Least Developed Countries account for less than 1 percent of world trade. Credit: Ali Mkumbwa/Unsplash

By Deodat Maharaj
GEBZE, Türkiye, Aug 22 2025 (IPS)

Artificial intelligence and the use of frontier technologies are already transforming trade and boosting prosperity, particularly for developed and some developing countries. This ranges from the digital exchange of documents, the digitalisation of trade processes and leveraging online platforms to fast-track cross-border trade.

The rapid adoption of new technologies will further consolidate the dominance of world trade by developed economies, which currently account for roughly 74 percent of global trade, according to the United Nations Conference on Trade and Development (UNCTAD). The world’s 44 Least Developed Countries (LDCs), with a population of an estimated 1.4 billion people, are seeing a different trajectory altogether. According to the World Trade Organisation, they account for less than 1 percent of the world’s merchandise trade. LDCs continue to reel from the relentless onslaught of bad news, including increased protectionist barriers.

Deodat Maharaj, Managing Director of the United Nations Technology Bank for the Least Developed Countries.

UNCTAD has estimated that tariffs on LDCs will have a devastating consequence, possibly leading to an estimated 54 percent reduction in the exports from the world’s poorest countries.

In this dire situation, exacerbated by declining overseas development assistance, what does an LDC do to survive in this difficult trade environment?

To start with, they must continue to advocate globally for fairer terms of trade. At the same time, they need to be more aggressive in addressing matters for which they have control. Otherwise, the status quo will leave their people in a perpetually disadvantageous situation. Imagine paying three times more than your competitors just to ship a single crate of goods across a border. For millions of entrepreneurs in the world’s LDCs, it is the everyday cost of doing business. Technology offers a way out in reducing these high costs.

Indeed, when the international community gathered in Sevilla for the Fourth International Conference on Financing for Development (FfD4) in July 2025, one truth stood out: Technology is no longer a luxury—it is a prerequisite for effective participation in global trade. The outcome document was clear that for the world’s 44 LDCs, bridging infrastructure gaps, building domestic technological capacity, and leveraging science, technology, and innovation are vital to unlocking trade opportunities.

So, given the challenges and opportunities, what forms the core elements of an action agenda for LDCs to leverage trade to generate jobs and opportunities for their people?

Firstly, there is a need to pivot to digital solutions, which can dramatically reduce trade costs and open new markets. According to the World Bank, paperless customs and single-window systems have been proven to cut clearance times by up to 50 percent, reducing bureaucracy that stifles commerce. In Benin, automating port procedures reduced processing time from 18 days to just three days (World Bank). E-commerce platforms, when paired with secure payment systems and targeted training, have shown remarkable potential.

Secondly, invest in digital infrastructure. The data suggest that LDCs still have a lot of catching up to do. The solution is for development partners and the international financial institutions to steer more resources in this area with a fixed percentage of resources, say, 15 percent of a country’s portfolio dedicated to boosting digital infrastructure.

Thirdly, focus on value addition and reduce transition away from the export of raw commodities. This in turn requires the human resource capacity to spur innovation and creativity. Boosting investment in research and development can pay rich dividends.

According to the World Economic Forum, LDCs invest less than 1 percent of GDP in research and development compared to developed countries. The Republic of Korea invests 4%.

Finally, for LDCs to enter the technological age, their businesses must lead the way. It is difficult to do so in some countries like Burundi, where internet penetration is a mere 5 percent of the population. The average internet penetration is around 38 percent. So, in addition to digital infrastructure, support must be provided to micro-, small and medium-scale enterprises to benefit from the opportunities provided by technology to boost trade, thereby creating jobs and opportunities. This includes the establishment of incubators to support this business sector, boosting their technological capacities to trade and profile their businesses on digital platforms, and helping them to deliver services created by the digital economy. Rwanda has been a pioneer in this regard.

Of course, technology alone will not address all the challenges faced by LDCs. However, by delivering cost-efficient solutions, it can help level the playing field and drive transformation. It is time for the international community and development partners to back their words with action in helping LDCs advance this agenda. Since LDCs represent an emerging market of 1.4 billion people, when they rise, everyone else will rise with them.

Deodat Maharaj, a national of Trinidad and Tobago is the Managing Director of the United Nations Technology Bank for the Least Developed Countries and can be reached at: deodat.maharaj@un.org

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Global Foreign Direct Investment (FDI) inflows in 2014 declined 16 per cent to 1.2 trillion dollars, according to this year’s newly released World Investment Report from the United Nations Conference on Trade and Development (UNCTAD).

The UNCTAD report pointed to the fragility of the global economy, policy uncertainty for investors and elevated geopolitical risks as factors contributing to the drop in FDI. New investments were also offset by some large divestments.

However, FDI rose slightly to developing economies, which extended their lead in global inflows of investment. China is now the largest global recipient of FDI.

Released just ahead of the third international conference on financing for development in Addis Ababa in mid-July, the report concluded that reforming international investment governance is key to building an enabling environment for investment, maximising the chances of reaching ‘financing for development’ targets to be discussed at the conference.

West Asia maintained its downward trend in FDI in 2014 for the sixth consecutive year, decreasing by 4 per cent to 43 billion dollars. The report describes a succession of crises that have hit the region, including the global economic crisis and an eruption of political unrest leading to conflict in some countries, which have contributed to the continuous fall.

Elsewhere in South, East, and South-East Asia, the report was more positive. Inflows to South Asia rose to 41 billion dollars in 2014, primarily owing to good performance by India, while inflows to East Asia rose by 12 percent to 248 billion, and those to South-East Asia experienced a 5 percent increase, to 133 billion. China’s boost was driven by an increase in FDI to the services sector, while FDI fell in manufacturing, especially in industries that are sensitive to rising labour costs.

Developing economies as a group attracted 681 billion dollars worth of FDI and remain the leading region by share of global investment inflows. Among the top 10 FDI recipients in the world, half are developing economies: Brazil, China, Hong Kong (China), India and Singapore.

Developed economies, however, recorded a 28 per cent decline in inflows last year. This figure was greatly affected by the single mega divestment by Vodafone of its Verizon Wireless business in the United States. The Vodafone deal was indicative of a general trend in merger and acquisition activity which saw divestment deals rising to one out of every two mergers and acquisitions.

Edited by Kitty Stapp

UNCTAD Secretary-General Mukhisa Kituyi in his office. Credit: UNCTAD

By Gustavo Capdevila
GENEVA, Jun 13 2014 (IPS)

As it turns 50, the United Nations Conference on Trade and Development (UNCTAD) finds itself engaged in an ongoing struggle to reduce economic and social inequalities in the world.

“Compared with 50 years ago, today inequality within countries has risen in a startling number of countries both rich and poor,” said UNCTAD Secretary-General Mukhisa Kituyi.

“Indeed, today some individuals are now as wealthy as entire countries,” the Kenyan economist told IPS in this interview at the agency’s headquarters in Geneva.

UNCTAD emerged through the efforts of countries of the developing South and for that reason within the concert of the United Nations it is known as the agency that represents poor countries.

When UNCTAD was created on Jun. 16, 1964, the member states agreed that “Economic development and social progress should be the common concern of the whole international community,” Kituyi said.

According to the U.N. General Assembly resolution that created UNCTAD, one of its principle functions is: “To formulate principles and policies on international trade and related problems of economic development.”

Kituyi said the resolution signaled “a move beyond the principles that had previously led to the establishment of the Bretton Woods institutions [the World Bank and the Institutional Monetary Fund] and the General Agreement on Tariffs and Trade [GATT – the predecessor to the World Trade Organisation].”

Its unique characteristics and its close ties to the developing South put UNCTAD in the sights of the countries of the industrialised North and the institutions that revolve around them. In its 50 years of life, the Conference has managed to overcome a number of offensives aimed at modifying its pro-South policies and cutting its budget.

Kituyi, who took over as UNCTAD chief in September 2013, discussed with IPS his vision of the social and economic context in which UNCTAD is operating.

Q: What would you say is society’s reaction to inequality today?

A: The unequal distribution of income and wealth has inflamed passions and spurred public debate in a manner unseen in more than a generation. Across the world, people with different cultural, religious, and political beliefs are increasingly in agreement that an unequal society is not only unjust, but also unproductive.

Q: Could you give an example?

A: Inequality has captured our imaginations, as evidenced by the recent surprise success of French economist Thomas Piketty’s book, “Capital in the Twenty-first Century”. Talk of global taxes [as proposed by Piketty] to reduce inequalities, unthinkable just a decade ago, has recently splashed across the headlines and across the airwaves of even the most ‘laissez-faire’ conservative news outlets.

Q: What conclusion do you take away from this bestseller, which has sparked widespread discussion and debate?

A: The popularity of Professor Picketty’s book is more a reflection of the broader realisation by society as a whole that unsustainable economic practices leading to the over-accumulation of wealth are not only unfair, but can bring crisis and stagnation, even conflict.

Q: How has the international community reacted?

A: At the United Nations in New York, diplomats from every corner of the world are now working to agree on Sustainable Development Goals that would pick up where the Millennium Development Goals leave off in 2015. Beyond obvious environmental concerns about climate change, economic and social sustainability are also central to these discussions.

Q: What is being considered with regard to the question of inequality?

A: A goal to reduce inequality within and among countries by 2030 is on the proposed list currently being considered by member states. This is a direct consequence of the growing consensus on inequality’s detrimental effects on lasting prosperity.

Q: What precedents are there in this respect?

A: Our newfound, heightened concern for reducing inequality and ensuring prosperity for all must build on the strong aversion for inequality, which has been at the heart of a half-century of United Nations work.

Q: And in the case of your organisation?

A: When UNCTAD was founded exactly fifty years ago, our member states specifically called for ‘the division of the world into areas of poverty and plenty to be banished and prosperity achieved by all.’

Q: What has happened in these five decades?

A: The key difference between today and fifty years ago is the nature of the inequalities we face. The new global economy has brought with it both immense hopes but equally immense inequities.

A half century after UNCTAD’s founding we have seen promising declines in inequality between countries, as a number of developing countries, notably the BRICS [Brazil, Russia, India, China and South Africa] countries. But others as well have experienced significant growth performance and moderate success in transforming the structure of their economies from agriculture towards industry and services.

Q: What strategies have been followed?

A: Even 15 years ago, when we were formulating the Millennium Development Goals, the focus was still on reducing inequality between countries, by reducing extreme poverty through growth. Globalisation, which enabled poverty to be cut in half worldwide over the past 20 years, has acted as a double-edged sword, leaving behind the less well-off both in the poorest countries and in the advanced economies as well.

Q: What policies are needed now?

A: The role of the multilateral system in providing global public goods to help compensate those who have lost out from globalisation has never been more necessary.

That is why as we mark UNCTAD’s fiftieth anniversary, we know that while the world may have changed from when the organisation was created, the need for the inclusive space of dialogue which our conference provides is stronger than ever.

Q: And with respect to each specific area of the economy?

A: To help reduce inequalities in our member states trade must serve as an enabler not a disabler, finance must be constructive not destructive, and technological progress must serve the interests of all segments of society.

Q: How can all of this be put into practice?

A: Well thought-out national development strategies are needed to ensure this, particularly in the least developed countries and in Africa. These are all areas where UNCTAD expertise is unparalleled, and moving forward into our next half century we will bolster our work to serve both the developing and developed countries to support these critical areas.

Excerpt:

Many children in Nepal, part of the LDCs since 1971, continue to die from curable diseases. Credit: Naresh Newar/IPS

By Samuel Oakford
UNITED NATIONS, Nov 25 2013 (IPS)

The world’s poorest countries are rethinking economic policies that – even during periods of breakneck growth – have failed to provide quality employment capable of matching a demographic boom.

The disparity between growth and jobs is no starker than in the 49 Least Developed Countries (LDCs), which, according to a recent U.N. Conference on Trade and Development (UNCTAD) report, will need to create 16 million positions every year if they are to keep up with new entrants into their rapidly expanding workforces.Commodity prices, which the IMF expects to steadily drop in coming years, have dictated hiring – and firing.

For decades, despite criticism from the U.N. and elsewhere, LDC governments were urged by multilateral lenders to cut public spending, curb inflation and end trade tariffs that protected domestic industries.

But today’s ubiquitous “jobless growth” has countries looking in the opposite direction.

“These countries have gone through radical policy reforms,” said Mussie Delelegn, officer-in-charge at UNCTAD’s New York Office. “In the 1980s many of them implemented structural adjustment programmes. The assumption that growth would automatically translate into employment and poverty reduction has not been seen.”

Though the percentage of people living in extreme poverty (less than 1.25 dollars per day) has declined in LDCs, their numbers have increased due to population growth.

While the economies of LDCs expanded yearly by over 7.5 percent in the decade before the 2008 financial crisis, employment growth per annum stood at just 2.9 percent between 2000-2012, barely ahead of the population growth rate of 2.3 percent.

Unemployment numbers, which have remained steady at roughly 5.5 percent, can’t be used in the ways they are in developed countries. The vast majority of employment is tenuous and offers little in the way of security – in 2010 over 80 percent of jobs in LDCs were considered “vulnerable.”

In 2011, the Istanbul Programme of Action concluded that to eradicate poverty and achieve inclusive growth, LDCs would have to grow by at least seven percent annually between 2011-2020. But the U.N. estimates most LDCs will miss that target by one to two percent in the next several years.

If high growth couldn’t buoy the job market during boom years, a period of slower increases will require specifically catered policies to spur employment.

Monetary policy “should be less fixated on attaining an inflation rate in the low single digits than on targeting full employment of productive resources,” wrote Dr. Muhkisa Kituyi, secretary-general of UNCTAD, in an introduction to the report.

“Given the relatively weak private sector in many LDCs, it is more likely and realistic that in the short to medium term, the investment push required to kick-start the growth process will originate in the public sector.”

To pay for increased outlays, governments should raise taxes on high-income companies and individuals, introduce value added taxes (VAT) on luxury consumption and “refrain from tariff cuts until alternative sources of revenue are put in place.”

Under these guidelines, the game of attracting investment would no longer be a race to the bottom.

The Big and Small

Employment in LDCs tends to be concentrated at two extremes: either in informal small and micro enterprises or in huge capital-intensive export industries.

At one end are businesses consisting of no more than a family or even one young person. At the other, commodity prices, which the International Monetary Fund expects to steadily drop in coming years, have dictated hiring – and firing.

Missing are the medium-sized enterprises that provide stable jobs in much of the developed world.

Experts agree that building that sector will rely in large part on domesticating value-added industries for primary exports – processing iron instead of simply shipping off ore, for example.

A 2011 law in India – a developing country but not an LDC – aimed to accomplish this by setting a 30-percent export tax on iron ore. By incentivising domestic refining, the price of steel in the country fell, benefiting other local industries.

In Chile, despite its reputation as a free-market paradise, the government has maintained a strong hand in copper production, ensuring jobs in processing and preserving sovereign ownership.

But in LDCs, value added in the manufacturing sector remained flat at 10 percent between 2001 and 2011.

“Countries were unaware of the value of their exports and value added,” Delelegn told IPS. “Information asymmetries indicate the playing field is not equal – the companies have the information.”

But as LDCs gain knowledge and confidence at the bargaining table they are pushing for better terms.

Botswana is one of only three countries to have graduated – in 1994 – from LDC status. Early on, it decided to pass laws that created floors for local employment and domestic enterprise in the diamond industry.

“Botswana increased the employment intensity of the diamond sector, which assisted them to capture more of the value gained locally – they were cutting, polishing, processing,” said Yao Graham, coordinator of the Third World Network, which helps facilitate Africa Mining Vision, a Pan-African mining framework that several countries have already adopted.

“For the past 20-30 years, African governments have… prioritised getting a share of the revenue of mining, through the exclusion of everything else,” Graham told IPS. “The World Bank famously summarised it in its Strategy for African Mining for 1992 when it said that African governments should not be interested in employment or control of the minerals.”

“I think the mining boom of the past decade underlined very clearly, actually, that this was a very flawed strategy.”

Disappointing local employment has given other African countries the green light to renegotiate revenue-sharing with companies and implement tax schemes that retain jobs and capital.

Ghana is looking to incorporate policies similar to Botswana’s into its domestic gold industry, which last year topped five billion dollars.

And in Namibia, the government has set up a national mining company, hoping to replicate Chile’s CODELCO and not the bloated state-run enterprises of post-independence Africa.

Varying models

The problem is more complicated in textile-exporting countries like Bangladesh, where policy recommendations centre on more nebulous “technical advancement.”

If Chile is a model for mineral exporters, garment producers look to Taiwan, South Korea and Singapore, all of which began by manufacturing textiles before graduating to more complicated consumer goods and electronics.

But countries worry they may have already missed the boat and it remains to be seen if low wages in LDCs can make up for a lack of expertise.

Ensuring sustainable, value-additive employment would help LDCs become less reliant on foreign aid, which can fluctuate with the global economy.

Studies have shown Official Direct Assistant (ODA) is “five times more volatile than GDP and three times as volatile as exports” and tends to potentiate upturns and recessions.

“Any instability will disrupt aid flows and flows of remittances from migrant workers,” said Delegn.

Countries are beginning to understand that the one-size-fits-all recommendations of the past simply don’t hold water anymore.

“During the Asian financial crisis, the only country that mitigated the negative impact of the crisis was Malaysia, which had put in place policies and strategies that effectively controlled free flow of capital,” said Delegn.

The mea culpas are slow in coming.

In 2011, the IMF quietly admitted in a paper that capital controls had their place.

But for LDCs, a more powerful realisation may be that they don’t need an IMF admission at all.

Children in Luanda. Angola is expected to graduate from the ranks of the LDCs by 2015. Credit: Louise Redvers/IPS

By Thalif Deen
UNITED NATIONS, Jul 31 2013 (IPS)

The number of “least developed countries” (LDCs), which rose from the original 24 back in 1971 to the current 49, is beginning to shrink – haltingly.

So far, three countries – Botswana, Cape Verde and the Maldives – have “graduated” from LDCs to the status of developing countries."The key issue of a widening inequality gap and redistribution of resources remains a development challenge." -- Dr. Arjun Karki of LDC Watch

And as economies improve, at least six more countries – Tuvalu, Vanuatu, Kiribati, Angola, Samoa and Equatorial Guinea – are on the verge of leaving the ranks of LDCs by 2015.

But some of them have been reluctant to graduate – and sought postponements – since LDC status provides several benefits, including preferential tariffs on exports and increased development aid.

Still, the growing list of potential “graduates” comes in the midst of a new U.N. report that says inflows of foreign direct investment (FDI) to LDCs grew by 20 percent last year, registering a record 26 billion dollars.

The strong gains were led by Cambodia, as well as five African countries: the Democratic Republic of Congo (DRC), Liberia, Mauritania, Mozambique and Uganda, all of them LDCs.

The recently-released World Investment Report 2013, authored by the Geneva-based U.N. Conference on Trade and Development (UNCTAD), says growth was led by strong gains in Cambodia (where inflows were up 73 percent), DRC (96 percent), Liberia (167 percent), Mauritania (105 percent), Mozambique (96 percent), and Uganda (93 percent).

Still, 20 LDCs reported declines in FDI, and the trend was particularly pronounced in Angola, Burundi, Mali and the Solomon Islands.

Described as the poorest of the world’s poor, LDCs are mostly characterised by extreme poverty and economic structural weaknesses.

According to the United Nations, these have been often compounded by geophysical handicaps, limited capacity for growth and development and vulnerability to external shocks.

The most recent addition to the list of 49 LDCs is the new nation state of South Sudan, which joined the United Nations as its 193rd member in July 2011.

Asked if the FDI increase in LDCs is the beginning of a new trend or just a flash in the pan, Dr. Arjun Karki, international coordinator for LDC Watch, a global civil society alliance solely focused on developmental issues and concerns of the LDCs, told IPS, “The scenario is not crystal clear.”

Given the fall in FDI inflows to developed countries, the LDCs are now on the FDI radar, he added.

“If you observe the trend, it’s the resource-rich LDCs, such as the DRC, Liberia, Mauritania, Mozambique, and Uganda, that are receiving FDI inflows,” he pointed out.

But investments are reported to be highest in the extractive sector, he noted.

“From the development perspective, this trend is not very encouraging as this reinforces the commodity-led growth in LDCs which is not sustainable,” Dr Karki said.

The U.N. Committee for Development Policy (CDP) usually determines “eligibility” for LDC status – based on several factors, including population, national income and other economic indicators – but the ultimate decision rests with the countries themselves.
Zimbabwe, for example, has refused to join the LDC group despite being judged eligible by CDP.

Secretary-General Ban Ki-moon says the increase in FDI comes at “an important moment” when the international community is making a final push to achieve the Millennium Development Goals (MDGs) by the target date of 2015.

One of the primary objectives of MDGs is to reduce and eliminate extreme poverty and hunger, two of the major problems facing most LDCs.

At the same time, he said, the United Nations is working to forge a vision for the post-2015 development agenda.

Credible and objective information on FDI can contribute to success in these twin endeavours, Ban added.

Dr. Karki told IPS the new Istanbul Programme of Action for LDCs for the Decade 2011-2020 is a slight shift from the commodity-oriented growth towards building productive capacity of LDCs in order to achieve structural economic transformation of LDCs.

Therefore, FDI inflows to LDCs would be welcome if they are targeted at the manufacturing sector, infrastructure and basic services sector such as health, water and sanitation, electricity and communications.

The key problem with FDI inflows targeting the extractive sector is that the benefits fail to trickle down, with only the multinational and transnational corporations and the recipient country’s elites minting money at the expense of the poor, marginalised and vulnerable communities, he pointed out.

“The key issue of widening inequality gap and redistribution of resources remains a development challenge,” he said. “This fact was blatant during my recent visit to Liberia and Sierra Leone – two extremely resource-rich LDCs but unfortunately, with the poorest populations.

“Given such a sad irony, our civil society partners were of the opinion that all the riches should remain in the soil/ground as they fail to ensure the right to sustainable development of the peoples anyway.”

The negative growth – particularly in Angola, Burundi and Mali – could be attributed to the political instability in these LDCs, which is not a good breeding ground for FDI.

“Having said this, it is also interesting to note that FDI inflows are high in both authoritarian regimes as well as in vulnerable governments as is the case in Africa and Asia,” Dr. Karki noted.

He said the other reason for FDI decline could be the evolving role of development-oriented governments in LDCs that are attempting to safeguard national interests and rights of peoples over profit and plunder.

“If this is truly the case, then LDC governments are in the right direction towards genuinely uplifting their populations out of the structural causes of poverty, deprivation and injustices,” he said.

The issue of sovereignty is critical in terms of respecting and complying with country systems. Otherwise, it has been proven that FDI is more of a bane than a boon for sustainable development, Dr Karki concluded.

By Supachai Panitchpakdi
GENEVA, Jul 9 2013 (IPS)

Almost five years have passed since the global financial crisis, and the world economy is still reeling from its consequences. The main reason for this is the continued stagnation in developed countries, which is adversely affecting economic dynamism in other regions.

Supachai Panitchpakdi, secretary-general of the United Nations Conference on Trade and Development (UNCTAD)

Indeed, growth in the advanced economies is likely to slow down from 1.2 percent in 2012 to only 0.8 percent in 2013. If developed countries remain unable to revive their economies, there is a risk that this mediocre pace of growth may yet turn into a global recession.

At this juncture, we therefore face a dual challenge: first, we must urgently take measures to restore stable and sustained growth in the world economy, so as to truly overcome the crisis. Second, and perhaps even more importantly, we must ensure that such a devastating financial crisis cannot recur. This will require making significant reforms to global economic governance, far beyond what has been achieved so far.

Slow growth in the advanced economies and thus in the world economy is partly the natural consequence of a credit crunch and sharply reduced demand in the aftermath of a crisis. However, in many countries, these effects are being exacerbated by severe austerity policies.

Despite years of unprecedented monetary expansions in the United States, Europe and, more recently, Japan, banking credit provided to the private sector has stagnated, or even decreased. The problem is not the supply of money, but aggregate demand.

Desperately needed are measures to support demand. And yet, austerity policies are contracting demand by raising taxes and reducing expenditure, just when such expenditure would be most required. In this way, several countries that have adopted austerity policies have now been pushed into a double-dip recession.

In addition, since these austerity programmes hamper growth – and, consequently, public revenues – they do not achieve their target of fiscal consolidation either.

It is therefore time to reassess the merits of the current policy approach.

The second key challenge is to prevent a recurrence of the crisis. The financial meltdown at the heart of the financial system has reminded us of a lesson we should already have learnt after the Asian Financial crisis (1997-1998), namely that deregulated financial markets do not allocate resources efficiently and are prone to herd-behaviour and crises.

Nevertheless, after the initial flurry of measures to bail out banks and companies in need of liquidity, enthusiasm to address the wider systemic origins of the crisis quickly faded.

At the national level, there have been efforts to strengthen regulation of the financial sector in the U.S. But at the global level, reforms have been limited to a slight revision of the Basel Capital Adequacy accord, as well as a number of measures to address tax havens. It is not clear whether these measures could have prevented the financial crisis, had they been in place in 2007. And yet, even these minor steps are beginning to be rolled back.

More importantly, the reforms have not addressed the more fundamental problems of our global financial architecture. The current system based on deregulated capital markets and floating exchange rates has not prevented prolonged misalignments of exchange rates, or the build-up of large current account imbalances. It has also failed to avert the disorderly expansion of short-term capital movements, which are a major factor of economic instability.

In order to address these issues, much bolder reforms will be required. The United Nations Conference on Trade and Development (UNCTAD) has long argued that international monetary and financial relations should be governed by rules similar to those currently governing the use of trade policy measures in the World Trade Organisation (World Trade Organisation).

In a world where tariffs and international trade are increasingly governed by a set of rules to prevent “beggar-thy-neighbour” policies and foster trade liberalisation, it is incomprehensible that similar rules do not exist for the global financial system. And this is despite the fact that even small realignments of exchange rates can wipe out any gains from trade liberalisation, or that exchange rate crises have repeatedly shown themselves to have devastating effects.

A multilateral system of rules could ensure that exchange rates better reflect long-run fundamentals, and credibly prevent the build-up of imbalances.

Similarly, there is a need to rein in the large volumes of speculative capital flows. Such unregulated capital flows generate a risk not only in the recipient country, but also in the source economy, where the solvency of banks may be undermined by their exposure to asset bubbles in foreign countries.

Financial supervision should therefore be applied at both ends of capital movements. Already, the International Monetary Fund (IMF) has recently changed its position on the use of capital controls under certain circumstances. However, a multilateral arrangement (such as the “Tobin tax”) would probably be more effective.

It is clear that truly preventing future financial crisis will require an overhaul of the current system tantamount to a new Bretton Woods. Any such system must, of course, give greater voice to developing nations than they have so far enjoyed in the international financial institutions.

(END/COPYRIGHT IPS)

Excerpt:

By Supachai Panitchpakdi
GENEVA, May 9 2013 (IPS)

The global repercussions of the 2007-2008 financial crisis are a stark reminder of the economic interdependence in our globalising world. No country was spared from the shock waves that originated in the financial systems of developed economies.

Supachai Panitchpakdi, secretary-general of the United Nations Conference on Trade and Development (UNCTAD). Credit: UNCTAD.

Transmitted through both trade and financial channels, they led to an economic slowdown in most countries, and even outright recessions in others.

These recent events call for a thorough examination of the different kinds of possible shocks to the external economic environment and the channels through which they spread. We also need to better understand the factors that determine countries’ vulnerability to such shocks, and how we can strengthen the resilience of different economies.

Perhaps the most obvious case of an external shock is that of a financial crisis, such as the Asian Financial Crisis initiated in the early summer of 1997, or the most recent global financial crisis.

These shocks have demonstrated that countries need to build resilience against the shortcomings of our international monetary and financial system. The most pertinent shortcoming is the failure to avoid a disorderly expansion of short-term capital movements, which have been a major factor in creating economic instability.

Partly as a result of the experiences of the Asian Financial Crisis, many developing countries have built up their resilience and are in a stronger position today to withstand shocks originating in international capital markets than in previous decades.

Lower debt-to-GDP ratios and improved debt management have been contributing factors in this resilience. But the most important factor in shielding these countries from the volatility of capital flows has likely been their accumulation of foreign exchange reserves.

However, reserve accumulation as an insurance against the instability of capital markets is a costly policy measure, and one that is always second best to multilateral measures to better regulate these markets.

Furthermore, not all countries have been able to build up such a “war chest”. Indeed, some countries are now left with little reserves to cope with future needs that may arise in international financial markets, making them more vulnerable to external shocks.

A second external shock that has recently affected many developing countries is the sharp slowdown in demand for their exports in the developed markets after the recent financial crisis.

In the decade preceding the crisis, many developing countries were able to benefit from a trade-led expansion, allowing them to achieve growth rates that were sometimes four or five percentage points higher than those of the developed world.

This resulted in a significant shift in the balance of the world economy, with developing countries accounting for a growing share of trade and growth, and led some pundits to argue that we were about to witness a “de-coupling”, which would see developing countries continue to grow despite the unsatisfactory performance of developed countries.

However, prospects in the developing world remain heavily influenced by the growth dynamism in the developed countries. To the extent that developing countries continue to rely on exports to developed countries as their key growth driver and have to cope with unfettered capital flows generating boom and bust cycles, their economies will remain vulnerable to shocks to their external economic environment.

Most forecasts predict that the current difficult external environment is likely to remain for the near future, with only a slow recovery towards a weak growth path in advanced economies.

This suggests that developing and transition economies will need to reduce their export orientation to developed economies if they want to continue to grow and increase their resilience to external economic shocks. Instead, they will need to rely more on domestic, regional and South-South trade. Thus they will need to adapt their development strategy in order to strengthen resilience.

On the other hand, coordinated measures at the multilateral level to expand global demand would be preferable. For example, increasing domestic demand in advanced countries with a current account surplus would stimulate global demand while helping to reduce global imbalances. This would be more appropriate than the current process of global rebalancing, which is being led by demand compression in deficit countries, accentuating the risks of a global economic downturn.

These are only two examples of significant external shocks that developing countries are vulnerable to. Identifying external shocks and mitigating their impact on trade and development requires the availability of statistical tools that capture the growing interdependence of national economies.

Among the many measures that are available, the terms of trade is a key indicator of the impact of external shocks, especially in countries with a high share of external trade relative to gross domestic product.

The United Nations Conference on Trade and Development (UNCTAD) has been particularly active in this area, pursuing the development of more disaggregated terms of trade figures by estimating the contribution of different product groups to changes in the terms of trade.

All these issues require the attention of policymakers, as a better understanding of the problems will help in finding solutions.

(END/COPYRIGHT IPS)

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By Isolda Agazzi
GENEVA, Nov 28 2012 (IPS)

Remittances to the world’s poorest countries reached a record 27 billions dollars in 2011, according to a report released Monday by the United Nations Conference on Trade and Development (UNCTAD) in Geneva.

Supachai Panitchpakdi, secretary general of the United Nations Conference on Trade and Development (UNCTAD). Credit: Communications and Information Unit/UNCTAD

Analysing trends in the 48 least developed countries (LDCs), the report noted that remittances – monies sent back home by nationals working abroad – are now second only to official development assistance (ODA), which stood at 42 billion dollars in 2010.

Remittances were almost double the value of foreign direct investment (FDI) inflows to these countries, which amounted to 15 billion dollars last year, making them a much more important source for LDCs than for other country groups.

Indeed, remittances amount to 4.4 percent of gross domestic product (GDP) in the LDC bloc as a whole and 15 percent of exports. These shares are three times higher than in other developing countries.

While these numbers are impressive, experts like UNCTAD Secretary-General Supachai Panitchpakdi believe governments are missing a vital opportunity to mainstream these financial flows into industrialised policies that favour long-term development.

Panitchpakdi sat down with IPS correspondent Isolda Agazzi to discuss how these private transfers, more beneficial to LDCs than trade and investment, can harness the potential of migrant workers to drive sustainable growth in their national economies.

Excerpts from the interview follow.

Q: Why have remittances to LDCs seen this sudden jump in recent years?

The primary purpose of these private transfers is to help (migrants’) families back home and very few countries are trying to (turn that money) into profits for the whole economy. Some migrant workers have managed to set up small businesses, but the potential is far from being fully harnessed.

Q: How can UNCTAD help turn a wasted opportunity into a profitable one?

A: UNCTAD has a unique position to deal with the LDCs and persuade governments to adopt specific policies to mainstream remittances into national development strategies. These private flows should be linked to new industrial policies. Development institutions should provide supplementary financing to returning migrant workers to encourage them to use their knowledge and accumulated savings in building productive capacities.

Governments should be able to protect small businesses by sequencing trade liberalisation. Infant industry protection may appear a bit naïve nowadays, but governments still need to support small and medium enterprises in certain areas, though not forever.  Adopting permanent trade distorting policies is not the way. We still believe in free trade.

Q: Given that 80 percent of LDC migrants move to other developing countries, shouldn’t industrialised countries revise their migration policies and open up their border to unskilled labour?

A: While full trade liberalisation would only add one percent to the world’s GDP, full labour liberalisation could (result) in a 100 percent increase since a person’s productivity can double when going abroad. Recently, people have been looking at migration through a different lens. The more mobile labour becomes, the more productivity increases. And there is no crowding out because most of the time migrant workers go into areas of employment where nationals don’t want to work.

Q: Is the emphasis on remittances an acknowledgement of the failure of trade and investment in the LDCs?

A: It is true that FDI and remittances have flowed in reverse correlation. For the weaker countries, FDI goes only into extractive industries that do not (create) jobs. And due to the ‘race to the bottom’ (competition between host countries to attract investment by lowering wages, taxes and standards), these countries have lost revenue.

UNCTAD is also worried by the involvement of transnational corporations. The problem with FDI is that it is tied to conditionalities and driven by gain, whereas remittances are not conditioned by anybody. Therefore, given that one in five people with university-level education from the LDCs lives abroad, mainly in developed countries, improving and mobilising FDI would be one way for LDCs to avoid the brain drain.

Indeed, brain drain is the downside of remittances: two million educated people from the LDCs live abroad. The loss of knowledge and know-how for the home countries in key sectors like health and education – there are more Ethiopian university professors in the United States than in Ethiopia – could outweigh the benefits of remittances. Other adverse effects are the potential distortion of local prices and the increase of the exchange rate.

(END)

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