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75% of world debts are by 7 developed countries
June 1, 2013, 10:37 am
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Roots of financial crisis should have been tackled in the USA and Europe

Abu Dhabi: The USA and Europe should have tackled the root causes rather than symptoms of financial and economic problems which would further aggravate if left unsolved, warned Robert Abdullin, publisher and editor in chief of World Economic Journal and President of the World Organisation of Creditors.

In an interview with Gulf News, Abdullin remarked that the world is passing through a bottleneck and it cannot recover on the short run. “Even with the efforts of international leaders and major financial organisations to resolve the problems ailing the global economy, the coming few years will still be marked by instability,” he said.

Gulf News: What is your perspective of the world economy today?

Robert Abdullin: Let me start with the Eurozone crisis. The Europeans are not solving the real causes of their problems but rather they tackle the symptoms. And there is no magic solution for this issue which has aggravated into a double dip recession that would require no less than three years to return to positive economic growth due to the high unemployment rates and austerity measures adopted by these governments. The western governments had not dealt with the roots of the problem seriously. For example the worsening debt crisis had forced the western governments in Europe to cut expenditure which led to shrinkage in their economies, accompanied by higher rate of unemployment which resulted in 20 million being jobless in the Eurozone. It is expected that throughout this year, the jobless rate in the Eurozone would hike more than 12 per cent unless contained by giving hand to Small and Medium Enterprises (SMEs), which most of European countries heavily depend on. The European Union may contribute to global stability if they solve their domestic inequities and disparities within the region, which had manifested clearly in the sovereign debt issue. The Eurozone crisis cannot be solved unless these countries embark on spending and taxing changes to decrease their debts.

Why has the global financial and economic crisis taken place?

The global crisis was not a random issue but it had resulted from insufficient institutional arrangements, policymakers’ mistakes with regard to market and lack of governance and transparency. Thus, the issue could be tackled by shaping and formulating a good fiscal and monetary policy by adopting certain regulations to create instruments to counter these symptoms. The financial problem unveiled that there was a lack of international liquidity when money markets dried up. Such an issue had influenced foreign currency badly as central banks started borrowing from other central banks and swapping foreign currencies which could be injected into the national banking systems. Such swaps were not advisable in this context. The financial crisis had taught us that we are in dire need of well regulated financial markets.

How do you view debt issues worldwide?

State debts are growing and it is becoming harder for many countries to decrease them or even to stabilise them. Figures of 2012 show the total debts of all countries had exceeded $55 trillion (Dh202.29 trillion), with seven developed countries accounting for 75 per cent of these debts. The developing countries do not have as critical situation as the developed states in terms of debts though their public debts had also grown by various ratios from 1- more than 30 per cent of their GDPs.

What is your opinion about the internal and external disparities and inequities worldwide?

I believe that countries which have large current account surpluses as China should get rid of structural deficiencies that restrict internal demand and make its currency more flexible. On the other hand, the states with huge current account deficits should enhance public finances.

How can we revive the world economy?

To revive the world economy, there is a need for enhancing investments and to formulate policies that influence them and foreign direct investments (FDI) in a positive manner. For example, during 2012, global economic growth was only 3.3 per cent and it was zero in the Eurozone. This had led to the reduction of FDI by 18 per cent and therefore, if FDI and joint investments are enhanced, by then we can revive world economy. I commend the transition economies of the world such as southeastern Europe and the Commonwealth of Independent States (CIS). The CIS is showing good results now. It is expected that in 2013, the GDP of the CIS countries will grow by 4.1 per cent, which would put the CIS in second place after the countries of Asia and the Middle East, where GDP grew by 6.7 per cent. The level of debt in the CIS countries is also a source of optimism. In 2012, debt was 13.9 per cent of GDP, which is half that of country groups in the Middle East and North Africa. The state debt of the G7 is 16 times that of the CIS countries. As for economic performance in the CIS countries, Russia, Belarus and Kazakhstan have the best figures for GDP considering purchasing power parity. The inflow of direct investments to Belarus and Kazakhstan has grown, but in Russia it has declined. Turkmenistan’s foreign debt is 1 per cent, the debt-to-GDP ratio is the best in Azerbaijan at 5.4 per cent. Russia’s debt ratio rose to 13 per cent.

What is your vision?

A. I ask many economists and analysts to go back to school to study. Let them go back to Karl Marx’s theories and practice them to solve many of the world’s today’s issues. The issue with Russia now is that it leaks investments outside its borders and even internal investors are now moving and shifting their investments cross-borders to neighbouring countries such as Kazakhstan which has many encouraging regulations for foreign investors. Companies start to acknowledge the importance of interacting with the greater community in which they operate. Nowadays, the Russian companies pay greater attention to infrastructure development. Therefore, the Russian government has to make progress in reducing the hurdles to doing business in the country including improving the business climate and competitiveness, reducing corruption, investing in infrastructure and privatisation.

 

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