The essence of ownership is the acceptance of full responsibility for the consequences of a program. Ownership matters because of the expectation that program design will be more appropriate and country authorities will be resolute in taking steps domestically to ensure full implementation of the program. The steps include seeking proper domestic legitimation, which will prevent certain "political economy" factors from disrupting program implementation. That program success is correlated with degree of ownership and that ownership is correlated with implementation, which in turn is correlated with program legitimation, are supported by available evidence. Ex ante selectivity is easily made preferable to ex post, and for financial support a recipient country must satisfy the donor country team as to the reality of ownership, soundness of the program (policies and outcomes), and adequate implementation capacity. From a positive perspective, forces operating on both the demand and supply side of aid should inevitably bring about a new equilibrium regime in the aid relationship that excludes traditional conditionality

The governing structure of the Bretton Woods Institutions –that is, the International Monetary Fund and the World Bank– was determined sixty years ago. In 1944, a few industrial countries accounted for the bulk of world output, trade, and capital flows. This is no longer the case. Developing countries and economies in transition, the more dynamic elements of the world economy, account today for the same volume of output as the Group of Seven (G-7) countries in terms of purchasing power parity, and for 84 percent of the world’s population. They can no longer be dismissed as minor partners in the global economy.

The lack of adequate representation of the developing countries and emerging market economies in the governance of the global economy and the declining commitment of major countries to a multilateral rules-based system of international monetary cooperation has resulted in short-sighted, and politically motivated decisions by major shareholders, which undermine the efficacy of the IMF and World Bank and have adverse consequences for world economic growth and stability. Indeed, the non representative character of the governance of these institutions increasingly threatens the integrity of the international monetary system, as countries in Asia and elsewhere move away from the IMF and take distance from the World Bank, leaving the institutions to deal mainly with low-income countries.

This paper provides an overview of the international monetary system, briefly discussing six key problems1 in which the concentration of power in a few countries and the limited participation of developing countries in the discussion of systemic issues leads to poor results:

1. the correction of global imbalances;

2. the role of the IMF in the adjustment process; 1 For reasons of space, other important problems, such as the issue of negative net transfers of resources to developing countries, and the problems of the low income countries will not be discussed. 2

3. combating deflation through countercyclical policies;

4.financial crises prevention and resolution;

5. the management of international liquidity, and

6.responding to commodity shocks.

Overcoming these problems requires a renewed commitment of industrial countries to a rules based multilateral system and the participation of developing countries in decision making in a manner commensurate with their economic importance.

The governing structure of the BWIs was determined in 1945 when a few industrial countries accounted for the bulk of world output, trade and capital flows This is no longer the case.The developing countries and economies in transition account for the same volume of output as the G7 countries, in terms of purchasing power parity, and for 84 percent of the world’s population and can no longer be dismissed as a minor partner in the global economy. The lack of adequate representation of the developing countries in the governance of the global economy has adverse consequences for world economic growth and stability.

The paper discusses seven key problems of the international monetary system; namely, correction of global imbalances, combating deflation through countercyclical policies, financial crises prevention and resolution, negative flows of capital to developing countries, management of international liquidity, commodity shocks, and the problems of the poorest countries. It is argued that optimum solutions in these areas require the participation of both developed and developing countries. The correction of global imbalances by (Plaza type) agreements among a few industrial countries is found to be no longer feasible and solutions arrived at without the full participation of developing countries, are unlikely to work (i.e. the CCL, the SDRM, the HIPC strategy) Solutions to global problems require the full involvement of developing countries in a manner commensurate with their economic importance.

Capital flows to developing countries have seen a robust revival after the slump following the East Asian financial crisis. This paper argues that in the wake of financial liberalization, supply-side factors rather than the financing requirements of developing countries explain the surge in cross-border flows. Increasingly a small number of centralized financial institutions intermediate global capital flows and the investment decisions of a few individuals in these institutions determine the nature of the “exposure” of the global financial system. This has implications for the accumulation of risk and vulnerability to financial crisis in markets where agents tend to herd.

As the world experiences its worst financial crisis since the 1930s, policymakers are increasingly calling for a “Bretton Woods II”. To claim the mantle of the 1944 conference, officials will need to be more creative about global financial reform than they have been so far in the three areas where the Bretton Woods architects innovated: 1) the regulation of international financial markets, 2) the management of global imbalances, and 3) the promotion of international development. Important to all these topics is also the need to adjust global financial governance to today’s more decentralized international political environment.

There is intense debate on the origins of the current crisis. The causes of the world’s current financial and economic meltdown can be traced to two different factors: regulatory failures and macroeconomic imbalances.

It seems that global imbalances are here to stay, at least for a while. Curbing them definitively is hard to achieve when economies are managed with no explicit attention to global consistency.

There is a great need for coordination and cooperation. The International Financial System (IFS) has shown flaws in dealing with the imbalances. Changes are necessary. The sustainability of the recovery process may profit from a reformed system, which takes into account the current global economic scenario.

The purpose of this paper is to focus on the IFS, its role in the current crisis and in preventing and addressing future ones. History has taught us at least one lesson – crises are cyclical, but their frequency and effects can be managed and mitigated.

Sustainable development entails three interrelated objectives - economic, social and ecological. The Millennium Development Goals (MDGs), which set clear targets for reducing poverty, hunger, disease, illiteracy, environmental degradation, and discrimination against women by 2015 can be seen as operationalising the objectives of sustainable development. Sustained growth is a fundamental determinant of reducing poverty because it enables households to increase their income expenditure and it also provides the government with resources to provide infrastructure and social services. During the 1970s, Sub Sahara Africa borrowed heavily but these loans did not promote sustainable growth of output and exports. The recession of the early 1980s, the increase in world interest rates and the collapse of Africa's terms of trade ignited the debt crisis. For more than two decades, Sub Sahara African countries have faced a debt crisis that has retarded growth, undermined poverty reduction and degraded the environment.

Although the HIPC program is more ambitious than previous debt reduction programs in promising more and faster debt relief for more countries, it is not grounded analytically in a realistic conception of the amount of debt reduction needed for most countries to achieve a sustainable path of growth and poverty reduction. African countries are in poverty traps with levels of income too low to cover basic needs. Debt servicing reduces the ability of governments to provide basic social services and build the necessary physical infrastructure to promote economic growth. Africa needs 100 percent debt cancellation and the provision of grants to support an investment program to promote growth and poverty eradication.

The HIPC Initiative has been linked to implementation of a strategy to reduce poverty in poor countries particularly by utilizing savings from debt relief to increase expenditure in the social services. Increased social sector spending is commendable but it is not on itself a growth strategy that can eradicate poverty in a sustainable way. SubSaharan Africa is the only region in which both the proportion and absolute number of people in extreme income poverty have been rising sharply. Most countries in SSA are off track to achieve most of the MDG goals. In almost all African countries a big push in investment is needed to attain the Millennium Development Goals. It will require a significant increase of investment spending, especially in areas of infrastructure and human capital needed to attract private investment.

Even with 100 percent debt cancellation, improved governance and effective public expenditure prioritization, domestic resources will not be adequate to break the poverty 2 trap, and additional external assistance will be required. In order to attain the millennium development goals, African countries need to draw up a 10-year perspective plan that is derived from a detailed analysis of what it will take to achieve all MDGs. The three-year poverty reduction strategy papers should be implementing instruments of the perspective plan.

Since the start of the drafting process of Basel 2 ten years ago the agreement has assumed a central position in the reform of international rules on financial regulation. The finalization of Basel 2 has proved much more difficult than anticipated by the initiators of the negotiation process owing to the complexity of its subject-matter, its global scope and the moving target of what regulatory rules are expected to achieve in rapidly changing conditions. These features of Basel 2 are mutually related: its complexity reflects the challenge of designing global rules suitable for institutions of different levels of sophistication in countries at different levels of development as well as of responding to continuing financial innovation and, most recently, to a cross-border financial crisis triggered by inadequate control of risks, malpractice and regulatory failures in countries with the most sophisticated financial systems.

Do nations have the policy space to deploy capital controls in order to prevent and mitigate financial crises? This paper examines the extent to which measures to mitigate this crisis and prevent future crises are permissible under a variety of bilateral, regional and multilateral trade and investment agreements. It is found that the United States trade and investment agreements, and to a lesser extent the WTO, leave little room to manoeuvre when it comes to capital controls. This is the case despite the increasing economic evidence showing that certain capital controls can be useful in preventing or mitigating financial crises. It also stands in contrast with investment rules under the IMF, OECD and the treaties of most capital exporting nations which allow for at least the temporary use of capital controls as a safeguard measure. Drawing on the comparative analysis conducted in the paper, the author offers a range of policies that could be deployed to make the United States investment rules more consistent with the rules of its peers and the economic realities of the 21st century

Climate change creates a crisis for economic development, which has historically been synonymous with high-carbon growth. It is essential for the world economy to make a rapid transition to a new, low-carbon style of growth. Developed countries might be expected to pay a large share of the total global costs of this transition, due to their ability to pay and their historical responsibility for causing the problem.

Two-thirds of the world’s greenhouse gas emission reduction potential through 2030 is located in developing countries. More than half of that is in forestry, including reduction of emissions from deforestation and forest degradation (REDD), a top priority for near-term reductions. Beyond REDD, achieving the full potential of emission reduction in developing countries requires investment of hundreds of billions of dollars in energy, transport, and other sectors. One source of funding is the sale of offsets to developed countries – expanding the opportunities created by the Clean Development Mechanism (CDM). The value of such opportunities depends on the scope of a future trading system, and on the initial distribution of carbon allowances.

The ongoing global financial systemic crisis and the “Bretton Woods II” processes under way in various fora seem likely to result in reformed national and global regimes for governance, stronger regulations in public interest, and their stricter enforcement. However, these will be incomplete and may not even be successful unless there are parallel efforts in the WTO and its ongoing Doha Round, in particular on “Trade in Financial Services,” where lacking data, negotiations are being conducted on faith and failed theory. A reformed global regime on finance will be incompatible with a trading system outcome of liberalised trade in financial services and capital movements. This is an area needing attention at the highest levels of developing-country governments.

The current financial crisis shows that pro-cyclical behavior is inherent to financial markets. Regulation reform needs to be comprehensive, to avoid regulatory arbitrage, and counter-cyclical, to manage the effects of boom-bust cycles. Policy makers now agree on implementing counter-cyclical regulation for financial regulation reform to improve capital, provisions, and liquidity requirements. The paper discusses different instruments that can be used in parallel, referring to the successful Spanish central bank use of counter-cyclical dynamic provisioning. Arguments in favor of implementing counter-cyclical regulation through rules, rather than discretion, as well as the trade-offs between stronger regulation and access to credit are highlighted

Climate change is an increasingly serious threat to lives and livelihoods in every part of the world. It is also a crisis for economic development, which has historically been synonymous with high-carbon growth. By now the earth’s atmosphere is filled, almost to its sustainable limit, primarily by the past emissions from today’s developed countries. It is essential, therefore, to make the transition to a new, low-carbon style of economic growth.

The efficient solution is to find the least-cost opportunities to reduce emissions, regardless of location. Responsibility for funding these reductions is a separate question; developed countries might be expected to pay a large share of total global costs, due to current ability to pay and to historical responsibility for creating the problem. What new institutions and mechanisms are needed to finance the least-cost global solution to the climate crisis?

According to recent UNFCCC estimates, two-thirds of the world’s greenhouse gas emission reduction potential through 2030 is located in developing countries. More than half of the opportunities to reduce carbon emissions in developing countries are in forestry, including reduction of emissions from deforestation and forest degradation (REDD). Separate funding and new institutions to address REDD measures could be a part of a new climate agreement.

More broadly, emission reduction in developing countries will require substantial investment in energy, transport, and other sectors; hundreds of billions of dollars per year will be needed to realize the full potential of emission reduction. One of the easiest ways to obtain financing for these investments may be the sale of offsets to developed countries – roughly speaking, expanding the opportunity created by the Clean Development Mechanism (CDM). The value of such opportunities depends both on the scope of a future trading system, and on the initial distribution of carbon allowances.

Adaptation to the unavoidable damages from climate change is an additional financial burden on developing countries, and cannot be addressed through carbon markets. Adaptation measures, however, may have more direct synergy with development plans, since they often involve improvements in infrastructure, public health, and disaster preparedness. Estimates of global adaptation needs are very uncertain, but may be in the tens of billions of US dollars annually.

Existing financial flows and institutions fall far short of what is needed. Climate funding available under the UNFCCC and the Kyoto Protocol is less than $10 billion per year, most of it provided through CDM; this funding has been heavily concentrated to date in China and a few other large emerging economies. Additional funding is provided by the World Bank’s Climate Investment Funds, which are likely to provide $1.5 billion per year for four years; and by 1 Senior Economist, Stockholm Environment Institute-US Center, e-mail Frank.Ackerman@sei-us.org. 2 bilateral aid from Japan, Norway, Germany, and others; the annual total of all multilateral and bilateral climate funding is less than $15 billion. This is too small, by more than an order of magnitude, to meet the needs for climate investments in developing countries.

Existing climate funding mechanisms and investment flows are not only dangerously small, thereby risking failure to address the problem before it is too late to solve it. They are also, in part, channeled through institutions such as the World Bank that stand outside the existing multilateral UNFCCC process; past World Bank aid has involved strict conditionality, requiring tight fiscal discipline and structural reforms in exchange for funding. Donor preferences frequently distort bilateral and some multilateral aid efforts; funding for climate investments could be weighted down by the reappearance of similar obstacles. Streamlined and improved institutional arrangements, such as a much-simplified replacement for CDM, will be needed to address the climate problem in a timely manner. Some observers have suggested the need for a new World Environment Organization (or World Environment and Development Organization) to manage international cooperation on climate and related issues.

Finally, it is worth remembering that success in international environmental cooperation is a real possibility, as shown by the example of the Montreal Protocol for reduction of ozone-depleting substances (ODSs). A number of lessons can be learned from the success of the Montreal Protocol: it paid nearly all the net costs of compliance for developing countries; its governance structure put developed and developing countries on an equal footing, requiring agreement from both groups for all decisions; it successfully addressed concerns about trade distortions; and it set a threshold for per capita emissions, above which developing countries “graduated” into responsibility for meeting the developed-country standards. With this cooperative structure in place, the parties to the Montreal Protocol moved rapidly toward reduction of ODSs, finding that costs were lower and benefits were higher than had been anticipated in advance. Could the same turn out to be true for the reduction of greenhouse gases?

This paper examines the 2008 global food price crisis, identifying long- and short-term causes as well as the two factors which distinguish the 2008 food price increases from earlier episodes – speculation and diversion of food crops to biofuels. The paper contends that while most attention has been focused on factors including higher energy costs, decline in growth of agricultural production and increased demand from emerging economies, it is essential to examine the structural causes of growing food insecurity to understand what is really behind the food price crisis. It then explores the impact of several factors including systemic decline in investment in agricultural productivity; state’s reduced regulatory role in agricultural production and trade; indiscriminate opening of agricultural markets which has resulted in import surges, and emphasis on cash crops, on food security of developing nations.

The paper also examines both national and international responses to the crisis and goes on to propose several short-term and long-term measures to address the crisis. The implementation of the proposed policies, the paper argues, however depends on several prerequisites based on the principle of food sovereignty which would allow policy space for developing countries to protect their agriculture, markets, and livelihoods of farmers.

The international financial crisis is spreading. Most governments are searching for means to protect themselves and some are using "unconventional tools" of monetary and financial policy, alongside more "conventional" ones. Should policies to control international capital flows be a part of the government "toolkit" in these difficult times? This essay answers: YES. It describes the economic arguments for and against using capital controls, prudential regulations and other "capital management techniques" to manage international financial flows, presents empirical evidence on their impacts, and describes the variety of policies that many countries have successfully applied to enhance macroeconomic and financial stability, create policy space, and achieve other national development goals.

As the world experiences its worst financial crisis since the 1930s, policymakers are increasingly calling for a “Bretton Woods II”. This paper argues that officials will need to think more creatively and ambitiously about international financial reform than they have done so far if they are to claim the mantle of the 1944 Bretton Woods conference.

The first section of the paper describes how the global financial crisis of the early 1930s generated bold thinking about the need to assert public authority more centrally into the realm of international finance. This thinking culminated in three sets of proposals discussed during the Bretton Woods negotiations which were genuine innovations in global financial governance: (i) those designed to regulate international financial markets more tightly, (ii) those designed to address global imbalances, and (iii) those designed to promote international development.

The dramatic world food price spikes in 2007-08 were largely a result of speculative activity in global commodity markets, enabled by earlier financial deregulation measures and the flight from Wall Street. Despite the recent fall in agricultural prices in world trade, the food crisis has exacerbated in many developing countries where food prices remain high and even continue to increase. The financial crisis increases food insecurity by constraining fiscal policies and food imports in balance of payments constrained developing countries, causing exchange rate devaluation through capital flight, and adversely affecting employment and incomes, thereby reducing the ability to purchase food.

In the last two decades, there has been a global sea change in the theory and practice of central banking. The “best practice” now commonly prescribed by the international financial institutions such as the International Monetary Fund (IMF), as well as by many prominent economists, is best characterized as the “neo-liberal” approach to central banking. The main components of this recipe are: (1) central bank independence, (2) a focus on inflation fighting (including adopting formal “inflation targeting”) and (3) the use of indirect methods of monetary policy (i.e., short-term interest rates as opposed to direct methods such as credit ceilings).

Facing the deepest financial crisis since the Great Depression, governments and monetary authorities around the world have acted swiftly and forcefully to coordinate their policy responses. Yet, traditional macroeconomic remedies, such as looser monetary policy, are weakened in a global credit crunch and situations of excess capacity in many industrialized countries. Fiscal stimulus packages which are being advocated as a complement to monetary policy are also likely to be ineffective: on the one hand, many emerging countries may not be in the position to afford counter-cyclical policies due to their lack of fiscal space or constraints on foreign exchanges. On the other hand, industrialized countries may face the issue of Ricardian Equivalence (i.e., government deficits are anticipated by individuals who increase their saving because they realize that borrowing today has to be repaid later).

As the crisis now becomes a self-fulfilling prophecy, there is a major risk of global deflation. Drawing from lessons of history, this note discusses possible steps for avoiding a long, protracted recession. It proposes a bold new recovery plan for global development that would make fiscal stimulus packages work by channeling funding from developed countries to projects and programs that release bottlenecks to growth in developing countries. Such a facility would provide business opportunities for industrialized economies and stimulate both their domestic demand and exports. For countries with large foreign exchange reserves, it would be a mechanism to restore stability in global trade and manage their surpluses in the most efficient way possible. For poor countries, it would provide the much needed resources for domestic or regional projects that meet the market test—i.e. those projects with good returns

The climate policy debate has advanced from science to economics, with a growing focus on creating carbon markets and getting the prices right. This is necessary but far from sufficient for an effective and equitable response to the climate challenge. While market-oriented forces such as the IMF and the World Bank have focused almost exclusively on carbon markets, others, such as the Human Development Report and the Stern Review, have emphasized the need for complementary, non-market climate initiatives to promote energy conservation and above all, to create and adopt new low-carbon technologies.

After a slump in cross-border financial flows of capital in the years following the East Asian financial crisis, capital flows to developing countries have seen a robust revival in recent years. This paper attempts to examine: (i) the factors responsible for this revival and surge in capital flows into developing countries; (ii) the qualitative changes in financial integration that are accompanying this surge; and (iii) the impact that this surge is having on financial volatility and vulnerability, macroeconomic management and growth, in countries that have been “successful” in attracting such flows.

It argues that in the wake of financial liberalization that facilitates cross-border flows of capital, supply-side factors rather than the financing requirements of developing countries, explain the surge. Financial liberalization and the globalization of finance, have also resulted in changes in the financial structure – the markets, institutions and instruments that define the global financial architecture. Increasingly a small number of centralized financial institutions intermediate global capital flows and the investment decisions of a few individuals in these institutions determine the nature of the “exposure” of the global financial system. This has implications for the accumulation of risk and vulnerability to financial crisis in markets where agents tend to herd.

Associated with this increasing risk, are changes in the business practices and motivations of financial firms that reduce the role of finance in ensuring broad-based economic growth. Together with the constraints on fiscal, exchange rate and monetary policy set by large capital flows, this can limit the prospects of long-run, noninflationary growth as well.

This paper has three objectives. It discusses the main developments and new issues that have arisen after the Monterrey Conference. It critically reviews the Monterrey Consensus on external debt. It provides a set of recommendations for reviewing the implementation of the Monterrey Consensus, to take place in Doha, Qatar, in December 2008. In doing so, the paper discusses the shortcomings of standard debt sustainability exercises; it presents new results on the additionality of debt relief; and discusses the need for developing new financial instruments and institutions aimed at reducing the risks of sovereign and external borrowing. The paper also briefly discusses issues related to the definition of external debt and touches on the odious debt debate.

Much higher food prices are putting the health and lives of the world’s poorest at severe risk. This paper proposes a mechanism to compensate for the effects of higher import prices on the poor, which can be implemented immediately. Help against hunger must be without conditions. Historical experience suggests that in order to avoid undue conditionality creeping in, any meaningful compensation mechanism must be based at the UN, rather than the Bretton Woods institutions or any other organization dominated by the North. Finally, to emulate a successful feature of the Marshall Plan, self-monitoring by recipients preparing and implementing anti-hunger programs is proposed.

Access by emerging market countries to private capital markets can be unreliable, limited and costly, and thus lending through multilateral development banks (MDBs) needs to continue playing an important role in the international development architecture. At the same time there are a number of important reasons why lending by regional and sub-regional development banks (RDBs, SRDBs) can and should play an important and valuable complementary role to multilateral lending and institutions.

The main issues and conclusions discussed in our paper are the following. Firstly we analyse the successful experiences of the European Investment Bank (EIB) and the Andean Development Corporation (CAF). European integration offers very valuable precedents and lessons; the EIB was central to the process of European integration since the beginning, as it was especially created to support this process. An interesting question is whether EIB lending to developing countries could not be expanded more. The CAF on the other hand is unique in being almost exclusively owned by developing countries. A noteworthy feature is also the exponential growth of its loans since 2000 and the great average speed at which their loans are approved, with an average period of around 3–4 months. These, and other positive features of the CAF provide very good lessons for potential new development banks.

Non-state actors have come to exert an increased influence on the management, decision-making, and activities of the leading international financial institutions, the IMF and the World Bank. This has important implications for the mandates of the IFIs, global governance, and the interests of developing countries. The paper distinguishes three broad categories of non-state actors – non-governmental organizations, standardsetting institutions, and credit rating agencies – each of which plays a distinct and useful role. NGOs have helped to broaden the development agenda to include the social and environmental impact of the IFIs’ activities and pressed to make the IMF and the World Bank more open and sensitive to public opinion. Improving standards in accounting, auditing, banking, insurance, and security markets should help financial markets to function more efficiently while improving transparency and accountability.

Nevertheless, there are also serious concerns. The increased insertion of nonstate actors has served to amplify the already disproportionate power and influence of the industrialized countries in the decision-making fora of the IFIs. The issue of developing country representation in global governance has, therefore, become only more pressing. There is also the question of the increased burden of cost entailed by an ever-broadening development agenda and demands for increased and improved information that the developing countries must provide.

The paper argues that the issue is not one of questioning or fighting the legitimate role of the non-state actors, but one of pace and degree of change that the IFIs may insist on as a condition for their support and operations in the client countries. It identifies six areas of concern that need consideration in the discussion on improving global governance. These are: NGOs’ own accountability, the costs and benefits of additional information, the implications of standards and codes on good practices, the ideological issues they give rise to, the need for interim measures for countries unable to meet the prevailing standards and codes, and the need for improving representation of developing countries in global governance.