Bridges Weekly Trade News Digest • Volume  • Number  • 24th April 2001

UNCTAD Report Warns on Global Economic Slowdown

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In its new Trade and Development Report, released 24 April, the United Nations Conference on Trade and Development (UNCTAD) raises awareness of the implications of a global economic slowdown and calls for systemic reform of the Bretton Woods institutions (The International Monetary Fund and the World Bank).
The report begins by emphasising that the 2001 global economy is less stable than that of 2000. The organisation points to the US economy as an indicator of what the future may hold and sees slim prospects for continued global economic growth. UNCTAD states that the prospects for the US economy should be a worldwide concern, as the country had a “pivotal role in bolstering global demand in recent years.” Because of this, and due also to the increasing integration of the global economy, “real and financial shocks are transmitted much more rapidly across regions, countries and sectors. At the same time, because of the intertwining of finance and production, such shocks can have unexpected consequences, as has been demonstrated by the financial crises which began in Asia in 1997.”
UNCTAD does not foresee either of the other G-3 economies (Japan and the EU) taking on the United States’ global economic responsibilities, nor boosting global demand. UNCTAD notes that the effects of the US economic slowdown will vary in different regions of the developing world. According to the report, those economies that rely heavily on exporting to the US, such as East Asia, China, and Mexico, will experience the greatest difficulties, particularly terms-of-trade losses and declining export earnings.
The report targets excessive financial liberalisation for “creating a world of systemic instability and recurrent crises”. UNCTAD recommends that an effective reform of the Bretton Woods arrangements “should seek to improve, not eliminate, counter-cyclical and emergency financing for trade and other current transactions.”
The Trade and Development Report promotes proposals for new international mechanisms designed to regulate and stabilise international capital flows. It discourages the types of reforms that have in past sought to establish increasing conditionality as a way of strengthening domestic financial systems in debtor countries. UNCTAD believes that this line of reform lacks the “prospect of fundamental change in policies and practices in the creditor countries”, and pushes instead for improved transparency and regulation of currently unregulated cross-border financial operations.
The UNCTAD report calls on developing countries to lead the way in promoting the reform process. Reform will depend on developing countries’ willingness to organise their efforts around common objectives, it says, and on “acceptance by developed countries that accommodating these objectives will be an essential part of building a more inclusive system of global economic governance.”
For information on how to obtain a copy of the Trade and Development Report 2001, visit UNCTAD’s website at: http://www.un.org/publications.