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Saturday, 2 February, 2002, 18:01 GMT
Poorer states urge economic solidarity
International Monetary Fund (IMF) director Horst Koehler.
Horst Koehler: Globalisation has left many behind
David Schepp

At last year's gathering of the World Economic Forum in Davos, Switzerland, there was acknowledgment the global economy stood on the brink of recession.

Policy makers and economic experts at the time expressed belief the downturn would be short and a rapid recovery would follow.

But then 11 September happened.

As the twin towers of the World Trade Center fell, so did hopes the US economy would rebound quickly, and fears of a massive global slowdown followed.

A year later, members attending the World Economic Forum (WEF) gathering in New York have expressed hopefulness that the economies of the world - with a few exceptions - have weathered the storm and stand on the verge of recovery.

Subtle US recovery

One theory has gained many followers at the New York meetings: it suggests the US may see a "W" shaped recovery - a sharp rebound followed by a second dip as consumers finally succumb to doubts about the economy, among other factors, followed by a lasting boom.

This new ideals stands in contrast to the one put forward by analysts over the past few weeks and months - that the US economy will experience a U- or V-shaped recovery.

"Things look quite encouraging," said Kenneth Dam, deputy secretary at the US Department of Treasury.

He pointed to the latest fourth quarter gross domestic product (GDP) figures, which showed that the US economy expanded during the last three months of 2001 by a modest 0.2%, much better than the expected 1% contraction.

Mr Dam said he expected the US economy would continue to grow, with the exception of "only one wild card" - the possibility of another terrorist attack.

Synchronicity

Summarising Friday's discussions held on the state of the global economy, Princeton professor of economics Paul Krugmann said there were some near-universal conclusions.

Among them was the view that governments around the world should not enact fiscal stimulus measures as a way of spurring economic growth.

It was a conclusion that shocked India's finance minister, Yashwant Sinha, who told attendees that the global economic slowdown would mean much more misery for countries of the southern hemisphere because of the lack of social security there.

Co-ordinated policies

He said poorer southern nations had endured a cycle of boom and bust and "been helpless in doing something about it".

Several members of the panel said a co-ordinated fiscal policy scheme needed to be developed.

Access to markets in developed countries was of prime importance to poorer nations, some said.

Mr Sinha added that there was a need for co-ordinated global action, although there were also local issues that led to slowdowns in individual countries.

The economic crisis that has engulfed Argentina, for example, has happened independently of events in the rest of the world, he said.

Globalisation

Panel members also concluded the economies of the world were more intertwined than many were willing to admit.

During the past 50 years globalisation had benefited many people, but left too many behind, said International Monetary Fund (IMF) director Horst Koehler.

Nevertheless, he said, globalisation "has proven to be an advantage for the people of the world".

He also noted there was "strong link" between globalisation and world order.

But Mr Koehler was harsh in his criticism of policies in the US and Europe that subsidised industries such as textiles.

Such policies had a devastating effect on poor countries, he said, adding it was in the best interest of rich countries to relinquish certain privileges in order to speed reforms in poor countries.

See also:

02 Feb 02 | Business
Protesters take to New York streets
01 Feb 02 | Business
Forum gets down to business
02 Feb 02 | Business
Protesting in New York
01 Feb 02 | Business
WEF: New York's big deal
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