DAVOS LEADERS GAUGE GLOBAL IMPACT OF US SLOWDOWN.
The US is likely to avoid recession this year, but the jolt of a rapid and bumpy economic slowdown will feel a lot like a recession for certain sectors, the International Herald Tribune (p.1) leading bankers, economists and business leaders attending the World Economic Forum (WEF) in Davos said yesterday. Former US Federal Reserve Board Vice Chairman Alan Blinder and others stressed that since the US had been growing at a rate of five percent last year, the drop to an average of perhaps two percent would be a jolt.
Meanwhile, "Davos participants remain cautiously optimistic regarding the outlook for the world economy this year," the IHT notes WEF President Klaus Schwab said, citing a WEF survey of 250 business executives in which the majority saw the risk of a major global slowdown following the US deceleration as moderate or even low.
They warned, however, that neither Europe nor Asia would be immune to the impact of the US slowdown, which could shave as much as three quarters to a full percentage point of world economic growth in 2001.
In a separate article, the IHT (p.1) notes that Mexican President Vicente Fox said yesterday the US economic slowdown could damage his country's growth target for this year, but he said he would work to replace lost US trade and investment by forging new commercial ties with the EU. On the trade front, meanwhile, Fox pledged to work closely with the administration of US President George W. Bush and Latin American countries to achieve "a hemisphere-wide free trade accord," which he predicted could be signed within three to five years.
Meanwhile, the Washington Post (p.E1) reports that sometime during the new US Bush administration, financial crises will surely strike somewhere in the developing world, just as they did during the Clinton administration in Mexico, Thailand, South Korea, and several other countries. So, the paper asks, will the US respond by rushing to the rescue with a big package of international loans-or will it respond with the financial equivalent of tough love?
The question is fueling intense speculation among policy experts and financial-market players, because two of the administration's top economic policymakers appear to have almost diametrically opposing views on the topic.
Treasury Secretary Paul O'Neill suggested in his confirmation hearing last week that he is inclined to handle such crises pretty much the same way as his Clinton administration predecessors Robert Rubin and Lawrence Summers. Referring to the 1994-95 collapse of the Mexican peso, which prompted the Clintonites to marshal a $50 billion bailout for Mexico, O'Neill said, "It does seem very, very clear that Secretary Rubin was right, in retrospect....I hope when my Mexico occurs, you will give me enough freeboard to do the thing that seems necessary to do because, I think, if you had prevented Secretary Rubin from doing it, the consequences could have been really quite serious."
White House Chief economic adviser Lawrence B. Lindsey, by contrast, was one of the most scathing critics of the Clinton administration's approach during the Mexico crisis and the turmoil that swept Asia, Russia, and Brazil in the late 1990s. Lindsey denounced the loans furnished by the IMF, which he blamed for encouraging lenders, investors, and government officials to behave recklessly on the assumption that they will be bailed out when trouble hits.
The story notes that although no particular crisis confronts the administration at the moment, the issue is already the focus of a struggle over who will get the job of Treasury undersecretary for international affairs.
Agence France-Presse notes meanwhile that the UNDP hopes to persuade high-tech giants at the WEF not to let the collapse of the dot.com bubble compromise hopes of bridging the digital divide between rich and poor nations. "Those of us who are proselytizing this idea will probably find the argument harder to make this year than it was last year," said the UNDP Administrator Mark Malloch Brown today.
In other news from Davos, Reuters reports that hundreds of Swiss police, specialist troops and coils of barbed wire greeted the world's corporate and political elite as the annual Davos business summit got under way yesterday. Nervousness over the state of the global economy mingled with worries that violent demonstrators could disrupt the annual meeting of the WEF, which runs until January 30. Swiss Television estimated that between 1,000 and 2,000 police from across Switzerland were on hand to choke off the kind of anti-globalization protests that hit the EU summit in Nice, the IMF/World Bank annual meetings in Prague and Davos itself last year.
"The WEF has become the symbol of a global civilization in formation, of a world where barriers collapse, of a world which makes us dream of an ever greater liberty," the story notes Swiss President Moritz Leuenberger told the opening session. But environmentalists and opponents of free trade say the forum takes far-reaching decisions behind closed doors and enhances the power of multinational corporations.
Eager to dispel criticism of Davos as a capitalist conspiracy to set the world agenda, organizers say they have given trade unions, lobby groups, environmentalists and other critics of the system unprecedented exposure this year. But this has not satisfied a coalition of environmental and developing country groups which has organized an alternative conference in Davos this week dealing with subjects such as trade and "making global corporations accountable".
Some 10,000 people are also expected at the World Social Forum in Porto Alegre, Brazil, that will run in parallel with the Davos meeting and condemn neo-liberal economic policies.
PORTO ALEGRE LOOKS AT OTHER SIDE OF GLOBALIZATION. Reporting on the "anti-Davos" World Social Forum (WSF) in Porto Alegre, Libération (p.3) says criticism of neoliberalism-and glimmers of self-criticism by neoliberals-is in the air. The Asian crisis almost four years ago revealed the fragility of a globalized economy fuelled by financial speculation, says the story. Now, even some of globalization's defenders are recognizing another facet to the trend: its inequality.
The global village today has never been so prosperous, says the story, yet the pharmaceutical industry will not lower the price of anti-retroviral drugs for the 35 million Africans suffering from AIDS and rich countries will not lower their trade barriers for exports from poor countries. The rich countries seem to be unconcerned, the story notes World Bank President James Wolfensohn said last year.
Economic liberalism must take social concerns into account, says the story, noting that between now and 2015, the UN, with the IMF and the World Bank, is aiming to halve the number of people living under $1 a day; ensure primary education for all; and halt the progress of AIDS.
In a separate article, Libération (p.2) notes that the conclusions reached in Porto Alegre will be presented to the IMF and the World Bank in April.
The news comes as the Chicago Tribune reports that, responding to economic crises in the 1990s and to critics of globalization, the World Bank signaled a shift in its anti-poverty strategy Wednesday toward strengthening social safety nets and giving the poor new tools to escape their plight. The Bank outlined this two-pronged lending approach in a report declaring that the poor are increasingly vulnerable to periodic economic crises, natural disasters and disease, such as the HIV-AIDS epidemic in Africa.
The Bank said less than a quarter of the world's population is protected by government safety nets, which include such programs as old-age pensions and unemployment insurance, while less than five percent can rely on their own savings, land or other assets in case of a crisis. If poor countries that have weak safety nets or none at all decide to make them permanent features, poverty could be cut faster and the poor could gain benefits from globalization instead of being punished by its often-harsh edge, the Bank said.
Eduardo Doryan, the Bank's vice president for human development, added that bolstering safety nets in developing countries is not enough. The World Bank, he said, is adopting a broader lending concept of improving social protection by reducing the risk of being poor. As a result, the Bank is concentrating more on programs that can remove people and communities from what Doryan called a "poverty trap," including worker training and other labor market improvements, education, jobs in public works, legal reforms helping women, or child care. RAI 24, UN Radio Spanish, Diário Económico (Portugal) and the Australian also report on the new paper.
Meanwhile, Handelsblatt (Germany, p.13) reports ILO Director-General Juan Somavia is calling for a global dialogue on flanking the globalization process with social safety fences for the world economy. It made him optimistic that today, multilateral development banks such as the World Bank give priority to the social dimension of development and that cooperation with the IMF has much improved, Somavia said.
Samuel Berger, national security adviser to former US President Bill Clinton, meanwhile writes in the IHT (p.10) that in today's global age, Americans can no longer choose not to know how others in the world live. The Bush administration will face many challenges as it puts its stamp on foreign policy, but he hopes it will keep action against global poverty front and center.
Open markets alone will not close the gap between rich and poor, says Berger, when half the children in the poorest countries still are not in school, more than 1.5 billion people lack access to clean drinking water, and infectious diseases still cause one in every four deaths in the world. The Internet will not narrow the gap when half the world's people have yet to make or receive a telephone call.
The solutions, like large-scale debt relief and tax credits for vaccine development, require heads of state, backed by their foreign and treasury ministries, to be directly involved. The new US administration should build on these foundations by closing the gap between what the world spends and what it needs to fight infectious diseases like AIDS, malaria and tuberculosis. It should also increase global funding for universal education, the most effective way in the long run to increase wages in the developing world. And it should place a priority on helping more countries qualify for debt relief if they use the money to help their people.