|United Nations Conference on the World Financial and Economic Crisis and its Impact on Development, 24 - 26 June 2009, UN Headquarters|
|Thursday, 25 June 2009 12:03|
Statement by Honourable (Prof.) G. L. Peiris, Minister of Export Development & International Trade
Excellencies, Ladies and Gentlemen,
At the outset, Mr. President, allow me to congratulate you on this timely initiative by the United Nations General Assembly to meet at the highest level to look into the causes and consequences of the world financial and economic crisis - the worst since the ‘Great Depression’ in the 1930s - and its impact on development. I also take advantage of this opportunity of conveying to you and the members of this august body, the best wishes of His Excellency President Mahinda Rajapaksa, President of Sri Lanka, to arrive at a positive outcome, founded on consensus, from this global conference. We have today the potential to make a beneficial impact on the billions of people affected by this crisis.
The root causes of the current crisis are complex, involving as they do the consequences of the food crisis, continued instability in fuel prices, widening of economic imbalances among major players in the world economy, complexities associated with increased globalization, constraints in access to financing, failures of regulatory and early warning systems, and the challenges posed by climatic change, among other issues. The crisis has created an unprecedented urgency in finding more sustainable solutions to these deep seated global problems. Macro-economic adjustments and shock therapy through the provision of temporary financing alone will not be sufficient to prevent more frequent world crises in the future.
The full scale of the socio-economic impacts of the crisis is yet to be seen. The aggravation of balance of payments difficulties with shrinking markets, incomes from remittances, exports and tourism and the drying up of trade financing will have drastic socio-economic consequences, and many developing countries were left at their own mercy in the absence of adequate support from the multilateral aid and financing architecture that we created after the Second World War.
The current crisis has seriously undermined the development prospects for many vulnerable countries. The sharp contraction of economic activity and rising unemployment needed urgent remedial measures which included a large fiscal stimulus at the cost of much needed development expenditures. As many countries struggle for recovery, the effects of the crisis are likely to remain longer in the developing countries. While it is somewhat heartening to hear that we are now at the lowest point of the world economic downturn, there is a real urgency in finding coordinated and concerted solutions to the current crisis. In this endeavour, it is essential that we look for more innovative and practical solutions.
While the increased globalization and inter-connectivity among nations has led to unprecedented expansion of the world economy with many positive features, without adequate safeguards, that has also made the developing countries vulnerable to economic downswings originating in the developed world, as we are experiencing now. The current crisis has exposed grave lapses and failures of the early warning systems and supervisory and regulatory systems in developed countries. In the context of the economic crisis and growing economic imbalances, the movements of the interest rates, exchange rates and commodity prices have become more unpredictable.
While the traditional key players in the world economy are experiencing negative growth rates, it is encouraging that emerging countries that have paid attention to safeguarding their domestic agriculture and rural economic activity, while also expanding their economic integration with the rest of the world, have been able to sustain positive growth rates, despite a deceleration of the growth momentum.
Mr. President, as the representative of an emerging middle income country, I am pleased to let this assembly know that Sri Lanka also falls into the group of countries that have been able to maintain an overall positive economic growth rate, despite the adverse impact of the world crisis. I attribute this to the clear vision, strategy and development policies being implemented in our country under the leadership of President Rajapaksa. After maintaining a growth rate of over 6.2 per cent in 2008, the recently released data for the first quarter of 2009 indicated 1.5 per cent growth and we expect it to improve in the remaining quarters to reach around 3-4% average rate for 2009. Despite a contraction of international trade and trade related activity, it has been encouraging that the performance of the agriculture sector and the rural economic activities continue show improvement.
We are, however, concerned that the current depressed environment has seriously constrained the resource flows for investment in developing countries and that this situation is unlikely to show any significant improvement in the near future. The declining demand from the developed countries has adversely affected the services sectors such as tourism in developing countries. Similarly, lack of investment in developing countries or reversal of portfolio investment flows from developing countries has a direct impact on job markets which can lead to higher unemployment rates-a situation that has grave consequences for the poor. This, together with the adverse impact of the crisis on government revenues, could seriously constrain our ability to devote an adequate amount of resources to social expenditures such as public health, education, poverty alleviation programs and much needed infrastructure development. Globally, there should be an early enhancement of the resources flows to developing countries, without which the hard gains achieved in realizing development goals, including the Millennium Development Goals, could be placed in jeopardy.
Existing institutional mechanisms may not always be sufficient or effective in containing the volatility of financial markets, coupled with the negative impact of globalization and the contagion effects of the crisis. It is unfortunate that the policy paradigms and the mandatory conditionality associated with the credit facilities of the international financial institutions are constraining access to financing. Apart from economic considerations, other elements such as political perspectives are often brought into lending decisions, impeding the flows of resources. These weaknesses are also contributing to growing inequalities among countries, creating winners and losers. These are systemic and practical defects of the existing international aid and financing architecture that need to be corrected.
The correction of these defects also requires fundamental reforms in the governance framework in the Bretton Woods Institutions, in order to enable them to play a more positive role in supporting sustainable economic development and international financial market stability. The governance structure of these institutions should have adequate representation of developing countries, particularly the emerging economic powerhouses. While we welcome the recent initiatives to enhance the voice and representation of developing countries through the envisaged increase in basic votes and adjustments in quota in some countries, true representation of voice and participation to reflect the current realities in the global economy is an urgent requirement. This is yet to materialize.
It is ironical that some of the crisis measures implemented in developed countries, instead of mitigating the social and economic disparities emanating from the current crisis, tend to worsen the situation in vulnerable countries. The subsidies provided for agricultural commodities and the financial stimulus packages offered by industrialized countries to revive their domestic markets often distort international trade. Developing countries are hardly allowed to protect their domestic markets from dumping with such subsidized imports. They should also have the right to resist any moratorium on raising the applied tariffs in world trade. The short-term bailout loans available for developing countries from the IMF remain marginal on account of tight conditionality, and access to financing appears to be selective. These weaknesses need to be addressed as a matter of priority.
In the context of the current crisis, the urgency for introducing an alternative reserve asset to provide liquidity support as and when needed to ensure smooth functioning of the world trade and payments system becomes apparent. The Special Drawing Rights mechanism has failed to play its role as anticipated when it was introduced in the 1970s, because its supply has been limited, although it constitutes a relatively stable reserve asset. While we welcome the call for new allocation of SDRs as proposed by the G-20 and often requested by other developing countries, we urge that this be done early rather than late. We note with concern that one time special allocation of SDRs agreed several years ago by the Board of Governors of the IMF is yet to materialize. The proposal for a new allocation should be implemented early.
We also believe that regional initiatives can play a crucial role in overcoming the current crisis and in preventing any future failures. The eight South Asian countries in the framework of SAARC, have realized the importance of national and regional measures, which are also consistent with multilateral commitments with a view to inter alia mitigating the impact of the world economic crisis on the SAARC region. We also agree that in the absence of adequate short-term financing, regional or even bilateral commercial reserve and reserve support arrangements would be most helpful to help sustain overall development efforts.
Debt issues of developing countries need to be addressed in a more pragmatic manner. Debt accumulation of developing countries is sometimes due to factors beyond the control of these countries themselves. There is no doubt that the countries themselves need sound economic policies and appropriate adjustments in addressing their debt difficulties. As part of the debt burden also associated with currency appreciation, a mechanism needs to be explored to compensate borrowing countries against such unfavourable developments, while these countries make concerted efforts to improve their economic performance.
Several initiatives have been proposed in the draft outcome document. I hope that these would be discussed at our deliberations and agreed upon as needed. In this regard we hope that the United Nations as the most representative and legitimate world body will play a more effective role in helping the international aid and financing architecture to be redesigned so that it would be able to reflect new realities and support rapid, equitable and sustainable development for all.