UNCTAD and the WORLD BANK, two opposing views on the crisis and on

its solution

Francine Mestrum
www.globalsocialjustice.com
info@globalsocialjustice.com

UNCTAD has once more delivered… In a very interesting new report, the UN
organization looks very critically at the current financial and economic crisis. Let
me briefly highlight a couple of important points from the report.

The crisis was predictable, according to UNCTAD. The huge disequilibria, the
current account deficits in the USA, the UK, Spain and Eastern Europe, together
with the growing surpluses in China, Japan, Germany and the oil-exporting
countries, were bound to lead to this crisis. UNCTAD’s first warnings came in
2004!

Secondly, recognizing the lack of economic logic of the financial markets is key to
understanding the roots of the current crisis, according to the Trade and
Development report. However, up till now, nothing has been done to address the
impacts on currency and commodity markets and on the future of an open
trading system.

The price volatility of commodities is certainly linked to the rising or declining

demand, though the price evolutions in the second part of 2008 were mainly
triggered by financial investors. Commodities are increasingly seen as an
alternative asset. Closer and stronger supervision, and regulation of these
markets is indispensable, according to UNCTAD.

UNCTAD notes that the IMF lending has surged since the outbreak of the current
crisis, extending to nearly 50 countries by the end of 2009. However, the scope
for expansionary policies to counter the impact of the crisis on domestic demand
and employment is severely constrained by IMF conditionalities.

Furthermore, experience with the current financial crisis calls into question the
conventional wisdom that dismantling all obstacles to cross-border private capital
flows is the best recipe for global financial integration. Too little attention has
been given to the management of global finance, in particular speculative capital
flows. Assertions that capital controls are ineffective or harmful have been
disproved.

Finally, UNCTAD notes that the Dollar-based reserve system is increasingly

challenged. It proposes a reformed international exchange rate system with a
constant real exchange rate (RER) in order to curb inflation, to prevent currency
crises and global imbalances, to avoid debt traps and procyclical conditions and
to reduce the need for international reserves.

The UNCTAD report also has a chapter on climate change, and it points to the
need to make mitigation compatible with growth and to introduce structural
change.
After this positive note for UNCTAD, unfortunately, negative notes have to be
given to the World Bank. Its new ‘Doing Business’ Report (2010) has again a
chapter on ‘Employing workers’ in spite of its promises to drop these indicators.
Countries are still being negatively rated if they have ‘difficult’ rules on hiring
people, if working hours are regulated too ‘rigidly’, if the redundancy cost is ‘too
high’, etc. This way of working is totally in contradiction with the efforts of the ILO
to introduce social protection systems in all low-income countries. UN
organizations are currently promoting the idea of a ‘social protection floor’ and of
‘basic social security’ in order to respect social and economic human rights.
There is little scope for realizing these ideas, as long as the World Bank is
promoting exactly the opposite ideas.

Read the UNCTAD report on ‘Trade and Development’ (2009): www.unctad.org

Read the synthesis of the World Bank Report: Doing Business 2010:
www.worldbank.org/