The consequences of the downturn, as is already becoming clear in many
countries across the world, are profound. But it is crucial that
lessons be drawn from this slump to make a recurrence less likely.
A key outcome of reforms to the global financial architecture should be
the expansion of the regulatory authority of multilateral organisations
such as the International Monetary Fund (IMF).
It is essential that the Financial Sector Assessment Programme, for
example, should be extended to economies across the world. This would
enable regulators to go into countries and conduct in-depth financial
sector assessments with the dual purpose of providing early warnings on
possible risks in the financial system and advising on fiscal policy
that would maintain macro-economic stability.
In addition, surveillance should involve peer review within the IMF to
ensure that members, whether in industrialised countries or least
developed economies, feel the need to pursue responsible policies. For
Africa, the downturn may well spell a reduction in overseas development
assistance. Governments in developed economies are already feeling the
pressure to cut public expenditure and it stands to reason that
development aid will not be spared the cutbacks.
But this approach would deal a terrible blow to developing countries
and millions of the world’s poor population. It will mean developing
countries will have falling revenues and will inevitably fail to
maintain the high rates of economic growth that have been experienced
in recent years. This makes any moves to increase the capacity of
lenders such as the IMF to boost aid highly necessary. This should
include the reactivation of Special Drawing Rights (freely usable
currencies at the disposal of the IMF) or indeed any other new credit
facilities at the IMF and the World Bank.
In this context, it is essential that African leaders have their voices
heard in the debate on possible reforms to the global financial
architecture. While it is noteworthy that the British Prime Minister
has invited notable African leaders to discuss issues that are of
interest to the continent, it would be appropriate that Africa should
be more adequately represented in the G20. The current situation where
only South Africa represents the continent is less than appropriate.
More importantly, it should be understood that fairer global trade
regimes would be more useful to Africa than aid. Not only is the
African farmer threatened by the fall in commodity prices, particularly
agricultural products, but he is also threatened by the producer
subsidies that are being introduced in developed countries, especially
in the USA and Europe. These subsidies price the African producer out
of the global market, exacerbating poverty as a result.
Africa’s trading partners could therefore help by instituting measures
that will promote the growth of the market for African products at a
price that will sustain production. In addition, a fund could be set
aside to compensate the African producer for losses arising from
declining terms of trade. Eligibility could be based on evidence-based
research justifying the need for additional help from developing
countries.
The last decade has seen impressive levels of economic expansion in
most of Sub-Saharan Africa. Malawi, for example, has seen growth rates
increased from a meager 2 percent to 8 percent within a few years.
African policymakers should ensure that the prudent macro- economic
policies that have yielded accelerated growth are maintained, despite
the downturn. In particular, there is need to maintain or increase
expenditure on infrastructure development, education and health. The
reduction in global oil and fertiliser prices should provide Africa
with fiscal space for additional investment in development enhancing
activities such as expenditure on education, health and infrastructure
development.
On their part, developed countries could help Africa by ensuring that
development aid continues to flow despite the challenges being faced in
their respective economies as a result of the crisis.
Goodall Gondwe is Malawi’s finance minister.
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