3 July 2002
Speech by the Chief Secretary to the Treasury, Paul Boateng MP, on enhancing private capital flows to developing countries in the new international context.
It's good to be with you today and to be sharing in the opening session of this important conference.
I would like to give my thanks to the Commonwealth Secretariat and all those involved in bringing this event together.
These are indeed interesting times. The challenge for us all is to ensure that at a time of crisis we recognise that there is a range of problems we need to address, but that this is also an opportunity for us to shape our world to ensure we come through this being stronger and better enabled to face challenges.
A global economic recovery is underway. It is important to recognise that we wouldn't be where we are today if it wasn't for the co-ordination between Governments and banks after September 11th. We need to learn lessons from recent events and build on a shared communality of interests to ensure that the economic recovery is a balanced and sustainable one. There is no better context for that than the Commonwealth.
The Commonwealth is a unique organisation. We are linked not by a common currency, not by a shared foreign policy or exclusive trading links, but by a shared history, a common purpose, and a concurrent destiny.
The ties that bind us all to the past are strong - but stronger still are the obligations we have to one another. We have a duty to build on those shared values of the past and turn them into a new consensus with new approaches: the highest standards of economic and political governance, and a common commitment to support stability, poverty reduction, and engagement with the wider global community.
Commonwealth Finance Ministers Meeting
It is gatherings such as this that give us real opportunities to cement relationships and form a common purpose. This is an important contribution to the work we will embark on at the 2002 Commonwealth Finance Ministers meeting which the UK will be honoured to host in September - an event to be opened by HM The Queen in her jubilee year. As we have seen with the recent WTO, IMF G8 meetings and Monterrey Summit, the world community is, rightly, demanding that we take these opportunities for discussions between governments; to set a new course for global development and inclusion; to generate change rather than to celebrate the status quo. Don McKinnon, Gordon Brown and I want to confront the challenge of these interesting times. There needs to be an assurance that we have the methods of working in place to ensure we can bring about real change. In the run up to the September meeting we, are engaged in a more inclusive dialogue with civil society. When Ministers sit down at the conference table, they will have with them a report flowing from engagement with civil society, from Commonwealth countries, across 5 continents. And I know the Commonwealth Secretariat also plan to bring together the discussions taking place here over the course of this conference, as a valuable input into the Ministerial.
At the heart of the September meeting will be an Action Plan to turn the historic consensus reached at the UN Financing for Development conference into a set of concrete proposals for delivery by the Commonwealth's governments. We will not hide from the enormous challenge we face. With 75 million children in the Commonwealth failing to complete primary education, when millions live on less than $1 a day, and where all too often the opportunities of globalisation are leaving many Commonwealth citizens untouched; the time to act is now, and we must do so with enthusiasm and vigour.
The challenge of globalisation and poverty reduction
The global community is increasingly and inextricably interconnected. 50, even 20, years ago it would be difficult to imagine the degree of integration experienced now, at the start of the 21st Century. Capital flowing freely across national borders. Multinational companies operating in an international environment and their turnover dwarfing the GDP of some smaller states.
The potential benefits of this process of globalisation, beginning in the distant past, driven by a human impulse, and accelerated by advances in technology, are self-evident. Higher life expectancies, higher levels of education, the improving levels of welfare - will all flow from the dynamism of the world markets provided that we can put in place the structures of economic and political governance that can harness that dynamism for the benefit of all. The costs however for those left behind in this process are all too obvious - billions still live in grinding poverty, 30,000 children a day die, many from curable diseases, the most basic goods - like clean drinking water - are not universally available.
There are those who maintain that it is possible to put a stop to all of this. That there is a choice between having globalisation or not. That's nonsense. Globalisation is in many respects not as new a phenomenon as some would have us believe. In fact the issue is whether we manage globalisation well or badly, fairly or unfairly, for the benefit of the few or for the many.
The challenge for us is to not retreat into isolation and protectionism. In the last 50 years no country has lifted itself out of poverty without participating in the global economy. Poorer countries will benefit from greater openness - properly sequenced with institutional development and adherence to international standards of governance - and with help from the international community to manage the structural change that will require. But the developed world needs to practice as well as preach. The reduction of trade barriers and of trade-distorting subsidies by the EU and US is a vital part of the new global deal for growth and poverty reduction. Having reached an outline agreement for a Development Trade Round in Doha, we must not let this opportunity slip from us.
Globalisation is a process that has to be managed. We need new rules of the game, founded on a recognition of the importance of markets, the pivotal role of private capital, and a recognition that, whilst the unfettered power of any vested interest anywhere is unacceptable, private companies and private investments are crucial to make global economic development work in the interests of the excluded.
Aid needs to be understood within this context: a necessary but not a sufficient part of the development process. The best estimates suggest that an extra $50bn a year is required if we are to have any hope of reaching the Millennium Development Goals. The world's richest nations have a shared responsibility to increase the level of aid, and to investigate innovative ways of making that aid go further - using public resources and guarantees to leverage in private capital, as the Chancellor Gordon Brown has recently proposed. And by making aid more effective and supportive of country-owned development strategies.
So, yes, we do need a second Marshall plan - a massive transfer of financial and intellectual capital - private flows and development assistance - from the richest countries in the world to the poorest. The transfer of resources must go hand in hand with a transformation of the international architecture and improvement of the terms on which the developing economies and emerging markets engage with the rest of the world.
Reforming the international financial architecture
As we see economic instability, once again, hitting Latin America, we are reminded of how much more we have to do to deliver the reforms to the international financial architecture set out in response to the East Asian Crisis. Much has been achieved and we shouldn't underestimate that. It is clear that many countries are now better placed than they were just five years ago to protect against financial contagion and crisis.
But it is also clear that more needs to be done to enhance both the volume and the stability of private flows to developing countries and emerging markets. In my remaining few minutes, I want to say a little about the package of proposals which Gordon Brown has set out as the UK's contribution to this important debate.
First, and foremost, crisis prevention. In a world of ever more rapid financial flows, developing countries that need capital most are the most vulnerable to the judgments and instabilities of global financial markets. We know that capital is more likely to move to, and remain in, economic environments which are both stable and sustainable. So for every country, rich or poor, macroeconomic stability, and effective corporate governance and financial regulation are not an option but an essential pre-condition of economic success.
The new framework of internationally agreed codes and standards is the very cornerstone of the new financial architecture. A dash to full capital liberalisation was once thought of as the best signal of a modernising economy. But we know that instability often followed. The new approach focuses on the policy pre-conditions of successful capital liberalisation. Implementing these codes will mean radical changes in the way governments and financial markets operate. The international community stands ready to assist with the process of implementation - for example through the technical assistance fund being launched by my colleague Clare Short's Department for International Development, in partnership with the Swedish and Swiss governments and the World Bank.
It is also clear that countries need to be supported in their work to build stronger and more resilient economies through an effective and independent international surveillance process. To that end the UK has proposed further enhancements of the IMF's Surveillance role:
a. To ensure problems like the emergence of unpayable debt are spotted earlier;
b. To identify and address unsustainable policy frameworks - including inappropriate exchange rate regimes;
c. To make it more transparent, open to public scrutiny and challenge; and
d. To ensure more independence between IMF Surveillance and its role as a Crisis Lender.
But of course no system can guarantee an end to financial crises. So we also need to put in place a better, more predictable and transparent framework for crisis resolution. Emerging market countries and the international community too often face an impossible choice: between persisting with an unsustainable economic situation, supported by higher and higher levels of IMF lending - or descending into the sort of crisis now being suffered by the people of Argentina. We can and we must do better. Where governments have the commitment and courage to confront the economic problems faced by their nation, we should have new tools in place to help them, that is our responsibility.
As the G7 have proposed, these new tools should include the contractual provisions in sovereign debt that set the terms through which debt should be written down - of the sort that the UK government now adopts for its own foreign currency denominated debt issues. They should include a more rule-based approach to lending by the IMF - to ensure more clarity, and to bind in private flows as part of a financing framework. And - to ensure consistency and credibility - they may also need to include the option of a new international bankruptcy procedure.
Summing-up
This is a vision for the future of the Commonwealth and a vision for the future of our world. More than a vision it is a set of practical steps that can be taken to make globalisation work for those many - not just for us few. It is a message that we carried with us to the World Summit on financing for development in Monterrey, it is a message we will carry with us to the World Summit on Sustainable Development in Johannesburg, and indeed beyond. We all have a responsibility to make sure that the world summit is a success and delivers measurable and demonstrable outcomes for the poorer countries of the world.
The call is that which inspired an earlier generation of politicians who struggled for independence and self-determination in Africa: "Forward ever Backward never". There must be for us all in the Commonwealth and in the wider world no more going back - but rather forward to a better future for all.
Thank you.
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