TWN Info Service on Finance and Development (May09/01)
Closing plenary of UNCTAD public symposium highlights the need for fundamental reforms, regional initiatives and partnerships with the UN
Geneva, 21 May (Bhumika Muchhala) -- The closing plenary of the United Nations Conference on Trade and Development (UNCTAD) two-day symposium in Geneva on the financial crisis and development featured a summary of the plenaries and an emphasis on the key messages emerging out of the symposium. The public symposium, titled “The global economic crisis and development – the way forward,” focused on the development impacts and issues of the ongoing crisis, involving a diverse mix of UN, civil society, academics and the private sector.
A key speaker of the plenary was Martin Khor, Executive Director of the South Centre, who said that the financing shortfall for developing countries ranges between $250 billion to $700 billion, which carries a serious risk of a new debt crisis in developing countries.
To meet this serious financing shortfall, new credit facilities are needed that exist outside of the traditional Bretton Woods Institutions of the World Bank and International Monetary Fund (IMF).
Khor said that regional arrangements such as the Bank of the South, the Chiang Mai Initiative, as well as the agencies of the United Nations, need to be used, strengthened and promoted to a greater degree. The UN has the legitimate right, based on the inclusion of all 192 countries, to address ways in which the crisis can be resolved. He emphasized that the UN also has the traditional leadership in the areas of development and global resolution, but does not currently have right to collect and disburse credit and loans.
Khor said that conditions attached to the current IMF loans need to change, as the macroeconomic policies linked to the loans have not seen changes either in monetary policies, which entail increases of the interest rate, or fiscal policies, which involve reducing budget deficits by curbing public expenditures.
These conditionalities have to become countercyclical in order for developing countries to be able to limit the adverse effects of the crisis on their real economies, where goods are made and sold. Fiscal stimulus measures are also needed for developing countries who do not have the ability to pursue them, particularly to offset the various ways in which revenue streams are decreasing in developing countries.
Khor also highlighted trade issues, saying that a lot of discussion has taken place at the symposium on the need for policy space for developing countries, especially in relation to the Free Trade Agreements. The current FTAs for African Union countries engaged with the European Union entail further cuts to African tariff lines—to about 70-80% of their tariffs currently. This would drastically reduce government revenue and increase cost problems.
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Commodity problems emerged as a major issue that many speakers talked about, and the need to reform commodity price volatility is a key proposal.
Khor said that the two-day symposium revealed that a point of consensus among many is the urgent need for governance reform in both the IMF and the World Bank, where developing countries need to be given more voice. The policy conditions and advice of the IMF also need to be changed in order for developing countries to be able to pursue crisis recovery.
A key aspect of the way forward in financial architecture reforms is to address the ways in which international financial markets are unregulated or wrongly regulated.
Another proposal that has emerged is the need to stabilize exchange rates that fluctuate severely and are not regulated more actively by governments.
Khor said that an important conclusion of the symposium is that a global reserve system based on Special Drawing Rights (SDRs) needs to be established, and that SDRs need to be issued to developing countries on the basis of need.
Regional initiatives need to serve as building blocks toward a new financial architecture and the UN needs to be strengthened as a legitimate, international and inclusive set of agencies. Khor said that “the UN should reclaim its leadership role through the Secretariat itself. The UN should be playing a coordination role, strengthening the role and effectiveness of the Economic and Social Council, the Financing for Development unit and should support and promote the creation of a new Global Economic Coordination Council.”
Khor concluded by saying that the June conference of the United Nations on the global financial crisis and its impacts on developing countries will come from a place of collective action.
Social movements and international programs for change will come together to make the June conference a “landmark event” that has follow-up processes and that takes decisions. Working groups that focus on different relevant topics and that report back to the General Assembly in the months ahead will be important.
Jomo Kwame Sundaram, of the United Nations Department of Economic and Social Affairs, said that there are two kinds of responses necessary—those that are immediate and those that are systemic.
Systemic reforms are necessary in order to create an economic and financial order that is more friendly, inclusive and developmental. The UN system has already responded to the crisis, and it has highlighted how difficult and important it is for crisis recovery to take place.
The June conference of the UN will serve as the first step toward a long-term process for deep and systemic reform. To that extent, the conference will address the why’s and how’s of initiating the process for real reform.
The Secretary General of UNCTAD, Supachai Panitchpakdi, said that “the raison d’etre of this public symposium has been to give voice to the voiceless.”
The crisis has created new and serious imbalances in the areas of food supply, energy and security. It is vital that the world begins to see the light of recovery, and that is why a public symposium such as this is important.
Supachai highlighted that UNCTAD has called for a temporary moratorium on the servicing of official debt. “It is not just necessary, it is compulsory,” he said. Such a moratorium would help alleviate some of the $700 billion shortfall in financing urgently needed by developing countries. Developing countries need to prioritise necessary imports payments right now, rather than service debt obligations.
UNCTAD has talked about a $800 billion shortfall in export revenue, and the financing shortfall in developing countries could be something as high as $2 trillion. Supachai said that in light of such dire figures, it may be possible to obtain real political support for a debt moratorium.
Supachai also stressed that regional cooperation and financing arrangements are critical at this time. “I cannot emphasize enough the importance of regional mechanisms, from the pooling of country reserves to the swap systems of central banks, which can counter the boom-and-bust cycles of financial markets.
Social safety net provision is also critical. Asian countries painfully learned how important social safety nets are after the Asian financial crisis, Supachai said. “We were in short supply of all kinds of social safety nets—for women, for those who are marginalized, and so on.”
UNCTAD is also looking closely at the work of the World Bank in furthering sustainable and inclusive development, and to develop a clearinghouse of comprehensive resources. The purpose of such a clearinghouse would be to “exchange views on some good work being done by the World Bank.”
Supachai urged that while the global impact of the crisis is talked about in the billions and trillions, it is also crucial to work on the regional level. To that extent, he highlighted the importance of the Bank of the South and the Chiang Mai Initiative. “We cannot have a one-size-fits all approach toward developing countries. The impacts of the crisis are different in each region of the developing world, and so it is important to look at the specificities and to target the most vulnerable economies.”
The role of the UN as a system is also increasingly crucial. All the leaders of the UN agencies need to work in collaboration as there is much to do. This public symposium is of great importance in this regard, said Supachai, as it leads us to “better understand each other.”
A comment from the floor articulated on the significance of a partnership between developing countries and the UN agency of UNCTAD in particular. Since the G20 is not representative and inclusive, and the IMF is still rooted in its business-as-usual procyclical fiscal and monetary conditionalities.
The speaker said that South-South cooperation is urgently needed, and the UN can play an invaluable role by building partnerships and networks.