Civil Society, Development & Aid, Economy & Trade, Global, Global Geopolitics, Headlines, World Social Forum

WORLD ECONOMIC FORUM: Emerging Economies Most Dynamic, Experts Say

Gustavo Capdevila

DAVOS, Switzerland, Jan 26 2005 (IPS) - The favourable economic results recently reported in Latin America reflect a dynamism that is currently absent in the world’s traditional economic powers, according to the experts gathered for the World Economic Forum (WEF), currently underway in the Swiss alpine resort town of Davos.

Economist Jacob Frenkel of the American International Group (AIG), a U.S.-based international insurance and financial services organisation, said that just a short time ago, it would have been difficult to believe that the Latin American economy would recover as it has from the crisis that hit Mexico and Brazil in the mid-1990s and the financial meltdown in Argentina in 2001.

In economic terms, the United States and Europe are not doing particularly well at the moment, while the economies of China and India are experiencing relentless growth, and the success of other emerging economies has been surprising, according to the political and business leaders attending the meeting.

In fact, one of the main items on the agenda for the Davos Forum, taking place Jan. 26-31, is the emergence of China on the world stage. Other themes to be addressed include the global economy, the globalisation process, intellectual property issues, the current leadership of the United States, and the crises in Iraq and the Middle East.

Turkey, Russia, Argentina, Brazil and Mexico were singled out by forum participants as countries that had experienced particularly rapid economic recovery.

Mexico was hit by a severe crisis in 1995, dubbed the "tequila effect", while the economic contraction suffered by Russia in 1999 went on to seriously affect Brazil and other countries.

Today, however, according to Frenkel, Mexico is almost a completely different country from what it was a decade ago, while Argentina has made impressive progress on the road to recovery. After ceasing all debt payments to private creditors in December 2001, Argentina is currently seeking strategies to restructure its debt and resume disbursements.

The experts judged the progress of the emerging economies on the basis of their attractiveness to foreign investment, but the critical social problems and poverty that persist in Latin America and the rest of the developing world were left out of the equation.

In macroeconomic terms, Argentina, Brazil, Turkey and Ukraine are performing extremely well, according to British economist and journalist Martin Wolf.

For his part, Stephen Roach, chief economist at the Morgan Stanley investment bank, predicted that if the U.S. dollar continues to fall as it has in recent years, investment portfolios will undoubtedly be redirected to other parts of the world.

Roach maintained that the United States is unlikely to remain the leading destination for foreign investment, because its economy is presenting troubling symptoms, such as a drop in domestic savings.

U.S. Congressman Barney Frank, from the opposition Democratic Party, noted that his country continues to be a military power, but is becoming increasingly less powerful in economic terms.

Among the most serious problems facing the United States are the "twin deficits" in budget and trade, but the government is doing nothing to stop their relentless growth, according to Roach.

He also criticised the European Union for its lack of competitiveness, brought about by a "rigid and inflexible economy", in his view.

In contrast, Frenkel maintained that the current U.S. economy is "attractive", noting that investments continue to pour in because investment fund managers are only concerned about where it is safest to place their assets, and do not worry about issues like deficits.

The economic situation in Europe raises a good many questions, he said, while the continued role of the United States as a leader in production is assured.

Frenkel noted that the EU’s economic growth is still meagre. Moreover, he added, the bloc – which expanded to 25 members last May – is currently caught up in a divisive debate over the establishment of an EU constitution.

The economists gathered in Davos praised the policies adopted by countries faced with crisis, such as Japan and Russia, as well as those undertaken by numerous emerging economies.

Frenkel stressed the need to deflate the bubble created by the accumulation of speculative capital. He added that the authorities in countries in crisis have become increasingly careful to prevent this anomalous situation, and the markets recognise this fact.

One example of this is the British central bank, the Bank of England, and the measures adopted in the face of the "real estate bubble" that was created by a continued rise in property values.

U.S. economic expert Laura Tyson, dean of the London Business School, said that on a recent visit to China she had observed the formation of a real estate bubble, particularly around Shanghai, the economic heart of the Asian giant.

Tokyo University professor Takatoshi Ito addressed the case of Japan, which has spent over 10 years fighting the effects of a bubble that significantly curbed the exceptional growth previously predicted for the country’s economy.

Ito said that once a bubble has formed, the authorities must proceed with extreme caution, to ensure that it is not "popped" too forcefully. He said it is obviously better to avoid bubbles altogether, but if they do form, the wisest strategy is to deflate them slowly.