SUNS 4368 Friday 5 February 1999
Finance: U.N. wants a world financial authority
United Nations, Feb 3 (IPS/Thalif Deen) -- The United Nations has come up with a set of wide-ranging proposals - including the creation of a new world financial authority - to help resolve the global economic crisis.
"This is the first articulation of the considered view of all of the UN bodies involved in economic and social work," says Nitin Desai, Under-Secretary-General for Economic and Social Affairs.
The recommendations, including a proposal for international codes of conduct for sound corporate governance, come from a UN Task Force of the executive committee on Economic and Social Affairs. It says the proposed world financial authority should be empowered to set international standards for financial regulation and supervision.
In a report titled "Towards a new international financial architecture" the Task Force spells out some of the proposed solutions to the ongoing crisis, which began in Thailand in mid- 1997, and spread throughout Southeast Asia and into Latin America.
The report is jointly authored by Desai and Jose Antonio Ocampo, Executive Secretary of the Economic Commission for Latin America and the Caribbean (ECLAC).
The Task Force says that the global economic turmoil has made it "painfully clear that the current international financial system is unable to safeguard the world economy" from financial crises of high intensity and frequency.
The crisis, described as "the most threatening event of its kind in more than half-a-century," already has resulted in substantial downward revisions of world economic forecasts both for last year and this year.
The economic turmoil has forced at least five developing nations to seek emergency assistance from the International Monetary Fund (IMF).
The bailout packages include 58 billion dollars to South Korea, 43 billion dollars to Indonesia, 41.5 billion dollars to Brazil, 17.2 billion dollars to Thailand and about 1.0 billion dollars to the
The wide-ranging proposals in the report include the creation of strong regional reserve funds and the availability of greater liquidity to prevent cash crises.
"With the full support of the major industrial countries, the IMF should put together contingency funds to assist countries now experiencing crisis or contagion, and others that could become the
victims of world financial crisis in the future," the report notes.
Ocampo told reporters that in the short-term there was a need, firstly, to face the risk of a global recession because the world economy has been slowing down - and may continue to do so.
Secondly, there was a need for a specific mechanism - namely "contingency funds"- to tackle the crisis. These funds, he said, should be made available before a country ran out of its international
reserves. In the past, funds came only after reserves were depleted. As a result, "their effectiveness was lower than expected," he added.
Ocampo said the long-term proposals in the report encompassed six basic areas.
The first was the need to develop more consistency in macro-economic policies at the global level. Policies needed to be coordinated, but they need not be identical. Surveillance should be strengthened, he said.
The second issue was the provision of adequate liquidity in times of crisis. Ocampo said that contingency funding, which should be adequately financed, should also become a permanent feature of the international financial system. The existing financial regulations should be widened to include hedge funds and off-shore institutions.
The third issue relates to the need for international codes of conduct in fiscal, monetary and financial areas. These should include international standards to combat money laundering, as well as corruption and tax evasion.
Finally, he said, there was a need to develop an international financial system which, aside from a strong IMF, should have a network of regional and subregional institutions to support the management of financial issues and development financing.
The report points out that the inability of the IMF to mobilise all the resources needed for the rescue of countries in financial distress has required it to arrange financing from other sources, including the World Bank and regional development banks.
"These institutions were not designed to provide liquidity to countries facing short-term external financing difficulties," it says.
A continuation of this practice, the report argues, would impair their capacity to fulfil their fundamental mission, which is to cater to the long-term development financing needs.