Wednesday, April 1, 2009

'Made in USA' crisis now affecting developing countries

Nobel Laureate Joseph Stiglitz has recommended that advanced industrial countries should learn from developing countries how to put good financial regulations in place. The global financial crisis that started in the US has impacted countries all over the world, including developing nations that have good financial market regulations in place, he said.

Stiglitz was speaking as chairman of the Commission of Experts on Reforms of the International Monetary and Financial System which was set up by the UN General Assembly to look at the impact of the financial crisis on developing countries in order to assess the kinds of reforms needed in the global financial system. Its recommendations will provide inputs for a UN high-level conference to be held at UN headquarters in New York at the beginning of June.

The commission is likely to suggest that there should be no pro-cyclical policies in countries receiving assistance from international financial institutions, that protectionist measures should not be built into stimulus measures being contemplated by developing countries as they discriminate against developing countries, and that trade distortions like subsidies being provided by developed countries to their companies and financial institutions are unfair and “have totally destroyed the level playing field,” according to Stiglitz.

At a press briefing in Geneva on March 12, 2009, Stiglitz said that the subsidies that developed countries have for years been paying their companies means that these companies and financial firms can undertake risks that those in developing countries cannot, knowing that if there is a problem, they may be bailed out. The commission is therefore arguing that funds should be provided to developing countries to offset this distortion in the global economic system.

“What is very clear is that this crisis, that has a ‘made in USA’ label on it, is now affecting developing countries all over the world including developing countries that had undertaken good financial market regulation, good monetary macroeconomic policies… In fact, many of the developing-country central banks have policies that were much more prudent and (have) much better regulation than some of the advanced industrial countries that are currently facing a problem.”

Stiglitz said that the commission will also argue for developed countries to open their markets further to developing countries. “We argue that while it’s not likely that the Doha Round will reach completion quickly, particularly given the disturbance to the free market that has occurred, the developed countries can help the poorest countries by unilaterally opening up their markets to the developing countries.”

The commission will also be talking about the need for reform of the governance of the international financial institutions. Many developing countries are reluctant to turn to the IMF for funds because of the stigma associated with the loss of sovereignty in the past. Stiglitz said that these institutions have lost their legitimacy and in essence lost their ability to be effective. While some of the new programmes that the institutions are talking about, such as reducing conditionality, are very welcome, the reforms in governance are “too small, too slow”.

Asked what poor developing countries can do for themselves, Stiglitz said that one important message is that there needs to be more financing for developing countries to have counter-cyclical policies. Other ways that developed countries could help developing countries is through opening up their (developed country) markets. New ways of finance have also been explored in the commission’s report, such as new issues of special drawing rights of the IMF for development purposes. In the long run, new mechanisms have to be developed.

“The developing countries have to be given more scope to pursue counter-cyclical policies. In the past, that scope has been circumscribed by some of the international institutions,” said the Nobel Laureate.

While developing countries can do as much as they can, their resources are limited. It is in the interest of the developed countries to give that assistance, because if they don’t, the fall-out can be very serious, said Stiglitz, adding that this is being seen now in Europe, in the collapse of Eastern Europe which may weaken financial institutions in Europe, and in turn may weaken financial institutions in the rest of the world.

Source: http://infochangeindia.org/Globalisation-/News-Scan/-Made-in-USA-crisis-now-affecting-developing-countries-Stiglitz.html

Forget yourself for others, and others will never forget you.

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