|Department of Public Information • News and Media Division • New York|
Conference on World Financial
and Economic Crisis
Round Table I (PM)
INTERNATIONAL ECONOMIC REFORM REQUIRES SOME MEMBER STATES TO GIVE UP THEIR ‘VOICE’
IN FAVOUR OF OTHERS, EXPERTS SAY IN ROUND TABLE DISCUSSION
Speakers Call for Correction of ‘Glaring’
United Nations Absence from Proposed Responses to Global Economic Crisis
Experts addressing the role of the 192 United Nations Member States in the global economic architecture said today that reforming the financial and economic systems would require some States to give up part of their “voice” so that others could be heard, as Nobel Laureate Joseph Stiglitz asserted that “failure to create adequate institutions for managing globalization has put the global economy at risk”.
The remarks were among the contributions made during a round table discussion on “The role of the United Nations and its Member States in the ongoing international discussions on reforming and strengthening the international financial and economic system and architecture”. Co-chaired by Prime Ministers David Thompson of Barbados and Prime Minister Mirko Cvetković of Serbia, it was the first of a series taking place as part of the Conference on the World Financial and Economic Crisis, running from 24 to 26 June. (For a summary of today’s plenary, see Press Release DEV/2747.)
Featuring as panellists were Joseph Stiglitz, Professor at Columbia University and Chairman of the Commission of Experts of the President of the General Assembly on Reforms of the International Monetary and Financial System; Ngozi Okonjo-Iweala, Managing Director of the World Bank; Alicia Bárcena, Under-Secretary-General and Executive Secretary of the Economic Commission for Latin America and the Caribbean (ECLAC); Andrei Bougrov, Managing Director and member of the Board of Directors of the Interros Company, former Principal Resident Representative of Russia, Executive Director and member of the Board of Directors, International Bank for Reconstruction and Development; and Yu Yongding, former Director, Institute of World Economics and Politics, Chinese Academy of Social Sciences and former member, Monetary Policy Committee, People’s Bank of China.
Setting the tone for the discussion, Prime Minister Thompson highlighted the effect of the crisis on developing countries, particularly the smallest ones, saying that progress on international objectives such as the Millennium Development Goals was under threat. The crisis also undermined the ability to tackle climate change, food and energy security, reduce poverty and provide other social needs. The subsequent growing loss of confidence in international institutions called for reform of the basic financial and economic governance systems and structures.
He recalled that, since the last quarter of 2008, there had been much talk of reforming and strengthening the system -- by the G-8, G-20 and the Boards of Directors of the World Bank and the International Monetary Fund (IMF). But the absence of the United Nations was a glaring omission, and today’s round table was designed to address the absence of a robust role for the Organization, both in dealing with the short-term requirements and the longer-term needs of structural change.
Mr. Stiglitz, a Nobel Prize-winning economist, said the current crisis had highlighted the ways in which activities in one part of the world could affect other parts. For instance, the failure on the part of the United States and Europe to regulate their financial institutions in an appropriate way had inflicted costs on their own economies, as well as the global economy. With economic policies still determined at the national level, the world was now facing the consequences of lacking an overarching institution to manage globalization.
Despite broad agreement on the need for a stimulus package, the absence of coordination meant there was a risk that each country would undertake a stimulus focused on maximizing domestic benefits, he said. The Commission of Experts felt strongly about the need for an inclusive decision-making process that was “not G‑8, not G‑20 but a G‑192 -- that’s where the United Nations needs to play a central role”. Its report recommended the creation of a global economic coordinating council to identify gaps in existing economics arrangements and deficiencies in the workings of the current arrangements.
Noting that developing countries lacked the resources to undertake a successful stimulus plan, he said that, while efforts to assist them were commendable, most assistance was offered in the form of credit. For the least developed countries, that raised concerns of another debt crisis. That category of countries would require grants in addition to credit. There was also a need to create new credit facilities and disbursement mechanisms, a matter addressed in the report.
He said the crisis also highlighted the importance of re-examining the economic doctrines upon which those models were based and the basic policy perspectives that had been advocated as a result, such as capital- and financial-market liberalization. However, there was also a concern that regulatory reforms would not be deep enough, and that the special interests that had once pushed for deregulation would push for only cosmetic reforms. Already, some countries were advancing the view that some banks were too big for restructuring.
Ms. Okonjo-Iweala said that, as part of the debate on global economic and financial governance, States must consider giving low-income and emerging market countries more of a voice. Revenue in developing countries had shrunk by $200 billion, and around 95 million people were expected to fall into poverty as a result, in addition to the hundreds of millions more who were already classified as poor. Core spending on education, health, nutrition and social safety net programmes would not be met. “What will United States do? What will China do? What will Europe do?” she asked.
She said the World Bank was watching to see whether the United States would continue to depend on domestic consumer spending to fuel its economy, or whether China would continue its reliance on exports as its economic engine. The reaction of those economic giants would help the World Bank determine its own next steps. In the meantime, its President, Robert Zoellick, had called on developed countries to consider devoting 0.7 per cent of their fiscal stimulus packages to the needs of developing countries.
Existing institutions needed recalibrating, and the World Bank had begun doing that by including more African countries on its Board and recalibrating voting rights, she said. “Institutions need to cultivate the ability to listen more to what they’re trying to tell us about how we should support assistance,” she said, stressing that trying to implement those changes in existing institutions was very important. For its own part, the World Bank had created a $1.2 billion facility through which it could “fast-track” resources to countries hit by the food and energy crises in recent months. It had already disbursed $730 million to more than 33 countries, largely in the form of grants. It was now using those instruments as part of its response to the global crisis.
Ms. Bárcena said news that Member States had agreed on an outcome document was raising expectations about United Nations-led reform, but also questions as to whether the international community would follow suit. Some countries were wary of overregulation while others feared there would not be enough regulation. Others still were concerned that certain powerful States would choose to operate outside the multilateral framework. She stressed that the world financial architecture was part of a larger global structure, and not a building block to be dealt with separately.
“Politics needs to be brought back into the equation,” she said, adding that the United Nations should step in to protect vulnerable economies. In the poorest parts of the world, when the main breadwinner became unemployed, a family could lose everything, including the ability to keep their children in school and to afford family health care. Noting that the Commission had proposed the creation of a coordination forum, she said it should be housed within the United Nations. Similarly, the Commission’s suggestion to establish an international panel of experts could be carried out in the same mould as the Intergovernmental Panel on Climate Change.
A panel of experts within the United would bring together views from all parts of the world, she continued, pointing out that the World Trade Organization, for example, lacked an institutional agreement with the United Nations and needed to be brought into the reform process more formally. Countries were asking, “What’s going to happen with trade?”, she said, explaining that the Latin American and Caribbean region had suffered a 30 per cent decline in trade.
Mr. Bougrov said that, when the founders of the Bretton Woods institutions had met in 1944, they had been fuelled by a need to undertake post-war reconstruction. They had also had the will to follow through and enough leadership to pave the way. Today, the world had the need and the will, but missed the leadership. Leadership “won’t fall from the sky or come out automatically”, but would originate from having a clear understanding of events and next steps. The Commission served the purpose of providing that clarity.
As shareholders in bodies such as the World Bank and International Monetary Fund (IMF), Member States must lead the reform process within those international financial institutions. “When the hurricane took the house, Dorothy said ‘We’re not in Kansas anymore’. The financial hurricane had a similar impact,” he said. “In the new conditions, we must aspire to manage risk and allocate capital well. That’s where we’ve failed so far.”
Mr. Yu, referring back to the Commission’s report, said it represented a comprehensive re-examination and rethinking of the policies and underlying theory currently guiding the world economy. It emphasized the importance of policy coordination on a global scale, so that the United States -- which had chosen an expansionary policy -- would be forced to consider the consequence of that policy on countries such as China, which held more than $1 trillion in reserves. If United States policies led to inflation, China stood to suffer greatly as the value of the dollar dropped. In turn, China would no longer be able to rely on exports to fuel growth, because the world was in an economic recession.
He pointed to the report’s suggestion to rethink the use of the United States dollar as a store of value, especially in light of the increase in the United States national debt, among other things, saying it had led to concerns about the currency’s stability. Quoting the report, he said now was an ideal time to overcome political resistance to a new global monetary system. “The report has lots of specific suggestions. It’s time to carry out the reform of the international financial system.”
Nearly all speakers in the ensuing discussion affirmed the need for change, although some questioned who would do the changing. They also called for more surveillance of systemically significant institutions, and for more attention to alternative sources of financing, such as Islamic banking or pooled funds, including the Chiang Mai Initiative of the Association of Southeast Asian Nations (ASEAN).
Summing up the discussion, Prime Minister Cvetković said the views aired proved that the United Nations had a role in international financial and economic governance, with many speakers advocating a stronger role for the Organization. “Every country should be involved in the response. We need to play catch-up.”
Also participating in the discussion were the representatives of Malaysia, Czech Republic (on behalf of the European Union), Cuba, Venezuela, Democratic Republic of the Congo, Ghana, India, Guyana, Côte d’Ivoire, Saudi Arabia, Sweden, United Republic of Tanzania, Norway, Barbados, Indonesia, United States and China.
Representatives of the World Trade Organization and the United Nations Educational, Scientific and Cultural Organization (UNESCO) also participated, as did several speakers representing non-governmental organizations.
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