Financial crisis unprecedented since 1930s

Thalif Deen interviews SUPACHAI PANITCHPAKDI, secretary-general, U.N. Conference on Trade and Development

UNITED NATIONS, Jun 22 (IPS) – Since the Great Depression of the 1930s, there have been more than 100 crises worldwide, says the secretary-general of the U.N. Conference on Trade and Development (UNCTAD), Dr. Supachai Panitchpakdi.

But many are saying the current global financial crisis is something ‘the likes of which we have not seen for 70 years or more.’

And the scale of the crisis is ‘unprecedented’ because of its impact worldwide, said Supachai, who heads an inter-governmental body that is the primary U.N. organ dealing with trade, investment and development issues.

Asked whether the U.N. summit on the global financial crisis, scheduled to take place Jun. 24-26, will come up with answers, he said: ‘Given the U.N.’s universal membership, I believe this conference will be a major contribution to collective global efforts to find answers to the crisis.’

‘However, it would be wrong to assume that one conference could provide all the answers to such a complex global problem. Rather, resolving the problem should be seen as an ongoing process,’ Supachai said in an interview with U.N. Bureau Chief Thalif Deen.

Excerpts from the interview follow.

IPS: Do you consider the United Nations – not the World Bank or the International Monetary Fund (IMF) – the right forum to address the current global economic crisis? if so, why?

Supachai Panitchpakdi: Initially, the distinction between the U.N. and the two Bretton Woods institutions – the World Bank and the IMF, which were created at a special United Nations Monetary and Financial Conference held towards the end of the Second World War – was artificial.

The conference was called to rebuild the international economic system and set up multilateral sets of rules, institutions and procedures to regulate the international monetary system. The distinction between the U.N. and Bretton Woods institutions is something that developed over time, especially because since the 1950s there has been an intense debate on whether the U.N. should have a financing role or not.

To some extent, the growing segmentation between these subsystems has contributed to the lack of coherence and coordination in the international economic system and the global economic problems we face today.

For me, therefore, the important question is not which subsystem provides the ‘right forum’ to address the current global economic crisis, but how these subsystems can work together to address the absence of systemic coherence between the international financial and trading systems and the unsustainable imbalances in the international economic system.

IPS: What is the role of UNCTAD at the conference? What are UNCTAD’s contributions to the outcome document currently under negotiation among the 192 member states?

SP: In answering this question, allow me first to highlight the fact that for a number of years, UNCTAD has been sending out warning signals, particularly in the three or four areas I would like to mention here.

First, UNCTAD has been one of just a few organisations to draw the attention of the global community to the fact that global imbalances have reached unsustainable levels and could create a setback to the growth trends enjoyed by many countries, including developing economies.

Second, UNCTAD has consistently raised concerns about the glaring dichotomy between the lack of financial regulation – particularly at the international level – and the tight discipline of the global trading regime. For many years, dating back to the General Agreement on Tariffs and Trade (GATT) and continuing under the World Trade Organisation (WTO), the trade regime has been subject to very stringent disciplines in all areas of commodities trading and markets.

In contrast, and despite various discussions on the need for rules, transparency and prudent regulations in cross-border financial transactions, the international financial and monetary system has remained unregulated and without strict supervisory oversight. UNCTAD has repeatedly warned of the potential pitfalls of this lack of coherence between the international trading and financial systems.

The third warning sign we have been sending is that one of the key causes of the 1997 Asian financial crisis was the over-hasty deregulation process, which led to full financial liberalisation without proper preparation of markets, particularly in terms of the maturity and depth of the key players and institutions needed to ensure the proper functioning of markets.

This time around, we have seen that even in the most advanced countries that have been known for their financial resilience, the negative effects of excessive deregulation cannot be avoided. We cannot say there have been no warnings or consideration of some of the causes of the crisis.

UNCTAD, working closely with other U.N. entities such as the Department of Economic and Social Affairs (DESA), has shared some of these experiences with the Commission established by the president of the General Assembly to help him prepare the main report of the conference.

UNCTAD’s report on ‘The global economic crisis: systemic failures and multilateral remedies’ was submitted as input to this process.

IPS: The proposals before the U.N. summit include the creation of a Global Economic Coordination Council and the reform of the Bretton Woods institutions. How feasible are these proposals?

SP: What is clear, and widely recognised, is the need for an independent coordinating forum that will examine systemic issues and ensure coherence at the international level. The case for such a body is clear. The issue now is whether this function could be performed by existing institutional structures or whether there a new institution is needed.

This, I believe, is at the heart of the ongoing negotiations, and the decision depends on the membership. As to the reform of the Bretton Woods institutions, the emerging consensus suggests that they are indeed in serious need of reform. As UK Prime Minister Gordon Brown has repeatedly said – most notably at the G20 meeting – ‘The IMF and World Bank will have to change their role quite dramatically. These institutions were built for a world of local capital flows, not global capital flows. The institutions we have inherited are not equipped for the tasks we have to deal with in the future’.

IPS: Is the world on the right track to resolve the crisis?

SP: Fortunately, this time around the world is better equipped to deal with some of the financial and economic issues, although it appears not to have learned from past experiences how to avoid making the same mistakes and address the issues more systemically in order to prevent a recurrence and foster a global economy that does not suffer from destructive boom-and-bust cycles.

This crisis has a levelling effect; it is of a systemic nature. It does not belong to any single part of the world. Unlike the Asian crisis of 1997, this one is global in nature.

It is therefore heartening to see that the immediate multilateral reaction was to address the problem at the G20 level, which includes both developed and developing countries.

This week’s conference should be seen as a further step in addressing what is basically a global crisis in an inclusive manner and taking into account the concerns and visions of 192 countrie