03 February 2002

Leaders See Freer Trade as Boosting Global Development

Forecast modest U.S.-led economic recovery in 2002

By Berta Gomez
Washington File Staff Writer

New York City -- Policymakers attending the World Economic Forum (WEF) in New York believe trade liberalization could be one of the most effective ways to promote sustained development, according to Stanley Fischer, vice-chairman of Citigroup and former deputy managing director of the International Monetary Fund (IMF).

Fischer, one of the rapporteurs for the 2002 meeting, briefed journalists February 3 on the meetings of the Informal Gathering of World Economic Leaders, or IGWEL. The IGWEL traditionally meets privately during the forum for focused talks that organizers call "the summit within the summit."

This year, IGWEL participants focused on ways to restore sustained economic growth and reduce poverty, and they underlined the importance of the trade talks launched at the November 2001 World Trade Organization (WTO) meeting in Doha, Qatar, Fischer said.

"There was strong emphasis on the necessity of making the Doha round a success," he said. The idea that "trade may be more important than aid -- if it's [done] right" was a recurring theme, he added.

Fischer said participants generally agreed that freer trade could be worth as much as $150,000 million to developing countries, but stressed that such an outcome would depend on liberalized trade in agriculture and textiles. He noted that while textile trade liberalization is under way, IGWEL members have "not much hope" for similar action on agriculture.

Most IGWEL participants forecast a modest, "U-shaped" global economic recovery, with the United States leading the way, Fischer said. He cited "some concern" over a possible "W-shaped" recovery based on the threat of future terrorist acts, and worries that the bankruptcy of the Enron energy firm could have wider implications than are currently apparent.

Criticism of U.S. fiscal and monetary policy was at a minimum, Fischer said. "People generally think the U.S. has been doing the right thing," he said, adding that he had detected "very little interest" in a U.S. economic stimulus package.

U.S. productivity growth will not reach the robust rates of the mid-to-late 1990s, but will probably reach 2 to 2.5 percent this year, Fischer said.

The forecast for Europe is that economic recovery will "lag behind" the United States, Fischer said. The expected boost from the adoption of the euro as a common currency "hasn't been visible," he said, though he left open the possibility that positive effects will be felt in the future.

With the exception of China, IGWEL members saw "no tremendous vibrancy" in emerging economies, although they agreed that countries with well-managed policies -- such Mexico, Brazil and South Korea -- should follow the United States into economic recovery in 2002.

On the Argentine crisis, the mood was of deepest sympathy for the situation there, but also some relief that Argentina's financial turmoil has not, to date, contaminated other countries, Fischer said.

IGWEL members registered "major concerns about [ongoing problems] in the Japanese economy," Fischer said.

He also reported his own surprise that globalization itself was not the subject of much debate. Rather, the discussions had to do with the effects of globalization and issues of equity, transparency, and the fact that interconnected economies feel the effects of one another's problems. "Shocks can travel quickly from one country to the next," Fischer said.

Overall, participants "believe in the process of globalization, but believe that much better globalization can be attained through government and civil society," Fischer said.