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Annex II
Globalization: Statement to General Assembly by Louise Frechette on 17 September 1999

Ms. Fréchette (Deputy Secretary-General): I welcome all to this exceptionally timely session.

Less than two years ago, when the idea of convening this meeting was first mooted, we were all much more optimistic about global economic prospects than we are now. There were signs of improvement even in countries that had been struggling.

Since then, the Asian downturn has triggered a far-reaching economic crisis with devastating social consequences. Some of the most successful economies have been suddenly plunged into crisis. All of us in the international community have been taken by surprise. And we seem ill equipped to cope with the consequences.

The simple truth is that global markets, like domestic markets, can fail. Measures to correct market failure are, of course, needed from national authorities, not least those of developing countries. But the success of those measures in overcoming the crisis will depend-- and critically so-- on actions taken by the world's leading economic Powers. And those Powers cannot afford to ignore what is happening in developing countries. Even the largest economies today are increasingly influenced by events in the poorer parts of the world. Causality runs in both directions. And so self-interest on both sides calls for cooperative responses to the threats which now confront us all.

At this critical juncture, the most urgent tasks are to restore market confidence; to stabilize financial markets; to support growth; to endow international financial institutions with the means they require; and, last but not least, to provide immediate protection for the most vulnerable. We appeal to Governments to live up to this challenge. The problems we are facing are no longer national, nor regional, but global. President Clinton's recognition of this fact in his statement on Monday is an important step forward.

But, while crisis management is crucial, it is not enough. The more fundamental challenge we face is to engage with the new realities of an increasingly interdependent world. The world economy has entered unchartered waters; fear and anxiety about its future course are spreading. In such an insecure climate, some people are tempted to view globalization as the root cause of crisis and insecurity, or even as the embodiment of economic and social evil.

The reality is more complex. Globalization has brought about as many benefits as it has engendered new risks. The volatility of short-term capital flows does not mean that other forms of capital flows, such as foreign direct investment, follow similar patterns or have the same economic impact. On the contrary, freer capital flows have provided a great stimulus to growth in many countries. Yes, technology can be a threat to established cultures, but without it there can be no growth and no development.

Our ability to overcome this crisis depends crucially on markets remaining open. And the ability of developing countries to overcome it depends above all on markets remaining open in the industrialized world. Thus, the real question we confront today is not whether to embrace or reject globalization. The questions are, first, how can we retain and build on the growth-generating forces of markets while reducing the destructive effects of volatility? And secondly, how can we extend the benefits of globalization to those groups and individuals who at present are being left behind?

We cannot predict the future, but we can learn from the past. Market forces are increasingly global in scope. In some areas, market integration has progressed at a rapid pace. But we have not yet developed institutions capable of dealing with the problems that globalization brings, nor have we succeeded, to anything like an adequate extent, in providing real opportunities for those countries and peoples who risk being marginalized.

While markets and related problems have become global, the reach of Governments struggling to address them remains strictly local. That mismatch is at the root of many problems we are facing today. If domestic markets are to realize their full potential and if their negative effects are to be contained, they must be underpinned by shared values that reflect the broader aspirations of society, with clear and equitable laws enforced by an effective public authority. On that we can all agree.

But as markets go global, so the rules increasingly need to be global as well. The creation of a rule-based international trading system has been one of the great successes of the last 50 years, and is generally acknowledged to have benefitted industrialized and developing countries alike. This should remind us that multilateral cooperation, the existence of well-functioning global rules and a level playing field that protects the weak against the strong are necessary preconditions for spreading benefits and reducing risks. We should learn from this experience when searching for new answers to new problems.

Here at the United Nations, as elsewhere, a major effort is now in progress to rethink what has been termed the "architecture" of the international system for economic cooperation.

More than 50 years ago, world leaders met at Bretton Woods and San Francisco to design new institutions for the post-war world. If those institutions have underpinned international cooperation since then, it is because their founders were not afraid to take risks or to challenge conventional ideas. Our generation must be equally bold and creative in adapting those same institutions to the realities of today, and we must come up with answers that reflect a broad consensus throughout the international community. Only institutions enjoying solid and widespread support can be effective in creating conditions of stable and equitable growth in every part of the world.

Open, well-functioning markets are not an end in themselves. They are a tool in the hands of society, a tool to achieve a broader purpose. The systems and rules that we design must facilitate, and not hinder, the attainment of higher goals. Ultimately, the success and sustainability of market-based approaches will not be measured by stock market gains for the few. They will stand or fall by the degree to which they make possible the achievement of the promise of the Charter: social progress, better standards of life and real freedom for humankind as a whole.

It is indeed one of the most tragic effects of the current crisis that the most vulnerable groups have been worst hit, both within countries and on the global scale. In Indonesia alone, according to a recent study of the International Labour Organization (ILO), 15,000 workers are losing their jobs every day. The least developed countries of Asia are facing drastic reductions in much-needed investment inflows from other Asian countries. Commodity exporters in Latin America and Africa are struggling with falling prices. Overall, it is the countries which had embarked on the most fragile economic recoveries that are now placed in the greatest jeopardy.

Each country's crisis has its own peculiar features and causes. Each country has to address its own specific problems and shortcomings. Much can and must be done at the domestic level. Institutional reform, increased accountability and transparency and the rule of law are indispensable if markets are to realize their growth-generating potential. Clear priority must be given to reducing poverty, not just for its own sake but because improving the health and education levels of the poorest means helping them become autonomous, productive citizens. Such domestic efforts are crucial; but even with the best policies in the world, many developing countries will not be able to improve the welfare of their populations unless they also receive increased and sustained international assistance.

The Secretary-General has repeatedly appealed for more vigorous action on debt, so as to free the most heavily indebted countries from a burden which they simply cannot carry. Official development assistance will also continue to be an essential component of development strategy, especially for the poorest countries. Both the level and the character of official development assistance must be improved. All partners in development -- recipient countries, multilateral institutions, bilateral donors and non-governmental organizations -- must ask themselves what forms international assistance should take and where efforts should now be concentrated in this new era of globalization.

With over 1 billion people living in dire poverty and the gap between rich and poor widening every day-- both within and between nations-- the international community cannot afford to wait. This is perhaps the most important challenge we face as we approach the new millennium.

Yet in spite of these constructive steps, and notwithstanding the new consensus on development and the reorientation of international cooperation, the cause of development has not moved substantially forward in recent times. There are still hundreds of millions of human beings languishing in poverty in the developing world. The basic interests of the developing countries are being increasingly sidelined, especially in the core areas of development such as access to trade, financial flows and technology transfers, as the agenda and purposes of the powerful economies continue to dominate international economic decision-making. The concept of development as a special part of a multilateral support system has been replaced by the laissez-faire approach to the globalized economy.

Globalization has opened up tremendous opportunities for creating wealth, but its rewards seem reserved for the strongest of economies-- those that are the best equipped to avail themselves of the opportunities. On the other hand, it can lash out with awesome ferocity at vulnerable developing economies. Even the more dynamic developing economies, those that have managed to integrate themselves with the global economy through judicious macroeconomic policies and painstaking structural adjustments, have seen the development gains that they earned over the decades crumble in the span of a few weeks.

If this trend continues, then globalization will further widen the economic gap between the developed and developing countries, between the haves and the have-nots, further impoverishing the poor. For instance, the developing world loses enormous amounts of foreign exchange every year because of outflows resulting from terms-of-trade losses, the external debt burden, payments for imported technology and the repatriation of the profits of multinationals.

The fact that the Asian crisis has been particularly harsh on those economies that have been liberalizing financial flows and investments for a good number of years should therefore teach a valuable lesson to all of us in the developing world. In those severely affected countries, various economic activities have slowed down or ground to a halt and millions of jobs have been lost, raising unemployment rates to unprecedented levels. Millions of children have dropped out of school, adding to the social problems of the affected countries. Soaring inflation has brought the price of household commodities, including basic food items, beyond the reach of many of the poor.

And yet I firmly believe that even the most severely affected economies are capable of an early recovery, given an environment that is conducive to the rigorous reform measures that they themselves are instituting as well as access to development finance, to export markets for their products and to technology appropriate to their development requirements. Their early recovery is to the interest of all countries, developed and developing alike, for it will certainly restore their once considerable contributions to world production. In the ultimate analysis, no country is safe from the hazards of globalization. The contagion effect of every financial and economic crisis in every country and in every region will always threaten the financial and economic stability of every other country and region. The threat of a worldwide recession, even possibly a global depression, is real. And the most practical way to forestall such a dreadful eventuality is to grapple with the crisis where it now occurs and overcome it there, before its tentacles can get a hold on other regions.

The central challenge for the international community is therefore to ferret out the root causes of the crisis and to institute measures to ensure that these will not recur. To start with, all who are involved in this dialogue are called upon to contribute to the development of reasonable but effective regulation of international money markets so that they would become more open and transparent. It may also be the dictate of prudence that we all consider establishing a mechanism to mitigate the unpredictability and dire effects of globalization and to ensure that the opportunities it offers are equitably available to all countries.

Such a mechanism should be able to monitor and carry out surveillance of capital markets and international financial operations. We already have a mechanism of this nature in the field of international trade: the World Trade Organization. There is no reason why we cannot have a similar mechanism in the field of financial and monetary flows if it means the difference between order and chaos in the global economy. For this purpose, an in-depth study of the world monetary and financial system from the perspective of the requirements of development is of crucial importance.

In the face of the adverse impact of globalization, a number of serious questions must be asked: how can it be harnessed to promote the industrialization of the developing countries and improve the linkages between industry, development and trade? How an it be utilized to create employment opportunities for the millions of young people in the developing world who are about to join the labour force? How can it be enlisted in the fight against poverty? And above all, how can its pernicious aspects be tamed so that it will wreak no injury on the vulnerable and so that the enjoyment of its benefits will not mean the erosion of our precious cultural values and traditions?

The only adequate answer I can think of is for us to work for the establishment of a global governance that will match the potency and the scope of globalization. In such a global governance, the collective powers of all peoples to shape our common future are mobilized. it will be a constant process wherein individuals and institutions in the public and private sectors and in all nations accommodate and take cooperative action on their diverse and often conflicting interests. Thus all who are involved in the decision-making process are able to take their destiny in their own hands. That global governance, however, is possible only through the central instrumentality of a reformed, democratized and fully empowered United Nations.

Globalization is by no means an evil force, but it is a blind force. Like the winds of change on the ocean of history, it can shipwreck us or carry us to our intended destination. The developed and developing countries are all in the same boat, and our fate depends on how well we work as a team in trimming the sails. Teamwork means partnership. But we can form that envisioned global partnership for development only when we are able to accommodate one another's anxieties and aspirations as a result of a mutual understanding born of sincere dialogue-- such as the dialogue we are holding today. Through this dialogue, therefore, let us begin to tame the winds of globalization.