Invest commodity funds, grow economies

A report from the United Nations says it is high time poor countries invested funds from the sale of commodities to grow their economies.

Trade and Development Report 2007 prepared by Heiner Flassbeck said that commodities have created lots of opportunities globally, but developing countries will be left if they do not utilise the funds diligently.

It pointed out that economic growth has been exceptionally strong in many of the world's poorest nations thanks to the robust rise in commodity prices.

"Thus, it is time for poor countries to invest the proceeds from the sale of commodities -- such as oil, copper or sugar -- to enable other sectors of the economy to grow," the report said.

"The window of opportunity, the windfalls, are still remarkable, and this should be used to diversify their economies," remarked Flassbeck in the report.

He said developing nations must "develop ideas and

patterns of successful diversification" to reduce their reliance on commodity exports.

The report details that in many cases, commodity exporting countries let their currencies appreciate on the back of their newfound prosperity and this kills the manufacturing sectors in these economies.

It said to making matters worse, there are powerful armies of hedge funds and others eagerly stoking the fire, with many countries' exchange rate imbalances being "reinforced by the speculation in the currency markets.

"In reality, exchange rates under a floating regime have proved to be highly unstable, leading to long spells of misalignment, with grave consequences for the real economic activity of the countries concerned," it pointed out.

The report advocates that exchange rates would be determined by factors such as the balance of payments or the rate of inflation, rather than reflect the activities of currency speculators.