Friday, March 27, 2009

(MALAWI) Africa needs fair trade more than aid-- Malawi Finance Minister

Africa needs fair trade more than aid-- Malawi Finance Minister
Goodall Gondwe
27 March, 2009 03:40:00

There is little doubt that the current global financial crisis was triggered by the failure of regulatory authorities to arrest the systemic risk posed by the use of derivatives and other such innovations in the US subprime housing sector.

The consequences of the downturn, as is already becoming clear in many countries across the world, are profound. But it is crucial that lessons be drawn from this slump to make a recurrence less likely.

A key outcome of reforms to the global financial architecture should be the expansion of the regulatory authority of multilateral organisations such as the International Monetary Fund (IMF).

It is essential that the Financial Sector Assessment Programme, for example, should be extended to economies across the world. This would enable regulators to go into countries and conduct in-depth financial sector assessments with the dual purpose of providing early warnings on possible risks in the financial system and advising on fiscal policy that would maintain macro-economic stability.

In addition, surveillance should involve peer review within the IMF to ensure that members, whether in industrialised countries or least developed economies, feel the need to pursue responsible policies. For Africa, the downturn may well spell a reduction in overseas development assistance. Governments in developed economies are already feeling the pressure to cut public expenditure and it stands to reason that development aid will not be spared the cutbacks.

But this approach would deal a terrible blow to developing countries and millions of the world's poor population. It will mean developing countries will have falling revenues and will inevitably fail to maintain the high rates of economic growth that have been experienced in recent years. This makes any moves to increase the capacity of lenders such as the IMF to boost aid highly necessary. This should include the reactivation of Special Drawing Rights (freely usable currencies at the disposal of the IMF) or indeed any other new credit facilities at the IMF and the World Bank.

In this context, it is essential that African leaders have their voices heard in the debate on possible reforms to the global financial architecture. While it is noteworthy that the British Prime Minister has invited notable African leaders to discuss issues that are of interest to the continent, it would be appropriate that Africa should be more adequately represented in the G20. The current situation where only South Africa represents the continent is less than appropriate.

More importantly, it should be understood that fairer global trade regimes would be more useful to Africa than aid. Not only is the African farmer threatened by the fall in commodity prices, particularly agricultural products, but he is also threatened by the producer subsidies that are being introduced in developed countries, especially in the USA and Europe. These subsidies price the African producer out of the global market, exacerbating poverty as a result.

Africa's trading partners could therefore help by instituting measures that will promote the growth of the market for African products at a price that will sustain production. In addition, a fund could be set aside to compensate the African producer for losses arising from declining terms of trade. Eligibility could be based on evidence-based research justifying the need for additional help from developing countries.

The last decade has seen impressive levels of economic expansion in most of Sub-Saharan Africa. Malawi, for example, has seen growth rates increased from a meager 2 percent to 8 percent within a few years.

African policymakers should ensure that the prudent macro- economic policies that have yielded accelerated growth are maintained, despite the downturn. In particular, there is need to maintain or increase expenditure on infrastructure development, education and health. The reduction in global oil and fertiliser prices should provide Africa with fiscal space for additional investment in development enhancing activities such as expenditure on education, health and infrastructure development.

On their part, developed countries could help Africa by ensuring that development aid continues to flow despite the challenges being faced in their respective economies as a result of the crisis.

Goodall Gondwe is Malawi's finance minister.

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