AS FINANCIAL AND ECONOMIC CRISIS BEGINS TO BITE, DEVELOPING COUNTRIES PONDER WAYS TO SUPPORT EACH OTHER-UNCTAD SECRETARY GENERAL TELLS EXPERTS.

Developing country financial experts and government officials began a two-day meeting today to ponder ways to use recently much-expanded "South-South" economic cooperation -- particularly trade, investment, financial flows, and joint efforts to stabilize currency exchange rates and debt -- to soften the blows from a severe financial crisis now spreading to their economies from the industrialized West.

Opening UNCTAD's "Multi-Year Expert Meeting on International Cooperation: South-South Cooperation and Regional Integration," Supachai Panitchpakdi, the organization's Secretary-General, said "a global financial crisis has shaken the economic foundations of the North, and is threatening to shatter the growth and development aspirations of the South. The timing, therefore, is right to explore how greater South-South cooperation can help developing countries to cope with the crisis."

Mr. Supachai said merchandise trade between developing countries grew at an average of 13% per year from 1995-2007, and at the end of that period amounted to US$2.4 trillion, or 20% of world trade. A note provided by the UNCTAD Secretariat detailed the promise of these exchanges. Among other things, one-third of these exports were high-skill manufactured goods, which yielded high profits and were enabling developing nations to diversify their economies.

"The global financial crisis has now put these trends in jeopardy," the Secretary-General said, "and the picture for the near future is bleak." He reported that sharp declines in demand from the North were quickly filtering through the international trading system, and UNCTAD now estimates that exports from the developing world could decline by 9.2% in 2009; that a sharp fall in commodity prices resulting from the slowdown is threatening the well-being of least developed countries, which are heavily dependent on exports of these basic farm products and industrial raw materials; that a near freeze-up of the global banking system has made it hard for countries to obtain the credit and other financing needed to carry out trade; that remittances from developing-country workers employed overseas are likely to decline as these economic migrants are increasingly laid off from their jobs; and that aid from rich to poor nations could very well decrease by 20-40% as donor countries struggle to bail out their own economies.

Mr. Supachai said South-South coping measures can include financing from regional development banks in the South to compensate for the loss of some international aid; regional stimulus packages, especially for badly needed improvements to infrastructure, that might help preserve jobs and keep developing country economies viable; and "diversification of foreign-exchange reserves" in which nations of the South buy other countries' debt. The Secretary-General also recommended regional arrangements "specifically aimed at mitigating the impact of financial shocks." The Chiang Mai initiative arising out of the Asian financial crisis of 1997-1998 "provided participating countries with international financial liquidity through swap arrangements," he noted.

Participants in the meeting said the Global System of Trade Preferences Among Developing Countries (GSTP), supported by UNCTAD, had potential in the current crisis. While there had been some challenges associated with the GSTP in the past, they remarked, this was a potential mechanism, if improved, that could stimulate trade and demand when it was most needed by developing nations. They added that for serious trade-enhancement measures to take effect and for regional arrangements to be established, governments of the South need to agree that a great deal of commitment and effort will be needed. They called for developing countries to draw lessons from now extensive national experiences with South-South cooperation -- for example, Argentina has 25 years of experience in carrying out cooperation programmes with other developing countries; and Brazil and Argentina established an economic structural fund in 2007 that provided support to Uruguay and Paraguay. Similar experience existed in other developing regions and in the European Union, they said.

Participants said there is an immediate need nationally and internationally to analyse the situation; to consider policy options; to ensure national cooperation for regional measures intended to address the crisis; to share policies and best practices; and to develop regional solutions and plans for reform of the global finance architecture. Some termed the meeting an "emergency crisis clinic" that may serve as a starting point for the development of a “diagnosis kit” to help developing countries cope with periodic global financial crises. UNCTAD was urged to play a lead role and to develop partnerships with other agencies to this end.

Those addressing the meeting also stressed that there is a need for a conclusion to the Doha Round of multilateral trade negotiations, and said there should be further "triangular" North-South-South economic cooperation.

Panel discussions were held over the course of the day on "South-South trade and regional integration: where we stand and future directions"; "South-South trade and the global financial crisis"; and "South-South cooperation, regional integration and foreign direct investment."

The meeting will continue Thursday with a panel discussion on "Regional monetary and financial cooperation -- South-South solutions?" and conclude with a debate on "the way forward."

Under reforms to UNCTAD meetings made at the UNCTAD XII quadrennial conference last year, this expert session on South-South cooperation will continue next year to allow experts to study the issue as it evolves over time.

SOURCE:UNCTAD