Iceland proves that the debtor has rights too

Recent events in Iceland may have completed that country's transformation from free market, credit-fuelled billionaire playground to champion underdog. The Icelandic Parliament’s offer to the UK and Dutch governments earlier this week that it will pay back its debts but only at a level it can afford, could provide an invaluable model for how indebted nations can start putting the needs of their people ahead of the desires of the global financial markets.

Iceland has become synonymous with the financial crisis after nearly a decade of drinking neo-liberal kool aid. Around 2000 Iceland went on a deregulation and privatisation binge, totally reforming its financial sector, dropping bank reserve requirements, raising interest rates sharply, sucking in foreign capital and encouraging massive borrowing. It lived the dream being promoted by most European capitals at the time. So many millionaires flew into tiny Rejavik that a local politician demanded limitations on planes coming into the country.

Such a highly indebted financial system was, unsurprisingly, an early victim of the credit crunch, even though Iceland was not invested in sub-prime loans. Their situation was certainly not helped by Gordon Brown – proponent of the very policies Iceland had slavishly followed – who designated the country a terrorist state last October in order to seize Iceland’s banking assets in the UK. His attempt to derive popularity amongst investors at home neatly side-stepped the failure of UK authorities to adequately regulate UK investment.

The enormous anger that followed in Iceland toppled the government, and since then has radically reduced support in Iceland for the country’s membership of the EU. Most recently ordinary citizens have pushed members of the ruling coalition and opposition parties into opposing the enormous repayments being demanded by the British and Dutch governments.

That is the background to the decision earlier in the week of the Icelandic Parliament – the Althing –that it would repay its debts, but only at a rate it could afford. That is defined as spending no more than 4% growth in GDP to repay UK debts (and 2% for Dutch debts). If the economy doesn’t grow (because of inappropriate conditions forced on the country by creditors for example) Iceland pays nothing.

This decision, if implemented, is historical. Michael Hudson, Professor of Economics at the University of Missouri, has said that it is the first agreement “since the 1920s to subordinate foreign debt to the country’s ability to pay”. Hudson is referring to the 1920s debate that raged over capping Germany’s First World War reparations repayments. Keynes argued at the time that insisting on debt repayments beyond a level which also allowed the country to grow would inevitably mean forcing Germany to sell its assets or alternatively to borrow more money. He predicted the subsequent anger and discontent caused in Germany, which led straight into World War II.

But the situation which Iceland is trying to deal with is one which has faced scores of developing countries for decades – countries with less responsibility for the current mess than Iceland. Many countries still have to pay unreasonable levels of debt by selling off assets, skewing their economy towards unsustainable export trade and foregoing their right to development.

Iceland is correct to assert that states in debt have rights that trump the rights of creditors to bleed their economies dry. When companies and municipalities become insolvent, they are protected by work-out laws – but no such work-out mechanism exists when it comes to countries.

If limiting Iceland’s debt repayments is right, the same must apply, to an even greater extent, to poorer countries. Lebanon spends over 50% of government expenditure in servicing debts, Uruguay 32% and the Philippines 31%. These states top a much longer list of developing countries who understand from experience the injustice of indebtedness better than any European government.

Iceland has led the way in standing up for the rights of debtors. It may be followed by a range of indebted Eastern European countries who are also currently having their economic policies dictated to them by the International Monetary Fund.

This article was first published in the Morning Star.

Vultures who scavenge off the living

The financial sector may be low on fans in the current climate, but even at a party of bank managers, vulture funds would probably find themselves standing alone by the canapes.

Vulture funds - otherwise known as distressed debt funds - feed off the very poorest. Usually based in tax havens, these funds buy up developing country debts for a fraction of their real value and then sue the country in question for full immediate repayment, making massive profits in the process.

Unsurprisingly, companies suing developing countries often find themselves popular targets for Western campaigners.

In 2003, owner of Iceland supermarkets The Big Food Group was suing Guyana for over £12 million but dropped the case after an outcry from debt campaigners. In December 2002, Nestle dropped a similar claim of $6m (£3.6m) against Ethiopia.

But vultures are less well-known than Iceland or Nestle. As a result, so are the cases that they fight and - all too often - win. Even more shocking is the fact that well over half of these cases are fought in US or British courts.

Vultures were seen in action in 1997 when a company called Donegal, a vulture registered in the British Virgin Islands, sued Zambia in the High Court for $55m (£33m) on a debt it had bought for $3m (£1.8m).

This debt was generated as far back as 1979, when Zambia was lent $15m (£8.9m) by Romania in order to buy Romanian tractors and other farming machinery. Twenty years later, Zambia was unable to repay its debts and became eligible for debt relief. The Zambian and Romanian governments were negotiating the cancellation of the tractor debt as part of this process.

Enter Donegal International, a fund set up purely to purchase this debt and run by US businessman Michael Sheehan - otherwise known as "Goldfinger."

Donegal was able to purchase the debt from Romania for $3.3m (£1.9m) and then sue Zambia in British courts for the full $55m - eventually winning $15m (£8.9m) in 2007.

In essence, some of the recent debt relief that Zambia had been given by countries like Britain was snatched back by a vulture fund.

Zambia is far from alone. The International Monetary Fund claims that at least 54 companies have taken legal action against 12 of the world's poorest countries, for claims amounting to $1.5 billion (£900m).

Vulture action is ongoing against Ethiopia, Cameroon, the Democratic Republic of Congo and others.

A company called FG Hemisphere has been awarded $100 million (£59.8m) against the Democratic Republic of Congo and is now seeking the money in jurisdictions including Hong Kong, South Africa and the US.

The company recently won a court order in the US for fines of up to $80,000 (£47,860) a week against the war-torn DRC after it failed to disclose all of its assets across the world.

And even this isn't the whole picture. It doesn't include, for instance, "less poor" countries such as Argentina, which is facing a case brought by a vulture fund called NML.

NML bought Argentinian bonds that were defaulted on during the country's 2001 financial meltdown. It is currently using British courts to try to recover payment against assets that Argentina might have in Britain.

So it was particularly good news when the British government announced its intention last week to prevent these funds - in effect - from using British courts. The government's proposal is to apply the same terms to vulture-fund cases as are applied to all other creditors of countries deemed eligible for debt relief. So when cases come up before British courts, a large proportion of debt relief would be deducted from the total figure of the debt they seek to reclaim and vulture activity would become pointless.

Even better, in the US, Democrat Congresswoman Maxine Waters is leading the charge to ensure that vultures cannot use US courts to "profiteer," which is defined as making more than 6 per cent interest on any debt that is bought.

So this could be the end of the road for the vultures. It will certainly put a deep hole in their profits. But the case hasn't been won yet.

The government's consultation is open until October 8, and heavy lobbying can be expected from some in the financial sector. Moreover, the government's proposal only covers very poor countries which are eligible for debt relief.

The legislation will not come a moment too soon. As more and more countries fall into debt and the economic crisis worsens, vulture funds might seem like a recession-proof career.

"Vulture" is actually a somewhat favourable term for companies that scavenge not off the dead but the living. Closing them down is one small step towards combating the secrecy and irresponsibility of the financial system as a whole.

This article first appeared in the Morning Star.

Time to pay our climate debt

You can't blame developing countries for a lack of ambition when their solutions are much bolder than anything the G8 came up with. Two weeks ago the G8 summit came to a supposedly ‘groundbreaking' agreement on climate change. They were only let down, so the story goes, by developing country governments unwilling to commit themselves to bold enough cuts in their own carbon emission targets.

What actually happened was quite different, but the post-summit spin will be repeated again and again in the run-up to the United Nations Copenhagen Summit on climate change in December.

It should be familiar to us from World Trade Organisation talks over the last decade or more: while rich countries fail to agree on meaningful, let alone ambitious, reforms, larger developing countries are blamed for a ‘lack of ambition'. Indeed one of Government Minister Ed Milliband's key challenges for the year is apparently to get developing countries to "move away from business as usual".

The hypocrisy springs from an inability, or unwillingness, to grasp the nature of the environmental problem. Developing countries do not have primary responsibility for causing climate change, though their prospects for development are seriously hindered by it. That's why countries like Bolivia are proposing real solutions, and ones which terrify Western leaders: you can't, they believe, deal with climate change unless you accept that rich countries are in significant debt to the poorest and embrace the concept of redistribution.

Their argument is simple and based on a premise which isn't disputed. The rich world has gobbled up far more than its fair share of the earth's atmosphere in order to develop. In essence, industrialised countries colonised the atmosphere, in the same way they did other resources.

Those rich countries now owe poorer countries a two-fold ‘climate debt': first for over-using the Earth's capacity to absorb greenhouse gases and thereby denying atmospheric space to those who need it most. Second, they're in debt for the destruction that those emissions are causing.

The solution: rich countries need to ‘pay' through redistributing a fairer share of limited atmospheric space to poorer countries, as well as helping those countries adapt to the mess they find themselves in. Environmental justice is little different from other forms of economic justice - redistribute resources so that those who've lost out from a specific model enjoy the same benefits as those who've done well from it.

But ‘those who've done well' often don't see things in the same way. The limited and hazy agreements made by the G8 go nowhere near a fair distribution of the earth's atmosphere. Right up to 2050, even if an 80% cut in emissions were to be implemented, the G8 will consume far more of the earth's limited resources than they deserve, such is the scale of their current over-use.

The G8 could get away with cutting emissions by less than they should because they are demanding steep developing country cuts as well - recognising the need for overall emissions to shrink. In effect, developing countries would ‘subsidise' the necessary reduction which rich countries should really be taking, thereby preventing the developing world accessing the environmental space they need to build decent standards of living.

The climate debt of the rich world would just keep getting bigger. But rather like the banks who gambled with the future of millions of people, the richest propose that many of their debts to the poor simply be written off.

Payment of the other part of the debt - to help clean up the mess - is even further ‘off track', with tiny amounts of money committed to helping developing countries adapt and develop (or share, through relaxed intellectual property rights) new technologies to help their lower-carbon growth. Instead, proposals on the table to date include large quantities of new loans (so the real creditors become the debtors in economic terms) run through the World Bank, an institution which has championed high carbon growth for decades.

So the battle lines are drawn. Developing countries will not sit idly by while the rich go on consuming their dwindling chances for development and justice. They don't see why they should make the first move - sacrificing their own development before the rich pay off their debts.

That's why Bolivia has received substantial support for its proposals from a range of developing countries. Developed countries will spend the next six months in the run-up to the Copenhagen summit trying to marginalise these countries - doubtless with a good bit of bribery and arm-twisting along the way, helping them to meet the ‘ambition' the rich feel that the poor somehow owe them.

Of course, achieving a just outcome would not be easy. Predicting the future impacts of climate change is very difficult. Moreover, it would mean big changes to the way those who currently run the world live, and more political vision than we've seen for many decades. But the principles are clear: that the polluter pays for the excessive consumption of the rich, not the poor, and that in a civilised society redistribution is a critical way of righting historical injustice.

The developing world has set out its ambitious agenda. It's for us to move away from business as usual if we're to come close to meeting it.

Rich nations shut out the UN

The next fortnight will witness two summits of world leaders which will give radically different directions for recovery and reform of the global economy.

While one, the G8, harks back to the days when a handful of rich countries could happily control the world economy without interference, the other – the UN summit on the economic crisis – has been fought for tooth and nail by developing countries desperate to have a say on the direction of a new global economic order.

While G8 leaders will keep the agenda in their comfort zone, patting each other on the back for maintaining aid commitments, the UN will discuss a series of proposals for transformation of the global economy.

Unfortunately, while Gordon Brown will be beaming alongside the great and the good at the G8, the UN will be lucky if it gets a junior foreign minister to show up.

As so often, the idea of 192 countries daring to air their views on matters of global importance causes the British – and other western delegations – a touch of indigestion.

As such, a programme to discredit the UN process is already up and running – taking particular aim at the president of the UN general assembly Rev Miguel d'Escoto Brockmann. D'Escoto, a leftist priest from Nicaragua, has enraged rich countries by offering a radical paper for nations to debate which declares "[g]lobalisation without effective global or regional institutions is leading the world into chaos".

Against claims that his report lacked "inclusivity", d'Escoto has claimed that "it must speak to the hundreds of millions across the globe who have no other forum in which they can express their unique and often divergent perspectives".

Although the paper has been modified, rich country diplomats recently told Reuters that the UN summit was a "joke," a "tragedy" and a "waste of time", accusing d'Escoto of hijacking the conference in order to put capitalism on trial and threatening to boycott the summit.

The attitude is consistent with attempts by western leaders to marginalise the UN throughout the economic crisis. Despite repeated offers by secretary-general Ban Ki-moon to host crisis talks, rich countries have preferred their own company, adding major developing countries to their talks in the form of the G20 as a way of galvanising their huge financial reserves. At the London summit in April, the G20 nations made it clear that their vision for the UN's role was merely to "monitor the impact of the crisis on the poorest and most vulnerable".

The G8 – which should by rights be dead and buried – will meet for its annual photo shoot in Italy just two weeks later. With climate change and energy security high on the agenda, activists and developing world governments fear that the G8 will pre-empt a UN agreement on climate change in December, just as the G20 has pre-empted a global discussion of economic reform.

This should come as no surprise. The G6, forerunner to the G8, first met in Rambouillet in 1975, amid another economic crisis and with the aim, once again, of excluding the majority of the world from decision-making. For in 1974 the troublesome general assembly had again passed a far-reaching proposal for economic reform – the New International Economic Order – that outraged the west.

Had the world listened to the calls for change in the 1970s – for corporate regulation, fair prices for raw materials and just trade rules – we would not have embarked upon three decades of free market fundamentalism which have brought economy and environment to breaking point.

It is vital that the world learns its lesson this time. The G20's proposals in London were more of the same: the centrepiece being resuscitation of the International Monetary Fund, which seems to have learned little in the 10 years since its policy impositions turned a disaster into a crisis in south-east Asia. A recent report by European network EuroDad shows that, of 10 recent IMF loans to low-income countries, all required spending cuts, five mandated wage bill freezes or cuts, five forced governments to pass on food or fuel price rises to citizens and, while some improvements have been made, all include some sort of structural reforms such as privatisation, increases in indirect taxation or trade liberalisation.

Far more positive ideas for structural reform are presented by Nobel laureate Joseph Stiglitz who chairs a commission set-up by d'Escoto to offer solutions to the crisis. Clear that "the international trade and financial system needs to be profoundly reformed" the Stiglitz commission recommends a powerful global economic co-ordination council at the UN to bring the World Bank and IMF to heel, an end to the practice of forcing economic policies on developing countries, an international debt work-out process which would allow for far greater and fairer debt cancellation and a new reserve currency to replace the dollar.

Like many developing countries, Stiglitz is clear that "[w]ithout a truly inclusive response, recognising the importance of all countries in the reform process, global economic stability cannot be restored". D'Escoto himself has warned countries not to turn the UN summit into an "international charade" adding "I earnestly believe that this is an opportunity the world cannot afford not to take advantage of".

But the signs so far are not good. It is no surprise that the UN fails to play an effective role in international governance when the richest countries prevent it from doing so. Our leaders may scoff at D'Escoto's words, but many hundreds of millions of ordinary people across the world would surely agree with them: "The anti-values of greed, individualism and exclusion should be replaced by solidarity, common good and inclusion. The objective of our economic and social activity should not be the limitless, endless, mindless accumulation of wealth in a profit-centred economy but rather a people-centred economy that guarantees human needs, human rights, and human security, as well as conserves life on earth. These should be universal values that underpin our ethical and moral responsibility."

This article was first published on Comment is Free.

The New World Order?

Gordon Brown has pulled off an enormous feat – 12 years into government, he has been heralded in domestic and international media as the champion of a New World Order. But the high praise heaped on Brown needs to be tempered by a hard-headed look at whether the G20’s promises really contain sufficient vision to transform the global economy.

For the task facing the world is not simply to provide sufficient sticking plasters to patch up a flawed economy, but to transform that economy to one which puts jobs, justice and climate at its core. In particular, the Put People First platform of anti-poverty and climate campaigners, faith groups and trade unions were asking for a more accountable form of global governance to put footloose finance back in its box and a stimulus package to prevent the poor and the planet picking up the tab of the crisis.

The trillion dollar package?

Even looking at the symptoms, where the G20 appear to be travelling in the right direction, they are doing so at a snail’s pace. Of the much heralded $1.1 trillion ‘package’, still a fraction of Northern bank bail-outs, only a half is actually ‘in the bank’ and most of that had already been announced before the Summit, some of it diverted from existing aid funds . Only $50 billion is likely to reach the world’s 49 poorest countries, and no time period is specified on when it will be spent.

This money isn’t a coordinated stimulus. Most of it will take the form of loans and will be channelled through deeply compromised institutions that have been part and parcel of creating the crisis. The International Monetary Fund – which appeared on its last legs only 12 months ago, as developing countries accumulated trillions of dollars of reserves so they could avoid it – is the biggest winner gaining a $750 billion increase in the amount it can lend.

The IMF has been at the centre of the Third World Debt Crisis, a previous economic crisis from which many countries are still reeling. Rather than cancelling these long-overdue and deeply unjust debts, the G20’s solution is more loans through the same institutions. Uruguayan writer Eduardo Galeano called the decision “a joke of black humour” over the weekend, saying it will “rub salt in the wound."

The IMF still allocates as many votes to Belgium and the Netherlands as to China. Moreover, recent loans given to governments from Pakistan to Latvia, El Salvador to Serbia have prescribed the same sorts of austerity policies that turned a crash in South-East Asia in the late 1990s into an unprecedented crisis that saw 10 million people thrown out of work in Indonesia. Even the best bit of the IMF package – the issue of Special Drawing Rights (the IMF’s own ‘currency’) which come without conditions, will mostly benefit rich countries.

A further ‘trade finance’ package of money will enrich export credit agencies – like the UK’s Export Credit Guarantee Department, a government agency which guarantees more risky UK exports overseas. In effect it acts as a subsidy, most especially to enormous arms and carbon-intensive industries, leaving a trail of defaulted debt to be picked up by the UK taxpayer and poor country governments.

Finally the ‘trillion dollar’ package makes no clear commitment, only a vague aspiration, about spending on the type of Green New Deal which environmental groups have called for – ensuring growth in renewable energies.

Reforming the System

A clear call on the G20 was to clean up the financial system – to radically reform the current economy where finance is king, money has enormous freedom, and the main economic ‘activity’ in the world is making money from money. The G20 made a lot of noise about ending financial secrecy, particularly taking on tax havens, which is believed to rob developing countries of £250 billion a year (not to mention £100 billion from the UK).

Even rhetoric is a step forward in terms of recognising the importance of tax to development and democracy. Agreement to date will fall far short of closing down tax havens though, let alone properly regulating hedge funds and other ‘innovative’ financial funds. The ‘blacklist’ of ‘tax havens’ published subsequent to the summit names only four developing countries. Beyond that, an “appropriate degree of regulation and oversight” is promised for “systematically important financial institutions, markets, and instruments”, surely posing more questions than it answers.

Of course, none of these changes would have even been hinted at a year ago. But the point is that they will do nothing to fundamentally change a system which is not simply in economic, but moral crisis. Massively growing inequality, the scourge of the global economy, has changed the nature of the society we live in, turning life into a monopoly game which the vast majority of the world can never win.

Indeed in some ways, the G20 moves us clearly in the wrong direction. The G20 continues to believe that free trade – the liberalisation of markets and capital – are the solution. In fact, this is the very reason that countries have become so vulnerable. A recent report by ActionAid clearly shows how those countries that have become most dependent on capital inflows to their economy have been most vulnerable to the financial crisis .

International institutions have spent decades forcing developing countries to open their markets, destroying the livelihoods of small and subsistence producers, and meaning dozens of countries who used to be net exporters of basic agricultural products are now net importers. Today, tens of millions of people are dependent on over-consumption by the West, while starvation and hunger rises and falls with the commodity markets. The G20 made no critique of this horror which suggests the Victorian empire never ended.

Who are the G20 anyway?

As the IMF has been empowered by the G20, the United Nations has been consigned to its time-honoured role of clearing up the mess, only being asked to ‘monitor the impact of the crisis on the poorest and most vulnerable.’ This is extraordinary given that a United Nations summit will take place on the financial crisis in early June – something which the G77 groups of Southern countries had to fight tooth and nail for in the UN.

In the run-up to the G20, Nobel laureate Joseph Stiglitz produced a report which had been commissioned by the President of the UN General Assembly. Its findings go well beyond the G20’s ‘vision’, an international debt work-out process which would allow for far greater and fairer debt cancellation, an end to forced conditionality, a global Economic Council and a new reserve currency to replace the dollar. The last proposal was echoed by the Governor of China’s central bank Zhou Xiaochuan, calling also for an International Clearing Union – an idea dreamt up by economist John Maynard Keynes to help ensure that enormous the trade deficits and surpluses of recent years do not build up in future.

As campaigners, we need to take the UN Summit seriously. Stiglitz’s commission has gone out of its way to engage civil society organisations in its work. The G20 was determined to shut civil society out – well-known organisations like World Development Movement and War on Want were even refused entry into the Excel Centre.

The Stiglitz Commission makes one thing clear – there are no shortage of coherent solutions to the global crisis. Campaign groups have been working on solutions for decades now. The issue is one of political will. Thirty years of economic fundamentalism has not simply created an economic crisis, but a profound sense of disempowerment on the part of Southern countries and ordinary activists. Now is the time – the first time in a generation – to reclaim that political space.

During the G20 summit demonstrations took place across the world – from India and Indonesia to Germany and Italy. If we are to ensure that we take this historic opportunity to make 2009 a year of global change, then the voices of ordinary people need to be heard whenever world leaders meet – this is the only way to build a genuinely democratic, just and sustainable global economy.

This article first appeared in Tribune magazine.

A New Global Debt Crisis

Even ardent proponents of the free market find it hard to argue today that globalisation is improving the lives of the majority of the world. A system of inherent crises, which has fuelled historically unprecedented levels of inequality, has collapsed, leaving in its wake a nightmare for many developing countries who find the trade and investment that globalisation has made them dependent on, suddenly drying up. Across the world 40 million jobs are predicted to be lost in 2009.

Against this backdrop, world leaders who profess concern with the fate of the global poor should be asking themselves some soul-searching questions as to why they have stuck behind the dogmatism of free market fundamentalism for so long. Instead, some of the ideas for new funding put forward by Gordon Brown and others could, after an immediate injection of desperately needed cash, mean more of the same policies that have created the mess in the first place.

Reckless finance is nothing new. Throughout the 1970s banks and governments made enormous loans to developing world countries without much consideration as to who they were lending to or what they were lending for. Many countries have spent much of the subsequent 30 years weighed down by an unpayable debt which has allowed the rich world to force all manner of free market policies onto their economies.

Indeed Chile’s finance minister Andres Velasco said last year that the credit crunch was “a more modern and much bigger version of what we have seen in emerging markets over the last couple of decades”. And unless the poorest in the world are going to pay for this crisis in the way they paid for the Third World debt crisis in the 1980s and 90s, solutions have got to be radically different this time around.

The clearest lesson to be drawn from the ongoing crisis is that financial globalisation has been inimical to development. A recent report by ActionAid clearly shows how those countries that have become most dependent on capital inflows to their economy have been most vulnerable to the financial crisis .

In times of crisis, capital leaves the peripheries to shore up the centre, and that is happening now. Countries without a strong domestic capital base with which to fund their own development are being left high and dry.

In many countries this could easily lead to another full-blown debt crisis, especially where countries have taken out a large quantity of short-term loans to repay longer-term debts. In 2006 $660 billion of loans were short-term (falling due within a year or less), $43 billion in sub-Saharan Africa.

The World Bank reckons 43 countries are particularly vulnerable to the financial crisis. Of these countries, we believe 38 were in need of debt cancellation before the crisis. The IMF predicts that if the crisis continues for a year, the average low-income country debt burden would be raised by 4% of GDP.

Included in these countries is Zambia, a country which has already received debt relief once but, as a result of falling copper prices and a reduction in copper production, could see its debts become twice the level deemed sustainable by the World Bank and IMF.

The Philippines – a middle income country with a high dependency on private finance – has an enormous $8 billion of debts come up for repayment this year, while suffering a trade balance tumbling into the red.

Bangladesh, dependent on income from exporting garments, will likely suffer a major fall in demand which will also make it difficult to meet repayments on its $1.7 billion of short-term debt.

But solutions which the G20 will consider on Thursday focus heavily on new lending – rather than clearing debts – and resuscitating the International Monetary Fund, the very institution that turned the crash in South-East Asia in 1997 into an unprecedented crisis with a raft of ‘pro-cyclical’ austerity measures.

Recent details of IMF loans suggest they haven’t learnt their lesson – Pakistan was recently told to raise interest rates and electricity tariffs, Hungary to devalue its currency and increase interest rates, Latvia to reduce its local government wage bill, Serbia to cut public sector pay and El Salvador not to increase its fiscal deficit .

In an announcement made last week, Brown called for a new $100 billion for a fund to guarantee trade deals. This will mean big money for export credit agencies which have been responsible for an enormous build-up of ‘illegitimate’ debts in the last three decades – debts which have done little or nothing to benefit the populations of recipient countries, while propping up our own arms manufacturers.

More serious proposals, on the other hand, have recently come out of a UN Commission of Experts established by the President of the General Assembly on the financial crisis. The Commission, led by Nobel laureate Joseph Stiglitz, has called for far-reaching reform of the global economy, including an international debt work-out process which would allow for far greater and fairer debt cancellation, an end to forced conditionality, and a new reserve currency to replace the dollar. The Governor of the Central Bank of China has echoed this call last week, calling also for an International Clearing Union – an idea dreamt up by economist John Maynard Keynes to help ensure that enormous the trade deficits and surpluses of recent years do not build up in future.

These are hopeful signs, as are proposals by Latin American governments to finally launch the Bank of the South, which would allow countries greater independence from the IMF and World Bank, this May.

Essentially, what the solutions need to answer to is not just economics but politics. More than anything, developing countries have been robbed of their sovereignty and dignity for over 30 years, and they need to be able to regain their independence. The dependency created and sustained by debt for decades needs at last to be broken if there is to be any hope for global development and an end to poverty.

But such ideas are unlikely to be taken up by the G20 this Thursday. Only a concerted movement of people can bring about the necessary changes. It’s that movement which the protests of this week need to launch, an unprecedented movement to confront an unprecedented moment of both crisis and opportunity.

Beyond Bretton Woods

Gordon Brown's tour of the Gulf, seeking money to bolster IMF funds, suggests his plans for a Bretton Woods II conference are less ambitious than the occasion requires.

Brown says he's confident that the Saudis will assist with bolstering the IMF coffers – allowing it to lend to more cash-strapped economies like Iceland, Hungary, Pakistan and Ukraine. Good news for the IMF, which has suffered dry years as emerging lenders sprung up in the developing world and potential recipients shun the fund, justly frightened and indignant by the economic policies that will be foisted on them as a result of borrowing.

But resuscitation of the fund – and the wider Bretton Woods system – is decidedly not good for a more stable and equitable world. When joined other world leaders in calling for a Bretton Woods II conference, many hoped that this might signal fundamental reform of the "Washington Consensus" ideology which lies behind the international financial institutions and which has landed us in the current mess. The fear is now that what Brown and others mean by such reform is simply acknowledging the new global balance of power by allowing a handful of new countries "into the club".

Last week over 700 organisations from around the world signed a statement calling for fundamental reform of the Bretton Woods institutions (notably IMF and World Bank). This must include reform of tax, lending, banking and trade systems – and a total re-think of the role of the state in the economy. The actions of western governments' intervening to prop up their own economies is alone surely proof of the bankruptcy of these policies.

But in order to achieve this, it is essential to include those who have suffered most and had least say in the economic system up to now: poorer developing countries and representatives of citizens groups, social movements and trade unions.

The G20 meeting in Washington DC on November 15 has been posited as the first step on the path to reform. Unfortunately, most countries in the world won't be there. As such the conference can only be a first step towards what is needed, but it would be worthwhile nonetheless if it helps western leaders see what a critical condition the economic system is in.

It isn't a matter of resuscitation, the Bretton Woods institutions as currently constituted must be consigned to history and a new economic system be created on a very different sort of power dynamic.

This article first appeared on Comment is Free.