PRESS CONFERENCE ON GENERAL ASSEMBLY PANEL ON GLOBAL FINANCIAL CRISIS

30 October 2008

PRESS CONFERENCE ON GENERAL ASSEMBLY PANEL ON GLOBAL FINANCIAL CRISIS

30 October 2008
Press Conference
Department of Public Information • News and Media Division • New York

PRESS CONFERENCE ON GENERAL ASSEMBLY PANEL ON GLOBAL FINANCIAL CRISIS

The only realistic way out of the global financial crisis was to proceed democratically, in an inclusive manner, and there was no better place to do that than in the General Assembly, Miguel d’Escoto Brockman, President of the General Assembly, told correspondents at a Headquarters press conference this afternoon.

Calling for giving a voice to those who “suffer the consequences of the decisions that have not been made by them”, he said that the current financial crisis presented opportunities for change.  In particular, he spoke about the plans to form a high-level task force to review the global financial system.  The composition of that body would be made public in the near future, and work was under way to formulate the terms of reference for that body.

Joining President d’Escoto were members of the Panel that met at Headquarters today to ponder solutions to the crisis:  Joseph Stiglitz, 2001 Nobel Laureate in Economics, former Chief Economist of the World Bank and a Professor at Columbia University; Prabhat Patnaik, Professor at the Centre for Economic Studies and Planning, Jawaharlal Nehru University, India; Sakiko Fukuda-Parr of Japan, Professor of International Affairs, The New School; Pedro Paez, Minister of Economic Policy Coordination of Ecuador and Coordinator of the Bank of the South; Calestous Juma of Kenya, who is also Professor of the Practice of International Development at the Kennedy School of Government of Harvard University; and François Houtart of Belgium, Chief Editor of the international journal of religion Social Compass.

Asked if his call to include all the Member States of the United Nations -- the “G-192” -- in the search for long-term solutions to the crisis was realistic, Mr. d’Escoto said that it was time to stop viewing the global economy as the private dominion of such exclusive clubs as the G-8 or G-15.  The only realistic way out of the crisis was to proceed democratically, in an inclusive manner.

Agreeing on the need to ensure wide participation in the discussions, from which consensus would hopefully emerge, Mr. Stiglitz identified the lack of credibility and legitimacy of international financial institutions as among the main problems that required attention.  The fact that the International Monetary Fund (IMF) was so dominated by “the G-1” made it difficult for it to deal forcefully with the sources of the current problem, which included the lack of regulation in the United States.  For the effectiveness of the IMF, that body needed to be reformed.  Change would not come overnight, but some degree of oversight was needed from those who were likely to be hurt when the policies failed.  “A kind of process that has some kind of accountability” was needed, and recent changes in the world economic structure needed to be taken into account.

Mr. Patnaik added, in that regard, that the IMF voting system was not the only problem.  It was also important to address the issue of conditionalities.

One of the points presented very forcefully today during the panel was that the lack of inclusion could have a highly negative effect on the developing countries, Mr. Stiglitz said.  Also mentioned in the discussion was the fact that the contrast between the countercyclical policies pursued by the United States and the pro-cyclical policies pushed on some other nations increased instability in the developing countries, thus increasing inequity and affecting global stability.

While there was no dearth of ideas to tackle the crisis, it was important to make sure that those ideas were on the international agenda, he said.  In particular, a number of proposals had been discussed today, including a whole list of regulatory and institutional reforms, as well as incentives and a set of checks on the financial system.  Suggestions had also been made regarding the reform of the global reserve system and the rehabilitation of the discussion that had been put on ice by the United States several years ago, regarding sovereign debt restructuring.

He added that one of the reasons the policies of the Bush Administration had worked so poorly was that there had been so little public discourse.  For example, there had been no discussion of the first bank bailout ahead of time, and within weeks it became evident that the plan was flawed.  The policy had been “trashed by every economist”.

Among possible solutions to the crisis, Mr. Paez mentioned regional monetary accords, which could become part of “an international scheme of support” for the stabilization of international capital and exchange markets.  Mr. Juma also expressed interest in regional solutions and emphasized the importance of considering how countries had handled recessions in the past.  In the short-run, the reform of the IMF was going to be “a very tough exercise”, which could take as long as 10 years.  He believed ideas would come not from Washington, D.C., but from outside Washington.

Asked to comment on his suggestion that the General Assembly could take a lead role in monitoring international financial institutions, their decisions and governance, Mr. Stiglitz said that there was increasing recognition of the importance of multilateralism.  Oversight did not mean that the decisions would be made by the Assembly, but it was very clear that there were limitations in the governance structures of the IMF and World Bank, which undermined the effectiveness of those institutions.  Those issues needed to be discussed in new forums.

On the need for bank supervision in the United States, Mr. Stiglitz said that, prior to the crisis, there should have been restrictions in place. In fact, even now, he shared a concern expressed in The New York Times editorial yesterday that the bailout money was not being used in accordance with the intent of Congress.  It was one question to use that money to help a family bank on the verge of collapse, and it was quite a different matter to use that money to increase a market share of a healthy bank, which was never the intent of Congress.  He had hoped the Secretary of the Treasury would exercise his judgement in making sure that the money was used in the way intended, but it was clear that he had not done that.

While only part of today’s severe crisis, predatory lending had played a significant role, he said.  Going forward, such practices would have to be restricted.  Some of that had already been done, but such belated action resembled closing a barn door after the horse had been let out.  The reforms should involve

not only changing the regulations, but also the regulatory structure to prevent the kind of “regulatory capture” that had occurred, “where you have the interest of those regulated reflected in the regulator”.

Mr. Houtart said that much more than regulations were needed.  It was important to transform the system, because the world was not only facing a financial crisis, but also food, social and energy crises.  All those were related to the same fundamental cause, which was the logic of capital accumulation.  It was necessary to transform the kind of relationship humankind had with nature.  The world must transform its values, promote democracy and accept multilateralism and collaboration.

Asked how much the financial crisis was damaging such international goals as the United Nations Millennium Development Goals, Mr. Stiglitz said that the world was only in the early stages of crisis, and its long-term impact would depend on the nature of the response, which had been inadequate, so far.  Reverberations of the crisis in terms of unemployment and human suffering could be felt much more in developing countries than in the developed world.

Ms. Fukuda-Parr added that the distributional impact of the costs of the crisis had to be taken into account.  It was important to learn the lessons of the previous crises, in particular the Asian one, where it had been clearly documented that the costs were borne mostly by the poor, in particular women.

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For information media • not an official record
For information media. Not an official record.