Global Trends by Martin Khor

Monday 9 July 2007

UN leaders warn of economic risks ahead    

The United Nations’ main economic council heard last week that the world economy is doing well but dark clouds on the horizon may soon spoil the party.  There was debate whether major or only minor reforms are needed.

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Warnings of potential global crisis were in the air when the United Nations’ biggest annual event on economic and social issues started last week in Geneva. 

Leaders of the UN’s leading economic agencies sounded alarm bells that there is going to be a mild economic slowdown this year, while risks are increasing for trouble ahead.

Meanwhile the World Trade Organisation’s head also warned that the non-completion of the Doha Round could trigger a geo-political and protectionist backlash.  He also surprised the Ministers and diplomats by frankly admitting the WTO negotiations were dictated by commercial trade-offs and had little to do with moral principles.

The opening of the “high-level segment” of the UN’s Economic and Social Council (ECOSOC) was addressed by the UN Secretary General Ban Ki-Moon as well as the heads of UNCTAD, the UN’s Department of Economic and Social Affairs (DESA), the WTO, and deputy chiefs of the World Bank and the International Monetary Fund.

It was a panel of the world’s leading economic organisations, and most of them mixed good news of the present with warnings of troubles to come.

The UN Secretary General argued that existing trade barriers, agricultural subsidies and the restrictive global trade regime is a “handcuff to so many developing countries”.  He urged for the Doha Round to be concluded.

He maintained that the UN should be at the centre of efforts to use the opportunities of global economic growth.  ECOSOC’s initiatives to re-energise its functions should make it the global hub for devising and overseeing development policies and practices.

Ban was referring to two new ECOSOC mechanisms that went into action last week. The first is an Annual Ministerial Review where Ministers present on the performance of their countries in meeting UN development goals, and receive comments from others in a “peer review” exercise.

The second is a Development Cooperation Forum that brings together various actors to review aid performance and other development issues. 

Sha Zukang, head of DESA, said after solid growth of the past few years, global growth is slowing to 3.6% in 2007 from 4% last year.  This UN forecast is surrounded by much uncertainty, with downside risks.

The “dark clouds on the horizon” include the unsustainable global imbalances, with the United States having net foreign liabilities of over US$3 trillion, putting downward pressure on the dollar.

A loss of confidence in the dollar could destabilise the international financial system, derail global growth and jeopardise the achieving of the UN’s Millennium Development Goals.

Sha called for international policy coordination to avoid such a situation.  He said the IMF could be an impartial mediator, but it needs to reform its own governance and representation (of developing countries).

UNCTAD Secretary General Supachai Panitchpakdi said the bright short-term prospects for the world economy could be derailed new factors.

These include instability arising from global current-account imbalances, which together with financial speculation must be tackled internationally as unilateral action focused on individual countries will not work. 

With implicit reference to the recent pressures on China to float and appreciate its currency to resolve such imbalances, Supachai stated that such pressures may not necessarily lead to the expected outcome.  

Should there be a major change in the international system?  Sha and the Group of 77 and China argued for basic reforms, with the United States and the IMF against.

Sha said that “only deep and far reaching reforms of the global monetary and financial system will be able to prevent a similar constellation of global imbalances from arising again and to deal with the asymmetries that are currently inherent in the global adjustment mechanisms.”

Speaking from the floor,  Pakistan’s Ambassador Munir Akram, chair of the Group of 77 and China, referred to the problem of global imbalances and urged for a review of the international financial architecture and revive the question of the objectives of the IMF, which originally are to provide international financial stability and short-term financing to countries that need it.

However, these calls for systemic reforms were not shared by the US delegation nor the IMF, both arguing that reform “at the margins” is sufficient.

The U.S. Ambassador Terence Miller said in light of the overall prosperity of the global economy, there is no need for a major overhaul of the international institutions.  We need to focus on improvements on the margins of the system to bring the poorest countries into the system.

IMF deputy Managing Director Murilo Portugal said he did not deny there is a need to reform international institutions, but probably more in the margins, referring to what the US said earlier.

The WTO Director General Pascal Lamy said some current WTO rules perpetuate some bias against developing countries.  While political decolonisation took place more than 50 years ago, “we have not yet completed economic decolonisation.” 

Akram raised the question, if the Doha Round is unable to be concluded, would it be possible as a moral or economic right to have a separate fast track agenda to achieve the development objectives of the Round?

Lamy replied that he doubts that there is room for a Development Package if the Round fails.   “I doubt the negotiations are about morals, it is about trade offs,” said Lamy. 

If it was about morals, the subsidies and tariffs would have been reduced already.  In the negotiations, different categories of countries are being asked to “pay” different levels.

Lamy said he doubted this could be substituted by morals, a comment that surprised many UN diplomats who are used to the language of development goals, and that shocked quite a few civil society participants. 

The leader of a church-based development agency told a lunch meeting held for diplomats and NGOs: “It is shocking to hear the truth from the WTO itself, that its talks are all about money and have no ethical or developmental basis.”