SECOND COMMITTEE HEARS DIFFERING VIEWS ON NEED FOR NEW `ARCHITECTURE' FOR GLOBAL FINANCIAL QUESTIONS

6 October 1998

Press Release
GA/EF/2815

SECOND COMMITTEE HEARS DIFFERING VIEWS ON NEED FOR NEW `ARCHITECTURE' FOR GLOBAL FINANCIAL QUESTIONS

19981006 Globalization and Current Financial Crisis Main Topics at Opening of Second Committee General Debate

A consensus on global action was needed to deal with the financial crisis that had engulfed many countries and threatened world economic growth, the Second Committee (Economic and Financial) was told this morning as it began its general debate.

Opening the general debate of the Second Committee, the Chairman Bagher Asadi (Iran) said that the international economic atmosphere was generally unfavourable and the solution to the current crisis was beyond the reach of any country or group of countries. The Committee should utilize its unique position to advance genuine partnership at the universal level.

Nitin Desai, United Nations Under-Secretary-General for Economic and Social Affairs, speaking of the current financial crisis, said the magnitude of the problem was greater than at any time in the last 50 years. There must be recognition of the need to respond before a crisis. Currently, there was talk of the need for a new architecture for international financial institutions. Referring to the problems which globalization could create, he said it could not be effective without robust multilateralism and the notion of shared values, such as solidarity.

Indonesia, speaking on behalf of the Group of 77 and China, said many once dynamic economies were now in ruins. Solutions must be global since many core development issues could only be addressed through multilateral action. The major challenge was to contain the spreading crisis, control the negative consequences of globalization and maximize its benefits, he said. A new transparent, accountable and participatory architecture was needed to strengthen international management of the world economy, particularly in the monetary and financial fields.

The representative of the United States said the International Monetary Fund (IMF) should be strengthened to deal with the difficult financial

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conditions threatening many countries. The IMF and the other Bretton Woods institutions could deal with the crisis. Agencies, such as the United Nations Conference on Trade and Development (UNCTAD), should not supplant them nor should Member States create a new world financial organization.

Speaking on behalf of the European Union and associated countries, the representative of Austria said national and international institutional frameworks should address socio-economic and environmental challenges and vital social concerns. The United Nations was a unique platform for global agenda setting and consensus building.

Several other Members spoke of the need to mitigate the effects of globalization. The representative of Pakistan said humanization of globalization was now a necessity and not a choice. A proposal for a United Nations monetary conference to address the old and new problems of the international financial system should be seriously considered, he said. A piecemeal approach, devoid of political will, could push the world into a global recession and the consequences would be far more widespread and serious than in the 1930s. In a globalized world economy, he added, "either we all win or we all lose".

Statements were also made by the representatives from the Netherlands, Bangladesh, Turkey, Belarus, Uganda, Cuba and China.

The Committee will meet again at 3 p.m. today to continue its general debate.

Committee Work Programme

The Second Committee (Economic and Financial) met this morning to begin its general debate.

Statements

BAGHER ASADI (Iran), the Committee Chairman, said the international economic atmosphere was generally unfavourable and prospects were not optimistic for solid overall growth and development for the majority of developing societies. The consequences were increased poverty and destitution and the inevitable socio-political difficulties, social tension, political instability and even crisis was to be expected in various societies.

The solution to the current crisis was beyond the reach of any country or group of countries or institutions, he continued. Any solution would require international collaboration on a global scale. The Committee represented the highest intergovernmental mechanism for the formulation and appraisal of policy matters in economic and development fields. The Committee should utilize its unique position to promote and advance constructive dialogue and genuine partnership at the universal level and to contribute to the formulation of internationally agreed policies and measures.

NITIN DESAI, United Nations Under-Secretary-General for Economic and Social Affairs, said the Committee was meeting at a time of crisis. The current financial crisis had been a major focus of the work of the intergovernmental processes and within the Secretariat itself. There was an attempt to understand why such a deep crisis was affecting the world economy when everything had seemed so positive 18 months ago. The financial crisis had led to drying up of capital to emerging markets, a disruption of credit flows and a massive decline in assets' prices. There was also a growth crisis in many countries, which would actually experience a decline in gross domestic product (GDP). Growth was expected to be between 3 per cent to 5 per cent in Latin America, and global growth was expected to be no more than 1.9 per cent in 1998, and it could even be lower.

The impact of the financial crisis had led to terrible human suffering and social dislocation with depression and social tension in countries like Indonesia, he said. It was also affecting future development. It would only take one or more crisis for the world to slip into recession. The magnitude of the problem was greater than at any other time in the last 50 years. There must be a recognition of the need to respond before a crisis. Currently, there was talk of the need for a new architecture for international financial institutions.

During the 1990s there had been a disjunction of real economy, he said. Foreign exchange flows were now 10 times the GDP. Yet, the totality of the exchange rate was affecting economies. There was now a shift in focus from

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the current account imbalances to the capital account and new policies were needed to deal with capital account instability. A way must be found to deal with the effects of financial contagion. Today, fund flows to all emerging markets were drying up, regardless of whether those markets were in crisis. There must be a rethinking of policy paradigms and a designing of policy frameworks that would address more explicitly the link between the real economy and the financial parts of the economy.

He said there must be an examination of the public consequences of private decisions. The focus of policy must not simply be about whether it was good for re-establishing confidence in the financial markets. There was a tendency to define good policy in terms of standard norms. Yet, conditions differed from country to country and one size did not fit all. The goal must be the public interest, not private profit. Institutional arrangements had fallen behind the realities of growth.

The benefits of globalization were widely recognized, he continued. But it also created problems, such as the marginalization of certain countries. Because globalization was not delivering in the economic sphere, there was a risk of moving back from it. There was not yet a set of institutions to manage and deal with its impact, he said. Globalization could not be effective without robust multilateralism and the notion of shared values such as solidarity.

MAKARIM WIBISONO (Indonesia), speaking on behalf of the Group of 77 and China, said many once dynamic economies were now in ruins, their prospects shattered and their peoples pushed to the edge of endurance. The painful lesson was that markets were driven as much by sentiment and perception as by fundamentals and solid facts. In the face of such stark global realities, international solidarity and cooperation must be intensified. Solutions must be global, as many of the core development issues could only be addressed through multilateral action. The United Nations was a unique forum for renewing the dialogue which was imperative for promoting international cooperation and development.

He said one of the most constraining factors inhibiting development today was the lack of adequate financial resources for development. While the increased emphasis on foreign development investment was welcome, it should not be forgotten that official development assistance (ODA) was the principal source of development financing for most developing countries. Regrettably, ODA had become an early casualty of globalization and was in sharp decline. If left to themselves financial markets would not go out of their way to finance economic growth in developing countries.

The major challenge immediately facing international cooperation for development was the need to contain the spreading crisis, to control the negative consequences of globalization and to maximize its benefits. The international community should seek a new architecture that would strengthen

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its management role in the world economy, particularly in the monetary and financial fields. That architecture should be transparent, accountable and participatory. It should take into account the lack of surveillance, regulation of short-term capital flows and the volatility of currency markets, using innovative measures at the local and international levels, without restraining economic liberalization.

The chronic indebtedness of developing countries was a serious impediment to development, he said. The Heavily Indebted Poor Countries Debt Initiative of the International Monetary Fund (IMF) and the World Bank was an important step to help a number of poor countries back on the path to development. However, the process must be accelerated. The lack of access to markets was a serious concern for developing countries.

HANS-PETER GLANZER (Austria), on behalf of the European Union and associated countries, said that global financial turmoil was affecting all regions of the world and the far-reaching socio-economic and technological changes which came with globalization were having a strong impact on the role of international institutions. The private sector constituted a very important element of international relations, he said, while civil society and the non-governmental organizations had become more vocal on a worldwide scale.

He said there was, more than ever, a need for strengthening the national and international institutional framework to deal with socio-economic and environmental challenges such as expanding and preserving open markets, building the capacity to respond to crisis, furthering development, combating poverty, integrating the world economy, protecting the environment and addressing vital social concerns. He noted that the United Nations must focus on the activities it was best suited for, that the United Nations was a unique platform for global agenda setting and consensus building.

The European Union believed, he continued, that the focus of the operational work of the United Nations should be to support the efforts of governments and society, to implement the outcomes of the major United Nations conferences, to support the provision of basic human rights, the rights of the child, environmental protection, the empowerment of women and to enhance the participation of all countries in international trade.

The Second Committee, he noted, would have on its agenda the preparation of the upcoming special sessions on the reviews of the international conference on population and development, Habitat II, the World Summit for Children and the Barbados Programme of Action. He added that the triennial comprehensive policy review of operational activities would look at governance, operational efficiency and effectiveness and funding.

The European Union, he said, was committed to place the fight against poverty at the heart of international development cooperation. Continuing, he said the European Union member States would participate in the Heavily

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Indebted Poor Countries Debt Initiative and that they were actively supporting the increased integration of least developed countries into the world economy.

EVELINE HERFKENS, Minister for Development Co-operation of the Netherlands, said that today the planet was looking at problems that no nation could hope to resolve single-handedly, that "global problems need global housekeeping", and that "the global village needs a village council."

She noted that despite the decline in ODA in recent years, the Netherlands was committed to exceed the target level of .07 per cent of gross national product (GNP) in ODA, and was holding on to a .08 target for the next four years, an amount, she said, that was in excess of $3 billion. But donor burdens, she added, should be shared by other affluent nations, as well as newly industrialized States. The G-7 group of countries, she noted, paid less than one sixth of the total Trust Fund for Heavily Indebted Poor Countries (HIPC). The development agenda, she said, is the core of the United Nations business. Specifically, development that was sustainable, not only in terms of ecology, but sustainable in a sense of development that addressed basic human needs, that respected human rights, that built human capacities, that was socially responsible and that did not mortgage the choices of future generations. "In that sense", she said, "the United Nations is at least as much about development as it is about security".

For about five years, she noted, developing countries had been spending more on interest and debt repayment that they had received collectively in the form of bilateral aid. Moreover, she added, those of us who could, should ensure that all developing countries, particularly the poor ones, could take part in the process of global integration on equal terms. She supported persuading the United Nations agencies and the international financial institutions and the World Trade Organization (WTO) into bringing that about. Agencies should no longer think in terms of turf, nor be driven by donor envy. We should speak with one single voice, she added.

ANWARUL KARIM CHOWDHURY (Bangladesh) said the global financial architecture needed thorough overhauling to make it responsive to emerging needs. He drew attention to the call by the Prime Minister of the United Kingdom, Tony Blair, for a modernization of global institutions. For most developing countries, a steady flow of external assistance remained imperative to meet the needs for investment capital, foreign exchange and human development priorities. United Nations development activities were crucial for the least developed countries.

He said ODA was also crucial for economic diversification, investment in infrastructure and human resources development. Developed countries should reverse the decline in ODA and make every effort to meet their ODA commitments to provide 0.15 per cent to 0.2 per cent of GDP in ODA to the least developed countries. According to a report of the Committee for Development Policy of the Economic and Social Council, sustained and effective flow of ODA was

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needed for at least 10 years to enable the least developed countries to benefit from globalization and generate sustained growth.

There must also be a substantial reduction of debt stock and the debt-servicing burden, he continued. The current strategy of debt relief -- the HIPC-Initiative -- was widely considered too slow and too restrictive. The Initiative might prevent countries from collapsing from debt burden, but it was inadequate to inject dynamism for growth and should be revised to include more countries. Ensuring access to markets could do much to stimulate the economies of the least developed countries, he continued. Developing countries must also explore how they could help themselves and explore the potential for South-South cooperation. The diversity of development experiences in the South, as well as the different stages of their development, offered great opportunity for productive cooperation.

BETTY KING (United States) said that the ongoing global financial crisis was at the forefront of our deliberations. The challenge was to identify how this portion of the United Nations system, the General Assembly, could make a contribution to this issue. It was up to us, she noted, to channel the benefits of globalization for the world as a whole.

She referred to two United States initiatives: a strengthened IMF financing mechanism to respond to difficult global financial conditions that threatened many countries, and a new emergency capacity for the World Bank to focus on support for the most vulnerable groups in society and on financial sector restructuring. The United States asked the IMF and the World Bank to take immediate steps to convince countries to stay engaged in the global economy rather than pursue exchange and capital controls; to accelerate the pace of comprehensive corporate and financial restructuring in countries where there was a systemic problem, to provide increased social safety nets in the countries in crisis to help the least advantaged citizens; to continue discussion on new instruments for emergency assistance while adhering to sound prudential norms, and to reinforce good governance and transparency in both public and private sectors, including the financial sector.

She observed that the IMF and the other Bretton Woods institutions were uniquely placed and uniquely empowered to deal with the financial crisis which threatened all nations. She said the United States believed that neither the General Assembly, the Secretariat, nor the United Nations Conference on Trade and Development (UNCTAD) should supplant the IMF and the World Bank and that United Nations Member States should not create a "world financial organization".

Continuing, she noted that the forthcoming triennial comprehensive policy review of operational activities for development was another key issue for her country.

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BURAK OZUGERGIN (Turkey) said the Committee should seize the opportunity to deal with the critical matters on its agenda from a "value added" perspective. The Committee's work should be focused and it should use its time efficiently. The United Nations had a clear role in revitalizing development and strengthening normative, legal and institutional frameworks that would allow the global economy to operate more effectively and equitably. Those frameworks were essential in order to ensure stability and predictability and to allow all regions of the world, particularly the least developed countries, to benefit from a globalized economy.

In recent years, the United Nations operational activities had increased in range and diversity, he said. Its mandates and tasks were being implemented in a more holistic manner, as the linkages between various dimensions of sustainable development became more evident. However, there was concern about the stagnant or declining funding trends, particularly in the area of core resources.

Poverty alleviation, gender equality, protection of national resources and fragile environments and improvements in health and education remained largely unachieved goals, he said. However, there was a consensus that they were worthwhile and must be pursued. Governments no longer acted as a single agent in promoting sustainable development. Accordingly, everyone, from governments, businesses, trade unions, non-governmental organizations, local inhabitants and women, increasingly played a role in their own development. The cycle of United Nations conferences had elaborated a global agenda for sustainable development and for the work of the Organization, governments and civil society well into the next century. His country looked forward to advancing the agenda for those issues which fell under the Committee's purview.

SERGEI N. MARTYNOV (Belarus) said that unfortunately the majority of the world's economic problems would carry over to the next century. Just two or three years ago, the world was optimistic about the opportunities offered for stable economic growth and social progress by globalization and trade liberalization. Because of the current financial crisis, there was a need to undertake coordinated measures on development of global mechanisms to regulate international financial markets. The Bretton Woods institutions and national governments should make joint efforts to form a structure which could react promptly to deteriorating situations around the world.

He said the benefits of globalization and trade liberalization were not accessible for all countries. Many developing countries, particularly the least developed countries, had been marginalized. Furthermore, the average level of tariff barriers on goods from the least developed countries was 30 per cent higher than the average index in the world. Groundless anti-dumping sanctions, as well as ecological standards, were still being used for protectionist purposes.

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Thirty countries, including Belarus, were holding consultations to join the WTO, he said. Currently, they were not able to take advantage of the multilateral trading system. They could not use the WTO dispute settlement mechanism and were helpless in the face of anti-dumping sanctions and other restrictions. The UNCTAD and the WTO should give technical and advisory assistance to help deal with the complex and protracted procedures needed to accede to the WTO.

HAROLD ACEMAH (Uganda) said that the recent high level segment of the substantive session of the Economic and Social Council on open market access was an achievement that enabled restoring core economic discussions to their rightful place. That discussion captured the key issues of globalization and liberalization which, if concretely translated into the decisions of the WTO, would benefit all countries. His country was grateful for the recommendations which concerned market access for Africa and the least developed countries.

Globalization and interdependence have emerged, he said, as the most pervasive economic forces today and were the result of, among other things, deliberate policy prescriptions and pursuits. Many now believe that the benefits of globalization would at best be uneven, and at worse, would bypass some regions altogether, unless specific measures were urgently adopted and implemented.

He said that globalization was the culmination of a process begun in the late 1930s and early 1940s, whose primary objective was the creation of an open global economy for the benefit of a few countries. His country believed that something could and should be done to mitigate and eradicate its negative impact on the economies of developing countries. The alternatives, he said, were to localize economies, to disperse economic power and to democratize international economic relations. The Bretton Woods institutions should be restructured and given new mandates to enable them to advance localization, and the international economic system should be transformed to create a bias towards the local.

He suggested that assessments of the impacts of globalization had tended to gloss over the vulnerability of economies in African and least developed countries, perhaps because of the small impact that those countries had on the global economic system or because those economies had been critical for some time. It had been the hope of his country that far-reaching economic reforms in Africa would make Africa an attractive destination for capital and foreign direct investment, but that had not materialized. Instead, he added, Africa's share of world trade has shrunk for many reasons. Internal conflicts had persisted and malaria and HIV/AIDs had continued to adversely affect the productive capacity of the population. In addition, Africa's debt burden continued to present a major obstacle. Because of those considerations, Uganda would continue to advocate reforms to globalization that were responsive to the situation of the world's weakest economies.

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RAFAEL DAUSA CESPEDES (Cuba) said globalization had increased systemic risks which exposed countries around the world to the dangers of international speculation. It had taken the current crisis to expose the weakness of "neo-liberal doctrines" that placed the global economy in real danger with unforeseeable consequences. The prescriptions of the World Bank and the IMF and their "infamous structural adjustment" programmes were now seen as a real debacle. Developing countries could never make enough "adjustment" unless such factors as unequal trade protectionism -- overt and covert -- chronic indebtedness, interference with sovereignty and technological backwardness were addressed. The world must do away with the poverty that was the hallmark of entire countries and regions.

The United Nations was the only place where rich and poor countries had the same voice, he continued. The world looked to it to provide a new machinery and the impetus for multilateralism. His Government was alarmed at new attempts to deal with the financial crisis at elite forums which were not capable of dealing with the problems. There must be a qualitative search for new solutions and a new cooperation between the North and the South. There must now be a new globalization where people mattered and everyone pulled together.

Last year, he said, his country had proposed the convening of an international conference on financing development. While some delegations had expressed reservations concerning the proposal, recent developments had demonstrated the real need. The Bretton Woods institutions were ill-equipped, because of their ideology and structure, to meet the challenge of globalization. The international community must turn to the United Nations for truly just solutions to the problems the world was now facing and there must be increased South-South cooperation.

SHEN GUOFANG (China) said that the process of globalization had been moving blindly, without clear order and under unequal conditions. Liberalization measures should be taken in a gradual manner, and in consideration of specific national conditions. Efforts should be made, moreover, to strengthen the capacity of international financial institutions to prevent and respond to crises. Also, importance should be given to establishing a healthy banking system and implementing stable economic policy. It was necessary to conduct the early warning and monitoring role of international financial institutions so that their handling of crises in international capital markets would be strengthened.

From a long-term perspective, he said, eliminating the lingering impacts of the crisis on countries which were hit the hardest would be helpful to countries which had major influence on economic conditions in Asia.

He noted that the efforts of developing countries to participate fully in globalization had been met by restrictions. Anti-dumping and anti-subsidy actions had made it almost impossible for underdeveloped countries to enjoy

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the benefits of expanded international trade, while developed countries had been the major beneficiaries of the globalization process.

Deliberations at the Second Committee should focus on the responsibilities of governments, especially honouring the commitments already made. The constant reduction of ODA should be noted, he said, adding that South-South cooperation had played a positive role in the development of developing countries, while globalization had given South-South cooperation new significance.

His country, he continued, had actively participated in the assistance programmes of international financial institutions towards countries impacted by the Asian financial crisis and had held fast to the commitment not to devalue its own currency.

AHMAD KAMAL (Pakistan) said globalization had become synonymous with marketization and market forces had not helped the developing countries in their efforts at integration into the world economy. Nor had the market helped the recovery of the East Asian economies. Development could not be left to the mercy of financial flows which only went to the land of higher returns. To ensure sustainable development, special funds were required devoted only to development. The situation in developing countries was further exacerbated by the crippling debt burden.

He said the myth of "market superiority" had to be challenged. Economic decision-making had to change and recognize that "market efficiency" was not inherently economically efficient. Humanization of globalization was now a necessity and not a choice. To realize development in a broader perspective, the world had to look for solutions beyond monetary and fiscal measures, macro-economic stability and controlled liberalization.

There was already a global consensus on sustainable development, he continued. While the international community had successfully achieved consensus on the normative framework for human development, it was a long way from evolving an international policy framework geared towards the realization of those goals. "We need a consensus for global action". The process should be democratic and all institutions dealing with economic, financial and social aspects of development should participate. The United Nations had to play a role in establishing that framework. Serious consideration should be given to the proposal for a global monetary conference to be convened by the United Nations to address the old and new problems of the international financial system. The Secretary-General should be asked to submit his recommendations regarding the convening of such a conference to a resumed session of the Second Committee early next year.

The world was at a critical juncture, he concluded. A piecemeal approach, devoid of political will, was likely to push the world into a global recession. Unlike the depression of the 1930s, the consequences would be far more widespread and serious. In a globalized world economy, he said, "either we all win or we all lose".

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