UN conference on financial crisis
Expectations were high for the UN Conference on the World Financial and Economic Crisis and its Impact on Development which ended in New York on 26 June 2009. Civil society and Southern governments had fought hard last year in the UN Doha Conference on Financing for Development to ensure that the UN would play a part in world efforts to counter the impacts of the financial crisis on developing countries. The conference that just concluded in New York constitutes a recognition that the UN should have a role in ensuring that the global economic and financial system work for developing countries, where International Financial Institutions have staggeringly failed.
The outcome document candidly describes the root causes of the crisis, including "unsustainable global macroeconomic outcomes, (...) major failures in financial regulation, (...) excessive reliance on market self-regulation, overall lack of transparency, financial integrity and and irresponsible behaviour". Yet it fails to agree sufficient specific measures on fundamental reform of the global economic and financial rules and architecture. Expectations were high that this conference could provide resolute and progressive alternatives to the piecemeal reforms that the IFIs are undertaking on this issues. But they have not been met, because of reluctance by richer countries to engage wholeheartedly in this UN forum.
On many key priorities for CSOs, such as the establishment of a fair and transparent debt work-out mechanism, or further progress in combating illicit capital outflows there is no progress beyond the agreements reached at the Doha conference. On other issues the official outcome document does show some steps forward. These include the need for a global reserve system and the consideration of a debt standstill in the context of the crisis, further reform of the International Financial Institutions and the conditionality they apply.
The document contains a number of promising proposals which need to be followed-up. It also provides few concrete institutional arrangements which should provide the opportunity to develop these proposals further and ensure continuity of this process. It is now crucial that civil society and Southern governments put pressure on richer countries to support these follow-up mechanisms and continue engaging in spelling out the general proposals contained in the document to fix the flaws of the current global economic and financial system.
Additional and unconditional resources to counter the effects of the crisis in developing countries
The UN summit outcome document recognises that "developing countries will need a large share of additional resources" and calling upon the G20 "to further consider addressing the financial needs of developing countries, especially low income countries", the document simply restates ODA commitments towards 0.7% of GDP.
On conditionality, the text is vocal on the need to create policy space so developing countries can implement countercyclical measures. The document goes further than previous UN texts in recognising that "international economic relations have meant that the space for national economic policy, that is, the scope for domestic policies, especially in the areas of trade, investment and international development, is now often framed by international disciplines, commitments and global market considerations. We recognise that these regimes, disciplines, commitments and considerations have presented challenges to many developing countries seeking to fashion a national response to the financial and economic crisis." The action agreement text is weaker than the above assessment would indicate. It says governments commit "to provide sufficient developmental resources to developing countries without unwarranted conditionalities". It calls for a "streamlining of conditionalities" and says that "new and ongoing programs should not contain unwarranted pro-cyclical conditionalities." This echoes findings in Eurodad’s new report "Bail-out or blow-out? IMF policy advice and conditions for low-income countries at a time of crisis".
Dealing with debt crises
Civil society groups and official institutions are increasingly concerned about the threat of an impending new phase of the debt crisis. Many governments are having severe balance of payments shocks from the crisis and the new loans being offered to them are mostly new loans rather than grants. CSOs have been calling for further debt cancellation as a means to increase the fiscal space for developing countries. However, the UN outcome document simply calls on "states to redouble efforts to honour their commitments regarding debt relief and stress the responsibility of all debtors and creditors on the issue of debt sustainability, and emphasise the importance of equivalent treatment of all creditors." It continues that more needs to be done to take further the commitment to take "appropriate measures...to mitigate the negative effects of the crisis on indebtedness of developing states and to avoid a new debt crisis."
It is welcome that the document calls for debt standstills - even if only temporary. The text also calls to "explore enhanced approaches to the restructuring of sovereign debt based on existing frameworks and principles". This is a very similar wording to the Doha outcome document, which civil society criticised for not going beyond existing institutional arrangements. The good news is that this outcome document adds a sentence which aims at exploring "the need and feasibility of a more structured framework for international cooperation in this area". It will be fundamental to monitor how this statement can be followed up with actual progress towards setting up new debt work-out mechanisms.
Managing the global monetary system
Another option to create additional liquidity for developing countries is the issuance of Special Drawing Rights (SDRs) by the International Monetary Fund (IMF). This was a decision taken by the G20 which the IMF is now deciding how to implement. Civil society is calling to use the SDRs to provide resources for the countries that need them the most.
On this issue, the UN outcome text breaks new ground by recognising the "potential of expanded SDRs to help increase global liquidity in response to the urgent financial shortfalls caused by the crisis and to help prevent future crisis. It also states that this could be a stepping stone towards a more efficient global reserve system.
However, this comes at the very same moment when the IMF is studying the technical options to implement the G20 commitment on the SDR allocation of $250 billion. The IMF will proceed swiftly to discuss this issue at the Board - and definitely before the Annual Meetings. It is thus fundamental that there is an increased dialogue between the UN and the Fund in order to jointly explore how these proposals could be taken forward in the spirit of the decisions taken at this UN Conference.
Combating illicit flows and tax evasion
On capital flight and tax evasion the text does not go much further than what was agreed in Doha in November. There is slight departure from the UN Financing for Development language agreed in Doha - or other political declarations such as the G20 - as the text is more explicit in the links between illicit financial flows, offshore jurisdictions and tax evasion. The new UN outcome document emphasises “the need to ensure that all tax jurisdictions and financial centres comply with standards of transparency and regulation." It stresses the need to strengthen international tax co-operation and calls for international standards for exchange of information as well as the strengthening of the UN tax committee (as already agreed in Doha). But it does not reflect the demands of civil society groups on issues include automatic exchange of information, country by country reporting by multinational companies, or upgrading of the UN tax committee into an intergovernmental body.
Regulating global finance
The outcome document is weak and purely aspirational in this area. It recognises that "tighter and more coordinated regulation of incentives, derivatives, and the trading of standardised contracts is also apparent." It underscores the importance that each country "should adequately regulate its financial markets" but does not say much about what to do and how to do this at supranational level. As important as national regulation can be, it is only one side of the coin in a world with a highly interconnected and globalised financial sector.
Reforming the International Financial Institutions and establishing alternative bodies
The text is particularly weak in its calls for reform of the International Financial Institutions. It focuses mostly on governance issues and the ongoing internal reforms at the World Bank and the IMF. There is some good language calling for a "road map for further reforms on voice and participation of developing countries." It is also welcome that the text says these reforms should be based on a fair and equitable representation of developing countries and says that these reforms should enhance the perspective and voice and participation of developing countries, including the poorest. Although the wording is vague, it is positive that there is reference to the need for "equitable" representation.
The document also states that "the UN and the IFIs have complementary mandates that make the coordination of their actions crucial" and thus encourages increase cooperation and coordination. However, negotiations leading to the final UN outcome document deleted mention of establishing a Global Economic Council under the UN.
The way forward
One of the most hotly contested issues in the run-up to the UN conference this week was whether the conference would have ongoing follow-up mechanisms. The last section of the outcome document spells out institutional follow-up mechanisms. These include calls for establishing an "ad hoc working group of the General Assembly to follow up on the issues contained in the outcome document" and an "ad hoc panel of experts on the world economic and financial crisis ... (which) could provide independent technical expertise and analysis, which would contribute to informing international action, political decision/making and fostering constructive dialogue." The latter is one of the recommendations of the Stiglitz Commission of experts, itself a forerunner of the proposed new panel.
The bruising negotiations that led to the final compromise text show both the importance of the United Nations as a forum which includes all governments, and the difficulties of achieving a strong consensus. Achieving action on the points contained in the outcome document will require mobilisation by civil society groups and Southern governments, highlighting what has been agreed and pushing for mechanisms and timetables for implementation. Although there are few very specific commitments, there are openings to push forward a number of far reaching reforms to the global economic and financial system.
