SECOND COMMITTEE CONCLUDES CONSIDERATION OF DEVELOPMENT FINANCING AND EXTERNAL DEBT AND DEVELOPMENT
Press Release
GA/EF/2766
SECOND COMMITTEE CONCLUDES CONSIDERATION OF DEVELOPMENT FINANCING AND EXTERNAL DEBT AND DEVELOPMENT
19971016 Several Speakers Voice Concern Over Situation of Africa, 'the Most Heavily Indebted Region'The need to find a durable solution to the debt problem of developing countries, particularly those in Africa, was stressed by several speakers this afternoon as the Second Committee (Economic and Financial) concluded consideration of financing of development and external debt and development.
The representative of Nigeria said Africa's external debt servicing on average stood at 30 per cent of its export earnings and that had constrained its capacity to undertake any significant development. Africa remained the most heavily indebted region, he stressed, adding that the international community and financial institutions must find a durable solution to the debt problem, including debt cancellation.
Sustainable development would not be possible without an urgent solution to the external debt problem, the representative of Ukraine said. The external debt burden had a particularly negative impact on the economies of developing countries, especially those of the least developed and sub-Saharan Africa countries. Indebted countries needed to be assisted in their efforts to improve their economies.
Speaking on behalf of the Caribbean Community (CARICOM), the representative of Jamaica said the debt problems of middle-income countries which had continued to service their debt at heavy cost should not be forgotten. Special consideration was needed to ensure adequate net transfers and proper balance between concessional and non-concessional finance from bilateral and multilateral sources.
The representative of New Zealand said it was crucial for countries to create an enabling economic and regulatory environment. To attract the funds that generate economic development, countries should embark on macroeconomic stabilization, economic reforms and financial liberalization.
The developing countries should be allowed to participate in the decision-making processes on macroeconomic policy issues, particularly through
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the democratization of international financial institutions, the representative of Iran said.
Statements were also made by the representatives of Egypt, Jordan, India, Pakistan, Indonesia, Colombia, Kuwait, Iraq, Uganda, Malaysia and Guyana, as well as by the observer for Switzerland.
The Director of the Development Policy Analysis Division of the Department for Economic and Social Affairs, Ian Kinniburgh, also addressed the Committee this afternoon.
The representatives of Egypt, Indonesia, Nigeria, Syria and Morocco complained about the delay in the publication of documents and expressed their concern to the Secretariat.
The Committee will meet again at 10 a.m. tomorrow, Friday 17 October, to begin its consideration of "science and technology for development".
Committee Work Programme
The Second Committee (Economic and Financial) met this afternoon to continue 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. (For background information, see Press Release GA/EF/2765 of 16 October.)
Statements
ADEL M. ABDELLATIF (Egypt) said his Government was disappointed that delays in documentation were still occurring. The role of the Secretariat should be a complementary one to the work of the Committee, and it should not hinder its work. One of the documents for today's discussion had not been received until this morning. He asked why the document had not been issued earlier. Resources were being wasted if Member States could not take proper advantage of the reports of the Secretariat. The Secretary-General's report on sources for the financing of development (document A/52/399) did not touch upon the question of coordination as an element necessary in the financing of development, he said. The report should have also touched upon the question of external investment, because the chief problem lay in the very resources for financing important areas, such as social programmes, the environment and health. Holding a conference on the financing of development was an essential question because that issue needed to be tackled fully and could not be summed up in a few words. The Committee needed to look at that question in the context of the benefits and advantages for developing countries. It must also ask how commitments would be financed in certain areas, such as the environment, in relation to social and economic development. BASHEER F. ZOUBI (Jordan) said resolving the external debt problem was important to preserving the economies of many developing countries. Jordan was forced to take external loans as a result of the adverse effect of regional and international factors on the Jordanian economy, which was vulnerable to regional and international political and economic factors.
Acknowledging his country's continued economic difficulties, he said the return of over 300,000 migrant workers during the Persian Gulf war and the implementation of the sanctions on Iraq had created a serious burden on the Jordanian economy. As a result of the return of the migrant workers, the Jordanian population rose by 10 per cent. Such a sudden increase in population meant an additional burden on the economy and on the Government's ability to provide social services.
MARGARET ALVA (India) said much more debate was necessary on direct government intervention in financial markets to reduce volatility and vulnerability, the pace and sequencing of capital account liberalization
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measures and emergency finance in the event of crisis. While the benefits for the world economy of greater freedom of capital movements was recognized, such measures could put additional stress on economies straining to adjust to globalization. There was a clear need for continued international debate and action on the role of international cooperation in the area of finance for development. A serious debate was also required on the systemic issues relating to the current international financial and monetary system to better equip it to meet the complex challenges of "financing" and global financial integration. In the wake of globalization, she said, the ability of governments to effectively support and sustain programmes designed to achieve social equity was increasingly predicated on the availability and flexibility in the allocation of financial flows. Governments should intensify efforts to secure burden-sharing arrangements for the twelfth replenishment of the resources of the International Development Association (IDA-12). She called for an early consensus in the Board of the Multilateral Investment Guarantee Agency (MIGA) of the International Monetary Fund (IMF) on additional operating and callable capital for enlarging its resources to support a 10-year underwriting strategy. That would enable the agency to continue to diversify its guarantee activities at a pace that responded to the growing involvement of the private sector in infrastructure and other projects in the developing countries. FAROOQ HASSAN (Pakistan) said a high level of debt discouraged private investment, because high debt service was perceived by investors as a form of "tax" on the future income of the country. There must be an increased flexibility in the application of certain conditions which determined country eligibility for the Heavily Indebted Poor Countries Debt Initiative. Promptness in implementation was also essential for ensuring a lasting and rapid solution to the debt crisis of those countries, particularly in Africa. The proposal for introducing an additional conditionality in the Initiative related to social and human development needed careful consideration. Conditions linked to the implementation of the Initiative could also deny many countries timely access to debt relief if they were unable to meet criteria due to limited resources and weak institutional capacity. The importance of finance for development could not be overemphasized, he said. His Government had been successful in attracting private capital through a judicious policy of privatization and facilitating foreign investment. Yet those policies could only help in attracting private finances to a limited extent, as some businesses chose to invest in bigger markets. In addition, financial flows to developing countries were determined to a great degree by the actions of the major industrialized States, especially those of the "Group of Seven". The fast deteriorating conditions in the developing countries called for a thorough evaluation of global policies. The rising debt, declining official development assistance, marginalization of developing countries and lack of finances for development could be signals for impending upheavals. His Government supported the holding of an international conference on financing of development.
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HERIJANTO SOEPRAPTO (Indonesia) said that the recent initiative of the IMF and the World Bank to seriously tackle the debt of the Heavily Indebted Developing Countries was to be lauded. However, according to the World Bank, 50 per cent of developing countries continued to be saddled by insurmountable debt that virtually stifled their development. That was particularly the case for many African countries.
The call for a "once and for all" approach to the problem, which Indonesia had long advocated, had been repeated by the Ministerial Meeting of the Non-Aligned Countries in New Delhi in April this year, he said. That meeting had called for the reduction of all categories of debt by major groups of creditor-developed countries, including multilateral creditors. That would include adopting an integrated approach for all types of indebtedness.
A changing world reality must not be ignored, he said. Because of growing interdependence and globalization, an integrated development-oriented approach, which involved an open rule-based and a non-discriminatory international trading system, as well as increased financial flows and access to technology was needed. In that context, Indonesia supported the recent approach of the World Bank in implementing the development concept in a very broad and comprehensive sense.
ARMANDO OLARTE (Colombia) said there were economic differences among developing countries and, therefore, financing needed to be different for each country. The funding for the least developed countries should come from United Nations development programmes in the form of multilateral and bilateral non-reimbursable financing with ongoing technical assistance.
The countries that were leading the trend toward globalization should be aware that their goal would only be attained if the purchasing power of developing countries increased, he said. In order to achieve that, the following measures must be adopted: pay reasonable prices for products; increase the official transfer of resources; increase flows through credits; and enhance capital flows and transfer of technology through investment. The deterioration of the terms of international trade would become an obstacle to strengthening growth and the development of the world economy. Developed countries should understand that when developing countries sought to ensure stable and fair prices for their exports it was not just a balance of payments problem. Those prices determined the survival of millions of people and political and social stability in developing countries.
Developing countries needed to establish appropriate legal and economic frameworks to attract investment from private and public sectors, he said. Foreign investment had three basic advantages over credit: it affected the means of ensuring the transfer of technology; it enhanced entrepreneurship; and it was helpful to have partners and not just creditors. Developing countries also needed to train personnel in dealing with procedures and conditions governing various sources of financing for development.
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ISAAC E. AYEWAH (Nigeria) said structural adjustment had not dramatically improved the performance of African economies, but had instead created more socio-economic hardship. External debt service on average stood at 30 per cent of Africa's export earnings and that had constrained their capacity to undertake any significant development. Africa remained the most heavily indebted region.
In that regard, he called on the international community and financial institutions to respond positively to finding a durable solution to the debt problem including debt cancellation for developing countries. With regard to the Heavily Indebted Poor Countries Debt Initiative, he said it was difficult for developing countries to pursue simultaneously a programme of debt sustainability in the circumstance of fluctuating commodity prices in the world market and debt servicing. The need to address social development programmes at the country level constituted an onerous conditionality for heavily indebted poor countries. The Bretton Wood institutions must consider these concerns.
MOHAMMAD JABBARI (Iran) said although the average savings rates in developing countries, as a whole, increased over the last decade, it still remained below the average saving rates in 1980. Yet developing countries had been able to invest more than their own savings permitted, which indicated the extensive efforts made on their part to mobilize domestic resources for development. It was important to emphasize that the growth of gross domestic savings had not embraced all developing regions over the last decade. That could be attributed to the decrease in income which, in turn, contributed to the further widening of the gap between and among countries. Therefore, the recommendations contained in the Secretary-General's report on financing of development regarding factors affecting savings in developing countries, although necessary in themselves, were certainly not enough to respond to the financial resource needs of those countries.
The consequences of the currently low levels of official development assistance were acute, particularly for the least developed countries, he said. In addition to the shift from official to private resources, an increasing proportion of official flows was being directed towards humanitarian assistance, which undermined longer-term development purposes. As part of a longer-term solution, the international community should develop policies to create an enabling environment. To that end, the developing countries should be enabled to effectively participate in the decision-making processes on macroeconomic policy issues, particularly through the democratization of processes in the Bretton Woods institutions.
TAREQ AL-BANNAI (Kuwait) said there were signs that the external debt problem was worsening, as the aggregate debt increased by 6.4 per cent in 1996. That statistic meant that debtor countries devoted a larger proportion of their resources to debt servicing. The Heavily Indebted Poor Countries Debt Initiative of the IMF and the World Bank was an important step toward
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solving the problem. Kuwait appealed to both bodies to revise the conditions set forth for States who requested assistance. That would allow those countries to make progress in economic development while taking into account their limited means. His Government also called on all donor countries to continue to consider the question of rescheduling debt, he said. Kuwait had cancelled all interest on loans to ease the debt burden weighing over the poorest countries. The volume of assistance given by Kuwait in the form of ODA was one of the highest rates and reflected its strong desire to participate effectively in raising the living standards of developing countries. Those countries had an urgent need to see real globalization in the world economy, which could only be achieved through effective financial and technical assistance.
NICKY MCDONALD (New Zealand) said macroeconomic stabilization, public administration, economic reform and financial liberalization were important to attracting the funds that generate economic development. It was important to create an economic and regulatory enabling environment. Official development assistance had a role in facilitating the creation of such an environment, catalysing private investment, encouraging investment stability and providing essential assistance to the poorest countries. The ODA also had a role in filling the gaps where the private sector fears to tread or saw little potential for return in investment in purely monetary terms.
She said New Zealand was also concerned that financial flows had been concentrated in a number of developing countries. New Zealand shared the view expressed in the Secretary-General's report that the most "urgent consideration is to make as many developing countries as possible attractive to international savings flows". New Zealand was concerned about the drop in ODA in recent years and supported efforts to reverse that trend.
DAVID PRENDERGAST (Jamaica), speaking on behalf of the Caribbean Community (CARICOM), said external debt continued to be a major preoccupation of the international community. Collective energies had been directed towards addressing the critical situation in order to alleviate the negative consequences of external debt on the economies of developing countries. The Secretary General's report contained in document A/52/290 gave a comprehensive overview of trends in external debt and an update on the international debt strategy, as well as tracing the implementation of the Heavily Indebted Poor Countries Debt Initiative (HIPC).
The CARICOM recognized that there were countries, including some from Latin America and the Caribbean, that had made remarkable improvement in their debt situation, he said. However, the international debt strategy had not worked for many developing countries, as many continued to carry an unsustainable debt burden where debt payments exceeded the capacity to pay.
The debt problems of middle-income countries who had continued to service their debt at heavy cost should not be forgotten, he said. According
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to the Secretary-General's report, in 1997 the World Bank had listed 51 countries as severely indebted, of which 13 were middle-income countries. Special consideration was required to ensure a continuation of adequate levels of positive net transfers to them as well as a proper balance between concessional and non-concessional finance from bilateral and multilateral sources.
While the HIPC initiative was a means of finding a durable solution to the debt problem, the possibility of considering further amendments to the conditions for eligibility as well as for awarding special assistance was warranted, he said. Further, there was a need for additional financing from the sale of a portion of the International Monetary Fund's gold as a valuable supplement to existing resources.
KHALED AL HITTI (Iraq) said developing countries were undoubtedly suffering from economic crises which had resulted from external debt burdens which adversely affected their development programmes. It was necessary to accord attention to that subject in order to find a permanent solution to the debt crisis and provide the inflow of capital for the development programmes of developing countries. The international community should alleviate the debt and heavy services, and the refinancing and rescheduling of debts should not be subjected to any political criteria. Solutions must be found through negotiations between debtor and donor countries, as well as financial institutions. There should also be the transfer of new and renewable funds to developing countries.
The external debt of developing countries should be relieved and the arrangements applied by the IMF and the World Bank should be reconsidered, he added. Those actions would generate the funds necessary to help developing countries actualize their social, economic and cultural plans for development.
VOLODYMYR RESHETNYAK (Ukraine) said the goals of sustainable development would not be attained without adequate and urgent response to the external debt problem. The external debt burden had a particularly negative impact on the economies of developing countries, especially the least developed countries and sub-Saharan Africa. Indebted countries needed to be assisted in their efforts to improve their economic situation. The debt servicing burden adversely affected their development efforts and economic growth.
He said efforts to resolve the debt crisis must include the creation of a supportive international economic environment with regard to terms of trade, commodity prices, improved access to international financial markets, flow of financial resources, access to high technology and more democratic partnership.
DINO BETI, observer for Switzerland, said the debtor countries themselves should take on a stronger role by assuming leadership in the process of debt strategy management. Switzerland, Austria, Denmark and Sweden
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had decided to launch a capacity-building programme for heavily indebted poor countries. Switzerland remained concerned about the constraints faced by the debtor countries and the inherent risk of undermining the goal of a true exit strategy. It had become evident that the present framework of debt relief offered by the Paris Club would not be sufficient for a substantial number of those countries to reach sustainability. It would be desirable for all donors to make a significant additional effort to secure the funding for the programme's trust fund.
Since there was a certain reluctance, particularly on the part of larger donor countries to provide bilateral contributions to the trust fund, he said United Nations bodies or the Bretton Woods institutions should explore, with the Paris Club, the possibilities for the Organisation for Economic Cooperation and Development (OECD) countries to at least make an effort through the trust fund mechanism. Switzerland was also concerned about the design of the fiscal sustainability criteria, he said, and added that there was substantial room for improvement to ensure fair and equal treatment to all heavily indebted poor countries.
HAROLD ACEMA (Uganda) said that without adequate, predictable and assured financial resources, the efforts of developing countries to achieve meaningful economic and social development would not yield the desired results. The Secretary-General's report had underscored the need for increased ODA for the agreed target of 0.7 per cent to be achieved. He commended the few countries which had reached or even surpassed the target and appealed to other developed countries to honour their international commitments.
Uganda welcomed and supported the convening of an international conference on the financing of development, and proposed the appointment of a panel of eminent persons from all regions to study the problems of development financing, he said. The panel's recommendations should be submitted to the conference. At the national level, he said the Government of Uganda had over the last 10 years substantially increased domestic resources for financing development, but still needed external assistance, both private and official, to sustain current growth rates. He hoped the country's development partners would continue to support the Government's development efforts.
IBRAHIM SHUKRI (Malaysia), speaking on behalf of the member countries of the Association of South-East Asian Nations (ASEAN), said a key concern for developing countries was the downward trend of official flows, particularly official development assistance. Those flows supported activities which were not typically the focus of private investment. While the decline in ODA would not affect all developing countries equally, it seemed inevitable that it would result in some fall-off in concessional flows to low-income countries, from either bilateral or multilateral sources, or from both. That was most disquieting at a time when there were unparalleled opportunities for the productive use of such resources by the world's poorest countries. A majority
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of the low-income countries currently had set in motion strategies, policies and practices that were generally perceived as being conducive to economic growth.
By opening their economies to the pressures of global markets, the poorest countries faced an increasingly competitive environment, in which many of them were inadequately equipped in terms of human and physical capital, he said. Private sources were unlikely to provide either the volume or the type of resources required to meet those needs. Lacking such resources, there was a risk that those countries would become further marginalized.
GEORGE TALBOT (Guyana) said the Tobin Tax and environment-related levies could generate significant resources for development. At the World Hearings on Development in 1994 there was considerable support also for some forms of taxation to finance United Nations activities in the area of sustainable development. The merits of those ideas should be seriously examined at the intergovernmental level as part of the search for new and additional means of financing multilateralism.
Concerned about the pace of implementing the Heavily Indebted Poor Countries Debt Initiative, he called for coordinated action by all creditors and the provision of adequate funding, particularly in the short to medium term. The General Assembly and the Economic and Social Council had important roles to play in monitoring the impact of the Initiative. Developing countries would continue to need the infusion of external resources. They also needed to be given "voice and justice" in the international councils on financial and monetary issues.
IAN KINNIBURGH, Director, Development Policy Analysis Division, Department of Economic and Social Affairs, said the Committee's debate included a constructive exchange of views, mixing optimism and pessimism. Private financial markets reacted at a great speed and were very fickle, and therefore they had changed remarkably concerning the prospects in developing countries. It was possible that with some slight changes financial markets would turn to those countries currently being by-passed. A number of those countries had small economies by global standards, and a small amount of investment could make a difference in them.
The vulnerability of emerging markets was a matter of great concern, he continued, and there was a long way to go in that area. One reason for the volatility of flows was the weaknesses of institutions in developing countries. If there was an effort to build the resilience of those institutions, those countries could then attract benefits from the sometime fickle financial flows.
There had also been some change in the area of debt, but most aspects remained constant, he said. Unfortunately, the countries most afflicted were, by and large, the least developed countries. The solution to the debt problem
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needed to be durable and sustainable. Financial markets always looked at financial variables that appeared to be vulnerable. If small, heavily- indebted countries were to succeed in globalized markets, they needed to attract private investment, as other countries had done.
He said the Heavily Indebted Poor Countries Debt Initiative was relatively new, and there was still a large amount of technical work that needed to be done. The eligibility criteria had already been modified, and the track record framework did have some flexibility. There was also the question of resources that needed to be addressed. He could not speak on behalf of the Fund or the Bank about other aspects of the Initiative.
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