"MADE IN USA" CRISIS NOW AFFECTING DEVELOPING COUNTRIES - STIGLITZ
by Kanaga Raja
The financial crisis with a "made in USA" label on it is now affecting developing countries worldwide including those that had undertaken good financial market regulation as well as good monetary macroeconomic policies, said Nobel Laureate Prof. Joseph Stiglitz.
"In fact, many of the developing-country central banks have policies that are much more prudent and [have] much better regulation than some of the advanced industrial countries that are currently facing a problem," Stiglitz told a media briefing at the Inter-Parliamentary Union's office in Geneva.
His personal view is that some of the advanced industrial countries should go to the developing countries and study what they did to learn what good regulation entails.
Noting that there are many distortions to the international trade regime such as tariffs and subsidies, Stiglitz said that subsidies provided by the industrial countries to their companies and financial institutions "have totally destroyed the level playing field" for years to come. It means that companies and financial firms in developed countries can undertake risks, knowing that if there is a problem, they may be bailed out.
Speaking briefly on the WTO Doha Round of trade negotiations, Stiglitz said that while it's not likely that the Doha Round "will reach completion quickly" particularly given the current disturbance to the free market, the developed countries can help the poorest countries by unilaterally opening up their markets to the developing countries.
Stiglitz, who is also a professor of economics at Columbia University, was in Geneva attending meetings of the Commission of Experts on Reforms of the International Monetary and Financial System, which he chairs. The Commission was formed last November by the President of the UN General Assembly Father Miguel D'Escoto Brockmann of Nicaragua.
At the media briefing on 11 March, Stiglitz explained that the Commission of Experts was set up 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. The recommendations that the Commission is likely to come up with will serve as a preparation for the discussions that are going on that will lead to the UN high-level conference which will be held at the United Nations headquarters in New York at the beginning of June.
He said that the Commission viewed itself as having two roles -- helping to provide some of the input and thinking into that UN process, and also coming up with a longer document that hopefully will have some impact on the global debate on the restructuring of the global financial system. The Commission's recommendations will also take two parts -- a set of things that need to be done right away and those that need to be done but are not necessarily going to be done overnight.
"We (the Commission) very strongly support the view that is likely to come out of the G20 process -- that there is a need for strong stimulus by all the countries in the world -- but we highlight the fact that the developing countries don't have the resources to engage in the necessary counter-cyclical policies, and therefore there is need for substantial assistance from the developed countries to the developing countries to enable them to engage in those counter-cyclical policies," said the Nobel Laureate.
(The G20 process involves some twenty leading developed and developing economies which will be holding a leaders' summit in London in early April to discuss the global financial system.)
Noting that it is good that the G20 has talked about there not being any protectionism, Stiglitz said that the Commission of Experts is probably likely to reaffirm that. "We know that actually in some of the stimulus measures, protectionist measures have been undertaken, and that some of the protectionist measures have the effect of discriminating against developing countries."
He said that the Commission has long recognized that there are many distortions to the international trade regime -- tariffs and subsidies. Subsidies that are being provided by the industrial countries to their companies and financial institutions "have totally destroyed the level playing field."
And the fact that the developed countries have stood ready to provide these subsidies means that the level playing field will be destroyed for years to come because it means that companies and financial firms in developed countries can undertake risks that those in developing countries cannot, knowing that if there is a problem, they may be bailed out, Stiglitz said. The nature of a free market economy has been really undermined by what has happened, he added.
He said that the Commission is arguing that there is need for funds to be provided to the developing countries to offset this distortion in the global economic system.
Stiglitz said that like the G20, the Commission will be talking about the need for reform of the governance of the international financial institutions. Part of the problem is that many of the developing countries feel reluctant to turn to the IMF for funds because of the stigma associated with the loss of sovereignty in the past.
These institutions have lost their legitimacy and in essence lost their ability to be effective, he said. While some of the new programmes that the institutions are talking about such as reducing conditionality are very welcome and is an important move in the right direction, the reforms in governance are "too small, too slow."
According to Stiglitz, the problem is that the sources of liquid funds in the world -- countries in Asia with large reserves, and sovereign wealth funds in the Middle East -- often have inadequate voice in international economic institutions, and often have views about good and appropriate economic policies that differ from those that have been pushed by these institutions.
"We have to remember that the IMF did not foresee the problem; [it] had in fact pushed the deregulation policies that have facilitated the contagion of the problem in the United States to the rest of the world, and that of course has undermined the credibility of the institution..." – Third World Network Features
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About the writer: Kanaga Raja is the Editor of South-North Development Monitor (SUNS).
The above article is reproduced from the SUNS, No. 6659, 13 March 2009
