SECOND COMMITTEE HEARS CALLS FOR STABILIZATION OF INTERNATIONAL FINANCIAL SYSTEM, FOCUS ON DEVELOPMENTAL DIMENSION OF FINANCE

Press Release
GA/EF/2858

SECOND COMMITTEE HEARS CALLS FOR STABILIZATION OF INTERNATIONAL FINANCIAL SYSTEM, FOCUS ON DEVELOPMENTAL DIMENSION OF FINANCE

Speakers Assail High Cost of Globalization, Call for Integration of Least Developed into World Trading System

The international economic system was alert enough to protect the rich but too tardy to protect the poor, the Under-Secretary-General for Economic and Social Affairs, Nitin Desai, told the Second Committee (Economic and Financial) this morning as it began its general debate.

Although the world economic situation looked more stable than a year ago, much of that stability had been at the expense of development in developing countries, he said. The whole question of making the system more equitable and mindful of long-term concerns must be rethought. Financial policies at the national and global levels must focus on the developmental dimension to finance. Also, much of globalization had been driven by integration in financial markets. It was time to recognize that trade was the engine for integration.

The representative of Guyana, speaking on behalf of the Group of 77 developing countries and China, said that globalization had produced serious asymmetries, both at the global and national levels. Developing countries would need to be assured of stabilization in the international financial and monetary system, and should benefit from special and differential treatment, in accordance with the principles outlined by the General Agreement on Tariffs and Trade (GATT).

Moreover, full and timely implementation of the debt-reduction initiative could ensure that more resources would be available to satisfy health, education and other social needs of the least developed countries, said the representative of Guyana. The information age had brought the threat of further economic and social disparity and the United Nations seemed ill-equipped to deal with that challenge. Any new development architecture must contemplate a stronger United Nations system, supported by a strong political will and adequate financial resources.

Speaking on behalf of the European Union and associated States, the representative of Finland said that the main challenge of

Second Committee - 1a - Press Release GA/EF/2858 3rd Meeting (AM) 6 October 1999

globalization was to ensure that its benefits were available to all. Strengthening and securing of domestic banking systems could play a crucial role in mobilizing domestic resources for national investments and development.

The European Union, he said, stressed the importance of integrating the least developed countries into the world trading system, and had proposed that developed countries allow duty-free access for essentially all goods from least developed countries. All stakeholders, including development partners, should work collectively to achieve agreed international development targets, which required a reversal in the downward trend of overall official development assistance (ODA).

The representative of the United States said that globalization was a fact. Failure to participate in the world trade system would inevitably result in marginalization. While there were costs to participation, the costs of marginalization were even greater.

Statements were also made by the representatives of Ghana, Croatia, Mexico, Pakistan, Norway, Peru, Japan and India.

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

Committee Work Programme

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

Statements

NITIN DESAI, Under-Secretary-General for Economic and Social Affairs, said that it was clear from the numbers that acceleration in economic growth had hit the developing countries harder than other parts of the world. That was also the case with regard to trade growth. For the first time since 1991, the dollar export earnings of developing countries had declined. That was, in part, due to a decline in commodity prices. If one looked at financial flows, the net transfer of flows out of developing countries had amounted to nearly $60 billion. Although the world economic situation looked more stable than last year, much of that stability had been at the price of the momentum of growth of development in developing countries. The risk of recession anticipated last year had not come to pass, perhaps, due to the growth of the United States economy.

There was a need to address the deeper issue of how the global economy was managed, he said. The evidence of the past two years showed that the cost of the economic slowdown had been borne largely by developing countries. Within countries, that cost was borne largely by the poor and disadvantaged groups in society. In crisis-affected countries and developing countries, the past years had shown that the world possessed an economic system alert enough to protect the rich, but too tardy to protect the poor. The goal was not to have a global economy that ended up as a welfare State for the rich. The whole question of making the system more equitable and mindful of long-term concerns must be rethought.

With regard to the challenges involved in promoting growth, there was a need to recognize that, in terms of economic management, policymakers at the national and global level would have to concern themselves with asset prices in addition to markets for goods and services. With the changing patterns of asset ownership, increases in asset prices did have a real impact on the economy. The framework of policy management at the national level needed rethinking. Secondly, financial policies at the national and global level must focus on the developmental dimension to finance. Thirdly, it must be recognized that despite large growth in private-sector flows, there was a continuing need for public resources for public purposes. Throughout the world, everyone wanted lower taxes and better public services. It was time to recognize that there were certain public services that could only be served by public resources.

Also, he continued, much of globalization had been driven by integration in financial markets. It was time to recognize that trade was the engine for integration. The driving force of global integration must be growth in trade. Issues such as the effective implementation of the Uruguay Round and continuing trade liberalization should be at the heart of discussions on trade. There was a continuing need for differential treatment for developing countries, as well as for preserving national autonomy. “One size does not fit all.” It was also necessary to worry not only about growth, but also about the quality of growth. Twenty-five per cent of the world population lived on less than one dollar a day. It has clear that growth by itself would not solve problems. Growth with equity was needed.

SAMUEL INSANALLY (Guyana), on behalf of the “Group of 77” developing countries and China, said that the intensity of last year’s financial crisis had diminished, but what little progress had been achieved by developing countries in recent years had been severely eroded. Globalization had produced serious asymmetries, both at the global and national levels. If the process of globalization could not be harnessed in service to all, it would ultimately benefit none. Globalization should be looked at from broad perspectives: democratization of international economic decision-making; integrated consideration of trade, finance and developmental issues by international institutions; reform of international financial architecture; and effective prevention of marginalization of developing countries.

Developing countries would need to be assured of stabilization in the international financial and monetary system, and should benefit from special and differential treatment in accordance with the principles outlined by the General Agreement on Tariffs and Trade (GATT). Full and timely implementation of the debt-reduction initiative could ensure that more resources would be available to satisfy health, education and other social needs of the least developed countries. Thus far, only the Nordic countries had satisfied the internationally agreed targets for official development assistance (ODA). Other donor countries should emulate their example, he said.

Knowledge and technology were of growing importance to the economic and social development of countries. The information age had brought the threat of further economic and social disparity. The United Nations seemed ill-equipped to deal with that challenge. It must be strengthened in that area if it were to effectively serve development in the next century, by encouraging the endogenous capabilities and capacities of developing countries in science and technology, including the area of environmentally sound technologies. Mr. Insanally concluded by saying that any new development architecture must contemplate a stronger United Nations system, supported by a strong political will and adequate financial resources. A useful building block would be closer cooperation and coordination between the United Nations and the multilateral financial and trade institutions.

MATTI KAARIAINEN (Finland), on behalf of the European Union, Bulgaria, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, Slovakia, Slovenia, Cyprus, Malta and Iceland, said the Union believed that the main challenge of globalization was to ensure that its benefits were available to all countries and all their peoples. To reduce poverty, efforts to achieve the best possible coordination and coherence between the actions of all relevant players needed to be strengthened. National, regional and international responses must be directed at the same goal.

Strengthening and securing of domestic banking systems could play a crucial role in mobilizing domestic resources for national investments and development. Policy improvement in that area could greatly improve the prospects for better integration of developing countries into the global financial system, as well as the better functioning of the latter. The Union stressed the importance of integrating the least developed countries into the world trading system, and had proposed that developed and more advanced developing countries allow duty-free access for essentially all goods from least developed countries by the end of the new World Trade Organization (WTO) Round.

All stakeholders, including development partners, should work collectively to achieve agreed international development targets. Mr. Kaariainen said that complementarity between various sources of financing for development was important, but ODA was indispensable. Efforts should be strengthened towards fulfilment of the ODA target of 0.7 per cent of the gross national product (GNP) by all donor countries. That would require a reversal in the downward trend of overall ODA. It was also important to integrate environmental requirements into all relevant policies. Work under existing conventions should be better coordinated -- in conjunction with the United Nations Environment Programme (UNEP) -- and a more coordinated approach to resolutions in the Second Committee would be welcomed.

YAW ODEI OSEI (Ghana) said that African policymakers had reiterated their commitment to address the key issues for domestic resources mobilization and, to that end, had imposed harsh economic measures. However, domestic economic management only marginally influenced those factors, such as commodity prices, market access, financial flows and the external debt burden, which held the key to unleashing Africa’s economic potential. In view of the enormous significance of external resources for development in Africa and elsewhere in the developing world, the future course of action towards the event on financing for development was critical. A successful event for financing for development should catalyse private sector investment, and come up with ways of offsetting non-commercial risk perceptions which kept potential investors from Africa and other regions. The current situation, where nearly 10 per cent of limited ODA resources were being diverted to conflict relief was wrong and unacceptable. Funding for conflict relief must be additional to aid intended to eradicate poverty and induce growth.

Restructuring of the international financial and monetary architecture was needed to ensure a stronger, more stable and participatory system, and to design a coherent global governance structure which linked finance, trade and development. If developing countries had greater access to markets in the developed world, and if developed countries removed export subsidies, they could receive four to five times in annual export earnings what they received today in annual foreign capital flows. The significant impact of sectors such as trade to the global economy or its relationship to financial flows and development could not be ignored. International financial organizations should go beyond promotion of macroeconomic discipline, liberalization and a limited State role to institution-building in such areas as markets, law enforcement and public governance, with a view to achieving institutional convergence between developed and developing countries.

In addition, those organizations must assist developing countries to establish basic physical infrastructure for economic and social development. Such assistance should include support for a minimum core of social safety nets to protect the socially vulnerable and those marginalized by the competitive dynamic of globalization, giving them access to basic education, health and good drinking water. Those aspects of development must be insulated from conditionality.

BETTY KING (United States) said that, while many of the promises of globalization had been fulfilled, both the economic and social costs of transition to a more integrated and interlinked world were also very real. In the last few years, the world had been buffeted by financial crises. Rather than retreating into protectionism, the international community had moved forward by addressing those issues through a variety of partnerships. The world’s reaction had demonstrated that cooperation and partnership were a natural outgrowth of globalization, not just in its genesis, but also in the solutions to the challenges it posed.

The Heavily Indebted Poor Countries (HIPC) Debt Initiative embodied the integrated development approach in concrete terms, she said. Funds previously used for debt payments could now be used for social and other core development spending. As a reflection of the commitment the United States brought to that process, President Clinton had announced last week that he and his staff were working “to make it possible to forgive 100 per cent of the debt these countries owe to the United States, when needed to help them finance basic human needs, and when the money will be used to do so”. In addition, financing was essential for development.

In discussing the topic of business and development, she said it would be necessary to investigate ways to encourage business practices supportive of development goals, while remaining aware that inappropriate or excessive regulation would stifle the growth needed to create jobs and support economic and social development. Key among the tools governments had at their disposal were strengthening of the rule of law, implementation of strict anti-corruption and anti-bribery measures, and strong labour standards.

She said that globalization was a fact, and it was essential for developing countries to participate in the world trade system. Failure to participate would inevitably result in marginalization. While there were costs to participation, the costs of marginalization were even greater. Over the next two months, her country would be following closely the development of the agenda for the Seattle Ministerial Meeting of the WTO, and looking for ways in which the United Nations Conference on Trade and Development (UNCTAD), in particular, could assist developing countries in preparing for the negotiations to follow.

IVAN NIMAC (Croatia) said it was the primary responsibility of countries in transition to become more engaged in the world economy. Nevertheless, due to their inherited disparities, they were at an obvious disadvantage. The primary effect of the Kosovo crisis upon Croatia had been to set back progress towards transition, particularly insofar as the tourist and transport industries were concerned. The Stability Pact for South-East Europe offered a healthy foundation for the eventual inclusion of all States in the region in the European integration process. That should take place in a transparent, predictable manner and be based upon individual merits.

The multilateral trading system continued to develop, he said, but Croatia’s efforts to accede to the WTO continued to be stymied because of a dispute between two large members. That matter should be settled prior to the Ministerial Conference and the Seattle Round. Consideration should be given to strengthening United Nations funds and programmes, given that the goal of elimination of poverty remained unachieved. Foreign direct investment could not be an adequate replacement for ODA. It had different motivations and objectives. Appropriate measures of both were required for a balanced development process.

MAURICIO ESCANERO (Mexico) said that the world was living through a unique and historic time filled with challenges. Development was not spanning the globe with even minimal fairness, although the resources to ensure a decent life for all existed. Without a question, the main challenge in the coming century would be coordinating national with global measures in order to achieve globalization with a human face. Social justice and sustainable development must be attained together. It was the fundamental responsibility of States to ensure that everyone could get aboard the development train. National measures must be merged with a new kind of international cooperation based on the concept of shared responsibility. It was especially important to ensure a conducive economic environment. The United Nations, the universal forum where all countries had a voice, could and must play a pre-eminent role in devising a grand commitment to international cooperation.

Two themes of international cooperation had to be addressed, he said: the financial architecture for the new century; and ways to cope with natural disasters. Regarding the former, the need for an early warning system had been expressed numerous times by his delegation. A meeting was held in Mexico City last September to discuss movement towards a stable and predictable international economic system and its impact on development. Everyone present agreed that the United Nations had to lead the way in building a consensus for renewal of the international economic architecture. To that end, Mexico was encouraged by prospects for the high-level meeting in 2001 on financing and development, to be hosted by the United Nations.

With regard to international cooperation in coping with natural disasters, he said that at the Rio Group Summit in Mexico City earlier this year, States had committed themselves to moving forward with technical cooperation at all levels. In the context of the work of the Second Committee and the Assembly, Mexico would seek to build a consensus response to questions arising from the issues of humanitarian assistance and international cooperation in dealing with natural disasters.

INAM-UL-HAQUE (Pakistan) said most of the universally agreed targets in the area of development had not materialized. The international economic system continued to be driven by an unequal power structure. Due to deep-seated imbalance in economic powers, and systemic bias in the international trading and financial system, the economies of the developing countries were being destroyed. The blessings and burdens of globalization were being dispensed by undemocratic, opaque and exclusive decision-making processes. “Increased interdependence” was, in fact, “overdependence” of developing countries on the markets of developed countries and on volatile private financial flows.

He said that in order to pursue “globalization of development”, the international community should consider urgent action to create an enabling international economic environment, reform of the global financial architecture, integrated consideration of trade, finance and developmental issues, the search for a comprehensive and durable solution of the external debt of developing countries, and fulfilment of the commitment by the developed countries to provide 0.7 per cent of their GNP as ODA to developing countries. Developed countries must realize that the scourge of underdevelopment could shake the very foundations of the international system they themselves had devised.

OLE PETER KOLBY (Norway) said national governments had a primary responsibility to pursue policies that fostered economic growth and met social needs. At the same time, the international community must do much more to provide an enabling international economic environment. It must continue to adjust and reform the multilateral trading system. The new round of multilateral trade negotiations in the WTO must set a trade agenda that clearly reflected the interests of the poorest countries. Conditions for market access should be continuously improved. The WTO’s special and differential provisions should be kept under close review, and sufficient trade-related assistance should be provided.

The economy of poor countries was severely strained by debt, which cut them off from access to new resources and created an insecure climate for investments, he said. Norway strongly supported last week’s decision by the Joint Session of the Development Committee and the Interim Committee in Washington to enhance the HIPC Initiative to secure faster, deeper and broader debt relief for heavily indebted countries. Together with the other Nordic and Baltic countries, Norway had worked hard to safeguard concessional windows in multilateral banking and financial institutions, such as the International Development Association (IDA). It was unacceptable to let other poor countries carry the burden of debt relief under the HIPC mechanism by depriving them of the IDA financing they would otherwise have benefited from. Norway was prepared to forgive 100 per cent of its commercial claims to HIPC countries.

He said that natural disasters seemed increasingly to result from pressures exerted by human beings, their encroachment on the environment and failure to achieve sustainable development. Again, the poor suffered the greatest losses. To reduce vulnerability to natural disasters on a permanent basis, humanitarian and development-oriented efforts must go hand in hand. The underlying causes of poverty and humanitarian need must be dealt with. It was not enough merely to alleviate the symptoms. Provision of humanitarian aid must be paralleled by efforts to seek political solutions and economic reforms. That challenge called for closer coordination between all actors involved, and the United Nations would undoubtedly continue to play a key role in those endeavours.

FRANCISCO A. TUDELA (Peru) said that, during the last decade, his country had stabilized its economy. That success had been made possible by its determination to change its economic culture into a model market economy. The pillar of that change was private investment. Investments in the public sector and infrastructure had climbed to $8 billion. As a result, poverty had declined from 27 to 14 per cent between 1991 and 1997. Investing in people and in education and health was the best guarantee for sustained growth. Top priority had to be given to improving the quality of education, he said

There were no magic recipes for sustainable development, but education and a free market were fundamental. Private initiative remained the motor for wealth generation. The State had to preserve a macroeconomic balance, controlling inflation and implementing a prudent monetary policy. As far as multilateral trade was concerned, Peru attached the highest priority to implementing the outcome of the Uruguay Round of GATT. The international financial crisis had had a profound impact on the international system. Regional implementation of plans for a stable monetary system had to be explored.

YUKIO SATOH (Japan) said that the international community should start to address the wide-ranging issues it faced, with a primary focus on human security. It was becoming increasingly important to consider policy requirements not only at the level of national interest, but also at the level of human interests in the post-cold war era of globalization. The recent East Asian financial crisis taught the world that seemingly promising economic, social and political conditions could deteriorate suddenly. It was also evident that the perceived primary threats to human security varied from country to country and region to region. Most typically, the prevalence of poverty and the recurrence of conflicts were major human security concerns for many African countries. On the other hand, climate change was the major human security concern for small island States. It was important that policy measures to address those concerns be selected accordingly.

Humanitarian emergencies, such as mass killing and forced displacement of people, tended to attract more attention from the international community than the issues of poverty and climate change, which had a debilitating impact on human security. While it was essential for the international community to act quickly on humanitarian emergencies, it was equally important for it to make unswerving efforts to improve the conditions affecting human security. Efforts to eradicate poverty, attain sustainable development and improve environments, among many others, were all critically important to that end. For that reason, Japan had been making special efforts to increase ODA, to work for debt relief and to promote the Second Tokyo International Conference on African Development (TICAD II) process, despite the budgetary constraints stemming from its own economic difficulties.

KAMALESH SHARMA (India) said that globalization had opened new opportunities for those who were better equipped to take advantage of them, particularly in terms of increased trade, technologies and investments. However, the recurrence of financial crises and instability had not only led to the rollback of development and prosperity, but had led many to question the very foundations of globalization. The crisis struck exclusively at developing countries, ironically sparing and even benefiting industrial economies through falling prices of commodities, capital flight and cheap manufactured imports. In the Second Committee, the international community had a unique opportunity to address the challenges of globalization and the trends that continued to characterize the global economy. Areas that needed attention were trade, financial flows, financing for development, science and technology and the environment.

Among the most crucial issues before the Committee would be the report of the Working Group on Financing for Development, he said. Last year, a working group had been set up to begin preparatory work on issues that could be recommended for inclusion in the agenda of the high-level intergovernmental event on financing for development to be held in 2001. The mandate of the group was to evolve recommendations on the form, scope and agenda for the event. India had co- chaired the group with Austria. The group had made recommendations for an inclusive, comprehensive scope and agenda, covering the diverse interrelated aspects of financing for development from external debt and private capital flows to trade and reform of financial architecture. In the months ahead, the Committee needed to focus on specific modalities of a viable preparatory process, including modalities of participation of other stakeholders, which would ensure comprehensive treatment of the issues involved and lead eventually to a summit or conference on the question.

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