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29-30 June 2009

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MONTENEGRO COUNCIL - Working for a new global framework for the world economy, peace and security, democracy and the environment

29-30 June 2009


Since the second half of 2008, people around the world have been suffering from the global economic and employment crisis triggered by unregulated financial markets. The outbreak originated in the more developed states, but it has spread quickly to become a global crisis. The United Nations views this as the most severe financial and economic crisis since World War II. The crisis has affected growth and development in all regions and states, and has increased the number of people who do not have properly paid and decent work by millions. Efforts to avert global ecological threats are also hampered by the crisis.
In both the short term and on a more enduring basis, the crisis calls for global political efforts to be made.
In the short term, all states and the competent international institutions need to step up the pace of growth and development once again, and reduce the number of people without decent work.
On a more enduring basis, a viable global economic and financial order must be created, a new set of rules for the world economy. This must respect the interests of all human beings and representatives of all humankind must participate in designing this new order. The poor and the states in which they live must not be excluded.
The Socialist International calls for decisions to this effect to be taken in the second half of 2009 and appeals to all governments and international institutions to act responsibly, especially the governments of the more developed states with a higher Gross Domestic Product rate.
1. A New Global Economic and Financial Order
1.1 The Socialist International adopted guidelines, entitled “Towards a New Financial Architecture” at its Mexico Council on 17-18 November 2008 in Vallarta. The key issue for the SI is the awareness that financial markets are not an end in themselves, but a means. They are supposed to perform certain vital functions which enable the real economy to be more productive: mobilising savings, allocating capital, managing risk; ultimately transferring it from those less able to bear it to those more able to do so.
This forms the basis for the SI’s principles of a regulatory agenda. Its objectives are:
 - to ensure the safety and soundness of individual financial institutions and the financial system as a whole,
 - to protect consumers,
 - to ensure access to finance for all,
 - to maintain overall economic stability.
The SI calls for a new World Finance Organisation to set global standards and globalise enforcement.
1.2 The G20 summit in London on 2nd April 2009 agreed on important reforms to strengthen regulation and supervision of the financial sector. The establishment of the Financial Stability Board and its effective cooperation with the IMF and the World Bank could be first steps towards a charter for the new World Finance Organisation called for by the SI. In this respect, the Socialist International welcomes the recommendation of the European Council of the EU to create a European System of Financial Supervisors, with the aim of improving the quality and coherence of national supervision, strengthening the vigilance of the trans-border groups and establishing a unique European regulation applicable to all the EU’s financial entities. This system could be the basis of the creation of a similar system at the world level.
All systemically important financial institutions, markets and instruments should be subject to an appropriate degree of regulation and oversight. The global financial crisis has shown the need for a better and more credible system of surveillance and regulation of the financial system. One of the mechanisms of emergent Global Welfare Statehood, as the SI is demanding, will be implemented on a global level.
The G20’s agreement on delivering resources through international financial institutions opens up a channel to ensure that capital continues to flow to the less developed and the least developed states, in order to protect their economies and support world growth. When lending these new resources, the international institutions must avoid the mistakes made under the rule of the Washington consensus. The poor states need concessional lending. The G20’s commitment to meeting the Millennium Development Goals, especially the commitment to sub-Saharan Africa, are important in this respect.
The SI underlines the need for new investments to be made:
 - in education and other means of expanding human capital, with measures including action plans to reduce the number of children leaving school at an early age and strengthening professional education and the universality of access to infant education;
 - in high-return energy-saving activities.
1.3 Prompt fulfilment is now of the essence. The next G20 summit in September 2009 must take steps to ensure this. To date there is an implementation deficit in respect of the agreements concluded at the October 2008 G20 summit in Washington.
Reliable monitoring is essential. An independent Panel for Socio-Economic Development should be established; an analogous panel has proved its worth as an instrument in the climate change sphere.
The International Labour Office plays a crucial role in monitoring employment.
The SI welcomes the Recommendations of the Commission of Experts of the President of the United Nations General Assembly on Reform of the International Monetary and Financial System.
The recommendation for rapid introduction of a new global reserve system, which would be based on an expanded role for special drawing rights should be considered along with other proposals to bring about global stability, economic strength and global equity.
The Recommendations of the Commission of Experts demonstrate that institutional problems can be resolved at the same time as new rules are devised for global financial markets, particularly in respect of how the G20 relates to the UN system.
1.4 The G20 agreement on delivering new resources to less developed states demonstrates that the G20 constitutes a step towards organising global participation and responsibility for global economic development. The G7 is no longer able to shape global economic policy alone.
However, the G20 format excludes the poorest states. A world order committed to the Universal Declaration of Human Rights, and to civil and political rights, cannot function unless it foresees full participation of all regions – and thus of all citizens – around the world.
2. Global Growth and Employment Policy
2.1 At the end of May the UN revised its forecast for world economic growth downward. Gross World Product (GWP) is expected to shrink by 2.6 per cent in 2009, compared with relatively slow growth of 2.1 per cent in 2008 and average annual growth of almost 4 per cent during 2004-2007 prior to the crisis.
The slower growth and the subsequent shrinkage of GWP are linked to rising unemployment. UN projections put the rise in unemployment at 50 million over the next two years. The International Labour Office does not exclude the possibility that this figure could be twice as high.
Higher economic growth and boosting employment and wages is thus vital for people in every state around the globe. In this respect, important differences can be identified between the various regions and states. These differences stem from the still horrifying disparities in levels of development, as seen in pro capita GDP. As a result, different states have differing priorities, differing responsibilities and differing socio-economic strategies.
2.2 Since September 2008, states world-wide have made massive amounts of public funding – 18 trillion or almost 30 per cent of GWP – available to recapitalize banks, taking part or full government ownership of ailing financial institutions and providing ample guarantees on bank deposits. Many states have also adopted fiscal stimulus plans – 2.6 trillion or about 4 per cent of GWP – to be spent in the 2009-2011 period. The SI agrees with the UN that these efforts may still fall somewhat short of the degree of stimulus of 2-3 per cent of GWP that would be required to make up for the estimated decline in aggregate global demand.
2.3 Globally, concerted actions will be needed. In this context it is important to note that less developed regions and states need higher growth rates, whilst more developed regions and states with insufficient employment require an employment policy with a focus on re-distributing work and qualifications for the workforce.
2.4 Most states have used loan financing to stimulate economic growth. From state to state there is a need to consider whether high debt levels involve long-term risks for economic and fiscal stability and price development. In the long term all states will need to address these issues, whilst in the short term individual states could increase stimulus expenditure.
Generally speaking, measures to boost growth can and should be more innovative and more ecological. Green growth is the prospect for the future. States should invest in high-return energy-saving activities as well as in education.
2.5 Measures to boost growth can create jobs and thus reduce unemployment. However this must be combined with a sustainable labour market policy. For more developed states a sustainable labour market policy means a more equitable distribution of work and a focus on professional qualification. For less developed states it signifies transferring informal jobs into the formal labour market in order to create a state based on principles of social solidarity, which can provide long-term protection against poverty. The reform of the labour market should not imply, under any circumstances, a reduction of workers’ redundancy payments at the time of dismissal.
The Socialist International is engaged in the struggle to strengthen the networks of social protection of all those persons who are unemployed or who live in conditions of poverty.
2.6 Individuals are affected by the global economic crisis - states must act. Regions and states enjoy varying degrees of success in their endeavours on this front. In appraising the economic situation and economic policy, a key yardstick is how many people are affected, either positively or negatively. This yardstick corresponds to the ideal of international social democracy, namely that everyone must enjoy an equal chance of prosperity and social security.
High growth rates in less developed states contribute to attaining this goal. 4,500 million people live in the ten most populous states and the European Union, making up two-thirds of the world’s population of 6,700 million. In China and India population figures are 1,330 and 1,140 million respectively; together these two countries make up 37 % of the world’s population. Continued high growth rates in these two states – estimates for 2009 put the figures at 6% and 4.5 % - make a considerable contribution to ensuring that globally development in these countries, benefitting the poor, does not grind to a standstill.
2.6.1 For years India has been achieving growth by focussing on growing domestic demand among its sometimes very poor inhabitants. The impact of the global crisis is expected to be less severe since exports account for a smaller share of Gross Domestic Product, whilst it is anticipated that domestic demand will be sustained to a reasonable degree.
2.6.2 In contrast, China’s high growth rates over the last few decades are based on intensive export promotion. Currency policy measures have been deployed too, which contributed to the imbalance on the financial markets. The drop in exports due to weak demand from the USA and Europe has increased unemployment levels in China too and exacerbated social problems. It would serve the interests of crisis-free global economic development if China were to utilise its substantial savings for pump-priming of domestic demand and improvements to its social security systems. As well as helping the global economy to recover, China’s massive 450 billion US $ fiscal stimulus package contributes to this process of restructuring whilst focusing on social issues.
2.6.3 The first positive aspect of these growth rates can be seen in the impact on people in China and India, coupled with the stimulus such growth provides to the global economy. China and India must assume more responsibility for this global economic development; the more developed states in North America and the EU must recognise this. It will only be possible to stabilise the global financial order if China participates in this undertaking. A constructive approach should be adapted to proposals from China’s Central Bank for a new currency reserve; these are similar to the Recommendations from the Commission of Experts of the President of the United Nations General Assembly.
The Socialist International is aware of the grave differences between the political systems in India and China. India is the world’s most populous democracy, a success confirmed by the elections in May 2009. The system in China does not respect human rights in the realm of political and social rights as envisaged in provisions of international law. The dialogue between representatives of democratic states and representatives of China’s political system must also encompass shared global responsibility for sustainable development and for human rights in the understanding the human security concept.
2.6.4 Prognoses for economic development of the next eight most populous states and the EU – 30 per cent of the world’s population – are significantly poorer than forecasts for China and India,
Indonesia ranks 4th in terms of the size of its population. The GDP is expected to increase 2.5%.
Pakistan and Bangladesh, direct neighbours of India, are ranked 6th and 7th in the population league table. In Bangladesh the GDP will increase with 3.5%. Pakistan expects a slow decrease of -1%; it received a new credit from the IMF, which is stabilizing economic development.
Brazil ranks 5th in terms of the size of its population. Its GDP is expected to decrease by -1%; this development is part of the fall of GDP in Latin America and the Caribbean of -1.9%. Mexico and Central America are likely to be hard hit, given their strong dependence on exports of manufactured goods to the United States and remittances from their citizens working in the US. Mexico received a new credit from the IMF.
Russia, the world’s 8th most populous state is likely to see a decrease in GDP of – 3%; the sharp deterioration in Russia is connected to developments across the Commonwealth of Independent States and is affected by falling commodity prices, especially for oil and metals. Russia has introduced a stimulus package amounting to nearly 10%of the GDP.
For Nigeria, which ranks 9th in population terms, a decrease in GDP of -0.5% is forecast; the economic contraction in Nigeria contributes to a drop in GDP for all states in sub-Saharan Africa of – 0.1 %.
Japan, the 10th most populous state in the world, is likely to see a rapid decrease in GDP of -7.1 per cent; its economy is falling into a deep recession. The severe downturn in global demand, particularly for automobiles, information technology and machinery, has led to a collapse in Japanese exports. A series of fiscal stimulus packages with additional spending totalling about 5 per cent of GDP have been adopted.
Some other ASEAN states, too, are likely to see a decrease of their GDP, Singapore 9.5%, Hong Kong 6.5%.
There are also concerns about developments in the Middle East, but the region is expecting only a minor decrease in growth for 2009. Its economies are expected to contract by 0.5%.
3. World trade
3.1 The volume of world trade has also dropped; for 2009 a decrease of – 11.1 per cent is to be expected for world trade, after the slow increase of 2.4% in 2008, whereas prior to the crisis, average annual growth during 2004-2007 was 7.8 per cent. The current drop is the largest decline year-on-year since the 1930s.
Protectionist measures adopted by more developed states constitute the greatest danger, reducing export opportunities for less developed countries still further. Some of the stimulus packages that have been adopted involve unfair trading practices by providing subsidies and incentives to domestic firms. This constrains the recovery of less developed states, which do not have the resources to implement fiscal stimulus measures and provide support to their domestic industries.
3.2 The SI welcomes the G20 summit commitment to refrain from raising new barriers to investment or trade in goods and services, imposing new export restrictions, or implementing non-WTO-compatible measures to stimulate exports. However the SI urges G20 member states to comply by implementing this commitment.
The SI calls for less developed states to be given greater access to markets in more developed states. The WTO’s Doha Round must be concluded as a real development round and thus contribute to a coordinated global policy. The guiding principle must be fair trade.
3. Global commodities policy
3.1 The price of many commodities has dropped during the crisis. This could have advantages for consumers, particularly in more developed states, but in any event it has disadvantages for producers, as can be seen in the Commonwealth of Independent States, in South America and in the Middle East. This is particularly problematic if producer states fall into the category of less developed states.
3.2 In many cases there are links between speculation on financial markets and speculation on commodities markets. Measures to contain this tendency should be included when new rules for a viable global economic order are adopted, particularly in the case of less developed states. One option could be a global fund to regulate the commodities markets; another option is state funds to secure long-term revenue from commodities, helping to enhance development in the countries in question and augment global distribution equity. The creation of a World Fund for commodities should be considered.
The EU is currently revising the Guidelines for oil reserves and expects to present the Guidelines on security of the gas supply in the near future . The SI believes in the need to extend these initiatives at the global level.
3.3 The purchase of agricultural land in less developed states by more developed states is a cause for concern. This can only exacerbate the inequitable distribution of food resources. There is a need for global rules to ensure that providing food for people in crop-growing regions takes precedence over trade in agricultural products.
4. Global environmental policy
4.1 Humanity is looking with concern and hope to the Climate Conference in Copenhagen in December 2009. At its Athens Congress in July 2008, the Socialist International declared the adoption of the 2 degrees Celsius target as the cornerstone for an all-encompassing agreement, which will hopefully be secured in Copenhagen in 2009. Within the next 10 to 15 years, global Green House Gas emissions need to be shifted to a pathway consistent with the 2 degrees Celsius target.
Sustainable development includes an economic, social and environmental dimension. Besides the objective of implementing reductions in global temperatures to 2 degrees Celsius, the Socialist International supports implementing in the states where member parties of the SI are in government, policies that promote the use of renewable energy, the renovation and insulation of building, the networks of energy distribution, the efficient transport of people and goods, recycling, the reconversion of polluting industries, the services of environmental management, forest management and the more rational use of water resources.
The preparatory conferences of the 17 “Industrial-and Emerging states” in Washington 27-28 April 2009 and Bonn in June 2009 did not do justice to this objective. The first draft of the Kyoto II Treaty, presented in Bonn, is insufficient. The more developed states have the main responsibility to meet the target, because the Green House Gas emissions per capita in these states are much higher than in all other regions. The G8 Summit in July 2009 in Italy must agree on decisive preconditions for the outcome of the Copenhagen Conference. All the more developed states must contribute to the financing of the struggle against climate change in developing countries, on the basis of a specific contribution, complete and universal.
The SI stresses the importance of recognising and complying with the basic principles of this contribution: capacity of payment and responsibility of emissions. It recognises the magnitude of the effort required and the necessary contribution of international assistance, through reasonable subsidies and the implementation of legal structures that allow for the mitigation and adaptation measures to become a reality, especially in the less developed states.
4.2 President Obama's initiatives in environmental policy are encouraging; they deserve to be supported by all states, even if there is a degree of resistance in the USA. Acting to counter threats to the environment, wherever these may occur, is not meddling in a state’s domestic affairs, and this holds true for the USA too.
4.3 The need to take a more innovative approach in devising measures to stimulate the economy relates above all to environmental goods. In the global economic crisis, this kind of measure can help to speed up the pace of growth, and thus respond to all the dimensions of sustainability.
5. Global social policy
In the global economic crisis, global social policy must concentrate on two strategies:
 - on the Millennium Development Goals, poverty reduction and the fight against hunger
 - on transforming jobs in the informal sector into jobs in the formal labour market.
The crisis jeopardises attainment of the Millennium Development Goals. As many as 100 million more people could remain poor or fall into poverty.
Today, more than ever, it is necessary that the donating states keep and increase their commitments of aid to development and that, under no circumstances can they use of the excuse of the extension of the international economic crisis to decrease it. It is necessary that, without delay, the agreed objective of donating nations contributing 0.7 of GDP by 2015 is reached.
Additional funding for less developed states should also be concentrated on the MDG.
In the global labour crisis, migrant workers are always living under more difficult circumstances than the unemployed in the states of their citizenship because they lack the support of their families. For this reason, the SI is concerned with the consequences of circular immigration. It supports plans of voluntary return, as well as the rights of these citizens to social protection under an equality of opportunities.
6. Peace-keeping in the global economic crisis
Committed and concerned observers identify the problem of an increasing number of conflicts and hence heightened threats to peace as a consequence of the global economic crisis. The danger will grow if prosperity does not increase. This does not have to be the case. States around the world can see their mutual dependence more clearly than ever, even cutting across cultural divides. Assistance from the rich, particularly in Europe and North America, can contribute to overcoming cultural prejudices and causes of conflict amongst the poor too.
President Obama’s initiative to condemn nuclear weapons all over the world is particularly significant. This can also contribute to cutting defence expenditure. The money freed up by this could be made available to less developed states – with the twofold goal of fostering their development and obviating reasons for them to spend money on weapons.