Big agenda for economic action

By MARTIN KHOR

A UN conference last week laid the ground for taking action on the global economic crisis, particularly to assist crisis-hit developing countries and reform the financial system.

THE UN conference on the global financial crisis ended with an agreement to further consider translating many key issues into action.

This reflects the disappointing fact that the conference failed to take immediate concrete measures to help developing countries tackle the crisis, but that such actions are on the agenda of a new working group under the General Assembly to follow up on the issues it raised.

Many countries were represented by their Foreign or Finance Ministers, and a few by their Prime Minister or President. Malaysia’s delegation was headed by Finance Minister II Datuk Seri Ahmad Husni Mohamed Hanadziah.

Perhaps the conference’s most important achievement is to make the UN an important venue again for all countries to discuss global economic issues. There is the potential for it to become the premier forum, if the new working group is allowed by the big powers to do its work well.

From the time the conference was being planned, some major countries, most notably the US, tried to limit the scope of the discussion.

And even at the closing session last Friday, the US was placing points of concern about the final document that minutes earlier had been adopted by all countries, including itself.

The US said it did not interpret the document as endorsing a formal UN role in decisions affecting the Bretton Woods institutions (the International Monetary Fund and the World Bank). In the document, the countries agreed on several aspects of reforming these two institutions.

In the recent meeting in London, the Group of 20 (comprising mainly developed countries) agreed on many concrete actions concerning these organisations, such as boosting the resources of the IMF by US$500bil (RM1,800bil), and that their heads should be chosen by merit and not nationality.

As many conference participants remarked in the corridors and in panel discussions, if a small number of countries grouped in the G8 or G20 can agree on actions regarding the IMF and World Bank, it is unacceptable for leading members of these groups to prevent the UN, which is a universal and legitimate body, from similarly proposing actions concerning these institutions.

When the working group starts its work, one of the first issues it may have to settle is the legitimate and indeed the leading role of the UN in global economic affairs, and thus the right and indeed the duty of the group to discuss a wide range of actions that should be taken to address the global economic crisis.

One of these actions must be to provide funds to developing countries, since they face a massive shortfall in external financing of US$1 trillion (RM3.53trillion) to US$3 trillion (RM10.6trillion) in 2009 alone.

The conference could not agree on concrete measures to provide the substantial liquidity required by the developing countries. Many of them will soon run out of foreign exchange to pay for imports or service their foreign debts.

Developed countries have the means to borrow or create money to fund the bailout of their banks and companies, and the fiscal stimulus to counter the recession. But most developing countries lack the means.

The conference called for “examination of mechanisms to ensure that adequate resources are provided to developing countries”. The working group must carry out this examination and set up those mechanisms as soon as possible to mitigate the effects of the crisis.

The developing countries under the G77 and China had proposed that US$100bil (RM353.5bil) SDRs (special drawing rights) be allocated by the IMF to low-income countries at no cost to them. Another US$800bil (RM2,827bil) should be allocated to middle-income developing countries which can be returned after the crisis is over.

The conference did not endorse these SDR allocations, and thus missed the opportunity to provide the needed liquidity to cash-strapped developing countries.

This is a pity because the G20 had agreed on allocating US$250bil (RM884bil) of new SDRs, but since this will be allocated according to quota shares, the overwhelming share of that amount will go to the developed countries.

The developing countries’ proposal was that new SDR allocations be on the basis of need rather than quotas, and that the developing countries should be recipients.

Although this was not explicitly agreed to, the conference did recognise “the potential of expanded SDRs to help increase global liquidity” and that this should be further studied. Thus the working group should try to get concrete results on this issue.

Another issue that dominated the conference was the need for action to prevent another debt crisis in developing countries.

The G77 and China proposed a debt moratorium and a new international bankruptcy court so that countries facing debt payment difficulties could have a standstill in payments and a restructuring of their debts.

The conference did not endorse these proposals, but agreed half way to consider them. The document recognised there must be measures to “avoid a new debt crisis” and that enhanced approaches and frameworks for debt restructuring must be explored.

Another prominent issue at the conference was the need for “policy space” for developing countries. The document states that developing countries facing an acute and severe shortage of foreign reserves should not be denied the right to use legitimate trade defence measures and to impose temporary capital restrictions and seek to negotiate temporary debt standstills.

The conference also acknowledged the need to study a reform of the global reserves system, and to expand financial regulation and supervision with respect to all major financial centres, instruments and actors, including financial institutions, credit rating agencies, and hedge funds.

The approved document also details the reforms needed to the IMF and World Bank so that developing countries have fair and equitable representation. Proposals were also made to strengthen the UN’s role.

- THE STAR