Statement to the UNCTAD Symposium on the Global Economic Crisis
Statement by Mr. Sha Zukang, Under-Secretary-General for Economic and Social Affairs to the UNCTAD Symposium on the Global Economic Crisis Geneva, 18 May 2009
18 May 2009, Geneva
Ladies and gentlemen,
Let me first thank the Secretary-General of UNCTAD for the opportunity to participate in this Symposium, which will focus on some of the core issues of concern to UN-DESA, UNCTAD, the ILO and, indeed, the entire United Nations development system and our partners in civil society and the private sector.
Let me also express my strong solidarity with the remarks made by the Director-General of the ILO, with whom DESA works closely. We were pleased to collaborate most recently in the effort to mount joint crisis initiatives by the UN system through the CEB, particularly through the High-level Committee on Programmes, most ably led by Mr. Somavía.
For years, UNCTAD’s Trade and Development Report and DESA’s World Economic Situation and Prospects (WESP) – produced in collaboration with UNCTAD and the UN Regional Commissions – have warned of the risks posed by the increasingly unsustainable imbalances in the global economy. We expected a crisis. Yet no one anticipated the severity of the economic crisis that engulfs the world today.
According to the latest UN forecast in the WESP, world gross product will decline by 2.6 per cent in 2009, a sharp fall from the positive 2.5 per cent growth estimated for 2008. There may be a mild recovery in sight for 2010, but only if the major economies’ fiscal stimulus packages gain traction, the global credit crunch eases significantly and commodity prices stabilize. Yet, a visible recovery next year remains a highly uncertain prospect – and the risks of a prolonged recession are still very high.
For the United Nations, the way forward must involve action on two broad fronts. First, to understand the full effects of the crisis on developing countries and on development. Second, to contribute to finding adequate policy responses to the crisis.
Let me elaborate on both fronts:
Although many developing countries were not directly exposed to the financial turmoil, they are now being severely hit by the fallout from the crisis. Why? And what are the effects? The answer begins with the channels of transmission.
One transmission channel is international financial markets. Private capital inflows to developing countries have dropped sharply, while their external financing costs have surged.
Another channel is the dramatic collapse in global trade1. The situation is compounded by a contraction in trade finance, leading to sharp declines in exports, especially in the Asian economies. Meanwhile, imports of developing countries are falling, putting additional pressure on low-income countries that export commodities. A further constraining factor is the rise of protectionism, in both trade and investment.
The third transmission channel is the decline in remittances as the job market deteriorates in host countries. This is dire news for a number of low- and middle-income countries, where remittances amount in some cases to more than 20 per cent of GDP. This is the global crisis at the local level, lowering the income available to sustain lives in many local communities.
Aid flows may become a fourth transmission channel. Many donors target annual aid flows as a share of GNI, so the value of aid will fall with national income, even if the share stays fixed. Although donors have reiterated their commitments, they also face pressure to shift fiscal priorities in order to finance domestic stimulus packages.
The upshot is that developing countries face a multitude of effects of the global economic crisis. On a per capita basis, income will decline; at least 60 developing countries will suffer negative per capita income growth in 2009. Unemployment will rise significantly, with the higher unemployment levels remaining initially unresponsive to any quick economic recovery.2 The capacity of most developing countries to cope with these impacts will be made worse by severe balance-of-payment problems, resulting from the declining international environment.3
All this, on top of the earlier food crisis, will generate significant setbacks in the efforts to reduce poverty and hunger.4 Indeed, UNCTAD warns that the financial crisis may lead to a decline in food production in poor countries – and hence has called for a temporary moratorium on debt payments by poor countries, to free up more of their funding for critical imports.
Achieving the MDGs by 2015 will become more difficult and more costly, as the crisis only increases the catch-up effect already urgently needed in many low- and middle-income countries to make significant progress in social and economic development.
This brings us to the second front for action by the UN system: to help shape mobilize an effective policy response.
Consider the core features of this crisis, which has come on the back of unsustainable growth, built on financial bubbles and speculation. The crisis is truly global, with cascading effects throughout the world economy. And it is systemic, revealing enormous deficiencies in global economic governance, regulatory frameworks, international liquidity provisioning, the global reserve system and global monitoring capacities.
From the UN’s perspective, with our focus especially on developing countries and the global development agenda, this leads to a need for policy measures in two key areas.
First, more fiscal stimulus and closer international coordination of the stimulus packages are needed. Some important principles for moving forward include the need to reach a Global New Deal that emphasizes environmentally sustainable growth, job security and social protection; to avoid protectionist measures and unfair trading practices; and to provide more long-term development lending and ODA.
Donors should accelerate delivery on their commitments to ensure that the poorest countries also have sufficient space for countercyclical policy measures. The benefits of this will eventually accrue to all, in the form of more equitable and more stable growth.
Second, there must be deep reform of the international financial system. And this must include systemic reforms of financial regulation, tax cooperation, international debt restructuring mechanisms and a new global reserve system.
Achieving this, however, will require more legitimate and representative institutions of global governance, which are essential for tackling the many other common challenges we face, including climate change. The weakness of existing institutions in this regard rendered them unable to deal with the crisis effectively, let alone to avert it.
The crisis also has made clear that we need greater coherence between the multilateral trading system and the international financial architecture. And we must address the crisis in ways consistent with the tripartite mission of the United Nations, to promote peace and security, development and respect for human rights.
My remarks this morning are meant as a general overview of the issues that need to be addressed in the wake of the crisis. The Conference on the World Financial and Economic Crisis and its Impact on Development, to be convened by the United Nations in New York, from 1-3 June, presents a unique opportunity to articulate the concerns and ideas of the broad spectrum of countries, organizations and interests. Ultimately, it can only be the various voices from across the global community as a whole that shape the UN’s – and the world’s – way of dealing with the crisis.
In this spirit, I am looking forward to a productive and insightful set of discussions.
Thank you very much for your attention.
1 The WTO expects a fall in global trade volume by 9 per cent this year. In the WESP, we project an even steeper decline, by 11 per cent.
2 Because of the crisis, the ILO estimates, 50 million more p
eople worldwide could become unemployed and hundreds of millions may join the ranks of the working poor.
3 The IMF estimates that the balance-of-payments shock could amount to $140 billion in 2009 for low-income countries alone.
4 Between 105 and 145 million more people are expected to remain poor or fall into poverty because of the global economic slowdown.