Tags: UN | Public | Spending | Cuts | Risk | Disaster

UN: Public Spending Cuts Risk Disaster

Wednesday, 15 Sep 2010 03:49 PM

The world economy faces a threat from the global market imbalances that caused the 2008-09 crisis and slashing government spending can only heighten the problem, a senior United Nations economic official said on Wednesday.

Supachai Panitchpakdi, head of the UNCTAD trade and development agency, told member countries the imbalances — in food, energy, housing and financial markets — had been left untouched by moves to end the recession.

"They remain a toxic threat to stable and inclusive growth and the sustainability of the recovery," declared Supachai, a former head of the World Trade Organization (WTO).

And in a warning to countries like Britain and Germany, he said driving hard to cut government spending through deficit reduction and tighter monetary policy could have "disastrous consequences for recovery and precipitate a double-dip."

Supachai, an ex-deputy prime minister of Thailand, was speaking a day after UNCTAD issued a report saying major economies should maintain fiscal stimulus policies or face slumps in employment and growth.

BOOSTING JOBS

Like the report, and a statement from the fiscally-strict International Monetary Fund (IMF) on Monday, he said governments should be focusing on boosting jobs and not pandering to financial market demand for deficit cutting.

In times of deflationary pressure, there was no real harm in maintaining high levels of government spending "especially if it stops prices from falling, sustains employment and ensures that people do not fall into poverty," Supachai said.

Support for the public sector, he added in arguments similar to those being used by labor unions across Europe, "is essential for maintaining jobs in the private sector as many firms depend on public sector contracts."

Supachai said that despite the huge sums spent by European governments and the United States in rescuing the financial sector from collapse in 2008 and 2009, there was little sign that real lessons had been learned from the crisis.

The large public deficits in many countries were the result of spending to rescue the financial sector, and banks and bondholders should now show patience with the unwinding of the resulting sovereign debt, he declared.

"Certainly, the re-emergence of speculative position-taking and the bonus culture in an industry that has perhaps become even more oligopolistic....is a step in the wrong direction," the UNCTAD secretary-general added.

Supachai lamented that the G20 group of nations had shown little enthusiasm for radical change to what he called the pre-crisis business model.

"Indeed, politicians and business lobbies still seem committed to the pre-crisis agenda of a shrinking state, the privatization of public services, and a tough stance on large deficits," he said.

Such policies "would be highly risky for economic growth and social well-being during this immensely fragile period."

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The world economy faces a threat from the global market imbalances that caused the 2008-09 crisis and slashing government spending can only heighten the problem, a senior United Nations economic official said on Wednesday. Supachai Panitchpakdi, head of the UNCTAD trade...
UN,Public,Spending,Cuts,Risk,Disaster
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2010-49-15
Wednesday, 15 Sep 2010 03:49 PM
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