Institutional and regulatory reforms will be essential in closing the gap between the progress of the global economy and the increasingly lagging pace of international economic governance, UN Conference on Trade and Development's (Unctad's) most recent report states. Released on the opening day of Unctad XIII's quadrennial conference in Qatar, the report said: “Globalisation is at a crossroads: in order to continue more safely, the process needs to be controlled and managed more wisely. Global governance reform needs to catch up with globalisation – or risk a backlash.”
While developing countries have benefited from international commerce, the report said that the resulting tension between rapidly advancing economic links and limited global governance could foster a hazardous global environment that may ultimately result in a repeat of the 2008 financial crisis, with developing economies emerging as casualties. “While the epicentre of the financial meltdown was in the developed world, developing countries, which have increasingly integrated into the global economy, [were] hit as innocent bystanders,” the report stated.
The highly controversial issue of imposing greater controls and regulation on international markets has been brought to the fore at Unctad XIII’s conference. The report recommended that real wages should be adjusted in line with productivity. It goes as far as maintaining that if an economic recovery is to be sustainable, there should be an expansion of public transfers of funds to low-income households, in order to improve living standards as well as stimulate domestic economic growth. The report stated: “Financial re-regulation is essential for the stability of the global economy but it remains unfinished.”
While the report maintains that developing economies benefit from linking into international markets, it contends that “an unwarranted faith in the self-regulation of markets” continues to expose them to the ongoing risks another global economic crisis could bring. The report said that significant signs of “danger” remain present. The negative imbalances in the developing countries’ current accounts, directly caused by the financial crisis, have not changed. In fact the report found that in current dollar terms, the current account imbalances peaked between 2007 and 2008, before shrinking in 2009 due to the sharp declines in the volume and value of global trade. While the report added that balances have improved, the patterns that exacerbated the effects of the global economic crisis have not changed.
The impact of the global economic crisis on the developing world was intensified by the increasing involvement of developing countries in the global economy. Real GDP growth of developing and transition economies dropped to 1.6% at the height of the global recession in 2009, which was far below the annual average growth rate of 5.4% between 2003 and 2007. While the GDP rate of developing economies remained higher than in many industrialised countries, the report asserted that developing countries need faster growth to raise low living standards and keep up with population expansion. “The world is missing an international monetary order allowing for both reasonable exchange rate stability as well as symmetric adjustment pressures on creditor and debtor countries alike,” the report said.