SECOND COMMITTEE
GENERAL ASSEMBLY: Economic and Financial Committee
The Economic and Financial Committee deals with issues relating to economic growth and development. The following topics will be addressed during the conference:
Evaluating development aid’s effectiveness
While the effectiveness of foreign aid was seldom questioned two decades ago, today it is high on the political agenda. Aid effectiveness is the extent to which aid contributes to economic and human development. Thus, aid is only effective if it generates economic growth and at the same time, leads to considerable improvements in the lives of the world’s poorest people. Research on the correlation between aid and development has produced ambiguous results.
Some argue that aid is effective if it is combined with proper government policies while others claim that foreign aid is under no circumstances capable of generating sustainable economic growth and that development must come from within. Critics have pointed to the adverse effects of reliance on foreign aid. They say that recipient countries are inclined to please their aid donors rather than to serve their citizens; that aid lowers the incentive for governments to foster growth and to put social safety nets in place; and that aid-produced growth does not reach the poorest people in society.
How could the UN address these problems? Should the effectiveness of development aid be improved by reforming the international aid system?
Millennium Development Goal 7 and Corporate Social Responsibility
Millennium Development Goal seven aims to ensure environmental sustainability. This goal is linked to the notion of “green growth”, which refers to economic growth that takes into account environmental and social concerns. Green growth policies emphasise resource-efficiency and social responsibility. Considering the increased air pollution as a result of economic growth and globalisation of trade and the recent food and water crisis, the implementation of these policies is at a critical stage.
Green growth policies try to alter both production and consumption patterns and include measures such as green taxation, eco-labelling and feed-in tariffs. Governments cannot fund and execute these policies on their own, but rely largely on the support of the private sector. This support is, however, not self-evident as green growth policy measures can have a negative impact on profits. Another problem is that these measures may harm free trade and fair competition, especially when they take on the form of disguised trade barriers.
Which measures are appropriate for encouraging consumers and companies to act in accordance with green growth strategies? What would be the role of the UN and the international financial institutions?
The impact of the financial crisis on sovereign debt
Some economists claim that the global financial crisis is over. Whether this is true or not, the fact of the matter is that the amount of sovereign debt in both developed countries and low-income countries has risen dramatically. In addition to this, due to the lack of trust within the economy, investors are reluctant to invest; they prefer to hold cash. Also, because there is a relative high default risk, a high risk premium on treasury notes is demanded by foreign investors. This leads to enormous problems in both developed and developing countries and they continue to dwell in this seemingly unbreakable spiral of financial distress.
The international community can offer solutions to the financial-economic problems these countries face. As an international financial institution, one can ensure the treasury notes, massively lowering the default risk. Another option could be to liquidate the gold supply institutions have and by doing this, create the ability to finance the countries that are in extreme financial distress. This would help to reduce the risk premium and fill the finance gap. The downside, however, is moral hazard; you are rewarding bad financial behaviour and creating market imperfections. The developed countries need to exert a lot of money and bear the risks of default.
Because sovereign debt problems are extremely hard to solve on a national level it is crucial for the international community to step in. What global strategy could the UN adopt to solve this issue?
