UNGA PANEL ON FINANCIAL CRISIS CALLS FOR REFORMS;

UNCLAS USUN NEW YORK 001006

SENSITIVE
SIPDIS

NSC FOR BRAUSE AND DEREUTER
DEPT FOR EB/OMA AND IO/EDA
AID FOR ODP/BMD--NICHOLSON AND MENGHETTI

E.O. 12958: N/A
TAGS: EFIN ECON EAID PREL IMF UNGA
SUBJECT: UNGA PANEL ON FINANCIAL CRISIS CALLS FOR REFORMS;
CRITICIZES U.S.


1. (U) Summary: Columbia University's Dr. Joseph Stiglitz,
chair of the President of the General Assembly's (PGA) new
task force on the international financial system, harshly
criticized U.S. financial policies and the U.S. Government's
response to the financial crisis at an October 30
"Interactive Panel on the Global Financial Crisis" in the
General Assembly. Stiglitz called the U.S. response to the
crisis "completely wrong" and "totally inadequate."
Panelists and delegates alike expressed the need for reform
of international financial institutions and governance to
enable better representation of emerging and developing
economies, with some calling on the UN to lead the reforms.
The United States and other G-20 nations looked towards the
November 15 summit in Washington as an important first step
in this process. The U.S. Representative to the Economic and
Social Council, Ambassador T. Vance McMahan, delivered a
statement at the event describing the U.S. response to the
crisis to date. End Summary.


2. (U) PGA Miguel d'Escoto Brockmann convened an Interactive
Panel on the Global Financial Crisis on October 30. In
addition to the PGA, panelists including Stiglitz and Harvard
Professor Calestous Juma offered views on the origins of the
current global financial crisis and suggestions on how to
address it. Other panelists were: Dr. Prabhat Patnaik
(Jawaharlal Nehru University); Dr. Sakiko Fukuda-Parr (New
School University); Dr. Padro Paez, Ecuador's Minister of
Economic Policy Coordination; and, Dr. Francois Houtart
(Belgium's Catholic University of Louvain).

PGA INSISTS "G-192" MUST DEVISE SOLUTIONS
--------------


3. (U) Presaging similar calls by panelists and delegates
throughout the event, the PGA said that "exclusive clubs"
like the G-8 or G-20 are insufficient to address the global
crisis, insisting instead that the "G-192" (i.e., the General
Assembly) must devise long term solutions. D'Escoto blamed
the current crisis on "unbridled greed and pervasive
corruption enabled by governments that lost sight of their
responsibility to protect their citizens," and called for
full participation by all countries in a "more democratic"
system of international economic governance. The UN, with
its political legitimacy and democratic nature, is uniquely
positioned to lead the reforms, he continued. The PGA
announced that his office will soon release terms of
reference for a task force he is convening, chaired by
Stiglitz, to review the international financial system. (As
of November 3, there has been no further information on this
matter.)

STIGLITZ SCATHINGLY CRITICAL OF USG POLICIES
--------------


4. (U) Stiglitz repeatedly criticized the U.S. Government's
handling of the financial crisis, calling its response
"fundamentally wrong" and "totally inadequate." Explicitly
naming Treasury Secretary Paulson, Stiglitz charged that
those responsible for creating the financial crisis were now
tasked with responding to it. Injecting capital into
investment banks to create a "trickle-down effect" while
failing to address the underlying source of the crisis
(foreclosures) or those most affected (homeowners) ignores
basic tenets of social justice, international cooperation and
democratic principles such as transparency, he argued.
Stiglitz added that the U.S. should offer to clean up the
"global mess" it has made after "polluting the world with its
toxic mortgages, neoliberal philosophy of deregulation and,


now, its recession." He further chastised the United States
for failing to provide 0.7 percent of GDP in official
development assistance (ODA),but rapidly giving USD 700
billion to U.S. banks when they threatened failure.


5. (U) Stiglitz also criticized the International Monetary
Fund (IMF) for neither anticipating nor preventing the
crisis, saying that IMF reforms to date have "clearly been
insufficient." Instead, Stiglitz urged the UN to take the
central role as the "only institution with the broad
membership and legitimacy" to enact the necessary reforms.
Calling this another "Bretton Woods moment," Stiglitz
appealed to the international community to reform
international economic institutions and standard-setting
bodies; reassess the dollar-system of currency reserves,
moving instead to a multi-currency basket; and institute
stronger international oversight and regulation of financial
markets and firms.

U.S., G-20 NATIONS: NOV. 15 SUMMIT IMPORTANT FIRST STEP
-------------- --------------


6. (U) During the interactive session of the panel, the
United States recalled its recent actions in coordination
with leaders of the G-8 countries to restore stability and
confidence in international markets and highlighted the
upcoming November 15 summit in Washington as evidence of its
ongoing commitment to international cooperation (full text is
available at
www.usunnewyork.usmission.gov/press release.php). China
delivered a similarly balanced statement calling for measured
reforms, noting that the UN should be engaged closely.
France and the United Kingdom described the upcoming summit
in Washington as an important first step. France called for
"bold" reforms in developing a new model of economic
governance to tackle modern economic challenges, but noted
that the IMF and World Bank should continue to play a key
role. The UK outlined its suggestions for enhanced
international supervision of financial firms and the creation
of a lending mechanism for emerging economies.


7. (U) Japan offered to provide the IMF with funds to assist
countries facing acute financial challenges and stands ready
to share its experiences following the 1997 Asian economic
crisis. Japan and India called for increased public
expenditures to stimulate global demand, with Japan urging
increased investment in infrastructure. Brazil underscored
the role of trade in mitigating the global impact of the
financial crisis and welcomed the U.S. call for completion of
the Doha Round of trade talks. Citing risky speculation in
the U.S. housing market and the "false hope" that market
deregulation would lead to worldwide prosperity, Argentina
said that fundamental changes to the international financial
architecture are needed.

DEVELOPING COUNTRIES CALL FOR INCLUSIVENESS
--------------


8. (U) The Group of 77 said that the upcoming Washington
summit of the G-20 is a "step in the right direction," but
argued that the crisis requires a pooling of global
resources. Venezuela, after intoning the death of the
capitalist model, insisted that the world economy is no
longer the "domain of small clubs" and all UN Member States
should be included in the formulation of long-term solutions.
Other developing countries suggested standardized
international governance of firms and financial systems must
be a part of future remedies.




9. (U) Largely in agreement with Stiglitz and the Group of
77, Dr. Padro Paez criticized the unipolarity of the global
financial system and called for the creation of a Regional
Monetary Agreement (RMA) among the countries of South America
as a comprehensive, transparent and democratic alternative to
the IMF. He concluded with general criticisms of
multinational corporations and contractors and stressed the
need for community-based development.

JUMA PUSHES IDEA OF FINANCIAL DIPLOMACY
--------------


10. (U) Rather than directly criticize U.S. economic policy,
Professor Juma focused on the implications of the global
financial crisis on African development via innovations in
science and technology. He stressed the dependence of global
economic growth, specifically in developing economies, on
technological innovations and manufacturing. He further
stressed the difficulties arising due to decreases in
remittances and FDI that typically serve to fund such
projects. Noting that reforming the Bretton Woods
institutions would be a slow, tedious process, he went on to
agree with the idea that the UN take on a larger role in what
he called "Financial Diplomacy." He suggested that
representatives from the Ministries of Finance from the
"G-192" come together to learn from global bank collapses,
monitor financial trends and set standards as guidance for
developing countries.

COMMENT
--------------


11. (SBU) Based on their statements, there are varying views
among G-20 members on the scope and nature of needed reforms.
China's intervention mirrored closely U.S. sentiments, while
others', including France and the UK, favored more extensive
restructuring. The PGA appeared highly satisfied with his
initiative to convene the panel, no doubt in part because his
hand-picked panelists delivered a message highly-critical of
the U.S. while supporting UN-led reform. Contacts from
several missions remarked afterwards on the biting tone of
several speakers' anti-U.S. messages.
Khalilzad