South-South Cooperation in Times of Global Crisis
Article no: EN20090206-Article-1.2-2009
South-South Cooperation in Times of Global Crisis
Developing country financial experts and government officials met for two days in early February at UNCTAD in Geneva to ponder ways to use recently much-expanded South-South economic cooperation ? particularly trade, investment, financial flows, and joint efforts to stabilize currency exchange rates and debt ? to soften the blows from a severe financial crisis now spreading to their economies from the industrialized West. Carla September reports
South-South cooperation should be accelerated and fine-tuned so that developing nations can compensate each other for expected losses in trade demand, investment, and aid from the countries of the North, participants pointed out at the headquarters of the United Nations Trade and Development Conference (UNCTAD). Opening the "Multi-Year Expert Meeting on International Cooperation: South-South Cooperation and Regional Integration," Supachai Panitchpakdi, the organization's Secretary-General, said "a global financial crisis has shaken the economic foundations of the North, and is threatening to shatter the growth and development aspirations of the South. The timing, therefore, is right to explore how greater South-South cooperation can help developing countries to cope with the crisis."
* Coping with the bleak consequences for the South
Supachai said merchandise trade between developing countries grew at an average of 13% per year from 1995-2007, and at the end of that period amounted to US$2.4 trillion, or 20% of world trade. A note provided by the UNCTAD Secretariat detailed the promise of these exchanges. Among other things, one-third of these exports were high-skill manufactured goods, which yielded high profits and were enabling developing nations to diversify their economies.
"The global financial crisis has now put these trends in jeopardy," the Secretary-General said, "and the picture for the near future is bleak." He reported that sharp declines in demand from the North were quickly filtering through the international trading system, and UNCTAD now estimates that exports from the developing world could decline by 9.2% in 2009; that a sharp fall in commodity prices resulting from the slowdown is threatening the well-being of least developed countries, which are heavily dependent on exports of these basic farm products and industrial raw materials; that a near freeze-up of the global banking system has made it hard for countries to obtain the credit and other financing needed to carry out trade; that remittances from developing-country workers employed overseas are likely to decline as these economic migrants are increasingly laid off from their jobs; and that aid from rich to poor nations could very well decrease by 20-40% as donor countries struggle to bail out their own economies.
Supachai said South-South coping measures can include financing from regional development banks in the South to compensate for the loss of some international aid; regional stimulus packages, especially for badly needed improvements to infrastructure, that might help preserve jobs and keep developing country economies viable; and "diversification of foreign-exchange reserves" in which nations of the South buy other countries' debt. The Secretary-General also recommended regional arrangements "specifically aimed at mitigating the impact of financial shocks." The Chiang Mai initiative arising out of the Asian financial crisis of 1997-1998 "provided participating countries with international financial liquidity through swap arrangements," he noted.
* Drawing on past experiences
Participants in the meeting said the Global System of Trade Preferences among Developing Countries (GSTP), supported by UNCTAD, has potential in the current crisis. While there had been some challenges associated with the GSTP in the past, they remarked, this was a potential mechanism, if improved, that could stimulate trade and demand when it was most needed by developing nations. They added that for serious trade-enhancement measures to take effect and for regional arrangements to be established, governments of the South need to agree that a great deal of commitment and effort will be needed.
The meeting called for developing countries to draw lessons from now extensive national experiences with South-South cooperation ? for example, Argentina has 25 years of experience in carrying out cooperation programmes with other developing countries; and Brazil and Argentina established an economic structural fund in 2007 that provided support to Uruguay and Paraguay. Similar experience existed in other developing regions and in the European Union.
Participants said there is an immediate need nationally and internationally to analyse the situation; to consider policy options; to ensure national cooperation for regional measures intended to address the crisis; to share policies and best practices; and to develop regional solutions and plans for reform of the global finance architecture. Some termed the meeting an "emergency crisis clinic" that may serve as a starting point for the development of a ?diagnosis kit? to help developing countries cope with periodic global financial crises. UNCTAD was urged to play a lead role and to develop partnerships with other agencies to this end.
Those addressing the meeting also stressed that there is a need for a conclusion to the Doha Round of multilateral trade negotiations, and said there should be further "triangular" North-South-South economic cooperation.
* The way forward
Panel discussions were held over the course of the meeting on "South-South trade and regional integration: where we stand and future directions"; "South-South trade and the global financial crisis"; "South-South cooperation, regional integration and foreign direct investment"; "Regional monetary and financial cooperation ? South-South solutions?"; and conclude with a debate on "the way forward."
The President of UNCTAD's Trade and Development Board (TDB), Debapriya Bhattacharya, summarizing two the days of expert debate said that the trend towards South-South cooperation should be accelerated and fine-tuned so that developing nations can compensate each other for expected losses in trade demand, investment, and aid from the industrialized North. "This crisis is not just any crisis," he said.
Bhattacharya noted that proposals included enhancements to trade agreements and trade preferences between developing countries, especially for Least Developed Countries (LDC); cooperation by national export-import banks to provide access to credit and insurance for exporters in developing nations as international sources dry up; creation of a "South-South trade and development bank" which would back up developing-country banks struggling to find financing in the international market; and reform of the international financial architecture, including the operations of the International Monetary Fund (IMF) and the World Bank. Developing countries should participate in the decision-making on such reforms, the summary said.
Debate at the expert meeting also covered other themes. These included a need to promote actively South-South efforts to provide more foreign investment in developing country economies; steps to improve infrastructure in such countries and to harmonize rules, standards, and procedures involved in South-South trade, investment, and technology transfer; more extensive regional economic integration, especially in Africa; and more South-South cooperation among regional development banks. The Brazilian experience in developing South-South cooperation with Africa was provided by Ambassador Carvalho de Azevedo.
It was noted UNCTAD could play a significant role by undertaking further analytical research work on South-South economic relations and on the effects on the developing world as the global financial crisis plays out. ? Under reforms to UNCTAD meetings made at the UNCTAD XII quadrennial conference last year, this expert session on South-South cooperation will continue next year to allow experts to study the issue as it evolves over time.
Posted: 6 Feb 2009
Recommended citation: September, Carla (2009) 'South-South Cooperation in Times of Global Crisis', World Economy & Development In Brief, Issue 1/Jan-Feb, Luxembourg (www.wdev.eu)