Global Trends by Martin Khor

Monday 20 April 2009

South’s views should be aired at UN crisis summit

The United Nations will hold a summit on the global economic crisis in early June.  It should be used by developing countries to voice their concerns, which they could not do at the exclusive G20 club.

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Action on the global economic crisis will be addressed by a special United Nations General Assembly summit on 1-3 June.

It is a more “inclusive” meeting, as all 162 countries belonging to the UN can attend, unlike the G20 meetings where only the developed countries and a few big developing countries are invited.

Problems or issues of priority to developing countries have a better chance of being raised, and actions proposed.  They have been worst hit by a crisis not of their doing. 

However it is in uncertain whether the major developed countries, which are so used to having their own way, would allow the UN to become a body to make important

decisions.

In any case, the developing countries should prepare well for this meeting and push their issues forward as hard as they can, as this is a chance for them to get their problems addressed.

Among the priorities for the developing countries are:

• Establishing an international system that fosters financial stability for developing countries; 

• Having access to adequate and stable financial resources, as private flows and exports decline.

• Avoidance of financial and debt crises and proper management of crises if they occur.

• Unimpaired access to markets for their goods and services.

• Avoiding collateral damage from policies taken by developed countries in response to the crisis; and

• Being able to maintain and expand “policy space” to implement appropriate policies for economic recovery and development.

The issues of collateral damage and protectionism arising from developed countries’ anti-recession policies are very topical.

Last week, China made a complaint at the WTO against the United States for blocking the imports of its poultry. This is only the latest example of how countries are trying to protect their markets at a time of crisis.

The protection from “bail-out” policies is even more massive.  The US Congress bill passing the “fiscal stimulus package” specified that only made-in-America products could be used in projects funded by the package.

When China adopted its stimulus package, worth almost US$600 billion, it did not have a buy-China clause.  China is in fact sending a “shopping team” to the US to purchase US products, following a similar trip to Europe, to show that it intends to contribute to a boost to the sagging exports of the major countries.

There is also the fear that trillions of dollars spent on bailing out the banking, insurance, automobile and other industries will eventually negatively affect developing countries’ companies since their own governments lack the funds to provide similar subsidies.  The otherwise bankrupt companies of the developed world could out-compete or even take over some of the non-subsidised companies of the South.

Take the airline industry, now hit by falling passenger and cargo traffic. Last week Cathay Pacific, facing a massive loss, asked its staff whether they would agree to taking no-pay leave.  Asian governments may not be willing to provide huge bail-outs, and most of them lack the huge funds needed even if they want to subsidise.

As developing countries’ air companies face a tighter squeeze, they will be watching if the Western-owned airlines, that are also facing losses, will be rescued by their governments and thus be able to out-compete the former.

In the 1930s Depression, there were “competitive devaluations” as countries drove their currencies down to gain a trade advantage.  The need not to have a repeat of the “trade and currency wars” of the thirties has been well expressed in the current recession.

But there is also a need to avoid “competitive bail-outs” especially since the weaker countries just don’t have the funds to make such a contest fair.   At the least, those countries that do not use bail-out subsidies should be allowed to use conventional measures such as higher tariffs and conditions placed on entry of foreign firms, to make the playing field fairer for local companies that do not enjoy the subsidy props that their foreign competitors have.

Another collateral damage is the fall in commodity prices which affect the poorer countries the worst.  Some of them now face difficulties in meeting payments for their imports or debts.

A large credit-and-grant facility should be made available for these countries, to help them tide over the recession, and the funds should come without the kind of harmful conditions typical of the International Monetary Fund.

These and other issues need to be aired in the UN summit in early June, so that the developing countries’ concerns about the crisis can be put on the global agenda.