EXTERNAL DEBT PROBLEM NEEDS COMPREHENSIVE SOLUTION, INDIA TELLS ECONOMIC AND FINANCIAL COMMITTEE

18 October 1995

Press Release
GA/EF/2684

EXTERNAL DEBT PROBLEM NEEDS COMPREHENSIVE SOLUTION, INDIA TELLS ECONOMIC AND FINANCIAL COMMITTEE

19951018 Strategy Must Include Debt Reduction, Rescheduling, Increased Financing; Link Between Debt Problem, Development of Least Developed Countries Also Cited

The international community must work towards a comprehensive solution of the external debt problem, rather than a piecemeal approach, the representative of India told the Second Committee (Economic and Financial) this morning.

Addressing the Committee as it continued its discussion of external debt, financing of development and long-term trends in social and economic development, India's representative said such an international debt strategy must include debt reduction, rescheduling and increased financial flows for low income and severely indebted countries. Further, countries coping with the problem of widespread poverty would also need special attention.

The representative of Uganda said his country had been the first to benefit from the Naples Terms -- improved terms of debt rescheduling of the Paris Club, a multilateral group of creditors -- meaning that in theory it would no longer be asked for further restructuring of its external debt. In spite of the wide publicity given to that action, the country continued to face severe debt servicing problems, as the Paris Club accounted for less than a quarter of Uganda's external debt and the effective debt stock reduction under the Naples Terms amounted to only 26 per cent.

The representative of Brazil said that finding a solution to the external debt crisis would not mean solving all development problems. However, failing to improve the debt situation of developing countries would seriously affect their capacity to fulfil international commitments adopted at United Nations conferences. The United Nations must exert a positive influence on public and private initiatives to tackle the debt problem.

The representatives of the Democratic People's Republic of Korea, Burkina Faso, Bangladesh, Zaire, Yemen, Japan, Togo and Tunisia also made statements.

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Also this morning, the representative of Greece commented on yesterday's deferment until 20 October of two agenda items, the International Decade for Natural Disaster Reduction and the United Nations Institute for Training and Research (UNITAR), due to unavailability of documents. He drew attention to General Assembly resolution 48/162, which states that there should be no deviation from a programme of work once it had been adopted. The relevant provision of that resolution was designed precisely to prevent what had happened yesterday, he said, and he requested a satisfactory explanation on why documentation had been late and when it would be available.

In addition, the representative of the Philippines, on behalf of the "Group of 77" developing countries and China, introduced a reorganization of the agenda items, which was then adopted by the Committee. The Committee Chairman, Goce Petreski (The former Yugoslav Republic of Macedonia), requested the Secretariat to issue a revised programme of work reflecting the decision.

The Committee will meet again at 3 p.m. today to continue its consideration of financing of development, external debt and long-term trends in social and economic development.

Committee Work Programme

The Second Committee (Economic and Financial) met this morning to continue its general discussion of macroeconomic policy questions covering financing of development, long-term trends in social and economic development and the external debt crisis and development. (For background, see Press Release GA/EF/2683 of 17 October 1995.)

Statements

KIM YONG (Democratic People's Republic of Korea) said the issue of financing of development was closely linked to the question of external debt. Mobilizing the financial resources of developing countries, particularly the least developed countries, largely depended upon a comprehensive solution to their debt problem. In addition, the developed countries must implement their official development assistance commitment and expand the financing for United Nations development activities. Measures should also be taken to explore new resources for development and to that end, an international conference on financing of development should be considered.

SVITLANA M. HOMANOVSKA (Ukraine) said the documents before the Committee reflected the situation of countries with economies in transition, such as hers, but they lacked adequate proposals for solving those problems. The situation in the former Soviet Union could not be compared with those with economies in transition. Her country had additional problems, such as the costs of dealing with the effects of the Chernobyl nuclear disaster and removing nuclear weapons from its soil. She supported the call for additional resources for economies in transition.

Macroeconomic stabilization was one of the major priorities of her country's economic reform programme, she continued. One source for resources to finance development could be found in a reduction of arms expenditures. The United Nations system should develop mechanisms to help countries with difficult economic problems. She said the functions of the World Bank and the International Monetary Fund (IMF) should be clearly delineated. She also favoured greater transparency in their activities, as well as their accountability to their member States.

PAUL ROBERT TIENDREBEOGO (Burkina Faso) said developing countries needed access to new resources, since they were unable to save because of the fragility of their economies. Privatization had helped his country mobilize some resources and conditions must be established to make foreign investment attractive. His country and the other least developed countries were interested in new mechanisms that could help resolve their debt problems.

He said that least developed countries still faced huge debt problems, despite the cancellation of some debts. Structural adjustment had made it

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more difficult for their countries to solve debt problems. It was also in the interest of creditors to find a lasting solution to the debt problem and that could be done only through a radical method.

MOHAMMAD ZIAUDDIN (Bangladesh) said the external debt stock and its servicing burden remained exceptionally high for the least developed countries, totalling, at the end of 1993, $127 billion, an estimated 76 per cent of their combined gross domestic product. The report of the Secretary-General had tried to highlight and analyze the debt situation of different countries and groups of countries. However, the report did not address the debt situation of the least developed countries, an established and distinct category of countries in the United Nations. By excluding the analysis of the debt problem of those countries, the report lacked comprehensiveness. His own country alone accounted for 10.7 per cent of all least developed countries debt.

He said the recently concluded High-level Intergovernmental Meeting on the Mid-term Global Review of the Implementation of the Programme of Action for the Least Developed Countries for the 1990s had recognized that the debt relief measures from which least developed countries currently benefited were insufficient to reduce their debt servicing liability to a sustainable level. A substantial reduction of their debt burden would require more vigorous and enhanced measures by the international community. Among those measures, he cited intensifying measures in the Paris Club by enlarging the number of beneficiaries, as well as covering a larger amount of outstanding debt. In particular, that should ensure full cancellation of all official bilateral debts of the least developed countries.

ODYEK AGONA (Uganda) said that early this year Uganda had been the first country to benefit from the 1994 Naples Terms -- improved terms for debt rescheduling by the Paris Club, the multilateral forum of creditors -- making it possible for it to take the "exit" option, meaning that in theory it would no longer be asked for further restructuring. In spite of the wide publicity of that action, his country continued to face severe debt servicing problems because the Paris Club accounted for less than a quarter of Uganda's external debt. In effect, therefore, the effective debt stock reduction under the Naples Terms amounted to only 26 per cent. Moreover, the relief granted could easily get absorbed in meeting the debt obligations of other creditors.

He called on the international community to enhance the scope and accessibility to the Naples Terms and encourage non-Paris Club creditors to apply similar terms. Also, there was a need for more work and commitment to a development-oriented international debt strategy. For the poorest countries, debt forgiveness and reduction must be extended to cover commercial and multilateral debt. On financing development, he said Uganda would continue to work with bilateral and multilateral development partners on new and innovative ways of mobilizing private productive capital. A number of

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domestic administrative and policy measures had been taken to make that possible. He reaffirmed his government's commitment to economic and structural adjustment reforms.

ABDULAZIZ AHMED KAID (Yemen) said many developing countries faced starvation and developed countries must deal with that situation. He recalled that a conference on financing of development had first been proposed in 1991 to highlight the importance of that problem. The burden of foreign debt was hampering the recovery in developing countries. Therefore, the international community must also tackle that problem. The Paris Club should adopt more flexible measures. He supported convening the conference on financing of development, as it could help countries devise ways to confront hunger and starvation.

His country was taking measures in the areas of privatization and democratization, which were essential for development, he said. He called on the United Nations to support those efforts to help overcome a crisis created by various factors, including the Persian Gulf War and the related problems of disruption in remittances. He commended the role of the United Nations in helping Yemen.

MANGAYA YANGE (Zaire) said a solution to the external debt problem of the developing countries was of utmost importance, as that problem hampered development efforts despite all efforts at adjustment. The conditions of the Paris and London Clubs were extremely restrictive. Regarding multilateral debt, he said it had never been rescheduled and debt among developing countries persisted. The international community had taken no action to alleviate that problem. Special attention should be given to debt that resulted from decolonization problems.

Developing countries remained hostages to their poverty, he said. Africa had been for years suffering from the burden of debt and decreases in commodity prices. Debt absorbed the larger part of most exports. For five years, his country had been experiencing a difficult democratic transition, the most difficult period since decolonization. The lack of external support was an obstacle to that development. The United Nations must establish a system with the multilateral financial institutions to provide for multilateral alleviation of debt. That was possible since the major contributors to those institutions were also the larger creditors to the developing countries. Furthermore, the various plans to tackle the debt problem must be combined in a single approach.

KEN OKANIWA (Japan) said developing countries should pursue policies to establish a market-oriented financial sector based on a stable legal framework and appropriate regulatory and supervisory systems. His country had provided technical training to young civil servants from developing countries, mainly from Asia. Through exchanges among the trainees, Japan sought to form an

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international network in the financial and budgetary fields. Furthermore, the 1993 Tokyo Declaration on African Development had pointed to such areas as macroeconomic policies and financial intermediation suitable for Asia-Africa cooperation.

For countries that could not attract adequate private resources, official development assistance (ODA) would continue to play an important role, he continued. Japan had been consistently seeking to expand its ODA. Such assistance was an important part of Japan's contributions to the international community. He drew attention to a report of the Development Assistance Committee of the Organisation for Economic Cooperation and Development (OECD), which said that the dollar value of ODA extended by Japan in 1994 amounted to $13.24 billion and had been the largest in the world for four consecutive years. He said Japan's ODA was distributed to more than 150 countries.

NALIN SURIE (India) said that if there were adequate savings at the global level, those savings should be directed to finance development. The international financial institutions should consider the establishment of international safety nets to protect the integrity of development programmes in the face of sudden outflows of private capital. He welcomed the proposal for the creation of an emergency financing mechanism within the IMF. At the same time that the international community recognized the need to augment resources to cope with the uncertainties of the global economic environment, particularly the resources of the IMF, the needed political will to find credible cooperative solutions was not yet in evidence.

He said the Committee should send a clear and strong message regarding the need for enhanced ODA, in particular to meet the commitments undertaken in the series of world conferences. The developing countries, given the decline in ODA flows, were increasingly attempting to shift attention to reallocation of resources, and reorienting priorities. While efficiency and reallocation were always needed, the central question of the overall limit to resources could not be ignored. In addition, the international community must work towards a comprehensive solution to the external debt problem. That debt strategy must include debt reduction, rescheduling and increased financial flows to low income and severely indebted countries.

SERGIO FLORENCIO (Brazil) said financial sector development must be assessed from different perspectives, since no single model could be imposed on all countries. With the support of the United Nations system, developing countries should increasingly share experiences and promote economic and technical cooperation in that field. Surveillance, in which the IMF was expected to play a central role, was a necessary but not sufficient condition to ensure a stable international financial system conducive to growth. A broadening cooperation among monetary authorities in a more structured procedure was also required, with larger participation by developing

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countries. Financing of development should be placed at the forefront of the dialogue between the United Nations and the Bretton Woods institutions.

On external debt, he said that finding a solution to the external debt crisis would not mean solving all development problems. However, failing to improve the debt situation of developing countries would seriously affect their capacity to fulfil international commitments adopted at major United Nations conferences, from Rio to Beijing. The United Nations must exert a positive influence on initiatives by both public and private actors in that field. External debt was a concern for both developed and developing countries and that growing perception was a basis for progress. Stagnation in solving the debt problem would be detrimental for the whole international community.

SIMWABA AWESSO (Togo) said his country, which was a least developed country, had been severely affected by the debt crisis and the situation had been aggravated by the devaluation of the CFA Franc. That devaluation had more than doubled its public external debt. He welcomed measures taken by certain developed countries towards cancelling the bilateral public debt of least developed countries, in particular the steps taken by France, Germany, Japan, United States, Denmark and Canada. The Secretary-General's report had stated that the international debt strategy was far from complete. Thus, unless something was done quickly, it would be a long time until the problem was solved. He called for more effective measures, including the reduction of multilateral debt.

ABDERRAZAK AZAIEZ (Tunisia) said his country shared the views expressed by the representative of the Philippines, who spoke on behalf of the "Group of 77" developing countries and China. A solution to the debt problem was a prerequisite to resolving the development problems of the developing countries. The President of Tunisia had proposed the recycling of external debt for development, a proposal he had reaffirmed during a recent visit to the country by the President of France. Tunisia's President had stressed that external debt was a major problem and a major handicap to development. If cancellation of debt in itself was an important gesture, Tunisia was convinced that its proposal for debt recycling, complemented by development projects, would effectively promote development for all countries and guarantee security, stability and peace.

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