And the Australian terms of trade have risen by 40% since 2000, providing a substantial boost to the growth rate of real incomes. Nothing could be more damaging to the prospects of developing and developed countries alike than the abandonment of further trade liberalisation. But protectionist sentiments are abroad again, even with high employment rates around the world. In Europe they are concealed as cries for “national champions”; in Latin America as populism; in the United States as complaints about unfair competition. But the damage that protectionism can wreak is clear – the experience of the Great Depression should be enough to ring alarm bells. If that is to be avoided and we are to maintain widespread support for an open international trading system, it is in all our interests to establish clear rules for what we will and won’t do in areas where our  2  BIS Review 126/2006  decisions affect stability elsewhere. And if those commitments are to be upheld, we will need international institutions. The role of international institutions was thrown into sharp relief last week by the visit to Beijing of the new US Secretary of the Treasury, Hank Paulson, and a high-level team for a “strategic economic dialogue” with the Chinese Government.
Because the cost of abolishing institutions is high, the number of international groupings and institutions has proliferated in recent years. Many of them tread on each others toes. As a result, the IMF, World Bank and OECD, have all been bruised. Duplication of roles is wasteful of time, money and focus. Each institution should have one very clear remit, and focus on it. Of course, countries which play a role in one institution but not in another will have an incentive to build up the role of the former at the expense of the latter. So it is up to the member countries to limit the battle for turf. There are few examples where all these principles appear to have been followed. The World Trade Organisation has been an effective umpire of countries’ commitments about trade restrictions and comes close. But the example of the WTO highlights the importance, above all else, of clear commitments from nation states themselves. The failure of countries to conclude a multilateral trade round since the WTO was formed more than a decade ago is worrying. The Doha round has continued past its expected completion date and only a brave commentator would forecast eventual success. The fault does not lie with the WTO. Instead, it reflects the fact that national governments have not been willing to make the necessary commitments. BIS Review 126/2006  3  4. What do those principles mean for the IMF? With those principles in mind, I want to consider the challenge of reforming the IMF.