On June 26, in New York, the high-level United Nations Conference on the World Financial and Economic Crisis and its Impact on Development adopted unanimously an “outcome document” that opens a door—even if only a small one—to a possible UN role in the reform of global financial governance. The preparations for the UN conference, however, were not without severe difficulties.
The run-up to the conference highlighted sharp differences between Southern nations, which want to give the United Nations more say in tackling the financial crisis, and Western governments, who prefer to conduct their business within the Group of 20 (G-20) nations.
Until now, global financial and monetary issues have been the responsibility of the International Monetary Fund and the Group of 8 (G-8), relying on the expertise of the Basel Committee on Banking Supervision (BCBS) and the Financial Stability Board, both of which include central banks and treasuries hailing largely from developed nations.
However, with the present financial crisis having originated in the North and posing untold negative consequences for the South, political pressure has ramped up on the developed world to include other voices in mitigating this disaster. Impacts of the crisis, such as slowing growth rates, rising unemployment, and declining budgets are beginning to affect developing countries. Developing countries, including the poorest countries, therefore claim that everybody should have a stake in financial regulation. It is in this context that the demand for this global conference on reform of the financial and monetary system emerged.
The final result of the UN conference, however, is a compromise text that does not meet the high expectations of a number of governments. Nevertheless, some common ground has been reached, which could be the basis for concrete policy changes.
For example, governments agreed to “the need to ensure that all tax jurisdictions and financial centres comply with standards of transparency and regulation,” and they stress the “need to further promote international cooperation in tax matters.” Governments also noted that the “crisis has intensified calls by some states for reform of the current global reserve system to overcome its insufficiencies,” and they “acknowledge the calls by many states for further study of the feasibility and advisability of a more efficient reserve system…and the complementary roles that could be played by various regional arrangements.”
Developing countries were also given a green light to “seek to negotiate agreements on temporary debt standstills between debtors and creditors, in order to help mitigate the adverse impacts of the crisis.” Disappointingly, the establishment of a fair and transparent debt work-out mechanism was a step too far for this first UN effort.
The silver lining to this cloud, however, is that the reach of the financial and economic crises has finally demonstrated that there is a need for substantial improvement in the coordination of global economic policy. Finally, there is some consensus that global economic integration has outpaced the development of appropriate global regulatory institutions of the economic system.
At the UN conference, proposals made by the UN Commission of Experts (chaired by Joseph Stiglitz and supported by the German Chancellor Angela Merkel) to create a new Global Governance Coordination Council were heavily debated. Such a body would become a representative forum within the UN system to address areas of concern in the global economic system. It would meet annually at the head-of-state level to assess developments and provide leadership in economic, social, and environmental issues.
Representation would be based on the constituency system, and designed to ensure that all continents and all major economies are represented. Likewise, global institutions, such as the World Bank, International Monetary Fund, World Trade Organization, and International Labor Organization would have to provide supporting information and participate in the council. This proposed new mechanism would facilitate cross-ministerial and cross-institutional discussion of global economic and financial concerns. At the same time, the council must remain small enough for effective discussion and decision making. Easier said than done, perhaps.
Still, it is a major disappointment that the conference failed to create such a body, demonstrating that the time seems not ripe yet to come to a consensus on broadening global governance beyond the self-appointed G-20.
It is a promising first step, however, that consensus has been achieved “regarding the possible establishment of an ad hoc panel of experts on the world economic and financial crisis and its impact on development. The panel could provide independent technical expertise and analysis, which would contribute to informing international action and political decision-making and fostering constructive dialogues and exchanges among policymakers, academics, institutions and civil society.”
The Way Forward
One of the most hotly contested issues in the run-up to the UN conference was whether concrete, ongoing follow-up mechanisms would be established. In the end, governments agreed on an open-ended working group of the General Assembly to follow up on specific issues contained in the outcome document, such as crisis mitigation, the restructuring of the financial and economic system, architecture, external debt, and international trade. We will need to closely monitor the next steps of this new instrument.
Although the number of commitments reached is very limited, these few agreements have opened the door to greater reforms for the global economic and financial system. The UN conference constitutes a recognition that a broader array of nations should have a role in ensuring that the global economic and financial system works for developing countries, where international financial institutions have staggeringly failed.
Eva-Maria Hanfstaengl is a consultant, member of the Global Social Economy Non-Governmental Organization Group, and former policy officer for issue relating to the International Monetary Fund, World Bank, and United Nations at CIDSE in Brussels, an international alliance of Catholic development agencies.