ECONOMIC AND SOCIAL COUNCIL HOLDS THIRD HIGH-LEVEL MEETING WITH BRETTON WOODS INSTITUTIONS

Press Release
ECOSOC/5886

ECONOMIC AND SOCIAL COUNCIL HOLDS THIRD HIGH-LEVEL MEETING WITH BRETTON WOODS INSTITUTIONS

Secretary-General Says Excluding Part of Humankind From Benefits of Globalization ‘Shameful and Unacceptable’

In an age when globalization and new technology were bringing unimaginable benefits to one part of humankind, it was shameful and unacceptable that another part remained excluded from those benefits, subjected to a life of grinding poverty, Secretary-General Kofi Annan said this morning to the third special high- level meeting of the Economic and Social Council with the Bretton Woods institutions.

The Secretary-General added that there was nothing more inimical to growth, nothing more calculated to perpetuate and aggravate poverty, than armed conflict. “We have to break the vicious circle and replace it with a virtuous one”, he said. In addition, governments must face up to the mind-numbing devastation that HIV/AIDS was wreaking on the economies and societies. Above all, investments must be made in education.

Opening today’s meeting, the President of the Economic and Social Council, Makarim Wibisono (Indonesia), said that the war on poverty was not being won and inequality remained unconquered. More countries than ever were being excluded from the onrush of the new global economy and many of them were being increasingly marginalized. Even the advances of those developing countries that were initially able to successfully integrate into the global economy and reap the benefits of globalization were swept away by the recent financial crisis. Inclusion, participation and a greater share in the global decision-making processes were the great challenges facing the international community.

Tarrin Nimmanahaeminda, Minister of Finance of Thailand and Chairman of the Development Committee, stated that accelerated and sustained growth was necessary for poverty reduction. It was also true that open economies grew faster than closed economies. Industrial countries were urged to open their markets wider to the products of poor countries, as well as to extend predictable and quota-free access to the poorest countries, many of whom were not integrating successfully into the global trade market.

The Acting Managing Director of the International Monetary Fund, Stanley Fischer, told the meeting that both trade and aid could contribute to development.

Economic and Social Council - 1a - Press Release ECOSOC/5886 6th Meeting (PM) 18 April 2000

The rhetoric on trade was better than the actions on trade. What he found was that when the time came, those in favour of free trade did not put forward such proposals. Among developing countries, trade liberalization was one of the best ways to integrate into the global economy. There had been no successful growth strategies that did not involve integration into the global economy.

The President of the Central Bank of Peru and Chairman of the Group of 24, German Suarez, said that the policies of industrial countries could contribute significantly to poverty reduction and growth in developing countries. Presently, industrialized countries, in establishing their economic policies, should not only consider their own stability, but also the impact those policies would have on developing countries. In particular, their financial policies should avoid excessive reliance on interest rates to control inflationary pressures and should aim at more stable exchange rates.

With regard to the Heavily Indebted Poor Countries (HIPC) Initiative, Sven Sandstrom, Managing Director of the World Bank, said the question of funding was a major challenge. Although $2.4 million had been pledged, it was only a fraction of what was needed over the next few years. The overall debt relief provided was $15 billion, and was a crucial part of the process to move ahead. Also, he hoped that middle-income countries would, rather than participating in the Initiative, be able to grow and expand so that their debt could be more sustainable.

A more stable international financial system would be beneficial to all, especially developing countries, which stood to gain the most, stated Ulrich Gygi, Secretary of State for Finance of Switzerland and Chairman of the Group of 10. The Bretton Woods institutions were clearly the right place for discussing necessary reforms. In that process, representatives of civil society had valuable contributions to make and their voices should be heard. There remained the problem of the legitimacy of those groups, however, and that issue must be addressed at the national level.

Following initial statements, a panel discussion was held on the theme "Towards a stable international financial system, responsive to the challenges of development, especially in developing countries" with high-level delegates from Member States. Participating in the discussion were government ministers and representatives of Nigeria (on behalf of the “Group of 77” developing countries and China), Portugal (on behalf of the European Union), Italy, Austria, Czech Republic, Saint Lucia, Pakistan, Germany, Colombia, Bulgaria, Brazil, South Africa, China, Norway, Mexico, Togo, Canada, New Zealand, India, Croatia, Netherlands, Mongolia, Bangladesh, Australia, United States, United Kingdom, Denmark and Cuba. The observer for the Holy See also spoke.

The Economic and Social Council will meet again on a date to be announced.

Economic and Social Council - 3 - Press Release ECOSOC/5886 6th Meeting (AM) 18 April 2000

Council Work Programme

The Economic and Social Council met this morning to hold its third special high-level meeting with the Bretton Woods institutions, which will include a panel discussion on "Towards a stable international financial system, responsive to the challenges of development, especially in developing countries".

The panellists are Tarrin Nimmanahaeminda, Minister of Finance of Thailand, Chairman of the Development Committee; German Suarez, President of the Central Bank of Peru, Chairman of the Group of 24; Ulrich Gygi, Secretary of State for Finance of Switzerland, Chairman of the Group of 10; and Stanley Fischer, Acting Managing Director of the International Monetary Fund. Sven Sandstrom, Managing Director of the World Bank, will also contribute to the dialogue.

A note by the Secretary-General on strengthening international financial arrangements and addressing poverty (document E/2000/8) identifies some of the issues and relevant questions that might be addressed. Among them: how the ongoing reforms of the international financial architecture can take into account the need to reduce the vulnerability of the poor to financial shocks; and the current situation regarding the enhanced Heavily Indebted Poor Countries (HIPC) initiative, including its overall financing.

Statements

MAKARIM WIBISONO (Indonesia), President of the Economic and Social Council, said that at the beginning of the twenty-first century, the world economy was dominated by globalization and interdependence. The lessons of Seattle pointed to the need for increased inclusion. Thus, the need for international cooperation and partnership had rarely been greater. The present international economic and financial system, particularly in its response to the imperatives of development and to the promotion of social equity in the global economy, were being challenged.

Five years after the World Social Summit the war on poverty was not being won and inequality remained unconquered, he continued. Rather, more countries than ever were being excluded from the onrush of the new global economy and many of them were being increasingly marginalized. Even the advances of those developing countries that were initially able to successfully integrate into the global economy and reap the benefits of globalization were swept away by the recent financial crisis.

Globalization was here to stay, he said. The great challenge today was to accept the General Assembly’s invitation to consider two broad policy concerns: to strengthen and stabilize the international financial system, so as to be more responsive to the challenges of development; and to promote economic and social equity in the global economy. Progress had been made in the process of reform of the financial system and in the promotion of international financial stability.

It was imperative that progress was continued on a broad range of reforms, he continued. Efforts to prevent and address financial crises and improve the governance of the international financial system, as well as better management at the national level, must continue. Inclusion, participation and a greater share in the global decision-making processes was one of the great challenges facing the international community.

In that context, the crucial question of why resources for official development assistance (ODA) had declined so drastically over several years must be faced, he said. The Millenium year, and the ongoing five reviews of the major international conferences should mark the beginning of a new phase. It was critical that the international community worked closely together to mobilize all necessary resources for development.

The high-level event that the General Assembly was currently preparing on finance for development, to take place in 2001, was expected to address a broad range of issues related to the financial architecture, sustained financial flows for development, a comprehensive debt strategy and a focus on poverty eradication, he continued. It was important that all governments fully participated in that event.

On the question of poverty eradication, it could not be denied that a conducive external environment was paramount to the promotion of sustained economic growth and sustainable development, he said. A stable international financial system responsive to development was an important part of a global partnership to eradicate poverty. Poverty eradication had increasingly taken centre-stage of agreed agendas worldwide. Partnership must be consolidated through concrete actions and collaboration, as institutions worked together with the developing countries at Headquarters and in the field.

KOFI ANNAN, Secretary-General of the United Nations, said it had never been clearer that the peoples and nations of the world, and the institutions created to serve them, were engaged in a common mission. Referring to the Millennium Report, he said that the chance of achieving the goals would be much greater if there was a clear understanding and close cooperation between the institutions. In an age when globalization and new technology were bringing hitherto unimaginable benefits to one part of humankind, it was shameful and unacceptable that another part remained excluded from those benefits, subjected to a life of grinding poverty, often accompanied by malnutrition and disease. However, change was within our grasp.

The objective of reducing by half, before the year 2015, the proportion of people in the world living on one dollar a day or less was an optimistic one, he said. In sub-Saharan Africa that could be achieved only with an economic growth rate of between 7 and 10 per cent in each of the next 15 years -– far above any that the region had managed so far. And yet, the policies needed for that to happen were clear.

They must be policies that would lead to sustained growth, he said, policies that created job opportunities, especially for young people, which harnessed the power of the new information technologies, and which improved the effectiveness and transparency of governments themselves. There was nothing more inimical to growth, nothing more calculated to perpetuate and aggravate poverty, than armed conflict. “We have to break the vicious circle and replace it with a virtuous one”, he said. In addition, governments must face up to the mind-numbing devastation that HIV/AIDS was wreaking on the economies and societies.

Above all, investments must be made in education. He urged Member States to endorse the target of universal primary school enrollment by 2015. The most difficult part of that task would be closing the gender gap. Next week, he would launch a new United Nations initiative, “Educate Girls Now”, an open partnership of more than a dozen entities in the United Nations system –- including the World Bank.

The essence of a market was that people must be free to sell as well as to buy, and that was as true of the global economy as any other, he said. Only if they were given full and free market access for their products could developing countries attract the investment they needed to achieve high growth and trade their way out of poverty. Only if they were freed from the shackles of debt repayment and debt servicing could the poorest countries devote an appropriate share of their revenue to anti-poverty programmes. Only with generous financial assistance from the industrialized world could countries that had worked hard to reform their economies provide their poorer citizens with the basic social services they so desperately needed, he said.

Countries that were taking steps towards good governance merited support, he continued, and also needed an international economic and financial system that responded to their development needs. “This is at once a moral imperative and a common interest for the entire world”, he said. Finance and development ministers had a crucial role to play. Finance ministers, in particular, could not afford to look after their portfolios in a narrowly defined way. They were not asked simply to fund this or that programme or need, but to help find solutions.

The ongoing vehemence with which people were debating the merits and demerits of globalization had been witnessed by those who had attended the annual meetings of the Bretton Woods institutions in Washington, D.C. “We need to turn this unease, this ferment, this confrontational energy into something constructive -– into something that benefits all people and which all people can support”, he concluded.

TARRIN NIMMANAHAEMINDA, Minister of Finance of Thailand and Chairman of the Development Committee, said the communique of the Committee’s meeting had been made available. The theme that ran through its agenda was poverty reduction, and discussions had focused on how to achieve more effective support for vigorous action to reduce poverty. The exchanges were comprehensive and often provocative. Perhaps future discussions could prove useful for next year’s high-level event on financing for development.

He said it had been encouraging to hear from finance and development ministers on the AIDS crisis. It was noted that AIDS weakened economic growth, labour productivity and the investment climate. The Committee endorsed a global strategy to address the epidemic, which placed responsibility on all key actors, including national authorities. James Wolfensohn committed the World Bank’s funding of programmes related to the issue and the Director of the Joint United Nations Programme on HIV/AIDS (UNAIDS) also contributed to those discussions.

The Committee also discussed trade, development and poverty reduction, particularly addressing the development aspects of trade, he continued. Accelerated and sustained growth was necessary for poverty reduction. It was also true that open economies grew faster than closed economies. Industrial countries were urged to open their markets wider to the products of poor countries. Many ministers also stressed the wide trade divide between unequal partners. Among the reforms proposed was to extend predictable and quota-free access to the poorest countries. Many of them were not integrating successfully into the world trade market. Thus, the communique emphasized that the efforts of countries to improve trade should be incorporated into a wider development framework.

Once again the Committee discussed the HIPC initiative, he said. In doing so it welcomed a growing number of donor pledges and recognized that the initiative remained under-funded. It was expected that the discussions would promote further support. An additional 15 countries might be considered for that initiative this year.

With regard to the poverty reduction strategies, ministers were pleased at the progress made in the six-month period since the strategies were introduced. The Committee urged the Bank and the Fund to work collaboratively with countries and partners to develop them further. It recognized that country ownership was the most critical feature of those strategies. Bilateral and multilateral agencies were encouraged to align their assistance programmes with the poverty reduction strategies. It was not surprising that the Committee chose to emphasize in its communique the importance it attached to further strengthening the family of multilateral institutions as a powerful force for equity and stability.

STANLEY FISCHER, Acting Managing Director of the International Monetary Fund (IMF), informed the Council of the results of the meeting of the International Monetary and Financial Committee. The first meeting of what used to be called the Interim Committee took place two days ago. It started, as always, with a discussion of the global economic outlook. Growth had picked up and there was no significant increase in underlying inflation in the industrialized world. The growth rate this year was expected to be 4.2 per cent, the highest in 10 years. The discussions on global outlook focused on the policy needs for next year for the United States, Europe and Japan.

The United States, he continued, needed to manage economic policy to ensure that aggregate demand grew steadily. The growth at the end of 1999 could probably not be sustained. The prospects for growth in Europe were good. In Japan, there were some signs of recovery, but recovery was halting. Its economic policy must remain as expansionary as possible. In developing countries the prospects for growth were also good. Latin America had seen much better growth in 1999 than expected and that would probably continue. The prospects for Africa were better this year than last year.

In its discussions on globalization and the poverty issue, the Committee emphasized the need to ensure the completion of funding for the HIPC Initiative. It must be recognized that many regional development banks did not have the financing to contribute to that Initiative. Globalization was the best way known for countries to develop. There had been no successful growth strategies that did not involve integration into the global economy. The Committee requested further trade liberalization in the industrialized countries.

With regard to reform of the Fund’s role in the global economy, he said that among the issues discussed were the facilities through which the Fund made its loans and the Fund’s surveillance activities, which had expanded markedly. There was strong support for maintaining the Poverty Reduction and Growth Facility. With regard to membership in the Financial Stability Forum and the G20, the Fund, together with the Bank, were institutions with universal membership. There was a strong feeling that activities set up outside the institution needed better representation. The Fund did take part in some of those activities. There had been significant progress on issue of private sector involvement in crisis resolution.

On the issue of transparency and dialogue with civil society, he said that the Fund now published almost everything, as opposed to five years ago, when it published almost nothing. The Poverty Reduction Strategy Papers, the basic document under which debt relief took place, envisaged a dialogue with civil society.

ULRICH GYGI (Switzerland) on behalf of the Group of 10, said that the financial crises of the late 1990s revealed weaknesses of the international financial architecture. Initiatives had been launched by the IMF to address weakness and the international community must find a way to implement standards in as many countries as possible. While difficult to develop, macroeconomic financial indicators were important for emerging developing markets. Regarding the distortion of financial markets, the private sector must be able to minimize the risks involved. The countries involved had part of the solution in their own hands. The build-up of short-term debt was not sustainable. Once a crisis erupted, the IMF had an important role to play. Confidence could be re- established in a short time. The participation of private creditors should be a standard feature, without coercion.

A more stable international financial system would be beneficial to all, especially developing countries, which stood to gain the most, he said. The rapid development of East Asian countries bore witness. The potential gains of transferring capital should be realized. The Bretton Woods institutions were clearly the right place for discussing far-reaching reforms. The discussion should be kept within the realm of representative institutions.

Representatives of civil society had valuable contributions to make and their voices should be heard, he continued. There remained the problem of the legitimacy of those groups, however, and that issue must be addressed at the national level. Protection of the poorest from financial shocks was crucial. While short-term debt should not pile up, international financial institutions must also play a part. In that regard, they were trying to include representatives of civil society in their programmes. International financial systems were making decisive steps on the learning curve and had become more transparent in their operations.

Poverty Reduction Strategy Papers clearly had the potential to increase the efficiency of aid, he said. An important precondition of aid money was macroeconomic stability. Increased efficiency and good governance were key to overcoming the aid fatigue of donor countries.

GERMAN SUAREZ, President of the Central Bank of Peru, speaking on behalf of the Group of 24, said that the global economic outlook provided an optimistic prospect, but that significant risks still existed. He mentioned the uncertain response of the Japanese economy to fiscal stimulus and the risk of a hard landing of the American economy. Even though growth performance in developing countries was somewhat better than expected, recovery had been uneven and growth prospects were below pre-crisis levels.

The policies of industrial countries could contribute significantly to poverty reduction and growth in developing countries, he said. At the present juncture, industrialized countries, in establishing their economic policies, should not only consider their own stability, but also the impact those policies would have on developing countries. In particular, the financial policies of industrial countries should avoid excessive reliance on interest rates to control inflationary pressures and should aim at more stable exchange rates.

On strengthening the international financial system, he said that much needed to be done to reduce vulnerabilities in emerging market economies derived from abrupt changes in international capital flows and in terms of trade. He urged that the IMF surveillance should apply to all members, with special attention to the international implications of the domestic policies of the largest economies, and that transparency and best practices should be followed by all countries.

As for the involvement of the private sector, he said a well-defined operational framework to prevent and resolve financial crises should be developed. The IMF should continue to play a facilitating role for the equitable negotiation of debt restructuring agreements, but its role should be limited to an advisory position.

The Group of 24 strongly supported the HIPC Initiative, he said, and he called for a quick completion of the required financing. There was, however, deep concern regarding the insufficiency of bilateral contributions from donor countries for the HIPC Trust Fund and about the excessive burden of the cost of the Initiative that fell on other developing countries that had lent to HIPC countries.

First Round of Questions

JUBRIL MARTIN-KUYE (Nigeria), on behalf of the “Group of 77” developing countries and China, said that the difficulties faced by developing countries in the wake of globalization had transformed the context of United Nations involvement in development assistance. The interest that multilateral institutions took in poverty reduction in the last three decades had been significant. Among other things, it had resulted in the creation of the HIPC Initiative.

However, he continued, as welcome as the Initiative was, it was limited in its scope. The response and recovery of individual countries to the recent financial crisis had been varied. The economic conditions that prompted the Initiative seemed to be present now in a number of middle-income countries. Perhaps it would be better to deal with those issues before they constrained countries and caused them to fall into the low-income group. How could the problems of those countries be best approached? he asked. Shouldn’t debt relief be extended to middle-income countries too?

He also asked what steps were being taken to implement the integrated trade development of least developed countries. At the country level, he assured the international community that Nigeria had decided to put its house in order by showing sustained good governance. It had resolved to fight and win the war against corruption, limit military expenditures, tame inflation and keep it at a low single digit number. It was committed to infrastructure enhancement projects to reduce poverty, fight HIV/AIDS and improve access to primary health care.

JOAQUIM PINA MOURA, Minister of Finances and Economy of Portugal, speaking on behalf of the European Union, said that the meeting should focus on the consideration of the modalities to achieve a strengthened and more stable international financial system responsive to the challenges developing countries were facing, and the promotion of economic and social equity with a view to eradicating poverty. The potential risks that globalization could represent for both developing and developed countries, however, had to be recognized.

He said that the IMF and the international financial system should evolve to adapt to a rapidly changing economic environment. It needed to be a partner to all member countries, whether they were poor or not. Preserving international monetary and financial stability should be pursued by the IMF through surveillance covering the whole range of macroeconomic issues and structural reforms that were relevant for macroeconomic stability, as well as through catalytic balance of payment support to countries in difficulty under appropriate mechanisms within the framework of an agreed adjustment programme.

Closer coordination between the Bretton Woods institutions was indispensable in preventing duplication of work and inefficient policies, he said. Strengthening the international financial systems was of crucial importance for a greater financial, economic and social stability which could contribute to the achievement of the international agreed targets, in particular the eradication of absolute poverty, he said.

In the ongoing review of the IMF, more attention should be devoted to crisis prevention, which required reforms of domestic financial systems, appropriate sequencing of capital account liberalization in policy-making, and sound liability management, he said. Stronger involvement of the private sector in the prevention and resolution of financial crises was crucial to avoid moral hazards and other distortions in the functioning of international financial markets, as well as to facilitating more orderly adjustment. Transparency played a key role in promoting ownership, accountability and good governance, which in turn attracted private capital flows to developing countries.

The HIPC Initiative was essential to the promotion of economic and social equity with a view to eradicating poverty, he continued. He was, however, disappointed that many countries would not benefit from debt relief as originally envisaged, and urged the World Bank and the IMF to make the necessary efforts to spread the implementation of HIPC to ensure that three quarters of the eligible countries could participate by the end of 2000. The Union encouraged all international financial institutions, as well as other multilateral creditors, to remain actively engaged in the Initiative.

GIULIANO AMATO (Italy) said that the goal of reforming the international financial architecture and the mission of the Bank was to lift up all economies to a level at which they could equally enjoy the benefits of global financial markets. The resources of the two institutions should be used to reach that outcome. The more economies emerged, the less they would rely on international financial institution resources. Italy had been one of the first to say that debt could be canceled up to 100 per cent. Other resources, however, must be made available to countries, and barriers protecting markets must be avoided. The prolonged and repeated use of facilities should be increasingly costly. There should be a disincentive when market resources could be made available.

Financial stability was increasingly becoming the focus of the IMF, he continued. The role of codes and of standards of prudential conduct had become crucial. There was much sensitivity regarding that issue. One the one hand, codes were essential; on the other hand, codes were resented by countries as something imposed on them. Countries must free themselves of that dangerous reaction to codes and standards. The reason for inconsistency was the reduced legitimacy of the institutions that were preparing standards, and were not due to soundness of standards themselves.

The international financial community must solve the issue, he said. Steps were being made in that regard. The creation of the Group of 20 had proven useful. Voices considered outside were now being heard. Yet, not all voices were being heard. Standards, if not prepared in a more democratic way, tended to be uniform and unilateral, and more standardized than necessary. It was a legitimacy issue that must remain on the floor of the United Nations. While he did not have the solution to that problem, it was a crucial point to be solved.

BENITA FERRERO-WALDNER (Austria) said that the discussion had been inspiring, especially in light of the spring meetings. Meetings between the Bretton Woods institutions and the Council helped to create synergies within the institutional framework. The multi-sectoral role of the Council provided a forum for the exchange of views and for the combining of economic and social issues. The crucial challenge was to maintain links between the many sectors that dealt with international financial systems. Global issues and concerns were not bound to be dealt with by one organ exclusively. The boundaries between institutions and fields of responsibilities had become much more open. In the era of globalization, one could not deal separately with such issues.

Combating poverty was a top priority, she said. The role of financial institutions in coping with poverty eradication was beyond doubt. There was still a need to use resources more effectively. While important advances were being celebrated, all had been struck by the persistence of marginalization. The number of very poor living on less than $1 had remained stubbornly high. Widening income gaps between the most affluent and most impoverished countries was potentially a socially-explosive situation. What could be done to enhance the role of efforts to eliminate suffering? In light of the two recent meetings in Washington, D.C., and in Havana, the meeting of the Bretton Woods institutions could provide an opportunity to compare and assess the outcome of those two important meetings.

Of utmost importance was the idea that cooperation with Bretton Woods institutions was not limited to the Council, she added. The upcoming financing for development event was both a challenge and a chance to establish new working methods. The precondition was that all involved must trust each other and show the will to make real progress. Without such prerequisites, the opportunity to make the event memorable might be lost.

PAVEL MERTLIK, Deputy Prime Minister and Minister of Finance of the Czech Republic, said that since the early 1990s, countries such as his, which were tackling social and economic reforms, had been subject to an enormous amount of international aid. Among the lessons learned was the importance of appropriate governance and institutional frameworks to effectively use scarce resources. He also underlined the importance of cooperation between international organizations, such as the United Nations, the Bretton Woods institutions and the Organization for Security and Cooperation in Europe (OSCE) in coordinating efforts to tackle problems.

In the past few years, he continued, the international financial institutions had been able to coordinate on several issues to effectively use the resources available to them. It could be concluded that the principal agent in a country’s reconstruction was the country itself. It must be able to develop its own resources. An important task of the international community was to enable countries to participate in the world economy.

PHILIP J. PIERRE, Minister of Commerce, International Financial Services and Consumer Affairs of Saint Lucia, speaking on behalf of the Caribbean Community (CARICOM), said that stability in financial systems was a consideration constantly growing in significance as the process of globalization advanced. In order to be well-positioned to take advantage of emerging development opportunities, countries in the Caribbean region must ensure that their financial systems were sound, stable and secure. Recent financial sector turbulence had highlighted the vulnerability of small States to capital movements and, thus, issues such as banking system stability and payments system reform had taken on added prominence.

The international financial system, insofar as it facilitated the payments system, was crucial to the growth and survival of small open economies, he said. Placed in the appropriate context of globalization, a stable international financial system was necessary to efficiently affect international payments. An inefficient, unstable financial system would invariably result in the contraction of real output, as the payment mechanism would be hindered.

In the Caribbean and developing countries generally, commercial banks were at the core of the payments system, he continued. Issues of financial system stability were inextricably linked to commercial bank stability. Improved regulation and supervision of those institutions should be a priority area for supervisory authorities. The declining availability of foreign monetary aid and concessional funding had forced developing countries to reduce their capital budgets, lowering the prospects for further growth and development. If the observed trends were to continue, countries would inevitably have to raise funds on the open market to finance their development.

The recent turbulence in the international financial markets, the attendant effects and the deceleration in world growth brought about by those crises had impacted on the smaller, more vulnerable countries, as the decline in world demand for primary products placed downward pressure on prices, he said. One of the primary concerns with respect to the international system revolved around the threat of contagion. CARICOM would like to be advised on progress towards the containment of crises and efforts to reduce their spread.

A stable international financial system was a public good, he continued. The increased confidence and reduced risk that stability generated benefited all participants in the global economy. It was in the interest of all to work towards immunizing systems against systemic failure and ensuring that the stability and calm that characterized an efficient payments system prevailed in individual jurisdictions. The importance of enforcing strict prudential standards could not be overemphasized. The design and implementation of early-warning systems and the furtherance of transparency in the operations of financial institutions should be a priority for countries of the region. Assistance was needed in that regard.

Considerations of the modalities for a strengthened and more stable international financial system should include improved regulation and supervision of commercial banks, he said. Considerations should also include: capacity- building; design and implementation of an adequately engineered regulatory programme for non-bank financial institutions; improved guidelines and the implementation of disclosure requirements for financial institutions; and reform of the payments system to reduce systemic risk. The time might be ripe to open debate on an international system of deposit insurance, as that would give depositors an added layer of protection.

The existence of sound macroeconomic fundamentals did not guarantee the retention of capital or robust growth, he said. Capital could still move in the face of sound fundamentals, with adverse economic and social effects. CARICOM viewed the ongoing process of financing for development as an excellent opportunity for dialogue, consensus-building and cooperation in addressing the national, international and systemic issues relating to the financial system in the context of globalization and trade liberalization.

The United Nations had a central role to play in fostering that dialogue and international cooperation, he said. Global participation in that process of reforming the international financial system was critical to ensure equity and development of all peoples, by addressing in an integrated manner such concerns as: burden-sharing between creditors and debtors; participation of developing countries in standard/norm-setting; coherence between international trade, financial and monetary systems and regimes; governance of international financial system in decision-making; and accountability, transparency and responsiveness to the challenges of development.

SHAUKAT AZIZ (Pakistan) said that the debt burden was the challenge faced by most developing countries today. The HIPC Initiative was a worthwhile endeavour, but the heavy debt burden went beyond that Initiative. It was necessary to establish guidelines and policies for debt relief for countries above the HIPC criteria, but definitely in the middle-income group. While all stakeholders were sensitized to the problem of poverty alleviation, poverty indicators needed to be better measured. If they could not be measured or the wrong indicators were measured, they could not show progress in poverty reduction. Better analysis of poverty reduction programmes was needed. In addition, for developing countries, quota-free access to markets was key for their integration into the international trading system.

Second Round of Questions

HEIDEMARIE WIECZOREK-ZEUL (Germany) said that in globalization only the strongest could afford weak institutions. The majority of people needed strong representative international institutions to shape globalization in a socially and ecologically safe way. She opposed all plans to make the World Bank restricted to one region. Such moves would only be to the detriment of developing countries and the poor. Discussions in the Bretton Woods institutions had centred around the question of poverty. What could be done to help change the international framework and international conditions? One of the important points made was to see to it that the decision-making process within the World Trade Organization (WTO) represented the majority of the countries.

On the issue of trade, it was necessary to discuss the question of special treatment of developing countries within the WTO system, she continued. That included such issues as waivers for developing countries regarding WTO commitments. As to debt relief, she was happy that the debt initiative and poverty reduction strategy were combined, which provided a new opportunity for many poor countries. It was important to include civil society in developing countries in such discussions. That made those proposals sustainable. It was also important that the Fund saw to it that the poorest were not hit by some of the proposals put forward.

JUAN CAMILO RESTREPO (Columbia) said that the recent meetings had led to progress on the roles of the Bank and the Fund. Within the question of the role of surveillance, the Fund had established a pilot programme in which Columbia had participated. As for facilities provided by the Fund, the importance of not setting limits to provide short-term resources in order to help support balance of payments and meet resource needs during periods of turbulence must be stressed. Facilities should be made more accessible. In that connection, Columbia was obtaining the participation of the private sector in providing loan resources. A credible economic adjustment programme facilitated access to markets. Obtaining the support of the private sector depended on individual countries.

He said that in the Latin American economies one could see signs of recovery. Columbia had planned to channel resources in the form of social safety nets, as well as investments in areas under armed conflict. That had been done to enhance the peace process. Columbia considered the high-level event on financing for development of extreme importance. The preparatory process was of particular importance for that event.

DIMITAR RADEV (Bulgaria) said that the meeting provided an opportunity to enhance the relationship between the Bretton Woods institutions and the United Nations. On the issue of cooperation between the IMF and the World Bank, the representative of Bulgaria asked Mr. Fisher if the World Bank should base its activities on a macroeconomic framework and if it should take into account the IMF. He asked if Mr. Fisher shared the view about the division of labour?

MARCOS CARAMURU DE PAIVA (Brazil) said that the main conclusion to be derived from meetings held in Washington was that the prospects for growth of the world economy were stronger, despite uncertainty associated with the behaviour of stock markets in a number of countries. Yet, there was still uncertainty about the future and a heavy agenda was before them. The question was how to strike the right balance between standards in policy formulation and preserving the freedom of countries to formulate policies that conform to their own reality. What kind of institutions were needed, and how should the issue of representation in international institutions be addressed? he asked.

The question was also how to integrate smaller and poorer countries into the international economy, he said. Debt relief was an important step but it was not enough to integrate smaller economies. Financing for development was important, but also not enough to integrate smaller economies into the global economy. Trade liberalization was a matter at the core of an international initiative. Questions would remain for some time not only within the Bretton Woods institutions, but also in other organizations. The main issue was that the gap between smaller, developing economies and developed economies should not be increasing. A sense of exclusion still existed, and rightly so. That issue connected the institutions that deal with development.

TREVOR MANUEL (South Africa) said that the crisis now was one of poverty and inequality. It could best be described by the fact that per capita incomes in Africa today were lower than 30 years ago. There was a need to expand the issues into other institutions, such as the WTO, to ensure that market access for poor countries was given greater attention. The Bretton Woods institutions were born in a period of adversity. Now, the Group of seven industrialized countries shared over 46 per cent of the decision-making in those bodies. At the same time, the facilities of the Bank and the Fund were used largely by countries with poor representation.

Against that backdrop it was imperative to recognize that those institutions were not like “Wall Street type” banks, he continued. It was not a relationship between debtors and creditors, but rather between sovereign States. The greatest risk facing the institutions was that of inertia. The changes spoken of could not be managed by the management of the Bank and the Fund. He suggested that the matter be included on the agenda of next year’s high-level event on financing for development.

XIAO GANG (China) said that the existing international financial institutions must be reformed to have sustainable growth. Globalization must adhere to the principles of equality and equal benefit, and have shared prosperity as its aim. Currently, the developed countries practised protectionism, which not only harmed the interests of developing countries, but was detrimental to global development, peace and security. Developed countries had also not paid serious enough attention to the free flow of labour and technology. If that did not change, globalization would be the process by which developing countries were marginalized. Policies should be adopted to open markets and provide for technology transfer.

A reasonable international aid system should be established to realize the official development assistance target set by the United Nations, he continued. As the most important intergovernmental organization, the United Nations should strengthen its relationship with the Bretton Woods institutions. Those institutions should not become the tools for the parochial interests of certain countries or groups and should not be influenced by political factors. He called on them, when formulating new standards, to consider the realities of the countries concerned. The international community should strive for a new economic system in which developing countries did not dominate in setting rules and standards.

ANNE KRISTIN SYDNES, Minister of International Development of Norway, said that the Declaration and Programme of Action adopted at the Group of 77 developing countries' “South Summit” in Havana clearly demonstrated that poverty, debt, trade and international finance were at the top of the agenda of those countries. The similarity of the agendas of Havana and the meetings in Washington, D.C., reflected a high degree of common perception of the priorities for international development cooperation. The street protesters in Washington had much the same agenda, as well.

The United Nations Development Assistance Framework, the Common Country Assessments, the Comprehensive Development Framework, the Poverty Reduction Strategy Papers and the HIPC Initiative were all promising tools in working together for poverty reduction and sustainable development, she said. For those tools to work as intended, the countries concerned must themselves take the lead and claim the ownership to their own development. The multilateral institutions and the donor countries must coordinate their efforts, pool their resources and avoid duplication. “Minimize waste, maximize impact”, she said.

The present under-funding of the HIPC Initiative was a major concern, she continued. There was no viable alternative to a separate and transparent negotiating process on HIPC financing. But, more had to be done. The current, unacceptably low level of ODA must be addressed and the donor countries must honour the commitments made at the major global conferences of the 1990s. Increased ODA was a key building block in the new development architecture. The declining financial support for the United Nations Development Programme (UNDP) was also of particular concern. UNDP should definitely continue its role as a focal point for United Nations operational activities.

The United Nations and the Bretton Woods institutions must together take the lead in bringing the benefits of globalization to the poor and the marginalized, she said. The high-level meetings of the Economic and Social Council, the World Bank and the IMF were very useful occasions, which took place during one day each year. What was really important, however, was what happened during the remaining 364 days. "Action speaks louder", she said.

ROGELIO MARTINEZ-AGUILAR (Mexico) said that United Nations must step up its role in designing an international financial strategy with social impact. It was necessary to strengthen the convergence of efforts to place development with equity at the centre of the reform of international financial systems. Some positive measures had been taken, such as new lines of credit to countries in crisis. A great deal more must be done, however. In line with incorporating the regional dimension in consensus-building, Mexico had organized a regional high- level meeting in September. The promotion of fairness must include generating greater development opportunities for all. The importance of creating employment and education were emphasized at the meeting. The efforts of all governments must be aimed in that direction.

ABDOUL-HAMID S.B. TIDJANI-DOURODJAYE (Togo) said that there had been an increasingly acute awareness of the situation in Africa as demonstrated by a number of recent meetings that raised the problems facing that continent. The question of how to combat poverty still existed. How could obstacles to access to the benefits of growth be reduced? How could debt alleviation have an impact on poverty reduction? Greater coherence between the Bretton Woods institutions and the United Nations was needed. Such harmonization must be institutionalized so that Africa would not be completely marginalized from development.

JEAN-MARC METIVIER (Canada) said that the main themes from Washington, D.C., such as, among others, intensifying action on HIV/AIDS and accelerating debt relief linked to poverty reduction, were issues that depended on the effective collaboration of a range of institutions. A number of initiatives had emerged, with a common theme of putting poverty at the centre of international development efforts and improving partnerships among the various players active in it.

There was a great potential for the Poverty Strategy Papers to become the centrepiece of common efforts with greater focus and coherence, he said. To be a success, that initiative must fully integrate the perspectives and strengths of all actors and must not be allowed to be compromised by short-cuts taken for the sake of expediency. Linkage with the Poverty Strategy Papers was important for the HIPC Initiative to achieve its agreed aims of debt relief. Yet, that process should be handled flexibly, so as not to allow limited country capacity to become a constraint to providing relief. The capacity was itself dependent on the resources that HIPC could free up, he said.

The international development targets continued to offer a central rallying point that could serve to maintain the collective focus on common objectives, he continued. "With such reminders in front of us at all times, perhaps now we can summon the will to put aside old institutional habits and find new ways of making our efforts count", he concluded.

MICHAEL CULLEN, Minister of Finance of New Zealand, said that the emerging consensus among the institutions about what was needed was not always shared by the people. There was a need for better communication. In the context of globalization, there was a particular concern for the needs of small States, especially in the South Pacific. His Government supported the HIPC Initiative and would make a contribution to its Trust Fund.

As to the reform of the international financial architecture, he said that concerns about the crisis of 1998 had put aside more fundamental financial reforms. Full disclosure and transparency were important, but not sufficient. Highly mobile, opportunistic activities of the private financial sector could still impede recovery. He was concerned that simple crisis management would move the attention away from broader economic development issues.

E.A.S. SHARMA (India) said that India welcomed both globalization and liberalization of trade, provided that they yielded net benefits to the developing countries. If the terms of trade were fair and equitable, perhaps the funds generated could enable those countries to partially fund their development efforts. The rate at which standards and rates were adopted should be viewed within a country-specific manner. They should be more voluntary than intrusive. Poverty alleviation included many challenges. For meeting them, it was necessary to enhance concessional aid to the developing world. Programmes should be community-owned and instituted by democratic institutions, which allowed for the involvement of civil society. The role of the Bretton Woods institutions should be strengthened and not enriched.

VLADIMIR DROBNJAK (Croatia) said that the emphasis should be on multilateralism in shaping future financial institutions. The United Nations should use its comparative advantages to be in the forefront of promoting policy coherence. There was clearly a disparity in the regulation of trade and financial flows. While the regulations for trade flows were quite developed, those for international financial flows were not. The primary method for achieving that was multilateralism and transparency. All States were stakeholders and carried their own responsibility to address their needs. The Fund should play a greater role in crisis prevention and management.

On fighting poverty, he said that the development of appropriate institutions was found to be an important issue. Macroeconomic policies were now expected to be developed alongside social policies, and good governance should be an integral part of that policy. He noted that once again, in its communique, the Fund had stressed the importance of open and competitive markets. The barrier to Croatia’s accession to the WTO stood in contradiction to the principle of an open and fair trade market.

EVELINE HERFKENS (Netherlands) said that the voices of small and poor countries must be heard. It was a serious issue that must be addressed. The new forums excluded the majority of the people of the world and could constitute a step backward for the Bretton Woods institutions. While it was true that everyone could raise his or her voice, not everyone had the microphone. A representative system was in place, yet the complaints of small and poor countries had to be raised in the committees. The system could work better if people were more active in making it work.

On the HIPC Initiative, the fact that five countries had already benefited was a positive step, she said. The breakthrough was not just lip service, but had actually been implemented. Poverty reduction strategies were important achievements and the donor community must recognize the importance of those strategies. Bilateral donors must clean up their act. On the founding of HIPC, the Netherlands was still the largest contributor, as far as disbursement of funds. Other donors must make greater efforts, especially the countries of the Group of Seven industrialized countries.

NYAM-OSOR TUYA (Mongolia) said that poverty reduction was essential. There were several questions to be addressed, including the importance of political commitment and putting in place poverty reduction programmes at the national level, strengthening partnerships in reducing poverty and persevering in poverty reduction measures. Transparency was also important. On landlocked developing countries, the meeting in Havana had studied that issue. Continued international assistance to assist landlocked developing countries was important and should continue. On public/private partnerships, it was important to harness the information technology, which offered better opportunities for addressing the challenges of globalization. Arresting the decline of ODA was also crucial.

S.A. SAMAD (Bangladesh) said that in a new world economic order, the developing countries sought more equitable market access and fairer private flows, rather than more concessional aid. It was imperative that the trade regime become fairer and more equitable. He welcomed the Fund’s new poverty and growth reduction facility and hoped that its conditionalities had changed. Poverty reduction strategies should be home grown. The literature on the causes of poverty was short and thin. What caused poverty and why was it so difficult to reduce the number of poor? In his view, poverty resulted from the structure of the political economy and the way in which resources were allocated. To have a meaningful poverty reduction strategy, massive investment reallocation was needed. The rhetoric was loud, but the results did not show any perceptible improvement.

Bangladesh’s strategy consisted of high growth and targeted programmes, including empowering the most disadvantaged, he said. In regimes of repressed finance, the poor suffered the most because the system did not cater to their needs. More transparency was needed and the role of the Fund should be increased, to try and prevent the kind of collapse experienced in Asia in the 1990s.

ROD KEMP (Australia) said that good domestic governance was important, but the responsibility for development rested “with each of us”. All international institutions involved in fighting poverty needed to coordinate with country governments to help countries take advantage of globalization. The international community needed to address the still-high barriers to market access of developing countries' exports.

Economic development was also dependent on domestic efforts, he said. Those efforts should be based on a flexible and responsive economy, open and transparent domestic institutions and a good system of governance. A greater openness to the global economy was necessary, but the local economy had to be strong enough to counter the pressures and shock waves of the global economy. He asked for special consideration for the particular characteristics of small-island States. They were almost entirely dependent on global trade and their exposure to world markets was very high. In policies and programmes of international institutions, those characteristics must be taken into account, he said.

DIARMUID MARTIN, observer of the Holy See, said that rarely had economic and social goals been so closely intertwined. On the financing of HIPC, it was important to move rapidly, so that the maximum number of countries could receive relief this year. HIPC could not survive on promises alone and it could be killed by inaction. It was necessary to invest in civil society. On improving tariff- free market access, that access should be addressed to all exports and it should be complete. The Holy See hoped to see greater market access not only for the least developed countries, but also for more middle income countries.

He asked the question, would it be possible to consider the reduction of military expenditures within a strategy for poverty reduction? How could progress be made in that area?

BETTY KING (United States) said that her country strongly supported the Fund’s greater incorporation of poverty reduction strategies in development assistance. By doing so, both the Bank and the Fund should be able to better articulate policies to reduce poverty. Over time, that would be the primary task of the World Bank. For its part, the Fund needed to have a continued role in macroeconomic evaluation. She recognized the tension between helping those most in need and those who would best use the resources. Better procedures were needed for interactions between countries and financial institutions. Also, smaller and clearer performance indicators were needed. Further, both institutions needed to strengthen their accountability to their shareholders. In addition, better access to information and the systematic use of indicators that can be monitored were necessary.

Sir JEREMY GREENSTOCK (United Kingdom) said that monetary, financial, fiscal and social policies must be brought together. “We can no longer live in a world where governments can legislate for financial flows in a social vacuum.” That was an invaluable aid for countries living through crises. A set of guiding principles to help all countries sustain economic development and social cohesion was needed. The European Union had launched such a proposal in the context of the Copenhagen + 5 process. The United Nations had a key role to play and a comparative advantage in terms of its leadership in social policy. He asked whether a fusion of policies was possible and whether it was possible for the United Nations to play its role. Also, it was time for a more fundamental coordination and cohesion between the work of the Security Council, the Economic and Social Council and the Bretton Woods institutions. “We have not yet got that right in terms of the link between security and development”, he said.

JORGEN BOJER (Denmark) said the process in the Preparatory Committee for the High-Level Event on Financing for Development, of which he was co-chair, presented the first opportunity in years to address aspects of social and economic development in a coherent fashion. It also coincided with an emerging strong international consensus about what constituted human development. Without involvement of the Bretton Wood institutions, however, the process would be meaningless.

He said that the Executive Board of the World Bank had proposed very constructive modalities for participation, and he hoped that equally effective modalities could be suggested and approved by the IMF and the WTO. Different parts of the international system were in possession of bits and pieces of the international development architecture, but no one had everything. The Event was a unique chance to put all those pieces together. That opportunity might never come back and had to be used to its full potential, he said.

RAFAEL DAUSA CESPEDES (Cuba) said that there were great imbalances and inequalities in the world. The economic order did not satisfy the requirements of the developing countries. Deregulation and globalization of capital had had severe consequences for the world economy. Capital flows had made the countries in the South more vulnerable than ever.

The external debt of developing countries had reached a level of $2.5 billion, and the HIPC Initiative covered only a small part of that. Only 8.2 per cent of debt had been relieved, and only four out of 33 countries had gone through the required, very complicated process. Promises did not reduce debt, he said.

The continued application of protectionism was very selective and the Summit of the Group of 77 in Havana proved that opposition to the prevailing situation was strong, he said. The fluctuations of the stock market in New York and the high cost of oil had negative effects on the rest of the world, and showed how fragile the global economy was. The new global economic order was only beneficial to 20 per cent of the world population and had worsened the situation of the remaining 80 per cent. That situation was unsustainable, he said.

SVEN SANDSTROM, Managing Director of the World Bank, said that there had been increasing focus on a number of objectives, with poverty at the centre. Focus on United Nations financing for development would also bring them closer together.

On the question of debt, questions and comments had been made on the HIPC Initiative process. The first was on the Poverty Reduction Strategy Papers and the need for them to link debt relief to poverty. It was critical that all come together in implementing the approach outlined. That was also the context in which the question on military expenditure should be addressed.

The question of funding was a major challenge, he said. Although $2.4 million had been pledged it was only a fraction of what was needed over the next few years. The overall debt relief provided was $15 billion, and was a crucial part of the process to move ahead.

In multilateral development banks, many key HIPC were not represented. On bilateral creditors, the Paris Club had been a participant from the beginning. The challenge of how to get more participation from the non-Paris Club must be faced. Also, it was necessary to find solutions in terms of how the poorest could participate while receiving relief from donors.

On middle-income countries, he hoped that they would not participate, and would be able to grow and expand so that their debt could be more sustainable. Preserving access to markets was key. The lower income countries had access to other instruments for debt relief, including the Paris Club.

Concerning collaboration between the World Bank, the International Monetary Fund and the World Trade Organization he said on the Banks’ side there were four key areas: financial support; an integrated framework; capacity-building; and strengthening work on research, especially on trade barriers.

On the question of poverty, the poverty focus must be maintained. The Poverty Reduction Strategy Papers were becoming key instruments in that effort. Donors must help countries in preparing those strategies.

Commenting on the dialogue, Mr. GYGI, Secretary of State for Finance of Switzerland, said that the Bretton Woods institutions, as lending institutions, were organized around the economic strength of its member countries. Institutional rules were well-defined and if they became inadequate they should be adapted. That was a process that should take place within the institutions themselves.

With regard to the modalities of the Fund’s participation in next year’s high-level event, Mr. FISCHER, Acting Director of the IMF, said that while the Board had not yet discussed that subject, it would find ways to participate in a constructive manner. On the issue of trade, both trade and aid could contribute to development. The circumstances under which they did so were similar. The rhetoric on trade was better than the actions on trade. What he found was that when the time came, those in favour of free trade did not put forward such proposals. Among developing countries, trade liberalization was one of the best ways to integrate into the global economy.

As to the methods of cooperation between the Bank and the Fund, he said that both institutions lived on two sides of the same street with a tunnel connecting the two. Basic cooperation was more on an informal basis. In a few areas they had set up more formal modes of cooperation, such as the recently set up joint implementation committee to work on the HIPC Initiative. In its work on the HIPC Initiative, the Fund must take into account the social and budgetary implications of the policies to be implemented. While Bank and Fund strategies were important, country strategies were more important. Better coordination was needed among all three.

Standards and codes were voluntary, he said. The Fund had developed financial sector assistance, which was purely of assistance to those countries which had requested them. Many countries requested them and he had not heard any complaints so far. It was useful to have a basis on which to decide what standards were to be met and what systems were to be set up.

Turning to the question of military expenditures, he said that while the Fund did not evaluate what happened with regard to a country’s military budget, it did report on military expenditures. That had not been accepted as legitimate earlier, when it was introduced, but the situation was changing. It was hard to make the case for debt relief, when some countries had massive military expenditures for purposes unknown. It was not an easy issue, since what a sovereign nation did was a delicate matter.

Mr. SUAREZ, President of Peru’s Central Bank, said that he agreed with the comments made by the representative of the Netherlands. The World Bank had been providing technical training regarding the HIPC Initiative. Trade liberalization should also involve the industrialized countries. There should be an effort to involve developing countries in the world economy.

In his closing remarks, the President of the Economic and Social Council, Mr. WIBISONO (Indonesia), said that globalization was an uneven process that warranted several policy reforms that were already on the agenda. There was agreement that the international community should take advantage of the current

easing of crises to push ahead in the consideration of reforms that required further discussion and analysis.

It was clear that reform of the global financial system was an ongoing process, involving many actors, he said. The increased transparency of the international financial institutions was a welcome phenomenon. Another fundamental principle implicit in today's discussions was the critical role of the private sector in finance and entrepreneurship, he said.

However, there were limits to how much reasonably could be expected from the private sector, he continued. Governments must play a role that the private sector could not perform. Cases in point were the fight against poverty and HIV/AIDS, and for increased ODA and strengthened debt relief as an integral part of an overall framework for broad-based development.

The main purpose of the special dialogue with the Bretton Woods institutions at the Economic and Social Council was to help the respective institutions do their work more effectively, he said. It was urgent to work together to forge a common understanding that most effectively promoted development and global economic stability and that the people of the world would rightly feel they owned. The meeting had demonstrated the value of that dialogue in promoting and deepening such understanding among the institutions, and he hoped that that process would continue.

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