PARLIAMENTARY CONFERENCE ON THE GLOBAL ECONOMIC CRISIS Organized by the Inter-Parliamentary Union Geneva, 7 and 8 May 2009 - PowerPoint PPT Presentation

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PARLIAMENTARY CONFERENCE ON THE GLOBAL ECONOMIC CRISIS Organized by the Inter-Parliamentary Union Geneva, 7 and 8 May 2009

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Title: PARLIAMENTARY CONFERENCE ON THE GLOBAL ECONOMIC CRISIS Organized by the Inter-Parliamentary Union Geneva, 7 and 8 May 2009


1
PARLIAMENTARY CONFERENCE ON THE GLOBAL ECONOMIC
CRISIS Organized by the Inter-Parliamentary
Union Geneva, 7 and 8 May 2009
  • Thematic debate Principles of the reform towards
    a new Bretton Woods?
  • The Economic Logic Behind the
  • Commissions Major Proposals
  • Jan Kregel,
  • Levy Economics Institute of Bard College

2
Premise Crisis is Global Requires Global
Solution
  • Started in Developed country Financial Markets
  • Liquidity Crisis spread crisis to Real Sector
    lack of financing
  • International Financial markets spread crisis
    to Emerging Market Developing Countries
  • Decline in real demand in Developed countries led
    to falling world trade
  • International trading system spread to crisis to
    real sector in Developing countries

3
Premise Cause of Crisis is in Developed
Countries Financial Markets
  • Due to 1980s Deregulation, 1990s Liberalisation
  • Belief in Self-regulating nature of markets
  • Failure of Risk Management Innovations
  • These policies were at the basis of globalization
  • These policies were the basis for reform of
    developing country financial systems through BIS,
    IMF, FSF

4
Conclusion
  • Need Reform of Financial Market Policies
  • IN BOTH Developed and Developing Countries
  • Need Reform of the International Financial System
  • How should the Reform be Done
  • Example of Bretton Woods All (44) countries
    represented
  • In Globalised Trade and Financial System Need
    Representation of Developing Countries
  • G-7/8 cant do it G-20 cant do it,
  • only G-192 Can do it
  • Need credible representation to determine the
    process of reform
  • It need not take place with 192 representatives,
    but on the basis of democratic choice of the
    process

5
Where to Start?
  • First, respond to the Recession/Depression
  • Diagnosing the Causes suggests solutions
  • Solutions must be both immediate and structural
    A return to normalcy is not an option
  • The short-term measures should provide the
    building blocks for the new international system
  • International Financial System has to support the
    response to the Crisis
  • Response has to be global since problem is global

6
First Response Stimulus
  • Government Expenditure Plans
  • Have to be efficient
  • big bang for buck
  • building the new system
  • Have to be globally coordinated
  • avoid leakage in a global system
  • Avoid financial protectionism -- beggar my
    neighbour
  • Should be by Surplus countries China, Japan, EU
  • To ensure they dont aggravate international
    imbalances
  • BUT Developing Countries Need to Participate
  • Official sources, and international financial
    institutions may impose restrictive fiscal
    conditions
  • Countries may try to build up protective
    liquidity cushion in the form of foreign reserves

7
Coordinated Stimulus needs new finance
  • Developing Countries require sources of finance
  • to participate in global stimulus to make it more
    efficient and not offset it
  • Developed countries to use 1 of their stimulus
    for direct expenditure support of developing
    countries
  • additional to existing ODA commitments
  • Care must be taken to avoid unsustainable debt
    burdens
  • Requires New Financing Facility

8
Major Institutional Recommendations
  • New Financing Facility
  • Within or outside IFIs
  • New governance structure
  • Provide a pattern for Voice and Representation
    Reform in IFIs
  • New International Reserve Currency
  • Accumulating Reserves offsets stimulus
  • To provide a symmetrical adjustment to
    international imbalances
  • Global Policy Coordination Council
  • to provide a democratically representative G-20
  • International Expert Group
  • Other Institutions International Bankruptcy
    Court

9
Differences from Bretton Woods
  • BW Objective was fair, multilateral trade
  • Exchange rate stability to avoid beggar my
    neighbour policy
  • Limited Capital flows to keep imbalances and debt
    accumulations to a minimum
  • Today Objective is a financial system that
    avoids crisis, produces sustainable development
    and supports the development objectives of the
    poorest developing countries

10
A New Credit Facility
  • The current system does not provide an efficient
    mechanism for mobilizing the funds available in
    countries that have accumulated large reserves.
  • With regard to the utilisation of the funds there
    are different (complementary) options. First,
    there is an urgent need for balance-of-payment
    and budget financing, with the objective to
    increase developing countries capacities for
    anti-cyclical fiscal expenditures.
  • Secondly, the funds could be used for key
    investments, where some of the emerging markets
    have a particular interest, such as developing
    agriculture in Africa and their capacity to
    export, thus contributing to food security in
    other regions such as in Asian and Arab
    countries.
  • Another possibility is to use those funds to help
    developing countries finance guarantees for trade
    credit or for the debt of their corporations,
    forestalling the risk of a run on these
    corporations.
  • Such facilities would require a different
    governance structure from existing global
    financial institutions, reflecting the new
    sources of global financing and the necessity of
    giving a greater voice to emerging markets and
    countries providing the funds, but also by giving
    voice to recipient countries.
  • They could be located under the umbrella of
    existing institutions such as the World Bank or
    Regional Development Banks, where developing
    countries are already strongly represented or
    established as a new institution.
  • Funds could be organised on a regional basis

11
A New Global Reserve System
  • The global imbalances which played an important
    role in this crisis can only be addressed if
    there is a better way of dealing with
    international economic risks facing countries
    than the current system of accumulating
    international reserves.
  • The magnitude of this crisis and the inadequacy
    of international responses may motivate even
    further accumulations, contributing to the
    deflationary bias in the global system and
    impairing prospects for a robust recovery.
  • The difficulties associated with a single
    national currency as the international reserve
    currency are well known
  • Solutions have been proposed in the form of a
    Global Reserve System.
  • Such a system could be based on an expanded role
    for the SDR, with regular or cyclically adjusted
    emissions calibrated to the size of reserve
    accumulations. S

12
A Global Policy Coordination Council.
  •  At a level equivalent with the General Assembly
    and the Security Council,
  • Global Economic Council should meet annually at
    the Heads of Government level to assess
    developments and provide leadership in economic,
    social and ecologic issues.
  • Promote development, secure consistency and
    coherence in the policy goals of the major
    international organisations
  • Support consensus building among governments on
    efficient and effective solutions for issues of
    global economic, governance.
  • Council could also promote accountability of all
    international economic organizations, identify
    gaps that need to be filled to ensure the
    efficient operation of the global economic and
    financial system, and help set the agenda for
    global economic and financial reforms.
  • Supported intellectually by the work of an
    International Panel
  • Representation would be based on the
    constituency system, and designed to ensure that
    all continents and all major economies are
    represented.
  • Important global institutions, such as the World
    Bank, IMF, WTO, ILO and members of the UN
    Secretariat dealing with economic and social
    issues would provide supporting information and
    participate in the Council.
  • It could thus provide a democratically
    representative alternative to the G-20.

13
Independent Expert Panel
  • There should be an appropriate mechanism within
    the United Nations System for independent
    international analysis on questions of global
    economic policy, including its social and
    environmental dimensions.
  • Follow the example of the Intergovernmental Panel
    on Climate Change (IPCC).
  • To offer advice to the General Assembly and
    ECOSOC, as well as to relevant international
    organizations, to enhance their capacity for
    sound decision-making in these areas, to identify
    gaps and deficiencies in the global economic
    architecture, and to assess progress and problems
    in the functioning of the global economic and
    social system.
  • Contribute to foster a constructive dialogue in a
    regular venue for fruitful exchange between
    policy makers, the academic world and key
    international organisations.
  • Panel should comprise well-respected academics
    from all over the world, representing all
    continents, and international social movements.
  • Should follow, analyse and assess long-term
    trends, key developments and major dynamics for
    global change affecting all people around the
    globe, identify problems in the global economic
    and financial architecture, and jointly provide
    options for coherent international action and
    recommendations for political decision-making
    processes.

14
Other Institutions
  • Debt Workout Mechanism --SDRM.
  • Foreign Debt Commission
  • Cross Border Bankruptcy Court to replace ICSID
  • International Tax Cooperation
  • All countries and jurisdictions must adhere to
    international standards regarding taxation.
  • Institutional arrangements for improving
    harmonization and transparency should be
    strengthened including the UN Committee of
    Experts on International Cooperation on Tax
    Matters as proposed in Paragraph 16 of the Doha
    Declaration. The UN Committee of Experts on
    International Cooperation on Tax Matters should
    be upgraded into an intergovernmental body to
    strengthen its ability to enhance international
    cooperation in this area.
  • New Policy Surveillance Mechanism
  • Independent of IMF
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