Global Trends by Martin Khor
Monday 22 June 2009
Key issues in UN meeting how to tackle crisis
The United Nations will hold a major conference this week on the economic crisis and how it affects developing countries. The developing countries have made some key proposals, but so far the developed countries have been resistant or lukewarm.
The big international event this week will be the United Nations Conference on the global financial and economic crisis and its effects on development.
Many people agree that the economic crisis is the defining issue of the past year, and will be a major preoccupation of the next few years at least.
The epi-centre of
the crisis has been the
But the developing countries that have no role in causing the crisis have suffered the most “collateral damage”, with a loss of 6 percentage points of gross national income, as their economic growth is expected to fall from 8.3% in 2007 to 1.6% in 2009 on average.
There is some international action on the crisis, but much of it has been by exclusive clubs like the G7 developed countries or the G20 (which is dominated by developed countries, although a few developing countries are also included in its Summits).
The UN conference on 24-26 June is thus the first time all the countries are gathering to decide what to do about the crisis.
Two main actions are to be discussed – how to help developing countries cope with the crisis, and reform of the international financial system.
Diplomats at the
But the major developed countries have been resisting basic changes, preferring the status quo and wanting only marginal changes in existing institutions and policies. On the eve of the Conference, the hard negotiations are still taking place.
There are some key issues to settle. First is the follow-up mechanism. Developing countries strongly believe in building a central role for the UN and that the process should not end with the Conference.
issues cannot be resolved by the Conference since there is too little
time. The G77 and
However, most developed countries prefer the G8 or G20 to be the sole authority and are against any “competition” from the UN. They have thus resisted a strong follow-up process or a specific working group.
Second, the developing countries want extra external financing to make up for the $1,000 billion shortfall in their countries from the reduced exports and the outflow of capital caused by the crisis
They are proposing that part of the funds come from new SDR (special drawing rights) that the IMF can issue to developing countries. The SDR is a kind of money that the IMF issues to countries, which can exchange these SDRs for the dollar or other major currencies, and then spend the funds.
During the UN talks,
Third is the fear of a new debt crisis. The World Bank has estimated that nearly 40 developing countries are vulnerable to difficulties in having enough foreign exchange to service their loans or to pay for essential imports. The list may grow if the recession continues.
The G77 and
Fourth, the G77
Developing countries that face balance of payments constraints also cannot take counter-cyclical policies.
The G77 and
issue is the setting up of a global economic council under the UN to
coordinate economic policies. The G77 and
It wants to start a process to consider setting up a Global Economic Council under the UN to enable developing countries to participate in discussions and decisions on the present crisis as well as other issues. The developed countries however are against the UN to even consider setting up such a Council. They may be fearing that such a Council will threaten their domination of the system.
Fifth are the reforms
needed to the global financial and economic systems. The G77 and
The lack of reforms in these areas led to the crisis. Once the crisis appears to be over in developed countries, they may lose interest in reforms, as happened for example after the Asian financial crisis.
The G77 and
These issues are likely top figure prominently in the UN conference. Even if the countries continue to disagree at the conference, they can continue to be discussed, with decision taken, if a follow-up process is agreed on.
There is a lot at stake at the Conference, which is a test whether the nations of the world can agree to assist developing countries to handle the crisis, and to reforms needed to prevent future crises.