|Department of Public Information • News and Media Division • New York|
Conference on World Financial
and Economic Crisis
Round Table II (AM)
round table experts outline strategies to help developing countries strengthen
economies, boost financial systems, protect most vulnerable citizens
Panellist, Troubled by Stalled G-20 Initiative,
Cautions against Reading Too Much into ‘Green Shoots’ Recovery Predictions
Calling for vigorous international cooperation to blunt the fallout from the global financial crisis, a panel of senior United Nations officials and Government experts today highlighted strategies –- ranging from a temporary moratorium on debt repayment to increased South-South trade and targeted policymaking -– that could help developing countries strengthen their economies, bolster their financial systems and protect their most vulnerable citizens during the economic downturn.
Opening the second of four round table discussions taking place during the Conference on the World Financial and Economic Crisis and Its Impact on Development, which opened yesterday in New York, Co-Chair Jean Asselborn, Deputy Prime Minister and Minister for Foreign Affairs and Immigration of Luxembourg, said that as the crisis continued to cascade outward from the financial centres that had given it birth, those developing countries that had thought they were too small, too remote or growing too fast to feel the effects were now facing a new reality as their economies contracted and foreign investment dwindled.
He said that, equally troubling and pertinent to the theme of the discussion -- “Coordinated and collaborative actions and appropriate measures to mitigate the impact of the crisis on development” -- was the prediction that poor countries might continue to feel the pinch for some time after the developed world began to recover, especially since they had limited finances to mitigate the effects of the crisis and little capacity to attract investors who could help with infrastructure rehabilitation, technology enhancements or other development priorities. Stakeholders must therefore consider seriously how broad cooperation could bolster the public good of a renewed international financial system, and determine the most appropriate rules with respect to development.
Besides Co-Chair Tongloun Sisoulit, Deputy Prime Minister and Minister for Foreign Affairs of the Lao People’s Democratic Republic, the panel also included: Supachai Panitchpakdi, Secretary-General, United Nations Conference on Trade and Development (UNCTAD); Noeleen Heyzer, Executive Secretary, United Nations Economic and Social Commission for Asia and the Pacific (ESCAP); Martin Khor, Executive Director, South Centre; Robert Johnson, former Chief Economist, United States Senate Banking Committee, and former Senior Economist, Senate Budget Committee; and Yaga Venugopal Reddy, former Governor, Reserve Bank of India.
Mr. Supachai said that, as the crisis lingered, UNCTAD was following several troubling trends, chiefly the notion that the recent “green shoots” sparked by minimal signs of life in the economy of the United States were harbingers of a real and sustainable recovery. That was not the case. “Just look around. Look more closely,” he said, emphasizing that a few faintly positive economic reports could not hide the fact that real estate markets were still severely depressed, creditors were still clinging to their cash, and foreign direct investments was dwindling. So, while the idea of green shoots might be “somewhat good” for consumer confidence, measures to ensure good fiscal management and decision-making must remain in place for some time to come.
He went on to express concern about the status of the $1.1 trillion package agreed by the Group of Twenty (G-20) in London, the bulk of it to be made available through the International Monetary Fund (IMF). That initiative had stalled and there was a lack of clarity as to how the IMF would actually distribute the funds. Other trends requiring close attention were the predicted “lag effect” in the global labour markets since job creation was expected to stall through 2010 as nations struggled to “get a handle” on the true impact of the crisis; the rising tide of protectionism; and a real shortage of the resources that had kept countries growing at normal rates of 5 or 6 per cent, and helped them to meet at least some of the Millennium Development Goals.
All those trends pointed to the all-important need to address the debt sustainability of developing countries, he said, calling for cooperation on initiatives on a scale beyond mere restructuring to include a temporary moratorium on debt repayments. Such a deal had been struck in the aftermath of the devastating Indian Ocean tsunami of 2004 and Hurricane Mitch in 1998. Moreover, special arrangements must be made for least developed countries, landlocked developing countries and small island developing States, many of which held debt beyond 100 per cent of gross domestic product.
Focusing on the situation in Asia and the Pacific, Ms. Heyzer said the economic and financial crisis threatened to roll back human development gains and spark a human tragedy in the region, which was the most trade-dependent in the world. Unless immediate measures were taken, some 23 million people stood to lose their jobs in the near future. Avoiding such a calamity called for the international community to rally its collective strengths so as to stabilize markets and capital flows, halt the decline and initiate broad-based recovery.
Such cooperation was no longer a choice but an imperative, she said, especially since, for the first time, developing countries could not trade their way out of recession because the crisis had started among some of their key trade partners and investors. The crisis therefore provided an opportunity for countries in the Asia-Pacific and other developing regions to coordinate the creation of more home-grown market initiatives, as well as finance and trade mechanisms. Indeed, ESCAP was beginning to witness the seeds of a new paradigm that could better address persistent issues specific to developing regions and, hopefully, identify ways to boost domestic demand.
At the same time, she cautioned that lack of social protection was an obstacle for developing regions. Indeed, only 30 per cent of elderly persons in the Asia-Pacific region had pensions and only 20 per cent of all people had access to health care. There was also a need for fiscal stimulus policies that would address the needs of women and ensure that recovery efforts were implemented in a sustainable manner, she said, noting specifically on that point, that regional groupings and actors should develop plans with an eye towards ecological preservation and ensuring greener economies. The Secretary-General’s global “Green New Deal” and ESCAP’s low-carbon Green Growth Initiative provided good starting points to that end.
Calling on developing countries to take advantage of the huge potential of strengthened South-South trade, she said broader recovery efforts should be built on strong regional foundations and be more coordinated and effective in managing risk and identifying volatility. The crisis was an opportunity to build societies and communities that were better able to withstand shocks. By taking ownership of their own economic revival, developing regions could make the leap to building a better future for their people and all humanity.
Mr. Khor said the developed world had an international obligation to help people and countries suffering through no fault of their own. Their recovery should not be debt-based, but grant-based, he said, and new initiatives should be called “compensatory financing”. With the nearly $2 trillion funding gap the crisis had engendered, external financing could be made available from new Special Drawing Rights that the IMF could issue to developing countries.
While echoing Mr. Supachai’s call for a temporary moratorium on debt repayments, he said also that developing countries should be allowed the policy space to take appropriate measures to address the impact of the crisis. In the past, such space had been blocked by the loan conditions of the Bretton Woods institutions and other multilateral bodies. Now that it was clear that some of those very bodies were unable to predict or manage financial shocks, the Conference might recognize the right of developing countries to undertake trade measures within rules of the World Trade Organization to address that issue.
Mr. Khor also stressed that the Conference might consider taking serious action on one of the most important elements of reforming the international financial system -- the long-overdue debt arbitration system. Pleased that the draft outcome document called for the establishment of a working group that would be tasked with follow-up, he said it would compile the suggestions and recommendations made over the past three days, and hopefully its work could ensure that the United Nations would again be at the centre of economic and financial policymaking.
For his part, Mr. Johnson said that, while many might see the financial meltdown as “just rewards” for the pain inflected on the developing world by certain sectors, the fallout affected all nations and “perhaps vengeance does not have a healthy place” in the discussion. New York and London, two key centres that had triggered the current turmoil, had played, and would continue to play, important roles in driving the world economy. Since the financial rebalancing to come would seriously impact spending, job creation, and investment in those two major cities, the effects would certainly be felt elsewhere. At the same time, rebalancing must be carried out because the legitimacy of the financial intuitions must be restored and because such reform would diminish the extent to which the present type of crisis could impact the rest of the world in the future.
Mr. Reddy urged viewing crisis management in the broader concept of development and identifying areas of convergence, for instance, creating policies that would simultaneously mitigate the impact of the crisis, protect the poor and ensure adequate levels of socio-economic growth. To the extent that the financial sector would enable the development sector, some harmony must be maintained between the two, he said, adding that actions must also be harmonized among the financial and development sectors and relevant institutions. There was also a need for coordination and collaboration among countries and regions to ensure policy space so that the long-term impact of the crisis could be addressed, and to stave off such shocks in the future.
During the ensuing brief discussion, several speakers agreed that the financial crisis, with the attendant slowdown of growth in advanced economies, would affect low-income countries in many ways, including through falling remittances, reduced capital flows and reduced demand for their exports. At the same time, they saw the crisis as an opportunity to explore ways to strengthen South-South regional cooperation and trade agreements. Other speakers highlighted the need for industrialized nations to uphold their official development assistance commitments and other arrangements agreed by the G-8 (Group of Eight) and the G-20. They also urged the Conference not to pull back from beginning the discussion on an overhaul of the international financial system.
Participating in the discussion were the representatives of India, Gabon, Bangladesh, Czech Republic (on behalf of the European Union), Republic of Korea, Ghana, Venezuela, Indonesia, Madagascar, United States, Côte d'Ivoire and Congo.
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