MercoPress. South Atlantic News Agency

UNCTAD criticizes free trade policies

Latin American governments should restructure debt burdens and play a more active role in economic development, the UN Conference on Trade and Development has urged. In its latest annual trade and development report, Unctad sharply criticised the market-friendly and trade-oriented policies adopted during the 1990s and said they had contributed to a “premature de-industrialisation” in the region.

Arguing that the 'Washington Consensus' was embraced with particular enthusiasm in Latin America, Rubens Ricupero, secretary general of Unctad, said that after "some initial signs of success, familiar structural constraints have resurfaced".

The report said exchange rate-based stabilisation policies relying on capital inflows had led to instability in currency markets and high interest rates, while rapid trade liberalisation had caused deterioration in external balances. Foreign direct investment flows had also contributed to financial instability. Yilmaz Akyüz, the recently retired Unctad official who wrote the report, welcomed recent changes in foreign exchange regimes (most of the region has moved away from unsustainable fixed exchange rates in the last four years). He also said the increased fiscal and monetary discipline of recent years was positive.

However Mr. Akyüz said that Brazil's debt burden was "unsustainable" and Latinamerican as a whole needed debt write-offs. Trade and market access were "important, but not the most important issues" and it was vital that Latin America find ways to revive flagging domestic industries.

More needed and immediate is the increase in domestic savings rates and promoting the flow of credit to local businesses Mr Akyüz was particularly concerned by the fact that that many medium and smaller businesses had been starved of credit and squeezed by multinational competitors.

Mr. Akyüz stopped short of urging a return to the failed import substitution policies of the 1950s and 1960s, but said Latin American governments needed to learn from the way East Asian governments had promoted economic development by supporting successful companies.

As to the development of stock markets, "they have not helped companies to raise capital". Markets were too narrow and contributed to economic vulnerability. Indeed, the entire experiment in developing countries had been "silly", said Mr Akyüz. Poorer countries should have concentrated instead on measures to consolidate their banking systems, he said.

Unctad is the UN's main forum for development issues discussions and a frequent critic of IMF and World Bank policies. But controversy aside, the fact is that two of the region's biggest economies - Brazil and Mexico - have stuck with orthodox fiscal and monetary policies despite faltering growth and rising unemployment. Brazil in particular has rejected any suggestion that it should seek to reschedule a public debt burden equivalent to more than 55 per cent of gross domestic product.