Home | Comment & Analysis    Sunday 12 October 2008

The Bretton Woods system; the real villain

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By Professor Ali Abdalla Ali

October 11, 2008 — For more than three weeks I was keeping an eye like any one else on the present crisis in the international monetary arrangements triggered off by the American banking system which deals mostly in real estate finance. I have heard many comments, seen many TV reports and many discussions on the reasons behind the crisis as well as the possible course of events and impact on the remaining countries of the world. My strong feeling is that not a single commentator attempted to touch on the real issue that it is the present international monetary system as conceived by Brettonwood’s agreement that is behind all this evil. What made things worse for me was hearing the President of the IMF calling all countries of the world to coordinate their efforts to bail the system.

A look at the Brettonwood’s system that produced the IMF is that the USA and rest of the major capitalist countries hold the major voting rights that gives these countries a strength no less than the power given to countries like the USA by the Veto right! When a member country in the IMF falls in deficit ,its economy is usually scrutinized by various IMF missions under the IMF Articles of Agreement in a very elaborate manner and is often forced to make the necessary corrections in almost all the sectors where such an improvement could take place and therefore, improve the member country’s performance and move it towards a surplus even if that meant the devaluation of the currency and the other usual medicine known as the IMF prescription. In other words the member countries that are in deficit are made to bear the responsibility of submerging themselves in deficit or alternatively cutting themselves to size.

This has not been the case for member countries like the USA, Germany France,Japan etc. since they hold the keys of this important International institution. By virtue of their voting rights and sheer leverage in the IMF they are not subjected to usual harassment exercised on weaker member countries who are in deficit. If this elaborate scrutiny imposed on the weaker members was imposed on member countries such as the USA the misbehavior of American banks dealing with real estate would have been detected and corrected on time. The over crediting beyond internationally known levels and the subsequent securitization of such debts would have been avoided and this crisis triggered off by the American banks would not have taken place.

One is surprised about the call made by the President of the IMF. Why on earth should European countries, African, Arab, Asian and other countries bear the mistake of the mismanagement of the USA of its banks? Where was the IMF and its highly arrogant and capable staff when the causes of this crisis was brewing. It did not happen just three weeks ago. It has been going on for months together. It is this unjust aspect of the present international system that should be looked at deeply. Without a just and fair international monetary system as well as an equal scrutiny of all members alike in the IMF, these happenings will recur even if the bailing out of the American banks and the monetary system is some how achieved.

Professor Ali Abdalla Ali, Sudan University of Science and Technology, Economic Advisor, Khartoum Stock Exchange can be reached at aliabdalla.abd@gmail.com.



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