Non-Crisis Economies Must Make Adjustments Too.

The brunt of the world economic slow-down had been borne by the developing and transition economies, according to The World Economy in 1999, a United Nations report prepared by the UN Department of Economic and Social Affairs (DESA). At a press briefing on 1 July, UnderSecretary-General for Economic and Social Affairs Nitin Desai described the period 1998-1999 as a lost biennium for development in Asia and a period of lost momentum in Africa and Latin America; in 2000, Asian economies affected by the financial crisis would resume growth from their 1997 position. Financial markets had stabilized and there were clear signs of recovery in Asia, but weakness continued in the Commonwealth of Independent States (CIS) countries and Latin America.

According to the report, 39 developing countries had gross domestic product (GDP) per capita growth exceeding 3 per cent in 1996, compared to just 13 in 1999; 32 developing countries would suffer a decline in GDP per capita next year as against just 14in 1996. The world was undergoing a period of slow growth, at just 2 per cent in 1998 and 1999; only continued growth in North America and Europe had kept the world economy going, whilejapan had remained in recession. Continued slow growth was expected for next year. Although the economies of North America and Europe had maintained their growth, trade volume had only grown by 3.5 per cent and the value of trade had actually declined in 1998. The picture would be even worse if one looked at the developing countries in terms of income rather than output due to fallen commodity prices. And net transfer of financial resources from developing countries was almost $60 billion in 1998, compared to positive flows of about $35 billion in the first half of the 1990s. Mr. Desai said the picture for the developing world was distorted by the fact that the two largest developing countries-India and China-had not experienced a slow-down.

Without them, the developing-country total figures looked extremely bleak. The slow-down had stopped signs of revival of growth seen in sub-Saharan Africa during the early 1990s and in the CIS countries in the mid-1990s at a time when those countries had put extensive policy reforms in place.

Mr. Desai stressed the importance of a coordinated policy response to crisis situations, rather than expecting the crisis economies to undertake the bulk of adjustment actions. The world economy would be easier to manage if some of the adjustment actions were undertaken by the noncrisis economies. There was an advantage in coordination; at the same time, it must include developing countries and not just the Group of Seven.

In response to questions, Mr. Desai said that, while there were signs of recovery in Asia, much of the impact on living standards in Thailand and the Republic of Korea had resulted from unemployment, which would require a revival of the growth process in order to reabsorb the unemployed. In Indonesia, much of the impact had been the result of inflation and a very sharp increase in prices. That would require a lowering of inflation rates-a scenario DESA considered nlikely before the year 2000.

In Latin America, there was still no clear evidence of a revival of growth. In fact, indications in the last few days had been even more pessimistic than the projections contained in fhe World Economy in 1999. In Africa, there had been signs of growth in the 1990s, but the 5 per cent growth seen between 1991 and 1996 had now come down to about 3.5 per cent, or virtually no growth in per capita terms.

Point of Fact: According to preliminary data released by the United Nations Conference on Trade and Developm nt (UNCTAD), world foreign direct investment (FDI) inflows in 1998 increased by 39 per cent over 199 , to $644 billion, due to substantial increase in cross-border mergers and acquisitions among developed country firms. FDI flows to developing countries as a whole declined by 4 per cent, from $172 billion in 997 to $165 billion in 1998. This decline-the first since 1985--was largely caused by lower flows to South, East and South-East Asia. The FDI increase occurred against the background of a slow-down in world economic growth to 2 per cent in 1998 (from 3.4 per cent in 1997) and the financial crisis that hit many eveloping countries and the Russian Federation in 1997-1998.