Eight researchers and graduate students from Vi South African affiliate member, the North-West University, participated in a videoconference presentation of UNCTAD's Trade and Development Report (TDR) 2015 November 12.
The presentation was delivered by TDR co-author, Alex Izurieta, of UNCTAD’s Division on Globalization and Development Strategies.
"What we are concerned about is what we call a tepid recovery in developed countries," Izurieta said while outlining TDR findings about the global economic situation.
"In our view, developed countries did not perform well not only because of fiscal austerity policies, but also because of the long-term deterioration of the wage share in their GDP, which limited domestic demand," he added.
Lower demand from developed countries has had a negative impact on growth in developing countries, whose exports are severely affected by the slowdown or stagnation of imports by developed countries.
A number of developing countries have also suffered from the continuing drop in commodity prices -- and related export revenues -- over the last five years, and fluctuations in commodity prices which were exacerbated, or triggered, by speculation in commodity markets.
In addition, "unregulated short-term capital inflows into developing countries put pressure on exchange rates, creating tensions between exchange rates and interest rates policies," Izurieta said. “This has adversely affected productive investment in developing countries.”
In light of the growth bottleneck in developed countries and persisting financial instability in the world, the report looks into ways in which the international financial architecture could better support development.
According to the TDR, the global financial system and parts of the banking systems in developed countries, as well as shadow banking, such as hedge funds and money managers, have been unregulated.
At the same time, "decisions about financial flows were concentrated in the hands of a small number of banks in developed countries, and investment decisions were informed by country or sector ratings by credit rating agencies, which are mostly based on ideological criteria and not hard economic data," Izurieta asserted.
The resulting increase and fluctuation of flows of liquidity, as well as a growing debt in developing countries since the 1990s, has constrained the availability of long-term development finance for these countries.
The report concludes that a combination of national policies and internationally coordinated measures are needed to redress the situation.
Among the national policy measures proposed by the report are: accumulation of reserves at the national or regional level, a managed floating exchange rate system, capital account management, and reduction of debt denominated in foreign currency.
Ensuring long-term development finance is crucial, Izurieta said. “We need more public sector institutions like development banks to provide such finance to the real economy."
Also needed are complementary measures, such as the use of official development assistance, sovereign wealth funds and potentially the public-private partnerships -- though the latter have shown ambiguous results, not often providing fresh capital, but rather claiming resources or bail-outs from public sector institutions).
At the international level, the report calls for a mechanism to efficiently restructure sovereign debt, given that the present system is fragmented, pro-cyclical and does not sufficiently balance the interests of indebted countries and private creditors.
The presentation triggered a number of questions from attending academics, which related to the feasibility for emerging economies, including South Africa, to maintain managed floating; the changes in the debt management system; the likely impact of monetary normalization in developed countries on developing countries; and how developing countries should address the need for long-term development funds.