INTERNATIONAL FINANCIAL CRISIS REAL AND MUST BE TACKLED WITH SENSE OF URGENCY, WORLD BANK PRESIDENT TELLS HIGH-LEVEL MEETING OF ECONOMIC AND SOCIAL COUNCIL
Press Release
ECOSOC/5818
INTERNATIONAL FINANCIAL CRISIS REAL AND MUST BE TACKLED WITH SENSE OF URGENCY, WORLD BANK PRESIDENT TELLS HIGH-LEVEL MEETING OF ECONOMIC AND SOCIAL COUNCIL
19990429 Council Meets with Representatives of Bretton Woods Institutions On International Financial Markets, Stability in Financing DevelopmentThe international financial crisis was real and should be tackled with a sense of urgency, said the President of the World Bank, James D. Wolfensohn, at the second special high-level meeting of the Economic and Social Council with the Bretton Woods institutions, held at Headquarters this morning.
The theme for today's meeting was "the functioning of international financial markets and stability in financing for development". The first special meeting, held on 18 April 1998, was generally considered important and useful by United Nations Member States, and a second meeting was called for in General Assembly resolution 53/169.
Opening the meeting, the President of the Economic and Social Council, Francesco Paolo Fulci of Italy, underscored the need for a comprehensive reform of the international financial system and of the problems of development. The Council was the natural forum to promote dialogue and build confidence on world economic and social issues, he said. It was very disturbing that the gap between the rich and poor in the world was increasing and that overall official development assistance (ODA) had reached its lowest level in 50 years. That unfortunate trend was dangerous and it must be reversed.
The Managing Director of the International Monetary Fund (IMF), Michel Camdessus, said it was time to prevent and not manage crises. It was important to create the right incentives for countries to address their vulnerabilities and to ensure that they adopted, in advance of a crisis, minimal social safety nets. In addition, better integration of the United Nations and the Bretton Woods families was needed.
A genuine commitment by the United Nations and the Bretton Woods institutions to work together had to be seen and translated into daily behaviour, said the Deputy Secretary-General, Louise Fréchette. The history
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of mistrust between them would not be overcome overnight. Priorities should include: reversing the decline in the rate of growth of the world economy; completing work on the establishment of a new global financial architecture; and helping developing countries build the capacity to engage in the global economy on a sustainable basis.
The meeting was organized in a dialogue format, with a panel made up of finance ministers and officials of the policy-making bodies of the IMF and the World Bank. Following initial statements from the panellists, a discussion was held with high-level delegates from United Nations Member States.
Participants on the panel included: Carlo Azeglio Ciampi, Minister of the Treasury of Italy, who is Chairman of the IMF's Interim Committee; Tarrin Nimmanahaeminda, Minister of Finance of Thailand, and Chairman of the Development Committee of the World Bank; Mats Karlsson, Secretary of State for International Development Cooperation, of the Ministry of Foreign Affairs of Sweden and Chairman of the Group of 10; and Carlos Saito, Adviser to the President of the Central Bank of Peru and Vice-President of the Group of 24, which represents the interests of developing countries in negotiations on international monetary matters.
During the discussion, statements were made and questions posed by the representatives of Guyana, Germany, United States, Russian Federation, Turkey, Cuba, South Africa, Pakistan, Canada, Colombia, Netherlands, Saudi Arabia, Norway, Iran, Ethiopia, Ireland, Sudan, Saint Kitts and Nevis, Austria, Japan and Bangladesh.
The Economic and Social Council will meet again on 6 and 7 May in a resumed organizational session.
Council Work Programme
The Economic and Social Council met this morning to hold its second special high-level meeting with the Bretton Woods institutions focusing on the following theme: "Functioning of international financial markets and stability in financing for development." The first such meeting was held in April 1998.
A note by the Secretary-General (document E/1999/42 and Corr. 1) identifies some of the issues and relevant questions that might be addressed. The note states that, as the fallout from the initial financial crisis in Thailand enters its third year, weak international trade and the negligible improvement in private financial inflows mean that most developing and transition economies continue to face a tight external payments constraint. Such an international economic environment is not suitable for adjustment and economic growth.
At its launching, the Heavily Indebted Poor Countries (HIPC) Debt Initiative of the World Bank and the International Monetary Fund (IMF) was recognized as a breakthrough in addressing the debt problems of those countries, the note states. However, the past two years have seen civil society and non-governmental organizations increasingly question international policy regarding the treatment of the external debt of many of the low-income countries. In the past few months several creditor governments have floated proposals for deeper and quicker debt relief for heavily indebted poor countries.
According to the note, the World Summit for Social Development (Copenhagen, 1995) raised expectations that substantial and rapid global progress would be made in rolling back poverty and unemployment and promoting social integration. The financial and economic crises, however, have erased much of the progress that had been made in reducing poverty levels in South-East Asia in previous years. There has been negligible success in reducing poverty in Africa and Latin America in the 1990s, and poverty rates in a number of transition economies have returned to levels unknown for decades.
It goes on to say that recent experience has focused attention on the need to address the negative social consequences of financial crises and their aftermath. At the same time, greater attention is now being given to the role and importance of the provision of basic social services in the development process.
The second joint meeting between the Council and the Bretton Woods institutions is one of a number of further steps that have been taken to increase cooperation at all levels, among the United Nations, the IMF and the World Bank, the report states. The General Assembly has embarked on a process that is to lead by 2001 to a high-level international intergovernmental
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consideration of financing for development. The following question could be addressed in that regard: "How might the Bretton Woods institutions be linked with discussions in the United Nations on financing for development?"
The note goes on to say that the depth and breadth of the crisis and the shortcomings that it has exposed have given rise to numerous suggestions from many quarters for reform of the international monetary and financial architecture. In January, the United Nations Secretariat issued a report of the Task Force of the Executive Committee on Economic and Social Affairs, entitled "Towards a New International Financial Architecture", which contains a comprehensive set of recommendations for overcoming the current world financial crisis (on the Internet at www.un.org/esa/coordination/ifa).
The report states that, with the full support of major industrial countries, the IMF should put together contingency funds to assist countries experiencing crisis or contagion. The Task Force welcomes recent actions by the Group of Seven major industrial countries to guarantee adequate contingency financing by completing implementation of the IMF quota increase, the New Arrangements to Borrow and the commitment to supplement the Fund's resources when necessary. At the same time, the Task Force argues that it is essential that the new type of contingency financing should become a stable feature of the new international financial order. It should also be made available before international reserves are depleted.
In the longer term, the report stresses the need for fundamental reforms. The international financial system is an organic whole, which requires a comprehensive approach. Therefore, the reform must encompass a number of interrelated aspects of international liquidity management, global consistency of macroeconomic policies and financial regulations -- areas essential to the prevention and management of financial crises -- as well as finance for development and the resolution of outstanding debt issues. The report addresses international monetary and financial issues and provides some suggestions on broader and related issues.
The Task Force report concentrates on six key areas where the reforms must be addressed with a sense of urgency, including: reform of the IMF aimed at providing adequate international liquidity in times of crisis; improved consistency of macroeconomic policies at the global level; the adoption of codes of conduct, improved information and financial supervision and regulation at national and international levels; preservation of the autonomy of developing and transition economies with regard to capital account issues; incorporation of internationally sanctioned standstill provisions into international lending; and the design of a network of regional and subregional organizations to support the management of monetary and financial issues.
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Statements
Opening the meeting, the President of the Economic and Social Council FRANCESCO PAOLO FULCI (Italy), said that the persistent economic crisis continued to underscore the need for a comprehensive view of the reform of the international financial system and of the problems of development. The Council was the natural forum to promote dialogue and build confidence on world economic and social issues. Today's meeting was yet another step forward in that direction. The topic of today's discussion was very much on the minds of government leaders and policy makers everywhere, for market stability was indeed a must for development to proceed in an orderly fashion.
Never in the past had there been such awareness that no financial architecture could stand, unless it was based on solid social foundations, he continued. From that perspective, it was very disturbing that the gap between the rich and poor in the world was increasing and that overall official development assistance (ODA) had just reached its lowest level in 50 years, measured in terms of the gross domestic product (GDP) percentage of developed countries. That unfortunate trend was dangerous and it must be reversed. Relief should be given, particularly to the poorest countries, to free them from unsustainable debt levels and to make more resources available to meet the most elementary human needs of their populations.
In that respect, he added, encouraging signals had been received from the just concluded meetings in Washington, D.C., and everybody was anxious to learn more about them from the key players. The Economic and Social Council was ready to help. In its July meeting in Geneva, the highest priority would be given to the goal of poverty eradication. An important initiative launched by the General Assembly last year also should be recalled -- the promotion of a high-level intergovernmental event on the issue of financing for development.
LOUISE FRÉCHETTE, Deputy Secretary-General, said the effects of the great financial crisis were still present and it would be a grave mistake to return to business as usual. Now was not the time for complacency. For anyone tempted by complacency, she would note three simple things: the rate of growth of the world economy had been slowing down, and the down-side risks remained significant; in many developing countries, the crisis had reversed, in a matter of months, the social gains of several decades and its impact would continue to be felt for some time; and a large part of the developing world remained on the margins of the global market and could not enjoy the potential benefits of the liberalized world economy.
Faced with that reality, the priorities should be, she said: a reversal of the decline in the rate of growth of the world economy; completion of work on the establishment of a new global financial architecture; helping developing countries build the capacity to engage in the global economy on a sustainable basis; ensuring that sufficient resources were available for the
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task; and continuing the reinforcement of cooperation and coordination among all the stakeholders in the development process.
She said that, although progress had been made in strengthening the international system, much remained to be done to improve the ability of governments and international agencies to reduce instability in private capital markets, and so prevent the recurrence of the kind of crises confronted last year. It would be most unfortunate if the political will to make tough decisions were allowed to fade. The United Nations had put forward a number of ideas for reforming the system.
The issue of governance of the strengthened system was especially important, she said. Neither its design nor its management must be the prerogative of only a few States. Liberalization was not in and of itself sufficient to achieve that goal. Developing countries also needed to put in place the appropriate policies and mechanisms to provide economic security and social welfare for all their people. In turn, the prescriptions offered by the multilateral economic and financial institutions should be supportive of those aims, she said.
The United Nations welcomed the increased attention the Bretton Woods institutions were now giving to social issues. The results of the major United Nations conferences earlier in the decade should serve as the common frame of reference. The achievement of the goals set out by those conferences, particularly those related to the eradication of poverty, should become an integral part of any development strategy.
She said that the role of trade and private investment in the development process was now well recognized, but ODA would continue to play a critical role in many of the poorer countries. It was, therefore, imperative that its decline be reversed and further steps taken to relieve the burden of the external debt of the highly indebted countries.
She welcomed the recent proposals to expand the HIPC Debt Initiative and to further reduce official bilateral debt. She stressed, however, that action on debt should not be taken at the expense of official development assistance, and she welcomed proposals to finance debt relief for the poorest countries by the sale of IMF gold holdings. In addition, she said other new and additional resources should be found to achieve the desired results.
She said that to achieve sustainable development, a holistic approach was required -- one that attempted to integrate economic, social, political and environmental goals. That was why, she said, the Secretary-General had launched the United Nations Development Assistance Framework. Noting a similar initiative undertaken by the President of the World Bank, she said all initiatives must complement and support one another.
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CARLO AZEGLIO CIAMPI, Minister of the Treasury of Italy and Chairman of the Interim Committee of the Board of Governors of the IMF, said that two days ago the Committee had taken stock of the state of the world economy. It had discussed ways to make countries more resilient to crises, to better equip them to participate fully in a global financial marketplace, and ways to make the international community help countries more effectively deal with those crises. Also discussed was the situation facing those countries that were not participating fully in the globalized world -- the very poor, the heavily indebted, and those emerging from ravaging conflicts.
Elaborating on the way in which the Committee's work was developing, he said that several innovations had been introduced in a pragmatic way. The meeting had been prepared by a group of deputies, direct collaborators of the members. That had increased the efficiency of the Committee's work. Discussions had been more lively and more focused. There had been a true and constructive dialogue, even on issues that had come to the Committee's agenda with short notice, such as the unfortunate events related to the Kosovo war.
The Committee intended to continue its search for greater efficiency, while involving a broader range of countries in the discussion, he continued. Maximizing efficiency and representation was achieved through the system of constituencies, on which the IMF and the World Bank were based. Such a system could be improved, particularly to take into account the emerging realities of the world economy, but it remained valid, by providing the necessary legitimacy to the actions of the international financial institutions.
A lot had happened since last year's meeting, he continued. Contagion had spread from one end of the globe to another. Major crises had erupted in Russia and Brazil. Economic activity in some industrial countries had turned out to be weaker than expected. Although the worst of the crisis seemed to have passed, the world economy was nevertheless far from growing at its full potential. Policies had to be geared towards sustainable growth, especially in Europe and Japan, so as to provide a stimulus to the world economy.
The main question now was how to mitigate the impact of crises and how to prevent future ones, he said. After months of discussion in the official and private sectors and in the academic community, several important goals had been achieved by the international financial institutions. A Contingent Credit Line (CCL) had been established by the Fund, to prevent and contain contagion. That facility provided the incentive for countries to pursue sound and sustainable policies to maintain stability. To be eligible, countries had to adopt sustainable exchange policies, implement sound debt management, adhere to international debt standards and involve the private sector in financing their external borrowing requirements.
Significant progress had been achieved in developing, disseminating and monitoring the implementation of internationally recognized standards, he continued, particularly concerning international reserves and related data.
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Codes on transparency of fiscal, monetary and financial policies were being developed, through a broad collaborative effort with other international institutions and bodies. The Fund would use those standards in its surveillance activity.
Work was being pursued, in the Fund and in other forums, to devise practical ways to involve the private sector in ensuring stable financial flows towards emerging and less developed countries, he said. The Fund had cooperated closely with the World Bank and the Asian Development Bank to put in place as quickly as possible social sector policies that would limit unemployment, increase income transfers, and broaden social safety nets. At the same time, countries had a responsibility to allocate resources towards education, health and other social services, and not on wasteful military expenditures.
In discussions on architecture and globalized financial markets, those countries that risked being excluded from the global economy should not be forgotten, he said. The Committee endorsed the Fund's continued support under the HIPC Debt Initiative. It had asked the Fund and the Bank to work towards a framework that provided for deeper relief to a broader group of countries, in a way that strengthened the incentives for adoption of strong reform programmes, and fostered the respect of human rights. The Committee also discussed ways in which the IMF could enhance its support for those countries emerging from conflict, including through more concessional resources with longer maturities.
With regard to the human tragedy unfolding in Kosovo, bilateral and multilateral donors were responding to the humanitarian crisis, he said. The international community had to help the affected countries address the damage done to their economies and to sustain the economic reform efforts. In that regard, the international financial institutions would play an important role. The Committee endorsed the need for a rapid, substantial and coordinated response by the international community to the economic consequences of the crisis in the region.
It had also agreed that the financing of balance of payments and budget costs in affected countries should be provided in highly concessional terms, he added. The Committee asked the Fund and the Bank to continue their work in coordinating the international response to the economic impact of the crisis, in close cooperation with other interested agencies and donors.
In conclusion, he said that financial globalization must work in the interest of the people and not vice-versa. At its meeting two days ago, the Committee had broadly endorsed the activities performed by the Fund in such difficult times. It had outlined the direction for its further work. He was confident that those measures, together with the activities of the Bank and the United Nations, would provide the pillars for a stronger, more effective and coordinated action of the international financial institutions.
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TARRIN NIMMANAHAEMINDA, Chairman of the Development Committee of the IMF and World Bank and Minister of Finance of Thailand, said he would concentrate on two subjects -- international policy for external debt, and economic crisis and social policy. The main concern of the Development Committee was the HIPC Debt Initiative. Progress on that Initiative achieved over the past two and a half years was appreciated. More than $6 billion of debt relief had been provided for seven countries, but it was also clear that the results fell short of what was needed. Thus, it was encouraging to hear creditor nations offer to take additional steps bilaterally to ease debt, and to examine options that would make the Initiative broader, deeper and faster.
Moreover, ministers believed there should be a close link between debt reduction and helping countries achieve sustainable development and poverty reduction, he said. They wanted reforms to have a "pro-poor" growth focus. The Committee also endorsed principles that should guide any changes in the HIPC Debt Initiative. Those included recognition of the need to preserve the integrity of international financial institutions.
New financing for poor countries should be on a grant basis or concessional, he continued. Debt relief alone would not be sufficient to reach the goal of reducing poverty, but trade and aid were also needed. The sharp decline in ODA was viewed with concern.
The Committee's last meeting asked the World Bank to take the lead in developing a set of "Principles and Good Practice in Social Policy", he said. The Bank and United Nations agencies had been in consultation and a paper that included the issues involved in implementation of such principles in individual country settings had been produced. Reflecting on the lessons of the recent financial crisis, the ministers had reiterated the importance of helping countries bolster their social policies and institutions, and stressed the need for the Bank to concentrate on translating broad principles into practical country-specific results. The stress now given to implementation and developing best practices was seen as the Bank's comparative advantage.
Regarding Thailand, he said that social policy must: be consistent with Thai values and culture; be sustainable after the crisis, in fiscal and governance terms; and deepen the reform agenda's emphasis on transparency, people participation and community development. A set of two-track policies were consequently developed. The first track strengthened government programmes, particularly related to alleviation of unemployment. The second track was based on involving civil society and local communities as full partners in social programmes.
In concluding, he said it was clear that sustainable economic recovery for those countries in financial crisis depended on coherent and effective social policies, as much as on economic reform measures.
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MATS KARLSSON, State Secretary for International Development Cooperation of Sweden and Chairman of the Group of 10, said that only with an enhanced degree of global economic governance could common objectives be reached. A stable and favourable economic environment was needed to enable each nation to pursue and enjoy its potential. Agreed and evolving norms and rules should ensure benefits from economic integration for all. The partnerships must be based on a sense of common responsibility and solidarity.
This year's "World Development Indicators", which had been released by the World Bank a few days ago, confirmed that, despite a generation of significant progress in the developing world, the international community was not making sufficient progress in eradicating poverty, he continued. The objective of reducing world poverty by half by the year 2015 had been born in the world conferences of the current decade. The consensus on what it meant in terms of practical policy was today greater among nations than before. It had been well developed by the United Nations, the World Bank and the IMF. Donor nations had drawn conclusions and committed themselves in that respect.
He said that the functioning of international financial markets and stability in financing for development were prerequisites for reaching development objectives. Mobilizing resources for development was still a tough and complex task. Globalization challenged the international community to fight global and regional public "bads". There was also a rapidly expanding demand for the provision of global public "goods", from the mundane everyday issues to knowledge and security, he said.
Continuing, he welcomed the ongoing process to review the international financial architecture, which needed to have a holistic approach with a focus on both macroeconomic and financial issues, as well as on social and structural issues. It was necessary to develop instruments for preventing crises, rather than just measures to manage them. The specific needs of emerging economies and nations with weak institutions must be addressed.
Stable financial markets were needed to facilitate the task of securing adequate financial flows for development, he continued. It was necessary to bring together the competence -- which in many countries was divided between ministries of finance, economy, trade, planning, foreign affairs, development and other public bodies -- to see what could be done to focus substantial instruments and resources on the development objective. There was also a need to relate more clearly to the private sector. With better institutional cooperation between the United Nations, the multilateral development banks, the European Union and bilateral donors, better partnerships with developing countries could be developed.
Development assistance alone could not create sustainable development, he said. The effects of domestic saving and investment and international trade had a much larger potential. That needed to be more fully recognized in
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the current process, as well as in the forthcoming round of negotiations in the World Trade Organization (WTO).
Additional debt relief must be an integral part of the total effort to achieve human development objectives. The HIPC Debt Initiative had been a major step forward, but the time had come for its revision. Countries needed to be given options for viable exits from the debt trap. His Government encouraged all creditor countries to cancel all ODA debt. It was crucial that new financing be provided on highly concessional terms, within a framework of a well-defined national debt strategy. He also welcomed the Comprehensive Development Framework recently launched by the World Bank and the efforts of the United Nations, and in particular its Development Group, for a more integrated and strengthened United Nations contribution at the country level.
CARLOS SAITO, Adviser to the President of the Central Bank of Peru and Vice-President of the Group of 24, which represents the interests of developing countries in negotiations on international monetary matters, said that at the Group's meeting on 26 April, three main points were covered: the international monetary system; strengthening that system; and financing for development. On the first point, concern was expressed at the direction the world economy was taking, especially the low rates of growth. Members expressed the need for the industrialized countries to open their markets wider to imports from the developing countries.
As for the strengthening of the international monetary system, he said that there was a need to avoid and contain high crises. Developed and developing countries should develop a working group on the matter. Regarding the Contingent Credit Line, there had to be a clear criteria for its eligibility and it should offer incentives. In addition, the Lender of Last Resort Initiative needed to be studied in greater detail.
The Group was satisfied with the possibilities of ensuring private sector involvement in preventing and resolving crises, he continued. Integration into international financial markets remained a fundamental goal for developing countries. Regarding the liberalization of capital accounts, the specific characteristics of each country had to be taken into account. The operational procedures of development committees had to be improved to enhance their effectiveness.
On the third point, financing for development, proposals for greater debt relief, including the HIPC Debt Initiative, had been discussed, he said. The Group was satisfied at the growing consensus in that area. They agreed that it would require greater resources, the equitable redistribution of the burden and alternative mechanisms for funding. The Group was also concerned at the lessening inflows of ODA. The Fund's granting of additional funds for post-conflict countries was welcome and the Group was gratified with the World Bank's initiatives in that area. Expanding the definition of countries in conflict was also encouraged.
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The Group urged the Bretton Woods institutions and donors to provide the resources necessary to build capacity in Africa, he added. Regarding the integrated development framework, concern about planning capacity and costs incurred by lending countries was expressed. The Group agreed with the core principles of promoting social development. The United Nations organs had to coordinate the implementation of those principles. In conclusion, he said that the Group felt that the United Nations initiative for holding a high-level forum for financing for development before the end of the year 2001 was very important.
First Panel Discussion
BHARRAT JAGDEO, Minister of Finance of Guyana, speaking on behalf of the "Group of 77" developing countries and China, said that while developing countries were generally pleased with the broad statements on the issues, they were concerned about the design of initiatives to give effect to those statements. They often felt excluded and unable to participate in the design processes. What, apart from existing consultation mechanisms, could the IMF and the World Bank do to ensure that developing countries, and especially small developing countries, could better participate in the processes and thereby gain ownership of the initiatives? he asked.
Developing countries were also concerned about implementation, he said. Countries that did not pose systemic risks did not have access to higher levels at the two international financial institutions. He asked how developing countries, especially smaller ones, could get access to the higher levels of the two institutions, if they felt issues with which they were concerned were not given attention.
The $6 million of debt relief previously mentioned had been committed, but was not all implemented, he said. The HIPC Debt Initiative used a sustainability threshold of debt-to-revenue of 280 per cent. One case about to come before them involved a country with in excess of 400 per cent debt-to-revenue. He asked how that particular case would be handled. Finally, he said he understood that proposals had been made to use service-to- revenue as a measure of sustainability. What were the views of the financial institutions on that proposal? he asked.
HEIDEMARIE WIECZOREK-ZEUL, Federal Minister for Economic Cooperation and Development of Germany, speaking on behalf of the European Union, said that globalization brought with it great opportunities for worldwide development, but also harboured considerable risks. Internal and external peace in the next century depended to a large extent on tackling those risks.
She said that, while a whole range of innovations aimed at increasing transparency and keeping the volatility of financial flows in check had been launched and were now under way, that was not a guarantee of more stability in financing for development. Despite improved rules and supervision of
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international capital transactions, there would be no guarantee of stable financial flows. Further, only if the appropriate safeguards were established at national institutional level could investor confidence be restored and flows of private capital thus resumed. In addition, flows of private capital were concentrated in a small group of countries and a limited number of sectors within those countries. In particular, poor countries received inadequate financing.
The European Union remained prepared to lend adequate support in times of financial crisis, she said. Countries should not, however, be providing public funds to cover the risks of private investors, nor should they assume the function of the international financial institutions. Above all, it was the responsibility of the IMF to offer liquidity assistance, while the multilateral development banks were responsible for long-term development financing aimed at achieving structural change.
Yet, international financing was only one aspect of financing for development, she said. In many partner countries it played a secondary role to domestic financing. Unless sufficient domestic financing was available for productive investment, development could not be sustained in the long term without an excessive burden of debt again being accumulated. Efforts must be undertaken in both the public and the private sectors to, first, stabilize state revenue through a fair taxation system and efficient tax administration, and, second, to mobilize more domestic capital by means of a private financing sector, subject to effective bank supervisors.
She said financing for development meant that the recipient countries themselves must create the fundamental safeguards needed to ensure that financing would indeed have a positive impact on development. Those safeguards included: rules on competition; financial sector reform; transparency; rule of law; a public spending sector that made adequate provision for society's poor; core labour standards; and democratic control of State action.
ALAN P. LARSON, Assistant Secretary of State for Economic and Business Affairs of the United States, said that the dynamism of the world economy had brought hope to millions of people all over the world, but it had also produced shocks and imposed hardships. It was important to address the political and social foundations of the world economy. Families were a fundamental unit in the economy, and they needed to have confidence that there would be social safety nets. He wanted to know how the United Nations, the IMF and the World Bank could work together to ensure that a high priority was placed on investing in people, job creation, active exchange of information and so on.
What more could be done so citizens could benefit from accessible and accountable institutions? he asked. If the goal was to ensure greater stability in the flow of capital to the emerging markets, how was it possible
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to ensure stability for investors who wanted to make long-term commitments? What could the international community do to identify and implement policies to make those markets appealing to investors? In terms of fostering democracy, what could be done to give citizens a voice in the decisions that affected their lives? Further, he asked, what more could be done so that families in the poorest of nations could be sure that their countries would benefit from measures aimed at debt relief, environmental protection, child survival and education? The United States, along with many other countries, had made proposals on how to best accomplish those goals.
ANDREI G. SHAPOVALIANTS, Minister of the Economy of the Russian Federation, said that international financial institutions in their present form had proven incapable of preventing crisis. The most serious problem was the fact that assistance after a crisis was granted on the same strict terms as before it. Such an approach needed to be revised and he wanted to know what steps were being planned in that direction.
His country had not received timely financial support after the crisis, he continued. After the first period of recovery, priority should be given to restructuring the banking system. His country was counting on the support of the international community in that respect. He also wanted to know what measures were being undertaken to strengthen the banking system of the countries affected by the crisis. Regarding the international architecture of the financial system, he stressed that it lacked an early warning system and prevention mechanisms in case of crisis. Proposals by seven major industrial countries had sketched the main lines of reform, but further work was needed. It was essential that other interested institutions took part in that work. The report of the United Nations contained interesting suggestions and they should be considered in a careful manner.
HIKMET ULUGBAY, Deputy Prime Minister and Minister of State of Turkey, said that today the world was challenged by abrupt, large-scale cross-border movements of capital, whose effects, particularly on exchange and interest rates, were a major concern for emerging market countries. Capital outflows from emerging market countries had been both cause and effect of numerous recent crises. Those countries had needed substantial financial assistance to redress their external imbalances, and dramatic changes to the present financial paradigm were needed. Otherwise, capital movements would continue to trigger contagious effects, which jeopardized world growth and prosperity.
That was basically the reason the international economic and financial communities should busy themselves with revising the policies and priorities of the financial system, he said. The establishment of the Financial Stability Forum, with some 33 countries as members, was a reassuring sign of growing cooperation and dialogue among the most threatened countries and interested groups. His Government also encouraged the cooperation between the United Nations Commission on International Trade Law (UNCITRAL) and the Bretton Woods institutions for the improvement of insolvency regimes.
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He said that the scarcity of domestic savings and inadequacy of voluntary savings in developing countries made it crucial for them to attract a sufficient quantity of foreign savings. Establishing a proper finance system, and carefully sequenced capital account liberalization, was now more important than ever. In addition, reforms aimed at improving social conditions should have a high priority. Investing in human capital, especially education and health, would pay off in the longer term and become the most important pillar of sustainable development. In the next century, the only way for developing nations to achieve sustainable gains would be by establishing an appropriate infrastructure through efficient use of their human resources.
A related issue placed on the agenda by the recent crisis was globalization's effects on social protection, he said. The crisis had illuminated the need for emerging economies to protect their populations against incidental damage due to globalization. Any blueprint for reform must recognize and emphasize the basic nature of the requirements for social protection and the enhancement of human capital.
FRANCISCO SOBERON, Minister, President of the Central Bank of Cuba, said that it was important to discuss more transparency with regard to information, and better banking supervision. He wanted to know what the prospects were for regulating the activities of certain actors in the world financial system. His second question concerned the international strategy for debt coverage. The conditions of the HIPC Debt Initiative had to be clearly spelled out and perhaps extended to middle income economies.
TREVOR MANUEL, Finance Minister of South Africa, said that pronouncing the crisis as over only introduced a new crisis into the debate. Today, the developed countries were awash with capital. He welcomed the initiative taken by the World Bank on the Comprehensive Development Framework and called for wider support for it. While the HIPC Debt Initiative made economic sense, it was necessary to accelerate that process. Debt relief was often too little, too late. In the campaign for debt relief, a sound appeal for higher levels of political and financial commitment from the developed countries was needed. Capacity-building was the way forward.
AHMAD KAMAL (Pakistan) said the visible intensification of dialogue between the Bretton Woods institutions and the United Nations was to be appreciated. Initiatives had been announced to cancel the debt of heavily indebted poor countries, and those were encouraging initiatives, but external debt needed to be addressed in a more comprehensive and holistic manner. Piecemeal responses to selected countries might not contribute to the overall goals of development of developing countries. He asked whether it would be possible to consider a global plan of action for debt cancellation, with a primary focus on heavily indebted poor countries, but which would also aim to reduce the debt of other developing countries.
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Regarding greater cooperation for financing for development, he said there had been active participation of the Bretton Woods institutions in the United Nations working group on financing for development. He asked about the possibility of establishing a joint United Nations-Bretton Woods task force to provide inputs to the preparatory process for the impending high-level event on financing for development.
Mr. CIAMPI, Chairman of the Interim Committee, said, in response to several questions, that the recent meeting of the Interim Committee had focused on the problems of the poorest countries. The importance of speeding up all initiatives had been recognized, and the resources were now in place, initiatives were well advanced, and the process was close to practical conclusion.
The Italian Government had decided to write off all aid and commercial credits of countries with a per capita income of less than $300 per year, he said. That initiative would involve $1.6 billion of credits and about 40 countries. The only criteria were respect for human rights and abstinence from conflicts.
On the new architecture, there were two tracks, he said. One was to make the operations of the Interim Committee more efficient, by employing all the possibilities of the existing institutional framework. The second was a proposal for institutional change that was under discussion. At the next IMF meeting in Washington in October, he hoped that some agreement on the proposals would be reached. The criteria for any institutional changes should be greater efficiency, more coordination among all the institutions concerned with connected problems, and more focus on preventing, rather than managing, crises.
JAMES WOLFENSOHN, President of the World Bank, in response to the comments of the representative of Guyana on behalf of the Group of 77 and China, said that he was surprised about access problems. In both the Bank and the IMF there was now a country director responsible for each country, who should be able to ensure adequate access. If they did not, he suggested States call him directly.
On the HIPC Debt Initiative, he said it had been correctly stated that debt services had already been agreed upon for about $6 billion, and $1.4 billion in debt reduction had already taken place. There was a phasing-in process agreed to by each country. He believed that it was on track, and by the end of the year another eight or more countries might have qualified. The owner countries were strongly inclined to increase the initiative. Two years ago the initiative did not exist. Where once it had been hard to sell debt relief to his "shareholders", they were now suggesting increasing it.
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MICHEL CAMDESSUS, Managing Director of the IMF, said in response to the statement by Guyana, that no effort was spared to have the smallest countries associated with the Fund's decisions. Almost all decisions, and particularly those adapting or establishing facilities, were taken by consensus. That made the decisions a little long in coming, sometimes, but that was the price for the involvement of all. As a matter of principle he received all ministers and governors asking to see him, he said.
The issue of debt-to-revenue levels was technically complex, he said. Recently, the Fund had suggested modifications adding to the HIPC Debt Initiative, when it was discovered that specific problems had developed. Those would be examined in the next few weeks. Any solution would depend on the resources that could be collected. The HIPC Debt Initiative also required good policies from its beneficiaries. Problems arose when they were relaxed after the granting of the facility. The ratios then deteriorated, but that was due to the policies of the countries concerned.
Assisting countries in establishing good frameworks for foreign direct investment was a high priority in the design of his programmes, he said. As a consequence of efforts to improve those frameworks by many developing countries, foreign direct investment flows remained steady and even improved during the worst of the recent global financial crisis. The Fund also wanted to establish a significantly stronger link between debt relief granted and the allocation of resources released to social purposes, such as education and health.
He added that, in trying to reconcile the necessary strength of the reform effort with the need for early disbursement of support under the facility, they were exploring tranched debt alleviation to make relief available earlier, on the condition that it was allocated to increases in priority social spending.
In response to the statement by the Russian Federation's representative, he had finalized a major financing package to help that country yesterday. In response to the suggestion that the Bretton Woods institutions had not been able to warn about the crisis and thereby perhaps prevent it, he had personally flown to Russia to warn officials about the risks that were arising. A major package had been put in place last year to address the problem. The legislative authority had not approved it, so it could not be put in place as early as hoped. It was now in place.
The Fund was accustomed to criticism, he said. The most frequent criticism he heard was that it was too generous to its most important clients and not generous enough to others. Today, he was hearing the opposite criticism, so perhaps the Fund was on the right path. Every effort was made to comply with a key principle -- to be even-handed. Regarding strengthening the international monetary architecture, he referred representatives to a document that was to be distributed containing the Fund's initiatives.
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In response to the questions about transparency and supervision, he said that covering funds were not handled transparently enough. The Fund organized a detailed study that concluded that there was a need to adopt rules to compel those funds to practise greater transparency. The United States authorities had just adopted principles similar to those proposed. Appropriate norms needed to be developed to ensure that those institutions, along with the offshore financial centres, were subjected to regulations that would mean a more orderly unfolding of financial transactions in the market.
Regarding the suggestions for expansion of debt relief suggested by the representative of Pakistan, there was support from his members for deepening debt relief for the poorest countries and disbursing it more quickly, he said. However, he had seen no interest or readiness in the membership to include middle-income countries in cancellation of debt.
Mr. SAITO, Adviser to the President of the Central Bank of Peru and Vice-President of the Group of 24, said that, in the last five years, the members of the Group of 24 had discussed most major issues, including those of debt and international liquidity. They had also invited representatives of international monetary institutions. The Group was backing any approach where the United Nations, in concert with Bretton Woods institutions, would take positive steps to improve the workings of international financial institutions. Recurrent crises would have a detrimental effect on the world economy, but the capabilities of coping with them had been improving. Solid economic fundamentals were now in place.
Second Panel Discussion
JOHN M. ROBINSON, Vice-President, Policy Branch of the International Development Agency of Canada, said that his country had been a strong supporter of the HIPC Debt Initiative and provided all possible assistance in that respect. Generous, timely and flexible relief was needed. Efforts directed at debt alleviation must be undertaken within the framework of a coordinated programme. Debt initiatives should not be achieved at the expense of development. Macroeconomic and social initiatives were also very important. The United Nations must continue to play a leading role, along with other players, including the Bretton Woods institutions. Another issue of utmost importance was greater coordination. Initiatives needed to be both complementary and mutually reinforcing. With the renewed focus on increased coordination between the United Nations and other international institutions, the regional perspective should not be forgotten.
JUAN CAMILO RESTREPO, Minister of Housing and Public Credit of Colombia, said that the crisis that had begun in July had continued longer than expected, despite the strides made since last year. Now, some of the emergent countries were having trouble restarting. At the spring meeting, in Washington, D.C., a number of decisions had been made, including the adoption of the Contingency Credit Line. Thought should be given to early prevention
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mechanisms and resources should be made at the earliest possible time. Colombia was one of the standout cases of a country that had a strong macroeconomic policy. Dissemination of information and transparency had been ensured. However, despite its achievements, it would not have access to the Contingency Credit Line, due to its eligibility criteria.
It was urgent to have coordination among fiscal and foreign exchange policies, he said. At the Washington meeting, that had been discussed as part of the Comprehensive Development Framework. Achieving peaceful coexistence in Colombia was his Government's focus.
EVELINE HERFKENS, Minister for Development Cooperation of the Netherlands, said that the decline of ODA had to be reversed. Concerning debt, she advocated faster, deeper and broader relief. When looking at recent proposals, there were great ideas, but there was also the need for financing. Resources were still being wasted due to overlapping and turf battles.
There was vast expertise in many quarters, which must be tapped, she said. That would only be possible if various organizations worked together and ensured that developing countries had access to that expertise. Strong commitments were still not enough. Organizations had to work together with the governments concerned, and also with each other. Too often, a country saying one thing in Washington, while saying another in New York. Homework had to be done in capitals, so one voice could be presented at international meetings. There was now a tremendous amount of consensus among the United Nations, the Bretton Woods institutions and governments on what was to be done. Now, that consensus must be implemented.
IBRAHIM AL-ASSAF, Minister of Finance of Saudia Arabia, said that cooperation and coordination between the United Nations and the Bretton Woods institutions was important to achieve common goals. Regarding debt, he supported the HIPC Debt Initiative. While welcoming progress on many recent proposals, he believed that adequate flexibility should continue to be provided. It was also essential for the products of such countries to have access to the markets of the industrialized countries.
He also welcomed the Comprehensive Development Framework initiative of the World Bank. However, he said that the abilities of the countries that were being helped should not be taxed. Each institution should take the lead in the area for which it was best suited. The Bank and the IMF had been looking into ways to address the issue of Kosovo and he welcomed their efforts, as well as those of other countries. While the international community's response had been commendable, further efforts were needed.
LEIV LUNDE, State Secretary for Development Cooperation, Ministry of Foreign Affairs of Norway, said that his country was firmly committed to providing debt relief and had launched a comprehensive strategy in that respect. Regarding the financial crisis, he said that the major lesson to be
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learned was that a better integrated approach was needed. Higher priority should be given to structural financial reform, and social and structural issues should be better integrated with the financial approaches to the crises.
Among reassuring developments, he mentioned a promise of the IMF and World Bank to work together in Indonesia. Financial policy had just been discussed in Washington, D.C., and the process of financial reform should be focused. There was a need for a strong role of the United Nations in that area. Evaluation systems should be improved, and a lot could be learned from the World Bank in that respect. Norway fully supported the Comprehensive Development Framework initiative. There was a strong need for United Nations involvement in it. The Organization should work constructively with the World Bank and the developing countries themselves.
MOHSIN NOURBAKSH, Governor of the Central Bank of Iran, said that dysfunctional international financial markets and unstable, unbalanced and fragile financial flows to the developing countries constituted the Achilles heel of the present international economic system. Solutions to those problems must be sought within the framework of legitimate and representative international structures with universal membership, in order to harmonize diverse interests and facilitate deeper integration in the world economy.
The Bretton Woods institutions were expected to have the practical capability to address and solve those problems, he continued. Any reform of the international financial architecture required the strengthening of the institutional capacity of the IMF in designing and implementing sound financial policies, and enhanced representation of developing countries in the institution. Similarly, the World Bank's role in intermediating and delivering financing for development must be strengthened.
Considerable thought had been given to strengthening shareholders support for the IMF, he said. The proposal to transform the Interim Committee into a Council merited serious consideration. In addition, the new architecture of the international financial system must emphasize a social safety net. The World Bank's proposal on the Comprehensive Development Framework represented a positive step, which should be further discussed and developed. Also, closer cooperation between the United Nations and the Bretton Woods institutions could produce positive and mutually reinforcing synergies in developing effective responses to the challenges of globalization.
He said Iran strongly supported the active participation of the Bretton Woods institutions in the proposed ad hoc open-ended working group on financing of development which was mandated to formulate recommendations on the form, scope and agenda of a high-level international intergovernmental forum on financing for development, to be presented to the fifty-fourth session of the General Assembly.
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TONY FAINT, Director of the Department of International Development of the United Kingdom, said he welcomed the establishment of the meetings. There had been a sea change in the response to the debt burden of poor countries. Every major creditor State had now launched its own proposals for debt relief and a major step forward was now within grasp.
Global consensus on social policy was a key United Nations task, he said. The Copenhagen Declaration principles should be the keys to the way the Bretton Woods institutions dealt with crises. Social policy should be integrated into the international architecture.
The Comprehensive Development Framework and the United Nations Development Framework must be mutually supportive and relate to the development priorities of individual countries, he said. The emphasis must be to draw in all development agencies, as well as the private sector and civil society, to reduce poverty.
GERARD CORR, Director-General of the Multilateral Development Division of the Ministry of Foreign Affairs of Ireland, said the most difficult aspects of coordination arose because the various institutions did not listen to each other. The present dialogue was therefore valuable. The central thing that had emerged from recent meetings and discussion was that international economic governance and financial architecture were not just macroeconomic issues. Any examination or change had to consider development, poverty reduction and capacity-building. Short-term prospects for recovery were emerging. However, he had been struck by the differences between the predictions of the World Bank and the IMF, and would welcome an explanation of the differing positions.
The recent crisis had started out as a liquidity crisis and had easily become a financial crisis, he said. Thailand's dual track approach to addressing it was most interesting. There must be coherence in responses across the range of development instruments, to the crisis and to development. Flows of development cooperation was a key issue. It was paradoxical that, at a time when much thought was being given to architectural issues, development assistance had declined. Ireland had increased its development assistance flows.
There had been much progress in examining the deepening of the HIPC Debt Initiative, he said. He would like to hear views on how to assess the social component in adjustment programmes, many of which had clearly had a damaging effect in many developing countries.
Ireland welcomed greater cooperation between the United Nations and the international financial institutions, he said. He emphasized that cooperation needed to take into account change and progress, particulary that which occurred following the major United Nations conferences in recent years.
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There was now an agreed programme and an agreed link between normative and operational goals. To move forward required sensitivity and common effort.
ABDUL WAHAB OSMAN, Minister of Finance and Economy of the Sudan, said that although the HIPC Debt Initiative was a welcome step, it would not by itself resolve the problems of developing economies, unless additional resources were directed towards solving the problems of those countries. The issues involved included: investment to improve infrastructure and boost production, hence increasing income; social development, particularly education and health; poverty alleviation, including social safety nets for those affected by problems arising from structural adjustment; and capacity- building to cope with the rapid growth of technology in a global economy.
He said countries in conflict or post-conflict situations might never benefit from the HIPC Debt Initiative, and those countries needed resources to solve those conflicts. The recent Security Council report on the situation in Africa pointed to that fact. The Initiative excluded countries affected by conflict, in terms of refugees and interruption of trade. He hoped there would be an international conference on such countries.
DENZIL L. DOUGLAS, Prime Minister of Saint Kitts and Nevis, said that countries of his region belonging to the Organization of Eastern Caribbean States were striving to create a single capital market. Vulnerable island States were especially interested in financial reform, for more and more financial resources were being provided to developing countries through portfolio financing, and less and less development assistance was being channelled to them. If they wanted to avoid marginalization, small island developing States must increase their integration into the world financial system. However, such integration increased the danger of systemic collapse through contagion. The risk was exacerbated by the instability of markets for exports of such products as sugar and bananas, and the continuing threat of natural disasters.
Strengthening financial systems ranked very high among the proposals for reform, he continued. In any new financial architecture the measure of the mechanics of cooperation between the supervisory authorities and the developing countries must be clearly defined. The problem of one country could easily become a problem for all, and assistance was not a purely altruistic endeavour. The transfer of relevant technical resources from rich to poor countries must be clearly defined.
The new financial architecture should specifically address the difficulties of small island developing countries, he said. Through today's forum, the Bretton Woods institutions and the United Nations system were working together to solve the financial crisis. The solution of problems would require broad-based consultations between different key players, and new financial architecture must define clear roles for all of them. The question was what mechanisms were in place and were pursued to link the WTO process to
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the financial development process, in recognition of the strong linkage of trade, financial and development issues.
Responding to questions, Mr. NIMMANAHAEMINDA, Development Committee Chairman, said that Thailand's efforts in the area of social development were supported by the Bretton Woods family. They were being funded partly by the Thai Government and partly by the IMF. The country had managed to stabilize its economy, and domestic and international confidence had been fully restored. However, much still remained to be done. He was confident that a modest growth rate would return during the current calendar year.
He said that there might be a definitional problem in answering whether the crisis was over or not. It was safe to say that the risk of world recession was now gone and, thus, the risk of a deeper crisis was over. With regard to hedge funds, there had been a number of strong recommendations. Those funds did not have their own money and had to borrow. Therefore, control of their borrowing might be the key and that was the responsibility of the central banks.
Mr. KARLSSON, Chairman of the Group of 10, said that regarding the participation of small countries in decision-making, only in practice could the seriousness of partnership be proved. It started with conceptualization. There was capacity around the world, which should be linked and used. More interaction and the use of technology was necessary. Through that linkage, it could be proved that knowledge was power and that could be transformed into reform.
Besides focusing on conceptualization, he said that there was a need to think about how to discuss issues before coming to decisions, as well as on how to interact before entering the negotiating phase.
WOLFGANG RUTTENSTORFER, State Secretary of the Federal Ministry of Finance of Austria, said the main thing to emerge from recent meetings was a return to a broader picture. Six months ago the discussion was of international financial architecture, but now it was about financial and development architecture. Reform of the development and interim committees would provide for a greater sense of ownership and for a reaffirmation of the political mandate of the Bretton Woods institutions. He sought an explanation of how the Comprehensive Development Framework and the United Nations Framework for Development would not compete, but would be supplementary.
YUKIO SATOH (Japan) said the critical issue of the current crisis was the liquidity of the countries in crisis. What was needed was a strengthening of the IMF resource base and an allowance for quicker loans. Japan welcomed recent action in that regard. Regional cooperation was equally important. Japan had recently announced the provision of $30 billion to Asian countries struck by the crisis, making a total of $80 billion now provided. Japan had also announced measures to increase the level of debt it could relieve.
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S.A. SAMAD, Principal Secretary of the Prime Minister's Secretariat of Bangladesh, said that while he agreed that there was a need to develop new global financial architecture, the morphology of that architecture needed to be drawn more clearly, and the Fund should play a key role. The change must evolve from a participatory process, where all players were on a level playing field.
While Bangladesh had no problem with centre stage being occupied by the needs of the heavily indebted poor countries, he said there were other poor countries that had good records, but limited access to assistance. They were being crowded out of the global finance markets. Private capital flows must be induced to reach them. In cases where countries had undertaken structural reform for more than 20 years, it was necessary to provide them with compensatory assistance. He was speaking about the countries of South Asia, including his own. Regarding the new architecture, the Bretton Woods institutions and the United Nations needed to be better coordinated and any overlap should be reduced.
Mr. WOLFENSOHN, President of the World Bank, said that throughout today's discussion, the prevalence of issues of poverty and the need for unifying efforts was evident. Organizational issues also dominated the discussion. The Copenhagen Declaration had stated that countries of the world were committed to ensuring the social and financial environment to achieve development. There was no significant distinction between the United Nations in establishing principles and the World Bank trying to determine the financial policies. The issue was not whether it was the responsibility of the United Nations or the World Bank. In fact, they were doing the same work. It was necessary to build on today's meeting to ensure that the two institutions worked together.
Regarding a Comprehensive Development Framework, he said that the words could be forgotten. The words were not important. It was important to do the work and to address the question of cooperation. It was important to bring together the players in a coordinated partnership. It was important to address the issues of poverty and development. "Let us deal with the substance of the question, and not the form", he said. It seemed to be generally agreed that there was a link between the macroeconomic, structural, social and human issues, which needed to be taken together. The Bank had set forth some ideas to be incorporated in a comprehensive framework for development. Today's discussion had demonstrated a broad consensus on that approach.
Turning to the HIPC Debt Initiative, he said that it was part of the totality of the development process. Additional forms of support for development were important, as well as its human dimension. He was very encouraged by the fact that the world was devoting attention to debt issues, but they should be viewed in context. Representing the World Bank, he was pleased to say that its relations with the United Nations system were getting
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better and that they were no longer "covered with suspicion". It was necessary to stop worrying about structure and being suspicious of each other and proceed with doing the work, for the crisis really existed and that should create a sense of urgency.
Mr. CAMDESSUS, Managing Director of the IMF, said that concerning the question of whether the crisis was over or not, if he were to say prematurely that it was over, then governments would react and not fully support reforms. A large measure of stability was now returning and it was true that the countries most affected were in a recovery process or very close to it. He was delighted at their determined efforts at reform. Their recovery was faster than expected. Even if reforms were adopted rapidly, however, it would take time to permeate through the system. Indeed, times of transition were dangerous times.
Several statements had pointed to the need to make the Bretton Woods institutions more participatory, he continued. The suggestion about transforming the Interim Committee into a council would give the representatives of developing countries a forum where they could speak about their concerns. That idea was still gaining support. It was a time for the world community to prevent crises, rather than manage them. The Contingency Credit Line was exactly about that and, in fact, it was revolutionary, because instead of reacting to crisis, it devoted resources, with no access limit, to prevent crisis. It was important to create the right incentives for countries to address their vulnerabilities.
The need for comprehensiveness had come under many aspects, he continued. Regarding the HIPC Debt Initiative, it was clear that it could not deliver what it promised without reform in the countries and efforts by some countries to open their markets to developing countries. Also, the trends on ODA must be reversed. It would be too bad to win the battle of debt, if the war of strengthening ODA was lost.
He added that it was important to make sure that all countries adopted, in advance of crisis, the minimal social safety nets. That should be a key part of the principles the World Bank was creating with regard to a social code. It was necessary to properly marry debt relief with social relief. Also, the United Nations family must be better integrated with the Bretton Woods family. Finally, in response to a comment made by the Prime Minister of Saint Kitts and Nevis, he said that the Fund was extremely interested in creating a single currency market in the region.
Ms. FRÉCHETTE, Deputy Secretary-General, said that being concerned about labels was not the spirit in which the United Nations was approaching the new initiative by the World Bank. There was no incompatibility between the goals and principles of the United Nations Development Assistance Framework and those of the Comprehensive Development Framework. A genuine commitment to work together had to be seen and translated into daily behaviour. The history
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of mistrust that had existed would not be overcome overnight. Tremendous changes were taking place in the United Nations system and in the relationship between it and the Bretton Woods institutions.
Closing Statement by Council President
The following closing statement was made following the meeting, at a Headquarters press conference:
FRANCESCO PAOLO FULCI, President of the Economic and Social Council, said that even more than last year, the gathering had proved fruitful in building bridges between the United Nations and the Bretton Woods institutions. It showed that matters could be discussed in an open and frank way, which went to the core of development, without which the eradication of poverty could never be achieved. What it had also showed was that mutual suspicions were dissipating. Development could not be pursued without addressing the financial fundamentals. In addition, the focus could not only be on technical solutions, without taking the development aspirations of millions of poor people into account.
It was still by no means certain that a recovery was fully under way, he said. Hopeful signs could be discerned, but downside risks were still substantial and growth in the world economy was still fragile. Growth rates were seen as unsatisfactory, particularly in developing countries. For many of them, a crisis situation still prevailed, with unacceptably low growth rates. If those did not improve, the goals for poverty reduction and social advancement would not be met. Consequently, many agreed that measures were needed to accelerate economic growth, especially in developing countries.
The positive initial steps that had been taken to address the financial crisis had been noted by participants, he continued. While some stability had returned to financial markets, many observed that vulnerability still existed. Complacency would be dangerous. Measures should continue to be taken to strengthen the international financial architecture, keeping in mind the need for a holistic approach and the needs and views of developing countries. Particular attention had been paid to the need to enhance transparency in institutions, markets, governments and international organizations.
Turning to financing for development and external debt, he said that many had welcomed the new departures in addressing the external debt burden, especially of low-income and least-developed countries. The political momentum in dealing with debt crises should not be lost, but be built upon. Particular concern had been expressed about the debt burden in many African countries, especially in light of the very low commodity prices they were facing. Emphasis should be placed on faster, deeper and broader debt relief for all poor, reforming countries.
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It was stressed that those objectives required additional resources and should not be at the expense of development assistance, he added. Equally important was to reverse the decline in ODA and move towards the 0.7 per cent target. Participants welcomed the General Assembly initiative to convene a high-level international event on financing for development. The readiness of the heads of the Bretton Woods institutions to support that process was welcomed.
He said that all had reaffirmed the principles that had emerged at the Social Summit in Copenhagen. It was clear that the economic crisis had brought the social dimensions of economic policy into sharper focus. That could be seen as an important step forward, as it was now recognized that the social pillar was an integral part of dealing with economic crises.
Many saw that as a further opportunity for strengthening and achieving closer cooperation between the United Nations and the Bretton Woods institutions. The recently proposed Comprehensive Development Framework in the World Bank and the United Nations Development Assistance Framework provided a further opportunity to that end. The Bretton Woods institutions, the United Nations system and governments needed to build strong partnerships to meet the needs of global economic governance to reach common global goals.
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