GROWTH IN DEVELOPING COUNTRIES RISING AND LIKELY TO ACCELERATE, SAY EXPERTS IN DISCUSSION OF WORLD ECONOMIC PROSPECTS

Press Release
DEV/2142

GROWTH IN DEVELOPING COUNTRIES RISING AND LIKELY TO ACCELERATE, SAY EXPERTS IN DISCUSSION OF WORLD ECONOMIC PROSPECTS

(Delayed in transmission.)

NEW YORK, 26 March (DESIPA) -- The Ad Hoc Expert Group on the Short- and Medium-Term Prospects of the World Economy (Project LINK) continued its review of the world economic outlook, focusing on the prospects for economic growth and international trade of developing countries. Discussion began on Wednesday, 26 March, with a lecture on "The Developing Countries and the World Trading System", and then turned to the economic situation and prospects of countries in Latin America and the Caribbean, Asia and Africa. Developing countries have a vested interest in promoting freer international trade and capital flows, participants at the expert group meeting were told today. Professor Kirit Parikh of the Indira Gandhi Institute in Bombay, India, stressed that increased participation in the world economy had already brought benefits to developing countries via better usage of domestic resources, introduction of new techniques and products, and by providing a buffer against short-term domestic shortages in production. While associating a more outward orientation with improved economic performance, he also emphasized that the world trading system must address the special needs of some developing countries as they adapt their domestic production to the requirements of international commerce. Mr. Parikh went on to say that new arrangements were needed to deal with the market power of transnational corporations, increased trade in commercial services, intellectual property rights and international flows of capital and labour. The prospects for freer trade were good, but threats to a more open world economy came from both developed and developing countries, and steps must be taken to deal with the many adjustment problems that accompany closer international economic integration. Several participants noted that the world food situation has become increasingly precarious in recent years, and the world trading system should have adequate mechanisms to ensure a better food security system. Economic activity in most countries in Latin America and the Caribbean was expected to strengthen this year, according to experts. The forecast called for an average regional growth rate of almost 4 per cent in 1997 and 4.5 per cent in 1998. Economic growth in almost all countries should greatly

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exceed the more modest pace recorded in the region in the early 1990s, when the rate averaged only about 2.5 per cent each year. Faster rates of growth were centred in some of the larger economies, such as Argentina and Brazil, with only a slight slowdown anticipated in Mexico and Chile. While the recovery was likely to aggravate trade imbalances in the short-term, a longer-term expansion of exports of 10 or 11 per cent per year was predicted for many countries.

With an expected recovery of demand in the developed economies, the experts noted that growth in most countries in South and East Asia should pick up modestly in 1997 from the slowdown they experienced in 1996. The already rapid pace of growth of output in the larger economies of the South Asian region -- China, India, Indonesia and Pakistan -- should continue in 1997 and 1998. In most newly industrializing economies of East Asia, a recovery in the global electronics market, particularly in semiconductors, will be important to the growth prospects of these countries this year. Despite production capacity constraints, prudent macroeconomic policy should keep inflation under control. The economic dynamism in those regions was supported by progressive liberalization and structural adjustment, research and development investment, education and infrastructure, and by regional trade and investment. In some countries, however, socio-political problems could slow the pace of economic activity. In Western Asia, the gross domestic product (GDP) should grow by around 5 per cent in 1997, significantly higher than the 3.7 per cent increase recorded in 1996, leading to a rise in real incomes per capita in much of the region. Much of the boost was due to a recovery in Iraq where the oil-for-food agreement allows Iraq to export $4 billion of oil annually. Over the longer term, efforts to diversify the economies of the region away from oil will continue. One area of concern mentioned during the discussion was the widening current account deficit in an increasing number of Asian countries which, combined with capital market liberalization, increased the possibility of a financial crisis. Central banks needed to cooperate more closely to deal with this contingency. As in the past, experts noted that much of the African region's economic prospects for 1997 will be determined by domestic and external factors such as the weather, progress in policy reforms, and developments in the external environment. There were, however, grounds for optimism with an expected increase of 3.7 per cent in real GDP this year, which, in turn, would boost per capita incomes for the second consecutive year. This average, however, masked considerable variation in economic performance from one country to another. Countries in North Africa may experience a slowdown, but the rate of growth should, none the less, remain comparatively rapid. In sub-Saharan Africa, output in many countries should rise at an even faster rate than last year. Policy reforms continued to have a positive impact on some economies of the region. Nevertheless, the participants noted that diversification -- a key objective for all African countries -- remained a difficult goal for those countries and made them vulnerable to internal and external shocks.

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