ECONOMIC AND SOCIAL COUNCIL DEBATES BENEFITS AND DISADVANTAGES OF GLOBALIZATION OF WORLD ECONOMY
Press Release
ECOSOC/5704
ECONOMIC AND SOCIAL COUNCIL DEBATES BENEFITS AND DISADVANTAGES OF GLOBALIZATION OF WORLD ECONOMY
19970702 Countries and Heads of United Nations Financial And Trade Institutions Discuss Fostering Enabling Environment for Development(Reissued as received.)
GENEVA, 2 July (UN Information Service) -- Combating the negative effects of economic globalization on developing countries was among the issues debated this morning by the Economic and Social Council in its high-level session on fostering an enabling environment for development.
The policy dialogue and discussion on important developments in the world economy and international economic cooperation brought together heads of multilateral financial and trade institutions of the United Nations system and country representatives. Michel Camdessus, Managing Director of the International Monetary Fund (IMF), said globalization and its attendant availability of massive amounts of private capital had opened new opportunities for investment and growth in an ever larger number of developing countries. But globalization had also raised new issues, including, for the less developed countries often ignored by the markets, how to deal with the opposite problem of marginalization, with its tragic human cost.
Mr. Camdessus stressed that the world must maintain the emphasis on macroeconomic stabilization, and the trade liberalization, price reform, privatization, and other reforms that allow stabilization to take hold.
Renato Ruggiero, Director-General of the World Trade Organization (WTO), said more needed to be done to help least developed countries in relation to the effects of globalization and the multilateral trading system, recalling that more than 50 per cent of the world's population had less than 5 percent of global income. WTO member Governments had responded by adopting a Plan of Action for the Least Developed Countries, a major objective of which was to ensure that all such countries had a strong voice in the WTO.
For his part, Rubens Ricupero, Secretary-General of the United Nations Conference on Trade and Development (UNCTAD), warned that unless halted soon, the tendencies for increasing inequality among countries and inside societies could trigger a backlash that would jeopardize many of the positive elements of recent economic reforms in developed and developing countries alike. Practically all developing countries were inadequately prepared for globalization, and while UNCTAD played an important role in the area of services to help with preparing these developing countries, the results were still unsatisfactory, he added.
Also addressing the high-level meeting was Jean-François Rischard, Vice-President of Finance and Private-Sector Development of the World Bank, who said the Bank tried to help countries get their "enabling environments" right in the context of the new world economy.
An exchange of views on the issues under discussion followed the formal statements. Council members Luxembourg, on behalf of the European Union, and Brazil, took the floor, as did Pakistan.
Nitin Desai, Under-Secretary-General in charge of the newly-established Economic and Social Department, opened this morning's discussion by introducing the 1997 World Economic and Social Survey. According to the Survey, the fiftieth issued by the Organization, world economic growth in 1997 should match last year's rate of 3 per cent, with widespread expansion in developing countries.
The high-level segment will continue at 3 p.m. today.
Fostering an Enabling Environment for Development
The Council's main document for the day was the just released 1997 World Economic and Social Survey (E/1997/50), which foresees a repeat performance of last year's 3 per cent world growth and widespread growth in developing countries, as well as growth in transition countries as a whole for the first time since 1989-1990.
According to the Survey, the fiftieth issued by the Organization, developed economies in 1996 grew by 2.4 percent, and were expected to show a further modest increase in 1997. Growth was accelerating in North America and Western Europe, while in Japan and Australia, economic activity was expected to be slower. Transition economies in 1996 saw a further contraction of output, but 1997 could be a more promising year. Central and eastern European transition economies, the Baltic States and the countries of the Commonwealth of Independent States, were all registering growth. In developing economies, economic growth accelerated in 1996 and was expected to rise again in 1997. Growth could also be seen in Latin America and Western Asia, while Africa
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appeared to be maintaining its recent greater dynamism. There was strong overall growth in Eastern and Southern Asia; China's economy continued to expand but at moderated rates. The least developed countries were in their third year of relatively strong growth and rising per capital output.
The report suggests that all developing countries and countries in transition need to raise per capita income by at least 3 per cent annually in order to make progress in reducing unemployment and alleviating poverty. But in 1996, Latin American countries achieving this rate of growth accounted for only one-third of the region's population; for Africa, the proportion was only one-quarter. The Survey advocates an international economic environment more conducive to advances in the less-affluent countries.
In an analytical section on fiscal policies, the Survey argues that long-term, rigidly defined fiscal targets may jeopardize social cohesion, while not necessarily achieving their stated objective. In developed as well as developing and transition countries, deficit correction should be part of a political process of choosing, rather than evading, policy priorities, and should take place within a broader adjustment programme geared to overall social and economic objectives. While there is frequently a need to reduce deficits, there is no economic value in forcing them to zero.
For many countries in the European Union, efforts to meet the fiscal criteria for entry in the Economic and Monetary Union have hampered growth and exacerbated unemployment. If a better measure of fiscal deficits had been adopted, the report suggests, it would have improved countries' prospects for entry and allowed them more room for manoeuvre on domestic issues.
The Survey also contains: a chapter on the international arms trade, which has been transformed qualitatively since the end of the cold war, and may not have been reduced as much as trade statistics would indicate; an examination of international travel, which takes a growing share of global output and trade and has an especially dynamic effect on developing economies; a chapter written in collaboration with the World Health Organization on return of tuberculosis; an analysis of likely trends in carbon dioxide emissions -- identified by many scientists as the main factor behind global warming -- and reasons why global approaches to control such emissions may be necessary; and case studies of fiscal reform in the Russian Federation, China, Argentina, Ghana, Jordan and Ireland.
Statements
NITIN DESAI, Under-Secretary-General in charge of the new United Nations Economic and Social Department, said the theme for this year's high-level segment was important and integrally connected to other topics discussed by the Council; it would provide a platform for reflecting a consensus on policy
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development which would be useful in a broad sense. It also would help to focus attention on other aspects of global macroeconomic issues. One issue that would come up was subsidies -- very important in terms of trade, development policy, and social development and environmental management. Each area got looked at separately, but the challenge to the Council was to look at the whole range of topics and derive a balanced point of view.
MICHEL CAMDESSUS, Chairman of the Executive Board and Managing Director of the International Monetary Fund (IMF), said that the Council's theme of "fostering an enabling environment for development" was at the core of the IMF's mandate and activities. Globalization was the main trend, and the availability of massive amounts of private capital had opened new opportunities for investment and growth in an ever larger number of developing countries. This globalization had also raised new issues. For emerging market economies, one of those issues was how to maintain market confidence and deal with the economic policy complications that often accompany large capital inflows; for less developed countries, often ignored by the markets, an important question was how to deal with the opposite problem of marginalization, with its tragic human cost.
Mr. CAMDESSUS said that world economic output increased by 4 percent last year, and conditions were generally favourable for the expansion to continue at the same pace or even a bit faster in 1997 and over the medium term. Developing countries grew by 6.5 percent while advanced countries grew by 2.5 percent. The IMF's strategy started with helping countries re-establish basic macroeconomic equilibria and complete the structural reforms needed to achieve a more efficient allocation of resources and jump-start the engines of growth. In recent years, increased numbers of countries had adopted comprehensive programmes of adjustment and reform, many of them with IMF advice and support. The result was that even countries which had underdevelopment problems had improved their economic performance significantly.
Mr. CAMDESSUS said that in recent years more and more countries had adopted comprehensive programmes of adjustment and reform -- many of them with IMF advice and support. This had resulted in improved economic performance in even in countries seemingly suffering from intractable problems of underdevelopment. That emphasis on macroeconomic stabilization, the trade liberalization, price reform, privatization, and other reforms that allowed stabilization to take hold must be maintained. That was why a "second generation" of reforms was necessary, including quality of fiscal adjustment, bolder structural reforms, better government and strengthened financial institutions. Those reforms, more demanding than those many countries had undertaken to date, were "absolutely indispensable" and "inescapable" if countries at all stages of development wanted to grasp the opportunities of globalization and minimize its risks.
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At the same time, he continued, the IMF had increasingly focused on education and health spending in its surveillance, technical assistance and use of resources. It concentrated on "good governance" that was most closely related to its surveillance over macroeconomic policies such as transparency of government accounts, the effectiveness of public resource management and the stability and transparency of the economic and regulatory environment for private sector activity. Policy dialogue also placed greater emphasis on banking and financial sector problems, and there were also other initiatives to help countries take fuller advantage of the opportunities of globalization. The IMF and the World Bank had recently begun to implement a strategy to resolve the external debt problems of heavily indebted low-income countries, including their large multilateral debts.
Mr. CAMDESSUS, in summing up, stressed that the IMF's ability to assist member countries also depended on maintaining the strength of its regular resources. He hoped the Executive Board would decide on a substantial increase in quotas. The agenda of the IMF was challenging, and these were challenging times.
RENATO RUGGIERO, Director-General of the World Trade Organization (WTO), said that some 1.3 billion people still lived on incomes of less than $1 a day, while over 50 per cent of the world's population had less than 5 per cent of global income; the distance between rich and poor was still intolerably great. However, worldwide growth and living standards also were rising rapidly -- more so than at any point in the last 50 years. Of the 95 countries covered by the World Economic and Social Survey released today, only 11 failed to increase per capita output in 1996, compared with 24 in 1995.
The evidence was strong that countries which were prepared to liberate market forces and compete vigorously in the world stage could expect faster growth and more rapid economic development, Mr. RUGGIERO said; in this way, some 1.5 billion people had doubled their incomes over the last decade. Recent WTO agreements liberalizing global telecommunications services and information technology products were an effort to enhance this process, and were about much more than trade; they were about building the new infrastructure of the information age, in the same way that expansion of railways and shipping in the nineteenth century provided the infrastructure of the industrial age. Such progress would define the potential for growth and modernization in the developing world.
The next step was to reach successful conclusion to current WTO financial-services negotiations this year, Mr. RUGGIERO said, and to implement the mandate WTO had to examine the relationship between flows of global trade and global investment. Whatever the country and its level of development, sustained growth today depended on access to a solid financial system and access to investment. Developing countries had a growing interest in
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liberalizing their financial sectors and deregulating their investment regimes into order to build the kind of competitive financial infrastructures they needed for further growth. In addition, as the world became more interconnected economically, all countries -- but especially the weakest and most vulnerable -- would more and more need what the Economic and Social Survey called a "fair, equitable, and transparent" regime of rules to manage financial interdependence, he said.
The multilateral trading system was itself a key element in fostering an enabling environment for development, Mr. RUGGIERO told the meeting; it helped all countries relate to the basic fact of globalization within a framework that opened opportunities and provided the security of agreed rights and obligations. More needed to be done to help least-developed countries in this context, and WTO member Governments had responded by adopting a Plan of Action for the Least-Developed Countries, a major objective of which was to ensure that all such countries had a strong voice in the WTO. The plan of action called for a high-level meeting for least-developed countries, to be organized by WTO, with the United Nations Conference on Trade and Development (UNCTAD), the International Trade Centre, and other major multilateral institutions, to forge an integrated response to the challenges facing such countries.
RUBENS RICUPERO, Secretary-General of the United Nations Conference on Trade and Development (UNCTAD), said there were many indications that the world economy was in some respects polarizing more than converging. For example, wage inequality between skilled and unskilled labour was now a global trend, and increased job and income insecurity had become widespread characteristics of the global economy. Unless halted soon, these tendencies for increasing inequality among countries and inside societies could trigger a backlash that would jeopardize many of the positive elements of recent economic reforms in developed and developing countries alike. If globalization was to deserve its name, it had to include and not to exclude, to integrate and not to marginalize. Globalization was a fact of life, but it would be a great error to assume that market forces must be given a free rein. Some South East Asian countries had clearly demonstrated that development did not happen simply by liberalizing the economy, rather, careful stewardship and sound policies were required to maximize the benefits and minimize the downsides.
Mr. RICUPERO said that contrary to initial expectations, the different ways in which countries and peoples had responded to globalization over the past decade had not been along traditional North-South lines. For example, in some countries, a backlash against globalization was fuelling pressures to take measures to protect the population from its adverse consequences. In other fast-growing countries, they had benefitted most from export-led growth had increased their own outward investment flows. And in the third group of
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countries, the clear majority, slower-growing or stagnant countries had so far missed out on the promised benefits of globalization and liberalization.
Globalization had brought with it a considerable potential for good, but also had an undeniable downside, Mr. RICUPERO said. There were success stories, but structurally weak developing countries and hundreds of millions of poor, unemployed and low-wage earners feared the threat of marginalization and exclusion. It was the painful reality that with few exceptions, practically all developing countries were inadequately prepared. Even the most developed countries had only a partial awareness of the full implications of the issues. UNCTAD played an important role in the area of services to help with preparations, but the results were still unsatisfactory.
Mr. RICUPERO said that in the least developed countries, most of which were in Africa, the threat of marginalization was most acute. The challenge was making the market economy possible, but markets did not operate in a vacuum and needed enterprises. The strengthening of local capacity through enterprise development should be the cornerstone of an integrated programmed of foreign investment, infrastructure building, debt relief and the acquisition of technological and managerial skills. UNCTAD, within its modest resources and through its work on the promotion of investment and enterprise development was addressing these problems. The strengthening of human resources and of institutional support for trade also were imperative if developing countries were to cope with existing and future complex multilateral trade agreements. However, any programme for action in sub-Saharan Africa must take into account the external environment, including the need of countries with high foreign debts to significant debt relief.
JEAN-FRANCOIS RISCHARD, Vice-President of Finance and Private-Sector Development of the World Bank, said that virtually all countries now embraced market-oriented policies: more than 5 billion people now lived in market economies as against only 1 billion ten years ago. The positive results for developing countries of this economic revolution were spectacularly clear. Year after year, the IMF World Outlook showed how developing countries as a group were growing 2 to 3 percentage points faster than Organization for Economic Cooperation and Development (OECD) countries. There was a massive shift of growth and business opportunities towards the South and towards the East.
But together with this economic revolution came a second, probably even more powerful force, Mr. RISCHARD said: a technological revolution, a powerful cluster of innovations centred around telecommunications and informatics, and unleashing, in turn, other revolutions in such areas as biotechnology, high-performance materials, robotics, and, of course, software. Unlike earlier industrial revolutions, this revolution was not about transformation of energy and matter, but about transformation of time and
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distance; it also was about information flowing faster and more generously around the planet -- with the result that knowledge had become a more important production factor than labour, raw materials, and capital.
The world economy had four clear features, said Mr. RISCHARD: it was high-speed, knowledge-intensive, increasingly transnational, and highly disciplinarian. All countries, rich and poor, would have to compete increasingly along four dimensions: in terms of agility, constant learning, networking, and reliability. The World Bank thought these days in terms of helping countries get their "enabling environments" right in the context of this new world economy. It was a challenge, but also an opportunity, for developing countries, including the poorest countries. The Bank agreed that special efforts were required in this respect, not only to prevent the poorest countries from becoming even more marginalized, but also to help them get the best out of this new situation.
Developing such vibrant private sectors in developing and transition countries had become one of the pillars of World Bank work, Mr. RISCHARD said. In general, systematic work broke down into the categories of business environment, privatization, and financial sector work; and IMF and the Bank increasingly joined forces and coordinated their programmes, and routinely involved experts from other agencies, such as central banks, in these efforts.
Discussion
Questions from country delegations included, among other things, queries on how the development of micro-credit systems could be a factor in combatting poverty and pushing growth, and how the Bretton Woods institutions could promote that. One delegate said there had been winners and losers at the end of the Uruguay round of talks, which had led to the creation of the WTO, and asked whether it was not the time had come to provide for compensatory finance measures. One delegation asked whether it was possible for UNCTAD to set up a mechanism to continue to analyze the implementation of the WTO agreement, especially on poor countries, and if UNCTAD could provide vital backup to developing countries to assess their interests and provide constructive answers. Yet another question related to how globalization and marginalization were twin phenomenon and how least developed countries could not join in international trade without overseas development assistance.
Mr. CAMDESSUS said the organization was strengthening surveillance of countries and had set in place an emergency financial system with established procedures. He said if IMF's quotas were increased as expected, the organization would have the means to reassure countries undergoing financial crises, as had been the case with Mexico. Responding to a query about a possible compensatory financial system for countries subjected to unforeseen shocks beyond their control in international trade, he said such a system was
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already in place. If developing countries followed reasonable reform policies, they could count on IMF or one of its sister institutions for assistance with its balance of payments.
Mr. RUGGIERO said that globalization opened markets and lowered barriers; while it was not paradise, it was far from being negative. WTO was trying to work together with countries of the North and the South, and participation of developing countries was one of the most encouraging facts.
Mr. RICUPERO noted that there were 36 million unemployed persons in the industrialized countries today. UNCTAD was looking for solutions to unemployment and growing inequality. It had held an expert meeting with many organizations and agreed to continue assessing the implication of the Uruguay round of talks for the poorest countries and helping them compile a positive agenda.
Mr. RISCHARD added that micro-credit was one of the most exciting new developments in finance, and that the potential for its expansion, maybe to target as many as 100 million persons, was very high. The World Bank's major job was to disseminate the best practices in this field worldwide and to make sure that financial legislation in many countries allowed them to operate. Micro-credit was very important in eradicating poverty.
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