Unit 4: part 2

Case study: WTO anticipates sharp slowdown in worldtrade growth in 2023

What would be reasons for slow growth and lower living standards, according to the WTO?
● The UN partner agency has cautioned against imposing trade restrictions which would ultimately
result in slower growth and lower living standards.
Concern for developing countries
● Meanwhile, developing countries could face food insecurity and debt distress as import bills for
fuels, food and fertilizers rise: another impact from the war in Ukraine.

What reasons will affect the slowdown of trade growth as from Q1 2023?

High prices and inflation

Demand for imports is expected to weaken as growth slows in major economies for different reasons,
WTO said.

In Europe, high energy prices resulting from the Russian invasion of Ukraine will squeeze household
spending and raise manufacturing costs. (rasing prices)

Concern for developing countries

Meanwhile, developing countries could face food insecurity and debt distress as import bills for fuels,
food and fertilizers rise: another impact from the war in Ukraine.

Overall, energy prices jumped 78 per cent year-on-year in August, according to the forecast. Food prices
increased 11 per cent, grain prices were up 15 per cent and fertilizer 60 per cent.

● Trade's Vital Role:

● Global Supply Enhancement:
● Emphasizes trade as a crucial tool.
● Enhances the global supply of goods and services.
● Cost Reduction for Net-Zero Carbon Emissions:
● Highlights trade's role in lowering costs to achieve net-zero carbon emissions.
● Positions trade as a vital tool for addressing environmental goals

Why is trade a vitual tool according to WTO director general?

Ngozi Okonjo-Iweala, the WTO Director-General, said policymakers face “unenviable choices” as they try
to find an optimal balance among tackling inflation, maintaining full employment, and advancing
important goals such as transitioning to clean energy,
She underscored how trade is a vital tool - both for enhancing the global supply of goods and services, as
well as for lowering the cost to achieve net-zero carbon emissions.

What will help to boost the economic growth according to her?

● Trade Restrictions Impact on Economic Growth:

● Temptation to impose trade restrictions due to supply vulnerabilities.
● Warns against such measures, stating they would deepen inflationary pressures.
● Result: Slower economic growth and reduced living standards over time.
● Call for a Deeper, Diversified Production Base:
● Advocates for a deeper, more diversified, and less concentrated production base.
● Aim: Boost economic growth, contribute to supply resilience, and ensure long-term price
stability.
● Benefits: Mitigating exposure to extreme weather events and localized disruptions.
● Export Growth Projections by Region:
● WTO predicts the Middle East to have the strongest export growth in the current year
(14.6%).
● Followed by Africa, North America, Asia, Europe, and South America.
● Import Volume Growth:
● Middle East leads in trade volume growth on the import side (11.1%).
● Outlook for the Middle East and Africa:
● Anticipates small declines in exports for the Middle East and Africa in 2023.
● However, imports are expected to remain strong in the mentioned regions.
● Revised Forecast and Ukraine Conflict Impact:
● New forecast released on Wednesday revises estimates published in April.
● Initial estimates made weeks after the start of the war in Ukraine.
● Initial projections relied on simulations due to a lack of hard data on the conflict's impact
Aids, loans and debt relief:

a. Define bilateral aid

It's the direct aid from one country to another, allowing the donor to have more control over where the
aid is allocated. Examples: Grants, soft loans, and technical cooperation and assistance.

b. Define Multilateral aid

Multilateral aid is like bilateral aid, except it is provided by many governments instead of one. A single
international organization, such as the World Bank, often pools funds from various contributing nations
and executes the delivery of the aid.

Evidence suggest that bilateral aid is more vulnerable to political strategic influence the multilateral
aid. Explain why?
Giving aid directly from one country to another (bilateral aid) is more likely to be influenced by political
motives, as the donating country may push for its own interests and goals. This can affect the
independence of the receiving country. On the other hand, when aid is given through international
organizations (multilateral aid), where many countries are involved, it's less likely to be swayed by one
country's political agenda, making it more neutral.

What could be positive effects of ODA?

● Infrastructure growths
● Education and healthcare
● Services grow
● Tourism
● Inhance government structures
● Climate change

Case study: As a system, foreign aid is a fraud, and does nothing for inequality

a. Use examples to explain why the poorest countries are not on the list for ODA?

Most British aid goes to countries that are:

● Significant markets, like Nigeria (visited by May last week)

● Geopolitically important, especially in the "war on terror," including Pakistan, Afghanistan, and
Syria.

● Top recipients of US aid do not include the poorest countries; instead, aid primarily goes to
Israel, Egypt, Jordan, Afghanistan, and Kenya, driven by geopolitical and trade considerations.
● Similarly, multilateral aid, channeled through organizations like the World Bank, also does not
prioritize the poorest countries, with none of them ranking in the top 10 recipients of such aid.
● This pattern highlights a trend where aid distribution, whether bilateral or multilateral, often
aligns with strategic and geopolitical interests rather than directly addressing the needs of the
poorest nations.
b. What does the writer by ‘half of all development aid is tied to?´
● Half of all international development aid is "tied," requiring recipient countries to use the aid to
purchase goods and services from the donor nation.
● USAid, according to the writer, used to openly acknowledge that the primary beneficiary of
America's foreign assistance programs was the United States, with almost 80% of contracts and
grants going to American firms.
● The tied nature of aid, as per the notes, has been a way for the United States to boost its
economy by creating new markets for American industrial exports and generating jobs for its
citizens.
● The concept of "putting America first" in foreign aid, emphasizing national interests, has been a
longstanding practice at USAid, predating the presidency of Donald Trump.
 c. Why is aid the form of loans a scandal to the article

It cripples developing countries through the accumulation of debt. MAny countries receive more
interest payments from recipient countries than they give in aid. So rich countries are asking for
high interest rates.

d. To what is migration aid from the EU linked?

Increased making aid conditional on African nations curbing migration to Europe. Those who want to
work with the EU will get certain treatment, whereas those you don't will get different treatment.

e. How does China use aid?

Uses it as a player in global industry, similar views aid as a means of leavagering political influences. Ties
aid to purchase of goods and services.

Case study: The third world debt:

Explain the term debt crisis

The term is typically used to refer specifically to the external debt those countries owe to developed
countries and multilateral lending institutions.

Which are the main loaner organisations

Imf and world bank

How much was the total debt for the developing countries in 2010?

$4 trillion dollars

The build up of the debt started in the 1970s, why?

- The origins of the developing-world debt crisis can be traced back to the oil-price shock of 1973–74.

- During this period, OPEC member states limited the supply of oil, leading to a substantial increase in its
price.

- The impact was felt by all oil importers, including many newly independent countries in Africa.

- Excess profits earned by OPEC members were invested in the Western commercial banking sector.

- Seeking new borrowers, these banks turned to developing countries as a sensible and safe option.

- Developing nations, in need of assistance to mitigate the impact of rising oil prices, became attractive
to banks.
- Consequently, during the second half of the 1970s, a significant portion of capital flows to the
developing world originated from commercial banks.

- This flow of funds, from OPEC-member states to commercial banks and then to developing countries, is
referred to as petrodollar recycling.

Explain why the debt crisis worsened in 1980s.

● Second Oil-Price Shock (1979):

● Economic recession in Western economies.
● Strain on balance of payments in oil-importing developing countries.
● Banks provided further loans to relieve pressures.
● Shift in Economic Policy (1980s):
● Economic policy shift in the West (especially the United States and the United Kingdom).
● Use of interest rates to control inflation.
● Increase in interest rates due to the anticipated rise in inflation from oil price hikes.
● Global interest rate rise significantly increased debt-servicing costs for developing
countries.
● Recession in the West (1980s):
● Economic downturn in Western countries.
● Multiplication of problems for the developing world.
● Need for additional foreign exchange to meet debt repayments.
● Difficulty in raising foreign exchange through increased exports due to the decline in the
market for primary commodities.
● Economic downturn in the West led to decreased demand and depressed prices for
commodity exports from developing countries.
What was the approach of the WB and the IMF to help the development countries to pay their loans?

​ Initial Short-Term Approach (Pre-1990s):

● The IMF and the World Bank focused on short-term measures to prevent debt defaults.
● Loans were provided with conditions requiring borrowing countries to implement
structural adjustment measures.
● The goal was to enhance economic productivity, hoping it would lead to the resolution
of debt problems.
​ Recognition of Long-Term Debt Crisis (Mid-1990s):
● By the mid-1990s, it became evident that the debt crisis was a persistent, long-term
issue.
● Despite adherence to adjustment policies, many developing countries still faced
unresolved debt problems.
​ Heavily Indebted Poor Countries (HIPC) Initiative (1996):
● In response to the long-term nature of the debt crisis, the HIPC Initiative was launched in
1996.
 ● This marked the first instance of providing limited debt relief to countries indebted to
the World Bank and the IMF.
● Relief was tied to conditions similar to earlier structural-adjustment requirements.
​ Critiques of HIPC Initiative:
● Critics argued that the relief offered by HIPC still maintained conditions comparable to
previous loans.
● The linkage to structural-adjustment conditions remained a point of contention.
​ Activist Calls for Debt Cancellation (Turn of the 21st Century):
● Around the turn of the 21st century, activists and non-governmental organizations, like
the Jubilee Debt Campaign in Great Britain, called for wholesale debt cancellation.
● The advocacy for complete debt forgiveness gained traction as an alternative to
conditional relief measures.

OECD: Origanistaion of economic corporations and development

● Has its roots after WWII, and started in 1947 as the OEEC (Org. for European Economic
Cooperation).​
 ● The OEEC was created to finance the US-Marshall Plan and to create cooperation rather than
conflict.​
● Became OECD in 1961 and opened up to a worldwide cooperation.​
Aims of the OECD:
● They act as an inter-governmental economic body to promote ​
economical and social well-being.​
● Analysing and comparing data to predict future trends.​
● Measures productivity and global flows of trade and investment.​
● Democracies and market economies work together.​
● They also work together with 17 non-members.​
● Promotion of economic growth and prosperity, and sustainable ​
development.​
- Sets international standards from agriculture to taxes on the safety of ​
chemicals.​
​
Critism:
● They put rich countries and larger countries first at the expense of the poorer countries.​
● Limited membership to a select group of rich countries “the Rich Club”.​
● Members are all like-minded, limiting engagement.​
● Negotiations are often secrative and over 1/3 of the world´s countries is not participating.​
● Works with decision concesus, which makes it a slow body.​
Successes
● Fight against corruption.​
● Makes reports on tax avoidance.​
● Fight for civil liberties.​
● Consumer protection rights.​
● Rules on responsible mining.​
● Pushes the members to persue better policies on all of the above.​
International aid:
a gift of money or goods and services to another country. It is ​
free of conditions and does not have to be paid back.​
​
often referred to as ODA = Official Development Assistance ​
(Overseas Development Aid).​
​
● ODA is dominated by a small group of developed countries, known as the donor countries or
private phylantropists such as Bill and Melinda Gates foundation.​
​
- Donor countries work bilateral, or multilateral.​
International leading and loans
a transfer of money or skills that ​
have to be paid back over time.​
​
- For a lot of developed countries loans are an important tool for investment (i.e. in infrastructure) and
is often good for lender and recipient.​
- For developing countries it is often more difficult because of their fragile economies.​