Helping nations to cope during global financial turmoil will help themuse exports to recover later, high-level meeting told
Geneva, 11 may 2009 - It is important to protect the significant progress developing countries have made in recent decades in producing viable exports and in participating in the world economy so that trade can help them recover from the global economic crisis, speakers told UNCTAD´s Trade and Development Commission today.
"We have not yet seen the depth of the impact on developing-country economies," UNCTAD Secretary-General Supachai Panitchpaki warned in opening a high-level discussion on "the impact of the global economic crisis on trade." Mr. Supachai also introduced an UNCTAD report titled "Global economic crisis: implications for trade and development" which recommends international, regional, and "South-South" steps that may help the developing world weather the crisis.
Mr. Supachai said less-advanced economies are facing a series of difficulties: drops in demand for exports; deficits in credit and finance, especially trade finance; falling prices for basic agricultural goods and industrial raw materials; declining remittances for citizens working overseas; and a contraction in foreign investment. "We should expect all of these things to gather force through the year," he said, noting that the global crisis didn´t hit the developing world rapidly, as it did the United States and Europe, but has been "gradually emerging and penetrating the developing economies through various means."
Trade has been vital for hard-won economic progress in Asia, Africa, and Latin America. The degree of dependence of developing economies on external markets, measured by export-to-gross domestic product (GDP) ratio, nearly doubled from 26% in 1995 to 51% in 2007. For least developed countries (LDC), the ratio rose from 17% to 45% over the same period.
Links to the global economy now mean the crisis is spreading inexorably to poorer nations, the Secretary-General said, and it is important for stimulus packages in wealthy countries to help boost demand for products on global markets. International efforts such as Aid for Trade and funding -- as promised by last month´s G-20 summit in London -- for stimulus packages in developing countries and for financing trade, which has diminished with the banking crisis, also are vital, he said.
UNCTAD now estimates that developing countries and transition economies will see export declines of 7-9% in 2009, while LDC exports may drop from 9-16%. "This comes at a time when we had become successful at raising the issue of global integration, of linking emerging economies into the world economy," Mr. Supachai said. "This used to be a positive factor.
"We need to be serious in our rethinking of globalization. We need a new deal on aid, trade, investment and technology relations -- new solidarity."
A chief concern is that signs of recovery in industrialized nations may lead to a widespread conclusion that the crisis is over, when in fact it may continue for a long time elsewhere in the world. Speakers said a global exit strategy is needed from the economic and financial turmoil. They also cautioned against protectionist tendencies in the face of the crisis.
Jan Fredrik Qvigstad, Deputy Governor of the Norwegian Central Bank, spoke of the effects on sovereign wealth funds largely maintained by countries with abundant natural resources. The Norwegian fund, the third largest in the world and based on oil and natural gas extraction, had lost 23% in 2008, and it was a very challenging task to tell the public that roads and schools could not be fixed because 25% of the government´s profit must be invested in a sovereign wealth fund overseas each year when the fund had just lost 23%. The extreme transparency with which the fund was managed had helped the public to accept the situation, Mr. Qvigstad said. Lessons learned included that statistical models of risk based on historical prices and correlations were not sufficient. Another lesson was that countries managing such funds shouldn´t go into investments they don´t understand.
Trevor Clarke, Ambassador of Barbados to the United Nations and other international organizations in Geneva, told the meeting that the crisis is affecting remittances, tourism, and investment for small developing countries such as his own. The challenges posed need to be taken seriously, he said. Those who lose their jobs in such countries - and that is occurring more and more - have few options for finding new employment. The ongoing food and fuel crises and the climate change crisis also have to be taken into account. National measures to protect industries and jobs and increase domestic demand can be taken by large developed countries but not by small developing nations. It is time to review development strategies, Mr. Clarke said - more has to be done to make such strategies more sustainable against future economic shocks, and to enable them to deliver benefits more durably and broadly. UNCTAD should visit such countries and help them with this task, Mr. Clarke said.
Mothae A. Maruping, Ambassador of Lesotho to the United Nations and other international organizations in Geneva, said the financial crisis was becoming an economic, social, and political crisis, and it was frightening to hear that the full impact was yet to come. The crisis had spread so quickly because of the same globalization which had been so helpful for economic growth. It is clear that responding requires cooperation and international planning, he said; "there is a bell ringing for everyone to work hand in hand." Least developed countries are particularly vulnerable to the crisis, Mr. Maruping said, since most have high rates of unemployment, limited social safety nets, and high levels of debt. They have few options for responding to external shocks, and it is clear that effective steps to help them must come internationally.
Josef T. Yap, President of the Philippine Institute for Development Studies, reviewed the impact of the crisis on developing East Asia, saying the immediate effects had included the freezing of credit markets, the re-pricing of risk, which made it more expensive to borrow internationally, and a shortage of trade finance. Steps taken in response to the 1997 Asian financial crisis had helped to some extent to protect the region this time, Mr. Yap said. Financial institutions, burned once, had built substantial reserves and were more conservative in their lending and investments. However, the impact of the crisis on the "real" economy is extensive - effects are being felt in reduced demand, production, and employment. Declines in exports are growing progressively worse. Uncertainty about the length and depth of the recession is still a concern, he said. It is important to accelerate intraregional trade and investment, he said, to strengthen local and regional markets; and to rebalance growth so that it is less dependent on Western markets, in part through establishing an Asian investment infrastructure fund.
And Rashmi Banga, Senior Economist of the UNCTAD India Project, said it is clear that the crisis is having different effects on different countries and peoples. Each country should undertake a detailed study to foresee the effects and to plan responses. Such a study had been done by the India Project at the request of the Indian Government. It showed that exports began to decline in the third quarter of 2008, but efforts to diversify exports and target markets have slowed the impact. Vulnerable sectors include gems, jewelry, and textiles. The study indicates that India can expect flat growth or a small decline in 2009-2010. Export increases are expected for 2010-2011, along with increased employment. Among potential responses, the study recommends streamlining customs procedures to reduce costs and speed processing.
