Poor countries call for 1 trillion dollars-plus in stimulus (Roundup)

By JT Nguyen Jun 22, 2009, 20:51 GMT

New York - Left out of the rich bail-out measures of the US and some European countries, developing countries are asking for similar stimulus packages worth up to 2 trillion dollars and a moratorium on debt payments.

The South Center, an intergovernmental think tank of some 50 developing countries, said Monday that the additional external financing of 1 to 2 trillion dollars could go to make up for the shortfall in export losses and outflow of capital triggered by the recession.

The poorer economies 'want to be able to join the practice of fiscal stimulus packages to stimulate economic recovery, and this can happen only if the external financing is forthcoming to fill the trillion-dollar gap,' said Martin Khor, a Malaysian economist who heads the Geneva-based South Center.

The demand set the tone for the debate taking place Wednesday through Friday in the UN General Assembly on the continuing world financial and economic crisis.

The assembly is scheduled to issue a document to reflect the demands from poor countries and what the UN can do to assist them. Negotiations in the past two weeks have produced a third revised document, a compromise of positions between rich and poor nations, the UN said.

The developing countries are anxiously waiting to see whether their proposals are in the final document, the South Center said.

The gatherings later this week are seen as the first forum for poor countries since the global recession began. They were excluded from the table as the G20 - group of 20 wealthiest countries - met twice since November to map the way forward.

In fact, the heads of developed countries will be conspicuously absent from the UN debate. They will send low-ranking envoys or their ambassadors at the United Nations to take part in the debate.

Only 12 country leaders, all of them from poorer countries, are expected to attend the three-day debate.

Poor countries have blamed rich ones for causing the current recession, with the US and Wall Street being the main targets. After the first international fallout washed across Europe and Japan, it has now reached developing and emerging economies.

The poorer countries say they have good reason to complain of being the victims of the rich, as they suffered collateral damage mounting up to 6 percentage drops in their gross national products.

In a report on Monday, the World Bank said most developing countries will slip into recession this year amid a global financial crisis that has prompted wealthy investors to pull their money out of projects for the poor. It did not name the countries.

The developing world will grow 1.2 per cent this year after growing 5.9 per cent in 2008. Excluding China and India, which have held up relatively well in the ongoing recession, developing economies will shrink by 1.6 per cent in 2009, the World Bank said.

It predicted that international capital flows will tumble to 363 billion dollars this year, down from 707 billion dollars in 2008 and a high of 1.2 trillion dollars in 2007.

The South Center said the stimulus funds should be drawn from new SDR (special drawing rights), a basket of currencies regulated by the International Monetary Fund in Washington. Receivers of SDRs can exchange them for US dollars or other major currencies.

The G20 has agreed to set aside 250 billion in SDR that could be allocated by quota to poor countries. The G20 will hold its summit end of September in Pittsburgh, Pennsylvania, away from the UN headquarters in New York.

Among the other proposals pushed forward by the South Center is a moratorium on debt payments and the establishment of an international debt court open to poor countries to plead for their cases. Such a court could restructure debt payments between debtors and creditors, similar to the way US carmaker Chrysler has already reorganized through US Chapter 11 bankruptcy. The US auto giant General Motors is in the midst of similar restructuring.

The South Center also called for a new forum for global economic governance, with the suggested title of global economic council, to be set up by the UN, which would allow developing countries to have a voice of their own.

It called also for reform of the global financial and economic systems.

'The reforms are needed to cover the governance and policies of the IMF and World Bank, the regulation of financial markets and capital flows, strengthening of surveillance over developed countries' policies and the creation of a new reserve system based on the SDR,' the South Center said.