Asserting UN authority
The working group has an opportunity to make the UN an – if perhaps not the one – venue for discussing global economic issues. This is an important step forwards, because the G8 and the G20 lack legitimacy, given that they include only a small number of countries. So far, however, the industrialised world is dragging its legs. It was telling that the UN debate had little bearing on the G8 summit in Italy in July. The governments of developing countries will have to ensure that the topics that relate to the global economic crisis stay on the multilateral agenda.
The developing countries did not cause the turmoil they are now suffering from. In 2009 alone, they face a massive shortfall in external financing of up to $ 2 trillion. Many countries will soon run out of foreign exchange to pay for imports or service their foreign debts. It is therefore most urgent to provide them with additional funds.
Rich nations have the means to borrow or create money in order to bailout banks and other companies, and to fiscally stimulate their economies. Most developing countries lack such means. It was a good sign that the final document of the UN summit called for “examination of mechanisms to ensure that adequate resources are provided to developing countries”.
The working group must act on this mandate fast. For instance, it could pick up proposals made in New York by the G77 and China. According to the proposals, the International Monetary Fund (IMF) would allocate $ 100 billion Special Drawing Rights (SDRs) to low-income countries at no cost to these countries; and middle-income countries would get another $ 800 billion in SDRs, which would have to be returned after the crisis.
These measures make sense, and it is a pity that the UN conference did not endorse them. It is to be hoped that the working group will make haste in this respect, because the matter is urgent and cannot wait until next year.
The conference’s final document, moreover, gives the working group a mandate to tackle several other issues that must be dealt with fast to avoid further economic strife. They include the needs
to prevent another debt crisis in developing countries,
to explore a better system for sovereign debt default and debt workouts, and
to ensure that developing countries have the necessary “policy space” to make and enforce appropriate decisions.
The conference also acknowledged calls for reform of the current global reserve system, and spelled out the importance of “seeking consensus on the parameters and implementation” of a study on this matter, taking into account the role SDRs could play in this context. Accordingly, the door is open for the working group to discuss the reform of the reserves system.
Moreover, the conference agreed on the necessity of expanding financial regulation and supervision with respect to all major financial centres, instruments and actors, including financial institutions, credit rating agencies and hedge funds.
The conference also recognised the need to reform the International Financial Institutions. For instance, the governance of the IMF and World Bank should be modified in order to give developing countries fair and equitable representation. Such reforms are essential, because the conditionalities these bodies attach to loans severely restrict poor countries’ policy space.
Since the economic crisis started, developing countries have heard much reform rhetoric, particularly from the IMF. Nonetheless, the Fund’s lending policies have barely changed and are still linked to rigid austerity. That is unlikely to change unless policy is made in a context that involves all parties concerned, and particularly the most vulnerable. It is therefore necessary that the UN continue to assert its authority over global economic affairs.