The 2010 parliamentary hearing took place at United Nations headquarters in New York on 2 and 3December and was attended by some 160 parliamentarians from fifty countries and five regionalparliamentary organizations. Dr. Theo-Ben Gurirab, President of the Inter-Parliamentary Union, welcomedthe participants and introduced the opening speakers.Opening RemarksMr. Joseph Deiss, President of the United Nations General Assembly,expressing appreciation forthe strong commitment of parliaments to the Millennium Development Goals, recalled that at the recentMDG summit, the Inter-Parliamentary Union had called on parliaments to ensure that the Goals weretranslated into national programmes and laws, that sufficient funding was made available for developmentcooperation activities and that governments followed through on their official development assistancecommitments.The current turmoil on global financialmarkets was an illustration of the fragility ofthe world economy and the weakness ofthe underlying economic fundamentals.Joseph Deiss, President, United Nations General AssemblyExchange rate misalignments and currentaccount imbalances were hampering therecovery, and protectionist measures werecontributing to trade distortions. Coordinated action was needed to overcome the crisis for the benefit ofall countries. Governments must also work together to reconcile economic growth and environmentalconcerns, including through the adoption of the green economy as a more sustainable developmentmodel.Coordinated action is needed to avoid costly ‘beggar-thy-neighbour’ policies and to overcome the crisis forthe benefit of all countries.

Many current challenges could not be solved by States acting individually. Rather, they had to beaddressed through global decision-making and global action – in other words through global governance.He stressed that that concept was not the same thing as global government, but was a way of organizingdecision-making in a world of sovereign entities, and should be based on the principle of subsidiarity. Theglobal governance landscape had become more complex with the emergence, alongside the traditionalinternational organizations such as the United Nations and the Bretton Woods institutions, of informalgroups of countries such as the G20. However, while those smaller groupings could sometimes act moreexpeditiously, their lack of inclusiveness made their legitimacy questionable.The United Nations had a pivotal leadership role to play in a global governance structure that wasefficient, open and representative. World leaders had clearly stated that the United Nations was thecentral forum for global governance but that urgent reforms were needed to make the Organization fit forthe job. He had therefore proposed global governance as the topic for the general debate of the sixty-fifthGeneral Assembly and, as a first step towards that end, had convened informal meetings of the GeneralAssembly to allow all Member States to express their views on the discussions and the outcomes of theG20 summit held in Seoul on 11-12 November 2010. That was an essential element in the process ofgiving more legitimacy and accountability to proposals affecting countries that had not had the chance toparticipate in the first stages of decision-making at the summit.As a further step, he also intended to organize a General Assembly thematic debate during the first half of2011 to reflect on mechanisms for reaffirming the central role of the United Nations in a governancesystem that was inclusive and representative. Parliaments had a crucial role to play in such a system by1

providing political support on the issues discussed and the resolutions adopted by the General Assemblyand by ensuring accountability and transparency in decision-making processes.Mr. Zukang Sha, Under-Secretary-General, Department of Economic and Social Affairs, UnitedNations,warmly welcomed the participants on behalf of the Secretary-General. He observed that theworld economy was entering uncharted waters: weaknesses in major developed economies continued tohinder global recovery, jeopardizing world economic stability. While much attention was being focused onimmediate global imbalances, little strategizing was being done on long-term global economic dynamicsand how to harness them in order to advance peace, security and development. Parliamentarians hadgained much knowledge and insight from the recent economic crisis, and the international communityneeded their experience to inform economic priorities and strategies for the future.The economic crisis had directed attention to global governance mechanisms, with the G20 moving intothe spotlight of economic policy coordination. While the Group had helped prevent a worsening of thesituation, it had also drawn criticism about its exclusive membership. The United Nations neededparliaments to work with it in impressing on the G20 governments the need for inclusiveness.The G20 could and should complement the work of the United Nations. That had started to happen in thedevelopment arena, but there was a need for much greater focus on development within the G20, sincegoals such as poverty eradication were intertwined with the achievement of economic stability.The pathway to a peaceful, inclusive and prosperous world was through sustainable development, whichwas not only about the environment, but was an integrated approach that tied together economic, socialand environmental goals. Parliamentarians were close to the heartbeat of governments’ developmentpriorities and to the purse strings, and the world was counting on them to guide and educate theircolleagues and ensure that sustainable development policies and programmes were prioritized.Support and input from parliamentarians was also needed in order to maximize the success of the Rio+20conference on sustainable development to be held in 2012. The conference would have three objectives:to renew political commitment, to assess progress made and to identify emerging challenges.The world had entered a new era. The harsh lessons of the recent past had altered fundamentalassumptions about economics. He urged parliamentarians to seize the moment and strive to ensure thatthe economic directions and policies of the future would foster sustainable developmentDr. Theo-Ben Gurirab, President of the Inter-Parliamentary Union,thanked the two precedingspeakers for their words, and the participants for attending. He noted that parliamentarians had onceagain come together at United Nations headquarters to discuss the global economy and the need for astronger response to the on-going crisis. Some headway had been made in addressing the enormouseconomic disparities that many had come to accept as part of their daily lives. In Europe, for example,bank bonuses had been sharply curbed, which should help to dampen enthusiasm for the kind of financialrisk-taking that had recently had such destructive consequences, particularly for poor countries.

Once again we come together at the UN headquarters to

discuss the subject of the global economy. We come to

talk about the rich and the poor. This city of extremes is a

good place for such a debate: a city of tall glass towers

and of people who sleep rough at their feet.

Theo-Ben Gurirab, President, Inter-Parliamentary UnionNevertheless, the global economy continuedto be characterized by a predominance offinance over the real productive economy:Wall Street was once again announcingrecord profits while at the same timeunemployment and poverty worsenedworldwide.

Panellists:Hon. Donald H. Oliver, Q.C., Senate of Canada; Mr. Robert Vos, Director, DevelopmentPolicy and Analysis Division, Department of Economic and Social Affairs, United Nations; H. E. HardeepSingh Puri, Permanent Representative of India to the United Nations; and Ms. Sarah Anderson, Director,Global Economy, Institute for Policy Studies (USA)In their examination of the topics under this theme, Senator Oliver suggested areas whereparliamentarians could help prevent a recurrence of the crisis, Mr. Vos examined some economicuncertainties ahead, Ambassador Puri explored the impact of the crisis on the Millennium DevelopmentGoals; and Ms. Anderson considered aspects of the response by the United States. Their main points aresummarized below.In the wake of the global crisis, critical efforts are in hand to create regulations and other safeguards toprevent a recurrence. Regulations and safeguards are what parliamentarians do; it is their area ofexpertise. Financial sector reform in advanced economies is needed to restore credit markets to health,and parliamentarians must play a role in implementing that reform.In response to the need identified by the G20 in Pittsburgh in 2009 to increase capital requirements,central banks have agreed on the Basel III Accord, which is designed to strengthen the banking sector'sability to absorb future shocks. Although details will not be finalized until the end of the year – a processin which parliamentarians should play an important role – the Basel Committee on Banking Supervisionhas drawn up agreements regarding higher quality and levels of capital to protect against losses likethose associated with the recent crisis, a harmonized leverage ratio, capital buffers, liquidity standardsand stricter standards on disclosure. Since one of the main areas of expertise of the IPU is accountabilityand transparency, it should be involved in ensuring that these agreements are adhered to.However, despite these new requirements, the BaselIII Accord includes no enforcement regime

Banks are capitalists when they make a profit

whatsoever, relying inadequately on self-assessment

and become socialists when they sustain a loss.

and peer review. Parliamentarians should press forRoberto Leon, MP, Chilethe Accord to include effective means ofenforcement. As legislators, they also have anessential role to play in ensuring that governments are not allowed to seek less stringent requirements fortheir banking systems, or biased interpretations of the rules, and that implementation of standards isconsistent across countries, with a rules-based approach incorporating meaningful sanctions.The incipient recovery from the worst recession since the Great Depression is fragile and uneven, withthe world economy expected to expand by 3.1% in 2011 and by 3.5% in 2012, which is less than will beseen in 2010, and far from sufficient to recreate the jobs lost because of the crisis.Several weaknesses in the developed countries pose a threat of “double-dip” recession in the comingyears: the lack of employment growth; the reluctance of the banking sector to lend any money forproductive investment; the halting by many governments of fiscal stimulus programmes, which willimpede any improvement in the employment situation; the negative effects of a distorted monetaryexpansion in which large amounts of liquidity, rather than helping growth in the rich countries, are simplybeing moved to the poorer ones, weakening currencies and destabilizing commodity prices; and finally,the retaliatory exchange rate interventions by some countries, with attendant risks of protectionistmeasures in response.Those risks could bring about even weaker growth than at present expected, in both developed anddeveloping countries. In order to avoid such a negative scenario, some related major policy challengeshave to be addressed. The first is to provide additional fiscal stimulus, by using the fiscal space that isstill available in many countries, even if that might not appear to be the case because of their high levelsof debt. Such stimulus must be closely coordinated between those countries that do have some fiscalspace and those that have none, thereby providing external demand for the latter. The second challengewill be to redesign that stimulus to provide more direct support for job growth, with less emphasis on taxcuts and more on direct spending. Thirdly, there is a need to find greater synergy between fiscal and

monetary stimulus, while counteracting increased currency tensions and volatile short-term capital flows.Fourthly, development finance must be made available for developing countries with limited fiscal spaceand large deficits, including resources for achieving the Millennium Development Goals and investing insustainable growth. Finally, policy coordination among the major economies – which has weakeneddespite the ringing declarations from the G20 – has to be strengthened.As to whether prospects for development have improved, there seems to be a certain complacency at thepresent time about the Millennium Development Goals, as if having had the MDG summit in New York inSeptember will be sufficient to solve the remaining problems. Governments recommitted to achieving theGoals, but whether that will happen remains to be seen. Analysis of numerous countries, all of whichhave suffered the same external shocks, appears to indicate that those that have engaged in morecounter-cyclical fiscal responses and also protected their social spending have been less impeded in theirprogress towards the MDGs than the others. Meanwhile, discussions on development assistance haveturned acrimonious, with the developing countries claiming that the developed ones are not keeping totheir commitments, and the developed countries asserting that they are doing all they can afford.In its consideration of how to resolve the problem of trade imbalances, the United States has focused toonarrowly on China’s currency manipulation. While that aspect is certainly one reason China’s exports areartificially cheap, another major factor is represented by the very low labour costs in China. Moreover, theunderpaid Chinese workers will not have much money to buy goods, either from their own domesticproducers or from abroad. Any serious attempt to deal with trade imbalances must also pay attention tothe labour rights issue.The United States could be criticized for injecting too much liquidity (through “quantitative easing”) intothe global economy. There had been no attempt to coordinate with other countries, nor any sensitivity tothe legitimate fears of emerging market governments that the additional $600 billion of capital would spillover into their markets and inflate their currencies. However, the US Government does not currently havemany options for reducing the country’s unemployment rate of nearly 10%. Following the recent electionsin the US, a bigger and better stimulus programme, one that would create jobs directly, is politically off thetable.In the discussion that followed the panellists’ remarks, parliamentarians noted that the world is facing atwo-part contradiction. On the one hand developed countries are under pressure to reduce their budgetdeficit, while at the same time they are being urged to adopt counter-cyclical budgetary policies torelaunch economic activity. Fiscal incentives would surely worsen their situation, the more so as some ofthose countries have spent considerable sums on social protection measures to attenuate theconsequences of the crisis for individual citizens.On the other hand, weak growth in developed countries coupled with dynamic growth in emergingcountries is causing a series of imbalances: trade deficits contrasting with trade surpluses, undervaluedcurrencies contrasting with overvalued ones and destabilizing interest rate differentials.In response, it was suggested that in most of the developed countries, the cash flow cost of debt is stillvery low. Thus as long as a country can ensure that its economic growth rate is high enough and itsinterest costs low enough, then it can still borrow more money to devote to stimulus without adding to itspublic debt ratios. Retrenchment, on the other hand, would lead to lower growth, resulting in lessgovernment revenue and widening fiscal deficits.While there might be a preference in some quarters eventually to have macroeconomic policy mattersresolved in a United Nations Global Economic Coordination Council such as recommended in the Stiglitz1report , smaller than the General Assembly but more inclusive than the G20, for the present the G20 wasthe reality to be engaged with. A greater role for the UN on macroeconomic issues would probably comeabout gradually, in a step-by-step rapprochement between the United Nations and the G20; the latter’soutreach efforts were encouraging first steps.

Several delegates from Scandinavian countries observed that part of the reason their countries havebeen less affected by the crisis than others is the higher-than-average participation of women in theireconomies. Human capital is one of the most powerful drivers of economic growth, and it is clearlyadvantageous to make use of the half of human capital represented by women’s capabilities, including insenior economic positions. Indeed, discussion ofglobaleconomicrecoverymustinclude

If that bank had been called Lehman Sisters, things

consideration of why so many women around the

would have been very different!

world are not able to realize their full potential.Monica Green, MP, SwedenChina’s surging trade surplus is one of the keyfactors in the current economic imbalance, and islargely a result of the fact that the exchange rate does not accurately reflect the fundamentals of theChinese economy. At the same time, current conditions have led to erosion of confidence in the dollar,which stands at the centre of the international monetary system. The flow of funds away from the dollarhas added to the upward pressure on the value of the currencies not only of the developing countries, buteven of developed ones such as Japan. As measures are taken throughout the world to rectify theeconomic imbalances and adjust the monetary system, it is important to prevent those initiatives fromgiving rise to protectionism, which will impede the incipient recovery in the global economy.It was observed that whenever a crisis occurs, there are always calls for action and new initiatives outsidethe established bodies such as the United Nations, the World Bank or the IMF. Does that indicate afailure of the United Nations system?In response, Ambassador Puri stressed that, given the nature of the economic and financial crisis, theUnited Nations could have done very little to stem it. The UN’s need for democratic process andconsensus among its 192 member States would not have allowed for quick action towards the kind ofmacroeconomic coordination that was required. Even the IMF and the World Bank found themselvessomewhat helpless, as the crisis arose so suddenly and on such a large scale. In such circumstances,sometimes there is no option but to step outside the established institutions to take emergency action. Assoon as possible, however, the focus should return within the United Nations, in order to ensurelegitimacy and representativeness. From now on, the United Nations must be involved in resolving thebroader issues of global economic governance.With regard to the monetary situation and its currency consequences, what is needed is greatercoherence between fiscal policy and monetary policy. The early part of the crisis response broughtmassive injections of liquidity to the banking system, but now much of that money is still being held,unproductively, in the banks, either as cash or in the form of low-yield government securities. Then camethe quantitative easing policies, but, again, the money being printed is still being used to buy upgovernment securities. Thus the result is a circular process not contributing at all to job recovery, which iswhat will create more spending power for the people, increase demand and thereby give businesses anincentive to start investing and hiring.It is certain that China's currency must be revalued as part of any solution, but that process has to bedone gradually, to avoid triggering asset price inflation. At the same time, China will need to invest inrestructuring its economy and allowing real wages to rise, in order to increase domestic consumption. Allthat will take time.Part of the role of the IMF is supposed to be to outlaw artificial devaluations designed to expand exports,but today such devaluations are an everyday occurrence, and nothing is said. Too concerned withpolicing the economic activities of the developing countries, the IMF proved incapable of seeing that inthe developed country where it had its own headquarters, a disaster was unfolding on such a scale that itwould have worldwide repercussions.It is going to be very difficult to rebuild trust in the international financial system, given that the institutionsthat previously supervised the financial behaviour of countries – the poor ones more than the rich ones –were caught unprepared. It is time for parliaments and parliamentarians to step forward and design a newand more democratic system.It was suggested that some developed countries are using the crisis as an excuse for not meeting theirofficial development assistance (ODA) commitments, thereby jeopardizing attainment of the MDGs.5

Meanwhile each year there are net financial flows from poor countries to rich ones, amounting in 2010 toUS$ 600 billion, or five times the ODA budget, which are then invested in rich countries’ dollar debt.The following conclusions and recommendations emerged from the discussion:With a real risk that the global recovery is too weak to generate enough jobs, and hence additionaldemand to sustain further growth, further stimulus is needed. However, opinions are divided on thequestion of how to create such stimulus without adding to public debt. How to assess thesustainability of public debt remains an open question as well: a fair assessment must be madebefore any potentially damaging austerity measures are considered. Countries should cut theirmilitary budget before they cut social spending.The imbalances between surplus and deficit countries must be corrected if there is to be a long-termrecovery. That will require better coordination of national macroeconomic policies. In particular,printing money to create monetary stimulus should be done in close coordination with other countries.The G20 is currently the only body in a position to bring this about, but a way must be found toempower the UN as a more legitimate and representative institution for global governance.Parliaments must help make the financial industry more transparent and accountable, withsupervision incorporating a proper enforcement mechanism, rather than being left to peer pressure orvoluntary measures.Greater voice and participation of the developing countries in the international financial institutionsand other standard-setting bodies on a basis of equity is essential to sustain pro-poor economicgrowth.

Session II: Reforming the international financial system: a critical look at key issues on the UNagendaPanellists:Rt. Hon. Fabian Hamilton, MP, (United Kingdom); H. E. Morten Wetland, PermanentRepresentative of Norway to the UN, Co-Chair of the ad hoc Working Group of the General Assembly onthe global financial and economic crisis; Ms. Isabelle Mateos y Lago, Head, Policy and Strategy Unit,Policy and Review Department, IMF; Dr. Rodney Schmidt, Principal Researcher (Finance and Debt), TheNorth-South Institute (Canada)In this session Mr. Hamilton contributed ideas on issues relating to the international debt regime,Ambassador Wetland examined the relationship between the United Nations and the G20, Ms. Mateos yLago gave some thoughts about the international reserve system and capital flows, and Dr. Schmidtexplored the idea of a currency transactions tax.It was suggested that a fundamental flaw of the current financial

As parliamentarians we have to be

architecture is that there is no genuine debt management

both idealists and pragmatists.

regime. Instead, governments handle their country’s debt indifferent ways, largely on the basis of political dogma ratherFabian Hamilton, MP, UKthan fiscal effectiveness. A mechanism similar to nationalbankruptcy laws might well be an effective way of managinginternational debt, although in the case of Greece and Ireland, the debt crises have come about becausethose countries have, by adopting the euro, abdicated their right to devalue their own currency.When the Lehman Brothers bank collapsed in 2008, the response was swift, indeed faster than anythingthat could have been done within the United Nations. At its London summit, the G20 adopted effectivepolicy measures applicable to its own 20 member countries, measures which were then, notably,emulated by many less wealthy countries. By so doing, countries succeeded in avoiding mutuallydestructive policy measures such as more trade barriers. However, at the same time, there was a growingfrustration within the United Nations because most countries felt they had no way of influencing what wasabout to befall them.After the G20 summit in April 2009 and the United Nations high-level conference on the world financialand economic crisis in June, a UN working group was established to examine the crisis and the UN’sresponse to it. The deliberations of the working group have revealed a great interest in a closer and

One striking phenomenon over roughly the past ten years has been the very dramatic increase in reserveaccumulation, driven by the emerging market countries, with levels far exceeding prudential requirementsto protect against shocks. This situation comes at a very high cost, notably because those reservesrepresent resources that are not invested in emerging and developing economies but rather in very low-yield government debt paper from developed countries. In 2010, for the emerging markets, that cost iscalculated as 0.5% of GDP: a massive amount of resources not put to better use.Globally, there is also a cost in the form of persistent imbalances. Some countries have to run up tradesurpluses to accumulate these reserves, while others refuse to let their exchange rate appreciate to arealistic level, contributing to persistent current account surpluses. Additionally, to meet this extremelylarge demand for reserves there is a very narrow supply, the global reserve system being dominated bythe US dollar. (The US economy accounts for about a quarter of the global economy but the dollaraccounts for almost two thirds of global international reserves.) That essentially means that if monetarypolicy mistakes are made in the US, everyone pays the price.Potential alternatives to the dollar might include the euro or the yen, but at present the economies of thecountries using those currencies are facing major debt problems. While the debt situations of low-incomeand emerging market countries are not as bad as often thought, many advanced economies are alreadyexceeding what are considered sustainable levels of debt and are projected to be in an even worseposition by 2015.One possible solution would be to make more use of Special Drawing Rights (SDRs), which are syntheticreserve assets essentially created by the IMF as needed and allocated to its members in proportion totheir IMF quotas. This was done for instance in 2009 at the peak of the crisis, when the Fund created aUS$ 250 billion supply of international reserves in the form of SDRs.With regard to global capital flows, the reason they have recently become such a prominent issue is thatthey are very large and very volatile, particularly in the context of the very small financial markets inemerging economies. The better growth potential in the emerging economies, compared to the advancedones, is causing global portfolio reallocation, but the drawback is that a very small portfolio reallocation inadvanced countries equates to a massive inflow into emerging markets, destabilizing their currency andthreatening to cause damaging credit bubbles.A step to alleviate such impacts, one which also addresses part of the problems of the internationalreserve system, is to strengthen the global financial safety net. If countries are going to face massive andspeculative capital movements they need something beyond their own reserves in order to deal withthem. Over the past year the IMF has significantly boosted that aspect of its financing, both by increasingthe resources available and by overhauling the facilities under which financing is provided when capitalflows out of a country.Regulating the flow of capital in and out of a country is important to overall macroeconomic stabilization.However, there are alternatives to outright capital controls that are generally less economically damaging,both nationally and globally. For example, where a country’s currency is very undervalued, allowing theexchange rate to appreciate in response to large capital inflows can be better for the country itself and forits neighbours in the global economy. Tightening fiscal policy may also be beneficial. But while the idea ofrestricting capital flows is not in itself particularly appealing, capital controls or prudential measures mayultimately be necessary as the last resort.7

Following the Monterrey Consensus of 2002, one of the new instruments considered for raising financefor development was a currency transactions tax, in the form of a relatively small proportional levycharged on every foreign exchange transaction and transferred to an appropriate body, perhaps therelevant country’s Treasury, perhaps an international agency set up under the auspices of the UnitedNations. Contrary to a view often voiced, a currency transactions tax would be quite easy to implement,given the technical infrastructure that underlies foreign exchange markets. Nor would it be necessary forall countries to coordinate the implementation of such a tax: it could even be done by a single countryacting alone.Such a tax would serve a two-part purpose. On the one hand, it would serve to discourage speculativetrades (very short-term, high-frequency currency transactions). With an increasing disconnect betweenfinance and the productive economy, a currency transactions tax would be used to slow speculativefinancial activity down to the speed at which the exchange of real goods and services takes place.On the other – and this is the aspect which has been highlighted more since the financial crisis – acurrency tax would serve to raise revenues. The financial sector generally is undertaxed, and there is animbalance between the private rates of return in the financial sector and the social rates of return in theeconomy as a whole. -Additional revenues could be used to address any one of a multitude of needs:poverty reduction, attainment of the Millennium Development Goals, climate change mitigation oralleviation of sovereign debt crises.One study by the North-South Institute calculated that a tax set at an extremely low rate, in line with thenormal fluctuation in bid-ask spreads in the global market, and applied to trades in the dollar, yen, euroand pound sterling, would bring in revenues of US$ 33 billion per year: not a huge amount, but far frominsignificant. The same study estimated that such a tax would cause a drop in transaction volume ofabout 14%.In the ensuing discussion of these topics, it was suggested that in addition to a tax levied purely oncurrency trading, a levy should be imposed – as had been proposed by the IMF – on the profits of allkinds of banking transactions. The proceeds could then be applied to create an emergency fund on whichthe banking system would be required to draw in case of future difficulties. It would then be the banksthemselves that would have the responsibility self-insure, rather than expecting to be bailed out by theState and thus the taxpayer – a solution that is neither morally nor economically defensible.The concern was raised that a tax on currency transactions could burden trade in real goods and therebyhamper the development of the poorer countries. It could also burden capital flows intended forinvestment, and might lead to the emergence of a parallel illicit financial market, or even barter, to avoidthe tax. Delegates asked whether there were any successful examples in practice of a transactions tax,not as a revenue-raising mechanism but as a tool for moderating capital inflows in order to ward offspeculative attacks.Panelists stressed that the tax would be levied only on very high-frequency, very short-term investmentsin foreign exchange. Capital flows related to productive assets would be affected only to a negligibledegree. With regard to the use of a currency transactions tax as a way to moderate capital inflows, this isnot completely uncharted territory, as the tax would simply increase transaction costs and slow rates oftransaction back down to the levels of 15 years ago, when, after all, the foreign exchange markets hadoperated fairly effectively.There was a broad consensus that the present international monetary system is a source of imbalanceand that a new and more satisfactory arrangement must be found. However, it was also pointed out thepresent discussions on a future system are taking place under the duress of the crisis, and not becausecountries have spontaneously decided to make improvements. It was also noted that it is only veryrecently that serious consideration has been given to reform of the system; thus it is still too soon to knowwhere countries stand on the various issues. The debate is just beginning, and there are going to besurprises. Some fairly modest proposals, such as that of adopting targets on national current accountbalances, have already been rejected. Others that might be seen as more ambitious, such as makinggreater use of the SDR in one fashion or another, seem to be gaining traction.It was pointed out that parliamentarians from some countries would have difficulty in explaining to theirconstituents that their country was potentially going to be part of a reserve system based on the SDR8

instead of the dollar, if such a system was going to be governed by the IMF, where decision-makingauthority is skewed toward the developed countries. Ms. Mateos y Lago responded that the IMF is veryaware of what some call its democratic deficit, and has just completed a major reform of its governancestructure, with a major shift in voting power from the developed countries to emerging markets. Inaddition, all future executive directors will be elected, not – as in some cases up to now – appointed byindividual countries.The following conclusions and recommendations emerged:Currency exchange rates must be stabilized through better international cooperation. At some pointthe international reserve system will have to move away from the dominance of the US dollar, but aclear alternative has yet to emerge. If a basket of different currencies is to be used, it will be importantthat the currencies of emerging economies such as China be part of it. That would also help addresssome of the trade imbalance between China and the US, which remains a destabilizing factor for theglobal economy as a whole.It was suggested that the United Nations should play a central role in formulating a comprehensivedebt relief mechanism in order to free up the meagre resources of the developing countries foreconomic and social development. This might be done by setting up a special subsidiary body of theGeneral Assembly, on the basis of the organizations’ universal membership and legitimacy.The idea of a tax on speculative and short-term financial flows has potential, particularly as it wouldbe technically feasible for countries to apply the tax on transactions in their own currency without theneed for a global agreement. The tax would primarily impact hedge funds and commercial banks,whose overall tax burden is generally below that of other industries.It is indeed lamentable that in many countries, banks that reported huge profits up to the crisis thenreceived State aid and thus weathered the storm virtually unscathed. Private investors and savers,meanwhile, saw their assets plunge. It is also regrettable that, at least in some cases, internationalsupport channeled to central banks to assist countries in the wake of the crisis was instead passed onto inject liquidity into private banks, with no benefit to those countries’ real economy. To avoid arepeat of such situations, banks must be induced to create a system of self-insurance against lossesdue to excessive risk taking.Capital controls may be imposed whenever necessary to prevent currency overvaluations, assetbubbles and other negative consequences in receiving countries. One unresolved issue, however, iswhether controls should be imposed only as a last resort after other measures have been tried, as theIMF has proposed.

Session III: Rethinking sustainable development within the current global economic andenvironmental frameworkPanellists:Mr. László Borbély, Minister of Environment and Forests of Romania, Chair of the UnitedNations Commission on Sustainable Development; Senator Cesar Borges, Senate of Brazil; Mr. RicardoSanchez, Deputy Director, New York Office of the United Nations Environment Programme (UNEP); andH. E. Charles Thembani Ntwaagae, Permanent Representative of Botswana to the United NationsIn their consideration of this aspect of the crisis, Minister Borbély gave some views on the situation fromthe perspective of the Commission on Sustainable Development; Senator Borges examined therelationship between economic growth and sustainable development, with particular reference to Brazil;Mr. Sanchez presented some ideas on global economic governance from the point of view of UNEP, andAmbassador Ntwaagae acted as moderator and synthesized the other panellists’ presentations, whichare summarized below.The current economic crisis offers an opportunity to re-examine the transition to a green economy, whichmust be a premise for solving the challenges related to the Millennium Development Goals. Consolidationof international environmental governance must be accompanied by a strategy aimed at strengtheningsustainable development within the United Nations. Such a strategy should aim to enhance cooperationamong the relevant bodies within the framework of the United Nations Development Group and to

reinforce the role of the Economic and Social Council and the Commission on Sustainable Development,in order to better integrate sustainable development principles throughout the UN system.It might be advantageous to create a specialized agency for environmental protection as an integral partof UN efforts to promote sustainable development, based on the structures and systems that havealready proved viable. At the same time, efforts to ensure sustainable development must be pursued atnational, regional and global level. To that end, the international community needs to agree on certainspecific results that must be achieved in the years to come, including promoting sustainable agriculture,enhancing global food safety, advancing the sustainable generation of bio-energy and improvingdeveloping countries’ access to existing and new sustainable markets.In the context of the present multiple and interrelated crises, economic growth is possible but only withincertain limits. Growth has to be correlated with the sustainable use of natural resources as well as withsustainable consumption and production, in particular in the context of the 10-Year Framework ofProgrammes on Sustainable Consumption and Production, about which a clear political message isexpected at the forthcoming19th session of the Commission on Sustainable Development.Although results still fall short of the targets of the various multilateral environmental agreements,progress has been made possible by those conventions in defining sustainable development paradigmsand outlining an agenda of principles for environmental protection. Those achievements haveundoubtedly influenced public policies in various countries.In Brazil, while convinced of the need to maintain the pace of economic growth, with measures to createjobs and increase incomes, the Government is also aware that it must not lose sight of its essentialcommitments to rational use of natural resources, as well as to sustainable consumption and productionpatterns. For example, Brazil has undertaken a national voluntary commitment to reduce projectedgreenhouse gas emissions by between 36.1% and 38.9%, by 2020. The National Policy on ClimateChange promotes mitigation and adaptation actions through fiscal and economic measures, includingdifferentiated tax rates, exemptions and incentives to encourage emission reduction.Furthermore, through its National Fund on Climate Change, Brazil has become the first country in theworld to use oil industry resources in mitigation and adaptation efforts. The Fund's budget of US$ 500-600 million a year is supplied from a 10% levy on oil industry profits. These resources will be used to helpregions that are especially vulnerable to climate change.Tax incentives have contributed to a success story in the protection of the Amazon forest, enabling thecreation of an industrial hub in the city of Manaus, home to high-technology industries that combinecompetitiveness with environmental responsibility. Recent studies have shown that the presence of theindustrial hub, creating income and employment alternatives, has contributed to a reduction indeforestation of at least 70% in Amazonas state between 2000 and 2006, and has thereby preventedcarbon emissions estimated to equate to US$ 10 billion. If ecosystem services resulting from preservationare taken into account, the estimated total saving rises to $158 billion.International environmental governance has been under discussion since the Earth Summit in 1992, andwill be one of the main issues to be discussed at the 2012 United Nations Conference on SustainableDevelopment (Rio+20). The Cartagena Package, adopted by the UNEP Governing Council/GlobalMinisterial Environment Forum in 2002, presented a group of important recommendations for achievingimproved international environmental governance, such as enhancement of capacity-building andtechnology transfer for developing countries, strengthening of both UNEP’s scientific base and itsfinancial base, and improved coordination and coherence across the United Nations system.Since 2002, several concrete outcomes have resulted from the Cartagena Package, such as the BaliStrategic Plan for Technology Support and Capacity-building in 2005, or decisions to strengthen dialogueamong the different multilateral environmental agreements and UNEP. Several steps have beenundertaken to strengthen UNEP’s scientific base, including a recent proposal to establish anintergovernmental science-policy platform on biodiversity and ecosystem services. Progress has beenmade towards increasing the financial base, but much remains to be done, as voluntary contributionscannot support all of UNEP’s activities.

In the ensuing discussion, a wide variety of views was revealed, although there was general agreementon the need for urgent action to protect the environment and make development sustainable. In particular,urgent attention needs to be paid to the impact of climate change on the poorest as well as the linkbetween climate change and security issues within and between countries.By some estimates, the demand for both food and energy could rise by 50% by the year 2030, whiledemand for water could rise by 30%. Meeting such demands will require major investments andenhanced political and economic cooperation, all integrated in a sustainable development approach.Meanwhile, climate change is already having real effects, and as usual it is the poorer countries that aresuffering. A recent example is the deadly flooding in Pakistan. In the wake of this and other environmentalemergencies, urgent reforms are needed to protect poor and vulnerable countries. Rio+20 would be theright moment to take such decisions but it seems that if that is to happen some initiatives will have to bestarted immediately.The industrialized countries must do more to contribute to protection of the environment, for examplethrough voluntary contributions to an international fund set up to that end. If the voluntary approach doesnot succeed, it was suggested, serious thought must be given to direct budgetary contribution from thedeveloped countries. An assessed contribution of 0.5% to 1% of developed countries’ GDP would yield$200 to $400 billion for such purposes. Other delegates pointed out however that most developedcountries have not even fulfilled their commitment to provide 0.7% of gross national income as officialdevelopment assistance – what chance is there that they will do more?

We can only look on the ecological damage, and

weep, while the polluters shed crocodile tears at

the disappearance of the tropical forests.

Djibril Mama Debourou, MP, BeninOthers, again, suggested that the major powers aretruly not concerned about environmental degradation,being determined not to succumb to agreementslikely to slow down their industrial production, andthat economically weak countries, particularly inAfrica, are in no position to stand up against thedestruction of their ecosystems.

Delegates from some developed countries recalled early efforts by their Governments to legislate greaterenvironmental responsibility in production, which had initially met resistance but had eventually proved tobe prescient, as the resultant low-consumption and low-emission products have become best-sellers bothdomestically and internationally. Successful introduction of such standards, or rules on energyconservation and recycling, requires the imposition of targets to be achieved. It is also necessary toprepare and raise awareness in industry, among local authorities, and in individuals, particularly theyoung, with teaching about environmental impact starting in early childhood.Some delegates voiced concern at various countries’ practice of growing crops to make fuel rather than tofeed people. UNEP has done studies examining how to ensure that the production of biofuels issustainable and is not short-changing food production in the interests of transportation. Senator Borgespointed out that in Brazil the production of ethanol is not in competition with production of foodstuffs: thecountry has ample growing areas to do both. But the situation in Brazil may not be typical of othercountries, and Brazil does not seek to impose its model on them.The following conclusions and recommendations emerged from the discussion:The financial and economic crisis has created room for public policies grounded in moreenvironmentally and socially sustainable bases. Many fiscal stimulus packages contain measuresspecifically aimed at greening the recovery, including renewable energy, green buildings, cleantransport and efficient water and waste management. But more needs to be done. In particular, all themajor producers of greenhouse gases need to join in efforts to fight global warming. An effectiveinternational framework has to be established; simply extending the Kyoto protocol commitmentperiod will not be enough.The current institutional fragmentation of global environmental governance must be resolved. Theproposal that UNEP should be endowed with greater core funding and take on a greater coordinatingrole among other environmental institutions has merit. Similarly, the three main conventions – onclimate, biodiversity and desertification – might well be brought under a single umbrella to maximize

synergies at both operational and policy levels. Regional environmental agreements may be viable inthe short term, but they cannot substitute for global agreements that call upon all countries, rich andpoor alike, to do their part, in a spirit of common but differentiated responsibility.Consumption and production patterns are still well above the earth’s carrying capacity. Decoupling ofeconomic growth from environmental impacts is not occurring, despite official commitments. Toadvance in this area will require obtaining greater efficiencies throughout the economy, but also astronger move toward the green economy. All advanced economies should carefully track theirconsumption and production patterns, and should also prepare a plan for the transition to a greeneconomy.Governments must play a leading role inenvironmental sustainability, but must also

It is not realistic to expect people to have

work in close partnership with the private

environmental sustainability in their heads

sector. Public investment must be targeted to

while they have nothing but hunger in their

induce more private investment in the green

stomachs.

economy. When the less wealthy countriesSenator Rosario Green Macías, Mexicotake it upon themselves to set aside budgetaryresources for renewable and green economyprojects, it will encourage concerned investorsto join in. A global carbon tax, or alternatively a levy on various modes of transport, might be a way tohelp finance green technology transfers, climate change mitigation activities and other environmentalprojects in developing countries. In all these matters, politicians must be on their guard againstprivate interests and lobbies: decisions must be made in the public interest only.Green innovation is regarded as a driving force for growth. Investment in the environmental field willeventually facilitate economic growth and job creation, provided it is done strategically to promote thewider use of the most advanced low-carbon technologies, and to further develop innovativetechnologies. It is likely that in the short term, changing over to green production, including of energy,will increase its price. Governments have to find a balance between the short-term costs and theadvantages for all in the medium and long term.Both international trade and protection of the environment are crucial for the well-being of humansociety, but a large number of the norms in the multilateral environmental agreements clash with thetrade rules of the WTO. In order to achieve an environmentally sound world, trade and environmentalinterests need to be integrated. As long as the two spheres operate separately, and set out divergentgoals, neither regime will ever be fully effective.In spite of all these challenges, it is important to note the progress has been made on the legislativefront in many countries in just twenty years. It is also important at this stage for parliamentarians toenact legislation that helps change public attitudes so that people will become more conscious of howtheir behaviour might impact the environment. Citizens are growing apathetic about the environmentbecause progress is too slow and there is little leadership to push for change. It is a duty ofparliamentarians to keep issues at the forefront of people’s minds when the media have lost interestin the topic.

Finance, a part of economics, has come to dominate consideration of economics as if it were the wholediscipline. Today’s most innovative minds – modern-day Henry Fords – are not designing and inventingmaterial things, they are reading financial statements and working in

“The time is out of joint…”

the unreal world of money. This is a disjointed or misaligned state ofaffairs.Hamlet,quoted by Dr. HorváthHow has the world got into this state? By somehow slipping awayfrom that economic organizer, the fresh breeze of competition. The money world, the financial sector, hasbecome monopolistic, with a limited number of actors dictating to the rest of the world how things will be.As Adam Smith cautioned, when businessmen get together, their talk usually turns to means of stiflingcompetition. In the 19th century, the United States initiated anti-trust legislation, which spread all over theworld in the ensuing years. But by the end of the 20th century, as if everyone has forgotten all about theanti-trust idea, the monopolies have prevailed, or are at least close to doing so. What makes the situationmore burdensome is that monopoly allies itself with the polity, and as a result the world finds itself in thrallto oligarchies. Oligarchy is the ailment of our society, a society in which people pay taxes in order to bailout those who mismanage. The role of parliaments is to tell governments that their responsibility is not totake matters in hand because the competitive sector is not working as it ought to; the responsibility ofgovernments is to compel competitors to compete, and to outlaw monopolistic practices.The current crisis situation has four salient aspects. The first is that no country can handle the situationalone; second, the most vulnerable people and nations are the ones hardest hit; third, the crises(economic, financial, food, water and fuel) are all inextricably intertwined; and fourth, without immediateaction the multiple crises would have dragged the world down to total chaos. In the context of this fourthaspect, the G20 acted decisively and with efficacy in terms of stimulus and financial packages to avertdisaster.But at the same time, those positive actions of the G20 triggered intense discussions on the relationshipbetween it and the United Nations, a relationship which needs to be complementary and mutuallyreinforcing. A cooperative relationship, one of inclusive engagement.In the case of the Seoul G20 summit, that inclusive engagement had two main elements. The first wasthat the Korean presidency invited non-G20 countries, representing interest groups, to the summit:Ethiopia as Chair of NEPAD, Malawi as President of the African Union, Viet Nam as Chair of ASEAN, andmore. Secondly, the G20 under its Korean presidency listened attentively to the concerns of the non-G20States, and to those of the United Nations as a body, with regard to the G20 itself.While the G20 fundamentally has a very specifically focused financial and economic agenda, at the sametime it does have sufficient flexibility to allow the host country to propose some additional agenda items.On this occasion, the Korean Government selected two such items: the development agenda and thefinancial safety network.Why the development agenda? Under the United Nations, development is currently encapsulated in theMDGs, which address the human dimension of development rather than economic development itself.Thus the UN’s focus on the Goals can be considered a demand-side view of development: it deals withthe question of how to distribute the outcome of economic development. By contrast, the G20’s approachcan be seen as a supply-side view, concentrating on increasing the size of the macroeconomic pie beforeconsidering how to cut it up. The Korean Government concluded that studying the issues from thatperspective might be a fruitful route for finding ways of enhancing countries’ ability to reach the Goals.Paradoxically, the financial crisis may have created an opportunity for the United Nations to undertake anin-depth examination of its role in global governance and thereby become more effective.Membership in the 192-nation UN is governed by two basic rules. One is the capacity to pay – in otherwords the size of a country’s economy determines its share of the United Nations budget; and the secondis the principle of one country, one vote, regardless of the size of each country’s population or economy.By contrast the G20 is self-convened, neither elected nor appointed; it makes no attempt at geographicalbalance – for example, only one African country is represented – and it invites interest groups to itsmeetings based on its own vision of how those groups might be useful to its work. Through its lack ofinclusiveness, the G20 has neither transparency nor accountability.

However, it has to be conceded that the Group was effective at assuaging the financial and economiccrisis and recreating trust in the international economic and financial system. Thus it does have a role toplay, and consequently there has to be some kind of interaction between it and the United Nations. Howshould that interaction be crafted? Which should work to gain the trust of the other? The United Nationswants to establish good relations, but it is the responsibility of the body that is issuing these sweepingmacroeconomic decisions, impacting the whole world, to approach the United Nations and propose howthey should work together. Not the other way round.Nor is it for the G20 to take over aspects of United Nations work which the Member States wish to seeremain in the hands of the Organization. For example, it appears that the next G20 summit is going to bediscussing institutional reform at the United Nations – reform of the Security Council, reform of theSecretariat – but these are matters that should remain within the purview of its own 192 Member States.Further, the G20 has nothing of the order of a “treaty body” tasked with reporting on its proceedings andensuring opportunity for public scrutiny. Its accountability and where it sets the boundaries of its work aretherefore primarily determined by itself, in a process of self-regulation that is in part spurred by civilsociety response, which ranges from investigation of the G20’s operations to street protests at theirresults.Although scrutiny, oversight and ensuring that governments do their job are parliamentarians’ daily bread,parliaments have been markedly muted in engaging with the G20. Research conducted at the One WorldTrust covering parliaments in both developing and developed countries has revealed a number ofreasons, including that parliamentarians themselves do not consider that they are empowered to engagesubstantively with global macroeconomic governance issues, and that in any event there is virtually nodomestic political reward for doing so.Yet, given the immense impact that the G20’s handling of economic governance issues has on people allaround the world, some might argue that this represents a significant failure of parliaments to fulfill acritical duty to their constituents. However, research also reveals that there is a range of parliamentarybest practices that can be tried in order to engage more meaningfully with the G20. Exactingaccountability from the G20 will entail collective action by parliaments, doing what they are already doingat domestic level and expanding it to international affairs. This will mean fuller exercise of existing powersand practices of parliaments, such as proactive use of powers of inquiry in ad hoc committees and moreconscious use of opportunities for setting agendas and scheduling parliamentary debates. Additionally,parliamentarians need to reflect on their relationship with civil society. Both groupings care about thesame people: where there is competition and distrust between parliaments and civil society, efforts shouldbe made on both sides to empower each other in the interests of those people.Participants in the debate that followed the panel presentations generally agreed that the G20 by thespeed of its actions had provided an effective macroeconomic response to an unprecedented crisissituation. The crisis had also highlighted the urgent need for serious reform at the United Nations, onethat can help it adapt to the present state of the world. There is no place for turf wars between the UnitedNations and the G20: the issues at stake are much too important, and the two bodies are quite different innature. The dialogue between them must follow the paths already mapped out by the UK, Canadian andKorean G20 presidencies, which will also be pursued by the French presidency. A mutually beneficialrelationship between the G20 and the United Nations will not happen as a matter of course; it will needcareful oversight by various stakeholders, including parliamentarians, so as to ensure respect for thecollective interests of our planet.A small number of delegates expressed skepticism about the concept of mutual respect between theUnited Nations and the G20. On the contrary, they felt, the G20 has no regard for the United Nations andits universality. The G20 exists only, in this view, to serve the interests of its tiny number of members,while the United Nations tries desperately to establish – if not the utopian concept of equality – at leastjustice among nations.Ambassador Park, in particular, disagreed with that view, recalling that the origins of the Group were notas a self-centred rich countries’ club; it had been set up as an urgent reaction to the Asian financial crisisin the late 1990s. However, a degree of fine tuning is needed to make the actions of the G20 beneficial toall, including the developing countries. He recalled that, in addition to the agenda item on development

issues, the Korean G20 presidency had added another: the financial safety network. In the wake of thefinancial crisis countries have accumulated huge dollar reserves for self-protection, which amounts,however, to a huge burden of unproductive money. Consequently the G20, at the suggestion of itsKorean leadership, is examining the possibility of creating some form of reserve system which couldalleviate that burden on the developing countries.The following conclusions and recommendations emerged from the discussion:While its lack of inclusiveness and legitimacy is a major limitation of the G20, the United Nations hasshortcomings, too. In particular, its pace of reform is too slow, and there is also some dissatisfactionwith the extent of the reforms. Operating by consensus with 192 parties is also difficult, opening upopportunities for countries with a private agenda to block progress on purely procedural grounds. Ifthe United Nations is to develop a strong and fruitful relationship with the G20 it must first show that isit able to reform its own processes to deliver quick and effective responses to global economic issues.However, responsibility for the slow pace of reform lies with the Member States of the United Nations.Something as far-reaching as Security Council or General Assembly reform involves politicaldecisions that cannot be pushed through unilaterally by the Secretariat. Additionally, the majorpowers must be willing to bear the cost of such reforms. The IPU must play a role in all this by urgingits members to work cooperatively and supportively on reform of the Organization.The IPU could contribute to enhancing the relationship between the United Nations and the G20 bycalling for specific improvements in each body. That would demonstrate that there is a realexpectation from the people, through their parliaments, for such improvements. The IPU should alsobe more pro-active when it comes to developing a parliamentary response to the G20.Most parliaments were not simply handed their oversight authority; they gained it over time through alot of hard work. Parliamentarians should claim and exert a more robust oversight role at the both thenational and international levels, even though that authority may not be fully spelled out in the lawfrom the beginning.

Closing remarksDr. Theo-Ben Gurirab, President of the Inter-Parliamentary Union,recalled that he had been presentat the United Nations in 2000 when world leaders, in the Millennium Declaration, had called for apresence of the IPU in the work of the United Nations, especially the General Assembly. The annualparliamentary hearings at the UN underline the importance of the partnership between the twoinstitutions, one representing countries through governments and one doing so through parliaments. Therelationship is on firm ground, indeed advancing from strength to strength.The two days of debate had ended on the very challenging topic of the relationship between the UnitedNations and the G20. All were agreed that both bodies are here to stay, and thus the task is to find thebest way for them to work together.He called on all the parliamentarians present to continue to hold true to their duty as representatives oftheir electorate and as citizens of their countries, observing that the best-governed countries are thosewhere the legislature and the executive share with the people the same sense of common purpose for thefuture.