STABLE INTERNATIONAL FINANCIAL SYSTEM ESSENTIAL FOR DEVELOPMENT, FOURTH JOINT ECOSOC-BRETTON WOODS MEETING TOLD

Economic and Social Council

Special High-level Meeting

 with Bretton Woods institutions

6^th Meeting (AM)

STABLE INTERNATIONAL FINANCIAL SYSTEM ESSENTIAL FOR DEVELOPMENT,

FOURTH JOINT ECOSOC-BRETTON WOODS MEETING TOLD

The consequences for developing countries of the predicted decline in world economic growth were hard to divine, Secretary-General Kofi Annan told the fourth high-level meeting of the Economic and Social Council with the Bretton Woods institutions this morning.

The meeting addressed development financing, the creation of a development-friendly international financial system, and public and private responsibility in the prevention of financial crises.

Even if the consequences of a slowdown were unclear, the Secretary-General said, it was clear that the poor would, as always, suffer disproportionately.  He urged the meeting to keep the needs and aspirations of the poor at the top of their agenda and to make sure that people in developing countries were not victimized, left behind or left without help. 

Martin Belinga-Eboutou (Cameroon), President of the Economic and Social Council, said that to bring the global economy back on a steady path towards achievement of the Millennium Assembly goals, a stable international financial system was fundamental.  Predictability of financial flows was a critical ingredient for realistic planning.  Efficient and reliable mechanisms were needed to ensure all actors worked in partnership for a financial environment suited to growth and development.

Paul Martin, Chairperson of the Group of 20 (G20) and Minister of Finance of Canada said that his Group was promoting consistency in financial management, but without imposing a single solution on countries.  States must be involved in developing practices that best suited them, he explained.

Chief J.O. Sanusi (Nigeria), Chairperson of the Group of 24 told the meeting that it was ironic that protectionist practices were entrenched in developed countries, while many developing countries had implemented trade reforms.  That situation hindered the realization of benefits of global trade.  He called on advanced countries to remove trade barriers.  He also sought changes in the requirements for debt relief under the International Monetary Fund/World Bank's Heavily Indebted Poor Countries (HIPC) Debt Initiative.

Panellists in the opening segment were, Gordon Brown, Chancellor of the Exchequer of the United Kingdom and Chairman of the International Monetary and Financial Committee, Yashwant Sinha, Minister of Finance of India and Chairperson of the Development Committee, and Andrew Crockett, Chairperson of the Financial Stability Forum and General Manager of the Bank for International Settlements.

Discussion in two round tables, held as part of this morning's activities, was summarized by the ECOSOC President and its Vice-President, Ivan Simonovic (Croatia).  Mr. Simonovic said that there was a sense that this was a turning point for the international financial system.  The discussion had acknowledged the need for adequate surveillance and had emphasized the importance of use of global standards and codes, adjusted nationally to account for the situations of each country.

ECOSOC President Belinga-Eboutou said that representatives had strongly emphasized the need to ensure growth over time, and the importance of increased cooperation between the United Nations and the Bretton Woods institutions.  They also agreed that strengthening social and institutional capacities was a prerequisite of economic growth and thus the basis for any development process. 

In addition to members of ECOSOC and the panellists, participants of the round tables included:  Eduardo Aninat, Deputy Managing Director of the International Monetary Fund (IMF); Sven Sandstrom, Managing Director of the World Bank; Mark Malloch, Administrator of the United Nations Development Programme (UNDP); Mats Karlsson, Vice-President for External Relations of the World Bank; and Nitin Desai, Under-Secretary-General for Economic and Social Affairs.

Mr. Aninat, Mr. Sandstrom and Mr. Belinga-Eboutou also made concluding remarks.

Background

The Economic and Social Council met this morning to hold its fourth special high-level meeting with the Bretton Woods institutions.  The meeting was to focus on two themes:  development financing, in particular poverty eradication, official development assistance (ODA) and debt; and movement towards a development-friendly international financial system:  public and private responsibility in the prevention of financial crises.

Before breaking up into two round tables, the Economic and Social Council (ECOSOC) planned to hear statements from its President, Martin Belinga Eboutou (Cameroon), the Secretary-General of the United Nations, Kofi Annan, the Chairperson of the International Monetary and Financial Committee, Gordon Brown (Chancellor of the Exchequer of the United Kingdom), the Chairperson of the Development Committee, Yashwant Sinha (Minister of Finance of India), the Chairperson of the "Group of 24", Chief J.O. Sanusi (Governor of the Central Bank of Nigeria), the Chairperson of the "Group of 20", Paul Martin (Minister of Finance of Canada), and the Chairperson of the Financial Stability Forum, Andrew Crockett (General Manager of the Bank for International Settlements).

The "Group of 24" was formed at the 1972 Lima meeting of the "Group of 77" developing countries and China to represent the interests of developing countries in negotiations on international monetary matters.  The Group is officially known as the Intergovernmental Group of 24 on International Monetary Affairs.  It comprises eight members each from Africa, Asia, and Latin America.  The Group's current members are:  Algeria, Argentina, Brazil, Colombia, Democratic Republic of the Congo, Côte d'Ivoire, Egypt, Ethiopia, Gabon, Ghana, Guatemala, India, Iran, Lebanon, Mexico, Nigeria, Pakistan, Peru, Philippines, Sri Lanka, Syria, Trinidad andTobago and Venezuela.

The "Group of 20" (G-20) comprises the Group of 7, 11 major emerging market economies (Argentina, Australia, Brazil, China, India, Mexico, Russian Federation, Saudi Arabia, South Africa, Korea and Turkey) and two institutional representatives (European Union and IMF/World Bank).  The G-20 was formed on

26 September 1999, as a new forum for consultation on matters pertaining to the international financial system.  It is intended to promote consistency and coherence in the various efforts aimed at reforming and strengthening the international financial system, and to address issues that go beyond the responsibilities of any one organization.

After opening statements, ECOSOC will reconvene in two round tables under the chairmanship of Martin Belinga-Eboutou, President of ECOSOC, and Ivan Simonovic, ECOSOC Vice-President, which will be followed by a plenary meeting to hear concluding comments.

A note before ECOSOC from the Secretary-General, on selected aspects of international cooperation in strengthening financing for development (document E/2001/45), provides background material and raises some questions for consideration at the 2001 special high-level meeting.  The Secretary-General recalls that the General Assembly recommended that, at their high-level meeting, ECOSOC and the Bretton Woods institutions consider means to consolidate a strengthened and stable international financial system responsive to growth and development, in particular in developing countries, and to the promotion of economic and social equity. 

The note asks how governments can assess their experience with multilateral efforts to help developing countries enhance coherence, transparency and participation in policies formulated to guide the partnerships of donors with aid recipients.  How have policies in developing countries changed as a result?  How have donor governments and institutions responded to the new approaches?  What further measures or actions are required?

A second series of questions in the note focuses on restructuring external debt obligations for low-income and middle-income countries.  It states that bonds of middle-income countries and debts of low-income countries to multilateral institutions sometimes have to be restructured.  This can take several years and impose a heavy burden on all concerned, particularly debtor-country officials.  In addition, the overall amount of relief accorded to a country in difficulty might not be adequate for the country to reach its development goals.  Thirdly, the sharing of the cost of debt relief among creditors might not be appropriate.  How might these concerns be addressed?   How might the process of debt restructuring be improved?  Are there adequate means for all relevant stakeholders to build consensus around burden-sharing principles?

The note goes on to state that, as the millennium goals will be achieved only with additional efforts on the part of both ODA donor and recipient countries, the Secretary-General proposes an international "campaign for the millennium development goals" be established.  It would track countries' progress towards the goals, assess the cost implications at each stage, and identify resource requirements.  As the goals have a 15-year horizon and resource needs over such a period cannot be reliably estimated, a five-year lifespan has been proposed for the campaign.  What would be required for donor and recipient governments to fully embrace such a campaign?  Would governments accept that such a campaign would spotlight both differences in performance and additional efforts needed to rise to the challenge of meeting the millennium goals?

The note also identifies the following questions for possible consideration: What further steps are needed to improve the policy dialogues and enhance transparency in international financial matters?  How might global collaboration be strengthened in identifying emerging issues, nascent crises, global policy gaps and the means to address them?  How might more effective confidence-building dialogues be fostered at the national level, for example, to shorten the lag between the implementation of policy reforms and improved perceptions by international investors and lenders?

Also, are the present arrangements for participation by all stakeholders in the formulation of financial standards and codes adequate?  How should the need for flexibility in international standards and codes be addressed?  Should flexibility be limited to the timing of their implementation?  How might such questions be addressed most fruitfully and kept under review by the international community?

The note states that given increasing economic and financial cooperation at the regional and subregional levels, and the role that regional groups might play in representing the interests of countries in broader institutions and forums, institutions with limited membership but global responsibilities might develop structures and processes that are more broadly inclusive, without themselves becoming unwieldy and ineffective.  What role should regional and subregional cooperation play in the global financial architecture?  How should it relate to institutions of global governance?

Statements

MARTIN BELINGA EBOUTOU (Cameroon), President of the Economic and Social Council, said he was pleased that well-established tradition allowed the Economic and Social Council and the Bretton Woods institutions to exchange news and views in a dialogue, for the fourth time.  The meeting came at a time when the state of the world economy was worrisome.  Growth for 2001 was predicted to slow down to 2.24 per cent, in contrast to 4 per cent in 2000.  International trade was expected to decelerate as well.  Economic downturn in major developed countries had an economic impact on developing countries and countries with economies in transition, and would hamper progress in poverty eradication.

Other factors would affect national and regional economies as well, he said, such as floods and earthquakes.  The HIV/AIDS was taking a heavy toll on those who could least afford it.  The economic realities placed a responsibility on all countries, individually and working in concert in regional organizations, to respond to the challenges.

It was essential to take action to bring the global economy back on a steady path towards achievement of the Millennium Assembly goals.   That task would involve many actors, and today’s meeting should contribute towards those efforts by focusing on the financial system in the global economy.  A stable international financial system was fundamental to poverty eradication policies.  Predictability of financial flows was a critical ingredient for realistic   Efficient and reliable mechanisms were needed to ensure that all actors worked in partnership for a financial environment suited to growth and development.

Today’s meeting was of particular importance.  It was an opportunity to engage policy makers in a free-flowing dialogue on how to mobilize resources of the entire international system.  He was confident that, with the active participation of all, the task would be achieved.

KOFI ANNAN, Secretary-General of the United Nations, applauded the cohesive approach and the new politics of development that the yearly meeting represented.  At the same time, he presented a troubling forecast of decline in world economic growth, from 4 per cent last year to around 2.5 per cent this year, with, at best, a modest recovery going into 2002.  With the damage from the previous crisis -- less than four years ago -- not yet fully repaired, consequences for the developing world were hard to divine. 

The current slowdown, he said, originated in the developed world, and was sure to spread through the multiple channels of the globalized economy.   Just as surely, the poor would, as always, suffer disproportionately.  He urged those present to keep the needs and aspirations of the poor at the top of their agenda, making sure that, especially, those in developing countries were not victimized, left behind or left without help. 

As the day's meeting occurred on the eve of the third session of the Preparatory Committee for next year's International Conference on Financing for Development, he raised the concern that unless far greater resources were mobilized, plans to eradicate poverty and accelerate development would be thwarted.  Donor countries, which received the most benefit from globalization, should increase their aid and help to improve its effectiveness.  At the same time, better use must be made of domestic resources; women in particular needed more access to capital.  

His report to the Preparatory Committee recommended strengthening financial institutions, legal frameworks and governance in general, he said.  Tough measures against corruption were also needed, as was additional debt relief for some countries.  The landmark initiative of the European Union to grant duty-free and quota-free access to its markets for all exports from the least developed countries (excluding arms) should be built on.  It was also crucial, he said, to ensure that developing countries were adequately represented wherever decisions were taken that affected their development and, in particular, at the governing bodies of international financial institutions.  The resulting increase in transparency, effectiveness and accountability could lessen the backlash against globalization, and help make that process work for all people. 

All those issues were complex, he said.  But a consensus on values, priorities and objectives in those areas had been set out in the Millennium Declaration, which was endorsed at the highest levels.  He was confident that the States present shared his sense of the urgent need to meet the targets of that document and deliver on its promises.  The Secretariat would assist Member States in those efforts, as well as monitor progress at both the national and global levels, in close cooperation with governments and the peoples of the world.

GORDON BROWN, Chancellor of the Exchequer of the United Kingdom and Chairperson of the International Monetary and Financial Committee, said he brought a shared recognition by all countries of their mutual independence and a shared resolution that in face of slowing of growth international cooperation should be strengthened, from his Committee’s meeting last weekend. 

There was a need to be vigilant and forward looking to create the conditions needed for international macroeconomic growth, to maintain the pace of economic reforms nationally, to open up trade talks this year, and to break the vicious circle of debt relief and development.  Debt relief must achieve its aims -- to relieve the poorest countries of debt in order to achieve poverty reduction.

He emphasized the importance of developing codes and standards, and of surveillance to identify strong financial and economic systems.  The richest and the poorest countries must adopt those codes and standards.  They were the best protection against market instabilities, he said.  The private sector had to invest, even in difficult times.

His Committee had confirmed, for the first time, the commitments made at Dacca to achieve high quality education of all, particularly for women and girls.  Regarding the AIDS crisis and problems caused by other infectious diseases, he said his Committee had determined that action on those diseases was a priority, also for the first time.  There was now an opportunity to build a new alliance between rich and poor countries, and also for the private sector to make concrete commitments.  He urged pharmaceutical companies to make medicines available at affordable prices in the poorest countries.

Economic progress was not bought at the expense of social justice, he said. Rather, the two could advance together.  Prosperity was indivisible on the planet and “relief of poverty is a duty upon us all”, he concluded.

YASHWANT SINHA, Minister of Finance of India and Chairperson of the Development Committee, said that, with these meetings, globalization was finally catching up with global institutions.  As for the global slowdown, it would mean less prosperity in developed countries but more poverty in the developing countries.  Different countries would be affected unevenly, and in very different ways. 

The Development Committee, he said, took special note of the poorest of the poor countries, especially those in Africa.  Programmes to combat communicable diseases and forgive debt were crucial, as was increased trade and leveraging for development, and strengthening economies by fully using international trade opportunities.  The World Bank could help with capacity-building and other activities to that end.

The Development Committee had also discussed policies and financial support for poverty reduction, from the World Bank, in middle-income countries, he said. Initiatives for controlling communicable diseases, advancing financial stability, and various other initiatives were important in that context.  The external vulnerability of countries was of concern, as there was always a danger that economies could be destabilized by a faraway event. 

He said that, as Finance Minister of India, he had proposed a six-point programme to the Development Committee that included many of the concerns he mentioned today.  It included a focus on capacity-building and greater access to global financial flows in least developed countries, and capacity-building and protection against external threats for middle-income countries.  A war against communicable diseases, sustainability and effective democratic governance were also crucial, with the overall objective being a life of dignity and honour for all people.

CHIEF J.O.SANUSI, Governor of the Central Bank of Nigeria and Chairperson of the "Group of 24", emphasized that trends in the world economy had a special impact on developing countries because of their consequences on primary commodity prices, among other things.

The Millennium Agenda’s aim of reducing poverty would require adequate funding, but there were complex challenges for developing countries, he said. Concerted global action and integration of financial matters would not necessarily translate into growth.  The "Group of 24" called on the international community to increase ODA contributions to the required 0.7 per cent of gross national product GNP).

The Group believed that constraints that undermined efforts at poverty reduction could be overcome if progress could be made in an enhanced Heavily-Indebted Poor Countries (HIPC) initiative.  The fact that only one country had achieved the requirements for debt relief was worrisome.  Debt relief was urgent in order to achieve higher and sustainable growth.  More countries must be allowed to qualify as soon as possible.  Conditions should be kept simple.

He said many developing countries had implemented trade reforms.  It was an irony that protectionist practices were entrenched in most developed countries, and those had hindered the realization of benefits of global trade.  He, therefore, called on advanced countries to remove trade barriers.

Progress had been made in strengthening the international financial system through codes and standards, he said.  However those codes and standards were voluntary.  He emphasized the importance of ensuring their uniform application.  He was encouraged by efforts made on HIV/AIDS.  The Group appreciated the need to expand countries’ efforts to attack the crisis and also appreciated the need to establish the trust fund proposed by the Secretary-General.  In addition, the World Bank should strengthen its partnership with the Joint United Nations Programme on HIV/AIDS (UNAIDS).

PAUL MARTIN, Minister of Finance of Canada and Chairperson of the

"Group of 20" (G-20), said that the Group, created two years ago, represented

65 per cent of the world’s population, and 60 per cent of the world’s poor.  It was formed after the financial crisis in Asia, and dealt with the volatility caused by large flows of short-term capital.  It was promoting consistency in financial management, but it was not imposing a credo on all countries.  It could only be successful if individual countries were involved in developing practices that were best for them.

In that context, he said, the theory and reality of globalization had to be differentiated.  The countries of the Group were assessing actual dynamics of globalization on themselves.  It was also necessary to go beyond the Washington consensus on factors that were thought of as critical for promoting growth and preventing crisis.  Those factors were too narrow to fit all cases.   In addition, economic growth is not a sufficient condition for the eradication of poverty.  For example, without well-designed social policies, even with economic growth the poor were still open to exploitation.  In the Montreal consensus, social security was the foundation of economic security. 

He summed up the accomplishments of the "Group of 20" as the promotion of transparency in financial statements, the assessment of the reality of globalization, and the creation of that Montreal consensus.

ANDREW CROCKETT, Chairperson of the Financial Stability Forum and General Manager of the Bank for International Settlements, said one of the things the Forum had learned was that international financial crises had their origins in the weaknesses of domestic financial systems.  Because financing had become global, their effects were contagious.

In the effort to determine new financial architecture, the cornerstone was developing codes and standards of best practices, he said.  Those countries applying codes and standards would become more resilient.  The Forum had been set up to bring together national and international authorities with responsibility for financial regulation.  It included ministers of finance, central banks, international organizations such as the International Monetary Fund (IMF) and the World Bank, and other regulatory bodies.  The Forum’s task was to improve the sharing of information, and identify vulnerabilities in national systems that posed a threat in the future.

The Forum had addressed, among other things, the vulnerabilities originating in activities of so-called hedge funds, he said.  Regarding short-term capital flows, there was a need for the development of codes and standards to be implemented, appropriate for the circumstances and needs of each country.  That meant, among other things, ownership of standards and incentives.  Those were areas in which the Forum had prepared recommendations.

Regarding the question of participation in the Forum being representative, and the role of regional groupings in the Forum, he said it was important that countries felt a sense of ownership of standards.  Means had to be found to involve all those with an interest.  There were important roles to be played by regional groups, and the Forum had encouraged such groups to meet with it.

Standards and codes were of universal application, he said; however there was a responsibility to make sure that application of those standards and codes accorded with the circumstances and needs of an individual country.  Whether that could be done by one universal body was a question that required study.  Further consultations, so that all those who had a role to play could be heard, were important, he said.

The President of the Economic and Social Council then suspended the meeting.

When the meeting resumed, it heard reports on the discussions that had taken place in two round tables held following the suspension.

Reporting on the second round table, IVAN SIMONOVIC (Croatia),

Vice-President of the Economic and Social Council, said this had been the first year that round-table discussions had been held in the meetings between ECOSOC and the Bretton Woods institutions.  The innovation was a success, as far as the second round table was concerned.

He said the round table had identified the establishment of partnerships for development, between public and private sector and developing and developed countries, as a condition for adequate financing.  Concerns were raised about the recent decrease in ODA and the consequences the present weakening of the global economy could have on future development assistance.  The need for coherent policies on debt relief and trade policies had also been raised.  Emphasis had been placed on trade for development and on the importance of the benefits of globalization being shared. 

He said there was a sense that this moment was a turning point for the international financial system.  Participants in the round table had outlined the need for adequate surveillance.  There had been emphasis placed on global standards and codes, and the need to take into account individual country situations.  Emphasis had also been given to crisis prevention and the improvement of the "alarm bells".  Once there was a crisis, coordination between various participants in international forums was needed.  Governance of the global financial system was a key element.  It was important that development and finance went hand in hand.

He stressed that there seemed to be consensus on policies and actions required on national and international levels, which should be backed up by coherence in policies regarding trade, development and poverty eradication.

Mr. BELINGA EBOUTOU (Cameroon), ECOSOC President, summing up the discussion of the first round table, said that representatives strongly emphasized the need to ensure growth over time, saying that was a requirement for achieving the objectives of the Millennium Declaration.  They also emphasized the importance of increased cooperation between the United Nations and the Bretton Woods institutions.  Many representatives thought it was important to go beyond the Washington consensus.  Strengthening social and institutional capacities was a prerequisite of economic growth and was the basis for any development process.  Access to markets for developing countries was also important. 

With regard to the debt, he said that many were concerned by the inadequate financing of the Heavily Indebted Poor Countries (HIPC) initiative.  Greater financing of that initiative was called for, along with assurances that some of the funding would go to middle-income countries, where more than half of the world’s poor lived.  International solidarity was also crucial, so that Africa’s development efforts were supported.  In that context, funding to combat communicable diseases was encouraging. 

He said that a major global alliance for development to ensure good governance for all, should be the result of the upcoming Mexico meeting on financing for development.  That alliance should include the World Trade Organization, a range of government ministries and other world actors.  Grants, rather than loans, should be emphasized.  Crisis prevention required rules but should also allow time for adjustment.  Transparency and consistency in capital flows and coherence of development policies were other matters identified as essential.

EDUARDO ANINAT, Deputy Managing Director, International Monetary Fund (IMF), said, in his concluding remarks, that the vision, balance and the acknowledgement of the need for coherence he had heard this morning were powerful signals given to the world community.  The meeting had momentum.  The international community, governments, civil society and the private sector were getting together to make the globalization process work for all.  A balance was needed between the urgencies and priorities of the goals, and the insufficiency of resources.  The Bretton Woods institutions were making efforts towards that goal.  Actors in the globalization process had to be made accountable to the citizens of the global world.

The Board of the IMF had placed an emphasis on the reform of the institution, he said.  One of the purposes of the reform was to improve enhancing the application of conditions attached to IMF processes.  Conditions attached to IMF programmes might have been excessively detailed in some cases in the past.  Adapting the Fund’s facilities was another subject of reform.  Its facilities had to be more conducive to needs, with more emphasis given to efforts to prevent crises.  A third subject of review concerned areas of external vulnerability and surveillance.  Tools for assessing countries' vulnerabilities were being enhanced, and the Fund was assisting countries in their own assessment of their vulnerabilities, in foreign debt management and on early warning systems, among other things.

Information dissemination must be enlarged and policies and results must be made more accountable to the world community.  Much remained to be done in that area, but progress was being made.  The IMF was an institution on a learning curve and would continue to change, while maintaining its competencies. 

SVEN SANDSTROM, Managing Director of the World Bank, reconfirmed that institution’s commitment to financing for development, and the forthcoming conference on the issue in Mexico.  Many staff members have been working full time on that event.  He was pleased that the agenda would be broad, and would cover the full range of resources for development, both public and private, along with a range of other economic activities.  The involvement of the World Bank and the IMF in the event was good, but he hoped for much stronger engagement by national governments, and a range of their ministries, in the planning process. 

In describing the World Bank’s efforts for financing for development, he highlighted its focus on key constraints to, and levers for, development.  Debt relief and post-conflict assistance were dealing with some constraints.  The fight against HIV/AIDS would receive $500 million per year, and that would hopefully increase to at least $1 billion per year. In trade, the World Bank was strongly advocating increased market access, and increased capacity to engage in trade negotiations.  It was also advocating a global development architecture, with country ownership and increased alignment of financing systems.  In sum, the basic constraints were being tackled one by one, and understanding of, and support to, the main levers of development were growing.

In his closing remarks, the President of the Economic and Social Council, Mr. BELINGA EBOUTOU (Cameroon), said this morning’s discussions had been characterized by an outstanding quality and depth.  He expressed the hope that ECOSOC would remain the structure for dialogue between the United Nations and the Bretton Woods institutions, and that the goodwill and positive attitude evident throughout the discussions would be maintained in the future.

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