A dozen Master’s students and lecturers from Vi core member, Belarus State Economic University, joined UNCTAD’s Igor Paunovic May 12 for a presentation of the 2015 Trade and Development Report (TDR). The session focused on the global economic situation and on ways to reform the international financial architecture.

UNCTAD’s report warns that the policy mix in the developed countries, which combines monetary expansion with fiscal and wages restraint, has been ineffective, and generated negative spillovers for the rest of the world.

“The crisis is not over and the risk of a prolonged stagnation looms,” Paunovic said. “The risk of secular stagnation must be addressed at the root. There is clearly a demand-side problem related to the declining wage share and worsening income distribution.”

The picture for developing countries and transition economies is diverse, but overall, the external economic environment is not supportive for Belarus, as the spillover effect from Russia’s economic downturn has weakened economic activity. Volatility of capital flows, coupled with weakening trade, has produced currency depreciation in many developing and transition economies, including Belarus.

The TDR 2015 argues that part of this trend reveals the lack of a well-functioning international and monetary system. The instability of capital flows is one of the shortcomings of the global system. The report highlights that international liquidity responds to economic conditions in the main financial centers rather than to actual needs in developing countries. Moreover, capital movements pass through the weakly regulated financial systems of developing countries.

Transition economies have witnessed a substantial surge in external debt in the last 15 years and foreign debt reached 1.2 trillion dollars.

“With low interest rates and growing international trade, the debt service ratios seem to be sustainable for debtor countries,” Paunovic said. “But what happens when international interest rates go up?” 

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.

“It is better to reform the sovereign debt mechanism now, when the problems are still manageable,” Paunovic stressed.

The TDR 2015 identifies critical issues to be addressed in order to establish a more stable and inclusive international monetary and financial system that can support the development challenges over the coming years.

“Sustainable Development Goals anticipate the biggest investment push in history, but to succeed, they will require a supportive financial system,” Paunovic said.