DEVELOPING COUNTRIES' CONTRIBUTION TO GROWTH OF GLOBAL ECONOMY STRESSED BY UNCTAD SECRETARY-GENERAL IN ECONOMIC AND SOCIAL COUNCIL

Press Release
ECOSOC/5642

DEVELOPING COUNTRIES' CONTRIBUTION TO GROWTH OF GLOBAL ECONOMY STRESSED BY UNCTAD SECRETARY-GENERAL IN ECONOMIC AND SOCIAL COUNCIL

Developing countries today were making a disproportionately large contribution to the growth and interdependence of the global economy, the Secretary-General of the United Nations Conference on Trade and Development (UNCTAD) told the Economic and Social Council this morning as it began its 1996 substantive session.

Addressing the Council's high-level policy dialogue on important developments in the world economy, Rubens Ricupero said that in a new and far-reaching trend, growth in some developing countries seemed independent of the "locomotive" stimulation of developed economies. Many Asian economies were posing growth rates in excess of 7 per cent while Japan was in recession. However, the success of some developing economies threatened to mask difficulties in least developed countries, where levels of official development assistance (ODA) were at a 20-year low.

Average world growth was expected to pick up to about 4 per cent in the period from 1996 to 1997, the Deputy Managing Director of the International Monetary Fund (IMF) said. He noted that most investment had been financed out of domestic savings; private capital flows had only supplemented those savings. Stressing the importance of consistent market-based, outward-looking policies and flexibility of economies, he said the Fund was working to strengthen its capacity to deal with the challenges of globalization. In addition, the Fund was looking at the soundness of banking systems and short- term conditions in international markets.

The Managing Director for Corporate Planning and Resource Management of the World Bank described the current status of the International Development Association (IDA), which had commitments of $19 billion for the eleventh replenishment of its lending resources, plus an additional $3 billion for an interim trust fund. "We are, of course, following the situation in the United States Congress and elsewhere with great concern vis-à-vis following through on commitments", he said, stressing that the Bank had, over the past year, been engaged in a fundamental effort to improve the way it conducted its work through new approaches based on the needs of its clients.

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Also, this morning, the Council heard an opening statement by the United Nations Development Programme (UNDP) Administrator and United Nations Special Coordinator for Economic and Social Development, James Gustave Speth. Stressing the primacy of the Organization in international development cooperation, he said it was ironic that just as the needs of the developing countries were growing, the available resources were shrinking. "These are ironies, but more than that they are tragedies of our era." Calling on the Council to succeed in the revitalization effort, he said "reform is not downsizing, reform is building. It is building the great institutions that we need to deal with the problems of the twenty-first century and today".

In addition, the Under-Secretary-General for Policy Coordination and Sustainable Development, Nitin Desai, said that at its current session the Council must make recommendations to the General Assembly regarding the funding of United Nations development activities.

The Council President, Jean-Marie Kacou Gervais (Côte d'Ivoire), drew the Council attention to recently adopted General Assembly resolution 50/227, on the restructuring and revitalization of the United Nations in the economic and social fields. He stressed that it was imperative that the Council pay attention to the handling of the current year's programme of work within the five weeks allotted to the substantive session for the last time.

Taking part in the policy dialogue were the representatives of Italy (on behalf of the European Union), Pakistan, Brazil and Colombia.

Also this morning, it was announced that Council Vice-President Emilio J. Cardenas (Argentina) had left New York. The Council then elected Carlos Dante Riva (Argentina) to complete the term of office of Mr. Cardenas.

In addition, the Council adopted its agenda and programme of work. Further, it approved accreditation for the intergovernmental organization "Union des conseils économiques et sociaux d'Afrique".

The Council will meet again at 3 p.m. today to continue its policy dialogue on important developments in the world economy and international economic cooperation.

Council Work Programme

The Economic and Social Council met this morning to begin its 1996 substantive session with a high-level policy dialogue on important developments in the world economy. Scheduled to participate were the Secretary-General of the United Nations Conference on Trade and Development (UNCTAD) and representatives of the World Bank, the International Monetary Fund (IMF) and the World Trade Organization (WTO).

Before the Council is the World Economic and Social Survey 1996 (document E/1996/60) which depicts a growing world economy with the highest growth rates concentrated in the developing world. It finds "a very encouraging and dynamic trend in some countries; for other countries, however, the numbers represent a minor or incipient improvement of the most difficult of circumstances". (For further background on the Survey, as well as general information on the session, see Press Release ECOSOC/5641, issued on 21 June.)

Statements

JEAN-MARIE KACOU GERVAIS (Côte d'Ivoire), the Council President, drew the attention of the Council to General Assembly resolution 50/227 dealing on further measures for the restructuring and revitalization of the United Nations in the economic and social field. It was imperative that the Council pay attention to the handling of the current year's programme of work, especially to the general segment, within the five weeks allotted to the substantive session for the last time. That would also help in the structuring of discussions in 1997 in the best possible manner. The working methods found to be successful in the current session would be passed on to the 1997 session.

The substantive session was also important because of the relevance of the principal themes it would discuss, he said. The challenges of illicit production, sale and trafficking of narcotics and psychotropic substances and of poverty eradication were of global significance. Discussions on strengthening of collaboration between the United Nations development system and the Bretton Woods institutions would also be crucial.

NITIN DESAI, Under-Secretary-General for Policy Coordination and Sustainable Development, said that the development efforts of the United Nations system operated at three levels -- policy development, notably at the recent round of global conferences; political processes, which tied together the global meetings; and operational activities. Of those three, the political process was critical in linking policy development with its practical application. Political commitment was essential to maintaining the energy displayed at the global conferences.

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The Council had been asked by the Assembly to make recommendations to it regarding the funding of development activities of the United Nations system, he said. It had also asked the Council to eliminate those aspects of its work which duplicated the work of the Assembly. At the current session, the Council must also decide how best to undertake a review of its working methods. The Council had also been asked to review its relationship with specialized agencies and to review relations between United Nations agencies and the Bretton Woods institutions.

JAMES GUSTAVE SPETH, Administrator of the United Nations Development Programme (UNDP) and United Nations Special Coordinator for Economic and Social Development, said a number of important developments had taken place since the last Council session, notably the holding of the 1995 Fourth World Conference on Women, the ninth session of the United Nations Conference on Trade and Development (UNCTAD IX), and the second United Nations Conference on Human Settlements (Habitat II), as well as the launching of the United Nations System-wide Special Initiative on Africa. The United Nations and the Bretton Woods institutions had joined their efforts in a strong collaboration to follow up to those activities. "We really would not have this Special Initiative on Africa were it not for James Wolfensohn and the World Bank." (Mr. Wolfensohn is the Bank's President.)

People-centred and sustainable development required international cooperation, he stressed. The United Nations was essential to the success of international development cooperation. "Each of you understand the important role that the United Nations must play in development cooperation in doing things that other development partners cannot do." In that regard, the Organization's importance was second to none.

Ironically, he went on, just as the needs of the developing world were mushrooming, the resources needed for development cooperation were shrinking rapidly. In the last four years, the resources for real development assistance, without counting humanitarian aid, had declined by 25 per cent. Just as the United Nations was called upon to assume greater responsibilities in a variety of areas, the Organization was threatened in an unprecedented way by a financial crisis that afflicted both the assessed and, to a lesser degree, voluntary contributions. "These are ironies, but more than that they are tragedies of our era." None the less, they must be overcome.

Paying tribute to those who had gone against that trend, he cited Japan as the number one contributor to development cooperation. He also paid tribute to Norway, Sweden and the Netherlands which had met the target of 0.7 per cent of gross domestic product (GDP) for official development assistance (ODA).

The Council must play a leadership role in sustaining United Nations activities financially and in ensuring the success of the follow-up to major

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conferences and to the Special Initiative on Africa. Finally, the Council must succeed in the revitalization effort. "Reform is not downsizing, reform is building. It is building the great institutions that we need to deal with the problems of the twenty-first century and today." Among the necessary steps in that regard was strengthening the ties between the United Nations and the Bretton Woods institutions, as well as the World Trade Organization (WTO). The Council was essential to all revitalization and reform efforts of the Organization.

Policy Dialogue on Developments in World Economy

RUBENS RICUPERO, Secretary-General of UNCTAD, said that developing countries were today making a disproportionately large contribution to the growth and interdependence of the global economy. Their contribution was "second to none", he stressed.

During the period from 1994 to 1995, growth in world economic output fell from 3 per cent to 2.5 per cent; growth in developed countries decreased from 2.8 to 2.1 per cent, he continued. Yet, economic growth in developing countries had reached 4 per cent last year and was expected to top 5 per cent in both 1996 and 1997. Growth in developing countries was expected to continue to outpace expansion in the industrialized countries, he added.

A new development which had far-reaching implications was that economic growth in certain developing countries was more autonomous vis-à-vis traditional growth patterns which had relied on the "locomotive growth" of the industrialized world, he said. Many Asian economies, for example, were posing growth rates in excess of 7 per cent while Japan was in recession. If current rates of internally generated imports in Asia continued, the expansion of imports into the 10 leading Asian economies, particularly India and China, over the next five years could be as large as that of the European Union and the United States combined. Being internally generated, that growth did not depend on the growth of industrial economies, he said.

That pattern of autonomous growth in developing countries was also being seen in Latin America, he said. Between 1990 and 1995, the average growth in the volume of merchandise imports in that region had been 11.5 per cent, as compared with 10 per cent for Asia.

Import expansion in the developing world did not depend solely on economic growth, he noted. Some 60 cases of unilateral trade liberalization programmes, undertaken in developing countries since the conclusion of the Uruguay Round of multilateral trade negotiations, were also to be credited. "It is high time to modify the outdated clichés about developing countries lagging behind in trade liberalization", he said.

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Developing countries had also made important contributions to the global economy in the areas of macroeconomic stabilization, notably the elimination of hyper-inflation in Latin America, he said. As other important contributions, he cited the liberalization and deregulation of financial markets and the unprecedented liberalization of rules related to foreign direct investment.

Regarding global economic initiatives, he said that the International Labour Organisation (ILO) had suggested that the main industrialized countries should coordinate policies of economic expansion to raise demand and combat unemployment. For example, Japan had recently undertaken the biggest monetary boost in its modern history, cutting the official discount rate to a record low of 0.5 per cent and undertaking a $132 billion spending package worth an estimated 1.5 per cent of GDP. The result, in the first quarter of 1996, had been Japan's fastest rate of economic growth in 23 years.

Drawing attention to a recent World Bank study, he stated that the generally buoyant projections for the global economy masked an increase in the number of least developed countries. A common trait of those countries was an acute lack of basic and productive infrastructures, high levels of foreign indebtedness and weak supply capabilities which made it difficult for them to take advantage of liberalized trade.

Foreign indebtedness to official creditors and multilateral institutions would likely find solution, given the commitment shown by the Bretton Woods bodies, he said. But levels of ODA were at their lowest level in 20 years and still falling.

An important element missing from the external economic environment was a system of financial cooperation capable of preventing serious financial crises and of reducing financial volatility, he said. Consideration should be given to the idea of establishing an early warning system jointly operated by the United Nations, the Bretton Woods institutions and the WTO.

Regarding the future role of UNCTAD, Mr. Ricupero said that the Conference had been "reborn" at its recently concluded ninth session (UNCTAD IX) held in South Africa. The UNCTAD had emerged from that meeting with a new balance between its traditional agenda and new issues, such as investment and enterprise. The most important result of UNCTAD IX had been a reinforced sense of partnership among developed and developing countries for the promotion of growth with equity and social justice.

Globalization promised growth and prosperity, he said, but it also carried with it the risk of economic marginalization in some nations and continents, job insecurity and exacerbated competition.

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SVEN SANDSTRÖM, Managing Director for Corporate Planning and Resource Management of the World Bank, said Bank President James Wolfensohn had very much wanted to attend the Council high-level policy dialogue, but could not because of illness. He conveyed Mr. Wolfensohn's best wishes to the Council session.

Partnership had been the Bank's hallmark over the past year, said Mr. Sandström, noting that there would be a discussion on how to increase collaboration between the Bretton Woods institutions and the United Nations system later in the session. A consensus was emerging on a framework for growth in the developing countries, based on growth and investment in people. "I believe that the debate on structural adjustment is now behind us."

Concerning recent developments at the Bank, he said that the past year had been one of change and progress on several fronts. On the International Development Association (IDA) -- the Bank's arm for concessional lending -- he said "we have come much further than many thought possible a year ago". Nineteen billion dollars had been pledged for the regular IDA resources and an additional $3 billion for an interim trust fund. "We are, of course, following the situation in the United States Congress and elsewhere with great concern vis-à-vis following through on commitments."

Initiatives for the most debt-ridden countries had also gone further than expectations through cooperation with the International Monetary Fund (IMF) and other creditors, he said. "This issue will also be high on the agenda at Lyon [at the forthcoming "Group of Seven" summit meeting]." The Bank would support a debt-relief initiative that had been put forward at an estimated cost of $6 billion.

The Bank had moved quickly to help the situation in Bosnia and Herzegovina, overcoming sovereignty and arrearage issues, he continued. It had established strong partnerships on the ground and with the European Union. A $150 million trust fund for Bosnia had been set up with seven projects currently being implemented, and eight more being designed for next year.

He said that the Bank was also moving ahead in other relatively new areas, such as microfinancing for the poor. A consultative group had been set up in connection with a $200 million programme aimed at providing income for the very poor, especially women. Capacity-building for Africa was another new initiative being launched with such key features as country-specific orientation and strong African leadership. Capacity-needs assessments had begun in 12 countries.

Beyond progress in those specific areas, the Bank over the past year had been engaged in a fundamental effort to improve the way it conducted its work, he went on. "This has involved taking a hard look at ourselves and the way we

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operate and taking steps to ensure that we meet the needs of our clients." Country relationships had come into sharper focus than ever before.

The Bank was aware that it needed to strengthen its collaboration with the United Nations system at the country level, he said. Change was ongoing, but some important examples of better ways of doing business were already emerging. New approaches were being taken to country assistance strategies which were designed in closer cooperation with clients. Such new approaches were aimed at ensuring that the client was at the heart of all of the Bank's work. New country departments and director positions were being introduced. Also, departments were being relocated to the concerned country. For example, the Mexico country department had recently been relocated to Mexico City.

A renewed and major investment was being made in the education and training of the Bank's staff and management, he stated. Such changes were being made even as the Bank's administrative budget was being reduced by 11 per cent in real terms in the coming years. The bottom line was to enable countries to reduce poverty. United Nations partnership was one of the most important levers in achieving that goal. Pooling resources and cutting red tape were essential to maximizing efforts. It would be necessary to extend cooperation "beyond the conference hall to more effective collaboration on the ground".

PRABHAKAR R. NARVEKAR, Deputy Managing Director of the IMF, expressed the regrets of the Fund's Managing Director, Michel Camdessus, at his inability to join the Council's deliberations due to commitments in Europe.

Mr. Narvekar said world trade had expanded at twice the rate of world output growth and a vast amount of capital had become available through international capital markets. However, globalization was not without risks. The markets demanded that all countries adhere to a higher level of economic policy-making and penalized policy shortcomings. The resulting capital outflows could have destabilizing effects, as had happened in Mexico.

Average world economic growth had continued at 3.5 per cent in real terms in 1995, he said. Performance had been strong in developing countries, where average GDP growth was close to 6 per cent for the fourth consecutive year and average inflation had fallen to the lowest level in over a decade. Developing economies of Asia had expanded at over 8 per cent per year. Growth in the Middle East and Europe had picked to nearly 4 per cent, and average real GDP in African countries implementing Fund-supported programmes grew by 5 per cent compared to a more modest 3 per cent for the region as a whole. In Latin America, the average real GDP growth had declined to about 1 per cent. Among the transition economies, there was 5 per cent real growth in central and eastern Europe. In industrial countries, average growth slowed to about 2 per cent in real terms.

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Average world growth was expected to pick up to about 4 per cent in the period from 1996 to 1997, he said. Emphasizing policy lessons, noted that most investment had been financed out of domestic savings, and private capital flows could only supplement those savings. Also important were consistent market-based, outward-looking policies and flexibility of economies. Many countries which had been unable to improve overall domestic economic environment faced the risk of marginalization and a number of problems still required international cooperation.

In order to deal with the challenges of globalization, the Fund had concentrated its activities on strengthening its surveillance activities so it could pinpoint opportunities in the global economy, he said. It had refined its instruments and strengthened its resources and was making sure that monitoring of countries' financial policy was continuous and comprehensive. Countries, therefore, should provide the Fund with at least a minimum set of core data. The soundness of banking systems was being looked at, as were the short-term conditions in international markets and the international monetary system as a whole. The Fund was developing two sets of standard data to guide members in the dissemination of financial data. A general standard and a special data dissemination standard which would cater especially to those seeking to tap the international capital markets would be developed.

The Fund had recently adapted its emergency financing procedures to include "post-chaos situations", he said. It was also working with the World Bank to address external debt problems. Within the Fund, work was under way on the eleventh general review of quotas, and the Managing Director had suggested a doubling of the quotas. In addition, a number of the Fund members, including those in the "Group of 10", had agreed on arrangements to double resources available under the General Agreement to Borrow.

ANGELO GIORGIANNI (Italy), speaking on behalf of the European Union, said the Union attached great importance to policy dialogue within the Council and to collaboration with the Bretton Woods institutions. He asked about the role that the institutions saw themselves playing in limiting production and sale of drugs. Would the growth of alternate crops be encouraged in that regard? How would the problem of money laundering be tackled?

He also expressed interest in suggestions on how developing countries should deal with globalization and how countries could avoid marginalization. He wanted to know what the institutions viewed as key functions of governments. What were the chances of employment in developing countries succeeding in combating poverty, and how would the initiatives for the development of Africa be followed up?

AHMAD KAMAL (Pakistan) expressed disappointment that the heads of the IMF and of the WTO would not be attending the current session. Their absence may diminish the work of the Council, he added.

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His Government had wished to ask the head of WTO about the great stress being placed on capital mobility. He wondered what that organization was going to do to place the issue of labour mobility on the global agenda. He also wondered what that organization was intending to do about the inclusion of environmental and humanitarian clauses in multilateral trade regimes, both of which had protectionist implications.

He also had questions about what the multilateral organizations were doing regarding efforts to more evenly distribute capital flows and to introduce symmetry in the execution of their policies, for example, regarding measures undertaken in trade-deficit and trade-surplus countries.

CELSO AMORIM (Brazil) said that, as a result of their integration into the world economy, many countries were being increasingly exposed to volatile financial markets, currency speculation and wide swings in exchange rates. For global trade reforms to be consolidated and expanded, the international financial system must become more stable and predictable.

He said, the leadership of international financial and trade institutions should explore enhanced coordination among monetary and financial institutions, broaden macroeconomic policy coordination among interested governments, pursue greater symmetry in the IMF surveillance activities in developed and developing countries, and broaden the participation of developing countries in international decision-making.

The United Nations had a crucial role to play as a forum in which the complexities of international economics could be addressed, he stressed. Cooperation between the Organization and the Bretton Woods institutions should be enhanced to include the central economic issues related to globalization.

JAIRO MONTOYA (Colombia) said that, although recent trade talks had produced a number of agreements, shadows of doubt loomed over those negotiations. "We don't know whether the benefits will focus on a handful of countries." Recent development-related conferences had adopted timid language with regard to financial flows. Concerning the institutional aspect, words like "reform" and "non-duplication" had been used in an attempt to weaken multilateral institutions and justify a decreased flow of resources to countries in need.

Given the pressure to reduce IDA resources, he asked what the World Bank would do to reverse the net negative transfer of resources from the Bank to the developing countries. He questioned whether increased special drawing rights (SDRs) would be made available. Further, what was being done to analyse whether structural adjustment programmes had served to alleviate the problem of poverty or to exacerbate it? He also wondered what steps were being taken to find a definitive solution to the debt problem.

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Expressing regret that the WTO was not represented at the Council's session, he said there was a tendency to overemphasize the role of investments in multilateral trade negotiations. The subject of investments had already been thoroughly addressed in a variety of contexts, including the Marrakesh Agreements, adopted at the conclusion of the Uruguay Round. He asked the UNCTAD Secretary-General to comment on those matters.

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