Latest update April 23rd, 2024 12:59 AM
Jul 07, 2009 Letters
Dear Editor,
I want to talk about the global financial crisis and the fact that there is an emerging global financial system.
Grants, loans, conditionalities, in short, aid, have become a regular but overwhelming feature of life in developing countries.
The specter of the International Monetary Fund (IMF) the World Bank, Inter-American Development Bank (IADB), and other International Financial Institutions (IFIs), the image of umpteen foreign consultants haranguing, spell an unsavory glamour in poor nations.
I sometimes wonder about foreign consultants in Guyana, issues of their outnumbering the unemployed local tertiary graduates, their understanding and appreciation of local cultures essential to their skills repertoire. No question, countries relegated to the periphery in the world economic system need and are appreciative of this aid.
And the World Bank, the IMF, IDB, and other IFIs, have helped enormously in the provision of human and social services for poor nations.
But among poor countries, there is development, uneven development, and uneven pace. And then, are relationships between rich and poor countries producing falling productivity and living standards, further increasing poverty, hunger, environmental squalor, high mortality, and other similar-type problems?
And even as early as 2003, the IMF reported that world development at US dollars and at current exchange rates declined from about 5.5% in 1970-80 to 2.3% in 1980-90 to 1.1% in 1990-2000. World income inequality rose since the 1970s. This trend is strongest when incomes are calculated at market-exchange rate incomes (Wade, World Development, 2004).
Higher income inequality within countries is associated with (1) higher poverty (Besley & Burgess, 2003); (2) slower economic growth; (3) higher unemployment; and (4) higher crime (Lee & Bankton (19990, Fajnzylber, Lederman, Loayza (1998).
Again, the IMF projected that world trade in goods is expected to fall by 11.5% in volume and 25% in value by the end of 2009.
Clearly then, 71 of the 182 countries that the IMF monitors, including 30 of the 34 advanced nations, will decline this year. The real GDP also may not fare well in the near future.
Senior fellow of the Peterson Institute for International Economics Edwin Truman believed that the IMF real GDP forecasts in Table 1 were incorrect in 2007 and 2008, largely, because the economic and financial imbalances were bigger and more immovable in large sections of the global economy than were previously envisaged. The IMF re-estimated the real GDP numbers in April 2009.
Truman noted that many developing countries have been able to withstand the external shock of the international financial meltdown, as a result of prudent financial management of their economies. All developing nations are being affected, directly or indirectly, by this international financial tsunami. And Guyana continues to fare well in this respect due to its sound macroeconomic fundamentals. But these fundamentals would not be enough to weather the ravages of the global financial crisis.
The World Development Report (WDR) 2009 talks about a billion people who remain slum dwellers with the continuing over-migration to cities, the globalization that benefits the rich nations to the detriment of a billion poor, the high mortality rates and persistent poverty within the ‘bottom’ billion; and the general prescription issued by the regular suspects for these three billion people is that economic growth must become spatially balanced; the WDR disagrees.
What the WDR 2009 Report shows are the following: (1) as economies expand, production becomes spatially bunched; economic integration is the key to booming spatial change; and policy makers can restructure strategies on urbanization, territorial development, and regional integration.
Against this WDR 2009 background, the global financial crisis, and the fact that there is an emerging global financial system, then, there is no question that developing nations need the IMF and other IFIs. But they cannot sustain the level of IMF’s exploitative conditionalities.
In this context, Truman argues that a challenge that developing nations now face is the current review of the accelerated IMF’s quotas and governance measures scheduled to reach the finishing line in January 2011.
Truman recommends that the emergent agreement in 2011must (1) double IMF quotas, (2) enable IMF quotas and NAB to be indexed to increases in world economic activity, economic growth, and financial transactions, and (3) advocate for provision of huge annual SDR allocations.
In addition, Truman asserts that the IMF would need to advocate for balanced global economic growth and ensure that member countries comply with their exchange rate responsibilities. Currently, poor countries do experience development, uneven development, and uneven pace. And so, perhaps, this may be developing countries’ best hope if they are to emancipate themselves from the IMF’s exploitative conditionalities and provisions.
Here is an alternative, or perhaps, a complementary pathway. Nobel Prize winning economist Professor Amartya Sen has argued that traditionally, dominant development perspectives have embraced GDP per capita, food security meaning food availability, and poverty meaning income deprivation.
The accent was on economic efficiency. Sen believes that a better approach is to use market outcomes and government actions to determine if they produce valuable human outcomes.
Prem Misir
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