Emerging world key to growth

SINCE the late 1980s, there has been a change in the dialogue over world growth prospects. The traditional emphasis on developed countries has shifted to the dynamic economies of the developing world. They are no longer treated as poor relations but as the potential centres of economic energy over the next decade.

This is an underlying theme of the spring meetings of the International Monetary Fund and the World Bank this week. Study after study points to relatively sluggish growth in the industrial countries, averaging 2-3 per cent, compared with robust growth of 5-7 per cent for developing countries. The World Bank concludes that particularly in Asia and Latin America, 'this good growth performance is unlikely to be temporary or soon reversed'.

Of course, there are caveats. Overheating and interest rate shocks could slow momentum, while political and social unrest could derail fast- track growth. Some economies remain mired in poverty, most notably in Sub-Saharan Africa, South Asia and parts of Eastern Europe. Nonetheless, over the next decade the economies of the developing world are expected to continue to outpace the industrial economies.

China, where growth has averaged 10 per cent a year over the past four years, feels powerful enough to demand that the US, Britain and others mind their own business. Malaysia and Singapore act with similar assurance. Latin America is no longer the poor debtor but a land of opportunity. Big investment houses and established industries go prospecting in India, South Africa, Argentina and other 'emerging markets'. As the balance shifts, so does the dialogue: less lecturing to developing countries and more encouragement. The question is now, how much do the industrial countries need the developing ones?

Meanwhile, whatever happened to the Group of Seven's resolve to promote sustained growth among the industrial economies through co-ordinated interest-rate policies, among other things? To veteran observers, this process is dead.

Figures released prior to the meeting of G7 finance ministers over the weekend revealed a soaring US trade deficit, as the robust American economy embarked on a buying binge and its weakened trading partners purchased much less. The US economy grew by 7 per cent in the final quarter of last year, while Japan and Europe remained in recession. Despite sluggish growth, Japan's government refused to cut taxes without offsetting tax increases and Europe hesitated to lower interest rates despite poor growth prospects well into 1995. The IMF said activity in Europe would not be sufficient to reduce overall unemployment in 1995.

Concern over Europe's prospects is another sign of a dramatic shift since the late 1980s. The IMF's World Economic Outlook devotes an entire section to rising unemployment, with particular emphasis on Europe's large structural unemployment. The debate over whether it is better to be poor in the US or unemployed in Europe took centre stage when journalists questioned whether the IMF was recommending the 'American model'.

Discussion was heated as advocates argued the merits of both systems. Some questioned whether the IMF should even be addressing labour issues. It replied that employment activity was essential to economic growth prospects and therefore very much in its realm. Without advocating the US model as a guide, the IMF urged Europe to adopt many of its components. Lower wages, fewer government-imposed rigidities were key ones. Ultimately, the message was that if Europe continued along the same path, its post-war prosperity would be threatened.

This brings us back to he role of the developing countries. Despite their growing importance, new figures revealed no embracing of them but just the reverse. Particularly in Asia and western Europe, there were renewed efforts to shut out their exports.