The administration of the international bankruptcy regime needs to be put in impartial hands. The IMF simply cannot play a pivotal role beyond that of another claimant. The IMF is a major creditor, and is controlled by the major creditor countries. It thus represents a particular set of vested interests. One option is the creation of voluntary creditor and debtor committees to develop efficient and equitable bankruptcy plans. Such a voluntary approach has the major advantage of being able to be set up rather quickly. But there may be incentives on either side to delay resolution, resulting in extreme social and economic costs. Accordingly, there is a need to go beyond voluntary measures, perhaps by establishing a World Bankruptcy Organization or creating a special court within the International Court of Justice for administering bankruptcies. In the short run, debt contracts can be rewritten to include so-called collective action clauses, which encourage bondholders to resolve problems collectively. But this is only a partial solution because even countries with such clauses have had to use Court procedures to resolve bankruptcy. While it is true that these revisions in the international bankruptcy regime may lead to higher interest costs, these higher rates will serve to circumscribe the excessive indebtedness of both private and public borrowers which ultimately hurts virtually everyone within society, not just those who are engaged in international lending.

So far, US citizens have not felt the full costs of the deficiencies in the global financial system. The United States is pivotal in setting interest rates and borrows mostly in US dollars. Thus the problems of exchange rate and interest rate risk, which are central to developing countries, are of little concern to US citizens. In fact, the United States has in some ways benefited. The global financial crisis and the way it was mismanaged by the IMF imposed enormous costs on East Asia, while in the United States, the lower commodity prices decreased inflationary pressures, led to lower interest rates, and fed the late 1990s boom. The global reserve system has led others, including poor countries, to lend to the United States even when its interest rates are low, helping the United States borrow huge amounts abroad.

The events of September 11, 2001, have made clear that in today’s globalized world, what happens in one part of the world has profound effects on others. Ultimately, the United States will bear some of the consequences of a global economic system that often leads to crises, unemployment immiseration, insecurity, and despair.

Even the US economy is at risk. How long will the world be willing to lend to the United States, especially if analysts note that the United States has moved from being the world’s largest creditor to the world’s largest debtor? The evaporation of the staggering US$3 trillion 10-year surplus into a US$2 trillion deficit—combined with deficit-increasing tax cut proposals and a multitude of corporate accounting scandals—fuels fears over US fiscal management. It may be possible for the United States to muddle through this crisis, ignoring the fundamental flaws in the global financial system and the growing discontent with globalization. But it makes much more sense for the United States to use its position of leadership and dominance in the global economy to work for reforms in the global financial system—reforms that, as they enhance global economic justice and make globalization work better for those in developing countries, will at the same time increase economic stability and security for the United States and the world.