On 12 March, Joseph Stiglitz, Chair of the Commission of Experts of the President of the UN General Assembly on Reforms of the International Monetary and Financial System, presented some of the key conclusions and recommendations that the Commission will make at the end of the month following its two-day plenary meeting in Geneva (10-11 March).
Professor Stiglitz first addressed an assembly of diplomats and observers at the United Nations Conference on Trade and Development (UNCTAD) and later gave a keynote address to the Governing Body of the International Labour Organization (ILO) where he was presented with the 2008 ILO Decent Work Research Prize by ILO Director-General, Juan Somavia. (see full lecture at ILO on: http://www.ilo.org/global/About_the...)
At the session with UNCTAD, Mr. Stiglitz began by noting that the current financial and economic crisis is now commonly compared to the Great Depression but in many ways is more complex. He pointed to the fact that decoupling theory was proving itself to be a myth as different markets worldwide were being affected by the US crisis, including developing countries. Short-run measures were needed to deal with the immediate consequences of the crisis, as well as deeper long-run changes to avoid a repeat of the crisis and to ensure more balanced sustainable economic development.
Among the 10-11 recommendations that the Commission will be putting forward, he stressed that a key element would be a global stimulus response – one that was fair and would provide developing countries with resources to engage in effective counter-cyclical measures with sufficient policy space and “no conditionality attached.” He also pointed to the need to create a variety of new mechanisms to generate new sources of funding, monitor processes and administer funds. This included the possible creation of a new lending facility with a governance framework that would better reflect the sources of funds and the interests of receiving countries. He said that if there was the political will needed, such a new facility could be put in place relatively fast. To fund the global stimulus, he mentioned 1% tax on national stimulus packages in the more advanced countries, as well as other innovative source of funding such as carbon permits.
For the short-term, the Commission would advocate the issuance of Special Drawing Rights (SDRs) as an additional source of finance for the stimulus. For the longer-term, the Commission would be calling for the creation of a new global reserve system - away from the US dollar - that could be used not only to maintain financial stability but also finance development and the fight against climate change.
Professor Stiglitz said he was concerned that national protectionist measures were becoming rampant, which, in turn, discriminate against poor developing countries. He stressed the need for a level playing field, particularly as the nature of global competition has been destroyed over the past few months due to bail-outs of large institutions in the developed world. He further emphasized the need to re-examine the rules contained in international trade and investment agreements and stressed that the Commission would be calling for a truly development-oriented trade round, as the current Doha Trade Round had evolved into something that did not anymore reflect its original development purpose.
Professor Stiglitz called for deep reform of the international financial institutions (IFIs), including a double-majority voting system. He mentioned the need for an equitable sovereign debt workout mechanism and noted that the Commission would be proposing the establishment of a Global Economic Coordinating Council that could be comparable to the Intergovernmental Panel on Climate Change (IPCC), but to deal with global financial issues.
On financial regulation, he said the Commission would recommend the creation of a Financial Product Safety Commission and a new global competition policy to deal with institutions that are “too big to fail”. He said central banks must take a much broader look at the national and transnational causes of financial instability instead of a narrow focus on inflation.
UNCTAD Secretary-General Supachai Panitchpakdi expressed concern that many economists were predicting an “L curve” recovery, a sharp decline followed by very slow economic activity for a prolonged period. For developing countries, this could mean a new “debt bubble” and higher costs of borrowing. He recalled as Deputy Prime Minister of Thailand during the 1997 East Asian crisis, the position of the IFIs was that “no institution was too big to fail” and pushed for policies that turned a financial crisis into a deep depression in many countries of the region. He expressed concern that the current calls for more fundamental reform could lose momentum with the recovery, as happened after the East Asian crisis. It was essential that the UN managed to get all the key players on board for the upcoming UN conference on the world economic and financial crisis and its impact on development, to be held in early June 2009.
Later at ILO, Professor Stiglitz said that the global economy was suffering from a lack of global aggregate demand. This was due to mounting inequalities as a result of policies that favour a weakening of trade union rights, flexibilization of labour markets and stagnant or declining real wages, combined with global imbalances where developing countries have to hold excess reserves (and thus excess savings) for insurance purposes. He warned that current measures that go against the Decent Work Agenda (lowering wages, shedding workers) would only make matters worse. “Strengthening the Decent Work Agenda is at the heart of a successful recovery” he insisted.