18 May 2012
Statement by H.E. Dr. Seyed Shamsuddin Hosseini
Minister of Finance and Economic Affairs
of the Islamic Republic of Iran
at the UN High-level Thematic Debate
on the State of World Economy and Finance in 2012
(New York – 17 and 18 May 2012)
IN THE NAME OF GOD THE COMPASSIONATE THE MERCIFUL
Mr. President, Excellencies, Ladies and Gentlemen,
At the outset, I would like to appreciate the President of the General Assembly for organizing this debate as a contribution to the implementation of the 2009 Conference on the World Economic and Financial Crisis Outcome. This is a valuable opportunity to discuss main macroeconomic challenges the world is facing today. We hope this debate initiates the process that resolution 65/313 asks for.
A review of the root causes of the crisis, reveals a substantive problem. It would indicate that the global economic and financial system, suffers from various fundamental deficits on intellectual, architectural and managerial fronts.
On the intellectual front, the global economic system is under heavy influence of financial globalization with a distorted definition. Departing from the bases of justice and fairness while pursuing the dominance of a few States, are both the manifestation and results of such distortion. Having ignored the inherent evils lies in usury based systems has resulted in instability at the core of financial and monetary relations and designs.
Coming to the architecture front, due to disproportionate dominance of one or two currencies, the global economic surplus flows towards few countries gives them unstable attractions which through spreading the distorted form of globalization causes in one hand unfair distribution of global economic benefits and on the other dominance and over concentration.
The concentration heightens risk, as if some transverse rifts are formed in the global economy, that when become active, not only the epicenters but also the integrated economies experience its violent shocks. The recent crisis, more or less, shook all. Of course, the economies which were more integrated with the epicenters suffered more.
As an evidence, now the whole world is shouldering the huge debt burden of industrial economies that were exceeding their GDPs.
Meanwhile, “The world’s economic management” lacks the necessary legitimacy and efficiency. The international institutions, such as Breton Woods Institutions, are governed like a joint venture company, whose major share holders control these institutions, as if divided between United States and few western European countries, through an unwritten pact.
A minority of countries hold the majority of shares of these institutions. And this minority manages the globalization process. In such management structure overlooking rights of minority share holders, which make up the majority of population, and dominance of political governance rather than good governance becomes inevitable.
Negligence in monitoring the problem of major economies, and financial and monetary institutions which are being dominated by political interests are among the shortcomings in the foundations of the global economy. In such condition, the crises, inevitably, develop cyclically. They escape being recognized on time and, unfortunately, become chronic without being properly treated.
The crisis spread quickly from financial sector to real economy, and today it moves beyond economic domain and turns into political and social crises.
All international and regional initiatives as well as national policies so far have not been able to exceed a limited global economic growth, mixed with fluctuations and risks. In such circumstances, the slow growth and unrest in areas such as Euro zone is worrisome. While the lost jobs and unemployment is lingering, the risk of sovereign debts and bankruptcy of the countries, particularly in Euro zone is looming.
The early expansionary and stimulating policies resulted in the increase of deficits, public debts, inflation and instability. The recent policies, i.e., financial austerity measures and contracting credits, aiming at reducing deficits and debts, are facing challenges as the result of declining economic growth.
Social and political unrests come along with these tough policies. So, a kind of in between policy, namely gradual reduction of deficits or offering disciplined credits has emerged, which, if not a trial-error process, looks more like a political compromise than a treatment.
Unfortunately, we have to acknowledge that the crisis is lingering on. All the efforts at most have been able to prevent deepening of the crisis without curing it.
This frequently quoted statement that “overcoming the crisis requires global cooperation” is true. Global cooperation is necessary but not enough in itself. It is also essential that the solutions be at the same time based on understanding and fairness.
I’d like to conclude by offering some proposals:
First; There is a need to review the basic models of the economic system. The usury based models and the financial – monetary instruments based on excessive deregulations, which spread bubbles which are de-linked from the real sector are fragile, risky and spark crisis. So by diagnosing the root causes, we have to consider learning from alternatives, such as Islamic financial model.
Second; We should be mindful of deconcentration and creating balance of interest in the global economy. For example, the dominance of one or few currencies over the world economy yields no results but lack of equilibrium in interests, creation of imbalance in reaping economic benefits, imposition of the burden of the debts of issuers of such currencies on others and spread of the risks to the rest of world.
The fluctuations of the said currencies leads to global financial and monetary instability. Therefore, it would be natural that threats such as currency wars remain in horizon. So, the mechanism of settlement by national currencies should develop to replace the settlement by so-called intermediary hard currencies.
Third; It is essential to supervise printing of hard currencies, increase of debts and bond issuance by major economies. The recent experience showed that the international surveillance bodies should refocus their supervision and warning mechanisms from developing economies to industrial ones.
Fourth; Monitoring the centers of crisis is more important than monitoring crisis- hit areas. The institutions, such as the World Bank. and IMF which monitor the global economy, need realignment. Increasing the voice and participation of developing countries is a worthy action. However, that kind of measure will be effective and bring confidence when the institutions are managed by the majority of countries. The monopoly over presiding these two institutions should end. Having larger capital or more shares is not a proper criteria for being permanently at the helm.
I’d like to stress that the reform should be real. Adding few countries and replacing a large multi-member constituency with a smaller one is rather a new form of coalition-building than creating a true global democracy.
Fifth; Professional economic instruments and technical independence should return to these institutions and they should be strengthened. The political dominance on IFIs and monetary instruments results in harmful policy settings and decision makings. Abusing financial and monetary institutions for imposing political pressures yields nothing but tension and deep distortion in the global economy and decrease of growth. The financial, monetary and economic sanctions are clear examples of such illegitimate approach which must be put aside.
Sixth; Creation of a supportive global environment for doing business needs special attention. Transparency, fairness and accountability in the global context need to be pursued. Discrimination, intimidation and tension in the global economy are detrimental to its orderly functioning and must be avoided. The recent reports released by various institutions clearly stipulate that imposing politically motivated sanctions on oil market adds to the crisis and volatility of energy market, which in turn, intensifies food crisis and leads to economic risk and social unrest.
Accountability requires that the economic interest of the world population, does not get sacrificed at the negligence of dominance seeking attitudes.
Let’s remember this poem of renown Iranian wise poet Saadi who says:
Human beings are members of a whole
In creation of one essence and soul
If one member is afflicted with Pain
Other members uneasy will remain
If you’ve no sympathy, for human pain
The name of human you can not retain
May God bless you..