Macroeconomic Stability / World Trade: What is at stake for the South?

Confronting the views of foremost economic thinkers with the ones of decision-makers from the South: that was the ambition of the Global Southern Economics session of the MEDays Forum. The burning issues of macroeconomic stability and trade policy were on the agenda.

Ahmed Réda Chami, Minister for Trade, Industry and New Technologies of the Kingdom of Morocco

Amadou Niang, Minister for Trade of Senegal

Edmund Phelps, Professor of Political Economy at Columbia University, Laureate of the 2006 Nobel Prize in Economics

Roman Frydman, Professor of Economics at the New-York University

Jean-Hervé Lorenzi, Chairman of the "Cercle des Economistes", Advisor to the Board of La Compagnie Financière de Rothschild

Richard Attias, Founder and Chairman of the New-York Forum

Philippe Camus, Co-managing partner of Lagardère group, Chairman of the board of Alcatel Lucent

The world has become a very complex place. Economic actors are making decisions and driving a system without properly understanding it. Their actions are characterized by uncertainty as to their consequences.

7% to 8% of production activities have been transferred in a very short time period from OECD countries to the « emerging bloc ». As developed economies need to diversify into new activities and emerging ones are moving away from their export driven models, the road ahead seems as uncertain as ever.

A concern for monetary stability

Monetary imbalances are a major source of concern for the developing world. Both the volatility and the speed of monetary adjustments present great problems to policy makers and the private sector.

According to Edmund Phelps, foreign exchange rates are related to fundamentals; and precisely because of that, they have a tendency to fluctuate, sometimes excessively.

The crisis served an important purpose in showing that that the markets are not perfect and inevitably lead to a variety of excesses. The role of the state is to provide an institutional framework to deal with their imperfections. Economist Roman Frydman showed that without the crisis, we would probably never have come to that realisation.

States should allow currency values to float, as fluctuation serve an essential adjustment function. But they should introduce mechanisms to prevent excessive swings. Unfortunately, the G20 meeting in Seoul has failed to consider this.

The dangers of austerity

The building up of public debt in the developed economies has led to a run to reduce public deficits. Fiscal consolidation is seen as a precondition for growth to take over. Experts have stressed the importance of resuming more sustainable budgetary situations, without jeopardizing incipient growth.

The South’s concerns expressed at the Forum towards current Western policy are best summarised in the words Brazilian President Lula: OECD countries should beware not to smother their domestic consumption. Should they fail to do so, the developing world will take the toll.

Politics of trade

Trade policy is another source of concern for the developing world. Since 1995, developing countries have argued that the international trade system is biased in favour of the most powerful countries.

The South acknowledges the benefits of a regulated trade environment, in which interactions among actors take place under set of commonly agreed rules. The World Trade system has brought about positive changes for the South. Contrarily to common wisdom, it has enabled a positive dynamic of economic progress.

But if trade barriers are to be completely lifted, it is essential for all parties involved to share a common set of practices. WTO member states need to share the same cost structures, by abiding to a set of internationally determined standards, chief among which labour standards. ILO recommendations could be used as guidelines. Trade distorting economic practices like exchange rate manipulation, currently used by developed countries and aiming at artificially lowering their cost of exports, should equally be proscribed.