Leading Article: A cautious answer to the world's most pressing problem

PRESIDENTS AND finance ministers meeting in Washington seem to have finally, and belatedly, come to the conclusion that there is a crisis in the world economy, that the international regulatory and lending institutions have failed to meet it, and that something drastic needs to be done.

On two of these conclusions we can agree. There is a crisis looming: not necessarily a catastrophe, or even a slump. But you cannot have half the world in recession, and at least half the Western banking system over- exposed in Russia and on hedge funds, without there being serious ramifications. At the most basic level, companies can now expect to find it more difficult to raise finance, as the banks pull in their horns to cope with their losses elsewhere, while countries in the Third World will be pushed to the background when asking for new loans. At the worst, a systemic crisis will gather pace, moving from Asia to Russia to Latin America, pulling down the global financial system with it.

It is also self-evident that the institutions that should have warned, if not actually coped with, this gathering crisis - the IMF, the World Bank and the Bank of International Settlements - have singularly failed in their task.

But, to the question "what is to be done?", the answer has to be more cautious. The UK Chancellor, Gordon Brown, has talked of creating a new global supervisory body out of a partial merger of the World Bank and IMF. President Clinton has suggested creating a new pool of liquidity with which to absorb crises before they get out of hand. The French, with the backing of the new German Chancellor, Gerhard Schroder, want a radical reworking of the terms of reference of the IMF and World Bank. Little wonder that the Japanese, the "bad boys" of the world's economy, have raised an eyebrow. These were the very suggestions that they made a year ago, when the Asian financial crisis was just emerging, only to be dismissed by American officials.

The US was right then and wrong now. There is no case for throwing good money after bad in a banking crisis. As the Russian debacle showed, easing the terms of loans for political reasons only increases the problem. To say that, however, is not to encourage the creation of Clinton's "pool", nor to raise the Fund's position, as Gordon Brown would seem to wish, to a position of final sweeper-up of financial disasters. It cannot be that, and it shouldn't.

The crucial point is that this is a banking crisis, set off by over-lending by the banks, and threatening because it could easily lead to a credit crunch everywhere. The most important regulatory response is to find out just how great the exposures are and to ensure that they are properly supervised. For that, you don't need a new World Financial Authority, but greater co-ordination of national authorities, and a radical toughening up of overview by the Bank of International Settlements. Equally, the most effective response by governments should be a reduction in interest rates in the Western countries. The US has now led the way, albeit with too small a reduction, and very directed to its own domestic needs. Britain should follow. If anything has come out of this crisis it is a recognition that the balance of risk has moved from inflation to recession.

But there is something else that should be considered, if the lessons of yesterday are to be learned today to prevent problems tomorrow. If the international institutions have failed us, it is has been as much a problem of leadership as of structure. This week sees the annual meetings of both the IMF and the World Bank. It is time that their chiefs, Michel Camdessus and James Wolfensohn, were called to account, and, in the former's case, replaced.

PROMOTED VIDEO
Arts and Entertainment
The frill of it all: Hattie Morahan in 'The Changeling'

theatre
Arts and Entertainment
Gillian Anderson and David Duchovny may reunite for The X Files

tv
Have you tried new the Independent Digital Edition apps?
Arts and Entertainment

ebooksNow available in paperback
Arts and Entertainment

ebooks
Arts and Entertainment
Jeremy Clarkson, left, and Richard Hammond upset the locals in South America
TV
News
A young woman punched a police officer after attending a gig by US rapper Snoop Dogg
people
Arts and Entertainment
Reese Witherspoon starring in 'Wild'

It's hard not to warm to Reese Witherspoon's heroismfilm
Arts and Entertainment
Word up: Robbie Coltrane as dictionary guru Doctor Johnson in the classic sitcom Blackadder the Third
books

Arts and Entertainment
The Oscar nominations are due to be announced today

Oscars 2015
Arts and Entertainment
Hacked off: Maisie Williams in ‘Cyberbully’

Maisie Williams single-handedly rises to the challenge

TV
Arts and Entertainment
Eddie Redmayne in The Theory of Everything and Benedict Cumberbatch in The Imitation Game are both nominated at the Bafta Film Awards
Arts and Entertainment

Academy criticised after no non-white actors nominated

Arts and Entertainment
Damian Lewis shooting a scene as Henry VIII in Wolf Hall
TV

Arts and Entertainment
A history of violence: ‘Angry, White and Proud’ looked at the rise of far-right groups

tv

An expose of hooliganism masquerading as an ideological battle

Arts and Entertainment

art

Lee Hadwin can't draw when he's awake, but by night he's an artist

Arts and Entertainment

TV

Arts and Entertainment
Michael Keaton in the 1998 Beetlejuice original

film

Arts and Entertainment

TV

Arts and Entertainment
Olivia Colman and David Tennant star in 'Broadchurch'

TV

Arts and Entertainment
Michael Kitchen plays Christopher Foyle in ITV's 'Foyle's War'

TV
Arts and Entertainment

TV
Arts and Entertainment
Downton Abbey star Joanne Froggatt will be starring in Dominic Savage's new BBC drama The Secrets

Arts and Entertainment
Vividly drawn: Timothy Spall in Mike Leigh’s ‘Mr Turner’
film
Latest stories from i100
Have you tried new the Independent Digital Edition apps?

ES Rentals

    Independent Dating
    and  

    By clicking 'Search' you
    are agreeing to our
    Terms of Use.

    Woman who was sent to three Nazi death camps describes how she escaped the gas chamber

    Auschwitz liberation 70th anniversary

    Woman sent to three Nazi death camps describes surviving gas chamber
    DSK, Dodo the Pimp, and the Carlton Hotel

    The inside track on France's trial of the year

    Dominique Strauss-Kahn, Dodo the Pimp, and the Carlton Hotel:
    As provocative now as they ever were

    Sarah Kane season

    Why her plays are as provocative now as when they were written
    Murder of Japanese hostage has grim echoes of a killing in Iraq 11 years ago

    Murder of Japanese hostage has grim echoes of another killing

    Japanese mood was against what was seen as irresponsible trips to a vicious war zone
    Syria crisis: Celebrities call on David Cameron to take more refugees as one young mother tells of torture by Assad regime

    Celebrities call on David Cameron to take more Syrian refugees

    One young mother tells of torture by Assad regime
    The enemy within: People who hear voices in their heads are being encouraged to talk back – with promising results

    The enemy within

    People who hear voices in their heads are being encouraged to talk back
    'In Auschwitz you got used to anything'

    'In Auschwitz you got used to anything'

    Survivors of the Nazi concentration camp remember its horror, 70 years on
    Autumn/winter menswear 2015: The uniforms that make up modern life come to the fore

    Autumn/winter menswear 2015

    The uniforms that make up modern life come to the fore
    'I'm gay, and plan to fight military homophobia'

    'I'm gay, and plan to fight military homophobia'

    Army general planning to come out
    Iraq invasion 2003: The bloody warnings six wise men gave to Tony Blair as he prepared to launch poorly planned campaign

    What the six wise men told Tony Blair

    Months before the invasion of Iraq in 2003, experts sought to warn the PM about his plans. Here, four of them recall that day
    25 years of The Independent on Sunday: The stories, the writers and the changes over the last quarter of a century

    25 years of The Independent on Sunday

    The stories, the writers and the changes over the last quarter of a century
    Homeless Veterans appeal: 'Really caring is a dangerous emotion in this kind of work'

    Homeless Veterans appeal

    As head of The Soldiers' Charity, Martin Rutledge has to temper compassion with realism. He tells Chris Green how his Army career prepared him
    Wu-Tang Clan and The Sexual Objects offer fans a chance to own the only copies of their latest albums

    Smash hit go under the hammer

    It's nice to pick up a new record once in a while, but the purchasers of two latest releases can go a step further - by buying the only copy
    Geeks who rocked the world: Documentary looks back at origins of the computer-games industry

    The geeks who rocked the world

    A new documentary looks back at origins of the computer-games industry
    Belle & Sebastian interview: Stuart Murdoch reveals how the band is taking a new direction

    Belle & Sebastian is taking a new direction

    Twenty years ago, Belle & Sebastian was a fey indie band from Glasgow. It still is – except today, as prime mover Stuart Murdoch admits, it has a global cult following, from Hollywood to South Korea