Hamish McRae: As a new world order dawns, the big institutions will have to wake up

Economic view

Last weekend it was the Group of Twenty in Pittsburgh, this weekend the International Monetary Fund and World Bank in Istanbul. If international meetings could revive the world economy we would be swinging along by now.

But of course they don't. It was, as argued here last week, policies taken by individual countries last autumn and winter that have stopped the rot – though maybe had the monetary authorities saved Lehman Brothers from going under the rot would have been less dire. The result has been the start of a modest upturn in the developed countries and a marked upturn among the emerging ones. The IMF forecasters have caught up with this and have upgraded their forecasts for the world economy.

That is not to say that the IMF/ World Bank meetings are a waste of Airmiles. At a bureaucratic level the big change over the past 10 days has been the elevation of the G20 as the main body coordinating global economic policies but a lot of the detail work will, in practice, be carried out by the IMF, while the World Bank and its affiliates will continue providing development finance. They are complex institutions, "owned" by the governments of the world and they need supervision. Annual meetings are a tried and tested method of providing that. In any case there are lots of detail associated with the G20 to follow up. It is just that it is unrealistic to expect anything overly significant – certainly not as significant as the elevation of the G20.

It takes a while sometimes to appreciate the scale of any change. I have been able to grasp the extent to which the downturn has speeded up the transfer of economic might to Asia and begun to think about the social and political consequences of that – indeed readers of these columns may feel I write about little else. But there is one thing that I had not fully grasped. It is that the emerging nations are not only coming out of the downturn much more strongly than the developed world; they are also coming out much sooner.

You can catch a feeling for this from the chart. It comes from HSBC, whose forecasts have been rather better than those of the IMF. As you can see three of the BRICs (Russia being the dramatic exception) are pulling through this year in much better shape than the rest of us. But next year the contrast will be just as great. All of them are expected to leap forward, while the developed world will struggle to pick up any pace at all.

It gets worse, or at least worse from the perspective of North America, Europe and Japan. For several years the developed world will be hobbled with the aftermath of its failures, financial and fiscal. Meanwhile the emerging nations will be relatively unrestrained, or at least most of them will. Stephen King, head of research at HSBC, who writes on Mondays in our sister paper, calls this moment a "tipping point" in his latest economic assessment. It is that big.

This makes all the guff coming out of Istanbul seem more than a little off-key. It is as though the twin institutions are still locked in the post Second World War world in which they were founded and when the developed countries still ran the show.

So we have Robert Zoellick, the World Bank's president, saying that he did not see a change in the status of the dollar as a safe haven in the near term. Well, yes, maybe in the short term, though the proportion of central bank reserves held in dollars is falling. But the short term does not matter. In the spring the Chinese called for an international currency to replace the dollar. If that is what they want, that is what they will eventually get. Mr Zoellick acknowledged the benefits having the dollar as a reserve currency brought to the US.

"The American public and American political leaders take for granted the unique status of having a reserve currency, which makes it a lot easier if you need to print money or raise debt," he said. "If they take that for granted and continue to run large budget deficits and if spending gets out of control ... we could lose what is an incredible thing to have."

But actually whatever successive US administrations do won't alter the fact that eventually that reserve status will go if that is what the emerging nations want.

Or take some remarks by the managing director of the IMF, Dominique Strauss-Kahn. He noted that the IMF had a mandate to become the lender of last resort for the world's central banks, and wanted the institution to help countries pool their resources to quell foreign exchange speculation.

"It's not a new mandate," he said. "We're just going back to our original mandate and try to do what has been asked of us 60 years ago." The role of the fund, he added, would consist in coordinating the pooling together of reserves from countries running surpluses so as to hamper speculative movements on foreign exchange markets.

That is quite right. The whole concept of the IMF was to create a fund that would stop countries in short-term balance of payments pressure from having to bring in import controls and hamper the general trend towards freer international trade. But it did not work ideally, as the surplus countries were never under as much pressure to correct their surpluses as the deficit countries were to correct their deficits. You could argue now that China has been under insufficient pressure to correct its surpluses, just as Germany was in the 1960s and Japan in the 1970s and 1980s.

He also explicitly criticised China's currency policy. The IMF would not stop what he called its "ruthless truth telling" even if it made it unpopular. He said: "The IMF view still is the renminbi is undervalued."

But the idea that the IMF could have some role in using the reserves of the surplus countries to do anything is for the birds. Germany and Japan never allowed that, so why should China? The idea that China will listen to truth-telling, however ruthless, is for the birds too. In any case to hark back to the foundation of the IMF is to take a nostalgic view of a world that is long gone. Every year that passes means that power shifts to the new players and away from the old – and officials in the old world just don't get it.

It is hard for us to appreciate how far this downturn has increased the economic self-confidence of emerging nations, particularly China. Two years ago, at the height of the boom, a lot of us still believed that China was dependent on the US for its markets. It could not go on growing swiftly if Americans did not buy its stuff. Well, that has been proved wrong, hasn't it? Not only has it come through without losing much growth but, as noted above, it and the other emerging nations are bouncing back ahead of the developed world. Of course there are fragile features in the emerging countries' boom but they have done a sight better than we have.

Rio is the place for a party – and the Games will help boost its brand

So is this good news for Rio de Janeiro and bad for the other contenders, most notably Chicago? Or the other way round?

There is the conventional story to be told, which runs like this. If you look at the experience of past winners, gaining the Olympics brings at best a modest economic benefit and, if badly handled, may become a financial disaster.

The most notable disaster was Montreal in 1976, which has only just finished paying off the debts and has underused sports facilities. The most obvious recent success was Sydney in 2000. It put in much-needed infrastructure and has done well to use the facilities to give greater access for a wide range of people to various sports. The others are somewhere in between.

Running a good Games does not necessarily lead to good use of facilities afterwards because the investments you make for a two-week party are inevitable different from the ones you would make for a city's long-term development. Besides you may over-invest. Atlanta did a mediocre Games but made a profit on the event. Barcelona ran a great party but has been paying the price ever since.

There are two further considerations. One requires looking at the opportunity cost – the things you can't do because you allocate resources elsewhere. In the London case the cost of the Olympics will be other investment projects that have had to be delayed because there is no taxpayer money for them.

The other consideration is branding. Does a high-profile event such as the Olympics bring benefits by "putting the city on the map"? If the Games are well done and if sport fits a city's image they can certainly advance the brand. Otherwise there is no advantage. So there were benefits to Sydney and Barcelona but not to Atlanta or Los Angeles.

And this contest? For Tokyo, Madrid and Chicago it is all pretty neutral. All are great cities anyway so there is no huge loss. But Rio? Great place for a party – the brand fits. So maybe the judges made the right decision after all.

Start your day with The Independent, sign up for daily news emails
News
i100
News
Bobbi Kristina Brown, daughter of the late singer Whitney Houston, poses at the premiere of
people
News
people
News
The frequency with which we lie and our ability to get away with it both increase to young adulthood then decline with age, possibly because of changes that occur in the brain
scienceRoger Dobson knows the true story, from Pinocchio to Pollard
Voices
The male menopause: those affected can suffer hot flushes, night sweats, joint pain, low libido, depression and an increase in body fat, among other symptoms
voicesSo the male menopause is real, they say, but what would the Victorians, 'old' at 30, think of that, asks DJ Taylor
Life and Style
health
ebooks
ebooksAn introduction to the ground rules of British democracy
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
SPONSORED FEATURES
Independent Dating
and  

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

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: DBA Developer - SQL Server

£30000 - £35000 per annum: Recruitment Genius: This is an exciting opportunity...

Recruitment Genius: Customer Service Administrator

£13000 - £15000 per annum: Recruitment Genius: Are you passionate about custom...

Recruitment Genius: Dialler Administrator

£22000 - £25000 per annum: Recruitment Genius: Main purpose: Under the directi...

Ashdown Group: Contracts Manager - City of London

£35000 - £37000 per annum + benefits : Ashdown Group: Contracts Manager - City...

Day In a Page

Turkey-Kurdish conflict: Obama's deal with Ankara is a betrayal of Syrian Kurds and may not even weaken Isis

US betrayal of old ally brings limited reward

Since the accord, the Turks have only waged war on Kurds while no US bomber has used Incirlik airbase, says Patrick Cockburn
VIPs gather for opening of second Suez Canal - but doubts linger over security

'A gift from Egypt to the rest of the world'

VIPs gather for opening of second Suez Canal - but is it really needed?
Jeremy Corbyn dresses abysmally. That's a great thing because it's genuine

Jeremy Corbyn dresses abysmally. That's a great thing because it's genuine

Fashion editor, Alexander Fury, applauds a man who clearly has more important things on his mind
The male menopause and intimations of mortality

Aches, pains and an inkling of mortality

So the male menopause is real, they say, but what would the Victorians, 'old' at 30, think of that, asks DJ Taylor
Man Booker Prize 2015: Anna Smaill - How can I possibly be on the list with these writers I have idolised?

'How can I possibly be on the list with these writers I have idolised?'

Man Booker Prize nominee Anna Smaill on the rise of Kiwi lit
Bettany Hughes interview: The historian on how Socrates would have solved Greece's problems

Bettany Hughes interview

The historian on how Socrates would have solved Greece's problems
Art of the state: Pyongyang propaganda posters to be exhibited in China

Art of the state

Pyongyang propaganda posters to be exhibited in China
Mildreds and Vanilla Black have given vegetarian food a makeover in new cookbooks

Vegetarian food gets a makeover

Long-time vegetarian Holly Williams tries to recreate some of the inventive recipes in Mildreds and Vanilla Black's new cookbooks
The haunting of Shirley Jackson: Was the gothic author's life really as bleak as her fiction?

The haunting of Shirley Jackson

Was the gothic author's life really as bleak as her fiction?
Bill Granger recipes: Heading off on holiday? Try out our chef's seaside-inspired dishes...

Bill Granger's seaside-inspired recipes

These dishes are so easy to make, our chef is almost embarrassed to call them recipes
Ashes 2015: Tourists are limp, leaderless and distinctly UnAustralian

Tourists are limp, leaderless and distinctly UnAustralian

A woefully out-of-form Michael Clarke embodies his team's fragile Ashes campaign, says Michael Calvin
Blairites be warned, this could be the moment Labour turns into Syriza

Andrew Grice: Inside Westminster

Blairites be warned, this could be the moment Labour turns into Syriza
HMS Victory: The mystery of Britain's worst naval disaster is finally solved - 271 years later

The mystery of Britain's worst naval disaster is finally solved - 271 years later

Exclusive: David Keys reveals the research that finally explains why HMS Victory went down with the loss of 1,100 lives
Survivors of the Nagasaki atomic bomb attack: Japan must not abandon its post-war pacifism

'I saw people so injured you couldn't tell if they were dead or alive'

Nagasaki survivors on why Japan must not abandon its post-war pacifism
Jon Stewart: The voice of Democrats who felt Obama had failed to deliver on his 'Yes We Can' slogan, and the voter he tried hardest to keep onside

The voter Obama tried hardest to keep onside

Outgoing The Daily Show host, Jon Stewart, became the voice of Democrats who felt the President had failed to deliver on his ‘Yes We Can’ slogan. Tim Walker charts the ups and downs of their 10-year relationship on screen