Global Economic Crisis and its Implications | by Ajit Muricken

by Apr 6, 2009All Articles

Preface to Eric Toussaint’s book by Ajit Muricken

The world today is at a turning point and faces multiple systemic crises and India is not excluded from it. The global financial crisis that is threatening to spill into a great depression poses a major awkward question on neo-liberalism and casino-finance capital. The cozy collaboration between the ruling elite and business that fostered private gain and loot at the expense of the poor and the marginalized people of the South calls for a rethink of the speculative financial market.

The global meltdown, with its epicenter in the US, is spilling over to the real economy with its growth engine grinding to a halt. Investment plans have been put off and new orders have plummeted. Even economies such as China and India have been severely affected. The best indicator of this is the rising unemployment and job losses. The financial crisis will raise world unemployment to 210 million by the end of 2009, its highest rate in the past decade, according to the ILO and this will include at least 20 million who lose their jobs between now and the end of 2009, according to its officials.

Rising unemployment levels will add further to the pressure. That, in turn, will affect the economies of all those countries that relied on the US markets, leading to cutbacks in production and job losses there. In short, there are worrying signs that the world economy has entered a negative feedback loop that could spiral downward rapidly.

The crisis started in America with the subprime mortgages, but the entire global financial system is caught in it. There are several causes – excessive risk – taking by banks, new financial instruments which were little understood but much used by hedge funds and others, rapid movements of markets thanks to IT and 24×7 news coverage which spread panic fast. But underlying all those things were global financial imbalances.

The countries of the South will not escape the effects of this crisis. Many of them whose financial systems are still not sufficiently “opened up” will escape the direct impact of the world financial crisis, but they certainly will have to face the impact of the recession of the real economy. The deepening recession resulting in declining purchasing power of people in the US and Europe and other parts of the world has already made its adverse impact on the exporting sectors such as sea-food, agricultural products and garments etc. Due to cancelled export orders the textile industry that employs some 35 million the longest after agriculture has hugely laid of temporary workers Commodity exporting countries that gained from higher prices now face lower incomes as those prices plummet. Meanwhile, investment in developing countries, the backbone of their economic growth, has dropped as a result of problems in the global credit market.

Three areas are of special concern here. One is the inevitable decline in the terms-of-trade for primary commodities that will occur in a recession, which will push cash-crop growing peasants into even greater distress. The other is the loss of food security over much of the Third World that will inevitably occur.

Global recession is reducing job opportunities from abroad and remittance from repatriates working in richer countries are under pressure facing weakening of job opportunities India is said to be the biggest recipient of earning from overseas workers. This year along getting 30 billion dollars now faces crisis in remittance that threatening revenue accounts large part of the foreign exchange.

With the global financial crisis showing no signs of abating, the ranks of the hungry are only expected to swell, FAO says. According to a release accompanying the report, the number of the world’s chronically hungry currently stands at 963 million. Through 2006-2007, when food prices began to rise steadily, 75 million people were added to the ranks of the undernourished, the report says. It adds that till 2005, the world had been making progress in reducing the share of hungry people. The percentage of the undernourished in world population had reduced from 20% in 1990-92 to 18% in 1995-97 to just above 16% in 2003-05. But since then, the food and financial crises have taken the proportion of the hungry back to around 17%. The developing countries account for more than 93% (901 million out of 963 million) of the world’s hungry, the report says. Out of these, 65% are from seven countries alone.

The world economy has been run undemocratically since 1945, with the major global institutions dominated by the victors of World War II. That is not how it was originally meant to be. The existing finance institutions were born of crises and now represent entrenched interests of some players. It will be difficult to reform or replace them until a serious, sustained crisis makes change inescapable. The financial meltdown could be one such crisis that facilitates an overhaul of the Breton Woods institutions at a time when Southern countries have emerged as the world’s main debtor countries. Until a new world order emerges, we will continue to live in a dysfunctional world with an outdated set of rules. Only revamped institutions and new rules can deal with the root causes of the present crises, not just the symptoms.

Need for alternative global financial institution.

The recent rescue efforts to save capitalism by using neo-liberal prescription and tool kits seems unlikely to save economic system in deep crisis even though the International Financial Institution actively engaged in the bailout plans.

Ironically, the multilateral institutions that were created to prevent the repetition of the Great Depression and manage foreign currency fluctuations by pegging the local currency first to gold and later to the dollar, like the IMF and World Bank, seemed to have been hijacked by the neo-liberals to executive their agenda. Their bitter conditionalities for giving loans to foreign exchange strapped countries have had a disastrous impact on these societies. US treasury reports have indicated categorically how the World Bank has been forwarding US policies to promote free market and counter Leftwing and social welfare ideologies.

The formation of the Bank of the South would definitely alter power relations within a multilateral development banking system, and would re-problematise development within a context in which the liberal ideology has blocked the way to the major goals of humankind, particularly to critical and alternative discourses and proposals for making another world possible.

The new World Bank and the new International Monetary Funds, whatever their new names may be, must have radically different missions from those of the former institutions; they must make sure that the international treaties on the (civil, political, social, economic and cultural) human rights are actually carried out through their action in the field of international credit and international monetary relations. These new global institutions must be part of a global institutional system controlled by a thoroughly reformed United Nations Organisation. It is an essential priority that the global South must get together into regional entities as soon as possible, with a common bank and common monetary fund.

From this perspective, the idea of Bank of the South opens possibilities for challenging neo-liberalism in previously forbidden fields: on the one hand, development financing with due respect for the sovereignty and integration of peoples, and on the other, theoretical thinking on an equitable, intercultural, democratic, sovereign place and developing a people-centered development paradigm. In short the new paradigm must entile a food-grain let growth strategy (on the basis of peasant not corporate agriculture) sustain through larger government spending which makes the domestic market more vibrant and sustainable.

This will also eliminate the current bias in favour of dollar-denominated US Treasury bills. This will wean the US from the addiction to other people’s money and make it start saving. It would also rebalance the world’s financial system. Maybe these will be the first fruits of the meltdown for Global Governance.

Ajit Muricken
Director – VAK

Order this book :

This book is a collection of articles of Eric Toussaint about the global crisis and the need for a new global financial architecture.

This edition was published by Vikas Adhyayan Kendra (VAK), Mumbai, India, 2007.

The author :

Eric Toussaint is a historian and political scientist, President of the CADTM, member of the International Council of the World Social Forum, author of “Your Money or Your Life! The Tyranny of Global Finance” , “The World bank : A never ending coup d’etat”, “Bank of the South. An Alternative to IMF-World Bank” co-author of “Le bateau ivre de la mondialisation. Escales au sein du village planétaire” (2000), of “Afrique : abolir la dette pour libérer le développement” (2001).

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