World Economy: Forecast Gloomy for Poor Nations

ECONOMY: Forecast Gloomy for Poor, Says Alternative Outlook
Emad Mekay - IPS 9/19/03

WASHINGTON, Sep 18 (IPS) - The world economy is poised for growth this year and in 2004 as the U.S. economy gains pace, the International Monetary Fund (IMF) said Thursday.

But critics of the financial powerhouse say in a new ''alternative outlook", that the global economy -- as structured by politicians and bankers in the North -- is actually fuelled by "sucking" wealth from poor countries and re-channelling it to an elite in the richest nations, particularly the United States.

Global gross domestic product (GDP) will grow at 3.2 percent in 2003, rising to 4.1 percent next year, the IMF said in its twice-yearly high profile World Economic Outlook (WEO), which gauges the health of the world economy from the perspective of the nations that dominate the Fund's executive board.

That outlook echoed the Fund's April growth forecast.

The recovery will be powered by reduced ''geopolitical uncertainties'' after the end of the U.S.-led invasion of Iraq, and the subsequent decline in oil prices -- which is expected to spark economic activity -- the Outlook predicted.

''For the first time in a very long time we are reasonably optimistic about seeing a return to normal growth in the global economy, or perhaps even better,'' said IMF Chief Economist Kenneth Rogoff at a press conference in the Arab city-state of Dubai.

The Fund and its sister institution, the World Bank, are holding their annual meetings in the Gulf state this weekend to discuss the direction of the global economy and development issues.

Rogoff said the recovery would be concentrated in the United States and Asia-Pacific.

The Outlook forecasts U.S. growth at 2.6 percent for 2003 and 3.9 percent in 2004. But Rogoff said beyond 2004, the country's fast-growing debt and deficit could create problems.

''While the U.S. productivity numbers continue to be encouraging, one has to be concerned about the twin deficits, the fiscal and the current account, which eventually have to be reined in,'' he said.

Japan, too, received favourable marks from the Fund on the back of its improving trade with booming emerging Asia, including China, and rebounding investment.

Japan is expected to grow at two percent this year and 1.4 percent in 2004.

Europe, the third engine of the global economic system, received a cautious forecast of a slight rebound because of likely higher exports and because it is known to follow the path of the U.S. economy.

Growing consumer confidence will also boost Europe's economy, added the IMF, predicting 0.5 percent growth this year and 1.9 percent in 2004.

The report forecast sub-Saharan African economies will grow 3.6 percent in 2003 and 5.9 percent in 2004 while the Middle East and North Africa region would attain 5.2 percent in 2003 and 4.5 percent a year later.

While those figures appear high, they are far below the growth needed for those countries to achieve real development or to have an impact on their poor.

Activity in much of Latin America is stabilising and external confidence in the region -- particularly Brazil -- has improved markedly, says the Fund.

Countries in transition, mostly the former east bloc countries, were seen growing at 4.7 percent next year.

Asian nations, including China and Vietnam, will grow fastest, with an average 7.4 percent growth rate in 2003 and 7.5 percent in 2004.

''There is now good cause to be reasonably optimistic that the global economy is finally digging its way out of a very deep hole,'' said Rogoff adding that ''it's certainly no time for complacency''.

But as the Fund was releasing its report, economists and activists from the so-called global justice movement that opposes the corporate-led drive towards globalisation issued their first 'Real World Economic Outlook' (RWEO).

Published by Jubilee Research at the London-based New Economics Foundation, the report -- released in London and New York -- seeks to present an alternative view to the one offered by the Fund and other custodians of the global economic system.

''Despite much rigging of statistics, the 'trickle down' effect has not been proven. Instead, as the World Bank's own data illustrates, poor countries are lenders to the rich -- unwittingly financing opulent living standards in the U.S. and elsewhere,'' said RWEO Editor Ann Pettifor, in a press release from Dubai.

The report charges that the economic recovery that the Fund and northern-dominated institutions discuss is triggered by a theoretical capital flow from rich to poor nations.

''Tragically, the reverse is happening today," Pettifor said. "This is a form of global theft of the world's poor -- and helps explain rising tensions in the world."

According to the report, this vacuum effect of the global economy is achieved largely by an international financial structure skewed to benefit the rich.

The dollar-dominated global financial system means that poor and rich countries alike are obliged to continue financing the U.S. deficit, through the purchase of U.S. ''IOUs'' (treasury bills).

In the absence of a global key currency standard, those treasury bills now play the part that gold once held in the global economy, the RWEO says.

Poor nations "are, in effect, making very low interest rate loans to the United States, while at the same time borrowing from abroad (including from the United States, the World Bank, and the IMF) at very high rates of interest.''

In addition, capital totalling 97.8 billion dollars departs poor countries for banks in Switzerland, Britain and, especially, the United States every year in the form of foreign direct investment (FDI), it adds.

Some of this money is legal investments made by residents of developing countries, "but much of it is illegal capital that finds its way into the accounts of all too willing banks in the North".

Remittances of multinational corporations from profits they make in developing countries also impoverish poor countries, according to the RWEO.

It estimates those remittances equalled 55 billion dollars in 2001.

The end result: increased transfer of resources from poor countries, and the concentration of wealth in rich ones.

''There is a net flow of 48 billion dollars every year from the poorest people to the richest, easily outstripping annual aid grants of 32 billion dollars,'' it concludes.