Good morning. On behalf of UNCTAD and the United Nations Department of Economic and Social Affairs, I would like to welcome all of you to this year´s fall LINK meeting in Geneva, where we are convening for the second consecutive year. Let me also extend a warm welcome, and express our deep appreciation, to Nobel Laureate Professor Lawrence Klein and Professor Peter Pauly. We are very grateful to them both - to Prof. Klein, for his continued intellectual leadership of this project, which was initiated under his auspices back in 1968, and to Prof. Pauly, for his dedicated management of the project and its network.
Project LINK has earned a very high reputation for its quantitative analysis of the international economy, a reputation which it maintains thanks to close collaboration among its members from around the world. It has expanded from a core of seven country models to a truly global system containing almost 79 models, and boasts a network of participants from more than 60 countries. In fact, this network of country experts is the most valuable asset of the project, and I would like to thank those experts in attendance here for contributing your country forecasts and reports. It is your inputs that make the LINK global economic forecast possible.
The United Nations has been involved with Project LINK since the early 1970s, when it began providing the basis for much of our macroeconomic analysis, forecasting and policy recommendations at the global and regional level. The project meetings have always offered an invaluable platform for expert discussions and exchanges. The results of these analyses and discussions feed into the World Economic Situation and Prospects, an annual UN publication produced jointly by DESA, UNCTAD and the Regional Commissions.
The agenda of this meeting covers a full gamut of topical policy issues. This morning the discussion will focus on the global economic outlook, while this afternoon we will take up global and regional issues, and more specifically global adjustment and employment and the trade-offs between inflation and employment. Tomorrow morning, further global and regional issues will be discussed, with one panel on the world oil market and prospects for oil price developments, and another on the management of foreign reserves and exchange rate policy in developing countries. Tomorrow afternoon and Wednesday we will look at how best to model the complex linkages and interdependencies in the world economy, with an eye to strengthening the contribution of such exercises to international macroeconomic policy coordination.
Improved analytical work is much needed, given the current uncertainties of world economic developments. Indeed, in light of the different prognoses concerning those developments, a well-grounded interpretation of global economic interdependencies is all the more urgent.
One possible view is quite optimistic. The world economy is growing at a relatively rapid pace for the fourth year in a row. This has been a broad-based expansion that has reached all regions. Developing countries, including many of the poorest, have benefited from strong demand and rising prices for primary commodities, despite higher oil import bills for some of them. The debt overhang loosened in several cases, owing to improved current and fiscal accounts in emerging countries, and to the HIPC initiative in low-income developing countries. Recent financial turbulence in some emerging markets has been confined to a small number of countries with fairly high current-account deficits, and there is little evidence of a looming financial crisis comparable to those faced by Asia and Latin America a decade or so ago. On the contrary, access to international financial markets remains quite easy; spreads on sovereign debt have fallen to near-historic lows; and several emerging market economies have repaid, in advance, the debts to the IMF that they had accumulated during past financial crises.
Despite high energy prices and the tightening of monetary policies, growth in the developed economies appears to be better balanced, with Western Europe and Japan growing faster and the United States experiencing a slowdown since the second quarter of this year.
However, even the most optimistic forecasts mention downside risks, mainly related to current account imbalances. Dollar depreciation after 2001, and the present economic slowdown, have not yet reduced the US trade deficit. With imports 80% higher than exports, a significant reduction of this deficit would require a substantial adjustment of import growth - which would be difficult to obtain without further depreciation of the dollar or a recession. Such developments would have important repercussions for the rest of the world.
The question of how sustainable these imbalances are, and how exactly they may be resolved, continues to divide the experts. For some people, the problem has been overstated and can simply be left to market forces. For others, the solution depends on isolated adjustments in a small number of key economies. As a result, no coordinated initiative seems to be in place for reducing global imbalances. Can the market do it by itself, without harming global economic growth and financial stability? Or is it possible to continue in a "Bretton Woods II" system, with surplus countries endlessly financing those in deficit?
Other related issues are of special interest for developing countries: is the recent improvement in the terms of trade of primary exporters likely to continue? How best to profit from this favourable conjuncture? Should they anticipate a possible reversal of fortune and prepare for rainy days? How should development strategies be adapted to the various scenarios?
During the next few days, I hope we will get some answers from our experts on these and other pressing issues and wish you a lively and fruitful debate.