Thursday, 30 April 2009

UNCTAD: Debt moratorium and stimulus for poor countries needed

UNCTAD's Secretary-General called for temporary debt relief for countries hard-hit by the economic crisis, telling a UN meeting that world attention to the crisis must not wane, regardless of signs of recovery in wealthier nations. Debt-ridden developing countries already struggling with the economic crisis will be particularly hard hit if they do not receive some form of debt relief in the immediate future, Secretary-General Supachai Panitchpakdi said at the annual dialogue at ECOSOC among the World Bank, IMF, World Trade Organization, and UNCTAD on 27 April. A temporary moratorium on their official debt servicing would give them some breathing space. “In the current global crisis situation, both debtor and creditor countries would probably be better served if scarcer foreign exchange earnings in the debtor economies were used for the purchase of imports rather than for debt servicing," he told the meeting.

The developing world, beset by declining export earnings, diminished foreign direct investment (FDI), and reduced remittances from citizens working overseas, as well as by rising social and financial difficulties, will also take much longer to recover from the crisis than will developed countries, Supachai said. And if better-off nations indeed begin their recovery this year and next – as some are predicting – the current sense of urgency may fade away, along with laudable measures now under way to assist less-wealthy countries. Any monitoring mechanism designed to predict or avert future crises should therefore consider trends throughout the world economy, including in developing countries, and not just in the advanced economies, he urged.

Supachai also recommended that supplementary International Monetary Fund (IMF) cash should be used to stimulate and expand developing-country economies, as the US and other developed countries are doing for their domestic economies. The IMF should not compel governments to curb public spending or tighten monetary policy, which would have exactly the opposite effect, he said. UNCTAD is predicting a US$2tr financial shortfall for developing countries, along with a 30% drop in exports in some sectors. A decline in food production is also likely, as is a recurrence of food crises in some parts of the developing world.

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