4th Dec 2023

UN calls for more 'pragmatic' anti-inflation policies

  • The economic arm of the United Nations called on central banks to loosen monetary policy (Photo: United Nations Photo)
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The UN has called on central banks to institute "more pragmatic policies to tackle inflation."

Since 2022, the US Federal Reserve and the European Central Bank (ECB) have raised borrowing costs more than at any other time in recent history.

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ECB president Christine Lagarde was recently grilled in the European Parliament over the increasingly damaging effects of high borrowing costs, but she warned against "letting inflation run loose."

But the UN now warns high-interest rates are "crushing" the developing world and "squeezing" government budgets in wealthier countries, the economic arm of the New York-based body writes in an annual report published on Wednesday (4 October).

The UN's Conference on Trade and Development (Unctad), headquartered in Geneva, predicts a slowdown in global growth from three percent in 2022 to 2.4 percent in 2023.

And while inflation has come down somewhat since the peak in 2022, the report suggests higher rates have had little effect on lowering prices, which instead fell because of a drop in oil and gas prices when market panic subsided after the initial phase of the energy crunch following the Ukraine invasion was over.

Meanwhile, high interest rates have exacerbated global inequality and harmed investment prospects.

"We want to see a much more balanced mix of policies. We can't simply rely on monetary policy to do the job," said Richard Kozul-Wright, director of Unctad's development strategy division.

The prospect of meeting the UN Sustainable Development Goals (SDGs) by 2030 is "fading" as interest rates squeeze the fiscal space governments need to invest in clean energy.

Europe is on the brink of a recession, and the United States is showing signs of "building back weaker" despite massive government spending.

"To safeguard the world economy from future systemic crises, we must avoid the policy mistakes of the past and embrace a positive reform agenda," said Unctad secretary-general Rebeca Grynspan.


One reform suggested in the report to be added to the "mix" of inflation-fighting measures was stricter regulation of commodity markets.

Much of the inflation outside of Europe was driven by food prices, market speculation, and corporate profiteering by companies like Cargill cited in the report, which saw historic profits since the Russian invasion of Ukraine.

But commodities such as wheat, barley, sugar and maize are traded in an environment described by the UN as an "unregulated financial sector that operates outside of traditional banking oversight."

This lack of oversight makes the connection between profits and speculative trading hard to pattern out, rendering authorities mostly powerless to limit this form of profiteering and inflation.

Connected to this is that the worst-hit countries are the low- and middle-income countries that started to tap international capital markets in the past ten years, overwhelmingly against adjustable interest rates.

These so-called "frontier countries" now often spend a third of their national budget on paying back foreign creditors alone, up from an average of six percent in 2010, caused by the sudden increase of borrowing rates.

Some 3.3 billion people — almost half of humanity — now live in countries that spend more on debt interest payments than on education or health.

To get global economies back on track, Unctad calls for an end to austerity in wealthy countries, which is worsening the economic outlook in the developing world, and focus instead on wage-led growth and improving social protection programmes.

"We need a balanced policy mix of fiscal, monetary and supply-side measures to achieve financial sustainability, boost productive investment and create better jobs," said Grynspan.


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