ECONOMIC AND SOCIAL COUNCIL CONCLUDES HIGH-LEVEL POLICY DIALOGUE ON IMPORTANT DEVELOPMENTS IN WORLD ECONOMY

25 June 1996

Press Release
ECOSOC/5643

ECONOMIC AND SOCIAL COUNCIL CONCLUDES HIGH-LEVEL POLICY DIALOGUE ON IMPORTANT DEVELOPMENTS IN WORLD ECONOMY

19960625 Growth in Africa did not mean that the continent's problems had been solved, the Deputy Managing Director of the International Monetary Fund (IMF) said in response to a question posed by the representative of Nigeria concerning the Fund's "glowing picture" of African development, as the Economic and Social Council concluded its high-level policy dialogue on important developments in the world economy yesterday afternoon.

Prabhakar R. Narvekar, said that the Fund's figures on aggregate growth were based on data provided by the countries themselves working in collaboration with the IMF. "Did I paint a very rosy picture about development in Africa? I would say not." Growth was a matter of fact, but it did not mean that all problems in Africa had been solved; that was far from true.

Nigeria's representative had said that as the son of a farmer, he knew that cocoa and coffee prices were going down, and asked for an explanation of statements to the contrary.

The Secretary-General of the United Nations Conference on Trade and Development (UNCTAD), Rubens Ricupero, concurred with the Nigerian representative's assessment. He said that while some commodities, particularly minerals, had experienced rising prices, that tendency seemed to have peaked already and the trend had not covered most other products. Coffee had enjoyed a brief recovery period which had given way to a subsequent downturn in prices.

Mr. Ricupero had earlier expressed his view that there was a need to address the trade implications of financial decisions. Europeans talked often of "competitive devaluation", while many countries in Latin America had been forced to cut down on trade because of financial uncertainty, he said. "You will excuse me for the vehemence with which I refer to this issue because this is like sex in the Victorian age. People will not speak about it in public, but they think about it all the time."

Also responding to questions raised during the policy dialogue, the Managing Director for Corporate Planning and Resource Management of the World Bank, Sven Sandström, discussed the sensitive issue of conditionalities on

aid. He said that in response to adjustment programmes, a number of countries had cut social sector programmes because of their own vested interests, which preserved instead allocations for the police or the military. The Bank had introduced conditionalities in response, but that was not the right way to proceed. Rather, the population must be empowered to have a say in budgetary allocations.

To questions on the role of multilateral financial institutions in assisting the countries of eastern Europe to integrate into the European economy, Mr. Sandström said the Bank did not get involved in political or regional negotiations, but it did promote appropriate reforms in those countries themselves. Mr. Narvekar said that while the eastern European States might not be satisfied with the extent of support they had received in that regard, integration was an important focus of the IMF's efforts in eastern Europe.

Also taking part in the policy dialogue were the representatives of Germany, Ireland, The former Yugoslav Republic of Macedonia, Venezuela, Russian Federation, Bangladesh, Ghana, Malaysia, Costa Rica, Japan, China, Indonesia and the Philippines. The Director-General of the World Health Organization (WHO) also spoke. Italy's representative exercised his right of reply.

The Council will meet again at 10 a.m. today, 25 June, to begin its high-level segment on international cooperation against the illicit production, sale, demand, traffic and distribution of narcotic drugs and psychotropic substances and related activities.

Council Work Programme

The Economic and Social Council met yesterday afternoon to continue its high-level policy dialogue on important developments in the world economy with heads of multilateral financial and trade institutions of the United Nations system. Yesterday morning, the Council began the dialogue by hearing statements from the Secretary-General of the United Nations Conference on Trade and Development (UNCTAD); the Managing Director for Corporate Planning and Resource Management of the World Bank; and the Deputy Managing Director of the International Monetary Fund (IMF). Questions were posed by Council members. (For background on the Council's substantive session, see Press Release ECOSOC/5641, of 21 June.)

Policy Dialogue on Developments in World Economy

Responding to questions and comments raised during yesterday's morning session, SVEN SANDSTRÖM, Managing Director for Corporate Planning and Resource Management of the World Bank, said there was a strong demand for the effective

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use of development resources. "We must move beyond global conferences and broad policy statements to implementation and results at the country level."

Concerning globalization, he said that developing countries were currently experiencing growth as private funds and individuals were more willing to take risks and make investments in their economies. However, the success was limited; some 12 countries had received 75 to 80 per cent of private flows in recent years, while a large share of countries found themselves marginalized. Attention must be focused on the latter category of States.

The capacity of governments to manage their economies was of central importance, he went on. Therefore, capacity-building was clearly critical, especially in Africa, which was experiencing marginalization. Greater attention must be given to the Economic Commission for Africa (ECA) and the African Development Bank. The World Bank was committed to following up on the new United Nations System-wide Special Initiative on Africa. Noting that there had been many initiatives for Africa in the past, he said the new Initiative must be driven by the African countries themselves. The focus should be at the sectoral level. Work had begun in a few selected sectors, such as education and health.

Concerning structural adjustment, he said there was now a well- recognized need for adjustment. Quite a few developed countries were going through adjustment processes. The issue was not whether or not there was a need for adjustment, but rather how to properly undertake reforms.

Regarding drug control, he said that was one of the few areas where the World Bank had not taken much of an initiative. The Bank had worked on the problem in an indirect manner, for example, by encouraging the cultivation of alternative crops and by promoting banking sector reforms which could help eliminate money laundering. "But ultimately we see the drug problem as one of demand."

There was an untapped potential within the Bank for increased resource flows, he stated. Capital could be increased by $10 billion per year and still be at what was known as the "sustainable" level for funding. That could be fostered through providing a broader range of products, for example, by giving countries the freedom to choose the currency which they borrowed in.

PRABHAKAR R. NARVEKAR, of the International Monetary Fund (IMF), said he would give individual responses to most of the questions that had been raised. Responding to the comment of the representative of Pakistan about the absence of the Fund's Managing Director from the Council deliberations, he said the Managing Director was very disappointed at not being able to attend, but hopefully there would be many opportunities in the future for him to participate in the deliberations.

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On the question of what the Fund could do to stop money laundering, he said the Fund was known for trying to get the budget deficits reduced. It was also concerned with the quality of deficits and wanted to ensure that areas such as education and health were protected. It had promoted employment opportunities which would help counter drug trafficking.

Responding to a question on the benefits of globalization, he said, his speech yesterday morning had addressed that issue. In answer to another question about the key functions of government, he said there was a broad consensus on government functions. The assurance of financial stability and provision of the rule of law were some of the primary functions.

Addressing the importance of education, he said the Fund would protect government's expenditure on that. As it did not have expertise on environment, it had left that subject to the World Bank. On the Fund's attitude to deficit and surplus countries, he said it was the responsibility of international institutions to encourage governments to increase official development assistance (ODA).

He said that, although it might not be fully apparent, there was extensive collaboration with the United Nations Development Programme (UNDP) and the International Labour Organisation (ILO). Also, the Fund had contributed to papers from various United Nations organs. Such collaboration would only increase with time. However, he warned against bureaucratic tendencies and said the essential character of institutions should remain the same.

RUBENS RICUPERO, Secretary-General of UNCTAD, said the issue of globalization was of great importance. "This is a very complex issue. We see that our main role is to help developing countries to better integrate into the world economy and the world trading system." Development strategies must be country-specific and designed to address the particular problems of the countries concerned.

The UNCTAD distinguished between more advanced developing countries, which lacked access to trade, technology and investment, and the least developed countries, which had a capital supply problem, he said. However, in terms of jobs creation, the strategies were the same worldwide, and included promoting growth, increasing trade and supporting micro-enterprises. The UNCTAD was working with the World Trade Organization (WTO) to help African countries to take advantage of the results of the Uruguay Round.

On the role of the private sector, he said UNCTAD was working to incorporate civil society into its discussions on development. The private sector was actively participating in several areas of UNCTAD's work, such as its discussions on iron ore.

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The UNCTAD had a particular responsibility with respect to investments, he said. Every year, UNCTAD issued the World Investment Report. There was currently a proposal to have the high-level segment of the next meeting of the Trade and Development Board, to be held in October, to focus on investments. If the proposal was approved, the high-level segment would not only involve representatives of governments, but also chief investors themselves. The aim would be to define the best framework for investment, including how best to attract them. The UNCTAD's role was to clarify issues by presenting analytical work and solid data which would allow countries to take their own decisions on the matters concerned.

On the code of conduct for transnational corporations, he said that a few years ago when the Centre for Transnational Corporations was still in New York, it had been decided not to continue work on that issue. But over the course of discussions on investments, it was difficult to avoid the question. "It is very possible that in our discussions in Geneva the problem of transnational corporations will be raised, particularly within the context of how to establish a balance between the rights and obligations of the countries that are the source of investments and the countries that receive the investments." In that context, he said he expected that the issue would receive some attention. The UNCTAD had several technical projects designed to help countries attract foreign direct investment and deal with transnational corporations, he added.

To a question posed earlier on the mobility of capital and labour, he said the current globalization process was focused on the trade in services and investments, but liberalization did not extend to labour mobility in the form of immigration. Now was not a propitious time to raise the issue, as many countries faced unemployment problems.

There was a need to address the post-globalization period, he said. There were problems with extremely far-reaching consequences, such as problems with interest rates. People nowadays did not want to discuss the trade implications of financial decisions. Europeans talked often of "competitive devaluation", while many countries in Latin America had been forced to cut down on trade because of financial uncertainty. "You will excuse me for the vehemence with which I refer to this issue because this is like sex in the Victorian age. People will not speak about it in public, but they think about it all the time."

WERNER HOYER, Minister of State of the Federal Foreign Office of Germany, said globalization had reached all corners of the world, "and by far not only third world countries are worried about the implications of globalization". In Germany, also, structural adjustments evoked anxious reactions when social benefits had to be given up. Despite those changes, to maximize growth, full use must be made of the opportunities of a liberal, multilateral system of world trade. Safeguarding and further developing the

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liberalized multilateral world trading system continued to be a major task for the international community.

The creation of the WTO had been an important immediate goal, and efforts must be made to ensure the success of its forthcoming ministerial conference, to be held in Singapore in December, he said. The more developing countries could share in world trade, the more they could improve their development prospects. Measures were needed to facilitate such participation, especially on behalf of the least developed countries. Greater support must be given to the private sector structures in developing countries while helping their governments to develop suitable legal systems and business promotion instruments.

Regional arrangements were also critical to securing an open multilateral trading system, as was interregional cooperation, he continued. "It is important to note that my country does not see these interregional trade cooperations as an alternative to the global multilateral process, but as an important contribution to the strengthening of the WTO. Interregional cooperation is a step towards further progress of the global integration, not a goal in itself."

He went on to describe examples of Germany's multilateral and bilateral assistance programmes, including debt cancellation to least developed countries, which had amounted to about 9 million deutsche marks since 1978. "And I am prepared to say that we will go farther." Referring to the Organization's reform process, he drew attention to the present structure of the Security Council and called for making it more representative.

JOAN BURTON (Ireland) asked what was the role that the international financial institutions saw themselves playing in poverty elimination. She expressed interest in the follow-up to the Copenhagen Declaration adopted by the World Summit for Social Development, including the 20/20 initiative -- which is based on the idea of allocating 20 per cent of ODA and 20 per cent of national budgets to priority basic social programmes. Did the international financial institutions think that the debt level in many countries was unsustainable? She asked if investment in education below a certain level was unacceptable. Was the same true for health, water and sanitation? She also wanted to know if the involvement of women below a certain level would be seen as an unacceptable level of involvement? What was the institutions' role in responding to conflicts? Would reforms inevitably lead to progress everywhere or would the least developed countries need specific intervention?

NASTE CALOVSKI (The former Yugoslav Republic of Macedonia) said the present developments in the world economy were well-known. They had been carefully examined at the ninth session of the United Nations Conference on Trade and Development (UNCTAD IX) (Midrand, South Africa, 1996). Attention should now focus on the implementation of decisions taken by the competent

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bodies. The starting point should be the problems, needs and aspirations of the economies of member States rather than the institutions themselves. If that starting point was not fully grasped, the implications would be serious.

The former Yugoslav Republic of Macedonia was now working to participate in the integrated European economy, he said. That process should be supported by all European States and should not be manipulated based on political considerations. Currently, efforts were under way to promote good relations among the Balkan countries. More countries should participate in that effort. "The position that everything should be done by the Europeans themselves is not a sound position." The international financial and trade institutions should actively support European integration. He asked why little had been done by the multilateral trade and financial institutions to assist eastern Europe in the integration process.

OSCAR R. DE ROJAS (Venezuela) expressed surprise that the WTO had not responded to the Council's invitation to participate in the dialogue. He suggested that the Council President convey the disappointment which was felt by some members at that turn of events.

Stating that he knew that the World Bank was working in the important area of capacity-building, he asked where the resources for those efforts were coming from. Also, how did the Bank's work dovetail with that of the UNDP in the same area? Attention should be paid to the proposals to establish an early-warning system which would identify emerging economic problems before they would become crises, he stated, and asked for comments on those proposals.

YURI N. ISAKOV (Russian Federation) called for a rational division of labour between all participants in international cooperation for development. Countries in transition, after many years of crisis, had seen an upturn in their economies. On the whole, the world's economic situation had improved. Certain adjustments must be made in the priorities of the assistance provided by the Bretton Woods institutions. He asked what the Fund and Bank felt about that, and whether there was any potential for more coordinated cooperation between the United Nations and the Bretton Woods institutions.

Concerning sustainable, human-centred development, he asked how the Bretton Woods institutions saw their role in the planned General Assembly review of Agenda 21 -- the blueprint for sustainable development adopted by the United Nations Conference on Environment and Development (UNCED) (Rio de Janeiro, 1992).

SAM OTUYELU (Nigeria) stated that it was said in his country that it was the person who had experienced hunger who was best able to describe it, and it was the person who had experienced thirst who was best able to describe that. The IMF representative had given a very glowing picture of development in

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Africa, where gross domestic product (GDP) was growing at an annual average of 5 per cent. However, others had given less attractive figures which seemed more believable. He asked how the Fund could reconcile its assessment of the structural adjustment programmes with the problems they had caused. "I am an optimist, and I want development in Africa to be as good as the IMF has presented it."

As the son of a farmer, he said he knew that cocoa and coffee prices were going down, and asked for an explanation of statements to the contrary.

Bureaucracy in itself was not the evil that some portrayed it to be, he went on. Bureaucracy must be made more effective, time conscious and efficient.

Debt-servicing had become a serious problem in Africa, he continued. The UNDP and the United Nations Children's Fund (UNICEF) had pioneered initiatives to address that problem. He questioned conclusions by the IMF that inflows of private capital had been largely beneficial. Increased private capital flows had been accompanied by economic problems in developing countries, apart from those in south-east Asia.

Responding to questions posed by representatives, Mr. SANDSTRÖM, Managing Director for Corporate Planning and Resource Management of the World Bank, said there were roughly 20 countries being considered as candidates for a $6 billion debt initiative which would enable them to address their problems.

Adjustment programmes were not only compatible with social programmes, they were necessary, he said. A number of countries had cut social sector programmes because of their own vested interests. For example, allocations for the police or military did not face cuts while other areas suffered. In response, the World Bank had introduced conditionalities, but that was not the right way to proceed. Rather, the population must be empowered to have a say in budgetary allocations.

The World Bank had met its part of the 20/20 initiative even before the Social Summit, with more than 20 per cent of its allocations going to social programmes. Greater attention was being paid to the issue of educating girls, which was, without doubt, the best investment in the developing world.

The Bank had worked to promote development, which was the best way to prevent conflict, he continued. Once conflict broke out, the Bank was not involved, although it did work in the post-conflict phase.

Concerning the integration of eastern Europe into the European Union, he said the Bank did not get involved in political or regional negotiations, but

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it did promote appropriate reforms in the eastern European countries themselves.

He said that clearly, the UNDP was playing a key role in capacity- building. The Bank cooperated with the UNDP in that effort. It was trying to draw more on the presence of the United Nations system at the field level.

Concerning follow-up to UNCED, he said the environmental field was perhaps the fastest growing area of the Bank's work. The Bank was working with the UNDP and the United Nations Environment Programme (UNEP) on the Global Environment Facility (GEF), which was moving rapidly towards the stage where it would be replenished.

Mr. NARVEKAR, IMF Deputy Managing Director, said that to fix targets for what was an appropriate level of expenditures on education and health would not be helpful. Poverty alleviation was completely consistent with structural reforms. Social safety nets could be designed to protect those segments of society which could be adversely affected by structural adjustment programmes.

On the question of conflict prevention and resolution, he said the Fund did work to rehabilitate countries in post-conflict situations mainly by providing the framework for proper financial and monetary stability.

He said there was nothing in the Fund's mandate which prevented it from helping eastern European countries to integrate into the European economy. While the eastern European States might not be satisfied with the extent of support they had received, he said integration was an important focus of the IMF's efforts in eastern Europe.

Responding to Nigeria's questions, he said that figures on aggregate growth were based on data provided by the countries themselves working in collaboration with the IMF. "Did I paint a very rosy picture about development in Africa? I would say not." Growth was a matter of fact, but it did not mean that all problems in Africa had been solved; that was far from true.

Mr. RICUPERO, UNCTAD Secretary-General, said there was no denying that there was some paradox in the fact that, after the creation of the WTO, regional agreements had proliferated instead of receding in importance. Regional agreements could be building blocks, but they could also be obstacles for the multilateral trading system. The basic problem concerned whether such agreements were open or not. An open agreement would accept rules already adopted at the multilateral level. The WTO had recently set up a special committee to examine the issue. Globalization also meant the integration of a productive system worldwide, with different countries experiencing different stages of production. It was worth examining whether regional agreements were really in harmony with that reality.

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Regarding eastern Europe, he said UNCTAD was working with the Economic Commission for Europe (ECE) to help those countries. It was helping Russia, Belarus and Ukraine in a variety of areas, including privatization. "We are doing our part within our limited resources."

On the early-warning proposal, he said it was a very complex issue which could not be adequately addressed in the limited time available. The early- warning system would aim to be comprehensive, dealing with situations that would start at the financial level, but would have implications of a humanitarian or security nature. Several ad hoc initiatives had been set up, but they had mainly taken place outside of the United Nations system. Each of the agencies was doing what it could in its own area of competence, but coordination was extremely difficult.

Regarding commodities, he said it was true that some, particularly minerals, had experienced rising prices, but that tendency seemed to have peaked already and the trend had not covered most other products. He concurred with Nigeria's representative about the prices of cocoa. Coffee had enjoyed a brief recovery period which had not lasted. During the 1980s, commodity prices had reached an all-time low. There had been a brief recovery period, but deterioration had already begun, and a downturn had been registered. Consideration should also be given to the extremely low prices of oil.

SYED RAFIQUL ALOM (Bangladesh) said it was encouraging to note that economic activity had picked up in developing countries. The IMF had stated that countries should face challenges of globalization through domestic policy. However, ODA had to be increased to help countries face the dual challenge of globalization and marginalization. He stressed the need for a formal system of coordination through the IMF. Since developing countries were vulnerable to fluctuations in commodity barriers and faced new barriers in the name of employment, did UNCTAD have any policy to deal with those new barriers? He noted that absence of the WTO representative and said he was disappointed at the decline of flow of ODA. Also, continued declining net transfer of resources from the World Bank was a source of concern. That had not been commented on by the World Bank representative. It was a fact that a large portion of ODA went to countries which were of strategic interest to the lenders.

JACOB BOTWE WILMUT (Ghana) said he was relieved to learn that real per capita income had been rising in a large majority of countries since the early 1990s. According to the World Economic and Social Survey 1996, the aid for Africa had been declining over the years, and that was a sobering fact. Although direct foreign investment had grown, it had been highly concentrated in a small number of countries. A lot had to be done by the poorer countries to attract foreign investment. Political order, social and economic stability had to be achieved. However, there was a lack of adequate support from the

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international community. At times, investors were dissuaded by negative media reports. It was necessary for donor countries and international institutions to educate media and investors about the real situation on the ground. He wanted to know the percentage of World Bank's overall resources allocated to social programmes or to poverty eradication. Africa's combined foreign debt currently stood at $300 billion, to which $20 billion was added annually. He asked the World Bank representative to comment on a study that the organization had $800 billion of surplus resources. A new rationale for development cooperation should be drawn because many countries, in the absence of the cold war, did not feel the need to provide ODA.

HIROSHI NAKAJIMA, Director-General of WHO, said social and financial costs of AIDS reached approximately from $50 billion to $55 billion just in the United States. The African countries had been spending 1 per cent of their GDP on malaria, as against 0.5 per cent that they had been spending in 1987. Scores of people had been paralysed by the disease. The WHO had been engaged in providing new resources to combat the disease. Some of its funds had also gone to fighting old diseases which had recurred. He stressed the need for solidarity in combating disease and said the WHO had undertaken reform to strengthen its organization because disease had stood in the way of economic and social development in many countries.

MOHAMED SINON MUDZAKIR (Malaysia) said he was concerned about the debt problem. There had been no serious changes in the situation since the Copenhagen Summit. He stressed the need for addressing the question of multilateral debt, adding that the United Nations role in addressing transnational corporations had been declining. Stating that the Survey had painted a very rosy picture of the world economic and social situation, he said there should be a more transparent approach to multilateral cooperation. Also, there had been a significant erosion in the capability of governments to deal with volatility of capital flows. There should be priorities in place so far as the question of funding capacity was concerned.

EMILIA CASTRO DE BARISH (Costa Rica) said she was disappointed at the absence of the WTO representative. Stressing the importance of investments in health and water, she said children and women victimized by poverty had to be helped. She asked what the UNDP was doing to engender sustainable development and hoped the Bretton Woods institutions would help the UNICEF in aiding women, children and other afflicted by poverty.

HISASHI OWADA (Japan) said his delegation felt that, given that the Council was engaged in a policy dialogue at high level, the focus should be on some specific issues. The most important issue that the United Nations faced was development. Japan had advocated a comprehensive approach which would deal with ODA, among other issues. Given the complexity in the ingredients of development, there was the need to find a new strategy of development which

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suited all the parties. How did the international financial institutions view such an approach?

YI QINGTAI (China) asked how the least developed countries could be helped to meet the challenge of globalization so that they could be integrated in the mainstream. The representative of the IMF had talked about mobilization of domestic resources, and it was true that no country could rely only on foreign investments. However, those countries would need more support from the international community. How did the IMF intend to help them? he asked.

MOCHAMAD SLAMET HIDAYAT (Indonesia) said he valued cooperation with the Bretton Woods institutions. However, it seemed that those institutions were reluctant to cooperate formally at the field level. He also asked why none of the task forces of the Administrative Committee on Coordination was chaired by UNCTAD.

FELIPE H. MABILANGAN (Philippines) said he agreed with Pakistan and Bangladesh on the question of labour mobility. Industrialization, technology and trade were crucial for development. How did UNCTAD view the strengthening of cooperation between itself an the United Nations Industrial Development Organization (UNIDO)?

Mr. SANDSTRÖM, of the World Bank, said there were plans to increase direct foreign investment to poor countries. He agreed with the need to correct the perceptions prevalent about many developing countries. Responding to a question on what proportion of the World Bank resources went to poverty alleviation, he said 100 per cent. The alleviation of poverty required overall policy programmes, as well as provision of education and health care.

On the question of debt, he said even the level of debt reduction being suggested by the Bank was being questioned by some countries in Africa which had managed their debt effectively and, therefore, questioned why the debt of others who had not done so should be written off. On the delay in addressing the debt problem, he said the Bank had followed the schedule outlined in Copenhagen, under which a report had been promised for April which had been submitted.

Responding to a question on whether the Fund's handling of the volatility of capital was adequate, Mr. NARVEKAR, of the IMF, said it was trying to strengthen its lending capacity. However, the crisis in Mexico had been successfully overcome.

Mr. RICUPERO, of UNCTAD, said there was no universal recipe for development, and country-specific strategies had to be found. The UNCTAD was studying success stories in Asia and hoped that those examples could be applied elsewhere. Responding to a question on what UNCTAD would do for the

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least developed countries, he said it intended to give high priority to those countries.

Right of Reply

ANGELO GIORGIANNI (Italy), speaking in exercise of right of reply, said a delegate had brought up the question of reform of the Security Council. Italy was also deeply interested in the quickest possible conclusion of the reform process. However, there should be no increase in the number of the permanent members of the Security Council. Rather, the number of non- permanent members should be increased so as to allow countries with a particular interest in the Council's work, such as troop-contributing States, to participate in its discussions. One hundred and twenty-four countries had either never or only once been elected to the Security Council, and Italy had put forward proposals to address the matter.

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