GA/EF/3116
14 October 2005
Panel Calls for Overhaul of International Financial Infrastructure, Better Debt Restructuring in Presentation before Second Committee
Committee Also Concludes Discussion on Follow-up to Outcome of International Conference on Financing for Development
NEW YORK, 13 October (UN Headquarters) -- The current international financial infrastructure required an overhaul to avert future financial crises, improve the debt-restructuring process, and protect developing countries from external shocks, a panel told the Second Committee (Economic and Financial) during a special presentation today.
Emphasizing the need to reform international financial institutions, Jo Marie Griesgraber, Chair of the New Rules for Global Finance Coalition, said the International Monetary Fund (IMF) lacked legitimacy because its allocation of seats and votes was reminiscent of 1945 and had no respect for population, size of economy or the needs of those coming to the table. The Coalition recommended that the IMF Board reallocate seats in such a manner as to compensate for the inequality in seats and votes. Other bodies within the international financial system were private entities that operated in secret, setting standards for various industries that developing countries had to follow. Such bodies must become more inclusive and representative.
Introducing the presentation on "Systemic issues: enhancing the coherence and consistency of the international monetary, financial and trading systems in support of development", Ms. Griesgraber said the Coalition had organized five multistakeholder consultations in the United States, Peru, Kenya and India from November 2004 to September 2005. In its report on the same topic, the Coalition, comprising academics and other experts, had drawn up 18 policy recommendations directed at the United Nations and other bodies of vital importance to international economic development, including the IMF and other financial regulating bodies.
One recommendation was to reduce lending in developed-world currencies in order to help developing countries avoid risks associated with "dollar debt". Speaking on that issue, panellist Randall Dodd, Director of the Financial Policy Forum, recommended lending in local currencies to avoid exposure to foreign currencies, a major factor leading to financial crises. That could be done by offering investors a diversified portfolio of developing-country currencies with a good rate of return.
Addressing a related issue, Frank Schroeder, Senior Economist at the Friedrich Ebert Foundation, said current debt-restructuring was inefficient and frequently marked by delays due to the unwieldy decision-making processes of the existing international institutions. That sometimes sparked crisis. A non-statutory approach to crisis prevention was recommended, whereby experts would facilitate dialogue between Governments and private creditors. Such dialogue would also serve as a forum for developing countries to explain their financing policies to creditors, in order better to promote alignment.
The report also discussed a commodity-risk price-management scheme to help developing countries deal with the volatile commodities market, and the creation of national development banks as sources of long-term financing for rural areas or small and medium-sized enterprises.
Moderating the discussion, Oscar de Rojas, Director of the Financing for Development Office in the United Nations Department of Economic and Social Affairs, said that the multistakeholder consultations organized by the Coalition had been part of a series facilitated by that Office in an effort to include more private sector members and non-governmental groups.
During the ensuing discussion, the representative of Barbados raised the issue of international tax cooperation, saying that the report failed to acknowledge the work of Caribbean and Commonwealth countries in strengthening regulatory regimes for off-shore financial services. Measures initiated by Organisation for Economic Cooperation and Development (OECD) countries to curb tax havens were disturbing and detrimental to the participation of Barbados in that industry.
In response, Ms. Griesgraber said the Coalition did not normally deal with international taxation issues, but agreed that the establishment of tax rules exclusively by OECD countries was not democratic.
The representative of the United States said the Coalition's report lacked balance, to which Ms. Griesgraber responded by saying that the Executive Directors of the IMF and World Bank had been invited to participate in the consultations.
Following the presentation, the Committee concluded its general discussion on the follow-up to and implementation of the outcome of the International Conference on Financing for Development. Speakers stressed the need to increase financial resources in order to accelerate growth in developing countries.
Cuba's delegate said that poor countries were still sending net capital flows towards rich nations, noting that those resources exceeded $436 billion in debt-servicing payments and $100 billion in tariffs for developing-country goods entering developed markets. Moreover, subsidies for agricultural goods in developed countries amounted to $300 billion, while official development assistance (ODA) was barely 0.25 per cent of gross domestic product (GDP) in developed countries.
Participants also underscored the need for transparency and accountability in monitoring ODA commitments, policy space in developing countries, innovative financing and good governance, without which aid was unlikely to be effective. Australia's representative said aid should be accompanied by efforts to strengthen governance, promote institutional reform, and combat corruption in creating an environment for private-sector development and poverty reduction.
In other business today, Jamaica's representative, on behalf of the "Group of 77" developing countries and China, introduced two draft resolutions relating respectively to the international financial system and development, and the external debt crisis and development.
Also speaking at the conclusion of the debate were the representatives of Congo, Lao People's Democratic Republic, Indonesia, Mexico, Norway, United States, Republic of Moldova (on behalf of the GUAM countries -- Azerbaijan, Georgia, Moldova, Ukraine), Cape Verde, Libya, Iraq and Mali.
The Second Committee will meet again at 3 p.m. on Wednesday, 19 October, to consider programme planning, as well as information and communication technologies for development.
Background
The Second Committee (Economic and Financial) met today to conclude its discussion on follow-up to and implementation of the outcome of the International Conference on Financing for Development. (For background information, see Press Release GA/EF/3115 of 12 October.) It was also expected to hear the introductions of two draft resolutions in the area of macroeconomic policy questions.
In addition, the Committee was to attend a presentation by the New Rules for Global Finance Coalition on the outcome of multi-stakeholder consultations on "Systemic issues: enhancing the coherence and consistency of the international monetary, financial and trading systems in support of development".
Introduction of Draft Resolutions
DIERDRE MILLS (Jamaica), speaking on behalf of the "Group of 77" developing countries and China, introduced draft resolutions on the international financial system and development (document A/C.2/60/L.2), and on the external debt crisis and development (document A/C.2/60/L.3). Both texts were meant to build on the progress made in those fields since the start of 2005, and culminating in the World Summit Outcome Document that the General Assembly adopted last month.
The Committee then turned to its discussion on the follow-up to and implementation of the outcome of the International Conference on Financing for Development.
Statements
LUIS ALBERTO AMOROS (Cuba), aligning himself with the Group of 77 and China, said it was not possible to talk about development without addressing the issue of financial resources needed to accelerate growth. Figures showed that poor countries continued to be net issuers of capital flows towards rich countries, which amounted to over $436 billion of debt-servicing payments and $100 billion in tariffs for developing-country goods entering developed markets. That contrasted with the subsidies for agricultural products of rich countries, which amounted to $300 billion. Official development assistance (ODA), meanwhile, was barely 0.25 per cent of the gross domestic product of developed countries.
Transparency and accountability were needed to oversee the implementation of ODA commitments by developed countries, he said. In addition, poor countries required a policy space where their social and economic priorities could be developed. Innovative sources of financing, including initiatives such as the International Monetary Fund (IMF) special drawing rights, the tax on financial speculation and the tax on carbon emissions, should also be considered. Bad practices, such as erecting barriers to trade, the placing of conditionality on assistance and unilateral coercive economic measures such as those imposed by the United States on Cuba, should be halted.
MAURICE MALANDA (Congo) said the international community must continue to seek support for the commitments set out in the Monterrey Consensus in efforts to achieve the Millennium Development Goals. It was important to achieve significant results before the first follow-up conference to Monterrey, to be held in Qatar in 2007. States must focus on the future, encouraging all initiatives that had been taken or announced in relation to ODA.
He noted that the Monterrey Consensus called for countries to take more control of development by making better use of their resources. The Government of the Congo had drafted a poverty-reduction strategy paper, which laid out several actions aligned with the Millennium Goals in such areas as youth employment, HIV/AIDS and other pandemics, and women and girls. Regarding the particular development needs of Africa, the Congo reaffirmed its commitment to implement Agenda 21 and the Johannesburg Plan of Implementation, which was an example of a truly global partnership.
ALOUNKEO KITTIKHOUN (Lao People's Democratic Republic), aligning himself with the Group of 77 and China, said that efforts undertaken by landlocked developing countries remained far from satisfactory due to a lack of economic growth. High transport and transit costs, narrow resource bases and small domestic markets discouraged foreign direct investment (FDI) and those countries also paid high prices for imports. Against that backdrop, landlocked developing countries needed an increase in ODA and FDI flows. In addition, aid must be untied and ODA made to support national development priorities.
He said that landlocked developing countries were undisputedly among the poorest and most marginalized in the world, facing greater impediments to trade than their coastal neighbours and median coastal countries. Indeed, the trade volumes of landlocked developing countries were 60 per cent lower than those of the latter. Trade could serve as an engine for sustained growth and development, hence the need for an equitable conclusion to the Doha Development Round. In the same vein, attention must be drawn to negotiations for greater market access for products of special interest to landlocked countries as described in the Almaty Programme of Action. An empowered and effective Economic and Social Council was important as a vehicle for coordinating policies in that area.
PRAYONO ATIYANTO (Indonesia), aligning himself with the Group of 77 and China, said that development without financing was hopeless, and that repeated discussions of that topic indicated that those discussions were still far off the mark. The Asia-Pacific region contained 1 billion of the world's poor and decisive action was needed to achieve development and eradicate poverty. To mobilize domestic and international financial resources for development, it was important to foster greater coherence between the multilateral development agencies and the multilateral financial and trading systems to ensure the availability of resources.
He said that while the responsibility for development lay with developing countries, domestic efforts must be complemented by a supportive international framework. The decline in ODA should be reversed and efforts to enhance developing countries' ability to manage aid enhanced through capacity-building exercises. It was also necessary to conclude the Doha Round of multilateral trade negotiations so that increased market access could be granted to products from developing countries and subsidies for agricultural products reduced. Member States must stay engaged at the national, regional and international levels to ensure the follow-up to implementation of the Monterrey commitments.
CARLOS RUIZ MASSIEU (Mexico) said the international community must comply with each and every one of the commitments set out in the Monterrey Consensus. It was fundamental to continue progress at the national and international levels in mobilizing resources for development. The Consensus was an indispensable tool in meeting the commitments of other global conferences, and in ensuring development, especially through its establishment of the Global Partnership for Development.
The global community must continue to analyse measures within the Consensus to observe the progress being made, and to make decisions about new measures that were needed to spur development, he said. Those could include measures to maximize private-sector contributions to developments, and to ensure the role of civil society in following up the Monterrey Conference.
REBEKAH GRINDLAY (Australia) said that impressive rates of economic growth and poverty reduction in East Asia and in countries like China, India and Viet Nam showed that significant progress could be made. They also demonstrated the enormous benefits of putting in place sound economic policies and pro-growth reforms, while removing barriers to trade and investment. It was also important, however, to focus on areas that had failed to show high levels of economic growth. Recent statistics from the United Nations Development Programme (UNDP) had shown that the Pacific was off track in achieving almost every Millennium Goal, and was even falling back in some areas.
Aid had a key role to play in poverty reduction, she stressed, adding that it should be accompanied by an effort to strengthen governance, promote institutional reform, and combat corruption in recipient countries. Without good governance, aid was unlikely to be effective. Macroeconomic stability, the rule of law and anti-corruption efforts were needed to create an environment for private-sector development and poverty reduction. An enabling environment allowed the poor to participate in the economy, reducing poverty and improving livelihoods.
She said trade was also a key driver of sustained global development, urging both developed and developing countries to accord the highest priority to completing the World Trade Organization (WTO) Doha Round of trade negotiations by 2006. Of particular importance was agriculture, the most distorted area of world trade. Lowering barriers to market access, reducing domestic support and eliminating export subsidies would help boost agricultural exports in many developing countries.
MONA JUUL (Norway) said the United Nations had an important role to play in monitoring and reporting progress by developed and developing countries in complying with international commitments, including increasing aid budgets and raising ODA towards the target of 0.7 per cent of gross national income. Also, debt-relief proposals should seek an immediate reduction of debt burden. Norway supported the Group of 8 debt cancellation initiative and advocated debt reduction for middle-income countries with obvious repayment problems. The Evian Approach of the Paris Club was laudable for giving non-members of the Heavily Indebted Poor Countries (HIPC) Debt Initiative debt relief and debt swaps for development projects, initiatives that Norway supported.
She said the framework for debt sustainability in low-income countries put forward by the World Bank and the IMF was a useful starting point to secure prudent lending and borrowing. The lending architecture should be supplemented by improved debt management systems for the poorest countries and a search for new money undertaken. It was also necessary to harmonize aid with national policies, and, in that regard, Norway stood by the concept of untied resources. Member States had a joint responsibility to improve coherence among intergovernmental organizations, and the United Nations, the Bretton Woods institutions and the WTO were strongly urged to heed the Monterrey Consensus.
SICHAN SIV (United States) said that domestic resource mobilization deserved as much attention as multilateral issues like aid, trade, and debt in any discussion of development. The report by the United Nations Commission on the Private Sector and Development estimated that developing countries had $9.4 trillion dollars in private financial assets that could not be fully mobilized for development due to corruption and inadequate legal protection for property and contracts. Because domestic investment far exceeded foreign investment, there were tremendous potential gains to be realized by implementing policies that made full use of domestic resources.
He said the Millennium Challenge Corporation, a presidential initiative set up last year, represented his country's commitment to the Monterrey Consensus and to assist poor countries in governing justly, investing in their people and encouraging economic freedom. Some 17 eligible countries had been selected, and they were all developing proposals for Millennium Challenge Account assistance. The corporation had committed over $900 million in compacts with Madagascar, Honduras, Cape Verde, Nicaragua and Georgia so far, and would be selecting additional countries in November. It not only increased aid, but made it more effective by working with countries that were adopting policies, and developing and implementing programmes, that focused on results.
VSEVOLOD GRIGORE (Republic of Moldova), speaking on behalf of the Group of GUAM States (Azerbaijan, Georgia, Moldova and Ukraine), noted that those countries had adopted sound national macroeconomic policies promoting economic growth and supportive investment climates. That had led to significant progress in recent years, both in economic terms and in efforts to meet the Millennium Goals. Further efforts were under way to promote financial stability, as well as structural policies to encourage private-sector development. Foreign direct investment and other private flows were vital for growth in transition economies. The GUAM States were committed to further improvement of their business environments, as well as to legislative and regulatory frameworks to open up new investment opportunities.
The stability of the international financial system was vital to achieving sustained and broadly shared development, he said. Efficiency in resource allocation was also essential, due to its impact on patterns of financial flows to and from developing and transition countries. It was a cause of concern that there was a net increase of net financial flows from those nations, and that multilateral financial institutions were no longer providers of net financial resources to developing countries, but were currently net recipients. Effective measures were needed to reverse that trend and address high volatility in financial flows, which continued to be a major cause of financial instability.
JOSÉ MARIA SILVA (Cape Verde), aligning himself with the Group of 77 and China, said developing countries were doing their best to fulfil their commitments but would fall short of the desired development goals unless commitments were delivered at the international level. In so doing, particular attention should be given to the least developed countries and small island developing States. Cape Verde practised good governance, transparency in public affairs, accountability and prudent macroeconomic policies. It also promoted private-sector activities and the rule of law, yet those elements, which were considered critical to attracting FDI, had not resulted in much investment in the country.
He said his country was pleased with the outcome of the Paris Meeting on Aid Effectiveness and welcomed the Group of 8 decision to cancel the debt of heavily indebted poor countries. The cancellation should apply also to non-HIPC countries, especially those that had prudently reduced and managed their debt. The political commitments generated at international conferences should be fulfilled and it was regrettable that too many commitments had not been implemented. It was to be hoped that an understanding among Member States could be reached at the WTO ministerial meeting on outstanding issues.
MEHDI MEJBRE (Libya) said the Millennium Goals should be part of a more general programme of development that considered the needs of developing countries. They would never be realized fully unless the international community took steps to deal with longer-term processes, such as globalization and the interconnectedness of development and conflict. International conferences in the 1990s had set up a framework for development, and mobilizing financial resources, as well as using them effectively, was basic to supporting the attainment of the Millennium Goals.
Despite recently increased ODA levels, developing countries still lacked the necessary resources to meet agreed development objectives, he said. Developed nations should make every effort to reach the agreed ODA levels, and all countries should pursue initiatives to seek new resources for development, as well as to improve the quality and effectiveness of ODA. In addition, the international community should support programmes to promote free education and health services for all, as well as a final solution to the debt problem. It should also assist African countries that relied on basic commodities to access markets, increase their agricultural productivity and deal with price volatility.
MUHSIN ABDUL MAJID (Iraq), aligning himself with the Group of 77 and China, said that more efforts were required to build on the outcome of the Monterrey Consensus in order to meet development objectives. Developing countries had responsibility for their own development and many of them had developed detailed development policies. However, developed countries should offer more ODA and increase the flows of private capital to developing countries to assist their development efforts.
He said debt was an overarching problem facing low- and middle-income countries, where precious funds were diverted away from development projects and towards debt servicing. The international trade sector was a major source of financing for development and Iraq looked forward to participating in the WTO ministerial meeting to address that issue.
Iraq was currently undergoing economic difficulties resulting from the malformed policies of the former regime, and the infrastructure needed to be rebuilt, he said. Towards that end, the country looked forward to international support in rebuilding its economy. Iraq was rich in human and natural resources, including oil, and, thus, formed a good foundation for any reconstruction effort.
N'GOLO FOMBA (Mali) noted that developing countries had made significant efforts to mobilize domestic resources, fight corruption and improve governance, while developed nations had increased their ODA levels. The increase in aid should be complemented by relief from multilateral and bilateral debt for all developing countries, many of which were still far from achieving the Millennium Goals and facing considerable obstacles. More than half of Mali's population lived on less than $1 a day.
Commenting on the tremendous loss of exports afflicting poor countries due to developed-country subsidies, he said, Mali had promoted its cotton sector, but those protectionist measures had led to a continual fall in prices on the global market. Mali also suffered from low FDI levels, despite its efforts to improve the legal environment and lower taxes and fees for business. Developing countries also needed greater participation in economic decision-making at the international level, especially in the Bretton Woods institutions, which played a key role in development financing.
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