Service on Finance and Development (Apr09/08)
respond to Commission's crisis proposals
in SUNS #6672 dated 1 April 2009
York, 30 Mar (Bhumika Muchhala) -- Several country delegations to the
United Nations presented their views during last week's General Assembly
dialogue on the global financial and economic crisis. They also engaged
in an interactive exchange with the Chair (Prof. Joseph Stiglitz) and
other members of the Commission of Experts on the global financial system
set up by the President of the General Assembly.
main issues raised by the delegates included reforms to the IMF and
World Bank, and the mechanisms and process by which financing would
be provided to developing countries which do not have the fiscal space
to pursue stimulus policies. There also appeared to be differences of
views between developing and developed countries.
Australia, for the CANZ group, acknowledged
that the world's most vulnerable countries are going to be the most
impacted and that the global response must incorporate this fact. The
Commission's report is an important document with significant ramifications.
for the G77 and China, said that
the Commission is biased towards immediate and short-term measures,
which is worrying because the crisis should be an opportunity for fundamental
change. The first task is to reform the Bretton Woods Institutions,
on which the Commission "shies away from saying the hard thing,"
it said. It agreed that the IMF should undertake to adopt a double majority
rule in governance. Another IMF reform needed is the "total abolition
of conditionalities." The Fund's recent reforms in reducing conditionality
fall short. They pitch their changes as a "new regime for conditionality,"
but the result still reflects a clear bias for the industrialized countries'
reform needs to be a precondition for the recapitalization of the IMF,
it said. The financial crisis has presented new business opportunities
for the IMF, but to recapitalize an institution that has not been reformed
carries the danger that it will apply the same policies as before even
Uruguay said that this crisis has
raised the most frightening reaction of protectionism. Trade protectionism
will, for example, exacerbate trade distortions and the agricultural
sector in developing countries will be most affected. It cited the ECLAC
estimate that growth in Latin America will plummet to 1.6% in 2009 compared to 4.6%
United Kingdom said it would take
time to set up a new credit facility, as suggested by the Commission.
In the immediate period, the best focus for reform efforts would be
on existing mechanisms and institutions, such as the IMF and World Bank.
The G20 ministers agreed to bolster IMF resources and "we would
like to see this go further," said the UK.
The European Union has also agreed to provide a bilateral loan fund
to assist Eastern European countries.
Japan said that it attached high importance
to the upcoming June summit of the UN. Japan
will honour its pledge to double ODA to Africa by 2012, despite the
fact that Japan is also
impacted by the crisis. Japan
added that the Chiang Mai Initiative can be a model for regional cooperation
aimed at providing liquidity. The CMI's funds have been recently increased
from $80 billion to $120 billion. In the IMF, the voices of emerging
economies must be strengthened. The capital base of the IMF must also
be enhanced, and Japan has agreed
to provide a loan equivalent to $100 billion to the Fund.
Japan acknowledged that the UN Commission
recommends creating a new credit facility, it believed that existing
mechanisms and institutions should be used rather than establishing
new ones. Japan also asked
the Commission what the proposed number of seats are for the global
economic council proposed in their recommendations, and what the comparative
advantage of such a council is in comparison to the existing bodies
of the ECOSOC and G20.
Ethiopia praised the Commission's
recommendations for being timely efforts to counter the wide-ranging
adverse impacts on developing countries. Unless the most poor and vulnerable
in Africa are also addressed, the response to the crisis will
not be truly global.
China said that it is pursuing both
national and regional responses to the crisis. The national stimulus
plan aims to stimulate domestic demand, while at the regional level,
is committed to moving East Asian financial cooperation forward. China described
the June UN meeting as important. Through the full participation of
192 member states, the UN meeting will send a positive signal of unity
and determination to the international community, and mitigate the harm
brought about by the crisis.
Brazil said that however imperfect
the multilateral trade regime is, there is no other means to rein in
protectionism. What defines the development component of the Doha round is trade finance, especially for
South-South trade, which is an indispensable part of development finance.
Trade finance should be a core component of the provision of liquidity
to developing countries recommended by the Commission.
Philippines raised several questions.
First, if the measures recommended by the Commission are not implemented
soon, what would be the impact of the crisis on growth and MDG attainment
in developing countries? In the implementation process, what form of
binding mechanisms will enable enforcement of the recommendations by
Norway said that while the developed
countries are "vacuum cleaning the market for credits," the
immediate term focus of the UN should be on creating policy space for
those countries least equipped to implement fiscal stimulus policies.
Norway also brought
up the importance of illicit financial flows. The Doha conference on financing for development
established that illicit capital flows out of developing countries are
equivalent to several times the amount of capital flowing in to developing
Nepal highlighted that the Commission's
recommendations do not mention "vulnerable countries." The
Commission's recommendations do not outline how the G-192 in the UN
can stop the contagion of the crisis to LDCs, protect their markets,
their exports and meet their specific needs. It asked the Commission
to revisit this issue and put forth recommendations specifically for
Jamaica said that the greatest urgency
for multilateral institutions is the need to reform governance, without
which an inclusive approach to finding solutions will not be possible.
There should also be more opportunities for smaller developing countries
to have a voice in the deliberations of the G20. The immediate concern
is how to get out of this crisis. Substantially greater ODA levels are
necessary to fight both the burgeoning debt problem but also the emerging
deep recession in developing countries.
urge toward protectionism needs to be resisted, particularly by developed
country stimulus packages. Any regulatory regime in the Caribbean
region should not follow a one-size-fits-all approach. It emphasized
that regulations designed to serve the interests of discredited financial
institutions should not be imposed on the Caribbean
region. The urge to shut down offshore financial institutions in the
Caribbean needs to be resisted. Instead,
the larger and more established offshore banks should be monitored in
the same manner as banks in the Western countries are.
India asked the Commission what would
be the comparative advantage of the global economic coordination council
they proposed over the ECOSOC. Before creating an entirely new body,
India asked whether
the UN might not first focus on improving the effectiveness of the ECOSOC.
Barbados said that while the Commission
has affirmed developing countries' need for greater resources and variegated
mechanisms for disbursing these resources, the Commission had not addressed
how developing countries would access these resources.
Nigeria emphasized that "exclusiveness
and creeping protectionism should be avoided," and that the collateral
damage to the developing countries needs to be acknowledged by the developed
countries. The current opportunity to reform the Bretton Woods Institutions
should be taken.
Indonesia said that its experience
after the Asian financial crisis of 1997-98 demonstrated that upon implementing
substantive regulatory reform in the financial and banking sectors,
there was improvement in the economy. However, it is also important
to not over-regulate, which can stifle future economic growth. Indonesia notes the importance of
mismatches between regulation and product innovation in the financial
sector. While developing countries need national policy space, they
should not use policy space as a protectionist policy.
Venezuela said that a "totalitarian
economic policy by developed countries toward developing countries have
marked the last few decades." A large part of the problem lies
with the functioning of the Bretton Woods Institutions. It agreed with
what Commission member Pedro Paez (from Ecuador) said regarding abolishing
conditions that are imposed on access to development finance through
the BWIs and regarding breaking the BWIs monopoly of credit.
Tanzania said that renewed political
will is urgently needed to transform the governance of global institutions,
regulate financial markets and pursue development. International financial
institutions should stand ready to make available sufficient resources
to help countries overcome the crisis, but also address the impacts
of climate change in LDCs.
European Union (EU), represented by the Czech Republic,
said that IMF and World Bank reform needs to be accelerated. It agreed
that top appointments to the World Bank and IMF should be an open procedure
available to all qualified member country candidates. Governance reform
in the World Bank and IMF should also address internal governance to
ensure the effectiveness and even-handedness of IMF surveillance.
IMF needs to have the means necessary to assist countries affected by
the crisis, and for this reason there is an urgent need to increase
IMF resources significantly, through an expanded New Agreement to Borrow
and an accelerated quota review. The EU has agreed to contribute 75
billion Euros to the IMF, and allocate 50 billion Euros to the EU Balance
of Payments facility which will assist Eastern European countries hit
hard by the crisis.
NGO, New Rules for Global Finance Coalition, said that the global reserve
system proposed by the UN Commission should find a way to create and
use SDRs outside the walls of the IMF. It is imperative that the IMF
be comprehensively reformed across the areas of governance, accountability,
transparency, participation and through establishing an external complaint
mechanism. It also emphasized that the quality of conditionality attached
to IMF lending needs to change. Currently, the IMF is changing post-hoc
conditions to ex-ante conditions.
response, Professor Stiglitz said that the ECOSOC could be empowered
to address much of the functions of the proposed creation of a global
economic council. However, a new council would be given the mandate
of surveillance of the global economy, which is unique. A new council
would also identify the gaps within the global economy, which other
UN members could also report to.
reaffirmed that developing countries certainly need more space to maneuver
their policies, particularly in light of restrictions placed on the
ability of countries to manage their capital account. If they had this
ability to control capital inflows and outflows in their capital account,
developing countries could be less exposed to the instability of the
global financial system. Stiglitz also emphasized that there should
be not be any pro-cyclical macroeconomic policy conditionalities imposed
on developing countries who need loans to counter the impacts of the
few other Commission members also provided comments and responses to
the country delegates. Pedro Paez, who is Ecuador's former
Economic Coordination Minister, said that the problems of legitimacy
are becoming increasingly deep. Paez said that when a society has entered
a spiral of violence due to this kind of economic crisis, it cannot
emerge in just 2-3 years, it takes decades.
said it is possible to move forward on the proposed new reserves system
in as little as six months, as making Special Drawing Rights accessible
does not have to take longer than that. What the global community needs
is to recover its decision-making capacity, and to recover the conditions
for the depth of maneuver required to put in place counter-cyclical
and social policies.
member Yaga Venugopal Reddy, who is the former Governor of the Reserve
Bank of India, said that some financial innovations are good, but many
in the current generation have been mechanisms used to circumvent responsibility.
This is a major problem is in regard to national regulation and sovereignty.
also highlighted that exchange rate management, capital account liberalization
and reserve management are critical development issues in this financial
crisis. As economies grow and financial markets deepen, the benefits
of capital account liberalization could increase. However, he stressed
that this should be done only when the time is right. +
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