A Small World Crisis

Globalization protesters descend on Washington, D.C., in an effort to halt IMF and World Bank meetings.
Publish date:

Seattle II is under way.

This week, protesters are gathering in Washington, D.C., to protest the

International Monetary Fund

and the

World Bank

as the organizations gather for their spring meetings. The protesters include many of the groups that converged on Seattle last December for the

World Trade Organization

ministerial; they're a cornucopia of labor, environmental and human rights groups, with a variety of complaints about globalization as a whole, as well as the IMF and World Bank themselves.

With the


tanking, and with the hair-raising volatility of U.S. markets occupying the attention of most investors, the IMF and World Bank meetings may not attract the notice they should. It is no surprise that the IMF and World Bank meetings are the cover story this week in the left-leaning

The Nation

, but not in

Business Week

or other financial publications. Opposition to the IMF may be growing, but it is still mostly the province of the left and the libertarian right.

Nevertheless, the IMF and World Bank do matter -- not just to policy wonks who like to debate the pros and cons of the

Basel Accord

-- but to individual investors. After all, for better or worse, the IMF and the World Bank have been cooks in the global economic kitchen for the last 50 years.

During that time, they have played a large role in the amazing economic growth of emerging markets in Latin America, Asia and Central and Eastern Europe. (Because they are often lumped together, it is important to distinguish between the two organizations. The IMF is designed just to address financial crises; the World Bank lends money to developing nations on an ongoing basis.)

As emerging markets grew, they became more attractive as investment opportunities. Some of the highest market returns in the world are in emerging markets, albeit some of the greatest risks. Since the beginning of the year, the stock market with the highest rise in the developed world is Sweden, with a 7.3% increase.

The best-performing emerging market is China, with a 29.8% increase -- and a number of others have double-digit increases. To take advantage of these opportunities, there is now a host of ways to invest in overseas companies: Scores of foreign companies list directly on the Nasdaq or the

New York Stock Exchange

or through

American Depositary Receipts

. And, of course, dozens of mutual funds invest in emerging markets. The IMF and World Bank have been partially responsible for this by pressing developing countries to open themselves to foreign investment, both portfolio and direct.

And when emerging markets run into trouble, as they did in 1997 and 1998, the IMF is the key institution in addressing those financial crises. You may be a critic of the IMF who believes that it caused the financial crisis of 1997 and 1998, or a supporter like me who believes the IMF leadership is a large reason why the economies of the countries hit by the crisis in both Asia and Latin America have rebounded so strongly.

Either way, the IMF is important. Likewise with the World Bank: Whether you believe it is a despoiler of the environment that traps poor countries in cycles of debt, or one that has built schools and infrastructure in the poorest countries and thus helped lift millions out of poverty, the World Bank matters.

Thus, the events this week are important, although it is doubtful that any investor will make or lose money as a result of this week's protests, or of the meetings themselves. Adopting new transparency procedures is not going to move markets. That is in contrast to the WTO, which more directly affects stocks.

The agreement between the U.S. and China on China's entry to the WTO sparked the current boom in Chinese markets. Nevertheless, the directions the organizations now take -- a focus of the upcoming meetings - certainly will affect emerging markets over the long term. Everyone agrees that the institutions need reform: Proposals range from total scrapping to simple tweaking. Hopefully, they will find a middle ground that allows them to continue their essential missions.

For their part, the protesters hope to repeat their success in Seattle by shutting down the meetings -- without repeating the failure of Seattle by rioting. I think the protests actually will be a bust, although the media will not portray them that way. The protest organizers anticipate 30,000 for the climax -- a march this Sunday. Assuming that many people show up -- and they failed to get enough last weekend to form a human chain around the Capitol building -- it actually is not that much. Any decent march in D.C. attracts at least 100,000. The Million Man March a few years ago had more than 400,000. Thirty thousand in the narrow canyons of Seattle seemed a huge crowd: In the wide avenues of D.C. or on the Mall, it will seem small.

Nevertheless, give the protesters their due: They control the terms of the debate over globalization now. If they succeed in destroying the IMF, the World Bank and the WTO, as some want, it will be a disaster for the global economy. And then investors will really notice.