ECONOMY: Slow Growth to Hinder Fight Against Poverty – World Bank

By Emad Mekay Reprint | | Print |

Emad Mekay

WASHINGTON, Dec 11 2002 (IPS) - The global fight against poverty is likely to be further derailed over the next 18 months, dragged down by a sluggish world economy and slower growth, the World Bank warned Wednesday.

”After exceptionally slow growth in 2001 and 2002, global GDP (gross domestic product) is now expected to rise by 2.5 percent in 2003, higher than the previous two years but still well below the 3.9 percent expansion recorded in 2000 and significantly below long-term potential growth rates,” said the Bank in a new report.

The annual study, Global Economic Prospects and the Developing Countries 2003, says that uncertainties in global financial markets have already drained the energy from the modest recovery that began in late 2001.

The 223-page report says that global growth in the near term will be limited by many factors, including weak consumer confidence, high debt levels in the face of weak equity markets, the fallout from corporate financial scandals in the United States and anxiety over the Japanese banking system.

Debt problems in Latin America are a concern in developing countries, it added.

”The recovery has been much more hesitant and uneven than we had expected," said Nicholas Stern, the Bank’s chief economist and senior vice president for development economics.

The report repeats the Bank’s oft-stated remedy for sluggish growth and poverty reduction – foreign investment and removing trade barriers.

”The global recovery is fragile, because investment spending is insufficient to underpin continuing growth,” it says.

”Unlocking global opportunities begins with the efforts of developing countries to improve their investment climates,” advises the Bank.

The majority of civil society groups disagree with the Bank’s prescription, arguing that choking debt, countries with little local control over their economies and exploitation by international corporations are among the main catalysts for the spread of world poverty.

The Bank forecasts that high-income countries will grow about 2.1 percent in 2003 while developing countries will on average grow considerably faster, at 3.9 percent.

But the average camouflages wide regional differences, with East Asia leading the pack at 6.1 percent, followed by South Asia at 5.4 percent.

Africa, the Middle East and some former Soviet republics are expected to grow less than four percent, with Latin America managing a mere 1.8 percent.

”Outside of Asia and Eastern Europe, growth rates in most developing countries are too low to generate a marked reduction in poverty,” says the report.

The findings echo earlier reports by private investors, who discovered that the lagging world economy has slowed private capital flows to developing countries.

Net commercial bank lending has turned negative, and foreign direct investment flows to developing nations have plunged since their peak in 1999.

"We’re looking at the most sustained fall in foreign direct investment in developing countries since the global recession of 1981-83," said Richard Newfarmer, lead author of the report.

Sticking with its traditional line of pushing developing countries to open their economies to foreign investment and trade, the Bank says that attracting private domestic and foreign investment in infrastructure was still paramount for development.

"But in the current environment, many important projects such as in power, roads or water systems, simply won’t be able to attract the necessary private capital," said Newfarmer.

The report also blames restricted access to rich markets for some of the trade difficulties that developing nations face.

”Developing countries in general face external barriers to their trade in manufactures that are twice that of rich countries,” says the report, adding that among the barriers is ”tariff escalation”.

For example, fresh Chilean tomatoes exported to the United States pay a tariff of 2.2 percent, but 8.7 percent if they are dried and packed, which rises to 12 percent if they are made into ketchup or salsa.

”These barriers discourage domestic and foreign investment alike,” says the report.

Uri Dadush of the Bank’s international trade department also faulted other recent measures by rich nations.

"The U.S. farm bill and the recently announced accord to maintain EU spending on farm subsidies until 2013 have complicated agricultural talks," said Dadush.

World Trade Organization (WTO) Ministers will meet in Cancun, Mexico, in September 2003 to review progress on removing trade subsidies.

”The Cancun meeting will have to take up, among other things, two new controversial issues, a proposed international investment agreement and requirements for competition policy,” recommends the report.

It also sounds the alarm over the existence of huge trade and business cartels in rich nations, which the bank calls a much-neglected issue that has contributed to the difficulty of fighting poverty in developing nations.

Cartels are groups of companies, usually based in rich countries, that agree among themselves to fix prices and allocate export markets.

The report says that six international cartels prosecuted in the 1990s are estimated to have over-charged developing countries a total of about three to seven billion dollars.

The cartels exported products such as vitamins, citric acid and stainless steel tubes.

Some cartels, such as maritime transport operations, are officially exempt from anti-trust laws, complains the Bank’s report.

Bank research found that breaking up price fixing arrangements among private shipping lines could reduce maritime transport prices by about 20 percent, saving developing countries at least 2.3 billion dollars a year in import costs.

It is urging ”greater information disclosure and stronger enforcement mechanisms” to prevent such abuses.

The report also argues that developing countries negatively affected by cartels should have the right to take them to court in rich countries.

ECONOMY: Slow Growth to Hinder Fight Against Poverty – World Bank

By Emad Mekay Reprint | | Print |

Emad Mekay

WASHINGTON, Dec 11 2002 (IPS) - The global fight against poverty is likely to be further derailed over the next 18 months, dragged down by a sluggish world economy and slower growth, the World Bank warned Wednesday.
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