“CONFRONTING THE CHALLENGES OF FINANCING FOR DEVELOPMENT: COHERENCE, COORDINATION AND COOPERATION IN THE CONTEXT OF THE IMPLEMENTATION OF THE MONTERREY CONSENSUS AND THE DOHA DECLARATION ON FINANCING FOR DEVELOPMENT – THE MONTERREY CONSENSUS” - Address by Mr. Ron Nechemia the Chairman of the Board of Director of EurOrient Financial Group |
As Prepared for Delivery
Mr. Secretary General,
Distinguished experts and observers,
The year 2008 was marked by considerable uncertainties and challenges as the world confronted “triple crises”: soaring food and fuel prices, climate change, and also development emergencies. Now all these triple crises have been compounded by the global financial crisis. We come together today at a time of intense crisis – unrelenting waves buffeting the world’s people and institutions.
Now more than ever we must be bold. In these times of crisis, when we are tempted to look inward, it is precisely the time when we must move pursuit of the common good to the top of the agenda. Global solidarity is necessary and in the interest of all. Pursuing the common good will require addressing a set of global challenges that hold the key to our common future.
While recently we have heard much (in the US) about how problems on Wall Street are affecting innocent people on Main Street, we need to think more about those people around the world with no streets. Wall Street, Main Street, no street — the solutions devised must be for all.
As the crisis makes its way from bank balance sheets to the real economy through credit, trade, and currency transactions, Main Streets around the world are hurting as much as the Wall Streets of high finance in New York and London, Tokyo and Hong Kong, Sao Paulo and Shanghai. And the poorest and most vulnerable in every country around the world are direly affected.
As expected this meeting was built on its tradition, but its timing also adds greatly to its significance; particularly it is less than eight months since the threats to systemic stability became manifest (September 2008) with the collapse or near-collapse of several key institutions. The far-reaching nature of the events that are unfolding is illustrated by the fact that within a period of only one week, large stand-alone investment banks disappeared from the U.S. financial landscape. As we enter 2009, global financial institutions and markets have been badly shaken that has now developed into a global economic meltdown.
Furthermore, this Special High-level Meeting of the Economic and Social Council convening within four months since we, world leaders and decision makers gathered in Doha, Qatar, to take stock of the Monterrey Consensus.
The world economy is facing its most difficult situation in years, against the backdrop of a deepening financial crisis that originated in mature markets. Advanced economies are slowing markedly and some are already in deep recession. The slowdown has been greatest in the advanced economies, particularly in the United States, where the housing market correction continues to exacerbate financial stress. Among the other advanced economies, growth in Western Europe has also decelerated. The emerging and developing economies have been greatly affected by financial market developments which crippled their growth. The continued strained financial conditions will continue to dampen global growth prospects.
The financial shock that erupted in August 2007, as the U.S. subprime mortgage market was derailed by the reversal of the housing boom, the negative impact has spread quickly and unpredictably inflicting extensive damage on markets and in many cases, casualties upon institutions at the core of the financial system.
The fallout has weakened capital adequacy at major banks, and prompted the repricing of risk across a broad range of instruments. Liquidity remains seriously impaired despite aggressive responses by major central banks, while concern about credit risks has intensified and extended far beyond the subprime mortgage sector. Equity prices have also retreated as signs of economic weakness have intensified, and equity and currency markets have remained extremely volatile.
The effects of the recent financial turmoil continue to reverberate around the world. Years of painstaking efforts — across the international community — hang in the balance. Unemployment is rising, food and energy prices are fluctuating, social protection systems are failing and access to credit and financial services is shrinking. All of this is taking a heavy toll on individuals, especially the poorest of the poor.
The increasingly interdependent world economy requires a holistic approach to the interconnected national, international, and systemic challenges of financing for development — in addressing these challenges, we affirm the important.
There exists a great need to focus above all things on coherence and about finding better ways of dealing with the increasing frequency, intensity and destructive power of financial and monetary crises, such as but not limited to the Asian Financial Crisis (1997 – 1999) and The Argentine Economic Crisis (1999 – 2002), and the current Subprime Lending Crisis in 2008 – ?, and other crises demonstrating that this is a systemic problem that can only be solved through coherence among trade, finance, and monetary policies, coherence between short-term and long-term development policy objectives, coherence between the national and international responsibilities, the regional and the interregional cooperation, the governmental and the intergovernmental spheres.
Addressing systemic issues: enhancing the coherence and consistency of the international monetary, financial and trading systems in support of development. Progress in delivering more financial resources more effectively were seen as fundamental to achieving the goals agreed to by 147 Heads of States and Government and 191 nations at the Millennium Summit – the Millennium Development Goals (“MDGs”) – can be achieved. The objective behind Financing for Development was to discuss and agree on waysin which to unlock financial resources for development purposes and the achievement of global financial and economic stability within the context of the current global financial crisis.
Perhaps the single most important event of this decade is the current economic crisis which has buffeted the global economy. It holds lessons for us all. The over-hasty liberalizations of global capital markets and capital flow, which is supported with inadequate regulatory controls, that have remained local, left economies prone to investor panic and nations vulnerable to social collapse. In a highly interdependent global economy, it is no longer possible for any country to remain unaffected by the actions of their neighbours. As we seek to avert future crises, we must recognize the need to strengthen the international financial system and to minimize the systemic risk associated with globalization, particularly in financial and capital markets.
I stress the importance of the recognition that the markets have become global but our regulatory controls have remained local. A solution will only be found if we take steps to strengthen international financial regulation and supervision.
I am calling on harmonizing national with international regulatory policies and legal frameworks to enhance coordinated supervision and resolution of firms and markets that operate across borders
I urge that we need to explore the regulatory, supervisory, macroeconomic and financial stability issues raised by these new financial instruments in relationship to their contribution to current financial crisis.
I reiterate my resolve to the urgent task before us is to develop processes, mechanisms and policies which can better link humanity to the benefits of globalization. This is the challenge which United Nations must address.
I would like to sound a note of caution: We must be careful not to focus excessively on new regulations intended to fight the last battle when the next one could be different. We already have made a lot of progress in recognizing that supervision should be “risk-based” and that regulation should be “incentive compatible.” These principles should be kept in mind when we look ahead. The key will be to adapt these concepts to the problems of today with careful thought given to what we expect to happen tomorrow.
In order to repair the financial systems we need innovative regulation to protect financial systems and sustain continued growth and expansion that requires a concerted effort by all players, working through universal forums like the United Nations and the international financial institutions (“IFI”)
Strengthening the architecture of the international system
Change is needed
The Subprime Mortgage Landing Crisis has been so unexpected in many of its aspects, so broad, so cruel in its human consequences that—even before the crisis has run its full course—global leaders embark on the design of a new architecture.
As in the days of the Industrial Revolution, we are now at a defining moment of human history. The question before us is straightforward: how to utilize the full potential of globalization to improve the living standards of all—particularly the poorest—while containing the risks it entails, such as those we have seen materialize so brutally in USA, and those at least equally pernicious, even if less spectacular, of the continuous marginalization of the poorest countries. We should question in this forum what kind of new architecture of the global system could achieve this? The response must be deduced from a proper analysis of the most recent crises.
We cannot deny the basic justification of these—at times vociferous—calls for change. No doubt there are at least some elements of validity in each of them. Taken together they tell us that, at this stage, world public opinion expects its leaders to design and build a new, “common house” with an audaciously modern architecture, and not limit themselves to some plumbing and interior decorating of the old mansion.
The issue of the integration of the poorest countries is, of course, already on our agenda. But, true, the attention of the world has been so focused on the Subprime Mortgage Landing Crisis and the need to avoid its recurrence that the immense problem of development and alleviation of poverty, particularly in Africa, seems to have been put temporarily on a back-burner. This is no longer acceptable.
If reforms to the existing architecture are to be credible, they must provide for open and inclusive discussion among the broad range of stakeholders in the international community. Which the measures should include:
a) specific policies and actions to further the development perspective in the monetary, financial, and trading systems;
b) strengthening the voice and participation of all other and countries with economies in transition in international economic decision making and norm-setting; and
c) strengthening the voice and participation of all other stakeholders such as but not limited to private sector development financial institutions such as the EurOrient Financial Group, nongovernment organizations, civil society in the international community in international economic decision making and norm-setting.
In the EurOrient’s view, most if not all stakeholders are consistently looking into what could be the best strategies and policies to fulfill their development missions and mandates as contained in the various institutional charters. Therefore, strengthening the voice and participation all stakeholders in Special High-level Meeting and policy dialogs conference, at which all stakeholders make assessments of current trade and development issues, discuss policy options and formulate global policy responses is of significant important. For EurOrient Financial Group the conference also sets the organization’s mandate and work priorities.
I suggest that while the discussions of the Special High-level Meeting of the Economic and Social Council (“ECOSOC”) with the Bretton Woods Institutions will need to focus on the specific challenges posed by financial instability, reform of the financial system should not be seen as an isolated endeavour but, where appropriate, must be linked to other challenges facing the multilateral system including climate change, peace and security, poverty reduction and the elimination of hunger. Adjustments to deal with the immediate crisis must not be made at the expense of the poor and the vulnerable, while their needs and interests must be fully considered in any proposals for long-term reform.
Concerns on financing for development
We gather in this city, at this assembly, to meet urgent challenges of our time. We will work together to promote peace and human dignity.
Our main purpose here is to embark on a complex and technical debate on how to enhance financing for development through adequate policies and institutional arrangements. But we must not overlook another dimension of our work. Financing for development is, in the last instance, an ethical challenge: ensuring that the intangible asset represented by financing is put to the service of humanity in general and not to that of a few. This is the only way to overcome the built-in dangers posed by massive poverty in the world. Including the ethical and indeed the human dimension in our deliberations will therefore be essential if we are to meet our ultimate objective.”
Financing for Development
Mobilizing the financial resources and achieving the national and international economic conditions needed to fulfill all internationally agreed development goals—including those contained in the Millennium Declaration aimed at drastically reducing poverty and significantly improving social conditions—will be our first step to ensuring that the 21st century becomes the century of development for all.
After systemic stability became manifest (September 2008) with the collapse or near-collapse of several key institutions, the global economic slowdown deepened—further reducing growth rates, and with them, prospects for better living standards. It has now become all the more urgent to enhance collaboration among all stakeholders to jump-start a sustainable recovery and to address the obstacles and long-term challenges of financing for development. Our resolve to act together is stronger than ever.
The speed at which the current crisis spread across countries has highlighted the interdependence of the global economy. As in the past, the interdependence of the global economy will continue to unfold in a complex and difficult international environment of unresolved conflicts and shared concerns, in which new challenges and threats will emerge for the international community, running counter to the fundamental purposes and principles universally recognized and We recognize that it is not easy to make rapid and substantive progress in the solution of global conflicts and problems, especially those involving sensitive political issues, strategic interests or the security of States. However, I believe that the capacity and experience of the international community will allow us to address the collective interests of humankind in, bearing in mind that any step in that direction, however small, will constitute a positive advance in the development of international relations.
The international financial institutions (“IFI”) have a critical role to play in this crisis in enabling countercyclical policies and sustaining investment in developing countries.
Within the broad context of policy making coherence is a multidimensional commitment which needs to take place within the overall framework of sustainable development strategy. Non-development policies should respect development policy objectives and development cooperation should, where possible, also contribute to reaching the objectives of other international goals and objectives. However, when exploring ways to accelerate progress towards achieving Millennium Development Goals (“MDGs”) the EurOrient Financial Group is committed to look beyond the frontiers of development cooperation, and consider the challenge of how non-aid policies can assist developing countries in attaining the MDGs.
We should consider reinforcing and broadening these experiences, with the aim to ensuring that policy coherence for development becomes the business not just of development policy makers but also of policy makers in non-development policy areas.
Better development cooperation, including more finance and improved aid delivery, is extremely important, but in itself not sufficient to enable the developing world to reach the Millennium Development Goals by the year 2015. It is generally acknowledged that the effective improvement in the coherence of developed countries’ policies would put developing countries in a much better position to achieve the MDGs.
The way forward
Mr. Secretary General,
There are limitations to the well functioning of private markets and to the capture of benefits by the poor. While markets are a necessary condition, they are not a sufficient one. This is particularly true in developing countries, where institutional capacity is a real limitation and large portions of the population are not even included in “the market.”
At the root of the crisis was the optimism that was brought about by a long period of prosperity. The bottom-line is that the crisis has underlined the need for clearer policy messages and for more, not less, international cooperation across a range of economic and financial issues. Optimism led to risks in the global economy not being assessed as carefully as they should have been.
Implementing the recommendations summarized here will be difficult both politically and technically. However, the sheer scale of today’s crisis provides clear evidence of the importance of learning from past mistakes. One also should not underestimate the momentum today toward decisive action and lasting solutions.
The reform agenda is huge, and people come to it with sometimes very different perspectives, but we see a genuine desire to find common solutions. I hope that this Special High-level Meeting of the Economic and Social Council (“ECOSOC”) with the Bretton Woods Institutions, the World Trade Organization and the United Nations Conference on Trade and Development will be helpful in helping build consensus on how to tackle these shared problems.
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