Global Policy Forum

By Gigi Francisco

The current global financial architecture is skewed against South economies and the conference on financing for development is a window of opportunity for constructing an alternative and fairer global financial system. This, according to Yilmaz Akyuz, Director of UNCTAD's Department of Macroeconomic and Development Policies, who spoke at the Workshop on Responsible Governance of Global Finance for Development that was jointly organized by Focus on the Global South and the Society for International Development. The workshop was part of the Global Dialogue 2 event held at the EXPO 2000 in Hanover, Germany on 1-3 July.

The ability of the international community to act decisively on global finance will need, however, strong pressure from the outside - particularly social movements and civil society organizations. Without this, Mr. Akyuz said: "I am not optimistic about the outcome of the conference. The governments that sit in the United Nations are the same ones that sit in the IMF and these already have clear positions on a number of issues." Without pressure the United Nations may end up simply debating on the technical aspects of the global financial system that can otherwise be left to engineers and experts. What is needed, he said, is for governments to construct a political framework for global finance that would place at its center the imperatives for serious reforms in areas important to South governments.

These important reforms include the control and regulation of finance, regulation of the monetary and exchange rates of developed countries, addressing the volatility of the financial market, resolution of the debt crisis, and governance of the Bretton Woods Institutions.

At the backdrop of these reforms is the economic imbalance between the North and South that has been compacted by the long-running debt burden of the South. In the current global system, creditor countries and banks remain protected while none existed for the interests of debtor countries. Stand-still arrangements are needed by indebted countries in instances of liquidity problems yet this has been opposed by creditor countries. While everyone talks of the need to recognize debtor's right as a protection from speculative attacks this has not led to any concrete measure or institutional mechanism. "We need a level playing field for creditor and debtor countries so that competition can truly expand," insisted Mr. Akyuz.

The reform of the financial system in a BIG WAY will also need finding ways of 'governing the governance bodies'. Referring to the ongoing reform process in the IMF, Mr. Akyuz believes that rather than enlarging its scope, the power of the IMF needs to be clipped. Recognizing that no less than developing countries will oppose a rapid change in the IMF's role, its diminution will need to take a slow pace with a wide range of consultation and on a political platform of great importance to the international community. Referring back to the resolution of the debt crisis, he said that the IMF's involvement ought to be limited or perhaps better if it is not involved at all.

"Unless there is a global initiative to construct a new financial architecture," Mr Akyuz said, "South economies are left on their own to defend themselves from pressures from the market, multilateral institutions and developed countries." As there are considerably different financial regimes in the South, there is room for maneuver. He gave the example of Malaysia as having lent some legitimacy to the policy of stand-still. At the same time, however, the speaker noted that there is yet no mechanism in Asia that will prevent another financial crisis from occurring. Citing the case of South Korea, he said that short-term funds are back in the region making quick money. He proposed studying the European Union as possible model for a regional defense mechanism in this period of unequal competition and financial volatility.

Mr. Akyuz ended with a set of proposed components of a global framework upon which will rest a new global financial architecture, as follows: