|Department of Public Information • News and Media Division • New York|
PRESS CONFERENCE BY ADVISERS TO GENERAL ASSEMBLY PRESIDENT ON CONFERENCE
ON WORLD FINANCIAL AND ECONOMIC CRISIS AND ITS IMPACT ON DEVELOPMENT
Two senior advisers to the President of the General Assembly for the upcoming Conference on the World Financial and Economic Crisis and its Impact on Development today underlined the urgency for restructuring the global financial system, during a press conference at Headquarters.
Focusing on the Asia and Pacific region, Michael T. Clark, Senior Adviser to the General Assembly, President Miguel d’Escoto Brockmann, noted that the region, which consisted of 53 countries, was often called the “Class of ‘97” because of the financial crisis that had taken place that year. The region was doing better now because of lessons learned. Calls for a new financial architecture had been heard then, as well. But failure to address underlying issues at that time had caused Asian countries to accumulate large dollar reserves and buy United States Treasury bills, while the United States ran deficits to over 5 per cent of its gross domestic product (GDP).
He said the question of whether United States deficit spending or the accumulation of dollar reserves in Asia were the cause of the present crisis would be a major subject of the upcoming Conference from 1 to 3 June. There was a mutual interdependence; the United States needed China to hold onto the dollar reserves, while China needed the United States to preserve the value of the dollar. They both were in a “financial balance of terror”. The question of how to respond to the call for a new design for regulating the global financial system did not yet have a good answer, but there was a great urgency to solve the problem.
A main part of the response to the crisis had been the launching of regional initiatives, he said. The “Chiang Mai Initiative” had pooled liquidities (some $80 billion at the time of the 1997 financial crisis) that could be swapped, essentially creating a “mini-IMF”. The question now was whether to have a single global centre for those arrangements, or more layered and flexible arrangements on a regional basis. No matter what solution was chosen, the current situation was a “ticking time bomb”.
Nirupam Sen, Special Senior Adviser to the Assembly President, said the Conference was supposed to be Asia-centric. It was clear that the current problems were global in scope and could not be solved by North-to-North arrangements, or by a few countries only. Unless addressed holistically, universally and in substance, the problems could not have an optimal solution.
He said that the Department of Economic and Social Affairs (DESA) had predicted a minus 3.9 per cent economic growth worldwide. The biggest impact would be felt by the most marginalized countries, even though they had contributed least to the crisis. The impact had been different in Asia, where the banking systems were sound. Although there were variations between countries within Asia, the commonality was the impact of the crisis on exports and, consequently, on employment.
Trade was being hindered by the fact that credit channels remained blocked, he explained, adding that it was up to the United Nations to deal with that. There was an urgent need to reform governance of the financial system. The Conference was expected to deal with global stimulus, financing to protect the most vulnerable and the issue of Special Drawing Rights and monitoring, among other concerns.
Responding to correspondents’ questions about the International Monetary Fund (IMF), Mr. Sen said that double majority voting was among a series of measures that were on the table. There was no question that countries such as China, India, South Africa, Indonesia and Brazil were interested in reform of IMF. That institution still exercised “economic technical apartheid” with counter-cyclical prescriptions for developed countries and pro-cyclical prescriptions for developing countries, even as late as October 2008.
Addressing financial outflows from developing countries to the developed world, he said the net outflow had increased to $500 billion, exceeding aid inflows. In the current crisis, the debt sustainability mechanisms that were in place did not work. The Conference’s outcome document probably would propose something radical on the debt and financial architecture. One reason for hope was that the shock of the crisis had led people to discuss such things openly and to consider solutions that would not have been possible two years ago.
Asked about increasing criminality because of the crisis, or whether the Iraq war had contributed to the crisis, Mr. Sen answered that criminality might not be the result of the crisis, but its cause, owing to the criminal behaviour of hedge fund managers, for instance. The crisis had multiple causes. The Conference’s concern was to isolate the fundamental causes in order to enable the United Nations to do something about reforming the international financial system, so that future crises might be mitigated or even prevented.
Answering questions about IMF’s Special Drawing Rights (SDRs), he said those issues had come to the table during the G-20 meeting and in Washington, D.C. SDRs were tradable rights, a credit. Today, IMF “emitted” SDRs based on the amount of shares held by shareholders of IMF, a system which had been established a long time ago. Rich countries held the greatest proportion of those quotas. China, India and Brazil had less weight than Belgium, for example. Although $250 billion was being created by IMF, most of that money did not go to the developing countries. The power to create new liquidity must belong to the world as a whole.
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