H.E. Mr. Dian Triansyah Djani
Ambassador/Permanent Representative of Indonesia to the UN, WTO
and Other International Organizations in Geneva
President of the Trade and Development Board of UNCTAD
At the Special High-level Meeting of the ECOSOC
with the Bretton Woods Institutions, the WTO and the UNCTAD:
“Coherence, coordination and cooperation in the context of the
implementation of the Monterrey Consensus and the Doha Declaration on
Financing for Development”
New York, 27 April 2009
Mr. President of the General Assembly
Despite serious efforts by the governments of developed countries and developing countries to stabilize financial markets and stimulate their economies, the global economic outlook remains bleak. It is against this backdrop that the theme of this meeting, namely “coherence, coordination and cooperation in financing for development”, has gained additional urgency in the light of the financial turmoil of the past two years and the global economic crisis it has provoked, which will certainly determine the development policy agenda for the coming years.
Against the background of surging food prices and global economic uncertainties, UNCTAD XII Conference convened in Accra exactly a year ago, agreed on the Accra Accord building upon the theme of “Addressing the opportunities and challenges of globalization for development”. The theme is even now more relevant as the globalization brings about the challenges of current global economic and financial crisis.
Taking into account the importance of global economic condition that complement national development efforts, we placed special focus on “enhancing coherence at all levels for sustainable economic development and poverty reduction in global policy making, including the contribution of regional approaches”. The current global economic condition reconfirms our very concern on the urgent need to enhance the coherence, governance and consistency of the international monetary, financial and trading system.
UNCTAD through its three pillars i.e. research, consensus building and technical assistance continue to contribute in addressing this concern, particularly in terms of the interdependence and consistency of international trade, investment and financial policies and arrangements”. In line with this mandate, the Trade and Development Board, has addressed the problems arising for developing countries from the financial crisis under its regular item “Interdependence and global economic issues from a trade and development perspective”, and has also discussed, in an Executive Session, issues related to the crisis in the context of the implementation of the Monterrey Consensus.
The deliberations of the Board were guided by the Trade and Development Report 2008, in which the UNCTAD secretariat provided a comprehensive assessment of external as well as domestic aspects of financing for development. The UNCTAD secretariat has also prepared important background material to the Follow-up Conference on Financing for Development and has most recently published a report entitled “The Global Economic Crisis: Systemic Failures and Multilateral Remedies”.
There appears to be broad consensus now that deregulation of financial markets opened the door for the creation of financial instruments that were detached from productive activities in the real economy. Such instruments served to squeeze double digit profits out of economies that grow in a single digit range, based on the assumption that past trends in the development of asset prices are an accurate reflection of future trends. This is not the first, but certainly the most serious financial crisis showing that such expectations about long-term price trends will sooner or later be frustrated by reality, since funds have not been invested in the productive capacity of the real economy, where they could have generated increases in real income.
Today, the developed world finds itself in a serious recession, and the developing world is likely to suffer a serious setback in its efforts to achieve the Millennium Development Goals. The present crisis has implications for all the six areas highlighted in the Monterrey Consensus, including the mobilization of domestic financial resources for development; the mobilization of foreign direct investment and other private flows; the stimulation of international trade; the increase of foreign financial and technical development assistance; the reduction of external debt; and the creation of a strong and coherent international monetary, financial and trading systems.
Different groups of developing countries are affected in different ways: Some emerging markets are suffering from direct financial contagion, as foreign capital is flowing out and new external financing is getting scarcer and more costly. And all countries feel the impact of the recession in the real sector through a sharp decline of export revenues, which has been exacerbated in many cases by a marked decline of commodity prices. Affected are especially least developed countries which continue to strongly depend on primary commodity exports. Many developing countries also feel a decrease of workers’ remittances and foreign direct investment, and a reduction of flows of official assistance cannot be excluded amid rising fiscal burdens. However, a decrease of aid is not an inevitable consequence of the economic crisis. Many donor countries have already repeatedly emphasized that they stand by their aid pledges, and a countercyclical rise in development aid could be seen as one of the elements that could stimulate global demand.
Finding an effective solution to the current crisis and preventing the re-occurrence of such crisis is also an important step towards addressing the systemic issues outlined in the Monterrey Consensus, and towards ensuring more sustainable financing for development.
To address the global economic and financial crisis, various recommendations were put forward. For the short term, it is a priority to ensure a global policy responses to restore global financial stability and economic growth through measures to help regain confidence and stimulate demand in order to combat credit crunch and mitigate impact on output growth and employment. In order for countercyclical action to be effective, fiscal as well as monetary instruments should be used, and these policies should be implemented in an internationally well-coordinated manner. Reassessment of credit rating agencies should also need to be undertaken.
For medium and long term, the role of government is more than ever pertinent in the management of the financial system, at both national and international levels to strengthen the regulations and supervision of financial intermediaries. In order to avoid systemic crisis in the future, and to reduce the risk of excessive and destabilizing speculations, early warning systems should be established at the national and international levels. The global financial system must be reformed around the core principles of transparency, integrity, responsibility, sound banking practice and international governance.
Overcoming the global crisis clearly requires a global effort, to which all countries should contribute in line with their economic potential. However, this potential is quite limited in most developing countries given their limited financial resources and their strong export-orientation. As trade is an engine of economic growth, many developing countries will need assistance aimed at the development of economic infrastructure and productive capacities, including agriculture. The development assistances must also be improved through better transparency, an enhanced global development partnership as well as greater ownership of national development strategies. Policies that promote economic growth are more likely to reach the objectives of MDGs. These policies will be more effective in an enabling state, that is a facilitating state, not an inert or interfering one — and even so where the private sector is a full partner in development.
Important steps towards an internationally coordinated policy response have already been taken and must be pursued further. This holds for both countercyclical measures to pull the highly interdependent world economy out of the current crisis and reforms in the international financial system. Noteworthy is, for instance, the decision to increase transparency in financial markets, and to strengthen the role of the international financial institutions in crisis resolution and crisis prevention. UNCTAD’s analysis has long highlighted the importance of such changes for sustained growth and structural change in developing countries. In this context, the reflections in a recent report prepared by the UNCTAD secretariat on the Global Economic Crisis may be worth further consideration, as it addresses the question of how to curb destabilizing financial speculation and how to achieve greater coherence between the governance of the international financial system, on the one hand, and the multilateral trading system, on the other.
An important question that also needs to be pursued further is the linkage between financial markets and markets for commodity futures, which have contributed to recent hikes and increased volatility in commodity prices. Speculative financial flows have contributed to instability and misalignment of exchange rates, with repercussions on international trade flows and macroeconomic stability. Many delegations participating in last years’ session of the Trade and Development Board have therefore echoed UNCTAD’s call for measures to effectively limit financial speculation and ensure timely and orderly exchange rate alignments. Many of them had also already raised serious concerns over the threat of increasing protectionism, which has by now become an issue of growing importance worldwide.
There can be little doubt that we find ourselves today at a historical juncture. As has been recognized by leading policy-makers and experts around the world, the current crisis calls for a review of the system of global economic governance. This is an important opportunity to take decisive steps towards strengthening the coherence between international trade, financial and macroeconomic policies. From an UNCTAD perspective, it will be important that these efforts take into account both the need for greater global economic and financial stability, which is essential for the successful integration of developing countries into the world economy, and the requirements for developing countries to reduce their vulnerability to external trade and financial shocks.
The Accra Accord underlined that “in an increasingly complex global economy, UNCTAD has an important role to play as an institution with universal membership and a mandate to serve as the focal point of the United Nations for the integrated treatment of trade and development and interrelated issues in the area of finance, technology, investment and sustainable development”. Many delegations in the Trade and Development Board also feel that UNCTAD has the proven capacity to provide impartial analysis and pragmatic policy recommendations, and that UNCTAD should assume an active role in the ongoing efforts to promote the reform of the global financial and monetary system, including the forthcoming summit of the General Assembly on the financial crisis. It is in this spirit that UNCTAD’s Trade and Development Board stands ready to contribute to the system wide efforts for coherence, coordination and cooperation in the implementation of the Monterrey Consensus.
Permanent Mission of the Republic of Indonesia to the United Nations, New York
325 East 38th Street, New York, NY, 10016, USA
Tel: 1.212.972.8333, Fax: 1.212.972.9780 - www.indonesiamission-ny.org