Cape Town - A document that South Africa is presenting to the G20 summit in London on Thursday makes a number of pleas
to the leaders of the developed nations to include the emerging countries in their calculations.
The SA government reckons that at minimum $1 trillion will be required to counter the effects of the crisis on developing countries.
It warns against protectionism, and urges the heads of state and government to agree to a continuation of the G20 process with
another meeting later this year.
The document - described as a discussion paper - was circulated in South Africa by the Treasury earlier on Thursday.
Making the case for the emerging economies, South Africa says that over the last decade they have functioned as the engines of global expansion, and in 2009 they will be the only sources of growth.
"The danger of financial contagion to emerging markets resulting in a sharp further sharp contraction of global growth is the largest preventable risk facing the global economy today," the Treasury says.
"Such a scenario - where balance of payments and fiscal constraint force developing countries into a pro-cyclical response - would trigger a vicious spiral, further undermining growth in advanced economies.
"Conversely, the marginal benefits to global growth of stimulus directed at developing countries far outweighs the returns that are likely from the developed countries. This is because counter-cyclical responses and infrastructure investment can be more effectively utilised in developing countries, yielding greater returns for global growth and positive feedback
to advanced economies."
The document points out that Institute of International Finance
calculations indicate that if instead of falling by $165bn this year, net capital flows to emerging markets were restored to the average of recent years ($500bn), significant benefits would accrue to both emerging and developed economies.
On growing protectionism, the South African document explains that South Africa is among the few exceptions to the many countries that have introduced new policy measures with trade-distorting or protectionist consequences.
Subsidies, not barriers
"Tariff increases comprise a third of these measures, while a number of G20 members have introduced new export subsidies," the Treasury says. "But the most significant actions have been large increases in state support to targeted economic sectors and industries.
"For instance, new subsidies proposed for the auto industry have grown to almost $50bn. In general, developed countries have relied on subsidies rather than border barriers, while developing countries have more often resorted to tariffs reflecting their weaker fiscal base and thus greater dependence on non-financial measures."
South Africa agrees on the importance of an early conclusion to the Doha negotiations, but adds that the lesson of the Washington Summit is that unrealistic timetables are a risky strategy.
"Rather than establish a deadline or repeat our commitments on
protectionism, the London Summit could more usefully re-affirm the basic objective of the Doha Development Round, which is to rebalance the global trading system so that it no longer favours the most developed countries,"
South Africa says. "A reaffirmation by leaders of the need to place the needs and interests of developing countries at the heart of the Doha work programme would give significant momentum to a conclusion of the round."
Making a special plea for the countries of Africa, the South African document insists that African countries remain committed to the implementation of sound economic policies and the establishment of strong institutions that are consistent with their long-term development goals.
"But global action is needed to ensure that the hard-won gains of the last decade are preserved and that conditions for future progress are restored," it said. "In particular, Africa will require resources to sustain investment, especially in infrastructure. The financing gap is estimated at
$50bn in 2009 and $56bn in 2010.
"Long made and oft-repeated commitments to increase aid to Africa must be delivered quickly. This includes the G8's Gleneagles commitment to double annual aid budgets to Africa to $50bn by 2010.
"New and additional resources must be unlocked to enable African economies to sustain growth and maintain social safety nets through strong counter-cyclical measures."
The Treasury reckons that at minimum, $1 trillion will be required to finance counter cyclical spending, sustain infrastructure investment, enhance social safety nets and backstop confidence in the balance of payments of developing countries.
At the same time, the urgency of the situation is no reason to delay consideration of a permanent increase in the Fund's resources through a general quota increase. The crisis has clearly demonstrated the need for a well-endowed global gund, able to respond effectively in times of crisis. Shareholders should also support the recapitalisation of the multilateral
development banks.
Urgent reform
"South Africa stands ready to make whatever contribution it can, within its means, to support the G20's collective commitments. This includes participation in an expanded new arrangement to borrow and contributions to the recapitalisation of the African Development Bank."
The discussion document also declares that reform of global institutions is therefore urgently required, not least so that further consideration can be given to the creation of an international monetary system that removes incentives for the build up of reserves, encourages stability and serves the
needs of global growth and development
"London must deliver tangible progress and bold commitments towards a new economic multilateralism. Without such action we will delay establishing the conditions for sustainable, inclusive and balanced global growth.
"This means reassessing the role and contribution of a range of global institutions, including the UN system, the ILO as well as the Bretton Woods Institutions."
- I-Net Bridge