UN warns of gloomy economic
outlook this year

Kanaga Raja

The UN has forecast that world output growth for 2009 will be half of last year's with a possibility of zero or negative growth due to the current financial and economic predicaments.
   The United Nations has projected that world output growth this year will reduce to a meagre 1 per cent, against 2.5% growth in 2008. The UN adds that if the present credit squeeze is prolonged and confidence in the financial sector is not restored in the coming months, the developed countries could enter into a deep recession in 2009.
   This would pull down economic growth in the developing countries to 2.7%, dangerously low for their ability to sustain poverty reduction efforts and social and political stability.
   This assessment is provided by the United Nations in its "World Economic Situation and Prospects 2009" report, which was released on 15 January 2009. The report is a joint product of the UN Department of Economic and Social Affairs, the UN Conference on Trade and Development (UNCTAD) and five UN regional commissions.
   To stave off the risk of a deep and global recession, the report recommends the implementation of massive, internationally coordinated fiscal stimulus packages that are coherent and mutually reinforcing and aligned with sustainable development goals. These should be effected in addition to the liquidity and recapitalization measures already undertaken by countries in response to the economic crisis.
   It also recommends stronger regulation of financial markets and institutions, adequate international liquidity provisioning, an overhaul of the international reserve system and a more inclusive and effective global economic governance, to prevent against any future repetition.
   At a media briefing, Heiner Flassbeck, Director of UNCTAD's Division on Globalization and Development Strategies, said that "we are looking into a very gloomy year" in 2009.
   With respect to the current crisis, he said that it is more than just the US sub-prime crisis that is unwinding and spilling over into the real economy. What is being seen is the unwinding of a number of speculative waves that has emerged in the last years that are all now unwinding at exactly the same time and at an unprecedented pace.
   The UNCTAD official also warned of the dangers of getting into a real deflationary situation. "We have moved from the danger of inflation to a danger of deflation again in a couple of months."
   Given the great uncertainty prevailing today, however, a more pessimistic scenario is entirely possible, the report warned.
   In a more pessimistic scenario, which Flassbeck said is more likely to be the case, both the fire sale of financial assets and the credit crunch would last longer, while monetary stimulus would prove ineffective in the short run and fiscal stimulus would turn out to be too little, too late. This would then lead to worldwide recession in 2009, with global output falling by 0.4%, and postpone recovery to, at best, the following year.
   If the global credit squeeze is prolonged and confidence in the financial sector is not restored quickly, the developed countries would enter into a deep recession in 2009, with their combined gross domestic product (GDP) falling by 1.5%; economic growth in developing countries would slow to 2.7%, dangerously low in terms of their ability to sustain poverty reduction efforts and maintain social and political stability.
   In this pessimistic scenario, the size of the global economy would actually decline in 2009 - an occurrence not witnessed since the 1930s.
   According to the report, the crisis should have taken no one by surprise. That analysts and policymakers are now expressing bewilderment at the extent of the crisis suggests not only a gross underestimation of the fundamental causes underlying the crisis but also unfounded faith in the self-regulatory capacity of unfettered financial markets.
   The report noted that it has repeatedly pointed out in the past that the apparent robust growth pattern that had emerged from the early 2000s came with high risks. Growth was driven to a significant extent by strong consumer demand in the US, stimulated by easy credit and underpinned by booming house prices, and by very high rates of investment demand and strong export growth in some developing countries, notably China. Growing US deficits in this period were financed by increasing trade surpluses in China, Japan and other countries accumulating large foreign-exchange reserves and willing to buy dollar-denominated assets.
   At the same time, increasing financial deregulation, along with a flurry of new financial instruments and risk-management techniques (mortgage-backed securities, collateralized debt obligations, credit default swaps, and so on), encouraged a massive accumulation of financial assets supported by growing levels of debt in the household, corporate and public sectors
   Given the stark erosion of confidence and massive destruction of financial capital over the past year, it will take months, if not years, before beleaguered banks significantly revive lending and fraught investors see confidence restored, said the report, adding that it will take even longer for these policy measures to show their effects in terms of a regaining of strength in the real economy.
   According to the report, there had been complacency about the impact of the global financial crisis on developing countries and the economies in transition. In fact, the broader international economic environment for developing countries and the economies in transition has deteriorated sharply, and since October 2008 the financial stresses have shifted rapidly towards these economies.
   The failure to create a truly inclusive system of global economic governance - for adequate counter-cyclical policies in the short term and appropriate regulatory reform in the medium term - has frustrated a coordinated, comprehensive and inclusive international response to the current crisis. There is no legitimate forum, other than the United Nations itself, in which the interests of all countries can be articulated, considered and reconsidered to ensure more inclusive and equitable - and thus credible and effective - global economic governance.
   -Third World Network Features.

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Holiday Desk

Sri Lankan Export Development and International Trade Minister Prof GL Pieris visited the Sri Lanka- Bangladesh friendship pavilion at the Dhaka International Trade Fair (DITF) recently.
   During the visit, the Sri Lankan minister stressed that both the countries should try and explore more avenues to develop bilateral trade.
   He said Sri Lanka is on the verge of getting a peaceful politic atmosphere after ongoing success of the government forces over the Tamil Tigers and Bangladesh getting a newly elected government after two long years. Both countries stand on the juncture of a new business opportunities.
   He pointed out that despite constraints Bangladesh witnessed a 13 percent growth in its export while it was 15 percent for Sri Lanka in November 2008.
   He also mentioned Sri Lanka was adopting the Grameen Bank models to boost the microcredit sector. He lauded the role of the SME sector in economic development and laid emphasis on assisting the sector with capital for their growth.
   Sri Lankan High Commissioner to Bangladesh V Krishnamoorthy, Export Promotion Bureau (EPB) Vice-Chairman Mohammad Shahabullah, Sri Lanka-Bangladesh Chamber of Commerce and Industry (SLBCCI) acting President Harikesha Wijesekera, Treasure Lalindra Wijekoon, Fair Organising Committee Chief Coordinator Tanvir Asan and other high officials of EPB, Sri Lankan High Commission and SLBCCI were present during the visit.
   The Sri Lankan minister went round the friendship pavilion that houses stalls of 24 companies. He enquired about the response that the companies receive at the fair and thanked their management for their participation. Sri Lanka is the partner country to the DITF-2009.
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TRIPURA CAN BE HUB FOR TRADE IN NORTHEAST INDIA

Bangladesh -Tripura joint task force
to boost trade

Syed Sajjad Ali in Agartala, India

The cross border trade between the northeastern states of India and Bangladesh got a boost with the formation of a joint task force to promote trade between Bangladesh and Tripura.
   Of late trade between Tripura and Bangladesh has increased manifolds and the Tripura government feels that Bangladesh should be the focus country of the New Delhi's much hyped Look East Policy. Making the announcement of the formation of a joint task force to endorse trade, the Tripura Chief Minister, Manik Sarkar, said, "We have been insisting on it for quite some time and have made our position clear in this regard to the Union Government on various occasions".
   Business leaders from Bangladesh recently met to explore potentials of regional trade in Agartala, capital of Tripura, a northeastern state.
   On Tripura's side the members of the task force are the state's Chief Secretary, Principal Secretary in charge of Commerce & Industry, the President of the Tripura Chamber of Commerce and CII's north-east council chairman. Bangladesh will be represented by one member each from the Federation of Bangladesh Chamber of Commerce & Industry, Indo-Bangla Chamber of Commerce, Dhaka Chamber of Commerce and the local Visa Officer of the Bangladesh Government.
   Various core issues like setting up of more land custom stations, improving border roads and banking facilities were discussed in the meeting. India is looking out for possibility to use Bangladesh for transporting goods from India's mainland to North-East by way of re-export. Due to geographical proximity, Tripura acts as a natural destination for Bangladeshi investors planning to invest in India. The Tripura Chief Minister also added that there were certain issues in bilateral trade which could not be sorted at the State level as the approval of the Union Government would be needed.
   The task force, the first such major regional trade initiative, in its maiden meeting on 29 January in state capital Agartala decided to work towards increasing trade between the state and Bangladesh three times by 2010. The meeting however conceded some irritants related to connectivity and infrastructure, foreign exchange, banking facilities in Bangladesh side and passenger facilities on the border, slow immigration process and banking facility are the hindrances in Tripura side. The task force is to meet every three months.
   "We have decided to take up the issues with respective central governments", Abdul Matlub Ahmad, President of the IBCCI and leader of Bangladesh delegation, told newsmen. Matlub announced his desire to relocate his pulp and paper mill from Sylhet in Bangladesh to Tripura state and set up a new rubber-based tyre factory as well.
   When asked why they were attaching much importance to Tripura state in comparison to other northeastern states IBCCI president said the state has been more suitable for them due to its proximity and the very positive attitude of the state government. He said business community of Bangladesh understands Tripura can be the gateway for extension of business in the northeast.
   DCCI senior vice president M.S. Shakil Chowdhury commented that they want to reduce the huge trade imbalance with India through increasing commerce with the northeastern states. FBCCI vice president termed the present government in Bangladesh as business friendly which is likely to take a comprehensive effort to encourage trade with India.
   TCCI president Moti Lal Debnath demanded that bilateral trade would see a complete shape if Bangladesh declares the Chittagong sea port and some river ports as ports of call to transit goods from Bangladesh as well as from other parts of India to the northeast.
   Bangladesh business delegation said cotton and Jamdani Sari, mosquito net, leather shoe, biscuits and confectionary, stone chips, fish, furniture, cement, construction materials, jewelry and processed food are important items of Bangladesh for export to Tripura. On the other hand fertilizer, precious stone and fruit juice were identified as main items of export to Bangladesh.

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