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Bhumika Muchhala

G24: South calls for actions on the structural failures of international financial system,

by Bhumika Muchhala

12 May 2014

Developing countries have called for a more equitable world order that includes an enabling international environment for development and concrete recommendations to redress the structural failures of the international financial system.

This was in a statement of the Group of 77 (G77) and China, representing developing countries in the UN General Assembly, delivered to the Group of 24 (G24) developing countries in the International Monetary Fund (IMF) and World Bank in April 2014.

The statement was delivered by the Minister of Economy and Public Finance from the Plurinational State of Bolivia, Luis Alberto Arce Catacora. Bolivia is the chair of the G77 this year; the chair position rotates on an annual basis across the regions of the South.

At the outset, the Bolivian Minister stressed the vital need for an ambitious and expeditious reform of the Bretton Woods Institutions (BWIs), particularly their governance structures, based on full and fair representation of developing countries. Currently stalled, the governance reforms for the asymmetric voting power allocation of the IMF’s executive board is necessary to address the democratic deficit in these institutions and improve their legitimacy.

According to the G77 and China, these reforms must reflect current realities and ensure the full voice and participation of developing countries. As a first step, the reforms should achieve, at least parity of voting power for developing countries as a group in the decision making process within the BWIs.

The Group believes that two critical actions must be pursued. First, fundamental reforms in the IMF governance structure must be implemented. Second, the IMF must provide more comprehensive, even-handed and flexible financial responses to the needs of member countries, without imposing pro-cyclical conditionalities, and respecting developing countries’ need for policy space.

The G77 and China stressed the importance of the participation of developing countries in all discussions on international monetary reform and in the operation of the new arrangements for Special Drawing Rights in the Fund.

With regard to the role of the UN in global economic governance, the Group called for the strengthening of the UN’s voice in economics and finance. This can be achieved by promoting greater cooperation between the UN and the international financial institutions, including the early review of the implementation of the cooperation agreement between the UN and BWIs.

The G77 and China also affirmed the longstanding need for reform of the international financial architecture toward the objective of reshaping a financial and monetary system that reflects the realities of the 21st century. This includes a properly regulated international financial sector that reduces and discourages speculative investment, so that capital markets can be mobilized to achieve development and play a constructive role in the global development agenda.

They note with concern that financial deregulation and financial liberalization have given rise to the massive expansion of speculative financial flows and derivatives trading. The 2008 financial and economic crisis has shown that international finance has created an economy of its own, which has become increasingly disconnected from the real economy of production, direct investment, job creation, poverty eradication, inequality reduction and wage growth.

The democratisation of international economic decision-making must also allow for special and differential treatment for developing countries and the transfer of technology on concessional and preferential terms. This is crucial if developing countries are to succeed in eradicating poverty and accelerating economic growth in a sustainable manner.

The common demand from the Group is for a more equitable world order and for an enabling international environment for development. The Bolivian Minister stated that with the support of the G24, concrete recommendations can be made to redress the structural failures of the international financial system.

In order to successfully implement the internationally agreed development goals, including the Millennium Development Goals, by 2015, the full realization of all commitments made at United Nations Summits and Conferences must be made.

The chief task is to overcome inequality, since the concentration of wealth co-existing with poverty and hunger emphasizes and exposes the unsustainable patterns of consumption and production in a period when the world is threatened by climate change and loss of biodiversity. The G77 and China therefore calls for global initiatives to address the problem of entrenched inequalities.

The Group is concerned with the erosion of development cooperation in terms of Official Development Assistance (ODA) and reiterates the need for developed countries to urgently fulfil ODA commitments, in particular to achieve the target of 0.7% of gross national product to developing countries by 2015, as well as a target of 0.15 to 0.20% of gross national product for ODA to least developed countries.

The Group has a long held position that debt sustainability should be linked to a country’s capacity to achieve its national development goals including the Millennium Development Goals. Creditors and debtors should share the responsibility to prevent and resolve unsustainable debt burdens.

Due to the continuation of the global economic crisis, the economies of increasing numbers of developing countries are being affected, and some countries are becoming more vulnerable to new external debt problems or exacerbated economic crises. Addressing external debt problems of developing countries is thus an important part of international cooperation and the enhanced global partnership for development.

The importance of new and additional resources and the need for full implementation of aid commitments is not only linked to the comprehensive treatment of the debt problems of developing countries but also to the overall ODA resources.

In order to improve their effective participation in the multilateral trade system, the Group of 77 and China stresses the importance of facilitating the accession of all developing countries and least developing countries that apply for membership in the World Trade Organization, without political impediments, in an expeditious and transparent manner.

In order to reach the development potential of trade, the Bolivian Minister stressed the importance of upholding a universal, rule-based, open, non-discriminatory and equitable multilateral trading system that promotes recovery, growth, sustainable development and employment, taking into account the needs and interests of developing countries.

The G77 and China also believes that development should be aimed at eliminating material wealth gaps, and that the various economies should promote the common good and satisfy the material, cultural and spiritual needs of societies in a context of harmony with nature.+

Published by Third World Network

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