TWN Info Service on WTO and Trade Issues (Sept09/10)
15 September 2009
Third World Network

Crisis an opportunity to find long-term solutions
Published in SUNS #6772 dated 15 September 2009

Geneva, 14 Sep (Kanaga Raja) -- The governing Trade and Development Board (TDB) of the UN Conference on Trade and Development (UNCTAD) began its fifty-sixth session on Monday, with UNCTAD Secretary-General Dr Supachai Panitchpakdi stressing that the global financial and economic crisis presents an opportunity to find long-term, multilateral solutions to the cycle of financial crisis and unsustainable global imbalances.

This year's session (14-25 September) comes as both UNCTAD and the Group of 77 and China are marking their forty-fifth anniversary.

Amongst others, this year's TDB session will also be holding a high-level discussion on the global economic crisis and the necessary policy response.

In his opening address at the fifty-sixth session of the TDB, Supachai said that this year's meeting falls at a crucial moment for reflection and action over the state of the global economy.

As the world still copes with the shock of the worst economic crisis in 60 years, financial and economic institutions, business, the media and several governments are talking up the evidence of recovery - pointing to so-called "green shoots", such as healthier balance sheets, rising stock market indices, and halting declines in growth rates.

To be sure, the mega-stimulus packages introduced by many governments appear to have had a decisive impact in slowing the global economy's descent, but "I nevertheless believe we must still continue to be cautious about the evidence for recovery, and in particular what this means for developing countries," said Supachai.

It is significant that much of the evidence for recovery comes from the financial sector: from banks, whose balance sheets now show a profit, after several high profile sell-offs and widening interest rate spreads; and from various stock exchanges, whose indices show increases of 30% or more since March this year, reflecting bargain hunting - but with many CEOs otherwise perplexed as to the reasons why. And perhaps most controversially, the return of bonuses, especially in the very sector that was bailed out by tax-payers' money - banking, he added.

According to the Secretary-General, the fact that signs of improved performance in the financial sector - where the source of the current crisis originated - are being used to signal recovery is worrying, as it implies we have not learnt from our recent experiences.

"For UNCTAD, one of our primary concerns is that whilst attention is firmly focused on roulette wheels and financial algorithms, many developing countries will be left to face the music on their own, not just this time but the next time crisis hits as well," he said.

"We strongly believe that the crisis presents an opportunity to find long-term, multilateral solutions to the cycles of financial crisis and unsustainable global imbalances, which we have been warning about for some time and which should now be confronted head on."

Supachai also referred to the so-called "shadow banking system", which at its peak, held assets in the US of approximately $16 trillion, about $4 trillion more than regulated deposit-taking banks. While the regulation focussed on banks, it was the collapse of the shadow banking system which kick-started the crisis.

UNCTAD's analysis consistently sought to highlight the underlying fundamental tendency toward instability that a deregulated, un-managed financial system engendered, and the correction towards which we were inevitably heading, he said.

Clearly, said Supachai, UNCTAD is not setting off in a new direction in the midst of the crisis.

"Our analysis has remained consistent and our activities are at the same time relevant to the needs of our member states. What has changed is the policy climate. For the first time in many years, the response to this crisis has been pragmatic rather than ideological, driven by an awareness of past mistakes and the urgency to avoid a predicted crash."

He noted that Keynesian-style government fiscal policies became the first line of defense during the crisis, to resuscitate demand and protect industry and jobs.

Perhaps the greatest lesson to be learnt from the Great Depression of the 1930s, on which, interestingly, the US Federal Reserve Chairman, Ben Bernanke, wrote his PhD thesis, is that governments must be pro-active and counter-cyclical in their fiscal and monetary policies during a crisis, said Supachai.

Together with the nationalization of parts of the banking sector in the US and other countries, the crisis has revealed a tacit, if not explicitly, acknowledged role for government in protecting systemic integrity, socializing risk and ensuring the continued smooth functioning of markets.

While welcoming news of "green shoots", Supachai however said that an increase in stock market indices or reports of corporate profit taking does not constitute a global recovery.

There still remain millions of unemployed in both developed and developing countries, who are not finding jobs and wage rates are still falling; the credit markets are still sclerotic and low central bank interest rates are not being passed onto business or consumers, retarding a rebound in global production, trade and consumption, he added.

Thailand, on behalf of the G77 and China, said that the fifty-sixth session of the Trade and Development Board is of great importance to developing countries for two reasons -- first, it marks the forty-fifth anniversary of UNCTAD. Second, it also marks the forty-fifth anniversary of the creation of the Group of 77 and China.

Thailand said that over the years, UNCTAD has played a critical role in development efforts of developing countries. As a leader on development issues, UNCTAD has helped developing countries to better appreciate the global environment, as well as to address the challenges of integrating into the global economic system.

"UNCTAD must continue to play and important role in advancing the frontiers of development, while also translating these ideas into action," it said, adding that most importantly, "UNCTAD should concentrate on advancing new ideas to assist developing countries in addressing the multi-faceted challenges of development, especially now at a time when we are confronted with the global economic and financial crisis, as well as the food and energy crises."

Thailand said that the group was greatly encouraged by the establishment of the new unit within the Secretariat to carry out work on regional integration and South-South cooperation, which is one of the pre-eminent areas of UNCTAD's work. "We wish to again emphasize that South-South cooperation should be used as a means to complement, rather than to replace, North-South cooperation."

It is also incumbent upon UNCTAD to transform ideas and suggestions on how to address the special needs and concerns of Africa, Least Developed Countries and the most vulnerable countries, into real actions.

The Group also attached high priority to the needs of the Palestinian people and the building of the Palestinian economy in order to ensure a firm and stable basis for development of the Palestinian people.

"We sincerely appreciate the Secretariat's efforts and work in this regard, however, we are disappointed by the lack of resources which has hampered the ability of UNCTAD to fulfil our expectations," said the G77 and China.

Cote d'Ivoire, on behalf of the African Group, aligned itself with the statement by the G77 and China.

Sri Lanka, on behalf of the Asian Group, also aligned itself with the G77 and China statement. It said that recent events have shown the fragility of the global economic system and the vulnerability of developing countries to external shocks.

It placed emphasis on strengthening the role of the TDB as an important forum for policy dialogue. An important aspect of UNCTAD work which has been recently restored is South-South cooperation and regional integration.

Sri Lanka also highlighted the persistent challenges that have not been fully addressed. There is need to go back to basics and examine how the special challenges for Africa, the Least Developed Countries and other most vulnerable countries can be addressed. +