Ladies and gentlemen,
It is a special pleasure for me to make these remarks today. This dialogue brings together senior officials of the world’s trade and financial institutions to give the Council a range of institutional viewpoints and have an open discussion with participants.
We live in a time of great insecurity and enormous challenges. Bank runs, plummeting house prices, fluctuating exchange rates, food riots, and the energy crisis – to name just some events that have dominated the international news media over the past 12 months – are indications of these difficult times. This is why this High-level Policy Dialogue is so important. It is an opportunity to help understand these challenges and to define a collective response.
The immediate concerns I just mentioned highlight a growing anxiety over the economic direction taken in many parts of the world over the past two decades. Far-reaching deregulation of trade and financial markets has unleashed new economic activity. But it has also unloaded risks and strains onto individuals and households, often insufficiently supported by social protection systems or adequate regulatory frameworks. Indeed, even when countries appear to have been doing well on some measures, many households and communities have been struggling to secure a decent standard of living. These concerns have been compounded by other global threats, from climate change to the food security crisis.
One of the reports before you – this year’s World Economic and Social Survey – finds that a much more active policy response is needed to help communities and countries better manage these new manifestations of economic insecurity. Increased investment, particularly by the public sector, is key to mitigate the adverse impacts and to prevent threatening events from turning into human disasters. And more universal social policies are needed to strengthen the underlying social contract which is, ultimately, the basis of a stable and just society.
Yet, in our interdependent world, many of the threats and challenges cannot be met by governments acting on their own. They require collective international action. Multilateral solutions, based on full participation and open dialogue, remain the best hope for providing a secure economic future for all.
Consider, for example, the global financial turmoil that started a year ago. Triggered by the sub-prime mortgage crisis in the United States, the turmoil has since taken its toll on the real economy worldwide. According to the UN’s mid-year update of the 2008 World Economic Situation and Prospects, also in front of you, there is, today, a high risk of a marked slowdown of the world economy. This weakness will likely extend into 2009.
In the developing economies and economies in transition, direct contagion effects have so far been limited. But more adverse impacts are expected as demand from major developed economies continues to weaken. In fact, a few developing countries have already experienced significant financial distress.
The weakening global economic environment is compounded by the steeply rising prices of food and energy. The increase in the cost of living has already caused social and political unrest in a number of developing countries. And it threatens to reverse some of the progress made towards the Millennium Development Goals, particularly the primary goal of reducing poverty and hunger.
The grave risks of a protracted global economic downturn and the urgent need to deal with the global food crisis both require a global consensus and action.
Multilaterally coordinated policy action is necessary to prevent a global recession and a disorderly adjustment of the global imbalances. This would include: a stimulus package focused on the expansion of domestic demand in surplus countries; policies to support a gradual rebuilding of savings in deficit countries; and measures to stabilize global currency markets and financial markets at large.
In the longer run, deep reforms in the mechanisms of international financial regulation and supervision will also be needed. I hope that the International Monetary Fund will manage to substantially broaden developing-country representation in its governance structure and position itself as a credible and effective broker in multilateral consultations for policy coordination. And, it is equally important that this forum – the Economic and Social Council – will further help foster such consensus-building.
To address the global food crisis, the immediate priority is to scale up international resources to meet humanitarian and emergency food needs. Yet, urgent action must also be taken towards a long-term solution to the crisis.
Investments need to be increased substantially, particularly in developing countries – in such areas as water supply, infrastructure, seeds and fertilizers, education, and agricultural research – to increase agricultural productivity.
Given the strongly adverse terms-of-trade shocks experienced by many of low-income countries that are net importers of food and energy, there is also a need for better compensatory financing mechanisms. As noted in the report of the Committee for Development Policy, providing adequate liquidity and budget support to the poorest countries is critical. Such support should enable them to avoid having to respond to such shocks with stringent macroeconomic adjustment policies that could jeopardize their efforts to meet the MDGs and other development goals.
Finally, and more broadly, the commitments to provide the poorest countries with sufficient and effective development assistance must be kept. Since 2002, there has been mixed progress, at best, in international development cooperation. While some donors are meeting their commitments in delivering aid, aggregate aid flows from OECD member countries have fallen over the past two years. The rate of growth of ODA flows will have to accelerate to about 16 per cent per year if they are to achieve the 2010 aid target for financing the internationally agreed development goals, including the MDGs.
Conditionality attached to aid flows should be limited and streamlined to make disbursements more predictable and to eliminate conflicting conditions among donors.
All the challenges I have laid out for you today have far-reaching global repercussions and require us to strengthen our multilateral framework and to seek concerted solutions. In recent months, we have been able to agree on a framework of action for concerted responses to the global food crisis. While the fullness and effectiveness of the implementation remains to be seen, the quick elaboration of the framework does show that we are capable of responding swiftly as an international community. I hope we can take on all the other challenges in the same spirit.