Trade and Development Board prepares for Doha financing conference; member States, UNCTAD Secretary-General call for UN participation in reform of international financial system
Geneva, 13 November 2008 - There is a need for systemic remedies to the global financial crisis, the United Nations -- with its comprehensive membership -- should be involved in crafting solutions, and aid and other economic support to developing countries must not dry up as richer nations struggle to cope with their own financial turmoil, UNCTAD´s Secretary-General said this morning as the agency prepared for a global summit on "financing for development."
The developing world is facing, with the expanding financial turmoil, difficulties over food costs, and wildly gyrating energy prices, a "triple crisis" that must be addressed, Secretary-General Supachai Panitchpakdi told an executive session of UNCTAD´s Trade and Development Board (TDB).
His opinions were echoed by a series of speakers as the TDB readies its contribution to the Follow-Up International Conference on Financing for Development. That conference will be held 29 November - 2 December in Doha, five years after the Monterrey Consensus on financing for development was adopted in Monterrey, Mexico.
"The availability of phenomenal sums for bailouts and stimulus packages" in rich nations "makes it hard to understand why resources are suddenly so scarce when it comes to developmental assistance," Mr. Supachai said. "As (economist) Jeffrey Sachs has rightly pointed out, Europe and the US have mobilized around US$3 trillion in the past month in guarantees and bailout funds for banks, but failed to mobilize even one ten-thousandth of that this year to help the world´s poorest grow more food -- and this is in the midst of a food and hunger crisis."
Mr. Supachai said preliminary research indicates that during past banking crises official development assistance (ODA) to poor nations has declined anywhere from 20% to 40%. For the current crisis, according to estimates of the Organization for Economic Cooperation and Development (OECD), foreign direct investment to developing countries will have declined by 40% during 2008. Remittances to developing countries from nationals working overseas -- a huge source of income -- may fall by up to 6%. And the International Labour Office has estimated that the financial crisis will cause global unemployment to increase by 20 million and extreme poverty to rise by 40 million.
The crisis should be an occasion for the United Nations to perform "an essential function in generating innovative ideas, fostering universal dialogue and building consensus," Mr. Supachai said. "It is the forum, par excellence, for universal participation in global decision making when needed."
UNCTAD has assembled a Task Force on Systemic Issues and Economic Cooperation "to coordinate research on major weaknesses in the international financial system and related institutional architecture of concern to developing countries," Mr. Supachai said. The task force will focus, among other things, on currency speculation and global monetary cooperation; commodity futures speculation and price volatility; and financial sector regulation and surveillance.
One long-standing UNCTAD proposal deserves further consideration, the Secretary-General added: a cooperative global financial and monetary system should be established "that would assure, on a multilateral basis, the same rules of the game for all parties involved, more or less in the same way as multilateral trade rules apply to any trading partner."
"People may discuss whether it is a recession or a depression," TDB President Debapriya Bhattacharya of Bangladesh, then said in a brief address to the meeting. "We´ll soon find out." Mr. Bhattacharya said it is necessary for the international community to move from "a firefighting approach" to a more concentrated and coordinated response to the financial crisis.
Kwaku Agyemang Manu, Deputy Minister of Trade and Industry of Ghana, also speaking from the podium, said that even before the onset of the current turmoil, efforts to implement the Monterrey Consensus "had been mediocre, because even though significant progress has been made in the area of debt relief. . . progress has been very limited in other areas of mobilization of domestic and international resources for development, promoting international trade as an engine of development, and addressing systemic issues through expanded participation in global economic governance."
The current meltdown "must not be allowed to derail the very important efforts developing countries have made in recent years to sustain economic growth," he said.
Mothae Anthony Maruping, Ambassador and Permanent Representative of Lesotho to the United Nations Office at Geneva, serving as a lead speaker for the meeting, said "risky" financial instruments, "runaway speculation," and insufficient supervision by regulatory agencies, particularly in developed countries, had led to the current crisis. Impacts on developing countries could be expected to be significant, including declining exports, declining tax income, and expanded debt problems. These could make it difficult for governments "to meet basic human needs." He warned against a continuation of "a history of broken promises" to developing countries.
Peter Gooderham, Ambassador and Permanent Representative of the United Kingdom to the United Nations Office at Geneva, addressing the meeting as a lead speaker, said, "In our financial markets the rules of the game have simply not kept up with the speed of globalization." The root causes of the problem will be the focus of a 15 November summit in Washington on the financial crisis, he said. That summit is being convened among members of the Group of 20 developing and developed countries at the invitation of US President George W. Bush. "We will seek in Washington to begin the reform of the global financial system around the core principles of transparency, integrity, responsibility, sound banking practice, and international governance," Mr. Gooderham said.
A third lead speaker, Vassily Nebenzia, Deputy Permanent Representative of the Russian Federation to the United Nations Office at Geneva, said the crisis called for "the widest possible dissemination of information" on the turmoil and steps to improve and reform accounting and auditing and the overall financial system, so that confidence is restored. There should be "democracy and stability" in the international financial architecture and the architecture itself "should be restructured," Mr. Nebenzia said.
Among regional groups addressing the meeting, a representative of Lesotho, speaking on behalf of the Group of 77 and China, said a global solution is required to the problems of the global economy, and, to meet the terms of the Monterrey Consensus, there should be "a holistic approach to development which places equal emphasis on the health of the global economy as it does with individual national economies."
A representative of France, speaking on behalf of the European Union (EU), said financial stability is clearly "a global public good" that requires supervision and international cooperation. The EU is committed to financing for development and to achieving the Millennium Development Goals (MDGs), this representative said, and steps should be taken, including through the "essential role" of the Bretton Woods institutions (the World Bank and the International Monetary Fund) to carry out an effective and complete reform of the international financial system based on the principles of transparency, banking stability, and the integrity of international economic and financial governance.
A representative of Indonesia, addressing the meeting on behalf of the Asian Group, said "the proper functioning of global economic and financial systems concerns all countries," and "universal participation in the reform process" of these systems "is essential and should be undertaken under the framework of the United Nations."
A representative of Barbados, speaking on behalf of the Group of Latin American and Caribbean countries (GRULAC), said members of the group "are committed to participating actively in determining the international response that is necessary to restore global financial stability and enhanced confidence in the wider economy." She said an effective response is vital "so that our countries can return to a path of sustained economic growth."
A representative of Chad, addressing the meeting on behalf of the African Group, said that only "concerted structural measures" can ease the effects on Africa of the financial crisis. Major steps must be taken to permit Africa to resist the external shocks caused by the current turmoil and enable it to protect and expand the economic progress it has made over the past five years and to sustain reductions in poverty. Poverty still affects half of Africa´s population, the representative said.
Speaking on behalf of Group D -- transition economies -- a representative of Kyrgyzstan said that steps to advance financing for development, especially in the face of the mounting financial crisis, should include support for accession by transition countries to the World Trade Organization; expansion of trade between transition economies and developing countries; effective and efficient use of energy; measures to address the needed of landlocked developing countries (LLDCs); and development of science, technology, and innovation policy in transition economies.
A representative of Paraguay, speaking on behalf of LLDCs, said the economic growth and social well-being of land-locked countries remain very vulnerable to convulsions of the international economy, especially as the transport costs of such countries are high and energy costs play a major role. LLDCs tend to be underdeveloped and undercapitalized and to lack infrastructure needed for sustained economic expansion, the representative said, and special attention is required to their needs during the current financial crisis.
And a representative of Nepal, addressing the meeting on behalf of the group of Least Developed Countries (LDCs), said LDCs, even after the rapid worldwide economic growth of the past five years, are being left behind. The mounting financial turmoil is increasing their difficulties. Such countries are already struggling with crises involving food, fuel, and climate change. New, innovative, and effective mechanisms are necessary to reduce poverty and raise living standards in the world´s poorest nations, the representative said.
The afternoon session of the meeting began with a discussion by video link with K.S. Jomo, Assistant Secretary-General of the United Nations Department of Economic and Social Affairs (DESA). Mr Jomo said in his opening remarks that negotiations leading up to the Financing for Development conference were ongoing and reflected the urgent need to address contemporary issues -- the Monterrey Consensus, it was clear, had to be updated. The world economy had become much more integrated since 2002, and any talk of a supposed "de-coupling" of the South from the economies of industrialized countries was being exposed as untrue by the current crisis. It also was a matter of concern that manufactured goods from developing countries had suffered, overall, a decline as compared to manufactured goods from developed countries. Clearly there was a need for further aid and attention to expanding the productive capacities of developing-country economies, Mr. Jomo said.
He added that three major issues should be addressed: greater international tax cooperation; the Financing for Development followup mechanism, which must be made more effective; and the matter of systemic financial reform -- there was a widespread recognition of the need for new international financial architecture.
Heiner Flassbeck, Director of UNCTAD´s Division on Globalization and Development Strategies -- and Chairman of the organization´s new Task Force on Systemic Issues and Economic Cooperation -- then told the meeting that there are widening global imbalances in current-account deficits and current-account surpluses among countries around the world; that indicates that the risks associated with the currency statuses of a number of countries have increased, which helps to explain why the financial crisis is having such a widespread fallout. This is a systemic question that can only be addressed at the global level.
What is occurring is not just a sub-prime crisis, Mr. Flassbeck said; several "speculation games" are unwinding, not only the sub-prime speculative bubble, but games involving currency speculation and commodity speculation. The subprime crisis triggered these other crises, Mr. Flassbeck said, but was not otherwise related to them. The reappearance of difficulties with currency and commodity speculation showed that nothing had been learned since the Asian and Latin American financial turmoil of the late 1990s -- currency and commodity speculation had been issues then, too. They had not been dealt with. The fallout from this type of speculation is usually especially dangerous and damaging for developing countries, he said.
And a number of UNCTAD member States spoke from the floor. Repeated pleas were heard for reforms to the international financial system and for international development programmes and financing to continue despite the financial crisis; and a number of national representatives said more transparency in financial instruments should be achieved and greater regulation should be established over currency speculation. Several Asian nations referred to lessons learned during the Asian financial crisis of 1997-98.
Contributing to the day´s debate were representatives of China, Japan, Azerbaijan, Angola, Venezuela, Pakistan, Turkey, Iran, Thailand, Mexico, Trinidad and Tobago, Norway, India, Yemen, Morocco, Malaysia, Angola, Egypt, and El Salvador.
Two civil society organizations also spoke: Oxfam International, and the International Chamber of Commerce. The representative of the International Chamber of Commerce said that while there is concern that financial markets will continue to deteriorate for some time, there is hope that the failings of financial markets will not detract from the solid record of the market economy system and globalization in rescuing millions of people from poverty.