Global recession needs concerted measures to help Third World

by Chakravarthi Raghavan

Geneva, 5 Oct 2001 - The world economy is now moving into a synchronised global recession in the major industrial countries and the developing countries, and the Group of 7 Finance Ministers and countries must act urgently to help developing countries with funds, liquidity and new finance, two leading financial experts said this week.

The former Japanese vice-Minister of Finance, Prof. Eisuke Sakakibara and the UNCTAD acting director of the Global Development Strategies Division and chief author of UNCTAD’s flagship publication, the Trade and Development Report, made these statements at a press conference.

Akyuz was explaining UNCTAD’s latest assessment of the global outlook, put out in a secretariat note to the Trade and Development Board, now in session. The note provides a much needed corrective to the myth being created about the global recession triggered by the 11 September incidents, and the need for a new trade round and liberalization to boost the world economy.

Sakakibara and Akyuz both underscored the need for global measures to tackle the recession to be fought through coordination and cooperation of the developed and developing countries, at least with as much as in the political and military spheres, and with aid or trade benefits not provided on a conditional political basis.

“As much as in the political and military spheres,” said UNCTAD, “policy coordination and coalition building at multilateral level is taking on increasing importance in economic matters.”

In casting some doubts (oblique unfortunately, perhaps due to constraints and pressures on UNCTAD and UN systems to toe the US-EU-WTO line) on a new trade round as an answer, the UNCTAD note added: “On some accounts, launching a new round of trade negotiations in November would also help boost global demand.  However, whatever the other merits of launching a round, these should not be confused with the urgent task of coordinating expansionary macro-economic responses. History shows that economic contraction and rising unemployment are the principal enemies of free trade.”

The UNCTAD note on global economic trends and prospects, has brought out clearly that the malaise and downturn in the world economy and major industrial nations have been under way for some time, for some months before 11 September.

The secretariat said that the 11 September events had dealt a blow to sputtering consumer confidence and buying in the US, one element that had been keeping the economy growing. However, it noted the down-trend in equity prices and stock-markets, downturn in company profits, and the effects of the US downturns on EU corporate investments and earnings, the troubles of the airline industry had all been under way much before, though the security problems after the hijacking of the planes and their use for hitting the twin towers in New York and the Pentagon in Washington have resulted in a feeling of insecurity in the United States (which has seen no such direct hits on the continental soil for over 150 years).

The airline industry and its problems have been brought home by the spectacular collapse and bankruptcy of the Swiss Air, the Swiss national flag carrier, with clear evidence that the collapse was due much more to the past ‘mergers and acquisitions’ mania and the way unregulated markets operate.

The collapse has also demonstrated the power of the big finance and banks in Switzerland to the point where the President of the Swiss Confederation pleaded helplessness on Swiss TV Tuesday, and said the telephone calls of the Swiss Finance Ministers to the two Swiss banks, the Union Bank of Switzerland and Credit Suisse had not been returned by their chief executives.

The Swiss Federal Government has stepped in with some aid to the SwissAir at least to keep flying until other restructuring arrangements could be made.

Since the bankruptcy of SwissAir announcement, and the spectacle of the planes being grounded or seized for non-payment of dues, and passengers stranded everywhere , Switzerland has witnessed a public outcry - with politicians, cantonal governments and the media criticising the ‘globalization’ and ‘neo-liberalism’ and the ‘deregulation’, as also attacks on the powerful banking industry for its attitude in acting thus damaging “a Swiss image”. The banks have defended themselves by accusing the management of SwissAir for mismanagement.

And even the normally docile workers of Swiss Air reacted sharply Tuesday morning when they refused to allow the former Chairman of the SwissAir, to board a Swiss Air flight to New York. By afternoon all Swiss Air planes had been grounded, and Swiss Air denied funds (by banks) even to buy fuel and operate, pending their applications to courts for bankruptcy and protection. The two swiss banks have financed the purchase of SwissAir’s holdings in its subsidiary, the CrossAir, in order to enable the subsidiary to take over all the assets and run airline operations.

However, as in other industrialized nations, when it comes to the crunch the public want and the governments seem ready to practice ‘Keynesianism’.

In the 1980s and early 1990s, developing countries found that in the face of an external environment where the global structures forced neo-liberalism on them, they could not function with Keynesian policies or with governments taking a leading role in economics, and were forced to change - though some embraced the new doctrines even more ardently than who preached (but not practised).

However, now, even as they themselves engage in Keynesian economics and support for government expenditures to stimulate economies and provide assistance to industries, the industrial countries want to continue to push neo-liberalism on developing countries (as evidenced by the Harbinson-Moore package for Doha, pushed or initiated and inspired by the US and EC).

In a global economy and inter-dependent world, Keynesianism in the centres and neo-liberalism in the periphery is as much destined for failure, as the other way was.

In the press conference here, the former vice-Minister of Finance of Japan and now an academic, Prof. Eisuke Sakakibara (who in power was popularly known as Mr. Yen) said it had been his assessment for over 6 months that a global economic slowdown and global synchronised recession was under way, in the US and major countries. The situation, he said, was really worse than in 1998, after the Asian financial crisis.

It was his view that global financial architecture ought to be reformed, but doubted whether the leading countries had the political will. In its absence, he said, developing countries, would need to depend on themselves, including on regional cooperation and arrangements. – SUNS4982

The above article first appeared in the South-North Development Monitor (SUNS) of which Chakravarthi Raghavan is the Chief Editor.

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