(Prepare for maximum disappointment. This statement seems to consist of
a bit of Stiglitz's correct-the-market-imperfections-please plus a dash
of national Keynesianism. Where did the old Stiglitz call for
*replacement* - not relegitimisation/recapitalisation - of the IMF go,
and why no mention of ongoing IMF austerity conditions that contradict
Strauss-Kahnian rhetoric? What about explicit support for
capital/exchange controls? And converting bank nationalisation from
'lemon socialism' into a genuine public utility? How about debt
cancellation, Odious Debt and reparations? And detailed strategies to
address ecological debt and the financing implications of climate
crisis? And how about those unregulated hot money centres? Commodity
price regulation? None of these appear on the 'global governance'
agenda, and instead there bubbles up from the bureaucratic swamp an old
tired Doha Agenda and only somewhat disguised market ideology. What a
waste of time for our dear Washington/London/Brussels NGO friends,
lobbying hard last year to support this inadequate, infeasible, unjust
'alternative' to the G20's status quo neoliberalism. What a distraction
from the real work of insulating national economies from the cancer of
international financial wilding. A new season of Global Social
Democracy? Apparently it's not on the horizon, until the global left
demands it properly.)
The Commission of Experts of the President of the United Nations General
Assembly on Reforms of the International Monetary and Financial System
Recommendations for Immediate Action
The Commission held its first meeting in New York on January 4 through
January 6. The current financial crisis, which began in the United
States, then spread to Europe, has now become global. Even emerging
markets and less developed countries that managed their economy
relatively well, resisted the bad lending practices, held high levels of
foreign exchange reserves, did not purchase toxic mortgages, and did not
allow their banks to engage in excessive risk taking through derivatives
and excessive leverage have become embroiled and are likely to suffer as
a result. Any global solution—short term measures to stabilize the
current situation and long term measures to make another recurrence less
likely—must pay due attention to the impact on these countries. Without
doing so, global economic stability cannot be restored and economic
growth, as well as poverty reduction worldwide will be threatened.
This unprecedented global financial and economic crisis requires an
unprecedented global response. It requires a response not just from the
G-7, G-8, G-10, or G-20, but from the entire international community,
the G-192. This gives especial importance to this initiative of the
President of the General Assembly, which has received so much support
from around the world.
The Commission began its work, seeking to identify the underlying
factors that have contributed to the magnitude of the crisis and its
rapid spread around the world and broad principles underlying needed
institutional reforms required to ensure sustained global economic
progress and stability, which will be of benefit to all countries,
developed and less developed.
Reforms and regulations have a goal: the better functioning of the world
economic system for mankind’s global good. This entails simultaneously
pursuing long term objectives, such as sustainable and equitable growth,
the responsible use of natural resources, and reduction of greenhouse
gas emissions, and more immediate concerns, including addressing the
challenges posed by the food and financial crises.
The Commission noted that the failure to act quickly to address the
global economic downturn inevitably will increase its depth and duration
and the eventual cost of restoring prosperity. With that in mind, it
makes the following recommendations for immediate action, which focus
particularly on the adverse impact of the global recession on developing
countries and on the poor throughout the world.
1. It is imperative that all the developed countries take strong and
effective actions to stimulate their economies. In doing so, they should
be mindful of the adverse consequences that their monetary and fiscal
policy actions may have on other countries, especially developing
countries. Additional assistance to developing countries may be required
to offset these effects. An effective stimulus policy should be timely,
have a large bang for the buck, help address the strains posed by the
economic down turn on the poor, and to the extent possible, help address
long run problems and prevent instability. Care should be taken to
address potential negative impacts on global imbalances.
2. There are large asymmetries in global economic
policies—countercyclical policies are pursued by developed countries,
while most developing countries pursue pro-cyclical policies. But even
symmetric policies can have asymmetric effects: guarantees provided to
financial institutions in developed countries cannot be effectively
matched by developing countries. Nor can they match in breadth and scale
the subsidies being provided to financial and non-financial institutions
in their bail-outs. Whether there ever was a level playing field may be
debated; that there is no longer one cannot be. Even the knowledge that
there may be a rescue if things go badly gives firms in advanced
industrial countries a distinct advantage; they can undertake risks that
those in poorer countries cannot. This highlights the lack of coherence
between existing global macro and financial arrangements, policies, and
frameworks and those governing trade.
3. It is imperative that developing countries be provided with funds to
enable them to undertake comparable policies, to stimulate their
economies, to provide social protection, and to ensure a flow of
liquidity to their firms, including maintenance of trade credits.
Failure to provide such support can have long term effects. There will
be an increase in poverty and malnutrition and educations will be
interrupted, with life long effects. The sense of global social
solidarity will be impaired, making agreement on key global issues, such
as responding to the challenges of climate change, more difficult.
Developed countries should resist the temptation to cut back on
development assistance. This is a time to expand assistance, probably by
an order of magnitude of at least twenty per cent, including for
infrastructure projects addressing long term development and
environmental problems.
4. In some parts of the world, there are ample sources of liquid funds,
and more of these need to be made available to the needy developing
countries. However, countries with these funds are not now adequately
represented in the multilateral institutions. While this highlights the
need for long discussed reforms in their governance, in the short run
the creation of a new credit facility, perhaps within the IMF, the World
Bank, or regional or sub-regional development banks, should be
considered. The new facilities should have their own governance, be more
reflective of democratic principles, with stronger representation for
developing countries. These new governance arrangements might serve as a
model for future reforms of the multilateral institutions.
5. While funds within the International Financial Institutions are
limited, it is imperative that more funds be provided, and that they be
provided without the usual conditionalities, especially those that force
these countries to pursue pro-cyclical policies or to adopt the kinds of
monetary and regulatory policies which contributed to the current
crisis. Besides the usual arguments against these conditionalities, they
contribute to global asymmetries, disadvantaging developing countries
relative to the developed, and they undermine incentives for developing
countries to take up the funds, contributing to global economic
weakness. While we commend the initial initiatives by the IMF, it is
questionable whether they are sufficient.
6. Additional funding could be provided by a large issuance of Special
Drawing Rights. The Commission, in later meetings, will address
alternative modalities by which this may be done and assess longer term
reforms in the global reserve system.
7. The Commission noted several regional efforts at cooperative
responses to the crisis, including providing needed liquidity, and urged
the consideration of their expansion. For instance, extension of
liquidity support under the Chiang Mai initiative without an IMF program
requirement should be given immediate consideration.
8. The crisis is widely viewed to be the result of the failure of
regulatory policies in the United States and some other advanced
industrial countries. To make significant and meaningful changes, it may
be necessary to draw lessons from countries in the developed and
developing world that have avoided instability.
9. The crisis highlights how policies and institutions in developed
countries can have global systemically significant effects. Developing
countries should have expanded scope for establishing policies and
institutions appropriate for their conditions. This includes developing
frameworks that help insulate themselves from regulatory and
macro-economic failures in systemically significant countries.
10. Members of the Commission noted that while lack of transparency is
widely recognized as having contributed to the problems in the financial
market, there have been significant lapses in transparency in the manner
in which the bail-outs have been conducted. The Commission urged greater
transparency on the part of all parties in responding to the crisis.
11. While a successful completion of the Doha trade round would be
welcome, certain actions could be implemented immediately, namely the
opening of markets in advanced economies to least developed countries’
exports.
The Commission will continue its work on reforms in regulatory and macro
economic policies and in the international economic institutions and
arrangements which will enhance global economic and financial stability
and prosperity. Its next plenary meeting will be held in Geneva on March
8-10.
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