High-level Political Forum on Sustainable Development, ECOSOC
[AS PREPARED FOR DELIVERY]
Excellencies, Ladies and Gentlemen, Distinguished Colleagues,
As the contours of the post-2015 Sustainable Development Agenda become clearer every day, it is evident that beyond drawing up new development goals, we are also embarking on a quest for a more ambitious, transformative paradigm of development. UNCTAD welcomes this endeavor.
Recent experience, especially following the global financial and economic crisis, suggests that financial globalization alone cannot be the basis for a truly inclusive and sustainable global economy. Indeed, in recent years we have seen a persistent slowdown in global growth, weaker investment performance in many countries, and a sharp rise in income inequality almost everywhere.
Today I wish to suggest to you three key features of a broad, coherent and integrated macroeconomic policy framework that will be able to support global sustainable development going forward. These include a renewed focus on the real economy, a rebalancing of growth towards domestic demand, and improved international monetary policy coordination.
First, to support global sustainable development, macroeconomic policies will have to target more closely real variables, such as the level of output and employment. Indeed, this may require shifting emphasis from intermediate targets such as low inflation, external balance, and low fiscal deficits. But moving away from intermediary goals does not mean that macroeconomic stability should be abandoned. On the contrary, a primary goal of policy is to ensure stable financial and monetary conditions in support of productive development. High inflation, unsustainable debt and volatile exchange rates contribute to large swings in economic activity, generate job losses and perpetuate poverty. They are also detrimental to international trade, which we at UNCTAD believe remains the most reliable way for developing countries to benefit from globalization.
However, lasting economic growth is not enough. UNCTAD research has shown, for example, that even during the growth spurt in the LDCs from 2002 to 2008, when their GDP expanded by 7.5 per cent annually on average, employment growth reached only 2.9 per cent. Generating decent employment at the required scale is indispensable for poverty reduction and for reversing the trend towards increases in inequality. Thus, a critical task of macroeconomic policies is to support job creation and maintain the economy as close as possible to full employment.
The second point I wish to make is that macroeconomic policies to support sustainable development must include a rebalancing of growth, with greater weight given to domestic demand. Unlike export-led growth, development strategies that give a greater role to domestic demand can be pursued by all countries simultaneously, without beggar-thy-neighbor effects and without counter-productive wage and tax competition.
A crucial condition for making reflationary macroeconomic measures work is strong productivity growth. Under the right policy conditions, the two are mutually supportive. There is a need to boost investment rates, improve the productivity of existing and new investments, and ensure that investment goes to the priority sectors deemed crucial for economic transformation.
Indeed, one of the fundamental problems of recent growth spurts, particularly in Africa and Latin America, is the lack of structural transformation. Despite healthy growth in Africa, the share of manufacturing sector in GDP has gone from 14.7 per cent in 1995 to only 9.1 per cent in 2012. Instead of economic diversification and structural transformation, many economies are experiencing deindustrialization and rising commodity dependence. To reverse these trends, macroeconomic policies have to work hand in hand with industrial policies, which promote structural transformation. Two recent reports from UNCTAD - the World Investment Report on Investing in the SDGs and our latest Economic Development in Africa Report - have both highlighted ways to better mobilize investment in key sectors like infrastructure and manufacturing to serve a broader transformative development agenda.
Finally, the third key feature of an integrated macroeconomic policy framework, which I wish to stress, is the importance of improved international macroeconomic coordination, in particular, in monetary policy. Central banks in both advanced economies and emerging markets can do more to internalize adverse spillovers from their policy choices. In our increasingly interdependent world, central banks, particularly in systemically important countries, can pursue their domestic mandates while recognizing that their actions affect the entire world economy. Boom and bust cycles driven by volatile capital flows undermine macroeconomic stability and hold back productive investment. We must do all that we can to ensure that global finance is constructive, rather than destructive.
As an international community, we mustn't fall victim to "economic amnesia" that allows us to forget the lessons of the crisis. Taken together, lack of fiscal support, the compression of labour incomes and the asset price appreciations that resulted from excess global liquidity threaten to revive the global imbalances that contributed to the economic crisis in the first place. By promoting more proactive and internationally coherent policy actions we can achieve a supportive international financial system and permit a robust and sustainable expansion of aggregate demand.
More broadly, we also need to implement coherent macroeconomic, industrial, trade, environmental and social policies so that they mutually reinforce each other. Policy coherence at the national level has to be complemented by policy coherence at the international level, providing countries with the policy space needed to implement their national development strategies and to achieve the Sustainable Development Goals.