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Meet the “Emerging Market” Superstars of Global Economic Governance, Part I
By: Andrew Gavin Marshall
25 January 2016
One is Mexican, described by the Financial Times for his “Wall Street-sized reputation for financial wizardry”; the other is Indian hailed by India’s Economic Times as “the Poster Boy of Banking” whose “chiselled features are as sharp as his brain.” Meet Agustin Carstens and Raghuram Rajan. As the world’s economic elite gathers this week to meet in Davos, they are a perfect example of what has been called the “Davos class” – what Samuel Huntingdon described as a class who “see national governments as residues from the past whose only useful function is to facilitate the elite’s global operations.” U.S.-educated central bankers in two emerging market economies, their stories focused on their activities in one year, 2015, reveal how global power has both shifted and yet ultimately reinforced a global economic empire. Carstens entered the inner circle of financial elites, via his role as Mexico’s finance minister from 2006 to 2009, during which time he was responsible for managing the country’s response to the global financial crisis. In that capacity, Carstens turned to the IMF in April of 2009 for a $47 billion credit line to help Mexico weather the financial fallout from the crisis. During this time, he was appointed Chairman of the Joint Development Committee (JDC) of the World Bank, and after being appointed Governor of the Central Bank of Mexico in 2010, he became a member of the steering committee of the Financial Stability Board (FSB), set up to help coordinate response to the financial crisis, and was also appointed to the board of directors of the Bank for International Settlements (BIS) in Basel, Switzerland, which coordinates between 60 major central banks around the world. This impressive career resumé led to him being considered in 2011 as a contender for the top spot at the International Monetary Fund (IMF).
Raghuram Rajan’s rise to Governor of the Reserve Bank of India (RBI) followed a reverse trajectory to that of Carsten – not building his career first at a national level, but rather by gaining financial market legitimacy for his work at the IMF making himself a highly-sought after candidate within India’s elite circles. However, like Carstens, he started off in the U.S. education system, obtaining a PhD in economics from MIT in the United States in 1991, then became a professor at the University of Chicago before, in 2003, becoming the first non-Westerner and youngest person ever to fill the post of Chief Economist at the IMF, a position he held until 2007. His predictions in 2005 that “financial innovations” of the previous years and decades could make financial markets increasingly fragile, vulnerable and prone to crisis may have been questioned at the time, but after the global financial crisis hit in 2008 and proved Rajan correct, they led to him becoming well respected.
But this independence of thinking didn’t dim his belief in central tenets of neoliberalism, necessary to receive the support from financial markets to stand for office. In August of 2012, Rajan was appointed as the chief economic adviser to India’s finance ministry, praised by the Wall Street Journal as “a strong believer in liberalization and privatization,” who felt that India should continue with many of the market reforms it began implementing in the early 1990s. And the following August, in 2013, he was appointed to head the central bank by Indian Prime Minister Manmohan Singh. Immediately upon becoming Governor of the Reserve Bank of India, Rajan told the Financial Times that he planned to turn India into “a more continental and open economy” within a globalized world. Such a task is not easy, and comes with a great many risks. “I have to be careful,” he concluded.
Fostering a common vision in support of private financial capital
As central bankers in a globalized financial order, Carstens and Rajan have plenty of opportunities to meet up. They both sit on important committees of the Bank for International Settlements that meets every two months. Rajan is Vice Chairman of the BIS Board of Directors while Carstens is Chairman of BIS’s Economic Consultative Committee (ECC) and Chairman of the Global Economy Meeting (GEM). The latter has been described by its former chairman and President of the European Central Bank, Jean-Claude Trichet, “as the prime group for the governance of central bank cooperation.” The Spring and Annual Meetings of the World Bank and International Monetary Fund (IMF), taking place in April and September (or October), are also another regular stop in their calendars, especially for Carstens who has been appointed Chairman of the International Monetary and Financial Committee (IMFC), a secretive steering committee for the Fund. In addition, both Rajan and Carstens attend the private gatherings of the Group of 20 (G-20) nations that take place four times a year.
Beyond the world of inter-state financial cooperation, both Carstens and Rajan are frequent guests at meetings of private financiers – and thus all too easily pulled into the vision and interests of the private financial world – through gatherings of groupings such as the Institute of International Finance (IIF), the world’s largest and most important association of global financial institutions. IIF brings together the top executives of nearly 500 major banks, asset management firms, insurance companies, sovereign wealth funds, credit ratings agencies, hedge funds and other investment institutions.
During the IMF’s Spring Meeting in Washington in 2015, D.C., Carstens along with the Chinese Central Banker Zhou Xiaochuan, spoke at a forum on the subject of “International Capital Markets and Emerging Markets.” Carstens also sits as a member of an IIF exclusive advisory working group dedicated to supporting capital flows to emerging market countries, called the “Group of Trustees of the Principles,” sitting alongside other current and former central bankers, finance ministry officials and private bankers and financiers.
In 2013, shortly after his appointment as Governor of the RBI, Rajan spoke to an audience of the IIF outlining his objectives for reforming India’s economy over the coming years, which included further “liberalization” of India’s various financial and debt markets and to transform his own institution into a modern central bank with strict Western standards and credentials. Governor Rajan is also a member of the very exclusive Group of Thirty (G30), a private research and advocacy group of roughly 30 individuals, including current and former central bankers.
Among these meetings, the annual meeting in Davos in January, which Carstens attended in 2015, is a key forum to meet other elites outside financial circles including dozens of heads of state and hundreds of ministers and other high-ranking government officials, business and financial leaders, media and academic figures, and the chiefs of every major international organization.
Carsten and Rajan’s interactions and meetings at least ten times a year alongside other top financial diplomats help to foster shared experiences, understanding and objectives, encourage cooperation at the supranational level, and further align their ideological positions relative to one another. Similarly, their extensive interactions and affiliation with private financial market participants helps to create a community of shared interests between central bankers and financiers. Ultimately, these groupings and exchanges allow the central bankers to come face to face with their main constituents, for it is the interests of financial markets that central banks protect above all else, whether through the promotion of liberalization and other “structural reforms,” including austerity measures that are frequently demanded by markets.
Central banks also serve financial markets through the implementation of bailout programs designed to save banks and financial institutions when markets fail, as well as through the management of monetary policy with its primary objectives of achieving ‘price stability’ (low and stable inflation), which generally favours creditors at the expense of debtors. The prevailing orthodoxy of central bankers is closely aligned with the interests and objectives of private financial institutions, and Governors Carstens and Rajan are no exceptions.
Andrew Gavin Marshall is a freelance researcher and writer based in Toronto, Canada.
When the IMF Meets: Here’s What Happened At the Global Plutocracy’s Pow Wow in Peru
By: Andrew Gavin Marshall
26 October 2015
Originally posted at Occupy.com
On October 6, the finance ministers, central bankers and development ministers from 188 countries convened for the Annual Meeting of the World Bank and International Monetary Fund in Lima, Peru. The yearly gathering is one of the top scheduled events on the calendar of economic diplomats, bringing them together for private discussions, seminars and press conferences with journalists. And of course it’s a big deal for the thousands of private bankers and financiers who are there to cut deals with the chief financial policymakers in those 188 IMF-member nations.
It was ironic that this year’s meeting took place in Peru at a time when emerging market economies are experiencing increased economic problems: the result of a combined slow-down in economic growth in China, a collapse in commodity prices, and threats by the U.S. Federal Reserve to hike interest rates in the near future. Indeed, talk of China, interest rate hikes and emerging market crisis was plentiful in Peru. Central bankers, unsurprisingly, came out generally in favor of raising rates, with top monetary officials from emerging markets saying they more feared the uncertainty about when rates would rise than the rise itself, and urged the Fed to simply get on with it.
Global Pow Wow
The annual meetings bring together the Board of Governors of the IMF, made up of the central bankers or finance ministers from the Fund’s 188 member nations. But the Governors are given their marching orders from the 24-member International Monetary and Financial Committee (IMFC), made up of ministers and central bank governors from the 24 major constituencies represented on the IMF’s Executive Board, and whose membership largely reflects that of the Group of Twenty (G20).
The IMFC held their meeting in Lima on Oct. 9, presided over by the committee’s chairman, Agustin Carstens, the Governor of the Central Bank of Mexico, and the IMF Managing Director Christine Lagarde. In attendance were the finance ministers of Japan (Taro Aso), India (Arun Jaitley), Argentina (Axel Kicillof), Brazil (Joaquim Levy), France (Michel Sapin), Italy (Pier Carlo Padoan), Germany (Wolfgang Schauble), Singapore (Tharman Shanmugaratnam), Great Britain (George Osborne) and the United States (Jack Lew), along with top-level central bankers from Saudi Arabia, Nigeria, Norway, Algeria, Colombia, Belgium and China.
Also participating in the IMFC meeting were Mark Carney, Governor of the Bank of England and Chairman of the Financial Stability Board (FSB); Jaime Caruana, General Manager of the Bank for International Settlements (BIS); Valdis Dombrovskis, Vice President of the European Commission; Angel Gurria, Secretary-General of the Organization for Economic Cooperation and Development; Mario Draghi, President of the European Central Bank (ECB), and other top representatives from OPEC, the World Bank and the World Trade Organization (WTO).
These various financial diplomats met and made prepared statements, but the real work and decision-making took place in the IMFC’s off-the-record discussions. These discussions also included, as usual, a joint meeting between the IMFC and the G20, after which the G20 held a press conference discussing recent agreements made by the world’s top economic diplomats collectively representing roughly 85% of global GDP.
The meetings followed the consistent hierarchy of operations among the world’s most powerful economies, starting with a private gathering of the finance ministers and central bankers from the Group of Seven (G7) nations, including the U.S., Germany, Japan, UK, France, Italy and Canada. This was followed by a gathering of ministers and monetary chiefs from the G20 nations (consisting of the G7 plus China, Brazil, Russia, India, South Africa, Argentina, Australia, Turkey, Saudi Arabia, Mexico, South Korea, Indonesia and the European Union). The heads of the world’s major international organizations also attended these meetings, functioning effectively as a steering committee for the global economy. The G20 then held a joint session with the IMFC, which functions as the steering committee of the IMF.
The IMFC’s communiqué following its meeting warned that global economic growth was “modest and uneven” with increased “uncertainty and financial market volatility.” Risks to the global economy “have increased,” it noted, in particular for emerging markets.
Apart from the IMFC and G20, a number of other important meetings took place on the sidelines of the annual gathering, many of which prominently featured bankers. One of the most important gatherings of global financiers was the Annual Membership Meeting of the Institute of International Finance (IIF), a consortium of roughly 500 global financial institutions including banks, asset managers, insurance companies, sovereign wealth funds, hedge funds, central banks, credit ratings agencies and development banks.
From Oct. 9-10, the world’s top bankers and financiers then held luncheons and private meetings with the world’s top economic policy-makers, who were also invited to attend or speak at the conference proceedings. The IIF’s opening ceremony was addressed by Peru’s President Ollanta Humala Tasso, and included guest speakers like the finance minister of Indonesia and central bankers from Thailand and Malaysia, as well as the top Swedish central banker, Stefan Ingves, who serves as chairman of the Basel Committee on Banking Supervision (BCBS) which is responsible for shaping and implementing global banking regulations known as Basel III.
On the second day of the IIF’s meeting, guest speakers included top officials from Brazil’s finance ministry, the World Bank, and a keynote address was delivered by the governor of Canada’s central bank, Stephen S. Poloz. The rest of the day included talks by finance ministers and central bankers from Colombia, Chile and Peru; a top official from the central bank of France; and an official from the Financial Stability Board (FSB), which is a group of global central banks, finance ministries and regulators responsible for managing stability of financial markets.
Another important gathering in Lima was the Group of Thirty (G30), presided over by its Chairman Jean-Claude Trichet, the former President of the European Central Bank. The G30 was established in 1978 as a nonprofit group of roughly 30 sitting and former central bankers, finance ministers, economists and private bankers, with the aim “to deepen understanding of international economic and financial issues” and “to examine the choices available to market practitioners and policymakers.”
Among the G30’s current members are former Federal Reserve Chair Paul Volcker; Mark Carney of the Bank of England and Financial Stability Board; Jaime Caruana of the BIS; Mario Draghi of the ECB; William C. Dudley of the Federal Reserve Bank of New York; former U.S. Treasury Secretary Timothy Geithner; former Bank of England Governor Mervyn King; economist Paul Krugman; Bank of Japan Governor Haruhiko Kuroda; Bank of France Governor and BIS Chairman Christian Noyer; Reserve Bank of India Governor Raghuram Rajan; Tharman Shanmugaratnam of Singapore; former U.S. Treasury Secretary Lawrence Summers; Chinese central banker Zhou Xiaochuan; and top bankers from UBS, JPMorgan Chase, BlackRock and Goldman Sachs.
This year, the G30 held its annual International Banking Seminar in Peru, “an invitation-only, off-the-record forum that allows for frank discussion and debate of the thorniest issues confronting the central banking community,” bringing together “over fifty percent of the world’s central bank governors, the Chairmen and CEOs of the financial sector, and a select few academics to debate financial and systemic issues of global import.”
The meeting included a short speech by Federal Reserve Vice Chairman Stanley Fischer, who told the audience that the Fed’s interest rate rise was “an expectation, not a commitment.” Fischer acknowledged that “shifting expectations concerning U.S. interest rates could lead to more volatility in financial markets and the value of the dollar, intensifying spillovers to other economies, including emerging market economies.” He reassured his audience, however, that the Fed will “remain committed to communicating our intentions as clearly as possible… to assist market participants, be they in the private or the public sector, in understanding our intentions as they make their investment decisions.”
Behind Closed Doors
But the true importance of the annual IMF meetings is not what happens in formal proceedings and seminars, but the various secret meetings of finance ministers, central bankers and private financiers that take place on the sidelines of the official conference. In these closed-door events, a select group of government and monetary officials, primarily those from the G7 and G20 nations, were invited to wine and dine with bankers at decadent dinners and lavish parties, and speak to private gatherings of the world’s top investors and money managers. It’s here, in these various meetings, where the world’s chief financial diplomats were able to meet, greet and receive praise or criticism from their true constituents: the global financial elite.
As usual, the annual pow wow of the global plutocracy came and went with little comment outside the financial press. But as always, the annual IMF meetings – and the more secretive, simultaneous gatherings of global economic diplomats and financiers on the sidelines – represented the core of global economic governance, manifest in the various ad-hoc committees that in essence rule the world.
These individuals’ main interactions were not with the populations in their home nations – the people who suffer under austerity, who have to “adjust” to the restructuring of their societies into “market economies” – but rather with those from whom they have the most to gain: bankers, billionaires and financiers. And rest assured, when the officials retire from their central bank and finance ministry positions, they will be stepping out of their membership in the G7, G20 and IMFC, and into the boardrooms of JPMorgan Chase, Goldman Sachs, BlackRock, Barclays and Deutsche Bank. They will be well rewarded, with large salaries and bonuses for a job well done while in public office. And the revolving door of global economic governance will keep turning.
A Year in the World-Traveling Life of U.S. Treasury Secretary Jack Lew
By: Andrew Gavin Marshall
Originally posted at Occupy.com
15 October 2015
Jacob Joseph (“Jack”) Lew is one of the two most powerful financial diplomats in the world, the other being his central banking counterpart, Janet Yellen, the Chair of the Federal Reserve Board. As the U.S. Secretary of the Treasury, Lew has been the most important economic official inside the Obama administration since his confirmation in February 2013 following the president’s re-election.
Prior to serving as Treasury Secretary, Lew was White House Chief of Staff to President Obama from 2012 to 2013, and Director of the Office of Management and Budget from 2010 to 2012, a position he also held in the Clinton administration from 1998 until 2011. Lew was also Deputy Secretary of State under Hillary Clinton from 2009 to 2010. But from 2006 to 2008, he worked at Citigroup, overseeing the bank’s $1.8 billion in wealth management assets, and was then appointed as one of Citi’s senior executives.
Lew’s appointment to Citigroup was made on the recommendation of the bank’s then-Chairman Robert Rubin, the former Treasury Secretary from the Clinton administration (1995-1999), with whom Lew worked closely. When Lew left the bank to join the Obama administration immediately following the 2008 financial crisis and the billions in bailouts his bank received, Lew got a bonus of almost $1 million from Citigroup on top of his more than $2 million in regular earnings from the bank.
Tracking Lew’s Movements
In examining the role played by the Treasury Secretary to shape U.S. and global economy policy, it’s revealing to look at his schedule over the course of a year. After reviewing Secretary Lew’s schedule of phone calls and meetings in 2014, it’s easier to understand what it means to be one of the world’s most powerful financial diplomats. More than any other high-level official, Lew was in consistent contact with Yellen, having held over 30 phone calls or meetings with the Federal Reserve Chairperson over the course of the year, which included regular lunch or breakfast meetings.
As the two top diplomats and managers of the American economy and the U.S. dollar, it makes sense for these two individuals to meet frequently, both to assess the economic outlook and to devise a common U.S. position at international meetings – like the bi-annual meetings of the IMF steering committee known as the International Monetary and Financial Committee (IMFC), as well as the secretive meetings of finance ministers and central bankers of the Group of Seven (G7) and Group of Twenty (G20) nations.
Officially founded in 1976, the G7 sits at the center of global economic governance, meeting at the head of state level once a year, and holding multiple meetings and conference calls among the finance ministers and central bank governors of nations that comprise its membership: the U.S., Germany, Japan, France, UK, Italy and Canada. The G20, on the other hand, was founded as a meeting of finance ministers and central bank governors in 1999, and only started meeting at the head of state level in late 2008 in the midst of the global financial crisis.
Jack Lew was in frequent contact with his G7 peers, including all of the finance ministers and most of the central bankers. In addition to the gatherings of the G7 and G20, Lew spoke or met with German Finance Minister Wolfgang Schauble roughly 20 times throughout 2014. In the same period he met or spoke with the British Chancellor of the Exchequer, George Osborne, roughly 16 times; with European Central Bank (ECB) President Mario Draghi some 15 times; and with Japanese Finance Minister Taro Aso 14 times.
Secretary Lew also had extensive contact with French Finance Minister Michel Sapin and his predecessor Pierre Moscovici, who became European Commissioner for Economic and Monetary Affairs; Italian Finance Minister Pier Carlo Padoan; Canadian Finance Minister Joe Oliver; and Mark Carney, the Governor of the Bank of England and Chairman of the Financial Stability Board (FSB), an institution that brings together central bankers, finance ministers and regulators to oversee the global management of financial markets. Lew spoke or met with Carney some 12 times throughout the year.
But apart from Yellen, the high-level official with whom Lew had the most contact was Christine Lagarde, the Managing Director of the IMF and a former French Finance Minister; Lew met or spoke to Lagarde roughly 23 times in 2014, including at the meetings of the G7 and G20, which the IMF Managing Director typically attends.
The G20 has a much wider membership than the G7, though it includes all of the G7 nations in addition to Australia, the European Union, and major emerging market economies such as China, India, Brazil, Russia, Mexico, Turkey, South Africa, Saudi Arabia, Argentina, Indonesia and South Korea. The heads of major international organizations like the IMF, World Bank, Bank for International Settlements (BIS), World Trade Organization (WTO), and the Organization for Economic Cooperation and Development (OECD) also typically attend the meetings of the G7 and G20.
Following Yellen, Lagarde and Schauble, Secretary Lew was most frequently in contact with Australian Treasurer Joe Hockey, with whom he met or spoke roughly 17 times throughout the year. While Australia is not even a member of the G7, it would typically seem odd to have such extensive communication between its Treasurer and the U.S. Treasury Secretary. But Australia was hosting the G20 meetings in 2014, and thus Hockey closely coordinated with Lew on meetings that involved financial officials convening four times during the year.
Another name that stands out is Tharman Shanmugaratnam, the Singaporean Finance Minister who held nine separate calls and meetings with Lew, and 13 including those of the G20. Shanmugaratnam became Finance Minister of Singapore, a wealthy Asian city-state, in 2007, and has also held the dual role as head of the Monetary Authority of Singapore (MAS), the country’s central bank. In addition, Tharman serves on the board of directors of Singapore’s large sovereign wealth fund, GIC, which manages between $100 and $350 billion in assets, including significant stakes in Citigroup and UBS, Switzerland’s largest bank.
The likely reason why Lew had such frequent contact with Shanmugaratnam – the chief financial diplomat of a country that is neither a member of the G7 nor the G20 – is because in March of 2011, Shanmugaratnam was appointed Chairman of the IMF’s steering group, the International Monetary and Financial Committee (IMFC), made up of finance ministers and central bank governors from the nations represented on the Fund’s Executive Board.
Lew attended the World Economic Forum in Davos, Switzerland, in January of 2014, where he held private bilateral meetings with Mark Carney of the Bank of England (and FSB), Saudi finance minister and central bank governor Ibrahim Al-Assaf, ECB President Mario Draghi, and Mexican Finance Minister Luis Videgaray, who was another emerging market diplomat with whom Lew had frequent contact throughout the year (eight separate phone calls and meetings, or 12 including those at the G20).
In February, Lew traveled to Australia for the first G20 meeting of finance ministers and central bank governors under the chairmanship of Australian Treasurer Joe Hockey. Lew moderated a session of a conference hosted by the Institute of International Finance (IIF) and held private meetings with German Finance Minister Schauble, Turkish Deputy Prime Minister and top financial diplomat Ali Babacan, and Japanese Finance Minister Taro Aso. And just before the official G20 meetings began, the G7 countries got together for a quiet one-hour meeting as well.
As the Spring Meetings of the IMF were starting in April, Jack Lew held private meetings with Russian Finance Minister Anton Siluanov, Videgaray of Mexico, Draghi of the ECB, Saudi Finance Minister Al-Assaf, and Brazilian Finance Minister Guido Mantega. Once again, Lew attended a private one-hour gathering of the G7 ministers before attending a wider G20 meeting of ministers and central bank governors on April 10. The following day, Lew attended the joint G20-IMFC meeting, and continued with G20 meetings for the rest of the day.
In September, Lew once again traveled to Australia for a special meeting of G20 financial diplomats, during which time Germany served as host for a private lunch meeting of the G7 finance ministers and central bank governors. He returned to Australia in November for the main head-of-state summit of the G20, where he privately met with his counterparts from Saudi Arabia, China, France, Japan, and with Mark Carney of the FSB.
As the chief financial diplomat from the most powerful nation and economy in the world, Jacob Lew is the central figure among G7 diplomats with whom he is in frequent contact, while closely coordinating with the chairs of the G20, the IMFC, and the heads of international organizations like the IMF and FSB. Through these and other groupings, Treasury Secretary Lew sits at what can only be understood as the absolute center of global financial diplomacy and governance.
Meet the Secretive Committees that Run the Global Economy
By: Andrew Gavin Marshall
8 October 2015
Originally published at Occupy.com
There exists an overlapping and highly integrated network of institutions, committees and secret meetings of ad-hoc groups that collectively run the global economy. This network consists of finance ministries, central banks, international organizations and the various conferences and confabs that bring them together. This network is responsible for facilitating global financial diplomacy and managing the architecture of global financial governance. In short: it is the most powerful and informal political structure in the world.
With the United States at the center of the system, the Treasury Department and Federal Reserve Bank are the two most important American institutions in global financial governance – and the Treasury Secretary and Federal Reserve Chairperson are the world’s two most powerful financial diplomats. Both institutions are headquartered in Washington, D.C., just down the street from the headquarters of the International Monetary Fund (IMF) and World Bank Group, two global financial bodies created in 1944 to manage the world economy on behalf of the rich Western nations that founded them.
Twice a year, the IMF and the World Bank host large international conferences. The Spring Membership Meeting, typically held in April, and the Annual membership meeting draw a crowd consisting of most of the finance ministers and central bank governors from the IMF’s 188 member nations, representing the Fund’s Governing Board. They descend on D.C. where the meetings are typically held (though occasionally they are hosted in other countries as well), and draw scores of journalists, academics and thousands of bankers and financiers who are eager to meet, greet, wine, dine and make deals with the political decision-makers of the global economy.
The top five shareholders of the IMF (United States, Japan, Germany, France and U.K.) reflect the membership of an ad-hoc group of finance ministers that began meeting in 1973, thereafter known as the Group of Five (G-5). At the time, U.S. Treasury Secretary George Shultz described the group as “a channel for informal and very frank communication on monetary and other issues, both of a long-term and more immediate character.” But the G-5 was hardly the first of such groups.
In 1962, the Group of Ten (G-10) was formed as a meeting of finance ministers and central bank governors from the rich industrial nations, including the U.S., West Germany, Japan, France, U.K., Italy, Canada, Belgium, Sweden, Netherlands (and eventually Switzerland, although the name remained the same). The G-10 would meet alongside the leaders of the IMF, the Organization for Economic Cooperation and Development (OECD) and the Bank for International Settlements (BIS).
Following the U.S. unilateral decision to end the Bretton Woods monetary system in 1971, a series of committees and groups were established to provide forums for major economies of the world to negotiate forming a new monetary system, and to integrate developing economies into the institutional apparatus of global financial governance. The Group of Ten was utilized as one such forum.
In 1972, the G-10 laid the groundwork for the establishment of a special Committee of 20 to be formed within the IMF, whose membership reflected the composition of the IMF Executive Board, but at the ministerial level – giving it a much higher level of political authority than the board, which is composed of mid-level officials from their respective national finance ministries. The committee would include most G-10 members alongside several developing country representatives, and was formally institutionalized in late 1974 as the “Interim Committee” of the IMF.
(Although the Group of Five was formed in 1973, it wasn’t until 1975 that it held the first meeting at the head of state level, with the addition of Italy to the group. The following year, Canada was invited to participate, and thereafter it was known as the Group of Seven (G-7), effectively functioning as the steering committee for the global economy.)
Fast forward to the mid-1990s, when the G-7 nations instructed the Group of Ten to consult with emerging market economies on ways to reform the global financial architecture in cooperation with major international organizations like the IMF, World Bank, OECD, and BIS, which were increasingly opening their membership and ownership positions to large emerging market economies.
The idea was thus: If developed countries give developing countries a stake in the existing system, they won’t use their new-found wealth and power to oppose that system. And all the while, the West was to remain at the center. Through crisis and collapse and “rescue” efforts led by the IMF, BIS and World Bank, developing and emerging market economies were encouraged to accept Western economic “advice” on how to manage their economies. If they wanted bailouts in the form of loans from international institutions, those countries had to follow conditions that demanded a total restructuring of their economies and societies along G-7 lines – designed to transform them into modern “market economies” capable of integrating into the larger global economy.
The groundwork was laid out over the following years, and in the course of 1999, the IMF’s Interim Committee was reformed into the International Monetary and Financial Committee (IMFC). The G-10 organized several seminars involving major emerging market economies and, together with the G-7, formed a new group known as the Financial Stability Forum (FSF), a meeting group of central bankers, finance ministers and regulators who were handed responsibility for maintaining financial stability in the world. Finally, 1999 also saw the organizing efforts of the G-7 result in the formation of yet another forum, the Group of Twenty (G-20).
The G-20 was born in December of 1999 at a meeting of finance ministers and central bank governors from the G-7 nations, along with Russia, China, India, Brazil, Indonesia, Korea, Australia, Mexico, Saudi Arabia, South Africa, Turkey, Argentina and the European Union. The event was attended by top officials from the IMF, World Bank and the European Central Bank. But despite all the international noise, the G20 was largely the initiative of two men: Canadian Finance Minister Paul Martin and U.S. Treasury Secretary Lawrence Summers.
The G-7, or G-8 once Russia was invited in, remained the main forum for global economic leadership. But in the midst of the global financial crisis in 2008, the G-20 was the group convened by U.S. President George W. Bush, who brought together heads of state for the first meeting that took place in Washington on November 15. That meeting produced an agreement among G-20 nations to pump trillions of dollars into their economies in order to bail out their banking systems.
In 2010, then-President of the European Central Bank, Jean-Claude Trichet, explained at a meeting of the Institute of International Finance (IIF) that the G-20 had emerged “as the prime group for global economic governance.”
Speaking to a crowd of hundreds of the world’s most powerful bankers and financiers, Trichet explained, “Global economic governance embraces supranational institutions – such as the IMF – as well as informal groupings – such as the G-7 and the G-20. Both are necessary, and both are complementary.” Trichet praised the evolving system as “moving decisively towards a much more inclusive system of global governance, encompassing key emerging economies as well as the industrialized countries.”
To this day, the hierarchy of global economic governance follows a familiar pattern. Take the IMF’s meetings, where 188 of the world’s finance ministers and central bankers meet. The International Monetary and Financial Committee (IMFC) holds a meeting, functioning as the steering committee to the Fund. And prior to IMFC meetings, the G-20 finance ministers and central bank governors hold a series of meetings, including a joint meeting with the IMFC, as they already have a significant crossover of membership.
But before the G-20 meets, the ministers and governors of the G-7 nations typically meet privately for an hour or so, attempting to form a common position or strategy in dealing with the wider groupings of the G-20 and IMFC, in which all G-7 nations are represented at the ministerial level. The chiefs of the world’s major international organizations (IMF, World Bank, OECD, WTO, BIS) participate in almost all of these meetings, acting as advisers to and receiving high-level political direction from these groups.
The hierarchy of global economic governance emanates out of the United States, in close cooperation with Germany, Japan and the other members of the Group of Seven. From there, it networks through the Group of Twenty and the IMFC, which in turn collectively function as the steering committee for the world’s major international organizations, and act as the board of directors of the global economy.