Soros: Global economic report criticised at launch

Soros launched his report at a lunch hosted by the Institute for International Economics and attended by many current and former officials from the International Monetary Fund, the World Bank and the Inter-American Development Bank, as well as members of antiglobalization groups.

He said he wanted feedback from a diverse collection of reviewers to polish the final product, and several at the lunch were happy to oblige, in some cases in the most blistering terms capable of an audience of economists, academics and officials.

In his report, Soros suggested the creation of a global agency to provide aid to impoverished developing nations that are being left behind as the world's economies become more market oriented and ever more closely integrated.

He urged the creation of a kind of World Aid Organization to finance projects such as the provision of vaccines and treatments for diseases such as HIVS/AIDS; social programs by governments judged to be deserving of support; and entrepreneurship programs that could be supported with matching funds from the new body.

The aim would be to ensure those nations that are "on the periphery" aren't left behind in the march of globalization, he said, and the new body could be financed by the annual issue of Special Drawing Rights - a form of currency designed by the IMF - by member countries, and particularly the wealthiest nations.

Soros also suggested that the world's strongest central banks - the Federal Reserve, the Bank of England, the European Central Bank and the Bank of Japan - offer their discount windows to holders of bonds issued by selected developing countries, to provide liquidity in the market at times of crisis.

At the root of his argument, he explained, was his belief that many of the "peripheral" nations are being left behind, often through no fault other than their geography.

At the completion of his remarks, he faced a barrage of criticism and comments from those in the audience, including Stanley Fischer, the former second-ranking executive at the IMF; former IMF Chief Economist Michael Mussa; and Adam Posen, a former economist with the New York Federal Reserve.

Mussa, noted for his colourful and strident performances as the IMF's economic counsellor, labelled aspects of Soros' blueprint "harebrained" and "crackpot," particularly the suggestion to make available the discount windows of the major central banks to securities of other nations.

He also derided the idea of having a global issue of SDRs for the purpose of financing social programs, decrying the idea as a "nontransparent" and "bizarre" credit mechanism.

Fischer suggested that the true reason some nations found themselves on the "periphery" of globalization has much more to do with the poor quality of their policies than their geographic location.

In particular, he pointed to the currency crisis in Argentina, which he attributed to the rapid pace of expansion managed by the Argentine government in the late 1990s. Economists have argued that by taking an aggressively expansionist stance at that time, the government so overloaded itself with debt that it now finds itself needing to tighten fiscal policy to stave off debt default at a time when its economy desperately needs an expansionist fiscal stance.

Fischer also noted that Soros would like to see poor governance "punished" by cutting off access to the range of international support his blueprint would offer, in effect hurting the millions of people in a country like Argentina, who have already suffered many years of economic hardship.

Perhaps ironically, the largest measure of positive feedback the multibillionaire philanthropist and author received came from John Cavanagh from the Institute of Policy Studies, which has allied itself in the past with the so-called Mobilization for Global Justice - a key element of the antiglobalization movement.

Cavanagh commended Soros for basing his report on the need to make development fairer, although he added that he would like to have seen the famed investor more in favor of debt cancellation for the developing world.