Civil Society statement on the proposed “Global Summit” to reform the international financial system

The past few months have seen one of the most significant financial crises in North American and European history. The response was just as historic. To stave off regional and global recessions and restore stability and confidence in the market, northern governments are pursuing a massive and unprecedented program of government intervention, nationalizing banks, injecting massive subsidies into ailing institutions and re-regulating their financial sectors.

This response sits in direct contrast to the austere neoliberal policies pressed on developing countries by the World Bank, International Monetary Fund and developed countries for the past thirty years. Governments have been pushed to liberalize trade barriers, deregulate financial and labour markets, privatize national industries, abolish subsidies, and reduce social and economic spending. The state saw its role severely reduced.

This double standard is not only unacceptable, but it also signals the demise of free-market fundamentalism. The international financial system, its architecture and its institutions have been completely overwhelmed by the scale of the current financial and economic crisis. The financial system, its architecture and its institutions must be completely rethought.

A truly global response to a global crisis
In recent weeks, leaders worldwide have recognized the deficiencies of the existing system and the need to meet to address a broader set of proposals to reform the global financial system and its institutions. The G20 are now set to meet in Washington DC on November 15 to begin the discussions. It is of course imperative to agree on immediate measures to address the crisis, and we emphasize that priority must be given to responses to the impacts on ordinary employees and workers, low-income households, pensioners and other extremely vulnerable sectors. But we are deeply concerned that the proposed meetings will be carried out in a rushed and non-inclusive manner, and as a result, not address the comprehensive range of changes needed, nor fairly allocate their burden.

Though the crisis originated in northern countries, the impacts are likely to be greatest in developing countries. It is therefore critical that all countries have a say in the process to change the international financial architecture. No equitable and sustainable solutions to transforming the current system will come out of a conference that is rapidly-prepared and excludes many countries and civil society. Such efforts are in fact more likely to further undermine public trust and confidence and to further disenfranchise countries that are already opting for regional solutions over a stronger, more coherent and fairer international financial system.

Our demands – time for a fundamental rethink
We, the undersigned civil society organizations, support the fundamental and far-reaching transformation of the international financial and economic system. To serve this purpose, we support a major international conference convened by the UN to review the international financial and monetary architecture, its institutions and its governance, but only if the meeting follows a process that:

1. is inclusive and participatory of all governments of the world;
2. includes representatives from civil society, citizen’s groups, social movements and other stakeholders;
3. has a clear timeline and process for regional consultations, particularly with those most affected by the crisis;
4. is comprehensive in scope, tackling the full array of issues and institutions;
5. is transparent, with proposals and draft outcome documents made publicly available and discussed well in advance of the meeting.

Full use should be made of the new UN task force on the global financial system, the upcoming UN Financing for Development meeting and other UN instances to begin preparing such a global meeting.

There are no quick fixes in the transition from the current system - which has fostered instability and inequity - towards a just, sustainable and accountable one, which yields benefits for the majority of the world’s people.

Signatories

Spotlight on EU's worst lobbyists and worst conflict of interests

Business lobby groups, MEPs and Commission officials are all under scrutiny in the shortlist for this year's Worst EU Lobbying Awards, published on 20 October. Members of the public are now invited to vote for the most deceptive lobbying and the most biased decision-makers at www.worstlobby.eu to select the Worst EU Lobby of 2008 and the Worst Conflict of Interest 2008. Five candidates in each category have been short-listed for the awards, following online nominations made earlier this year.

In the category for the Worst EU Lobbying Award, the five candidates are:
* The agrofuels lobby (including MPOC, Unica and Abengoa) - nominated for their misleading campaigns to promote agrofuels as green
* The European Alliance for Access to Safe Medicines (EAASM) nominated for hiding the involvement of big pharma corporations in their campaigns
* The European Business and Parliament Scheme - nominated for abusing their location and lobbying from inside Parliament offices
* Brussels-based lobbying and PR agencies Gplus and Aspect Consulting are nominated for supporting the spread of war propaganda in the recent conflict between Russia and Georgia.
* The International Air Transport Association (IATA) - nominated for its deceptive lobbying campaign to avoid CO2 reduction obligations for aviation.

In the category for the Worst Conflict of Interest, the five candidates are:
* Dr Caroline Jackson MEP - nominated for her twin roles as an elected representative dealing with environmental issues and as an appointed environmental advisor to a private waste management company, Shanks.
* Piia-Noora Kauppi MEP - nominated for abusing her role as an MEP by promoting the interests of her future employer, a big banking lobby group
* Klaus-Heiner Lehne MEP - nominated for his dual role as an MEP and lawyer for EU competition and regulatory issues, and for using his position as an MEP to allow lawyers to lobby in the dark.
* Ex-European Commission officials Petite, Klotz and Kjølbye - nominated for going through the revolving door to law firms lobbying for industry clients
* DG Trade Director Fritz-Harald Wenig - nominated for revealing inside information on trade tariffs to "lobbyists" who were in fact journalists working under cover.

The Worst EU Lobbying Awards put the spotlight on the behind the scenes' activities of lobbyists which influence European decision making. They highlight some of the controversial lobbying practices being practised by some of the thousands of corporate lobbyists roaming the corridors of power inside the EU. The Worst Conflict of Interest award was introduced this year to highlight the need for European Institutions to clean up their own activities - there have been a number of cases of conflict of interest in recent years, but little action has been taken to prevent such cases from occurring. The nominations show the need for stronger ethics rules for the European Parliament and the European Commission.

The awards also take place against the backdrop of the European Commission's failed attempt to make lobbyists' activities more transparent with the launch of a voluntary online register. More than three months after the register was launched, 430 lobbying bodies have registered - a tiny proportion of the total number of lobbying organisations operating in Brussels. The register has failed to shed the necessary light on lobby campaigns or lobby firms - as demonstrated by some of the nominations for this year's awards.

Voting for the Worst EU Lobbying Awards closes on 30 November and the winners will be announced at a special ceremony in Brussels on 9 December, with the results also published online. The Worst EU Lobbying Awards is organised by Corporate Europe Observatory, Friends of the Earth Europe, LobbyControl and Spinwatch.

European climate leadership runs down blind alley

Environmental NGOs of the Time-to-Lead-Alliance have yesterday accused the EU Environment Ministers of supporting old-fashioned, inefficient and wasteful industries at the expense of those that innovate and create new jobs. During the discussion on the EU climate and energy package, ministers are also watering down the emission reduction proposals for non-industrial sectors, undermining the best chance to help European households suffering from high energy bills. At the meeting of the EU Environment Council in Luxembourg protectionism was the call of the day, with ministers defending as a priority the short term interests of a small portion of European industry, rather than pushing to protect European citizens from the most dangerous impacts of climate change and put an end to our dependency on expensive fossil fuels. The ministers opened the door for free CO2 permits for electricity production and weakened rules for free permits to manufacturing industries.

Climate Action Network Europe, Friends of the Earth Europe, Greenpeace and WWF said: "Today's level of debate was extremely poor and gave more room to the opportunistic demands of the Polish and Italian governments, who want to give old fashioned, inefficient and wasteful industries a free ride at the expense of innovation and job creation. These positions are particularly ironic since ministers also expressed high hopes for the UN climate summit next year in Copenhagen." One week after EU countries agreed to release €2000bn in support of the financial sector, Environment Ministers are backtracking on the €70-90bn investments needed by 2020 to safeguard future generations through the EU climate and energy package. Italy and Poland fail to grasp where Europe and the world's future lie and what unabated climate change will cost the world. Furthermore the Polish government has shown itself to be unfit to lead the next international climate negotiations taking place in December in Poznan. The international community should actively look for a new chair.

Financial crisis and the South: UNCTAD officials say UN should be involved

The United Nations and a wider variety of countries should play a significant role as the international financial system is reshaped to cope with spreading turmoil and a looming worldwide recession, UNCTAD's Secretary-General and the director of its globalization division said on 16 October, after the organization's monthly consultation with the president of its governing body, the Trade and Development Board (TDB). UNCTAD officials warned that the likely impacts of the crisis on the world's poor nations are not receiving sufficient attention as global economic giants deal day to day with the tumult.

UNCTAD Secretary-General Supachai Panitchpakdi expressed concern for what he called "innocent bystanders." "The impact on developing countries will be much deeper than was anticipated," he said. "'Real' sectors" of their economies "are beginning to suffer, and this is only the beginning." Volatile exchange-rate movements affecting some of these countries "certainly will not help," the Secretary-General said. "Trade will suffer, and the commodities boom that has helped developing countries for a number of years now is ending."

* Capital-flow paradox intensified

Mr. Supachai said four issues need to be addressed:

* Global liquidity is being "sucked away" as banks in industrialized nations are bolstered by huge government infusions of funds, leaving the question of whether any cash will be left for credit and development aid needed for efforts such as achieving the Millennium Development Goals, enhancing productive capacities in poor countries, and coping with such problems there as climate change.

* The fate of smaller private banks, especially in developing countries, has to be considered; they are not among the large institutions now "effectively being nationalized" around the world, and they may not be able to compete for limited funds or receive sufficient help in coping with the current turmoil.

* More has to be done to keep capital from fleeing from developing countries. The so-called "capital-flow paradox" has intensified, meaning profits earned in poor nations often end up overseas rather than helping these countries to further their development.

* And liberalized global markets need to be regulated so that they continue to energize the world economy but have less volatility and risk, especially for small nations that are at the mercy of such factors as large investment and currency shifts.

Refashioning the global financial system "must be a global effort," should include the participation of all countries, and should include significant UN participation, Mr. Supachai concluded.

* Speculation: Major threat to small countries

Heiner Flassbeck, Director of UNCTAD's Division on Globalization and Development Strategies, which produces the organization's flagship Trade and Development Report, summarized the current turmoil as "a global de-leveraging, a global going out of risky positions. That is all right on its own - in fact we have said for several years that this was going to happen - but it can go too fast. It must be slowed down by government intervention."

Flassbeck said currency fluctuations, driven to a great degree by speculation, are proving now to be a major threat to small countries. Widespread speculation known as the "carry trade" for some time has driven currency values in the wrong direction from standard economic patterns, he said. As these now unwind, "there is overdone flight out of currencies perceived to be less secure." "The next row of dominoes to fall in this crisis could be from speculation in currencies," he warned, "and this is not being talked about enough. Countries with appreciating currencies must step in and help stop the process on behalf of countries with depreciating currencies. We have to avoid more cases of what is happening in Iceland."

Flassbeck also warned of a "huge slowdown in trade due to the global recession that is looming”. “The current malaise is that we have built a huge casino next to the real economy, and given too many people the means to play there, and now that casino has collapsed. We need to realize, to learn the lesson, that this kind of casino is not productive, is not helpful. We must go back to balanced and real economic relations and to balanced relations between currencies."

World must learn lessons from food price crisis

Small farmers in developing countries have not benefited from higher food prices, thanks in part to flawed trade and agricultural policies that have made them vulnerable and weakened their positions in markets, said international agency Oxfam in a new report released today, World Food Day. In Double Edged Prices, Oxfam says that all governments, donors, and agencies, must learn the lessons from the crisis. These include the importance of investing in agriculture, having trade policies that ensure food security, and designing social protection systems that protect the poorest.

Teresa Cavero, author of the report and head of research at Oxfam in Spain, said: “The trend in agriculture, as in international finance, has been towards deregulation and a reduced role for the State. This has had devastating effects and innocent lives have been blighted by exposure to market volatility. It is time the world woke up to the need for developing country governments to support their poor farmers, and the obligation of developed countries to help them to do so. In countries where governments have invested in agriculture, and put policies in place to target vulnerable or marginalized groups, the impacts of food price inflation have been less severe. In contrast, where there has been unmanaged trade liberalization, underinvestment in agriculture, and little support from government, the effects have been devastating.”

The sharp rise in global food prices has pushed 119m more people into hunger, taking the global total to 967m. Higher food prices mean people are eating less and lower quality food, children are being taken out of school and farmers are being forced to migrate to cities to live in slums (see case studies below). Women are especially vulnerable because they rarely own land and have limited access to credit and other services, but they bear much of the responsibility for feeding and caring for families. Meanwhile, some of the biggest international food companies have made windfall profits. Commodity-trader, Bunge, saw its profits in the second fiscal quarter of 2008 increase by $583m, or quadruple, compared with the same period last year. Nestlé’s global sales grew nearly 9% in the first half of 2008, and UK supermarket Tesco, has reported profits up 10% from last year. Seed company, Monsanto, reported a 26% increase in revenue to a record $3.6bn in the fiscal quarter that ended 31 May 2008.

Misguided or inadequate national agricultural policies, coupled with unfair trade rules and poor economic advice, has created a situation where big traders and supermarkets are gaining from price rises, and small farmers and consumers are losing out. Oxfam criticizes the international community’s inadequate response – both in terms of money and coordination. At an emergency meeting in Rome earlier this year, $12.3bn was pledged for the food crisis, but little more than $1bn has been disbursed so far.

New ActionAid report: Europe must fight, not foster, hunger

In a week which marks the observance of World Food Day, World Poverty Day and a crucial meeting of EU Heads of State in Brussels, ActionAid is demanding that the EU urgently revisits its plans to address the world food crisis. In a new report, Bread and Butter Solutions to the Food Crisis, ActionAid urges the EU to do more to stem the impact of rising fuel and food prices on the world’s poor. Since the crisis started, the number of people going hungry each night has risen to one billion – one sixth of the world’s population. Furthermore, the FAO has estimated that food prices will remain high for the next five to ten years.

“Rising food and oil prices are acting as a double whammy, driving hunger to new levels and people to desperation,” said Carol Kayira, Food Rights Coordinator of ActionAid Malawi. “Upsets in the banking sector should not divert attention from Europe’s commitments to the poor. The food crisis has not gone away and a coherent European response is badly needed.” This year high prices for European agricultural goods are likely to mean a surplus of billions of Euros in the Common Agricultural Policy (CAP) pot. The EU is currently considering the use of €1bn of this excess cash to address the food crisis.

“The €1bn fund being proposed by the EU is a drop in the ocean when compared to what governments are spending to bail out the banks,” Ms Kayira added. “The EU should mobilise this food crisis fund and keep to its existing commitments on aid. By allocating more and better aid to agriculture, Europe can get back on track and address world hunger,” Ms Kayira added.

More and better aid is not the only action being proposed by ActionAid. The Economic Partnership Agreements (EPAs), being negotiated between the EU and Africa, Caribbean and Pacific (ACP) countries pose a major threat to food security in these countries and must therefore be renegotiated. French MP Christiane Taubira, who wrote an official report for the French Government on the EPAs spoke to ActionAid yesterday on the potential impact of the EPAs: “The EPAs cast a shadow over the potential for development of the EU’s southern partners…. In particular the agricultural sector has to be subject to specific treatment, and an international right to food must be a priority objective.” She also called on the French Presidency of the EU to listen to the concerns recently expressed by Caribbean countries negotiating the EPAs: “The French Presidency must take into account the strong reticence expressed by negotiators from ACP countries which has even come to light within the CARIFORUM grouping, the only one to have initialled the full agreements to date,” Ms Taubira added.

Bread and Butter solutions also highlights the role which agrofuels have played in the recent upsurge of food prices. “In 2007 the EU used 2.85m hectares of farmable land to grow crops for agrofuels, rather than food,” said Laura Hurtado, Food Rights Coordinator at ActionAid Guatemala. “This has fuelled rising food prices and threatened millions more with hunger. Because Europe does not have enough land, it is increasingly looking to developing countries to meet its targets on biofuels. This will only intensify the food crisis.” ActionAid also warns Europe that GMOs will not address hunger in the world. Rather they will contribute to rising see and food prices and make farmers dependent on supply chains in the hands of a few multinational corporations protected by intellectual property rights.

WB/IMF annual meetings failed to guarantee assistance to the poorest

International NGO ActionAid charged that world leaders attending the World Bank/International Monetary Fund annual meetings failed to guarantee assistance for the world’s poorest countries, despite admitting that the most vulnerable could face “serious, and in some cases, permanent damage” from the global financial crisis. Shefali Sharma, ActionAid International’s Food Crisis Task Force Coordinator pointed out that the Bank’s funding response is more applicable to middle-income countries – with its plan to double non-concessional lending through the International Bank for Reconstruction and Development (IBRD) – and will do little to help low income countries.

Sharma said:

“An extra $14bn in the World Bank’s lending to middle-income countries is a drop in the ocean for emerging markets, which have access to other sources of finance and often substantial foreign exchange reserves built up since the Asian financial crisis of 1997/8. It’s no help at all for the poorest countries, which have few resources of their own to cope with the burgeoning food, fuel and financial crises, particularly as the IMF is still imposing suffocatingly tight inflation and deficit targets. Ironically, the pressure of maintaining such restrictive economic policies may be what finally tips some developing countries over the edge in months to come.”

ActionAid said that the final Development Committee communiqué merely reiterates past pledges to deal with the food and fuel crisis, but without any new aid commitments. Instead, the communiqué repeats previous policy recommendations that have little validity in the current state of affairs.

Who owns the IMF?

Guest comment by Ngaire Woods

To fix a global financial crisis, global cooperation is vital. Earlier this week, European countries failed to coordinate their efforts to support their respective banking systems. The result was beggar-thy-neighbour moves, which increased the chaos. Until today's coordinated rate cut by central banks across the world, the prospects of coordination looked dim.

One obvious question to ask is: where is International Monetary Fund? Created by governments to avoid beggar-thy-neighbour policies, to facilitate cooperation among governments, and to contribute to global financial stability, the IMF is curiously marginal. It is standing on the sidelines of the crisis, offering opinions. It is not at the heart of cooperation to resolve this crisis. Central bank governors and finance ministers from across the world have not headed straight for the headquarters of the IMF to find a collective solution. Why not?

The crisis exposes the extent to which the IMF mirrors a bygone era in which the United States was the world's largest creditor and led the G7 countries in giving strategic direction, headquarters and direction to the IMF. Left out of that directorate are emerging economies such as China, Russia, the Gulf States, India and Brazil, which, among other things, now sit on huge reserves (mostly dollar-denominated). These reserves give them a nuclear-like (mutually assured destruction) capability to create havoc in the global monetary system – but also the resources to help recapitalise broken financial sectors in the G7.

Most emerging economies have no more than a cursory interest in the IMF. Politely, they will send representatives to the organisation's meetings. But they do not see the organisation as theirs, nor even partially theirs. They do not trust it as a political forum within which to negotiate, nor as an institution that will establish and apply rules with an even hand.

Reinvigorating the IMF requires a transformation of the rules of headship, decision-making, staffing, the structure and workings of the board and the location and authority of the institution. If the IMF is to offer a forum for cooperation, it will need a dramatic overhaul, going well beyond what is to be discussed in Washington DC at the IMF annual meeting this week. This cannot be achieved without creating an institution that powerful reserve-holding countries come to see as "theirs".

(This comment has been published first in The Guardian.)

World Bank and IMF must tackle food and climate crises for world’s poorest

The World Bank and the IMF must cushion developing countries from the financial crisis that is threatening to hit them hard, while also tackling the challenges of food and fuel price increases, said Oxfam on the eve of the IFIs’ annual meetings. Nearly one billion people are now malnourished and 50 countries will remain at risk in 2009 due to price increases of fuel and basic food staples. This will make the effects of the financial crisis even more painful for poor countries. Oxfam also points to the Bank’s work on climate change and internal reform of its voting power as key issues for the four-day meeting that takes place in Washington DC from 9-13 October.

Oxfam calls on the World Bank to update its five-year old agricultural strategy to reflect the new reality of the food price crisis. In the past, the Bank has pushed for a decreased role of the state in agriculture. This has clearly failed and the Bank needs to set out a new vision. “The fight against global warming cannot be sidelined by the financial crisis either. The Bank has not thought enough about how to protect the most vulnerable communities from the impact of global warming,” Oxfam International’s spokesperson Marita Hutjes said.

The World Bank is also set to propose a new reform on the division of power - called the Voice Reform Package - within the institution. Although welcome and necessary, the reform falls far short of what is needed to make the Bank a truly balanced body. “Anything that comes up short of giving developing countries parity of the voting share will be insufficient. We need more than token change. Clearly, 21st century institutions cannot function on post-war rules,” Hutjes said.

Europe’s banking crisis: A call for action

In an open letter published today on VoxEU.org, a group of leading scholars call on Europe's leaders to unite immediately to address the global financial crisis head on before it spirals out of control. While actions by US policy-makers are welcome, a decisive and coordinated response from Europe's nations is required, or they may find themselves fighting over how best to salvage the aftermath. The letter was written by Alberto Alesina, Richard Baldwin, Tito Boeri, Willem Buiter, Francesco Giavazzi, Daniel Gros, Stefano Micossi, Guido Tabellini, Charles Wyplosz and Klaus Zimmermann. The letter says:

Europe is in the midst of a once-in-a-lifetime crisis. Every European knows what happened when financial markets seized up in the dark years of the 1930s. It is not an exaggeration to say that it could happen again if governments fail to act. We are not predicting that it will happen, but it is critical to know that this is what is at stake.
Trust among financial institutions is disappearing and there are risks that fear will spread more widely. Turmoil in financial markets must be stopped before it causes major damage to the real economy. The savings of hundreds of millions of Europeans are directly threatened. If the turmoil produces credit market paralysis, jobs and businesses will be destroyed on a massive scale. A further weakening of the real economy would put more loans at risk and create a vicious cycle of falling asset prices, deteriorating ability to repay loans, and diminishing credit flows.
Actions by US policymakers are welcome, but they are not sufficient. Decisive policy action is required in Europe as well.

* Policy spillovers: European-level actions to supplement and coordinate national actions
The US authorities learned last week that saving one bank at a time won't work; a systemic crisis demands a systemic response.
In Europe, saving one bank at a time means either a rescue effort mounted by one nation, despite important spillovers to neighbouring countries, or last-minute improvised coordination and agreement about fiscal burden sharing. The national responses and ad-hoc cooperative efforts to date have been useful. Yet interdependence among European banks is too deep and too wide-spread for national responses or case-by-case coordination to be enough. Each national policy intervention and each cooperative intervention by a small number of countries can have unpredictable implications for other European nations. It is critical that national authorities sit together and coordinate their responses, developing Europe-wide solutions where appropriate.
Now is the time to act while the situation still appears manageable. Last week's events in the US demonstrate that financial crises do not evolve smoothly and predictably. One unexpected event can trigger a cascade of failures and panics that become increasingly difficult to control.

* Solutions
Many solutions will be part of the answer. In the US, dealing with the immediate crisis requires restoring liquidity to money and credit markets, and creating the conditions for the resumption of the securitisation of prime mortgages and other illiquid but sufficiently homogeneous and transparent assets. In Europe, the key problem is high leverage among the internationally active large banks. Hence the EU contribution must be centred on a recapitalisation of the banking sector, through the injection of public equity or through mandatory debt-to-equity conversions. This has to be done at the EU level (e.g. through the EIB). The current approach of rescuing one institution after another with national funds will lead to a Balkanisation of the European banking sector. Agreeing a harmonised level for deposit insurance would also be important.
To prevent future crises of this nature, regulation of the European financial markets and institutions at the European level will also be required.
The problem is not a lack of understanding of how to stop financial crises. The problem is a lack of political will.
Unless European leaders immediately unite to address this crisis before it spirals out of control, they may find themselves fighting over how best to salvage the aftermath.