Jomo on strategy to overcome financial crisis

Saturday January 17, 2009

POLICYMAKERS should include investment, employment and economic security policies in national development strategies to move ahead of the current global financial and economic crisis, said a senior United Nations (UN) official.

Dr K.S. Jomo, who is UN assistant secretary-general for economic development in the Department of Economic and Social Affairs, says such a strategy is crucial to ensure delivery of important development targets such as poverty reduction.

He said that while emerging (equities) markets in Asia have plunged by about 50% on average, which has had a negative impact on the average household income and wealth, the financial position of many developing countries is in much better shape than during the previous financial crises in Asia and Latin America.

The stronger financial position is due to strong foreign reserves and better fiscal balances, he said at a public lecture entitled, “The global financial crisis and the economic slowdown: Implications for South-East Asia and the UN Response”, on Thursday night. The event was organised by the UN in Malaysia and the Institute of Strategic and International Studies (ISIS).

“(The year) 2009 will see a 10% drop in foreign direct investments, and a marked slowdown in export growth, especially in Asia. This in turn will result in a significant slowdown in industrial production.Slower growth will also undermine progress in fighting poverty and achieving the Millennium Development Goals (MDGs),” he adds.

Jomo, who also sits on the Commission of Experts on International Monetary and Financial System Reform, highlighted several policy priorities for countries in Asia, home to the majority of the world’s poorest.

The priorities include reflating the economy, fiscal and monetary measures to spur domestic demand and limit the spread of the crisis across borders and to the real economy.

“To offset weakening foreign demand and contracted export earnings, public spending targeted at infrastructure, alternative energy, health and education is key to stimulating the domestic economy.

“At the same time, governments should look at investment and technology policies that can help diversify the economy, which is crucial for long-term development,” Jomo says.

He suggests that while the world is bracing for an unavoidable immediate global downturn, decisions made by policymakers at national, regional and international levels today would be decisive in determining the length and severity of the present recession.

“Developing countries must take steps today to ensure prudent financial regulation and capital account management techniques that can stem undesirable and excessive capital inflows and to avoid sudden, disruptive large outflows. Equally important is affordable financing channelled toward productive long-term investments, for example, through development banks,” he says.

He points out that the root causes of the financial crisis are neglected global imbalances, overzealous financial liberalisation and also, the failure of the Bretton Woods institutions and rich countries in providing leadership.

Jomo says there is a need for greater inclusiveness, balance and cooperation in reshaping the international financial architecture.

“While these are difficult times for all, the current crisis provides a window of opportunity to lock in reforms to the international financial system and to invest in strategies for sustainable and equitable growth,” he says.

http://biz.thestar.com.my/news/story.asp?file=/2009/1/17/business/3047460&sec=business