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Will We Save the International Financial System?

The World Bank and IMF have completed their annual meetings, which were greeted by street demonstrations and a paucity of innovative ideas. Here George Soros suggests a bold new tack to restructure the world's financial system.

The international financial system is broken down in the sense that it fails to provide adequate capital to countries that need it most and qualify for it. Global financial markets suck most of the world's savings to the center, but they fail to pump money back out to the periphery. Indeed, since 1997, there has been a reverse flow of capital from countries on the poor periphery of the world economy to those in the wealthy center.

The facts speak for themselves. America runs a chronic current account deficit approaching an astonishing 5% of GDP; $242 billion in the first half of this year. At the same time, Brazil - which has followed sound economic policies and has healthy budget and trade surpluses - cannot refinance its debt at acceptable rates.

The prevailing belief that market discipline corrects such imbalances is false, for two reasons. First, financial markets are inherently unstable. Second, the international financial system is biased in favor of the wealthy center.