An International aid agency is calling for the World Bank to abandon old trade policies that it says harm the developing world. The British-based Christian Aid says developing country governments must have more power to regulate their own economies.

Leftist union members and students shout slogans during a protest against the policies of the IMF and WB in Istanbul, Turkey, 30 Sep 2009Christian Aid says the global financial crisis has shown world leaders need to rethink trade policies in the developing world.

In a report released in London, the group says for decades donor governments, the World Bank, and the International Monetary Fund have forced free-market trade agreements on developing countries. But the report says liberalization, privatization, and deregulation are not always suited to developing economies.

Report author Matthew Coghlan says a new balance must be found between the market and the state. 

"The investment climate approach is based on the idea that foreign direct investment in particular can stimulate economic activity and trickle down to development and our concern with that approach and with the policy prescriptions that accompany it is that it focuses too much on market-based solutions," said Goghlan.

Coghlan says developing country governments must have the right to choose policies and introduce regulations that work best for their country. He says the private sector can play a major role in ending poverty around the world. But it must be regulated to ensure that markets function fairly.

"What we are interested in seeing in the future is private sector development strategies that include the poor, but also protect them," he said. "We think that corporate accountability needs to move beyond corporate social responsibility and voluntarism."

There are lessons to be learned from the global financial crisis, says Rodrigo Delgado Aguilera, from the London-based research group Chatham House.

He says the crisis has shown that the free market can leave developing economies especially weak during a financial downturn.

"Globalization has made the world more vulnerable," said Aguilera. "And unless you adequately provision yourself against shocks then not so sure that the fastest growth is going to be worth the extra crises."

He says world leaders have realized that governments must have a role in the economy and that not everything should be left to the market.

"There is still a strong push towards free-market open-economies, but there is also greater questioning on what are the adverse affects of having these policies," added Aguilera.

Aguilera says changes need to be made, but may not come easily. New trade agreements can take a long time to develop, and it is unclear how best they should be shaped.

Aguilera says giving more power to governments in some developing countries can be problematic.

"In most cases in these countries governments may be excessively corrupt, may already have personal interests at stake," he said. "So it is really difficult to define the line of how far governments should have a role in these processes."

Leaders from the Group of 20 nations met in United States last week for talks on the financial crisis and economic recovery. Policymakers agreed to give emerging countries a greater say at the International Monetary Fund and the World Bank, recognizing their rising influence in the global economy.

The IMF and World Bank will be holding a summit next week in Turkey to discuss, among other things, the state of the world economy.