UN finance conference adopts outcome document, but differences remain

Although the outcome document of the UN finance conference was adopted by consensus, the reservations expressed by some Western and Third World countries on the text provide a valuable snapshot of the great divide between rich and poor nations on the critical issues relating to the global economic and financial crisis. Bhumika Muchhala and Meena Raman report.

THE outcome document of the United Nations Conference on the World Financial and Economic Crisis and Its Impact on Development was adopted by consensus at a plenary session on 26 June held in the UN General Assembly hall.

Hailing the consensus adoption of the document as a first step towards putting the world on a path towards solidarity, stability and sustainability, the President of the General Assembly, Miguel d'Escoto Brockmann, said the 'G-192' had now been established as the central forum for the discussion of world financial and economic issues. 'This in itself is a major achievement,' he said.

He added that the historic 24-26 June conference had also called on the Assembly to follow up on the issues raised - including global stimulus, the role of Special Drawing Rights (SDRs), reserve currency, reform of the Bretton Woods institutions, external debt and regulation of financial markets - through a working group.

(Paragraph 54 of the outcome document states: 'We invite the General Assembly to establish an ad hoc open-ended working group of the General Assembly to follow up on the issues contained in the present outcome document, and to submit a report on the progress of its work to the General Assembly before the end of the sixty-fourth session.')

The adoption, without renegotiation, of the outcome document had been a foregone conclusion since the draft of the two co-facilitators (the Ambassadors of the Netherlands and of St. Vincent and the Grenadines) was accepted by negotiators on 22 June and transmitted to the conference, and another decision had been made on the first day of the conference not to set up a Main Committee to discuss the draft.

However, it was generally known that the United States was unhappy with certain paragraphs of the text and would raise its concerns at the final plenary, and that several developing countries were also dissatisfied with some parts and might also speak up.

This indeed happened. Following the adoption of the outcome document, several countries and groups expressed their views on the document. The US, supported by Canada, had concerns about several paragraphs, while the European Union (EU) and Japan were generally positive about the outcome. The developing-country Group of 77 (G77) and China accepted the outcome positively. Cuba, Venezuela and Nicaragua raised several concerns.

US concerns

The US welcomed the conference as an important opportunity to discuss the global crisis. Its government had listened with great interest and held discussions with delegations from all regions. The outcome document offered views in several paragraphs on the governance and operational aspects of international financial institutions, and the Bretton Woods institutions (viz., the International Monetary Fund (IMF) and the World Bank) in particular.

The US said that those bodies had governance structures independent of the UN. Any decisions on their reform could only be made by shareholders and their boards of governors. The US did not interpret the language in the document as endorsing a formal UN role in decisions affecting them.

With regard to paragraph 54, which establishes the working group to follow up on the issues contained in the outcome document, the US' view was that the UN did not have the expertise or mandate to provide direction for meaningful dialogue on a number of issues, such as reserve systems, international financial institutions or the international financial architecture.

On paragraph 15, the US said that when countries faced an acute shortage of foreign reserves, they should implement efficient policy and monetary responses. Trade measures would not solve balance-of-payments problems associated with capital account pressures, a widening fiscal gap or other corporate failures.

(Paragraph 15 states that developing countries 'facing an acute and severe shortage of foreign reserves because of the fallout of the crisis' should not be 'denied the right to use legitimate trade defence measures in accordance with relevant provisions of the World Trade Organisation (WTO), and, as a last resort, impose temporary capital restrictions and seek to negotiate agreements on temporary debt standstills between debtors and creditors.')

The US said that use of trade measures should be avoided and only resorted to when applied in accordance with WTO rules. There was no provision under the WTO Agreement for use of 'trade defence measures' to address balance-of-payments issues.

The US added that paragraph 15 also described temporary capital restrictions and debt standstills as a way to address foreign reserve shortages. The US did not condone the use of capital controls. If used, they should be taken only as a last resort on a temporary basis and in line with existing multilateral and bilateral agreements.

On paragraph 20, which encourages regional reserve currency arrangements, the US said that such arrangements should be judged by whether they contributed to regional and global financial stability.

In relation to paragraph 25 relating to 'protectionist measures', the US noted that the WTO was engaged in a monitoring process of such measures by countries. It said that duplicative efforts should not be undertaken across other bodies. It was of the view that proposals suggested in the paragraph could undermine the existing monitoring and reporting process, and all countries needed to be vigilant about how they responded to the crisis.

Regarding paragraph 27 on unemployment, the US said that it was committed to allowing labour migration to meet labour market needs but this was subject to domestic law.

On paragraph 28 relating to the 'urgent need for all donors to maintain and deliver on their existing bilateral and multilateral official development assistance (ODA) commitments and targets', the US interpreted the reference to ODA targets to mean donor countries' individual targets.

On paragraph 34, which focuses on the need for a structured framework for cooperation in the area of debt, the US said such a framework should be explored in line with existing structures, including the Paris Club.

In respect of paragraph 35, it said that the US joined others in supporting a general Special Drawing Right allocation that would inject $250 billion for global liquidity. However, the SDRs were a monetary asset and not suitable for development finance.

With regard to improved regulation and monitoring of global and national financial markets in paragraph 37 of the outcome document, the US stated that it interpreted the words 'international commitment' to include internationally agreed and principles-based financial standards by which each country should regulate its financial markets.

Paragraph 38 referred to promoting double taxation agreements, and this should apply only in instances when significant double taxation existed between relevant jurisdictions, said the US.

The US added that to be productive, the working group process should be based on the UN mandate and field presence. The UN has no expertise or mandate to provide direction on a number of issues such as reserve systems, international financial institutions and the international financial architecture.

Remarkable achievement

Sudan, on behalf of the Group of 77 and China, stated that for member states to stand united through the adoption of the outcome document was a remarkable achievement. The Group welcomed the outcome document, saying it was a good basis. 'We could dwell on its shortcomings and imperfections, but we refrain from such an ignoble act,' said the Group. 'Being human beings, our efforts would aim high but they will remain imperfect.'

The G77 and China said it would have liked the outcome to urgently address the issue of mitigation of the crisis. It called for member states to urgently address this issue starting from the first session of the UN Economic and Social Council (ECOSOC) meeting in Geneva.

Sudan said the task ahead was arduous and the Group had a number of key priorities. First is the establishment of the working group to follow up on the specific decisions and actions adopted by the outcome document. Second is the establishment of an ad hoc panel of experts to provide independent technical expertise on the world crisis, including on issues like global reserve system, SDRs and debt workout mechanism. Third is the strengthening of the capacity and effective leadership of the UN in the coherence and coordination of policies and actions in the global economy and finance, including a speedy review of the implementation of the cooperation agreement between the UN and the Bretton Woods institutions.

The European Union said that the conference had been an important event especially because developing countries had the opportunity to voice themselves for the first time since the beginning of the financial crisis.

The EU also said that the outcome document was a very 'ambitious' document which provided the basis for the UN to substantively follow up through three specific ways. The first mechanism of follow-up is the establishment of the ad hoc open-ended working group of the General Assembly. The second is through the strengthening of the collaboration and coordination between the UN and the Bretton Woods institutions, and the third is through the possible establishment of an ad hoc panel of experts on the world economic and financial crisis and its impact on development.

The EU affirmed that the outcome document contained many references to the integration and linkages between the UN system of specialised agencies and programmes and other institutions such as the Bretton Woods institutions and the WTO and other trade fora.

'The current crisis requires concerted international action,' the EU said, adding that it was satisfied that what was achieved was the beginning of international action which prioritises a path of sustainable growth and development.

Japan welcomed the adoption of the outcome document by consensus, saying that it was a 'milestone in the history of the UN.' The document reflected the interests of all member states as well as the complexity of these interests. Japan welcomed the follow-up process to this conference in the UN, adding that the ad hoc open-ended working group needed to make maximum use of existing mechanisms and institutions while also taking advantage of the strengths of the UN, especially its development mandate.

With regard to the reform of the Bretton Woods institutions and the issuance of SDRs for meeting the financing shortfalls in developing countries, Japan said that these matters should be carried out in accordance with the respective mandates and governance structures of the IMF and World Bank.

Canada agreed with the US on the role of the UN, and that it 'cannot support the formal role of the UN' in issues dealing with the financial and economic system. On the follow-up process, Canada said that the ad hoc working group proposed in the document should focus on follow-up. It was not useful for the forum to address issues that fell outside the UN's mandate and expertise, such as global reserve system, reform efforts of the Bretton Woods institutions and frameworks for sovereign debt restructuring.

Canada echoed the US in saying that SDRs cannot be used for development purposes. SDRs can only serve the purpose of international liquidity provision through quota-based allocations to reserves, such as that agreed to in the G20 communique on the $250 billion allocation of SDRs through the IMF.

With regard to migrant workers and labour migration in paragraph 27, Canada clarified that legislation on migrants cannot be applied to all countries universally, and must follow the individual national legislation provisions on labour migration and the treatment of migrant workers.

Cuba expressed its discontent over the outcome document being 'far below what is required'. The outcome document did not contain new and additional resources urgently needed by developing countries which were facing the critical economic impacts of this crisis, it said. It did not sufficiently call for the 0.7% contribution of GDP from developed countries that was needed for ODA.

Cuba said that the developing countries continued to be subjected to 'humiliating alms from the rich countries which are conditioned on their policies.' Furthermore, the outcome document, in Cuba's view, did not pay heed to the need for a radical transformation of the international financial architecture, nor did it reflect a substantive discussion of the root causes of the financial crisis.

Cuba also voiced its rejection of the phrase 'human security' in the outcome document, which had a 'clear interventionist connotation' linked to 'attacks on sovereign international territory.'

The financial crisis instigated a debt crisis in developing countries, said Cuba, where most developing countries were vulnerable to precipitous declines in foreign exchange reserves.

Venezuela stated that although the outcome document had many deficiencies, it agreed to the mention of reviewing the way in which the UN and the Bretton Woods institutions coordinate their programmes and exploring approaches to the restructuring of sovereign debt as mentioned in paragraph 34 of the outcome document.

With regard to ODA in paragraph 28 of the outcome document, Venezuela expressed grave concern over the way in which aid effectiveness was stated. In respect of paragraph 30 on increasing and making more effective South-South cooperation initiatives, it was stated that the countries of the South were already cooperating in various ways, such as through the Latin American ALBA initiative, the PetroCaribe oil alliance, and other vehicles that were based on 'solidarity and complementarity.'

Nicaragua emphasised that the international financial institutions needed to work for the development of people, not capital. The follow-up process of the conference needs to ensure that the working group's recommendations are implemented by the conclusion of the 64th session of the General Assembly.

Bolivia said that with the outcome document, the G-192 had demonstrated that the UN was the appropriate place to discuss a global response. It hoped that the document would provide a foundation to overcome the crisis. To that end, it was important that the open-ended working group follow up on paragraph 15, which touched on the shortage of foreign reserves and its negative impact on the balance of payments. Indeed, it was an unjust paradox that so much capital was flowing out of the poorest countries to the richest.

It was also clear that trade would be part of the discussion. On paragraphs 24 and 25, Bolivia believed that the financial crisis had demonstrated that free trade and free markets were unable to self-regulate. Regarding paragraph 10, it said that it was essential to mitigate the impact of the crisis with special emphasis on the least developed countries, particularly those that were landlocked. The weakest part of the document was its lack of criticism of the Bretton Woods institutions.

Jamaica, speaking for the members of the Caribbean Community (CARICOM), attached great importance to the convening of the UN conference, and said that the conference had given small island states such as those in the Caribbean a chance to speak. It also said that the follow-up process must ensure that access to concessionary financing and grant funding is extended to small developing countries and that the GDP unit for measuring economic growth must not be the only indicator for development. Developed countries have a moral and political obligation to developing countries following the financial and economic crisis, it said.

Iran welcomed the document's adoption. It sends the positive signal that the UN with its legitimacy is the right place to address the crisis in a holistic manner. This is the first step in the right direction. However, it falls short in concrete measures in the reform of the international financial institutions and architecture and the role of the UN. Iran was also concerned about the reference to 'human security' as UN documents should not be open to vague concepts that had not been agreed on.

General Assembly President d'Escoto said the world has had the opportunity to hear the views of the G-192. All members have had the chance to express their views. The UN General Assembly, the G-192, has now been established as a central forum for world economic and financial issues. This in itself is a major achievement.

D'Escoto said the General Assembly has been asked to follow up on the conference through a working group. The issues to follow up on include global stimulus measures, SDRs, reserve currency, restructuring of the financial system and architecture including the reform of the international financial institutions, the role of the UN, external debt, trade, investment, tax, development assistance, South-South cooperation, new forms of financing, and regulation. At the same time, the crisis should not delay the response to climate change and the environment.

He said 'we are happy but not completely satisfied', and there are many other crises such as on water, food, energy and humanitarian affairs. 'We must all join forces. There is much to be done. We will not be content as long as issues are unresolved. My role is to invite you to look beyond today's concerns and hold up hope for humanity.'                                 

Bhumika Muchhala is a researcher and Meena Raman is a legal adviser and senior researcher with the Third World Network. This article is reproduced from the South-North Development Monitor (SUNS, No. 6730, 30 June 2009), which is published by TWN.

*Third World Resurgence No. 226, June 2009, pp 9-12