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DEVELOPMENT: Countries of the South Urged to Reclaim “Policy Space”

Gustavo Capdevila

GENEVA, Aug 31 2006 (IPS) - UNCTAD’s Trade and Development Report for 2006 urges countries of the South to implement more autonomous policies, and also to further strengthen the global partnership for development to achieve the Millennium Development Goals (MDGs) adopted by the United Nations for 2015.

In proposing discussion of proactive industrial policies and government support for some economic sectors, “we are not recommending any anti-trade stands,” said UNCTAD (United Nations Conference on Trade and Development) officials.

In suggesting greater independence in policy-making, the report reflects the long-cherished aspiration of the developing countries to regain their “policy space” for decision-making, curtailed in the last few decades by global free-market economics and by the conditions imposed by multilateral financial organisations.

UNCTAD, created in 1964, originally backed the interests of developing nations in North-South dialogue and negotiations.

For its part, the Group of 77 (G-77), comprising at present 131 member nations, which aims to promote the economies of the developing world, has put pressure on UNCTAD in recent months to defend their policy space.

UNCTAD Secretary-General Supachai Panitchpakdi said that he had received a specific mandate from the organisation’s 11th conference to discuss the issue.

Ministers at that meeting, held in the Brazilian city of Sao Paulo in June 2004, observed that the “space” for national economic policy, that is the scope for domestic policies, especially in the areas of trade, investment and industrial development, “is now often framed by international disciplines, commitments and global market considerations.”

The declaration known as the Sao Paulo Consensus stated that it was up to each government to “evaluate the trade-off between the benefits of accepting international rules and commitments and the constraints posed by the loss of policy space.”

UNCTAD XI recommended that “bearing in mind development goals and objectives, all countries should take into account the need for appropriate balance between national policy space and international disciplines and commitments.”

The 2006 UNCTAD report states that industrialisation policies and government intervention in support of certain sectors are “not a step back from the gains in international trade negotiations,” as Supachai was quick to stress, but are related to the development of the global economy.

The report confirms the expansion of world output which has continued in 2005 and 2006. “The global macroeconomic situation has changed very little since last year. We still have highly positive growth performances,” Supachai remarked.

The study also confirms the forecast that global gross domestic product (GDP) would grow this year by 3.6 percent, with growth rates of between 2.5 and 3.0 percent in the industrialised countries.

The countries of the South have themselves contributed to setting the pace for global growth, with strong investment dynamics and an overall growth rate of about six percent. “In particular, rapid growth in China and India has contributed to this outcome,” says the report. UNCTAD also stresses that high economic growth is occurring in a large part of Africa. Since 2003, regional growth has accelerated every year.

The 6.6 percent growth expected for 2006 in sub-Saharan Africa is “the highest growth rate for a sub-region after East Asia,” says UNCTAD.

Economic growth in East and South Asia, which surpassed seven percent in 2005, is expected to continue at similar rates in 2006, whilst a growth rate of 6 percent should be possible in both the Commonwealth of Independent States (CIS) and the countries of Central Asia.

The forecast for Latin America is that GDP will increase by 4.6 percent. This region “has succeeded in transmitting external stimulus to the domestic economy without reviving inflationary tendencies. Real per capita GDP in the region will grow significantly for the third consecutive year,” and the unemployment rate fell from 11 per cent in 2002 to 9.1 per cent in 2005, the report adds.

But the positive growth worldwide has become increasingly “burdened with serious imbalances,” Supachai warned. The report uses the term “excessive reliance” on the U.S. economy, which is, of course, the main engine driving the world economy, UNCTAD’s secretary pointed out.

If the present imbalances and reliance are not well managed, their correction “might help trigger a serious slowdown on a global basis with very strong negative repercussions on the economic conditions of developing countries,” Supachai cautioned.

UNCTAD recommends that the imbalances be treated globally in a coordinated manner.

This treatment requires a reduction of the U.S. trade deficit, and an expansion of demand in those countries that have a chronic trade surplus, such as Japan and Germany.

“They should do more, and their growth has been very weak,” remarked Heiner Flassbeck, chief of globalisation and development strategies at UNCTAD.

Paradoxically, “nobody can really ask China to do more in terms of growth because it is growing at 10 percent, and nobody can ask themàto absorb more imports,” he said.

As a third measure, there has to be adjustment in the Asian economies, which would also need to be able to adjust their demand and saving rates, Flassbeck said.

And this is where more autonomous policies in the countries of the South have a role to play in developing the global economy, Supachai said: they should turn their economic gains of the last few years into “real productive capacity,” so that they are sustainable.

The UNCTAD report refers to recent economic gains in developing countries, mainly achieved through high levels of export growth, debt relief, and also through rising remittances sent home by migrant workers.

Supachai proposed that developing countries copy the formula used in the past by nations that are now advanced economies. They applied “active domestic policies” to support different national sectors, while at the same time building up the competitiveness of their economies.

The countries of the South should learn this lesson about the need to realise gains, to try to retain those gains and to make them sustainable by means of macroeconomic policies to enhance domestic investment, he emphasised.

UNCTAD acknowledges that it is recommending government policies to support particular sectors of national economies, but this support “should not last for ever. It would be for a certain period of time, for specific needs, and should be based on clearly established operational goals,” Supachai said.

With regard to the global partnership for development, included in the Millennium Development Goals (MDGs), Supachai said that “much depends on the ability of developing countries to adopt more proactive policies in support of capital formation, structural change and technological upgrading.”

The MDGs were set by the U.N. in 2000, to be fulfilled generally by 2015. One of the main goals is to halve the global proportion of people who were living in extreme poverty in 1990.

But achieving a partnership for development also depends on the latitude available to the countries of the South with respect to international rules and disciplines, mainly in the finance and trade sectors, said Supachai.