ECONOMIC AND FINANCIAL COMMITTEE HEARS CALL FOR CONVENING OF INTERNATIONAL CONFERENCE ON FINANCING OF DEVELOPMENT

Press Release
GA/EF/2765

ECONOMIC AND FINANCIAL COMMITTEE HEARS CALL FOR CONVENING OF INTERNATIONAL CONFERENCE ON FINANCING OF DEVELOPMENT

While flows from private sources to developing countries had increased in recent years, 10 countries accounted for over three quarters of the total flow in 1996, the representative of the United Republic of Tanzania told the Second Committee this morning as it began its consideration of macroeconomic policy questions.

Speaking on behalf of the "Group of 77" developing countries and China, he said developing countries relied largely on domestically generated savings to finance development. The support of the international community had not met the needs of those countries. The convening of an international conference on the financing of development would offer the best opportunity to address that issue in a comprehensive manner.

Individual States were responsible for establishing a stable national environment for foreign investment, the representative of Luxembourg said. Speaking on behalf of the European Union and associated States, he said national policies promoting domestic capital might also increase foreign investments and long-term economic development.

The representative of the United States said development called for the private sector to act as the engine of sustained economic growth in partnership with the public sector, which played a crucial role in providing basic infrastructure and services and in establishing and maintaining sound macroeconomic policies, protecting human rights and environmental quality, and creating a conducive legal environment for private investment and entrepreneurship.

Private capital, driven by interest, tended to flow to areas that would guarantee short-term returns, China's representative said. Such areas did not necessarily represent priority areas of developing countries. Private capital, given their speculative nature and uncertainty of short-term funds, would trigger off volatile financial and monetary markets, threatening the stability of the economy. The recent financial crisis in South-East Asia was a case in point, he said.

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The Committee also heard statements by the Russian Federation, Ghana, Paraguay (on behalf of the Rio Group), Tunisia, Bolivia, Poland, Republic of Korea and Ethiopia. The observer for the Holy See also spoke, as did a representative of the World Bank.

The Director of the Development Policy Analysis Division of the Department for Economic and Social Affairs, Ian Kinniburgh, introduced the reports on financing of development and external debt crisis and development.

Also this morning, the Committee concluded its general debate on the world economic situation. Statements were made by Libya, Nicaragua and Yemen.

The Committee will meet again at 3 p.m. today to continue its consideration of financing of development and external debt crisis and development.

Committee Work Programme

The Second Committee (Economic and Financial) met this morning to begin consideration, under the general heading "macroeconomic policy questions", of financing of development, including net transfer of resources between developing and developed countries, and external debt crisis and development.

A Secretary-General's report on global financial integration (document A/52/406) updates the Secretariat's 1996 report which was prompted in part by the balance-of-payment crisis in Mexico in 1994 and was prepared to assist the Assembly in its consideration of the subject.

According to the updated report, the financial turmoil that occurred in Thailand and other South-East Asian nations in 1997 has raised further questions about the adequacy of the international framework for highly integrated global markets. There is broad international agreement on the desirability of capital account liberalization, but views differ on many of the issues that need to be addressed in implementing it. There is also universal concern that individual economies, firms and individuals are vulnerable to volatile global financial markets.

To ensure the success of the liberalization of financial markets, complementary actions have to be taken to reduce their instability, the report says. Those actions include creating, at both the international and national levels, a sustainable macroeconomic environment, a sound financial system and appropriate prudential arrangements. Mechanisms to address a financial crisis if preventive measures fail are also needed.

In April, the Basle Committee on Banking Supervision proposed a set of "core principles for effective banking supervision", the report says. Following agreement on the final text, supervisory authorities throughout the world would be encouraged to give their formal endorsement of the "core principles" as a basic reference for all supervisory and other concerned public authorities. The implementation of the principles would be monitored by the Basle Committee, together with other interested organizations, particularly the International Monetary Fund (IMF) and the World Bank.

According to the report, prudential controls on the financial sector at the national level has long been seen as essential to reducing risks to the economy as a whole. In a financially integrated world, such controls are also seen as necessary to increase international confidence in the domestic financial system and thereby attract external capital flows. At the same time, prudential banking standards might serve as barriers to entry into domestic markets for financial services and, therefore, be inconsistent with the efforts of the World Trade Organization (WTO) to liberalize trade in that area. There is a need to achieve consistency between prudential measures and negotiations under WTO auspices to ease entry conditions and to produce a

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"level playing field" for domestic and foreign firms in the financial sector, the report states.

It adds that the various supervisory authorities have been concerned about the capacity of the financial institutions under their responsibility to manage risk adequately, especially in a global market of complex and changing financial instruments. As noted in the 1996 report, the rapid pace of change in global financial markets and instruments made it difficult to keep regulations up to date, and regulatory structures still needed to be adapted to the ongoing process of financial innovation.

In addition to strengthened regulations, there are continued efforts to use "market discipline" as a tool to promote prudent behaviour, the report says. With more information available to the public -- as well as to regulators -- individual and corporate investors will be increasingly able to distinguish weak from strong institutions. A substantial international effort is needed to increase the availability of reliable information on financial and banking firms' activities. That effort would most likely include the development of international guidelines on information disclosure content and procedures. Increased reliance on market discipline also requires further progress in harmonizing accounting and auditing standards, as well as agreements to standardize procedures for dealing with the bankruptcy of internationally active financial firms.

According to the report, the emergence of financial conglomerates -- firms that offer a range of financial services and operate in multiple countries -- complicate the difficulties of supervision. Conglomerates give rise to questions regarding the distribution of supervisory responsibility and coordination among the various authorities concerned. That issue was discussed by the Lyon (1996) and Denver (1997) Summits of the "Group of Seven" major industrialized countries. There was consensus on the need for further national and international cooperation on the allocation of responsibilities, the exchange of information, and achieving greater consistency of supervisory methods. It was also recognized that, in appropriate circumstances, there should be a coordinator to facilitate the exchange of information on globally active financial institutions.

A Secretary-General's report on sources for the financing of development (document A/52/399) draws attention to the continued concern over whether world savings are adequate to meet the growing financial demands of the developed, developing and transition economies. The debate has been about the pressure on world economies and the ever-expanding investment demand in developing and transition economies. It was feared that a savings shortfall could put upward pressure on world real interest rates, which, among other things, could weaken overall economic activity and discourage necessary investment.

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Addressing the adequacy of savings for development, the report reviews domestic savings generation and the transfer of financial resources from abroad. It identifies growth in income, fiscal deficit reduction and financial sector liberalization as capable of raising domestic savings. It states that the degree to which the supply of savings from the developed world will continue to be available to supplement the domestic savings of developing countries depends primarily on future growth in savings and investment in the developed countries.

The report emphasizes the need for an enabling environment in developing countries as a factor in mobilizing financial resources for development. Developing countries should adopt policies that enhanced their own domestic capital formation and thus their own savings. Those policies include establishing and maintaining a stable macroeconomy, including sustainable levels of domestic and external indebtedness, as well as adequate physical and social infrastructure.

Looking ahead into the new millennium, the report notes a new global consensus on development focusing on poverty reduction in developing countries and specified targets in social and environmental areas to be met in the near future. It also cites changes in the volume and nature of world financial flows, the most dramatic change being the explosion of international movements of private capital, particularly the increased participation of some developing countries in those flows.

According to the report, the increased role of market forces in the development process and the consequent liberalization and deregulation of markets in many developing countries have stimulated large increases in foreign direct investment and other private capital flows to a number of developing countries. Aid fatigue and fiscal stringency in the developed countries has led to a decrease in official development assistance (ODA), shifting the composition of financial flows for development from the public to the private sector. Official flows were increasingly targeted at immediate humanitarian needs rather than at long-term development purposes.

While acknowledging that the total net transfer of resources to all developing countries has increased dramatically in the past decade, the report notes that the nature, distribution, composition, terms and conditions of those flows have also changed. One universally recognized shortcoming in the growth of private transfers is that it has been restricted to a limited, although slowly increasing, group of countries. For some countries, increased private in-flows have made up for decreases in ODA in financial terms while in others declining net transfer has become a constraint on development.

Stressing the importance of private capital in development, the report, however, states that a large part of the increase in private capital flows to developing countries to date has taken the form of portfolio capital and short-term flows that not necessarily respond to development priorities and,

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because of their volatility, can have destabilizing consequences. There remained a substantial need for ODA, particularly for the poorer countries. Although major donors have recently reaffirmed their commitment to reaching the poorest countries, the present flow of concessional resources to those countries tends to be less than what is widely considered desirable. Also, the full amount of the resources needed to implement the Heavily Indebted Poor Countries Debt Initiative (HIPC) has not been secured, and the resources mobilized for successive replenishments of the International Development Association (IDA) in recent years has been less than proposed.

Another report of the Secretary-General addresses the debt situation of the developing countries as of mid-1997 (document A/52/290). It states that as measured by the standard debt indicators, the situation has continued to improve since it was last reviewed by the Assembly in 1996. Yet, a substantial number of developing countries -– over 50 by World Bank accounting -– remains in difficult debt situations, and the need for international monitoring of the debt crisis and development continued. The report also contains information on implementation thus far of the Heavily Indebted Poor Countries Debt Initiative and on other dimensions of the debt situation of developing countries and policy measures to address them.

Many of the severely indebted developing countries are meeting their debt-servicing burdens, the report notes, but it is at a high economic cost that leaves little room for adjusting to potential adverse economic developments. Other severely indebted countries are not meeting all of their debt-servicing obligations and are either building up arrears or renegotiating their debt-servicing requirements on an ongoing basis. One concern is that the capacity to meet post-negotiation debt-servicing obligations depends in part on continuing receipt of substantial official development assistance, which is becoming less assured as overall flows of aid are diminishing.

According to the report, the goal of the Heavily Indebted Initiative was to help countries to reach a "sustainable" debt-servicing burden. Eligibility was limited to countries that were granted access to the International Monetary Fund's (IMF) Enhanced Structural Adjustment Facility (ESAF), and that qualify for borrowing at the World Bank only from the International Development Association (IDA). An extended track record of sound policy performance under IMF/World Bank-supported programmes was also required.

The Initiative treated the outstanding debt of developing countries in a comprehensive manner, while supporting their adjustment and reform efforts, the report states. Its full implementation could lift the debt burden as an obstacle to economic growth and enable governments to focus more on long-term policies necessary to accelerate development. The report calls for further amendments to the conditions for eligibility as well as for actually awarding special assistance to be considered, as experience was gained in the review of country cases. One already contentious issue was the length of time needed to demonstrate an appropriate track record of strengthened policy.

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Putting the Initiative into practice, however, will require a high degree of international commitment to implementing debt-relief policies, the report notes. The Initiative deserves full implementation in a timely and flexible manner in all the countries that warrant the high degree of relief that it entails. It is vital that the relatively limited funding thus far committed to the Initiative do not constrain its rapid implementation. Confidence that the process will result in the required debt relief would be bolstered by the presence of a larger pool of resources in the IMF and World Bank trust funds. Those funds need to be in place as increasing numbers of countries pass through the process.

The report concludes that the beneficiaries of the Initiative and other heavily indebted developing countries will continue to require a supportive international economic environment, including improved conditions of access to markets for their exports, appropriate access to technology and private financing, an international monetary and financial system that is not vulnerable to excessive volatility and adequate official development assistance flows.

In the realm of international debt policy, Africa, especially the sub-Saharan region, remains a central concern, according to the report. The debt of Nigeria and 19 smaller countries exceeds their gross national product (GNP). Moreover, accumulated arrears on principal and interest on long-term debt accounted for 28 per cent of the grouping's total debt at the end of 1996. Arrears accounted for one third of the total debt of the group of least developed countries. Many of the countries accumulating arrears are experiencing civil war and strife, while others are recording stagnant growth of output and exports. For all the countries with debt difficulties, the debt overhang discourages investment and put additional strain on the implementation of structural adjustment and reform.

According to the report, the gross external debt of net-debtor countries exceeded $1.8 trillion at the end of 1996. Lending by private creditors, the fastest growing component of long-term debt in 1996, rose nearly 12 per cent from the previous period. For the first time since the onset of the debt crisis in the early 1980s, the outstanding stock of official debt declined in 1996. The drop was largely due to the exceptional official rescue packages for Mexico and Argentina, which made the 1995 value rise unusually and then reduced the one for 1996.

Regarding debt owed to private creditors, primarily commercial banks, the report states that most middle-income countries in debt have taken advantage of "Brady Plan arrangements" for the reduction of their debt. Those operations offer creditor banks several options, including the buy-back of outstanding loans at a discount of their conversion into securities involving either a reduction of principal or of debt service. Most low-income countries have made use of a different programme for restructuring their debt owed to international commercial banks, namely, buy back operations funded by official

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creditors and donors especially the World Bank through its Debt Reduction Facility.

Statements in General Debate

ALI ALAUJALI (Libya) said despite considerable changes that had recently transpired in the world, economic stagnation had adversely affected more than 100 States and led to a decrease of income for more than 1 billion people in the last two decades. The economic situation in many developing countries was unstable and would face challenges in the next few years due to the intense lack of development and financing and other cruel conditions, such as globalization, imposed on poor countries by the developed world. The policies of the IMF and the World Bank must be reconsidered, so they would not be used as political tools of certain developed States. Sustained human development did not evolve in a vacuum; it must be accompanied by sustained economic development.

The gap resulting from the raise in exchange rates compared to the prices of raw materials had led to a drop in the economic role of the developing countries, he said. Protectionism and unjust commercial legislature hampered the role of States and prevented them from achieving economic growth. What was needed was real democracy, which meant that real authority should be in the hands of the people through effective popular participation. The blind adoption of the western pattern of democracy was not an effective policy. Imposing the western pattern of democracy on the world was like forcing an Eskimo man to wear a suit that did not fit the climate in which he lived.

The disturbing sanctions imposed by the United States were contrary to the partnership for development, harmed international trade and ran counter to the United Nations Charter and World Trade Organization agreements, he said. The United States Congress had adopted a total of 61 sanctions against 35 States in the past four years. The policy of sanctions was futile, as it harmed all parties with varying degrees. His Government called on the international community to put an end to those coercive measures that caused the worsening of economic conditions in developing countries.

ENRIQUE PAGUAGA FERNANDEZ (Nicaragua) said human beings should be at the centre of development. Strengthening society and ensuring its full involvement, eradicating poverty and preventing environmental degradation were essential to sustainable development.

Reviewing his country's transition from a Marxist-Leninist regime to democracy, he said Nicaragua was not a poor country but one which had been impoverished by a dictatorship. The economy was growing, inflation was down, the GDP had expanded, national savings had risen and unemployment was being tackled. Nicaragua's economy was being revitalized with social justice and freedom. Emphasis was being placed on social services like education, health,

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water, rural development and combating poverty. A number of public enterprises were also being privatized. The new democracy in Nicaragua looked forward with optimism. Nicaragua called on the international community to assist it.

ABDULAZIZ AHMED KAID (Yemen) said United Nations reform should not only include the collection of resources. Reform should be directed to assist in the development of the least developed countries. The United Nations also needed to review its role in development matters and to encourage coordination and collaboration between the Organization, the World Bank and the IMF. His Government supported proposals to establish a high-level dialogue to strengthen favourable conditions for development. Yemen also supported the holding of a high-level dialogue during the Assembly's current session on the economic and social impact of changes in the international economic scene.

A rapid overview of the implementation of resolutions and decisions taken at United Nations conferences was no cause for optimism, because commitments had not been met, he said. Developed countries must implement their commitments, especially since the Assembly's special session on the implementation of Agenda 21 did not yield conclusive results. Donor countries and the international community should ensure that conditions were provided to encourage foreign investment. International financial institutions should be encouraged to mobilize the necessary resources to ease the debt burden, which would promote development of the least developed countries.

The drop in ODA had increased the gap between developed and developing countries and affected the stability, security and peace in the world, he said. The marginalization of developing countries was harmful to those countries and financial restrictions and protectionist policies should be removed to allow their full participation in world markets.

Statements on Development Financing, External Debt Crisis

IAN KINNIBURGH, Director of the Development Policy Analysis Division, Department of Economic and Social Affairs, introduced the reports on financing of development and external debt crisis, which are before the Committee under the general heading "macroeconomic policy questions".

He said most of the attention paid to financing of development had been devoted to issues relating to international financial flows. It was important to remember, however, that domestic savings were the predominant source of financing for development in most countries. It was encouraging news that, for developing countries as a whole, domestic savings comprised a higher proportion of GDP than a decade ago.

Yet, despite an extended period of stabilization and adjustment, savings rates in Africa and Latin America remained comparatively low, he said. Reasons for that occurrence included the low absolute levels of per capita

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income in Africa; low rates of growth of income; continuing high level of unemployment in both regions; and the patterns of income distribution. Thoughts needed to be given to other means of raising savings. Success in that effort was important not only because of the direct contribution of savings to growth but also because the experience of South-East Asia suggested that they were associated with high private sector capital inflows from abroad.

In order to reverse the present declining trend in ODA, it might no longer be adequate to pay homage to a long-standing, never-attained target, he continued. It was incumbent on both recipients and those donors that had achieved the target to demonstrate to the laggards the need for and the effectiveness of the resources that were provided. Discussions in the Committee should be directed towards formulating specific actions that could be taken to advance the cause of ODA.

Recently, impatience had been expressed in some quarters with the speed of implementation of the Heavily Indebted Poor Countries Debt Initiative. That frustration was understandable and could be alleviated if creditors were more forthcoming in providing the full amount of resources necessary for the Initiative. At the same time, it must be recognized that each individual debtor country required a custom-made but comprehensive approach, involving, from the creditor point of view, a viable framework to ensure that the economy was able to sustain the remaining debt. The quest for speed and flexibility in implementing the Initiative was justified but must not jeopardize the success of the venture.

Regarding financial flows to developing countries, he said the danger was not only that volatile capital flows caused short-term economic fluctuations but also that they might inflict damage on a country's longer- term development prospects. There was broad agreement that market discipline -- allowing firms to go bankrupt when they made mistakes -- should play an important role in avoiding excesses in financial markets. But the informal discipline of the market needed to be reinforced by regulation and supervision, which required those concerned to meet the necessary standards for financial soundness.

Despite such measures, financial measures still might befall a firm or part of the financial market and pose a systematic risk to the financial sector as a whole, he said. At that point, the failed firm might be given support, but such aid should be the exception rather than the rule if the discipline of the market was to be preserved. For developing countries and economies in transition, the challenge lay in ensuring that the operation of national and international financial markets supported and did not damage development.

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ARTHUR MWAKAPUGI (United Republic of Tanzania), speaking on behalf of the "Group of 77" developing countries and China, said financing of development was most critical to the quest for a dynamic international cooperation for development. All the major international conferences had stressed the importance of financial resources to development. Developing countries relied largely on domestically generated savings to finance their investment. The complementary and supplementary support of the international community had not been commensurate with the required needs of developing countries.

Noting that flows from private sources to developing countries had increased significantly in recent years, he said however that the distribution of such private flows among individual developing countries had not been even. Ten countries accounted for over three quarters of the total flow in 1996. Some developing countries, particularly the least developed countries in Africa, would continue to depend on ODA and other similar concessional sources for financing development.

He said the international community was faced with a multifaceted challenge to effectively grapple with multidimensional problems facing developing countries, such as poverty eradication and capacity-building for national ownership of their development process. The international community had to address those issues more squarely. Effective mobilization and provision of financial resources for development posed the greatest threat to the international community. The Group of 77 and China strongly believed that the convening of an international conference on the financing of development offered the best opportunity to address that issue in a comprehensive manner.

JEAN GRAFF (Luxembourg), speaking on behalf of the European Union and Bulgaria, Cyprus, Czech Republic, Estonia, Hungary, Lithuania, Poland and Slovenia, said sound macroeconomic policies were necessary to promote economic stability and growth and represented the most effective means for boosting the confidence of the financial markets. Macroeconomic indicators should be adopted to ensure the soundness of the national financial system and to reduce uncertainty about future economic developments, and they should be put in place and monitored in close cooperation with international financial institutions. The control and supervisory function in the financial sector should be established and reinforced through increased cooperation between national and international supervisory authorities. The Union welcomed the numerous contacts that had developed between the various actors and international financial organizations working on that issue.

Individual States remained responsible for the establishment of a stable and predictable national environment for foreign investment, he said. National policies which promoted domestic capital formation might also have a favourable impact on foreign investments which were likely to have possible effects on long-term economic development. The implementation of structural reforms should also be continued. Even if the rate and scope of liberalization

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measures might vary from one country to another, they should be complementary to macroeconomic stabilization policies and should have consistent objectives.

Concerning the debt of the poorest and most heavily indebted countries, he said the European Union fully subscribed to the continuation of the intergovernmental dialogue on the financing of development within the existing frameworks. The Economic and Social Council took an important step by asking the executive boards of the funds and programmes to take decisions on their financial arrangements in line with resolution 50/227, on the restructuring of the Organization in the economic and social fields. In addition, the HIPC was an important step. The first implementing measures had been taken with the desired flexibility, and in the near future other countries should have the possibility of benefiting from the Initiative. The member States of the Union would continue to contribute to the implementation of the Initiative and called upon the other bilateral and multilateral actors to participate in those efforts.

SETH WINNICK (United States) said global partnership between donor and recipient countries, between developed and developing countries, as well as between private and public sectors, was critical to the financing of development, to the external debt issue and to sustainable development as a whole.

Continuing, he said development called for the private sector to act as the engine of sustained economic growth in partnership with the public sector, which played a crucial role in providing basic infrastructure and services and in establishing and maintaining sound macroeconomic policies, protecting human rights and environmental quality, and creating a conducive legal environment for private investment and entrepreneurship.

Such partnership between the private and public sectors raised the rate of return on development investments, he said. The United States strongly supported the Development Assistance Committee of the Organisation for Economic Cooperation and Development (OECD) to identify output-oriented development goals towards which the international community could work together. To achieve that, the international community must create an enabling environment in which all development -- domestic and international, public and private -- could be mobilized and used productively.

NIKOLAI TCHOULKOV (Russian Federation) said the HIPC played an important role in the international debt strategy. However, debt relief efforts should not be limited to the Initiative. Other instruments, such as the World Bank and the IDA special facilities and credit lines designed to help debt servicing should also work in that direction. In addition, more should be done to attract the private sector to the implementation of debt-conversion schemes by using the Bank's and IDA's guarantees. In that context, his Government was glad to confirm that it would participate in the financing of the Initiative.

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The predominant role in the growth of net financial transfers to net- debtor developing countries had been played by a significant increase in private financial flows, particularly medium- and long-term private loans and direct investments, he said. Though the flows of private resources were still concentrated in a relatively small group of countries, one could not but notice the gradual extension of their geography to include countries which had managed in recent years to achieve certain success in the macroeconomic stabilization, financial liberalization and the creation of favourable conditions for foreign investments.

The assessment of the health and performance of the financial sector by the World Bank and its ongoing surveillance by the IMF were extremely important in terms of establishing an early-warning system against possible financial crises similar to the one that recently occurred in South-East Asia, he said. It was crucial that the Bank participated in financing programmes of financial sector reform and of strengthening financial institutions.

JACK WILMOT (Ghana) said shrinking per capita income arising from deteriorating economic conditions in the poorest developing countries, particularly in Africa, had limited the role of domestic savings in financing development. The remedy for the inability of those countries to mobilize domestic savings seemed to lie in the sustained economic growth which would raise income and create the potential for generating more savings for further growth. But that could not come without adequate private and official financial transfers. Foreign direct investment (FDI) to Africa should be increased not only as finance for development, but also as a means of technology transfer and access to international export markets. The international community and financial institutions must provide incentives for increased FDI to poorer countries.

In discussing sources of finance for development, he said the international community must not lose sight of the financial needs of the poorer segments of society, including artisans, self-employed traders and small farmers. Ghana lauded the increasing international awareness of micro- financing or micro-credit as an efficient mechanism for providing finance for production by that category of people. The poorer developing countries should intensify their efforts in promoting the requisite institutions for that type of development financing and the international community, including financial institutions, must lend necessary support.

BERNARDINO HUGO SAGUIER CABALLERO (Paraguay), speaking on behalf of the member countries of the Rio Group, said it was important that the Committee adequately considered matters critical to development, such as international financial integration and the risks caused by sudden and massive movements of capital, which threatened developing countries. At its last session in July, the Economic and Social Council had approved a series of agreed conclusions that recognized that the creation and conservation of stable international conditions and the democratization of international relations were among the

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main elements of a favourable environment for development. To achieve that, it was necessary to coordinate macroeconomic policies which promoted conditions of stability, foreseeability and the growth of the world economy. Stable exchange rates, a reduction of interest rates and of fiscal deficits, as well as the liberalization of commerce and a more equitable access for developing countries to global markets, were also vital in fostering development.

Debtor countries should have access to alternative methods of payment which did not affect their capacity for national growth and development, he said. In the case of heavily indebted countries, consideration should be given to the restructuring of payment methods in order to reduce the debt and its service costs. The policies of multilateral financial institutions should be changed to ensure a positive transfer of resources towards developing countries by reducing interest rates and granting time extensions on credit. The United Nations must call on creditor countries and demand a search for viable payment alternative that did not undermine the right of debtor countries to development and that would provide a lasting solution to the problems associated with the traditional treatment of that issue.

YU QINGTAI (China) said the relationship between domestic and external resources should be clearly understood. Economic and social development could be achieved mainly through domestic resources, as the progress made by developing countries in recent years had shown. But that should not be used as excuse to deny the importance of external resources to development. With globalization and increasing interdependence among States, external resources represented an important form of international cooperation for development. The lack of it hampered the development of developing countries. Emphasis must be placed on the mobilization of external resources when discussing international cooperation.

The role of the private capital should be objectively and comprehensively considered, he said. Private capital, driven by interest, tended to flow to areas that would guarantee short-term returns. Such areas did not necessarily represent priority areas of developing countries. Private capital, given their speculative nature and uncertainty of short-term funds, would trigger off volatile financial and monetary markets, threatening the stability and the healthy functioning of the economy. The recent financial crisis in South-East Asia was a case in point. Also, no excuse should be used by developed countries to escape their ODA obligations. The external debt burden of the developing countries must also be addressed because it was closely related to financing development.

ABDERRAZAK AZAIEZ (Tunisia) said according to a recent study carried out by the Bretton Woods institutions regarding the net transfer between developed and developing countries, global flow of resources to developing countries had increased in the 1990s, but the trend was uneven. Recent analysis showed that public flows had been stagnant and that the industrialized countries were devoting a small amount of resources to ODA.

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Regarding Africa, he said, a slight economic improvement had been noted, as after one decade of negative flows private flows had turned around. That resumption was aided by a more favourable international environment which was the fruit of efforts taken by African countries. Those efforts included the liberalization of financial markets, privatization of programmes and the establishment of stock markets. Yet the countries of Africa generally had not had sufficient access to private flows, and private investors were not interested in the development activities that would not generate immediate profits.

In order to fill the gap caused by the drop in ODA, he said his Government this year had decided to establish the Tunisia Solidarity Bank. The Bank would finance small projects in sectors that did not benefit from the traditional banking system. It would also aid all sectors, especially those dealing with artisans and small farmers, in relation to capital flows. It was up to each country to design the economic and social policies to ensure development. Tunisia had geared its approach to developing human resources to create and increase wealth. The policies had been helped by a favourable national environment. His Government intended to stress modernization of its financial system.

MARCO ANTONIO VIDAURRE (Bolivia) said the development of domestic capacity in science and technology and adapting them to local situations should be a priority of sustainable development. Also, consensus had emerged to find solutions to the problem of financing development through both the private and public sectors. The international community needed to take the right measures in the financing of development. The policies of the Bretton Wood institutions, as well as the issue of ODA to the developing countries, were closely related to the issue of financing development.

Reviewing the ongoing restructuring of his country's economy, he asked the international community and financial institutions to support its efforts in that direction. Bolivia acknowledged the efforts of international financial institutions to alleviate the debt burden of the developing countries through the Heavily Indebted Countries Initiative. The IMF and the World Bank must study the situation of those countries unable to meet the requirements for eligibility to the Initiative.

RENATO MARTINO, Observer for the Holy See, said the HIPC deserved recognition and support because the debt crisis had seriously distorted the development process. That could only be resolved through a broad package of measures, including debt cancellation. The Holy See encouraged the rapid application of the Initiative. The remission of debts and the easing of the debt burden of the poorest countries would enable them to take their rightful place in the development of the human society.

Continuing, he said governments, banks and regional and international institutions must collectively assume the responsibility for the Initiative.

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He appealed to those parties to make rapid progress through the flexible application of its principles so that all eligible countries could receive concrete debt reduction by the year 2000. Wealthier countries bore additional responsibility for fostering international solidarity. Contributions, for example, to a special trust fund, could constitute a special commitment to the process.

The external debt crisis was, however, just one aspect of the larger question of fostering international solidarity and of the evolution of economic policies which would guarantee equity within and among nations, and in which the special concerns of the poorest would be addressed, he added.

PAULA DONOVAN, a representative of the World Bank, said the main source of development finance was coming from the developing countries themselves. The most important need was to ensure that those countries' domestic resource mobilization was effective and that their domestic resources were used as effectively as possible. External finance made up a small portion of funding put to use in the development efforts of developing countries. The second most important challenge was to enable more private financial flows to the poorest countries.

Official flows had been under significant pressures in recent years, she said. While direct assistance in some countries had increased, those cases were the minority. Donors such as the United States, Japan and major participants in the European Union were under pressure. The World Bank believed that the best way to keep donors on board and get the United States arrears situation in order was to demonstrate the effectiveness of the activities of the IDA. The Bank made IDA performance-based, so IDA assistance would go to the better performers. Emphasis was also placed on intensifying social sectors programmes. Social sector funding was heavily focused on basic needs. For the World Bank, the lessons of IDA replenishment demonstrated that IDA's activities should follow the donor mandate and there had been increasing and convincing results.

ZBIGNIEW SYZMANSKI (Poland) said policy makers in all countries were confronted with the implications of globalization in light of conditions specific to their nations. However, there were similar adjustments required by all countries experiencing economic and structural reform. The creation and maintenance of peace and stable economic conditions, as well as the establishment of open markets with equal opportunities for participation, were all essential for national and international development. Effective international actions by lending and borrowing countries for debt forgiveness and rescheduling was necessary to address the global problem of financial barriers.

The United Nations should support the codification of a legal framework to guide future investors and beneficiaries, he continued. The United Nations and the Economic Commission for Europe had begun elaborating such instruments.

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Poland fully supported United Nations activities aimed at promoting market- oriented economic reform and structural adjustment, while working to expand capital flow, investment and trade. International assistance to those countries that had undertaken economic reforms was critical. The experience and technical know-how of advanced countries, international institutions and regional commissions would provide great assistance to countries facing the difficult and painful process of critical economic reforms.

EUY-TAEK KIM (Republic of Korea) said each nation must pursue sound macroeconomic policies designed to achieve sustained growth and enhanced integration with the global economy. Also, each country should make the best use of increasing flows of trade and FDI. Although, FDI was on the increase, its benefits had not been equally shared by all. Appropriate measures were needed at the domestic and international level to ensure that developing countries benefited from FDI.

The international community, particularly the United Nations, played a key role in supporting countries' capacity-building efforts, he said. International cooperation on macroeconomic policies in the field of trade, finance and development must be strengthened so that the least developed countries could benefit from globalization. He called upon donor nations to muster their political will in support of reaching agreed targets of ODA. Such actions would foster stable strategic partnerships between developed and developing countries.

The movement of capital from developed to developing countries was a vital element of economic development, he said. However, if carried out in haste, it could heighten the volatility and vulnerability of financial markets. The IMF and the World Bank should play a leading role in management of stable macroeconomic policies. The IMF should fully exercise its oversight role of the international monetary system. Also, there should be a dialogue between the Bretton Woods institutions and the United Nations.

BERHANU KEBEDE (Ethiopia) said that in recent years a growing number of countries in Africa had embarked on the implementation of World Bank/IMF supported macroeconomic reform programmes that involved stabilization, liberalization and institutional reform. Those measures had resulted in the steady recovery of the African economy since 1994. While the economic turnaround was a positive development, almost two thirds of the population in Africa still subsisted below the absolute poverty margin. The macroeconomic measures implemented by African countries were also accompanied by national programmes that included tight fiscal and monetary policies, trade and foreign exchange liberalization, price deregulation and realignment of the exchange rate. Yet those countries still faced structural global economic constraints, including declining official development assistance flows, an uneven flow of FDI, persistent debt burdens and currency fluctuations.

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He said there was a need to integrate financial and monetary policy of both developed and developing countries. Also, the exchange regime of the leading industrialized countries must be stabilized. The IMF and the World Bank should help the developing countries to stabilize their exchange regimes and pursue sound financial policies. Developed countries should technically assist the least developed countries to reform the regulatory and institutional frameworks to promote external trade, diversify exports and improve the exchange rate system.

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Second Committee - 18 - Press Release GA/EF/2765 9th Meeting (AM) 16 October 1997

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