By Ronald McKinnon
As always, I am amazed by how much analytical ground Martin Wolf covers in each column; “Why agreeing on a new Bretton Woods is vital” is no exception. Let me first pick up on one point: the number of countries involved in the negotiation.
The original Bretton Woods agreement was essentially bilateral, and negotiated between the British Treasury (Keynes) and the US Treasury (White) in 1943-1944, with Canada sometimes acting as an umpire.
The post-war General Agreement on Tariffs and Trade cum World Trade Organisation negotiations were manageable and quite successful as long as they were also mainly bilateral – the eastern European bloc versus the US – with Most Favoured Nation treatment extended to most other countries.
Developing countries did have a marginal say. The old GATT exempted them from the requirement to reciprocally reduce their own tariffs. This was disastrous for them, and fortunately is being phased out under the new WTO. Read more
By Mario Blejer
The current financial crisis is putting substantial pressure on emerging markets. Many if not all face a serious risk of a sudden and severe slowdown in credit as a consequence of the withdrawal of international liquidity pools until recently available to these countries. The consequences of a credit crunch could be dire for both their public and corporate sector. This would ultimately stall the last engine of growth on which the world economy relies. The International Monetary Fund should quickly put together a preventive facility to restore the capacity of countries with healthy macroeconomic accounts to borrow from private capital markets. Read more
Sometimes boldness is caution. The Bank of England’s monetary policy committee has, in extreme circumstances, adopted the “risk management” approach followed by Alan Greenspan and Ben Bernanke at the Federal Reserve. It was right to do so.
In my column of last Friday (“What the British authorities should try now”) I recommended a cut of two full percentage points. The MPC has not gone quite that far. But it is to be congratulated for coming as far as it has, with its one and a half percentage point cut bringing rates down to 3 per cent, their lowest since 1955. Read more