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New York, June 25, 2009
Mr. President,
The United Nations provides a unique forum, with unparalleled legitimacy and
inclusivity. This UN Conference on the World Financial and Economic Crisis
and its Impact on Development is only the second such gathering held of the
United Nations on the financial and economic system and architecture, the
first being the UN Conference on the Monetary and Financial System held in
Bretton Woods in 1944 with the participation of all the then 44 members of
the UN. In that sense, this is a truly historic meeting. It is vitally
important that this landmark event coupled with the UN’s convening power is
used to hear the voice of the entire global community on the extraordinary
crisis being faced by the global economy today. Allow me, therefore, at the
outset to express our appreciation for all your personal efforts in
organizing this Conference.
Mr. President,
The global financial and economic crisis was the result of a failure of
global regulatory and supervisory mechanisms, excessive speculation and
excessive risk taking. This was further aggravated by global imbalances.
There is now a general acceptance that the present economic and financial
crisis is the worst recession since the Great Depression and the first ever
contraction of global GDP in the post-War period. Given the magnitude of the
crisis and the widespread meltdown, some have dubbed it the Great Recession.
Developing countries were not the cause of this crisis,
but they are amongst its worst affected victims. Their exports have been hit
and they are facing vastly reduced capital flows and foreign direct
investment. The economic crisis coupled with the food and fuel crises of last
year has slowed down their economic growth and casts an ominous shadow on
eradication of poverty and achievement of the Millennium Development Goals
(MDGs). The human dimension to this crisis is even more frightening with
estimates of additional millions being pushed back into extreme poverty.
For governments in developing countries the loss in export earnings and
remittances with adverse consequences on employment and growth has meant
reduction in the fiscal space for investments in critical infrastructure and
social sectors like education, health, etc. as much larger social safety nets
have now to be financed. As Prime Minister of India, Dr. Manmohan Singh, had
said at the G-20 London Summit: “While India will be able to manage, many
other developing countries may not be in the same position and this is where
the international community can help. We must ensure that countries hurt by
the massive withdrawal of private capital that has taken place, are able to
rely upon an increased flow of resources from the international financial
institutions. This will help these countries to maintain a higher level of
demand than would otherwise be possible and thus help global revival”.
Mr. President,
Any new thinking for a more sustainable global economic system has to be
based on a conscious policy where there is a building up of the capacities of
the poorer countries and regions to play a healthy and equitable role in
tapping the potential of free market for their prosperity and advancement.
Specific responses to the financial and economic crisis
must address both short-term needs, as well as the longer-term imperatives of
reforming structures of global governance, including here at the UN and at
the Bretton Woods Institutions (BWIs).
These reforms need to redefine the role of institutions of global economic
and financial governance to reflect contemporary realities of today while
being rooted in pragmatism and collaboration. It is imperative that in key
decisions and decision-making processes the voice and real participation of
developing countries is substantially strengthened and increased.
The future shape of international governance, including of international
financial institutions (IFIs) and the crafting of a new global financial
architecture is, perhaps, the most far-reaching element of reform for
providing global stability and security.
At the UN, the General Assembly must be revitalized along with a real reform
of the Security Council. We believe that this requires expansion in both the
permanent and non-permanent categories of the Security Council and reform of
its working methods.
The present crisis has once again underscored the need for the Economic and
Social Council to be robust and effective in coordinating global responses to
global challenges for a better quality of life for the vast majority of
humankind.
At the BWIs, the voice and quota reform needs to be
accelerated so as to make these institutions both responsive and effective as
well as credible and relevant in continuing to play vital roles in global
economic affairs. Again, as my Prime Minister had said, “The world has
changed greatly since the multilateral institutions were established and the
role of these institutions needs to be redefined and their mandate suitably
revised. The representation of the developing and emerging market countries
in the decision making levels of these institutions also needs to be
improved. Better representation is essential if the institutions are to have
the legitimacy they need to play their role”.
Mr. President,
Of immediate importance is the revival of the world economy. Counter-cyclical
stimulus measures are, therefore, critical. There must be a substantial increase
in lending by international financial institutions (IFIs) and the
Multilateral Development Banks (MDBs) with increased limits for developing
countries and emerging economies. The capacities of the MDBs to do so,
including adequacy of their capital, requires to be urgently addressed.
There is a particular imperative to make good the decline that has taken
place in capital flows to developing countries by increased multilateral and
bilateral flows, including ODA. Increased resources for international financial
institutions are very relevant but conditionalities associated with the use
of these resources need to be softened, otherwise their deployment will be
counter-productive in the countries affected.
Mr. President,
Measures to address the crisis should not create other problems for the
future.
We need to address regulatory and systemic flaws. There should be better and
transparent regulatory mechanism for capital markets, including the
non-banking sector, redefine capital requirements to avoid pro-cyclicality,
and avoid build-up of excessive leverage.
There should be a better system of surveillance and regulation. Surveillance
should be even-handed with greater focus on the systemically important
institutions. We also need to develop an effective early warning system to
spot a build-up of risk. It is particularly important that in any such
vulnerability assessment there is no intrusiveness.
In this context, it is particularly necessary that we should not permit
protectionist tendencies, not just protectionism of trade in goods, but also
protectionism in free flow of persons, protectionism in financial services as
well as imposition of non-tariff barriers, to succeed in our response
measures.
Developing countries have limited policy space. They must continue to have
this space to determine measures that best fit their specific requirements.
Mr. President,
Insofar as India is concerned, we have fared much better
than others though we are also affected and our growth rates have come down
from the nearly 9% average of the past four years to 6.7% in 2008-09.
In response to the crisis, we have made aggressive use of fiscal and monetary
policy, with particular focus on fiscal stimulus in infrastructure
investment.
Our primary challenge is to get rid of chronic poverty, ignorance and
disease, which still afflict millions and millions of our citizens. For this,
we need a high rate of growth coupled with measures to make it inclusive.
We have endeavored to achieve this through huge investments in the rural and
farm sector, a massive rural employment guarantee scheme, infrastructure
development projects, major national food security and rural health missions,
and an urban renewal mission.
Mr. President,
Leaders of some of the largest economies, the G-20, have met twice in the
past months and declared their determination to instill confidence and
restore stability to the world economy. They have also pledged to strengthen
regulation, reform international financial institutions, reject protectionism
and build recovery. The package of US$ 1.1 trillion to restore credit and
growth together with national measures constitutes a global plan for recovery
on an unprecedented scale.
India has actively
engaged in the G-20 framework aimed at redressing the current global economic
situation so as to bring the global economy back to the trajectory of
sustained growth.
The Commission of Experts appointed by you Mr. President that included the
former Governor of the Reserve Bank of India, Dr Y V Reddy, has also made
several recommendations that deserve serious consideration.
Mr. President,
We have a vested interest in the world economy doing well as that is a key
enabler for our growth too.
But as we strive for global solutions to this global crisis, we must remember
that development or economic growth cannot be slowed, halted or sacrificed in
the search for solutions to the crisis.
Thank you.
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