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

•

Policy responses

: inadequate; • double standards • Inadequate and inappropriate regulation

International cooperation

G7  G20, UN : 2

Financial deepening



fragility

964 ％ of World GDP 138 ％ of World GDP 122 ％ of World GDP 9 ％ of World GDP

Derivatives

78 ％ of Total

Securitized Debt Broad Money Power Money

11 ％ of Total 10 ％ of Total 1 ％ of Total 3

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 Lower growth

, higher instability

Net transfer of financial resources from South to North 200 0 -200 -400 -600 -800 -1000 Developing economies Africa Eastern and Southern Asia Western Asia

Source: UN World Economic Situation and Prospects 2008 (forthcoming)

Latin America

Short-term capital inflows problematic

•

No

real

contribution

growth rates to investment, •

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

2 0 -2 -4

Globalization: Parallel fates

8 Developing countries 6 World 4 2003 2004 2005 Developed countries 2006

Preliminary, revised forecast

2007 2008 2009 (P)

7

6% 5% 7% 8%

Aid flows unreliable

LDCs

4%

Sub-Saharan Africa

3% 2%

Other LICs

1% 0% 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

ODA for Africa vs G20 recovery efforts

19697 20000 15000 10000 5000 1591 0 G-20 total commitment G-20 fiscal stimulus, 2009 26 ODA to Africa, 2008

Net aid transfers?

• • • • • • Net ODA is net of principal payments,

but not of interest received on such loans

Net Aid Transfers (NAT) are

net of both

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

Protection

• Trade • Finance • Migration

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  • Earlier over-invt  greater lag slower investment recovery • Output recovery/job recovery lag

Global recovery with coordinated vs uncoordinated stimuli, 2010-15

Stimulus lags delay recovery

Im m ediate and s us tained s tim ulus efforts 3 m onth delay 2 4 6 8 2009 2010 2011

30 20 10 0 40 50 60

Output, jobs recovery lags, 1991, 2001

Duration of output recovery and job market recovery after the 1991 and 2001 US recessions (in months)

1991 2001 Output Job market recovery

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

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

Systemic reform agenda

• Ensure

macro-financial stability

with

counter cyclical

macroeconomic policies +

prudential risk management ,

including

capital controls

•

Finance

growth (output, employment) with

developmental

• Ensure

inclusive

financial system financial system --

NEW

• Monterrey

policy coherence

: Align IMF, WB with UN development agenda, IADGs • UN: universal, legitimate

comprehensive



lead

reform process?

G20 London Summit Commitments

$250bn SDR allocation 44% to G7 countries alone Only $80bn to DCs $500bn IMF Funding $0 New Commitments $1,100bn Total $100bn Aid for the poorest New Commitments < $100bn $250bn Trade Finance New commitments < $25bn

24

G20 Pittsburgh commitments

• G20 takeover (G7)?

• BWI governance shifts • Executive remuneration debate • Financial regulation reform?

• Capital requirements • Surveillance

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

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

Thank you

Please visit UN-DESA

www.un.org

and G24

www.g24.org

websites

•Research papers •Policy briefs •Other documents Acknowledgements: UN-DESA, ILO 28