By Chino S. Leyco
Developing countries, like the Philippines, may be on the brink of failing to sustain their high economic growth that is necessary for reducing poverty as the US-China trade war has reached “critical threshold”, a level that necessitates bolder and non-traditional interventions by the World Bank and the International Monetary Fund, the Department of Finance said.
In a statement, Finance Secretary Carlos G. Dominguez III said yesterday that a slowdown in the world’s economic performance due to trade tensions will have significant adverse effects on low-income countries and emerging economies.
“We have now reached a critical threshold. Beyond this point, we fear seeing a world thrown into economic decline,” he added.
For this reason, the DOF chief called on the International Monetary Fund (IMF) and the World Bank to help emerging countries in mitigating, if not reversing, the negative factors that threaten prospects for global growth.
“We call on the IMF and the World Bank to re-examine the traditional interventions and discard those that no longer work in favor of bold, out-of the box solutions for the institutions to remain in the foreground of the global economic landscape,” he said.
“The interaction between international institutions and national governments with pivotal junctures throughout history must be adaptive and strong-willed,” he said.
Dominguez added that they fear traditional tools IMF and World Bank have used to address such issues might prove insufficient, especially in dealing with disruptions in business models brought about by technologies, trade war, and changes in the supply chain models.
Dominguez also urged the two institutions to remain supportive of high-impact reforms to improve the mobilization of domestic resources in developing countries that aim to sustain and boost long-term growth prospects, and increase resilience to economic shocks.
“If present trends continue, all the work we have put in preparing our economies for competitive trade, improving our domestic efficiency, and maintaining the highest standards for fiscal discipline will fail to ensure inclusive growth,” Dominguez said.
Dominguez said the Philippines was concerned over the ultimate consequences of the trade tensions that appear to be escalating between Washington and Beijing that raise the prospects for global economic slowdown.
He also said that they view with concern the rise of protectionism and negative interest rate policies as well as the increasingly debilitating effects of climate change and profoundly disruptive technologies.
“Nothing threatens peace and stability more than economic stagnation, especially one inflicted by growing hostility to free trade,” explained President Rodrigo R. Duterte’s chief economic manager.
To date, an estimated 47 percent of low-income developing countries have been in debt distress as global development aid already dropped 2.7 percent last year and bilateral official development assistance to the least-developed countries falling by three percent.
Debt distress refers to a country that is already experiencing difficulties in servicing its debt, as evidenced, for example, by the existence of arrears, ongoing or impending debt restructuring, or indications of a high probability of a future debt distress event (e.g., debt and debt service indicators show large near-term breaches or significant or sustained breach of thresholds).