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Problems  Crisis

The way forward International Responses to the Crisis Jomo Kwame Sundaram UN Assistant Secretary-General for Economic Development Inter-Parliamentary Union 19 November 2009. Problems  Crisis. International financial architecture: non-system

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Problems  Crisis

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  1. The way forwardInternational Responses to the CrisisJomo Kwame SundaramUN Assistant Secretary-General for Economic DevelopmentInter-Parliamentary Union19 November 2009

  2. Problems  Crisis • International financial architecture: non-system • Policy responses: inadequate; double standards • Inadequate and inappropriate regulation • International cooperation: G7G20, UN

  3. Financial deepening  fragility 964％ of World GDP 78％ of Total 138％ of World GDP 11％ of Total 122％ of World GDP 10％ of Total 9％ of World GDP 1％ of Total Derivatives Securitized Debt Broad Money Power Money 3

  4. Financial globalization Net capital flows from South to North (US largest borrower) Cost of funds not generally lower due to financial deepening (more intermediation, financial rents) Higher volatility, higher instability Lower growth

  5. Net transfer of financial resources from South to North

  6. Short-term capital inflows problematic No real contribution to investment, growth rates Asset (shares, real estate) price + related (e.g. construction) bubbles instead Cheaper finance for consumption binges Over-investment excess capacity All exacerbate instability, pro-cyclicality

  7. Globalization: Parallel fates

  8. Aid flows unreliable

  9. ODA for Africa vs G20 recovery efforts

  10. Net aid transfers? • Net ODA is net of principal payments, but not of interest received on such loans • Net Aid Transfers (NAT) are net ofboth • Japan recently received >$2bn/year in interest on ODA loans • NAT excludes cancellation of old non-ODA loans, e.g. a 2003 Paris Club deal cancelled some $5bn in non-ODA official debt owed • That cancellation is ODA, but generated little additional net transfers, i.e. NAT • Hence, e.g. DRC received $5.4bn in ODA in 2003, but only $400m. in NAT

  11. Protection • Trade • Finance • Migration

  12. Recovery constraints • Reduced external finance -- less K flows (including FDI) -- less, costlier credit -- higher debt burden -- less aid -- less remittances • Fiscal constraints -- less revenue -- less fiscal space -- IMF fiscal discipline conditionality • Stimulus delay  greater lag • Earlier over-invt  slower investment recovery • Output recovery/job recovery lag

  13. Global recovery with coordinated vs uncoordinated stimuli, 2010-15

  14. Stimulus lags delay recovery

  15. Output, jobs recovery lags, 1991, 2001

  16. International responses UN, BIS forecasts more accurate than others; IMF, WB upbeat till late 2008 IMF, WB also marginalized by G7, etc IMF discouraging strong fiscal stimulus by developing countries without surplus G7  G20: more inclusive? legitimate? crisis-management, but neither developmental nor equitable UN PGA (Stiglitz) Commission of Experts June 09 summit on crisis + impact on developing countries

  17. New Bretton Woods moment? Bretton Woods, 1944: United Nations conference on monetary and financial affairs 15 years after 1929 Depression Middle of WW2 FDR initiative vs Churchill bilateral preference 44 countries (28 developing countries; 19 LA) UN system: IMF, IBRD, ITO Clear emphasis on sustaining growth, job creation, post-war reconstruction, post- colonial development, not just financial stability

  18. Systemic reform agenda Ensure macro-financial stability with counter- cyclicalmacroeconomic policies +prudential risk management, including capital controls Finance growth (output, employment) with developmentalfinancial system Ensure inclusivefinancial system -- NEW Monterrey policy coherence: Align IMF, WB with UN development agenda, IADGs UN: universal, legitimateleadcomprehensive reform process?

  19. G20 London Summit Commitments 24

  20. G20 Pittsburgh commitments • G20 takeover (G7)? • BWI governance shifts • Executive remuneration debate • Financial regulation reform? • Capital requirements • Surveillance

  21. Stiglitz Commission:New institutions Global Economic Coordination Council democratically representative G-20/L27 include UN system chief executives and Heads of Government coordinate international adjustment of imbalances International Expert Panel (model: IPCC) New Financing Facility New International Reserve Currency

  22. Other Proposed Institutions • International Debt Restructuring Tribunal • Independent of IMF (unlike DRM proposal) • Replace World Bank’s ICSID • Foreign Debt Commission • Intergovernmental Commission on Tax Cooperation (for resource mobilization) • Multilateral Regulations • International Tax Compact • Global Financial Authority • New Policy Surveillance Mechanism • Independent of IMF • Support national capital account management

  23. Thank you Please visit UN-DESA www.un.organd G24 www.g24.orgwebsites Research papers Policy briefs Other documents Acknowledgements: UN-DESA, ILO 28

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