| Key messages:
UNCTAD’s longstanding call for stronger
international monetary and financial governance rings true in today’s crisis, which is
global and systemic in nature. The crisis dynamics reflect failures in national and
international financial deregulation, persistent global imbalances, absence of an international
monetary system and deep inconsistencies among global trading, financial and
monetary policies.
National and multilateral remedies
Market
fundamentalist laissez-faire of
the last 20 years has dramatically failed the test. Financial deregulation created the build-up of
huge risky positions whose unwinding has pushed the global economy into a debt
deflation that can only be countered by government debt inflation:
– The most
important task is to break the spiral of falling asset prices and
falling demand and to revive the financial sector’s ability
to provide credit for productive investment, to stimulate economic growth and to avoid
deflation of prices. The key objective of regulatory reform has to be the
systematic weeding out of financial sophistication with no social return.
- Blind faith
in the efficiency of deregulated financial markets and the absence of
a cooperative financial and monetary system created an
illusion of risk-free profits and licensed profligacy through speculative finance in
many areas:
– This
systemic failure can only be remedied through comprehensive reform and
re-regulation with a vigorous role by Governments working in unison.
Contrary to traditional views, Governments are well positioned to
judge price movements in those markets that are driven by financial speculation and
should not hesitate to intervene whenever major disequilibria loom.
- The growing
role and weight of large-scale financial investors on commodities futures markets have affected commodity prices and
their volatility. Speculative bubbles have emerged for some commodities during the
boom and have burst after the sub-prime shock:
– Regulators
need access to more comprehensive trading data in order to be able to understand what is moving prices and intervene if
certain trades look problematic, while key loopholes in regulation need to be closed to
ensure that positions on currently unregulated over-the-counter markets do not
lead to “excessive speculation”.
- The absence
of a cooperative international system to manage exchange rate fluctuations has facilitated rampant currency
speculation and increased the global imbalances. As in Asia 10 years ago, currency
speculation and currency crisis has brought a number of countries to the verge of default
and dramatically fuelled the crisis:
– Developing
countries should not be subject to a “crisis rating” by the same
financial markets which have created their trouble. Multilateral
or even global exchange rate arrangements are urgently needed to maintain global
stability, to avoid the collapse of the international trading system and to pre-empt
pro-cyclical policies by crisis stricken countries.
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