G20: Less growth, more austerity for developing countries

MF Managing Director Christine Lagarde speaks at the Development Committee October 12, 2013 at the World Bank in Washington, DC. The IMF/World Bank Meetings are being held in Washington, DC this week which will host Finance Ministers and Bank Governors from 188 countries. IMF Photograph/Stephen Jaffe.

MF Managing Director Christine Lagarde speaks at the Development Committee October 12, 2013 at the World Bank in Washington, DC. The IMF/World Bank Meetings are being held in Washington, DC this week which will host Finance Ministers and Bank Governors from 188 countries. IMF Photograph/Stephen Jaffe.

 

IMF – World Bank’s annual meetings and the G20 Finance ministers and central bank governors gathering in Washington D.C. this weekend proved two things; first that the world is more divided now, in the aftermath of the financial crisis and second and more important that the labouring millions of the globe in developing and advanced countries, must now work more and get less in order to cure the financial malaise, which still engulfs the globe. Last but not least it seems that nobody believed there that the US may default. Of course everybody agreed that if the US doesn’t solve its internal political stalemate during the next two days, the world wouldn’t want to know what it may follow.

It was much more important however to learn that the American central bank, the Fed, is definitively preparing to normalise its super relaxed monetary policy, and recall the trillions it has lent to US banks at zero interest rate. Four years of such money cornucopia was enough for the American banks to fully recapitalise themselves at the expenses of the rest of the economy. This abnormality though cannot continue, because the US economy cannot take any more of this cure. However normalising this policy means much tighter credit conditions and higher interest rates not only in the US but also in all and every financial markets, mainly in the developing world. To get an idea where this could lead, it suffices to read the relevant paragraph of the G20 Communiqué, issued after the meeting.

What the G20 asks from developing countries

The Press release goes like that, “We recognize that strengthened and sustained growth will be accompanied by an eventual transition toward the normalization of monetary policy and that volatility of capital flows continues to be an important challenge. Sound macroeconomic policies, structural reforms and strong prudential frameworks will help address an increase in volatility. We will ensure that future changes to monetary policy settings will continue to be carefully calibrated and clearly communicated. We will cooperate to make policies implemented for supporting domestic growth also support global growth and financial stability and to manage their spillovers on other countries”.

It is pretty clear what all that mean. Sound macroeconomic policies and structural reforms, are direct references to austerity policies and more deregulation of the labour market, abolishing whatever workers’ rights are left in our brave new world. It’s not only that though. Central bankers and ministers also want, “strong prudential frameworks”. The meaning of it is clearly that more state aid and support to banks will be needed in the developing world, after the cheap American money returns to the US and leaves those lenders out in the cold. Of course the public subsidies to banks, needed to keep them in good shape, should come from cutting down other chapters of government expenditure, because overall state deficits must be reduced (sound macroeconomic policies). As a result taxpayers’ money that was used to finance education, health and social policies, should now be used to support the banks all over the developing world.

Bankers want more

Obviously the G20 central bankers and ministers of Finance wanted in this way to prepare the world for this new era of more expensive money and tighter credit conditions. The problem however is that in large parts of the world already reigns an explosive conjuncture, combining extremely high unemployment and almost non-existent credit options for households and SMEs.

Hopefully, Eurozone will avoid this killing cure. Actually, its southern countries are now fighting to exit from such a deadly combination. Mario Draghi, the President of the European Central Bank has repeatedly confirmed during the last three months that interest rates will be maintained at their present or lower levels and Eurozone banks will be supplied with ample liquidity on demand. Of course not to forget, that the South of Eurozone is cut off from Eurozone’s core financial markets. Add to that the severe austerity measures applied there for more than four years and you come up with a clear picture of what the developing world will go through in the near future. Sadly enough, in this case the fall will start from a low level.

Consequently the above quoted G20 policy proposals are directed exclusively to the developing world, where cheap dollar loans financed both the private and the government sectors and thus greatly contributing to the strong growth rates achieved in countries like Brazil, Turkey and others. Of course the advanced countries will suffer from the fall of demand from the developing world, and possibly this can mean more woes for southern Europe. Last but not least it must be mentioned that developing countries with strong internal financial system, like China, will not be hurt much by these new unpopular policies.

Unfortunately, it is clear then that the G20 confirmed this weekend the European Sting’s article of 9 October entitled, “Preparing for developing countries the ‘Greek cure’”.

 

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

the European Sting Milestones

Featured Stings

These campaigners want to give a quarter of the UK back to nature

How to build a more resilient and inclusive global system

Stopping antimicrobial resistance would cost just USD 2 per person a year

“Only through energy policy we can trigger competitiveness”. The Sting live from #EBS2015: Energy Union – When will it happen?

The 28 EU leaders show contempt for the European Elections results

‘Exercise restraint’ Guterres urges Sri Lankans, as political crisis deepens

Austria’s EU Presidency: Chancellor Sebastian Kurz aims to “build bridges”

Consumer protection: Deal on EU-wide rules for those sold faulty products

Will Europe be able to deal with the migration crisis alone if Turkey quits the pact?

A Europe that protects: Continued efforts needed on security priorities

Two out of every five American couples now meet online

MEPs want to ensure sufficient funding for Connecting Europe’s future

Germany fears that Americans and Russians want to partition Europe again

MEPs strengthen EU financial watchdogs

Is there a cure for corruption in Greece?

Yemen: Security Council backs new mission in support of key port city truce

Foreign investment to be screened to protect EU countries’ strategic interests

Yemen: Committee brings warring parties to the table in Hudaydah, builds on ceasefire

The growing cyber-risk to our electricity grids – and what to do about it

North Korean families facing deep ‘hunger crisis’ after worst harvest in 10 years, UN food assessment shows

For how long will terror and economic stagnation be clouding the European skies?

Knowledge management and entrepreneurship: short term vs. long term perspective

Tuesday’s Daily Brief: sexual violence in conflict, a malaria vaccine trial, updates on Libya, Ebola in DR Congo, Sri Lanka and Mali

How Japan can take the lead with an ageing workforce

What do toilets have to do with climate change?

GSMA Announces First Keynote Speakers for 2019 “MWC Los Angeles, in Partnership with CTIA”

UN postal agency ‘regrets’ US withdrawal

High-technology manufacturing saves the EU industry

Why the financial scandals multiply?

Scotland in United Kingdom: It’s either the end or the beginning of the end

Cyprus tragedy reveals Eurozone’s arbitrary functioning

When it comes to envirotech adoption, NGOs can lead us out of the woods

EU citizens disenchanted with Economic and Monetary Union over rising poverty and high unemployment

Statement by the Brexit Steering Group on UK government White paper

‘Revved up climate action’ needed to counter ‘prolonged’ and deadly storms like Cyclone Idai: Guterres

Berlin repels proposal for cheaper euro

Facebook-Cambridge Analytica: MEPs demand action to protect citizens’ privacy

UN chief commends African Union on adoption of institutional reforms

This new solar technology can be printed or woven into fabric

Oslo leads the way in ‘Breathe Life’ campaign for cleaner cities in climate change era

Soil pollution ‘jeopardizing’ life on Earth, UN agency warns on World Day

Earthquake: Monte Dei Paschi Di Siena

These five exercise trends will help society and your health

Yemen: ‘A great first step’ UN declares as aid team accesses grain silo which can feed millions

Worldwide terror attacks have fallen for the third year in a row

Trump doesn’t only target Germany, aims to crack the entire EU

Commuters in these cities spend more than 8 days a year stuck in traffic

Another doomed EU attempt to interfere in Libya?

Pride in practice: Equality in access to health services for the LGBT community in a third-world country

Here are 4 of the most politically charged World Cup games ever played

Prospect of a nuclear war ‘higher than it has been in generations’, warns UN

Why Sweden’s cashless society is no longer a utopia

UN rights expert calls for civilian protection as fighting escalates between military and armed group

Why we need a new social contract for data in healthcare

What we need for a better European Solidarity Corps

Eurogroup president swallows statement on savings confiscation

European Youth, quo vadis?

Security Council downsizes AU-UN mission in Darfur, eying eventual exit

Remembering Kofi Annan

#TakeYourSeat at the UN Climate Change Conference: a way for all people to join the global conversation

Brexit: when the hubris of one man can set the UK, the EU and the entire world on fire

Colombia offers nationality rights to Venezuelan children born there: UN hails ‘very important step’

The ECB will do whatever it takes to set the Eurozone economy again in motion

More Stings?

Speak your Mind Here

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s