ASSEMBLY WOULD CONVENE SPECIAL SESSION TO REVIEW IMPLEMENTATION OF ICPD OUTCOME, BY DRAFT RESOLUTION INTRODUCED IN SECOND COMMITTEE

4 November 1997

Press Release
GA/EF/2784

ASSEMBLY WOULD CONVENE SPECIAL SESSION TO REVIEW IMPLEMENTATION OF ICPD OUTCOME, BY DRAFT RESOLUTION INTRODUCED IN SECOND COMMITTEE

19971104 Another Draft Calls on Member States, UN System to Address Root Causes of Migration; Committee Holds Panel Discussion on Emerging Markets

The General Assembly would decide to convene a one-week special session in June 1999 to review the implementation of the Programme of Action adopted by the 1994 International Conference on Population and Development, by the provisions of one of two draft resolutions introduced this afternoon in the Second Committee (Economic and Financial).

Sponsored by the "Group of 77" developing countries and China, and introduced by the representative of the United Republic of Tanzania, the draft would also have the Assembly decide that the Commission on Population and Development should serve as the preparatory committee for the special session. The Secretary-General's report on the outcome of the quinquennial review of the Programme of Action's implementation should contain an assessment of the progress achieved in the implementation and recommendations for future action, also according to the draft.

By another text, also sponsored by the Group of 77 and China, the Assembly would urge Member States and the United Nations system to strengthen international cooperation in the area of international migration and development in order to address the root causes of migration. The Secretary- General would be requested to submit to the Assembly's fifty-fourth session a report recommending ways and means to address the problems related to migration and development, including the possibility of convening an international conference on international migration and development.

Also this afternoon, the Committee held a panel discussion on "Financial and Development Issues in Emerging Markets". The Associate Administrator of the United Nations Development Programme (UNDP), Rafeeuddin Ahmed, introduced the members of the panel: Ariel Buira, Member of the Board of Governors of the Banco Nacional of Mexico; Linda Lim, Associate Professor of Business Administration and Director of South-East Asia Business Program, University of Michigan; and Arjun Sengupta, Member of the Indian Planning Commission.

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Summarizing the issues raised by the panel, Mr. Ahmed said the private sector had assumed an increasingly larger role in the development process. The efficient functioning of financial markets required sound policy advice and a strong national capacity to manage those markets. Capital investment must be spread more broadly to limit risks and to increase the benefits for the whole society. Increased official development assistance could help facilitate the broadening of private flows.

The panellists noted that development cooperation had a crucial role to play in bridging the gap between countries that were receiving capital flows and those that were being bypassed. In addition, a mechanism should be created to prevent national economic crises from occurring. It was suggested that a contingency facility could be established. If the international community could produce a package of 50 to 60 billion dollars to rescue one particular country, that meant it was not adverse to taking contingency actions. The International Monetary Fund (IMF) could determine which countries were eligible to use such facility. That was precisely the reason the IMF was created: to help industrial countries that faced a sudden crisis. It was preferable to take preventive measures than to wait until the damage had been done, they concluded.

The Committee will meet again at 3 p.m. on Wednesday, 5 November, to consider the special session for review and appraisal of the implementation of Agenda 21 and the implementation of decisions and recommendations of the United Nations Conference on Environment and Development (UNCED).

Committee Work Programme

The Second Committee (Economic and Financial) met this afternoon to hold a panel discussion on "Financial and Development Issues in Emerging Markets", to be moderated by Rafeeuddin Ahmed, Associate Administrator of the United Nations Development Programme (UNDP).

The Committee was also scheduled to hear the introduction of two draft resolutions on the following topics: population and development; and international migration and development, including the convening of a United Nations conference on international migration and development.

By a draft resolution on population and development (document A/C.2/52/L.15), sponsored by the "Group of 77" developing countries and China, the General Assembly would decide to convene a one-week special session in June 1999 to review and appraise the implementation of the Programme of Action of the International Conference on Population and Development (Cairo, September 1994). It would also decide that the Commission on Population and Development should serve as the preparatory committee for the final preparations for the special session. The Secretary-General's report on the outcome of the quinquennial review and appraisal of the implementation of the Programme of Action should contain overall assessment of the progress achieved

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and constraints faced in the implementation of the Programme of Action, as well as recommendations for future action. In addition, the Assembly would decide that the thirty-second session of the Commission shall be open-ended to allow the full participation of all States.

By a draft resolution on international migration and development (document A/C.2/52/L.14), also sponsored by the Group of 77 and China, the Assembly would urge Member States and the United Nations system to strengthen international cooperation in the area of international migration and development to address the root causes of migration, especially those related to poverty, and to maximize the benefits of international migration to those concerned. The international community would be called on to make the option of remaining in one's country a viable one for all people. To that end, efforts to achieve sustainable economic and social development, ensuring a better economic balance between developed and developing countries, should be strengthened.

The Assembly would call upon the United Nations system and other intergovernmental, regional and subregional organizations to address the issue of international migration and development and to provide appropriate support for interregional, regional and subregional processes and activities on the subject. In addition, the Assembly would request the Secretary-General to submit to it at its fifty-fourth session a report recommending ways and means to address the problems related to migration and development, including the possibility of convening an international conference on international migration and development.

Panel Discussion on Emerging Markets

RAFEEUDDIN AHMED, Associate Administrator, United Nations Development Programme (UNDP), introduced the members of the panel on "Financial and Development Issues in Emerging Markets": Ariel Buira, Member of the Board of Governors of the Banco Nacional of Mexico; Linda Lim, Associate Professor of Business Administration and Director of South-East Asia Business Program, University of Michigan; and Arjun Sengupta, Member of the Indian Planning Commission.

In introductory remarks, Mr. AHMED said globalization offered benefits and risks, and its benefits did not automatically accrue to everybody. Some regions, and groups within countries, might be left behind. The pluses and minuses of globalization had always been of interest to the Committee, and globalization was central to the broader issues before the Committee. Today, delegations would have the opportunity to hear the views of individuals from the so-called emerging markets, who would offer a number of different perspectives.

ARIEL BUIRA, Member of the Board of Governors of the Banco Nacional of Mexico, said that in the absence of macroeconomic distortions of prices in the

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economy, capital inflows supplemented public savings and attracted greater consumption and investment. Countries with inflows usually had undergone structural adjustments programmes, and new opportunities had arisen for privatization and capitalization efforts.

Concerns had led some countries to adopt cautious attitudes in the management of economic policy by "throwing sand in the wheels of capital inflows", he said. Inflows also caused an appreciation in the exchange rate and contributed to the reduction of domestic savings. A country's large deficit could make investors nervous and cause them to withdraw investments. Vulnerabilities were compounded if the financial institutions were weak and could not withstand a major reversal of capital flows. One way to accomplish that could be the development of pension programmes.

Measures to discourage short-term capital investment might be looked at as a means to reduce risks of market imperfections, he said. In the event of capital withdrawal, a difference might arise between individual and social costs. A massive capital outflow might cause the financial collapse of an economy, while investors that get out first increase the cost of others who get out later. There had been a shift in power from governments to markets, and there had been a loss of autonomy for national authorities in designing and conducting national policy. Sound policies were not by themselves efficient to ensure stability and protect countries from financial crises.

At the end of 1995, 22 developed countries and 18 developing countries controlled 91 per cent of international reserves, he said. The rest of the world, 145 countries, had historically held a small total share of world reserves. Those countries were forced to acquire more adequate reserves only through expensive borrowing in the markets or by compression of domestic demand and imports, which was not amicable to their growth and development efforts. They were forced to rely on exports to satisfy liquidity needs, but many did not have a diversified export base and were vulnerable to swings in export prices. Restricting imports implied restricting investments and, therefore, slow economic growth. That was inconsistent with the Articles of Agreement of the International Monetary Fund (IMF). The IMF had not played the role entrusted to it in the area of distributing international liquidity.

The volatility of capital called for more integrated and globalized capital markets, he said. The amount of capital traded in international markets had surged in recent years and provided expanded opportunities for both borrowers and lenders. However, there were negative consequences as well, in that markets often experience periods of unwarranted expansions of liquidity followed by periods of inadequate expansion. That posed new challenges for the international community, and many countries were unprepared.

Country risk analysis was often dominated by herding behaviour, he said. A country might loose its credit overnight, and the authorities would not be

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allowed adequate time to react. In many cases, the process of restoring credit worthiness was unduly delayed, causing it to be more protracted and uncertain. The new challenges posed by the growth and liberalization of markets showed cause for a parallel development of financial institutions to act as overseers and, when appropriate, regulators of international capital flows. Investors must be made aware of the impact of their actions on the economy of the country and be offered incentives to act responsibly from a social point of view.

LINDA LIM, Associate Professor of Business Management and Director of the South-East Asia Business Programme of the University of Michigan, said the South-East Asian experience had shown that capital market liberalization was beneficial in the long run to economic growth in developing countries. But if it proceeded in advance of the proper institutional and skill development and without the underlying political, administrative and private sector capacity to manage both liberalization and growth, growth would likely be interrupted and restrained by the costs of increased risk and volatility.

The region's record to date and its prospects even at that darkest moment, however, suggested that the costs of financial market liberalization were both manageable and substantially outweighed by the benefits, she said. Perhaps the best indicator of that was that Thailand and Indonesia had both responded to their current crisis by liberalizing foreign exchange ownership restrictions with initial positive responses from investors.

She said going back to a world where capital was controlled by a powerful few acting in their own interests was not the answer. Going forward to a more democratic, though perhaps more volatile, world where it could be accessed by many was the answer. But rushing blindly headlong down the path of capital market liberalization without being properly prepared for the journey would lead to inevitable stumbles.

To ensure stability and promote the efficient utilization of capital, she said, governments needed to manage their own fiscal and monetary policies to ensure that fixed exchange rates were credible in terms of underlying economic fundamentals, or they should let their exchange rates float. Capital markets functioned efficiently only if they were supported by the proper public or collective institutions, including adequate regulation and supervision of and disclosure by financial sector actors. Private financial and industrial companies needed to manage their loans better, such as through use of credit evaluation, risk assessment and insurance techniques and procedures. Management expertise was critical.

ARJUN SENGUPTA, member of the Indian Planning Commission, said net resource flows to developing countries were increasing and increasingly consisted of private flows. The proportion of foreign aid of net flows was decreasing. The international community needed to look for methods to increase private flows to the developing countries and learn how to manage

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those flows. The "Mexican lesson" showed one aspect of management, and the situation in South-East Asia showed another aspect of management.

Hindsight showed many ways that the authorities in Thailand or Malaysia could have resisted the tendencies that occurred there, he said. In the business of managing, one could not make exposed judgements all the time. It was important to look at methods of assessing market sentiments and try to operate in the market so flows moved in the right direction. In terms of all the criteria of the international monetary system, the South-East Asian countries were doing extremely well; their economies had been growing for the last 25 years at double world economic growth rate.

Private investors had full confidence in the performance of the South- East Asian economies and their ability to pay, he said. As long as an economy was growing, it was hard to tell when exactly the level of borrowing had passed the level of prudence. Perhaps investments were made too much in real estate or non-credible sectors. In a well-performing economy, it was rate of return over costs that mattered to private investors. There had been no expectation of a major change in the exchange rates.

Implementing prudent regulations was easier said than done, he said. It was extremely difficult to hedge against movements in totally exogenous factors. The line between prudent regulation and over-regulation was thin. When regulators started examining every investment portfolio and making too many rules, it went against the present global economic trend. One solution might be to establish a contingency facility. If the international community could produce a package of 50 to 60 billion dollars to rescue one particular country, it meant that it was not adverse to take contingency actions. The IMF could determine which countries were eligible to use the contingency facility. That was precisely the reason the IMF was created: to help industrial countries that faced a sudden crisis. The existence of such a mechanism could be enough to discourage a speculative run.

Private flows were notorious for neglecting many developing countries, he said. Such flows were concentrated in 12 to 20 countries in the world, and 12 countries accounted for 75 per cent of private flows in the last five years. If private flows were going to be the main source of resource transfers to developing countries, foreign aid must be used to help private finance to come into those countries. Schemes should be developed which would allow the international community to use the meagre sources of foreign aid available to increase the flow of private investment.

Following the introductory statements, a few delegates asked whether the pursuit of sound fiscal and monetary policies were enough to shield a market from attack; whether financial speculators from developed countries were exploiting the fragility of South-East Asian countries; whether there were lessons that small economies could learn from the South-East Asian financial crisis; and what were the preconditions for orderly liberalization.

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The panellists stressed the need for sound monetary and fiscal policies for a market to withstand attacks from speculators and the establishment of an emergency facility to bail out any market in trouble. Such a facility would discourage speculators from attacking that market. That fund should be used to support a market from collapse. The current situation of channelling funds to a market after a crash was not helpful. The international community must be prepared to deal collectively with market fragility. Speculators were not necessarily bad people. Better disclosure about the true health of a market; knowing when to pull out of a market; providing adequate information about the activities of the private sectors; better regulatory and supervisory measures; and phased liberalization of the private sector were needed to avoid crises such as the one now faced by South-East Asia. Countries needed to assess their own capacity well. They need to invest in their managerial capacity. They must resist opening their stock markets to everybody who wanted to come in until they could manage them well.

Summarizing the issues discussed by the panel, Mr. AHMED said the private sector had assumed an increasingly strengthened role in the development process. At the same time, the recent financial crisis in South- East Asia had shown how unpredictable market forces could have severe effects on whole regions and beyond. The efficient functioning of financial markets depended on more than just the right policy advice. It also depended on a strong national capacity to manage those markets, particularly in the banking sector.

Weaknesses in the financial sector required institution- and capacity- building in both the public and private sectors, he said. On the public side, supervision and regulation had to be strengthened and tightened in order to block over-borrowing in times of rapid economic growth. On the private side, it was essential to build better bank management. Investments that fostered broad-based development made countries less vulnerable than investments in few capital bases and sectors. Emerging financial sectors should not be restricted to real estate and stock markets. Investment must be spread more broadly to limit risks and to increase the benefits for the whole society. Increased official development assistance could help facilitate the broadening of private flows.

The panellists had noted that development cooperation had a crucial role in bridging the gap between countries that were receiving capital flows and those that were being bypassed, he said. It was also pointed out that even countries with sound macroeconomic policies and banking systems could be subject to the vagaries of international capital markets. A mechanism needed to be established to prevent such shocks from taking place. It was better to have a preventive mechanism than one that was implemented only after the damage had been done.

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Introduction of Draft Resolutions

J. KISIRI (United Republic of Tanzania), speaking on behalf of the "Group of 77" developing countries and China, introduced the resolutions on population and development and international migration and development, including the convening of a United Nations conference on international migration and development.

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