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Davos World Economic Forum: Participants meet amid concerns over global economic outlook

Author(s):
International Monetary Fund. External Relations Dept.
Published Date:
January 2001
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In the last week of January, several heads of state, chief executives of some of the world’s largest corporations, academics, and senior officials of international organizations met in Davos, a small Swiss Alpine town, to discuss the state of the world. The occasion was the annual meeting of the World Economic Forum, the Geneva-based foundation that famously serves as a vehicle to bring together governments, the corporate sector, multilateral institutions, and civil society. The IMF was represented by First Deputy Managing Director Stanley Fischer. Also present in Davos this year were hundreds of people protesting globalization. They believed the main players in the international community are not acting in the best interests of the world.

Security, both inside and outside the Congress Center, was exceptionally tight, but this only added to the uncertainty of the participants. If euphoria was the defining feature of the 2000 Davos meetings, which took place against a backdrop of an unprecedented surge in the share values of technology stocks, this year’s meeting was characterized by a sense of gloom. The reasons for this were not hard to uncover. The meeting’s four main themes were a slowing U.S. economy and an uncertain global economic outlook; the pros and cons of globalization (with UN Secretary-General Kofi Annan and Fischer emphasizing the benefits of open markets and free trade, while representatives of nongovernmental organizations (NGOs) claimed that globalization disproportionately benefited rich nations and rich people in poor nations); poverty reduction and debt relief; and efforts to start a new round of multilateral trade negotiations.

How goes the global economy?

At a session entitled “Steadying the Course of the Global Economy,” Fischer noted that world economic growth is weakening, with key factors being a slowing U.S. expansion and a waning of recovery in Japan. However, Europe’s growth prospects for 2001 were promising, he said, and this could help prevent a major global slowdown.

Nevertheless, global growth projections for 2001 are being revised downward, Fischer said. In September 2000, the IMF forecast global growth of 4.2 percent for 2001, but it is now revising its projections, with a new forecast likely to be in the range of 3.5 percent. “We are a long way from global recession,” Fischer stressed. The United States, he added, is likely to experience a pickup later this year. The Japanese economy, meanwhile, slowed sharply in the second and third quarters of 2000 but may have improved slightly in the fourth quarter.

Fischer observed that East Asian economies—particularly countries that are major electronics exporters—will be negatively affected by the slowdown in the U.S. economy, but that China and India will be more robust. In Latin America, he said, Brazil is recovering nicely, while Argentina may be starting a long-awaited turnaround.

Other speakers—including German Federal Minister of Finance Hans Eichel, French Finance Minister Laurent Fabius, Japanese Vice-Minister of Finance for International Affairs Haruhiko Kuroda, and former U.S. Treasury Secretary Lawrence Summers—endorsed Fischer’s assessment of the global economy. Eichel was buoyant about Europe’s prospects, stating that “the dynamism of the European economy remains unbroken, and one can say that Europe is back.” Kuroda argued that digital technology is a driving force behind Japan’s restructuring. Companies are under pressure to be more competitive, he said, adding that there are signs of recovery in the Japanese economy, with the weakest link proving to be the household sector. Summers, long a pessimist about the Japanese government’s economic restructuring efforts, suggested, however, that one has to be “profoundly troubled” by Japan’s failure to restructure and break out of its near-zero growth rut. “Without a change in monetary and financial conditions that could produce the impetus and fuel for nominal GNP growth, it is not likely that the generation of positive supply shocks through microeconomic efficiencies will have a material impact on the underlying path of demand growth,” Summers said. Discussion of a Japanese recovery without a macroeconomic vision, he said, “is rather like a discussion of Hamlet without the prince.”

Globalization’s pros and cons

After listening to many of the world’s most influential policymakers, Davos participants appeared confident that a global recession was not around the corner. They seemed unconvinced about the arguments against globalization put forward by NGOs.

UN Secretary-General Kofi Annan set the tone of the debate at Davos by urging that policymakers strive to ensure that globalization works for all. He emphasized that “if we cannot make globalization work for all, in the end it will work for none. The unequal distribution of benefits and the imbalances in global rule making that characterize globalization today inevitably will produce backlash and protectionism. And these, in turn, threaten to undermine and ultimately unravel the open world economy that has been so painstakingly constructed over the course of the past half-century.”

John J. Sweeney, President of the American Federation of Labor and Congress of Industrial Organizations (AFL-CIO), said that the world was witnessing not a backlash, but the pangs of birth. “We are witnessing” he suggested, “a new internationalism, bottom-up driven, and located in the public square rather than the boardroom.” He pointed to student movements against sweatshops and for workplace rights everywhere. “Seattle should be celebrated for calling the WTO [World Trade Organization] to account,” he said. “We’ve been able to transform the agendas of various organizations including this one. Now is the time for actions such as debt forgiveness, increased aid, and greater World Bank and IMF support for education and health.”

Thabo Mbeki, President of South Africa, agreed with Sweeney. The new internationalism is basically the challenge of coping with the pressures of globalization, he said, noting that he presented the view of someone coming from Africa, “a poor and marginalized continent” struggling under debt and asking for relief. “We’re told, ‘That’s globalization,’” he said, but these problems are not the problems of the poor alone. It would serve rich nations’ interests too, Mbeki indicated, if debts were written off and industrial country markets opened to the commodities and products of the developing world. Perhaps then Africans could do what they want at home and not be forced to “cross borders in sealed trucks,” seeking better lives as illegal immigrants.

Debt relief

The issue of debt relief did receive prominent attention at Davos. Fischer, speaking at a session on the Heavily Indebted Poor Countries (HIPC) Initiative, said that 22 countries were now benefiting from the initiative, exceeding the goal set by leaders at last year’s Group of Seven summit (see IMF Survey, July 31, page 241). The IMF and the World Bank, he added, have coordinated approximately $20 billion in debt relief—measured by the net present value of future payments forgiven—from bilateral and multilateral lenders. “This is a considerable achievement,” Fischer explained, “but of course it isn’t the end of the process.” The funds made available through debt relief must be used to meet social priorities such as health care, education, and economic development. The enhanced HIPC Initiative, he stressed, requires debtor governments to work with local and international aid groups and develop written strategies for reducing poverty. But there is no guarantee, Fischer said, that these programs will always work, particularly when difficult obstacles must be overcome. He urged that realistic targets for progress be set so that critics cannot use failure as an excuse to reject all development aid.

Justin Forsyth, Policy Director of Oxfam, an NGO, cited the enhanced HIPC Initiative as proof that cooperation between groups like Jubilee 2000 and international financial institutions is possible. But while $20 billion in debt relief is not insignificant, the debt relief program does not go far enough, he said.

Trade liberalization

Looking beyond debt relief, Fischer said that poor nations will benefit tremendously from trade liberalization by rich nations, particularly in sectors such as agriculture and textiles. Trade liberalization was a touchy issue at Davos, as representatives of government, WTO, and NGOs engaged in intense debate about the need to restart a new round of trade negotiations. Mike Moore, Director-General of the WTO, called on the corporate sector to step up and make the case that the multilateral trading system benefits everybody. “If the WTO fails,” he warned, “the risk of hostile trading blocs shouldn’t be taken lightly as a long term-threat. This is not a time to be shy.” Peter Sutherland, the WTO’s first Director-General, rejected the criticisms directed at the WTO by protesters. “The WTO is being blamed for the very problems of under-development and exploitation that it seeks to address. It’s like blaming the doctor for trying to cure the disease,” he said.

Pascal Lamy, a member of the European Commission, suggested that the WTO faces three key challenges: integrating those nations still outside the multilateral system, grappling with the larger problems of globalization, and dealing with public concerns raised by the anti-WTO protesters. Any new trade round, he indicated, must put development issues at center stage and address environmental protection, health, and other social issues. His last comment set off another debate on the appropriateness of linking environmental and social issues with trade. All in all, this is a sign that while discussions on these weighty issues may have ended in Davos on January 31, the debate about globalization, free trade, and poverty reduction will remain high on the global agenda this year.

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