Amid slow economic recovery in the US and a crisis brewing in Europe, Southern economies, such as India, China and Brazil, can become game changers, especially for poorer countries.
By making policy changes and channelling, say, even 1 per cent of Sovereign Wealth Funds (SWFs), into least developing countries (LDCs), the emerging economies can make available the much-needed finance to them, as also help create newer markets, says a new UNCTAD report on the Potential Role of South-South Cooperation for Inclusive and Sustainable Development.
Globally, there are $4.3 trillion SWF assets, of which $3.5 trillion are owned by developing and emerging countries.
Investing in LDCs will also help SWFs to diversify their portfolios, the report said.
Mutual relationship
Pointing out regional synergies, the UNCTAD report called for a mutually supportive relationship with LDCs, especially in the areas of technology and FDI, leading to creation of markets for both production and consumption.
Introducing the report last week, Prof Jayati Ghosh of Jawaharlal Nehru University, said there was need for ‘developmental regionalism', such as promoting regional development banks, as these were suited to the provision of regional public goods. Also, unlike international lending institutions, these do not have excessive conditionalities. These banks could also tap foreign exchange reserves through SWFs, such as in China and Malaysia.
EU woes
Referring to Europe's economic troubles, Prof Ghosh said, “We will soon be forced to change, especially with regard to Third World solidarity, as a renewed crisis is raising its head.”
She said while LDCs were still marginal in terms of their share in the global economy, they could still play a significant role in terms of India's exports and foreign direct investment. India's recent credit line to the Maldives is in line with this.