DEVELOPING COUNTRIES:A COMMITMENT from developed countries to reform global economic governance and ensure finance remains available to emerging African countries will be key undertakings sought by South Africa at the G20 summit this week.
The African Committee of Ten, established last January by Africa’s most developed economies to formulate a position on the global economic crisis, has come up with a comprehensive plan for South Africa to deliver at the London summit.
The committee is comprised of finance ministers, central bank governors as well as African Union and African Development Bank representatives.
As the only African country invited to the summit, South Africa must speak for the whole continent when contributing to the globally agreed response the meeting hopes to achieve.
Addressing the Institute for Global Dialogue in mid-March National Treasury chief director of international financial relations Michael Sachs outlined the committee’s four point plan.
The first pillar of the plan, according to Mr Sachs, is for developed economies to engage in serious fiscal stimulus, which he said EU countries had failed to do to date.
Secondly, developed countries needed to “lance the boil of the financial sector and toxic assets in those financial sectors,” as a fiscal stimulus policy would not help if the financial sector remained immobile.
“The extent of your fiscal stimulus’ impact on the real economy will be limited to the extent to which the financial sector is not working in that economy,” he said.
Thirdly, emerging markets needed a mechanism established that would allow them to finance counter cyclical policies during the crisis. Otherwise, budget deficits across the continent could not be financed and expenditure on development would be reigned in.
“We need significant funds from the International Monetary Fund (IMF) to guard against the potential of balance of payment and liquidity prices,” he said. Finally, a commitment from developed markets to reform global governance must be secured.
While many African countries managed to avoid the initial phase of the global economic crisis that ravaged the United States and Europe, the interconnectivity of global markets means they are now beginning to feel a knock on effect.
Unemployment is rising steadily across Africa as direct foreign investors scale back their operations or shutdown completely.
Well-developed sectors like tourism are also in decline as tourist numbers at the continent’s holiday destinations rapidly fall.
In addition, most African states can no longer access loans as global capital markets were unwilling to invest in emerging economies.
Furthermore, exports to the developed world are being affected by falling consumer demand and the introduction of protective legislation by hard pressed governments.
South Africa’s president Kgalema Motlanthe will lead the South Africa’s delegation to London.
Finance minister Trevor Manuel said in his opening speech to the Committee of Ten: “Ours is a history of a battle for a fairer more equitable world. This period is one where we will amplify the call.”
