COLLECTIVE UNITED NATIONS RESPONSE NEEDED TO ADDRESS EFFECTS OF ASIAN FINANCIAL CRISIS, SAYS HEAD OF REGIONAL COMMISSION

20 July 1998

Press Release
ECOSOC/5783

COLLECTIVE UNITED NATIONS RESPONSE NEEDED TO ADDRESS EFFECTS OF ASIAN FINANCIAL CRISIS, SAYS HEAD OF REGIONAL COMMISSION

19980720 Chiefs of Regional Commissions Address Economic and Social Council, as It Begins Consideration of Regional Cooperation

The Economic and Social Council heard discussion of the regional implications of the Asian financial crisis, as it began consideration of regional cooperation this morning.

Adrianus Mooy, Executive Secretary of the Economic and Social Commission for Asia and the Pacific (ESCAP), said the crisis continued to have a profound impact on Asian economic policies. The resulting economic readjustment was adversely affecting millions of people. The impact of the crisis called for a collective response from the United Nations system, as well as regional and subregional bodies. The main responsibility of States was to determine the correct sequence and speed of liberalization.

The Executive Secretary of the Economic Commission for Latin America and the Caribbean (ECLAC), Jose Antonio Ocampo, said, while the Asian crisis had adversely affected the economies of Latin American and the Caribbean, the fast and firm response of economic and political bodies had built confidence in regional economic management.

The current overall picture in Europe was less favourable than it had been at the beginning of the year, said Yves Berthelot, the Executive Secretary of the Economic Commission for Europe (ECG). Despite dynamic growth in the early part of the year, there were now signs of a slowdown, especially in the United States, where the impact of Asia's decline was being felt. In Western Europe, even though indicators showed continued growth, the aggravation of the Asian crisis and the slackening of growth in the United States could affect the European Union's progress.

K.Y. Amoako, Executive Secretary of the Economic Commission for Africa (ECA), said the continent had been spared the negative effects of the Asian crisis. The simple reason for that was because Africa, out of all the regions in the world, was the least integrated into the global trading system. While that had prevented transmission of the crisis into the African economies, Africa must continue to strive for further integration into the world economy.

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Hazem El-Beblawi, Executive Secretary of the Economic and Social Commission for Western Asia (ESCWA), said the overall economic conditions in the region continued to show improvement, although at a lower rate than the previous year. Oil prices, the continued stalemate in the Middle East peace process, and the United Nations sanctions imposed on Iraq remained the major factor affecting the region's economies.

The Council meets again at 3 p.m. today to hear a presentation by the coordinator of the regional commissions and hold a general discussion on regional cooperation.

Council Work Programme

The Economic and Social Council met this morning to begin its consideration of regional cooperation. As part of its review, the Council was scheduled to hold a panel discussion with the executive secretaries of regional commissions.

To facilitate its discussion, the Council had before it an overview of the economic situation in the region of the Economic Commission for Europe (ECE) (document E/1998/11). The report notes that the economic situation improved significantly in much of the region during 1997. In the market economies of Western Europe and North America, the gross domestic product (GDP) grew at an average of 3.3 per cent, the highest rate since 1989. In the transition economies of Eastern Europe, the Baltic States and the Commonwealth of Independent States (CIS), the average growth rate was 1.7 per cent, making 1997 the first year of positive growth since 1989. The upturn reflects steady growth in Eastern Europe and the end of a seven-year GDP decline in the Russian Federation.

The outlook for 1998 depends, to a large extent, on the ramifications of the complex 1997 Asia crisis, the report states. Actual economic developments also depend on policies the major market economies adopt.

In Western Europe, forecasts point to no change in the average rate of GDP growth, according to the report. In the United States, domestic demand is likely to remain strong, but GDP should slow from 3.8 to 2.5 per cent due to a fall in net exports. Transitional economies are not expected to be greatly affected by the Asian crisis. As an aggregate, the Eastern European GDP should grow by 4.5 per cent, with many of those economies facing the problem of handling large current account deficits. A major uncertainty facing the ECE economies is whether the introduction of the euro dollar will tighten fiscal policies in Western Europe, the report states.

Also before the Council is a survey of the economic and social situation in Africa (document E/1998/12), which states that economic performance in 1997 demonstrated the fragility of the recovery and the predominance of exogenous factors in determining economic outcomes. The growth rate in the region fell to 2.9 per cent of the year before due to low oil prices and weather conditions affecting agricultural output in the southern and northern African subregions. Growth is forecast to rebound to between 4 and 5 per cent in 1988 based on the assumption of better weather, improved trade prices and of peace prevailing.

Reducing and eradicating poverty continue as the over-arching policy challenges facing African governments, the report states. While regional exports grew in 1997, debt overhang remained a major obstacle to recovery and sustainable growth. Perennial social problems in the region continued to reduce political accountability and transparency, and perpetuate institutional weaknesses.

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The focus of regional policy was on mitigating the impact of unfavourable weather, maintaining growth momentum and continuing to implement reform measures, the report states. Policy issues centred on increasing the rate of durable growth; expanding employment; and equitably distributing income in an environment of stable prices.

The economic and social survey of Asia and the Pacific (document E/1998/13) indicates that a slowdown in world trade, particularly in sectors of major export interest to the developing countries of the region, sharply widened the current account balance-of-payment deficits in a number of countries. In addition, reduced private-sector financial flows affected the East and South-East Asian economies while reduced aid flows impinged on the least developed countries. The crisis was expected to influence economic development for at least two to three years hence, with Thailand, Indonesia and the Republic of Korea most severely affected.

Policy issues for the region centred on growth and stability, along with linking growth and equity, the report states. Developing economies in the region were pursuing macroeconomic stability and structural reform, by removing or reducing measures on control of trade and investment, and by opening them to private-sector participation.

The crisis in the region focused attention on the need to an appropriate exchange rate regime and to overcome weaknesses of the domestic financial sectors, the report states. Policy options include slowing financial liberalization through government oversight and slowing adverse consequences of speculation through taxation. Overall, the crisis has focused attention on the need for greater regional cooperation. Cooperation should be extended to policies being developed to promote growth which fosters equity.

The economic survey of Latin America and the Caribbean (document E/1998/14) reports an average regional growth rate of 5.3 per cent with an average inflation under 11 per cent. The growth was stimulated by strong investment and a continued expansion of exports due to increases in volume. Imports still exceeded exports, widening the current account deficit, but the gap was covered by inflows of foreign capital amounting to $73 billion, nearly two thirds of which was in the form of direct investment.

Restrictive fiscal and monetary policies helped reduce inflation, the report states. While the employment situation improved slightly, unemployment continued to be very high in a number of countries due to the fastest-growing sectors of the economy being unable to replace jobs eliminated by restructuring. The unemployment situation continued to undermine efforts to reduce poverty.

Nevertheless, the composition of the capital entering Latin America was more stable than some years ago and the region's banking sector was on its way to resolving some of its problems, the report states. While the growth rate

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would likely slow during 1998, inflation was also likely to continue to slow, reducing the current account deficit.

The survey of economic and social developments in the countries of the Economic and Social Commission for Western Asia (ESCWA) (document E/1998/15) reports that overall economic conditions improved in the region during 1997, due to increased oil production and the initiation or acceleration of economic reforms in many countries. The main factors limiting higher growth rates included an estimated 7.9 per cent decline in international oil prices, periodic closures of the West Bank and Gaza strip borders, political instability, terrorist attacks and continued United Nations sanctions on Iraq.

Unemployment continued to be a problem for many countries of the region, especially in the more diversified economies, the report states. That problem was compounded by the region's relatively high population growth and low economic growth. Inflation rates were low during 1996 and dropped even lower in 1997. Total exports decreased by 4.5 per cent while imports were estimated to have increased by 2.3 per cent. The region's total international reserves (minus gold) improved significantly over the last two years, totalling $52.3 billion in 1997 as compared to $48.6 billion in 1996.

Monetary policy in ESCWA member countries provided stability of exchange rates, and relatively restrictive banking conditions continued to be eased, according to the report. Water scarcity, combined with increasing consumption due to the high population growth and increased development activities, was a major challenge to planners and decision-makers. In addition, the short-term impact of structural adjustment programmes and economic reforms had a negative social impact in some countries. Thus, the pressure of demographic factors, such as rapid population growth, combined with insufficient levels of agricultural production and gradual cuts in subsidization of basic goods, was leading to increased poverty and unemployment among urban poor populations.

Discussion on Regional Cooperation

YVES BERTHELOT, Executive Secretary of the Economic Commission for Europe (ECE), said that while growth in Western economies had been dynamic in the early part of the year, there were now signs of a slowdown, especially in the United States which was feeling the impact of Asia's decline. In Western Europe, indicators showed that growth was likely to continue at a regular, if not moderate, pace. With the aggravation of the Asian crisis and the slackening of the pace of growth in the United States, however, it was not certain whether the European Union rate of growth could be maintained. The introduction of the euro was the only reason for sustained growth.

He said that, in the Central European and Baltic States, growth was uneven. All of those countries were feeling the instability of financial

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markets. If Western economies continue to slow, coupled with the uncertain future of the Russian Federation economy, the efforts of the Central European countries would be compromised. The overall regional outlook for the mid-year was less favourable than the beginning of the year.

He said reforms decided upon in the ECE action plan had been implemented across the board by governments and the ECE. Priorities for work programmes had also been decided. The question now was: how would those countries not members of the European Union be effected by the introduction of the euro? Regarding technical assistance, a decision was made to give priority to those countries not expected to join the European Union in the near future.

One month ago, European Union environmental ministers adopted a convention on access to information and recourse adjustments in relation to the environment. It was hoped that it would be ratified by 2002, he said. Atmospheric pollution, heavy metals and long lasting organic pollutants were the subjects of the convention's protocols. He also stressed ECE's cooperation with non-United Nations regional organizations in the area of energy. The Commission had also established a good relationship with the Organization for Security and Cooperation in Europe (OSCE).

ADRIANUS MOOY, Executive Secretary of the Economic and Social Commission for Asia and the Pacific (ESCAP), said the countries in the region were still struggling with the recent financial crisis. For the current year, many countries would experience negative growth, including Indonesia, Thailand and Malaysia. Inflation had gone up, and the unemployment rate had increased. In an era of globalization, the main responsibilities of the countries concerned was to determine the correct sequence and speed of liberalization. The international community must determine what was the best way to manage globalization, so the capacity of the countries could increase in a way that was consistent with the interests of the world economy.

The ESCAP reform process had been driven by internal motivations and the overall United Nations reform effort, he said. As a result of that process, it was decided that the planned organization structure of the Commission -- to be implemented in the biennium 2000-2001 -- would compromise seven sub-programmes. To ensure congruence between the programmes and secretariat structures, the secretariat was being reorganized in two phases. In April, the Commission members suggested that the regular monitoring and impact assessment capabilities of ESCAP be strengthened, he said. The results of the questionnaire on priorities and resource allocation should be reflected in the programme planning and budgeting process as soon as possible.

New policy guidelines would be established to streamline, review, oversee and monitor ESCAP publications, in order to make the publications programme more responsive to client demands, effective and cost efficient. In addition, a system for self-evaluation of projects was being instituted. Since 1997, on-site

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evaluation of selective projects, with the involvement of donor representatives, had been undertaken.

The continuing repercussions of the Asian financial crisis were having a profound impact on economic policies in the ESCAP region, he said. As economies pass through a re-adjustment process, the lives of millions of people were being adversely affected. The crisis called for a collective response from the United Nations system, as well as regional and subregional bodies.

The ESCAP would continue to be vigilant and mindful of its responsibilities, he said. It would persist in its efforts to intensify the close synergy between policy and operational functions in order to rationalize the work programme and ensure more clearly defined and sharply focused outputs. The ESCAP would also continue to enhance its strategic alliances with relevant United Nations bodies, as well as other agencies and intergovernmental organizations. The Commission would seek to create opportunities for non-governmental organizations (NGOs) and other elements of civil society to participate in its affairs.

JOSE ANTONIO OCAMPO, Executive Secretary of the Economic Commission for Latin America and the Caribbean (ECLAC), said that Latin American and the Caribbean had experience of one of its best years in terms of economic performance. That was characterized by the lowest inflation rates in half a century. Although deficits had grown, financing them had been easy. Foreign direct investment was currently $55 billion, the highest in 50 years. Although the employment situation had improved, region-wide indicators still reflected high levels of poverty. Those concerns needed more attention.

While the Asian crisis had adversely affected Latin America and the Caribbean, the swift response of the region's economic and political bodies, including central banks, had built confidence in regional economic management. He said capital flows and other associated problems of the Asian emergency had not had an immediate impact. The trade fall-out led to the decline in raw material prices.

The Commission hoped that inflation in the region would drop to single digits for the first time in half a century. The ECLAC planned to launch a regular self-monitoring mechanism to gauge the type of services it provided and outputs in terms of cost. The Commission was also about to launch a major effort to disseminate the result of various research projects in an aim to better inform the public about its projects.

HAZEM EL-BEBLAWI, Executive Secretary of the Economic and Social Commission for Western Asia (ESCWA), said that since 1994 developments in the region had propelled ESCWA to carry out a series of wide-ranging reform measures to bring about organizational and programme changes. The Secretary- General's reform process had provided the Commission with an additional impetus and a new direction for forging new relationships both inside and

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outside the United Nations system. In view of the significant developments in the Commission's work, a special meeting was held earlier this year at the ambassadorial level. That meeting enabled the ESCWA secretariat to receive further guidance on the reform process.

The current year also marked ESCWA's permanent relocation to its headquarters in Beirut, he said. That move involved technical, programmatic, legal, financial and personnel aspects. The return of ESCWA to Beirut was a homecoming and a symbol of peace and stability. The event announced the rebirth of the Commission, and the new headquarters was inaugurated by the Secretary-General. The move also coincided with the end of biennium work programme 1996-1997, and the relocation had no adverse affects for the completion of that work programme. The highest rate of performance in the Commission's history was recorded, and that success was due to the reform process.

The overall economic conditions in the region continued to show improvement in 1997, although at a lower rate than the previous year, he said. Oil prices remained the major factor affecting the gross rates of the countries of the region. Deleterious factors included the continued stalemate in the peace process and the economic sanctions imposed on Iraq. Unemployment remained high and reached alarming levels in the occupied Palestinian territories. In addition to social problems, the environmental problems in the region, including water resource management, demanded urgent attention. It also was necessary to strengthen the trade and transport infrastructure. The reorientation of ESCWA had been carried out with those important projects in mind, but the Commission could not succeed alone. Thus, ESCWA was seeking close relations and collaboration with other sister organizations both inside and outside the United Nations system.

The periodic meetings with other United Nations agencies, under the auspices of the inter-agency coordinating group, had continued since the ESCWA relocation. The ESCWA had submitted to the United Nations Development Programme (UNDP) a joint regional project on follow-up to global conferences. That would provide an integrated approach at the regional level to the global conferences. A joint action also was taken by regional gender task forces to give support to the League of Arab States on follow-up to the Beijing Conference on the advancement of women. In addition, ESCWA continued to work with the United Nations Development Fund for Women (UNIFEM), the United Nations Conference on Trade and Development (UNCTAD), and the United Nations Population Fund (UNFPA) in the areas of human development, gender mainstreaming, the eradication of poverty, human settlements and population issues.

K.Y. AMOAKA, Executive Secretary of the Economic Commission for Africa (ECA), said that the trends in economic recovery and management that were taking place in Africa over the last year were positive. Among other things, there was improved economic management, pragmatic leadership, and improved economic

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governance. Regarding the Asian crisis, he noted that Africa had been spared. The simple reason for that was because the continent, out of all the regions in the world, was the least integrated into the world trading system. The mechanisms of the crisis transmission were, therefore, not able to find a way into Africa. The key for Africa, however, was still to integrate itself more effectively into the world economy.

He said ECA reforms included major efforts to increase its efforts at the subregional level. Over the last year, it had undertaken in-depth studies on its relationships with non-United Nations regional organizations. Major steps had been taken to enhance collaboration with the Organization of African Unity (OAU). Meetings with other similar organizations had resulted in a communiqué which encouraged more dialogue and elaborated common African positions in relation to economic direction. In cooperation with subregional organizations, a memorandum of understanding was being prepared. It was felt that further strengthening would lead to closer efforts to promote harmony. Particular attention was also being paid to work being done with civil society. The ECA had established a resource centre where civil society leaders would be brought in to discuss the common challenges that lay ahead.

He said there was also much being done with African and northern NGOs, while effective networks were being established with key policy institutes in the continent. Those networking arrangements were aimed at bringing collective resources together to address African issues and challenges. He said the United Nations presence in Africa was large and growing, but there was a need for rationalization in the work of ECA and the Organization. Overlapping structural organization must be addressed, while there was a need for more coherence in the work of peace, development and humanitarian affairs.

Exchange of Views

In response to questions about the leadership role of regional commissions, Mr. AMOAKO said the commissions were regional outposts of United Nations and part of the institutional landscape of their respective geographic regions. In Africa, there was a strong United Nations presence, including peacekeeping, development assistance and humanitarian aid. Almost all the funds, programmes and specialized agencies were setting up offices in Africa. The ECA was needed to coordinate all that activity. The ECA would explore holding regular consultations with all the actors working in Africa to add more coherence and avoid duplication.

He said the issue of encroachment emanated from agencies that were setting up regional or subregional offices in Africa. They were performing normative work on the same issues as ECA. The problem also involved resource constraints, comparative advantages and competencies. In addition, the decisions taken by the funds and programmes were not always fully consistent with decisions taken by the Economic and Social Council.

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Regarding the United Nations Development Assistance Framework (UNDAF), he said in Africa ECA could play a role in the UNDAF process, even though it was a country-based exercise. The best practices across regions could tailored to the needs of a specific country. After the UNDAF pilot phase, ECA would be more active in the process.

Regarding resources, he said ECA had been through a process of rationalization in order to be more cost-effective. Certain priorities had become more important, and its programmes had acquired a more cross-cutting approach. Yet, it was clear that resources from the regular budget for ECA needed to be increased. It relationship with the Bretton Woods institutions had been excellent and other bilateral agencies had been very supportive. Poverty reduction was the overriding objective of all the programmes implemented in Africa. The ECA, with the cooperation of the World Bank, had identified poverty monitoring and indicators of poverty.

Mr. BERTHELOT said the success of coordination efforts depended on positive attitudes from management, encouragement and mutual respect for the various institutions at the field level. While there had been good cooperation between the ECE and international entities, reform was needed to ensure that ECE coordination with non-United Nations bodies avoided any duplication and overlap.

He said that it was standard to link technical assistance to legal instruments that had been developed by the ECE. The effort was now to make the UNDP and the World Bank aware of conventions developed by the Commission so that they would be applied to. In order to make regional commissions more effective, decentralization of management and budgets was vital.

Regarding the issues of leadership and encroachment, Mr. MOOY said ESCAP had established in 1994 a regional inter-agency committee to improve coordination. While ESCAP was providing the secretariat services and chairing the committee, different agencies chaired the body's 13 working subcommittees. There was a shared leadership. There was a small probability that ESCAP would encroach efforts at the national level because it only had a regional office. The key issue was how to better manage the utilization of funds, and the Council had a role to play.

In response to questions about globalization, he said the problems faced by the affected countries were due to their own mistakes. One had to adopt a process of liberalization that suited the challenges of globalization. While some countries improved economic structures to cope with the challenges, it was difficult to predict what was ahead. Global institutions must manage globalization, taking into account the individual capacities of countries.

Responding to questions about ESCAP programmes in Myanmar, he said the Commission had transportation and poverty alleviation projects that were inter-country in nature. The transport programme aimed to address the missing

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link in the Asian highway between Myanmar and Thailand. Regarding poverty alleviation, ESCAP needed to ensure that the road was improved so that economic activities between Myanmar and Thailand could be further promoted.

Mr. OCAMPO said regional cooperation in Latin America and the Caribbean was very successful and very welcome. The United Nations efforts towards economic and social development could be enhanced by regional commissions. The ECLAC had taken major steps forward in its evaluation techniques, and it was also moving towards full cost estimates of all its major outputs. On encroachment, he said that the most important issue for ECLAC was coordination with the programmes of the UNDP.

Regarding coordination, Mr. EL-BEBLAWI said while it was needed and important, it was also difficult to implement. The regional commissions had not been given a forceful, clear mandate. The growing number of regional offices among the functional agencies could increase duplication. The subregional and regional offices of those bodies should be located in the same city as the headquarters of the regional commission, as geographical proximity facilitated better coordination.

In response to questions about resources, he said increased flexibility, as well as increased resources were necessary to carry out their work programmes. About 85 per cent of ESCWA's budget was blocked for payroll, and, therefore, very little flexibility was available for existing or emerging issues. In addition, there had been a decrease in the extrabudgetary resources from agencies, both inside and outside the United Nations system.

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