FINANCING DEVELOPMENT SHOULD NOT BE HIJACKED BY TALK OF NEW FINANCIAL SYSTEM, PHILIPPINES TELLS SECOND COMMITTEE; OTHERS URGE CONFERENCE ON FINANCE CRISIS
Press Release
GA/EF/2822
FINANCING DEVELOPMENT SHOULD NOT BE HIJACKED BY TALK OF NEW FINANCIAL SYSTEM, PHILIPPINES TELLS SECOND COMMITTEE; OTHERS URGE CONFERENCE ON FINANCE CRISIS
19981012 Japan Stresses Need To Continue Free Market Principles; Other Speakers Warn of Widespread Social and Political UpheavalsFinancing for development was much more important than creating a new international financial architecture, the representative of the Philippines told the Second Committee this afternoon, as it continued its consideration of macroeconomic policy questions.
Development cooperation, development assistance and other such topics were key, and they should not be hijacked by discussions of a new financial system, he added. There was a need for the international community to meet development needs and create the required resources for implementing the commitments of the major United Nations conferences.
The representative of Japan stressed the need to continue with free market principles despite the global financial crisis. He said developing countries must maintain a sound macroeconomic policy, improve regulatory and accounting systems, and strengthen supervision of financial institutions. Economic management and development strategies which utilized market mechanisms were still essential ways of dealing with the new, globalized economy.
Others warned that the crisis would continue to have a tremendous effect on the economies of developing countries. The representative of Jamaica said the results of the crisis could include a reduced pace of liberalization and the possibility of widespread social and political upheaval.
A number of speakers also called for a high-level United Nations conference to address the financial crisis. The representative of Ethiopia said that such a conference should examine the various dimensions of financing for development. It also needed to establish achievable targets for international official development assistance (ODA) and explore new sources of funding.
Statements were also made by the representatives of Turkey, Yemen, Myanmar, Kenya, Iran, Mozambique, Iraq, Republic of Korea, Egypt and Azerbaijan.
The Committee will meet again at 3 p.m. on Tuesday, 13 October, to continue its consideration of macroeconomic policy questions and begin discussions on sectoral policy questions.
Committee Work Programme
The Second Committee (Economic and Financial) met this afternoon to resume its consideration of macroeconomic policy questions. Under that item, it will focus on the topics of financing of development and external debt. (For background information, see Press Release GA/EF/2820 of 9 October.)
Statements
FEZA ÖZTÜRK (Turkey) said a comprehensive consideration of financing for development must include all the potential sources of financing, in particular foreign direct investment and innovative sources. An innovative source of financing for developing countries might be the highly profitable Build- Operate-Transfer Model. That model helped to develop projects which required advanced technology and high capital investment. That model was currently being used in Turkey to finance new power plants, railways, telecommunications systems and other revenue-sharing projects. Foreign direct investment was also very important, and there was a need for increased harmonization of the rules and regulations pertaining to such investment.
AHMED AL-HADDAD (Yemen) said that economic policy questions, such as the financing of development and the net transfer of funds, were of great importance to both developing and developed countries in crisis. The Second Committee should come up with a mandate for addressing medium- and long-term financial flows, as well as preferential flows, to assure favourable circumstances for trade. The Committee needed to reconsider how to manage the crisis, rather than allow everything to be determined by the financial market.
U WING AUNG (Myanmar) said that inequity and disharmony in development occurred due to a variety of reasons. Many causes of inequity could be resolved by proper and timely application of necessary corrective measures both by the affected and their partners in development. In most cases, infusion of direly needed essentials directly to the affected area could achieve positive results. That kind of action necessitated the availability of adequate funds. Delay in performing the necessary actions could nullify the effectiveness of those measures, however. Any increase in funds made available towards development, as a complement to official development assistance (ODA), would be most welcome by those who were in most need.
NJUGUNA MAHUGU (Kenya) said that the process of economic globalization was complicated by the unilateral imposition of non-economic conditions, such as human rights, environmental and labour standards. That contributed to the widening of the gap between developed and developing countries and could, if unchecked, destabilize the global economy. The integration of all countries into the global trading system would facilitate the expansion of trade, investments and services, and would generate international economic growth and development. While the international community had made a number of
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commitments to help developing countries, it was unfortunate that such commitments had not been honoured.
MOHAMMAD ALI ZARIE ZARE (Iran) said that global investment tended to flow to countries where the terms were high and the risks were low. Most developing countries had been marginalized in that process.
He noted that institutional investors (pension funds, insurance companies and mutual funds) had, over the years, become key players in the world's capital markets. They were prominent purchasers of bonds and equities in emerging markets, in search of higher and quick returns and in a move to diversify their portfolios. Those motives, along with such factors as the volume of assets, progress in communications technology and reduced transaction costs, clearly indicated that challenges resulting from short-term portfolio investment would be with us for quite a long time to come. There was even a strong possibility that the scope of those challenges would be broader.
BERHANU KEBEDE (Ethiopia) said that the convening of an international conference to examine the various dimensions of financing for development was a matter of urgency. That conference needed to establish achievable international ODA targets and explore new sources of funding, including ways and means of tapping the global economy for development assistance. It was also high time for the international community to promote the creation of democratically managed funds, drawing on the experience of individual countries and regional groups. Those resources could be channelled to the geographic areas marginalized from the global world economy.
WATARU NISHIGAHIRO (Japan) said that an economic management and development strategy that made the most of the market mechanism was essential to deal with the new, globalized economy. Greater exposure to the market mechanism would increase economic efficiency and, therefore, should continue to be a major policy priority for developing and transitional economies. Developing countries must maintain a sound macroeconomic policy, improve regulatory and accounting systems, and strengthen supervision of financial institutions for appropriate risk control, as those elements constituted the basis of the market system.
However, as a result of globalization, the international financial market did involve greater risk and no country was protected from the damage it could do, he said. While some were calling for a new financial architecture to replace the Bretton Woods institutions, Japan believed that those institutions should be improved so they could perform the functions needed in the new world economy. The financial base of the International Monetary Fund (IMF) should be bolstered so that the Fund could continue to provide countries in difficulty with appropriate financial assistance.
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CARLOS DOS SANTOS (Mozambique) said that his country believed that more least developed countries should take part in the current Heavily Indebted Poor Countries (HIPC) Debt Initiative arrangements, and that debt should be written off or turned into grants. He added that he welcomed the initial positive reactions from both donor and creditor countries in relation to those initiatives.
The economic and financial crisis taking place in the developing world, he said, had a clear tendency to spill into other countries, as long as developing countries remained mired in debt. The debates that took place at the World Bank and IMF meetings in Washington, he added, illustrated that all the role players were sensitive about addressing the debt problem.
KHALED AL-HITTI (Iraq) said the requirements of economic globalization put severe strains on developing nations. The flow of resources from developed to developing countries had further declined, which further complicated the difficulties confronting developing countries. The financial crisis had also made it even more difficult to solve the problem of indebtedness of developing nations. His country encouraged the international community to allow developing countries to reschedule payment and to refinance their debts. Those arrangements could only be made by negotiations between the indebted and the loaning countries. Also, greater action by the international community was needed in this matter. Further, there was a need to review the policies of the IMF and the World Bank and to look at new sources of funding for developing countries to finance economic and social projects.
SUH DAE-WON (Republic of Korea) said the deliberations of the Second Committee would add constructive guidance to counter the global financial crisis and help to draw up a road map of financial liberalization for the new world of massive private capital flows. Many developing countries considered their main concern to be the optimization of private capital flows. The financial crisis had caused his country to take a look at what had happened in developing countries; it had not yet understood the full impact of the current crisis. His country, he continued, had decided not only to attract private capital, but to learn how to counter sudden reversals.
The report by the Secretary-General before the Committee on financing development encompassed all the potential issues to be covered by the proposed ad hoc working group, he said, adding that the deliberations at the working group should be closely coordinated with ongoing discussions within the Bretton Woods system.
HAZEM FAHMY (Egypt) said the dangers that faced the development process could have a great impact on developing countries. The current crisis had occurred at an important stage in his country's development. It had taken a number of measures to privatize its businesses and had started a stock market
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to attract foreign direct investment. Any collective efforts to rectify the international financial system would be welcome. Efforts should be made to relieve the burden of debt on developing countries, as well. The Committee should work to find solutions to the difficult problems facing developing nations.
PATRICIA DURRANT (Jamaica) said the flows of ODA had continued to shrink and private financing could not compensate for ODA. The proposal for a high level United Nations conference was a priority and should be accorded great importance. The current crisis had not abated despite the attempts of many countries. The results of the crisis could include a reduced pace of liberalization and the possibility of wide-spread social and political upheaval. The crippling problem of external debt remained at the forefront of problems facing developing countries. There was an urgent need to reassess mechanisms and initiatives for debt relief. Initiatives were also needed for a faster rate of implementing development aid.
FIKRET PASHAYEV (Azerbaijan) said that the vulnerability of developing countries to globalization affected not only industrial and agricultural development, but also social development, especially that of countries in transition from planned to market economies.
Because the expectation of future flows of short-term financing was not optimistic, he said, long-term investment played an important role in development. And while short-term financing had a tendency towards sudden changes of direction, long-term private capital, in the form of foreign direct investment, had largely maintained its pace.
While capital flows to some countries suddenly changed their direction, long-term financing was an objective process linked with the aims and potential of transnational corporations, he continued. Transnational capital was looking not only for fast profits, but for a favourable investment climate for the long term. The IMF should work with Member States towards healthy banking systems.
LIBRAN CABACTULAN (Philippines) said that issues of financing for development were much more important than creating a new international financial architecture. Development cooperation, development assistance and other such topics were key, and they should not be hijacked by discussions of new financial system. There was a need for the international community to create partnerships that met development needs. The international community should also create the required resources for implementing the proposals and commitments made in the major United Nations conferences. His country supported the proposal to hold a high-level meeting to address the world financial crisis. At the current time, delegations should be establishing the form for such a conference and leave the details to be determined later.
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