Thursday, September 16, 2010

Rich, poor gap threatens recovery

The fundamental causes of the recent global recession – including large debts and surpluses between countries and continuing stagnation in real wages – have not been addressed, and “remain a toxic threat to stable and inclusive growth and the sustainability of the recovery,” UNCTAD’s Secretary-General said this morning. Secretary-General Supachai Panitchpakdi told the opening session of UNCTAD’s governing body, the Trade and Development Board (TDB), that “almost everywhere one looks, one can see the pernicious effects of imbalances: between the widening incomes of rich and poor; between surplus and deficit countries; between agricultural subsidizers and food-insecure nations; between investor-exporter economies and consumer-debtor countries.” Supachai, citing the findings of UNCTAD’s Trade and Development Report 2010 (TDR), which was released Tuesday, warned that the recession may reassert itself if government stimulus programmes in major economies are phased out too quickly and there is insufficient private-sector domestic demand to replace them. Relying on exports to fuel an escape from the recession probably will not work, he said, since no clear, strong market is emerging for corresponding imports. The United States formerly played this consumption role, but at the cost of driving up massive household and current-accounts debt that could not be sustained. When the bubble burst, the recession began. Domestic demand should be stimulated in numerous countries to replace U.S. demand, Supachai said, again citing the TDR. He said China has done this to some extent, but other nations, such as Germany and Japan , “may have to rebalance their economies towards domestic consumption.” He went on to note that the report recommends that real wages, which have stagnated in recent years even as productivity has increased, should be raised so that workers have money to spend and can stimulate their domestic economies: “Wage increases and the provision of decent employment opportunities for the developing world’s burgeoning labour force are essential for maintaining prosperity and avoiding a deflationary spiral.” He also warned that food prices remain a concern in the wake of the 2008 food crisis. “Some countries are facing an obesity epidemiceven while they massively subsidize their agricultural sectors; others, meanwhile, are suffering famine and food insecurity.” Steps should be taken internationally to reduce the role of financial speculation in food and other basic commodities, the Secretary-General said, noting that experience has shown that such speculation increases instability and volatility in food prices. He told the meeting that he will be raising the issue of commodity speculation at the UN Summit on the Millennium Development Goals in New York next week. The Secretary-General also urged greater investment in the agriculture sectors of developing countries. The TDB guides UNCTAD activities from year to year. This year’s session, which runs through 28 September, is the Board’s 57th. Luis Manuel Piantini, Permanent Representative of the Dominican Republic to the United Nations Office at Geneva , was elected President of the TDB for 2010-2011. In opening remarks, he said the current global economic situation is “difficult and complex,” and steps should be taken to offer “solidarity and aid” to developing and emerging economies that will be especially vulnerable if the current fragile global recovery falters. Jean Feyder of Luxembourg , outgoing TDB President, said several key ideas had emerged from UNCTAD’s numerous reviews and investigations of the crisis over the past year. These include a strong appreciation of the “key role” of States in guiding and supporting economic growth in directions that are inclusive for their citizens and sustainable over the long term.

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