Commission on Financial Reforms
Terms of Reference Commission of Experts of the President of the UN General Assembly on Reforms of the International Monetary and Financial System
The breakdown of the Bretton Woods system in the early 1970s has been followed by a period of financial market liberalization and deregulation, by a surge of private capital flows and by the increasingly global reach of financial institutions. Even so, no institutions have emerged at the international level to prevent excessive risk taking in cross-border lending and investment, reduce systemic failures or address regulatory rules for creditors and debtors, including financial institutions. In fact, conventional wisdom has maintained by cutting back restrictions on capital movements at the national and international levels. a more stable and more efficient financial system would emerge, of particular benefit to developing countries.
The experience has been rather different. Excessive financial liberalization has created a world of global macroeconomic imbalances and recurrent crises. Until recently, the real damage from those crises was, to a large extent, confined to emerging markets. That has now changed, and in a dramatic way. A financial crisis, originating in the most advanced countries and on a scale not seen since the 1930s, is currently unfolding. Over the past few weeks, several major financial institutions in the United States and Europe have failed and stock markets have plummeted and become highly volatile. Especially in the United States, inter-bank lending has declined sharply. Retail businesses and industrial firms, large and small, find it increasingly difficult to obtain credit as banks have become reluctant to lend, even to longtime customers. The response has been state intervention, including the nationalization of financial assets, on an unprecedented scale.
The crisis has become global. Even emerging markets and less developed countries that have managed their economy well, resisted bad lending practices, did not purchase toxic mortgages, and did not allow their banks to engage in excessive risk taking through derivatives, have become embroiled. Any global solution—short term measures to stabilize the current situation and long term measures to make another recurrence less likely—must pay due attention to impacts on all countries. Without doing so, global economic stability cannot be restored.
Ten years ago, at the time of a series of financial crises in emerging markets, there was much discussion of the necessity of reforms to the global financial architecture. Little—too little, it is now evident—was done. It is imperative that we do not only respond adequately to the current crisis, but also begin making the long term reforms necessary to have a more stable and prosperous global economy.
Composition of the Commission
On 18th October, the President of the General Assembly, Miguel D’Escoto Brockmann, announced his intention to establish a taskforce of experts to review the workings of the global financial system, including major bodies such as the World Bank and the IMF, and to suggest steps to be taken by Member States to secure a more sustainable and just global economic order.
The membership of the Taskforce –now Commission- has been chosen based on the need to include experts with a full understanding of the complex and interrelated issues raised by the workings of the financial system, with a strong grasp of the strengths and weaknesses of existing multilateral institutions, and with a sensitivity to the particular challenges faced by countries from different regions of the world and at different levels of economic and social development.
In addition to the Chair, Professor Joseph Stiglitz (USA), members have been drawn from Japan, Western Europe, Africa, Latin America, South and East Asia.
The rapporteur will be Mr. Jan Kregel (former UNDESA staff; now University of Kansas and the Levy Economics Institute of Bard College).
Scope of the Commission Work
The Commission will seek to identify the broad principles underlying needed institutional reforms required to ensure sustained global economic progress and stability which will be of benefit to all countries, developed and less developed. The Commission will suggest a range of credible and feasible proposals for reforming the international monetary and financial system in the best interest of the international community, identify the merits and limitations of alternatives, and will evaluate in particular those that are at the center of current global discussions.
The Commission will be free to address whatever issues -- of an analytical, institutional or policy nature -- it believes are necessary for advancing the reform of the international financial architecture. A more detailed agenda will be established by the President of the GA.
In its deliberations, the Commission will also bear in mind that in an interdependent world, multilateral rules and regulations in trade, debt and finance will have to be mutually reinforcing if they are to underpin financial stability as well as sustainable and equitable development.
If reforms to the existing architecture are to be credible, they must provide for open and inclusive discussion among the broad range of stakeholders in the international community. The President recognizes that while the discussions of the Commission will need to focus on the specific challenges posed by financial instability, reform of the financial system should not be seen as an isolated endeavour but, where appropriate, must be linked to other challenges facing the multilateral system including climate change, peace and security, poverty reduction and the elimination of hunger. Adjustments to deal with the immediate crisis must not be made at the expense of the poor and the vulnerable, while their needs and interests must be fully considered in any proposals for long-term reform.
Process for producing the Report
The Commission will hold at least three formal meetings to discuss the issues and to begin drafting the report. At the same time, it will solicit comments and suggestions from a wider body of interested stakeholders including policymakers and government officials, representatives of international agencies, academics and members of civil society. Together, these deliberations and inputs will feed into a final report. The report will be published and distributed to member states, other involved parties and the wider public as part of a larger United Nations General Assembly initiative to achieve the needed reforms. A website will be established to promote the work of the Commission.
The first plenary meeting will be held in the New York City 5-6 January 2009 and the second session in Geneva 9-10 March 2009, for two day long sessions. The third and final meeting will be held at the UN HQ in New York to discuss the draft of the report in spring. The President of the General Assembly plans to distribute the final report to Member States in April, at which point it will also be launched publicly at press conferences in a number of locations worldwide.