1. The way forward International Responses to the Crisis Jomo Kwame Sundaram UN Assistant Secretary-General for Economic Development Inter-Parliamentary Union 19 November 2009

2. 2 Problems  Crisis International financial architecture: non-system Policy responses: inadequate; double standards Inadequate and inappropriate regulation International cooperation: G7  G20, UN

3. 3 Financial deepening  fragility 964 ％ of World GDP 78 ％ of Total 10 ％ of Total 11 ％ of Total 138 ％ of World GDP 1 ％ of Total 122 ％ of World GDP 9 ％ of World GDP Derivatives Securitized Debt Broad Money Power Money

4. 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, higher instability Lower growth

5. Net transfer of financial resources from South to North

6. Short-term capital inflows problematic No real contribution to investment, growth rates 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

7. 7 Globalization: Parallel fates

8. Aid flows unreliable

9. ODA for Africa vs G20 recovery efforts

10. 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 Net aid transfers?

11. Protection Trade Finance Migration

12. 12 Crisis policy priorities Contain spread of financial crisis -Across borders (contagion) -To real economy (ensuring liquidity) Reflate economy -Fiscal measures (fiscal space needed) -Monetary measures (monetary space) Appropriate regulatory reform - National -International

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

14. Global recovery with coordinated vs uncoordinated stimuli, 2010-15

16. Stimulus lags delay recovery

17. Output, jobs recovery lags, 1991, 2001

18. 18 Constraints on developing country responses IMF imposes fiscal + monetary policy requirements for stimulus Policy -- especially fiscal -- space constrained Monetary policy less effective, worse with independent central banks, fiscal authority Systemic, market, institutional pro- cyclicality Lost productive capacities due to openness

20. 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

21. 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

22. Systemic reform agenda Ensure macro-financial stability with counter- cyclical macroeconomic policies + prudential risk management, including capital controls Finance growth (output, employment) with developmental financial system Ensure inclusive financial system -- NEW Monterrey policy coherence: Align IMF, WB with UN development agenda, IADGs UN: universal, legitimate  lead comprehensive reform process?

24. 24 G20 London Summit Commitments $1,100bn Total $250bn SDR allocation 44% to G7 countries alone Only $80bn to DCs $100bn Aid for the poorest New Commitments < $100bn $250bn Trade Finance New commitments < $25bn $500bn IMF Funding $0 New Commitments

25. G20 Pittsburgh commitments G20 takeover (G7)? BWI governance shifts Executive remuneration debate Financial regulation reform? Capital requirements Surveillance

26. 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

27. 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

28. 28 Thank you Please visit UN-DESA www.un.org and G24 www.g24.org websiteswww.un.orgwww.g24.org Research papers Policy briefs Other documents Acknowledgements: UN-DESA, ILO