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Financial Institutions

Like other noble Lords, I congratulate the noble Lord, Lord Bilimoria, on securing this debate. I have contended for a long time that one of the reasons why the world global institutions perform so badly is that they are accountable to no one. National parliaments take very little interest in them on a sustained basis, and I hope that the trend that the noble Lord has started today will continue. I shall concentrate on the IMF. In good economic times the IMF plays a relatively quiescent role. It has an ongoing surveillance function, of dubious success. One of the thing I hope to pursue with the Minister on another occasion is the extent to which the IMF was looking at what was happening in Iceland earlier this year and the extent to which it was talking to its major member states about the inherent risks in that country. Surveillance is a job that someone needs to do; the IMF does it, but might do so a bit more robustly. In times of currency crisis, however, the role of the IMF is much greater in helping stabilise increasingly unstable situations. In recent days we have seen countries from across the globe, from Pakistan to Iceland, lining up for IMF support. In some cases, at least, they are getting it. The criteria of the noble Lord, Lord Parekh, for the purpose of the IMF were noble, but a simplistic answer to the question, ““Why do you need the IMF?”” is, ““Frankly, if we didn’t have one, at times like this we would have to invent it””. It is clear that there are major challenges to the IMF if it is going to fulfil successfully the role that so many countries look to it to provide. Central to those is that the IMF and the World Bank have been seen, and have acted, as advocates for a particular economic doctrine, and have been seen to be very much under the sway of the US and, to a lesser extent, of the EU. Over the years they have been pushing concepts like privatisation and liberalisation that in theory might work but, in practice, do not work everywhere all the time. In the excellent biography of Keynes by the noble Lord, Lord Skidlesky, he describes Bretton Woods in tremendous detail and explains that the Chinese delegation, which I believe was quite small, suffered the disadvantage of not speaking a word of English, and because the whole thing had been done at short notice there were no translators. At the time, no one seemed to mind very much; the role of China was relative small and it did not really matter. It jolly well matters now. The current economic crisis clearly marks a sea change in economic power, which is moving from the US and Europe to China and India, the resource-rich countries of the Gulf and elsewhere. The IMF completely fails to reflect that. Voting strengths are: China, 3.66; the US, 16.77 and the UK, 4.86. Although that changed earlier in the year, it needs to change more. The weakness of the IMF in terms of perceptions can be seen if you look at the way that Pakistan looked to get its support. It described getting support from the IMF as plan C. It tried China first and the Gulf second. The IMF was plan C. It should be looking to the IMF as plan A, because the IMF should be a trusted institution. There should be changes in the way that people are appointed and changes as regards transparency. It does not publish its minutes for 20 years after the executive committee meets, which is a joke. All these things need to happen if it is to be treated seriously by those countries which traditionally have played a small part. Secondly, the IMF needs to have a lot more resources. People have bandied about the fact that it might need $2 trillion instead of $200 million, and the Prime Minister has talked about a bail-out fund. In the past week, every day there has been a major new development involving the IMF. Yesterday, it was looking at new rules to enable it to make grants to countries more quickly. Literally earlier today, China announced its willingness in principle to contribute to an enhanced international bail-out fund; the implication being that it would be administered by the IMF. So far from being a dead institution, it clearly is seen as an institution with a major role to play. I fear, however, that the meeting planned for 15 December will not lead to its reform. What we need is a long-term, thought-through series of meetings to get the real reform which will enable the IMF and the other international financial institutions to fulfil the purposes, if not quite those envisaged at Bretton Woods, which the world now sees they need to fulfil.