United Nations: Developing countries have joined UN officials in calling for more money and a greater role in regulating the world economy in the wake of the worst global financial crisis since the Great Depression, which has taken a disproportionate toll on poor nations.
At Wednesday’s opening of a three-day UN financial summit, country after country laid blame for the crisis on financial liberalization and deregulation in the United States and other rich nations and said it was time to reform the world financial system under the auspices of the United Nations.
“The reforms based on the belief in the efficiency of the market and the diminution of government did not work,” said Bangladesh’s Foreign Minister Dipu Moni, speaking on behalf of the world’s poorest nations. “Reforms are needed to enhance productivity and capacity to cope with risks.”
Nobel Economics Laureate Joseph Stiglitz, who headed a Commission of Experts on Financial and Monetary Reform that developed recommendations for the conference, said that “as globalization has proceeded we haven’t created global financial institutions.”
He called for the creation of a Global Economic Coordination Council to deal with the fallout wrought by the crisis that began in 2008, although the council is not mentioned in the 15-page draft final document agreed upon by rich and poor nations prior to the conference.
Instead, the draft calls for the International Monetary Fund, the World Bank and other lending institutions to be flexible in imposing conditions on developing countries so they can take action to deal with the economic crisis, including adopting stimulus packages. The draft also calls for measures to avoid a new debt crisis and new approaches to restructuring debt.
“It needs to be an inclusive process of decision. Not the G-8, not the G-20, but the G-192,” Stiglitz said referring to the Group of Eight major industrialized nations, the Group of 20 key economic powers, and the UN’s 192 member nations.
He also argued that funds used to aid developing nations must come in the form of grants, rather than loans, “because we don’t want to end up with another debt crisis further along.”
The draft document calls for donors and financial institutions to consider “grants and concessional loans as the preferred modalities of their financial support instruments to ensure debt sustainability.”
The Group of 20 key countries that account for over 80 percent of the global economy agreed at a summit in April on a substantial package of financial support totaling $1.1 trillion, with US$50 billion targeted for low income countries.
Neither the US or the European Union directly addressed the idea of a global economic council or increased regulation on Wednesday. But the draft document says the “current crisis has revealed many deficiencies in national and international financial regulation and supervision.”
US Ambassador Susan Rice told the summit “the UN is a unique forum where all voices, small and large countries alike, can be heard.”
“We also believe that we should use every instrument at our disposal to tackle different dimensions of the crisis,” she said
“We are working through the G-20, for example, to coordinate policy and build consensus as part of an overall strategy for addressing the worst economic and financial crisis the world has seen in decades. We have done so with participants from developed and emerging economies, from all regions, and already have seen considerable success,” she said.
Rice also said the US was “committed to substantially increasing our own official development assistance” despite the “challenging times.”
Chinese officials seemed especially concerned about the financial situation in the US, where it holds over 1 trillion dollars in debt and called for wide ranging reforms
“Countries across the world have suffered heavy losses from the ongoing global financial crisis and economic recession. One important consensus we have reached upon reflection is that it is important to keep the exchange rates of major reserve currencies relatively stable and promote a diversified and rational international monetary system,” China’s Foreign Minister Yang Jiechi said.
“This will enable developing countries to have more choices, better avert risks, and make more effective use of external funds for their development,” he said.
The crisis has also taken a terrible toll in the developing world in human terms.
World Bank Managing Director Ngozi Okonjo-Iweala said growth forecasts for developing countries in 2009 stood at only 1.2 percent compared to 7.7 percent in 2007. And she said current projections indicate that 84 of 109 developing countries would face financing gaps that in most cases couldn’t be covered by tapping reserves.
She said if the crisis continues this could mean an additional 200,000 infants dying each year between now and 2015 from malnutrition and other diseases.
“This was not a crisis caused by developing countries,” she said.
Okonjo-Iweala said the World Bank has increased lending and backed those calling for urgent efforts to “quench the burning fires of the financial crisis.”