Service on Finance and Development (Apr09/04)
of IMF raised at UNGA debate on economic crisis
New York, 27 Mar (Bhumika Muchhala) -- Various proposals were put forward by UN agencies, the World Bank, IMF, South Centre and diplomats at a panel discussion at the UN General Assembly's thematic dialogue on the global financial and economic crisis held on 25-27 March.
There was also a lively exchange between panellists and some diplomats and NGOs on the role of the IMF in the crisis and the extent to which it has reformed, even as developed countries are proposing a big expansion in the IMF's funds.
The panel was composed of representatives of UNCTAD, UNDP, CEPAL, the World Bank, the IMF and the South Centre.
UNCTAD officer Ugo Panizza presented the recent UNCTAD paper on systemic failure. He said that inflation is not the main risk now and expansionary policies and more coordination of such expansionary policies are needed and that countries should be given more space to adopt countercyclical policies. He also presented lessons for developing countries for financial regulation. There are flaws with the assumption that markets know best and regulators should not try to second guess them. Developing country regulators should develop their financial sectors gradually to avoid boom and bust cycles.
representative Selim Jahan said a human development perspective on the
crisis is important, with UN agencies monitoring the impacts on jobs,
malnutrition, gender and human rights. He stressed the need for an effective
voice for all. The G20 meeting in
Jeffrey Lewis, Senior Advisor of the World Bank, provided data on how the crisis was affecting developing countries, including commodity price declines, a 9% volume fall in exports and a big drop in capital flows. He said there was a $270 to $700 billion gap in external financing facing developing countries in 2009, which he described as "mind boggling." Policy challenges for developing countries include the need to stabilise their economies, but poor countries do not have funds to undertake fiscal stimulus. There are also challenges to protect long-term development prospects and to protect the vulnerable.
The IMF's deputy director of the policy and review department, Ranjit Teja, admitted the IMF did not see the crisis coming adequately or in time. It was now planning to double or treble the IMF's funds from $250 to $500-600 billion to provide credit. Nothing is as damaging to credibility as an underfunded program.
He said there is recognition that Fund has to do a much better job. The IMF will design its programmes better and change conditionality. It would introduce a new facility without any conditionalities for selected countries that have a very good framework. He said it is important for the IMF to come to grips with the fact that there has been stigma attached to IMF conditionality and we have to deal with it.
South Centre executive director Martin Khor said the developing countries were not responsible for the global crisis but were its main victims as they had been affected more seriously than developed countries. He cited the effects through the trade mechanism (a fall in commodity prices by half, and a fall in manufactured exports in some Asian countries by 30-50%, as well as a fall in migrants' remittances and tourist arrivals) and the finance mechanism, including a massive fall in private capital flows. He warned that many developing countries would face a new debt crisis, as their balance of payments, foreign reserves and currencies come under increasing pressure.
Khor said that from the perspective of the problems and interests of the developing countries, the priorities on actions are establishing an international system that fosters financial stability for developing countries; having access to adequate and stable financial resources, as private flows and exports decline; avoidance of financial and debt crises and proper management of crises if they occur; avoiding collateral damage from policies taken by developed countries in response to the crisis; and being able to maintain and expand policy space to implement appropriate policies.
warned that some crisis measures taken by developed countries may have
adverse effects on the South, and thus a need to prevent or offset these
actions. He cited the huge subsidies to the financial institutions and
auto industries in the West, and the Buy American provision in the
A high priority for developing countries is to establish international measures to foster financial stability and avoid activities driven by speculation, through regulation of capital flows. In the absence of this, developing countries must be allowed to undertake national policy measures to regulate capital flows. This requires changes to free trade agreements and IMF policies that require open capital accounts.
Khor stressed that the IMF should be reformed, including through removing inappropriate conditions such as an open capital account, pro-cyclical monetary and fiscal policies that have magnified contractionary conditions, and its trade liberalisation policies. Without the reform, it is premature to expand its resources.
Khor added that countries should not be requested to provide loans to the IMF to augment its resources because this would compromise the ability of the IMF to carry out its surveillance function and to discipline the policies of countries that provide the loans. It can obtain resources from the market or from the issuance of SDRs, instead of obtaining loans from governments. The imbalances in the system of governance, with its present serious imbalance in voting rights and decision-making, should also be addressed.
Khor also called for the establishment of a global reserve currency system based on the SDRs, and a large multilateral fund to assist developing countries. The new financial architecture should also deal with the threat of new debt crises facing developing countries, including an international system of debt standstill and debt workout for countries that face debt servicing difficulties. He said the UN General Assembly high-level conference in June is an important opportunity for discussion and follow-up actions on the crisis.
An NGO participant, the Third World Network, stated that a study it had done showed that the IMF had maintained contractionary monetary and fiscal conditions in the recent loans that it provided to nine countries, including Eastern European and developing countries. These conditions included the countries being asked to raise their interest rates and to reduce their government spending. +