Sixty-first General Assembly

Second Committee

7^th & 8^th Meetings (AM & PM)

better governance can overcome growing inequality between rich, poor nations,

 

harvard professor says in keynote address to Second Committee

He Cites Growing Stability of Financial Markets

As Delegates Express Concern over Unsustainable Debt, Skewed Terms

The world could take heart at the increasing stability of financial market conditions compared to 15 years ago, but growing inequality between rich and poor nations meant that better global governance was needed to oversee the economic policies of major nations, as well as make trade less “bumpy” for certain countries, a Harvard professor said today in a keynote address to the Second Committee (Economic and Financial).

Kenneth Rogoff, Thomas D. Cabot Professor of Public Policy and Economics and a former Chief Economist and Director of Research at the International Monetary Fund (IMF), said the exploding growth of global finance since 1995 meant that the Fund, the United Nations and the World Bank must heighten their oversight functions.  The rate of borrowing by the United States, which amounted to $800 million a year and totalled 70 per cent of world savings, required dramatic adjustments in interest and exchange rates, and had led the IMF to seek a multi-region deal to smooth those adjustments.

The fact that United States debt was currently funded by the savings of developing countries like China also lent an unusual aura to the global economy, he said.  But, in general, globalization was far from being a “catastrophe” and was marked by the growing independence of central banks and better economic policies across the world, which had helped reduce financial volatility over the years.  However, geopolitical events had great influence over the world economy and, in fact, the end of the cold war had been a large factor in promoting better policies.  United Nations leadership was needed to navigate around a range of lingering obstacles, including wars, diseases, protectionism and climate change.

Following the keynote speaker’s discussion with Committee members, Robert P. Vos, Director of the Development Policy and Analysis Division of the Department of Economic and Social Affairs, made concluding remarks.

In the Committee’s ensuing debate on macroeconomic policy, many members agreed on the need for stronger surveillance on the part of international institutions to keep financial crises at bay.  India’s delegate said the IMF should do more to assess the responsibility of major countries in precipitating such crises, including industrialized nations that accounted for a large share of global financial flows.

Debt was another obstacle to growth highlighted by delegates, with the Sudan’s representative saying that her country’s “extremely unsustainable” debt of $27.7 billion, of which less than half was the principal, amounted to 690 per cent of three years’ exports.  Excessive debt-service obligations constrained the country’s capacity to meet payments, resulting in the continued accumulation of arrears.  Weak institutional capacity and poor coordination with partners exacerbated those problems and, furthermore, the Sudan was yet to benefit from the Heavily Indebted Poor Countries (HIPC) Debt Initiative, even though the eligibility criteria had been expanded to include low-income countries emerging from conflict.

The representative of the Philippines said that his country, despite having borrowed moderately and pursued solid economic policies, found itself facing hard times because of natural disasters or sudden jumps in interest rates, or a collapse of the market for its exports.  In addition, the contract of debt was frequently skewed in favour of the creditor yet the risk should be shared between the creditor, who must not lend excessively, and the debtor, who should borrow only when necessary and remain aware of the availability of repayment resources.  There should be a solid framework of laws or guidelines to determine a response when countries could not reasonably meet their debt obligations.

Nigeria’s delegate said that, due to the IMF’s failure to serve as a lender to meet balance-of-payments needs in times of crisis, many developing countries were compelled to build huge external reserves to protect themselves, and found themselves relying increasingly on capital markets to meet their financial needs.  Financial risks should be managed on the basis of shared responsibility, and the IMF’s oversight of monetary, fiscal and exchange rate policies should be strengthened.  A discussion within the soon-to-be convened Development Cooperation Forum should help bring better understanding of the negative effects of debt servicing under complex and stringent management terms.

Anwarul K. Chowdury, Under-Secretary-General and High Representative for Least Developed Countries, Landlocked Developing Countries and Small Island Developing States, stressed that commodity-dependent economies, such as the four West African cotton exporters –- Benin, Burkina Faso, Chad and Mali -- needed a world market that was not skewed against them.  Commodity-specific policies involving technical assistance were needed to increase those countries’ competitiveness at the international, regional and national levels.

Also speaking today were representatives of South Africa (on behalf of the “Group of 77” developing countries and China), Finland (on behalf of the European Union and associated States), Indonesia (on behalf of the Association of South-East Asian Nations or ASEAN), Guyana (on behalf of the Rio Group), Saint Vincent and the Grenadines (on behalf of the Caribbean Community or CARICOM), the Russian Federation, Morocco, Algeria, Singapore, China, Bangladesh, Mongolia, Kenya, Zambia, Myanmar, Papua New Guinea and the United States.

Introducing the reports under consideration today were Manuel Montes, Chief of the Policy Analysis and Development Branch, Financing for Development Office, Department of Economic and Social Affairs; Anh-Nga Tran-Nguyen, Head of the Debt and Development Finance Branch in the Globalization and Development Strategies Division of the United Nations Conference on Trade and Development (UNCTAD); and Mehmet Arda, Chief of the Commodities Branch in UNCTAD’s Trade in Goods and Services and Commodities Division.

The Second Committee will meet again at 10 a.m. Tuesday, 10 October, to discuss the follow-up to and implementation of the outcome of the International Conference on Financing for Development.

Background

The Second Committee met this morning to take up macroeconomic policy questions.  It was also expected to hear a keynote address by Kenneth Rogoff, Thomas D. Cabot, Professor of Public Policy and Economics at Harvard University, on “The future of globalization:  growing complexities and challenges and search for solutions.”

Before the Committee was the Secretary-General’s report on the International financial system and development (document A/61/136), which surveys the movement of official development assistance (ODA) and private capital flows to developing countries, the growth of foreign exchange reserves and recent efforts to reinforce the international financial system in support of financial stability.

According to the report, the flow from developing economies to developed countries of export payments, foreign investment income and foreign reserves generated by growing exports and higher-priced commodities amounted to an estimated $527 billion in 2005.  Net transfers from countries with economies in transition rose to $80 billion in 2005.  In terms of foreign exchange reserve, a tendency towards self-insurance in developing countries had generated a rationale for high reserve accumulation during periods of abundance, perhaps even in excess of normal requirements.  Countries like Singapore, Republic of Korea and China created national investment corporations to manage long-term investment of their reserves.

The report says that lowered risk in emerging markets contributed to the substantial rise in private capital flows in 2005, although signs of rising inflation and a tightening of the money supply in the United States in the second quarter of 2006 raised concerns over “a disorderly unwinding of large global imbalances”.  ODA, meanwhile, increased substantially in 2005 to $106.5 billion, although the Organization for Economic Cooperation and Development (OECD) says that the amount of aid for least developed countries in 2004 -- after the exclusion of emergency, debt relief and reconstruction components – was, in real terms, lower than it was in 1990.

Many agree on the need for more effective surveillance of certain economies, the report says, and International Monetary Fund (IMF) member countries agreed at the 2006 spring meetings to establish a process of multilateral consultations on the issue.  At the September 2006 International Monetary and Financial Committee meeting, members decided that surveillance should become more focused and selective, with more emphasis on exchange rate policies, for example, and less concentration on structural policies.  A strategic review of the IMF also emphasized the need to better understand the causes and implications of the “pro-cyclicality of international capital flows”.

Finally, the report says the IMF’s role in supporting the global development partnership, set out at Monterrey in 2002, has been the subject of extensive debate.  It is generally agreed that the IMF should not be turned into another development institution, but rather, it should stick to core areas of expertise, such as providing advice to low-income countries on better ways to manage public expenditure and domestic resources, as well as increasing absorptive capacity.  Also, the IMF Executive Board approved a proposal to establish “Policy Support Instruments for Poverty Reduction and Growth Facility-eligible members” in October 2005 to signal that the IMF endorsed the quality of their macroeconomic policies.  Nigeria is the first country to take advantage of this aspect of the Instrument as part of its Paris Club debt reduction package.

The Committee also had before it a report of the Secretary-General on Recent developments in external debt (document A/61/152), which analyzes the implementation of the Heavily Indebted Poor Countries (HIPC) and Multilateral Debt Relief initiatives.

According to the report, the external debt situation of developing countries has improved over the last year as global growth gave a boost to exports from developing countries and helped create build-ups of foreign exchange reserves.  The low level of interest rates and ample liquidity of international capital markets provided these nations with opportunities to raise low-cost capital and begin active debt management by repaying their high-cost debt.  But, the future is fraught with uncertainty and risks as central banks in the major developed countries will probably keep increasing interest rates if inflation persists as oil prices head upward.  The immediate concern is the risk of reverse capital flows and the abrupt withdrawal of these funds from emerging markets.

The report notes that the international financial system’s shift towards a more private-based system of capital flows poses many challenges, such as increased volatility.  The international credit rating agencies are playing a more critical role in countries’ access to private debt markets and the cost of this debt, and despite a general improvement in the external debt situation, many countries remain severely indebted.  Innovative approaches could be used to create more debt swaps that could finance Millennium Development Goal projects in debtor countries. Likewise, the Paris Club’s Evian Approach can also provide bolder debt reductions for middle-income countries with heavy debts.

Beyond the debt relief initiatives, the question of adequate financing for development in low-income countries needs to be addressed in a flexible way, the report says.  More aid is necessary and consideration should be given to adequately mixing grants and loans.  The portion of grants could vary depending on the potential returns on projects. Strengthening debt management capacity should be an integral part of the debt sustainability strategy.

Also before the Committee was a report by the United Nations Conference on Trade and Development (UNCTAD) on World commodity trends and prospects (document A/61/202), which notes that the increase in international commodity prices since 2003 has been a positive factor for economic growth in most developing countries.  The challenge is to distribute these benefits to the disadvantaged segments of society, to reduce poverty and move forward on a sustainable path of growth.  Programmes should aim to help diversify and make structural changes in economies dependent on commodities and help the producers adjust to the inevitable price declines.

The report notes that the suspension of the Doha Round of global trade talks means that anticipated improvements in the trading of agricultural products and supportive measures, such as the aid-for-trade mechanism, are unlikely to materialize over the short term.  As a result, policies to develop the commodity sector should target least developed country producers and others left out of the development process.  Technical assistance and capacity building intended to improve the competitiveness of commodity producers is very important.  Aid-for-trade should be used independently of developments in the Doha Round and not be considered solely as a means to help countries adjust to trade liberalization.  This mechanism should help improve the trading capacity of these nations and have a strong commodity focus.  It should be adequately funded and brought into operation quickly.

Keynote Address

KENNETH ROGOFF, Thomas D. Cabot Professor of Public Policy and Economics at Harvard University, and former Chief Economist and Director of Research at the IMF, said in his keynote address that although today’s globalization, as compared to those of previous eras, was unusual in many respects -- marked, for example, by a large United States debt totalling 70 per cent of world savings -- the world economy was not in a state of catastrophe.  Indeed, world financial volatility had been reduced between 1969 and the present, reflecting the growing independence of central banks and better economic policies across the globe.  Emerging-market economies in Latin America and Asia, which borrowed at more than 6 to 14 per cent of the market rate, now paid no more than an extra two per cent.  Inflation, too, was significantly lower, in contrast to 15 years ago, when many countries suffered from hyperinflation of over 1,000 per cent.

However, he stressed that the explosion of global finance since 1995 called for better global governance.  Indeed, misleading clichés like “the world is flat” belied the fact that trade was bumpy for some countries due to trade barriers; inequality, too, was increasing, not decreasing.  Overcoming significant barriers to growth, such as war, disease and climate change, required United Nations leadership.  So far, the Organization had done a great service by broadening the notion of well-being, as contained in its Human Development Reports, and had helped contribute to transparency by collecting a large array of statistics.  The United Nations, IMF and World Bank should become stronger advocates for trade liberalization, since most countries suffered far more from the trade barriers erected by their own Governments than from foreign barriers.  Also, the transfer of large amounts of money from richer to poorer countries, while morally compelling, could be counterproductive since the funds were funnelled through institutionally frail Governments.  Such transfers needed re-examining and smaller projects like microfinance, which had greater chances of success, should be promoted.

He noted that the “halcyon era” of globalization, from 1800 to 1913, had not ended well because old security arrangements had not adjusted to new economic realities.  As such, the IMF’s proposal to change its voting shares to better reflect the growing economic role of many developing countries was not just a matter of justice, but of necessity.

Discussion

In the ensuing discussion, delegates asked about the effect on developing countries of growing income inequality, the disorderly unwinding of global imbalances and international migration.  Regarding global imbalances, some asked whether the keynote speaker shared the outlook that there would be a hard landing for the United States, while one representative asked about the role of multinational corporations in causing unequal development.

Mr. ROGOFF said, in response, that increases in inequality were typical during periods of growth and required different solutions for each country, such as a graduated income tax policy or more spending on education and training, among others.  United States borrowing, which stood at $800 million a year, was a cause of some concern and dramatic adjustments of interest and exchange rates were needed to curb that debt.  IMF efforts to broker a multi-region deal in order to ensure smoother adjustment were encouraging, but a slowdown of the United States economy was not a grave concern since it would be balanced by growth in Japan and Europe.

On migration, he said that, over time, developing countries with a large outflow of migrants gained when those migrants returned, so what would seem like a brain drain in the short run, might be helpful in the long run.  Small States did not have economies of scale, but with good global governance and a rules-based global market, even small nations could operate their businesses on a large scale.

Other questions focused on what level of inflation a government could accept without undermining its ability to increase expenditures where they were needed, such as in social services reserves.

Mr. ROGOFF responded by saying that, danger arose when inflation grew uncontrollably.  If possible, Governments should aim for single-digit inflation and try to trade off lower inflation with other problems.

Asked about the integration of developing countries into globalization and the value of removing trade barriers, he replied that trade integration was not a panacea for growth and a better society, yet it was unavoidable in today’s modern world.  While the erection of trade barriers could be a good thing in theory, in the real world, trade barriers often became entrenched.  Politics played a role in the persistence of protectionism in rich countries, of which agriculture supports were the worst example, while China was an example of a country that had successfully removed trade barriers to promote growth.

With respect to shifting from aid-based growth to self-sustained development without shocking the economy, he remarked that many developing countries did not need loans and could even lend money to the IMF.  Developing countries could establish adequate foreign exchange reserves to insure macroeconomic stability.  Better central bank policies and lower inflation were behind today’s more stable global economy.  Geopolitical events could always influence the economy and, in fact, the end of the cold war had been a large factor in promoting better policies.

Introduction of Reports

MANUEL F. MONTES, Chief, Policy Analysis and Development Branch, Financing for Development Office, Department of Economic and Social Affairs, introduced the report of the Secretary-General on International financial system and development (document A/61/136), saying that developing economies, on a net basis, had continued to make increasing outward transfers of financial resources to developed countries in 2005, reaching an estimated $527 billion.  Only in the case of sub-Saharan Africa had the financial transfers been positive, though those had declined in 2005.  Post-war expectations had held that growing populations and the relative scarcity of capital in developing countries would attract financial resources from developed countries.  Instead, the industrialized countries had been the major destination of net outward transfers from developing and transition economies.  Crisis prevention, multilateral cooperation in addressing systemic imbalances and the expansion of a stable flow of financial resources to developing countries were the key challenges to the international financial system.

ANH-NGA TRAN-NGUYEN, Head, Debt and Development Finance Branch, Division on Globalization and Development Strategies, UNCTAD, introduced a report of the Secretary-General on the external debt crisis and development (document A/61/152), which reviewed recent trends in the external debt of developing countries, saying that the situation of many developing countries had improved noticeably over the last three years.  Yet, the improvements should not lead to complacency, as the future was fraught with uncertainty and risks.  Many of the favourable conditions in the global economy that had supported growth in developing countries since the beginning of the decade were at risk of being reversed.

MEHMET ARDA, Chief, Commodities Branch, Division on Trade in Goods and Services and Commodities, UNCTAD, introduced that agency’s report on world commodity trends and prospects (document A/61/202), as well as improving commodity prices and the South-South relationship.  While the report’s tone was upbeat, it should be taken with a grain of salt because traditional problems had not been eliminated.  The Doha talks covered many commodities but many other products remained outside the Round and had not received much attention.  Other important issues included the distribution of the benefits of commodities to the poorest segments of society.  New, non-traditional commodity players entering the markets, such as hedge funds, saw commodities as a good way to diversify out of stocks as commodity prices moved in the different direction.

Discussion

After introducing their respective reports, the officials from UNCTAD and the Department of Economic and Social Affairs fielded questions from the representatives of Nigeria, Australia and Chile on the effect of oil prices on commodities, and whether improved infrastructure would change supply patterns or lead to increased competition and thus lower prices.  Chile’s delegate asked about proposed changes to the IMF’s special drawing rights system and how it might improve the Fund’s liquidity.

Mr. MONTES said high oil prices impacted transportation costs, which in turn affected the competitiveness of some countries, for example landlocked countries in Central Africa.  Consistently high prices for oil, however, might lead countries to substitute it with such alternatives as bio-fuels, which could have their own benefits.  Demand for commodities had also risen with increased construction in places like China, which meant that growth in infrastructure would not have a negative impact on commodity prices.

Regarding special drawing rights, Mr. ARDA acknowledged that IMF reform would be useful in managing liquidity as well as improving its allocation of funds.  Redistributing IMF vote allocations was good in that case.

Statement by Under-Secretary-General

The Committee then began its consideration of macroeconomic policy questions.

ANWARUL K. CHOWDHURY, Under-Secretary-General and High Representative for Least Developed Countries, Landlocked Developing Countries and Small Island Developing States, expressed “immense satisfaction” with the recent Midterm Comprehensive Global Review of the Implementation of the Brussels Programme of Action, and welcomed the Cotonou Strategy for the further implementation of the Brussels Programme, led by the least developed countries.  It was important to help the least developed countries put good macroeconomic policies in place since their underdeveloped financial sectors posed serious risks to macroeconomic stability.  It was vital, too, that international financial institutions allow increased participation of the least developed countries.

He said 28 of the 50 least developed countries were doubly disadvantaged by being either landlocked or small island States, which meant that it was as important as ever to increase ODA to least developed countries from 0.15 to 0.20 per cent of the gross national incomes of donor countries, as specified in the Brussels Programme.  At the same time, aid effectiveness was essential in giving that assistance its desired effect.  It was also important to provide early and predictable support over the longer term to enhance non-debt-creating foreign investment flows to least developed countries, since the increase of such flows in 2004 -- to the tune of $10.7 billion, up from $10.4 billion in 2003 and $6.3 billion in 2002 -- were thought to benefit only a few.  Most least developed countries also suffered from unsustainable debt, which needed to be written off.

Commodity-dependent economies, such as the four West African cotton exporters, needed a world market that was not skewed against them, he stressed, calling for commodity-specific policies involving technical assistance to increase their competitiveness at the international, regional and national levels.  Meanwhile, aid-for-trade should be pursued independently through an integrated framework, and the International Task Force on Commodities, initiated at the eleventh session of UNCTAD, should address the special needs of the least developed countries once it became operational.

Statements

DUMISANI S. KUMALO (South Africa), speaking on behalf of the “Group of 77” developing countries and China, said the Bretton Woods institutions must play a more active role, in close collaboration with the United Nations, in formulating a global strategy to eradicate poverty and hunger in developing countries.  The active participation of those countries in the decision-making of the Bretton Woods institutions was a key element in promoting the legitimacy, relevance and effectiveness of the international financial system, and crucial if developing countries were to eradicate poverty and accelerate economic growth.  The Group of 77 would continue to call for a comprehensive package to deal with all major issues simultaneously within a firm deadline.  It was also concerned about the IMF and World Bank pattern of lending conditions, which undermined national ownership programmes and implementation.

He said that while the Group of 77 welcomed the Multilateral Debt Relief Initiative and other debt-cancellation efforts, it reiterated its call for additional measures to ensure long-term debt sustainability through increased grant-based financing and the cancellation of 100 per cent of the official multilateral and bilateral debt owed by HIPC.  The Group also advocated significant debt relief or restructuring for low- and middle-income developing countries with an unsustainable debt burden that were not part of the HIPC Initiative.  It was concerned that the report on commodities concentrated on South-South commodity trade, whereas the North-South trade in commodities remained the most essential element to creating an equitable global market.  Finally, the Group was concerned that the International Task Force on Commodities launched at UNCTAD XI had not entered into force owing to lack of financial support from member States.

JARL-HAKAN ROSENGREN ( Finland), speaking on behalf of the European Union and associated States, stressed the importance of a broad definition of good governance to include not only the fight against corruption, but also respect for human rights, adherence to democratic principles and the rule of law as well as sound economic, financial, social and environmental management.  The European Union welcomed the current discussion in the World Bank on a strategy to increase the focus on governance in the framework of the fight against poverty.

He said the European Union welcomed the innovative sources of financing introduced and supported on a voluntary basis by member States, especially the health initiatives now under way.  Fully committed to the Doha Round, the European Union deeply regretted its suspension and remained committed to a result that would deliver real cuts in tariffs, effective reductions in subsidies and real new trade flows that would bring benefits to all World Trade Organization members.  Aid-for-trade remained on the agenda, independently of the future of the Doha talks.

Regarding the recent annual meeting of the Bretton Woods institutions in Singapore, the European Union supported the resolution on quotas and voice in the IMF, he said.  The two main goals were to ensure that the distribution of quotas adequately reflected member countries’ economic weight and role in the global economy and financial system as well as their ability to contribute financially.  The resolution should also strengthen the voice of low-income countries in the IMF.

REZLAN ISHAR JENIE (Indonesia), speaking on behalf of the Association of Southeast Asian Nations (ASEAN) and aligning with the Group of 77, said he was encouraged by the increase in ODA but noted that the latest figure of $106.5 billion was unevenly spread and included one-off commitments such as debt cancellation.  While welcome, European Union efforts to set intermediate ODA targets of 0.56 per cent by 2010 would be deficient without reforms in the international financial architecture, an outlook emphasized at the Group of 77’s 30^th ministerial meeting in September.

ASEAN, which hoped to become an international production base by 2015, underscored the importance of reforming the IMF to better serve developing countries, he said.  Meanwhile, grant-based financing should be increased and the official debt of HIPC cancelled.  Significant restructuring of debt payment schemes for both low- and middle-income developing countries was needed, and consideration should be given to how much money countries actually needed for development purposes, rather than relying on governance indicators, like lowered corruption, when assessing debt sustainability criteria.  Such other options as debt swap schemes in education, poverty eradication, health, clean water and environmental protection were also worth exploring.

GEORGE TALBOT (Guyana), speaking on behalf of the Rio Group, said the development of its member countries had been marred by international financial crises, which, in turn, had led to outflows of financial resources from the region to developed countries.  Given also that greenfield investments had weakened substantially in Latin America, the Rio Group believed that the United Nations should build the necessary consensus to push through reforms for a more equitable, participatory, solid and stable international financial and trade system, in conjunction with similar action by the Bretton Woods institutions and the World Trade Organization.  As a priority, financial assistance should go towards least developed countries, landlocked developing countries and small island developing States.  In addition, because emerging-market countries and economies in transition held most of the world’s international reserves and represented a majority of the world’s population, it was important to continue efforts to increase the voice of developing countries at the IMF.  Meanwhile, the recent ad hoc quota increases for China, the Republic of Korea, Mexico and Turkey were welcome.

He said the improved debt situation overall masked the debt problems of individual countries, such as many middle-income countries belonging to the Rio Group that still had very high ratios of external debt to GDP while running large current account deficits.  Debt swaps and other debt relief mechanisms should be considered in such cases.  Also, the importance to developing countries of the trade in commodities, of which agricultural products were a large part, required a prompt resumption of the Doha trade talks.

MARGARET HUGHES FERRARI (Saint Vincent and the Grenadines), speaking on behalf of the Caribbean Community (CARICOM) and aligning herself with the Group of 77, said that, as globalization continued to advance at a rapid pace, good governance of the international financial system was more crucial than ever.  Indeed, positive trends in financial flows, such as those discussed in the Secretary-General’s report, were in reality skewed towards a handful of countries.  The CARICOM States, for example, were experiencing a decline in ODA and capital flows, despite implementation of investment promotion policies to reverse that trend.  But the success of those policies depended heavily on the international financial architecture.  Also, uncertainties in global economic growth and rising oil prices, combined with vulnerability to external shocks among CARICOM States, meant that greater surveillance by international financial institutions was needed, as agreed by the IMF recently.

Similarly, she said, the downward trend in debt masked the debt problem faced by individual countries, and member States must be mindful of the obstacles faced by those with special needs, such as the least developed countries, landlocked developing countries and small island developing States.  Due consideration must also be given to changes in a country’s economy caused by natural disasters and deteriorating terms of trade, especially for commodity-dependent developing countries like those of CARICOM.  Concerned by increases in some commodity prices amid a backdrop of suspended trade talks, CARICOM urged developed countries to take the lead in addressing global trade imbalances, including by providing technical assistance and capacity building to improve the competitiveness of commodity producers.

ALEXANDER V. ANANIEV ( Russian Federation) said he shared the Secretary-General’s concerns about economic uncertainties, noting that a disorderly resolution of the global current account imbalances among major trading nations could threaten economic growth.  That could, in turn, trigger another debt crisis.  Russia also agreed with the Secretary-General that as financial integration deepened, the focus of monitoring should shift toward ensuring the general stability of the international financial system.  That would be one of the key factors in achieving the goals of sustainable development.  Priorities were to prevent financial crises and to strengthen the infrastructure of national finance and banking sectors as well as their regulatory and oversight systems.  Finally, the Russian Federation was interested in improving the operation of commodities markets to ensure their stability as well as more predictable prices.

ABDELLAH BENMELLOUK ( Morocco), associating himself with the Group of 77 and China, said, debt relief was an indirect tool for the financing of development and a way to restore debt sustainability.  Morocco supported the HIPC Initiative and believed more low-income, highly indebted countries should be able to participate.  This would free up resources for social services.

Debt relief should be provided in addition to general aid, he said, adding that, the debt sustainability framework of the IMF and World Bank should be flexible and tailored to the needs of each country.  Loans should also be tailored to the specific strategies of each country.  All of this requires good governance and sound policies to ensure their effective use.

BENFREHA NOR-EDDINE ( Algeria), aligning himself with the Group of 77 and China, said the successful growth of developing countries depended on a stable and predictable financial system.  Indeed, the international financial system should promote sustainable development and poverty reduction in the most vulnerable of those countries, including by providing resources and creating a non-discriminatory trade system.

IMF reforms should not just focus on increasing the voice of developing countries within that organization, but also to increase coherence within the institutional financial system, he said.  For example, the transfer of resources from developing to developed countries and the accumulation of currency reserves by some developing countries needed monitoring.  The international community also had a responsibility to help relieve the debt of HIPC, which were struggling to achieve their development goals.  International monitoring would also be needed to protect countries from financial crises.

EUGENE LEONG ( Singapore), associating himself with ASEAN and the Group of 77, said changes were needed at the international level to better manage global imbalances, volatile financial flows and increasingly sophisticated capital markets.  Governance, the harmonization of standards, transparency and crisis prevention were among the issues that must be resolved.  Some developing countries, especially least developed countries, would need assistance to cope with evolving financial systems.  Developing countries also needed a voice and Singapore looked forward to briefings from IMF and World Bank officials on the reform issue.

To strengthen Asia’s financial stability, Governments in the region were taking steps such as the Asian Bond Markets Initiative to deepen regional bond markets, and ASEAN’s roadmap for monetary and financial integration, he said.  The ASEAN Exchange Traded Fund -- which tracked 40 of the top companies in Indonesia, Malaysia, Philippines, Singapore and Thailand -– had recently been listed on the Singapore Exchange and was a milestone in financial cooperation for ASEAN.  To complement regional financing efforts for infrastructure, Singapore had announced tax incentives to encourage the listing of infrastructure funds and project bonds in the country.  Asia’s infrastructure needs were expected to tally $250 billion annually over the next five years.

SIMEON A. ADEKANYE ( Nigeria), associating himself with the Group of 77, said the international financial architecture was skewed to the detriment of developing countries.  Due to the IMF’s failure to serve as a lender to meet balance of payments needs in times of crisis, many developing countries were compelled to build huge external reserves to protect themselves, and they relied increasingly on capital markets to meet their financial needs.  Financial risks should be managed on the basis of shared responsibility, and the oversight functions of the IMF over monetary, fiscal and exchange rate policies should be strengthened.

Nigeria, which relied on debt financing as a necessary instrument of development, knew well the challenges of managing debt, even with the help of the HIPC Initiative, he said.  A discussion within the soon-to-be convened Development Cooperation Forum should help bring better understanding of the negative effects of debt servicing under complex and stringent management terms.  They included the treatment of arrears, interest, late interest, consolidation periods and repayment terms, as well as negotiated debt restructuring/rescheduling arrangements, particularly with the Paris Club.  Credit rating agencies should reveal their methodologies to others, and the Financial Stability Forum and Basel Committee on Banking Supervision should involve developing countries in their work.

YUAN YUAN ( China), associating himself with the Group of 77, said that while no international financial crises had occurred recently, the risk of them had not decreased.  With that in mind, developed countries should work seriously with developing countries to set up an international financial framework based on equality and mutual trust, under which financial policies could be implemented in a flexible manner.  Major industrialized countries should also stabilize market expectations via prudent and orderly adjustments, ensure the stability of exchange rates among major reserve currencies, and promote the orderly correction of global imbalances.  Meanwhile, international financial institutions should strengthen their fiscal oversight, particularly over countries whose currencies were major reserve currencies.

He said international institutions should also focus attention on controlling short-term capital flow and refining the regulations of large financial corporations.  In helping poor countries, international and regional institutions should be non-political, and avoid emphasizing governance and fighting corruption at the expense of poverty reduction and other more urgent issues.  China’s assistance to other developing countries was based on full respect for their needs.  It had so far cancelled 208 Government debts owed by 46 developing countries, amounting to 17 billion yuan.  China had also cut the average tariff rate for agricultural products, representing a reduction range of 72 per cent.

IFTEKHAR AHMED CHOWDHURY ( Bangladesh) aligned himself with the Group of 77 and China, saying that the external debt of developing countries continued to increase and had reached $2.8 trillion in 2005.  Bangladesh welcomed the Multilateral Debt Relief Initiative, but half of the eligible countries had yet to benefit form debt relief under the HIPC Initiative.  That benefit should be extended to all least developed countries, without selectivity on political grounds, before the sunset clause ended on 31 December.

He called the current international reserve system inequitable and inefficient.  Though developing countries held a total reserve of $3.26 trillion, or about 71 per cent of total global reserves, those reserves were sitting nearly idle and developing countries were borrowing at a very high interest rate to finance their own development.  Regarding aid, international development assistance must shift to an all-grant facility without any conditions for the poorest countries.

C.K. CHANDRAPPAN ( India ) said the deepening of global imbalances continued to pose a major risk to global growth and stability and, in turn, the advancement of developing nations.  It was imperative to redress the structural imbalances underlying those imbalances.  India agreed with the Secretary-General that the IMF’s credibility as a universal institution was dependent on the participation of all members as well as his recommendation for concrete action on a comprehensive reform -- the reform of basic votes.  The United Nations should encourage immediate steps to initiate the second stage of IMF quota reform, involving a basic revision of the quota formula and the subsequent increase of quotas for all under-represented countries.  The second stage should have a clear deadline.

Turning to stronger surveillance as a means of reducing financial crises, he said he agreed with the Secretary-General that the IMF should do more to assess the responsibility of major countries, including the industrialized countries that accounted for a large share of global financial flows.  There had been progress on various aspects of the Medium-term Strategy to reposition the IMF in the global financial architecture and India did not see any impediments to the achievement of its five objectives.  Controls on speculative capital flows were not needed to ensure financial stability.

OCHIR ENHKTSETSEG, Director-General, Department of Multilateral Cooperation, Ministry of Foreign Affairs of Mongolia, aligned himself with the Group of 77, saying that many developing countries were unable to benefit fully from the current positive trends in commodities trade.  A number of important medium- and long-term recommendations made at the Meeting of Eminent Persons on Commodity Issues, held in September 2003, were yet to be acted upon, in such areas as compensatory financial schemes; capacity-building to improve the ability of developing countries to benefit from market openings; and fiscal management of commodity revenues, among others.  In addition, an Export Diversification Fund should be established quickly to help countries move away from excessive dependence on a few commodities.

Meanwhile, he said, Mongolia, whose main exports were cashmere and mining products, would consider taking part in the existing Common Fund for Commodities, designed to help countries diversify commodities production and trade.  Through its Extractive Industries Transparency Initiative, the country would improve the openness of financial conditions surrounding its mining industries in order to attract more foreign investment.  Cooperation with UNCTAD was instrumental in formulating Mongolia’s commodity-sector policies.

WELLINGTON GODO (Kenya), aligning himself with the Group of 77 and China, said that, despite recent debt relief initiatives, the level of ODA fell far short of the $150 billion needed by developing countries to achieve the Millennium Development Goals by 2015.  Development partners should honour their commitment to allocate 0.7 per cent of GNP as ODA and to emphasize grants rather than loans.  ODA also should be directed to the priorities set by developing countries.

He said the effectiveness of the recent debt reduction initiatives was not yet proven and many deserving countries, like his own, had yet to benefit.  Regarding commodities, Kenya supported the implementation of the Arusha Plan of Action on African Commodities adopted by the African Union, the International Task Force on Commodities launched at UNCTAD XI, and other initiatives meant to streamline the problems surrounding trade in commodities.

TENS KAPOMA (Zambia), associating himself with the Group of 77 and China, the Group of Least Developed Landlocked Countries and the Southern African Development Community (SADC), said his country’s GDP had averaged 4.7 per cent annually over the past five years.  Inflation had fallen to single digits in 2006 and interest rates had come down, leading to more private sector investment.  But even higher growth rates were required to halve extreme poverty in Zambia by 2015 with 68 per cent of the population in that category.  The difficulty lay in high production costs, lack of access to international markets and poor infrastructure in rural areas, which stifled export diversification.

He said that while the international community’s debt cancellation measures and its meeting of aid requirements were commendable, those advances were dampened by rising oil prices and the suspension of the Doha trade talks.  Much had been said about what developing countries and the least developed countries must do, but it was just as important for their development partners to quickly implement the commitments made at various international forums.

NADIA OSMAN (Sudan), aligning herself with the Group of 77 and China, said external debt was a serious hindrance to economic and social development in least developed countries such as her own.  The $27.7 billion owed by Sudan, of which less than half was the principal, amounted to 690 per cent of three years’ exports, which showed that its debt was extremely unsustainable.  The excessive debt-service obligations that arrear clearance entailed constrained Sudan’s capacity to meet such payments, resulting in the continued accumulation of arrears.  That debt burden also obstructed the fulfilment of obligations under the Comprehensive Peace Agreement (2005) and the Darfur Peace Agreement (2006), undermining the Government’s efforts in reconstruction and rehabilitation, as well as its disarmament, demobilization and reintegration programmes.

Weak institutional capacity and poor coordination with partners exacerbated those problems, she said, noting that Sudan was yet to benefit from the HIPC Initiative, even though the eligibility criteria had been expanded to include low-income countries emerging from conflict.  Indeed, the country looked forward to joining that group of beneficiaries and welcomed the European Union’s call for durable solutions to the debt problems of countries that had not benefited from such initiatives.

KYAW MOE TUN ( Myanmar), aligning himself with the Group of 77 and China, said the reform of the international financial institutions was needed to help developing countries participate in the decision-making process of those institutions.  Myanmar welcomed the two-year IMF quota reform programme, beginning with an ad hoc quota increase for the four most under-represented countries.

The pattern of lending conditions set by the IMF and World Bank was a cause for concern, he said.  When providing policy advice, technical assistance and financial support, financial institutions should give each country adequate flexibility and freedom to design policies in line with their national strategies.  Regarding improved market access for developing nations’ exports was crucial for debt sustainability.

SAKIAS TAMEO ( Papua New Guinea) said that he was extremely concerned over the lack of progress towards reforming the international financial architecture, including reforms in the economic decision-making and norm-setting processes at the Bretton Woods institutions and others.  Papua New Guinea had a good record in servicing its debt commitments as a result of gains from an increase in commodity prices.  However, since resources were used for debt repayments, investment in production and infrastructure development, as well as the provision of basic health, education and other services were put on hold, leading to increased challenges in eradicating poverty, providing universal primary education and combating diseases like HIV/AIDS, malaria, tuberculosis and others.

In light of the seriousness of the debt issue, not just for Papua New Guinea, but for other developing countries as well, the Committee should recommend action-oriented decisions to be adopted by the General Assembly.  Nigeria was notable for pursuing a combination of policy instruments to deal with its debt burdens.  Indeed, Papua New Guinea supported innovative approaches such as debt swaps and grant-based financial tools to address the debt burdens of developing countries.

JIMMY D. BLAS (Philippines), aligning himself with the Group of 77 and China, said the external debt problem continued to hurt developing countries as they implemented policies and strategies geared towards reaching internationally agreed development goals.  Even a country that had borrowed moderately and pursued solid economic policies found itself facing hard times, such as a tsunami or other natural disaster, the collapse of the market for its exports, or a sudden jump in interest rates.  The contract of debt was frequently skewed in favour of the creditor yet the risk should be shared between the creditor, who must not lend excessively, and the debtor, who should borrow only when necessary and remain aware of the availability of repayment resources.  There should be a solid framework of laws or guidelines to determine a response when countries cannot reasonably meet their debt obligations.  For example, a set of laws governing the restructuring of sovereign debt and ensuring its fair, efficient and quick completion.

JASON N. LAWRENCE ( United States) disagreed with the view of many delegates, that the flow of resources from developing to developed countries was a problem.  Rather, it was a positive sign and should be applauded, as it meant that many developing countries were paying off their debt or buying products or commodities like oil.  The financial sectors of developing countries needed a transparent atmosphere and stable investment climate that showed respect for property rights and other laws.

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For information media • not an official record