ISSUE OF INDEBTEDNESS MAJOR CONCERN OF SECOND COMMITTEE SPEAKERS
Press Release
GA/EF/2685
ISSUE OF INDEBTEDNESS MAJOR CONCERN OF SECOND COMMITTEE SPEAKERS
19951018 The International Monetary Fund (IMF) was sparing no effort to identify solutions to the issue of indebtedness, especially for the heavily indebted low-income countries, a representative of the Fund assured the Second Committee (Economic and Financial) as it concluded its discussions of external debt, finance of development and social and economic trends this afternoon.J.B. Zulu, Special representative of the IMF to the United Nations, said the Fund's Extended Structural Adjustment Facility had been extended and would become permanent and self-financing, beginning from the year 2,000. The IMF regarded that development as a major breakthrough. The Fund and the World Bank were working together to ensure a coordinated approach on the question of multilateral debt, he added.
The representative of Indonesia said he failed to understand why the IMF and the World Bank refused to cancel the debt of the world's poorest, seemingly on the grounds that any cancellation of debts would affect their image in the capital markets and thus their ability to raise funding. That was not a very convincing argument, since the Bank's ability to raise money did not necessarily depend on the soundness of its borrowers, he added.
The representative of Pakistan said there was a disturbing spread of conditionality by donors into new areas not directly concerned with macroeconomic issues, which included environment, gender and good governance. Pakistan did not dispute the desirability, nor the need, for countries to address those issues; however, multilateral financial institutions should not indulge in value judgements on delicate and difficult issues that did not fall within their mandates.
Also making statements were the representatives of Jamaica (on behalf of CARICOM), Sudan, Niger, Czech Republic and Kenya.
The Chief of the International Economic Relations Branch, Department of Economic and Social Information and Policy Analysis, Barry Herman, also spoke.
The Committee will meet again at 10 a.m. tomorrow, 19 October, to begin consideration of the Agenda for Development.
Committee Work Programme
The Second Committee (Economic and Financial) met this afternoon to continue general discussion of macroeconomic policy questions covering financing of development; long-term trends in social and economic development and external debt crisis and development. (For background information see Press Release GA/EF/2683, of 17 October).
Statements
ISSLAMET POERNOMO (Indonesia) said no debt strategy could be successful unless the stock of debt itself together with the inhibiting overhang of debt service and the accumulated arrears were comprehensively addressed. All forms of debt, including multilateral debt, across all types of debtor countries had to be addressed in a comprehensive manner. He called for such a treatment of the debt problem, including a once-and-for-all approach, that would substantially reduce the total stock of debt, rather than focusing on various types of debt separately. In that way the resumption of development would be ensured, and the incessant rescheduling of debts finally ended.
The debt of the least developed countries, especially in Africa, would have to be canceled to restore their ability to develop, he said. He expressed disappointment that the heads of the International Monetary Fund (IMF) and the World Bank did not intend to present any new multilateral debt relief proposal for the world's poorest countries until next spring. "My delegation fails to understand why the Fund and the Bank refuse to cancel the debt of the world's poorest, seemingly on the grounds that any cancellation of debts would affect their image in the capital markets and thus their ability to raise funding." That was not a very convincing argument, since the Bank's ability to raise money did not necessarily depend on the soundness of its borrowers. The financial strength of the Fund and the Bank depended on the fact that the industrial nations were their guarantors and writing off bad debts would improve their books, not make them worse. He urged those financial institutions to come up with concrete recommendations seriously to resolve multilateral debt as speedily as possible.
DAVID ALLEN PRENDERGAST (Jamaica), speaking on behalf of the 13 members of the Caribbean Community (CARICOM) that are members of the United Nations -- Antigua and Barbuda, Bahamas, Barbados, Belize, Dominica, Grenada, Guyana, Saint Kitts and Nevis, Saint Lucia, Saint Vincent and the Grenadines, Suriname, Trinidad and Tobago and Jamaica -- said the debt servicing burden was the most debilitating constraint on developing countries' development. Although some countries had experienced remarkable improvement in their debt situation, others continued to face the intolerable burden of an external debt which placed a stranglehold on their economies. The international community,
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and in particular the developed countries, could not ignore the plight of those countries where debt payments exceeded the capacity to pay and for whom the sacrifice to service debt was made at great social and economic cost.
There was an urgent need to find creative and innovative strategies to tackle the overall debt situation, he said. Nowhere was action more required than in the area of the debt owed to multilateral financial institutions, where there was very little flexibility for the rescheduling of loans. He reiterated concerns expressed at a recent meeting of Commonwealth finance ministers, held in Kingston, in relation to the need for the IMF and the World Bank to develop constructive proposals to address multilateral debt problems. Among other recommendations, he drew attention to the following: the establishment of a multilateral debt facility; the creation of a special window for debt in the IMF's Enhanced Structural Adjustment Facility; and the creation of an IMF early warning system to prevent crises, such as Mexico's financial collapse.
He expressed concern over the lack of consideration for funding for future IDA lending (IDA-II). He reiterated the call of the Group of 77 and China for a once-and-for-all approach to the debt problem through an integrated strategy, which would address all types of debt and debtor countries, further reduction of the debt service burden, further flexibility of rescheduled debts, creation of new, additional and innovative programmes and the expansion of IDA facilities.
NAWABZADA GHAZANFAR GUL (Pakistan) said the growth in the world economy had been marked by unevenness and some fragility. Most countries had demonstrated extreme vulnerability to external factors. Attempts to open economies to private capital through set formulae were bound to fail. He welcomed steps taken recently to ensure early warning of destabilizing movements of capital. The provision of regular and timely data on key economic indicators and a closer policy dialogue between the International Monetary Fund (IMF) and countries could be useful.
There was a strong need for continued flow of concessional finances to developing countries, he went on. The perception that official development assistance (ODA) served only altruistic functions was not correct. Non- replenishment of the resources of the International Development Association and the decrease in United Nations operational funding were disturbing developments which would hurt developing countries and impede the realization of global objectives.
He said there was a disturbing spread of "conditionality" by donors into new areas not directly concerned with macroeconomic issues, relating to environment, gender and good governance. Pakistan did not dispute the desirability, nor the need, for countries to address those issues, but multilateral financial institutions should not indulge in value judgements on
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delicate and difficult issues not falling within their mandate. There was also a need for better policy coordination among industrialized countries and developing countries, as well as strengthened surveillance of policies of major industrial nations.
J. B. ZULU, of the International Monetary Fund (IMF), said the global trend generally appeared to be holding up and encouraging. In Africa, economic and institutional reforms already undertaken had stopped the downward slide and achieved real net gains. That was not the case, however, in countries experiencing internal military or political strife, or those that had not yet fully embraced wider participation in the economic and political processes. He said it was noteworthy that IMF-supported economic programmes under implementation in Africa had increased from 12 to 18 between 1994 and 1995. Many countries had also laid the basis for sustained growth by containing inflation and opening up their economies.
In Asia, he said, the trend of strong growth rates had been sustained, and that the countries there had wisely kept price pressures generally under control. That was also true of Latin American countries which, although not enjoying high growth rates like much of Asia, had none the less maintained rates that consolidated the gains achieved in the previous period. On their part, he said, the economies in transition had continued to consolidate their integration into the world economy and recovered much lost ground in both production, consumption and employment. The industrial countries had performed well, generally reducing fiscal imbalances, but more still needed to be done.
He said the recent annual meetings of the IMF and the World Bank had taken decisions on matters reflecting closer working relations between the United Nations system and the Bretton Woods institutions. The Fund's highest policy-making body, the Interim Committee, had endorsed a decision of the IMF Board to expand the scope of IMF involvement in post-conflict situations. That would include both increased cooperation with the United Nations and the use of existing arrangements for possible financial involvement. The implications of the World Summit for Social Development had also been discussed by the Development Committee of the Bank.
On the question of external debt, he assured the Committee that no effort was being spared to identify solutions, especially for the heavily indebted low-income countries. The Fund's Extended Structural Adjustment Facility had been extended and would become permanent and self-financing beginning in the year 2000. As a monetary institution, the IMF regarded that development as a major breakthrough. On multilateral debt, he said discussions and consultations with governments were firmly in place. The IMF and the World Bank were working together to ensure a coordinated approach which would be considered at the committee meetings in the spring.
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HAMID ALI MOHAMED ELTINAY (Sudan) said Sudan was a least developed country faced with unfair international conditions and unfair terms of trade that hindered its development. The current international environment had led to an increase in the number of least developed countries from 41 to 48. That was tangible proof of serious negative indicators, and the situation required comprehensive review. The failure to deal with the effects of the transition to a market economy led to recession and not to recovery. The failure by developed countries towards Africa did not augur well. Sudan was convinced that the major responsibility for its development was its own, but the international community must share as a partner in that endeavour.
He regretted that the report of the Secretary-General on debt did not deal with the debt problem of the least developed countries, a recognized group in the United Nations. For developing countries to be able to meet their payments they must have access to markets. How could they do that if there was protectionism? he asked. He called on the international financial institutions to adopt a comprehensive approach to deal with developing countries' debts. Programmes should be implemented to cancel the debts of the least developed countries so they could continue on the path of development with the support of the international community.
SUZANNE MAIKARFI (Niger) said the Secretariat report on debt showed that the debt problem was an obstacle to the development of the developing countries, particularly the least developed. He said the current international debt strategy had not covered all countries, particularly those in no position to repay. The debt problem would place them in serious difficulties, preventing their countries from attaining sustainable development. To leave the indebted countries in their present position would help neither debtors nor creditors.
She said the relevant provisions of the programme of action of the World Summit on Social Development should be implemented. Some debts must be canceled or rescheduled. Multilateral debts were a significant part of the external debts of the developing countries. For Niger, multilateral debt amounted to 67.51 per cent of its stock debt. The direct result of the situation was the halting of some repayments and suspension of development projects. There was need for a radical solution to the debt problem, she added.
KAREL ZEBRAKOVSKY (Czech Republic) said privatization in his country had been largely completed, and the country was entering a post-transformation phase of development. A total of 1,432 state-owned enterprises had been transformed into joint stock companies under the scheme. The country's Gross Domestic Product (GNP) growth was estimated at 4.2 per cent for this year, with about 4.8 per cent forecast for next year. The Czech Republic had a balanced State budget, with an annual inflation rate of about 10 per cent and about 3 per cent unemployment. Consistent restrictive budget policy had
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successfully prevented the rise of an inflationary spiral, while the macroeconomic indicators clearly showed that the Czech economy had taken off and economic revival had begun.
He said fundamental preconditions for social, political and economic reform, as had been learned in his country so far, were surprisingly simple: adherence to democratic principles, courageous but prudent economic reform, massive privatization, sensitive social policy and respect for human rights. He said democratic government, good governance and full compliance with human rights principles must be at the core of the political dimension of transformation, whilst economic transformation must be geared towards the implementation of free market principles.
C.M. KANG'E (Kenya) said a major obstacle in the external environment that many developing countries were trying to cope with, while undertaking macroeconomic and structural reforms, was access to international finance. Implementation of structural adjustment programmes to foster economic growth could not succeed unless adequate financing was made available to sustain the economies of developing countries through the adjustment period. Provision of external financial resources to supplement gross domestic saving in the developing countries, and in particular in Africa, was crucial to support them in financing their domestic investment. As indicated in the Secretary- General's report, it was evident that there was no shortage of global savings to finance global investment, but rather lack of political will on the part of development partners.
On the report of the Secretary-General on the debt situation as of mid-1995, he said it had comprehensively reviewed the debt crisis in many developing countries, particularly those in sub-Saharan Africa. It recognized that despite the implementation of debt-reduction initiatives undertaken so far, the situation remained critical. Although welcoming the various measures taken by the international community on a bilateral and multilateral basis to mitigate the debt burden, he said those measures had achieved limited results. A lasting solution to the debt burden needed a bold initiative for a more effective reduction or cancellation of both the bilateral and multilateral debt of the heavily indebted low income countries, particularly in Africa.
BARRY HERMAN, Chief of the International Economic Relations Branch, Department of Economic and Social Information and Policy Analysis, said Committee members should not misconceive the Secretariat's view of the state of the world economy and its prospects. The Secretariat saw several positive trends, but there were problems and better opportunities to tackle them. The Secretariat expected the world economy as a whole to grow at about 3 per cent a year for several years with low inflation. That would be good news for the developing countries.
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Global economic dynamism would entail rapid growth of world trade and relatively low interest rates and thus offer significant opportunities for developing countries. Moreover, he added, if the growth of the developing countries was maintained at a rate of some 5 per cent a year, it would also be good news, even if the more rapid rates of growth, in the average, were confined to a limited number of countries. The Secretariat insisted that there were many dangers that could disrupt those positive developments and that many developing countries were not sharing in the good news. It was concerned about the fragility of the economies of Latin America, he stated, adding that it was also highly concerned about the economic situation in Africa and fully aware of the extent of poverty in Asia.
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