If the choice of Istanbul was not deliberate for last week’s annual  meeting of the governors of the World Bank and the International Monetary Fund (IMF), it became rational at the end of it. Never mind that the rationality of economic decisions has been at the heart of debates across the globe in the last two years.
Turkey, whose economic capital city is Istanbul, has literally provided the economic pathway from the West to the East, just as the country itself seats in the middle ground between the centre of Europe and the economic landscape of the East. This expectation that China and India will lead the economic progress of the next 50 years was a common feature during the meetings last week. With this expectation comes the debate of how changes are made to the World Bank and IMF’s powers, opportunities, quotas, representation and everything else.
 It is also safe for the world to look for a fresh impetus from Turkey. Rising from a crisis in 2001 that includes the nature of the banking crisis we are dealing with at the moment, Turkey has posted a superb economic performance leading to the economic crisis that started biting in 2008. Unlike the performance in Nigeria that was motivated by increases in income and consumption, Turkey’s expansion was on the back of diversified economic production. Between 2002 and 2008, the country’s foreign direct investment (FDI) doubled, and manufacturing now accounts for half of its exports.
 For those interested in Vision 2020, Turkey is one of the countries that may have to be displaced. The country currently posts a Gross Domestic Product (GDP) of $750 billion, more than thrice the size of the Nigerian economy, and per capita GDP is now $10,000, from $3,300 in 2002. But that is a matter for another piece. The focus this week is how to sustain the present signs of economic recovery, and reform the World Bank and the IMF to reflect modern economic realities.
Borrowing from the lessons learnt during the great depression of the early 1930s when President Roosevelt reined in government expenditure in response to signs of economic recovery, speaker after speaker last week urged that stimulus expenditure should continue in many countries. Increase in government expenditure is important for two reasons. First, private expenditure, especially investment expenditure, is still flat in many developed and even developing countries - foreclosing increases in growth that usually come from that. Second, except the current increases in government expenditure are sustained for a while, private consumption and investment expenditure may collapse further, as government expenditure does provide support at the moment.
What will then happen is a staggered withdrawal of the increases in government expenditure that we have witnessed across the globe in the last one year. This will be determined by two economic considerations. First, it will be determined by individual countries’ fiscal constraints, especially if current fiscal deficits become unsustainable. Second, increases in government expenditure will be withdrawn when they begin to hurt future private consumption and investment, rather than support it.
This debate is for the immediate future. For the coming decade, the debate and decisions will be on the reforms of the World Bank and the IMF. One area of such reforms is to intensify changes to quota rights in the IMF. Quota rights dictate your say in the IMF, and it is by and large dictated by the strength of your economy. However, changes are not made as often as economic strength changes. For instance, improvement in quota rights would improve a country’s credit rights, while reducing the cost of it.
Last month, the group of 20, the new focus of global economic policy and decision making, agreed to work on the redistribution of about three percent of voting power in the IMF and five percent in the World Bank. Quota allocation is important in the changing economic dispensation. It affects everything from voting rights, financial liabilities, to interest rate over distributed credits. The US, as expected, has the largest with 17.1 percent, while Nigeria has 0.87, compared to 0.88 for South Africa.
That is the politics of economics that will continue in the World Bank and the IMF. Another matter of concern to participants and especially to the IMF, is how the present crisis can be prevented in the future. For that purpose, the reforms will include increase in its mandate. In its operations within an increasing mandate, I can imagine that the IMF will increasingly be concerned with how it monitors, evaluates, and puts in a global economic context the role of asset prices.
In an increasingly wealthy world - compared to even just two decades ago - the focus on price stability that mainly captures the prices of goods and services, and the influence such narrow price concerns have on the setting of interest rates in many countries have become simply inadequate. Not that economists have not always been aware of the disruptions that can emerge from asset price collapse. It is that we had always assumed the depth of that disruption could not be anything this big. Related to this is how wealth effect, or the perception of it, drove up consumption and investment.Â
Can interest rate, based on a narrow concentration on price stability of goods and services, continue to be the main anchor of monetary policy? What are the increasing roles that capital movements play in tangible asset prices, and not only stocks? And, how do we ensure that the macroeconomic imbalances that started all this mess are managed properly in the future? I guess it is time to dust up our economic notes, starting from now.
