Service on Finance and Development (June09/01)
for "exit strategy" from crisis, financial reforms
Geneva, 20 May (Riaz K. Tayob) -- The international financial architecture needs deep and lasting reform so that the causes of the current global recession are not repeated, and significant international efforts and funding are needed to stimulate developing-country economies and to support employment in those countries.
These were some of the key recommendations that emerged from the two-day UNCTAD public symposium on the global economic crisis and development that concluded Tuesday.
Among other conclusions reached at the symposium were that a more balanced and inclusive process was needed for a collective response to the global financial crisis. Steps should also be taken to stabilize currency-exchange rates.
There was also a call at the symposium for an approach to the crisis that takes all countries into account and provides a comprehensive "exit strategy" for all from the crisis.
Speakers over the two days of meetings reiterated that recent reports of economic improvement in the developed countries should not be taken to mean that the downturn is over, and should not lead decision-makers to ignore the profound and long-lasting effects on poor countries. The crisis is no longer merely financial and economic but had also become a social crisis, speakers said.
Other recommendations out of the two-day symposium were that a debt moratorium should be granted to heavily indebted developing countries so that they have more money available for stimulating their economies; and that a global programme be set up to preserve and protect jobs in developing countries.
The proposal of the International Labour Office to establish a "global jobs pact" was mentioned repeatedly during the debate. In addition, the United Nations was called on to play a significant role in responding to the downturn and in refashioning international rules on finance. The organization's broad membership makes it best able to act in the interests of all countries, speakers said.
Regional efforts to stimulate economies, provide financing for trade and economic growth, and protect currency stability, were also recommended. Such efforts were characterized as building on the rapid growth in "South-South" trade and related economic cooperation in recent years.
The symposium debate should have a broad impact, as various international organizations participated and listened to cross-fertilizing ideas, and many national delegations attended to listen to the opinions of civil society and private-sector speakers, said Dian Triansyah Djani, President of UNCTAD's Trade and Development Board.
Mr. Djani , who chaired the symposium, cited in concluding remarks that there is a need to accelerate efforts to achieve the UN Millennium Development Goals; to address structural problems in global economic governance, "which affect many people, including women and children"; to establish national, regional, and international teamwork to respond to the crisis; and to pay special attention to the effects of the crisis on least developed countries and on mounting unemployment and poverty.
Djani and high-level participants in the symposium said that they will
ensure that the formal conclusions are presented to member States, to
the President of the UN General Assembly, and to the UN Conference on
the World Financial and Economic Crisis and Its Impact on Development,
scheduled for 1-3 June in
UNCTAD Secretary-General Dr Supachai Panitchpakdi told the meeting that the intent of the gathering - "to give voice to the voiceless" - had proved valuable.
"The rest of the world cannot be an afterthought," said Supachai. "These matters are so often discussed at the global level, by the powerful. The innocent bystanders [who are suffering] should be heard from. Before we design an exit strategy for the recovery process, we should see clearly the impacts throughout the world. I don't think we should be satisfied until we see concrete actions that will address the issues raised today. If the voices of the innocent bystanders are not heard, this could just be one crisis that leads to more crises."
The two-day public symposium had three plenary sessions and numerous "breakout" sessions where specific issues were debated. Some 360 participants engaged in the plenary and breakout debates.
The moderators of the various plenary sessions presented their conclusions from the discussions at the end of the two-day meeting.
Debapriya Bhattacharya, Distinguished Fellow from the Centre for Policy
the diagnosis of the crisis, he said that participants were satisfied
with the reasons and causes of the crisis (that have been advanced)
but were more concerned about its impact. The diagnosis was that the
sub-prime mortgage crisis (originating in the
The session concluded that to address this type of systemic problem, which exposed the fragility of the system, there is need for a more balanced process to get the solutions right, said Bhattacharya. There is also a need to resume growth, but the nature of the growth is also important. Part of the solution must have built-in adjustment mechanisms for dealing with the costs of the crisis.
noted that the discussion on the solutions covered four major areas.
First, investment in the real economy has to continue functioning with
an emphasis on domestic investors and small and medium enterprises.
Second, trade has to continue, and universal duty-free, quota-free market
access for the LDCs should be decoupled from the WTO
Ernesto S Martinez Gondra, Minister plenipotentiary and Deputy Permanent
said that there was need for greater participation by
participants have said that the market cannot establish rules for all
of society and that greater government intervention was necessary. Stimulus
packages in the developed countries had an impact on the competitiveness
of the developing countries. And the stimulus (packages) of the EU has
had a discriminatory effect on
Regional responses, Gondra said, were necessary but not sufficient, as it was a global system crisis. Some countries had rejected help from the Inter-American Development Bank because the loans had conditionalities.
Mr Martin Khor, the Executive Director of the South Centre, moderated the third plenary session on proposals for the way forward. On the first of the conclusions, he said, measures are needed to assist developing countries to cope with the crisis. Finance and trade are transmission belts for the crisis.
With respect to finance, an increasing number of developing countries are facing falling export earnings, are short of foreign exchange and are vulnerable to a new debt crisis. Proposals are needed to help countries that fall into debt. These range from UNCTAD's call for a moratorium on debt servicing to proposals for debt restructuring and a continuation of new credit for countries.
New credit is needed for countries because of a large shortfall in foreign exchange, which according to the World Bank, may be between $250 billion to $700 billion, said Khor. For credit that goes through the Bretton Woods Institutions (BWIs), there was a strong feeling that the conditions tied to these loans need to change.
On trade, Khor said that participants felt that a lot of discussion was needed on the policy space for developing countries, including with respect to Free Trade Agreements (FTAs). There was some discussion on the WTO Doha Round and the need to review some aspects of the proposals, for example, proposals to liberalise the financial sector. This needed to be reviewed and it should also include a review of agriculture and non-agricultural market access (NAMA).
There also needs to be some discussion on the issue of the commodities of poor developing countries, as the fall in commodity prices has resulted in a revival of the commodities problematique.
There is also need for reforms of the international (financial) system, Khor reported. The reform at the IMF with respect to its (loan) conditions and policy advice has not seen enough changes. The other category is the regulation of the financial market, whether it is unregulated or wrongly regulated. There is need to prevent speculation, discourage carry-trade, discipline new instruments and ban short-selling. There is also need to stabilise exchange rates, and to review the currency reserve system which depends on one single currency, said Khor, pointing to the need for Special Drawing Rights.
The UN should be strengthened as a universally legitimate and inclusive body. The discussions have pointed out that the G20 is not an inclusive process. Although it comes up with some interesting proposals, it is not an accountable body. The upcoming 1-3 June UN Conference on the global economic and financial crisis and its impact on development should be fully supported, said Khor.
the third plenary session on Tuesday morning, discussant Mr Jomo Kwame
Sundaram of UN-DESA said the focus needs to be on two dimensions, to
get immediate responses out of the situation we are in and to make systemic
reforms necessary to create an international monetary and financial
order that can create conditions for the improvement of the human condition.
The discussions for the 1-3 June meeting in
The crisis, he pointed out, did not come from nowhere, as suggested by the Economist weekly or the Financial Times. Unlike the Washington Institutions (the World Bank and the IMF), the UN system and the Bank for International Settlements had the foresight to anticipate the crisis.
Ever since September 1971, he complained, the global financial system has been characterized as a non-system. The problem was not only deregulation and self-regulation, but also inappropriate regulation. The major problem for developing countries has been the promotion of capital account liberalisation, which is contrary to the articles of the IMF.
Sundaram called for inclusive multilateralism, and greater macro-economic coordination that can improve recovery. The Stiglitz Commission, he said, has proposed ten immediate measures including coordination of actions to stimulate economies and including one percent of stimulus packages for developing countries, and be additional to ODA. On systemic reforms, there is need to create a global reserve currency system and reform of governance of the Bretton Woods Institutions.
UN-DESA official warned against the tendency to revert to the status
quo ante. At Bretton Woods, the emphasis was not only on ensuring financial
stability but also sustaining growth, employment and post-war reconstruction.