Ensuring Development in the face of the financial crisis
Published on Tue, 2009-05-05 14:06
The following position paper was endorsed by Euro step, Social Watch, the Arab NGO Network for Development, Asociación Latinoamericana de Organizaciones de Promoción (ALOP), South Asia Alliance for Poverty Erradication (SAAPE) and Least Developed Countries (LDC) Watch. The world is in turmoil. Multiple crises, above all the global financial and economic crisis, are pushing millions of people in developing countries, especially women and children, into poverty. The financial crisis is a systemic crisis, which originated in the advanced developed economies. It emerged in the context of the global crises, i.e. the crises of food, climate and social development. Loose monetary policy and inadequate regulation in combination with insufficient supervision and transparency created financial instability. The efficient use of financial means is essential for the achievement of the international development goals, including the Millennium Development Goals (MDGs). Financial stability is meant to be a global public good and the good functioning of the financial system is a precondition for development.
The global crises need global solutions. Global solutions can only be found in a truly inclusive process towards the transformation of the international financial and monetary architecture, in which all countries around the globe are able to participate. A new regulatory framework, based on the principles of equity, justice and sustainability must be developed and negotiated in a fully inclusive way. Therefore the United Nations is the only existing legitimate forum through which the financial crisis can be resolved. The UN can allow for strong democratic representation and involvement of all developing countries in achieving an effective transformation.
In the longer perspective a fundamental redesign of the overall structures of global governance and regulation is needed. It is not only the international financial system that has failed, but also the prevalent development model. The global crises graphically demonstrate these failures, as they impact on millions of people in all parts of the world, particularly those living in poverty. They also provide an opportunity to introduce profound changes to the deficient current approaches. The recommendations presented by the Commission of Experts of the President of the UN General Assembly on reforms of the international monetary and financial system – also known as Stiglitz Commission - provide a good basis on which new models can be built. They give comprehensive guidance towards a new way of organising a new world financial system.
One of the greatest current threats to achieving the MDGs comes from the crisis and global financial volatility, and the resulting severe economic recession. The impacts of the global financial crisis on developing countries are particularly severe. Many of them are struggling to address the effects of climate change and food shortages, as reduction in global food prices has not manifested for consumers in developing countries. Reduced inflows from exports, Foreign Direct Investments and particularly remittances impose serious difficulties on their social and economic situation. People living in poverty, especially women and children are being hit hardest. In this context any decrease in aid will push more people into poverty, in particular in the most vulnerable Least Developed countries. The cutbacks of aid by some EU member states are already signs that this is happening. It is imperative, therefore, that the fundamental reform of the international financial system must take place in reference to the needs of developing countries.
The world’s richest Nations agreed a financial stimulus package amounting worth 832 billion Euro (1.1 trillion US dollars) yet barely one quarter will be given to developing countries. And the money destined for developing countries will be channelled through the IMF. Its conditionalities imposed on developing countries have been central in spreading misery around the developing world. Recent changes in IMFs policies have not resolved this problem. Developing countries need the ability to manage their financial markets and systems – in particular the ability to apply counter-cyclical policies to prevent their economies from further crisis shocks and enables sustainable economic growth.
The G20 is primarily composed of the countries that created the framework that allowed and generated the crisis. It is a self selecting group that re-enforces the domination of the powerful, with little transparency in their way of working and decision-making. It has no democratic legitimacy to define the global framework, which can only be achieved through a fully inclusive and democratic process. It is hard to reconcile their self-appointed role with the commitments of the Paris declaration and the concept of ownership, which lies at the bottom of effective sustainable social development and economic growth.
The limits of the market have become evident in the unfolding of the global financial and economic crisis and it needs to be acknowledged that the balance of the role of the market and the role of the state requires redefinition. It was a failure to rely on self-correcting abilities of the market. An effective financial system needs effective oversight, transparency, and a strong regulatory framework. A new system should put an end to shadow banking, secrecy jurisdictions and offshore financial centres that were at the heart of the current financial crisis.
As a global player the EU is playing an active role in seeking to address the failures of the current system. In its claimed role as lead advocate for promoting sustainable development and the fight against poverty in all parts of the world it has a responsibility to ensure that the outcome of any change to the global financial systems fully encompasses its development commitments, and the principles on which they are founded.
The EU must actively engage in the preparations towards the UN Conference at the highest level on the world financial and economic crisis and its impact on development and ensure that the agenda comprehensively addresses the causes as well as the impact of the failure of the global financial system. In particular the EU should ensure the following:
Overcome the debt burden
Mobilisation of new resources for development
International trade
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