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“An opportunity to modernise”
– by Heidemarie Wieczorek-Zeul
What kind of economic policy do we need
in this global crisis?
To begin with, all the emergency operations that are being
discussed and planned will have to take place. Germany
has adopted a programme to protect struggling
banks, and we have also passed two stimulus packages.
There can be no doubt that the financial sector has to
be stabilised and the credit crunch overcome. Otherwise,
the global economy cannot thrive. Obviously, preventive
steps have to be taken too. Crises like this one
must never happen again. Moreover, it is important that
developing and emerging countries be able to actively
invest against this crisis. The public discussion in Germany
has not taken sufficient account of this aspect.
But aren’t there conflicts of interest? As the
US and European governments go even further
into debt, loans for other countries will become
ever more expensive. Economically weaker
partners could be crowded out.
That is a concern all developing countries share.
Latin American partners pointed this problem out in
Is there any way to get around it?
Basically, whenever industrial countries do anything,
we need to see how their action will affect global development
and developing countries. We always have
to keep that in mind. I should take advantage of the
World Bank and IMF Spring Meeting to come up with
some kind of stimulus package for developing and
emerging nations. Investments are needed, and multilateral
financing institutions will have to provide the
Are you saying that official development assistance
(ODA) has to be ramped up worldwide –
possibly beyond the levels already promised?
Yes, and it is obvious, at any rate, that we must not
cut ODA. It was a good sign that, in spite of the global
finance crisis, the UN Financing for Development
Summit in Doha in December did not fall back behind
the decisions made in Monterrey in 2002.
Donor promises must be kept. But in this crisis, multilateral
institutions play a special role; after all, bilateral
donors are, for understandable reasons, more
preoccupied with their own worries than usual.
Nonetheless, the German stimulus package has set
aside € 100 million that will be given to the World
Bank for infrastructure programmes. Moreover, we
have increased our development budget in 2009.
Nonetheless, the funds of international finance
institutions might run out soon. For instance,
London’s Financial Times has been discussing
speculations that the UK might need a
stimulus package from the International Monetary
Fund. If so, we might see crowding-out effects
There is no point in long debates about speculations.
It matters much more that the IMF would be able to
create additional liquidity very fast if the US played
along. Back in 1997, an IMF agreement was reached
to double the Fund’s Special Drawing Rights, and the
Bundestag, Germany’s parliament, ratified the agreement
in 2000. The required parliamentary majorities
have also been reached in other countries. We are still
waiting for the US Congress to ratify the decision.
Once it does so, Special Drawing Rights would practically
double from around $ 30 billion to around $ 60
billion overnight. That would be a step forward.
In the current crisis, the IMF seems to be more
generous than it used to be. Or am I under the
In emergency situations, not all criteria are tested as
strictly as they usually would be. Everyone involved
realises that things have to move fast. We simply
cannot afford to spend months discussing every
single little detail.
Do you sense any resentment among
developing-country governments because
rich nations are now pursuing a different
policy than the IMF and the World Bank
preached 10 years ago during the Asian
On the one hand, developing countries are clearly
saying: “You have to do something because, this
time, you are responsible for the crisis that is hurting
us.” And they have a point. On the other hand,
they do appreciate that industrial countries recently
seem to have begun to learn.
To what extent have major emerging
nations – with great trade surpluses and
possibly undervalued currencies – contributed
to the crisis? Tim Geithner, the new
US treasury secretary, has argued that
way, saying that China is partly responsible.
The Chinese do not seem to see things
There is no point in publicly communicating criticism
back and forth across the oceans. Right now,
the world needs coordinated constructive economic
policy. It is a plain truth that the current crisis is
rooted in neoliberal glorification of markets and
disrespect for the state.
Is it too early to tell how China will respond?
The People's Republic is both a developing
country and a donor. It seems that China basically
accepts the IMF the way it is, but demands
That’s the way I have understood things up to
It also looks like China and India will proba-
bly pursue policies similar to those of traditional
donors, given their African engagement.
They will probably show less interest in
policy space for African governments than in
loans being repaid. Indeed, some say that they
are already stricter than established donors.
To put things diplomatically, I think there is a natural
tendency for industrial and emerging nations to
pursue common criteria and standards the more
they coordinate their actions within the G20. But
what things will look like in the end is a matter of
diplomacy and negotiation.
Is the G20 the right place for making eco-
nomic policy for the whole world? The poorest
countries are not represented, and sometimes
it seems as though they are being sidelined.
There is a risk of that happening. However, we
achieved an agreement in Doha on holding a UN assembly
on the global economic crisis this year. So
the debate will go on.
But the G20 is setting the tone.
It would be wrong to pit the G20 against the UN.
The global economy is in the worst crisis since the
1930s. We have to pragmatically use all means and
forums to tackle these problems. Obviously, the
African Union must represent its continent at the
next G20 meeting in London in April – and that will
happen. On the other hand, I have always said that
the various global-governance forums need a linkage
with the UN, so that we can gradually achieve
greater coherence. Of course, we need to have something
like a UN Security Council for economic, social
and ecological issues. It makes no sense for institutions
and committees to jealously keep watch over
each other; we have to cooperate.
Will the G20 replace the G8?
There are various forecasts. I imagine there will be an
interest in meeting in the smaller setting in the long
term. At any rate, things will not get easier with the
G20. I doubt we would have passed the climate resolutions
we reached at Heiligendamm at a G20 meeting.
But as I said, we’re not going to get very far without
a bridge to the UN either.
What does that mean in practical terms? People
at many different levels are thinking about reforms
of international finance institutions and
other crucial issues.
Yes, there are several commissions and committees.
But we are in touch. For instance, I am a member of
the UN commission that is directed by Joseph Stiglitz,
the eminent economist, with the mission of discussing
issues of global economic policy. Ernesto
Zedillo, the former president of Mexico, is directing a
similar committee at the World Bank, and we have
known each other for a long time. Trevor Manuel, the
finance minister of South Africa, is working on reforms
at the IMF, and the two of us were the special
UN envoys at the Doha summit in December.
TheG20 also set up working groups to tackle these issues,
and we do talk to each other. We are not working
blindly, or pursuing conflicting agendas.
So what will happen at the international finance
The World Bank just established an additional position
for sub-Saharan Africa in its executive board.
But the basic votes of developing countries must be
boosted too. Overall, representation of emerging
countries will certainly improve considerably at international
finance institutions. But more voting
rights also entail greater financial involvement. We
need criteria. China is already part of the International
Development Association, IDA, the member of the
World Bank Group that provides concessionary loans
to the poorest countries. China has also joined the
African Development Bank. These steps are welcome,
but they do not mark the end of the journey.
At the beginning of our conversation, you said
that rules had to be put in place to prevent
financial crises like the current one in the
future. What exactly needs to be done?
We cannot afford completely unregulated areas. The
toxic, highly speculated financial deals that drove a
short-term economy were all born in some uncontrolled
spaces and tax havens. Today, everyone seems
to be expressing outrage over these developments.
But we have to make sure that the lessons are not
forgotten once we have overcome the worst of the
Who is responsible for designing and enforcing
rules on international finance?
For pragmatic reasons, I would always say the Financial
Stability Forum, which was established at the
Bank for International Settlements in Basle after the
Asian crisis. Admittedly, the developing countries are
not sufficiently involved yet, but efforts are underway
to expand the circle. The situation is certainly not
completely satisfactory, and there is still a lot of work
to do. But the world cannot wait for a new institution
to be created. I also believe that the IMF should be
entrusted with monitoring and oversight. However,
the Fund would, of course, also have to express criticism
of the US, if need be, and so far, that has never
The Indian government likes to see itself as a
leader among developing countries. At the
same time, Indians are quite unpopular for
various reasons in Africa – among other things
because many people of Indian descent are in
the money-lending business. Do developing
countries speak with one voice at all?
A lot of differences have been evident for some time
now. For instance, the least developed countries do
not pursue the same goals as do major emergingmarket
countries in WTO negotiations. Trevor
Manuel has long been saying sarcastically that the
G7, which represents major industrial nations, is not
the only organisation that needs to be reformed – the
G77, which represents developing nations, does too.
What do the least developed nations need most
in this current crisis?
The finance sectors of these economies have hardly
suffered from the current crisis because they are
barely integrated in the international finance sys-
tem. But these countries certainly are feeling the
harsh effects of the economic crisis. That’s why
they need investments, that’s why they need development-
cooperation funds. And that is especially
true of all areas related to Millennium Development
Goals, such as agriculture, food supply, access
to renewable energy, energy efficiency and so
on. The World Bank can and must do a lot with
concessionary loans, and Robert Zoellick, its president,
has already spoken of speeding up measures,
both at IDA and the IBRD, the International Bank
for Reconstruction and Development, which supports
middle-income countries, among others.
Such investments serve to crank up the economies
of poor countries. Second, we have to make sure
that micro-finance institutions remain stable. If
they get entangled in this crisis, the poorest of the
poor would be affected.
Are we facing a new age of protectionism?
There is certainly a tendency in rich countries to protect
jobs, which can detrimentally affect weaker competitors
who cannot resort to such measures. We
have to keep our eyes open. I am pleased that President
Barack Obama has come out strongly against
the “buy American” proposals in the US Congress.
The motto of globalisation is “buy international”.
But the WTO’s Doha Round is not making
Up to now, that’s unfortunately true. This crisis
would actually be the right moment to make good on
all the promises to the poorest developing countries.
That would stimulate their economies without hurting
rich countries, and it would get things moving.
WTO Director-General Pascal Lamy has proposed
such an “early harvest” approach, and I endorse it.
At the moment, the automotive industry is
making as many headlines in the business
papers as the financial sector. This key industry
is having a hard time because of
dropping demand. Moreover, a number of
emerging economies have become competitive
in this sector. Are subsidies not especially
problematic here? At the same time, we
know that individual mobility is ecologically
Your last point is the reason, along with jobs, that
we need massive investments and far-reaching innovations.
Carbon emissions have to be reduced
dramatically to slow down climate change. These
questions – the global economy, development and
the climate – have to be taken together, and that includes
finance decisions. Infrastructure is another
sector where change is necessary – just consider
electric power supply and energy efficiency. The
global financial and economic crisis can thus be
seen as a tremendous opportunity to modernise.
In contrast, the worst-case scenario would be
stimulating economies through higher military
spending. This does not seem likely at
the moment, but economic crises have often
led to political tension throughout history.
The best thing that President Obama could do
would be to drastically cut military spending and
recommit those funds to productive sectors. Let’s
not forget that the world spent $ 1.3 trillion on armaments
last year. That does not lead to a better future.
The world needs to disarm, and to fight
hunger, poverty unemployment and climate
change. That is the road to the future.
Questions by Hans Dembowski.