Secretary-General's remarks at lunch organized by the Permanent Mission of San Marino on "How the Financial Crisis is Afecting Small and Medium States" [as prepared for delivery]
New York, 4 November 2008Ambassador Bodini, [Permanent Representative of San Marino to the UN], Ambassador Menon, [Permanent Representative of Singapore], Professor Robert Glenn Hubbard, [Dean, Columbia Business School], Mr. Stephen Schwarzman, [Chairman and co-founder, Blackstone Group], Excellencies, Ladies and Gentlemen,
It is a great pleasure to join you today. I thank the Mission of San Marino for bringing us together at a crucial time on a central aspect of the global financial crisis: its impact on small and medium states and on the most vulnerable members of the human family.
I also extend a warm welcome to Professor Robert Glenn Hubbard and Mr. Stephen Schwarzman. Their expertise will add a vital perspective to our discussion.
Ladies and Gentlemen,
A financial crisis is unfolding on a scale not seen since the 1930s.
Over the past several weeks, several major financial institutions in the United States and Europe have failed. Stock markets and commodity rices have plummeted and become highly volatile. Lending between banks has declined sharply. Retail businesses and industrial firms of all sizes are finding it increasingly difficult to obtain credit. Banks have become reluctant to lend, even to longtime customers.
The immediate future remains highly uncertain. There is no doubt, however, that we are in for more difficult times, with slowing economic growth and rising unemployment. The effects, felt first in the advanced countries, are quickly spreading to the rest of the world.
All recent forecasts predict a significant slowdown in world economic growth from the 3.8 per cent registered in 2007. Recession, or even sharp slowdowns, in the United States, Europe and Japan would significantly affect growth in developing countries.
In Africa, growth could fall below the rate of population increase. Even the fast-growing Asian countries could suffer major blows.
Primary exporters in the developing world will suffer from the significant drop in commodity prices. But the entire developing world will feel the effects of lower demand in developed countries for their exports.
Flows of private capital to developing countries will also decline.
Some emerging economies are facing severe curtailments in access to trade credits.
Already, an increasing number of developing countries have witnessed a significant deceleration in economic growth.
Smaller economies, almost by definition, are more open to trade and finance, and so are more vulnerable to a global slowdown and volatility.
Importers of food and energy may see some gain if prices for those commodities fall. But this may be of little comfort if demand for their exports falls.
Smaller countries may also be more affected by a possible reduction in worker remittances. For the smaller countries in Central America, for instance, remittances are well over 10 per cent of national income.
Poorer countries are also more dependent on official development assistance. They could suffer if aid budgets in donor countries come under pressure.
I am very concerned at the prospect of Governments having less with revenue to spend on social services and assistance to the poor.
The developing world has already been struggling with higher prices for food and energy. With these latest developments, many people who have struggled so hard to rise out of poverty, could be forced back into destitution, erasing hard-won gains towards achieving the Millennium Development Goals.
I am determined to see that this does not happen. We also must not allow this crisis to defer or back away from development commitments or from the fight against climate change.
It is still too early to tell how severe the consequences will be. But we know enough to be very, very concerned. Now is the time to think about how to respond. There is much that we can do.
We need better compensatory financing mechanisms for small- and medium- developing economies that are vulnerable to volatility in global markets.
We need to help them build better social safety nets.
The IMF and the world's major central banks may need to set up substantial stand-by lines of credit for proactive intervention, so that banks in developing nations have adequate funds to draw on in emergency.
We need to ensure an adequate flow of financing for development.
And we need to address the systemic roots of the crisis.
The current turmoil underscores the shortcomings of the international financial and economic system in providing improved living standards, stable and decent work, and food security.
So in addition to putting specific fixes in place, we must acknowledge that Our institutions need to be reinvented. Crisis has brought us to a new multilateral moment. Our times demand a new multilateralism -- a more inclusive and effective multilateralism.
Difficult as this will be, let us not see this only a burden. Rather, it is an opportunity.
We must make the most of important meetings in the coming weeks. These include the G-20 session in Washington and the UN Financing for Development Review Conference in Doha.
At the G-20 meeting, I will stress among other things the need to give voice to the voiceless, and to defend the defenseless. In the urgency of the current moment, we cannot neglect their needs. We must act in global solidarity.
At the first Financing for Development Conference six years ago, rich and poor countries came together and agreed that development is a shared responsibility. In Doha, we have a chance to galvanize implementation of the Monterrey commitments and build a stronger partnership for development.
Toward that end, on the eve of the Conference, the Emir of Qatar and I will host an informal, summit-level discussion on the financial crisis and economic governance reform. We hope to facilitate consensus building on the action that must be taken to address these pressing problems. I hope this dialogue will help to frame the discussions at the Doha conference and chart a way forward.
Indeed, the United Nations can provide an inclusive, legitimate framework for advancing the reform process, in which the abiding concerns of all countries can be articulated and considered. The UN system can facilitate – and, where appropriate, lead – the various efforts to address the longstanding and daunting issues before us.
And of course, even as we address long-term questions, the UN system will continue to do its utmost on behalf of the poorest and most vulnerable countries and communities.
Thank you all for taking part in this discussion. I look forward to hearing your views and working together to overcome this crisis.
Thank you very much.
Statements on 4 November 2008