UN calls for 'massive' economic stimulus to ease global crisis
AFP - Tuesday, December 2
DOHA (AFP) - - Governments of the world must embark on a massive financial stimulus to counter the global economic downturn, UN experts said in a report published on Monday.
They called for "massive economic stimulus packages that are coherent and mutually reinforcing on a global basis, and linked with sustainable development imperatives."
The Report on World Economic Situation and Prospects 2009 presented at an international conference on development financing in Doha said packages "should come on top of the liquidity and recapitalisation measures already undertaken by countries in response to the economic crisis.
Experts proposed "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."
The report made dire projections for global economic growth in 2009, with an overall drop in per capita income and developed nations most affected by the financial meltdown.
Developed countries will see a 0.5 percent decline in output, compared with an average growth of 5.3 percent in transition economies and 4.6 percent in developing countries, it said.
World growth will most likely not exceed one percent in 2009, compared to 2.5 percent in 2008, with US growth decline by one percent, the euro zone by 0.7 percent and Japan by 0.3 percent.
Growth in India, Brazil and Mexico is forecast at seven percent, 2.9 percent and 0.7 percent, respectively.
"But given the great uncertainty prevailing today, a more pessimistic scenario is quite possible," the report warned.
UN experts said economic growth in developing countries would drop to 2.7 percent "dangerously low for their ability to sustain poverty reduction efforts and social and political stability," if the crisis persists and confidence is not restored in the financial sector soon.
The United States has already launched an economic recovery plan worth 700 billion dollars and China, the world's fourth-largest economy, has initiated an unprecedented four-trillion-yuan (590-billion-dollar) stimulus package.
But steps to inject money in the banking system and lower interest rates have failed to restore confidence. "With limited space for monetary stimulus, fiscal policy options are needed to reactivate the global economy," said the report.
It said the total cost of US government action in the face of the financial meltdown has reached seven trillion dollars, and that the figure could be around 11 trillion dollars globally.
Rob Vos, the UN's Development Policy and Analysis Division chief and lead author of the study, said a fiscal stimulus of the "same order of magnitude" may be needed to keep the world economy from shrinking next year.
But the figures may not be as high as seven or 11 trillion dollars because "those are commitments rather than money actually spent," he said.
"A stimulus of around one to two percent of GDP across the world should be enough to stave off negative growth," said Vos.
"Maybe not for 2009 but in 2010 there could be a recovery (if the stimulus package goes ahead) unless markets fall further in the meantime."
Such a package should have a "multiplier effect by restoring confidence" to markets and the private sector in general, Vos added.
The UN experts insisted that a fiscal stimulus must be "provided in an internationally coordinated fashion" and said the crisis is "an opportunity to align fiscal stimulus packages with long-term sustainable development goals."
They also called for public investment in infrastructure, food production, health, education and renewable energy sources.
Vos said "social spending" on health and education in developing countries can have long-term benefits and spoke in favour of "massive (long-term) investment... on energy security and climate change."
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The United Nations flag flies at half-staff at UN headquarters in New York, 2007. UN experts said in a report that a massive and coherent economic stimulus must take place soon to counter the global economic downturn.
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