Jomo Kwame Sundaram. Credit: FAO

By Jomo Kwame Sundaram
ROME, Jul 14 2015 (IPS)

The growth in global interdependence poses greater challenges to policy makers on a wide range of issues and for countries at all levels of development.

Yet, the mechanisms and arrangements put in place over the past three decades have not been adequate to the challenges of coherence and coordination of global economic policy making. The recent financial crises have exposed some such gaps and weaknesses.The U.N. was among the very few warning Mexico in 1994 and the East Asian countries in 1997 that excessive liberalisation threatened crisis.

Reforming the international economic governance architecture, through the United Nations system, can address these problems.

Although sometimes seemingly slow, the U.N. has a clear advantage in driving discussion on reform because of its more inclusive and open governance.

Lop-sided influence in the current international financial system is a principal reason why many countries lack confidence in the existing arrangements. Rebuilding confidence in such arrangements will require that all parties feel they have a stake in the reform agenda.

But the U.N. is also suited to drive the discussion because of its long tradition of reliable work on international economic issues.

The United Nations secretariat has developed and maintained an integrated approach to trade, finance and sustainable development, with due attention to equity and social justice issues.

The ongoing ‘secular stagnation’ has again highlighted the interdependence of global economic relations, exposing a series of myths and half-truths about the global economy.

These include the idea that the developing world has become “decoupled” from the developed world; that unregulated financial markets and the new financial instruments have ushered in a new era of “great moderation” and “stability”; and that macroeconomic imbalances — due to decisions made in the household, corporate and financial sectors — are less dangerous than those involving the public sector.

The U.N. secretariat has long doubted such arguments, and warned that any unravelling of global macroeconomic imbalances would be unruly.

Also, persistent asymmetries and biases in global economic relations have particularly hit developing countries, both emerging and least developed.

Not surprisingly, the U.N. Secretariat has also drawn attention to the close links between the financial crisis and the food and energy crises.

A more integrated approach to handling these threats is needed, particularly to alleviate the downside risks for the poorest and most vulnerable communities.

The U.N. Secretariat has a strong track record of identifying systemic threats from unregulated finance, warning against a misplaced faith in self-regulating markets and offering viable solutions to gaps and weaknesses in the international financial system.

Special drawing rights (SDRs), the 0.7 per cent aid target and debt relief, for example, were all conceived within the U.N. system during the 1960s and 1970s.

From the 1980s, the U.N. secretariat – both in New York and Geneva — have consistently warned against the excessive conditionalities attached to multilateral lending, promoted the idea of rules for sovereign debt restructuring, and cautioned that the international financial institutions were moving away from their traditional mandates of guaranteeing financial stability and providing long-term development finance.

During the 1990s, U.N. agencies warned against the dangers to economic stability, particularly in developing countries, from volatile private capital flows and the speculative behaviour associated with unregulated financial markets.

The U.N. was among the very few warning Mexico in 1994 and the East Asian countries in 1997 that excessive liberalisation threatened crisis.

The U.N. system was also almost alone among international institutions to identify growing inequality as a threat to economic, political and social stability, and insisted early on measures for a fairer globalisation.

Many of these concerns culminated in the 2002 Financing for Development Conference in Monterrey, Mexico.

More recently, the U.N. has insisted on the importance of policy space for effective development strategies and particularly on the need for macroeconomic policies to support long-term growth, technological upgrading and diversification.

Some countries have sometimes resisted such work by the U.N. secretariat.

However, the combination of a strong track record and a core secretariat steeped in its tradition of an integrated approach to policy-oriented research places the U.N. secretariat in the best position to advance current discussions to reform the international financial architecture.

Edited by Kitty Stapp

Excerpt:

European media, political leaders, and the citizenry are bashing bankers again, overtly calling them at best accomplices of numerous illegal activities, at worst downright criminals.

The best example of this new wave of anger against bankers is the use of the portmanteau word “bankster” (a combination of banker and gangster), which has become commonplace in media, even in non English-speaking countries.

The term, first coined in the 1930s during the Great Depression and which resurfaced in British media in 2009, appeared on the front page of the French daily Libération on Jul. 18.

Political leaders critical of banks have so far refrained from using the word but everyone else has been having a field day with it.

In a short white paper on banks’ policies released Jul. 21, the head of Germany’s leading opposition Social Democratic Party (SPD), Sigmar Gabriel, accused bankers of “blackmailing governments and states with the (threat) of domino bankruptcy”, of “complicity with criminal activities”, such as tax evasion and money laundering, and of “screwing their own clients”.

Even those commentators who dismissed Gabriel’s banker bashing as political populism agreed that the managers of international private financial corporations have recently done large disservices to their business and their clients.

The list of genuine grievances is long: the HSBC bank is facing accusations in the U.S. of having laundered money for Latin American cocaine cartels and Muslim organisations allegedly involved in terrorist activities.

In a statement released Jul. 17, the HSBC acknowledged, “In the past, (the bank has) sometimes failed to meet the standards that regulators and customers expect. (We) acknowledge these mistakes, answer for our actions and give our absolute commitment to fixing what went wrong.”

The so-called LIBOR (London interbank offered rate) scandal revealed that numerous leading international banks, including Barclays, Citigroup, JPMorgan Chase, UBS, the Deutsche Bank and, again, the HSBC, conspired to jointly falsify information on the interest rates the banks demand from each other, to lure central banks into reducing their own leading lending rates.

The scandal led to a record 450 million-dollar fine against Barclays, imposed by U.S. and British regulators, and to the forced retirement of Barclays’ CEO, Bob Diamond.

Banks have also been embroiled in massive tax evasion schemes. The independent Tax Justice Network, which investigates international tax evasion and the role of banks in tax havens, estimates that some 11.5 trillion dollars in assets are held illegally in banks’ and funds’ vaults, leading to a global annual loss of tax revenue of about 250 billion dollars.

Similarly, the Organisation for Economic Cooperation and Development (OECD) underlines that “Tax avoidance and tax evasion threaten government revenues,” and recalls U.S. Senate estimates that 100 billion dollars are lost each year due to tax evasion by U.S.-based firms and individuals.

“In many other countries, the sums run into billions of euros,” the OECD says. “This means fewer resources for infrastructure and services such as education and health, lowering standards of living in both developed and developing economies.”

Such assets are held not only in offshore financial centres, such as the British territories of the Isle of Man, Guernsey, and Gibraltar, the Cayman Islands, and the like, but also in banks and funds operating in the city of London, in New York, and in countries like Switzerland, Singapore, and Monaco.

All these crimes have been occurring at a time when states in industrialised countries are facing a dramatic sovereign debt crisis, bringing many to the brink of bankruptcy.

The sovereign debt crisis originated or at least was aggravated after the financial crisis broke out in 2007, precisely because banks had brought themselves to the point of collapse and had to be “bailed out” by states in order to avoid a global financial meltdown.

But the bailout only set in motion a cyclical financial crisis, with Spanish, Greek, and Cypriote banks now demanding rescue from national governments, who are sacrificing their own populations by cutting expenses on crucial public services like education, health, and infrastructure.

And all this is being done so that international financial markets can continue to operate practically unregulated, while the banksters pay themselves princely salaries and massive bonuses.

On Jul. 18, Libération revealed that the four leading French banks alone paid 1.1 billion euros in bonuses to their risk managers in 2011.

The list of banks’ crimes and their employees’ enourmous salaries have led political leaders to urge new regulation and controls on financial markets. The new French minister of finances, Pierre Moscovici, has launched a bank reform, aiming at separating commercial banking from investment banking, and capping salaries.

The SPD’s Gabriel also argued for caps on salaries and bonuses, and for personal liability of bank CEOs and managers in the event of losses caused by highly risky speculative transactions.

Similar measures have been proposed in Britain by the Independent Commission on Banking (ICB), created in 2010 to reform the local banking sector and to promote financial stability and competition.

However, the ICB proposals were not fully considered by the British government’s new plan, announced earlier this month, to restructure the local financial market and which, in any case, will not be implemented until 2019.

This led the ICB chair, distinguished economics professor John Vickers, to complain that the government measures have watered down key parts of his reform package. “International events keep underlining the need for fundamental reform to make banks safer and to shield taxpayers from future risk of loss,” Vickers said in a statement.

Actually, most of the measures discussed in France, Germany, and Britain are included in the so-called Basel III agreement, a banking regulation reform programme triggered by the evidence revealed in the aftermath of the international financial crisis of 2007.

The new regulation, still under debate at the Basel Committee on Banking Supervision, is supposed to be applied step by step starting in 2013, and be fully implemented in 2019.

For independent economists, such delay in establishing new regulation of an obviously rotten industry is proof of the lack of political will among governments to get to the root of the crisis.

“Five years into the worst financial crisis in history, all attempts to regulate banks and funds remain dead letter,” French economist Paul Jorion told IPS. “Despite abundant evidence that (banks and investment funds) cheat all over, again and again, no new rule has been introduced.”

Instead, he added, “the European Union and governments continue to deregulate, pushing their own citizenry into abject misery.”

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