Inter-Parlamentary Forum of the Americas Forum Interparlamentaire des Amériques Foro Interparlamentario de las Américas Fórum Interparlamentar das Américas

Working Group II: The Impact of the Economic and Financial Crises in the Region

Chaired by Congressman Marcelo Stubrin of Argentina

Working Group II discussed the topic of "The Impact of the Economic and Financial Crises in the Region". The discussion was based on Dr. Roberto Frenkel's authoritative lecture entitled "Globalization and Financial Crises in Latin America".
After hearing Dr. Frenkel's lecture, the members of Working Group II proceeded to give their input by raising the following points:

Financial crises arise from a system that currently lacks rules to help forecast its behaviour, as demonstrated by the successive and recurrent appearance of episodes of this nature in different emerging markets, including countries once considered successful models of insertion in the global economy.
Societies whose political system is more democratic and transparent and whose public accounts are managed in an orderly fashion are less vulnerable to financial and economic crises. For this reason, one of the elements that must be taken into account when building solid and stable economic systems is the development and implementation of public policies to control corruption. Likewise, parliament plays a fundamental role in this area as a generator of appropriate and modern legal instruments, and supervisor of the correct behaviour of the authorities and institutions called upon to execute these policies.

Notwithstanding the foregoing, it was stated that multiple factors lie behind problems of this type. Elements such as the following would therefore have to be considered: foreign debt negotiation methods, sovereign risk determination that influences interest rates, as well as the lack of common guiding principles and unambiguous rules that strengthen legal security in this field. That is, solutions must take a multidisciplinary approach, as there are political considerations in addition to the economic implications of this subject.

Furthermore, it was determined that, in recent years, the net balance of capital flows in the region had been negative, though this did not entail a reduction in Latin America's foreign debt. This points to the need to find mechanisms that promote a new international financial architecture.

The fact that financial crises have a heavier impact on society's least protected sectors through budget adjustments is of great concern, as this weakens the credibility of the democratic system and, hence, the governments' capacity for political action.

It is also clear that the smaller countries are more vulnerable to crises, and it is therefore necessary to take this into account and design economic policies consistent with this reality.

In light of this situation, it is important that our institutions and authorities act transparently within a framework of weights and balances in order to control corruption, and to establish an environment with unambiguous rules.

Without underestimating the serious economic and financial problem generated by corruption, it is important to emphasize that the international financial system functions in such a way as to generate great instability, and because of this, it is necessary to create forms and rules that help increase certainty levels in international financial relations.

These innovative forms and rules could eventually involve delegating part of the nations' sovereignty to international institutions to reduce the risk inherent to international financial activity.

It is imperative for the international community to implement a new financial architecture. It must improve the interregional integration mechanisms and ask international financial institutions to review their economic policy proposals with a view to encouraging economic growth rather than becoming yet another element that promotes recessions.

Recommendations:
The role of inter-parliamentary institutions like FIPA must be geared towards stimulating horizontal cooperation, exchanging successful practices, standardizing regulations and generating appropriate forums for discussing and debating crucial and strategic topics for strengthening our economies.

It is therefore necessary for FIPA to create a Periodic Analysis Group to study the international financial situation, which could function by using the available virtual connectivity tools.

It is essential to strengthen the parliament's role of control and supervision, determining the policy and program goals of our governments and taking into account the principles of efficiency, effectiveness, economy and quality in the different public programs and services, as well as the indicators that may have been defined to measure the results of institutional management and achieve transparency in the rendering of accounts. This direction should serve to anticipate and avoid the consequences of financial crises.

It is also very important to move towards new legal forms that allow financial restructuring of the countries in an orderly environment, thus preventing foreign debt problems from being aggravated by strong recommendations that have an impact on sovereign risk determination.

It is necessary to improve the quality of integration in the region, including the coordination of macroeconomic policies, for the purpose of strengthening its negotiating position before the international financial institutions.