Reform Is in the Air

T alk about the need for a "Bretton Woods II" is getting louder.

Bretton Woods is the New Hampshire town where in 1944 top financial officials of the World War II allies met to draft a new world financial system. They created the International Monetary Fund, in the news with its rescue packages for East Asia and Russia, and the World Bank, which makes development loans to poor nations.

Now British Prime Minister Tony Blair speaks of a "new Bretton Woods." And President Clinton calls for adapting "the international financial architecture to the 21st century."

Considering the financial troubles in the world today, this sounds like a good, bold idea. But don't expect a quick fix. Changes in the international economic system aren't like instant hot chocolate. They take time to negotiate when so many nations and interests must be reconciled.

At that first Bretton Woods, an International Trade Organization was envisaged as the third leg of the international economic stool. It took until 1947 for 23 countries to agree on a weaker but useful substitute, the General Agreement on Tariffs and Trade based in Geneva. It took more years of talks before a stronger World Trade Organization was evolved in 1995, occupying the same offices.

So another Bretton Woods may not be as revolutionary as its billing. Academics and think tankers, seeking usefulness and fame, are rushing to draft plans for a new organization.

One plan calls for a World Financial Authority that would develop a framework for international financial regulation and cooperation. It would be above the IMF and the World Bank.

The plan attempts to recognize basic financial and economic changes in the world in recent decades. Many developing countries are now "emerging markets" - much more prosperous and modern. Private money flows across borders, funds buying new factories, corporate stocks, and other investments, dwarf the resources of the World Bank and the IMF. National controls on these capital flows have to a large extent vanished. Currency exchange rates are as likely to be set by the market as by governments.

Finance ministers and central bankers from all over the world will be converging on Washington this coming weekend for the joint annual meeting of the IMF and World Bank.

Reform will be in the air. It could be exciting. But what emerges could be more modest than plans for a new world authority. Yet some institutional changes to deal with world changes would be useful in making international finances more stable.