Economic crisis not over yet: WTO chief
Debt in Europe, Japan, US will haunt global economy, he warns
By Robin Chan
THE world's top trade official used a visit to Singapore yesterday to put a dampener on the cautiously upbeat mood that has emerged in recent weeks over the health of the global economy.
After flying into town, World Trade Organisation director-general Pascal Lamy issued a sombre warning: 'We are not out of the woods yet.'
In recent weeks, some moderately upbeat economic and financial news has emerged from the world's biggest economy, the United States, and other major economies in Japan and Europe.
This has lifted the gloom hanging over the global economy, at least in the eyes of some investors and commentators.
But Mr Lamy, who is in Singapore to pay a visit to Prime Minister Lee Hsien Loong and who also spoke at the Lee Kuan Yew School of Public Policy last evening, tends to take a bigger view than that.
The major developed economies of the US, Europe and Japan still have huge debt issues to tackle, and Asia has its own growth-related problems, he said.
'It doesn't change the fundamentals. It's great that the US job market is improving, but the US debt situation is not improving. That is going to haunt us at some stage,' said Mr Lamy, speaking to the media yesterday at the Fairmont Hotel.
'I think the developed economies - Japan, Europe and the US - have a big debt problem which they haven't yet coped with. The question is: How long will it take to address their public debt issue? And that's half of the world economy.'
The US has been producing more jobs and its factories have been churning out more goods, and this has helped to lift trade in Asia, including Singapore.
Investors also saw some good in a Greek government deal to avoid paying back some of the money it owes banks.
But Mr Lamy said there are still challenges ahead.
So-called emerging economies, where economic development has been more rapid in recent decades, have also felt the pinch at a social level even as Europe battles its debt crisis.
'The other half of the world economy, which is doing well growth-wise, also has problems, because growth is not everything.
'High growth creates tensions and turbulence in social systems... This Western notion that 2 per cent growth is a degree of happiness, and 4 per cent is therefore twice of that - it doesn't work this way. The inequality is growing very rapidly with this sort of huge growth, and creates political problems.'
Mr Lamy, who has been unable to get the major developed and emerging economies to agree to a long-running trade liberalisation deal known as the Doha Round, said that what is needed is global cooperation which has been lacking, as governments focus on domestic issues.
'Global growth is also a function of global cooperation. And we are losing growth, development and poverty reduction because of insufficient international cooperation.
'It is absolutely obvious if you look at trade. It is obvious if you look at climate change. It is the same pattern, and the same problem. And it is the same in macro-economic coordination, in financial regulation and in currency development.'
He said that the Doha Round will continue in a piecemeal approach to improve trade facilitation.
But he said that for the time being, it will not be able to achieve the 'big package as it was envisaged 10 years ago'.
Mr Lamy also said that the trade financing gap in Asia can be filled by Asian banks and governments.
The re-captilisation of banks in Europe and the US and Basel III capital requirements have seen banks pulling out of Asia to repair balance sheets, leaving a hole in trade financing.
Mr Lamy said that China, for example, is stepping up currency swap agreements to boost liquidity to 'oil its exports', and will 'keep stepping in'.
'The question is more on the regulatory side, which is, how homogenous is Basel III? Will the China Construction Bank feel bound by the Basel rules in the same way as Citi or BNP Paribas? That is beyond my territory of investigation.'