A few days ago, when presenting the new World Economic Outlook to the press, our IMF colleagues had good reason to talk about "the springtime of recovery": after some 2 years of stagnant performance and pessimistic figures, economic performance seems to be "blooming" now in many countries of the world, including in developing and transition economies. The IMF´s increased forecast for global growth in 2004 and 2005 relies on positive signals sent by the dynamic economies of China, in the first place, but also the United States, India, Japan, Brazil, Argentina and Russia. Particularly, the long-anticipated recovery of private investment spending in the United States appears to be gaining momentum and, combined with sustained consumer spending, looks as if it will generate stronger growth this year and have a positive spill-over to the rest of the world. The basic policy challenge, from a global perspective, is thus one of moving from the initial recovery into a phase of sustained expansion of global incomes under stable monetary conditions.
A cause of concern is the fact that a new form of imbalance accompanies the prospects for global recovery: the increasing differences in growth rates between regions and even within regions. Indeed, the improved situation in the global economy has been the result of exceptionally good performance in only a handful of countries. For example, while the US appears to be experiencing a strong recovery, this has not yet had a major impact on growth in its major trading partners, as both Mexico and Canada have barely achieved positive results in 2003. The long-awaited recovery in the rest of Latin America has been due to cyclical upturns from financial and political crises, accompanied by primary commodity prices increasing from historically low levels. In Asia, recovery from the 1997 financial crisis has remained strong, but the current acceleration has been the result of growth in China, which has been expanding at rates substantially above the already high averages that it has experienced in recent years. China has had a positive impact on the rest of the region, has played a substantial role in Japan´s recovery and is one of the major sources of increased demand for commodities from Latin America. India has also improved its performance. Nevertheless, the region also shows some disparities in this regard, with smaller economies exhibiting relatively low growth rates. Although growth in Africa is again improving, substantial regional disparities in performance also are evident.
As was the case in previous periods of recovery, some of these major economies are playing, and will continue to play, the role of "locomotives" for developing countries. The challenge now is to ensure that the positive development impulses will reach all developing regions. All efforts should indeed be made to turn the current decade into a growth decade for developing countries.
There are number of requirements for achieving this goal. First, in order for the global recovery to be sustained, appropriate macroeconomic policies need to be put in place by all players, and particularly the major ones. Macroeconomic policies alone, however, will not be sufficient. If we are to bring the growth benefits of the global recovery to developing countries, trade can play a pivotal role. The impulse given by the recovery needs to be buttressed also by mutually supportive national and international development policies.
The objective must be to bring about an international economic environment in which developing countries can take advantage of new market access, more productive investments, appropriate technology as well as improved financing for development, and can translate these into effective development gains.
Let me now turn to an issue that is critical for the practical implementation of the objective that I have just outlined, namely increased policy coherence. Bringing high growth to developing countries and avoiding the experience of the 1980s will require a different approach to eliminating global imbalances. This was one of the main goals of the Monterrey consensus and has been a recurrent theme in the follow-up discussions. What is urgently needed now are more concrete proposals to ensure that the adjustment process does not have a tendency to reduce global demand and output growth. The sensitivity of private inflows to developing countries to interest rate and exchange rate expectations makes them vulnerable to changes in the monetary policy stance that are being discussed in the industrialised countries.
The task is doubly important now that most developing countries are actively involved in the international trading system, since the major benefits that are derived from opening to trade depend on the available resources being fully employed. Developing countries also need to overcome the constraints they are facing in expanding their supply capacity in goods and services. Macro-economic policy coherence among the advanced economies is a precondition for the Doha round delivering on its promise of beneficial consequences for developing countries. Concrete actions in terms of financing for development are also needed to support developing countries´ efforts to integrate in the world trading system.
In this context, it is important to emphasise the significance of the new "Fund Support for Trade-Related Balance of Payments Adjustments" (the so-called "Trade Integration Mechanism" - TIM) recently adopted by the IMF Executive Board. This is an example of an innovative approach recognising the need to help developing countries meet the short-term costs of trade liberalisation and a commendable effort at addressing an important aspect of the issue of coherence. As the report prepared by the IMF staff says, "the TIM would represent a concrete expression of policy coherence, in the context of what is arguably the single most important item on the multilateral economic agenda over the coming period".
Two additional initiatives could be considered:
First, the World Bank could envisage long-term financial operations and trade-related assistance that may build on the short-term balance of payments support provided by the TIM. As UNCTAD has mentioned in various fora, what needs to be addressed are the structural weaknesses of developing countries´ supply capacity in order to balance the costs and benefits of trade liberalisation. It is in this area that international policy coherence needs to be achieved pari passu with the negotiating process of the Doha Round.
Secondly, implementation of the TIM could involve the expertise of a range of agencies. All the available trade-related knowledge should be utilised in this endeavour. For instance, the triggering criteria of the TIM - i.e. the impact of eroding trade preferences, tariff reductions, and the elimination of textiles and clothing quotas - are traditional areas of UNCTAD expertise. Indeed, the IMF report describing the functioning of the TIM specifically quotes a recent UNCTAD study on the utilisation of LDCs´ preferences. UNCTAD welcomes the TIM and is willing to cooperate in its implementation and in future international actions in the area of trade-related assistance.
The forecast of a recovery of the world economy is a welcome source of optimism for all of us. But of course it should be seen only as the beginning of our task: development needs pose a wide range of urgent and long run problems, the solution of which is still lies ahead of us. All available international instruments should now be put at work to address them. We in UNCTAD are making all possible efforts for our eleventh conference, to be held in São Paulo in June, to play a constructive and decisive role in this endeavour.