PM Barrow speaks on the World Financial and Economic Crisis. Read the full text of his address to the UN Conference.
Government of Belize Press Release
Belmopan – 24 June, 2009
The Prime Minister and Minister of Finance, Hon. Dean Barrow on behalf of CARICOM today addressed a United Nations Conference on the World Financial and Economic Crisis and its Impact on Development.
Photo of the Prime Minister can be found at the link:
http://www.unmultimedia.org/photo/detail/401/0401327.html
And Webcast can be viewed at:
http://www.un.org/ga/econcrisissummit/stt_day24.shtml
Attached is the Prime Minister’s statement.
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Prime Minister Barrow’s Address to the UN Conference
On the World Financial and Economic Crisis and
Its Impact on Development
June 24, 2009
Mr. President
I address this special Conference of the General Assembly on the World Financial and Economic Crisis and its Impact on Development, both as Prime Minister of Belize and as Chairman of the Fourteen Member Caribbean Community.
As is set out in great detail in the report prepared by the Secretary General for this Conference, the result of this crisis has been planet-wide devastation. And the detailed impact of that devastation in the developed countries has received saturation coverage by the international news media. First world faces and images of dislocation and despair, heart-rending stories of the newly unemployed and the newly dispossessed, are an almost daily staple on CNN. But where, proportionately, the effects of the crisis are sharpest; where the serpent’s sting is draining away the lifeblood of whole sectors of society, international reportage is well nigh non-existent. Yet it is a fact that for us in the Caribbean the current set of economic conditions is the worst to have overtaken us since Independence.
It is also very important to note that in our corner of the world the crisis seems to be proceeding entirely unabated. There will be no early reversal to compensate for the blinding speed with which the contagion moved from developed to developing world. And so the shoots of economic recovery that some claim to discern on the landscape of the industrialized world, do not even reach the level of wishful thinking in our small countries. Thus, for us, commodity prices remain severely depressed, accompanied naturally by prolonged decline in export earnings from agriculture. There is also a continuum in the contraction of tourism revenues, with the attendant myriad job losses and business closures. And foreign direct investment is in retreat, on the run, resulting in biting retrenchment especially in the construction sector. I single out these three areas because of their importance for Caribbean economies, not because they are the only areas of continuing difficulty. These activities employ the overwhelming majority of the workforce, particularly persons in the middle- and lower-income earning groups, and those with lower levels of formal education and skills. This in turn means that reduced levels of activity in these sectors have a disproportionate negative social impact. Complicating the situation further has been a continuing decline in the flow of family remittances, converting the economic crisis into social disaster for a considerable portion of our populations. In addition, of course, Finance Ministries are struggling with the Scylla and Charybdis of lower revenues on the one hand, and on the other mounting expenditure pressure to help communities address rising poverty levels. It goes without saying that there is now no prospect of our countries’ achieving the time-bound Millennium Development Goals.
My purpose today, however, is not merely to rehearse the facts of the financial and economic crisis. We are here to find answers. And in that search I believe we need to address two issues above all: first, what must be done generally to mitigate the effects of the crisis in developing countries; and second, what arrangements we need to put in place to make sure that a crisis like this does not recur.
In relation to the first issue we need to face some structural realities. The immediate one is that small, open, trade-dependent economies cannot, from their own resources, implement back-in-vogue Keynesian stimulus packages. We don’t have the surpluses; and we don’t have the foreign exchange reserves that fiscal expansion, in our import dependent economies, would require. Our only option then, is to seek to utilize borrowed external resources from multilateral and bilateral sources. But it is a vicious circle because there are clear limitations on our ability to borrow. This is both for reason of the high debt levels accumulated as a result of past development efforts, and the contraction in lending now caused by the very financial crisis we need to borrow ourselves out of. In any case, the available funding is in most instances tied to previously agreed projects. And these, while important for development, are not fully consistent with the need either for broad economic stimulation or to fund activity increases in the particular sectors most affected by the crisis. As noted in the Secretary General’s report, the G20 agreed arrangements to increase the capacity of some international financial institutions to lend to countries in distress as a result of the crisis. Unfortunately, the amounts agreed are not nearly enough to deal with even part of the more urgent developing country requirements. Further, it seems to us, none of what was agreed has yet started to flow. Indeed, part of the G20 agreements has caused additional stress for some developing countries: the opportunity was taken to reactivate the harmful tax competition initiative, publicly requiring a number of countries, including many in the Caribbean, to each conclude at least a dozen tax information exchange agreements. But this is a labour of Sisyphus, giving us basket to back water, as we say in the Caribbean. Our limited staff is already fully stretched trying to deal with the economic crisis; and there is more than a suspicion that the big countries with which we are required to conclude such agreements have no interest in, or intention of, facilitating us. We are thus to be hounded out of the successful business of providing international financial services when those diversification activities were neither the cause nor the consequence of developed country problems.
Since the crisis was not of our making, and given the structural concerns that I mentioned, the first thing that we want is for developed countries urgently to reassess and restructure their bilateral assistance programmes to developing countries. The outcomes of many of the existing bilateral support programmes have been put at risk by this crisis, but it is in the interest of all of us not only to keep these programs on track but expand them.
Allied to this is the need to enhance the capacity of the multilateral financing agencies in a manner that is at once focused and broad-based. As I noted earlier, the G20 agreed a substantial increase in the volume of resources to be made available to the International Monetary Fund. The problem is that the Fund remains a trade-and-payments-supporting institution, with its interventions mainly directed towards addressing short- and medium-term balance of payments constraints. Its resources have never been and are not now generally directed towards providing fiscal and budgetary support. It is true that some countries need the traditional Fund assistance at this time. For most others, however, the key is to increase domestic activity in order to counter the declines in incomes and employment, and to expand physical and institutional infrastructure. Thus, it is on the multilateral development institutions that we must concentrate. The World Bank and its private sector arm, the regional development banks (the Inter-American Development Bank, the African Development Bank, the Asian Development Bank ), and the sub-regional institutions (in our case the Caribbean Development Bank and the Central American Bank for Economic Integration), need proportionately greater support than has been extended to the IMF. This is where critical mass is required to enable them to provide long-term soft resources for economic stimulation, and for focused capacity-building efforts in individual developing countries. These development financing institutions have their track records, are fully familiar with the economic and social situation of their members, and are best-placed to help in the design and implementation of interventions targeted at areas of greatest need.
I want to make the point very clearly that if further devastation in our developing countries is to be averted, specific arrangements for the flow of resources to our governments, whether by way of grants or soft loans, need to be put in place immediately. There is simply no more time.
I turn now to my second issue: what we need to do to ensure that a crisis like this does not recur. Clearly issues of regulatory oversight contributed to the crisis. I do not wish to single out the United States, although the problem originated there and the deficiencies that need to be addressed are pronounced. But, of course, financial institutions based in Europe also found themselves in difficulties, pointing to flaws in their systems. Also, it is well known that the new US Administration has been engaged in broad-based action to deal with the crisis at the domestic level.
In that context we are all pleased to acknowledge the first major set of financial system regulatory reforms which were announced last week in the US. I express the hope (i) that they will be implemented without being watered down; and (ii) that they will serve as a platform at the global level to produce a set of rules to which all countries are subject.
It is also seems to me that we cannot talk about worldwide financial overhaul without shining a light on the relationship between economic and financial system managers in developed countries, and the International Monetary Fund. It is no secret that there is a world of difference between the IMF’s consultation dialogues with developed countries, on the one hand, particularly the G7 countries, and with developing countries, particularly small ones, on the other. The Fund cannot prevent a country from putting itself into difficulties. But in relation to small developing countries, at least, Fund staff provide ample warning, and those warnings tend to become more public and strident if corrective action acceptable to the Fund is not taken. The Fund seems less able to speak truth to power where the big countries are concerned, though. And the latter either do not receive, or ignore, requisite Fund strictures.
While the clock cannot be turned back on the information and telecommunications revolution, and transactions involving securitizations and derivatives will continue to take place, financial system assessments by the IMF will also now need to be an integral part of country consultations in the developed countries. The Fund will need to focus on risk, and Fund staff will need to develop a much closer working relationship with country financial system regulators. By the same token, much more will be required of external auditors of financial institutions, and of rating agencies.
The IMF will therefore need to be as measured, and as public, in its consultation dialogues with developed countries as it is with developing countries. And it must make its views on the quality of economic and financial management in individual developed countries known in clear and accessible terms. The issue is one of systemic risk, but small developing countries do not have the capacity to put the global system at risk while large developed countries do. As such, those countries have an obligation to the rest of the world to be even more careful than others in the management of their economic, social and financial systems. Consequently, detailed IMF surveillance must be, and seen to be, even-handed.
There also needs to be greater and more effective global participation in the governance, management and operations of the international financial institutions than is presently the case. Thus, the leadership of the institutions should be selected on the basis of open and fair competition from among nationals of members. There can be no justification for continuing the current practice whereby the President of the World Bank Group is appointed by the US, and the Managing Director of the IMF is appointed by the European countries acting together.
Finally, and this is something I alluded to earlier, global focus is now on development and there has been tremendous change in the relative importance of developing countries in the global trading system. This, in turn, has to bring into question the continued relevance of the traditional role of the IMF as a shorter-term balance-of-payments focused institution when the bulk of its funding interventions is now in developing countries, and the preponderance of the issues with which it now grapples has to do with balancing fiscal prudence with development and structural transformational objectives. One consequence of this is that traditional quota-based lending to developing countries, particularly small ones, makes the volume of resources that can be made available trivial in relation to country needs. In this context, the argument that the Fund’s “seal of approval” opens the way to lending by private institutions, so that large-scale lending by the Fund is not necessary, ignores the terms and conditions on which such private resources are, even putatively, made available. And the notion is completely confounded when, as now, such commercial lending cannot be had at all. Time has obviously run out and the Fund must hereafter explicitly become a development-oriented institution, without sacrificing its ability to provide international liquidity when needed. A first step in this direction would be to link credit volumes to needs and capacity rather than to capital subscription and “quotas”.
Mr. President, let me close by saying that the world appears too easily to forget the lessons of history. Misplaced financial euphoria, premised on the short term, on the quarterly performance of business firms, and on speculative events like the movement of share prices, will ultimately come to disaster. Booms are invariably followed by busts, and those that claim to have broken the cycle have been completely upended by current events. But the profit takers have already seized the money and run. Sadly, the trail of human detritus left behind extends well into our Central American and Caribbean corner of the world.
In a few days I will return to my country and I will face economic and social conditions that will have further deteriorated since I left to come here. It will be no different for my colleagues from the rest of the Caribbean Community. What do we tell our people, Mr. President? That we attended yet another dress rehearsal for a shadow play? Another installment in this drama of progress that never actually takes place? No, Mr. President! Measurable advances must begin to happen right after this meeting so that we can dislodge a growing conviction in our suffering nations. It is a conviction that the developed world listens but does not hear, speaks but does not act. This time our cry from the heart must be answered and the faith with which we accepted integration into the global economy finally receive vindication.
