSE CHOICE BETWEEN CLINGING TO

LAISSEZ FAIRE AND RETREATING TO 1930S PROTECTIONISM OR THE

TIGHTLY-CONTROLLED, RESTRICTED CAPITAL MARKETS OF THE 1940S.  WE

MUST MEET THE NEW CHALLENGE BUT WE MUST REMEMBER THAT WHILE TIMES

AND CIRCUMSTANCES CHANGE, IDEALS ENDURE.

OUR AIM MUST BE AN INTERNATIONAL FINANCIAL SYSTEM FOR THE TWENTY

FIRST CENTURY THAT RECOGNISES THE NEW REALITIES – OPEN NOT

SHELTERED ECONOMIES, INTERNATIONAL NOT NATIONAL CAPITAL MARKETS,

GLOBAL NOT LOCAL COMPETITION.  IT MUST BE ONE THAT CAPTURES THE

FULL BENEFITS OF GLOBAL MARKETS AND CAPITAL FLOWS, MINIMISES THE

RISK OF DISRUPTION, MAXIMISES OPPORTUNITY FOR ALL AND LIFTS UP

THE MOST VULNERABLE, IN SHORT, THE RESTORATION IN THE

INTERNATIONAL ECONOMY OF PUBLIC PURPOSE AND HIGH IDEALS.

OUR PREDECESSORS DID THIS FOR THE POST-WAR WORLD OF DISTINCT

NATIONAL ECONOMIES DRAWING CLOSER TOGETHER.  NOW WE MUST DO IT

FOR THE POST-NATIONAL ECONOMY – WHERE ECONOMICALLY NO NATION IS

AN ISLAND.

THE CONSENSUS OF THE 1980S WITH ITS NARROW FOCUS ON INFLATION,

PRIVATISATION AND DEREGULATION MUST EVOLVE INTO A NEW 1990S

CONSENSUS WITH A NEW AND BROADER EMPHASIS ON COMPETITION,

SUPERVISION AND THE RIGHT CONDITIONS FOR GROWTH AND EMPLOYMENT.

BEFORE I DESCRIBE THE SPECIFIC REFORMS WE NEED, LET ME BE CLEAR

THAT THIS NEW PUBLIC PURPOSE WILL REQUIRE PUBLIC ENDEAVOUR.

IN THE INTERNATIONAL ECONOMY THE ERA OF ABSENTEE GOVERNMENT IS

OVER.

WE NEED THAT MIDDLE WAY BETWEEN GOVERNMENT DOING EVERYTHING AND

GOVERNMENT DOING NOTHING.

IT WAS HERE IN YOUR COUNTRY THAT FRANKLIN ROOSEVELT IN THE 30S

FOUND A THIRD WAY FOR A NATIONAL ECONOMY – SECURING THE BENEFITS

OF THE MARKET WHILE TAMING ITS EXCESSES.

AND I BELIEVE THAT THE THIRD WAY INITIATED AND DEVELOPED BY TONY

BLAIR HAS PROFOUND RELEVANCE FOR THE CHALLENGE WE NOW CONFRONT ON

THE GLOBAL STAGE.  THE ISSUE IS NOT ONE OF EITHER MARKETS OR

GOVERNMENT, BUT HOW MARKETS AND GOVERNMENT CAN BEST WORK

TOGETHER.  AND THE WAY FORWARD FOR THE NEW GLOBAL ECONOMY IS NOT

TO RETREAT FROM GLOBALISATION – INTO EITHER PROTECTIONISM OR OLD

NATIONAL CONTROLS – OR TO RETREAT INTO A FAILED LAISSEZ FAIRE.

IT IS TO ENSURE GLOBAL MARKETS CAN WORK IN THE PUBLIC INTEREST.

AND TRANSPARENCY IN POLICY-MAKING IS ONE WAY TO DEVELOP THE

INFORMED AND EDUCATED MARKETS WE NEED.

IN A WORLD WHERE THE NEW FRONTIER IS NO FRONTIERS, WE MUST

REDISCOVER THE PUBLIC PURPOSE AND HIGH IDEALS OF 1945 WITH FOUR

MAJOR REFORMS THAT ADD UP TO A TRANSFORMATION OF THE

INTERNATIONAL FINANCIAL SYSTEM – A NEW ECONOMIC CONSTITUTION FOR

THE NEW GLOBAL ECONOMY.

NEW RULES OF THE GAME FOR THE GLOBAL ECONOMY

FIRST, INTERNATIONALLY AGREED CODES OF CONDUCT FOR TRANSPARENCY

AND PROPER PROCEDURES THAT ENSURE  EDUCATED MARKETS.  THESE WOULD

COVER MONETARY,  FINANCIAL AND FISCAL POLICY AND CORPORATE

GOVERNANCE AND WOULD BE APPLIED BY ALL COUNTRIES, RICH AND POOR,

AS A CONDITION FOR PARTICIPATION IN THE INTERNATIONAL FINANCIAL

SYSTEM.

RECALL THAT THE FIRST CONSTITUTIONAL SETTLEMENT OF THE WORLD

ECONOMY IN 1945 WAS NOT SIMPLY ABOUT INSTITUTIONS BUT ABOUT RULES

OF THE GAME.  AND WE MUST NOW RETURN THE INTERNATIONAL FINANCIAL

SYSTEM TO THIS IDEA OF RULES OF THE GAME.  WHILE THE FOUNDERS OF

BRETTON WOODS DEVISED RULES FOR A WORLD OF LIMITED CAPITAL FLOWS,

WE MUST DEVISE NEW RULES FOR A WORLD OF GLOBAL CAPITAL FLOWS.

BUT OUR GUIDING PRINCIPLE REMAINS THE SAME – THE PROMOTION OF

GLOBAL ECONOMIC STABILITY AND INTERNATIONAL COOPERATION TO

PROMOTE GROWTH AND EMPLOYMENT.

THE CODES WILL REQUIRE ACCURATE REPORTING TO THE  INTERNATIONAL

COMMUNITY, BY EACH NATIONAL ECONOMY, OF ALL RELEVANT INFORMATION

- FOR EXAMPLE THE SIZE OF A BUDGET DEFICIT, THE STATE OF BANK

RESERVES AND THE LEVEL OF CURRENCY LIABILITIES.

AND THE CODES WILL REQUIRE NOT ONLY THIS FLOW OF INFORMATION BUT

THE ADHERENCE TO SPECIFIC TIMETABLES AND PROPER STANDARDS FOR

TRANSPARENCY AND DISCLOSURE.

THE NEW DISCIPLINES INVOLVE BOTH THE PRIVATE AND THE PUBLIC

SECTOR.  WE NEED NEW STANDARDS OF CORPORATE GOVERNANCE -

INCLUDING AN INTERNATIONAL STANDARD OF BEST PRACTICE FOR

FINANCIAL INSTITUTIONS AND THEIR REGULATORS.

WE USED TO THINK THAT ALL THAT INDUSTRIALISING COUNTRIES REQUIRED

WAS RAW MATERIALS, GOOD COMMUNICATIONS, A SUPPLY OF LABOUR AND

THE FUNDS AND ABILITY TO TAP COMMERCIAL INVENTIONS.  BUT WE NOW

KNOW THAT ALL NATIONS ALSO REQUIRE A SOUND ROBUST FINANCIAL

SYSTEM: NO NATION CAN AFFORD – AND THE INTERNATIONAL COMMUNITY

CANNOT CONDONE – NATIONAL FINANCIAL SYSTEMS THAT ARE  RECKLESS,

DISORDERED AND DISHONEST.  LACK OF TRANSPARENCY ANYWHERE CAN

CREATE LACK OF CREDIBILITY EVERYWHERE.

BY REQUIRING EXPOSURE OF DETERIORATING CONDITIONS, THE CODES

WOULD PREVENT THE TEMPTATION FOR COUNTRIES TO DELIBERATELY MASK

PROBLEMS, WHICH IS WHAT HAPPENED IN THAILAND AND KOREA WITH

CONSEQUENCES FELT ACROSS ASIA AND THEN THE WORLD.

AND WE SHOULD NOT BE SO COMPLACENT AS TO ASSUME THAT CODES OF

CONDUCT ARE NEEDED ONLY IN OTHER COUNTRIES AND NOT OUR OWN.

GIVEN THAT THE MOST RECENT THREAT TO GLOBAL STABILITY CAME FROM

LACK OF TRANSPARENCY IN HEDGE FUNDS IN BOTH THE UNITED STATES AND

BRITAIN, WE NEED TOUGHER STANDARDS AND REQUIREMENTS FOR

DISCLOSURE ALL ROUND.

THE CODES I PROPOSE WILL MEAN RADICAL CHANGES IN THE WAY

GOVERNMENTS AND FINANCIAL MARKETS OPERATE.

THESE NEW RULES OF THE GAME ARE NOT INCIDENTAL TO THE  FINANCIAL

ARCHITECTURE FOR THE NEW GLOBAL ECONOMY: THEY ARE THE FINANCIAL

ARCHITECTURE FOR THE NEW GLOBAL ECONOMY.  THEY REQUIRE COUNTRIES

TO PURSUE SELF DISCIPLINE WITH THE PROSPECT, IF THEY DO NOT, OF

IMPOSED DISCIPLINE.  SO THE RIGHT TO PARTICIPATE FULLY IN THE

SYSTEM SHOULD THUS BE CONDITIONAL ON MEETING EXPLICIT

RESPONSIBILITIES.  IN THIS WAY THE CODES WILL REDUCE THE RISK OF

FUTURE FAILURES.  AND IF FAILURES DO OCCUR, A STRONGER FINANCIAL

SYSTEM WILL BE BETTER ABLE TO DEAL WITH THEM.

THE CODES ARE AS RELEVANT FOR UNDERDEVELOPED AFRICA AS THEY ARE

FOR INDUSTRIALISING ASIA AND LATIN AMERICA AND INDUSTRIALISED

AMERICA AND EUROPE.  THEY HELP US TO LAY DOWN A ROUTE MAP FOR

SEQUENCING CAPITAL ACCOUNT LIBERALISATION.  BY MAKING SURE THAT

ECONOMIC FACTS CAN’T BE MANIPULATED AND UNDERLYING PROBLEMS CAN’T

BE HIDDEN, CITIZENS WILL KNOW THEIR COUNTRY’S REAL PROBLEMS AND

PROSPECTS, THE CODES WILL DETER CORRUPTION, RESTORE PUBLIC

CONFIDENCE AND BUILD PUBLIC SUPPORT FOR THE SOMETIMES PAINFUL

REFORMS THAT ARE ESSENTIAL TO LONG-TERM ECONOMIC GROWTH AND

PROSPERITY.  AND THIS IS CRITICAL FOR INVESTOR CONFIDENCE IN THE

WAKE OF THE ASIAN CRISIS.  WITHOUT TRANSPARENCY AND THE PROPER

PROCEDURES THAT THE CODES OF CONDUCT WILL REQUIRE, INVESTORS MAY

NOT REINVEST ON THE LONG TERM SCALE THAT IS NECESSARY FOR JOBS,

GROWTH AND SOCIAL PROGRESS.

NATIONAL GOVERNMENTS SHOULD NOT PICK AND MIX WHICH STANDARDS THEY

CHOOSE TO MEET AND WHICH STANDARDS THEY CHOOSE TO IGNORE.  SO

PROPER IMPLEMENTATION OF THE CODES SHOULD BE A CONDITION OF ANY

IMF AND WORLD BANK SUPPORT.  IN THE GLOBAL ECONOMY NATIONAL

GOVERNMENTS HAVE RIGHTS BUT THEY ALSO HAVE RESPONSIBILITIES THEY

MUST MEET.

GLOBAL FINANCIAL REGULATION

AND BECAUSE TODAY’S FINANCIAL MARKETS ARE GLOBAL, WE NEED NOT

ONLY PROPER NATIONAL SUPERVISION BUT ALSO A SECOND FUNDAMENTAL

REFORM – GLOBAL FINANCIAL REGULATION.  THAT IS WHY BRITAIN HAS

PROPOSED BRINGING TOGETHER THE IMF, THE WORLD BANK AND KEY

REGULATORY AUTHORITIES: A NEW PERMANENT STANDING COMMITTEE FOR

GLOBAL FINANCIAL REGULATION CHARGED WITH DELIVERING THE GLOBAL

OBJECTIVE OF A STABLE FINANCIAL SYSTEM.

THE G7 HAVE NOW AGREED ON THE URGENT NEED FOR THIS KIND OF

COORDINATION, AND WE ARE GRATEFUL TO THE PRESIDENT OF THE

BUNDESBANK, HANS TIETMEYER, WHO HAS UNDERTAKEN THE CRITICAL TASK

OF PREPARING DETAILED RECOMMENDATIONS.

I SEE THE STANDING COMMITTEE NOT AS AN ADDITIONAL INSTITUTION BUT

AS PROCESS OF MONITORING DEVELOPMENTS IN GLOBAL FINANCE, ENSURING

THAT NECESSARY WORLDWIDE STANDARDS ARE PUT IN PLACE, AND

PROVIDING TIMELY SURVEILLANCE OF FINANCIAL CONDITIONS AND

INTERNATIONAL CAPITAL FLOWS.

THE STANDING COMMITTEE’S WORK WOULD MAKE CO-OPERATION BETWEEN

INTERNATIONAL INSTITUTIONS AND NATIONAL REGULATORS A FACT OF

INTERNATIONAL ECONOMIC LIFE.  IN SHORT, THE STANDING COMMITTEE

WOULD BE THE WORLD’S EARLY WARNING SYSTEM FOR REGIONAL AND GLOBAL

ECONOMIC RISK.

GLOBAL CRISIS PREVENTION AND RESOLUTION

OUR AIM MUST BE CRISIS PREVENTION WHERE POSSIBLE CRISIS

RESOLUTION WHERE NECESSARY.

SO IN PLACE OF THE OLD APPROACH WHEREBY CRISIS-TRIGGERED

INTERVENTION, WE NEED, THIRDLY, A MODERN MECHANISM ,ROOTED IN

TRANSPARENCY AND RELIABLE SURVEILLANCE, AND BUILT ON PUBLIC AND

PRIVATE SECTORS BOTH ACCEPTING THEIR RESPONSIBILITIES, WHICH CAN

IDENTIFY POTENTIAL PROBLEMS AT A STAGE WHERE PREVENTATIVE ACTION

CAN BE EFFECTIVE.

THE MECHANISM THEY AGREED IN 1945 FOR CRISIS PREVENTION DEALT

WITH IMBALANCES IN CURRENT ACCOUNT FLOWS IN A WORLD OF RESTRICTED

CAPITAL FLOWS AND FIXED EXCHANGE RATES: TO TACKLE PUBLIC SECTOR

DEFICITS AND BALANCE OF PAYMENTS CRISES, IT OFFERED TEMPORARY

FINANCIAL SUPPORT OR PERMANENT EXCHANGE RATE ADJUSTMENT.

THE NEW MECHANISM FOR CRISIS PREVENTION MUST DEAL WITH IMBALANCES

AS A RESULT OF GLOBAL CAPITAL FLOWS.

WE NEED A PROCESS OF ACTIVE AND TRANSPARENT SURVEILLANCE THAT IS

A MATTER OF COURSE FOR ALL COUNTRIES, OPERATING  IN NORMAL TIMES,

ALL THE TIME : NOT ONE TRIGGERED ONLY BY THE WARNING SIGNS OR

ONSET OF CRISIS IN A PARTICULAR REGION OR COUNTRY.

AND ALL MAIN PARTICIPANTS, PUBLIC AND PRIVATE, MUST ACCEPT THEIR

RESPONSIBILITIES.

SO EMERGING MARKET ECONOMIES IN PARTICULAR MUST NOT ONLY BE

TRANSPARENT IN THEIR ACTIVITIES: THEY MUST NOW ALSO FORGE REGULAR

CONTACTS AND LASTING RELATIONSHIPS WITH THEIR PRIVATE INVESTORS.

AN OPEN AND HONEST DIALOGUE, IN WHICH INVESTORS CAN ASK HARD

QUESTIONS AND THEN ADVISE, WILL MAKE IT MORE DIFFICULT TO COVER

UP BAD NEWS, AND MAKE IT EASIER TO ASSESS WHAT POLICIES WILL

INCREASE OR REDUCE MARKET CONFIDENCE, THUS MAKING IT MORE LIKELY

THAT WE CAN PREVENT TODAY’S PROBLEMS FROM DEEPENING INTO

TOMORROW’S CRISIS.

THE SHORT-HAND PHRASE FOR THESE CREDITOR-TO-COUNTRY ARRANGEMENTS

IS COUNTRY CLUBS, BUT THESE ARE NOT EXCLUSIVE CLUBS, OLD BOY

NETWORKS, AN INFORMAL MEANS OF DEFENDING PRIVILEGE.  THESE ARE

MODERN INVESTOR NETWORKS THAT CAN BRING REAL BENEFITS IN RETURN

FOR REAL RESPONSIBILITIES: NETWORKS THAT EVERY COUNTRY SHOULD

FORM AND EVERY CREDITOR SHOULD JOIN.

TO MAKE THESE WORK THERE SHOULD, BE A NEW PRESUMPTION ACROSS THE

BOARD, IN FAVOUR OF THE RELEASE OF INFORMATION WHEREVER POSSIBLE.

THE G7 HAVE PROPOSED GREATER OPENNESS FROM THE WORLD BANK, THE

IMF AND OTHER INTERNATIONAL FINANCIAL INSTITUTIONS.  THEIR

MONITORING TELLS THEM MUCH OF WHAT IS HAPPENING IN EVERY NATIONAL

ECONOMY.  CLEARLY IN EXCEPTIONAL CASES SOME POLICY DISCUSSIONS

WILL HAVE TO BE KEPT CONFIDENTIAL BUT I STRONGLY SUPPORT THE

PUBLICATION OF THE IMF’S COUNTRY SURVEILLANCE REPORTS UNDER

ARTICLE IV.  THE CASE FOR AN EXCEPTION MUST BE MADE AND

JUSTIFIED, WHILE OPENNESS SHOULD BE THE NORM.

PUT SIMPLY WE SHOULD ESTABLISH AN INTERNATIONAL RIGHT TO KNOW

THAT IS NOT OCCASIONAL OR VOLUNTARY BUT ONGOING  AND MANDATORY.

THIS WILL WORK BEST IF THE IMF AND OTHER INTERNATIONAL

INSTITUTIONS ARE MORE OPEN ABOUT THEMSELVES.  THEY SHOULD DO MORE

TO EXPLAIN THEIR PRACTICES AND PROCEDURES TO THE PUBLIC.  AND

THEY TOO SHOULD JOIN IN A NEW PARTNERSHIP WITH THE PRIVATE SECTOR

- ONGOING DISCUSSIONS ABOUT BROADER AND MORE SYSTEMIC ISSUES

FACING THE WORLD ECONOMY.

WITH A RIGHT TO A GREATER FLOW OF INFORMATION COMES GREATER

PRIVATE SECTOR RESPONSIBILITY.  WE NEED A SYSTEM OF

DEBTOR-CREDITOR AGREEMENTS – CRISIS RESOLUTION PROCEDURES SIGNED

UP TO IN NORMAL TIMES WITH PRIVATE SECTOR RESPONSIBILITY CLAUSES,

SUCH AS AGREEMENT ON COLLECTIVE REPRESENTATION AND MAJORITY

VOTING WHEN CREDITOR DECISIONS ARE BEING MADE.  WHEN TROUBLE HITS

AN ECONOMY, THE PRIVATE SECTOR MUST BE PREPARED TO DO MORE THAN

SIMPLY PULL MONEY OUT AND ACCELERATE THE PANIC.  ON AN AD-HOC

BASIS INVESTORS DID THE OPPOSITE IN KOREA AND BRAZIL AND THEIR

DECISIONS WERE ESSENTIAL IN HALTING THE FLIGHT OF CAPITAL.

WITH THESE THREE CHANGES – TRANSPARENCY, ENHANCED SURVEILLANCE

AND INVESTOR NETWORKS WE CAN ESTABLISH A MARKEDLY LOWER THRESHOLD

FOR EFFECTIVE RESPONSE THAN THE OLD AD-HOC CRISIS-TRIGGERED

SYSTEM.

DETAILED DISCUSSION SHOULD NOW TAKE PLACE ON THE RIGHT

MECHANISMS FOR PRIVATE SECTOR INVOLVEMENT IN CRISIS RESOLUTION.

OF COURSE MORE INFORMATION AND MORE PARTICIPATION MUST NOT BECOME

A LICENCE FOR RECKLESS INVESTMENT OR INSIDER DEALING INSTEAD, BY

UNIVERSALISING RELIABLE INFORMATION AND CREATING ORDERLY

CONSULTATION  PROCEDURES OPEN TO ALL, WE CAN MINIMISE THE RISKS

ARISING FROM INSIDER INFORMATION ON THE ONE HAND AND MORAL HAZARD

ON THE OTHER.

IN THE NEW FRAMEWORK IT SHOULD BE THE DUTY OF THE PUBLIC SECTOR

TO INFORM, THE DUTY OF THE INTERNATIONAL FINANCIAL INSTITUTIONS

TO MONITOR AND THE DUTY OF THE PRIVATE SECTOR TO ENGAGE.

AND BECAUSE OF THE NEW DISCIPLINES WE PROPOSE THE PUBLIC SECTOR

CAN NOW JUSTIFY A SYSTEM OF MUTUAL FINANCIAL SUPPORT, ASSISTANCE

TO COUNTRIES PURSUING SOUND POLICIES AND TO CONTAIN THE SPREAD OF

FINANCIAL CONTAGION.

IN THE LAST FEW WEEKS THE INTERNATIONAL COMMUNITY HAS PROPOSED A

TEMPORARY PREVENTATIVE FACILITY, WITH SHORT-TERM LINES OF CREDIT

FOR SOUND ECONOMIES THAT ARE THE VICTIMS OF CONTAGION.  ONCE

TRANSPARENCY, SURVEILLANCE AND AGREED PRIVATE SECTOR

RESPONSIBILITY CLAUSES ARE EMBEDDED IN THE NEW SYSTEM OF CRISIS

PREVENTION, THIS FACILITY SHOULD BE MADE PERMANENT, AND BE

PROPERLY FUNDED.

OF COURSE COUNTRIES THAT DO NOT FOLLOW THESE PROCEDURES OR ACT ON

ADVICE CANNOT EXPECT THAT THEY AND THEIR PRIVATE SECTORS WILL

SECURE CRISIS SUPPORT, THE MORAL HAZARD WOULD BE TO GUARANTEE

SUCH SUPPORT INDEPENDENT OF WHETHER THEY DO THE RIGHT THINGS.

WITH THE REFORMS WE PROPOSE, WE HAVE A REAL OPPORTUNITY TO MOVE

THE EMPHASIS OF INTERNATIONAL FINANCIAL GOVERNANCE FROM ONE OF

CRISIS RESOLUTION TO ONE OF CRISIS PREVENTION AND CRISIS

CONTAINMENT.

A GLOBAL SOCIAL CODE

THERE IS A FOURTH REFORM: WE PROPOSE A CODE OF GLOBAL BEST

PRACTICE IN SOCIAL POLICY WHICH WILL APPLY FOR EVERY COUNTRY,

WILL SET MINIMUM STANDARDS AND WILL ENSURE THAT WHEN THE IMF AND

WORLD BANK HELP A COUNTRY IN TROUBLE THE AGREED PROGRAMME OF

REFORM WILL PRESERVE INVESTMENT IN THE SOCIAL, EDUCATION AND

EMPLOYMENT PROGRAMMES WHICH ARE ESSENTIAL FOR GROWTH.  THIS

SHOULD BE AN INDISPENSABLE GOAL FOR GOVERNMENT IN THE NEW GLOBAL

ECONOMY: NOT GUARANTEEING THAT NOTHING WILL CHANGE, BUT EQUIPPING

PEOPLE TO TURN CHANGE INTO NEW OPPORTUNITY.

INTERNATIONAL ECONOMICS IS NOT JUST ABOUT NUMBERS IN A LEDGER,

BUT ABOUT THE LIVES OF PEOPLE.  FOR TOO LONG IT HAS BEEN ASSUMED

THAT THE COST OF CRISES WILL INEVITABLY BE PAID BY PUTTING MORE

BURDENS ON THE POOR – BY CUTTING  HEALTH, EDUCATION AND BASIC

SOCIAL SERVICES.

THIS IS WRONG IN THE SHORT TERM AND IT WILL NOT WORK IN THE LONG

TERM BECAUSE IT ERODES BOTH THE ECONOMIC AND THE POLITICAL

FOUNDATIONS OF A SOCIETY.  FOR REASONS OF SELF-INTEREST AS WELL

AS CONSCIENCE, WE CANNOT ACCEPT A WORLDWIDE REGIME OF THE

WELL-OFF IN THE CASTLE, AND THE VAST MAJORITY AT THE GATE.

CREATING NATIONAL SUPPORT FOR NEEDED REFORM DEPENDS ON SHARING

GAINS, AND HELPING THOSE WHO ARE HURT BY  ECONOMIC CRISES.  AS

JIM WOLFENSOHN, PRESIDENT OF THE WORLD BANK, HAS SO VIVIDLY PUT

IT “SOCIAL AND ECONOMIC ISSUES ARE INSEPARABLE, THEY ARE LIKE

BREATHING IN AND OUT”.

IN THEIR OCTOBER STATEMENT THE G7 RECOGNISED THE URGENT NEED FOR

A CODE FOR GOOD SOCIAL PRACTICE AND ASKED THE WORLD BANK TO WORK

COUNTRIES AND WITH THE UNITED NATIONS AND OTHERS TO DEVELOP THE

PRINCIPLES AND PROVISIONS OF SUCH A CODE.

THIS IS AN HISTORIC OPPORTUNITY TO REALISE THE ENDURING PUBLIC

PURPOSE, THE HIGH IDEALS OF 1945. AND WE SHOULD NOT SEE THIS CODE

IN NARROW TERMS AS MERELY CREATING SOCIAL SAFETY NETS.  WE SHOULD

SEE IT AS CREATING OPPORTUNITIES FOR ALL BY INVESTING MORE NOT

LESS IN EDUCATION, EMPLOYMENT AND VITAL PUBLIC SERVICES.

THE WAY FORWARD IS NOT LEAVING PEOPLE DEFENCELESS – AND

TOLERATING A CULTURE OF POVERTY; NOT REPEATING PAST MISTAKES

WHICH HAVE CREATED A CULTURE OF DEPENDENCY; IT IS EQUIPPING

PEOPLE TO COPE WITH CHANGE, THROUGH A NEW CULTURE OF OPPORTUNITY.

THE FIRST BUILDING BLOCK IS, OF COURSE, MINIMUM SOCIAL PROVISION

SUCH AS SAFE WATER SUPPLIES; UNIVERSALLY AVAILABLE VACCINATIONS

AND BASIC HEALTH CARE; AND IN EVERY SOCIETY- UNIVERSAL ACCESS TO

SCHOOLING FOR GIRLS AS WELL AS BOYS.

THE SECOND BUILDING BLOCK IS THE CHANCE TO WORK AND THE ASSURANCE

THAT WORK WILL PAY, A COMMITMENT THAT WE MUST, STAGE BY STAGE,

YEAR BY YEAR, FULFILL IN DEVELOPING COUNTRIES AS WELL AS

DEVELOPED ONES.  THE CODE WOULD SET OUT BEST PRACTICE THAT CAN

HELP PEOPLE FIND AND REMAIN IN PAID EMPLOYMENT: PROGRAMMES TO

MOVE THEM FROM POVERTY OR WELFARE TO WORK; LIFE-TIME LEARNING SO

THAT PEOPLE CAN MOVE THEMSELVES UP A LADDER OF OPPORTUNITY; AND

PENSION SYSTEMS THAT MEAN A LIFETIME OF WORK WILL BE FOLLOWED BY

A DECENT RETIREMENT.

WE SHOULD FORGE NEW PARTNERSHIPS BETWEEN THE PUBLIC AND PRIVATE

SECTORS – AND THE NGOS.  BUT OF COURSE THE EXISTENCE OF A

PROGRAMME TODAY SHOULD NEVER BE THE EXCUSE FOR ITS PERPETUATION

TOMORROW.  AND THE REFORMS THE IMF AND OTHER INTERNATIONAL

AUTHORITIES REQUIRE MUST BE CONSISTENT WITH THE SOCIAL PRINCIPLES

AND MAKE A VIRTUE OF PRESERVING NECESSARY SOCIAL INVESTMENT.

FOR THE POOREST HIGHLY INDEBTED COUNTRIES OF THE WORLD WE MUST

CREATE A VIRTUOUS CIRCLE OF DEBT RELIEF, POVERTY REDUCTION AND

ECONOMIC DEVELOPMENT.  WE SHOULD NEVER  LEAVE COUNTRIES WITH AN

IMPOSSIBLE CHOICE BETWEEN  PAYING OR DEFAULTING ON UNSUSTAINABLE

LEVELS OF DEBT.  IMMOVABLE MOUNTAINS OF DEBT RUN UP IN THE 1980S

HAVE BECOME IMPASSABLE BARRIERS TO PROGRESS FOR POOR COUNTRIES IN

THE 1990S.  IT SHOULD NOW BE OUR AMBITION THAT EVERY HIGHLY

INDEBTED POOR COUNTRY WILL BE IN THE PROCESS OF DEBT RELIEF BY

THE MILLENNIUM.

AND FOR COUNTRIES LIKE HURRICANE-HIT NICARAGUA AND HONDURAS,

WEIGHED DOWN BY THE BURDEN OF DEBT AND DEVASTATION, IT IS RIGHT

TO CREATE A NEW WORLD BANK TRUST FUND – NOW WITH OVER 130 MILLION

DOLLARS PLEDGED – TO ALLEVIATE THEIR DEBT PAYMENTS.  IT IS ALSO

RIGHT TO DEVISE THE NEW POST-DISASTER FACILITY THAT WILL GIVE

FASTER RELIEF FROM DEBT, TO ALL COUNTRIES IN THIS POSITION. I

BELIEVE 1999 MUST BRING A NEW URGENCY TO RELIEVING THIRD WORLD

DEBT.

CONCLUSION

SO WHAT WE MUST TOGETHER CREATE IS A NEW ECONOMIC CONSTITUTION

FOR A GLOBAL ECONOMY, BORN OUT OF NEW REALITIES, ,GROUNDED IN NEW

RIGHTS AND RESPONSIBILITIES, ENSHRINED IN CODES OF CONDUCT THAT

ARE AGREED NATIONALLY AND APPLIED INTERNATIONALLY, REDISCOVERING

PUBLIC PURPOSE IN THE INTERNATIONAL ECONOMY AND BRINGING TO LIFE

AGAIN THE HIGH IDEALS OF 1945.

WE NEED TO BUILD QUICKLY, NOT DEBATE INDEFINITELY.

AGREEMENT ON THE CODES OF CONDUCT SHOULD BE  REACHED AT THE

IMF MEETINGS IN APRIL.

A NEW SYSTEM OF GLOBAL FINANCIAL REGULATION SHOULD BE IN

PLACE BY THE SUMMER.

THE NEW MECHANISM FOR CRISIS PREVENTION AND CRISIS

RESOLUTION SHOULD BE AGREED IN PRINCIPLE THIS SUMMER AND THE

DETAIL SHOULD BE THE SUBJECT OF INTENSIVE DISCUSSIONS

BETWEEN THE PRIVATE SECTOR AND NATIONAL AND INTERNATIONAL

INSTITUTIONS TO REACH AGREEMENT BY THE END OF 1999.

-    AND THE CODE FOR BEST PRACTICE IN SOCIAL POLICY SOCIAL CODE

SHOULD BE AGREED AT THE NEXT WORLD BANK MEETINGS IN THE

SPRING.

THIS IS A PROGRAMME OF REFORM FOR OUR GENERATION.  IT IS MORE

THAN SIMPLY A COLLECTION OF PROPOSALS.  IT RESTS ON A MODERN

VISION OF GOVERNMENT, DOING THE RIGHT THING, BUT NOT EVERYTHING;

OF MARKETS WORKING, BUT NOT ALWAYS PERFECTLY; OF PRINCIPLES OF

ECONOMIC AND SOCIAL JUSTICE THAT REFLECT OUR BEST VALUES AND

ULTIMATELY DETERMINE WORLD STABILITY AND GROWTH.

THIS PROJECT IS INDIVISIBLE; EACH ELEMENT IS ESSENTIAL TO THE

SUCCESS OF THE WHOLE.  AND ALL OF IT IS BUILT ON THE

UNDERSTANDING THAT INCREASINGLY WE ARE PART OF BOTH ONE GLOBAL

ECONOMY AND ONE MORAL UNIVERSE.  NOW MORE THAN EVER, IN THE

PHRASE OF THE SCOTTISH AUTHOR, WILLIAM MCILVANNEY, WE MUST

UNDERSTAND THAT ”THE ECONOMY SHOULD BE THERE TO SERVE THE

PEOPLE, NOT THE PEOPLE TO SERVE THE ECONOMY.”

OURS IS AN AGE OF GREAT CHALLENGES BUT ALSO GREAT POSSIBILITIES.

WHAT FRANKLIN ROOSEVELT SAID TO THE CITIZENS OF HIS NATION IN

1933 IS NOW POWERFULLY RELEVANT TO THE CITIZENS AND GOVERNMENTS

OF ALL NATIONS.

IF I READ THE TEMPER OF OUR PEOPLE CORRECTLY WE NOW REALISE – AS

WE HAVE NEVE REALISED BEFORE – OUR INTERDEPENDENCE ON EACH OTHER,

THAT WE MUST BE WILLING TO SACRIFICE FOR THE GOOD OF A COMMON

DISCIPLINE – BECAUSE WITHOUT SUCH DISCIPLINE NO PROGRESS IS MADE.

TODAY I BELIEVE THAT WE IN OUR GENERATION HAVE THE VISION, THE

VALUES AND THE WILL – AS THE GENERATION WHICH PRECEDED US – TO

MAKE THE WORLD ECONOMY ANEW; THE PUBLIC PURPOSE AND HIGH IDEALS

TO MAKE A BETTER WORLD ECONOMY IN EVERY SENSE OF THAT WORD.