|
Business
Harnessing regional co-operation to foster global trade financial scene
|
Growth prospects for developing countries have never been better
|
The UNCTAD’s Trade and Development Report voices the genuine concerns of developing countries.
The focus of the United Nations Conference on Trade and Development’s (UNCTAD) Trade and Development Report 2007 is seen in its subtitle ‘Regional co-operation for Development’. Developing countries such as India would do well to foster regional co-operation with other countries but should be wary of bilateral agreements with the developed countries and regional preferential trade agreements (PTAs).
The PTAs might help in attracting foreign capital and improve market access but they could limit the space available to domestic policy makers in promoting competitive industries at home.
Regional cooperation with other developing countries can help in a smooth integration with the global economy. But such co-operation ought to go far beyond the normal trade liberalisation. It should encompass areas such as monetary and financial arrangements, large infrastructure projects and industrial policies.
Economic situation
The global economic situation presents a paradox. For the fifth year in a row the global economy will continue to expand. Growth prospects for developing countries have never been better for a long time but at the same time there are serious threats from global current account imbalances and large speculative capital flows that “distort exchange rates and perpetuate these imbalances". Ideally, there should be appropriate global exchange rate arrangements. Exchange rates should be subject to the same degree of disciplines as tariffs and subsidies. While that may not be practicable for now, developing countries can co-operate with one another in financial and monetary matters to mitigate the adverse consequence of global imbalances and volatile capital flows. Buoyed by strong export growth, many developing countries have built sizable current account surpluses. Normally a positive trade balance should lead to an appreciation of the domestic currency. However, recently this has not happened: trade surpluses have been accompanied by currency depreciation and deficits by appreciation.
The UNCTAD report attributes this development partly to the influence of ‘carry trades’ through which large investors move capital to countries having higher nominal interest rates.
In their present state financial markets distort the competitive positions of companies and countries. UNCTAD therefore advocates policy intervention. The world economy needs a new international code of conduct to avoid exchange rate instability and misalignments, which damage competitiveness and beggar-thy-neighbour strategies which may jeopardise regional trade agreements. Since there are practical difficulties in arriving global exchange rate arrangements immediately, developing countries can manage their exchange rates. They can consider taxing capital flows and intervene in the forex markets.
Second, a regional approach for mutual financial assistance will be more efficacious than the existing multilateral arrangements embodied by the International Monetary Fund (IMF) and the World Bank.
Member countries will have a greater stake in the working of such regional arrangements, besides loans and other forms of assistance can be customised to meet specific circumstances. Regional co-operation in trade should complement exchange rate co-operation. UNCTAD had pointed out the pitfalls of blindly espousing the currently fashionable strategy of entering into bilateral trade agreements between developed and developing countries.
However beneficial they appear to be in the short-term, they have some hidden costs that are not readily apparent.
It is likely that the developing countries may not be able to pursue policies that promote much needed structural changes at home.
The point has been made before that bilateral trade agreements/FTAs might limit the possible gains from multilateral trade agreements under the aegis of WTO and therefore are only a second best choice.
C. R. L. NARASIMHAN
Printer friendly
page
Send this article to Friends by
E-Mail
Business
|
