Women’s Working Group on Financing for Development

Theme 1: Financial regulation

Certainly, a move away from self-regulation and strengthening regulatory mechanisms can help increase the transparency of the financial sector. The financial regulatory structure needs to be complemented by strong competition policy and consumer protection. We need to be mindful of the following: How do we allow for differences in the institutional structures across countries without resulting in uniform regulations nor "regulatory competition" (similar to tax competition); how do we allow for differences in regulatory structure given different levels of development of national financial sectors?; As we formulate global regulation on the financial sector, how do we consider differences in governments’ (broadly defined to include legislature and judiciary and not just executive branches) capacity to implement and enforce these rules?

Financial products innovation can have an impact on the ability of monetary authorities to control money and credit. In particular, it would be helpful if it were possible to determine how new financial products would affect the Central Bank’s ability to control bank reserve requirements and maturity mismatches of assets and liabilities, including how these relate to capital account management. Policy instruments similar to reserve requirements can be applied to derivatives, debt swaps, and hedge fund markets. Limits can be placed on leverage ratios.

In particular, regulators need to be better trained to understand valuation problems for many types of securities and derivatives, including centralized debt obligations. New risk management techniques that can handle larger stress levels beyond arbitrarily determined standard deviations from historical averages need to be devised. New measures are also needed to regulate secondary markets, particularly bridging the gap between book values and mark-to market pricing. Closely related to the challenge of valuation is ratings classification, primarily led by credit ratings agencies, whose theoretical underpinnings are questionable. Regulators need to keep abreast of mechanisms so that they can in turn contribute to innovations in regulation. If lack of understanding is not the problem, then the revolving door employment among regulators, ratings agencies, and financial firms contributes to the loss of autonomy and independence that regulation requires, effectively resulting in de-facto self-regulation.

Central Banks in developing countries have to do their work with financial sectors that are heavily segmented (say between universal banks and rural banks). Central Banks can also be involved in credit allocation to influence where savings may be invested but also to support the work of government-owned or controlled banks, such as land banks, development banks, export-import banks, among others. These latter set of banks have specific development mandates such that Central Banks need to be more conscious of the balancing act that they do with respect to price stability and its relationship with other development goals. A final consideration is the role of the Central Bank in promoting financial sector deepening and capital market development. Regulatory structures need to be aware that in developing countries more work needs to be done to bridge the gap between micro-finance and banking and investment sectors. Given these other responsibilities, Central Banks need to be encouraged to report their activities to legislative bodies and the general public.

On a related matter, and at the national level, questions about independence and accountability of Central Banks are also an important element in seeking solutions to many of these multilateral issues. Particular attention needs to be paid to debates about whether price stability should be the primary policy goal of a Central Bank to the exclusion of other policy goals, including employment expansion. The debates over the primary goals of a Central Bank will influence the cyclicality or counter-cyclicality of policies and their impact on financial stability pursued by the Central Bank.

There is value in better coordination among fiscal and monetary authorities, especially if we are to learn lessons from the US experience when monetary policy was heavily relied upon to pursue full employment. Finance ministries should be interested in capital gains taxes and how these might be used to change incentive structures, especially where profit generation from financial product innovation has focused on tax arbitrage and asset price bubbles. Corrective changes to the general tax structure also needs to slow the trend towards “financialization”, where financial instruments (e.g., derivatives) provide larger sources of profits compared with industrial goods and services production. This can include taxes on speculative flows that can in turn be earmarked for social development, gender equality interventions, and gender-sensitive climate change projects.

Ironically, developing country governments also face challenges in acquiring troubled assets or providing guarantees in a period that follows a heavy emphasis on the same governments to reduce their holdings of non-performing assets, including the privatization of these same assets. It is likely that even developed countries that used to have strong welfare systems may have also undergone asset stripping to deal with balanced budget targets and fiscal conservatism.

At the level of principle, would "constitutional" provisions such as the social function of property strengthen regulatory structures over finance? This principle is already found in constitutions in some Latin American countries, such Nicaragua and Brazil, as well as in the American Convention on Human Rights (Art. 21) but the principle is unspecified in many of these national legal instruments. We note with interest Francois Houtart’s proposal for a Universal Declaration of Global Governance, which could be an instrument to promote the social function of property. Houtart’s suggestion might further the goal of building a global economic and financial system within a human rights framework operating under democratic, participatory, accountable and transparent mechanisms.

Theme 2: Multilateral issues

The IMF lacks political independence from its major equity holders. Current efforts to reform the IMF are unsatisfactory since benefits immediately accrue to the big countries, such as those in the G20, which still leaves out the least developed countries and the small island developing states. It will be important to send a strong political message that a new multilateral institution needs to be established whose voting does not depend on equity ownership. In the same vein,strengthening the relationship between the BIS and the IMF will not accomplish the desired need for independent oversight. Although, improvements in the representation in the BIS, not only in its Basle Committee on Banking Regulation, to include even more developing countries are recommended.

The primary role of the new institution is financial sector surveillance, especially in developed countries whose financial sectors engage in heavy financial product innovation. This new institution could help neutralize the impact of credit rating agencies and other industry-based standards-setting bodies. The new institution should also undertake social monitoring. It must have full multi-disciplinary research support and must be subject to full transparency. Examples of the transparency measures would be pushing analysis and evaluation to parliamentarians and CSOs, "wikis" for general public access, and economic briefs on new financial products or regulatory innovations. An independent evaluation unit (similar to the WB) should be tasked to design social impact assessments and early warning systems. There will be regular reporting to the public and to legislatures or national commissions as well as to the UN General Assembly and the ECOSOC. A department under this institution should be tasked with coordinating (or brokering?) liquidity shortages in cooperation with the BIS and all regional monetary arrangements, including bilateral and multilateral currency swaps.

The UN General Assembly, particularly through a strengthened ECOSOC or a UN Economic Security Council should be a forum for peer reviews of issues related to macroeconomic stability as well as supervise the actions and functions of the IMF (until its dissolution), the WB, and the WTO. The ECOSOC or UN Economic Security Council will need to increase its capacity to engage in discussion and debate over these issues. This approach much shift attention away from formula-based assessments such as the WB’s CPIA and the use of policy conditionalities attached to lending and aid programs.

Expertise should be built within the UN system, including UNDP and UNCTAD, in order to reduce reliance on the WB as the only “knowledge-technical assistance-capacity building” institution. The role and mandate of UNCTAD as an authoritative knowledge-based institution whose work aims to help shape current policy debates and thinking on development, with a particular focus on ensuring that domestic policies and international action are mutually supportive in bringing about sustainable development, including gender equality must be strenghtened. Strengthening the UN’s gender equality machinery will better enable the UN and governments to deliver on commitments made to advance gender equality and women’s human rights in their policies and actions to address the crisis. The UN capacity can be enhanced through regional and national policy analysis and research centers linked with independent academic and non-governmental think tanks.

Women’s rights groups underscore the urgent need for a participatory, inclusive, concrete and democratic approach to the international economic and financial system, with strong and equal representation from all countries and from marginalized groups. These efforts should be built upon existing UN commitments to gender equality and women’s human rights, based on the principle of mutual responsibility and the obligations of governments to fulfill the IADGs, targets and actions which have been identified in the Beijing Platform for Action, the Convention on the Elimination of All Forms of Discrimination against Women (CEDAW), and International Labour Organization (ILO) Conventions. In addition, all international organizations, including the BWIs and the WTO, and national ministries of finance, commerce and trade should promote participation in decision-making at the highest level of female experts with experience in gender issues. Currently the UN has small and very under-resourced agencies focused exclusively on women’s issues (UNIFEM, DAW, OSAGI, INSTRAW) but none of them can participate in the decision making at the highest levels. Strengthening the UN’s gender equality machinery will better enable the UN and governments to deliver on commitments made to advance gender equality and women’s human rights in their policies/actions to address the crisis.

No re-launching of the Doha Round of negotiations until a proper social and gender impact assessment of the cost and benefits of the Uruguay Round to economic development, poverty eradication, gender equality and women’s empowerment and the environment has been undertaken. This includes the systemic and implementation issues raised by developing countries since the late 1990s. External shocks facilitated by extreme trade openness generates output volatility and exerts pressure for redistribution towards export sectors and capital at the disadvantage of the domestic sectors, workers and the social budget. The role of trade-finance linkages have not been discussed and understood fully so that the damaging impacts have not been weighed and mitigated.

Theme 3: Macroeconomic issues and addressing the crisis

Fiscal stimulus package and stimulating aggregate demand at the national level, particularly for those countries severely affected by the financial crisis. This package will require policy space an the appropriate balance between market expansion and public provisioning.

To be efficient, effective, and accountable, public finance management systems and practices need to support rather than undermine principles of participatory and gender-responsive budgeting. Past experiences have shown that financial crises and neoliberal policy responses, such as Structural Adjustment Programs, have disproportionately affected women in negative ways. Any strategy for maintaining the global economy at full employment should address the gender inequalities in the labour market. It is critical to recognize gender equality as a fundamental human right and an issue of social justice essential for economic growth, poverty reduction, environmental sustainability, and development effectiveness. New indicators must be developed to measure the impact of gender inequality on economic growth by measuring the value of women’s unpaid work as well as by developing performance indicators to measure progress in introducing and implementing gender-responsive approach to public finances.

Building, rebuilding and strengthening automatic stabilizers will help many economies. Income tax structures need to become more progressive so that governments can benefit from revenues generated during economic upturns and therefore have the ability to finance transfers needed by social programs that expand during economic downturns. In the absence of these stabilizers, women’s labor act as stabilizer adjusting to changes in income and employment status as well as serve as the insurance of last resort when the trickle down effects fail. The connection between paid and unpaid work is still ignored and the shift in costs from the paid to the unpaid sector leads to increased burdens for women. It is important to pay attention to the imbalance between the productive economy and the reproductive economy or care economy, which is largely dependent on women who function continuously in spite of crisis as if their capacity and the capacity of households are elastic.

Building, re-building, and strengthening social insurance systems, safety nets and social protection need are needed. This is not to preclude the design of policies that will take countries to the point where they are able to achieve universal social provisioning. Meanwhile, national efforts to provide stimulus can be complemented by “global stimulus,” such as increased spending on MDGs and other global problems. Despite pressures in donor countries to focus on internal concerns, this is not the time for ODA to drop. In this sense, ODA is both safety net and fiscal stimulus. The provision of aid should be based on the principle of Self-Sufficiency and Solidarity. This is grounded in the commitment among and between developing countries in terms of ensuring food security/national self-sufficiency & access to medicine and access to investment & technology necessary for development. It also includes solidarity and partnership between developed and developing countries in terms of the flow of technology, investment and overseas development assistance, fair and balanced trade rules and the flexibility for developing countries in pursuing macroeconomic policies.

At the global level, it may be useful to design a social guarantee system that is a parallel to the multilateral investment guarantees institutional infrastructure, that support risk-taking activities of investors in developing countries protecting them against expropriation, exchange rate risks,war damages, among others. A UN commission should be tasked with recommending and designing a multilateral social insurance system based on lessons learned from the Multilateral Investment Guarantee Act. Provisions must be made to ensure that additional financial means - generated, for example, by environment taxes or a tax on financial speculation - are appropriated for programmes and projects for the support of women in under-privileged regions. Access to finance for women andthe provision of health insurance—including access to reproductive health care services, maternity benefits, affordable child care—is also critical. This must go well beyond the common practice of opening channels for women to access micro-credits and must take into consideration and tackle structural inequalities that have, thus far, prevented many women and other marginalized groups from accessing funding and loans, in general, or those of a substantial size, in particular.

For some countries, remittances are an important source of income support and safety net for many households. These remittances have helped support balance of payments. Perhaps a stronger linkage between remittance receiving households with social insurance systems and savings products would help households build liquidity and assets. Underlying this proposal is that social security systems and pension funds are considered important players in capital market development. Therefore, reforms covering both areas have to be seen as complementary actions.

The prevailing assumption by mainstream economists that trade liberalisation is a gender neutral process that increases overall prosperity and well being overlooks the deleterious social impacts from greater dependence of the global market. The proliferation of wide-ranging and ambitious bilateral free trade agreements, which serves mainly developed countries’ business interests at the expenses of local people’s livelihoods must be reviewed. The often adverse,differential impacts of economic liberalisation on women relative to men are not sufficiently taken into account. It is essential to establish coherence between the global commitments to gender and social equality, women’s rights, environmental protection and international trade policies.

Received advice for many developing countries has focused on contraction and over a prolonged period this has led to the demise of industry and the neglect of agriculture resulting in the expansion of informal, casual and contractual work. Macroeconomic reforms must support strong domestic productive capacity and cautious international trade. Focus attention on promoting living wages that recognize the contributions of workers to productivity as well as the requirements for full functioning in society and the care of its generations. Incomes have social value when these are translated into entitlements over food and other resources needed for human functioning and human development.

Theme 4: Reforming the global financial architecture

The UN is the most appropriate multilateral space to lead the necessary economic and financial reforms. Global economic structures and policies that put peoples’ rights first, coherent with commitments to gender equality and women’s human rights for the fulfilment of internationally agreed development goals, targets and actions, identified primarily in the Beijing Platform for Action, the CEDAW Convention and the International Labour Organization Conventions.

A major challenge in freeing up resources for development for many countries is the external debt burden. A strong international legal framework for an orderly and transparent debt workout mechanism is needed, which would include unstructured and unconditional discharge of illegitimate and odious debts. In the short-term, a moratorium on all sovereign debt payments should be undertaken, without needing to wait for a balance of payments crisis to trigger this need. International financial institutions need to establish systematic and rigorous criteria to assess the impact of the execution of debt repayments and structural reform programs on the realization of fundamental economic, social and cultural rights, as provided for in the international human rights instruments. Import-dependent developing countries are might be looking at severe current account deficits if exports decline with the drop in aggregate demand in major trade partner countries. When this occurs in combination with continuous outflow of capital to service debts, severe pressure is placed on the balance of payments.

The Latin American proposal to establish a Bank of the South needs is best appreciated in the presence of a sovereign debt workout mechanism. The Bank of the South is progressive in its thinking by attempting to move away from equity-based voting, inclusion of civil society organizations, social and environmental safeguards, and procurement from the south. Its operations will be strengthened if the complementary regional legal frameworks for sovereign debt is worked out earlier rather than later. Indeed, the establishment of similar banks are best served in an environment where there is greater clarity over debt resolution mechanisms.

It is very difficult to support proposals to establish single global currency given the structural inequalities in powers that would affect decisions over issuance and control of the global currency. The issuance of Special Drawing Rights is too closely associated with the IMF such that this act may be tainted by the IMF’s loss of credibility. Indeed, the absence of exchange rate coordination and the unilateral use of monetary policy (through changes in interest rates) have been used to manage currency values. High interest rates maintained by Central Banks, in particular, are meant to put a break on depreciation but this penalizes investors because the cost of borrowing increases, which further weakens an economy because of the generalized impact of high interest rates. A vicious cycle is created when a loss of confidence in the currency is treated as sovereign risk placing further pressure on currency depreciation, especially in the hands of foreign exchange speculators. The high interest rates create an incentive to domestic firms to borrow abroad and carry foreign currency denominated loans, which makes them vulnerable to increases in debt obligations if their domestic currency depreciates against currency in which they borrowed.

To stem speculative activities, governmental authorities should avail from a menu of capital management techniques available to regulate the volatility of capital flows. These techniques can be supplemented by innovations on capital gains taxes on foreign exchange transactions.

There have also been proposals to use a GDP-weighted basket of real exchange rates (also known as a world currency unit) as an anchor for the world’s currencies. This currency unit helps reduce sovereign risk because it is standardized. The suggestion has been to use the currencies of the 5 largest economies with the smaller economies linking their currency, which is recommended to be part of a currency board or trade-weighted basket of currencies. It will still be difficult to identify which of the “largest” economies to work with. China is considering the internationalization of the RMB with good reason. The question remains on how “small” economies become systemically significant enough for their currencies to command “confidence” in the international monetary system.

In order to meet liquidity requirements, governmental authorities should also be able to access different sources of funds. An international financial facility funded by countries with excess reserves has merits but should not preclude work being done on regional monetary arrangements, such as the Chiang Mai Initiative, the Bahrain Initiative or the Ecuadorian proposal. Among these efforts, the bilateral and multilateral currency swaps are a cooperative approach to deal with reserve imbalances although there has been relatively little take up on this as the aforementioned initiatives take time to mature. Policy conditionalities should not be used on these occasions. From a Human Rights perspective, conditionalities undermine peoples’ right to self-determination which implies not only limiting the possibility of free determination of their political status but the right to freely pursue their economic, social, and cultural development. Moreover, conditionalities affect the right to development; and the nontransparent way in which they are negotiated, established, and implemented also threaten the right to access information, consultation, and participation. The international treaties of Human Rights, the pillars upon which the universal protection system is based, have enshrined these rights, together with other Human Rights.

Commodity price volatility is a serious problem for countries and households that rely on commodities for exports earnings or cash incomes. The financial crisis contributes to uncertainty through its exchange rate impacts and price speculation, which is linked to financial products based on indices of commodities and minerals futures trading. Better monitoring and reporting on market-based price risk management is needed in order for these products to be beneficial to a majority of producers rather than turning them into victims of financial speculation. International commodity arrangements are needed at this time of high price volatility. In addition, compensatory financing facilities need to be reformed learning from past mistakes. These facilities might even be linked to debt relief options, where necessary.