Saturday, October 03, 2009

Stiglitz criticises new loans and failure to deal with debt

Joseph Stiglitz, nobel prize laureate and chair of the UN's expert committee on the financial crisis, addressed a seminar today at the IFI annual meetings on the problems with the G20's lack of legitimacy and inclusivity. He focused on the ways that the absence of 172 UN member states from the G20, which has become the new global forum for economic governance, has meant that policy decisions have ignored or worsened the plight of the poorest countries and the poorest people within them. These countries are not represented and so their voices are not heard.

The first problem Stiglitz identified was the fact that the key response of the G20 - to lend more money through the IMF - is creating huge new debts for low income countries. This at a time when many are just emerging from the debt relief process with relatively better debt situations, only to have these undone by the need to borrow more to protect social spending and invest in their economies. The downturn is going to be long, Stiglitz warned, so why saddle countries with more debts now? They need grant based finance instead, and a new framework to deal with sovereign debt.

Unfortunately, no one at the Bank and Fund seems to be listening - they're going to approve a revised debt sustainability framework here in the next few days that will let lenders provide more expensive loans, and even less grants. And a new debt work-out mechanism is not on the agenda at all. More signs that the rich and powerful are calling the shots when it comes to decisions about the global economy.

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