UNCTAD boss for fiscal governance overhaul
KATHMANDU: Calling the recent financial crisis a ‘mega event’ that ended an era, UNCTAD secretary-general Supachai Panitchpakdi today called for an overhaul of international economic governance in order to ensure lasting stability and prosperity.
In his prepared remarks to the EximBank of India, in Mumbai, Supachai assessed some of the contributing factors to the crisis, including overreliance on market forces and macroeconomic imbalances that might have been prevented had there been greater international monitoring and regulation.
He warned of the dangers of continuing ‘business as usual’ and ignoring the lessons that could be learned from the crisis. At the national level, perhaps the greatest lesson was that trade liberalisation and market reform do not automatically lead to sustainable growth for the developing world; the most successful countries were those that had also ensured an enabling economic role for the State while encouraging innovative private-sector investment in productive capacities and job creation.
Supachai also advocated action at the international level to avert a recurrence of disastrous effects of the removal of capital controls, the unsupervised proliferation of innovative financial instruments, and the financialisation of commodities. While countries should be given more autonomy over their own use of capital controls, a multilateral framework was also needed to manage exchange rates.
“Real exchange-rate changes that determine the competitiveness of the whole economy cannot be left to the market”, he warned, observing that most of the financial crises in the post-Bretton Woods era of floating exchange rates had been characterised by nominal interest rate differentials that triggered large short-term capital flows. The experience of the current crisis similarly illustrated the need to ‘stabilize trade and financial relations by reducing the potential for gains from speculative capital flows’.
The crisis, which ultimately stemmed from ‘poor governance and a structural inability in the world economy to correct systemic imbalances’, had turned mainstream economic thinking ‘on its head’, inducing a ‘radical change’ in government policy and international economic governance, said the UNCTAD chief.
The crucial task ahead, he insisted, was to keep that impetus for change alive, ensuring that economic governance works primarily “to achieve the goals of prosperity, security and stability, which are the prerequisites for sustainable poverty alleviation”.