Poor nations should close ranks to preserve thriving growth
Friday, 7 September 2007
GENEVA, Sept 6 (Agencies): Developing countries are enjoying their brightest economic spell since the early 1970s, but must join forces to guard against shifts in the global economy and financial turmoil, the UN's trade and development agency said yesterday.
The UN Conference on Trade and Development's annual report warned about the destabilising effect of speculative financial markets, and called for World Trade Organisation-style global arrangement to oversee exchange rates.
"As exchange rates are crucial for international competitiveness and trade relations, exchange rate shifts should be managed in a multilateral framework along the lines of the way tariffs and subsidies are," United Nations Conference on Trade and Development (UNCTAD) Director General Supachai Panitchpakdi told journalists.
The report said that booming demand and high prices for commodities had helped to stimulate trade and growth in poorer nations, which are the primary suppliers of raw materials, without weighing down overall global growth.
During a "golden period" for the world economy, gross domestic pproduct per head in developing countries grew by almost 30 per cent between 2003 and 2007, three times as fast as in Group of Seven (G7) group of industralised nations, it added.
While emerging giants China and India set the pace for developing countries, poorer areas were also growing fast despite big income gaps with rich nations, UNCTAD said.
"A highlight is that Africa is expected to continue to grow at around six to seven per cent in 2007, while Latin America and western Asia will slow down only slightly at five per cent," Supachai said.
The report said that the overall current account balance of developing countries had swung into surplus for the first time since the early 1970s.
Several of them, even poorer ones, have even turned into net exporters of capital to capital-rich wealthy nations, yet were still able to create their own additional domestic capital to replenish the outflows, it added.
UNCTAD said that feature alone cast doubt over orthodox theories on development, and called for a rethink of "crucial assumptions" about the relationships between savings, investment and capital flows.
It urged developing economies to steer away from bilateral free trade agreements offered by rich nations, arguing that they stifled longer term opportunities.
Instead the report pointed to the success of regional agreements among nations which are geographically close and at similar levels of economic development, saying they promoted faster trade expansion.
Supachai, a former Thai economy minister and World Trade Organisation (WTO) chief, said trade within the thriving East Asia region accounted for half of its total commercial flows.
"Regional cooperation should also include coordinated and joint action in policy areas that strengthen the potential for growth and structural change, including macroeconomic, financial, infrastructure and industrial policies," he added.
Global financial imbalances also pose a threat. UNCTAD underlined that currency markets could also harm the competitiveness of nations, especially weaker ones which have historically suffered from overvalued currencies.
In the absence of a multilateral code of conduct on exchange rates, the report argued that developing nations must have the flexibility to cushion themselves from external shocks, including like China by pegging their currencies.
"Regional financial cooperation, particularly among developing countries, may be one of the building blocks for an improved international monetary order," Supachai said.
Meanwhile, UNCTAD has forecast the Indian economy to grow at 8.5 per cent during the current fiscal, an estimate that appears conservative given the 9.3 per cent growth in the first quarter.
The UNCTAD has projected the growth figure on the base of the quick official estimates of 9.2 per cent economic growth in 2006-07. The revised figures put out by Central Statistical Organisation had estimated the economic growth at 9.4 per cent for the last fiscal.
"These are just preliminary figures," Nagesh Kumar, Director-General of Research and Information System for Developing Countries, said after releasing the UNCTAD Trade and Development Report, 2007.
"I am happy that economists have been proved wrong (in their estimates of Indian economic growth," he said, pointing to better-than-expected growth in the first quarter of the current fiscal.
The UN Conference on Trade and Development's annual report warned about the destabilising effect of speculative financial markets, and called for World Trade Organisation-style global arrangement to oversee exchange rates.
"As exchange rates are crucial for international competitiveness and trade relations, exchange rate shifts should be managed in a multilateral framework along the lines of the way tariffs and subsidies are," United Nations Conference on Trade and Development (UNCTAD) Director General Supachai Panitchpakdi told journalists.
The report said that booming demand and high prices for commodities had helped to stimulate trade and growth in poorer nations, which are the primary suppliers of raw materials, without weighing down overall global growth.
During a "golden period" for the world economy, gross domestic pproduct per head in developing countries grew by almost 30 per cent between 2003 and 2007, three times as fast as in Group of Seven (G7) group of industralised nations, it added.
While emerging giants China and India set the pace for developing countries, poorer areas were also growing fast despite big income gaps with rich nations, UNCTAD said.
"A highlight is that Africa is expected to continue to grow at around six to seven per cent in 2007, while Latin America and western Asia will slow down only slightly at five per cent," Supachai said.
The report said that the overall current account balance of developing countries had swung into surplus for the first time since the early 1970s.
Several of them, even poorer ones, have even turned into net exporters of capital to capital-rich wealthy nations, yet were still able to create their own additional domestic capital to replenish the outflows, it added.
UNCTAD said that feature alone cast doubt over orthodox theories on development, and called for a rethink of "crucial assumptions" about the relationships between savings, investment and capital flows.
It urged developing economies to steer away from bilateral free trade agreements offered by rich nations, arguing that they stifled longer term opportunities.
Instead the report pointed to the success of regional agreements among nations which are geographically close and at similar levels of economic development, saying they promoted faster trade expansion.
Supachai, a former Thai economy minister and World Trade Organisation (WTO) chief, said trade within the thriving East Asia region accounted for half of its total commercial flows.
"Regional cooperation should also include coordinated and joint action in policy areas that strengthen the potential for growth and structural change, including macroeconomic, financial, infrastructure and industrial policies," he added.
Global financial imbalances also pose a threat. UNCTAD underlined that currency markets could also harm the competitiveness of nations, especially weaker ones which have historically suffered from overvalued currencies.
In the absence of a multilateral code of conduct on exchange rates, the report argued that developing nations must have the flexibility to cushion themselves from external shocks, including like China by pegging their currencies.
"Regional financial cooperation, particularly among developing countries, may be one of the building blocks for an improved international monetary order," Supachai said.
Meanwhile, UNCTAD has forecast the Indian economy to grow at 8.5 per cent during the current fiscal, an estimate that appears conservative given the 9.3 per cent growth in the first quarter.
The UNCTAD has projected the growth figure on the base of the quick official estimates of 9.2 per cent economic growth in 2006-07. The revised figures put out by Central Statistical Organisation had estimated the economic growth at 9.4 per cent for the last fiscal.
"These are just preliminary figures," Nagesh Kumar, Director-General of Research and Information System for Developing Countries, said after releasing the UNCTAD Trade and Development Report, 2007.
"I am happy that economists have been proved wrong (in their estimates of Indian economic growth," he said, pointing to better-than-expected growth in the first quarter of the current fiscal.