Global Policy Forum

By Oscar R. De Rojas

Ambassador and Deputy Permanent Representative of Venezuela to the United Nations and Chairman of the Second committee of the Fifty-second Session of the United Nations General Assembly

Although the general reader will surely associate the United Nations with economic and social aspects of development, the role of the United Nations in international financial questions is another matter. The locus of multilateral decision making on finance is largely centred on Washington, D.C., particularly at the Bretton Woods institutions. The International Monetary Fund (IMF) and the World Bank are indeed the primary vehicles for carrying out international policy on financial matters, although the World Trade Organization has recently also become an important forum for establishing rules of international access and competition in the financial sector, apart from its regular work in the area of international trade in goods and services. Aside from these three near-universal institutions, a variety of more limited forums make or recommend policy in international financial affairs. They cover a wide range-from the Group of Seven (the heads of State or Government of the seven major industrialized countries) at the political level, to the committees at the Bank for International Settlements that report to the governors of the central banks of the Group of Ten at the technical level.

How does the United Nations fit into this structure? At the political level, the Charter of the United Nations mandates the economic and social organs and forums of the United Nations-the General Assembly, the Economic and Social Council and their subsidiary bodies-to monitor regularly economic and social developments, which may cover domestic and international financial matters as appropriate, and to provide policy guidance and coordination to the different specialized agencies of the United Nations system, which in the view of many, does and should in fact include the international financial and trade institutions. At the technical level, at the behest of the intergovernmental bodies of the United Nations, the Secretariat may undertake research and policy advice on various policy issues, including certainly financial questions.

In this way, international financial concerns have been on the agenda of the United Nations in one form or another since the earliest days of the Organization (including the convening of the Bretton Woods conference in New Hampshire as a United Nations conference). Achieving an adequate net international transfer of financial resources, in particular, has been an important part of the consideration of how to accelerate economic and social development in the developing countries-and also, in the 1990s, bolstering the efforts of the countries that are making the transition from centrally planned economies to market-oriented systems. Three aspects of these financial issues have been particularly salient at the United Nations in recent years, namely, the uneven and inconstant terms and conditions of the access of developing and transition economies to international financial markets, the still-unresolved external debt problem of far too many developing countries and the premature reduction in official development assistance caused by the political "aid fatigue" that appears to have overcome some of the major donor countries. Each of these issues was discussed at the Fifty-second Session of the General Assembly in the fall of 1997 in the Second Committee (Economic and Financial Questions) which it has been my privilege to chair. I will try to comment on the main results of these deliberations in the notes that follow.

Although such discussions of economic and social issues at the United Nations are often seemingly on the periphery of the world stage, they have the potential to take on a central role in the making of economic and social policy. Once a problem is identified, the United Nations has the capacity to focus intense international attention on it, raise its political visibility and thereby bring the international community to seek new initiatives to resolve it, whether the ultimate actions are taken through the United Nations itself or other international institutions or member Governments acting in tandem. The success of the United Nations in raising international consciousness about global environmental challenges, the treatment of women in society and the situation of poverty in which billions of human beings still find themselves are recent cases in point. Against the background of the surprising and even shocking developments in the international financial and currency markets in 1997, momentum has built behind a proposal to focus greater international attention on finance for development through the United Nations. I will also refer in these brief notes to recent major developments in this regard, as well as what seems to me to be their potential global significance.

The heightened concern about finance for development

Indeed, a new sense of urgency has been building at the United Nations around a set of concerns that are subsumed under the term "finance for development". A first principle of development is that high rates of capital formation are a central requirement. Certainly, we are more aware today than we once were of the need to ensure that the quality of investment is high, but this has not obviated the need for the quantity of investment also to be high. Financing for investment can come from only two sources: domestic savings and financial transfers from abroad. In some developing countries there is scope for raising domestic savings, and in many countries savings can be more efficiently applied to investment (a major benefit from financial-sector reforms). However, there is hardly a single developing country in which savings are so large that investment would not be held back inordinately were domestic savings the only financing available. Thus, a sufficient, continuous and assured net transfer of resources from the developed to the developing countries is absolutely essential if developing --and one could add transition-- economies are to realize their potential rates of economic growth and transformation. The concern today is that in a world that is awash in international financial flows, the access of developing countries to net resource transfers is neither sufficient, nor continuous, nor assured.

International financial volatility

Concerns about the adequacy of financial flows for development have been exacerbated by the events of the last few years and in particular 1997. Large financial flows to a number of developing countries suddenly slowed, halted and reversed direction. The pressures began in south-eastern Asia, but they were felt at one point or another during the year in northern Asia, Africa, Latin America and certain countries in transition. In the most seriously affected countries, in Asia, liquidity evaporated, stock markets collapsed and exchange rates plummeted, as domestic and foreign financial investors panicked.

The common view in the financial markets at the end of 1997 was that the Governments of these countries had been trying to get by with flawed policies and highly fragile financial systems. But many of these very same countries had earlier been regularly cited as among the most solid economic "success stories" of the 1990sl This suggests that either the best analysts from the world's financial centres seriously misjudged the situation in several countries or that financial markets did not quite operate as "normally" expected.

Certainly, there is today a higher degree of appreciation of the hazards arising from the volatility to which international financial flows to developing countries are susceptible. The General Assembly crystallized this perception before 1997 ended by adopting a resolution entitled "global financial flows and their impact on the developing countries" (resolution 52/180). Like the Assembly assessments in 1995 and 1996 (resolutions 50/91 and 51/166), which had been called for after the 1994-1995 Mexican and Argentine currency crises, the new resolution sought a balanced appreciation of the opportunities and challenges of global financial integration, as well as the means for strengthening collaboration between the United Nations and the Bretton Woods institutions in this area.

The new Assembly resolution thus reiterated, inter alia, the important opportunities embodied in financial market integration, the desirability of broadening and deepening the access of developing countries to private capital flows, the role of sound macroeconomic and institutional policies in developing and developed countries in fostering the flows, and the value of greater transparency, accountability and publicly available data for general policy credibility and confidence building. Challenges of global financial integration had also been noted before, but one could see in the new resolution a heightened concern that, in the course of liberalizing their external economic and financial environment, a number of developing countries might have become more vulnerable to economic disruption from volatile fluctuations of private capital flows. The very globalization of financial markets was possibly generating new risks of financial instability that could aggravate this volatility of capital flows. It was even possible that the liberalization processes followed by developing countries might have become a source of additional stress on economies that were already straining to adjust to globalization. Clearly, Governments need to manage this liberalization process, and carefully.

The Bretton Woods institutions, especially the IMF, have had a central advisory role in this regard, as well as leading the international effort to mobilize financial rescue packages for the countries in crisis. Welcoming these initiatives, the Assembly also invited the IMF to ensure that it promoted capital account liberalization "in an orderly and flexible manner, so as to enable member countries to tailor capital account liberalization to the circumstances of each individual country" (para. 12). In addition, the Assembly signaled its intention to become more deeply engaged in these matters itself by requesting that the United Nations Secretariat, in close cooperation with the Bretton Woods institutions, prepare recommendations for its consideration during the next year on ways and means to address the volatility.

In fact, the Assembly's analysis of the financial crisis of 1997 has been quite broad, and it did not shrink from raising political questions. It was mindful, in particular, of the weight of the major industrialized countries in influencing world economic growth and the international economic environment, and it thus invited IMF to fully exercise its mandate to sustain effective surveillance over the underlying macroeconomic policies of its member countries, in particular those countries whose economies are particularly relevant for the stability of the international monetary and financial system" (para. 9) It also recognized the need for enhanced participation of developing countries in the work of the Basle Committee on Banking Supervision, one of the committees associated with the Bank for International Settlements noted above. More generally, it reiterated the need for "broadening and strengthening the participation of developing countries in the international economic decision-making process" (para. 2).

External debt

The importance of financial market volatility notwithstanding, it is difficulty that most developing countries have yet to experience. is, the distribution of those flows has been very highly concentrate only 10 countries accounted for over three quarters of the total flow to the net-debtor developing countries in 1996. In addition, even this late date, a number of developing countries still remain under 'debt overhang", which is to say they have external debt obligations that exceed what they are ever likely to be able to service on their own. The bulk of this debt is owed to official creditors, both individual Governments and multilateral institutions. Currently, some of the debt is in arrears and some is serviced out of new official flows.

Over the years, the international community developed a cooperative strategy to assist developing countries to emerge from debt crises A major addition to this strategy was the adoption of the Initiative for the Heavily Indebted Poor Countries (HIPC) by the Bretton Wood institutions in 1996. The HIPC initiative recognized that the previously available schemes to assist low-income countries did not lead to them exiting the process of repeated debt-restructuring negotiations, unlike the measures that had earlier been developed for middle income countries, the debts of which had been owed primarily to commercial banks. The HIPC initiative thus promised deeper relief than had been available thus far and from more creditors, including the multilateral institutions.

However, serious questions remained, particularly in Africa, about how this initiative would be applied. The General Assembly reflected this sentiment in its 1997 resolution on "enhancing international cooperation towards a durable solution to the external debt problem of developing countries" (resolution 52/185), wherein it noted that "further progress, including swift implementation of innovative approaches and concrete measures, is essential for contributing to effective, equitable, development-oriented and durable solutions to the outstanding debt and debt-servicing problems of a large number of developing countries, particularly the poorest and heavily indebted countries" (Para. 3).

In this regard, the Assembly stressed the importance of interpreting the criteria for eligibility for the HIPC initiative flexibly and in a transparent manner and underlined that any reviews and analyses should involve fully the potential debtor country beneficiaries. In other words, steps were sought to ensure sufficient country coverage of the HIPC initiative. Another concern --one that applies as well to non-HIPC countries -- was that debt relief should be fully comprehensive, for example, including debt owed to Governments that did not participate in the Paris Club mechanism for bilateral debt relief. The Assembly welcomed the decision by the Paris Club to improve the degree of relief offered in restructuring the debts of the poorest and most heavily indebted countries, and it thus invited all other creditors "to make an appropriate and consistent contribution to the common objective of debt sustainability" (para. 12).

A further concern of the Assembly was that there be adequate financial resources to carry out the required debt relief The multilateral debt component of relief under the HIPC initiative, in particular, required new financial resources to cover the debtor-countries' obligations. Some of those resources have been mobilized and are held in special trust funds at the World Bank and IMF. The Assembly expressed appreciation for the contributions already made to the trust funds, but it also recognized that implementation of the initiative required additional resources from both bilateral and multilateral creditors.

Debt owed by developing countries to international commercial banks has been alleviated over time through a variety of mechanisms. One is a special debt-reduction facility that was established in 1989 the World Bank to assist low-income countries to repurchase their obligations at a small fraction of their face value. Future availability o that facility would depend upon continued successful mobilization o official resources for it. In addition, some countries had been able t take advantage of debt-conversion or debt-swap programmes wherein external contributors purchase a portion of a country's foreign obligations from its bank creditors at a deep discount and give th loan instruments to the debtor Government in exchange for domestic social, economic or environmental policy changes and government expenditure commitments. The Assembly stressed that such programmes should be widely implemented "so that the countries concerned may be assisted in their development efforts as well as t support measures in favour of the most vulnerable segments of the societies of those countries" and that additional techniques of debt con version be developed and "applied to social development programme and projects, in conformity with the priorities of the World Summit for Social Development, held in Copenhagen in March 1995" (para. 7).

Official development assistance

The specific resource concerns noted above are part and parcel o broader questions about the availability of external resources for development, which the Assembly addressed, inter alia, in the two resolutions discussed above. In the debt resolution, the Assembly stressed the importance for the developing countries of continuing to promote a favourable domestic environment for attracting foreign investment and the need for the international community to promote a conducive external economic environment, including full implementation of multilateral trade agreements. Increasingly developing countries are expected to rely mainly on private sources of international finance for development.

For most developing countries, however, official flows -- in particular, official development assistance (ODA) -- will still be required for many years to come. While all Governments should seek to cover their normal current expenditure with current revenues, developed country Governments and many of their sub-national units routinely raise funds for economic and social infrastructure investment by tapping the financial markets, as by issuing bonds in home and foreign markets. But there are severe limits on the number of developing countries that can do this and the types of investment projects for which such funds can be raised. As the General Assembly noted in the resolution on global financial flows...... most of the least developed countries, especially those of Africa, have not benefited from the globalization of finance and continue to be in great need of official development assistance" (para. 5).

The Assembly also expressed explicit and strong support in the debt resolution for two highly concessional multilateral facilities, the Enhanced Structural Adjustment Facility (ESAF) at IMF and the International Development Association at the World Bank, both of which are in need of further efforts to secure adequate funding for future operations. For the most part, these resources have to come from the budgets of creditor Governments, although the Assembly intimated that IMF might "consider concrete measures in order to generate fiends" for ESAF (para. 17). One proposal that might fit into this category is sale of a portion of the gold holdings of IMF and the retention of a portion of the profits from the sale for funding ESAF.

The fact that neither this nor other "concrete proposals" could be mentioned explicitly in a consensus resolution of the General Assembly gives a hint of the political sensitivity of the issue of multilateral generation of concessional resources to assist low-income developing countries. The recent trend in national ODA budgets is no more encouraging. As noted in the Secretary-General's report to the Assembly, total ODA measured in constant purchasing power declined in 1995 and again in 1996, when it reached a record low 0.25 per cent of the gross national product (GNP) of donor countries. The Assembly thus urged "creditor countries and multilateral financial institutions to continue to extend concessional financial assistance, particularly to the least developed countries…" (para. 20 of the debt resolution). Many years ago, the United Nations adopted a target of donor country assistance equivalent to 0.7 per cent of GNP Although some do nor countries exceed the target, others are increasingly distant from it. One important question is how a new political impulse might reinvigorate development assistance flows.

Toward high-level intergovernmental consideration of finance for development

Financial aspects of development have not only pushed themselves forward in international consciousness, they have also coalesced as subject for more intensive international consideration. This could b seen, for example, in recent decisions to prepare for a series of high level intergovernmental meetings between the United Nations an the Bretton Woods institutions in order, inter alia, to "facilitate an ex change of views with regard to global issues of high priority and relevance" (General Assembly resolution 50/227, para. 88). Implementing the mandate from the Assembly, the Economic and Social Council also recently recommended that such a meeting be scheduled at a time proximate to the semi-annual meetings of the Bretton Woods institutions, "With a view to benefiting, to the extent possible, from high-level ministerial participation and the participation of heads of financial and trade institutions and other relevant organizations" (resolution 1996/43, para. 4).

The first such meeting is expected to take place in New York in the spring of 1998, following the Washington meetings of the Interim and Development Committees at the World Bank and IME The agenda for this first meeting is expected to be open-ended, but the Assembly has stressed on various occasions that global financial flows should constitute a very important element of the dialogue between the United Nations and the Bretton Woods institutions (the most recent instance was in the 1997 resolution on global financial flows discussed above).

Besides introducing discussions between the intergovernmental machinery of the Bretton Woods institutions and the United Nations, the Assembly has also set about to renew the intergovernmental dialogue at the United Nations on 'Strengthening international cooperation for development through partnership". "Cooperation" in this context refers to far more than financial flows from developed to developing countries, but finance is certainly intended to be one element in the dialogue. This was the context of a recent resolution on the subject, wherein the Assembly decided to hold a "two-day high-level dialogue on the theme of the social and economic impact of globalization and interdependence and their policy implications" (resolution 52/186, para. 3). The dialogue is intended to serve as an important mechanism for the follow-up and assessment of the new United Nations Agenda for Development, a major statement of international development objectives and policies which was adopted by the General Assembly in June 1997 after more than four years of deliberations (see resolution 51/240). The Agenda for Development itself had suggested a possible strategy for a discussion process that would have a specific focus on the question of development finance. That is, the concluding paragraph of the Agenda stated that "due consideration should be given to modalities for conducting an intergovernmental dialogue on the financing of development" (para. 287).

By the time the General Assembly convened in the fall of 1997, outside the conference rooms of the United Nations the international financial crisis in Asia was burgeoning, data were released for 1996 by the Organisation for Economic Cooperation and Development showing a continued substantial decline in ODA flows and evidence began to accumulate that the implementation of the HIPC initiative on debt would be slower than many had hoped. Political momentum for a new, comprehensive world dialogue on finance thus began to crystallize and consolidate. The logical next step was to define its modalities, outline its scope and decide upon a preparatory mechanism.

The Assembly thus took a transcendental step in this direction by adopting a resolution which can safely be characterized as being one of the most important of this session-that on "global partnership for development: high-level international intergovernmental consideration on financing for development" (resolution 52/179)-based on proposal originally tabled by the Group of 77 developing countries. The consensus text embodies a direct statement of "the need for a systematic, comprehensive and integrated high-level international inter-governmental consideration on financing for development, with view to creating a broader-based partnership for development" (p 1). The resolution recognizes that other efforts in this regard h been taken within and outside the United Nations system and that it is necessary to take stock of them. It decided to convene a two-day resumed session in 1998 to solicit views from member Governments on inputs that might be sought from a broad range of stakeholders. These recommendations would be presented to the fifty-fourth session (beginning in the fall of 1999), when the Assembly would consider what kind of meeting to convene and schedule it not later than 2001.

Delegations have attached particular significance to this resolution because they see in it the opportunity for great strides in international cooperation for development and in enhancing the role of the Unite Nations in the consideration of international economic issues. Furthermore, the opinion has been expressed that this could provide excellent opportunity, 50 years after Bretton Woods and on the eve of the new century, to take a fresh look at the whole make-up of the inter national financial and monetary order, much in the same way as the Uruguay Round produced a thorough revision of the international trading system, including its institutional aspects, 50 years after the Havana Conference. I share likewise the view, expressed many times, that the United Nations is the only forum where these issues can b dealt with in a comprehensive, coordinated and democratic manner, where they can have true legitimacy and universal value and where they can be instilled with an effective political and moral content.

We must not forget that the proposals referred to above should also be seen as a renewed, modern attempt to reactivate what has been traditionally called the "North-South dialogue". This was initially a series of meetings and events that sought to build upon a mutual recognition of the principles of genuine interdependence, shared responsibility and equity in international relations. Its origin can be traced back more than 20 years to the United Nations Declaration on the Establishment of a New International Economic Order, to the Conference on International Economic Cooperation held in Paris in 1976 and 1977 and to the subsequent efforts to launch a process of "global negotiations" at the United Nations in the early 1980s.

Given the impossibility (or reluctance) to address the global nature of international economic issues at that time, over the following decade and a half the focus of United Nations discussions shifted to more sectoral questions of development, or what are sometimes called ' soft" issues-these having been the subject of the great United Nations conferences held in recent years: the environment, population, social affairs, women, human settlements. A new, three-tiered concept of "Sustainable development" was born which, without questioning it in any way per se, did not put the necessary emphasis on the issues of international trade, capital formation, financial flows and economic growth. The new efforts try to address squarely the question of how to resume an effective and fruitful discussion on the "hard", as well as the soft", issues and how to carry it out at the highest political level among all members of the international community.

As I indicated in my opening remarks to the Second Committee session, one of the complaints we have heard with some frequency in recent times is that many of the debates in the United Nations seemed to have lost their ethical content and idealism and have become excessively utilitarian. Years ago, we often referred in our debates and decisions to the concept of social justice as applied at the international level. Indeed, that was the political and philosophical basis of that now all-but-forgotten thesis of the "new international economic order". Without wishing to turn back the clock and recognizing that the world of today is very different from 20 or 30 years ago, I believe that we should really try to recover a little bit of that spirit. International cooperation cannot be based only on the concepts of "mutual benefit and common interest" of countries. There must also be an element of the call for justice, for the duty of those who have more means towards those who have less. In the same category, ultimately, is the call for solidarity, for authentic human solidarity, without which it is impossible to construct either development or peace.

I believe a good challenge for the new United Nations today is to find a proper combination of these various factors and elements so as to consolidate a new commitment to sustain our goals and actions with respect to international economic cooperation and development. It now requires the effort and political will of Member States to ensure that the process the Assembly has set in motion for high-level, comprehensive consideration of the issues relating to financing development will truly become a milestone in the history of international cooperation. For one has only to reread the United Nations Charter from time to time to remind oneself that the United Nations was not put here simply to consider world affairs as they are, but to try to shape the world into what we would all like it to be -- politically, socially and economically.

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