Global Trends by Martin Khor

Monday 25 May 2009

UN Summit to set up a new Economic Council?

Member states of the United Nations are negotiating a draft Declaration the global economic crisis, which includes a plan to set up a new Global Economic Council.  A UN conference will be held, probably on 24-26 June, to take critical decisions.


Despite some good news in recent weeks that sent stock markets upwards, the cold reality is that the ”real economy” is in deep trouble in many countries.

Last Thursday’s Wall Street Journal, under the bold front-page headline, “World Economies Plummet”, reported that there were steep falls in the economies of Mexico (by 21.5%), Japan (15.2%) and Germany (14.4%), with the United States also falling by 6.3%.

These shocking figures were calculated by taking the Gross Domestic Product of the countries in the first quarter of this year, comparing it to the previous quarter, and annualizing the rate of change.

Another negative event was last Thursday’s downgrading by Standard & Poor of the outlook on the United Kingdom’s AAA credit rating from “stable” to “negative”.  It was the first time this had happened to the UK, which is one of the top two financial centres of the world.

This caused the markets to plunge in Europe but also in the US due to fears that it will be next for downgrading in credit ratings. 

Even if the worst of the recession is over, in terms of the steep rate of economic decline, recovery will likely take time.

In New York last week, I heard an Ambassador talk about the current view in diplomatic circles, that the recession will not be V shaped or U shaped (a steep rebound following a steep decline) but will rather take on the shape of a long bath tub. 

In other words, the decline will be followed by a long period of “flat” economic performance or stagnation, before growth picks up again.  The question is, how long will the bath tub turn out to be?  

At the United Nations, the diplomats last week started working on a draft of a Declaration that is to be adopted at a high-level UN Conference on the world financial and economic crisis and its impact on development.

The draft, issued by the General Assembly President Miguel d’Escoto Brockmann, replaced an earlier version which had been found to be too long and rambling.

The new draft is brief on the causes and impacts of the crisis but rich in proposals for “prompt and decisive action” in four areas:  making the stimulus work for all; containing the effects of the crisis and improving resilience for the future; improved regulation and monitoring; and reforming the international financial and economic governance.

In order to implement the proposed measures, the draft has a final section on “The Way Forward”, where perhaps the most interesting ideas are placed.

Foremost among these is the proposal to set up a new Global Economic Council under the UN to provide coordination and oversight of responses to address the global challenges.   This is probably the most important and controversial idea in the document.  This kind of strengthening of the UN’s role is disliked by the powerful countries.

Another idea is to set up a Panel of Experts (drawn from academics, social movements and the private sector) to give advice to the UN General Assembly on economic, financial, trade and regulatory issues and actions.

The draft also calls for a review of how ECOSOC (the UN’s council on economic and social affairs) can be strengthened and to review the agreement between the UN and the World Bank and International Monetary Fund.

The draft also wants the Conference to remain “open”.  To follow up on the conference, seven working groups are to be created on the global stimulus; finance for restructuring and survival; trade and debt relief; global and regional reserve systems; regulation and coordination of the global economy; restructuring international institutions; and the role of the UN.    

According to diplomats, the developing countries are keen that the Conference take bold decisions on helping them cope with the crisis, on reform of the international financial system, and on setting up new mechanisms to coordinate global policies.

They do not believe that the current institutions (such as the IMF and the G20) can play this role, as they are controlled by the developed countries. The United Nations, which has universal membership, is best placed to coordinate global policies which are in the developing countries’ interests.

However, many of the developed countries are reluctant to have the UN play a stronger role, as they are comfortable with the status quo in which the institutions they dominate (G7, G20, IMF, etc.) control the show.

The problem, of course, is that the developed countries and the dominant institutions have done a very bad job, as they promoted the lax financial policies that have led on to this extreme crisis.

Thus, there is an impetus for the developing countries, that are the victims of a crisis they did not create, to have new and more representative institutions set up in which they can have their rightful say.

The UN Conference was scheduled for 1-3 June, but since the negotiations on its Declaration just started last week, there won’t be enough time to complete the work.

The General Assembly President Mr. Miguel d’Escoto has thus proposed to shift the Conference to 24-26 June.   Almost all countries have agreed, but the Europeans want more time to consult.  On Tuesday there will be a final decision on the dates.