ECONOMY: Developing Nations Take a Big Hit, Says U.N.

By Thalif Deen Reprint | | Print |

Thalif Deen

UNITED NATIONS, Jun 26 2002 (IPS) - The developing economies of Africa, Asia, the Caribbean, and Latin America, have suffered a setback in the past year as severe as that dealt by the ‘Asian financial crisis’ of the late 1990s, the United Nations said Wednesday.

The world body, in its annual roundup of the global economy, the impact of global economic slowdown has been more substantial and widespread among developing countries than among any other group of nations.

“The developing countries really took a big hit,”‘ said Ian Kinniburgh, director of Development Policy Analysis, as he released the report, ‘The World Economy in 2002’.

Collectively, their economic growth rates fell by more than three percentage points last year, a drop as large as that seen in the aftermath of the 1997-1998 debacles in Southeast and East Asia.

Growth in the developing world reached 5.8 percent in 2000 but fell to 2.0 percent last year, the report said. It predicted that the majority of developing economies would not return to pre-Asian crisis growth rates until late 2003.

Kinniburgh described the loss as “a rather inauspicious start for the new millennium”, adding: “A few years of slow growth create problems for the trajectory over the longer term.”

Of the 95 developing countries regularly monitored by the U.N. Secretariat, 37 experienced a decline in per capita output in 2001 compared with 25 in 2000. Only 17, half the number recorded in 2000, saw an increase of more than 3.0 percent.

The countries worst affected last year included Argentina (minus 4.5 percent growth rate), Iraq (minus 6.0 percent), Turkey (minus 8.0 percent) and Zimbabwe (minus 7.5 percent).

The only exceptions were China and India, with growth rates in excess of seven percent and five percent respectively. Both countries are expected to continue with high growth rates in 2002 and 2003, Kinniburgh said.

He attributed the resilience of the two divergent economic systems to domestic demand, which has been picking up in the two countries. Each country has more than one billion inhabitants, so domestic markets are vast.

Since the United States led the global slowdown, the developing nations that fared the worst were those heavily reliant on U.S. markets, Kinniburgh said. These included South Korea, Taiwan, Singapore, and Latin American countries.

“The shift in growth of over 13 percent in U.S. imports in 2000 to a decline of 3.0 percent in 2001 was a major factor in the global slowdown”, the report said.

The U.S. slowdown began with the bursting of two “bubbles” related to information and communication technologies (ICT) sector — one in the real economy, the other in the stock market — and quickly spread around the world through the first decline in international trade in almost two decades.

The Sep.11 terrorist attacks briefly exacerbated the situation, according to the study, but recovery in the United States began before the end of 2001.

The report also said that in previous global economic cycles, a slowdown in the United States would usually be accompanied by economic strength in Europe or Japan or both.

“In recent years, however, none of the other major economies has replaced the United States or shared its role in supporting global growth,” the study added.

World trade, which increased in volume during the 1990s and underpinned economic success stories in regions such as Southeast Asia, plummeted from 12 percent growth in 2000 to negative one percent in 2001 (and minus 2.7 percent for developing nations).

Far from returning to vigorous growth in 2002, the United Nations anticipates an increase of only 2.3 percent in the volume of international trade this year.

Overall, the world economy suffered its largest setback in a decade last year, with gross domestic product (GDP) increasing by only 1.3 percent compared with 4.0 percent in 2000.

Economic growth in Africa will continue to gravitate around 3.0 percent in 2002 – barely above the population growth on the continent.

Aggregate GDP for the economies of Latin America and the Caribbean registered virtually no growth in 2001, again largely because of external shocks to which many of the countries in the region are particularly vulnerable.

Most economies in Central America experienced a slowdown in exports and tourism revenues, while those in South America suffered from weak commodity prices and limited external financing.

The study also said that the direct economic effects of the Sep.11 terrorist attacks appear to have been less than widely feared, partially because of the prompt policy response.

“However, the attacks highlighted the sensitivity of the global economic and world development to conflict and political tension in individual countries and regions”, the report said.

These interactions have since been underlined by the re-ignition of conflict in the Middle East, and the increased military tension between India and Pakistan.

The implications of the violence in the Middle East for the world economy are potentially profound, primarily because of the possible implications for the price of oil.

“The heightened state of conflict in the world in mid-2002 adds to the already high degree of uncertainty in the forecast of short-term economic prospects, as well as damages long-term development,” the study concluded.