UNCTAD Secretary-General Mukhisa Kituyi discusses how to rejuvenate the global economy and trade in light of the COVID-19 crisis in an interview with Didem Eryar Unlu of the Turkish newspaper Dünya.
Q: Global shutdown have harmed economies and civilizations and we are now heading to slow reopenings. This will be a different world. What should be the lessons that we should take from COVID-19 crisis?
A: It’s too early to know exactly just how much the post COVID-19 world will be different, but some important lessons have already become clear. First, the pandemic has reminded us just how dearly we need to address persistent structural problems facing the entire world. The crisis has aggravated deep seated inequalities between and within countries.
The epidemic is affecting rich and poor differently. Faced with the impacts of the spread of COVID-19, people fare vary differently – both health-wise and economically – depending on the resources at their disposal, depending on the country that they live in, and even depending on the type of home they live in or the type of job that they have.
Peoples’ fates faced with the pandemic are also intricately tied to the political choices of their leaders. Amidst the current uncertainties around the pandemic and its impact, the use and misuse of information has exposed a serious flaw in our unequal yet interconnected world.
The crisis has also deepened people’s skepticism of elites and their displeasure at behind closed doors non-transparent decision making. Across the world, whether from Washington to Beijing, from New York to Geneva this has further exposed the fragility of national, regional and multilateral institutions. This calls on leadership across the world to address these problems.
Second, the crisis has shown that we must build back better. Had we been further advanced in meeting the Sustainable Development Goals and the Paris Agreement on Climate Change, for example, we could better face this challenge - with stronger health systems, fewer people living in extreme poverty, less gender inequality, a healthier natural environment, and more resilient societies! We must seize the opportunity of this crisis to strengthen our commitment to implement the 2030 Agenda and the 17 Sustainable Development Goals. By making progress on our global roadmap for a more inclusive and sustainable future, we can better respond to future crises.
Q: Uncertainity around the current pandemic increased in many countries around the world. What steps/measures should countries take? What should be the priorities of developing countries like Turkey?
A: Turkey is, like most other countries, facing a devastating health threat and an unprecedented economic crisis. The most pressing priority is to overcome the former and save lives. At a minimum, this means providing medical services, equipment, and ramping up testing capabilities. Reinforcing the public health system and extending coverage toward making the system universal is a necessary task.
But, to survive what the IMF has called “the great lockdown”, people need income and basic goods and essential services. The constraints on developing countries are, in this respect, very severe, and require multilateral support and action. At the same, the twin health and economic challenges provide an opportunity to re-focus on strategic economic objectives and governments, including in Turkey, would do well to think hard about what comes after the lockdown has eased. Connecting short-term relief measures to long-term resilience goals is perhaps the biggest challenge facing policy makers at the national and international levels.
It is certain that in 2020 Turkey, like almost all other countries, will experience a recession, although there is uncertainty surrounding its depth and length. Our tentative expectation is a contraction of GDP between 2.5 to 5 per cent, compared to 2019; this amounts to is a downward adjustment of 4 to 6 percentage points.
Consequently, the first policy action necessary is fiscal support. The announced measures to support incomes, employment and activity amounting to almost 2 per cent of GDP are a good step forward but they are insufficient. If the fiscal measures are to stimulate private spending they have to be larger.
The country is also facing a shortage of foreign exchange. Capital outflows between mid-January and mid-April can be estimated to be above 5 billion dollars. The Turkish Lira has depreciated sharply (about 10 per cent in the last two months), as in other crises in recent years. While this is not helping exports, hobbled by the global crisis, it implies huge costs for servicing external debts and paying for necessary imports further scaring asset managers. As a consequence, foreign exchange reserves are quickly depleting. These are problems that are common across the developing world, and they cannot be solved by Turkey (or any other one country) acting alone, but instead requires a concerted multilateral approach.
Q: How can UNCTAD work to avoid the negative impacts of COVID-19 on global trade and development?
A: UNCTAD has called for a massive liquidity injection via an extraordinary SDR issue by the IMF tailored to developing country needs and for re-scheduling and restructuring their external debt. We have also called for a $500 billion health Marshall Plan for developing countries, to support the medical and social response. We would hope policy makers in Turkey would support these calls. Looking beyond the immediate pressures, Turkey and many emerging economies are facing another common challenge – the temptation to adopt policies of external liberalization and fiscal “restraint” in order to boost competitiveness. In almost all countries these policies have meant weakening the domestic economy, through lower labor shares, slower employment creation and diminished commitment to public investment, leaving open mainly two routes to growth: crude export promotion and massive debt accumulation. This combination does not build the resilience and sustainability which countries are looking for going forward.
Turkey can avoid these pitfalls. As a relatively large and diversified economy it has great potential in its domestic market. This offers policymakers a real option to create economies of scale and, consequently, fast productivity growth. In such a strategy trade and external finance have important roles to play as enablers of domestic economic forces. The pandemic is an opportunity to break away from conventional but self-defeating policy prescriptions and UNCTAD is already providing analysis to that end.
Q: What would be the major changes/new business models in post-pandemic period?
A: Although the coronavirus has exposed the glaring inequalities the world is facing, it also may be accelerating the uptake of digital solutions, tools and services, as the world struggles to carry on with their daily lives and work on-line. With governments and businesses imposing travel restrictions and social distancing measures, digital solutions are allowing telework and online education, and enabling shopping online. This may in fact be accelerating the shift towards a more digital economy – something UNCTAD has been observing for some years ago. We recently released statistics showing that E-commerce sales hit $25.6 trillion globally in 2018, up 8% from 2017, according to the latest available estimates. And that was already before the Coronavirus pandemic began. One can imagine that with the shift in behaviours engendered by the pandemic, many more people will be willing and eager to do business on-line rather than in person, going forward.
That being said, we must be very cautious that the uneven access and opportunities afforded by digital technologies do not become a bigger problem as they grow in popularity. It will also be important to ensure that privacy concerns and data ownership concerns are not simply forgotten as consumers and producers alike do more and more business on-line going forward.