The World Council of Churches (WCC) has challenged the legitimacy of the G20 group of major developed and developing economies, and says that the international financial architecture needs a "paradigm shift."

The G20, made up of Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, Mexico, Russia, Saudi Arabia, South Africa, South Korea, Turkey, the UK and the US, plus the European Union as a member in its own right, is holding a summit in Washington on November 15 2008 to discuss responses to the global financial crisis.

In a statement, the WCC said that it and the overall ecumenical family were "deeply concerned with the current global financial system which has continued to generate poverty and create massive unemployment".
The G20 included many of the people, governments and institutions whose policies are responsible for the current financial meltdown, the WCC said.

"The WCC is concerned about the effectiveness of such a meeting limited to a small portion of the world's countries, when the issue involves drawing up a new financial architecture in the 21st century."

The crises that accentuate the current global financial system (debt crisis, sub-prime mortgage crisis, currency crisis, banking crisis and capital market crashes) have now been particularly severe in industrial countries while their effect is spreading rapidly to developing countries.

The US economy contracted by 0.3 per cent between July and September, the biggest drop in GDP since 2001. For the first time in 16 years, the UK's gross domestic product sank by 0.5 per cent during the same period. Germany is now officially in recession and the rest of the eurozone countries and Japan are thought to be already in recession.

Consumer spending in major economies is down sharply, while unemployment is up. The US shed 760 000 jobs in the first nine months of the year, while 164 000 people lost their jobs in the UK between June and August.

These figures are expected to rise, and many other OECD countries are also bracing for significant job losses. According to the UN general secretary, this crisis is threatening the achievement of the Millennium development goals that calls for $16 billion, the WCC said.

Efforts to avert climate change and financing for development are now in danger of reduced financing.

"This global crisis demands participation of all, not only a few, governments."

This problem has resulted into a variety of inconclusive debates on how to bring about an international financial reform, according to the WCC.

The WCC said that industrial countries continued to define austerity measures as a panacea for poor countries instead of addressing the failure of the whole system. This was a time when the industrial countries remained stable and prosperous.

"The time has come now to address this issue seriously. Economists differ regarding the causes but it is a fact that history is punctuated by financial crises while the evolution of the international regulatory framework has not kept pace with the globalisation of financial markets."

In other words, the fact that the industrial countries were secure should neither deter efforts for drawing a global regulatory framework nor give an impression that industrial countries will regain their prosperity and be secure with mere cosmetic short term reforms while global financial inequality is ignored and left to be solved by markets alone.

The ambition of the upcoming G20 meeting is rather low, the WCC said.

"With the host of the meeting (US president George Bush) leaving the White House in January, a divergence of perspectives on what should be done to fix the financial crisis, and the lack of solid and inspiring proposals on how to reform the financial system, a five-hour meeting could at best be a crisis management summit."

It was unlikely that the G20 meeting would effectively address the questions; "it is more likely that the meeting will result in further inadequate actions by financial institutions that fail to deal with financial volatility, nor will they succeed in designing guidelines for just and stable system for all countries and peoples". 

The WCC said that it had always called for the need for a financial architecture which would qualitatively regulate the growth in massive movements of capital.

"To achieve this change, a solid process that takes on board all global actors and civil society is imperative. Civil society groups and many governments have called for a process that is much more inclusive of other nations and the peoples of those nations."

The global financial meltdown - with the US economy at its epicentre - has , more than anything else, debunked the neo-liberal economic myth that deregulated financial markets are "efficient", the WCC said.

In 2005, the WCC background document on Alternative Globalization Addressing People and Earth (AGAPE) observed: "No international financial institution…is able or willing to control the $1.9 trillion worth of currencies that are traded everyday.

"Financial speculation dominates trade in goods and services, diverting resources from long-term productive investments and areas of greatest need. Financial markets are also increasingly unstable, with speculative bubbles and financial crises."

The problems of external debt and capital flight as well as the recent bail out of troubled banks and insurance institutions in the US and Europe- an amount exceeding that needed to eradicate poverty around the world, make exceedingly clear that the prevailing international financial system is one based on injustice: "it is a system wherein the global poor are essentially subsidising the rich".

It also imperils previous international pledges of financial support for addressing the food crisis and climate change mitigation and adaptation in poor countries. It is therefore patent that nothing less than a paradigm shift is needed.

"Our churches and the wider ecumenical family are called to intensify their advocacy work at various levels calling their governments to push for a new international financial architecture. Such a process should be inclusive observing the following proposals:

* Debates on new financial architecture should include representatives of all developing countries and members from the civil society including religious communities;
* Deter excessive, destabilizing currency speculation by strengthening regulatory institutions;
* Give national and regional central banks more control over monetary policy;
* Develop a multilateral approach on common standards to define the tax base to minimize tax avoidance opportunities for both transnational corporations (TNCs) and international investors;
* Establish a multilateral agreement to allow states to tax TNCs on a global unitary basis, with appropriate mechanisms to allocate tax revenues internationally;
* Support for the proposal for an International Convention to facilitate the recovery and repatriation of funds illegally appropriated from national treasury of poor countries;
* Creatively, with the civil society and faith communities, work out an innovative system in which justice can be central in all global financial transactions.
* Create, within the auspices of the UN an arbitration mechanism to resolve problems of debt.
* Apply a Currency Transaction Tax to curb short-term volatility of capital movements and exchange rates.
* Set a process of democratizing all global finance and trade institutions."

The search for international solutions for the unjust financial system could be complemented by national efforts to control financial markets. It is necessary to take seriously the danger of foreign financial dependence.