What’s going on in the financial sector?

The financial crisis and bail-out of the financial industry has not been a enormous surprise for SOMO. What is SOMO’s analysis of this issue and what is happening at the international level?

The SOMO financial sector report Critical Issues in the Financial Industry already indicated that there was a world wide increase of many high-risk financial products, strategies and concentration by the financial industry without sufficient regulation and supervision at the international level. This lack of legally binding international regulation and supervision was especially problematic when financial service providers, trading in a wide range of (high-risk) financial products, as along with capital movements, were being liberalised through binding international trade agreements, such as the General Agreement in Trade and Services (GATS) as part of the WTO.

In recent months, Myriam Vander Stichele of SOMO has been warning that liberalisation of financial service providers (banks, insurance companies, security traders) and their financial products contributes to the financial crisis in various ways(opens in new window) , as well as the food crisis, in developing countries. She has also been warning that there should be no further liberalisation of financial services during the ongoing GATS negotiations as part of WTO Doha Round and through many free trade agreements which the EU is negotiating with developing countries.

Developing countries are also feeling the consequences of the financial crisis and credit crisis, because of the presence of foreign banks. SOMO continues to support research by developing country experts into the impact of foreign banks in developing countries.

While governments continue to rescue banks – among others Fortis Netherlands, a bank with many offices in tax havens – and tackle the credit crisis with trillions of dollars, there is a lot of political and public debate [casinocrash.org] about what new regulations and supervision needs to be put in place, sometimes referred to as a ‘Bretton Woods II’. Many political meetings are taking place at the EU level, and the first meeting at the multilateral level to improve financial markets and financial regulation world wide will be held on 15 November 2008 in Washington.

The problem is that many developing countries will not be participating in the summits and many of the standard setting bodies which are discussing the reforms, such as the Financial Stability Forum. However, the UN follow-up conference on Financing for Development, from 27 November to 2 December 2008 in Doha, should also be a place for further discussion with the participation of developing countries. Dangerously, European leaders have been calling for finalisation of the Doha Round during ‘Bretton Wood II’ talks. In a short letter to the Editor sent to the Financial Times, SOMO explains why this would be a bad idea.

Civil society groups all over the world have become active in order to have a say in the reform of the financial system, and the neo-liberal economic system as a whole. SOMO has been contributing in the area of financial governance, the dangerous role of tax havens and the impact of liberalised financial services in discussions and declarations by civil society groups such as ATTAC Europe(opens in new window) , OWINFS and OWINFS GATS group, BankTrack(opens in new window) , the Corner House(opens in new window) , Eurodad, TNI(opens in new window) , Dutch NGOs dealing with Finance for Development and the Dutch Coalition for Trade and Development(opens in new window) .

SOMO is part of the Tax Justice network, which highlights the fact that tax havens have played an important role in concealing high-risk financial constructions which led to the financial crisis(opens in new window) . Many of the declarations issued by NGOs regarding the financial crisis have called on governments to end tax havens and combat aggressive tax avoidance. In its recent publication, SOMO referred to the importance of tax to developing countries.

All information about developing countries’ experiences of foreign banks is welcome and can be sent to: m.vander.stichele@somo.nl.

See also the publication: How Trade, the WTO and the Financial Crisis Reinforce Each Other