UNCTAD presses for economic governance reform

Substantial reforms – more than mere "window dressing" – should be pursued nationally and internationally to prevent opaque financial instruments, speculation, and the build-up of large financial imbalances between countries from causing a repeat of the current global recession, UNCTAD's Secretary-General urged last weekend. Secretary-General Supachai Panitchpakdi told the 122nd Assembly of the Inter-Parliamentary Union (IPU) that "the crisis provides a rare opportunity to forge a more balanced and inclusive global economy through two channels: measured government intervention and strategic policy action at the national level, and better coordinated and more inclusive economic decision-making at the international level."

In a statement Supachai said UNCTAD is concerned that with the worst of the financial crisis apparently over, "talk of reforming the financial sector, particularly at the international level, has become a good deal more muted. UNCTAD strongly believes that the crisis could have been prevented if there had been stronger governance mechanisms to regulate financial innovation and the build-up of various imbalances at the national and international levels. Moving forward on this reform agenda to create a new pattern of balanced and sustainable growth will require bold thinking."

Well-defined rules, with a transparent and fair system for judging infractions, should be "orthodoxy" for the international financial system as they are for the international trading system, Supachai said. "[I]t is … imperative to provide for an institutional framework for better international coordination of financial regulation and supervision… Such an agreement would hopefully address the current potential for regulatory arbitrage," he added. "Equally important is to reshape international monetary arrangements that help avoid the build-up of large current-account imbalances and their counterpart – large unbalanced asset positions across countries."

Supachai said that continued global dependence on a single reserve currency is becoming a concern, reviving the idea that an equitable system of special drawing rights (SDRs) might eliminate the need for developing countries to hold vast reserves of dollars as protection against reverses in their capital flows. These reserves "now represent a considerable opportunity cost for development," the Secretary-General said. Countries also could tackle large build-ups of reserves through regional arrangements such as the Chiang Mai Initiative, whose multilateralized currency swap agreement came into effect on 24 March. He also called for reform at the IMF "so that it can focus most properly on what its founders intended: the avoidance of contractionary macroeconomic responses to financial shocks and instability."

Civil Society supports UN-led Summit on finances

As one of the lead elements proposed for recommendation to the Financing for Development Review Conference, the Civil Society Forum supports an international summit on financial and economic architecture and global economic governance structures, in 2009. The Forum position challenges the proposal of some governments that the Bretton Woods Institutions organize an event, as well as moves to concentrate decision-making in the G-20 group of governments. Speaking to the plenary, Rana Al Sairafi, a civil society delegate from Bahrain, said “instead of focusing on ad hoc mechanisms like the G20, such a conference should be under the umbrella of the United Nations with the inclusive principles that govern the Financing for Development process, including the active participation of civil society organizations.” In preparation for the event, the UN should be asked to prepare a comprehensive review of the existing global financial architecture.

There are currently four alternate proposals (para.58) regarding the conference in negotiations for the Review Conference. The Forum recommendation supports the UN-led option. Addressing the Forum regarding the locus and purpose of economic governance, Jens Martens, Global Policy Forum (Germany) noted “The G20 failed to really address the root causes of the crisis. Instead, they primarily intend to stabilize the current financial system - a system that has been characterized for the last 20 years as “casino capitalism”. “We don’t need better rules for the casino,” Martens concludes. “The casino has to be closed down!”

Forum delegates spent Wednesday in sessions focusing on the six agenda items of the Review Conference, followed by intense workshops and caucuses on specific issues, including: women setting the agenda, addressing climate change, achieving the health MDGs, the Currency Transaction Tax, among others. Women, trade unions, and other sector-specific caucuses have met as well. Further recommendations on finance reform include support for the upgrading of the UN Committee of Experts on tax to become an inter-governmental body, moves to make international financial flows fully transparent, ending illicit transfers of resources, and ensuring rapid fulfillment of aid commitments and enhancement of quality and accountability of aid.

UN Task Force on reform of global finance stands ready

On the eve of the World Financial Summit in Washington, General Assembly President Miguel D’Escoto announced the full composition of a high-level task force he is setting up to examine possible reform of the global financial system, including the International Monetary Fund (IMF) and the World Bank. Joseph Stiglitz (see photo), who won the Nobel Prize for Economics in 2001 and is a former chief economist at the World Bank, will chair the Commission of Experts on Reforms of the International Monetary and Financial System, which will suggest steps that Member States can take to secure a more stable global economic order. The commission’s other members are:

* Jomo Kwame Sundaram, the current Assistant Secretary-General for Economic Development and the UN Department of Economic and Social Affairs (DESA);
* José Antonio Ocampo of Colombia, who is a former Under-Secretary-General for Economic and Social Affairs;
* Zeti Akhtar Aziz, the Governor and Chairman of Malaysia’s Central Bank;
* Jean-Paul Fitoussi, Professor of Economics at the Institute d’Etudes Politiques de Paris in France;
* Avinash Persaud of Barbados, who is Chairman of Intelligence Capital Limited;
* Yaga Venugopal Reddy, former governor of India’s Reserve Bank;
* Eisuke Sakakibara of Japan, who is currently Professor at Waseda University in Tokyo;
* Chukwuma Soludo, the Governor of Nigeria’s Central Bank;
* Yu Yongding of China, the Director of the Institute of World Economics and Politics.

When D’Escoto announced the formation of the panel last month, he noted that “there is growing recognition that the current turmoil in the financial system cannot be solved through piecemeal responses at the national and regional levels but requires a coordinated effort at the global level.”

G20 must put fight against poverty at the center

The G20 must avoid small-scale tinkering and instead take immediate, aggressive action to tackle poverty while laying out an ambitious vision for reforming the world economy at its Financial Crisis Summit. In a new report, If Not Now, When?, international relief and development agency Oxfam says that people living in poverty will be hit hard by the financial crisis unless urgent action is taken, adding that the poor should not have to pay for rich countries’ mistakes. The International Labor Organization estimates the number of workers living on less than one dollar a day may increase by 40 million and those living on less than two dollars a day could increase by more than 100 million.

According to Oxfam, there is a risk that recessions in rich countries will lead politicians to take the short-sighted approach of cutting aid. Given the tiny amounts of money involved compared to rich country economies, this would do little more than offer symbolic budget savings, but at huge human cost. Aid to all developing countries last year was $104bn. In comparison the US and EU mobilized nearly 30 times this – around $3trillion – in the last few months to help bail out their banks.

In "If Not Now, When?" Oxfam says that global leaders should immediately develop a new international regulatory institution with teeth, to prevent future financial crises and protect the interests of workers, consumers, and the environment. This includes taking on the secretive tax havens which undermine regulations and rob poor countries' of vital revenue that could be spent on schools and hospitals. It also calls for leaders to build a new representative global governance structure to tackle the economic, climate, food and energy crises. Reform must include far greater roles for developing countries as well as the poorest. Rich countries are going to have to concede some power on governing bodies like the G20 because they are desperate to get their hands on the huge financial reserves held by emerging markets.

Oxfam urges global leaders to see the opportunity to develop a new 21st century political and economic system that puts people and planet before profits. Oxfam calls on the G20 leaders to do three things:

1. Honor the OECD pledge not to cut development assistance, and increase aid instead by an additional $140bn necessary to meet the UN target of 0.7 percent of GNI immediately. In addition, urgently extend credit to emerging markets facing liquidity crises.
2. Rewrite global financial rules and regulations, including tackling tax havens and moving towards a more stable exchange rate system, in order to make the market work for all and not just for the few.
3. Build a new representative global governance system that can effectively tackle the economic, food, and energy crises.

Voices on the upcoming G20 summit IV: UBUNTU

The “network of the networks”, UBUNTU which is presently running the World Campaign for In-depth Reform of the System of International Institutions has published the following statement regarding the G20 summit in Washington DC:

While emphasising that, of course, all people have the right to meet whomever and wherever they choose, we the undersigned, in the tradition of the statements issued by the UBUNTU Forum, wish to declare the following:

1. Our deep concern about the serious impact the implosion of neo‐liberal capitalism will have on humanity, an implosion which will surely be the last – although it unfortunately is still going on – of an economic model that we have denounced many, many times as extremely unjust and damaging to society.

2. Our perplexity, because the main protagonists who have worked to impose this model over the last 25 years, the G7 and the Bretton Woods Institutions (the
IMF and the WB) are now taking on the role of saviours in this disaster, when they should rather be seen as the guilty parties to a large degree, and should consequently accept the responsibilities that pertain to them.

3. Our indignation regarding the meeting called for 14 November in Washington for, among others, the following reasons:
a) That precisely Washington, home of the Government and Organisations most responsible politically for what is now happening, is the one calling the meeting.
b) That invitations to the meeting have been issued in a totally arbitrary and discriminatory form. As if, for example, the poorest countries, those who have suffered most from this model and will probably suffer most from the consequences of the current debacle, had nothing to say about what to do now and in the future.
c) That it not only fails to take advantage of but even overshadows the Doha
Conference on Financing for Development to Review the Implementation of the Monterrey Consensus, scheduled for 29 November to 2 December, especially when this Consensus includes a section on systemic ‐ structural issues, which have been worked on for months in the United Nations’ most pluralistic and transparent framework, and which, appropriately reviewed and extended in the current context, could contribute to opening the way to a new world economic and financial model.
4. Our conviction that the time has come for an in‐depth Reform of the System of International Institutions, so long demanded by many world forums, to begin to lay the foundation for a world democratic governance which, among many other things, would prevent the world having to experience another situation like this one. In any case, the ongoing world regionalisation processes should be considered amongst the new principles upon which the system must be refounded.
5. Our urge that in the headquarters of the United Nations, in the context of the imminent Doha Conference, the process towards a Multiactor World
Conference on a New International Monetary and Financial System and its New
Democratic Institutions of Governance immediately begins, with the active participation of all the relevant actors of the present world situation, and thus and most fundamentally with the participation of civil society and of social movements.

Voices on the upcoming G20 summit III: NGOs

In a letter to the Financial Times Aldo Caliari, the director of the Rethinking Bretton Woods Project, Center of Concern, in Washington DC writes today:

Sir, Does it really come as a big surprise that the level of ambition for the November 15 summit of Group of 20 leaders is so low? ("Don't bank on Bretton Woods II, says IMF chief", 8 November) It should not.

We only need to look back at what came out of the last time leaders of rich countries talked about a "new global financial architecture", in the late 1990s. The response conveniently underscored changes to the domestic financial structures of developing countries, rather than to those of developed countries or the gaps and dysfunctions of global institutions. Unless a much more inclusive approach is followed, giving an institutional platform for the voice of all developing countries, it is unrealistic to expect better results this time.

Fortunately, such a platform is available. Only two weeks after the summit, leaders of the world will meet in Doha, Qatar, to review progress in implementation of the 2002 International Conference on Financing for Development. Reform of the international financial system is a key item on the agenda. Indeed, the current draft outcome document contains a breakthrough call for a major review of the "international financial and monetary architecture, and global governance structures". The basis for the review is the 2002 Monterrey consensus, whose pertinent chapter constitutes the first north-south multilateral consensual framework for reform of the international financial system.

The Doha review clearly provides a much better forum to launch a long-term discussion on reform, one that gives some voice to the poor and vulnerable and that garners the broadly based knowledge, ownership and political support that needs to be behind such reform.

Only something with such multilateral roots deserves to be called "Bretton Woods II", and G20 leaders meeting in Washington should use the opportunity to lend their support to it.

Voices on the upcoming G20 summit II: The OECD

OECD is preparing a two-pillar action plan for governments, as part of a global response to the world financial crisis, calling for tighter regulation and oversight of financial markets and improved national policies to promote economic growth. OECD Secretary General Angel Gurría said the action plan would cover a wide range of areas, from financial regulation, corporate governance and fiscal policy to competition, employment policy, insurance and pensions. “The causes and consequences of this crisis are rooted in a wide set of inter-related policy areas and can only be addressed through integrated responses,” he told participants at a briefing seminar organised by the European Policy Centre in Brussels.

The OECD action plan will be organised around two pillars, he said. “First, align regulations and incentives in the financial sector so that market operators act in a tighter oversight and risk management environment. Second, review and upgrade national policies and improve policy coordination at the international level to restore the conditions for economic growth.” One of the key lessons of the financial crisis has been the critical importance of efficiently functioning financial markets for the stability of the real economy. “That efficiency relies not just on competition but also on effective regulation and supervision,” Gurría said.

Looking beyond financial markets, however, he emphasised that governments must also play their part in sustaining economic activity. “Automatic fiscal stabilisers are already helping to cushion the downturn, especially in Europe. But more needs to be done,” he said. “While social safety nets are in place in OECD countries, there will be a need to step up re-training efforts for those who have become unemployed. There may also be more pressure to help those who are in danger of losing their homes.” Finally, Mr. Gurría emphasised the urgency of keeping policy attention focused on other major challenges. “The current economic crisis demands tough decisions now, but it must not distract our attention from the other grave structural challenges that we confront.” Governments must hold fast to their efforts to address poverty, inequality and climate change, he said. “It is crucial, in the middle of the storm, that we don’t lose our sense of direction… that we keep our commitments to scale-up development aid, to keep global trade and investments open, to develop cleaner energy to protect our environment.”

Voices on the upcoming G20 summit I: The economists

The world is at a dangerous point. Governments seem unprepared for the next round of difficulties that will arise as the recession grows and financial crises spread to emerging markets. Economically and financially, there is a clear sense that things are spiralling out of control again. The G20 meeting in Washington next weekend is an opportunity for leaders to show that they have the will to solve the global crisis. In an E-book from VoxEU.org - edited by Barry Eichengreen and Richard Baldwin - some of the world's leading economists provide essays from on what the G20 should do. The authors identify four priorities for action:

1. In the financial sector, apply triage to stop the bleeding; in the real sector, use fiscal stimuli: There is unanimity on this. Governments need to move fast - and coordinate their actions - in recapitalising banks, guaranteeing cross-border bank claims, restructuring non-performing assets, and extending financial support for crisis countries. Similarly, there is an urgent need for an immediate, substantial, internationally coordinated fiscal stimulus. Here China has shown leadership, and other countries should follow. Leaders from some countries may argue that they cannot - that their national circumstances are special. This cannot be accepted: commitments should be announced on 15 November.

2. Strengthen the ability of existing institutions to deal with the crisis in emerging markets: The most urgent task is to augment IMF resources immediately so that the institution has adequate firepower. There are a variety of ways to do this, but absolutely no dissent from the view that action must be taken now.

3. Start thinking outside the box about longer term reforms: Several contributors argue for new approaches to the regulation of large cross-border financial institutions: an International Bank Charter, a World Financial Organisation, an International Insolvency Mechanism for financial institutions, or even a single global regulator. None of these proposals can come to fruition on November 15th but it is essential to start discussing them now.

4. Do no harm: The contributors argue for caution in introducing new regulation: don't clamp down so hard on financial institutions and transactions that they stop providing intermediation services or innovating. And don't respond to deep recession with protectionist measures that beggar one's neighbours and destroy the world trading system. In their communiqué, the G20 leaders should promise to avoid such actions - and announce immediate steps to make this commitment credible.