On April 24, 2009, US Treasury Secretary Timothy Geithner hosted meetings with finance ministers from the world’s top economies to discuss increased oversight of the global financial system in the wake of the meltdown. The meetings preceded semi-annual gatherings of the International Monetary Fund (IMF) and World Bank in Washington, DC.
The April G20 meeting in London secured a lot of positive media attention after world leaders announced a global package of $1.1 trillion for economic recovery and reform, mostly for the IMF. The plan, however, did not include specific information about the much needed operational reforms to the IMF and the World Bank.
Speaking five months later on the eve of the September 2009 G20 summit, Geithner called for higher regulatory standards:
As you know, the United States Congress has a very aggressive schedule to legislate sweeping changes to our financial system that are going to make—provide greater protection for consumers and investors to create a more stable financial system and to try to make sure that taxpayers are no longer on the hook in the future to bear the burdens of financial crises. But we can’t do this alone. If we continue to allow risk and leverage to migrate where standards are weakest, the entire US global financial system will be less stable in the future. We need to see competition for stronger standards, not weaker standards.
How far will the G20 go on the regulation of financial markets? A September 2009 report from Public Citizen’s Global Trade Watch emphasized that the World Trade Organization (WTO) has long advanced extreme financial deregulation under the guise of trade agreements that will undermine the current professed push for increasing regulation.
Lori Wallach of Public Citizen warned of the incredible contradiction: “While the summit communiqué is going to, on one hand, talk about regulating finance, at the same time, they’re going to talk about adopting the Doha WTO expansion, and a huge part of that agreement is deregulating finance.” Wallach continued, “The problem is that the G20 commitments aren’t binding. It’s a commitment of faith on the countries about what they’re going to do domestically. But the WTO rules are very binding and enforceable by sanctions. And so, it’s hard to know if it’s ignorance or it’s cynicism, but if the Doha round goes into place, all of the world’s countries will have a commitment not only to keep in place the existing WTO deregulation dictates on finance, but to deregulate further, right in the midst of what seems to be a global commitment to re-regulate.”
The WTO has an agreement called the Financial Services Agreement that explicitly applies to over a hundred countries and mandates major deregulation. For instance, it has a rule that you cannot have a domestic law that limits the size of a financial service firm—insurance, banking, securities—even if it applies equally to foreign and domestic companies. So while everyone talks about putting into place rules regarding being “too big to fail,” there is a WTO dictate that forbids such regulation.
In short, these binding WTO rules require countries to maintain the same policies that led to the financial crisis. This agreement was never brought to a vote in any Congress.
Jesse Griffiths, coordinator of the London-based Bretton Woods Project, under the International Finance for Sustainability program of the Mott Foundation’s environmental division, said, “The ideology of the IMF and World Bank has failed and the accompanying structures have failed.” He added, “In addition to the current enormous economic instability, the system has failed to create equity and eradicate poverty; it has failed to ensure that human rights are protected, and it has failed to address environmental issues.”
The failures of these global entities have not prevented President Obama from allowing their relatively free reign in relation to the US government. In June 2009, President Obama used his sixth signing statement to negate provisions of US legislation that would have compelled the World Bank to strengthen labor and environmental standards. When signing the $106 billion war-spending bill into law, Obama included a five-paragraph signing statement with the bill in which he also refused to require the Treasury Department to report to Congress on the activities of the World Bank and the IMF.
The sections rejected by Obama would have required his administration to direct its World Bank representatives to pressure that institution into using metrics that “fairly represent the value of internationally recognized workers” rights. Organized labor groups had pushed for a revision of those standards.
Another section rejected by Obama would have pushed the World Bank to account for the cost of greenhouse gas in pricing projects and to more fully disclose operating budgets.
Yet another section rejected by Obama in this signing statement would have required Geithner to develop a report with the heads of the World Bank and IMF, “detailing the steps taken to coordinate the activities of the World Bank and the Fund,” to eliminate overlap between the two.
Obama said in a statement that “provisions of this bill . . . would interfere with my constitutional authority to conduct foreign relations by directing the Executive to take certain positions in negotiating or discussions with international organizations and foreign governments.” He added, “I will not treat these provisions as limiting my ability to engage in foreign diplomacy or negotiations.”
Lori Wallach, “Report: US-Initiated WTO Rules Could Undermine Regulatory Overhaul of Global Finance,” Democracy Now!, September 25, 2009, www.democracynow.org/2009/9/25/report_us_initiated_wto_rules_could.
Public Citizen, Global Trade Watch, “New Report: No Meaningful Safeguards for Prudential Measures in WTO Financial Service Deregulation Agreements,” Public Citizen, September 23, 2009, http://www.citizen.org/hot_issues/issue.cfm?ID=2374.
Michael O’Brien, “Obama Issues Signing Statement on $106B War Bill,” Hill, June 26, 2009, http://thehill.com/homenews/administration/48019-obama-issues-signing-statement-on-106b-war-bill.
Maggie Jaruzel Potter, “NGO to G-20 Leaders: ‘World Bank and IMF Ideology Has Failed,’” Charles Stewart Mott Foundation Web site, April 24, 2009, http://www.mott.org/news/news/2009/G20.aspx.