ECONOMY: Developing World’s Exports Hit Hard by Crisis

By Gustavo Capdevila Reprint | | Print |

Gustavo Capdevila

GENEVA, May 11 1998 (IPS) - The United Nations warns that the Asian crisis is affecting the developing world through the fall in the prices of commodities and the drop in demand for exports from countries of the South.

The fallout has varied from region to region, says a new study by the UN Conference on Trade and Development (UNCTAD), drawn up for the trade ministers of the Group of 15 meeting this week in Cairo.

The crisis has hit net exporters of commodities whose prices have suffered major drops – like non-ferrous metals, wood, rubber and oil – and countries that sell a high proportion of their total exports to Asia, the report says.

Among those which have suffered a drop in sales figure several Asian countries; Chile, Peru and Ecuador in Latin America; Zambia, Tanzania, the Democratic Republic of Congo and South Africa in Africa; and Saudi Arabia.

UNCTAD recognises that nearly a year after the crisis broke out, the statistics available fail to provide a clear picture of whether the pronounced depreciations of the region’s currencies markedly altered international competitiveness.

The depreciation of Asian currencies against the U.S. dollar from June 1997 to March 1998 ranged from 11.5 percent in the case of the Japanese yen to 74 percent for the Indonesian rupee.

Nor do the statistics make it clear that Asian exports have received a boost, or that the devaluations have applied competitive pressure on other developing countries exporting to non-Asian markets.

UNCTAD says that in order for recovery in the region to be export-driven, two critical factors are needed.

In first place, due to the industrial investment and export patterns of several of the countries in crisis, the content of imported inputs contained in exports such as home appliances is sometimes very high, a factor that significantly counteracts the new competitive edge provided by the devaluations.

The second element is that a recovery of exports also depends on the availability of financing for expanding production and marketing of exports.

UNCTAD also underlines that exports will have to rise in not only the countries in crisis, but in all of east and southeast Asia, in order for the region to set out again on the route of growth it was following up to the crisis.

Open markets and steady expansion of global trade will be crucial to that process, the report adds, while barriers to trade and competitive devaluations will cut short the recovery of the countries in crisis and threaten growth in the rest of the world.

With respect to Asia’s commercial ties with other developing regions, the report cites statistics released by the Latin American Economic System (SELA) in February.

Exports to Asia represent around 10 percent of Latin America’s total exports. But for some countries like Chile, Peru and Ecuador, they account for a considerable proportion of the total. The fall in exports has been especially abrupt in Chile, whose sales to Asia were mainly concentrated in the countries in crisis.

In Africa, meanwhile, the crisis could be reflected in lower exports from Zambia, Tanzania and the Democratic Republic of Congo – more than one-quarter of whose exports went to Asia – as well as from South Africa and Angola.

The crisis could also lead to a reduction in the flow of direct investment into Africa due to the shift in investor confidence. Several emerging economies in Asia, such as Malaysia, had become leading investors in Africa, but that flow of capital could be stemmed in the next few years.

Latin American exports are also vulnerable to the possible rise in competitiveness of Asian exports resulting from the region’s currency woes, says the report, which cites a study by Inter- American Development Bank (IDB) economist Raul Saez.

Saez estimates that 58 percent of Latin American exports to members of the Organisation of Economic Cooperation and Development (OECD) – the world’s most industrialised countries – are vulnerable to the rise in competitiveness of Asian exports.

Competition from Asia threatens nearly 36 percent of the manufactured products which Latin America exports to OECD countries, he adds.

But Central America and the Caribbean are most vulnerable to the new Asian competition, due to the fact that the region’s exports to the OECD are comprised largely of garments. But exports of home appliances are also jeopardised.