Rigid trade liberalisation policies imposed by rich nations through IMF-type institutions while ignoring the problems faced by poor countries would evoke a backlash against globalisation and greater trade openness, said a United Nations report launched in Kuala Lumpur today.

In its annual Trade and Development Report, the UN Conference on Trade and Development (Unctad) said attempts to remove the policy influence of governments - while able to control inflation - failed to solve bigger concerns such as trade imbalances, market instability, unemployment and stagnant growth.

It said the International Monetary Fund-imposed reforms - known as the 'Washington consensus' - focussed on removing inflation and opening up markets through high interest rates have weakened long-term growth prospects.

Pointing to Latin America, it said the rapid trade and financial liberalisation have caused imports and debt service payments to soar - increasing their indebtedness to rich countries.

Unctad said this, coupled with stringent guidelines under which nations were forced to re-pay their debts to developed countries, have resulted in developing governments having little policy space to adjust to the global recession.

Contrast the region's performance to East Asia, the report said the latter's ability to pull itself out of the recession lied in its ability to be flexible with domestic policies.

Better balance of payments in East Asia provided governments with the flexibility to spur growth by expanding domestic spending - this room to manoeuvre essentially allowed them to continue, after a brief pause, on their high growth paths.

Malaysia's success

At the report's launch, Third World Network director Martin Khor argued that Malaysia's position - as among the few bright spots in the world for continuing to record growth - came from the flexibility the government had to increase domestic spending.

"This is good because we are very dependent on the world economy - to maintain a 4.5 percent growth (as forecasted by the government) shows that we must be doing very well domestically," he said.

"The neoliberal policies promoted by the 'Washington consensus' has to be rethought, particularly in view of the debt crisis," adding that Malaysia too was at such risk when it adopted IMF proposals.

However, he said good fiscal spending domestically enabled Malaysia to pull away from the global crisis.

"We tried the IMF policies but it did not work," he added.

Rocky future

Nevertheless, the Unctad report warned of rocky times ahead for the world economy, with the United States no longer expected to play the traditional role as the engine of growth.

Prospects would look up if we could depend on the US, European Union or Japan to fire up the growth engine but the report stated that this did not look to be the case.

Unctad termed this as "anxious time" for the global economy, where the "excesses" created during the high-tech boom of the 1990s will continue to blight future recovery - when it does happen, recovery will be "anaemic and fragile".

Even the current US recovery was beginning to resemble the "double dip, jobless recovery" of the early 1990s - a long period of unstable and sluggish growth, played out with occasional surged and dips, it said

Adverse consequences for the developing countries, "even the for most resilient, were unavoidable."

Domestic growth

Khor said this was why Asian countries must be prepared to rely on domestic growth - both from within nations and the region.

He also added that governments would need to re-look a the rules governing the global economic system, given Asia's dependence on external trading.

In view of the failure of the World Trade Organisation (WTO) talks in Cancun, he said it was time for developing country governments to unite on issues that impeded their growth, rather than allow rich nations to dictate the terms of trade.

"For Latin American and Africa for example, the major problem that was preventing them from adopting the Asian model was debt," he said

"The international community must start thinking of an exit plan to reduce debt and renegotiate interest rates. There is not financial reason not to get rid of debt, the bank have already been paid many times over... only (thing lacking is) political will," he added.