UNCTAD and the WORLD BANK, two opposing views on the crisis and onits solution

Francine Mestrum

www.globalsocialjustice.cominfo@globalsocialjustice.com

UNCTAD has once more delivered… In a very interesting new report, the UNorganization looks very critically at the current financial and economic crisis. Letme briefly highlight a couple of important points from the report. The crisis was predictable, according to UNCTAD. The huge disequilibria, thecurrent account deficits in the USA, the UK, Spain and Eastern Europe, togetherwith the growing surpluses in China, Japan, Germany and the oil-exportingcountries, were bound to lead to this crisis. UNCTAD’s first warnings came in2004!Secondly, recognizing the lack of economic logic of the financial markets is key tounderstanding the roots of the current crisis, according to the Trade andDevelopment report. However, up till now, nothing has been done to address theimpacts on currency and commodity markets and on the future of an opentrading system. The price volatility of commodities is certainly linked to the rising or decliningdemand, though the price evolutions in the second part of 2008 were mainlytriggered by financial investors. Commodities are increasingly seen as analternative asset. Closer and stronger supervision, and regulation of thesemarkets is indispensable, according to UNCTAD.UNCTAD notes that the IMF lending has surged since the outbreak of the currentcrisis, extending to nearly 50 countries by the end of 2009. However, the scopefor expansionary policies to counter the impact of the crisis on domestic demandand employment is severely constrained by IMF conditionalities.Furthermore, experience with the current financial crisis calls into question theconventional wisdom that dismantling all obstacles to cross-border private capitalflows is the best recipe for global financial integration. Too little attention hasbeen given to the management of global finance, in particular speculative capitalflows. Assertions that capital controls are ineffective or harmful have beendisproved.Finally, UNCTAD notes that the Dollar-based reserve system is increasinglychallenged. It proposes a reformed international exchange rate system with aconstant real exchange rate (RER) in order to curb inflation, to prevent currencycrises and global imbalances, to avoid debt traps and procyclical conditions andto reduce the need for international reserves. The UNCTAD report also has a chapter on climate change, and it points to theneed to make mitigation compatible with growth and to introduce structuralchange.