With the U.S. rating downgrade early August by Standard & Poor's leading to a fresh financial turmoil even before economies could recover fully from the subprime mortgage-led global meltdown in 2008, the United Nations Conference on Trade and Development (UNCTAD) on Tuesday warned against reposing blind trust on “irresponsible” private financial institutions, including rating agencies, in assessing economic policies and public finance management.
In its ‘Trade and Development Report 2011' released here, UNCTAD projected a consequent slowdown in global economic growth during the current calendar year to around 3 per cent as compared to nearly 4 per cent in 2010 and came down heavily against the “irresponsible behaviour” of such private financial market analysts.
Apparently irked at U.S.' rating downgrade which has led to mayhem in global markets, UNCTAD said: “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”.
The sharp criticism by the UN body does not appear misplaced as even earlier, several rating agencies came under flak for giving high ratings to various companies trading in U.S. mortgage securities and which subsequently collapsed during the financial meltdown in 2008.
Questioning the economic policies of various countries in the current economic scenario, The UNCTAD report pointed out that fiscal tightening policies adopted by governments worldwide in recent times to plug their debt burdens would solve only part of the problem without addressing the basic issues. For, a premature tightening would endanger global recovery whereas the best strategy for dealing with public debt would be to promote economic growth.
UNCTAD feels that fiscal imbalances are not the driving factor in economic crisis, but rather a result of the slowdown which compelled 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.
