TWN Info Service on Finance and Development (Apr09/01)
1 April 2009
Third World Network

General Assembly thematic dialogue on economic crisis begins
Published in SUNS #6668 dated 26 March 2009

New York, 25 Mar (TWN) -- The UN General Assembly on Wednesday kicked off a three-day interactive thematic dialogue on the world financial and economic crisis and its impact on development.

The dialogue will include sessions on Thursday and Friday in which Prof. Joseph Stiglitz, chair of the Commission of Experts on Reforms of the International Monetary and Financial System, and other members of the Commission, will present the draft recommendations of their report.

On the opening day, there was a morning panel discussion on the origins and systemic aspects of the crisis, and an afternoon session on the UN system response to the crisis.

One significant proposal was by Russia's deputy foreign minister, who was very supportive of the UN General Assembly process. Andrey Denisov said that in addition to the scheduled June high-level General Assembly conference on the crisis, that there also be a related UN conference of authorized experts which would draft proposals and arrangements that provide the basis for a new international monetary and financial architecture.

The UN General Assembly President, Miguel d'Escoto Brockmann of Nicaragua, started the meeting, noting that there is need for a 21st century architecture to deal with 21st century problems of a world in economic crisis.

Norway's Ambassador Morten Wetland, who chaired the first session on "The crisis: origins, evolution and systemic aspects", said that countries had believed that the financial system was self-correcting. The crisis had its origins in financial products that escaped regulation and a Washington policy of low interest rates allowing consumers to overspend and use their "house mortgages as ATM machines." After the Lehman Brothers collapse, there was a full-blown crisis of crisis.

Dr. Jomo Sundaram, UN Assistant Secretary-General at the UN's Department of Economic and Social Affairs, said the UN-DESA and UNCTAD had warned of the system's vulnerability and the impending crisis. There was an international financial architecture that is an "insult to architects" as there was actually no proper global system regulating finance.

He said that capital account liberalization was promoted by institutions like the IMF, while the IMF's own staff had recognized that financial globalization did not contribute to growth.

Though developing countries are victims, the responses are inadequate and also reflect double standards, said Jomo. There is a new situation where the non-inclusive G20 is invoked to provide leadership, while the UN General Assembly is trying for a more inclusive process.

Despite financial globalization, investment did not increase but declined over the past decades. The unwinding of global imbalances has been disorderly and the collapse of growth in trade has had disastrous effects especially for commodity producers.

There is now a deflationary spiral, where the effects of stock and property markets had led to a credit squeeze and lower global and national demand. The UN's prognosis is not optimistic. The fate of developing countries has become tied up with the developed countries' economies. There is recession in the North with slowing growth in developing countries.

Jomo said that developing countries are facing a run down in their foreign reserves. UN-DESA predicts that world trade will fall by 10% this year, an unprecedented situation in seven decades. The social impacts are serious, with an increase of 200 million working people becoming poorer and unemployment rising by 51 million, according to ILO figures.

Jomo said that this is a "Bretton Woods moment". He said there is a legitimacy problem with the present leading processes, including the G20 process. Discussing the role of the UN in the crisis, Jomo asked whether it can take the lead, ensure a systemic reform and align the IMF, World Bank and regional banks with the UN agencies to ensure policy coherence.

Ms Jane Stewart, special representative to the ILO, said the world is in a deflationary cycle, with job losses leading to more job losses. Our job is to put a floor under that cycle, she said. There has been a spike in unemployment, with 11 million losing their jobs in 2008 and in 2009, up to 50 million will be unemployed.

She said migrants' loss of income is a major problem. For end-2009, another 25 million will find employment in unsafe and precarious work. More alarming, 200 million will be pushed back into deep poverty. Small and medium sized businesses are also badly affected.

The ILO proposed that jobs is the issue through which the crisis should be tackled. The UN should consider a Decent Work Pact, in which the large stimulus packages should be transformational, making the world move towards a low-carbon economy and to make globalization work for all.

Daniel Titelman, a Director of ECLAC (the Economic Commission for Latin America and the Caribbean) said 2009 would see the greatest contraction in world exports since the Second World War. It is uncertain whether there will be a recovery in 2010 as this depends on many factors.

Developing countries face challenges including the tightening of external financial conditions, declining commodity prices, weak external demand causing export decline, and difficulties to finance counter-cyclical policies, he said.

Private capital flows to developing countries have fallen sharply. Between 2007 and 2009, the net capital inflow will fall from $184 billion to $43 billion in Latin America, while for emerging countries in Asia, it will fall from $315 to $65 billion.

Social effects include rising unemployment, with real wages reducing and employment shifting from dynamic exports to low productivity informal sectors. Declining remittances and the return of migrants could also undermine poverty gains.

He added that many developing countries (including China, Egypt, Saudi Arabia, Argentina, Bolivia, and Brazil) have announced fiscal stimulus plans to counter the recession. But the response from developing countries is not enough due to the limited funds they have for the stimulus. Thus, they require international counter-cyclical liquidity, he said, mentioning the boosting of funds to various global and regional institutions.

Andrey Denisov, first deputy foreign minister of Russia, said the UNGA discussion is a unique opportunity to lay the foundation for future intergovernmental decisions aimed at building new, more effective and equitable systems of international economic relations.

He said the Stiglitz Commission's recommendations were a generally sound basis for further discussion. The experts should continue their work, including to elaborate a road map to implement the recommendations. The experts can also provide their expertise to the UN follow-up activities after the UN General Assembly's high level conference on the economic crisis in June.

He added that the UN has universal and unchallenged legitimacy, and thus Russia attached paramount importance to the June conference, which is a landmark event to build a political foundation to consolidate the international efforts to combat the crisis.

He proposed, in addition to the June meeting, a special international conference at the level of authorized representatives, involving experts in relevant fields, which could elaborate specific proposals and draft international conventional arrangements for a new international monetary and financial architecture. +