A UN body has cautioned against blindly trusting the “irresponsible” private financial institutions,including rating agencies,in economic policies and public finance management.
“In light of the irresponsible behaviour of many private financial market actors,which has required costly government intervention to prevent the collapse of the financial system,public opinion and policymakers should not trust again those institutions,including rating agencies,to judge what constitutes sound macroeconomic policies and sound management of public finances,” UNCTAD said.
The observations of the United Nations Conference on Trade and Development (UNCTAD),made in its Trade and Development Report 2011 released today,come on the heels of Standard & Poor’s downgrading the ‘AAA’ rating of the US that triggered mayhem in global financial markets last month. Many rating agencies had faced sharp criticism as they had given high rating to many firms trading in American mortgage securities and which collapsed causing global financial meltdown in 2008. The report also said that fiscal tightening policies adopted by governments worldwide in recent times to plug their debt burdens solves only part of the problem,and does not address the basic issues.
It said that a premature tightening endangers global recovery and added that the best strategy for dealing with public debt was by promoting economic growth.
“A shift from fiscal stimulus towards fiscal tightening is self-defeating,especially in the most developed economies,which were severely hit by the financial crisis (of 2008),” it said. It said that fiscal tightening measures followed by governments to tide over the economic downturn are not sufficient and may,in fact,hurt growth.
“Higher public debt ratios are a consequence of the crisis,not its cause a restrictive fiscal policy may reduce GDP growth and fiscal revenues,and is,therefore,counterproductive in terms of fiscal consolidation,” the TDR 2011 said.
According to UNCTAD,fiscal imbalances was not the driving factor in the economic crisis,but rather a result of the slowdown which compelled the governments to resort to stimulus measures for revising national economies.
“Economic growth in developing countries,as a group,suffered less impact from the financial crisis,partly thanks to active counter-cyclical measures; as a result,fiscal balances improved in 2011 and debt-to-GDP ratios remained in check,” it said.
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