United Nations Conference on Trade and Development (UNCTAD) says with a combination of diminished fiscal space, increased indebtedness and limited vaccine roll out, holding back recovery and triggering divergence with advanced economies, the challenge facing developing countries is more immediate.
Behind this divergence, however, lie decades of deepening economic and social divisions, an unstable insertion into global financial markets subject to mercurial flows of capital and diminished policy space.
In many countries, these structural obstacles to a balanced recovery are compounded by shocks linked to warming global temperatures.
In the advanced economies, the initial response to the Covid-19 shock, following the policy playbook used in previous crises, was to cushion the blow to financial markets with a new round of quantitative easing.
But governments in advanced economies soon found themselves in unfamiliar territory, as lockdowns triggered an economic blowback that required concerted and targeted measures to protect lives and livelihoods.
Central Banks kept the liquidity injections going, but, unlike in 2007-09, governments also increased their spending to levels not seen since wartime, abandoning, in the process, previously sacrosanct policy positions.
Even so, the drop in output during the second and third quarters of 2020 was unprecedented; even as economies began to unlock and confidence returned, the bounce back was marked by considerable unevenness across sectors, income groups and regions.
Moreover, the income and wealth inequalities that emerged over the last four decades have, if anything, intensified, with the owners of financial and digital assets reaping the biggest gains from recovery.
Developing countries were hit particularly hard by the global lockdown of economic activity. It triggered a series of interconnected shocks which generated vicious economic cycles that came on top of existing debt vulnerabilities, tipping most regions in to a deep recession and some countries into default.
Despite the fiscal squeeze and increased debt burdens, developing countries were left to manage the crisis largely on their own, forcing deep cuts in public employment and services. A faster than expected reflux of capital flows and recovery in commodity prices, as lockdown in the advanced economies were lifted, prevented a worst-case scenario emerging.
Still, growth in most parts of the developing world remains weak, large debt overhangs have grown even larger, while variants of the virus threatening to revive new waves of the pandemic would derail fledgling recoveries in the more vulnerable economies.
Even if the virus is contained, the fear of higher interest rates already undermines development prospects with the threat of another lost decade now a possibility.
As was the case with the first Report in 1981, this year`s Report coincides with the G7 countries again talking of the need to revitalize western democracy and build a new partnership with developing countries around infrastructure investment, including through an initiative for clean and green growth.
Their call for a “building back better world” has struck a hopeful note. A promise to treat health and education as global public goods, a commitment to a sufficiently financed green revolution, an infusion of liquidity through a new allocation of SDRs, and the announcement of a minimum global corporation tax are all welcome departures from recent practice.
However, with a debt crisis looming, the climate crisis a reality for many countries and the Agenda 2030 in trouble even before Covid-19 hit, the willingness to acknowledge the scale of the challenge facing developing countries is still missing.
There has been scant detail on the proposed reform agenda and even less on the resources available to lift all boats out of the immediate crisis and launch a just transition to a decarbonized world by 2050. The call from developing countries to waive the TRIPs agreement in the
WTO – a necessary first step to enabling the local manufacture of vaccines – has, despite belated backing from the United States, been resisted by other advanced economies, whose deference to corporate interests is causing a new division in the global economy based on access to vaccines and freedom of movement.
Furthermore, a general reluctance to pressure private creditors to the negotiating table gives little hope that the debt burden weighing on developing countries will be sufficiently eased to allow them to invest their way out of the multiple crises they currently face.
Forty years on, the conclusion of the first Trade and Development Reportpublished in 1981 still rings true:The present situation thus appears to require a new development paradigm, and this paradigm will need to take explicit account of the fact that issues concerning the governance of the world economy, on the one hand, and long-term development objectives, are intermingled.
The big difference between then and now in linking long-term development objectives to the management of the global economy is the looming climate crisis. Whether or not a new policy paradigm emerges to help guide a just and inclusive transition to a decarbonized world is an open question; that a building back better world for people and the planet hinges on it is no longer in doubt.
These facts are contained in its latest report.
