Paul Keating calls for a new global financial architecture

Former Australian prime minister writing in the Financial Times has stressed the need for democratisation of the global financial governance process and improved
policy coordination across the world. Keating suggests the need to radically restructure the IMF with a governance structure that truly represents the wider world it claims to serve.

Keating adds that big fiscal deficits and recapitalisation of banks offer only a temporary respite to the crisis. Fiscal policy also has its limits. The US federal deficit may hit $1,700bn this year, or about 13 per cent of gross domestic product. Clearly the US is reaching the limit. What we need is for deficit countries to save more and spend less and surplus countries to do the opposite. This savings imbalance will not be remedied unless the global governance structure changes.

For instance, China has no intention of dealing with its surpluses by letting its real exchange rate redirect national resources. We cannot fully blame China for this stance. Following the crisis of 1997, what every Asian government fears is the political consequence of capital outflow. A good example is Indonesia, where Suharto was forced out of office in 1998. Until international monetary governance is sufficiently democratised, or at least is made more representative, no major developing country, will fall in line.

For Keating, inclusion is the only way to make the world anew. If it happens, the impact on confidence will be profound. What the world badly needs today as the recession deepens is for confidence to be restored quickly.