SECOND COMMITTEE BEGINS CONSIDERATION OF EXTERNAL DEBT PROBLEM AND GLOBAL FINANCIAL INTEGRATION

Press Release
GA/EF/2750

SECOND COMMITTEE BEGINS CONSIDERATION OF EXTERNAL DEBT PROBLEM AND GLOBAL FINANCIAL INTEGRATION

The external debt problem of developing countries should be addressed comprehensively, through an integrated development-oriented approach, involving an open, rule-based and non-discriminatory international trading system, the Second Committee (Economic and Financial) was told this afternoon, as it began consideration of that problem as well as of global financial integration.

Speaking on behalf of the "Group of 77" developing countries and China, the representative of Costa Rica said such an approach should include increased financial flows and access to technology for the developing countries.

The representative of Ireland, speaking on behalf of the European Union and associated States, welcomed the recent decision by the World bank and the International Monetary Fund (IMF) to endorse a debt initiative for the heavily indebted poor countries (HIPC) aimed at reducing their debt burden to sustainable levels. She supported the principle of flexibility in structure and timing and a case-by-case approach to debtor countries in tackling the debt problem.

The financial market turbulence caused by speculative short-term capital flows threatened the healthy development of the world economy, the representative of China said. To reduce systemic risk in international private capital markets and to strengthen private direct investment flows, she called for strengthening macroeconomic policy coordination.

Introducing the reports before the Committee was the Chief of the International Economic Relations Branch of the Department for Economic and Social Information and Policy Analysis, Barry Herman.

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Statements were also made by the representatives of Tunisia, Bangladesh, Russian Federation, United States, Ghana, Fiji, Nicaragua, Ethiopia, Togo, Republic of Korea, Kuwait, Sudan, Niger and Cambodia. A statement was also made by the Observer for the Holy See.

In addition, the Committee heard the introduction of two draft resolutions.

A 47-Power text would have the General Assembly recognize the need for ensuring favourable conditions for market access of exports from countries with economies in transition. That text was introduced by the representative of the Russian Federation.

By the other draft introduced, the Assembly would decide that the theme for the first United Nations Decade for the Eradication of Poverty (1997-2006) shall be "eradicating poverty is an ethical, social, political and economic imperative of humankind". That text was introduced by the representative of Costa Rica, on behalf of the Group of 77 and China.

The Committee will meet again at 10 a.m. tomorrow, 12 November to continue its deliberations.

Committee Work Programme

The Second Committee (Economic and Financial) met this afternoon to begin consideration of external debt and development and of financing of development, including net transfer of resources between developing and developed countries.

The Committee was also scheduled to hear the introduction of two draft resolutions, on integration of the economies in transition into the world economy and on eradication of poverty, respectively.

Drafts for Introduction

Under the provisions of a 47-Power draft resolution on integration of the economies in transition into the world economy (document A/C.2/51/L.17), the General Assembly would recognize the need for ensuring favourable conditions for market access of exports from countries with economies in transition. It would take note of the Secretary-General's report on the integration of those economies into the world economy. It would welcome the measures undertaken by the organizations of the United Nations system to implement its resolution 49/106 on the integration of economies in transition into the world economy.

Moreover, it would call upon those organizations to continue to conduct analytical activities and to provide policy advice and technical assistance within existing resources to the economies in transition on the social and political framework for economic and market reforms, in particular in regard to the development of the necessary conditions for attracting foreign investments. The Secretary-General would be requested to submit a report on the implementation of the text to the Assembly's fifty-third session.

The draft is sponsored by Albania, Armenia, Australia, Austria, Azerbaijan, Belarus, Belgium, Bosnia and Herzegovina, Bulgaria, Canada, Croatia, Czech Republic, Denmark, Estonia, Finland, France, Georgia, Germany, Greece, Ireland, Italy, Japan, Kazakstan, Kyrgyzstan, Latvia, Lithuania, Luxembourg, Mongolia, Netherlands, Norway, Poland, Portugal, Republic of Korea, Republic of Moldova, Romania, Russian Federation, Slovakia, Slovenia, Spain, Sweden, Tajikistan, The former Yugoslav Republic of Macedonia, Ukraine, United Kingdom, United States and Uzbekistan.

Under the provisions of the draft resolution on eradication of poverty (document A/C.2/51/L.18), sponsored by Costa Rica, on behalf of the "Group of 77" developing countries and China, the Assembly would decide that the theme for the first United Nations Decade for the Eradication of Poverty (1997-2006) shall be "Eradicating poverty is an ethical, social, political and economic imperative of humankind", and also decide to adopt the logo for the decade as proposed in the Secretary-General's report.

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The Assembly would further decide that within the context of overall action for the eradication of poverty, special focus should be given to issues that reflected the multidimensional nature of poverty, such as the environment, food security, population and migration, health, shelter, human resources development, fresh water, including clean water and sanitation, rural development, productive employment, the situation of vulnerable groups and social integration. Moreover, the Assembly would decide that the themes for 1997 and 1998 shall be "Poverty and environment" and "Poverty and food security", respectively; the themes for the remaining years of the Decade would be decided every two years commencing in 1998.

Further, the Assembly would decide that the objective of the first United Nations Decade for the Eradication of Poverty is to achieve the goal of eradicating poverty in the world, through decisive national actions and international cooperation in implementing fully and effectively all agreements, commitments and recommendations of United Nations conferences and summits organized since 1990, particularly those related to poverty eradication.

Also by the draft, donor countries and multilateral financial institutions would be invited to give high priority to the eradication of poverty in their assistance budgets and programme, on either a bilateral or multilateral basis, the draft continues. Relevant funds, programmes and agencies of the United Nations system would also be invited to support developing countries, particularly African countries and least developed countries, in their efforts to achieve the overall goal of eradicating poverty and ensuring basic social services, through, among other measures, the elaboration and implementation of anti-poverty programmes.

In addition, the Assembly would encourage developing countries, particularly African countries and least developed countries, to mobilize domestic and external resources for poverty eradication activities and programmes and to facilitate their full and effective implementation.

Also by the draft, the Assembly would recognize the need to increase the share of funding for social development programmes commensurate with the scope and scale of activities required to achieve the objectives and goals set out in commitment 2 of the Copenhagen Declaration adopted at the Copenhagen World Summit for Social Development and the commitment 2 of the Summit's Programme of Action relating to poverty eradication.

In that context, the Assembly would reaffirm that developed countries should attain, as soon as possible, the agreed target of 0.7 per cent of their gross national product (GNP) for overall official development assistance (ODA) and to ensure that, within that target, 0.15 to 0.20 per cent of the GNP was earmarked for the least developed countries. It would reaffirm also that the international community, including multilateral financial institutions, must

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take further measures and initiatives to cancel and/or reduce external debt, as well as facilitate the access of developing countries, particularly African countries and least developed countries, to international markets, to enable them to implement fully and effectively their national anti-poverty activities and programmes.

The international community would be further urged to devote part of the resources made available by the implementation of disarmament and arms limitation agreements to poverty eradication programmes in developing countries, particularly African countries and least developed countries, to reduce the ever-widening gap between developed and developing countries. All States, particularly donor countries, would be called upon to contribute substantially to the Trust Fund for the Follow-up to the World Summit for Social Development, which includes in its activities support for actions related to the first United Nations Decade for the Eradication of Poverty.

The General Assembly would invite the Administrator of the United Nations Development Programme (UNDP) to extend, as part of the UNDP's contribution to the Decade, the effort launched in 1996 with the Poverty Strategies Initiative, to strengthen technical and financial assistance in the elaboration or formulation of direct programmes to eradicate poverty in developing countries, particularly African countries and least developed countries. It would welcome the initiative to convene the non-governmental Micro-Credit Summit in Washington, D.C., from 2 to 4 February 1997, and the support given to it by the World Bank and the UNDP to ensure that 100 million families, especially the women of those families around the world, particularly in African countries and least developed countries, receive credit for self-employment and other financial services by the year 2005. It would call upon all governments, the United Nations system and the relevant actors of civil society to participate in the Summit, to ensure its successful outcome.

The Secretary-General would be requested to provide the Secretariat entity entrusted with the task of the system-wide promotion, implementation and follow-up activities and programmes of the Decade with adequate human and financial resources within the United Nations regular budget to enable it to discharge fully and effectively its functions and responsibilities. The Secretary-General would also be requested to ensure that poverty eradication was given due attention in the reports to be prepared for the 1997 special session of the General Assembly on the implementation of Agenda 21, the programme of action adopted at the 1992 United Nations Conference on Environment and Development.

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Reports before Committee

A report of the Secretary-General on the developing country debt situation as of mid-1996 (document A/51/294) reviews the problem and policy measures being brought to bear on it. It states that a solution of the crisis involves a combination of sound adjustment measures and a stable economic, political and social environment that promotes investor confidence, coupled with adequate debt relief, official financial support and a buoyant and open world economy.

The report also highlights the debt situation of the heavily indebted countries which are the focus of a new initiative at the International Monetary Fund (IMF) and the World Bank. The initiative calls for a concerted and comprehensive approach to their debt problem, with broad and equitable participation of all creditors, including multilateral creditors, aimed at achieving debt sustainability. It describes the initiative as a welcome step forward, but underlines that the preliminary analysis undertaken to determine sustainability levels and hence eligibility for the initiative is indicative of need and should not prejudge the potential inclusion of other countries in the programme. Some flexibility, both in terms of the use of debt indicators for eligibility and a time-frame of enhanced multilateral measures, may be required to assist countries with a satisfactory policy track record to resume sustainable growth and normal external financial relations.

Addressing areas of concern which remain to be addressed if the debt overhang of heavily indebted poor countries is to be gradually eliminated, the report states that it is essential that an adequate replenishment of the soft- loan windows of multilateral financial institutions be implemented to provide the necessary resources on terms that are affordable to those countries and without sacrifices being imposed on others. A coherent framework to deal with debt owed to bilateral creditors appears critical for a number of heavily indebted poor countries in Africa, it adds.

With the signing in July 1996 of a Paris Club agreement for Peru, the report says the debt-restructuring process for middle-income countries has largely been completed. It notes, however, that several middle-income countries still display the indicators of a fragile external financial situation. Central to avoiding a new crisis seems to be limiting exposure to the more volatile forms of finance before an economy is ready, and maintaining the confidence of international financial investors. Individual countries have a central responsibility, the report stresses.

According to the report, during the period under review, restructuring of developing countries' debt to commercial banks has mainly continued through "Brady-type" operations, involving debt or debt-service reduction and a buy-back operation for low-income countries with the assistance of official creditors and donors, particularly the Debt Reduction Facility of the

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International Development Association (IDA), the soft-loan affiliate of the World Bank.

Another report of the Secretary-General on net transfer of resources between developing and developed countries (document A/51/291), also before the Committee, focuses on recent developments in the net flows and transfers to the developing countries and the particularly difficult situation facing the international community in the realm of official financial cooperation for development.

The report states that in aggregate, there has been a large net transfer to the developing countries every year since 1991. Flows of foreign direct investment have shown a steady and strong upward trend with the bulk -- $50 billion -- going to Asia, particularly east Asia. Direct investment flows to Latin America have also grown, although not nearly so strongly. There was no notable pick-up in flows to Africa as a whole and hardly any flows at all to sub-Saharan Africa, according to the report.

In a section on international policy challenges, the report says the development process still requires a strong official international presence to assist in times of stress in individual countries, and to address problems of a global nature that put development progress at risk. That requires, in particular, a strong IMF with the capacity to stand behind its policy advice with sufficient financial support of adjusting countries. For most developing countries, the need for international official support is in the form of traditional development cooperation, mostly ODA. The report says that total ODA from the Development Assistance Committee countries fell in 1995 to 0.27 per cent of their combined GNP, far from the United Nations aid target of 0.7 per cent of the GNP. The United States, once the largest donor, has slipped to the fourth position with 0.10 per cent of the GNP in 1995. Only four countries -- Denmark, Netherlands, Norway and Sweden -- have met the United Nations aid target.

The report observes that a lesson of the recent surge in net transfers is the reminder that there are dangers as well as opportunities in the international financial market place. Governments need to be concerned not only with the overall volume of net financial inflows, but also with their durability. The combination of sustainable domestic policies and strong economic growth seems to set the stage for the more desirable mixes of private financial flows. The recent stirring of the African economy suggests that the continent may be able to make use of resource inflows than might have been the case earlier. Africa should be allowed to try and for that more, not less, official assistance is required.

Also before the Committee is a report of the Secretary-General on the challenges and opportunities of global financial integration (document A/51/388) which states that the Assembly may wish to consider whether and how

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such integration might be especially addressed during the policy dialogue on major developments in the world economy at the Economic and Social Council's substantive session. To facilitate discussions at the intergovernmental level, the report says consultations and information exchanges among the secretariats of the United Nations and the Bretton Woods institutions could be enhanced and their outcome brought to the attention of the Assembly, particularly on issues where the secretariats have different perspectives.

The report notes that there are few forums in which different views on exchange rates and associated macroeconomic policies may be brought together and compared. The United Nations provides one opportunity for comparisons of outlooks in its capacity as a headquarters of Project LINK, which serves as a forum for discussion by technical specialists of the economic situation in different parts of the world. It is also a system in which forecasts based on the econometric models of individual national economies are adjusted to form a consistent global picture. The report says the LINK system is a tool available to the international community to bolster the capacity to analyse the short-term developments of the global economy and its largest national components. It adds that the annual spring meeting of Project LINK at United Nations Headquarters provides the basis on which the United Nations Secretariat prepares its global economic forecast, which it publishes in the annual World Economic and Social Survey.

The report says international cooperation in reducing systemic risks in the financial sector has now become important. Prudential and market monitoring responsibilities of central banks and securities oversight agencies in individual countries have increasingly had to take on an international dimension. They must now pay keen attention because what happens in one market soon finds a reflection in another. The report refers to the various international bodies serving as forums to make international financial markets work better and safer, such as the Bank for International Settlements established in 1930 and owned by 32 national central banks, the International Organization of Securities Commissions founded in 1983 which oversees stock exchange activities, and the International Association of Insurance Supervisors.

The report says national authorities are divided on the merits of the centralization of supervisory responsibilities, although there is a consensus on the need for further cooperation nationally and internationally. It also notes the increasingly important roles of international private groups ranging from professional associations (as in accounting) to industry groups (such as the Institute of International Finance) in market-strengthening activities. It observes that the IMF provides the one regular and detailed intergovernmental overview from a perspective of global economic and financial stability. The IMF reviews also feed into United Nations discussions of

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global financial conditions, reform of the international monetary system and improving access to international finance of developing countries and transition economies.

Market discipline will be effective if market participants realize that incautious behaviour and excessive risk-taking on their part will not necessarily be made good with public money, the report states. Reducing incentives to excessive risk-taking critically depends on the credibility of the authorities' commitment to limiting intervention to the necessary minimum in the event of turmoil. Sharing of information among major exchanges themselves about individual traders is an additional tool to limit imprudent behaviour. Safeguarding the integrity of the international financial system in the highly integrated world economy has to remain a priority concern of policy makers. It requires the active participation of supervisors and supervised in an ongoing process of dialogue, accountability and cooperation, and a balancing of risks with rewards, the report adds.

The challenge for developing and transition economies is to capture the opportunities that international financial markets offer without becoming vulnerable to their volatility, it goes on. For the international community, the challenge is to reduce the risks to the emerging market, while helping to broaden the number of countries viewed as in the emerging-markets category.

Introduction of draft

OSCAR ACUNA (Costa Rica), speaking on behalf of the Group of 77 and China, introduced the draft resolution on eradication of poverty.

VLADISLAV FEDORCHENKO (Russian Federation) introduced the draft resolution on integration of the economies in transition into the world economy.

Statements

BARRY HERMAN, Chief of the International Economic Relations Branch of the Department for Economic and Social Information and Policy Analysis, introduced the three reports of the Secretary-General before the Committee. He said that the analyses undertaken by the World Bank and the IMF to determine eligibility for their new debt initiative should not foreclose the possibility that other countries, now or in the future, might need to be added to the list or other lists of countries requiring special assistance with their debt situations. The World Bank still classified 36 low-income countries and an additional 16 middle-income countries as "severely indebted". On the question of net resource transfers, he said Africa needed to be assisted in capitalizing on its short-term gains, adding that more ODA was required. Such assistance would be money well spent.

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On global financial integration, he said a number of steps had been taken to rebuild international confidence, including international bank regulations and an expanded role for the IMF as a financial safety net. The global financial situation still needed to be monitored and that was being done in the IMF and various technical bodies. In addition, the Assembly had sought to undertake active monitoring at the political level. As part of that, the question of global financial integration had been identified as a very important element of the dialogue that the Assembly wished to see enhanced between the United Nations and the Bretton Woods institutions. It seemed to the Secretariat that the informal inter-secretariat contacts that already existed might serve as a basis for a more explicit exchange of views.

Mr. ACUNA (Costa Rica), speaking on behalf of the Group of 77 and China, said an innovative, effective and lasting approach was required to resolve the external debt problem of developing countries. The problem should be addressed comprehensively and through an integrated approach, which was development-oriented, involving an open, rule-based and non-discriminatory international trading system. It should also include increased financial flows and access to technology. Account should also be taken of the changing world situation. At the domestic level, governments should restore macroeconomic stability through fiscal and monetary discipline, mobilize domestic resources, diversify exports and production and design and implement their own adjustment programmes, taking fully into account the need to address the most vulnerable groups of society. National policies by themselves were, however, not far-reaching enough, and a conducive external environment was necessary.

The Secretary-General should provide, in conjunction with the World Bank and the IMF, a comprehensive update of progress in debt-relief initiatives at the next session of the Assembly, he said. He called for information as to why, out of 41 heavily indebted countries for the period 1992-1994, only five countries had a ratio of per cent value of debt to exports lower than 200 per cent, and only six scored better than the sustainability threshold for the debt service-to-exports ratio. The Secretary-General's report should explore why the data statistic remained unchanged. The Group of 77 agreed with the current report's assessment that to avoid new crises, exposure to the more volatile forms of finance should be limited until an economy was ready to do that, maintaining the confidence of international financial investors. It was of paramount importance that the developed countries coordinated their macroeconomic policies, taking fully into account the interests of developing countries.

The problem of debt was closely linked with the inadequacy of development financing, he said, adding that the Group was concerned about the depletion of and diversion of ODA. There was an imperative need for concerted

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effort to design a concrete strategy to strengthen international financial cooperation for development and for adequate international financial resources for the development of the developing countries.

HELEN BROWNE (Ireland), speaking on behalf of the European Union and also of Cyprus, Czech Republic, Estonia, Latvia, Lithuania, Romania, Iceland and Norway, said the Union recognized that the external debt burden of many developing countries, in particular of the poorest and the most heavily indebted countries, remained a critical issue in the context of their efforts to foster sustainable development. It was particularly concerned about the situation of many countries in Africa where unsustainable debt constituted a considerable challenge to efforts to achieve sustainable development. Debt relief measures were an essential part of the international community's assistance to those countries. Moreover, debt problems varied from country to country and debt relief measures for each country needed to be addressed individually.

The European Union welcomed progress which had been made to alleviate debts through debt cancellation and through the implementation of the Naples Terms by the Paris Club, she said. However, it recognized that even with sound economic policies and structural and institutional reform, external debt would remain unsustainable for a number of countries without additional national and international efforts.

The recent decision by the Bretton Woods institutions to endorse an action programme for the heavily indebted poor countries (HIPC) debt initiative, aimed at reducing the debt burden of highly indebted poor countries to sustainable levels, was a major step forward, she said. The three main creditor groups had confirmed that they would play their part, taking coordinated, simultaneous, but independent action and sharing the cost of the initiative equitably. The principles of a flexible structure, a flexible approach to timing and a case-by-case approach to debtor countries had been accepted, reflecting the diverse characteristics of the economies and debt profiles of the heavily indebted poor countries.

The recent statement by the Paris Club that it was ready to go beyond the Naples Terms to provide debt reduction of up to 80 per cent for countries which qualified for additional relief within the above-mentioned debt initiative, on a case-by-case basis, according to its usual rule, underlines the importance attached to the issue by creditor countries. She encouraged non-Paris Club countries to participate in that initiative on similar terms. Moreover, sound policies must be pursued by middle-income countries which had completed their debt-restructuring process. The member States of the Union had reinforced their commitment to development through their contributions to the eleventh replenishment of the IDA, and the seventh replenishment of the African Development Fund.

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THAMEUR SAAD (Tunisia) said since the external debt crisis had emerged in the 1980s, it had continued to pose a problem in the area of development. He applauded initiatives by the "Group of Seven" most industrialized countries at the Lyon summit meeting and the HIPC initiative in that context.

According to the report of the Secretary-General, the external debt had increased and was 81 per cent more than the last decade, he said. It was notable that in the Bank's 1996 World Debt Tables, 16 of the heavily indebted countries out of the 52 listed, were middle-income countries. He stressed that it was important that commitments made at major international conferences in that regard be fulfilled.

Concerning financing of development, he said, in an environment where there had been a globalization of finance, developing countries found themselves with little ability to control capital flows. Moreover, as developing countries had liberalized their economies they had become susceptible to fluctuations. Ways to enable long-term inflow of capital through structural reform must be found. While domestic policies could, in part, determine the flow of capital, strengthening cooperation among countries and between countries and the Bretton Woods institutions for an international financial environment favourable to growth was important.

ANWARUL KARIM CHOWDHURY (Bangladesh) said since its emergence in the early part of the last decade, the debt crisis had intensified. The Secretary-General in his report had pointed out that the number of severely indebted countries was not declining despite attempts to address that difficulty. However, Bangladesh believed that those attempts had been inadequate and had lacked earnestness. The indebtedness of many developing countries had forced them to divert resources from vital sectors of the economy and as a result, the programmes to combat poverty, high population growth, illiteracy and the provision of basic social services had suffered serious setbacks. Moreover, resources available to countries for investment in human development had diminished. The overall effect was the stagnation of economies and in many cases even retrogression.

Bangladesh was encouraged by the initiative of the World Bank and IMF, proposed in the April meeting of the Interim and Development Committees for heavily indebted poor countries, he said. The HIPC initiative of the Bank had considered debt sustainability in 41 countries. So far debt had been identified as unsustainable only in the case of eight countries. While considering debt sustainability, three factors had been taken into account as follows: debt service to export ratio (in the range of 20 to 25 per cent); ratio of the present value of debt to export (200 to 250 per cent); and vulnerability. However, in most cases, a country encountered significant impediment to development before it reached those figures.

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Under the current mechanism three to six years were required for an eligible country to have rescheduling of its debt servicing, he said. The time lag before the new initiative took effect was too long. Bangladesh welcomed the recent decision of the Bank that depending on the track record of performance of a country the waiting time would be reduced.

VLADISLAV I. FEDORCHENKO (Russian Federation) said his country was interested in a settlement of the debt problem on an equitable basis acceptable to the parties concerned as early as possible. Its willingness to cooperate was confirmed by an agreement it had reached with Nicaragua on the latter's debts to Russia. The terms of multilateral financial assistance to countries with heavy overdue debt should include at least clear obligations of the debtor countries to follow a sound economic policy to settle their bilateral credit relations. The recent new initiative on heavily indebted poor countries of the World Bank and the IMF was a major step forward. The initiative, coupled with assistance to debtor countries in implementing structural adjustment programmes, might make up the critical mass capable of bringing their debt to an acceptable level and regaining the confidence of investors.

He said it was worthwhile to support the idea of a wider use and development of the existing mechanisms, such as the IDA Debt Reduction Facility and the World Bank loans, to reduce external debt and its servicing costs. The Russian Federation believed that the international financial institutions should do more to invite private investors to take part in overcoming the debt problem, particularly through a wider trade in liabilities at the secondary market and the development of universal schemes for converting debt into investments in the debtor country.

SETH WINNICK (United States) said developing countries had a fundamental responsibility to promote their own development. Increasingly, governments were embracing the notion that they must implement sound economic, social and environmental policies, promote political and legal environments conducive to the private sector, and encourage foreign and domestic investment. They should make the decision to avoid unproductive expenditure, such as excessive military spending. The developed countries should support those efforts through bilateral assistance and their domestic policy choices.

Policies that encouraged growth and more open markets should, for example, take into account the goal of encouraging trade and private financial flows with and to developing countries, he said. ODA was crucial, but that aid and government policies should be oriented towards creating the condition that would allow private markets to flourish. Public resources should be applied in a carefully targeted manner to ensure that the vulnerable were protected. The multilateral development institutions should be provided with sufficient and appropriate financial resources to meet their mandates.

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The United States was committed to continuing to provide support to developing nations that had taken responsibility for their own destinies and were committed to the policy path to sustainable development, he added.

MESSIE AMOAH (Ghana) said the debt problem had proven unsurmountable because the various initiatives hitherto undertaken by creditor countries had centred more on rescheduling of payment than on reducing the stock itself. If that trend continued, it would be impossible for debtor countries to overcome the debt problem, or achieve sustainable development. Ghana stressed the urgent need for the international community and the multilateral financial institutions to evolve strategies that went beyond debt-rescheduling and significantly reduced the debt stock to a manageable or sustainable level that did not impede the implementation of development programmes or deterred investors. The search for a comprehensive, durable and development-oriented approach to the debt problem should apply to all categories of debt. That approach would require dialogue and coordination of efforts among the creditors.

As a first step, Ghana urged creditors to expand debt relief measures, and to broadly cancel debt, she continued, welcoming the recent decision by the Paris Club to write off, on a case-by-case basis, up to 80 per cent on portions of the bilateral debt of countries which met the standards for eligibility set by the World Bank and the IMF. Despite that enhancement, however, she believed that it was necessary to expand the eligibility criteria, as well as the scope of debt eligible for reduction schemes, so that more countries and a larger portion of debt could be covered under the initiative.

The debt problem required urgent attention if headway was to be made in addressing the questions of financing of development and poverty eradication in developing countries. Efforts should be made to ensure that long-term investments focused on such areas as poverty eradication, technology transfer, enhancement of employment opportunities and expansion of trade. The international financial institutions should also create more opportunities for developing countries to benefit from increased concessional funding for development. Mechanisms should be developed to monitor short-term private flows and speculative capital flows, and assist poor countries to prevent disruption of their financial markets.

RENATO R. MARTINO, Observer for the Holy See, said the debt problem could not be seen in isolation. One had to look at its historical causes, which were rooted within the debtor countries and also in the international climate where lending took place. The debt problem was also related to the current international situation and the changing global economic system. While the overall amount of private direct investment from developed to

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developing nations was impressive, those transfers reached a very limited number of countries and only minimal proportions reached the poorest countries.

He expressed concern at the decreasing levels of ODA, both proportionately and in absolute terms, even in regions which had historically been well-known for their commitment to international solidarity. In the context of international debt today, the limited ODA funds were often used to service debt. Thus funds, officially earmarked for development, returned to the donor country, through a sort of bookkeeping exercise, without any significant impact on the receiving country.

So far as the definition of the term sustainability of the debt burden was concerned, he said it should take adequate consideration of a more equitable sharing of burdens of reform measures, especially on the poorest sectors of society. Debt relief packages for the poorest countries should be applied rapidly, he added.

CUI YING (China) said that during the past year the net financial flows to developing countries had continue to grow. However, the serious shortage in development financing, a problem for the developing countries for many years, remained unresolved. The increase in net financial flows to the developing countries had meant new opportunities, but had also brought new problems and challenges. Therefore, the question of development financing for developing countries should be looked at in a comprehensive manner.

During the past year, private capital had accounted for 72 per cent of the total flow of financial resources to developing countries, she said. The proportion of direct investment had also continued to grow to about 54 per cent. However, private capital, with its intrinsic nature of being driven by balance-sheet considerations, had shown a tendency of being relatively concentrated in distribution, thus failing to benefit the developing countries on a wide scale. Hence, while duly appreciative of the role that could be played by private financial resources, she stressed that it should be recognized that for many developing countries, ODA would remain one of the main sources of development financing.

She expressed concern that ODA had continued to decline in 1995 and had now reached 0.27 per cent of the GNP of developed countries, the lowest point in 27 years. Moreover, the financial market turbulence caused by speculative short-term capital flows threatened the healthy development of the world economy. In order to strengthen private direct investment flows and to reduce systemic risk in international private capital markets, especially portfolio markets, macroeconomic policy coordination should be strengthened. Also, due consideration should be given to the special needs of the developing countries.

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POSECI W. BUNE (Fiji) stressed the urgent need for the international community, particularly donor countries and international financial institutions, to adopt an effective, comprehensive and equitable development- oriented and durable solution to the debt problem of developing countries. According to UNDP statistics, per capita income in over 100 countries was now lower than it was 15 years ago. More than 1.6 billion people were worse off today than they were 15 years ago. The gap in per capita income between developed and developing countries had tripled between 1960 and 1993, from $5,700 to $15,400.

Small island States from the Pacific region were constrained in their growth by a number of critical and unavoidable factors, he said. The islands were geographically isolated from the rest of the world and due to their small size and limited resources endowments, they did not have a comparative advantage of being the main producer of a primary commodity through which they could influence the world market. Their exports were largely primary agricultural products, and their resources base was narrow with a slow rate of diversification.

The high costs of borrowing, which was the interest rate, further worsened debt servicing for many small island developing States, he said. Moreover, there was the difficulty of gaining access to the markets of the developed countries. Fiji fully associated itself with the updating of the international debt strategy provided by the Development Committee of the World Bank, in particular debt structuring, either rescheduling or partial cancellation of debt servicing obligations over a period of time, or reduction in the stock of debt itself.

MARIA DREYFUS (Nicaragua) said her country was one of eight whose debt had been described as unsustainable. It had made progress in paying off some of its debt but the stock was still heavy. A lasting, effective and abiding solution to the debt problem was required. She welcomed the recent World Bank/IMF new initiative on debt, but hoped additional financial resources would be made available to enable the heavily indebted countries to carry out their development programmes. The initiative should also take account of the vulnerability of the economies of the eligible countries. The United Nations should foster prompt implementation of initiatives on debt relief which should recognize capacity to pay. She hoped a lasting solution would be found to the debt problem to enable her country to tackle its development programmes.

BERHANU KEBEDE (Ethiopia) called for additional innovative debt reduction and cancellation mechanisms. The existing international strategies for debt reduction and rescheduling, including the Toronto terms, enhanced Toronto terms and the Naples terms, collectively fell short of what was required to alleviate the debt burden of heavily indebted poor countries, especially those in Africa. Expressing appreciation for the recent initiative of the World Bank and the IMF on debt, he said it had a built-in eligibility

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criteria and conditionality that were sources of concern among the potentially beneficiary countries. He hoped the eligibility criteria would be flexible to offer durable solution to the debt problem of least developed countries.

The international community should give serious thought to the proposal for the convening of an international conference on Africa's external indebtedness. A major contributor to the external debt problem of developing countries, especially those in Africa, was the fall in commodity prices which had made it impossible for African States to achieve sustainable growth and development. Successive increases in unpaid debt during the past decade had eroded the solvency of African countries, making it difficult for them to attract new investments. It had also generated strong disincentives for both domestic and foreign investors in their debt-laden economy.

KADANGA BARIKI (Togo) called for a new international economic order linked to the agenda for development to help the development efforts of developing countries. The people of his country could no longer tolerate cuts in social and other programmes resulting from the rising debt burden. International debt strategies had so far not been sufficient to resolve the problems of indebted countries. International cooperation was needed to help promote the economic development growth of developing countries. International organizations should do more to help developing countries and commitments made at recent international conferences should be honoured.

HAYONG MOON (Republic of Korea) said the international community should pay more attention to the rapidly increasing influence and monumental scale of international capital flows. Since 1991, private actors had accounted for a higher share of investment in developing countries than official actors. Last year, 72 per cent of the capital flowing into developing countries from abroad had come from the private sector. The main drawback here was the uneven investment flow into the developing world, which was concentrated on a relatively small number of developing States and bypassed many others in need of foreign capital. In that context, official loans and grants still remained an important source of development financing for a significant number of developing countries.

The ODA on highly concessional terms remained the sole reliable source of development funds for most of the least developed countries, he said. The Republic of Korea agreed with the Secretary-General's conclusion that development assistance at its heart was a political question and that the political momentum for it had to be recovered. Moreover, the role and working methods of international financial institutions should be updated to reflect the present state of financial structures among developing countries.

He emphasized that the debt problem continued to be one of the most onerous constraints on the development of developing countries, particularly least developed and countries in Africa. Twenty least developed countries at

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present shouldered debt burdens twice the size of their export earnings. He welcomed the World Bank and IMF initiatives to tackle that issues, especially the World Bank's HIPC initiative.

MUBARAK AL-ADWANI (Kuwait) emphasized that the external debt crisis was a major impediment to development and affected the relationship between the North and the South. The number of countries suffering from excessive debt had not declined over the years. Therefore, the creation of an economic and social environment which could attract investors was important in those countries.

The involvement of the World Bank and the IMF in trying to solve the problems of indebted countries was a step forward, he said. In that context, the Emir of Kuwait had declared at the forty-fifth session of the Assembly that he would cancel all interest on loans in order to lighten the burden on developing countries. Moreover, Kuwait's loan had been the highest percentage of any country's GDP, namely 8.3 per cent.

Despite the spread of liberalization, a great gap in terms of economic stages remained between countries, he said. Economic barriers had been placed in the development of developing countries. He called for an increase in the level of assistance from developed to developing countries and welcomed the initiatives taken at Lyon summit by the Group of Seven countries. The flow of capital to developing countries and the provision of technology to those countries was crucial.

HAMID ELTINAY (Sudan) called for an international conference to adopt an overall strategy to tackle the external debt problem of African countries. Noting the recent initiative of the World Bank and the IMF on debt of the heavily indebted poor countries, he said any action to reduce external debts to sustainable levels was welcome. Conditions attached to debt initiatives should be eased. He suggested a grace period of six months to allow the reforms being undertaken by indebted countries to take hold. The debt burden had affected the development efforts of indebted countries. Their foreign reserves had dropped. All developing countries were suffering from problems associated with their debt burden.

SUZANNE MAIKARFI (Niger) said the heavy debt burden of poor countries was hampering their development efforts. Niger, like some least developed countries, had benefited from some debt relief initiatives but those had not really resolved its problems. It was time creditor countries showed real political will to help resolve the problems of indebted countries. Strategies which would have a real impact on their debt burden should be adopted so that new resources could go directly in helping their development efforts.

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She welcomed the World Bank and IMF new initiative on debt and appealed for the number of eligible countries to be widened. She hoped the international community would look for additional strategies on debt relief to open up new resources to help developing countries carry out their development activities.

BORITH OUCH (Cambodia) said the development efforts of developing countries were hampered by protectionist measures, decline of resources and the debt burden. The total value of debt today was 81 per cent more than what it had been a decade ago. Moreover, exchange rates had been disadvantageous for developing countries and the fact that they relied on commodities did not help.

Cambodia had in the recent past undergone warfare and instability, he said. In 1993, the new Government had started the process of reconstruction and had initiated reform to revive the economy. It had also tried to control inflation and to stabilize the exchange rate. It had been successful on both counts. However, although the Government had been successful in inspiring confidence, it needed international assistance to restore transportation and to undertake demining, among other measures. At present, it was faced with a huge multilateral debt and problems of market access.

He stressed that problems of external debt should be examined on a case- by-case basis. Furthermore, there should be set parameters for restructuring of debt. In addition, the international community should take steps to monitor the flows of private capital. He appealed to developed countries to go beyond the Toronto and Naples terms in tackling the debt problem.

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