Info Service on Finance and Development (June12/02)
Dear friends and colleagues,
The United Nations General Assembly held a high-level thematic debate on the "state of the world economy and finance in 2012" on 17-18 May in New York. Speakers included a range of ministers and government officials, heads of state from Albania, Guyana, Panama and Bosnia and Herzegovina, the UN Secretary-General, President of the European Commission, international agency leaders, academics, journalists and other experts, including the former head of the US Federal Reserve, Paul Volcker.
Below is the second of 2 articles on the plenary discussion.
on outcome document of 2009 UN meet on crisis, says South
New York, 31 May (Bhumika Muchhala*) - The thematic debate on the world economy and finance in 2012, convened in the United Nations General Assembly on 17-18 May, featured a diverse range of statements by country groupings.
The Community of Latin American and Caribbean States (CELAC), clarified in its statement that this debate is understood "as an event, among several others, to be organized in compliance with the mandate of UN resolution 65/313." This resolution decided in 2010 to explore ways to embark on an "intergovernmental follow-up process" of the June 2009 Conference.
CELAC noted that the event would not discuss many systemic issues, such as global financial and economic governance, reform of the global reserve system or macroeconomic policies for recovery. However, it expressed hope that such critical issues absent in this debate will "be addressed in upcoming events in a comprehensive manner and with wide participation." The statement reiterated that, "the UN is par excellence the legitimate forum for the promotion of international cooperation for development and the creation of a fair, transparent and equitable global economic system."
CELAC stressed that reform of the international financial architecture needs to be advanced. The "current democratic deficit in the IMF and the lack of space for smaller economies to have a greater voice is incompatible" with both the current level of developing economy participation in the world economy and with the UN system and its principles.
In the context of their member states' concerns over the growing instabilities in several economies and financial centres, sovereign debt problems and widening budget deficits, CELAC called on the UN General Assembly and international institutions to address the following:
(1) The world community should reaffirm that national development efforts must be accompanied by an enabling and fair international economic environment, and as such, domestic resource mobilisation is essential to implement national development priorities;
(2) It is essential to fulfil ODA (official development assistance) commitments. The decline by 2.7% in 2011, and the current level of 0.3%, represents a negative outlook to reach the 0.7% of GDP target for developing countries and between 1.5-2% target for LDC countries;
(3) CELAC reiterates its support for innovative financing for development, highlighting its voluntary and complementary nature towards traditional sources of financing;
(4) South-South and Triangular Cooperation is of utmost significance, but it is a complement and not a substitute for North-South cooperation. In this context, the higher participation of emerging economies and middle-income countries in the international markets cannot be considered a new form of or substitution for North-South cooperation;
(5) CELAC reaffirms the important contribution of migrants in the development of both countries of origin and destination. Remittances have become an important source of household income across developing countries, and thus we reaffirm the need for measures to reduce the transaction costs of remittances; and
(6) Given the importance of trade and investment as engines of development, CELAC notes with concern that protectionism in response to the current global crisis adversely impacts developing nations.
CELAC stated that it is "of utmost importance to advance in the fulfilment and implementation of the proposals and commitments contained in the outcome documents of the Conference on the World Financial and Economic Crisis and its Impact on Development of June 2009, as well as the Monterrey Consensus on Financing for Development of 2002 and the Doha Declaration on the international follow-up of the Monterrey Consensus of 2008."
In the context of depreciating social indicators in employment, hunger, growth and popular discontent, CELAC highlights paragraph 8 of the Outcome Document of the June 2009 UN Conference on the Global Financial and Economic Crisis and Its Impact on Development. Paragraph 8 had alluded to the critical impacts of the crisis, and the threat of these impacts continuing into the future. The impacts included: unemployment and poverty, economic recession, reduced trade and investment flows, excessive volatility in food and commodity prices, reduced tax revenues from social spending and reduced social spending due in large part to austerity measures.
CELAC highlighted that the vast amount of financial resources mobilised in bailout packages and economic stimulus, as demonstrated by the US TARP program and various European financial safety nets, proves that finances are readily available in moments of crisis and urgency. Their statement asserted that expansionary monetary policies of various central banks in systemically important countries, which constitute a central response measure in the current financial and economic crisis, are leading to possible risks and "new systemic effects for the world economy." These risks pose problems for national economies when excessive liquidity in international markets become capital flows that pressure local exchange rates to appreciate.
Pakistan echoed CELAC's statement and supported the Outcome Document of the 2009 UN conference on the financial crisis, saying it "identifies a number of measures which if implemented can contribute to improving the global financial and economic situation." The Outcome Document contains the way forward including on addressing issues related to trade, debt, global liquidity, financial regulation and supervision, aid commitments as well as reform of the international financial system to ensure fair and equitable representation of developing countries in global economic governance.
Pakistan stressed that, "our own indecision and inability to work on the known and agreed solutions must not be used to humble this noble organisation." Instead, its benefit and universal membership and legitimacy should be fully employed, as the UN retains a status which enjoys universal confidence and which has delivered whenever called upon.
Pakistan hoped the ongoing debate will "help us determine why we have not been able to take those measures" in the 2009 Outcome Document, and renew and reiterate the need to generate momentum to adequately follow up on the 2009 Conference. The steps taken so far in the world economy "are not commensurate with the unprecedented challenges," and "if longstanding systematic issues and fragilities remain unattended, the likelihood of another downturn cannot be ruled out," said Pakistan.
Pakistan argued that the last three years of the crisis have amply demonstrated that "no single country has the capacity to deal with the task at hand," and "no ad-hoc mechanism or decision taken in exclusive settings can produce the required results."
Pakistan also recognised that countries with different levels of development have different priorities. "Efforts to fix the global economy cannot be framed through a developing versus developed world paradigm." Economic difficulties are no more country or region specific, they are global, Pakistan argued, pointing out that countries of vastly different development levels have all suffered. This clearly implies that we have common challenges, and shared responsibilities.
Egypt added its voice to that of CELAC and Pakistan by stating at the outset of its statement that "this high-level thematic debate, though of importance, is not substitute for the fulfilment of the mandate to start inclusive open consultations to explore the most efficient modalities for the intergovernmental follow-up to the Conference on the World Financial and Economic Crisis and its Impact on Development."
Egypt stressed that a proper follow-up process to the 2009 UN Conference on the Financial and Economic Crisis should objectively assess progress made towards fulfilling the various commitments in the Outcome Document, particularly with regard to ODA commitments; mobilising additional resources for developing countries to address the impacts of the crisis; debt relief; enhancing access to credit and concessionary financing for developing countries; and, the reform of the financial and economic system including enhancing the participation of developing counties in global economic decision-making and norm-setting.
The Outcome Document, Egypt reminded the General Assembly, is an "integral part of a long list of commitments to support developing countries," which includes agreements made in Monterrey in 2002 and in Doha in 2008. It also includes the 2008 political declaration on Africa's development needs, commitments of various G8 summits and the LDC Programme of Action.
Egypt highlighted debt sustainability of developing countries, and the necessity of establishing a debt workout mechanism that involves all creditors in order to contribute to a comprehensive approach to debt problems and to enhance the effectiveness of global safety nets. Describing the range of macroeconomic problems that currently beset the nation, Egypt said that it faces its greatest challenge in food security due to the fact that it is a net food-importing developing country.
Egypt asserted that social spending is critical to successfully carry out a democratic transition process, as upholding justice and social inclusion requires financial resources for development needs.
China also voiced support for the 2009 conference, saying it "put forward a series of recommendations on ways to respond to the crisis and mitigate its negative impact on developing countries."
Placing emphasis on the tasks ahead for the international community to work toward economic growth and financial stability, China made four distinct proposals:
(1) Global efforts should be clearly oriented towards effectively helping developing countries achieve development. The biggest bottleneck in the global economy is the inability of developing countries to realise full development. Between the developed and developing countries, there has long existed an imbalance in the access to resources, wealth distribution and opportunities for development. This has produced the vicious circle of the "the more undeveloped, the more backward; and the more backward, the harder to develop, which ultimately becomes a constraint on the sustained and stable development of the world economy." The task of the international community also involves "establishing a fair and effective development system, reinforcing development institutions and increasing development resources with a view to realising all the MDGs."
(2) Global economic governance should reflect the changes in the world economic landscape in order to facilitate enhanced coordination and cooperation among countries to recover from the crisis. China stressed that the international monetary and financial system needs to be continually pushed toward greater fairness, equity, inclusiveness and orderliness. Financial regulation should be more targeted and effective, and credit rating institutions and cross-border capital flows should be better regulated. Stable liquidity of major reserve currencies should be maintained, and the international monetary system should serve toward a more equitable and rational world economic order. The voice and representation of developing countries in the IMF and World Bank should be increased.
The UN, and especially the General Assembly should use its advantages in representation and legitimacy to play a bigger role in global economic governance and promote effective mutual complementarities with multilateral institutions, including the G20.
(3) The multilateral trade system needs to be safeguarded. Protectionism needs to be resisted and opposed, markets for developing countries need to maintain openness, and for the LDCs in particular tariffs should be reduced or cancelled.
(4) Each country should begin with reforming its own mode of economic development. Developed countries should implement responsible macroeconomic policies and address their sovereign debt issues and financial risks; and developing countries should actively expand their domestic demand and promote the transformation of economic growth to one that is driven by a combination of investment, consumption and exports. Environmental protection and social development "go hand in hand with the above initiatives," which can kick-start a development that is sustainable and aligns with financial, monetary, trade and industrial policies.
Donald Ramotar, President of the Cooperative Republic of Guyana, representing the Caribbean Community (CARICOM), said that developing countries have borne the brunt of the crisis while already "wrestling with unhelpful trading arrangement, and the consequences of an inconclusive Doha Development Round."
President Ramotar highlighted the most adverse effects of the persisting economic slowdown to developing countries as the following: a jobs crisis, cuts to social programmes, reduction in ODA and FDI flows, dampening of global trade volumes and aggregate demand and fast-rising levels of public and private indebtedness. The "knock-on effects" on domestic and international development finance resources is critical. He emphasized that "middle-income status, viewed through the prism of GDP per capita, has become an albatross, belying the real challenges faced by our countries and constraining access to much needed resources." "Crime and violence are the worst manifestations of the challenges faced by our societies," he added.
President Ramotar pointed out that CARICOM economies have been significantly impacted, particularly in the services and financial sectors, given a heavy dependence on services and tourism flows from North America and Europe. Contracting tourism demand, coupled with "unfair regulatory action against the financial services sector, has caused major economic dislocation in a region with limited scope for diversification." While the G20 may have initially helped to forestall a deepening of the crisis and to mitigate some of its worst effects, CARICOM nations believe that the pace and range of actions taken by the international community have not been commensurate with the severity and urgency of the crisis.
"Very little has been accomplished in improving the working of the international financial system. And there is little evidence to suggest that there is better regulation. Even today some of the largest private financial institutions of the world are still coming under threat," said President Ramotar.
Even IFI (International Financial Institutions) reforms "do not take account of the growing influence of the developing world as a whole. Developing countries will drive 80% of global demand. Where is the assurance that this reality is taken account of?" It is imperative that the international community craft effective solutions that also respond to the peculiar development challenges of small vulnerable states in the Caribbean.
President Ramotar stressed the lack of due consideration given to CARICOM countries he represents, saying that due to the smaller economic size of the CARICOM region, "we are often lost in multilateral considerations for urgent action. The international community is unprepared to move with the same broad-mindedness for CARICOM economies as it does for developed countries who face economic distress."
"We call for special consideration of debt relief measures for small heavily-indebted middle-income countries. We also call for more structured and inclusive inter-governmental collaboration on international tax matters."
The Deputy Prime-Minister of Turkey, Ali Babacan, said that he believes this debate is timely in the run-up to the UN Conference on Sustainable Development (Rio+20 as it is popularly known) which will take place next month in Rio de Janeiro.
He asserted that "the way out of the crisis requires sending strong signals to the markets that debt-distressed economies will undergo medium- to long-term fiscal consolidation"; and "for those countries which have fiscal space, there is a need to prevent the premature withdrawal of expansionary fiscal and monetary policies in order to prevent repeating the same mistakes of the great depression."
Alluding to the US and Europe, he stressed that central bank activity cannot substitute necessary fiscal tightening or structural reforms in many countries. Central bank liquidity operations provide an "opportunity window" that should be maximised. Credit rating systems should become more transparent and accountable so that sovereign risk assessments are based on objective parameters.
Along with most of the other speakers in the plenary the Deputy Prime-Minister also emphasised the distressed Eurozone economies and called for stronger solidarity, fiscal consolidation and structural reforms to enhance competitiveness in the region. He concluded by reassuring member states that Turkey attaches paramount importance to the Istanbul Programme of Action for the Least Developed Countries, and the outcome document of Rio+20.