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Rich Countries Block Reform at UN Summit

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June 26, 2009

The first major conference on the financial and economic crisis to involve all countries ended with rich countries blocking substantive reforms demanded by developing countries.  The UN conference did however push key issues up the international agenda, such as the need for a better system of international reserves, and for genuine policy space for developing countries.

North and south battle to a standoff

The United Nations Conference on the World Financial and Economic Crisis and its Impact on Development, which concluded June 26, was the first opportunity for all the countries of the world to discuss the crisis on an equal footing.  During acrimonious preparations, developing countries, who wanted substantive reforms to the global economic and financial system, battled rich northern countries who wanted to curtail the role of the conference and the UN.

Unlike April's G20 London summit where negotiations were shrouded in secrecy, drafts of the UN's outcome document were circulating freely and civil society organisations had constant access to negotiators.  The G77 group of 130 developing countries was trying to insert text that mandated a major role for the UN in dealing with the crisis and backed a comprehensive set of reforms, while northern countries including the US and the EU played a blocking game. Earlier complications had arisen as the president of the general assembly, Miguel D'Escoto Brockmann had issued his own draft version of the outcome document, which had to be reconciled with that of the co-facilitators. He had also postponed the conference by three weeks to give more time to reach consensus. Western countries, angered by these unorthodox tactics, and D'Escoto's championing of radical reforms and a strong role for the UN, briefed against him in the press.

In the end, both sides battled to a standoff.  Two days before ministers and heads of state were due to arrive, the co-facilitators of the process, the Netherlands and St Vincent and the Grenadines produced a compromise draft of the outcome document and, surprisingly, it was accepted by all countries. Knowing that the gap between their positions was so wide, neither side wanted to reopen discussion on the text and risk being blamed for the collapse of negotiations.  No further changes to the text took place, leaving high-level delegates with little to do but to twiddle their thumbs during the three days of the conference.   Diana Aguiar of the International Gender and Trade Network said that "the pressure put on the G77 group of developing countries by the rich industrialized nations undermined the group's ability to stand up against an extremely poor document."

Perhaps the most remarkable feature of the process, however, was the fact that the G77 grouping united around a comprehensive set of fundamental reforms, including many of those proposed by the Stiglitz Commission, such as major reforms of the IFI governance and policy approaches, a global economic council, and a major allocation of special drawing rights (SDRs) which would be a significant step towards the creation of global reserve currency.

Key issues raised, but little concrete agreed

In the end, the final outcome document was stripped by western countries of most concrete proposals for change, but it includes language on many of the critical issues raised by developing countries, and the genesis of a follow up process that could expand the UN's role in this area.

The conference produced the most honest assessment of the nature of the "worst financial and economic crisis since the Great Depression" yet produced by an intergovernmental forum. The links between the financial crisis, global inequality, "increased food insecurity, volatile energy and commodity prices and climate change" are highlighted.  Blame is laid at the foot of developed countries, and the "loss of confidence in the international economic system" is recognized.  There were "major failures in financial regulation" which were compounded by "over-reliance on market self-regulation" demonstrating "the need for more effective government involvement to ensure an appropriate balance between the market and public interest."

Though the language in the text was watered down from preceding drafts, in two key areas it goes beyond previous international agreements. Firstly, it highlights the need for developing country policy space. To the chagrin of the United States and others, who issued statements distancing themselves from several paragraphs, it includes a recognition that countries have "the right to use legitimate trade defense measures" and to "impose temporary capital restrictions".

The issue of IFI conditionality was one of the most controversial topics during the negotiations and many developing countries spoke forcefully against it from the floor of the general assembly.  At the IFIs themselves, where they do not operate on the same equal footing with western countries as they do at the UN, developing countries have tended to be more reticent to speak out.  However, though previous drafts had included strong language on the continued use of pro-cyclical conditionalities by IFIs the final text said only that new and ongoing [IFI] programmes should not contain "unwarranted pro-cyclical conditionalities."

Secondly, the issue of the creation of an international reserve currency to replace the dollar is referred to, albeit in very tentative language. The "potential of expanded SDRs to help increase global liquidity" and "to help prevent future crises" should "be further studied" and "calls by many States for further study of the feasibility and advisability of a more efficient reserve system" are acknowledged, but no follow up action is mentioned.

The theme of raising important issues but promising little new action is continued throughout the document. Governance reform of the Bretton Woods institutions is an "urgent need" but the text and timetables have merely been copied from the April G20 communiqué.  However, the recognition that there should be "fair and equitable representation of developing countries" hints at a move towards the demand of the G24 group of developing countries at the World Bank for a parity of voice and vote between borrowers and lenders.

Financial sector reform, which has dominated the efforts of policy makers across the globe in recent months, merits only a couple of paragraphs.  There is a "critical need for expanding the scope of regulation and supervision and making it more effective, with respect to all major financial centers, instruments and actors".  Standard setting bodies such as the Financial Stability Board and Basel Committee on banking supervision are encouraged to "review their membership" in order to enhance "the representation of developing countries as appropriate."

Observant participants noticed that many of the world's leading tax havens had sent strong delegations to the conference, so unsurprisingly there was little new on combating tax evasion and capital flight. The conference called for "international standards for exchange of information" but did not mention who should implement these or how rigorous they should be. Commitments to "examine the strengthening" of "international cooperation in tax matters" including the UN tax committee did not take agreement further than that reached in Doha at the UN financing for development conference in December 2008.

Previous commitments made during trade negotiations have been reiterated, and, once again, there is a call for the completion of the Doha trade round.

There is little new on emergency finance or aid, though donors are encouraged to "work on national timetables" to meet "established ODA targets" which presumably means the 0.7 per cent target, though this is not spelled out.  Interestingly, despite a strong push by the European Union and others, the Paris Declaration on aid effectiveness and last year's follow up Accra Agenda for Action are pointedly not mentioned, reflecting an unwillingness on the part of many developing countries to highlight an OECD-led process. Innovative financing gets a paragraph, and the fact that these should "be a supplement and not be a substitute for traditional sources" reflects a longstanding demand of many NGOs.  However, there are no new commitments.  Martin Khor, head of the South Centre, an intergovernmental institution representing 50 developing countries said: "the greatest deficiency [was] that there was no decision made to give concrete financing to countries that are now facing major problems".

Despite the warnings of many that another global debt crisis is imminent, the language is weak.  "Temporary debt standstills" are touted, though only as a possible agreement which could be made between debtors and creditors.  Donors are urged to "increasingly consider providing grants and concessional loans".  The affirmation of the need to use "existing frameworks and principles" will bring no comfort to the critics of processes such as the highly indebted poor countries (HIPC) initiative, which contained heavy conditionality and limited debt cancellation. However, the need to explore "the feasibility of a more structured framework for international cooperation" leaves the door open for campaigners who have long pushed for a fair and transparent international debt workout mechanism that follows principles of equity and justice.

Finally, the need for a climate change deal at the upcoming Copenhagen summit is mentioned, but overall the language on green recovery, as at the G20, is weak: "we acknowledge that the response to the crisis presents an opportunity to promote green economy initiatives."

A civil society statement issued at the conference highlighted the need for forward thinking action across a range of issues, but a civil society scorecard of the conference judged that governments had failed the test, with the outcome falling "far below what is necessary to provide developing countries with the resources and tools they need to deal with the crisis."

What happens next?

All eyes will now turn to the "ad hoc open-ended working group of the General Assembly" who have been mandated with the task of following up on the outcome document.  The success of this group will depend on the level at which it sits and the degree of support it gets from member states, civil society and others but it will not officially start work until after the UN General Assembly in September.  Many other the concrete proposals for follow up mechanisms were stripped from the final outcome document.  Instead, the UN's Economic and Social Council (Ecosoc) is asked to make further recommendations, and consider the "possible establishment of an ad hoc panel of experts on the world economic crisis and its impact on development."

The opposition of western countries to using the UN to coordinate or lead on international economic issues was expressed forcefully by the US: "Our strong view is that the UN does not have the expertise or the mandate to serve as a forum for meaningful dialogue or to provide direction on issues such as reserve systems, the international financial institutions and the international financial architecture". "The US and EU appear to be resistant to even exploring structural change, despite World Bank figures showing one trillion dollars likely to drain from the poorest economies this year," said Raman Mehta, of ActionAid India.

While the conference claimed to "highlight the importance of the role of the United Nations in international economic issues" and all nations signed a document saying they were "resolved" to strengthen the role of the UN "in economic and financial affairs", it is clear that the richest countries of the world will continue to fight to prevent the UN from taking the lead. The main message from this conference however, is that they will not achieve this without a fight.

 

 

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