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Despite calls for reform of the global financial architecture by governments of poorer countries, the UN summit on the financial crisis failed to yield meaningful results - largely because many richer countries sidelined the event and blocked progressive proposals. By STWR.

3rd July 09 ~ STWR

Hailed by UN General Assembly President Miguel d’Escoto as “an historic opportunity to bring new stability and sustainability to the international economic financial order,” the 24-26 June UN Conference on the World Economic Crisis and its Impact on Development ended in political wrangling between richer and poorer governments and a weak outcome that experts claimed fell short of suggesting the required reforms to the global economy.

The progressive d’Escoto, who some powerful governments have denounced for his ‘radical’ agenda, announced his intention to hold a high-level conference on global economic reform to the UN General Assembly in October 2008. In preparation for the event, he mandated a Commission of Experts chaired by former World Bank Economist Joseph Stiglitz to review the workings of the global financial system and suggest steps towards securing a more sustainable international economic order.  

Presenting its findings, the Stiglitz Commission recommended an agenda of systemic economic reform to financial practice and international institutions, including the creation of a Global Economic Coordination Council as a more democratic alternative to the selective G20 group of nations. Experts urged governments to allow developing countries space to make their own policies and noted that richer nations should provide grants, not loans, to help the Global South to recover from the economic downturn.

In light of these findings, many civil society groups expressed hope that diplomats and UN representatives could agree to a substantial reform package to facilitate sustainable development, increase the UN role in managing economic recovery, boost aid, and promote debt relief for the world’s poorest countries.

Despite rhetoric of change, progressive analysts and NGO groups suggest that the richest nations marginalised the UN event in an attempt to retain global decision-making on the financial system. The failure of many economically powerful nations to send high-level representatives to the UN headquarters cast doubt on the potential success of this first democratic and inclusive meeting on international financial reform even before it began.

Negotiation of the outcome document in the lead up to the Summit further highlighted the polarised priorities between the rich and poor nations. Whilst representatives from the Global South called for greater empowerment of the UN and major economic reform to help the poor, representatives from the Global North resisted outlining any changes that might disadvantage them financially. The disagreement between the groups resulted in the release of a compromise outcome document a few days before the conference that left neither side satisfied.

The nearly 60-paragraph text, which will be forwarded to the UN General Assembly for adoption in its current session, explained that although the crisis began in the major financial centres of the richest countries, the poor would be most negatively affected – with large increases in levels of poverty, hunger and unemployment.

Delegates attributed the causes of the financial crisis to serious systemic imbalances in trade, government failure in regulating finance, and an over-reliance on market self-correction. The text also notes that irresponsible behaviour, excessive risk taking and high levels of consumption funded by debt significantly contributed to the crisis. “Insufficient emphasis on equitable human development has contributed to significant inequalities among countries and peoples,” noted the final text.

Most vocal at the conference in criticising the injustice of the present world economic system was Rafael Correra, President of Ecuador. Major financial powers run the global economic system as a “clan of the powerful” while simultaneously using rhetoric of equality, said Correra, who also called for major reform of the institutions such as the International Monetary Fund (IMF).

Giving recommendations to UN member states, delegates outlined that the UN should regain a central role in regulating and monitoring the global economy, that the Bretton Woods institutions should be reformed to give developing countries a greater say in decision-making, and that richer countries should help the poor to respond to the effects of the crisis.

Specifically, the text recommends the early implementation of the new general Special Drawing Rights (SDRs) to ease the crisis by increasing the amount of money in the global economy – a proposal welcomed by some NGOs that see SDRs as a means of providing resources to the poorest countries.   

Although a step forward from the limited proposals suggested by the G-20 summits in early 2009, many NGOs criticise the outcome document for raising key issues without reaching concrete agreements. Whilst acknowledging the “many deficiencies” in the financial regulatory system, the document avoids concrete proposals for global economic reform. Although it acknowledges that developing economies should have a larger share in the IMF quota, it is similarly evasive about measures to make the IMF an accountable and credible institution.

The Bretton Woods Project welcomes the statement’s acknowledgement of developing countries’ need for space to set their own policies, as well as the mention of the possibility of a new international reserve currency. However, they argue that the document promises little reform of the Bretton Woods institutions or the financial sector, and proposes minimal action on tax evasion and capital flight.

Furthermore, the conference made little progress towards a fairer and more transparent global debt mechanism, or towards a system to counteract illicit capital outflows and tax evasion. As the European Network on Debt and Development (EURODAD) explained, high expectations that the conference could bring about resolute and progressive reform to the global financial architecture and international financial institutions were not met because of the “reluctance by richer countries to engage wholeheartedly in this UN forum.”

Similarly, Oxfam blamed rich country governments for turning the conference into a “missed opportunity”. Too many rich countries remain opposed to UN involvement in tackling the global financial crisis, they said in a statement, and member states have failed to respond to the challenge to protect poor people from the excesses of unregulated capitalism.

Looking forward, all eyes will be on the proposals of a select group of powerful governments at the forthcoming G8 meeting in Italy, as well as to an ‘ad hoc open-ended working group’ created at the conference with the mandate of following up its outcomes. Yet the representatives of the overwhelming majority of the world’s poor will be absent from the upcoming G8 summit - with no second chance to make their case. Whether governments act on the limited, non-binding agreements outlined in the outcome statement will define whether the UN summit on the world economic crisis was even a small step towards securing justice for the world’s poor.

Further Resources: 

Link to STWR's website section on the Global Financial Crisis

Link to STWR's website section on the UN, People and Politics

Link to conference outcome statement

Link to conference official website

UN NGLS summit backgrounder

Special South Bulletin: The Significance of the UN Conference on the Financial Crisis - South Centre, July 09 

G20 Leaders to Global South: "Stimulate This!" - James Quilligan, STWR

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