UN chief Kemal Dervis warns on crunch threat to poverty goals

from The Times Online

Rhys Blakely, Bombay

The rapacious pursuit of profits by "super-bankers" has triggered an economic crisis that risks delaying anti-poverty targets, according to a senior United Nations official.

Kemal Derviş, the head of the United Nations Development Programme, said the blame for the three economic shocks to have erupted in the past decade — the Asian crisis of 1997, the dot-com crisis of 2001 and the current US sub-prime crisis — falls at the feet of an overly-influential and under-regulated financial sector.

"It is the super-bankers, hedge-fund managers and owners of private equity firms that have become the new 'barons' of twenty-first century capitalism," the former Turkish finance minister and vice-president of the World Bank said during a visit to India.

"It is almost unbelievable: 40 per cent of total corporate profits in the US in recent years went to the financial sector that in itself does not 'produce' … but that 'intermediates and organises' the resources that do produce."

At the Exim Bank Commencement Day Annual Lecture in Bombay, Mr Derviş said that a steep decline in global economic growth is in danger of pushing back the UN's Millennium Development Goals, which call for extreme poverty to be halved and the spread of HIV/Aids to be halted by 2015.

"A world economy growing at four to five per cent in purchasing parity terms is a wonderful thing for development. A major slowdown would be a tremendous set-back," he said.

Although most global institutions have already lowered growth forecasts for this year, many were "still way too optimistic" he added.

According to Mr Derviş, irrational and herd-minded financiers profit hugely from the inflation of asset bubbles, "but pay very little personal penalty when the bubble bursts". Instead, ordinary people bear the costs — directly through government bail-outs of failed banks and indirectly through higher inflation stoked by aggresive cuts to interest rates.

Mr Derviş's calls for a globally co-ordinated response to the current crisis echoes those of Dominique Strauss-Kahn, the head of the IMF, who recently rubbished the notion that Asia's fast-emerging economies — including India and China — had "decoupled" from the West and would remain immune to the aftershocks of the US sub-prime loans crisis.

However, the UN development chief was muted in his response to US efforts to rejuvenate its economy through a massive fiscal stimulus package, voicing a fear that such policies are only paving the way for the next asset bubble.