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BRETTON WOODS INSTITUTIONS TO ADDRESS FINANCIAL CRISIS

Posted by benjamin-nicolau en octubre 31, 2008

BRETTON WOODS INSTITUTIONS TO ADDRESS FINANCIAL CRISIS, SAYS NOBEL LAUREATE

 

General Assembly President Says Global Solution

Must Involve ‘G-192’, Not Quick-Fix Half-Measures Agreed ‘Behind Closed Doors’

 

The United States Government and the Bretton Woods institutions had failed to adequately address the international financial crisis, and the United Nations must intervene as the one institution that was inclusive and had political legitimacy, Joseph Stiglitz, former Chief Economist of the World Bank, said today during an interactive panel discussion on the global financial crisis.

 

Mr. Stiglitz, a Nobel Laureate and Professor at Columbia University, said that, while the crisis bore a “Made in the United States” label, it was in fact worldwide and required a global response that must be consistent with justice and social solidarity for all countries, reflect an understanding of the necessary balance between Government and markets, and respect the principles of democratic due process, including full transparency.

 

“We are now at another Bretton Woods moment”, he said, noting that the Bretton Woods institutions had been founded principally to maintain global economic stability and employment, not to push capital and financial market liberalization or promote contractionary fiscal policy in the midst of a depression or a recession.  Liberalization had led to advanced growth, but also increased instability, and the global financial system had often worked to the disadvantage of developing countries.  Emerging market countries had little if any representation in decision-making, and reform of the governance structure of the International Monetary Fund (IMF) had been insufficient.  The current crisis also threatened to exacerbate poverty in developing nations, and the IMF had failed so far to propose adequate regulatory reform measures to avert the danger.

 

That situation must change, he said.  Creation of an external shock facility was a good idea, as was creating a multilateral reserve system with greater stability.  There must also be more global cooperation in setting macroeconomic policies, and the creation of a global financial regulatory commission should be studied urgently.  The global response must also be based on rebuilding trust in the financial markets, which must serve society at large, not just a wealthy few.  “The financial markets did not do what they were supposed to do, which was to manage risks and allocate capital”, he said.  “We’re not going to restore confidence to the markets and the global economy until we re-earn that trust.”

 

Financial markets were not an end in themselves.  What was good for them was not necessarily good of the economy, he said.  The belief that the wealth earned on markets would “trickle down” to everyone was not true.  On the contrary, the United States bailout had helped banks, but had done very little for homeowners losing their homes and workers losing their jobs.  The United States response violated basic democratic principles of good governance and transparency, as well as the “polluter-pay” principle of cleaning up one’s own mess.  The United Kingdom’s response had been the right one.

 

General Assembly President Miguel d’Escoto Brockmann agreed with that assessment, saying it was unreasonable to recommend that a little tinkering would restore prosperity or confidence.  While States must pick up the pieces, it would be folly to put the global financial system back together as it had been.  The international community had the responsibility and the opportunity to identify longer-term measures beyond protecting banks, stabilizing credit markets and reassuring big investors.  It was time to take advantage of the unique forum provided by the United Nations to build agreement on the new financial architecture that was needed.  The stakes were too high for half-measures and quick fixes put together behind closed doors.  Long-term solutions must include the “G-192”.

 

Noting that many recommendations had been heard in recent months, he said solutions must involve all countries in a democratic process that must address the needs of the billions of people without enough to eat, much less retirement savings to worry about.  Member States had solemnly promised to meet their commitments to financing for development, and, throughout the crisis, they must ensure that those promises were kept.

 

Solutions were not to be found in poorly conceived regulations that would be discarded at the first sign of renewed “exuberance”, he emphasized.  “Our deliberations must be calm and thoughtful.  But let us be guided by a passion for justice and fairness and inclusiveness.  By including new voices, we can begin to restore that all-important sense of trust -– in each other, in our Governments, the United Nations and other international institutions.”

 

Calestous Juma, Professor of the Practice of International Development at the Belfer Centre for Science and International Affairs of the Harvard Kennedy School, said the United Nations should play a key role in fostering the creation of a new financial diplomacy regime that would bring together the global community to identify and share best practices in managing the relationships linking finance, innovation and development.  It could bring to New York experts from finance ministries to connect with the diplomatic community and engage with central banks, something that historically had not been done.

 

Sakiko Fukuda-Parr, Professor of International Affairs at The New School, said it was important to learn from the responses to the economic crises of the 1980s, 1990s and 2000, in which orthodox stabilization policies had been applied without safeguards to protect the poor and vulnerable.  It was important not to cut budgets for aid, social safety nets and strategies to fight global warming.  There was also a need to rethink restrictive expenditure and inflation policies, to incorporate pro-poor recovery measures that offset unequal burdens for women.

 

Prabhat Patnaik, Professor at the Centre for Economic Studies and Planning at India’s Jawaharlal Nehru University, said the problem was that the real lives of millions of people were determined by the whims of “a bunch of speculators” under the free market system who were interested not in the long-term yield on assets, but only in the short-term appreciation in asset values.  Governments in advanced countries had still not recognized the onset of a market crash, proceeding instead on the assumption that the injection of liquidity into the system was all that was needed.  But the injection of liquidity was inadequate in a situation where a recession had already started.  Credit would not start flowing simply because banks could access more liquidity.  There must be adequate demand, by solvent and worthwhile borrowers, for credit to launch viable projects, and that was not happening.

 

Pedro Páez Pérez, Minister for Economic Policy Coordination of Ecuador and President of the Ecuadorian Presidential Commission for the New Regional Financial Architecture–Banco del Sur, said that, given the speed and depth with which the crisis was unfolding, a regional “Monterrey agreement” among South American countries was urgently needed to act as a common framework in which the exchange rates of participating countries would be monitored, assessed and, if possible, agreed at the subregional level, according to the principle of mutual concern for exchange-rate credibility and stability.  The coordination of relatively flexible regional-bloc agreements was the most plausible way to achieve a rapid outcome, and their success could generate the political momentum for further institutional agreements that would open the horizon for a holistic and stable new global financial architecture.

 

François Houtart, Professor Emeritus at Belgium’s Catholic University of Louvain and founder of the Tricontinental Centre, said the world needed alternative choices and not just regulation.  It was not enough to rearrange the system; the system must be transformed.  It was a moral duty, and in order to understand that one must adopt the viewpoint of victims.  When 850 million people lived below the poverty threshold, and the climate got increasingly worse, it was not possible to talk only about the financial crisis.  All the systemic breakdowns had led to a real crisis of society.  There was a need for a long-term vision based on a renewable, rational use of natural resources, which pre-implied a different approach to nature.  That meant respect for the source of life, rather than the unlimited exploitation of raw materials.

 

The panel discussion was moderated by Paul Oquist, Senior Adviser to the General Assembly President.

 

Also speaking during the discussion were the representatives of Qatar, France (on behalf of the European Union), Antigua and Barbuda (on behalf of the “Group of 77” developing countries and China), Mexico (on behalf of the Rio Group), Spain, Philippines, United States, Venezuela, China, Chile, United Kingdom, India, Jamaica, Japan, Argentina, Egypt, Brazil, Nicaragua, Portugal, Morocco, Indonesia, Bolivia, Singapore, Honduras, Republic of Korea, Ecuador, Belarus, Canada, Kenya and Germany.

 

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