Stiglitz Commission: New International Monetary and Financial ArchitectureThe following are some of the important recommendations of the Stiglitz Commission:
A Balanced Response to Global Recession:
Since we need a global response to the current global crisis, every country must have a
stimulus package. Since the developing countries do not have the resources for mounting such a package, they must have access to substantial additional funding, and whatever assistance is given to them should be without inappropriate conditionality.
A New Global Reserve System:
The Commission recommends the creation of a new global reserve system with the SDR as its anchor. Since the entire system will be based on the SDR, its issue on a once-for-all basis, as recommended by the G-20, will not suffice. The new system must be based on a greatly expanded SDR with regular or cyclically regulated emissions calibrated to the size of reserve accumulation. This is precisely what was recommended in the Keynes Plan.
A Global Reserve Currency:
The new multilateral reserve system should have its own reserve currency based on the SDR. This is the only way to overcome the inequities and instability inherent in a global reserve system based on a national currency, that is, the dollar. This concern was recently echoed by the chief of China’s Central Bank. The creation of a new international reserve currency has the support of both China and Russia.
Regional Monetary Arrangements:
Another important recommendation of the Stiglitz Commission is that the international reserve system should rely broadly on regional monetary arrangements and that the developing countries should actively cooperate to put such arrangements in place. This seems to be in direct line with the suggestion, made by the well-known economist Triffin in the late sixties, that the international monetary system should be based on regional monetary systems including regional reserve funds and reserve currencies.
An obvious example that comes to mind in the present context is the Chiang Mai Initiative of the ASEAN Plus 3. The Chiang Mai Initiative has recently been given a new impetus, but it is still far short of building a regional reserve fund and issuing a regional reserve currency. Given the importance of countries like India, Australia and New Zealand in any regional monetary arrangements in Asia, it is doubtful whether the Chiang Mai Initiative would suffice.
The optimum solution would be to have an Asian reserve system and an Asian reserve currency with the inclusion of all the countries participating in the East Asia Summit. This, however, very much depends upon China’s willingness to cooperate in building such a system.
The only other region where there is a possibility of making a viable regional monetary arrangement, is the Gulf Cooperation Council (GCC) region suitably enlarged. The enlarged GCC has sufficient currency reserves to be able to build such a regional arrangment. Recently, there has been a depletion in these reserves owing to the decline in oil prices. However, oil prices are likely to increase and the reserves of these countries likely to be further augmented, with the commencement of the process of recovery from the global recession.
Strengthening the Lending Capability of Multilateral Development Banks:
It is well-known that the World Bank and Regional Development Banks do not have adequate resources for financing development in the developing countries at the desired level. They have not proved effective in raising resources from the commercial market for or lending them at concessional rates to the developing countries. The question of restructuring and reforming these multilateral development banks to enable them to adequately discharge their statutory functions has been long pending.
It will be interesting to see what the Stiglitz Commission recommends on it. However, in the context of the current crisis, the Commission has recommended that a large scale programme for commercial lending to the developing countries should be launched and for this a new Credit Facility under the umbrella of the World Bank and Regional Development Banks should be created.
The Creation of a Global Financial Regulatory Authority and a Global Competition Authority:
The Stiglitz Commission is of the view that while the effective regulatory system must be national, there should also be a global regulatory framework to establish minimum standards and to govern the global operation of systemically relevant global institutions as well. According to the Commission, movements towards this global will be enhanced by taking steps to lay the groundwork for a Global Financial Authority and a Global Competition Authority.
The purpose of the Global Competition Authority will be to prevent financial institutions from growing to sizes that generate systemic risks and make them too big to fail. The Commission suggests that these global institutions should be democratically constituted without indicating how this will be done and how they will be related to the UN system. Perhaps the fuller version of this recommendation will be given in the final report of the Commission. The Stiglitz Commission has also suggested that financial institutions and practices should be vetted by a “Financial Product Safety Commission in order to curb excessive risk accumulation”.
The idea of a financial regulatory mechanism and a mechanism to curb monopolistic practices of the multinational corporations is not new to the UN system. The IMF itself was created as a financial regulatory mechanism at the global level, whereas the Havana Charter had a whole chapter on restrictive business practices. Subsequently, after transnational corporations came to dominate the world economy and trade, the UN established a Commission on Transnational Corporations and also started negotiating a Code of Conduct for such corporations.
However, in the beginning of the 1980s, under the influence of the neo-liberal economic policies pursued both at national and international levels, the TNC Commission was wound up and the attempt to negotiate the Code of Conduct for Transnational Corporations was given up. In a major non-governmental conference convened on the occasion of the 50th anniversary of the Bretton Woods Institutions, the idea of establishing an independent commission, to keep a surveillance on the activities of the transnational corporations with a view to curbing their non-competitive practices, was revived. However, it was not followed up at the inter-governmental level.
Coordination of Global Macro-Economic Policies:
Article 1(4) of the UN Charter provides that the United Nations will be a centre for harmonising the actions of nations in the attainment of the common ends mentioned in the Charter. Article 55 assigns to the UN the role to promote solutions of international economic and social problems.
The Economic and Social Council is vested with the authority to carry out this function. Subsequently, the Charter functions of the United Nations, particularly of the Economic and Social Council, in the economic field were transferred to the IMF, World Bank and the WTO.
Several committees, commissions and expert groups have made recommendations for restoring to the Economic and Social Council the Charter function of coordinating global macro-economic policies.
The Stiglitz Commission has made a similar proposal.
It has recommended the establishment of an elected and representative global Economic Coordination Council within the UN system, to meet annually at the summit level, to assess and coordinate development policies and lend leadership in socio-economic and environmental fields.
In the preliminary reaction to this proposal in the discussion at the Thematic Dialogue conducted by the General Assembly on March 27, 2009, on the financial and economic crisis, the question was raised as to why it was necessary to create a new body for this purpose when the Economic and Social Council was vested with this authority under the Charter. This issue is likely to be debated in greater detail when the consideration of the full report of the Commission is taken up at the proposed summit conference of the General Assembly in June this year.
What is important to note at this stage is that the current economic and financial crisis has led to the acceptance of the need for an objective and independent surveillance of developments in the world economy and of the impact of the policies of some member governments on others.
Whereas the G-20 would like this task to be entrusted to the IMF, the Stiglitz Commission has suggested the creation of a new special body within the United Nations for the purpose.
ARTICLE FROM April 18, 2009
