"We have entered a new century with a world economy more unstable than at any time since the inter-war years, and in which developing countries remain the most vulnerable to external shocks and disruptions", according to UNCTAD Secretary-General Rubens Ricupero.
In a statement, made on his behalf by UNCTAD´s Chief macroeconomist Yilmaz Akyuz to finance ministers of the developing countries meeting today 15 April under World Bank/IMF auspices, Mr. Ricupero calls for "collective energies and bold leadership" to redress the imbalances in the globalization process, on both the financial and trade fronts.
As UNCTAD has cautioned on various occasions in the past, leaving integration exclusively to markets and to competition among structurally unequal countries has prevented globalization from producing benefits for all. So far the balance sheet of the market-driven globalization points to widening divisions within and across countries.
But "a real sense of hope" has been provided by UNCTAD´s tenth Conference held in Bangkok in February. The Conference has shown that the past decade, marked by the Asian financial crisis and the debacle in Seattle, " has left us with a greater sense of realism about the difficulties we can expect to face and a more pragmatic frame of mind for moving forward". Implicit in much of the deliberations, involving governments, civil society and multilateral organizations, was a rejection of the idea that globalization is some unstoppable force sweeping inexorably across the face of the world.
THE NEED TO OVERHAUL THE FINANCIAL ARCHITECTURE IS AN URGENT ONE
"It would be foolhardy of policy makers not to recognise the pervasive influence that financial volatility still holds over the economic prospects of developing countries, or their vulnerability if the richest parts of the world economy begin to stumble", says Mr. Ricupero.
For many countries, "policy-making has become hostage to financial markets", he points out, adding that "the kind of discipline that these markets impose on governments is not always conducive to sustained growth and development". Since the Asian crisis, it is increasingly clear that when policies falter in managing integration and regulating capital flows, the damage that international finance can inflict on an economy can be enormous, and this applies even to economies with sound track records of macroeconomic management and social development. As a consequence, "the need to overhaul the existing financial architecture is an urgent one".
Political constraints and conflicting interests, rather than technical problems, appear to be the main reason why the international community has made little headway in setting up effective global arrangement for the prevention and management of financial crises. This is particularly true in recognizing debtor rights and burden-sharing.
With bailouts on the scale recently seen in emerging markets becoming increasingly problematic, principles of orderly debt workouts need to be written into the rules of the international monetary and financial system. Exchange-rate coordination, including target zones for G3 currencies, along with more effective provision of liquidity to pre-empt currency crises in developing countries, could help bring a much needed degree of stability to foreign exchange markets.
Much that could be done also at the regional level, according to Mr. Ricupero, particularly among like-minded governments which are prepared to establish collective regional defence mechanisms against systemic instability and contagion. Premature financial liberalization must be avoided, and greater tolerance must be shown for capital controls, when countries need to use them.
Mr. Ricupero also calls for more efforts in official financing and debt relief, particularly for the Least Developed Countries (LDCs) and African countries. "It is now time (...) to place a full debt write-off squarely on the agenda of multilateral and bilateral lenders".
Finally, Mr. Ricupero emphasizes the need for "a more inclusive and participatory decision-making process" to correct the malfunctioning of the world economy. "New international standards, under which globalization is fostered and managed, will have to be negotiated, in a democratic and transparent manner, by all parties concerned. Those standards cannot be set exclusively by a small number of rich countries."
