CLOSER COOPERATION BETWEEN UN AND BRETTON WOODS INSTITUTIONS IS IMPERATIVE, SECRETARY-GENERAL TELLS HIGH-LEVEL MEETING OF ECONOMIC AND SOCIAL COUNCIL
Press Release
ECOSOC/5750
CLOSER COOPERATION BETWEEN UN AND BRETTON WOODS INSTITUTIONS IS IMPERATIVE, SECRETARY-GENERAL TELLS HIGH-LEVEL MEETING OF ECONOMIC AND SOCIAL COUNCIL
19980418 Asian Financial Crisis, Risks and Benefits of Globalization, Need For New Architecture of International Financial Systems among Issues DiscussedThe precise impact of the Asian financial crisis could not be separated from all other independent developments affecting the world economy, the Secretary-General told the special high-level meeting of the Economic and Social Council with the Bretton Woods institutions this morning. Yet, he added, it was becoming increasingly apparent that other developing and transition countries would be affected more severely by the crisis than their developed counterparts.
Addressing the first ever high-level meeting of that kind, he said that when the General Assembly took the decision two years ago to hold the event, it could not have known how timely it would prove to be. The financial turbulence in Asia had presented an enormous challenge to the international community and to the countries directly involved. Moreover, the international ramifications were becoming more apparent every day. They were vivid proof of the risks that came with the benefits of globalization and also stark evidence that closer cooperation between the United Nations and the Bretton Woods institutions was imperative.
Referring to the appeal for a new architecture of international financial systems heard in the discussions this morning, the Managing Director of the International Monetary Fund (IMF) said it was an ambitious undertaking, and the IMF was still taking stock. He also said the Fund must implement most forcefully its surveillance role of the economies of countries with systemic problems. The conclusions resulting from such surveillance must be heeded, he said. Too many crises arose because the opinion of the international community was not heeded. "Surgery" then had to be applied. Countries showed their problems when it was too late to avert the crisis, he said, adding that the IMF was at the service of any country or group of countries which needed help to overcome their economic problems.
The Managing Director of the World Bank, Sven Standstrom, said he had no doubt that the Asian miracle would resurge. He stressed the need to ensure that globalization was a strong force for poverty reduction, noting that there
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had not been mention at the special meeting of the strong performance of poor countries in Africa, which had their growth increased to 4 per cent although they needed to do more to reduce poverty. He called for better collaboration and coordination between the Bank and United Nations agencies at the agency and country levels, with governments at the drivers seat.
The Council Acting President, Francesco Paolo Fulci (Italy), in summary conclusions of the event, said the main point of today's dialogue had been the recognition that globalization had changed the world and the world must respond. There was universal recognition that global financial integration is not an option -- it is an historic shift, which offers great opportunities but also great challenges. "The Asian crisis has resulted in great attention being given to the sharing of risks and benefits in times of financial turmoil."
Discussions this morning demonstrated that international institutions and national governments still have a lot to learn about responding to the forces of global financial integration, the summary states. A number of interesting and innovative ideas were presented, demonstrating that the meeting had been an important opportunity to exchange views on the types of action that need to be taken by all, individually and collectively.
The summary recalls that the reason that the Economic and Social Council was originally conceived by the fathers of the United Nations, the vision and motivation driving recent efforts to renew economic and social sectors, and the inspiration behind today's meeting, all focus on a single goal: "to make this world a better place in which to live for all the people of the planet, by giving the developing countries, especially the least developed countries, a better chance to improve their sort". It concludes by stressing that development must remain the top priority of the United Nations.
The special meeting consisted of four panel discussions, with two presentations by special guests followed by questions and comments by ministers and other senior officials participating.
Panellists at the high-level meeting included Philippe Maystadt, Deputy Prime Minister and Minister for Finance of Belgium and Chairman of the IMF Interim Committee; Anwar Ibrahim, Minister for Finance of Malaysia and Chairman of the Development Committee of the World Bank; Clare Short, Secretary of State for International Development of the United Kingdom, speaking on behalf of the Intergovernmental Group of 10; Abdelkrim Harchaoui, Minister for Finance of Algeria and Chairman of the Intergovernmental Group of 24; Fuad Bawazier, Minister for Finance of Indonesia and Chairman of the "Group of 77" developing countries; James Michel, Chairman of the Organisation for Economic Cooperation and Development (OECD) Development Assistance Committee (DAC); Eduardo Fernandez, Vice-Minister for Finance of Colombia, Chairman of the Non-Aligned Movement; and Antonio Casas Gonzales, President of the Central Bank of Venezuela and former chairman of the Group of 24.
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Issues raised during the panel discussions included the effects of financial crises on vulnerable groups and on other countries; poverty eradication and globalization; liberalization of capital flows and the need to safeguard them against speculation and volatility; and debt relief. There were calls for correction of inequities, particularly corruption, and the prevention of financial crises. Some participants supported the idea of establishing an economic security council.
The Council will meet again on 7 May in a resumed organizational session.
Council Work Programme
The Economic and Social Council met this morning to hold its first special high-level meeting with the Bretton Woods institutions focusing on the following theme: "Global financial integration and development and recent issues".
A note by the Secretary-General (document E/1998/9) before the meeting identifies some issues relating to global financial integration and development that could be addressed in the discussions. He calls on the special meeting to identify elements of the longer-term and development perspective to be addressed in light of the current situation.
Overall, private international financial flow to developing countries increased from $64 billion in 1990 to $235 billion in 1996, but fell to an estimated $172 billion in 1997, the note states. The growth occurred in all respects to economic activity, including volume, sources, destinations, agents, types and modes of financial flows, and it resulted in unprecedented financial interdependence among countries. The dependence ran in both directions between source countries and recipients, and integration was primarily fuelled by liberalization of markets and technical progress.
The experience in East Asia indicated the lesson to be learned about global financial integration, the note goes on. For a decade, the experience had demonstrated the positive contribution financial flows made to development, and recently it had revealed the challenges. The overall effect was to indicate that integration into global financial markets requires sound macroeconomic conditions and sound domestic financial sectors. Thus the respective roles of national Governments, financial markets and international organizations need to be considered from a number of perspectives.
The note suggests the meeting could examine the prerequisites for integration into global financial markets, and look at the role of information in the effect of local conditions on foreign markets, since perceptions precipitated disproportionately large reactions in worldwide financial markets. The meeting is asked to look at how information reduces volatility in individual markets and contagion across markets, and to examine the role of Governments and international institutions in establishing standards and ensuring availability of information.
The meeting is also asked to look at monitoring and oversight mechanisms, especially at multilateral mechanisms monitoring national economic policies that affect international capital flows and other monetary and financial variables. These collective oversight mechanisms should be examined in view of the regional as well as international dimension. The increasing participation of developing and transition economies in world financial markets should be considered, since both developed and developing countries
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have produced harmonizing supervisory and regulatory arrangements that strengthened competition and reinforced the discipline of the market on the financial sector.
Other aspects of global financial integration the meeting is asked to consider include: the adequacy of current international arrangements for handling crises in the increasing volume of international financial flows; equitable sharing of costs in resolving financial crises; ways in which the effect of short-term dislocations could be minimized for vulnerable groups; and how long-term development objectives, such as human capital expenditures, could be assured during the handling of financial crises.
Statement by Acting Council President
FRANCESCO PAOLO FULCI, Acting President of the Economic and Social Council, opening the meeting, said it was the first attempt in the history of the United Nations at concrete collaboration between the Economic and Social Council and the Bretton Woods institutions, bringing together Ministers and high-level officers from the world of finance on one side, and development cooperation on the other. He thanked Secretary-General Kofi Annan for being at the meeting, which was also generated by his vision and determination in promoting an action-oriented and results-oriented reform of the economic and social sector of the United Nations.
What was needed at the meeting was "a free-flowing dialogue on the opportunities, challenges and risks posed by global financial integration, in the hope that this is just the beginning of a regular dialogue between the members of the United Nations and of the Bretton woods institutions", he stressed.
Referring to the theme of the special meeting -- global financial integration and development, and recent issues -- he said the global economy had already become a reality, and was there for all to see. In the economic field, large companies were feeling the impact of technological progress and new production methods. They constantly sought increased efficiency and productivity. They were becoming global, often part of huge transnational groups. The financial sector was already virtually globalized. Deregulation, the ending of exchange controls and instant worldwide communication had transformed its operations. In the information field, instant and universal communication of large quantities of data was a new feature of international life.
Globalization brought progress and must therefore be encouraged, but, he added, that also implied some risks. The global economy could be hard on those who did not benefit from its opportunities. Traditional ties of community and solidarity could be undermined. Whole countries and regions could become marginalized. The gap between the rich and the poor risked to
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grow ever wider instead of being reduced. The recent experience of East Asia was significant because it showed the positive contribution of financial globalization to development but, at the same time, its risks and challenges.
Statement by Secretary-General
Secretary-General KOFI ANNAN said today's interchange between the diplomatic, financial and developmental cooperation communities "will enrich us all", helping break the more strait-jacketed ways of thinking and move the international community forward in the search for the common good, in the eradication of poverty and the creation of conditions of stability and predictability.
He said finance was central to the development process, but development finance was also an area where, in recent years, the thinking had changed fundamentally; and where, at the same time, dramatic developments had taken place. There was now universal recognition of the developmental role of private international capital flows, which had brought with them tremendous benefits. Big strides had been made in improving the lives of millions of people. Yet, as the recent financial crisis in Asia had shown, there were huge risks involved.
There were three main areas of concern in the implications of the recent crisis in Asia, he said. First and foremost, was the situation of the crisis countries themselves. One might ask whether the penalty imposed on those countries in terms of lost output and lost jobs was commensurate with the failings of omission or commission they might have had.
"I think we are all preoccupied by the harsh toll these crises impose on an entire citizenry", he said. Those hardest hit were usually the most vulnerable. Job seekers who had migrated during the good times; the poor who could no longer pay for the higher priced basic necessities; those groups which were employed in the least organized sectors of the economy. Beyond that was the continuing threat of social strife, breakdown of law and order and loss of self-esteem. "Macro aggregates do not capture the trauma that individuals and families have to undergo as a result of crisis of this nature", he added.
Another major area of concern, he said, was that the precise impact of the Asian crisis could not be separated from all other independent developments affecting the world economy. Yet it was becoming increasingly apparent that other developing and transition countries -- far removed geographically and even economically from their Asian colleagues -- would be affected more severely by the crisis than their developed counterparts. "In other words, the collateral damage is greater in developing countries than elsewhere", he added.
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A third area of concern could be found in the speed of deterioration and recovery, he said. A perceived failure to adhere to externally determined standards of creditworthiness could lead to instant loss of international confidence. There were signs that such confidence could be regained surprisingly rapidly; but not nearly so quickly as it was lost, nor to the same degree. The ensuing short-term losses to an economy not only undo previous gains; they also harmed growth prospects in the longer term. And there was a real risk that successes built up over years in reducing poverty would be reversed.
"I see these fundamental issues arising from the way the current international financial system itself operates, and the way risks and rewards are balanced", he said. "The question to be addressed is whether we can find ways to preserve the benefits of open financial markets while reducing the risks of crises and designing tools to deal with them that will be less costly in human terms. This is a matter on which our institutions -- among many others -- should pursue a wide-ranging exchange of views."
The United Nations had a role to play both in easing the impact of such crises and in the longer-term preventive aspects, he said. Short-term concerns could lead to a neglect of the fundamentals of longer-term development. Those must be built around human capital investment and broader dimensions such as respect for human rights, institutional development as well as participatory democracy.
When the General Assembly took the decision two years ago to hold this meeting, it could not have known how timely the event would prove to be, he said. The financial turbulence in Asia had presented an enormous challenge to the international community and to the countries directly involved. "However, the ensuing economic, social and developmental -- as well as political -- consequences of the crisis have served as reminders of the interrelationships between the responsibilities and work of our three organizations." Moreover, the international ramifications were becoming more apparent every day. They were vivid proof of the risks that come with the benefits of globalization and also stark evidence that closer cooperation between the United Nations and the Bretton Woods institutions was imperative.
In Washington, D.C. the Interim and Development Committees and the Group of 24 considered global financial issues, he said. Those intergovernmental mechanisms had different purposes and involved different actors from the processes here in the United Nations. But they were not unrelated. "Our organizations share the objective of promoting economic and social progress throughout the world", he stressed. "We bring to our work different capacities and, in some areas, different perspectives. Yet these differences are rapidly diminishing." The United Nations was no longer constrained by the East-West rivalry of the past, while membership of the International Monetary Fund (IMF) and the World Bank was becoming increasingly universal. Even more
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important, there was now far greater consensus on the nature of the development process.
"Known by relatively few but affecting so many, cooperation between our respective institutions is strongest where it counts most -- at the field level", he said. He expressed his firm belief in the progress made in ensuring that the operational activities of the Bank, the Fund and the United Nations system are mutually supportive. That had been most evident in post-conflict peace-building; but increasingly, the Bretton Woods institutions, the United Nations and the specialized agencies were working together to enhance coherence and impact across the full range of their development efforts. "With our overriding commonality of concerns and approaches, it is only appropriate that we should join forces to pursue our common objective", he concluded.
First Panel Discussion
PHILIPPE MAYSTADT, Deputy Prime Minister and Minister for Finance and Foreign Trade of Belgium and Chairman of the IMF Interim Committee, said the Council's special meeting came at a very important time. The international community and the IMF, in particular, were assessing the financial crisis in Asia. The Interim Committee had discussed the issue in Washington this week. It had been agreed that steps had to be taken to strengthen the architecture of the international financial systems to prevent financial crises and to resolve them when they occurred. One of the lessons of the Asian crisis was that even countries with strong economic performances were not immune from shifts in market sentiments. Countries could not realistically opt out of the process of globalization of capital markets.
To meet challenges, action was needed to strengthen national economic systems and to put them in order, he said. In view of the globalization of markets, the Interim Committee had asked the IMF to intensify its surveillance functions, and also to examine ways of monitoring capital flows, especially short-term capital flows. The Fund should also pay particular attention to effects of those crises on neighbouring countries and the rest of the world.
The IMF should pay particular attention to information from its member States, he stressed. Lessons of Asia showed that markets functioned better when there was information. The Fund should encourage members to heed to views of its Executive Board during consultations with them on their economic performance. There was need to ensure that creditors bore responsibility for the consequences of their actions. There was need also to find ways to involve the private sector in the early stages of resolving problems. The financial crisis in Asia had not negated the positive aspects of capital flows.
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ANWAR IBRAHIM, Finance Minister of Malaysia, speaking in his capacity as Chairman of the World Bank Development Committee, said that the Asian crisis showed the need to strengthen social safety nets and the importance of shielding budget expenditures directed at the poor. There was a close link between structural issues and resolution of crises, and the Bank had to further its skills in the financial sector, corporate restructuring and governance. One lesson of the crisis was that it was a mistake to focus on macroeconomic issues without reference to those crucial factors.
The international financial architecture was as responsible for the crisis as were governments, he said. The fundamental flaws in the global financial system had to be remedied in order to avoid financial convulsions from increasing in severity. The crisis was not limited to East Asia, but constraints had been seen elsewhere. Much progress had been made in implementing the Heavily Indebted Poor Countries Debt Initiative, but a highly significant factor in Asia as in most other parts of the world was the role of the private sector. The recent approval of $1 billion capital increase for the Bank Group's political risk insurance group, the Multilateral Investment Guarantee Agency (MIGA), was part of the Group's growing work with the private sector.
However, he added, the reduced flows of official development assistance (ODA) were troubling. Increasingly, aid flows were tied to country performance, including good governance. All ministers accepted that that made sense, but there was also a consensus that some countries needed help in improving governance. Many members of the Committee voiced their concern that donors were not doing enough in the area of ODA. Because of those constraints the Bank would not be able to fill even a small portion of that shortfall. The rich countries must make a commitment to replenishing the Bank's funds in order for it to continue aiding poor countries and thus ensure that global distributive justice did not become a zero-sum proposition.
Following the presentations, ministers and other senior officials participating in the special meeting commented on the need for capital flows to enhance national situations, which required consideration of risk management. How much should be socialized and how much privatized? it was asked. Also stressed was the new role of transnational corporations and the diminishment of the State in controlling financial flows. Who, including the IMF, should take responsibility for regulation of activities? it was also asked. No one at the meetings in Washington had expressed the determination to regulate today's very changed world, but the risks in such a privately- influenced financial world required that the divorce between finance and government be ended, it was noted.
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Preventing crisis was becoming the major function of the Fund and that should be put in its charter, a minister said. Another minister said there had once been a choice between command and free market economies, but there was no choice now. Therefore, resources had to be put in the Fund, which should not just function as a surgeon but also as a general practitioner. The need for helping developing countries had shifted to capital flows; there had to be a shift from how to manage crises to how to avoid them, it was stressed. Preconditions from the country's point of view included the independence of central banks. More analytical ability to forecast at the national and international levels was needed, and remedies had to shift to protect countries from speculators, it was stated.
The split between the Bretton Woods institutions and the United Nations had to be removed, one minister said. Financial mechanisms had to be looked at and the creation of a world economic council needed to be considered. Private banking had to be the backbone of financial integration for the poor. The purpose of aid to poor countries was not to come in and clean up where private industry had failed. There was now a convergence of views on the part of those in finance, whether from the developing or developed world, it was also noted. Also, the world economy could suffer from the integration of developing economies and steps should be implemented to avoid that.
In response to the comments by ministers, ANWAR IBRAHIM said mechanisms had been suggested for involving the private sector during the Washington meetings, and while they had not yet been approved, the Board of Governors of the Bank had been asked to look at the issue and suggest ways of handling crises. With regard to the question of intervention, the IMF should not enter too quickly with too much money to bail out the private sector. It should respond quickly but make sure every sector was responsible. Excesses had to be controlled by good governance because they were not confined to the countries concerned. Excessive capital flows occurred because there was no transparency, no disclosure, and it was unreasonable that some accepted rules while others did not. The answer was not a new bureaucracy. The IMF was fine, but the rules had to be strengthened and they had to have the support of the international community, at all levels.
PHILIPPE MAYSTADT said strengthening of surveillance was the best way to prevent crises in the future.
Second Panel Discussion
CLARE SHORT, Secretary of State for International Development of the United Kingdom, speaking on behalf of the Group of 10, said globalization was not an optional extra for any country. The question to be asked, however, was whether it was possible to pull together endeavours to make sure that all countries benefited from the process instead of being marginalized. That was the challenge of the era. There was no need for new institutions but a clear- minded view and cooperation. There should be no competition between development and financial strategies, but instead a working towards the same determination to ensure the benefits to the countries and peoples of the world. Despite the Asian crisis it was still a time of great opportunity. International development strategies and poverty eradication were still United Nations targets. If they were pulled together with financial targets they
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would give the collective world system more manageable targets. In that process collaboration was key.
There was a need to move on from the old divorce of economic policy and development and social policy, she said. There must be active interest in universal education, health care and sanitation. New joint moves must be made on social and financial fronts. The old world of closed national economies was over. The Asian crisis should not, however, obscure the massive achievements in Asia such as the investment in the people. Ordinary working people must be protected and remedial action taken to make sure the poor were not neglected. The world had moved on from market economies and was now ready for a new synthesis -- a proper balance between state and market. There were certain lessons to be learned from the successes of the Asian model -- primarily the need to attract capital investments. Conditions must therefore be put in place to attract private investment. The present generation was the first to move forward with the ability to have every child grow up educated and healthy.
ABDELKRIM HARCHAOUI, Minister for Finance of Algeria, speaking on behalf of the Group of 24, said the theme of the meeting was only equalled by the emphasis on enhancing social well-being. The recent financial upheavals could only be addressed at initiatives such as today's. The Asian crisis had made even more urgent the need for objective positions to improve the global economy, globalization, and to ensure that all countries benefited from that process. There must be a balance between international and national institutions. The Asian crisis was contained by the courageous efforts of affected countries and the solidity and magnitude of financial institutions.
The repercussion of the Asian crisis on global international activity and global international trade was far from being solved, he said. The drop in oil prices, the increased burden on social costs were all affected. There was a need to guide poorer countries towards capital flows. Development assistance needed to be stepped up. Also, because of external debt and very small investment, developing countries required energetic action to generate development. Meeting such concerns required new vigour by the international community.
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In the exchange of views following the presentations, a participant stressed the importance of three points raised by the Secretary-General in his statement: sharing of responsibility, protecting vulnerable groups and safeguarding long-term development. There was need to understand the issue of contagion better -- the effects of financial crisis in one country on others - - to better control it. Burden-sharing among private investors and countries as well as shareholders was very crucial. There was consensus that IMF surveillance of economies must be strengthened but should also be extended to cover policies of industrial countries as well. The Asian crisis had brought about the need for more attention to activities of private investors. Better transparency and disclosure were a good thing but not necessarily a panacea for crisis management.
Another speaker said globalization was important, but experience had shown the need to monitor it to prevent distortion. The Asian crisis had shown the negative aspects of globalization, he said, adding that globalization should be more open and widespread. He sought information on steps taken in the Asian region to handle external debt and the crisis at large, as well as on whether private investors should be rescued.
The importance of poverty eradication was stressed by another participant. Globalization should be re-evaluated, she said. Focus of such gatherings as today's should be on long-term development and not short-term crisis management. The issues of ODA flows, debt relief and governance should be addressed. Globalization and safety nets were not enough. Targets should be put together for global debt eradication. There should be increased aid to the world's poor, including more investment in education and health. There was need to ensure better governance for the benefit of the poor. She drew attention to the 20/20 initiative endorsed by the 1995 World Summit for Social Development. Today's meeting was long overdue. There was need for active coordination between the Bretton Woods institutions and the United Nations, both at Headquarters and in the field.
Another participant said sound economic policies and international cooperation were needed and that each country carried responsibility for sound macroeconomic policies. There was need for balance between domestic and global policies. He called for the regulation of increasing international financial flows. He noted the absence of efficient means of detecting crisis before they occurred.
It was also stressed by a speaker that countries could not opt out in the face of the arrival of global markets. There was need for a mechanism to foresee crisis. The threat of marginalization was most pressing in Africa. The Asian lessons should also be applied to helping Africa.
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Globalization was an inescapable reality, another participant stated. The volatility crisis in Asia could affect the people of Brazil. He supported the call for an international economic security council.
Third Panel Discussion
FUAD BAWAZIER, Minister for Finance of Indonesia and Chairman of the "Group of 77" developing countries, said the creation of barriers against capital flows was not only unlikely to protect the domestic financial sector from international turmoil, but was also probably harmful to the desire to raise economic growth and reduce poverty levels. Isolation was also no guarantee of financial stability. If the benefits of globalization were to be enjoyed, it must be ensured that East Asian financial institutions functioned properly. Those financial institutions must serve as efficient means for channelling international financial resources to their most productive use. The weakening of a country's financial sector from within would begin to erode external confidence and financial inflows could quickly turn to outflows, resulting in damaged economies. Ensuring that financial institutions fulfilled their proper function would require that banks were adequately supervised and that equity markets operated on rules that were transparent and rigorously enforced.
Part of the difficulties now facing the Asian economies could be traced to the excessive inflows of funds that were made available to those same markets, he said. The inflows were excessive because they were often invested poorly. Those same enthusiastic investors who had poured their money into the Asian economies rapidly withdrew their funds when economic weaknesses were exposed. The rapid withdrawal of the investment funds further exacerbated the basic financial sector weaknesses. Better reporting on private capital flows was needed. Not only did Governments and financial market participants deserve better data on private debt, but they also needed to be able to monitor levels of medium- and short-term debt, as well as the issuance of very short-term debt instruments, such as commercial paper and promissory notes. The most serious issue to be confronted in the short run was the effort to protect the welfare of the poorest segments of society. It was important that East Asian adjustment policies did not attempt to rebuild economies on the backs of the poor.
JAMES W. MICHEL, Chairman of the Organisation for Economic Cooperation and Development (OECD) Development Assistance Committee (DAC), said the extraordinary growth in private capital flows to developing countries was an important part of development finance. The increase in the flows, accompanied by improved economic management, had helped domestic resource formation. There had also been reliance on more development assistance. Economic management and its impact on capacities to increase mobilization of domestic resources needed to be emphasized. He also stressed the changing role of ODA, noting that it was the primary source for financing for poor countries.
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He drew attention to the recent OECD report which set out concrete goals for a safe and just society. Each country should pursue its own development while external actors should seek understanding with their developing country partners on how best to work together. Agreements could be worked out on how aid and other cooperation mechanisms could be applied in meeting shared objectives. He called attention to the dialogue between the Development Assistance Committee and developing countries on encouraging that strategy which also included transparency. There was need to reverse the decline in international development assistance. The management of the debt burden required official assistance. Partnership was also required to ensure local management of development. There was also need to find out how advantage could be taken of globalization to reduce poverty.
In response to the panel's presentation, one minister said the financial architecture of the IMF needed to be changed. The Development Committee should reflect the make-up of the United Nations, while the Interim Committee should remain the same. The priorities of the Development Committee should also be changed in line with those of the United Nations. It was also stated that the question of performance should be central to the convergence of views because resources were limited. The need for liberalizing the Fund was again stressed, as was the need for tightening the control mechanisms. Over- indebtedness was often looked at from the demand side, but supply had to be looked at as well.
Fourth Panel Discussion
EDUARDO FERNANDEZ, Vice-Minister for Finance of Colombia and Chairman of the Non-Aligned Movement, said new inflows of financial resources had made it possible to attend to social issues in developing countries, but they had not been capitalized on because there was no funding. Speculation was a problem, as was the lack of data, and it had to be admitted that financial flows could open markets, but their primary purpose was profit. The best policy should be based on monitoring and supervision to strengthen the mechanisms of control. Multilateral organizations played a broad role in that, as did the availability of data.
The control mechanisms would not cure the problem of crises, he said, but they would reduce the effects of volatility. Contagion was a problem. A tax on external inputs of capital had been successful in some places, but that worked on a short term. Coherent macroeconomic policies had to be put into effect, which would allow all countries to benefit. The emerging institutions had to be examined. Rescues of private entities had to be discouraged since they took capital away from the poor sectors of countries needing help.
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ANTONIO CASAS GONZALES, President of the Central Bank of Venezuela and former Chairman of the Group of 24, said within the process of globalization there had been some problems, such as the Asian crisis and prior to that, the Mexican crisis. There was a need to address the very great problem of education and technical training. Globalization had made the Group of 24 more pro-active than reactive. The Group believed in capital movement and supported an orderly and cautious approach to liberalization. There was a need to improve surveillance over capital movements, and macroeconomic regulatory movements. Consistency of development, efficiency of capital markets, precautionary and price-based measures to protect export markets were all issues endorsed by the Group.
He said the profound and intensified integration of developing countries into global economies in relation to the instability of some of their economies was an issue of some concern. The movement of external capital into developing countries also had great repercussions as did changes in market sentiments. The speed of developing countries' integration into global markets was much greater than institutional capacity-building. The introduction of the euro could bring about further negative issues for developing countries. The recomposition of international reserves, could also be another outcome influenced by the introduction of the euro. The Group of 24 felt that the adequacy of the current resources of international finance institutions to respond to various crises in the future was an issue that needed to be examined. In addition, corrective measures needed to be applied to existing inequities, which were growing, and within that framework corruption was a major issue that needed to addressed.
Following the presentations, one minister said globalization should not mean a homogenization of the world. The risks and the rewards of the process also needed balance and the apportionment of benefits should be global. Each country should be left to choose the optimum pace in which to integrate itself into the global market.
Another minister said the Secretary-General's note (document E/1998/9) seemed to miss the international dimension in the whole discussion on finance and development. The significance of national policies had not been addressed.
The event today was long overdue, noted one representative. There was room for bilateral measures to alleviate the debt situation of many developing countries. Debt swaps, debt write-offs, poverty alleviation and prevention of debt were measures to be considered for the future.
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Statements by Managing Directors of IMF, World Bank
MICHEL CAMDESSUS, Managing Director of the IMF, commenting on the discussion, said past coordination with the United Nations should be built upon to improve and expand and cooperation between them. Globalization presented unique opportunities, with better access for every one. The world had benefited from it just as the Asian countries. He noted that the current Asian crisis was the fifth international problem the IMF had had to deal with. He also noted that there was a tendency to emphasize the financial aspects, with the issue of marginalization left out.
Turning to the appeal for a new architecture of international financial systems heard in the discussions, he said it was an ambitious undertaking, and the IMF was still taking stock. Five measures put forward at this week's meeting of the Interim Committee, the Fund's policy-making body, broadened and strengthened the supervisory role of the Fund of the international financial system. The Fund had to monitor capital flows to be able to see in real time what was going on. It must also implement most forcefully its surveillance role of the economies of countries with systemic problems.
The conclusions resulting from such surveillance must be heeded, he said. Too many crises arose because the opinion of the international community was not heeded. "Surgery" then had to be applied. Countries showed their problems when it was too late to avert the crisis. He had seen the suffering and destruction resulting from such problems. Thanks to the dialogue set up by the Fund and its members serious problems were being avoided, and he cited the examples of Brazil, Philippines and Venezuela. Surveillance worked but only when States allowed that to be carried out sooner. The IMF was at the service of any country or group of countries which needed help to overcome their economic problems.
Among the decisions of the Interim Committee was that countries must open their books in order not to surprise the markets, he said. The rule of transparency would be at the heart of surveillance. Transparency was not a cure all, but had merit and contributed to avoiding volatility. The IMF would seek in all domains the best practices that existed to forestall economic and financial crisis. A code of conduct was being drawn up for dissemination around the Fund's membership.
Responding to references to the Fund's adjustment programmes, he said all adjustments were human, and that without it, there would be marginalization. Instruments available should be looked at to ensure whether it was enough to deal with marginalization. The Fund's Enhanced Structural Adjustment Facility (ESAF) was such an instrument but more had to be done. Now was the chance for Africa to take the next step forward. Africa had emerged from negative to positive growth. Development assistance should be more effective to help African States to continue growth. The Fund would work
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with the World Bank towards that end. He was happy at the Secretary-General's suggestion in his Africa report for cuts in military expenditures. The Fund was similarly cutting for such reductions. Thanks to the Asian crisis tripartite dialogue was now developing in the Republic of Korea and could spread to Indonesia, and there would be a resurgence of their economies, he concluded.
SVEN STANDSTROM, Managing Director of the World Bank, stressed that it should not be forgotten that the East Asian crisis still remained, however, he had no doubt that the Asian miracle would resurge. The World Bank was focusing on origins of financial flows to ensure their stability. There was need to ensure that globalization was a strong force for poverty reduction. The Bank was strengthening its assessment of structural changes. There had not been mention made in the discussion about the strong performance of poor countries in Africa, he said, noting that their growth had increased to 4 per cent although they needed to do more to reduce poverty.
The Heavily Indebted Poor Countries Debt Initiative was gaining momentum, he said. Partnership with creditors was improving, and one example was today's meeting. He referred to some of the challenges facing the World Bank, including post-conflict reconstruction in such countries as the Democratic Republic of the Congo and Liberia. He called for better collaboration and coordination between the Bank and United Nations agencies at the agency and country levels with governments at the drivers' seat.
Summary by Council Acting President
Mr. FULCI (Italy), the Council Acting President, told participants in the special high-level meeting that a text containing his summary conclusions of the event was being distributed.
In that text, the Acting President, expressed great satisfaction over the participation of so many ministers and high-level officials at the meeting, a record number of 30 ministers and even more high-level representatives from the worlds of finance and development and from every region of the planet.
The meeting's success was testimony to the tenacious efforts of those who had worked for months to make it possible, the summary goes on. First and foremost the Secretary-General, "the wizard of peace", as an Italian newspaper called him, whose invitation attracted so many distinguished guests. Then the President of the Economic and Social Council, Juan Somavia (Chile), who was unable to be present today, but who conceived and followed every step of the preparations of that important encounter. And also the other members of the bureau and of the Council's secretariat.
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"I see the main point of today's dialogue having been the recognition that globalization has changed the world and the world must respond", the summary states. "Our discussions this morning have been driven to a large extent by the repercussions of the so-called Asian crisis. I say so-called because we agree that we live in an increasingly integrated world and that turmoil anywhere poses risks to countries around the globe. There is universal recognition that global financial integration is not an option -- it is an historic shift. Global financial integration offers great opportunities but also great challenges; it offers benefits but also poses great risks."
"The Asian crisis has resulted in great attention being given to the sharing of risks and benefits in times of financial turmoil", it goes on. "The question of financial burden-sharing in times of crisis is a complicated and technical issue that will have to be addressed in other forums. But our discussions have also highlighted the need for a sharing of benefits and risks over the longer term. Several speakers have reminded us of the combination -- of the benefits -- of global financial integration to Asia's overall economic success and to the reduction in poverty over the past few decades. But there are also long-term risks -- the risk of marginalization, the risk that some countries or individuals are left behind. There must be a sharing of these long-term benefits and risks -- global financial integration should be to the benefit of all countries and all people and we must all work together to reduce the risks of marginalization. Encouragingly, I believe that the discussions this morning have demonstrated a growing consensus on the means to achieve this long-term objective."
According to the summary conclusions, in the short term, there continues to be different points of view about the reasons for the recent crisis and the most appropriate ways of responding to it. Nevertheless, appreciation was expressed for the prompt response to the crisis by the international community, led by the IMF and the World Bank. At the same time, there was universal recognition that the initial financial crisis has developed wide- ranging economic and social dimensions. There was widespread and deep concern about the adverse consequences of financial crisis for vulnerable groups and the profound consequences for poverty. There was unanimity that special efforts needs to be made to protect the poor and other vulnerable groups in times of crisis. There was unanimity that the alleviation of poverty must remain our ultimate objective, both in the long run and the short term.
Discussions this morning had demonstrated that international institutions and national governments still have a lot to learn about responding to the forces of global financial integration, the text goes on. While many questions remained, there was a need to strengthen the global architecture; there was agreement that prevention was better than cure and that actions were required at both the international and national levels. The wide-ranging nature of the fall-out from the crisis calls for a collective response involving all institutions to varying degrees. A number of
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interesting and innovative ideas were presented, demonstrating that the meeting had been an important opportunity to exchange views on the types of action that need to be taken by all, individually and collectively.
"From a technical point of view, there seems to be universal agreement that more information, greater transparency and improved monitoring are indispensable in reducing the possibility of crisis", the summary continues. Equally, the meeting has demonstrated the need to develop the flows of information and transparency between the United Nations and the Bretton Woods institutions. There had been many references to the need for policy coherence and partnership at all levels, but particularly between those institutions.
In conclusion, he said "The reason that the Economic and Social Council was originally conceived by the fathers of the United Nations, the vision and motivation driving recent efforts to renew economic and social sectors, and the inspiration behind today's meeting, all focus on a single goal: to make this world a better place in which to live for all the people of the planet, by giving the developing countries, especially the least developed countries, a better chance to improve their sort. We must continue to pool all our efforts to eradicate poverty and pave the way to a future of sustainable development. Development must remain the top priority of the United Nations."
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