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TWN
Info Service on Finance and Development (Nov24/02)
UN: Global economy landing on “wrong runway”, says UNCTAD
head Geneva, 30 Oct (D. Ravi Kanth) — The global economy is inching towards a “soft landing” but is landing “on the wrong runway”, with slow growth, high debt, weak investment, and the risk of fragmented trade, said the Secretary-General of UN Trade and Development (formerly known as UNCTAD), during the launch on 29 October of its flagship Trade and Development Report (TDR) 2024. The report, in line with the projections made recently by the International Monetary Fund (IMF) and the World Trade Organization, projects “global growth in gross domestic product of 2.7 percent for 2024 and 2025″, marking three consecutive years below the 3 percent pre-pandemic growth trend. According to the UNCTAD Secretary-General, Ms Rebeca Grynspan of Costa Rica, the report contains five chapters. She said that Chapters 1 and 2 of the report present “our analysis of major economic trends, and capital flows”, while Chapters 3 and 4 “discuss the current pivot of globalization, marked by the changing structure of global trade, technological innovations and the rise of South-South trade”. The final Chapter 5 “advocates concrete ideas for a fairer international tax system and a global financial architecture that gives developing countries the policy space they need to adapt and thrive in this area.” Over the years, the TDR has become the fundamental policy document for developing countries to address the continued asymmetries, biases, and spillovers of policy choices made by the developed countries, particularly the United States, the world’s largest economy, as well as the policies prescribed by the multilateral financial institutions, as well as the World Trade Organization, among others. Since its inception in 1964, UNCTAD has not only stood vigorously on the side of the developing countries but also “showed the mirror” to the repeated failed policies stemming from the Washington Consensus, said people familiar with the TDR. Against this backdrop, this year’s TDR, titled “Rethinking Development in the Age of Discontent”, touches on several challenges confronting the developing countries, while placing its hopes on the proposed UN framework convention on international tax cooperation, which it underlined, “has strong potential to overcome current gaps in global trade and financial governance.” The report said the new proposed tax framework “opens an important opportunity to reduce disparities in the international financial architecture and to embed mechanisms for domestic revenue mobilization in the economies of developing countries.” However, if Donald Trump wins the US Presidential elections this November, then, one of the first things he has reportedly pledged to do is to end the double taxation of Americans living overseas, as per the Financial Times report of 9 October. While the current US leadership recognizes the new proposed tax agreement, its Senate is already divided over joining the agreement due to the implications that it could have on its tax havens in Nevada and Denver among others. It is somewhat unclear why the TDR seems to be campaigning for a tax treaty knowing full well that it is unlikely to be ratified and implemented by the world’s largest economy, said a person familiar with the developments in the progress of the tax treaty. The 190-page TDR, however, does not seem to offer an overarching framework of policy changes needed to correct the growing imbalances in the international financial architecture or a new “paradigm” that is required to move away from the “wreckage left in the wake of a half century of shared bipartisan faith in economic neoliberalism – the doctrine that unrestricted free trade market forces,” as argued by a US Democratic Senator, Chris Murphy, in his article in the Financial Times on 29 October. UNCTAD’S TDR At a press conference during the launch of the TDR on 29 October, the UNCTAD SG suggested four points that revolve around the need for reform of the international financial architecture, to revive the financial and investment and trade dynamism for developing countries, and to strengthen multilateralism. The report, she points out, “outlines clearly the risks, but also the opportunities” for the developing countries, in the short-, medium-, and long-term. “The global South, we think, has a unique chance to lead in the energy transition, in the digital economy, and in the reshaping of global trade for the future,” she stressed. “Global growth is at a new low normal, with developing nations facing the hardest and harshest impacts,” she said, adding that “the global economy is projected to grow at just 2.7% for 2024 and 2025.” Compared to the pre-pandemic global growth rate of 3%, the new normal now is around 2.7%, she suggested. Even the 3% global growth rate was lower than the pre-financial crash of 2008 when the global economy was growing at a rate of 4.4%, she said. Faced with numerous constraints, the developing countries will have to grow much more than the current anaemic growth to address their development challenges. The UNCTAD SG acknowledged that “developing countries are taking a big impact after the pandemic and the cascading crisis” that followed in its aftermath. The second point, Ms Grynspan said, is low growth accompanied by growing high debt (levels) for developing countries, which “has surged by over 70 percent from 2010 to 2023.” Much of this increase, which is estimated at 15.7 percent, has come since the COVID-19 pandemic, she argued. Further, the high-interest rate regime that followed the pandemic and inflation exacerbated the debt levels of developing countries. “Rising debt has left many developing nations with very limited fiscal space, making structural reforms to boost productivity and resilience more difficult, further weakening their growth prospects,” she said. She said developing countries face impossible choices between the need to service debt on the one side, and the need to invest for economic development, on the other. “Our second message of the report,” she said, “is that trade is changing”, as it is now “growing less than global GDP” and “global growth. Trade is no longer “the engine of growth that (it) was before”, since 2008, and now faces the double whammy of “geopolitics” and “rising protectionism”. “Trade as a share of GDP reached 60% in 2008, but has stagnated since then,” the UNCTAD SG maintained. “Geopolitical tensions, as I said, protectionism on the rise and policy uncertainty are dampening hopes for a strong trade revival. As we have said before, trade will recover in 2024 but will continue to grow below global GDP and at very low rates for the moment at around 2%.” She said that another structural factor in trade that the TDR emphasizes is “the growing importance of services in trade. Services alone now make up nearly 25% of global trade and are projected to grow further.” However, she did not mention the urgent need to implement Mode 4 policies in services that focus on the short- term movement of services providers, which seem to be drying up and under threat due to inward-looking trade policies. The third point mentioned by the UNCTAD SG revolves around a “soft-landing, but on a wrong runway.” However, Ms Grynspan did not suggest what would be involved in changing “the runway”. “With respect to investment, I think that it’s important to emphasize three aspects that we see relevant,” she said, pointing out that “there is the growing importance of intangible assets in investment: Brands, software, data, patented technologies.” The UNCTAD SG said that these intangible assets “are increasingly important in global supply chains, but intangible assets in investment have grown three times faster than physical assets”, leaving developing countries “at a disadvantage.” She said that “investment in critical minerals has gone up considerably – 20% in 2021, 30% in 2022,” but the processing still remains very concentrated. “So here, there is an opportunity for developing countries, but … we won’t be able to take advantage of it, if we don’t go up the value-added chain and the supply chain(s),” she said. The fourth message, she said, “is with respect to a characteristic of trade that is usually not brought to the center of the discussion. That is that South-South trade is growing much faster than global trade.” “So, South-South trade, together with the energy transition and the digital economy, are clear opportunities for developing countries to achieve sustainable economic development,” Ms Grynspan emphasized. She said that “we are making a call to rethink economic development.” “Some of the policy recommendations include the support to fiscal reform and modern tax policies to create space for structural changes that promote growth.” The TDR also called “for curbing anti-competitive practices and the need for better regulatory frameworks to manage inflation in key sectors.” Ms Grynspan said “regional trade agreements are an opportunity”, adding that “the African Continental Free Trade Agreement is a huge opportunity for Africa, and we must support multilateral agreements in trade, which also benefit developing countries,” avoiding defragmentation of rules and regulations, representing an obstacle and a barrier to trade in the developing world. On the international financial architecture, she said, “we have proposed the scale-up of development financing with appropriate conditions for the developing world, long-term and affordable rates, the debt restructuring architecture to be reformed, and here we are in sync with the Pact for the Future that was agreed on in the last General Assembly meetings in New York.” She also praised the IMF, suggesting that “we believe that the capacity of the IMF to support growth and development in the developing world is important.” “We have already seen a step forward in this direction taken in the IMF board before the Fall meeting,” she said, suggesting that “we could go in the right direction, and I think that we can reform the system to resume dynamic, inclusive, and sustainable growth for us.” QUESTIONS When asked by this writer as to why this year’s TDR seemingly failed to address the asymmetries and the biases as well as the spillovers that make the life of developing country policy makers very difficult in achieving the development objectives, as was addressed in the previous TDRs, the UNCTAD SG disagreed with the question and went on to defend the TDR 2024 by saying that it does indeed address the asymmetries. She said, “let me say something, Ravi, here, because you know that you and I disagree on this point. This is not the first time that many of the issues that have been discussed in the Pact for the Future, in the framework of the UN, and many of the reforms that are also being considered today that benefit developing countries in the international financial architecture.” “And we feel very proud of our voice in defending the developing countries in this direction, because we really think that the reform of the international financial architecture is not something new,” she said. Ms Grynspan maintained that “we discussed the difficulties and asymmetries, especially in current accounts and trade balances, that developing countries face on the way from the trade system into more complex financial arrangements.”
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