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United Nations economists have called for deep reforms of the global financial system including stronger regulation of the financial institutions, an overhaul of the international reserve system, adequate international liquidity provisioning and a more inclusive global economic governance to prevent the recurrence of the current global economic crisis. They want the coordinated global economic stimulus packages to be linked with the measures taken up for sustaining development.
According to the annual economic report by the UN, “world per capita income is expected to decline next year, export growth and capital inflows will fall, borrowing costs for developing countries will rise as contagion spreads from the major economies, and the US dollar is set to resume its decline, with a possible hard landing in 2009”.
The report on World Economic Situation and Prospects 2009 indicates that based on the present scenario, the world output will grow at a meager rate of one percent in 2009 as against the growth rate of 2.5 percent in 2008 and 3.5-4 percent in the last four years. The growth rates are likely to fall by 0.5 percent in the developed countries and nearly 4.6 percent in the developing countries.
According to the economists' calculations, “under a more optimistic scenario, factoring in fiscal stimulus of between 1.5 and 2 percent of gross domestic product (GDP) of the major economies and further interest-rate cuts, developed economies could post a 0.2 percent rate of growth, and the developing countries would surpass five percent growth”. They further added, “if the present credit squeeze prolongs and confidence in the financial sector is not restored in the coming months, developed countries could enter into a deep recession, causing world output to fall and GDP growth in the developing world to drop to 2.7 percent, dangerously low for the ability of countries to sustain poverty reduction efforts and social and political stability.”
To overcome the worldwide economic meltdown and prevent it from happening again, according to the UN press release, the economists have asked for a broad range of steps to be taken including: Fundamental revision of the structure of government and role of the International Monetary Fund (IMF) and World bank for greater international policy coordination and enhanced participation of the developing countries; Fundamental reform of the current financial regulation system and supervisory system to stem past excesses; Reform of the present international reserve system, diverting from complete reliance on the US dollar towards a multilateral multi currency system; Reform of liquidity provisioning and compensatory financial mechanisms backed by better multilateral and regional pooling of national forex reserves and ignoring the onerous policy condition. Source: The Hindu
December 3, 2008
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