Info Service on Finance and Development (Mar12/02)
Dear friends and colleagues,
We are pleased to provide you with a round up of some key discussions that took place at the joint session of the UN General Assembly Second Committee on economic and finance affairs and the ECOSOC in November 2011 at the UN Headquarters in New York.
1) Developing countries emphasize impacts of the economic recession, call for development-centered globalization
2) Top UN officials call for job creation to overcome recession and avoid a new crisis
3) Joseph Stiglitz on need for Global Economic Coordination Council, highlights problems with excessive focus on austerity in the global economy.
Below is the first article.
Developing countries emphasize impacts of the economic recession, call for development-centered globalization
By Bhumika Muchhala
Informal negotiations in the Second Committee on economics and finance of the United Nations General Assembly in November 2011 focused on key economic and financial policy such as external debt sustainability, trade and development, financing for development, the international financial system, sustainable development, and agriculture and food security.
The Second Committee’s informal negotiations of member states were kick started in November by statements on macroeconomic policy issues given by representatives of member states and country groupings, including the G77 and China group of developing countries, the Africa Group, the Association for Southeast Asian Nations (ASEAN), and the member states of the Caribbean Community (CARICOM). These statements formed the basis of the positions of member states in the various resolutions that are being negotiated in the Second Committee.
Argentina on behalf of G77 and China asserted that international efforts need to be mobilized towards a “development centered globalization, which contributes to inclusive growth and sustainable development.” Serious concern was expressed on “the fact that the world economy is entering a dangerous new phase, characterized by unresolved structural fragilities, sharp falling confidence and high risk,” and an ongoing reversal of important development trends in developing countries due to the continuing crisis.
The G77 and China stated that economic recovery today is increasingly fragile, uneven, and uncertain, and as such, requires urgent measures. The worsening of the crisis will have long-lasting negative effects on development, depressing global economic output for years to come, raising the cost of capital and tightening the availability of credit internationally, and dampening international trade and economic and financial stability for years to come.
Given this dire context, and the fact that many low-income developing countries have limited, if any, scope to carry out countercyclical fiscal policies, the outdated global financial and economic architecture, with its failures in financial regulation, credit bubbles, governance, international coordination, pro-cyclical policies, and sovereign debt workouts, need to be immediately addressed.
Internationally agreed development goals, including the MDGs, need to be met as they were committed to by donors, multilateral institutions, and the international community overall.
The G77 and China statement stressed that support from the international community is needed to “put an end to the ongoing pro-cyclical conditionalities that curtail the available financial options for developing countries and needlessly exacerbate the financial, economic, and developmental challenges.” It is extremely important to ensure fiscal and policy space to enable developing countries to design and implement national development strategies.
The unfolding crisis has demonstrated the need for a robust and focused role for the State in the economy and in the formulation and implementation of social policies.
The lack of regulation, monitoring, transparency, and integrity in the financial sector has led to a disastrous mix of excessive risk-taking, unsustainably high asset prices and persistent bubbles, and disastrous patterns of consumption fuelled by easy credit and inflated asset prices in developed countries. Some key actions that need to be corrected from their current failure are multilateral surveillance, especially in developed countries, early warning systems, and an over-reliance on market self-regulation.
The G77 and China underscored the importance of international discussions, including within the UN, on the need and feasibility of new sovereign debt restructuring and resolution mechanisms that take into account the multiple dimensions of debt sustainability and its critical role in achieving development.
Serious concern was expressed by the G77 and China on the sovereign debt crises in many developed countries, and in particular their high structural fragilities in financing sovereign debt. The current developed country debt crises carries alarming risks of crisis contagion and financial instability to developing countries.
Special drawing rights allocations have contributed to increased global liquidity, and should encourage continued discussions on policy options to promote long-term stability and a revamp of the international monetary system, which should include the role of special drawing rights.
The G77 and China stressed that the multilateral, regional, and sub-regional development banks and funds should continue to play a vital role in serving the development needs of developing and transition countries, including through coordinated action. Such funds and banks can add flexible financial support to national and regional development efforts, thus enhancing their ownership and efficiency.
The G77 and China group paid recognition to the fact that many least developed countries continue to be highly dependent on primary commodities as their principal source of export revenues, employment, income, and domestic savings. As such, commodities are the driving force for investment, economic growth, and social development, which includes poverty eradication.
With regard to the ongoing commodity and food price crisis, the causes of price volatility have not been adequately addressed. It is an urgent concern at a time when developing countries need to expand agricultural production to address food security.
Food security must be ensured globally, through a comprehensive approach including market access for agricultural products from developing countries, elimination of trade distorting measures by developed countries, sustainable investments in agricultural production and research, and targeted support to the advancement of the agricultural sector in developing countries.
The G77 and China also repeated previous calls for all countries to desist from all protectionist measures, particularly developed countries, and specifically pertaining to agricultural subsidies and non-tariff barriers to trade. The G77 and China calls “for the fulfillment of all commitments contained in the 2005 Hong Kong Ministerial Declaration of the WTO in favour of Least Developed Countries.”
Governance structures of the IMF and World Banks are still marked by a democratic deficit, the G77 and China asserted. “It is unfortunate that once again, in this year, a decision to appoint a Managing Director for the IMF ignored the need for selection of a candidate from developing countries.” Although governance reforms are cosmetic, the G77 and China said, they must reflect current realities and ensure full voice and participation of developing countries, including the least developed countries, in the decision-making and norm-setting processes.
The African Group, represented by Kenya, made an urgent call for the “full implementation of all the previously agreed upon commitments” of donors in the Political Declaration on Africa as well as in all previous UN conferences and summits.
The Africa Group is “of the opinion that commitments should neither be diluted nor re-negotiated since they are very important for the achievement of the internationally agreed development goals, including the MDGs.” Until now, there is a serious crisis of the lack of political will and follow-through on the promises that donors have made to the African region. The Africa Group pointed out that, “Instead, there seems to be a systematic attempt to renegotiate the terms of these commitments.”
Since the majority of African countries are least developed countries (LDCs) and are off-track in achieving the MDGs by 2015, the Africa Group emphasized the “indispensable role that official development assistance (ODA) plays in catalyzing economic and social development, as well as poverty eradication.” Unfortunately, the commitment of doubling ODA by 2010 as agreed during the G8 Gleneagles Summit has not yet been made.
The Africa Group reiterated their previous calls to the international community to mobilize high-quality technical support, and to promote the development and dissemination of technologies, that are affordable and sustainable, and that are transferred to developing countries on mutually agreed terms. The Group emphasized the urgent need to scale up capacity-building programmes on sustainability in the region, in coordination with local, national, and regional institutions.
The Africa Group also highlighted the ongoing conference on climate change occurring in Durban, South Africa, stating that they expect the conference to adopt a concrete and action-oriented outcome document that “adequately responds to the desired goal of environmental sustainability, pursued in line with the principle of common but differentiated responsibilities and respective capabilities.”
Accordingly, the transparency and centrality of the UNFCCC process was underscored as the only legitimate intergovernmental forum for climate negotiations.
The African Group emphasized that adaptation is a top priority for the continent, which is among the most climate vulnerable regions on the globe. The extent to which poor countries can respond to climate crises is seriously hindered by the prohibitive cost of adaptation, and thus, the African Group would like adaptation needs central to a global regime on climate change.
Particular concern was also expressed on the desertification, land degradation, and drought on the continent, with dire warnings on the fact that two-thirds of Africa’s arable land could be lost by 2025 if the trend of desertification continues. According to the UN University’s report on Natural Resources in Africa, if desertification continues unabated in Africa, the continent may only be able to feed 25% of its population by 2025.
In order to redress these urgent issues, the Africa Group called on the establishment of an intergovernmental scientific panel on soils as a matter of equity to assess and review trends in land as well as soil degradation and restoration. The Group stressed that investments must be made to reclaim land and carry out sustainable land management practices. The Group concluded on a hopeful note, stating that, “there is hope for Africa as nearly 450 million hectares of Africa’s deforested and degraded landscape offers opportunities for restoration.”
The member states of the Caribbean Community (CARICOM), represented by the Republic of Guyana, asserted that that CARICOM countries have, in their quest to achieve a higher development level, maintained open economies, democratic institutions, a more attractive investment climate, often with accompanying conditions carried by the international financial institutions, and good governance.
However, there has been no corresponding guarantee of additional resources and financing, nor has there been significantly higher levels of financial investment. Moreover, their progress has been “sternly tested by the impacts of the global financial economic crisis and by the challenges of food security, climate change, and volatile energy prices.”
Even more worrying for CARICOM is the prospect that a second wave of recession can bring even greater negative impacts, compounded by the growing commodity market speculation that is contributing to price volatility and threatening regional livelihoods and development.
CARICOM stated that in addition to paying a “steep price for an economic crisis caused by the policy and regulatory mistakes of others,” their capacity to respond to the crisis with counter-cyclical measures is virtually non-existent due to high debt levels.
For this reason, CARICOM stressed that official development assistance (ODA) assumes an even greater importance as a catalyst for development. CARICOM stated that, “in spite of the crisis, our development partners should remain faithful to their commitments of providing sustainable development financing.” Effective implementation of existing and new aid requires that donors urgently abide by the aid they have already committed. An enhanced, predictable, and sustainable flow of ODA is essential.
Last but not least, the critical problem of external debt burdens in Caribbean nations was highlighted, in that the region ranks as among the most highly indebted in the world, which in turn constrains their ability to attain development goals.
The ongoing crisis has forced many indebted countries to resort to commercial borrowing, which, in the absence of international arrangements to deal with debt, only exacerbates debt burdens. CARICOM also stated that the region has been particularly active on international cooperation in tax matters, and has earlier this year tabled a resolution, along with the G77 and China, calling for the upgrading of the Committee of Experts on International Cooperation in Tax Matters to an intergovernmental body of the ECOSOC.
The Association of Southeast Asian Nations (ASEAN), represented by Indonesia, aligned themselves with the statement made by Argentina on behalf of the G77 and China developing countries. ASEAN stated that the region’s economic performance, as a whole, has been resilient, and that both exports and domestic demand has fueled growth to an average rate of 7.5% across the region, in 2010.
Nevertheless, ASEAN recognizes that the global economy is continuing to face challenges and risks from the sovereign debt crisis and fiscal problems in some developed markets, as well as food and commodity price increases and continued financial market stresses.
To this end, ASEAN highlighted three key issues:
First, ASEAN stated that it is imperative that all nations coordinate their policies in light of persisting and widening global imbalances, the dire need to strengthen multilateral economic surveillance, and the importance of promoting fiscal stability for sustainable economic development.
To this end, ASEAN has established the ASEAN Plus Three Macroeconomic Regional Surveillance Office (AMRO), which will strengthen macroeconomic and financial cooperation at the regional level. And to promote fiscal soundness, ASEAN continues to “accelerate and deepen economic structural reforms, promote domestic demand and employment, resist protectionism and further promote trade and investment.”
Second, ASEAN highlighted the importance of strengthening global economic governance. The role of the UN, the group said, “as the only global body with universal participation and unquestioned legitimacy, should be further strengthened.”
Reforming the decision-making bodies of the Bretton Woods Institutions is critical to global financial governance, and this also includes improving their surveillance, their financial regulatory framework, and resources. The role and participation of emerging and developing economies should also be addressed to ensure accountability, long-term growth, and stability in the world economy.
Third, ASEAN believes the global community needs to continue to focus on attaining development goals, including the MDGs. The Second Committee of the UN should help to promote the necessary conditions needed to encourage development, such as through the opening of markets and improving governance at both national and international levels.
ASEAN concluded its statement by sharing with other member states that the “centerpiece of ASEAN’s development strategy is economic integration between ASEAN countries which boosts regional trade and investment.” By 2015, ASEAN aims to liberalize a single market and production base that includes the progressive liberalization of the regional financial sector, and the integration of regional capital markets. ASEAN integration, the Group asserted, is a South-South cooperation project to support all countries at various development stages within the region.
As Chairperson of the Second Committee, Bangladesh said that in contrast to 2008, when the main concern was the private financial sector’s troubles, in 2011 the world faces both a public debt crises and a continuation of 2008’s financial fragility.
While many developing countries are demonstrating an impressive resilience to the global economic and financial crisis, fiscal space in the poorer developing countries is fast running out. In this context, it is becoming increasingly difficult to counteract another recession, while at the same time battling volatility in financial markets, commodities, and capital flows.
Bangladesh underscored the significance of the LDC IV Conference in Istanbul earlier this year, from where a 10-year Programme of Action and Declaration setting an ambitious goal of half the number of LDCs to meet graduation criteria by 2020 was produced. However, Bangladesh warned that the Istanbul Programme of Action will “remain mere paper unless matched by the political will and predictable, adequate and guaranteed financial resources to implement them.”
Bangladesh urged the Second Committee to demonstrate leadership on financing for development, and to focus in particular on a multi-pronged development finance strategy that includes at its center domestic resource mobilization, building up financial infrastructure and capacities, and putting in place appropriate regulatory measures and institutions.
The expansion of aid for trade is also vital, and “100% quota-free, duty-free market access to LDCs has long been a crying need and still remains unmet.”
India pointed out the continuing irony that those “least responsible for the crisis must become the biggest victims of it.” Developing countries have seen more than 100 million people slipping backward into poverty in 2010, and in 2011 conditions keep worsening.
It is quite clear, India stated, that the international financial and economic system, which is “so overwhelmingly loaded against the needs of the developing world,” must undergo serious reform. Inequities must yield to democracy, transparency, and accountability. The development agenda must prioritize “sustained economic growth to bring the world economy back on track,” said India, and this priority must also become the UN’s chief priority.
India underscored that many developing countries are not in a position to implement counter-cyclical measures, and for this express reason there is an urgent need for international assistance—be it ODA, concessional financing, debt relief and moratorium, and foreign direct investment.
India called upon the Financial Stability Board, the IMF, and the Bank for International Settlements, to further work on developing effective tools to mitigate the impact of excessive capital flows. A critical lesson from the crisis is that unregulated and speculative capital flows are highly destabilizing by nature. The withdrawal of huge amounts of money has left developing countries without adequate coping mechanisms, and in fact, even more financially unstable than before.
India supports the Basel III framework for bank capital and liquidity regulation, and calls for its early implementation. The move to ensure that systematically important financial institutions have loss-absorbing capacity beyond the general standards set by Basel III rules was also called upon by India.
Acute debt problems have resulted from the financial crisis which need to be addressed, given that the debt service burden of LDCs in the year 2008 reached 7.5 billion. This burden, India asserted, constrains national policy space and policy independence of developing countries, and as such, their ability to play the role fo a developmental State.
Furthermore, debt sustainability analysis frameworks remain limited and subjective. The international community must work towards a debt structure which is linked to a country’s ability to pay.