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Ottawa, November 16, 2001
2001-105

Globalization, Terrorism and the World Economy

Speech by the Honourable Paul Martin, Minister of Finance for Canada, at a luncheon organized by the Reinventing Bretton Woods Committee and The Conference Board of Canada

Ottawa, Ontario
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Allow me to begin these remarks by saying how pleased I am to join you here today, and how grateful I am to The Conference Board of Canada and the Reinventing Bretton Woods Committee for co-sponsoring today’s luncheon. The work of Reinventing Bretton Woods – the search for strengthened international mechanisms to foster growth and prosperity – has become even more critical in the wake of the tragic events of September 11^th.

Indeed, it is in the long shadow of those terrible acts that Canada will, later today and through the weekend, play host to the G-20 as well as the meetings of the International Monetary and Financial Committee (IMFC) of the International Monetary Fund (IMF) and the Development Committee of the IMF and the World Bank. These are tables which bridge the divide between east and west, north and south, rich and poor.

Let me say, therefore, how proud I am that Canada was able, in such difficult circumstances and at such short notice, to ensure that all of these meetings could take place. I am indebted to the city of Ottawa and its mayor for ensuring that they can proceed safely and effectively. Mayor Chiarelli is here with us today, and I would ask you to join me in recognizing him.

The finance ministers and central bankers at this weekend’s meetings come together at a difficult and challenging time. What do we hope to accomplish in the next two days of meetings? We have three objectives.

First, to deal with the economic impact of September 11^th, especially in light of the global nature of the slowdown that preceded the terrible attack on the Pentagon and the World Trade Center.

Second, to agree upon a global action plan to combat terrorist financing.

And third, to ignite the process of making globalization work for all – and for the poorest of the poor in particular.

Clearly, September 11^th was an act of brutality that left the world first in shock, then in anger – an act of sudden violence that without warning stole a parent from 10,000 children and that shattered the illusion that we in North America are somehow insulated from external attack.

In response, we have borne witness to an uncompromising resolve that more than matches the initial shock. The world has come together in an uncommon and irrevocable commitment to eliminate the threat of terrorism. The physical assault levelled against us is being met by an international coalition of nations, faiths and force that will not fail.

For each of us September 11^th was, above all, a tragedy in human terms. For the terrorists, however, the aim of their criminal act was not only the destruction of life – they were seeking to destroy our way of life. The terrorists did not choose their targets randomly. New York’s World Trade Center stood at the heart of the international financial district. It was a symbol of accomplishment and confidence. It was targeted for that reason. The terrorists sought to cripple economic activity, to paralyze financial relations, to create new barriers between economies, countries and people.

Our goal in response must be even more direct and even more purposeful. It must be to deny those who traffic in terrorism and hate advantage in any measure and in any theatre, be it military or economic.

For the major industrial nations, the slowdown we are experiencing is a matter of real concern. For developing and emerging economies, however, the consequences could well be devastating. Jobs might not just be lost temporarily, they could disappear forever. Incomes might not just fall, they could vanish for good.

Let us be clear, it is the poor primarily who bear the long-term consequences of terrorism. For this reason, all of us must dedicate ourselves to the cause of economic security, just as surely as we have dedicated ourselves to the cause of physical security. In that context, there are considerable grounds for optimism.

First, strong fiscal and economic policies have left most industrial nations better positioned to withstand economic turbulence than they have been in many years, even many decades.

Second, central banks have moved rapidly to maintain liquidity in markets and to bring interest rates down.

And third, the IMF, the World Bank and other international institutions stand ready to provide resources to help those most in need.

That being said, however, if we are to translate all of this into widespread economic recovery, a greater effort than that generated so far will be required, one that gathers countries in common cause and coordinated approach. Now is not the time for defeatism, but neither is it a time for rose-coloured glasses. The campaign for economic security must involve a swift and steady response to new realities.

Part of the terrorist agenda is to see governments turn borders into barriers – to erect walls behind which people live in fear and economies stagnate. To retreat from today’s integrated world economy would be a terrible mistake. It would be to concede victory to criminals. And we cannot allow this to happen. For decades nations – large and small, rich and poor – have laboured to promote a freer and more orderly flow of goods and services throughout the world. Why? Because doing so is crucial to the development of their economies and the well-being of their people. The fact is, we are all sovereign nations, but our relations are intertwined, our fortunes are linked, and our economies are interdependent.

The Canada-U.S. border is a perfect case in point. Every single day roughly $2 billion worth of trade takes place between us. And millions of families in both countries depend on that trade for their livelihood. The notion, therefore, that by slowing our borders to commerce we might somehow close our countries to risk is mistaken – it is a non-choice.

For this reason, the governments of Canada and the United States, through the use of new technologies and as importantly, innovative approaches, must work to make our border both more secure and more open. It is not simply a question of getting back to normal. It is recognizing that in the era of "just in time" inventory, what was normal between our two countries is no longer good enough. And for the world as a whole, the solution begins with the warning that while security of people must be our priority, we must not allow security of borders to become the new non-tariff barrier.

The second objective of this weekend’s meetings is the very specific task of shutting down terrorist financing. There exists today an overwhelming consensus on the need to wrest from the grip of terrorists the funding they rely upon to finance their violence. Without money they cannot buy weapons. Without cash they cannot fuel their cause.

It stands, therefore, that part of the coordinated war against terrorism is an equally comprehensive assault on its finances. This must include the formal networks terrorists rely upon directly, and just as importantly, the informal networks they rely upon less visibly. By definition, this implies a high degree of coordination between sovereign governments. There must be a commonality to our approach and a symmetry to our means. Governments must act on a national level, as Canada has with the introduction of its comprehensive anti-terrorism legislation. But so too, governments must tailor their measures to international practices. Otherwise, blood money will simply shop jurisdictions until it finds an accommodating home.

Therefore, at the heart of the G-20’s agenda this weekend will be an action plan to present a common front and a coordinated effort against terrorist financing.

First, we will be asking member countries to implement all relevant UN resolutions and conventions quickly so that they can freeze terrorist assets immediately and track attempts to move them internationally.

Second, we will ask all G-20 nations to ensure rapid compliance with international standards to combat terrorist financing and step up efforts to share information.

Third, we will ask that all G-20 members reach out to others in their regions to ensure that the fight against those who would finance terror is extended to every country, without exception.

And fourth, we will ask those G-20 members in a position to do so to provide financial assistance and training to countries lacking the resources or expertise necessary to implement effective measures against terrorist financing.

At the heart of this last point is the recognition that tracking networks of terrorist funding is a challenge for the most powerful countries on earth. Imagine, therefore, how overwhelmed small or impoverished states will find the task without financial and technical assistance. Canada has helped in this respect in the past. Just last week CARTAC – the Caribbean Regional Technical Assistance Centre – was inaugurated with the help of $8 million that Canada committed earlier this year. As further needs emerge, we will do more.

This, then, brings me to the third objective of our meetings: making globalization work – that is to say, coming to grips with the manner in which we organize ourselves as a world economy and bringing a sense of urgency to the task of reforming the world’s economic architecture.

Globalization is not the source of the world’s inequities. Nor, however, does globalization without development represent a panacea, automatically enriching the lives of those who fling their borders open to international trade and capital.

Economic growth is an essential precondition to the alleviation of poverty, and globalization can be a tremendous force for good. But in the end Canada’s argument has been that globalization is what we make of it. The choice is all of ours. Fundamentally, the answer lies in how we choose to govern ourselves as an international community. While there has been no disagreement on the ultimate goal – making globalization work and finding global solutions to both global and national challenges – there has been an ongoing debate about the best way of getting there.

Some have argued that we should continue to operate on a case-by-case basis, taking on each challenge only as it emerges. We have argued that such an approach is just not good enough for the 21^st century. In this respect, Canada has advocated the development of new structures and sinews that would permit the world’s economy to better serve the interests of the world’s people – all the world’s people. We have argued that what is needed is a better-coordinated framework of laws and approaches – equally effective in bilateral, regional and multilateral fora.

And the fact is, progress is being made. For instance, at the centre of the 1997 Asian crisis was the failure of regulatory and oversight mechanisms in some countries to keep pace with the modern reality of international capital flows. In the absence of transparent reporting and regulation, uncertainty became volatility and volatility quickly became panic, transforming massive inflows into massive outflows – leaving the economic livelihood of millions devastated in its wake.

In the face of that crisis, Canada and others became even more passionate advocates for a new set of rules to make markets work. This has led to coordinated financial measures, nationally and internationally, focused on increased transparency, stronger oversight, shared standards and common practices. It has forced the establishment of new rules and new architecture such as the Financial Stability Forum, the reformed IMFC and the G-20.

Clearly, progress has been made. However, much more needs to be realized. For example, the current slowdown has underscored the need for a better framework to address challenges such as the rescheduling of sovereign debt. We need new rules of the game that would allow the international community to find solutions for debt problems in a timely way and with a minimum of social disruption. Three years ago Canada suggested that internationally sanctioned suspensions of debt payments – or standstills – could be a key part of a better framework. After some initial resistance the balance of opinion is shifting our way.

But now the time has come to move beyond theoretical agreement. Let us accept that mandated standstills can play the same role internationally that Canada’s Companies’ Creditors Arrangement Act or the U.S.’s Chapter 11 plays domestically; and let us now work on the mechanisms needed to make them real. The obstacle that we have to overcome in all of this is that the current set of rules and the existing structures we have built to manage the international economy quite simply have failed to keep pace with evolving reality.

Well, muddling through might have worked before September 11^th, but not after. The battle against terrorism is unlike any other we have previously seen. It will be fought on many fronts. It will be waged not just with military means, but with banking controls, police actions and intelligence operations. Above all else, it will be waged in partnership, requiring a degree of global cooperation that exceeds anything that we have witnessed so far.

The fact is that on September 12^th we woke up to a world more vulnerable than we had ever contemplated – one in which the voices of the few became the chorus of the many, saying now more than ever we, as a community of nations, must act in concert because no country acting alone can ensure the safety of its families to the extent that it can acting collectively.

The point is, if this is true in fighting terrorism, it is also true in setting up the structures to make international markets work effectively so that crises do not destroy livelihoods. And to take that logic one crucial step further, if September 11^th leads to a rules-based approach to making international markets work better, such as we have domestically, it should also lead to an understanding of the need to round off the international markets’ hard edges, such as we have domestically.

Making globalization work requires more than the management of financial crises. Just ask the finance ministers from the developing economies. They recognize the importance of strengthening the international financial system. They know it will provide them with long-term economic opportunity. But at the same time, they are fighting every day to overcome challenges that are even more immediate and even more basic – such as disease, lack of housing, hospitals and schools, proper drinking water and sewage systems. Their point to the industrialized countries is: help us to meet these challenges so that we can help you manage those associated with making markets work.

The fact is, no country can develop its economic potential without meeting the basic needs of its people. This perspective has been embraced in the Montreal Consensus – the product of last year’s meeting of the G-20. The question now is whether September 11^th will act as catalyst or counterweight to this cause. For Canada’s part, the answer is clear: now more than ever the challenge of globalization must be met. For billions of people, the greatest danger has not been that globalization will succeed – but rather that it will fail. Now more than ever we must redouble our commitment to strengthening the world economy, but also to strengthening the ties that bind us together as a community of nations.

Our task will not be a simple one. There will be a natural instinct on the part of many to retreat unto themselves – to achieve greater security through isolation; to reach out less vigorously and less widely than they otherwise might.

Well, nothing could be more self-defeating. Our interests are simply too shared to suddenly sever. Any sense of security that was grounded in a world less open and less interdependent would be illusory. It would not be a triumph over terrorism. It would mean surrendering to the forces that would divide us. Yes, we must protect our interests. But we must do so by raising standards, not by raising walls.

What might this mean?

Well, it certainly means putting an end to terrorism and bringing those who practise it to justice.

As well, however, it should mean lifting the crushing burden of debt from the shoulders of the poorest of the poor.

It should mean helping the next generation of African children to gain access to proper health care and a decent education.

It should mean that massive agricultural subsidies by those with the deepest pockets, that distort markets, that shut the door on imports, are incompatible with a world of rules and fairness.

It should mean ensuring that the new round of multilateral trade negotiations just launched lives up to its billing as the "Doha Development Agenda."

In terms of this weekend’s meetings, our message must be unequivocal: economies cannot withdraw their links; we must make them stronger still. International and multilateral tools cannot be laid aside; we must take them up as never before.

By going ahead with our meetings this weekend we are sending a clear and unambiguous message to the terrorists – a message that is as simple as it is straightforward: we will neither be silenced nor sidelined. As a world, we will continue to work together, large countries and small, to make the global community a more secure and more prosperous place for all.

In the aftermath of September 11^th there exists a developing consensus and I believe a newly formed political will. Our objective now should be to put that will to work without pause. The time has come to take great strides in the place of small steps.

Such ambition is bold, but not without precedent. We saw it in the aftermath of the trauma that was the Second World War, when an entire generation decided it was time to change the world. They did so with a decisive victory, with post-war reconstruction and with the creation of the Bretton Woods Institutions.

Well, the time has come once again to follow their example – to let the greatest generation inspire us once more, to challenge conventional wisdom and inertia, to vanquish despair and to replace it with real and lasting hope.