PROSPECTS FOR DEVELOPMENT:

FROM CRISES TO CANCUNUNITED NATIONS

OCTOBER 15, 2003

PROMISES OF THE 90S

• GLOBALIZATION AND “REFORM” WOULD BRING UNPRECEDENTED PROSPERITY

• EUPHORIA OF EXPANDING TRADE AND CAPITAL FLOWS

• NEW TRADE AGREEMENTS HERALDED NEW ERA

BY END OF DECADE

• SEATTLE PROTESTS—MANY PEOPLE DIDN’T SEEM TO BELIEVE THAT TRADE AGREEMENTS HAD MADE THEM BETTER OFF

• FINANCIAL CRISES HAD DEVASTATED EAST ASIA AND ELSEWHERE– ATTEMPT WAS MADE TO SHIFT BLAME– UNDERLYING PROBLEM WAS POLICIES THAT

HAD BEEN PUSHED ON THESE COUNTRIES, ESPECIALLY CAPITAL MARKET LIBERALIZATION

– COUNTRIES WHICH HAD FOLLOWED “ADVICE” WERE HURT

LATIN AMERICA

• ENTERED A NEW LOST HALF DECADE

• REFORM, GLOBALIZATION HAD FAILED

• GROWTH JUST OVER HALF OF WHAT IT HAD BEEN IN PRE-REFORM DECADES

• GROWING UNEMPLOYMENT

• LITTLE IMPROVEMENT IN POVERTY

BIG QUESTION: WHAT ARE WE TO MAKE OF THESE FAILURES?

END OF COLD WAR MEANT NEED FOR NEW GLOBAL

ECONOMIC ORDER

• NEEDED A VISION

• INSTEAD GOT SPECIAL INTEREST POLITICS

• UNFAIR GLOBAL TRADING REGIME

• ECONOMIC AGENDA, GLOBAL INSTITUTIONS ADVOCATING “WRONG” ECONOMIC MODEL

“WRONG ECONOMIC MODEL”

• BASED ON MARKET FUNDAMENTALISM• SUCCESS OF SUCCESSFUL COUNTRIES—

UNITED STATES, EAST ASIA—WAS BASED ON A QUITE DIFFERENT MODEL– GOVERNMENT HAD LARGE ROLE– E.G. INDUSTRIAL POLICIES (r & d), EDUCATION,

DISTRIBUTION, EMPHASIS ON GROWTH AND EMPLOYMENT, NOT JUST PRICE STABILITY

FAILED TO ADDRESS FUNDAMENTAL PROBLEMS OF GLOBAL ECONOMY

UNDERLYING SOURCES OF INSTABILITY

• POOR COUNTRIES HAVE TO BEAR THE RISK OF INTEREST RATE AND EXCHANGE RATE FLUCTUATIONS

• GLOBAL RESERVE SYSTEM

GLOBAL RESERVE SYSTEM

• ASSOCIATED WITH HUGE U.S. TRADE DEFICIT—RICHEST COUNTRY SEEMINGLY CANNOT OR WILL NOT LIVE WITHIN ITS MEANS

• POOR COUNTRIES ARE GIVING LOW INTEREST LOANS TO RICH COUNTRY—AND BORROWING MONEY BACK AT HIGH INTEREST RATES

• INCREASING INDEBTEDNESS SOURCE OF CONTINUING INSTABILITY

• WITH TRADE DEFICITS = TRADE SURPLUSES, DEFICITS BECOME LIKE HOT POTATOES

• GLOBAL INSTABILITY MAJOR IMPEDIMENT TO GROWTH OF DEVELOPING COUNTRIES

UNDERLYING PROBLEM: GLOBAL GOVERNANCE

ECONOMIC GLOBALIZATION HAS OUTPACED POLITICAL GLOBALIZATION

• NOT JUST INSTITUTIONS, BUT FRAME OF MIND

• SOCIAL JUSTICE, SOLIDARITY STOPS AT THE BORDER

• WITH GLOBALIZATION, MORE NEED FOR GLOBAL COLLECTIVE ACTION

• SHORT SHRIFT TO PRINCIPLES OF DEMOCRACY

• UNILATERALISM OVER MULTILATERALISM

GLOBAL GOVERNANCE

SMOKESTACK STRUCTURE OF DECISION MAKING

– WITH TRADE MINISTERS MEETING WITH TRADE MINISTERS, FINANCE MINISTERS WITH FINANCE MINISTERS

– IMPACTS BROADER– OTHER INTERESTS NOT SUFFICIENTLY

PAID ATTENTION TO

“REFORMING THE GLOBAL FINANCIAL ARCHITECTURE”

• SAME PEOPLE SITTING AROUND SAME TABLES

• NO REAL CHANGE—FUNDAMENTAL QUESTIONS NOT ADDRESSED

• BROAD CONSEQUENCES OF MISMANAGEMENT OF CRISES– THEIR VOICES WERE NOT HEARD

LESSON OF MONTEREY MEETING

• DEVELOPMENT TOO IMPORTANT TO LEAVE JUST TO FINANCE MINISTERS

IMPLICATION: NEED TO HAVE A ROLE FOR THE UN

• “ECONOMIC SECURITY COUNCIL”

• INITIAL ROLE: ADVISORY, PLATFORM WITH POLITICAL LEGITIMACY AT WHICH CENTRAL GLOBAL ECONOMIC PROBLEMS COULD BE DISCUSSED

• DELINEATE ISSUES THAT REQUIRE GLOBAL COOPERATION, ACTION

EXAMPLE 1: CAPITAL MARKET LIBERALIZATION

• PUSHED BY IMF—IN SPITE OF EVIDENCE THAT IT LEAD TO INSTABILITY BUT DID NOT LEAD TO GROWTH

• VOICES OF THOSE WHO PROFITED WERE HEARD, VOICES OF THOSE WHO PAID PRICE WERE NOT

• FINALLY IMF RECOGNIZED THE PROBLEM• BUT THEN AGENDA SHIFTED TO WTO—

SINGAPORE ISSUE• SPECIAL INTERESTS OVER GLOBAL

GENERAL INTEREST

EXAMPLE 2: SOVEREIGN BANKRUPTCY

• PROBLEMS USED TO BE SOLVED WITH MILITARY INTERVENTIONS

• PRINCIPLES OF “FRESH START” WELL ACCEPTED

• BUT BANKRUPTCY RULES AND PROCEDURES CANNOT BE SET BY A MAJOR CREDITOR—SUCH AS THE IMF

• NEED FOR ALTERNATIVE APPROACH IN WHICH ALL STAKEHOLDERS ARE REPRESENTED

EXAMPLE 3: IRAQ RECONSTRUCTION

• ENTAILS MOVEMENT FROM FORM OF SOCIALISM TO A MARKET ECONOMY

• COMBINED WITH PROBLEMS OF RECONSTUCTION—DECADE OF SANCTIONS PLUS WAR

• DECADE OF EXPERIENCE WITH SHOCK THERAPY—– QUICK AND FULL LIBERALIZATION– QUICK AND FULL PRIVATIZATION

SHOCK THERAPY

LESSON FROM A DECADE OF EXPERIENCE:

IT DOES NOT WORK

ECONOMIC STRATEGY FOR IRAQ

• BASED NOT ON ECONOMIC SCIENCE BUT ON IDEOLOGY

• LIKELY ONLY TO WORSEN UNEMPLOYMENT PROBLEM AND INSTABILITY

• IF UN TAKES PART IN RECONSTRUCTION, IT MUST HAVE A VOICE IN DESIGN OF ECONOMIC POLICY– OR AT LEAST ENSURE THAT VOICES OF IRAQI

PEOPLE ARE HEARD– BEFORE MAJOR CHANGE, THERE MUST BE A

DEBATE

SECOND LESSON OF LAST DECADE:

HASTE MAKE WASTE

BETTER TO DELIBERATE AND GET BROAD SUPPORT BEHIND REFORMS, THAN HAVE THEM IMPOSED FROM TOP

GLOBAL INTEREST IN A SUCCESSFUL IRAQI RECONSTRUCTION

• WILL NEED DEBT FORGIVENESS– BUT MUST BE BASED ON “RULE OF

LAW”—DEVELOPMENT OF A SET OF PRINCIPLES

– IRAQ NOT ONLY COUNTRY FOR WHICH THERE ARE ODIOSE DEBTS, UN NEEDS TO DEVELOP PROCEDURE FOR DEALING WITH SUCH DEBTS (DETERMINING WHEN THEY ARE “ODIOSE”

GLOBAL INTEREST IN A SUCCESSFUL IRAQI RECONSTRUCTION

• NEED TO HAVE AN ECONOMIC STRATEGY THAT WILL WORK, BASED ON THE LESSONS OF THE PAST, ON ECONOMIC SCIENCE, NOT ON IDEOLOGY

CONCLUSION

• DEVELOPMENT IS POSSIBLE, BUT NOT INEVITABLE

• THERE IS A NEED FOR MORE ECONOMIC ASSISTANCE IF WE ARE TO MEET MILLENIUM DEVELOPMENT GOALS– QUESTIONS ARE BEING RAISED: WILL

COMMITMENTS THAT WERE MADE IN MONTEREY BE FULFILLED?

• TRADE CAN FACILITATE DEVELOPMENT– BUT THERE NEEDS TO BE A FAIR TRADE

REGIME– THE ADVANCED INDUSTRIAL COUNTRIES

RENEGED ON “PROMISE” OF A DEVELOPMENT ROUND THAT WOULD REDRESS IMBALANCES OF THE PAST

– AND NEW DEMANDS COULD HAVE MADE MATTERS EVEN WORSE

• ECONOMIC POLICIES AND GOVERNANCE WITHIN EACH COUNTRY MATTER

• BUT UNFAIR GLOBAL TRADING REGIME PLUS FAILURE TO ADDRESS FUNDAMENTAL PROBLEMS OF GLOBAL FINANCIAL SYSTEM (GIVING RISE TO INSTABILITY) MAKE DEVELOPMENT ALL THE MORE DIFFICULT

• THERE IS A NEED FOR AN ECONOMIC SECURITY COUNCIL TO HELP PROMOTE A FAIRER, A BETTER, GLOBAL ECONOMIC ORDER