A startling revelation : what the IMF and Central Bankers knew – and didn’t tell us

Svein Andresen is the Secretary General of the Financial Stability Board – the FSB. This body was launched by the G20 Leaders at their London Summit 8 weeks ago – on 2 April. It was one of their principal announcements. The role of the FSB – as its name indicates – is to ensure global financial stability and especially to set up measures which would prevent another major crisis in the future. It will bring together the major international players – the IMF and the World Bank, the OECD, the Bank for International Settlements (BIS), a number of BIS Committees, and the Finance Ministers from 25 countries (the G20 plus a few).

Mr Andresen previously headed the secretive Financial Stability Forum in Basel, Switzerland. Now, after the G20, he will get more staff and an expanded mandate – to save the world from new financial disasters – no less. This week he came to the Trade Union Advisory Committee (TUAC) at the OECD. Very carefully, and in considerable detail, he explained the FSB’s new role, its structures, and how he expects to fulfill the G20 mandate.

One of the FSB’s tasks will be to set up an “Early Warning System”, he told us. Then as my trade union colleagues around the table peppered him with questions, came the startling revelation. The former FSF and the IMF already had an “Early Warning System”, he said. A couple of years ago, the IMF had prepared “a fine report” describing precisely the risks to the global financial system. They had analyzed the massive imbalances in the system, imbalances which made it unsustainable. In other words, it was not “if” a major crisis would erupt, but “when”.

Trade union economists had been making the same warnings. I recall when the Chair of TUAC’s Economic Policy Committee, Ron Blackwell of the AFL-CIO in the US, said just that to the OECD at least two years ago. But trade union representatives were labeled as being unduly pessimistic. Nobody wanted to spoil the party!

Mr Andresen now revealed that the IMF had made precisely the same analysis! Surely such a warning should not have been ignored. So what happened? we asked. “Well” he replied “the report was circulated internally to Central Banks and to key financial ministries, but nobody acted on it”. The FSF was just a forum, with no powers, except to convene meetings, he explained. He followed with an elliptical commentary on how central bankers and finance ministries had to be careful with information, so as not to disturb the markets. “But the report will probably be published some day – perhaps soon” he sought to assure us.

I pointed out that the FSB was now more visible than its predecessor, because of the prominence given to it by the G20. The global union movement had to be given a seat at the table, we said. If the Marshall Plan, which gave birth to today’s OECD, could set up consultative mechanisms with trade unions, as well as business and industry, the FSB could do it too. Closed door meetings were no longer acceptable, we said, nor were confidential reports that were ignored and kept secret, for fear of “disturbing the markets”. Oliver Roethig, Head of the finance sector at UNI Global Union said it was time for the Central Banks to listen to the employees at the base of financial institutions – not just the hierarchies. John Evans, TUAC General Secretary, pointed out that TUAC last met Mr Andresen 10 years ago “We were given the distinct impression by you and your Chairman at that time that you were not seeking further input from us” he said.

Today, previously closed doors are now slightly ajar. We have been allowed to peer in and see some of the inner workings of institutions that previously did not feel the need to talk with representatives of workers. Those slightly open doors must be pushed wide open.

When historian Barbara Tuchman wrote “The March of Folly” some years ago, she showed how major upheavals in human history had been preceded by warnings that were then ignored. So it has been with the financial crisis – another unhappy example of the collective folly and failure of institutions. That is why these institutions must be opened up, and why representative trade unions should have a seat at the table.


FLASH – UN Conference on the Crisis deferred

The UN Conference on the Financial and Economic Crisis and its Impact on Development was due to be held in New York next week (1-3 June). Because of widespread dissatisfaction over the draft outcome documents (see my posting of 11 May) the Conference has been deferred to 24-26 June. More details will be posted on a further blog.

Source: ITUC, New York Office