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5.29.2007

THE PRESSURE TO SUSTAIN ECONOMIC GROWTH



Just when the developing economies have started posting positive figures, the latest World Bank report has shown that it is not a good time for them to start resting. The World Bank warned that increases in interest rates will tend to slow growth and might make foreign investors look elsewhere.

"Looking ahead, the key challenge facing developing countries is to manage the transition by taking preemptive measures aimed at lessening the risk of a sharp, unexpected reversal in capital flows," it added.

That should include economic and institutional reforms, the report's main author, Mansoor Dailami, said in an interview. "Basically, they do need to maintain and strengthen investor confidence in their policy apparatus," he added.

It is a good thing that a lot of poor countries have already paid billions of foreign debt. Otherwise, more problems can be expected on 2009-the year when the World Bank predicts global growth rates will decline (to 3.5% from 4% in 2006).

The latest addition to the list- the Philippines recently prepaid its dollar denominated debts to the IMF. Its dollar reserves are also at its all time high but there are local calls for the government to help its exporters.

Let us not mince words by calling an intervention to the forex rates a form of subsidy. The developing countries are protesting the US and EU's farm subsidies. Therefore, it is but logical for them to desist from subsidizing their exporters by intervening in the forex markets.

Should the government abide by pegging the value of its currency, the growth of its dollar reserves can be expected to slow. At worst, it may even decline. this column's call is for the government to let the market dictate. Uncompetitive industries should not be subsidized to the detriment of the entire economy. Remember, there is 2009 to prepare itself for.

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