High Level Intergovernmental consideration of financing for development

Statement by Ms. Nandhini Iyer Krishna, Counsellor, Permanent Mission of India to the United Nations on November 1, 1999 in the Second Committee (Economic and Financial)

Mr. Chairman,

My delegation associates itself with the statement made by the Chairman of G-77 & China.

The issue of financing for development is among the crucial issues currently before the international community. Indeed, for the lifting of the quality of life of the global community in its entirety, it is the central issue. In many ways, it will reflect on the credibility of the United Nations in the coming decades. In the 1990s, to take one dimension, we have painstakingly negotiated a set of internationally agreed priorities through the current cycle of international conferences in key areas such as environment, population and development, social development, Habitat, women and development. We are also well on our way to completing the five-year review processes of many of these conferences, but we need to recognize that an important perceived lacuna has been the provision and generating of resources and the lack of vigour in international cooperation to effectively follow up and implement even those priorities on which the international community is agreed. This is only one example of why this exercise assumes such importance.

The crises in several years, particularly East Asia, have all graphically reminded us of the enormous and unacceptable social and human costs that lacunae, in international institutional frameworks and systemic shortcomings can have. The huge capital flows to South East Asia, which had amounted to almost 93 billion US dollars in 1996, rapidly reversed in the face of financial turmoil, with the contagion spreading from economy to economy, with an outflow of 12 billion US dollars in a single year in 1997. This swing amounted to 11% of the pre-crisis GNP of these countries. As a result, it has been estimated that more than 13 million people have lost their jobs, real wages have fallen sharply by between 40 to 60%. Education and Health budgets are in disarray . The intangible consequences, in terms of human misery, erosion of the social fabric, social unrest, and crime, cannot even begin to be estimated. There is no dividing line between an economic crisis and human tragedy.

Although there are some signs of recovery, with the containment of contagion and the upturn of commodity prices, neither is complacency justified, nor has the need to learn the lessons and take lasting corrective action lessened. We need to remind ourselves that while output growth, balance of payments, interest rates and inflation may be returning to normal, destroyed human lives are never restored nor are the scars fully sealed. A recent study of financial crises in eighty countries over the past few decades suggests that it takes an average of three years even for for real wages to pick up again and that employment growth does not regain pre-crisis levels for several years after that.

We also need to recognize, that far from being isolated instances, financial crises occur with greater frequency and, perhaps most alarming of all, with greater and greater magnitude. Increasingly, perceptive analysis of global capital markets and macro-economic trends acknowledges that financial crises occur as a result of systemic features of global capital markets and that "no single country can withstand their whims and that global action is needed to prevent and manage this." The argument is not unheard that social and human costs are the price which we in the international community must pay for the enhanced prosperity that globalisation and liberalisation have brought in their wake. Globalisation has certainly opened many new opportunities around the world, particularly in terms of increased trade, new technologies, investments, expanding media and communication networks, all of which fuel economic growth and enhanced living standards. Global markets, global technologies, global integration has the potential to enrich societies. What concerns us is that globalisation and dependence only on markets cannot by itself guarantee the irreducible objectives of equity, development and balanced global advance. Most activities crucial to development and human achievement such as education, health, environmental protection, are all essentially provided outside the market. As governments retreat increasingly from economic activity in the face of the advance of markets in pursuit of enhanced efficiency and competition, the capacity of governments to influence social and political outcomes diminishes. As a result, opportunities and rewards of globalisation are spread unequally and inequitably, concentrating power and wealth, creating winning corporations and social segments, lifting some regions nationally and globally but bringing in its wake huge swaths that are marginalised. Moreover, the market, far from being infallible as the recent crisis has revealed, more often than not, miscalculates risks and fuels the instability, financial volatility and contagion that results. This in turn has far reaching implications, far beyond the capacity of markets or governments to remedy. In a world of irresistible globalisation, serious imbalances and vulnerabilities must be prevented from developing, deepening, divides between winners and losers. The success of the phenomenon of globalisation depends on lifting the global society in its comprehensiveness and totality.

Mr. President, we will not dwell longer on this theme as we have spoken on it under the agenda item on globalisation, except to emphasize that the real challenge before us in attempting to address financing for development is not to stop the inexorable march of global markets but to examine and review the institutional and systemic frameworks within which they function in our collective interest in the spirit of a shared challenge. We need to devise mechanisms whereby all Governments, particularly the vulnerable developing countries, participate in shaping approaches, rules, institutions and understandings at all levels, whether to address the international financial architecture constructively in a manner that will better manage and possibly even prevent such financial crises or other aspects pertaining to the larger question of resources and elements we have covered in the deliberations of the Working Group set up to consider this question. We are greatly encouraged by the sense of consensual concerns, and solidarity in commitment which was in evidence in the debates and exchanges in the Working Group.

From our point of view, another crucial raison d’etre of this exercise is to address the urgent need for coherence between the international trade, financial and monetary systems. We have a unique opportunity to do so since this exercise on Financing for Development takes place against the backdrop of a thorough ongoing review of the multilateral trade frameworks, particularly the Uruguay Round Agreements. In an era where capital markets have been growing exponentially, it is becoming more and more difficult to sustain distinction between trade in goods and services and capital markets. It is increasingly apparent that, in a globalised economy, a rule based multilateral trading system can no longer co-exist with features tending towards anarchy and instability in the international financial system. We need to remind ourselves that an essential pre-requisite for the creation of the current multilateral trading system was the degree of financial stability sought to be ensured by creating the IMF. It is increasingly clear that we need to see far more coordination and coherence between the financial and trading systems.

Through the exercise we will be undertaking in the U.N., we have a unique opportunity to collectively address, in our shared interest, this broad range of issues that fall within the rubric of Financing for Development, from aspects of the financial architecture and enhancing coherence and coordination between the multilateral trading and financial systems, to external debt, official development assistance and innovative sources of funding.

Over the last year, through the Working Group on Financing for Development, we have successfully initiated an important process of confidence building and trust. We have attempted an informal but extremely thorough exploration of the various issues that might need to be addressed in the agenda for the event in 2001. We have also been able to define the characteristics of both the preparatory process and the final event.

It is our belief that we need to fashion a preparatory process that will rise to the challenge before the UN. In seeking to ensure a holistic, comprehensive treatment of the various integral components of financing for development, we need to ensure a multi-layered preparatory process that can also draw on inputs from sub-regional and regional groupings, including regional commissions. It is also our hope that we will build into our preparatory process a series of expert group and panel meetings on the specialised aspects of the complex issues before us.

Above all, it is our belief that it cannot be sufficiently emphasised that we need to continue to work in the spirit of mutual partnership and cooperation that has characterised our journey in the initial phase of this exercise, both in the negotiations over resolutions 52/129 and 53/183 and the Working Group on Financing for Development.