Speakers call for international coordination, policies to encourage job creation
Geneva, 15 September 2010 -- The recovery from the global recession is fragile and a second decline may occur if nations don´t coordinate their responses, if economic stimulus programmes are phased out too quickly, and if unemployment is not reduced, speakers said at an annual high-level debate.
This year´s edition of the Trade and Development Board´s yearly "high-level segment" was titled "Towards sustainable recovery."
Developing countries are showing vigour in the wake of the financial crisis, UNCTAD Secretary-General Supachai Panitchpakdi said in opening the discussion -- but their position is fragile. Unemployment remains high and in some cases is increasing. Efforts to rejuvenate the banking and financial sector so that it can stimulate the broader economy have not had the desired result, the Secretary-General said - banks are currently making healthy profits, but mostly by trading; they are not lending to businesses that might use such loans to expand production and hire more workers.
Mr. Supachai said that in developing countries the jobs that are being created in many cases are in the informal sector and do not provide long-term security or the higher wages that can lead to domestic demand and resulting economic growth.
In the wake of the recession, no major market is emerging for imports to replace the role previously played by the United States, the Secretary-General said. He warned that a lack of coordination - for example, at the G-20 level - threatens the hoped-for exit from the recession.
Louka Katseli, recently appointed Minister of Labour and Social Security of Greece, gave a special address in which she spoke of "widening unemployment and social exclusion" in Greece in the wake of the country´s debt crisis.
In today´s global economy, Ms. Katseli said, "no single country can afford to mismanage its economy. The cost is too high." The recession hit the Greek economy very hard, the Minister said. Drastic government steps were taken to contain the crisis, including severe budget cuts expected to amount to a reduction in spending of almost 10 percentage points over three years. A "tsunami" of speculation in financial markets made the situation much worse. Debt-servicing costs and high borrowing costs continue to constrain efforts to revive the Greek economy, she said.
"Europe was unprepared to deal with a crisis of such potential magnitude," Ms. Katseli told the meeting. It took two months of intense negotiations for a European support mechanism to be set up. If other countries find themselves in the same position in the future, she said, they should strive to attract investment and make it easier for businesses to establish themselves; strive to expand exports; pursue education, job training, and related programmes to help spur employment; and design innovative tools to bypass liquidity constraints.
A panel discussion followed, with Ali Badjo Gamatié, Vice-Governor of the Central Bank of West African States (BCEAO); Richard Koo, Chief Economist of the Nomura Research Institute of Japan; and Bert Koenders, former Minister of Development Cooperation of the Netherlands. The moderator was Myret Zaki, Deputy Editor-in-Chief of the Geneva-based economic magazine Bilan.
Mr. Gamatié told the meeting the world is in transition, although many don´t recognize it. How many financial crises are needed before the international community decides to change the global economic "software"? he asked. In Africa, the number of poor continues to grow, and governments in the West African Union are struggling with budget deficits that limit their abilities to combat poverty, especially during a recession. The region´s central banks have tried numerous measures to respond to the crisis, he said, but private banks are using the money provided simply to turn profits by trading rather than to fuel substantive economic growth.
Mr. Koo said the world is not suffering from an ordinary recession that can be explained by conventional economic theory. Interest rates are near zero, yet where is the recovery? Unfortunately, for people in Japan, the situation is a replay of what they first saw 15 years ago. The problem is that the private sectors of many prominent economies are no longer maximizing profits but minimizing debt. Asset prices have collapsed, and money borrowed based on inflated prices for those assets now somehow must be repaid. Any cash flow is being used to pay down debt, and when everyone is doing that - businesses and households combined - there may be massive liquidity, but there are no borrowers or investors, and economies shrink. In this situation, government fiscal stimulus programmes are "absolutely essential," Mr. Koo said - governments have to do the opposite of what everyone else is doing. Unfortunately, the second necessary step - a continuation of fiscal stimuli until private-sector balance sheets are repaired - is not being taken. Stimulus programmes now are being phased out before domestic demand has recovered.
Mr. Koenders noted that the afternoon´s discussion was taking place two years to the day after the collapse of Lehman Brothers, which marked the start of the recession. Global integration is vital for economic growth and job creation in developing countries, he said, but steps have to be taken to ensure that the international economy contributes to balanced, inclusive economic growth, and not to exclusionary growth. Developing countries where growth is too dependent on international factors, and where exports consist overwhelmingly of commodities and raw materials, tend to be vulnerable to global upheavals and tend not to achieve broad-based job creation, higher wages, greater income equality, and sustainable reductions in poverty. It is important, as the world pursues recovery from the recession, not to return to "business as usual," Mr. Koenders said. The world´s poor countries should "make sure they have their voices heard."
A debate followed, during which representatives of UNCTAD member States repeatedly cited concerns over unemployment, increasing poverty, the fragile state of the global recovery, and whether reforms to the international financial system are sufficient to prevent future, similar economic crises.
The TDB, which opened its 57th session this morning, guides UNCTAD´s activities from year to year. The session will continue through 28 September.
