“Global Governance Reform Needs To Catch Up With Globalization”, Report Says
The new UNCTAD report Development and Globalization: Facts and Figures (DGFF) 2012, released this afternoon on the opening day of the UNCTAD XIII quadrennial conference, says the global economy has progressed much more quickly than has international economic governance, and institutional and regulatory reforms are needed to close the gap.
The tension created between rapidly advancing economic links and limited global governance, “together with an unwarranted faith in the self-regulation of markets, created a hazardous global environment that ultimately ushered in the cataclysmic events of 2008-9,” the report contends. “While the epicenter of the financial meltdown was in the developed world, developing countries, which have increasingly integrated into the global economy, got hit as innocent bystanders.” Developing nations, the study says, benefit to varying extents from linking into international markets but almost always suffer when global economic currents over which they have no control turn negative.
The theme of UNCTAD XIII is “development-centred globalization,” and the highly controversial issue of whether greater control or regulation should be applied to international markets is expected to be debated repeatedly during the week’s meetings, which conclude on 26 April. The DGFF’s main message is that “Global governance reform needs to catch up with globalization – or risk a backlash. Globalization is at a crossroads: in order to continue, and more safely, the process needs to be controlled and managed more wisely.”
The report contains a comprehensive analysis carried out by the UNCTAD Secretariat on the status of globalization and recommends, among other things, that real wages should be adjusted in line with productivity and that – if a recovery is to be sustainable – there should be an expansion of public transfers of funds to low-income households, both to improve living standards and to stimulate domestic economic growth, as such money is usually quickly spent locally.
The report also provides numerous user-friendly graphs, charts, and statistics.
The impact of the crisis on the developing world was intensified by developing countries’ greater involvement in the global economy, the DGFF says. Real Gross Domestic Product (GDP) growth of developing and transition economies dropped to 1.6 per cent as the global recession took hold in 2009, far below the annual average growth rate of 5.4 per cent between 2003 and 2007. While that rate was still higher than in many industrialized countries, developing nations need faster growth to raise low living standards and keep up with population expansion, the study says.
Among danger signs of the current situation are figures showing that the arrangement of surplus and deficit countries that preceded the crisis – and whose imbalances helped cause it – has not changed, the report says. In current dollar terms, these current account imbalances peaked in 2007-2008, shrank in 2009 — when the volume and value of global trade declined sharply – but then widened again in 2010-2011. A plunge and renewed surge in commodity prices, especially the price of oil, was a major factor. Balances on both the surplus and deficit sides have subsided from their pre-crisis peaks, but the pattern has not changed, the report notes. (See chart.1)
Other continuing trends that have major effects on poor countries – but over which they have little control – include vacillating exchange rates and volatile commodity prices, the DGFF says. “The world is missing an international monetary order allowing for both reasonable exchange rate stability as well as symmetric adjustment pressures on creditor and debtor countries alike,” it contends. It notes that “Brazil’s REER (real effective exchange rate) rose strongly until mid-2008, plunged at the peak of the crisis, only to resume its rise to new heights until mid-2011, when a new reversal started. Similar exchange rate trends have been observed in other developing countries, a number of which have meanwhile drifted into sizeable current account deficit positions which may herald future instabilities.” UNCTAD’s proposal of a multilateral agreement centred on a constant real exchange rate rule would directly address the systemic causes behind such global imbalances, the report says.
Prices for commodities – raw natural resources and basic farm goods that are the mainstay exports of many of the world’s poorest countries – have been disruptively volatile, the report says. “Such wide price fluctuations can have adverse effects both for commodity importing and exporting countries, as well as impact the resilience of households and commodity producers.” (See chart. 2)
And a recent trend that also may hurt poor nations, the report contends, is that “Developed countries moved back to contractionary fiscal policies out of fear of excessive accumulation of public debt. Those fears are misplaced, and further fiscal and monetary expansion is actually required to avoid further economic slowdown. Financial re-regulation is essential for the stability of the global economy but it remains unfinished.”
The interactive format of the publication is a good example of UNCTAD statistics evolution towards up-to-date technological sophistication and ease of use. The latest data presented in the DGFF is backed with a comprehensive guide to make the statistics easier to interpret and hence ensure their competent use. The report is designed to be an accessible and valuable tool for non-specialists as well as for international economists and statisticians.
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