A truly global economic policy needed

In an October 24 post by The Guardian, it highlighted the comments made by Kristalina Georgieva, the head of International Monetary Fund (IMF), which are highly indicative of a global economic outlook full of contradictions – from giving news of a likely soft economic landing globally to expectations of most weak economic growth outlook over the medium-term – and which requires a truly global response, and one that is not based on greed, short-sightedness, or simply fear, as currently the situation appears to be in many parts of the world.

She pointed out in this regard: ‘Most of the world, a soft landing is in sight.

But people are not feeling good about their economic prospects. …Families are still hurting from high prices, and global growth is anaemic. …The global economy is in danger of getting stuck on a low-growth, high-debt path. That means lower incomes and fewer jobs. it also means lower government revenues so less investment to support families and fight long-term challenges like climate change. These are anxious times.’

A totally new Bretton Woods moment is upon us. The G-7, the G-20, and the G-77 group of countries and, if possible, all the member countries of United Nations (UN) will need to sit together so that both the global- North, and South come together on a common economic policy understanding – one which is cognizant of a) the raging dangers of climate change crisis, and associated lack of urgency to distance from fossil fuel usage, especially by main polluters even as global warming has already put the world at the doorstep of irreversible changes caused by breaching the average annual temperature of 1.5C threshold, b) the likelihood of ‘Pandemicene’ phenomenon, and lack of focus and collaboration of enhancing health related resilience, c) the misgivings of the neoliberal model, which centralizes market fundamentalism, and does not allow reaching much better level of productive- and allocative efficiencies, and d) rising inequality, and absolute poverty, along with negative impact on political voice due to practice of over-board austerity policies, which also dampen economic growth prospects, and with it hurt domestic resource mobilization effort, exports, foreign investment inflows, and debt sustainability.

Hence, under a truly global voice representation, for which it would make sense to use the platform of UN, countries should sit together, and come up with a global economic policy that firstly internalizes need to enhance the scope of resilience for not just economic circles, but also for sectors such as epidemiology and environment, and to envision a policy that envisions a collaborative approach; secondly, reflects on the serious misgivings of the neoliberal policies and within it austerity, market fundamentalism, and trade policies that favour rich and powerful countries. Thirdly, an effort is made to reform the multilateral institutions – for instance, IMF, World Bank, World Trade Organization (WTO) and World Health Organization (WHO) – on non-neoliberal lines; and fourthly, creates fiscal space for the developing countries that are under deep debt distress on one hand, and have also to spend for climate change-related resilience needs, given they have the least contribution in terms of using carbon budget.

The world needs this major reset, and requires global leadership. Already, lack of such benevolent leadership has resulted in a fragmenting global trade order where a deficient rule-based order has created an unwarranted space through erecting patent walls that favoured powerful interests to earn abnormal profits, while global South had not only limited trading space, but also faced vaccine apartheid during the Covid pandemic. Moreover, institutions like the United Nations, IMF, World Bank, WTO, and WHO need to be brought into the twenty-first century whereby they must move away from practice of a neoliberal world order, including discontinuation of veto power, and over-board voting power in multilateral institutions, and with a spirit of cooperation, and policies based on justice among countries, tackling such huge issues such as climate change, and a ballooning debt crisis.

For instance, with regard to the a very difficult debt, a December 3, New York Time (NYT) published article ‘Developing countries face record debt costs amid interest rate surge’ while highlighting a recently released World Bank report, pointed out: ‘Soaring inflation saddled developing countries with a record $1.4 trillion in debt servicing costs last year, the World Bank said in a report published on Tuesday, detailing the precarious state faced by the world’s most vulnerable economies since the pandemic. As central banks around the world raised interest rates to slow rising prices, poor countries with already high debt burdens saw the interest payments on the money that they owed to creditors balloon. While principal balances held steady at around $951 billion, interest payments jumped by a third, to $406 billion. That has left more countries facing fiscal crises and struggling to avoid default. “These facts imply a metastasizing solvency crisis that continues to be misdiagnosed as a liquidity problem in many of the poorest countries,” Indermit Gill, the World Bank’s chief economist, wrote in the report. “It is easy to kick the can down the road, to provide these countries just enough financing to help them meet their immediate repayment obligations. But that simply extends their purgatory.”’

Hence, it is important that a truly global economic policy response understands both the limited nature of austerity policies – given their over-board emphasis on aggregate demand squeeze policies and little focus on aggregate supply build-up – in controlling inflation, while hurting economic growth prospects, and with it the capacity to repay both domestic and external debt repayments, especially the interest payments component. Moreover, there is a need for coming up with a much more liberal debt restricting framework, in the overall spirit of providing climate justice through lowering the burden of debt-raising needs for developing countries on account of climate change crisis since they have little contribution in its making, not to mention, the need for raising climate finance commitments well beyond the USD300 billion annually by 2035 to, in fact, provision of USD1.4 trillion annually to developing countries at the earliest possible.

Copyright Business Recorder, 2024