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

Can we feed everyone without unleashing disaster? Read on

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

Road use charges: reforms aim to improve fairness and environmental protection

David Attenborough’s worried about this ocean threat – and it’s not plastic

Deadly swine fever threatens Asia, UN agriculture agency warns, urging regional collaboration

A free press is ‘cornerstone’ for accountability and ‘speaking truth to power’: Guterres

EU deal on electricity market rules to benefit both consumers and environment

7 ways for businesses to capture the youth dividend

Security Council imposes arms embargo on South Sudan

The Future of Balkans: Embracing Education

Eurozone in trouble after Nicosia’s ‘no’

A Valentine’s Special: heart has nothing to do with it, it’s all Brain

Are we at risk of a financial crisis? Our new report takes a look

The digital skills gap is widening fast. Here’s how to bridge it

How India is solving its cooling challenge

‘Dangerous nationalism’ seriously threatens efforts to tackle statelessness: UNHCR chief

State aid: Commission finds Luxembourg gave illegal tax benefits to Engie; has to recover around €120 million

The sustainable fashion revolution is well underway. These 5 trends prove it

Iraq: Security Council told ‘despair’ has ‘given way to hope’ but road to stability ‘long and far from easy’

Global leaders and companies pledge to reduce the gender pay gap by 2030

Boosting adult learning essential to help people adapt to future of work

More accessible products and services for disabled and elderly people

Why the answer to a more sustainable future could lie within the platform economy

MEPs vote for upgrade to rail passenger rights

eGovernmnet for more efficiency, equality and democracy

Solutions for cultural understanding: medical students’ perspective

LGBTQI+ and medicine

These 4 scenarios show how we might be working in the future

JADE Testimonial #3: Sebastian @ Fundraising

Ensure that widows are ‘not left out or left behind’, UN chief urges on International Day

The influence of the multilateral agreement on migrant health

Our tourism system is broken – time to customize

Indonesia has a plan to deal with its plastic waste problem

‘Crimes against humanity,’ ‘war crimes’ and risk of new ethnic violence in DR Congo, warn UN experts

Vaccines: from miracle to possible danger

Turkey presents a new strategy for EU accession but foreign policy could be the lucky card

Humane leadership must be the Fourth Industrial Revolution’s real innovation

Is the European Banking Union an impossible task?

UN Security Council ‘utterly failed’ Syrian detainees; a victim voices her plea to ‘end impunity and stop this horror’

European Young Innovators Forum @ European Business Summit 2014: Europe for StartUps, vision 2020

Technology can help solve the climate crisis – but it will need our help

EU continues targeting on Chinese steel imports instead of the revival of its own economy

Cyprus tragedy reveals Eurozone’s arbitrary functioning

Countries must invest at least 1% more of GDP on primary healthcare to eliminate glaring coverage gaps

UNICEF delivers medical supplies to Gaza in wake of deadly protests

Kids who live in the countryside have better motor skills, a study in Finland has found

UN atomic watchdog chief updates governing body on key North Korean reactor

Prevent future crises and empower youth – now!

Energy Union: EU invests a further €800 million in priority energy infrastructure

UN-backed intercultural dialogue forum urged to keep working to ‘bridge gap between the like-minded’

Immigration crisis at its very worst: EU to outsource rescue business to North Africa?

EU announces record €550 million contribution to save 16 million lives from AIDS, tuberculosis and malaria

Could robot leaders do better than our current politicians?

The European Sting @ Mobile World Congress 2014, Creating What’s Next for the World. Can EU Policy follow?

UN chief welcomes possibility of resumed talks between US and North Korea

Corruption In The Balkans Is Impeding EU Membership

EU-India summit: Will the EU manage to sign a free trade agreement with India before Britain?

Banking Union: Non-performing loans in the EU continue to decline

Protests, violence in Haiti prompts international call for ‘realistic and lasting solutions’ to crisis

Unemployment and stagnation can tear Eurozone apart if austere policies persist

Greece begins a new chapter following the conclusion of its stability support programme

Across the world, women outlive men. This is why

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