Ladies and gentlemen,
I am glad that this event makes it possible in the runup to the Monterrey conference to bring together important decision-makers from developing countries and industrialized countries as well as representatives of NGOs and interested observers.  I would like to give my ex-press thanks for this to DSE and to the UN Department of Economic and Social Affairs.

Ladies and gentlemen,
The events of September 11 have highlighted once more the weaknesses of the international financial system.  International terrorism has made use of the modern financial system to finance its activities.  Moreover, the events have shown that close international cooperation is needed to drain the financial basis of criminal and terrorist groups.  Given this back-ground, it is not enough if the OECD countries alone create the requisite basis for fighting money laundering and for stopping terrorist organizations' financial transactions.  Terrorist groups do not need to invest their money in those countries that have largely implemented the relevant standards - meaning primarily the recommendations drawn up by the Financial Action Task Force (FATF).  As has become known, Al Qa'ida is a multinational undertaking with cells in over 40 countries.

This recent example highlights once more that a stable financial system with clear and strict rules is a global public good.  In principle, all countries have an interest in this good; how-ever, no country wishes to weaken its financial sector through additional requirements.  So we can only solve this problem through international cooperation that encompasses all countries.  We have known this for a long time.  However, there has not always been suf-fi-cient willingness - including in some industrialized countries - to give up selfish national con-cerns and enter into the necessary international agreements.

What are the challenges we are facing with regard to the reform of the international financial system?  I believe that the challenges can be subsumed under two aspects: 

Firstly, we need to strengthen the international financial architecture and make its rules more binding so as to prevent undesirable financial transactions.  This does not just relate to the financial transactions of criminal organizations but also to capital transfers that are based on short-term motivations - they were a decisive factor in triggering the financial crises of the past few years.  There is considerable doubt as to whether the rules established so far are sufficient; they are largely of a non-binding character and are aimed at improving "market discipline."  By way of example, let me mention just a few areas in which stronger, or more binding, international rules and arrangements are needed.

Hedge Fund Transactions and Offshore Centers

The bailout for the American hedge fund "Long Term Capital Management" has shown that unregulated financial institutes pose considerable risks to the stability of financial markets.  The main emphasis of the measures envisaged so far is on strengthening market discipline, especially by means of broadening the disclosure obligations of all market players.  However, should the measures adopted prove to be insufficient, the German government will use the opportunity of the review to be undertaken in spring 2002 to call for further broadening the disclosure obligations or for direct supervision of these funds. 

As regards insufficiently regulated offshore financial centers, the Financial Stability Forum has now published a list where these financial centers are rated in terms of the quality of their supervisory authorities.  The IMF has launched a large monitoring program.  The Ger-man government is in favor of making all monitoring reports public and updating the lists on a continuous basis.  The willingness of countries to subject financial transactions via off-shore centers to greater scrutiny has visibly increased since September 11.

Increased International Cooperation on Tax Issues

Both industrialized and developing countries' tax authorities are losing billions in revenue each year as a result of tax evasion, tax competition and other detrimental tax practices (Oxfam estimates the loss at about US$ 50 billion).  The fight against corruption, money laundering and tax flight must be better organized through closer cooperation between tax authorities.  It would also be possible to curb unfair competition for tax advantages and the smuggling of goods by means of harmonizing tax rates, etc.

One important aspect is formed by the "tax havens."  According to an OECD report, there are 35 tax havens worldwide, 13 of which are dependent territories of OECD countries.  Tax havens harm other countries both because they encourage tax flight and tax avoidance and because they enable criminal activity (such as money laundering).  So far, it has not been pos-sible to impose tangible sanctions against these jurisdictions. 

Increased Involvement of the Private Sector in Crisis Management

The reforms of the international financial architecture envisaged by the G7 provide for stronger involvement of the private sector in future financial crises and a corresponding ad-justment in the role of the IMF.  It remains to be seen whether the measures taken so far, which relate mainly to aspects of improved transparency, information, coordination, and en-couragement, will suffice.  If necessary, a more binding framework must be drawn up for the in-clusion for the private sector, for instance by

- making greater use of the option of having the IMF support debtor countries' payments stops and release loans in such a case even though there are private payment arrears;
- giving targeted support to collective action clauses to ease the negotiations between private creditors and debtor countries, and to rollover clauses in loan or bond contracts.

Regulation of Short-Term Currency Transactions

The liberalization of financial sectors has resulted in an increase of daily currency trans-actions worldwide from US$ 70 billion in 1970 to an average of US$ 1.5 trillion today.  More than 80% of these transactions are investments with a maturity of seven days or less (usually maturity of less than one day).  It must be expected that these transactions have nothing to do anymore with the activities of the nonmonetary economy.  The volume of world trade and direct investment is only equivalent to about two percent of annual currency transactions. 

The main players in the currency markets are international banks; trading between banks for their own account plays the decisive role.  Recently, developing countries' currencies have increasingly become the object of this trade.  It must be expected that the duration and scope of financial crises is increased by this. 

There are a number of suggestions for reducing the destabilizing effect of short-term currency transactions.  For instance, the proposal was made recently that codes of conduct should be developed for commercial banks' currency deals.  Unlike other financial trans-actions, commercial banks' trading for their own account is not yet subject to any codes of con-duct.  Even though such codes may not be able to completely prevent financial crises, they would undoubtedly reduce their momentum considerably. 

Another proposal for the regulation of short-term currency transactions is the currency trans-action tax that has come to be the subject of broad discussion.  I am well aware of the possi-ble advantages but also of the risks involved in introducing a currency transaction tax.  Our further deliberations should be aimed at examining very closely the feasibility of such a tax.  I have therefore commissioned a study on this matter which will probably be available in January 2002, that is, in time before the FfD conference. 

Secondly, we need to achieve participation of the developing countries in the global economy and in the decision-making structures of the world economy.  Rules are only sustainable if a broad majority of countries view them as legitimate and advantageous.  This is why greater attention must be given to the special situation of developing countries as the financial sys-tem is further developed - both in terms of decision-making procedures and in terms of the substance of reforms.

Trade

In order to achieve stability of the international financial system and to open up new develop-ment prospects for the highly indebted countries, it is vital that these countries reduce their level of debt substantially.

To that end, it is of central importance that industrialized countries further open their markets for the developing countries, especially
- by reducing tariffs and quotas on products that are classic export products (agriculture, textiles, etc.);
- by reducing import barriers for processed commodities, so as to enable diversification of these countries' economic structures.
The WTO Ministerial Conference beginning next week in Doha offers an opportunity to the industrialized countries to demonstrate their serious commitment to the integration of the de-veloping countries in the world economy.  The statement that the next world trade round must be a "development round" must not remain an empty phrase. 

Liberalization of Capital Accounts

In the past, developing countries have often been pressured to liberalize their financial sectors.  This has proven to be a dangerous mistake especially in those cases - a frequent scenario in developing countries - where the macroeconomic and institutional prerequisites were not in place (such as functioning banking supervision).  Since the Asian crisis, this has come to be a widely accepted view; even the IMF now shares this assessment.  The Asian crisis has also shown that capital import regulations have their merits with regard to the pre-vention of crises.  The IMF should give active support to countries that wish to pursue such policies.

Support through Development Cooperation

Many developing countries' financial sectors are very underdeveloped.  And it cannot be sur-prising that the financial sectors of poor countries with weak structures do not meet the stan-dards existing in the industrialized countries.  Yet we are faced with the challenge of im-proving standards even in these countries, so as to reduce the risk of financial crises and to drain the financial basis of criminal activities.  This is an enormous task.  A special fund was recently set up at the World Bank for this purpose.  Due to our budget constraints, we are unable to support this Fund financially.  However, we will review our current bilateral financial sector projects to see whether they can make a contribution towards strengthening financial sector institutions and standards.

The United Nations, as a global forum for dialogue between developing countries and in-dustrialized countries, has had a special role to play since the events of September 11, 2001, with a view to the shared endeavor to achieve comprehensive security for all people and solidarity with all people.  The UN must also be strengthened in the area of economics.  A security council for economic policy must be created as was suggested recently by the Zedillo Commission.  We need a Global Council in which all regions enjoy adequate repre-sentation at the highest political level.

Moreover, there is a need for increased participation of the developing countries in the inter-national bodies responsible for financial sector issues.  So far, developing countries are barely represented in these organizations even though they are of central importance for the stability of the international financial system; as a rule, they are also hardest hit when finan-cial crises occur.  There are a number of openings for strengthening developing countries' participation in these bodies.  For instance, it would be conceivable to let developing coun-tries join the Financial Stability Forum.

Ladies and gentlemen,
According to World Bank estimates, the number of poor people will be up to ten million higher next year than expected as a result of the events of September 11.  The causes are further declines in commodity prices, higher interest spreads on foreign loans, declining foreign direct investment, higher transport costs, and a slump in the tourism sector.

One reason why this is a problematic development is because there is a risk that a growing number of countries and groups will become marginalized and because marginalization and a sense of powerlessness and exclusion are a fertile ground for terrorist activities.  Now that the terrible events of New York and Washington have shown us the vulnerability of the in-dustrialized world, we are called upon more than ever to work for a fair world without mar-ginalization.

As we know from our own European history, integration among countries cannot function in the long run if it is limited to the economic sphere only.  This is why Europe's integration was complemented with political integration and with balancing mechanisms for weaker countries.  This also applies to cooperation at a global level.  Now is the time to put the globalization of economic processes on a firm political and social footing.  In this sense, it is time for a Global Deal. 

The international community has agreed on international development goals, especially the halving of the proportion of people in extreme poverty worldwide.  In order to reach these goals, the developing countries need to make an enormous effort.  Simultaneously, ac-cording to World Bank calculations, assistance to the poorer developing countries would have to be increased by 2010 from the current level of $ 54 billion to over $ 100 billion. 

At the EU Summit in Göteborg this summer, the EU heads of government decided to make available the internationally agreed share of 0.7% of GNP for ODA as soon as possible.  Concrete progress towards reaching this target is to be achieved before the World Summit on Sustainable Development in Johannesburg in 2002.  In the EU Development Council, we have started to discuss concrete action to implement this decision.  An overall proposal (Leitantrag) for the SPD Convention in November supports the call of the IMF Managing Director and the World Bank President to gradually implement this international goal in Ger-many on a binding basis, working towards that end by increasing ODA every year. 

Ladies and gentlemen,
I hope that this seminar will provide us with ideas on "Financing for Development" for our de-velopment cooperation even beyond the Mexico conference.  I would also like to wish you all a pleasant stay in our old and new capital, Berlin.  The Federal Republic of Germany is ready to shoulder more responsibility for security, peace, justice and stability, in future and to ex-pand its cooperation with international partners.
 
 
 
 
 

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Contents	Speeches and Issue Notes	EF Homepage
Preface	Programme	EF Texts and Reports
Opening and Key Addresses	List of Participants
Summary of Discussions