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FINANCE: Revolt Against “Elite Clubs” Grows at U.N.

Wolfgang Kerler

UNITED NATIONS, Oct 30 2008 (IPS) - U.N. member states and economists challenged the neo-liberal policies of market deregulation that have long been promoted by powerful global financial institutions like the World Bank and International Monetary Fund (IMF), and called Thursday for a new, more inclusive global financial architecture.

Nobel Prize-winning U.S. economist Joseph Stiglitz stressed that “the current economic crisis should provide an opportunity to reassess global economic arrangements and prevalent economic doctrines”, as he spoke at a panel on the ongoing global financial crisis, held by the U.N. General Assembly on Thursday.

Stiglitz is supposed to head a new U.N. task force of experts to undertake a review of the international financial system – including its major institutions – and to make proposals for how a more stable global economic order could be achieved. Other members of the task force are to be announced in the near future.

In his statement, Stiglitz heavily criticised the current international system for working “to the disadvantage of developing countries” as capital and financial market liberalisation – which has been pushed on developing countries by the IMF and the World Bank in exchange for financial support – “has often not brought the promised benefits of enhanced growth, but has increased instability.”

Blaming the IMF, with its under-representation of developing countries, for being a source of current problems rather than part of the solution, Stiglitz proposed the creation of a new international financial facility funded by countries with large reserves – for instance, China, Japan, India and oil-exporting states.

Stiglitz told IPS that “the IMF makes it very difficult for those whose voices are not adequately heard to turn over the money”, in a situation where an international forum is needed to mobilise liquidity for developing countries.

Also because it lacks representation by middle- and low-income countries, neither the IMF nor World Bank is the right place to develop a new global consensus on key economic issues. “The only institution that currently has that broad legitimacy is the U.N.,” Stiglitz said.

Sakiko Fukuda-Parr, a professor of international affairs at the New School in New York, highlighted that although the roots of the current economic turmoil can be found in rich countries – as was the case in some previous crises – the impacts on poor countries might be even more devastating.

“When crisis strikes, it is the poor and disempowered whose lives are most thrown off balance and are the slowest to recover, sometimes never to be regain the position they were in before the crisis,” Fukuda-Parr said.

Like other panelists, Fukuda-Parr promoted a shift from neo-liberal economic policies of deregulation and liberalisation to Keynesian policies.

Named after economist John Maynard Keynes, those policies advocate state interventions with fiscal and monetary measures in order to fend off economic recessions – based on Keynes’s observation of the 1930s Great Depression in the U.S.

“Policies that were pushed through under the ideologically driven neo-liberalism led to countries not having the possibility of introducing these policies,” Fukuda-Parr told IPS.

Sharing the opposition of neo-liberalism, U.N. General Assembly President Miguel d’Escoto criticised the associations of rich countries – like the Group of Eight (G8) – by stressing that “it is time to stop viewing the global economy as the private dominion of some exclusive clubs.”

Together with diplomats from developing countries, d’Escoto called for a new global financial architecture with an adequate representation of all countries – and stressed the crucial role of the U.N. General Assembly, an institution where all member states enjoy the same voting power.

“Only full participation within a truly representative framework will restore the confidence of citizens in our governments and financial institutions,” d’Escoto said.

While a French diplomat spoke on behalf of the European Union, the representative of the U.S. did not explicitly mention the need to reform the Bretton Woods institutions – the IMF and World Bank.

Instead, he expressed the opinion that “these institutions are particularly well-equipped to provide assistance to countries in need.” The U.S. is the only country with veto power over many issues at both the IMF and World Bank, as voting power is apportioned according to the size of each country’s monetary contribution.

Joseph Stiglitz held the U.S. accountable for the financial crisis by stressing that “American financial markets have polluted the world with toxic mortgages and now have caused a global slowdown – America should pay for the cleanup.”

He dismissed the U.S. approach to tackle the crisis – the bailout of troubled banks at an overall cost of one and a half trillion dollars. “Too little was done to affect the underlying sources of the problem, the foreclosures, to help the homeowners who were losing their home, to help the workers who were losing their jobs and to help the economy that is inevitable suffering as a result.”

The participants of the U.N. panel expressed the hope that the upcoming G20 summit in Washington on Nov. 15 and the Conference on Financing for Development in Doha starting Nov. 29 will be used to further advance reforms of the international financial system.