IN ECONOMIC CRISIS, THE POOR AND WEAK SUFFER MOST

By Pascal Lamy Reprint | | Print |

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GENEVA, Dec 1 2008 (IPS) - In every economic crisis, it is the poor and weak who suffer most. Individuals without savings or a reliable source of income face the most difficulty in surviving sharp economic downturns. It is the same for countries. As the world braces for the worst economic recession since the 1930s, anxiety is on the rise, particularly in the developing world where poverty alleviation programmes hinge on securing open markets and development aid, writes Pascal Lamy, Director-General of the World Trade Organization (WTO) The World Bank\’s latest projection is that global economic growth for 2009 will be a mere 1%. Rich countries will see economic contraction of 0.1% while developing countries will continue to grow next year, albeit at an estimated reduced rate of 4%. The developing world constitutes about one-third of the world economy and as the sole source of growth in 2009 these countries will represent important markets for developed and developing country exporters alike. But the growth levels forecast for next year will not be achieved if countries close their markets and turn off the flow of development funds.

It is the same for countries. As the world braces for the worst economic recession since the 1930s, anxiety is on the rise, particularly in the developing world where poverty alleviation programmes hinge on securing open markets and development aid. These countries have every reason to worry. Deteriorating economic conditions often lead governments to embrace inward looking policies that put domestic interests ahead of international cooperation. In tough times, it is too easy for politicians to blame the foreigner for the nation’s ills, shutting foreign products out of the market and slash foreign aid budgets. Such is the level of concern that leaders of 20 major economies felt compelled to publicly pledge a moratorium on the imposition of new barriers to trade in the coming 12 months. They said as well that they would make every effort to advance the Doha Development Round of global trade negotiations by reaching an understanding on two of its components, agriculture and industrial goods, before the end of the year. Leaders at the Asia Pacific Economic Cooperation forum in Peru and least developed country trade ministers meeting in Cambodia said precisely the same. As part of the Millenium Development Goals (MDGs), governments pledged that they would develop further an open, rule-based, predictable, non-discriminatory trading system. These provisions lie at the very heart of the Doha Round. Concluding these negotiations is therefore an integral part of the global effort to tackle poverty and foster development. Developed country governments pledged, moreover, to increase their developing assistance to 0.7% of Gross National Income. Last summer in Japan, G-8 leaders said they would increase overall development assistance to $130 billion by 2010. Part of these funds, governments have said, will be dedicated building ??? capacity to trade in the developing world through technical assistance, infrastructure development and enhanced production capacity, so that poor countries can more fully derive benefits from the trade. . Sticking to the MDGs pledges is about more than altruism. The World Bank’s latest projection is that global economic growth for 2009 will be a mere 1%. Rich countries will see economic contraction of 0.1% while developing countries will continue to grow next year, albeit at an estimated reduced rate of 4%. The Bank predicts that all developing regions of the world will continue to grow in 2009. The developing world constitutes about one-third of the world economy and as the sole source of growth in 2009 these countries will represent important markets for developed and developing country exporters alike. But the growth levels forecast for next year will not be achieved if countries close their markets and turn off the flow of development funds. Even without the imposition of protectionist measures, slackening consumer demand in the West is already hitting developing country exports. Moreover, the credit crunch has seriously undermined developing country exporters ­and some in the developed world as well. A shortage of liquidity and disproportionate aversion to risk have lead to a shortfall in available trade finance on the order of about $25 billion. Credit that is available is offered at rates three times more than in normal circumstances. Given that trade finance is one of the oldest, and safest, forms of bank lending, this risk aversion may be illogical but logic does not seem to hold at a time of such uncertainty and extreme market volatility. At a conference in Geneva last November, the World Trade Organization (WTO) assembled private banks, international financial institutions and regional development banks to assess the problem and look for solutions. One possible means of addressing the problem is for international and regional leaders to shoulder some of the risk through co-financing and thereby entice private lenders back to this market. The World Bank’s International Finance Corporation has already doubled its trade finance facility to $3 billion. The Organisation for Economic Cooperation and Development (OECD) and export credit agencies are also stepping in. These are uncertain times for the global economy. The recession we face, may well shake our collective faith in the kind of sound policies that have helped reduce poverty in many corners of the world. This is the time for leaders to show with deeds their commitment to trade and aid as two inseparable parts of a global development and growth agenda. (END/COPYRIGHT)