DEVELOPMENT: Wealthy Nations Ignore Crisis Detonators

By Gustavo Capdevila Reprint | | Print |

Gustavo Capdevila

GENEVA, Sep 20 1999 (IPS) - The United Nations Conference on Trade and Development (UNCTAD) warned that new crises will erupt in the world economy and will likely be as devastating as the one still affecting Asia.

The only question is when they will occur, said Rubens Ricupero, UNCTAD secretary general.

The potential for the recurrence of economic crisis is based on the persistence of the factors that set off the July 1997 crisis in Thailand, and then spread it throughout Asia, Russia and Latin America.

The international economy does not show significant signs of having eliminated the causes that provoked the Asian crisis, observed Ricupero during his presentation of UNCTAD’s Trade and Development Report 1999.

The annual UNCTAD study contains a general evaluation of the world economy, an examination of the effects of recent events in multilateral trade on developing countries, and a summary of their relationship with the financial sector.

The UNCTAD report says the world economy and its reaction to the most recent crisis do not provide any reason to celebrate.

“One should not be complacent about the destructiveness of the crisis or about the therapies that were employed,” Ricupero told the press at the report’s launching in Geneva, where UNCTAD headquarters are located.

To overcome the unfavourable situation and improve economic conditions, “the ball is in the industrialised countries’ court,” said the UNCTAD leader. The responsibility lies with their macroeconomic policies, he added.

The Asian crisis already seems to be a thing of the past, but the international conditions that led to the crisis still continue unchanged – in particular, the volatility of financial markets and short-term capital flows, Ricupero said.

Nothing has been done to eliminate the factors that precipitated the crisis, nor is there any plan on the agenda of the financial community, lamented the UNCTAD secretary general.

“There is a tendency to forget about those major factors as soon as the crisis is over,” he insisted.

But national factors also played a role in setting off the crisis. Differences in national policies were reflected in the differences in the severity of the crisis in each of the affected countries, explained the official.

The phenomenon deserves the name “crisis of development” because it was basically concentrated in developing countries.

Industrialised economies even benefited from many aspects of the crisis, such as the collapse in commodity prices, the drop in prices of manufactured goods imported from Asia, and capital flight from emerging markets.

It was also a “crisis of development” because, paradoxically, it affected the most advanced and the most integrated of the developing countries, both in trade and financial terms. The nations most hurt by the crisis were not the least developed, Ricupero emphasised.

The solution to crisis-producing problems lies with industrialised countries. They are the only ones with the power to make the necessary decisions in the monetary and financial arenas, stated Ricupero.

Thanks to their economic situation, they are also the only ones who can stimulate the growth of the world economy, he added.

In this respect, the UNCTAD report reproaches the European Union (EU) and Japan for their slow and weak economic growth. Both economies have depended on external demand for their growth, and both are surplus economies.

Meanwhile, the United States economy remained as practically the only source of import demand, said Ricupero. But the U.S. economy is starting to slow down, reducing its trade deficit and weakening the dollar.

“In those circumstances it is essential that the EU and Japan take the place of the United States in bringing some degree of stimulus to the world economy,” declared Ricupero.

The UNCTAD report observes that protectionism implemented by the wealthy countries is blocking global integration.

In the 1960s, when UNCTAD was created to handle the inequalities in the terms of trade, the hope for developing countries was “trade, not aid.” Currently, the goal is market access, not monetary speculation, Ricupero pointed out.

The report warns of “the dangers of excessive trade and financial liberalisation” and calls on developing countries to “better defend their interests.”