General Assembly Holds Three Day Interactive Dialogue on the World Financial and Economic Crisis and Its Impact on Development

Concrete action was needed to address and contain the complex economic breakdown unfolding around the globe, the President of the General Assembly, Miguel D’Escoto Brockmann, said as he opened a three-day interactive dialogue on the World Financial and Economic Crisis and Its Impact on Development (25-27 March, New York).

“This morning, and over the next three days, we begin a new phase in the process of broad-based consultations to better understand the crisis and its impacts, and to deliberate on the appropriate response to its global turmoil”, he said, underlining the unique role the General Assembly could play in fashioning a legitimate global policy response. “I believe that we can find a new spirit of universal solidarity that can meet this challenge and lead us to recovery.”

The three-day dialogue was conceived as a “curtain-raiser” event for the high-level United Nations conference on the economic crisis, which was called for in the Doha Declaration on Financing for Development and has been scheduled for the first week of June. Its interactive panel presentations were intended to provide a comprehensive review of the origin and scope of the crisis, its possible effects on people and the real economy, and the nature and adequacy of global policy responses to date.

The principal recommendations of the “Stiglitz Commission”, as the Commission of Experts of the President of the United Nations General Assembly on Reforms of the International Monetary and Financial System has come to be known, were presented by its Chairman, Nobel Laureate Joseph Stiglitz. The General Assembly President convened the group of 18 distinguished economists, central bankers and practitioners last year to identify critical gaps in the policy response and in the current systemic framework to address the crisis.

Mr. Brockmann said that, along with next week’s meeting of the Group of 20 (G-20) leaders in London, the United Nations conference in June, and meeting of the Group of Eight Governments of the northern hemisphere in Italy in early July, this week’s dialogue was an opportunity to build worldwide consensus for global action to address the deepening crisis. It would also serve as a critical step in addressing the economic crisis and its impact on billions of people worldwide in a dynamic and inclusive manner.

He said measures were clearly needed to mitigate the potentially disastrous impact on the most vulnerable, which bore no responsibility for the current catastrophe. To this end, it was urgent and vital for the General Assembly to live up its responsibilities to assure that all human kind, and the fate of the planet, was taken into account in developing a coordinated, coherent and effective approach. He urged Member States and the United Nations system to consider whether the policy responses to date had been sufficient, and he suggested they should begin the necessary work of addressing the weaknesses that had been exposed in the current framework for managing the global financial, economic and trading systems.

“We must recognize that most of the institutions we have today were created in, and designed to work for, a very different world than we have today,” he said. “The solutions we adopt today need to be seen in light of the significant evolution of the world economy that has taken place since 1945. We need a twenty-first century architecture to support a twenty-first century global economy that is at once dynamic, inclusive, safe for all participants and just.”

Introduction of the "Stiglitz Commission" Report

With the world facing "the first crisis of the modern age of globalization," the Commission, chaired by Nobel Laureate and former Chief Economist of the World Bank Joseph Stiglitz, called for the creation of a global reserve system and a global economic coordination council as part of a fundamental reform of the international financial architecture.

“These are ideas whose time has come,” Mr. Stiglitz said, as he introduced the commission’s draft recommendations, which include immediate prescriptions essential to global recovery, as well as an agenda of deeper systemic reforms needed to ensure that such a recovery would be sustainable.

The Commission of Experts argues that the financial crisis that rapidly spread from a small number of developed countries to engulf the global economy has provided tangible evidence that the international trade and financial system should be profoundly reformed.

“We agreed at the beginning to focus on the impact on developing countries and on the poor in both developing and developed countries,” Mr. Stiglitz said. “These often-neglected issues were first and foremost on our mind.”

To address the current crisis and modify global structures to prevent recurrences, he said economic systems needed to reflect the concerns of citizens worldwide. While a global reaction was needed, the current locus of response was lodged at the national level. As each Government considered its possible range of actions, their potential ripple effects in other countries were often neglected.

Thus, the Commission recommended that national stimulus packages should be judged on their global impacts. Further, those packages should dedicate 1 per cent of their total outlay to developing countries to offset the impact of financial crisis. The Commission also recommended the issuing of Special Drawing Rights (SDRs) and gave support to regional efforts like the Chiang Mai initiative to augment developing countries’ resources. Those schemes should avoid conditionalities.

As part of the expanded support for developing countries, the Commission also called for the immediate creation of a new credit facility. If it was established quickly enough, Mr. Stiglitz said, it could be a means of disbursing the necessary funding. Developing countries should also be given policy scope to engage in counter-cyclical actions. In the absence of a successful completion of the Doha trade round, the markets of advanced countries should be opened to least developed countries via the rapid implementation of existing multilateral trade negotiations. Protectionism should also be avoided in any crisis response.

Other recommendations promoted actions to address flawed incentive structures, unreformed corporate governance, with the Commission suggesting that what were needed were real and substantive regulatory reforms that went beyond the financial sector to address underlying problems in corporate governance and competition policy and tax structures that gave preferential treatment to capital gains.

Over the longer term and as part of the agenda for systemic reform, Mr. Stiglitz said a global reserve system would reduce the current systems’ endemic inequity, which was perhaps best exemplified when developing countries lent money to the United States at very low interest rates instead of developing their own countries. The final version of the Commission’s report due out in May would outline how a transition could be made to that system. The current crisis had laid bare globalization’s double-edged nature: the rules of the game meant the bad crossed borders along with the good, he said. As countries around the world had grown more interdependent, economic globalization had in some sense outpaced political globalization. For that reason, the Commission was calling for a global economic coordination council that would operate at a level equivalent with the General Assembly and the Security Council and would meet annually at the Heads of State and Government level to assess developments and provide leadership in economic, social and ecologic issues.

Following Mr. Stiglitz’s introduction of the Commission’s draft recommendations, presentations by four other Commission members detailed several regional perspectives on what was needed for global recovery and highlighted that, while the need for a “global new deal” required a “G-192” to be involved in designing sustainable solutions, those solutions had to be tailored to each country since “one size did not fit all."

During the ensuing discussion among Member States and representatives of civil society organizations, speakers from developing countries lamented the fact that the recommendations did not contain specific references to least developed countries’ access to resources. Several representatives from developed countries voiced support for the Commission’s goal of providing global solutions that would protect the world’s poorest people. They hoped the upcoming G-20 summit in London produced a substantial response that incorporated the concerns and goals of developing and developed countries alike. Several delegations requested that the recommendations contained in the Commission’s final report should be prioritized.

An afternoon panel on the reform of the international institutions emphasized the need to mobilize the entire United Nations system, including the Bretton Woods institutions, to address the crisis. Indeed, the United Nations was the right place to plan the reorientation of the international financial system, but, to do so, it had to go beyond the interests of individual countries, especially the largest ones.

Closing

“These reforms will occur and the only question is whether they will occur in a random and ad hoc way or if they will be orderly,” said Stiglitz. He said the Commission believed the more proactive approach of a top-down global strategy was preferable.

In his closing comments, Mr. Stiglitz said a dichotomy had surfaced in the Assembly’s discussions between immediate economic stimulus or a redesign of financial regulatory regimes, but it was a false dichotomy, as both actions were needed. Moreover, while it was prudent to make use of existing institutions, it was important both to reform them and create new ones.

Mr. Stiglitz argued that the critical difference between the current crisis and past ones, like the Asian crisis when talk of reform had been mere words, was the developed world’s position at the epicentre. “This is not a downturn that happened on the periphery. It began in the centre and has gone to the rest of the world with devastating effects on the periphery.”

In that way, the crisis had exposed flaws in the global economic system and in globalization, making a return to the world of the past impossible, he said. It was, therefore, in the interest of every country — rich and poor, debtor and creditor alike — to create the kind of strong institutions the Commission had proposed. Indeed, since instability in the international economic structures affected each country, global action would be critical.

He acknowledged that the Commission’s goal had been ambitious of diagnosing the problem, prescribing immediate remedies and instigating long-term structural reform to prevent the problem’s recurrence through a list of 20 recommendations. But something as complex as what to do in the current crisis could not be summarized in 20 points. Nor could the task of reforming the global economic institutions be accomplished in a month, six months or even a year. But the Commission intended for its recommendations to serve as a framework to guide thinking for the long-term undertaking ahead. In this, the most difficult part would be political -– and it would be the work of Member States to reach the necessary compromises and make the tough choices. While it might be a long, unpredictable journey, he said “there is no certainty except the certainty that we can and must do better than we have.” Echoing that sentiment, Assembly President Miguel D’Escoto Brockmann said the urgency of the unfolding economic and financial crises was unmistakable and made clear just how critical the reform of the financial infrastructure was.

It was time, he emphasized, for the General Assembly to rise to that challenge, giving adequate weight to its collective responsibility to be the voice of “we the peoples…” and to ensure that the common good was paramount over petty self-interest. The rights of the world’s most vulnerable to full participation in the global economy must be defended. They could no longer be seen as scapegoats or victims, but as legitimate stakeholders.

He said that, for growth, prosperity and progress to benefit everyone, they could not be based on patterns of insatiable greed and consumption, but on sound internationally-regulated financial and monetary institutions. Those institutions should enable inclusive and people-centred development policies; fair and equitable trade regimes; ecological and sustainable food systems; and labour regimes that addressed the special needs of women.

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To view the webcast of the entire Thematic Dialogue and to download the background papers, visit here.

For informal summaries of each segment of the Thematic Dialogue, visit here.

To download the recommendations of the Commission of Experts of the President of the General Assembly on Reforms of the International Monetary and Financial System, click here.

To download the NGLS report on its Civil Society Consultation on the Work of the President of the UN General Assembly’s Commission of Experts on Reforms of the International Monetary and Financial System, click here.

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