ROLE OF UNITED NATIONS IN GLOBAL FINANCIAL INTEGRATION STRESSED BY SPEAKERS IN SECOND COMMITTEE

12 November 1996

Press Release
GA/EF/2751

ROLE OF UNITED NATIONS IN GLOBAL FINANCIAL INTEGRATION STRESSED BY SPEAKERS IN SECOND COMMITTEE

19961112 World Bank/IMF Initiative for Heavily Indebted Poor Countries Welcomed; Swift and Flexible Implementation Urged

In order to become better equipped to follow global financial integration issues, the United Nations should strengthen its cooperation with the International Monetary Fund (IMF), the representative of Brazil told the Second Committee (Economic and Financial) this morning as it concluded consideration of external debt and financing in the context of development.

Speaking on behalf of the Common Market of the Southern Cone (MERCOSUR), he said that by strengthening its cooperation with the Fund, the United Nations could contribute to the promotion of a more stable, sound and open international economic system.

The new Heavily Indebted Poor Countries (HIPC) Debt Initiative adopted last September by the Joint Ministerial Committee of the World Bank and the IMF was welcomed by a number of countries. The Initiative involves a commitment by the international financial community to take the action needed to reduce an eligible country's debt burden to sustainable levels, provided the country completes a period of strong policy performance. Only the world's poorest countries are eligible for assistance under the Initiative.

The representative of Guyana said the Initiative was an important step towards a durable solution to the external debt problem of developing countries. He urged its swift and flexible implementation, beginning before the end of 1996, as had been requested by Ministers at the September meeting of the Joint Ministerial Committee.

The representative of Jamaica, on behalf of the Caribbean Community (CARICOM), welcomed the Initiative's focus on achieving debt sustainability to enable countries to exit from the debt rescheduling process and to focus on sustainable development and poverty reduction. However, he emphasized that issues of burden-sharing between bilateral and multilateral creditors, eligibility criteria for debt relief, the unreasonably long waiting period and poor conditions for triggering multilateral debt relief remained outstanding.

Welcoming the Initiative, the representative of India said there was need for an early, durable and comprehensive across-the-board solution to the debt problem rather than a piecemeal case-by-case approach. He regretted that some rich industrialized donor countries were opposed to the IMF-World Bank Initiative and were resisting a global approach that included debt forgiveness.

Noting that donor Governments often provided incentives to private investors, the Associate Administrator of the United Nations Development Programme (UNDP), Rafeeuddin Ahmed, said it would probably be more efficient in the future, to reward entrepreneurs, who had invested successfully in least developed countries and regions, through tax concessions. The possibility of new, additional types of risk insurance was also put forth by him.

Statements were also made by the representatives of Egypt, Venezuela, Indonesia, Philippines, Iraq, Uganda, Nigeria, Japan, Qatar, Morocco, Yemen and Ukraine.

The Committee will meet again at 3 p.m. today, to hear the introduction of draft resolutions on communications for development programmes in the United Nations system, renewal of the development dialogue, implementation of the Programme of Action of the 1994 International Conference on Population and Development, and cultural development.

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Committee Work Programme

The Second Committee (Economic and Financial) met this morning to continue consideration of external debt and development and of global financial integration, including net transfer of resources between developing and developed countries. (For background information, see Press Release GA/EF/2750 of 11 November.)

Statements

CELSO L.N. AMORIM (Brazil), speaking on behalf of the Common Market of the Southern Cone (MERCOSUR), (Argentina, Brazil, Paraguay, Uruguay, and also Bolivia and Chile), said the international community, committed to supporting developing countries' efforts to promote development, should help ensure that the advantages deriving from global financial integration were more widespread. A stable macroeconomic environment -- with low levels of inflation, competitive exchange rates and public deficit under control -- was conducive to higher levels of both domestic and foreign investment. However, macroeconomic and political stability alone were not sufficient to stimulate private investment. A key issue in dealing with the phenomenon of global financial integration was the need to promote confidence-building through enhanced surveillance, not only of developing countries, but also of developed countries. Supplementary financing on the part of the International Monetary Fund (IMF) was also necessary. Domestic and international efforts to promote stability in the globalized financial markets demonstrated the relevance of that issue for all countries.

There should also be intensification of analytical work on global financial integration, he said. The increasing importance of that issue demonstrated that the United Nations had to strengthen its cooperation with the IMF to become better equipped to follow matters related to such integration and thereby contribute to the promotion of a more stable, sound and open international economic system.

All countries, particularly the major industrialized countries, should continue to narrow global economic imbalances and cooperate with the developing countries to address their major problems in areas such as finance, resource flows and related matters, he continued. The strengthening of mechanisms which provided concessional loans to developing countries was an essential element in international cooperation for development. The fulfilment of replenishment commitments, particularly of the eleventh replenishment of the International Development Association (IDA), were an urgent priority. It was also important to ensure the continued financing of the Enhanced Structural Adjustment Facility (ESAF) of the IMF.

ADEL M. ABDELLATIF (Egypt) said there were some basic trends discernible in the Secretary-General's reports before the Committee which had been

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confirmed in the current debate on external debt and development issues. So far as net transfer of resources was concerned, he stressed that official development assistance (ODA) was crucial. The Secretary-General's report had pointed out that, at present, ODA was 0.27 per cent of the gross national product (GNP) of donor countries. That was far below the agreed goal of 0.7 per cent of the GNP of developed countries.

Resources for operational development activities of the United Nations had fallen to $3.1 billion in 1995, he said. Loans on concessional terms had declined as well. As a result, the economic situation of developing countries had been ignored. Speaking on the impact of the debt problem on the international banking sector, he said it did not represent a threat to that sector as it had done in the 1980s. He welcomed the latest initiatives to deal with the debt problem of developing countries, in particular the least developed countries' debt and wondered how developing countries could carry out debt rescheduling without assistance.

He emphasized the need to integrate the financial markets of developing countries into the world economy. Moreover, developing countries should participate in the coordination of world financial policy and should be involved in decision-making at the macroeconomic level, he stressed.

DAVID PRENDERGAST (Jamaica), speaking on behalf of the Caribbean Community (CARICOM), including Antigua and Barbuda, Bahamas, Barbados, Belize, Dominica, Grenada, Guyana, Saint Kitts and Nevis, Saint Lucia, Saint Vincent and the Grenadines, Trinidad and Tobago, Surinam and his own country, welcomed the recent initiative of the World Bank and the IMF to address the debt of heavily indebted poor countries (HIPC). That initiative focused on achieving debt sustainability to enable countries to exit from the debt rescheduling process and to focus on sustainable development and poverty reduction.

Although progress had been made in advancing measures for multilateral debt relief for heavily indebted poor countries, debt problems still remained an important challenge for the international community, he said. Even with bilateral debt relief under the Naples terms, the debt burden of heavily indebted poor countries remained unsustainable because of their multilateral debt obligations. He stressed that the multilateral institutions should seek to provide debt relief using primarily their own resources.

The CARICOM supported the view that the ESAF, which had been earmarked to be the vehicle to assist the heavily indebted poor countries should be put on a self-sustaining basis, he said. The Facility must continue to be the centre piece of the Fund's strategy to help lower income countries, including the heavily indebted. Despite encouraging developments, a number of issues remained outstanding. Those included debt relief, burden-sharing between bilateral and multilateral creditors themselves, eligibility criteria for debt

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relief, and the unreasonably long waiting period and poor conditions for triggering multilateral debt relief.

He expressed concern over the decline in ODA, adding that there was a need to ensure the long-term sustainability of international development assistance as a key instrument of development cooperation.

RAFEEUDDIN AHMED, Associate Administrator of the United Nations Development Programme (UNDP), said aid should be used more systematically to strengthen the capacities of developing countries. Noting that donor Governments often provided incentives to private investors, such as export- credit subsidies, he said it would probably be more efficient in future also to reward entrepreneurs, who had invested successfully in least developed countries and regions, through tax concessions. Another possibility to be considered would be new, additional types of risk insurance, over and above what organizations such as the Multilateral Investment Guarantee Agency (MIGA) of the World Bank were currently doing in terms of insurance against non- commercial risks. Non-governmental organizations and other international development agencies had a role to play in facilitating the paradigm change in the private sector.

He said the UNDP did more than providing assistance to poorer countries to help them attain their national objectives. Its activities supported the global commons -- the ozone layer, preservation of biodiversity, global climatic conditions, global health and global stability through human security. The growing preparedness among the public at large to contribute to development should be strengthened and supported. It was timely to begin the debate on new ways of funding development and international development cooperation. One of the major guiding concerns in the search for new and innovative sources of financing ought to be to free resources for where they were most urgently needed -- for the least developed countries, notably those in sub-Saharan Africa, and for the priority objectives established by the recent United Nations major conferences.

GONZALO VIVAS (Venezuela) said his country had accepted the challenge of globalization and was trying to adapt to it. It had introduced a development programme called "Agenda Venezuela" whose objective was economic growth and social solidarity. His Government called for technical support from international financial institutions such as the IMF and the World Bank to implement the programme.

Venezuela recognized the significant role the IMF and the World Bank were playing in the international economy, he said. The quality and component of the structural adjustment programmes promoted by them should be improved, and those institutions should have more resources to carry out their programmes. He welcomed their recent initiative on debt for poorest countries

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but called for improvements in the conditions for eligibility. His Government supported the fight against corruption domestically and internationally.

IMMANUEL ROBERT INKIRIWANG (Indonesia) said too many countries lacked the capacity to both service their excessive debt overhangs and to grow out from under their crippling weight. The overall debt burden had grown to over $2.4 trillion and the plight in human terms had also escalated the levels of poverty and despair. Indonesia had long recognized the need to address the totality of debt of the highly indebted poor countries to enable them to restore their economic solvency. Within the context of the Non-Aligned Movement and the Group of 77, it had advocated a comprehensive and durable international debt management strategy. That strategy called for the adoption of a set of principles, including a "once and for all" arrangement, that would reduce the total stock of debt and its servicing, to manageable and sustainable levels.

He welcomed the recent initiative of the Bretton Woods institutions designed to further reduce the overall debt burdens of the highly indebted poor countries to sustainable levels. However, there were a number of elements that needed to be strengthened, including the Bank and the Fund should be more forthcoming in their contributions. He welcomed the commitment of the IMF to participate in the enhanced assistance to be provided under the new initiative through special ESAF operations, including longer maturities for their loans. Indonesia strongly supported the establishment of the Trust Fund for the initiative and the initial contribution to it of $500 million by the Bank.

So far as modality and framework for debt relief were concerned, there were still refinements to be considered, he said. Those included, among others, improvements in areas as eligibility, time-frame requirements and the definition of debt sustainability. As to the time-frame, the six-year period was too long and too restrictive for vulnerable economies to bear. The adjustment period should be shortened and three years were sufficient. Therefore, the new initiative should be automatically applied to countries that had already demonstrated a good track record in the past three years. Furthermore, the decision of the Paris Club to go beyond the Naples terms of 67 per cent reduction to 80 per cent was welcome.

GEORGE TALBOT (Guyana) said his country viewed the Heavily Indebted Poor Countries (HIPC) Debt Initiative adopted last September by the Joint Ministerial Committee (Development Committee) of the World Bank and the IMF as an important step towards the durable solution to the external debt problem of developing countries. The initiative's objective of ensuring achievement by eligible HIPCs of overall external debt sustainability and exit from the rescheduling process was commendable. He urged its swift and flexible implementation, beginning before the end of 1996 as had been requested by Ministers at the September meeting of the Development Committee.

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He said that the HIPC initiative was a clear recognition by the international community of the insufficiency of existing debt relief mechanisms and of the need to for additional action to solve the debt crisis. Critical to its success was coordinated action by all creditors and the provision of adequate resources for its financing, particularly in the medium- term. Guyana hoped that the proposed multilateral HIPC Trust Fund, to be administered by IDA, would prove effective in that regard. He welcomed the proposed $4,500 million initial contribution to be made by the World Bank.

The full participation of debtor Governments was essential for the ultimate success of the initiative, he said. Moreover, the General Assembly and the Economic and Social Council should continue to monitor it in consultation with the Bank and the Fund.

FELIPE MABILANGAN (Philippines) said his delegation would encourage further discussion on criteria for debt sustainability. The excessive dependence on export performance as the principal criteria could easily hide structural weaknesses of an economy. The set of vulnerability factors, such as international reserve and fiscal position added to the criteria, was not enough. The developing countries needed massive funding to meet the huge demands for new infrastructure, as well as specific measures for social development. Dwindling ODA had intensified the vulnerability of many developing countries.

He expressed concern about the cut-off dates for debts to be covered by the Naples terms. Only a limited number of low income and severely indebted countries had really benefited from the Naples terms, which covered only a portion of their debt stock. He also said that the performance period for eligibility for debt relief under the new IMF-World Bank debt initiative should be shortened. Many of the eligible countries had already performed the needed reforms which the Bank and the Fund had monitored. The initiative should be implemented as soon as possible.

The United Nations should generate political will from the international community, particularly the creditor countries and financial institutions, to fully support the initiative, he said. It should impress upon the World Bank and the IMF the desirability of implementing their initiative soon, and to have them report to the fifty-second session of the Assembly on progress in its implementation.

KHALED AL-HITTI (Iraq) said a lasting solution should be found to the external debt crisis of developing countries. The solution should include reducing the amount of debt and easing the debt-servicing burden. Political conditions should not be applied in dealing with the problem. Efforts should also be made to ensure the easing of access to markets and technology and improvement in the terms of trade.

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Iraq had supported the various Assembly resolutions on the debt question as well as one by the Movement of Non-Aligned Countries, he said. Iraq also considered that the debt crisis should be resolved by writing off arrears and reviewing repayment terms, he added.

HAROLD ACEMAH (Uganda) said a durable development-oriented debt solution should comprise of solid domestic policy measures, a strongly supportive debt restructuring arrangement, including outright cancellation, and for the poorest countries, continued concessional and grant financing through ODA and other multilateral sources. He welcomed the fact that the concept of debt sustainability was now widely accepted. In order for that concept to be translated into real terms, it was required that the present debt initiative be enhanced and applied as flexibly as possible.

Moreover, he continued, it was required that policy measures which addressed demand-side distortion be accompanied by supply-side interventions that would help boost production, promote diversification, remove supply bottlenecks and thereby enhance export earnings and social conditions of developing countries. He welcomed the HIPC initiative, expressing the hope that benefits from it would come sooner and that more countries would be included. The actual implications of the implementation of the initiative on the overall flow of official development assistance needed closer examination. Uganda also shared the concern expressed by other developing countries about the rigid application of structural adjustment conditionalities.

ISAAC E. AYEWAH (Nigeria) said more than a decade had elapsed since the debt crisis erupted. Valuable lessons had been learned over the issue both in terms of definition of the crisis, its nature and magnitude, but most specially in terms of the various remedies and strategies that had been adopted since the late 1980s. Nonetheless, the number of severely indebted developing countries had not declined. That was particularly true of African countries which had continued to suffer from high external indebtedness.

Nigeria had continued to pursue and implement reform measures in the context of structural adjustment programmes with their implied social hardship on its citizens, he said. The servicing of its external debt burden which stood at over 30 per cent of its export earnings constrained its capacity to undertake meaningful development. He welcomed the new HIPC debt initiative focusing on heavily indebted poor countries but said there would be a number of problems in determining and pursuing sustainability. How could any developing country simultaneously pursue a programme of debt sustainability in the face of fluctuating commodity prices in the world market? he asked.

He stressed that a time-frame of three to six years imposed by The Bank and the Fund for debtor countries to achieve debt sustainability appeared impracticable in view of unsustainable debt levels of many countries. Any meaningful efforts by developing countries to address the issue of sustainable

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growth and development must embrace measures to resolve the external debt crisis on a once and for all basis.

KEN OKANIWA (Japan) said developed countries should double their efforts to ensure that their own people understood that the development of the developing countries was also in their own interest. If they were aware of that, taxpayers would be far more likely to support official development assistance. Developing countries, on their part, should establish output- oriented development targets as part of a new development strategy based on a new global partnership. The establishment of easily understood targets of that kind would be instrumental in focusing the development efforts of those countries and of the international community as a whole. And as the targets would provide the people of developing and developed countries alike with a means of clearly gaugi ng the progress of those efforts, their commitment to development would certainly grow. His delegation therefore hoped that a new development strategy based on a new global partnership would be placed at the centre of the United Nations agenda.

He said the new IMF and World Bank initiative on debt should be viewed as a last resort for those heavily-indebted poor countries whose debt burdens had reached unsustainable levels. Japan emphasized the primary importance of self-help efforts by indebted countries to achieve economic reconstruction, as only those efforts would bring a solution to external debt problems.

JABIR AL-ADBA (Qatar) urged the implementation of an international strategy on debt as called for in General Assembly resolutions. The international community should find an equitable solution to the debt problem, and additional measures should be taken to ease the debt burden. The international financial institutions should also ease the debt burden of developing countries. The debt strategy should be part of the new international economic order which all countries aspired to.

AHMED AMAZIANE (Morocco) said the 1996 edition of the World Debt Tables of the World Bank stated that there were 52 countries which were heavily indebted, as against 49 in 1995. Thirty-two of those countries were African and 16 were middle-income countries. Therefore, the crisis of external debt was far from over. In that context, the new initiative of the Bank to tackle the problem of external debt was welcome. That initiative, together with the Naples terms, confirmed that the international community had become aware that a concerted effort to tackle external debt was needed.

Sufficient debt relief and adjustments within the debtor countries were required, he said. It was regrettable to note that the international community's interest in making external debt manageable had declined since it had become clear that the situation of developing countries in debt was no longer a threat to the international banking sector. Emphasizing that rational economic policies should be adopted at the national level, he said

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external debt affected the level of financing for investment and was in general a drain on resources.

He expressed concern that most of the capital flows had been directed at and concentrated in 12 developing countries. If those flows were to be suddenly withdrawn, there would be severe consequences in the countries concerned. Moreover, the flow of funds to Africa had been minuscule. Stressing that for most developing countries ODA was crucial, he noted that there had been a reduction in development aid and that had also adversely affected operational activities for development of the United Nations.

ABDULAZIZ AHMED KAID (Yemen) said the debt burden was a major obstacle to the progress of the developing countries. Therefore, they should be helped to find a solution to the problem. He called for strengthening the international community's support to developing countries by strengthening assistance for operational activities for development.

Yemen had been severely affected by external debt, he said. To tackle the problem, it had restructured its economy and was working with the World Bank to that end. However, it had been faced with many problems which hindered the process. He expressed concern that the total debt of developing countries had increased and was now $1.7 trillion. There were many countries whose development was threatened by debt and the solution to the debt problem required the creation of a favourable economic environment. A practicable and equitable solution by the debtors and donors must be found through special initiatives, he said, expressing particular concern about the debt situation in Africa and welcoming initiatives taken by the World Bank and IMF to ease debt.

V. V. RAGHAVAN (India) stressed the need for developing countries to improve their debt service ratio and to generate funds for development. He also called for the reversal of the decline of ODA. Welcoming the new IMF-World Bank initiative on the external debt of poor countries, he said there was need for an early, durable and comprehensive across-the-board solution to the debt problem rather than a piecemeal case-by-case approach. Measures on debt reduction, rescheduling and increased financial flows should be adopted urgently for countries which had run into arrears of payments as well as those which had met their obligations at considerable cost. India regretted that some rich industrialized donor countries were opposed to the IMF-World Bank initiative and were resisting a global approach that included debt forgiveness.

India had adopted several measures to avoid the debt trap, encompassing a far-reaching programme of macroeconomic stabilization and structural reform, he said. A programme was being drawn up for a massive infusion of capital and modern technology into Indian industry. The process of deregulation and liberalization of the economy was continuing. There was room in the

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Government's policies for both public and private investment. Policies were being devised to stimulate domestic savings and capital formation. It had been assessed, he said, that India had the capacity to absorb at least $10 billion a year as foreign direct investment. The intention was to channel the bulk of new investments into the core and infrastructure sector.

YURI BOHAYEVSKY (Ukraine) said a comprehensive and action-oriented strategy to solve the external debt problem should be based on measures to restructure and alleviate the debt burden along with sound economic policies and structural adjustment of the indebted economies. Special problems of individual countries should also be taken into account. The external debt of his country had increased from $3.5 billion in 1992 to $8.3 in 1996 as a result of the underdeveloped export sector of its economy and of import substitution schemes. The situation had been aggravated by, among others, the considerable budgetary expenses for the structural transformation of the economy, ongoing conversion of the military-industrial complex, and efforts to minimize the effects of the Chernobyl nuclear disaster. Ukraine again called for the elaboration of a mechanism that would ease the impact of United Nations sanctions on third countries, he concluded.

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