Global financial regulation in the “New International Economic Order”. The unfulfilled promise of equitable economic governance

Author:Habtamu Simachew Belay
Position:University of Torino, Torino, Italy
Pages:13-30
SUMMARY

Purpose In 1974, the UN General Assembly adopted a landmark resolution proclaiming the establishment of a New International Economic Order. One of the basic aims of this declaration was to enhance the voice and participation of developing countries in the international economic decision-making process based on norms of equitable governance. More than four decades have passed since its adoption. This paper aims to reflect on the past 43 years of the global financial regulatory system in... (see full summary)

 
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Global nancial regulation
in the New International
Economic Order
The unfulfilled promise of
equitable economic governance
Habtamu Simachew Belay
University of Torino, Torino, Italy
Abstract
Purpose In 1974, the UN General Assemblyadopted a landmark resolution proclaiming the establishment
of a New InternationalEconomic Order. One of the basicaims of this declaration was to enhancethe voice and
participation of developingcountries in the international economic decision-making process based on norms
of equitable governance.More than four decades have passed since its adoption. Thispaper aims to reect on
the past 43 years of the global nancial regulatory systemin light of the notion of equitable governance as
envisionedby the New International Economic Order.
Design/methodology/approach This paper surveys the global nancial regulatorysystem from the
vantage point of equitableeconomic governance. This discussion covers the period thatcomes after the 1974
UN landmark resolutions that declare the establishment of a New International Economic Order.The
authors use qualitative and quantitativeapproach in this study. They use descriptive statistics and intuitive
discussionsof certain cases to carry the objective of the paper forward.
Findings First, part of the development in global nancial regulation manifests the establishment of
informal networks that embarkon global regulatory issues, while being very exclusivein their membership
policies. Second,the lack of full and effective participation of developing countriesin the decision-making and
norm setting remainsunsolved in the global nancial regulatory system. Third, the shadow role of the World
Bank and International Monetary Fund was of great signicance in assisting the implementation of non-
binding regulatory rules of international nance in developing countries despitethe concerns of legitimacy
and equity in the making of international standards. In sum, the global nancial regulatory system that
emergedin the past four decadesis quite different from that aspired by the NIEO.
Originality/value The declaration of NIEO coincides with the collapse of the Bretton Woodsxed
exchange rate which in turn leads to the emergenceof a new nancial system and regulatory development.
This period markedthe proliferation of informal networks that make policy recommendationsor non-binding
rules with globalimplications. As far as the literature reviewgoes far, this paper is the rst to survey the post
Bretton Woods period of the global nancial regulatory architecture based on the tenets of the New
InternationalEconomic Order.
Keywords Equitable economic governance, Global nancial regulatory system, Informal networks,
NIEO
Paper type Research paper
1. Introduction
In the decades following the Second World War, the international economic order was
completely dominated by a minority of Western states. This time was considered
inequitable when evaluated throughthe eyes of the global economic realities emerged in the
late 1960s and early 1970s (Mahiou, 2011). In response to the growing disjunction, a New
International Economic Order(NIEO) was heralded in 1974 following two resolutions
Equitable
economic
governance
13
Journalof Financial Regulation
andCompliance
Vol.27 No. 1, 2019
pp. 13-30
© Emerald Publishing Limited
1358-1988
DOI 10.1108/JFRC-10-2017-0086
The current issue and full text archive of this journal is available on Emerald Insight at:
www.emeraldinsight.com/1358-1988.htm
adopted by the UN General Assembly: the Declaration on the Establishment of a New
International Economic Order(resolution 3201 (S-VI) (referred hereinafter to as the
declaration) and the Programme of Action on the Establishment of a New International
Economic Order(resolution3202 (S-VI)).
The declaration emphasizesthe need for active, full and equalparticipation of all states
in the formulation and application of all decisions that concern the international
community(resolution 3201, par. 3). It also afrms the need to enhance the voice and
participation of developing countries in international economic decision-making and norm-
setting. The realization of this new economic order is founded on the full respect of the
principle of equitableeconomic governance as explicitly stated in the declaration(Resolution
3201, par. 4).
In the context of international nancial regulations (IFRs), the declaration of NIEO
coincides with the collapse of the Bretton Woodsxed exchange rate that marked the
emergence of a new nancial system and regulatory developments (Giovanoli, 2000). After
43 years of the collapse of the BrettonWoods system, the regulation of international nance
is now dictated by scattered bodies with a varying representation and legal status. The
present paper examines this period to reect on the success or failings of the notion
equitable economicgovernance in the global nancial regulatory system.
Our analysis sheds light on differentaspects that are important with respect to equitable
economic governance. In broader terms, our assessment shows that the notion of equitable
economic governance as envisioned by the NIEO appears to have been largely ignored by
the global nancial regulatorysystem. The reforms made over the years concerning the idea
that the global nancial regulatory system needs to be structured to enhance the voice and
participationof developing countries is still supercial rather than practical.
The discussion in the upcoming sections, therefore, proceeds as follows. Section 2
discusses the UN resolutions proclaiming the New International Economic Order.Italso
briey surveys the support or opposition expressed by different countries during the
adoption process. Section3 explores the global nancial regulatory system that has emerged
since the declaration of NIEO. Section 4 provides a critical analysis of informal networks
relevant in the regulatory architecture of global nance from a vantage of equitable
economic governance. Section 5 analyzes whether the idea of equitable economic
governanceitself is still a relevant notion to the current diverging economic realities and
structure of nancial markets.Section 6 draws conclusions.
2. The New International Economic Order
The economic order in the aftermath of WWII represented by the International Monetary
Fund (IMF), the World Bank (WB), and the GATT and completely dominated by a minority
of developed states was considered inequitable when evaluated through the new global
economic and political realities that emerged in the late 1960s and early 1970s (Mahiou,
2011). The system was essentiallydesigned at a time when most of the developing countries
did not even exist as sovereign states. For the majority of states emerging from
decolonization, it was less attractive to advance ideas of equitable representation in
internationaleconomic decision-making and norm-setting.
Accordingly, new claims of equitable economic governance started to emerge with the
establishment of the G-77 in the mid-1960s[1](Chatterjee, 1991). A huge stride is taken in this
regard when a New International EconomicOrder(referred hereinafter to as NIEO) was
heralded in 1974 following two resolutions adopted by the UN General Assembly: the
Declaration on the Establishment of a New InternationalEconomic Order(resolution 3201
(S-VI) and the Programme of Actionon the Establishment of a New International Economic
JFRC
27,1
14

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