United Nations - Economic and Social Council: “Special High-level Meeting with the Bretton Woods Institutions, the World Trade Organization and the United Nations Conference on Trade and Development” (New York)

Statement on behalf of the European Union by H.E. dr. Andrej Bajuk, Minister of Finance of the Republic of Slovenia

I have the honor to speak on the behalf of the European Union.

The Candidate Countries Turkey, Croatia* and the former Yugoslav Republic of Macedonia*, the Countries of the Stabilisation and Association Process and potential candidates Albania, Bosnia and Herzegovina, Montenegro, Serbia, as well as the Republic of Moldova, Armenia, and Georgia align themselves with this declaration.

Distinguished President,

It is an honor and a privilege for me to address this Council on an issue that is both challenging in the light of the current financial turmoil and at the same time key to objectives of this Council. There can be no doubt that international financial stability and smooth functioning of the financial markets are a precondition for sustainable growth, higher standards of living and economic and social progress, as referred to in the mandate of this Council. It is therefore in our common interest to carefully draw the lessons from the market turmoil and take the necessary policy action.

In so doing, we should bear in mind that while the markets remain disrupted, any analysis and policy recommendation will be incomplete. Total losses reported and realized by banks only already exceed USD 200 billion, whereas losses all together are estimated to be around USD 1 trillion. But adjustments are still to come. 

The existing global financial architecture has had its weaknesses uncovered by the ongoing financial turmoil. What started as a problem in the U.S. housing market, then spread through global financial markets and innovative financial products. The current situation differs considerably from the financial crises of 1980s and 1990s, which were centered mainly on contagion among emerging markets and exhibited a lesser degree of interconnectedness across developed markets and products.

The experience from the current turmoil underlines the need to ensure that the arrangements for financial stability are fully in line with or even ahead of market developments, so as to ensure the efficiency of crisis prevention, resolution and management. On the issue of crisis prevention, I would single out two elements:

1. Constant financial innovation is placing a particular challenge on supervisors, regulators and authorities at national and global level in becoming more effective in translating risk analysis into policy action. This would, in the first instance, include enhancing capital and disclosure requirements and putting in place better market discipline;
2. Given the global nature of financial markets, the current situation clearly reveals that early warning capabilities should be increased. This would include the strengthening of the role of the IMF in oversight of macro-financial stability of which the EU is a strong supporter.

In terms of global cooperation, regulatory dialogues as well as regulatory cooperation in international fora, such as the Basel Committee, are long established but could be improved to be more consistent, cooperative and reactive. The recent agreement on accounting equivalence between the EU and the US is just one example of effective inter-continental cooperation.

Reform of international financial architecture is essential. The agreement reached on quota and voice at the IMFC Spring Meeting in this respect is positive for the credibility and legitimacy of the Bretton Woods Institutions. Still there is a lot of further work to be done. The review of the budgetary framework of the IMF needs to completed and appropriate solutions have to be found that will ensure the independence of the IMF and the continuation of its mission as set out in the Medium Term Strategy. That mission includes an important and valuable role for the IMF in low income countries. This should continue under its existing facilities and evolve in response to the changing needs of those countries. Hence the reform should aim to make the IMF’s policy advice, capacity building and financial assistance in low income countries more efficient and focused on its core competencies; these are achievement of macroeconomic stability and sustainable growth, and reaching and maintaining debt at sustainable levels after the debt relief.  A particular emphasis could also be on debt sustainability analysis. All of this should of course be complemented by an improved collaboration with the World Bank.