COC

Development Perspectives on the Global Financial Crisis (March 2009)

Rethinking Bretton Woods | Wed, Mar 11, 2009

The world is in the throes of multiple crises. On the heels of a food and climate crisis, most developing countries are facing the consequences of a financial crisis in whose making they played no part. These crises are caused by flaws in the structures and policies governing global growth and development. In other words, most of flaws such as risk-taking, speculation, opacity in the financial system, over-exploitation of finite natural resources, and failure to protect the environment and human rights lead to those crises.

 

As a result of the crises, many people who have had no role in their creation—the poor and  vulnerable-- have become victims. Additionally, export-oriented industries in developing countries have been the first hit by falling demand for their products and increasing unemployment with vulnerable groups pushed into a poverty trap. One clear outcome of these factors, particularly affecting vulnerable groups like the working class, women and youth, is an increase in inequality.

 

There are three principles that CIDSE suggested for action to reverse the effects of the global crises. Firstly, CIDSE recommends action to correct the unequal distribution of wealth and power based on the principles of the ‘universal destination of the earth’s goods’ and ‘subsidiarity.’ Secondly, CIDSE emphasizes the importance of the dignity of human beings. Finally, they point out that particular attention should be paid to the poorest.

 

The current financial crisis clearly shows the risk of an increasingly integrated world without adequate global regulation. Even though many global institutions are meant to deal with financial stability, flaws in their design and membership have caused them to fail in this task. In order to solve these problems, first of all, financial regulation standards and financial standard-setting bodies should be designed for development. A balanced and development-friendly system for international monetary stability should be achieved. To achieve this goal, the current system that relies on a single country’s currency should be substituted by other forms of multilateral cooperation on exchange rate management, while global institutions should guarantee countries that are simple “trend-takers” the policy space to manage their exchange rates. The Bretton Woods system should be reformed to reflect the interests of all its members. Furthermore, outdated structures should be replaced by a ‘new multilateralism’. This new concept entails a new and more effective role for the UN in on global economic and financial issues as well as use of the Financing for Development process to discuss and ensure the UN leadership role in such issues.  

 

Resources available to all countries – and particularly those in the developing world – have been made scarce if not completely dried up due to the current crises. To overcome the resource-crunch caused by the crisis, CIDSE stresses the importance of transparency, regulation and taxation of capital and profits. Reverse to these factors, secrecy jurisdictions, ‘race to the bottom’ to attract foreign investors, and globalization and liberalization of financial markets have played a significant role in the present financial crisis. Another measure to counter the harmful trading in the financial markets (speculation) is the adoption of a Currency Transaction Tax (CTT) and the further exploration of broader Financial Transaction Tax (FTT). In 2008, developing countries’ external debt was calculated to be as high as 3.35 trillion USD in 2008. This figure shows another consequence of adverse economic circumstance. To overcome this situation, a comprehensive and binding response to sovereign unsustainable debt is need. And also, to cope with the resource-crunch caused by the crisis, the need for legally-binding commitments on official development assistance (ODA) is important. Especially, ODA is important to enable sufficient investment in sustainable small-scale agricultural development.

 

Finally, fairer trade condition and financing to counter climate change also remain an urgent need for solution of the resource-crunch. Unfair trade conditions such as unchecked liberal approach to trade and dumping can give negative effects to the developing countries. And, when it comes to the climate change issue, industrialized countries must provide sufficient, predictable, secure and accessible financing, technology-sharing and capacity building to support the developing countries.

 

Both industrialised and emerging economies should realize that the complexity of the global crisis with their multiple dimensions require a response that represents a fundamental change in the status-quo. Therefore, CIDSE view the internationally agreed UN Conference at the highest level on the Economic and Financial Crisis and its impacts on development scheduled for June 2009 as a promising moment. Additionally, CIDSE works with other groups in civil society to make sure that politicians know that the public in concerned and is expecting serious policy change o ensure that the world that emerges out of this global crisis is better than the one that caused it.

 

Table of contents

 

TABLE OF CONTENTS

 

List of Acronyms........................................................................................................................ 1

Executive Summary..................................................................................................................... 2

 

Introduction ............................................................................................................................... 4

 

I. A value-based lens to analyse the problem and its solutions................................................. 8

1.1 Just Distribution of Wealth and Power ........................................................................ 8

1.2 The dignity of each person .......................................................................................... 8

1.3 Particular attention being paid to the poorest or the Preferential option for the poor .. 9

 

II. Global governance at the cross-roads .............................................................................. 9

2.1 A new design for financial regulation standard and financial standard-setting bodies ... 9

2.2 A balanced and development-friendly system for international monetary stability...... 11

2.3 Reforming the Bretton Woods System to reflect the interests of all its members ....... 12

2.4 A new robust multilateralism..................................................................................... 13

 

III. Overcoming the resource-crunch caused by the crisis.................................................... 16

3.1 Transparency, regulation and taxation of capital and profits ...................................... 17

3.2 Tackling speculation in the currency and financial markets ........................................ 20

3.3 A comprehensive and binding response to sovereign unsustainable debt................... 23

3.4 Official Development Assistance............................................................................... 24

3.5 Fairer trade conditions............................................................................................... 26

3.6 Financing to counter climate change remains an urgent need..................................... 27

 

Conclusion ............................................................................................................................... 29

 

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