Ref. :  000024600
Date :  2006-08-31
Language :  English
Home Page / The whole website
fr / es / de / po / en

UNCTAD report calls for multilateral approach to tackle growing trade imbalances

Says recent economic progress in developing countries should be protected


Alarmed by increasing volatility in the stock, commodities, and currency markets of developing countries and emerging economies, UNCTAD´s Trade and Development Report 2006, warns that without quick international action to reduce global trade imbalances, financial crises in the wake of a tumbling dollar will threaten the benign growth performance of the world economy.

Up to now, turbulence has been limited to some peripheral economies with rather high current account deficits. There is no evidence that a major financial crisis --comparable to the Asian or Latin American crises of some ten years ago -- is looming. But the flexibility and pragmatism of US macroeconomic policy that so far has prevented deficiencies in the global trading system from leading to outright deflation and recession -- that has limited the damage "only" to huge trade imbalances -- cannot and will not go on forever.

The report calls for a multilateral effort to redress global imbalances, in part through an expansion in domestic demand in key industrialized countries other than the United States -- countries such as Japan and Germany, which currently have huge surpluses -- so that shocks don´t reverberate through the developing world.

Despite the increasing nervousness of international investors, most emerging-market economies are less vulnerable than during the major shocks of the past two decades. In 2005, South Asian and Southeast Asian countries recorded large surpluses in their current accounts, and Latin America as a whole was also in surplus. After the Asian and Latin American crises, more and more developing countries have followed a similar path: unilaterally stabilizing their exchange rates at rather low levels, running sizeable current account surpluses, and accumulating huge US dollar reserves through interventions in the currency markets.

This undervaluation-plus-intervention strategy is widely considered to be a less-than-optimal method for such countries to expand their economies. But in many respects it is the only feasible way for them to adapt to systemic deficiencies afflicting today´s global economic order -- it is what they can do in the absence of a multilateral financial system which has symmetric obligations for surplus and deficit countries, and which balances the interests of rich and poor nations.

In UNCTAD´s view, it is no accident that the undervaluation-plus-intervention strategy is especially prevalent among developing countries that went through currency crises in the recent past, following previous liberalization of their financial systems and capital accounts. Having learned that reliance on foreign inflows of capital rarely pays off, growing numbers of developing countries have shifted to an alternative strategy that is based on trade surpluses as an engine for investment and growth. This strategy requires them to defend their competitiveness by intervention in currency markets. But this approach also implies that at least one country -- nowadays the United States -- has to accept the corresponding trade and current account deficits.

But UNCTAD economists fear that the United States has become overburdened in its role as the consumer of last resort and as the locomotive of global growth. For a long time, the US Government has been able to ignore its enormous and growing trade imbalance, as no conflict with sustaining full employment and price stability at home has arisen up to this point. But the potential for such a conflict is itself a key risk today, as domestic sources of growth are bound to weaken. UNCTAD considers it unlikely that the personal savings rate in the United States will decline by another 5 percentage points over the next decade, or that the public budget will be allowed to deteriorate by another 6 percentage points. If that is the case, the world economy will have to do without the growth stimuli it has become addicted to over the last 15 years.

A sharp depreciation of the dollar would tend to restore competitiveness and would help re-balance the United States economy, but, given the dependence of global growth on US demand stimuli, a marked slowdown in US demand for imports could spread and amplify around the world just as the positive impulses of growing US demand have done in recent years. Through no fault of the developing countries, this could reduce and even reverse the development progress and poverty reduction recently achieved by such nations.

Despite surpluses in developing countries, the main reason for the US´s perhaps increasingly unmanageable global burden is the fact that other key industrial countries have not only failed to play their corresponding global part, but have actually decisively added to the US´s burden. The huge external surpluses of Japan and Germany and the massive improvement of their competitive positions show that the required competitiveness gains on the US´s part should mainly come at their expense, a process that would be greatly eased if this occurred in the context of buoyant -- rather than stagnant -- domestic demand.

According to the UNCTAD secretariat, China´s part in a benign unwinding of global imbalances differs markedly from these two countries´ roles. Since the beginning of the 1990s, China´s domestic demand and its imports have grown very strongly indeed, and the country has played a vital role in spreading and sustaining growth momentum throughout the developing world -- a process which must not be derailed. Therefore, renminbi revaluation should continue gradually rather than abruptly, taking due account of regional implications. As with China, oil producing countries too have only recently come to play a globally significant part in today´s imbalances. Oil producers should generally use benevolent terms-of-trade developments in favour of investment and diversification of their production structures. Should elevated oil prices persist, their contribution to a benign unwinding of global imbalances could consist of stronger domestic demand growth in line with higher incomes, with extra expenditure being directed to social and physical investments aimed at diversifying their economies.

Crucially, the report says, what is needed for redressing global imbalances is a responsible multilateral effort rather than pressure on parts of the developing world. A well-coordinated international macroeconomic approach would considerably enhance the chances of poorer countries being able to preserve and continue recent improvements in their growth performances. In the absence of such an approach, the report says, developing countries should defend their strategically propitious competitive positions and use the current favourable overall conditions to invest more and to reduce their foreign debts.

Rate this content
Average of 16 ratings 
Rating 2.50 / 4 MoyenMoyenMoyenMoyen
Same author:
 flecheLe développement économique en Afrique - Rapport 2018
 flecheWake up before it is too late: Make agriculture truly sustainable now for food security in a changing climate
 flecheTrade and Development Report, 2013
 flecheWorld Investment Report 2013
 flechePremature fiscal tightening endangers global recovery
 flecheUNCTAD report calls for a shift in foreign investment towards job growth and diversification in poor countries
 flecheUNCTAD/UNDP report says creative industries are stimulating economic recovery
 flecheReport calls for «new international development architecture» to support world´s poorest countries
 flecheTransnational firms can boost contributions towards low-carbon economic growth, report says
 flecheTrade and development Report 2009 - Overview
 flecheThe "Least developed countries Report 2009: The state and development governance"
 flecheManufacturing poverty reduction
 flecheAt inaugural public symposium, “voiceless” have strong words for global financial crisis
 flecheReport "Global Economic Crisis: Systemic failure and multilateral remedies "
 flecheReport on global financial crisis points to "systemic failures", disconnection from "real economy"
 flecheFreight rates begin to fall for world merchand fleet
 flecheReport says strengthening supply capacity is essential for Africa to benefit from trade liberalization
 fleche2008 Statistics Handbook provides background for global economic situation
 flecheCreative Economy Report 2008 - The challenge of assessing the creative economy towards informed policy-making (Overview)
 flecheCreative Economy Report 2008: The challenge of assessing the creative economy towards informed policy-making
 flecheDespite rapid economic growth, number of poor still rising in Least Developed Countries, Report warns
 flecheUNCTAD Secretary-General calls for Accra accord to help make globalization deliver for the world’s poorest
 flecheInformation Economy Report 2007-2008
 flecheCreative industries emerge as key driver of economic growth with trade nearly doubling in decade
 flecheLeaders, improvers and laggards in trade and development performance- Results of UNCTAD new edition of Trade and Development Index (TDI)
 flecheUNCTAD Developing Countries in International Trade 2007: Trade and Development Index
 flecheReliance on domestic financial resources will enable Africa to determine its own development priorities, new UNCTAD report says
 fleche2007 Report on Economic Development in Africa - "Reclaiming policy space: domestic resource mobilization and developmental states"
 flecheThe place of developing countries in globalization
 flecheThe Least Developed Countries Report, 2007 - Knowledge, technical learning and innovation for development
 flecheUNCTAD Handbook of statistics 2006-2007
 flecheStringent intellectual property protection hampers technological progress in the world's poorest countries
 flecheWorld Investment Report 2006 "FDI from Developing and Transition Economies: Implications for Development"
 flecheFirms based in developing countries joining ranks of world's largest transnational corporations
 flecheDeveloping countries need sufficient flexibility in policy making, Report says
 flecheTrade and Development Report, 2006
 flecheThe Least Developed Countries Report, 2006
 flecheAid to least developed countries increases, but is mainly driven by debt relief and emergencies
 flecheDevelopment Must Remain at Heart of Trade Talks
 flecheThe Internet: opportunities, not threats, for developing-countries musicians
 flecheNew UNCTAD study make case for African debt write-off
 flecheTrade and Development Report 2004
 flecheWorld Investment Report 2004
 flecheE-Commerce in Developed Countries Continues on Strong Growth Path
Keywords   go
Translate this page Traduire par Google Translate

Share on Facebook
Partager sur Twitter
Share on Google+Google + Share on LinkedInLinkedIn
Partager sur MessengerMessenger Partager sur BloggerBlogger
Other items
where is published this article: