|Department of Public Information • News and Media Division • New York|
Press Conference to Launch 2009 ‘Trade and Development Report’
The real impact of the global financial and economic crisis had yet to be faced, Miguel d’Escoto Brockmann, President of the General Assembly, said at Headquarters today.
At a press conference to launch the 2009 Trade and Development Report, he said that one year since the beginning of the crisis -- and after some $18 trillion had been spent on bailout and stimulus packages -- the rate of economic decline appeared to have diminished, but for many around the world the crisis was only beginning. In addition to the adoption of the outcome document from the recent Conference on the World Financial and Economic Crisis and its Impact on Development, the General Assembly had established an open-ended working group to guide it in addressing the crisis.
The 2009 Trade and Development Report contained analysis and up-to-date information indicating that the crisis reflected the predominance of the financial market over the real economy, he said. It also pointed out that speculation had been allowed to play too large a role and that, rather than contradicting development goals, climate change mitigation offered opportunities for development.
Accompanying the General Assembly President, Heiner Flassbeck, Director of Globalization and Development Strategies at the United Nations Conference on Trade and Development (UNCTAD), introduced the report, noting that a year after the start of the financial crisis, the outlook was “not positive”. The world was still mired in a deep economic crisis and not much had been achieved in regulating the financial markets. The real questions in that regard had not even been recognized, but thanks to the good reactions of some Governments, the economy had stabilized somewhat and the decline had bottomed out. However, the perspective for growth was lacking.
He said that, on a global level, private sector demand could only grow through consumption and investment, but rising unemployment and depressed wages depressed growth in consumption. Because capacity utilization was 10 to 15 per cent below normal, there was no demand for new investments, and profits had in turn declined due to falling demand. He therefore urged Governments to continue to stimulate the economy, stressing that talk of an “early exit strategy” was premature.
There was not much hope on the financial side, he continued, explaining that business had been conducted as usual since a revival in March. The crisis had not only been caused by the housing crisis, but also by bubbles in the commodity markets, the stock markets and the currency markets. All the bubbles had collapsed at the same time. In the last six months, the same bubbles were being inflated again in a “primitive attempt to anticipate a recovery that was not yet there”, but they would deflate again when speculators realized that the global recovery was not as strong as anticipated. In addition, the currency crisis had been largely overlooked.
He said there were asymmetries in the ways in which different countries dealt with the crisis, pointing out that most developed countries lowered interest rates and increased stimulus measures. Others, however, due to the conditionality imposed by the International Monetary Fund (IMF), had to do the opposite. In the case of Hungary, for instance, the markets had shown confidence for seven years, resulting in the appreciation of the currency. The moment the crisis had hit, the markets had left Hungary and its currency had declined. The IMF had stepped in, saying Hungary must regain the confidence of the same financial markets that had overvalued its currency, leading to its collapsed economy.
There was now a need for asymmetry between deficit and surplus countries, he said. Currency exchange rates should not be left to markets but to an international agreement or body that would stabilize exchange rates on the basis of competitiveness rather than speculation, and allow countries to emerge from the crisis without conditionality. It would allow for coherent trading and monetary systems, whereas countries were now competing through devaluation and wage dumping. The World Trade Organization did not accept responsibility for such distortions, while the IMF did not address trade issues. Only an institution with a much broader mandate should be responsible for the coherence of the international economy, including the question of climate change.
Asked what kind of institution he envisioned, Mr. Flassbeck said it should be a United Nations-like body with a similar mandate that would take a more coherent view of international economic questions -- something like an “economic Security Council”. It should not only be a global financial institution, but also deal with commodity pricing and trading.
He went on to point out that commodity markets were now driven to a large extent by speculation, and also covered fossil fuels. One could not address climate change, if fossil fuel prices were subject to speculation. Speculation in agricultural commodities caused people to starve, and the United States Congress had been the only body to address the financialization of the commodity markets.
Responding to other questions, he stressed that while the markets would probably not be very receptive, the disastrous nature of current policies should be made clear. Nobody had diagnosed clearly what had gone wrong, and everything was being treated under the broad brush of “financial crisis”.
While the IMF might no longer use the term, it was still engaged in conditionality, he said in reply to a question in that regard. However, the Fund could not be blamed for imposing such policies. The blame lay with an international community unwilling to tackle a new financial system.
The IMF’s Special Drawing Rights (SDRs) were not allocated according to a country’s needs, but in accordance with the number of shares it owned, he stressed. Some countries had the right to “print” an unlimited amount of money while others, because of conditionality, did not. There was a movement towards regional financial institutions, with Asian countries having pooled reserves from which they could draw without conditionality.
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