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The Deepening Crisis  

1. The Asian and Russian economic and financial meltdowns have pushed a third of the world economy into recession. Those who have borne the brunt are working people, the poor and in particular women. In Asia living standards have collapsed and unemployment has surged; in Russia one quarter of the labour force has not been paid for six months. Spreading bankruptcies are leading to more widespread destitution. There remains a real risk of the crisis spreading to Latin America and Africa, which are already experiencing a fall in growth and a setback to prospects for employment and poverty reduction. Other areas, notably the European Union and United States have experienced continuing, though slowing growth, but the global economy is inter-linked and falling trade and dangerously volatile stock markets threaten to trigger a truly global recession with falling demand and output and a devastating impact on employment. 
2. The fundamental cause of the crisis was the mismanagement of economic and social policies underpinning globalisation and the blinkered pursuit of financial liberalisation without adequate national and international frameworks of regulation. Massive flows of short-term credit and portfolio investment were released on emerging financial markets without systems of accountability, transparency and prudential regulation. Bankers and financial institutions made enormous errors of judgement, the cost of which are massive job losses not least in the finance sector. The crisis has revealed endemic problems of corruption and institutional failure highlighted by the collapse of hedge funds such as Long term Capital Management. 
3. Since the start of the current crisis in Thailand in July 1997, the Bretton Woods institutions, and the Group of Seven industrial countries’ governments, which dominate international economic policy-making, have followed a strategy of containment. As the toll of victims mounts, it is now clear that containment has failed. The crises in the global economy dominated discussions at this year’s Annual Meetings of the IMF and the World Bank, but governments failed to agree on effective action. The G7 countries must take further concerted action to inject demand into the world economy so as to stave off a global recession by restoring growth and stimulating job creation. Going beyond the October 1998 statement of Finance Ministers and Central Bankers, they must also put in place a regulatory framework to ensure that the current contagion can never happen again. 

The Need to Expand Global Demand and Employment  
4. OECD countries’ Central Banks and Finance Ministers must implement a co-ordinated strategy to support balanced demand and restore global growth and job creation. This must include: 

- Further co-ordinated reductions in the level of interest rates. With the move to Economic and Monetary Union, Europe has both a responsibility and an opportunity to support demand growth; 
- Radical action in Japan to re-capitalise and reform the banks, if necessary through the nationalisation of the banking system and the introduction of permanent tax cuts to stimulate domestic demand; 
- Targeted expansion of infrastructure investment schemes to support output and tackle structural problems; this should include the bringing forward of Trans-European programmes; 
- Financial assistance to the developing and transition countries in the front-line of the crisis, targeted on poverty alleviation, social programmes and the restructuring of private and public debt incorporating improvements on the "Heavily Indebted Poorer Countries" initiative of the IMF and World Bank so as to bring genuine debt relief for the world's poorest countries; 
- Efforts to effect payment of back wages due to Russian workers, allowing some relief from the vicious circle which has led to lost tax revenue and prolonging the financial crisis. 
5. International support for developing, transition and emerging economies must be targeted on the countries worst affected by the crisis and the most vulnerable people in those countries. Much of the burden has fallen on women, who in the absence of adequate social safety nets carry most of the burden of keeping families together and caring for the young and elderly on drastically reduced household incomes. The priorities are: 
- Protecting education and health budgets, ensuring that the poorest are able to keep their children at school and have access to essential healthcare; 
- Creating and expanding social safety nets to ensure that the under-employed and jobless have a satisfactory income on which to live, and extending ILO-backed child labour eradication programmes; 
- Boosting employment intensive public works schemes and extending training and job search programmes; 
- Restraining prices of essential goods and maintaining the purchasing power of minimum wages; 
- Developing sound industrial relations systems, through the promotion of tripartite dialogue between governments, employers and unions, based on respect for the ILO’s core labour standards. 
 An International Commission on International Financial Market Regulation  

6. The current crisis has revealed serious weaknesses in the international financial system. Systemic risk and contagion effects magnify and transmit shocks around the world. Neither the much heralded IMF "early warning system" nor the Basle Committee's Core Principles for Effective Banking Supervision have had any impact on this most serious crisis of globalisation. Whilst establishing emergency funds for emerging economies is both desirable and a significant step, the G7 initiatives of October 1998 remain inadequate. Restoring long-term growth will require a fundamental reconstruction of the way governments, through the network of international financial institutions and organisations, regulate and manage the global market, and especially financial markets. The aim must be to re-harness financial markets to facilitate long-term productive investment. 

7. The debate over financial market reform has been held behind closed doors by bankers and financial ministry officials. There must now be full public participation. Governments must therefore establish as a priority a broad-based Independent International Commission mandated to report rapidly on the institutional and policy changes needed to establish an effective international regulatory framework and new financial order. Some issues for early decision include: 

- Improved fiscal and monetary policy co-ordination between the emerging reserve currency blocks of the Dollar, Yen and Euro in order to generate more stable parities, along with the progressive removal of large long term current account deficits and surpluses; 
- Recognition of the right of states to control short term foreign capital inflows and outflows in the interest of domestic macro-economic stability; 
- Binding international standards for the prudential regulation of financial markets covering capital reserve standards, limits to short-term foreign currency exposure, controls and certification on derivatives trading and other forms of leveraged investment built on credit; 
- Ensuring that banking systems are transparent and bound by effective disclosure criteria; 
- Improved information on currency flows, private debts and reserves; 
- Serious examination of the implementation of an international tax on foreign exchange transactions; 
- Extensive debt relief for the poorest developing countries, as proposed by the Jubilee 2000 campaign, including those suffering from the consequences of environmental disasters such as Hurricane Mitch. 
8. Better standards are needed for corporate governance and the Guidelines on Corporate Governance being developed in the OECD must include the trade union proposals for achieving broad corporate responsibility to stakeholders in society. Action must also be stepped up to combat bribery and corruption on the basis of the OECD instruments, and implemented in co-operation with the social partners. 

Changing the Social Face of Globalisation  

9. The crisis has demonstrated the danger of ignoring the social dimension of globalisation. Financial and social stability are closely inter-linked. Stabilisation policies that lead to social explosions will fail and further undermine the credibility of the IMF and World Bank. Social dialogue between governments, trade unions, employers and other representative bodies is also necessary to build consensus over national social and economic development goals and means of action. Strong social institutions, including free trade unions, are vital to the development of human resources and the mediation of disputes about the allocation of resources. 

10. Competitive advantage will lie with those countries that have strong social cohesion built on investment in education and training, health-care and a sound industrial relations system, founded on core labour standards. The most successful countries, both developed and developing, will be those with institutions that are able to balance and rebalance the market pressures of flexibility and dynamism with the social pressures for security and dignity. People must be entitled to a say on their terms and conditions of employment, and economic development. 

11. A new architecture for global financial stability and sustainable development must include a Social Code. Action is needed to: 

- Reform of the IMF and World Bank, as called for by the UN's Copenhagen Summit for Social Development, so that structural adjustment programmes promote good governance and respect for human rights and core labour standards, increased employment and poverty reduction, rather than current policies of austerity; 
- The implementation by all relevant international institutions of the ILO Declaration on Fundamental Principles and Rights at Work; 
- Active debate in the WTO to ensure that the 1999 WTO Ministerial meeting includes core labour standards as a subject for negotiation in any new round of trade negotiations; practical measures to strengthen co-operation between the ILO and WTO; and the covering of core labour standards in trade policy reviews; 
- Learning the lessons of the failure of MAI negotiations so that future multilateral rules governing international investment balance the responsibilities and not just the rights of investors including among other things binding commitments to observe core labour standards. 
12. Preventing a global slump and building the foundations for recovery and sustainable development is a challenge to the leadership of the world’s major democracies in the industrialised and developed world. Globalisation is man-made and not a force of nature, even if at the present time it often gives the appearance of being out of control. The world could revert to nationalism and isolationism. However, such a trend would prevent any global effort to eliminate poverty, and destabilise international relations and the quest for peace, security and disarmament. The real question facing the international community is: does the political will exist to build international policies and institutions to manage the process of globalisation to meet the needs and aspirations of people? 

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