[AS PREPARED FOR DELIVERY]

Excellencies,
Distinguished Delegates,
Ladies and Gentlemen:

In just 18 months, the world economy has undergone a sea change. A year and a half ago, the situation was one of sustained economic growth across countries, even in low-income economies like the LDCs, where growth patterns have been erratic for nearly two decades. It was a time of rising prices and reasonable expectations of achieving most if not all of the MDGs.

Today, however, what optimism there once was about achieving these goals has all but evaporated, leaving many poorer countries struggling to contain a burgeoning social crisis. Global economic health has taken a pounding. In the transition economies, for example - one of the most extreme cases - GDP growth has plummeted from more than plus-5% to a projected minus-5% this year. Such swings are neither sustainable nor acceptable for governments, business or the public, who are simultaneously savers, investors, consumers and wage earners.

In reviewing these and other current developments in the world economy this afternoon, I intend to focus on the dangers arising for developing countries from the current crisis and then look ahead to a potential exit strategy.

First and foremost - and I am sure that by this time we all agree - in order to better serve the long-term needs of countries and their populations, global economic activities need to be better managed and monitored. Indeed, if anything, the current financial and economic crisis has clearly exposed the limitations of certain mainstream economic views, especially the "one-size-fits-all" approach to national and international economic policymaking. It has also reinforced the need for pragmatic and diverse policies to govern the respective roles of the State and the market, the balance between regulation and deregulation, the mix between fiscal and monetary policies, and so on. Such policies are crucial in tackling economic interactions in this increasingly interdependent world and its fast-changing national, regional and international economic systems. And as we grapple for solutions to the crisis, we must pay adequate attention to the importance of policy diversity - which has somewhat disparagingly been called "heterodoxy". I will return to this point later.

Excellencies,
Colleagues,
Ladies and Gentlemen:

It is now widely acknowledged that the increasing openness of the international economic system has not only facilitated economic growth across countries and regions but has also been the channel for the transmission of falling demand - the main second-round effect of the crisis affecting developing countries. As a result of ensuing recession, UNCTAD predicts that global trade will fall by at least 6-to-8% this year. That is unfortunately a conservative estimate; the final figure is likely to be somewhat higher. For developing economies as a whole, this spells potential disaster, as exports represent more than 50% of GDP. In central Africa, however, this percentage exceeds 130% - as opposed to just 10% in the US. The outlook - especially for the small and low-income developing countries, where a high percentage of GDP is derived from export earnings - thus appears dismal. Only some of the larger emerging economies like China and India will be in a position to insulate themselves from the fall in trade, thanks to the size of their internal markets and their unilateral policies on capital accounts and banking regulation, which have so far kept GDP relatively buoyant.

Other trade-related flows have also dwindled as a result of the crisis. Credit for trade transactions, for example, has contracted, although the $250 billion made available for trade financing by the G20 may ease some of the immediate constraints. And there has been a steady decline in freight and shipping: Port traffic is down by 15-to-25% in the world´s largest container ports, and container carrying capacity is being withdrawn. On the positive side, a slight improvement in airfreight volume was reported this month, and the Baltic Dry Index - a benchmark for maritime freight costs - has recently risen. A word of caution is in order, however: These encouraging signs in maritime transport, along with modest increases in stock markets, stronger account positions for some banks, and a slowdown in the decline of property prices in some developed economies, have led to pronouncements of "green shoots". The implication is that global economic recovery is within sight.

We at UNCTAD believe that such pronouncements are premature at best, and alarming at worst, since they neither reflect the global picture nor mirror reality in the "real economy". Before searching for "green shoots", therefore, it might be better to take a step back and survey the "garden" as a whole.

For example: global unemployment will rise by an estimated 50 million this year. In the US, half a million people lost their jobs in the month of June alone. If that rate continues, the country´s unemployment will rise to a level not seen in recent history. But the situation is much worse in developing countries, where the capacity for social safety net measures is limited and more than 4 million people are falling into hunger each week. Normally, most of these countries would supplement their narrow domestic resource base with funds obtained from external sources, including development aid, concessional loans, FDI flows, remittances, and export revenue. Unfortunately, however, the global recession has cut back on all of these sources of capital flows.

For example: Recent data compiled by UNCTAD reveal that FDI inflows plunged by 54% in the first quarter of 2009, compared to the same period last year, and much more of this year´s decline is attributed to developing countries than was the case last year. This will damage countries´ ability to upgrade their technological and productive capacities and generate employment. Among the looming global concerns and risks that may affect the investment plans of transnational corporations is a possible rise in protectionism by home-country governments. UNCTAD, which has a long history of reviewing international investment flows on an annual basis, has been asked, along with the WTO and the OECD, to monitor changes in investment policies and their impact on investment flows. I am happy to report that to date, many of the investment measures taken by home and host countries in response to the crisis appear to have been mostly non-discriminatory in nature - unlike the rising protectionist trends affecting trade relations. This could, however, change.

In addition to private capital flows, such as FDI and migrant remittances, ODA remains one of the most important sources of income and investment for many developing countries. In fact, for most low-income countries, foreign aid provides the main, and in some cases the only, source of the financing needed to support public-sector programmes, develop infrastructure, build productive capacity and prevent a slide into deep recession and the loss of hard-earned exporting capacities. Hence our deep concern about the impact of the crisis on aid flows. UNCTAD´s analysis of previous banking crises suggests that aid budgets can fall by 30% in the five years following a crisis; other studies put the figure at between 10% and 60%. Support for development programmes in national aid budgets has already been diminished by the economic downturn, through backsliding growth rates (against which countries sometimes set the level of their development assistance) and the depreciation of donor currencies.

Without sufficient aid, countries suffering from the multiple crises of high food prices, high energy prices, and economic turmoil may now find it difficult to maintain the level of their imports and meet their debt service obligations. The debt burden for many countries already stands at over 40% of GDP, and for more than half the LDCs, it is 100-to-150% of GDP. In recent months, UNCTAD has repeatedly called for a debt moratorium for poorer countries, similar to the one introduced after the Asian tsunami and Hurricane Mitch. A moratorium would potentially benefit all countries, as scarce foreign exchange earnings could be used to finance badly needed imports instead of servicing debt.

Ladies and Gentlemen:

I referred at the outset to "policy diversity", or heterodoxy. I believe that a heterodox approach - the deliberately pragmatic use of diverse policy tools and strategies, in order to address specific problems - is gaining acceptance. Policymakers, academics, the media and the public increasingly recognize that single policy prescriptions for all countries are inadequate, even dangerous, and that so-called market efficiency cannot on its own correct the gross imbalances that precipitated the current crisis.

In this regard, we at UNCTAD applaud the IMF´s decision to relax ex-ante lending criteria and the G20´s decision to make $250 billion worth of SDRs available through the Fund. This provision of liquidity will give developing countries access to cheaper credit and possibly assist them with the necessary countercyclical stimulus to their economies and with social protection. As I said earlier, the $250 billion earmarked by the G20 for trade finance is also welcome, along with the $50 billion in aid. We must, however, insist on the urgency of delivering these funds and ensuring that developing countries have access to a significant proportion of them. The social and indeed humanitarian needs in poor developing countries are much greater and more acute than in the developed world, and they require an accelerated response. This is even more crucial in the light of recent figures forecasting poverty to affect another 53 million people this year worldwide. Rising poverty would have a severe impact on nutrition, education and health, and a possible feedback effect on employment and prospects for future poverty reduction.

Finding solutions to the current crisis - a workable exit strategy - requires not just a global response but also an inclusive approach, one that includes those who are suffering as a result of the crisis but did not necessarily contribute to it. For many years, UNCTAD has called for diversity of representation in the international economic governance structure. Such diversity is imperative not only for enhancing the system´s legitimacy, but also for offering the range of views and positions that need to be considered in monitoring and regulating the system. In this context, current efforts to reform international institutions like the IMF and World Bank and to create a more inclusive financial stability board to replace its previous incarnation, the Financial Stability Forum, are highly commendable.

Colleagues,
Ladies and Gentlemen:

The economic boom-and-bust cycle has become all too familiar, with regular financial crises occurring at least every decade since the early 1970s. Granted, there were some specific elements to each crisis, and the proximate causes - most recently, defaults on subprime mortgages - were unique, although not unforeseen. Each time, however, there is a familiar pattern; the mechanism that leads to the crisis is always the same. A positive shock generates a wave of optimism which feeds into lower risk aversion, greater leverage and higher asset prices, which in turn feed back into even more optimism, leverage and higher asset prices. At first, sceptical observers claim that asset prices cannot continue to grow forever at such a high rate. Enthusiasts answer that this time it is different. If the boom lasts long enough, some of the sceptics end up believing that this time is indeed different, and those who still remain sceptical are marginalized and ridiculed. But of course, things never are different. At some point the asset bubble bursts and the deleveraging process and economic crisis begin. Some of the excesses that led to today´s crisis could nonetheless have been prevented - for example, by a regulatory framework based on a clear understanding of the underlying mechanism.

In short: The financial system - including exchange rates, the reserve currency, and monitoring and regulation - desperately needs more and better management in order to avoid these cycles of boom and bust. UNCTAD has consistently advocated a multilateral approach to the management of the international financial system. The principle that cross-border trade transactions should be governed by multilateral rules and regulations overseen by WTO is now widely accepted and considered the norm. Exchange rate volatility and misalignment can have a far more distorting effect than tariffs. Beggar-they-neighbour policies compounded by currency devaluation could also incite a cycle of retaliation, through competitive devaluation or other protective measures.

Regulation in one area - trade - is rendered ineffective if another interconnected system - finance - is left unregulated. It is generally accepted that trade rules are necessary to make relations between trading partners fair. They also encourage stability through predictability and are non-discriminatory and transparent. If we believe in a fair world, then we have to acknowledge that similar principles as those governing international trade should be applied to finance - for example, with regard to the management of exchange rates and destabilizing short-term financial flows.

The question is: Have we learnt enough from past mistakes to ensure we do not repeat them, or at least minimize their impact? If the answer is yes, then I strongly believe that before the current crisis is behind us, we have to think hard about an exit strategy. Because I have one overriding concern, and that is that this crisis could spin off into other crises - another debt crisis, for example; an intensified energy or food crisis; or an economic crisis of another sort. Indeed, some evidence suggests that some new crises are already on the horizon. What we most need, then, is a sound exit strategy - one that looks to the past to learn from mistakes, looks to the present to determine our priorities, and looks ahead to consider every possible scenario.

Otherwise: Will we experience another financial crisis in 10 years´ time? Will small and vulnerable economies, and especially the LDCs, be suddenly affected by growing debt burdens or dramatic reversals in growth rates? Will we still be applauding rocketing asset prices, and yet anticipating collapse? The current economic situation creates both the need and the opportunity for a change in direction. The present relaxation of attitudes towards pragmatic policy design, including a greater role for the State in providing stability, stimulus and the socialization of risk, is the result of an emergency. But we need to look beyond the emergency. We need to consider the post-crisis environment and the normalization of so-called heterodox thinking in policymaking, for the safety of our financial system and also for stable and equitable economic development. Now is our chance, if we have the courage to take it.

Thank you.