At the closing plenary session of the conference, John Maynard Keynes, one of the principal architects of the agreement, commented: ôWe have shown that a concourse of 44 nations are actually able to work together at a constructive task in amity and unbroken concord. Few believed it possible. If we can continue in a larger task as we have begun in this limited task, there is hope for the world.ö
Now, almost 64 years later, leaders of developed and developing nations are once again pushing forward to save the global economy and its financial system from slipping into anarchy. And leaders from Western and Eastern nations agree that the need of the hour is to draw new guidelines for the worldÆs financial systems.
The magnitude of the global financial problem and the efforts needed to save the financial system were best put by the president of the European Union Commission, Jose Barroso, in Beijing over the weekend at the Asia Europe Economic Meeting (Asem). Barroso told reporters that there was a strong need for developed and developing countries to come together from a common platform. ôWe stick together or sink together,ö Barroso warned.
There is a general consensus among world leaders that there is a need for a Bretton Woods II; a need to chart out how to regulate the financial system and global money markets; and definitely a need to involve emerging economies like China, India, Brazil and Russia in the decision-making process.
The European leaders in unison have thrown their weight in for the creation of a Bretton Woods II. They underscored the immediacy of a summit-level meeting between the US, Europe and emerging economies to "redesign" the world's financial architecture. Last week, the US agreed to such a meeting, which will take place in Washington on November 15. This could also be a good occasion to allow the new US president-elect to meet the world leaders and chart out the future course of action to be taken to reform the financial system.
British Prime Minister Gordon Brown, who has considerably bolstered his sagging image by playing a vigorous role in restoring stability to the financial markets, calls for making best use of the present crisis to reform the multilateral lending institutions such as the IMF.
Brown says the current crisis should be seen as an opportunity to push through delayed reforms. ôSometimes it takes a crisis for people to agree that what is obvious and should have been done years ago can no longer be postponed,ö he said in a major speech on the fast-moving global financial crisis last week in London.
ôWe must create a new international financial architecture for the global age,ö he said, adding: ôWe must have a new Bretton Woods û building a new international financial architecture for the years ahead.ö Brown says that while the founders of Bretton Woods devised rules for a world of limited capital flows, we must now devise rules for a world of global capital flows. What is needed is a financial system for the 21st century that recognises "the new realitiesö, Brown said, reflecting the views of numerous commentators and economists.
Brown compares the task facing world leaders now with the actions of British Prime Minister Winston Churchill and US President Franklin D Roosevelt during World War II. Even in the "heat of the battle" they were already thinking about the framework that would be needed for the future, he points out. International cooperation is the only way the global economy can achieve the restructuring it needs to avoid a repetition of the problems seen over the past 12 months.
The current global system is too clouded with opacity, conflicts of interest and irresponsible risk-taking, and when problems occur countries have tended to look inwards and deal with them in isolation when it is clear they should look outwards and join in international cooperation.
Brown says he proposed a reform of Bretton Woods in a speech at Harvard University a year ago, but other factors such as the rising oil price "got in the way" of anyone acting on his call. He assures everyone that he will now re-double his efforts to secure a meeting of world leaders as soon as possible to discuss drawing up a new Bretton Woods system.
Europe, led by France's Nicholas Sarkozy, is looking to put its own stamp on such ideas û and to get the endorsement from major nations like the US, China and India. Sarkozy too wants to reform the Bretton Woods system that created the World Bank and the IMF. And he pushed his ideas strongly in Beijing this weekend.
At the end of the two-day Asem meeting in the Chinese capital there was a consensus among the 40 leaders of a need to reform the IMF and the financial markets. "Leaders believed that authorities of all countries should demonstrate vision and resolution and take firm, decisive and effective measures in a responsible and timely manner to rise to the challenge of the financial crisis," the Asem statement says.
The international community should continue to strengthen coordination and cooperation and take effective and available economic and financial measures in a comprehensive way to restore market confidence, stabilise global financial markets and promote global economic growth, it says.
But no effective solutions can be found without the explicit support of the biggest economy in the world, the US. So far, President George W Bush, Treasury secretary Henry Paulson and Federal Reserve chairman Ben Bernanke have been lukewarm to the idea of a reform of the financial system architecture. The US government, it seems, is still reluctant to take head-on the bankers at bulge bracket firms, even as it becomes their biggest shareholder.
Bernanke has been pushing his own ideas about the turmoil and has been quoted by the New York Times as saying that stabilisation of the financial markets is a critical first step, ôbut even if they stabilise as we think they will, broader economic recovery will not happen right awayö. He tried valiantly to reassure the American people that the Fed would utilise all its tools to combat the financial crisis, but this was too little too late and the Dow Jones and Nasdaq indices continued their slide throughout last week.
And warnings from analysts that the US and Europe are headed for a recession may continue to savage stocks in the coming week.
Asia's response to the crisis so far has involved shared strategies such as interest rate cuts, stimulus packages and emergency measures to halt stockmarket slides, but has stopped well short of coordinated actions.
Philippine President Gloria Macapagal Arroyo has unveiled an idea of creating a $10 billion emergency fund with the supposed blessings of the World Bank. Arroyo claimed the Association of South East Asian Nations (Asean) together with China, Japan and Korea support the plan. The idea of an Asian Monetary Fund, which was floated during the Asian financial crisis in 1997, has been revived again.
But the need of the hour is a concerted effort by governments in the US, Europe and Asia and not individual regional rescue efforts. The contagion that started on Wall Street has effectively spread across the global markets and the world is staring at the prospects of a drawn-out recession. Leaders of the West and the East need to draft a new action plan for the reform of the global financial system û a reform plan that will keep up with the realities of the 21st century.
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