|Department of Public Information • News and Media Division • New York|
Sixty-sixth General Assembly
High-Level Thematic Debate
AM & PM Meetings
International Community Must Take ‘Collective Stand’ to Create New Global Growth
Model, Says Secretary-General at Outset of Two-Day Debate on World Economy
‘We Need Nothing Less than a Revolution in Our Thinking about Foundations
Of Dynamic Growth, Well-Being of Future Generations’, He Tells Summit Gathering
The international community must “take a collective stand” to create a new global growth model based on stable economies, social equality, decent job opportunities and greater financial regulation to tackle the ongoing global economic crisis, United Nations Secretary-General Ban Ki-moon and senior economic officials said today at Headquarters.
“It is time to recognize that human capital and natural capital are every bit as important as financial capital,” Mr. Ban said in opening remarks at the General Assembly’s high-level thematic debate on “The State of the World Economy and Finance and Its Impact on Development”.
The two-day debate, co-chaired by Mr. Ban, would feature presentations by senior Government officials and four thematic round-table discussions on various issues, such as youth employment, social protection, debt sustainability, trade and investment, and accountability of the financial system.
The old growth model was broken, the Secretary-General said, pointing to 200 million people who had lost their jobs, rising inequality and poverty, and the unravelling of development gains since the crisis began. Now was the time to establish a new paradigm, building on what worked, and discarding what did not.
“We need nothing less than a revolution in our thinking about the foundations of dynamic growth and the well-being of future generations,” he said. Worldwide, 400 million jobs would be needed in the coming decade and policymakers must “get serious now, about generating decent employment”. The growing problem of inequality, particularly among women and young workers, must be tackled lest it further undermine social cohesion and create political instability.
Next month’s United Nations Conference on Sustainable Development, known as Rio+20, was a historic opportunity to address those challenges and bring ordinary people and leaders together to devise a blueprint for broad-based, equitable growth that built on the Millennium Development Goals after 2015, he said.
More than 100 world leaders and some 70,000 leaders from business, non-governmental organizations and social action groups were expected to participate in that conference. The Secretary-General said they should focus on creating a framework for more sustainable consumption and production, agreement to eradicate hunger, new momentum to ensure universal access to drinking water and preserve scarce resources, and a focused effort to improve life in the world’s cities.
He pointed to six crucial steps for sustainably recovering from the crisis. They included making global markets work for everyone, taming volatile food and energy prices, increasing countries’ resilience to financial shocks, better regulating financial sectors, ensuring universal access at reasonable cost to a wide range of financial products, and maintaining development aid for countries struggling to get their fiscal houses in order. “In focusing on budget deficits, let us not lose sight of the jobs deficit and the investment deficit,” he said.
Nassir Abdulaziz al-Nasser, General Assembly President, who also co-chaired the debate, called for a recovery that would speed up development, improve employment and lift another 1 billion people out of poverty. A road map would be needed to give developing countries a greater say in economic decision-making and norm-setting, as well as to help society’s most vulnerable sectors, which had been hardest hit by the downturn in incomes and in employment.
“Our overarching priority must be to implement an effective and globally coordinated policy that serves to place the world economy on the path of sustained growth and development,” Mr. Al-Nasser said, adding that: “Today’s conference provides a timely opportunity to address these issues in an inclusive, candid and responsible manner”.
He encouraged participants of the round-table sessions that followed to identify and propose specific measures to generate productive employment and promote social protection for workers, including social safety nets; improve debt sustainability frameworks; create an enabling environment for production, investment and trade, including by eliminating extreme commodity price volatility; and make the global financial system more stable, predictable and transparent through enhanced oversight and risk-rating mechanisms.
Mr. Al-Nasser also emphasized the role of the United Nations, as the only truly universal and inclusive multilateral forum, in helping to set up an effective, rules-based international monetary and financial system.
Joseph Stiglitz, a Professor of finance and business at Columbia University, agreed. The world needed to go beyond the G-20, a group of finance ministers and central bank governors from 20 major economies formed in 2008, which had failed to live up to the promise it showed to improve the global financial system, owing to a lack of representation and political legitimacy.
“What is needed is to put the G-193 at the centre,” Mr. Stiglitz said, suggesting creation of a global economic coordinating council that was guided and informed by an expert group. In March 2009, a commission of experts headed by Mr. Stiglitz had presented to the Assembly, upon its request, a set of objectives to restore confidence in economic growth, create full employment, safeguard social gains, provide adequate support to developing countries and provide debt sustainability. The emphasis was on the need for better management of cross-border capital flows, sovereign debt restructuring and reform of the global reserve system. But since then, little had been accomplished.
“We have not gone far enough or fast enough in making the financial system stable and sound”, he said, stressing that the need for reforms today was even clearer as the cost of delaying them was high. Prospects in the major economies were bleak, and could make the 2010s the “lost decade” for Europe or America as a result of flawed economic policies.
Paul Volcker, former head of the United States Federal Reserve, agreed that the world was in a dangerous state, marked by slow recovery, unacceptably high unemployment, and the apparent fragility in Europe. In many countries, fiscal outlook was even more threatening. Political divisiveness seemed to be growing, not limited to the United States.
What could the United Nations do about it? he asked. “Legitimacy in universal membership is important, but the fact is you have no executive authority,” he said. “Even if you had, an absence of intellectual and political consensus around the world would inhibit decisive steps.”
He stressed the need to maintain open markets, as it was the process of free trade and markets that drove the years of expansion. To retreat now in response to internal economic and political pressure would only undercut prospects for future growth and productivity. Regulatory approaches, particularly in the world of finance, should be consistent internationally. Bank capital requirements and accounting standards were two obvious aspects requiring an international approach.
Jose Manual Barroso, President of the European Commission, shed light on the European Union’s efforts to recover from crisis, among them, steps in the last two years to repair the banking system, strengthen economic governance, set up credible financial firewalls, and give unprecedented support and solidarity to States in the region most exposed to the crisis. A restoring of confidence, sound public finances, fiscal consolidation, structural reforms and targeted investments were needed to spur job creation and return growth to significant levels.
Moreover, reducing debt and deficits was essential to build confidence and cut borrowing costs, he said. “Every euro spent on interest payments is a euro less for jobs and investment,” he said.
Officials were working actively to deepen the European Union single market, valued as the largest market in the world, he said. They would also move forward with project bonds to attract funding of up to €4.6 billion annually in the next two years, with key infrastructure projects in energy, digital technology, transport and other areas. Additionally, they had proposed boosting the capital of the European Investment Bank by €10 billion to foster job growth.
Despite the difficulties, Europe was on the right track, he said. While the European Community would have preferred a quicker, bolder response to emerge from the crisis and lay the foundation for sustained economic growth, it recognized the need to work on the basis of compromise and have the support of the Union’s 27 democracies.
Ali Babacan, Turkey’s Deputy Prime Minister for Economic and Financial Affairs, agreed on the need for fiscal consolidation and structural reforms to enhance competitiveness in the euro zone, which was the epicentre of the global economic crisis. He called for stronger solidarity within the zone.
Turkey’s own experience in the past decade had been marked by strong economic development gains, thanks to deep structural transformation of the country’s macroeconomic framework, public financial management, banking sector, health-care industry and social protection system, he said.
In 2009, at the peak of the crisis, when many countries were announcing fiscal stimulus programmes, Turkey had launched a three-year medium-term programme focused on fiscal consolidation to ensure that debt sustainability would never be perceived as a problem, he recalled. That plan worked well, driving up confidence indices. Last year’s growth, led by the private sector, had reached 8.5 per cent. Since mid-2009, some 3.7 million jobs had been created.
Also speaking today were the Presidents of Guyana (on behalf of the Caribbean Community — CARICOM), Albania, Panama, a Member of the Presidency of Bosnia and Herzegovina, as well as the President of the National Assembly of Gabon.
Participating at the ministerial level were representatives of Qatar, San Marino, Algeria, Kazakhstan, Bangladesh, India, Iran, Kyrgyzstan, Uganda, Liberia and Morocco.
Qatar’s Minister of Culture, in his capacity as President of the thirteenth session of the United Nations Conference on Trade and Development (UNCTAD), presented that session’s report.
The Vice-President of the Economic and Social Council spoke on behalf of the Council’s President.
A representative of Chile, speaking on behalf of the Community of Latin-American and Caribbean States (CELAC), also made a statement.
The General Assembly will meet again at 9 a.m. Friday, 18 May, to continue the thematic debate on the state of the world economy.
JOSE MANUAL BARROSO, President, European Commission, said the economic crisis was of a global nature. Its remedies should also be. Since it started in 2008, it had highlighted and deepened weaknesses in national economic systems and global economic imbalances. The irresponsible behaviour of some investors coupled with lax regulatory oversight had ignited the problem. Its spread was the result of deep-seated economic balances that had existed before the crisis, which must be corrected if growth was to resume on a sound basis. Before 2007, investors in most developed countries had underestimated risks and misplaced capital on a massive scale, treating risky assets as if they were safe, and inflating huge housing bubbles. When the bubble burst, a banking crisis ensued. Economies went into recession in both the United States and Europe. Collapse in private-sector spending was increased in public-sector borrowing and the resulting high deficits had pushed up sovereign debt dramatically. But while investors were willing to finance at low rates the large deficits of many major economies with high debts, they were worried about the ability of some euro zone Governments to repay their debts and refinance them at reasonable rates. Suddenly, the European Union faced a financial crisis, which also became an economic crisis, at the same time as it was fixing its internal economic and governance structures.
He said that much had been done in the European Union in the past two years to repair the banking system, strengthen economic governance, set up credible financial firewalls, and give unprecedented support and solidarity to Member States more exposed to the crisis. European Union countries were also promoting medium- and long-term structural reforms and addressing the issue of internal imbalances, especially in the euro zone. The key concern was for growth to return to more significant levels. In Europe, that required restoring confidence, fiscal consolidation, structural reforms and targeted investments. Underpinning that was stability in public finances and creation of the conditions for growth and jobs through targeted investment. It was necessary to stay the course without being blind to an evolving situation. Fortunately, the European Union rule book allowed for adaptability, while remaining firmly focused on sustainability and ensuring sound public finances.
Reducing debt and deficits was essential to build confidence and cut borrowing costs, he said. “Every euro spent on interest payments is a euro less for jobs and investment,” he said. In terms of dealing with firewalls, the European Stability Mechanism — the European Union’s permanent defence mechanism — had firepower of €500 billion. To regain competitiveness, structural reforms must be accelerated. European Union officials were working actively to deepen the single market, valued as the largest market in the world. Investment was needed to accompany stability measures and structural reforms. The Union would also move forward with project bonds to attract funding of up to €4.6 billion annually in the next two years, with key infrastructure projects in energy, digital technology, transport and other areas. It had also proposed boosting the capital of the European Investment Bank by €10 billion in order to spur job creation. Additionally, it had proposed a new budget for the next seven years, which shifted the focus from spending to growth financing measures.
Despite the difficulties, the European Union was on the right track, he said. It was reforming budgetary and economic policies and making firm progress in laying the foundation for economic growth. The European Community would have preferred a quicker, bolder response, but it was necessary to work on the basis of compromise and have the support of the European Union’s 27 democracies. For Europe, the euro was much more than a mere monetary construction; it was a unifying project and product of peace in the region. He expressed full confidence in the commitment of the European Union members and institutions to do whatever was necessary to overcome current challenges by strengthening institutions. Others must address the different challenges they were facing in other parts of the world. Tackling the global macroeconomic imbalance and promoting growth must remain at the heart of the G-20 agenda.
In the context of the G-20, an agreement had been secured to increase International Monetary Fund resources by over $430 billion, he said. The European Union had contributed $250 billion of that. The work inside the European Union had not distracted it from a broader world vision or from its role in promoting global economic development. Last month, in Brussels, the European Commission had launched the energizing for development initiative. The euro zone was facing up to its internal needs and international obligations. It was the largest provider of overseas investment, giving €53 billion. It had the most open trading regime with the world’s developing countries. That global commitment had not changed. The striking lesson from the global crisis was that in today’s economy no country was an island. That was critically important to avoid any form of protectionism that would be self-defeating. In a rapidly evolving world, more global solidarity was needed.
ALI BABACAN, Deputy Prime Minister for Economic and Financial Affairs of Turkey, said the debate was timely in the run-up to the Rio+20 Conference and it would shed light on that outcome. Recovery from the financial crisis was slow and equivocal in many ways, with short-term perspectives to address the problem threatening gains. Overspending and excess borrowing in comparison to national savings was not always sustainable and had created significant risks for the future. An estimated 21 million jobs must be created annually merely to return to pre-crisis employment rates by 2015. The way out of the crisis required forward-looking, long-term policies and adequate action. “It is imperative to send sufficiently strong signals to the market for medium-term to long-term fiscal consolidation leading to debt sustainability,” he said. Countries with space must prevent premature withdrawal of expansionary fiscal and monetary policies in order to prevent repeating the same mistakes of the Great Depression.
He said that activities of central banks could not substitute for necessary fiscal tightening or structural reforms in many countries. Governments should make the best possible use of the opportunity window provided by central banks’ liquidity operations. Strengthening the financial sector should be another key objective. Better coherence and consistency of global monetary, financial and trade policies was instrumental in ensuring openness, fairness and inclusiveness, with a view to building confidence in the global economy. A more transparent, accountable international credit rating system should be structured so as to conduct sovereign risk assessments based on objective parameters. Protectionism must be prevented in trade and in financial markets in order to increase investment, production and employment. Enhancing social equality and eradicating poverty should be central objectives of the international community. The euro zone was the epicentre of the crisis. In many European countries, fiscal consolidation was needed very urgently, as were structural reforms to enhance competitiveness. He called for stronger solidarity within the euro zone.
Turning to Turkey, he said it had made great strides in economic development in the past decade, in particular, thanks to deep structural transformation in the macroeconomic framework, public financial management and control, banking, health and social protection. It had eliminated extreme poverty, enhanced gender equality, protected the environment and improved education and health services for all. In 2009, at the peak of the crisis, when many countries were announcing fiscal stimulus programmes, Turkey had announced a three-year medium-term programme focused on fiscal consolidation to ensure that debt sustainability would never be perceived as a problem. That worked well. Confidence indices went up. In 2010, growth, led by the private sector, was 9.2 per cent; in 2011, it was 8.5 per cent. Since mid-2009, a total of 3.7 million jobs were created. He cited statistics on growth in the country’s income distribution, and he noted reforms in health care and education.
The need for collective action to improve the global partnership for development was crucial for all nations, he said. Turkey, which was among the world’s fastest-growing economies, gave significant aid to other countries. Despite being an emerging economy, it had become a substantial contributor to development aid. Last year, it gave $1.3 billion in official development assistance (ODA), up 38.2 per cent from 2011. Turkey was aware of the regional and global economic issues and it stood ready to share its experiences on how to deal with crisis and post-crisis situations. It would continue to promote the human dimension of economic growth and sustainable development.
PAUL VOLCKER, former head of the United States Federal Reserve, said there could be no doubt that the state of the world economy and finance deserved the attention of United Nations Member States. The first year of the twenty-first century had been the climax of the strong world economic growth. There was unprecedented and unanticipated progress in the so-called emerging nations. Literally, hundreds of millions of people were lifted out of poverty, as almost all countries became part of and benefited from the increasingly integrated world economy.
However, he said, the wide gap in international payments among countries and growing fiscal deficits within some particularly important countries could not last, ending up in the burst of speculation and financial strain. The industrialized world had sunk into a deep recession as financial markets broke down. Recovery had been slow, and unemployment was at an unacceptable level almost everywhere. The “emerging” world had escaped the worst of it, but its growth performance and prospects were scaled back. Now the problem was further complicated by the apparent fragility in Europe. In many countries, fiscal outlook was even more threatening. Political divisiveness seemed to be growing, not limited to the United States. The world was indeed in a dangerous situation.
What could the United Nations do about it? he asked. “Legitimacy in universal membership is important, but the fact is you have no executive authority,” he said. “Even if you had, an absence of intellectual and political consensus around the world would inhibit decisive steps.” If that situation was reversed, Member States would be able to remedy that in these few days of round-table discussions. He stressed the need to maintain open markets, as it was the process of free trade and markets that drove the years of expansion. To retreat now in response to internal economic and political pressure would only undercut prospects for future growth and productivity. Regulatory approaches, particularly in the world of finance, should be consistent internationally. Bank capital requirements and accounting standards were two obvious aspects requiring an international approach.
JOSEPH STIGLITZ, Professor of finance and business, Columbia University, said gross domestic product (GDP) was not necessarily a good measure of economic performance and social progress. But no matter how the latter was measured, the global economy was not performing well today. Malfeasance was most clear in the labour market, where 200 million workers in the United States had lost their jobs. At more than 10 per cent, Europe’s unemployment rate was the highest. In several European countries, half of youth or more were unemployed. What should be a period of hope and building up of human capital had become the complete opposite, weakening the potential for economic growth. The social consequences were well known. “Austerity has not worked and will not work,” he said, noting that no large economy had recovered from economic slowdown through austerity. Structural reforms were critical, but they would not pull Europe out of its downturn anytime soon. On the contrary, poorly designed structural reforms could exacerbate the problem, which, in Europe, was a lack of demand. In addition, structural reforms were supply measures and not demand measures.
He said that Europe had done a good job of constructing firewalls, which was important, but they must be higher, and regardless of how high, they would not work if kerosene was thrown inside them. The measures taken so far to promote growth were inadequate. As great as the market failures were in creating the crisis, the markets were again failing today. The world had the same human and physical resources as it had in 2008, before the crisis. Having eliminated the distortions, the world actually should have higher GDP today. Instead, it just had lower performance. It was clear that markets were not utilizing resources well and Governments were failing to correct imbalances, creating a situation of underutilized resources and huge, unmet needs. Half a decade since the breaking of the bubble, the major economies were not yet repaired nor were they likely to be back to normal soon. Prospects were bleak. In the United States, the prospect of a return to full employment by the end of the decade was grim; prospects for recovering what was lost during the next decade were nil. He cited the lost decade of Latin America in the 1980s. “This decade will be the lost decade for Europe or America as a result of flawed economic policies,” he said.
Four years ago, at the peak of crisis, the General Assembly President had convened an expert group to address it, he said. In June 2009, the United Nations had held a financial summit, which had produced an outcome document. The world economy would be in a better place today if it had moved more resolutely to pursue the recommendations of that meeting, which aimed to give a global response to a global crisis. The experts had presented a set of objectives to restore confidence in economic growth, create full employment, safeguard social gains, provide adequate support to developing countries and provide debt sustainability. They had emphasized the importance of financial market regulation and presented a comprehensive agenda towards that end. The emphasis was on the need for better management of cross-border capital flows. “We have not gone far enough or fast enough in making the financial system stable and sound,” he said. They had also discussed the need for sovereign debt restructuring, which had never been resolved, and they had analysed in depth the need to reform the global reserve system. But too little had been done since then.
The General Assembly should pay attention to inequality in and across countries, which the Stiglitz Commission had identified as underlying factors that had given rise to the crisis, he said. In meetings a year ago, the International Monetary Fund had recognized the key role of inequality in economic and financial instability. The world was paying a high price for inequality in terms of dividing society and creating a global economy that was less efficient and stable. The key recommendation of the Commission was to create a better way to address the world’s economic problems. Globalization meant that the world was more integrated and interdependent. The world needed to go beyond the G-20, which had failed since 2009 to live up to the promise it showed, owing to lack of representation and political legitimacy. “What is needed is to put the G-193 at the centre,” he said. That could be done through a global economic coordinating council guided and informed by an expert group. But what had happened since had been disappointing. The need for reforms today was even clearer. The cost of delay was high. He hoped that today’s meeting would provide needed impetus to move forward on the agenda laid out in 2009.
DONALD RAMOTAR, President of Guyana, speaking on behalf of the Caribbean Community (CARICOM), said talk of recovery could best be described as premature. Even if there were some signs of renewed growth, that could hardly be regarded as deeply entrenched and was still extremely uneven. From the standpoint of developing countries, a global response entailed addressing the fundamental impacts of the crisis on their development prospects and on achievement of internationally agreed development goals, including the Millennium Development Goals. Developing countries had borne the brunt of the present crisis, as reflected in growth that was generally lower than pre-crisis levels. The adverse effects had included cuts to social programmes, as well as reductions in the flow of official development assistance (ODA) and foreign direct investment (FDI). International trade volumes and the level of indebtedness of developing countries were affected, as was employment.
He said that the CARICOM’s reality reflected a number of these pathologies: slow growth; high unemployment, particularly among youths; high levels of indebtedness and limited policy space for transformative action; depressed tourism receipts; and external threats to legitimate engagement by some Member States in the financial services sector. CARICOM economies had been significantly impacted, particularly in the services and financial sectors, given their heavy dependence on services and trade with, and tourism flows from, North America and Europe. Contracting demand in those countries had resulted in a virtual collapse in tourism and in the prices of many exports. That situation, coupled with unfair regulatory action against the financial services sector, had caused major economic dislocation in a region with limited scope for diversification.
Owing to the fiscal difficulties being experienced in developing countries, accountability for delivery on aid commitments assumed greater importance, he said. Developed countries must recognize that the cutting of aid to developing countries was not an option, as that would endanger their own prospects; a prosperous Africa or Asia, or the Caribbean was good for developed countries. For CARICOM, the status quo was neither sustainable nor acceptable. CARICOM called for a clear agenda of concerted efforts and greater attention to addressing the circumstances of small vulnerable States. The United Nations had an important role to ensure that all concerns were taken into account in crafting a global response.
BAMIR TOPI, President of Albania, said his country was continuing on its path towards democracy and full integration into the Euro-Atlantic structures. It had also undergone major political and economic changes for the past 20 years. The Government had paid special attention to economic and legislative reforms, in order to be successfully involved in the market economy. Albania had not just become an important factor of peace and stability in the Balkans, but it had also improved its economy compared with the other countries of the region. Albania had had an annual average economic growth of about 5.5 per cent up to 2009, which had led to an improvement of the well-being of its citizens. There had been increased foreign capital investment, improved infrastructure, an extended network of education, health, media, civil society, and broader participation of women and young people in all political and social aspects of life. Those positive transformations had also included other Balkan countries.
Offering views of the state of the world economy, he said the combination of skyrocketing oil prices and commodities, turmoil and uprisings, earthquakes and tsunamis, the debt crisis and fiscal problems had led to the massive growth of risk aversion. In economic terms, the countries carrying the heaviest weight in the world economy were not running at their usual pace. There had been sharp declines, even in markets with the fastest growth, as well as in export-oriented countries. That situation had diminished confidence among politicians, managers and experts, as the consequences of the financial and economic crisis had clearly exposed the weaknesses of the implementation of economic theories and policies.
Globalization in all the world markets had come under severe criticism in the days before the current crisis, he said. But besides the negative sides of globalization, critics must consider the source data, which showed that its benefits far outweighed its costs. The slowdown of the globalization process could reduce global development and the achieved level of living. Special consideration should be given to the notion that people adapted quickly to improved living standards and if that slowed progress, then they thought they were being deprived of something and they would begin to seek new interpretations. Protectionism, despite the “political or economic cloak”, had, in all cases, represented a prescription for economic stagnation and political authoritarianism. The future of globalization would determine the way in which the world market would continue to move and the lifestyles of nations in the decades to come.
RICARDO MARTINELLI BERROCAL, President of Panama, said the reasons for today’s gathering mirrored those of the economic crisis, including the undervaluation of risk, the lack of disciple in macroeconomic policies over many years, and weaknesses in the framework and policies of advanced economies. The World Economic Outlook report of the International Monetary Fund (IMF), released in April, showed a 0.4 per cent reduction in the world economy. The worsening of conditions in the sovereign entities sector and among the banks of the euro zone would cause a recession in 2012 of at least 0.2 per cent in Europe. The economies of Latin American countries would grow 6.3 per cent in 2012, which was 0.5 per cent higher than in 2011, thanks to macroeconomic policies based on internal development and strengthening of external demand. Europe must evolve appropriate reforms that enabled it to address its sovereign debt and prevent it from having a spill-over effect globally. The economic crisis’ greatest impact was felt in the loss of household income in developing countries. Its greatest damage was in the devaluation of property and the loss of income due to the rise in unemployment.
He said that the unemployment rate among the Organisation for Economic Cooperation and Development (OECD) countries was stable at 8.2 per cent in March. Still, unemployment conditions would continue to hamper many developing economies. Governments must help the unemployed through wage stabilization programmes, professional training and services to help them find jobs. It was necessary to strike a balance between fiscal discipline, inclusive social programmes and robust growth. He called for the development of policies that supported decent work and made it possible for all countries to attain economic recovery. Latin American economies were interconnected; regional integration benefitted all of them. Reforms to address the shortcoming of the financial sector were still needed, and broad strategies should be designed to bolster confidence in, and the credibility of, the system. Austerity alone was not enough to address the poor economic state of developed economies. Responsible policies were needed.
Emerging economies must maintain macroeconomic policies that enabled them to respond to risks begun in developed economies and prevent them from spilling over, he said. Latin America could become a reference for countries shaken by the current state of the world economy and finances. In the 1990s, Latin American countries promoted solid policies of fiscal discipline, which enabled them to sustain regional growth. The region’s economies were expected to grow between 3.5 and 4 per cent in 2012. In Panama, in 2011, the economy had grown 10.6 per cent. Latin America had also reduced the equity gap. More than 80 million people had emerged from poverty, thanks to social programmes. Stable monetary policy, which injected liquidity into the financial sector, was needed, as was finding a solution to the euro zone crisis. Latin American countries would closely watch the political decisions made in Greece, Spain, Germany and France.
NEBOJŠA RADMANOVIĆ, member of the Presidency of Bosnia and Herzegovina, said that his country’s economy was an open and entirely liberal one. Unfortunately, the country was one of the poorest in the Balkan region and in Europe. That situation was a serious challenge to its economic efforts. Long-term and high unemployment and poverty were the “quiet destroyers” of the economy as was social instability. Post-conflict transition also represented a constant danger to political stability of both the country and the region as a whole. Similar challenges confronted the other countries of the region but Bosnia and Herzegovina at least had the advantage of a low level of public and private sector indebtedness. The country and the region were not and would never be in danger of experiencing a scenario of over-indebtedness or inability to repay debts as was the case in some European Union countries.
Referring to support from the European Union and its member countries, he said that his country needed a greater level of direct investment and greater access to credit and grant resources, such as through various funds in the real economy, where his and other countries of the region had a comparative advantage. That request related primarily to investments in Bosnia and Herzegovina’s energy and hydropower potentials and in the metal, wood and food processing industries. The same intensity was necessary to strengthen the European Union’s political presence and engagement with Bosnia and Herzegovina and the regional countries in order to complete the process of European Union integration. Decreased interest in expanding European Union membership to the countries of the region, apart from jeopardizing the economic trends there, could lead to European scepticism. That could result in political instability later.
Mr. Radmanović called for the restructuring of national economies, in order to rebuild production capacities in the real economy and return to the production of goods. Such an approach would leave the economies less dependent on the financial sector. It was only when that happened that it would be possible to cope with the social demands of the State.
GUY NZOUBA-NDAMA, President of the National Assembly of Gabon, said the world economy was marked by paradox, with high unemployment among several negative factors. Africa remained confronted with food security, high joblessness among youth, and other challenges. Young people and women suffered from high unemployment rates in many countries. As Member States discussed the state of world economy, dialogue should focus on two points. First was the struggle against employment, and second was the struggle against poverty. In order to create jobs, sustainable development and solutions were essential. Global response required solidarity between the rich and poor countries, as well as new partnership between private and public sectors.
He said Gabon’s goal was to become an emerging nation by 2025. That would be achieved through three pillars of strategy to turn Gabon into a country that was “green” and “industrial”, as well as a nation that provided good services for the people. Those measures would include addressing climate change, creating economic zones for job creation and guaranteeing access to health-care services. He also stressed the need to refer back to the Millennium Development Goals in order to combat poverty, calling for debt reductions and more resources for countries facing poverty.
KHALED BIN MOHAMMAD AL-ATTIYAH, Minister of State for Foreign Affairs of Qatar, said that the post-2008 global crisis had exposed the serious deficiencies in the world financial system. In that context, the international community should work together to create a fair, cooperative and mutually beneficial international environment to enable all countries to successfully benefit from globalization and to face its challenges.
For that reason, he said, it was imperative for developed countries to fulfil their international obligations, pay more attention to the interests of developing countries and take concrete measures to alleviate their debt and disassociate aid from conditionality. More work was needed for capacity-building of developing countries, which should attract investments by creating the appropriate legislative and institutional environment, and strengthening the private sector. Qatar had embarked on such efforts as part of a national strategy for sustainable development, based on human, environmental and economic development, and had been able to safely navigate through the global crisis, attain the highest percentage growth in the region and achieve the Millennium Goals before their deadline.
In order to achieve those Goals worldwide, he said, the international community should address the impact of the global crisis by promoting closer cooperation by all countries in the reform of the global economic, trade and financial system and sharing national experiences, making full use of new technologies and striking a balance between long- and medium-term interests, between growth and environment, between efficiency and justice.
ANTONELLA MULARONI, Minister of Foreign and Political Affairs of San Marino, said that, some four years after the start of the global crisis, “the economic and financial landscape of the world has tremendously deteriorated, especially in some continents”. The very existence of various countries’ financial and social structures had been challenged; it was some of those same countries that did not have the possibility to participate in the decision-making process of global financial and economic issues, whose results affected all States. While San Marino strongly believed in free trade, it believed it was necessary to curtail the unrelenting speculation in commodity prices, especially of food and energy. States must work to create sustainable employment, especially for women and youth, by improving the level of their education systems, their accessibility and the capacity to respond to the labour market opportunities and needs. They should encourage a greater availability of financing for small and medium enterprises, as well as for new start-up companies. Governments should also be more keen on promoting sustainable growth through fiscal and financial incentives.
Another focus, she said, should be on efforts to reduce the global debt. States must pursue a policy of no-waste, job-creating investments and of fiscal discipline; they should ensure that financial institutions returned to being “real” lenders, sustaining economic growth, while disengaging from speculative and too-risky activities. With some 7 billion people in the world, and with an increasing scarcity of resources, the international community must also work on long-term plans, years in advance, for a balanced and sustainable economic growth. Despite the negative effects of the crisis, several small States had experienced some positive impacts. Some, such as San Marino, had adopted OECD standards with respect to international fiscal cooperation. Since 2009, her country had signed more than 35 Double Taxation Agreements and Tax Information Exchange Agreements and had ratified all of them, she said.
ABDELHAMID TEMMAR, Minister of Prospective and Statistics of Algeria, said the current situation on the international economic stage had rarely been so unfavourable for development. The persistence of the world economic and financial crisis, now accompanied by the crisis of sovereign debt in Europe, continued to block efforts of developing countries seeking economic growth and social progress. For his country, the crisis had brought deeper difficulties, lower growth and the prospect of seeing the realization of the Millennium Development Goals draw further away.
He said that notable progress in economic growth accomplished by developing countries during the first decade of this millennium was mostly eroded by the crisis. Prospects in the short and medium terms became greatly uncertain. Most developing countries faced major development challenges, such as extreme poverty, persistent food insecurity, high levels of unemployment, the burden of external debts and lack of financial resources. Such were the negative impacts on developing countries exposed to ineffectiveness of international financial regulatory system. Initiatives to introduce more regulations and systems had not been fruitful. It was particularly alarming that, in 2011, ODA — the crucial source of development financing for developing countries — had decreased for the first time since 1997, by almost 2.7 per cent from 2010. Developed countries should not use the crisis as an excuse to reduce that assistance.
BAKHYTZHAN SAGINTAYEV, Minister of Economic Development and Trade of Kazakhstan, listed the major hazards for the world economy, including the macroeconomic instability in the euro zone countries, protracted debt and unstable budgetary systems of individual countries, which caused volatility in financial markets and limited financial flows and investments. Others were the growth of unemployment and reduction of social expenditures, which were causing waves of social tension in several countries, and the decreasing growth rates with regard to the real sector, development of private business, trade and investments.
Mr. Sagintayev said that the deteriorating situation in the developed countries put pressure on developing countries through trade and financial channels, making it extremely important for the latter countries to implement various development scenarios. Kazakhstan ranked among the most rapidly developing economies in the world and had grown at a rate exceeding 10 per cent, prior to the global economic crisis. In 2010, it grew at 7.3 per cent, but the rate had gone up to 7.5 per cent in 2011. The global crisis had underscored the vulnerable aspects of the Kazakh economy, which included inadequate diversification, dependence of price trends on external markets and emergence of bubbles in the banking and real estate markets. In order to stabilize the economy and support domestic demand, the Government had adopted an anti-crisis programme valued at $14 billion or 18 per cent of GDP, for which it used reserves from the national sovereign fund. The Government supported the financial sector by providing liquidity and by restructuring the external debt of banks. Another anti-crisis package involved supporting small and medium-sized businesses and the agro-industrial complex, and implementing industrial and infrastructure projects.
Kazakhstan was determined to ensure its macroeconomic stability and to curb inflation, he went on. It was devoting special attention to budget consolidation and to the reduction of State debt and budget deficit. It was also determined to accelerate the diversification of the economy and to enhance large-scale modernization, as well as to attract investments and develop private business, in particular small and medium-size enterprises.
MANSHIUR RAHMAN, Adviser for Economic Affairs to the Prime Minister of Bangladesh, aligning his statement with that of the “Group of 77” developing countries and China, said the difficult times the world economy had been going through since 2008 had negatively impacted all countries, especially countries like his, which had witnessed, among other things, contraction of exports to major economies, loss of remittances from abroad, shortfall of resources to meet the Millennium Development Goals, and balance of payment pressure. While those countries were not responsible for triggering the crisis, they had borne the brunt of that crisis — exacerbated by the rise in food and fuel prices and the adverse impact of climate change. The global downturn demonstrated persuasively how closely interconnected the world was in that the crisis; if one was affected, contagion spread the ill effects to the rest, thereby emphasizing the imperative for coordination. Although the multilateral financial institutions had done the best they could do, they needed to enhance their capacity to recognize early the problems faced by their members — the least developed country-borrowers, in particular, and to respond speedily, effectively and adequately.
He said that, in order to meet the hopes of the global community to graduate half of the least developed countries by 2020 and to alleviate the “life and death” situation in post-conflict countries where more than 1 billion people lived below the poverty level and were deprived of opportunities to contribute positively to the global well-being, the global leadership must take dynamic and corrective steps to reform and stabilize the world economy. Multilateral institutions perhaps also needed an efficient symbol of communication, he added, explaining that, while the focus on governance provided a platform, as well as a symbol, that symbol remained somewhat obscure to provide a shared articulation and direction for cooperation in the field of development.
MONTEK SINGH AHLUWALIA, Deputy Chairman of Planning Commission of India, said that what was most disturbing was that there seemed to be little consensus on how to move forward. Monetary authorities in both the United States and Europe had acted boldly to counter recessionary tendencies. Although that had some effect, there were serious doubts about whether further space existed to continue those policies. On fiscal policy, there were sharp differences on how to proceed, and many distinguished economists argued that fiscal austerity was actually the wrong medicine under the circumstances.
He said India’s experience reflected the situation of the developing world. In the five years prior to the crisis, the Indian economy had grown at an average rate of 9 per cent. Following the crisis, it had slowed to an average of just over 7 per cent. India had the potential to grow at rates of between 8 and 9 per cent for the next 20 years and to do so in an inclusive manner.
The multilateral development banks could play a major role in correcting problems, he said. Until recently, it had been thought that private financial markets were efficient, and, for that reason, the financing of productive investment in developing countries could easily be handled by the private sector. But the crisis proved that wrong. The multilateral development banks, especially the World Bank, should significantly expand their lending for infrastructure development in the developing economies.
SEYED SHAMSUDDIN HOSSEINI, Minister of Finance and Economic Affairs of Iran said that a review of the root causes of the economic crisis would indicate that the global economic and financial system suffered deficits on the intellectual, architectural and managerial fronts. All international and regional initiatives, as well as national policies to address the crisis, had so far not been able to achieve anything that exceeded limited global economic growth mixed with fluctuations and risks. Under the circumstances, the slow growth and unrest in areas such as the euro zone was worrisome. While lost jobs and unemployment lingered, the risk of sovereign debts and national bankruptcy, particularly in the euro zone, was looming.
Mr. Hosseini said that there was a need to review the basic models of the economic system. The usury-based models and the financial monetary instruments based on excessive deregulation, which spread bubbles, and which were delinked from the real sector, were fragile, risky and sparked crisis. To diagnose the root causes of the economic crisis, it was necessary to learn from alternatives, such as the Islamic financial model. It was also necessary to be mindful of “deconcentration” and the creation of balance of interests in the global economy. The dominance of one or a few currencies over the world economy did not yield any positive results but, instead, led to a lack of equilibrium in interests, imbalance in reaping of benefits, imposition of the debt burden by the issuers of such currencies and the spread of the risks to the rest of the world.
He also called for the supervision of the printing of hard currencies and of increases in debts and bond issuance by major economies, saying that recent experience had shown that the international bodies should refocus their supervision and warning mechanisms from developing economies to the industrialized ones. In addition, institutions like the World Bank and the International Monetary Fund, which monitored the global economy should be realigned to increase the voice and participation of developing countries. Such a measure would, however, only be effective when those institutions were managed by the majority of countries. The monopoly in presiding over them needed to end; having larger capital or more shares was not a proper criterion for being permanently at their helm.
The political dominance of the international financial institutions and monetary instruments, he said, had resulted in harmful policy settings and decision-making. Abusing the financial and monetary institutions by using them to impose political pressures yielded nothing but tension and deep distortion in the global economy and decreased growth. Financial monetary and economic sanctions were clear examples of such illegitimate approaches. He also called for the creation of a supportive global environment for doing business, saying that transparency, fairness and accountability should be pursued in the global context.
RUSLAN KAZAKBAEV, Minister for Foreign Affairs of Kyrgyzstan, said the heartbeat of global development was the global economy, which was proceeding rapidly, extremely unevenly and confronting many difficulties. Trade between the developed and developing parts of the world was still unfair, and only a small portion of the countries in the developing world were able to overcome the tremendous lag. Overall the gap had widened between the minority of the rich and the majority of poor countries.
He said that globalization promoted more unequal income distribution in a majority of countries, including even more developed nations. The last few years had been difficult for his country as well. The global financial crisis and a tragic event in the nation had resulted in an unstable, political and economic situation and a GDP contraction of 0.4 per cent with an increase in the poverty level from 31.7 per cent to 33.7 per cent in 2010. Last year, Kyrgyzstan had more favourable real GDP growth of 5.7 per cent. The State had the conditions to actively develop market relations, and the Government was taking measures for international and regional integrations. The country was a member of the World Trade Organization and was preparing to enter the Customs Union of the Russian Federation, Kazakhstan and Belarus. His Government was implementing major railroad and other infrastructure projects, including an air transport facility that serviced regional freight, including to Afghanistan.
MARIA KIWANUKA, the Minister of Finance, Planning and Economic Development of Uganda, said that the global economic outlook was once again very uncertain. Recent developments in the euro zone, among others, could spill over into developing countries in several ways. Among other shifts, the demand for products from those countries could weaken, with adverse implications for development; the fulfilment of commitments by development partners could be put at risk; chaos in international capital markets could lead credit lines to dry up; and remittances from nationals working abroad might decline further. The international community must take urgent action to avoid those adverse consequences, and expeditiously undertake an ambitious reform of the governance structure of international financial institutions, giving a greater representation and voice to Africa and other developing countries, based on sovereignty, equality and mutual respect.
She said that, in reforming the international financial architecture, the international community should avoid the problems that led to the recent crisis. Systemic fragilities and imbalances must be attained, with Governments playing their rightful role. Moreover, to realize stability, States had a collective responsibility to streamline and harmonize the governance of financial institutions and to strengthen their regulatory systems. The imbalances in the current international trading system disadvantaged many developing countries, particularly in Africa, which were not able to realize their full potential due to trade barriers. It was critical, therefore, to redouble efforts to attain a rules-based, predictable and non-discriminatory trading system. Uganda, given its resource scarcity, focused on the core responsibility of providing an enabling environment for the private sector. Among other measures undertaken, it was addressing constraints, such as rural energy and access to credit, improving “value-for-money” through the cost-efficient implementation of Government projects and lowering the cost of doing business through regulatory reforms.
AUGUSTINE KPEHE NGAFUAN, Minister of Foreign affairs of Liberia, said that the present debate should lead to more concrete action to address the problems affecting the world economy. Sub-Saharan Africa was growing at a pace that seemed impossible a few years ago. According to the World Bank, its estimated growth rates of 5.3 per cent in 2012 and 5.6 per cent in 2013 were expected to be above pre-crisis average. Now was the time for Africa to take advantage of that growth to reduce its crippling poverty, to develop its infrastructure and to provide economic opportunities for its vast generation of eager youth. However, with the ailing economies of the developed world, which not only drove trade in Africa but also provided development assistance, there were challenges ahead.
He said that, between Europe mired in the crisis of the European Union, the United States struggling to kick-start its growth, and emerging economies facing difficulties of the slowdown in their economic drive, sub-Saharan Africa’s significant trading partners would likely be importing less over the coming years. Through improving the business climate, Liberia was encouraging small and medium enterprises and was creating one-stop shops for business registration and other measures, in order to stimulate private-sector growth. Those measures would stimulate domestic consumption to make up for the potential drop in exports, expected if a global recession occurred.
He said, however, that it was possible to view the slowdown in the economies of the developed countries as an opportunity for Africa to attract the business of companies seeking greater return on investment that was no longer available in the industrialized countries. Liberia would concentrate on making the business environment welcoming to foreigners. Such investment would provide extra revenue and create jobs for youths. To capture new business seeking opportunities on the continent, Liberia would work to improve its electricity and transport infrastructure, ensure transparent and accountable business frameworks and sustain a tax system that was friendly to both domestic and foreign businesses.
NIZAR BARAKA, Minister of Economy and Finance of Morocco, said developed economies were beset with thorny problems that curtailed global economic growth, with the risk of spill-over effect towards emerging economies and developing countries. Although global growth protections had registered gradual improvement recently, the risk of setbacks still remained. That concerned the worsening of the sovereign debt crisis in the euro zone, which required an approach that reduced the differences between States and within societies and ensured the conditions for sustainable development with no impact on the environment.
He said Morocco had achieved a reduction in poverty in recent years to 8.9 per cent, thanks to national initiatives. The economic situation in Africa, like the other regions of the world, continued to be inflicted with the crisis. The international community should revisit development models and achieve more equitable economic governance, in order to reduce the widening gap between the North and the South, which, in turn, would lead to restoring confidence and devising ambitious economic policies to promote investment for the benefits of vulnerable and marginalized nations around the world.
HAMAD BIN ABD AL-AZIZ AL-KAWARI, Minister of Culture of Qatar and President of the thirteenth session of the United Nations Conference on Trade and Development (UNCTAD), presented the report of the UNCTAD session, saying that the Conference had been convened to strike a balance in the ongoing economic crisis and related financial challenges confronting the world. It was aimed at finding different alternatives and options to the challenges based on morality and ethics. The Conference was an opportunity for many groupings to consult and provide input, and featured special segments, including a high-level meeting on women in the context of development. The conclusions from the Conference would be taken into consideration in UNCTAD’s future actions. The compromise on the outcome document had not been easy, but given the current global challenges, it was a major achievement, even a “quasi-miracle”. Qatar was happy that the Conference had resulted in a “good agreement”, although the outcome would have been better if all parties had understood the value of combining efforts to achieve all the goals.
DESRA PERCAYA, Vice-President of the Economic and Social Council, speaking on behalf of Miloš Koterec, President, said that the themes of the debate captured the most pressing economic and financial challenges, including the persisting global jobs crisis, public debt and the need to reform the international monetary and financial system — issues affecting both developed and developing countries, alike.
Indeed, he said, job creation lay at the heart of development and poverty eradication. There was an urgent need to rethink economic and development policies through the “job lens”. There was also a need for effective policies at the national level to promote sustained and inclusive growth and employment. Those policies should include investment in social and physical infrastructure, education, health and social protection, and they should be supported by an enabling international environment. Small and mid-size enterprises were important drivers of employment in many countries.
The Economic and Social Council would continue to work for growth and jobs this year, he said. The high-level segment of its substantive session in July would focus on the theme “Promoting productive capacity, employment and decent work to eradicate poverty in the context of inclusive, sustainable and equitable economic growth at all levels for achieving the MDGs”.
OCTAVIO ERRÁZURIZ (Chile) speaking on behalf of the Community of Latin-American and Caribbean States (CELAC) said it was important that Member States made progress on consensus measures that should be adopted by Governments and the global financial, economic and trade organization to deal with the effects of the challenges brought on by the crisis. He urged delegations to remember that the genesis of the crisis had been the sub-prime mortgage meltdown in 2007 and its ripple effects that buffeted Wall Street, leading chiefly to the bankruptcy of Lehman Brothers. The contagion had since spread from the United States to different continents, exposing systemic failures at national and international levels, and making clear the need to reform the global financial and economic architecture and put more regulatory measures in place, especially regarding derivatives markets.
He said that States, especially developed countries, had attempted various responses, and Central Banks had shifted rapidly from monetary policy based on conventional measures to non-standard activities, which had resulted in the “significant expansion of [their] balance sheets”. While such measures had become commonplace in the past three years, there was no clear evidence that they had achieved their stated objectives of righting the global economy and increasing liquidity and the circulation of assets. He drew attention to the trillions of dollars that the international community, especially developed countries, had been able to mobilize to tackle the effects of the crisis, but three years after its outbreak, the world economic situation continued to worsen.
“The negative impacts continue”, he said, noting that downwards trends could be witnessed in all areas mentioned in the outcome of the 2009 World Conference, especially employment, international trade and investment, and social spending. Moreover, the prices of food and other commodities remained volatile, and world tourism continued to lag. “Economic and social development is not a line of work”, he declared, emphasizing that it was actually one the main pillars on which the United Nations was founded. As such, his delegation believed it was of the utmost importance for States not only to fulfil their ODA obligations, but to make progress on all commitments contained in the outcome of the 2009 World Conference on the financial situation, as well as the Monterey Consensus and Doha Declaration.
Further, the Community believed that the effects of the financial crisis would continue to be felt unless due attention was paid to the causes. Indeed, thus far, most of the attention had focused on symptoms, when measures should have been taken to tackle systemic issues. The United Nations was the best forum for promoting international cooperation for development and for creating a fair, transparent and equitable global economic system. In that regard, the current “democratic deficit” within the International Monetary Fund was incompatible with United Nations principles, especially regarding participation of developing countries, and he called for the full and timely implementation of the Fund’s 2010 reform strategy, which had implied an increase in the number of seats for smaller economies. His delegation reiterated its support for innovative financing for development, as well for strengthened South-South and triangular cooperation.
Round Table I
With the theme “Combating unemployment, creating jobs (especially for women and youth) and addressing poverty”, panellists in round table I included Ahmad Mohamed Ali Al-Madani, President of the Islamic Development Bank; Haruhiko Kuroda, President of the Asian Development Bank; Ritaro Tamaki, Deputy Secretary-General of the Organisation for Economic Cooperation and Development (OECD); Poona Wignajara, Chairman of the South Asian Perspectives Network Association; and Stephen Young, Global Executive Director of the Caux Round Table. Co-chairing the event were Augustine Kpehe Ngafuan, Minister of Foreign Affairs of Liberia, and Mashiur Rahman, Economic Affairs Adviser to the Prime Minister of Bangladesh.
Mr. NGAFUAN, introducing the panel, noted the continuation of the world economic crisis. In that context, high unemployment among youth was a threat to peace and stability in his and other developing countries. Similarly, Mr. RAHMAN discussed the relationship between unemployment and alienation of individuals. Inclusive economic growth was, therefore, needed for social cohesion.
Mr. AL-MADANI, noting that his bank was a development financing institution, said that the patterns that had led to the global employment crisis must be changed. In that context, he said wider horizons must be made available to be explored by young people, new jobs must be created through changing investment priorities, and supply and demand must be bridged. For the future, in that light, individuals should be energized to come up with ideas to build businesses, even if they were merely small businesses that allowed a living for one family. In addition, levels of education must be raised to satisfy the increasing demands of the market and to keep pace with the “knowledge economy” and information technology.
The United Nations, he said, had a large role to play in that area, as well as in ending conflict that stymied economic activity. Islamic economics, he said, stressed that unemployment drained the resources of the human person and that the world should be opened to allow people to earn a living.
Mr. KURODA said that developing countries in Asia were projected to keep showing robust growth, despite slowing slightly to a more sustainable growth path. Despite those gains, Asia was still home to two thirds of the world’s poor. Inequality had widened in many countries because of other factors, including new technology, globalization and market-oriented reform, which favoured capital over labour.
Better targeted social spending, particularly on education and health, as well as equitable tax policy and investment in infrastructure could help reduce those disparities by providing opportunities for decent work. For that purpose, structural transformation was needed that helped shift the workforce from agricultural to industrial economies, as well as investment of human capital and infrastructure, with support for small and medium-sized businesses.
Mr. TAMAKI said that policy remained crucial in ending the fragility of the global economy, since fiscal stalemate was still lurking in the background and the crisis in the euro zone threatened the economies of many countries. A combination of weak growth and unemployment was particularly worrying, with a persistently large jobs gap that was particularly large in South Africa, Spain and the United States. Room for further stimulus was very limited. Broad-based structural reforms were needed, along with targeted programmes.
He said that the increase in long-term unemployment was particularly worrisome, he said. Hiring subsidies could be an answer in the short-term along with continuation of unemployment payments, but dependency must be avoided. Policies must also be put in place to give youths a better start in the labour market, such as increased access to secondary education, as well as apprenticeships. Career guidance could also help. In order to boost women’s employment, there must be an encouraging environment for them to gain financial and technical skills. In all areas, he concluded, the social dimension of the economic crisis should be the core of the response to it.
Mr. WIGNAJARA said that following the old order of concepts could not lead to change. In that vein, he described his experiences over the decades in encountering what he called “technocratic” solutions to poverty, particularly in South Asia, where the numbers of poor people were overwhelming. Trying to understand the way out, it was important to understand the people and their culture, in order to encourage sustainable development. In South India, for example, it was traditional for people to form groups to build up savings. Islamic banking could be beneficial in that light, but it was not always practised in the best way. He cautioned that it was important not to give microcredit to the poor until they had built up savings.
Mr. YOUNG said it was important take action against poverty and unemployment and not just talk about it. The concept of responsibility should guide such action, he added, concurring that values and culture were fundamental drivers of growth and development. Speaking from his experience living in subsistence communities, he said responsibility was key for a new paradigm in the global economy because it required a new partnership between the private and public sectors. Only the private sector could create wealth. Both Governments and corporations must become responsible and act wisely.
The United Nations, therefore, must speak for responsibility, values and culture, he said. The financial crash was due to gross irresponsibility on the part of the financial elite. According to the United Nations Charter, Governments had the responsibility to create the conditions for development and growth, which included mobilization of wealth domestically and stopping the outflow of funds. In that context, the United Nations could promote a convention on responsible management of economies and financial institutions, he suggested. Corporate boards should set higher standards as well.
In the discussion that followed those presentations, speakers agreed that the economic crisis was still having a great impact on developing countries and that the unemployment crisis presented a great threat to them. Some speakers maintained that there was a need, for that reason, for structural change at both the national and global levels.
In that vein, maintaining that neo-liberalism had caused recent crises, Cuba’s representative said that the international financial system must be rebuilt from its foundations, as the current failures were due to norms that had been established for the benefit of the few. Brazil’s representative described structural changes that had expanded its middle class and, as a consequence, its domestic market, along with strong social policies that had created an environment that allowed young people to escape extreme poverty through employment. The delegate of the European Union concurred with the need for public policy to stimulate employment, with education being a crucial factor.
Noting that not all structural changes or stimulation strategies yielded higher employment, Gabon’s representative said that tax incentives for employers had not yielded desired results in his country, and he called for the sharing of experiences on strategies that actually worked. He commented that discussions such as this one should focus more on specific strategies. Panellists responded that targeted subsidies were often more effective than tax incentives.
In regard to specific programmes that could boost employment, the representative from Bangladesh said that the need for infrastructure in his and other developing countries provided great opportunities for employment if proper investments were made. Representatives of the United Arab Emirates, Australia, Tunisia, Sri Lanka, Indonesia, Lesotho, United Republic of Tanzania, Egypt and Republic of Korea also made comments.
Round Table II
A parallel round table, entitled “Reducing debt vulnerability, managing inflation/deflation”, was co-chaired by Montek Singh Ahluwalia, Deputy Chair of the Planning Commission of India, Nizar Barka, Minister of Economy and Finance of Morocco and Ashni Singh, Minister of Finance of Guyana. It featured four keynote speakers, namely: Alan K. Simpson, former Co-Chairman of the United States National Commission on Fiscal Responsibility and Reform; Supachai Panitchpakdi, Secretary-General of the United Nations Conference on Trade and Development (UNCTAD); Zaleha Kamaruddin, Rector at the International Islamic University of Malaysia; Daniel Mitchell, Senior Fellow at the Cato Institute; and Jeffrey Sachs of Columbia University.
Opening the meeting, Mr. BARKA said that many countries had adopted large-scale recovery measures, which had resulted in budgetary deficits. Debt suitability was important, and an eye must be kept on inflation. Budgetary measures were often detrimental to social welfare, he warned in that respect, and, in the long-term, there was the fear of the loss of sovereignty. Therefore, the question of debt required country-specific solutions, as well as measures at the regional and global levels. In the context of Africa, efforts launched over the last two decades had seen a decrease in gross national debt. Today, debt was not a handicap to African countries; however, much remained to be done to actively manage it and return to debt sustainability levels.
In the case of Morocco, budgetary reforms had been conducted in recent years; the situation had improved significantly in the last decade, with expenditure levels falling over 12 per cent. The public debt ratio was around 30 per cent of GDP. The lowering of interest rates in international markets had helped manage that debt. In a difficult context characterized by limited external financing, the international community had a major role to play in ensuring that the needs of developing countries were met — including through favourable exchange rates. It had been seen that the global community could, in fact, support transition and economic growth in the North African region.
Mr. SINGH said that the recent crisis had seen a wide variety of countries grappling with budgetary concerns and debt burdens, with the current challenges in Europe providing the most prominent example. In that context, there were particular development challenges faced by small and developing States. The Caribbean Community, his home region, had some of the most heavily indebted countries in the world; those States had natural obstacles to the diversification of their production capacity. The opportunities for growing their economies out of a situation of fiscal stress, therefore, were limited. An example was the upward movement of oil prices, he said, adding that those “imported challenges” had also manifested themselves in the productive sectors of Caribbean countries, such as agriculture and mining.
From the standpoint of small developing countries, the crisis took on an even larger dimension, he said. Those countries posed little systemic threats, and on the global scale, their voice was “so modest that it was scarcely heard”. However, the crisis — which was not of their making — posed an existential threat to those countries. He hoped attention would be paid to the ways that the crisis had affected some of the world’s smallest economies. Whether solutions took the shape of a new development paradigm, or of a reflection on trade and other multilateral arrangements, or manifested itself as the development of international instruments, the United Nations had an important role to play.
Taking the floor, Mr. SIMPSON said that, as it was an election year in the United States, many economic concerns were not being realistically discussed. There was no chance to reduce the United States’ $16 trillion debt unless spending on the four major national entitlements — Medicare, Medicaid, Social Security and defence — were all “touched”. Half of that debt was publically held, and much of it was held by China. The United States borrowed an estimated $3.6 billion every day. Many of the country’s “sacred cows” must be affected in order to reduce that spending.
For example, he continued, the country’s Social Security system, which had been started as an “income supplement” at a time when the average American life expectancy was 65 years, was now facing grave challenges. The average life expectancy was now much higher; nonetheless, the suggestion that the retirement age be raised from 63 to 68 had not been well received. In addition, the United States was also facing the challenges of obesity and chronic non-communicable diseases, such as diabetes, as well as the resulting high costs of health care. Those costs would eventually “squeeze out” discretionary spending in all other areas, unless something was done. “I would advise you all to wake up” to those realities, he stressed.
Mr. SUPACHAI remarked that, as even the world’s largest economic players struggled with imbalances and intractable issues, the world’s smallest economies had their own share of problems. In the last 10 years, on average, developing countries had been successful in reducing their rates of inflation from about 30 per cent per year to less than 6 per cent per year. With some exceptions, the “inflation issue” was much less urgent than in the past. However, there had been a general slowdown in global economic growth and the “squeeze” on the wage shares of total income continued unabated. Overall, today there were indications of the need to fight deflation, instead of inflation.
The world had learned several lessons from the recent case of Iceland, which had entered into, and then come out of, a situation of excessive debt, he said. The first lesson was that it was difficult, if not impossible, to let a pan-European financial market function freely without a regulatory system. Secondly, policies on financial stability had focused too much on individual institutions and too little on the financial sector as a whole. Individual issues could mislead the system; there was a need for more comprehensive measures. Finally, the regulatory system was “old-fashioned” compared to the fast, “IT-driven nature” of modern banking. There was no regulatory system in place that could keep track of all the transactions currently being made, he said.
With regard to public debt, he said the average level of external debt compared to GDP had fallen in recent years. However, performance was uneven around the globe, and some regions were not able to enter the loan market. The causes of debt vulnerability were still a problem, and today, 94 out of 128 developing countries still suffered from account deficits. Those challenges were especially prominent in the least developed countries. The high debt levels of developing and least-developed countries were closely related to the rising costs of commodity prices caused by speculative activities. “We should not become too restrictive” for countries that had incurred debts, but instead allow those countries to channel their funding into areas that boosted their competitiveness, such as productivity and infrastructure development. UNCTAD was currently drafting a set of “principles of responsible lending and borrowing”, which would focus, among other things, on transparency and accountability. Early warning systems must be implemented or improved, and the “exchange rate issue” must be dealt with.
Addressing the causes of debt vulnerability, Ms. KAMARUDDIN first underscored the high growth of global monetary supply in the form of loans, in which the growth of money exceeded the growth of the real economy. In that scenario, defaults began to occur, throwing countries into recessions. Today, major world economies, such as the United States, Japan and some European countries, were already in such “liquidity traps”. The effects of the failing dollar and euro included rising prices, global recession, global hyperinflation, chaos, conflicts and even the possibility of war. Turning next to possible solutions to those problems, she said that the entire financial system needed “debt relief” — a scenario in which portions of loans were pardoned and only principal amounts were paid. “This requires a tremendous political give-and-take”.
For their parts, Governments could mitigate the effects of the crisis through inflation checks, such as the provision of food stamps and basic necessity price controls, she said. Those should be financed by taxing the wealthier sections of the economy. New graduates should be encouraged to go into agro-business, and Governments should invest in that industry. Monopolistic food production and distribution should be curbed through more regulation. More bilateral and multilateral trade arrangements should be put in place, allowing countries to help each other “instead of only helping ourselves”. Meanwhile, public banks could help to provide debt relief for businesses and individuals, and the reinstitution of the “redeemability” of currency notes into gold would also prevent the future overexpansion of debt. Low tax rates could also help protect “already-trampled” business communities. Moreover, she said, “we need to return to basic ethical values to resolve the crisis”. Indeed, “we must avoid greediness”, engage in compassion, and value the protection of human rights over the accumulation of profits.
Mr. MITCHELL said that the much-discussed “austerity” measures did not necessarily mean reduced government spending. Higher taxes and higher spending were part of the problem, not part of the solution; the debate, therefore, should move beyond questions of austerity. Fiscal crisis was inevitable when the government grew faster than the private sector and the tax burden could not keep up with public spending, he said; there should be a fiscal “golden rule” to the effect that the private sector should grow faster than the government. The best way to measure that was to look at government spending as a share of GDP. Tax increases did not work because, among other reasons, they discouraged growth, boosted the shadow economy and caused the flight of capital and skilled labour.
Nonetheless, he said, controlling government spending was only half of the problem; the other half was to boost private sector growth. Growth was generated by the rule of law and sounds economic policy, among other factors. While some had blamed the crisis on so-called “tax havens”, there was no evidence for such a hypothesis; capital flight was a symptom of bad policy, not the cause of bad results. Tax harmonization and fiscal union, such as in the case of the European Union, were “not a good idea”, as they meant higher tax rates and the further crippling of growth. Instead, fiscal sovereignty was the best approach. As the ratio of the elderly to the working population would continue to grow, debt as a percentage of GDP would begin to grow exponentially, if policies were left as they were today.
Mr. SACHS said that, in most cases, the rapid rise of indebtedness had taken place in the private sector, with the public sector stepping in to take on its debt. In the European case, the crisis had begun in the banking sector, whose overuse of liquidity — and the lack of financial regulation — had led to a “bubble and bust” situation in several markets. The euro zone had been unwilling to address the banking crisis, and there was still no central-level authority assigned to handle it. “This is recipe for massive bank runs,” he said, which was now advancing to an actual banking collapse in several countries, such as Greece. Indeed, banks had “all the wrong incentives”, with even those individuals who had been fired taking home massive payouts. The world’s most powerful lobbies, including Wall Street, had created a cushion for themselves that had been very dangerous for the world’s economy, he said.
Moreover, the banking crisis had translated into a fiscal crisis, and a “credit squeeze” had made many businesses unable to make their payrolls or pay their taxes, he said. If the fundamental weaknesses of the financial sector were not addressed, a downwards spiral — such as the one in which Europe found itself today — would result. There were a number of exacerbating factors, including very high instantaneous international capital movements, the existence of tax havens, increased inequality within societies, and increased instability in the price of commodities such as food and energy, among others. “This is one big mess, where Governments will not regulate their financial sectors and Governments will not tax their rich people”, and inequality and instability were the result. The way out was not to cut the size of Government or to reduce taxes, he said. Government was a productive part of a healthy society, and a more balanced view was needed.
During the ensuing discussion, many representatives of States and civil society expressed their concern that too little was being done at the international level to relieve the effects of the global financial crisis. In that vein, the representative of the United Republic of Tanzania said that many developing countries felt hopeless and as if the world had “run out of options”. Solutions should be addressed collectively, he stressed, adding that the situation was approaching the “moment of truth”.
The representative of Ecuador said that the United Nations was a legitimate and appropriate body in which to discuss global financial issues. Countries had long sought to rid themselves of the monopoly of the World Bank and the International Monetary Fund in issues of debt and debt reduction. The United Nations should not necessarily be asked to come up with solutions to the global economic and financial crisis — that role fell to State ministers. However, it was a good forum to reach a political consensus in areas where consensus had not been possible. In that respect, a more structured framework for cooperation in solving international economic problems was needed.
The representative of the European Union delegation said that the picture presented this afternoon contrasted with a July 2011 Secretary-General’s report on debt sustainability and development. Regarding credit-rating agencies, which played an important role in developing countries’ access to credit, he warned that relying on ratings could encourage countries to think “short-term” and to neglect their long-term development needs.
Also speaking during the interactive segment were the representatives of Panama, Lebanon and Gabon. A representative of civil society also participated.
* *** *