Oct 10, Colombo: The threat of trade war between the United States and China is significant as it could have "very negative" side effects not only for the United States and China, but for many developing nations including Sri Lanka, the island nation's Minister of Finance and Mass Media, Mangala Samaraweera says.
Sri Lanka's Finance Minister, who is the Chair of the Group of 24 developing nations, in an interview ahead of the 2018 Annual Meetings of the World Bank and the International Monetary Fund in Bali, Indonesia, said much of the world economy is doing well but there are warning signs that need more serious attention.
"This [threat of trade war] comes at a time when many developing countries, including Sri Lanka, have taken on significantly more debt. As interest rates rise that increases the pressure of that debt," Mr. Samaraweera explained.
Minister Samaraweera explained that Turkey, South Korea, Argentina among others have made headlines with falling currencies and fiscal deficits which has led developed countries pull back from investments in emerging markets.
The Minister said that although developed nations like Italy, Japan and the US also have high debt, they have higher revenues and deeper financial markets so they have more options than poor countries. However, emerging markets are hit earlier and harder when an economic squeeze comes and markets begin to doubt their ability to re-pay.
The Minister also suggested that when nations get in debt trouble, global lenders such as IMF to play a key role in simultaneously recommending reforms and supporting countries in restoring debt sustainability.
When asked what specific reforms he would like to see in the World Bank and IMF governance, the Finance Minister said the developing countries should get more voice in decision-making through further reforms to increase the voice and representation of emerging and developing economies, which have grown in importance in the global economy. "The current system gives advanced countries greater voice, under-represents dynamic emerging economies, and marginalizes smaller poorer nations."
The Sri Lankan Minister also said it is important for Sri Lanka and other developing nations to be present and to assert themselves in the dialogue although there is no guarantee that international discussions go their way.
"As great power tensions rise, I think there are more opportunities for developing nations to influence and temper discussions. We plan to do that in Bali," he said.