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Monday May 25, 2009

UN Summit to set up a new Economic Council?

Global Trends
By MARTIN KHOR


Member states of the United Nations are negotiating a draft declaration on the global economic crisis. A conference will be held probably on June 24-26 to make critical decisions.

DESPITE some good news in recent weeks that sent stock markets upwards, the cold reality is that the ”real economy” is in deep trouble in many countries.

Last Thursday’s Wall Street Journal, under the bold front-page headline, “World Economies Plummet”, reported that there were steep falls in the economies of Mexico (by 21.

5%), Japan (15.

2%) and Germany (14.

4%), with the United States also falling by 6.

3%.

These shocking figures were calculated by comparin g the gross domestic product of the countries in the first quarter this year wi th the previous quarter and annualising the rate of change.

Another negative event was last Thursday’s downgrading by Standard & Poor of the outlook on Britain’s AAA credit rating from “stable” to “negative”.

It was the first time this had happened to Britain, which is one of the top two financial centres of the world.

This caused the markets to plunge in Europe but also in the United States due to fears that it will be next for downgrading in credit ratings.

Even if the worst of the recession is over, in terms of the steep rate of economic decline, recovery will likely take time.

In New York last week, I heard an ambassador talking about the current view in diplomatic circles that the recession will not be Vshaped or U-shaped (a steep rebound following a steep decline) but will rather take on the shape of a long bath tub.

In other words, the decline will be followed by a long period of “flat” economic performance or stagnation, before growth picks up again.

The question is, how long will the bath tub turn out to be? At the United Nations, the diplomats last week started working on a draft of a declaration to be adopted at a high-level UN conference on the world financial and economic crisis and its impact on development.

The draft, issued by the General Assembly President Miguel d’Escoto Brockmann, replaced an earlier version which had been found to be too long and rambling.

The new draft is brief on the causes and impacts of the crisis but rich in proposals for “prompt and decisive action” in four areas: making the stimulus work for all; containing the effects of the crisis and improving resilience for the future; improved regulation and monitoring; and reforming the international financial and economic governance.

In order to implement these proposed measures, the draft has a final section on “The Way Forward”, where perhaps the most interesting ideas are placed.

Foremost among these is a proposal to set up a new Global Economic Council under the UN to provide coordination and oversight of responses to address the global challenges.

This is probably the most important and controversial idea in the document.

It kind of strengthening the UN’s role and is disliked by powerful countries.

Another idea is to set up a Panel of Experts (drawn from academics, social movements and the private sector) to give advice to the UN General Assembly on economic, financial, trade and regulatory issues and actions.

The draft also calls for a review of how ECOSOC (the UN Council on Economic and Social Affairs) can be strengthened and to review the agreement between the United Nations and the World Bank and International Monetary Fund.

The draft wants the Conference to remain “open”.

To follow up on the conference, seven working groups are to be created on the global stimulus; finance for restructuring and survival; trade and debt relief; global and regional reserve systems; regulation and coordination of the global economy; restructuring international institutions; and the role of the United Nations.

According to diplomats, developing countries are keen that the Conference take bold decisions in helping them to cope with the crisis, on reform of the international financial system, and setting up new mechanisms to coordinate global policies.

They do not believe that the current institutions (such as the IMF and the G20) can play this role as they are controlled by the developed countries.

The United Nations, which has universal membership, is best placed to coordinate global policies which are in the developing countries’ interests.

However, many of the developed countries are reluctant to have the UN play a stronger role, as they are comfortable with the status quo in which the institutions they dominate (G7, G20, IMF, etc.

) control the show.

The problem, of course, is that the developed countries and the dominant institutions have done a very bad job, as they promoted the lax financial policies that have led to this extreme crisis.

Thus, there is an impetus for developing countries which are the victims of a crisis they did not create to have new and more representative institutions set up in which they can have their rightful say.

The UN Conference was scheduled for June 1 to 3 but since the negotiations on the declaration just started last week, there won’t be enough time to complete the wo rk.

D’Escoto has thus proposed to shift the conference to June 24-26.

Almost all countries have agreed but the Europeans want more time to consult.

On Tuesday there will be a final decision on the dates.

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