In Resolution 53/172 of the United Nations General Assembly, the Secretary-General was requested to submit a report on the current trends in world financial flows and on ways of improving the capacity for early warning, prevention and management of financial crises with a broad, long-term perspective, in the awareness of the problems of development and the need to protect the most vulnerable countries and social groups.

On the basis of that resolution and in order to enrich Secretary-General Kofi Annan’s report to the fifty-fourth session of the United Nations General Assembly, the High-Level Regional Meeting "Towards a Stable and Predictable International Financial System and its Linkage to Social Development" was held at the initiative of the Mexican government and with the support of ECLAC on September 5-6, 1999 in Mexico City.

The main conclusions of the meeting, which we are submitting to the consideration of the Secretary-General of the United Nations, are as follows:

1. The financial crises of recent years, the effects of which had a deep-seated impact on the international system as a whole, highlighted the disruptive capacity of international financial markets; the insufficiency of isolated actions; the urgent need to identify and coordinate preventive measures that can be implemented at the national, regional and global levels; and the need for stability in the financial system to advance on the social agenda and towards a new development strategy.

2. The recurrence, deepening and complexity of global phenomena and their systemic nature make it necessary to redefine the existing international cooperation mechanisms and thus establish the causes, solutions and preventive measures for problems that surpass the national sphere. Global economic problems pose a challenge to countries’ social development efforts. Therefore, international economic problems and national development issues must be addressed from a comprehensive perspective, involving national governments, regional and multilateral organizations and the relevant market agents.

3. The economies most affected by the crises have recently shown a recovery. However, this should not lead to an attitude of complacency in international financial circles. Moreover, it is important that both the countries that have undergone periods of crisis and those that have not should redouble efforts to prevent future periods of instability. Similarly, in Latin America and the Caribbean we consider that international financial stability is a global public asset and that the region should participate with a sense of joint responsibility in the processes aimed at strengthening international financial governance.

4. International financial institutions should redefine their policies to respond to the major challenges posed by international financial markets and carry out the changes needed to prevent and avoid new crises. Similarly, the varying characteristics of each institution should be taken into account in order to prevent duplications and make their operation more efficient through a clear definition of their roles.

5. The design of mechanisms to extend financing in difficult times is an important point to be borne in mind in designing the new international financial architecture. However, the magnitude of recent financial crises and the large amount of funds needed to provide liquidity during periods of instability make it impossible for international financial institutions to act as lenders of last resort in crisis situations.

6. The assessed-contribution system of international financial institutions needs to be reviewed in order to increase the funds available and thus provide timely support to economies in difficulties. Moreover, supplementary sources of liquidity, such as the anticyclic use of special drawing rights and the creation or strengthening of regional reserve funds should also be sought.

7. In this regard, strategies such as the contingency borrowing facilities recently designed by the IMF are considered to be a breakthrough. It is essential that the requirements for gaining access to such resources be clear and known in advance, and that such borrowing facilities be sufficient, timely and accessible.

8. Crisis prevention and management calls for greater consistency and harmonization in national and multilateral policies, which does not necessarily imply following the same norm, and respect for the economic and social conditions of each country. This points up the need for a more effective supervision and coordination of a preventive nature. In this respect, the contributions made in this regard by the countries of Latin America and the Caribbean through their financial stabilization and rehabilitation programmes deserve mention.

9. It is indispensable to develop an Early Warning/Prevention System to avoid, or, if applicable, to promptly reduce the risks of a financial crisis. In this context the efforts of the IMF to build empirical models to help to predict balance-of-payments crises are encouraging. It is essential to recognize the shifting nature of crises and the variability of their causes, as well as the possibility of their spreading to fundamentally sound economies.

10. There is a need to ensure the transparency of international financial markets and particularly of short-term capital flows, and to improve methods of collecting and disseminating economic information.

11. Banking and financial supervision and regulation are two props for the stability of international financial markets. In this regard continuing to advance in the design of appropriate regulatory frameworks that take into account the standards of the Basle Committee for Banking Supervision and the International Organization of Securities Commissions (IOSCO) is recommended, with special attention on the needs of developing countries.

12. An important element in reforming the international financial architecture should be to strengthen incentives in industrialized countries to exercise greater discipline in investment decisions, reduce leverage and limit systemic risk, and to establish the supervision of extraterritorial financial centres.

13. It is necessary to strengthen the joint responsibility of the private sector both in preventing and in managing crises. Creditors must effectively assume their share of risk on extending loans. The aim of the measures proposed is to reduce the moral hazard that arises when creditors and investors are bailed out continuously. Additionally, the burden of crises should be distributed more evenly between the public and private sectors, and between debtors and creditors and investors.

14. The assessment of sovereign risk must be subjected to strict, objective and public parameters. It is important for risk-assessment agencies to provide full, consistent information on a regular basis.

15. The orderly liberalization of capital flows is essential for countries to gain access to funds for development and productive investment. An appropriate institutional framework needs to be established to facilitate productive investment and limit the volatility of short-term capital flows. Until clear international rules are established for the management of speculative capital, at its origin and destination alike, each country must safeguard its capital account in keeping with its exchange regime and the use of market instruments and mechanisms.

16. Defining the role of multilateral agencies and regional and subregional institutions is of the utmost importance in all the above tasks. Equally important is to ensure an equitable representation of developing countries in defining and implementing the corresponding mechanisms.

17. In this context it is important to conclude the studies and consultations being carried out by developed countries within the framework of the G-7, with the support of the Bretton Woods institutions and of their central banks. The regional and coordination groups of developing countries, such as the G-77, G-24, G-15, and G-Río should strengthen their participation in discussions with the G-7 and industrialized countries, in order to ensure the consistency and universality of economic policy measures and of the design and implementation of the new international financial architecture. Regional and subregional financial institutions must play a vital role in this task.

II. The Challenges of Social Development in a Context of Financial Globalization

18. In addition to their effects on the international financial system, the financial crises of this decade have had a devastating impact on social development projects of the countries concerned. This situation is particularly serious in view of the poverty levels observed in affected countries.

19. Official global flows for development assistance by donor countries have fallen to 0.22 per cent of the Gross National Product (GNP) of developed countries, the lowest figure in the past twenty years. Efforts must be redoubled in this regard, in order to fulfil the commitment undertaken at the World Summit on Social Development for donor countries to allocate 0.7 per cent of their GNP to official assistance for development and, for their part, for receiver countries to earmark an average of 20 per cent of such financial assistance to social development programmes and another 20 per cent of their national budget to basic social programmes.

20. It is important to give impetus to productive investment and to secure financing under favourable terms to less developed countries in order to ease their debt burden. We therefore support the initiative to reduce the debt of highly indebted poor countries (HIPC). In this respect emphasis was placed on the importance of ensuring that the cost of debt relief to multilateral regional and subregional agencies be financed by the borrowing and non-borrowing members of the multilateral institutions involved, in accordance with their payment capacity and level of development. It would also be advisable for donations of international funds for this initiative to be allocated primordially to support regional and subregional banks and bilateral debt between developing countries.

21. The IMF’s adjustment programmes to correct the structural causes of crises should take care that this process does not lead to an over-adjustment resulting in a severe drop in economic activity or sharp cuts in social spending.

22. The level of social spending must be a sovereign decision made by each country on the basis of its possibilities and conditions. Efforts must be made to bring economic and social development into harmony, achieve a fairer distribution of income, promote gender equity and give impetus to proactive social policies, while placing particular attention on the needs of the most vulnerable groups, such as children, women, the disabled, the elderly, indigenous groups and the unemployed.

23. International development banks, particularly the World Bank and the Inter-American Development Bank, should give preference to financial support for social-welfare networks and favor human development as a final aim. For their part, governments should direct efforts to the universal improvement of social services, implement consistent macroeconomic and social policies, and reduce the economic and social costs of financial crises.

The work of the meeting concluded with the following aspects, which in the opinion of the participants should be taken into consideration by the United Nations as a world political body par excellence.

24. The structural problems of the international financial system continue to exist. We are concerned that the overcoming most critical stages of the crisis has now given rise to complacency and to a reduction in efforts at systemic reform. The countries of Latin America and the Caribbean are willing to participate actively, together with other developing regions, in giving new impetus to the reform process.

25. A new national and international development strategy must take into account the challenges and opportunities of globalization. The financial aspect of this strategy is a central element of efforts geared towards sustained economic growth and comprehensive social development. The aim of the international community is to reduce the volatility of international financial markets and achieve more harmonious, equitable development.

26. In view of the complex nature of global issues that affect development, such as the financial crises, it is essential to devise formulas for the United Nations to carry out its responsibilities in the search for solutions to international problems, of an economic and social nature, particularly in harmonizing the efforts of nations to deal with the problems that affect development.

27. It will be important to count on the participation of all the appropriate forums of the United Nations system, particularly specialized and regional agencies and other international organizations that deal with specific aspects of development financing.

28. The United Nations should help to devise and implement systems to strengthen early warning, prevention and prompt response capabilities to tackle the emergence and propagation of financial crises on time.

29. An important, pressing challenge for the United Nations is to include, as part of its activities in the economic, social and financial spheres, an in-depth examination of topics such as the prevention and management of financial crises, issues dealing with development financing, the rules of access to multilateral funds, the role of regional institutions, and the areas in which national autonomy should be preserved. In this context, the discussions between the United Nations and the Bretton Woods institutions should be continued and strengthened, in order to create the conditions needed to ensure that the new international financial architecture reflects the global interests of the international community.

30. At the same time, the United Nations should strengthen the promotion of comprehensive social development by giving greater impetus to the fulfilment of the commitments taken on at the Social Development Summit, designing international cooperation plans and executing a greater number of programmes and projects with which to deal with the consequences of financial crises. Financial reforms should favour the aims of high-quality sustained growth as an effective means of fighting poverty.

31. The above proposals should contribute to the preparation of a high-level conference in 2001 on financing for development, which should also include a comprehensive, systematic examination of this issue and of the impact of instability and financial crises on social development.

32. The conference is an important opportunity for approaching development from the financial perspective in a systemic, comprehensive manner, in order to contribute to the analysis and mobilization of resources for the appropriate implementation of the results of recent United Nations conferences and summits.

33. In order to ensure that Latin America and the Caribbean’s contribution to the changes promoted by the Conference includes the points of view of all those involved, we consider it important to hold prior regional high-level meetings involving the governmental and intergovernmental officials in charge of foreign relations, finance, central banks, trade and social development.

34. Similarly, we consider it important for the United Nations to disseminate the conclusions of this meeting in order to contribute to the examination and consultations being carried out in the different forums and institutions involved. We believe that these conclusions could complement the study undertaken to date on the subject and give impetus to a greater coordination of efforts and the exchanges of points of view and information needed to build a global consensus.

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