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ECONOMY: Developing Nations Shine in UN Growth Report

Haider Rizvi

UNITED NATIONS, Jun 29 2005 (IPS) - Despite an overall slump in the global economy, growth in poor countries continues to expand, a trend that many economists believe could prove helpful in implementing the international agenda on development.

"One unusual aspect of the present pattern of global economic growth is that it is widespread among developed countries," says a new U.N. report on the world’s economic situation and prospects released here Wednesday.

The sustained economic growth in developing regions – if it continues uninterrupted in years to come – would be "a window of opportunity" for meeting development goals adopted at various international conferences in the 1990s, including the Millennium Summit in 2000, according to U.N. economists who prepared the mid-year review.

Those goals include cutting world poverty and hunger in half; providing universal primary education; reducing child mortality by two-thirds; cutting maternal mortality by three-quarters; promoting gender equality; and reversing the spread of HIV/AIDS, malaria and other diseases, all by 2015.

"The anticipated growth of the world economy for 2004-2005 is not only the strongest for the past few years, but is unusually widespread among developing countries and countries in transition," said Jose Antonio Ocampo, undersecretary-general for Economic and Social Affairs.

"Even with a deceleration, developing countries are expected to grow at six percent in 2005-2006. All developing regions are performing well by their respective standards of the past few decades," he added.

Last year, economies in developing countries grew by more than six percent, a trend that appears to be set for "still-strong growth" of over five percent in the next six months and beyond, according to U.N. analysts.

They projected that South Asia, which joined East Asia by achieving a seven percent growth rate, was likely to maintain the same rate this year. As for Sub-Saharan Africa, the region’s economy was expected to grow by more than five percent. Similarly, the economies in the former Soviet republics are estimated to expand by six percent this year and more than seven percent next year.

"It is very, very promising," Ocampo told reporters. "This higher economic growth in many developing countries is partially attributable to the improvements in economic policies within these countries themselves."

For now, according to economists, the climate remains generally favourable for developing countries as international trade continues to grow. Rising prices for energy and raw materials in the past two years has improved the terms of trade, and the costs of external financing are at a historical low.

They said some factors responsible for higher growth in developing countries were internal, as opposed to increased demand from the developed countries. For example, in China and India, income growth and poverty reduction are buttressing internal markets, which provide a source of demand other than exports.

"This is one factor giving rise to new patterns that include growing trade among developing countries, especially the purchase of raw materials by China," said the U.N. report.

Noting that the developed world is still considered the "main determinant" of global growth, U.N. economists said the dichotomy between reduced growth in the developed economies – particularly in Europe and Japan – and continued growth in the developing countries suggest "some degree of de-linking."

U.N. Secretary-General Kofi Annan praised the economic performance of the developing world, but at the same time cautioned that growth trends were not free from risks, such as higher oil prices and current imbalances in global trade, which could stall momentum.

"Widening external imbalances across countries continue to pose a threat, with the current account deficit of the United States expected to reach 700 billion dollars," according to the mid-year report.

It warned policymakers against relying on exchange rate adjustments to redress imbalances, saying that without adjustments in real economic activity, including deficits and surplus, confidence in the U.S. dollar as the international reserve currency may wane.

Some experts suggested that the International Monetary Fund (IMF) should take a lead role in addressing the issue of fiscal imbalances.

"The IMF should design ways of shifting risk from the developing countries to the developed, and certainly the loans made by the multinational institutions should be designed so that the developing countries would not bear the risks of exchange rates and interest rate fluctuations," said Prof Joseph Stiglitz, a Noble laureate in economics.

Addressing a high-level meeting of the U.N. Economic and Social Council the same day that the U.N. economic report was released, Stiglitz said: "But that leaves the underlying problem: why is there so much instability in the global economy and what can be done about it?"

"If there is a single answer," he said, "it is the U.S. macroeconomic policy. Without correcting that, the problem cannot be corrected."

On higher oil prices, U.N. experts said that the trend might choke global growth, in turn leading to another precipitous fall in oil prices.

"If prices remained very high, the world economic growth could suffer," Ocampo told reporters.

The U.N. forecasts a fall in oil prices in the second half of this year, as global demand is expected to lose some of its dynamism.

Though happy with the news about increased economic growth in the developing world, Annan told the Economic and Social Council: "Growth is vital, but not sufficient by itself."

"If economic growth is to make greater inroads against poverty," he said, "there is a need for smarter policies, more resources, and closer partnerships. Only then will the benefits of globalisation reach all people, including those who need it most."