GLOBAL ECONOMIC PLAYING FIELD NOT LEVEL, SECOND COMMITTEE TOLD

9 October 1998

Press Release
GA/EF/2820

GLOBAL ECONOMIC PLAYING FIELD NOT LEVEL, SECOND COMMITTEE TOLD

19981009 Economic and Financial Committee Takes Up Macroeconomic Policy Questions

The impact of vast capital flows on developing economies and the vital role of official development assistance (ODA) were among the issues highlighted this afternoon as the Second Committee (Economic and Financial) began consideration of macroeconomic policy questions.

The representative of Indonesia, speaking on behalf of the "Group of 77" developing countries and China, said the global economic playing field was not a level one. Significant private capital flows were speculative and could easily take flight. Developing countries, unable to attract private flows, became more dependent on ODA, which was an early casualty of the process. A new financial architecture and an early warning system involving an adequate surveillance mechanism should be established.

The representative of Austria, on behalf of the European Union and associated States, said intensified development financing must be at the heart of the fight against poverty. Global financial integration had generated a massive expansion of private capital, but it had also challenged national financial and banking systems. Adequate supervisory and regulatory mechanisms, transparency and good governance were necessary to guard against shifts in market sentiment.

The representative of Bangladesh said development financing was an investment in shared human progress. Global prosperity could not be achieved by unqualified advocacy of globalization, a process which benefited mainly developed countries. There was no shortcut to development financing. Markets alone could not do the job.

The needs of the poorest countries should never be considered second class, the Observer for the Holy See told the Committee. He said too few countries had qualified for the Heavily Indebted Poor Countries (HIPC) Debt Initiative, which must be applied fully, more rapidly and flexibly.

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The Under-Secretary-General for Economic and Social Affairs, Nitin Desai, introduced reports by the Secretary-General on financing for development and global financial flows.

Khalil Rahman, the Chief of the New York Office of the United Nations Conference on Trade and Development (UNCTAD) introduced the Secretary- General's report on the debt situation in developing countries as of mid-1998.

Statements were also made by Brazil, United States, Norway, India, Honduras, Tunisia and Panama, on behalf of the Rio Group.

The Committee will meet again on Monday, 12 October, at 10 a.m. to continue its consideration of macroeconomic policy questions.

Committee Work Programme

The Second Committee (Economic and Financial) met this afternoon to begin its consideration of macroeconomic policy questions. It will focus on financing of development, including net transfer of resources between developing and developed countries, and external debt crisis and development.

The Secretary-General's report on global financial flows and their impact on developing countries (document A/53/398) examines the new policy consensus emerging as a result of the Asian currency crisis. It says that policy advice guided by the "Washington consensus" was unable to stem economic decline in Asia or protect distant countries from the contagion.

(The Washington consensus includes fiscal discipline, redirection of fiscal expenditure to health, education and infrastructure, curtailment of subsidies, broadening the tax base and lowering marginal tax rates, elimination of multiple exchange rates, securing property rights, deregulation of the domestic economy, liberalization of foreign trade and investment and financial liberalization.)

Legislators, academics and the business community in major developed economies have challenged the crisis management by national officials and the Bretton Woods institutions, the report says. In April, the Institute of International Finance, which reflects the views of major international commercial banks, expressed reservations about amending the articles of Agreement of the International Monetary Fund (IMF) to make capital account liberalization a major goal.

A new consensus emerged from a July meeting of experts from the United Nations, the IMF, the World Bank, the private sector and academia, advocating a pragmatic modification of some aspects of the Washington consensus. There was an awareness that policy prescriptions must be politically viable. The choice of policies and measures involves a wide range of considerations that would often not be optimal from a purely technical point of view.

Institutions should be robust enough to withstand the perceptions of policy shortcomings; in particular, loss of confidence by short-term investors should not threaten economic collapse, the report says. Institutions should be in place before they are drawn on; for example, safety nets should be set up before a crisis. Sometimes the appearance of institutional change will exceed what is actually achieved; for example, privatizing State enterprises need not by itself produce the expected economic restructuring or competition. Continued monitoring is essential, requiring reliable and appropriate data, and vigorous public discussion of policy and institutional concerns.

The new policy consensus is well aware that international institutions may offer "carrots" or "sticks" to prod policy reform, but it is governments that implement policy decision, the report says. During economic crises,

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international policy advisers can take on unusually powerful roles and must be particularly sensitive to local conditions. For example, in a country emerging from years of civil conflict, priorities normally given to fiscal adjustment have to be weighed against programmes to build confidence in government and development. This could affect the assessment of the government's debt-servicing capacity and foreign assistance requirements. International advisers act on behalf of the broadest interests of the international community and must be sensitive to social and structural fragility.

In its examination of macroeconomic policy in capital-importing countries, the report says macro-policy should aim to attain medium-term goals and incorporate automatic stabilizers to help absorb short-term fluctuations. The ability to use monetary policy for domestic stabilization purposes is inseparable from the choice of the exchange-rate regime, the report says. Financial outflows from a country may reflect a loss of confidence in the local economy and may be triggered by unrelated developments elsewhere.

The report concludes that its outline of the consensus on national and international policies for macroeconomic and financial management is an interim exercise. If the financial storm hitting global financial markets blows over soon, a widespread recession is avoided and the most affected economies resume growth relatively quickly, then the new consensus may be enough to reduce the risks of a similar episode in the future. If, however, the storm worsens, then the changes suggested by the new consensus may not be enough and the policy paradigm for development in a globalized market economy might have to be revised.

The Secretary-General's report on the debt situation of developing countries as at mid-1998 (document A/53/373), draws policy conclusions for constructive proposals to improve debt workout strategies. The focus is on the debt problems of the heavily indebted poor countries and Asian and Latin American middle-income countries affected by the recent crisis.

The total debt of all developing countries and countries in transition at the end of 1997 was estimated at $2.2 trillion -- an increase of 4 per cent or $76 billion over 1996. There was virtually no change in the geographical distribution of debt with Asia and Latin America at 31 per cent of the total; Africa at 16 per cent and Europe and Central Asia at 18 per cent.

Africa still had a high debt burden despite a fall in total external debt of 2 per cent to $324 billion, and an improvement in its debt indicators. The ratio of debt to exports at 205 per cent was improved but remained above the 200 per cent threshold that indicates the existence of debt overhang. The core of the unsolved debt problem is the unsustainable debt positions of the heavily indebted poor countries whose total external debt was $245 billion at the end of 1996. Their debt stock to export ratio is well over 300 per cent and their debt is overwhelmingly public and publicly guaranteed. The marginal

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size of purely private debt and bonds partially reflects the constraints faced by the private sector in securing external financing.

The report outlines the current frameworks that allow a renegotiation of different types of debt. Official bilateral debt is handled within the Paris Club and, most recently, multilateral debt relief is being treated within in the context of the Heavily Indebted Poor Countries (HIPC) Debt Initiative. Commercial bank debt is negotiated within the London Club, while the International Development Association (IDA) Debt Reduction Facility provides funding for the buy-back of commercial bank debt of low income countries. With both the Paris Club and the London Club, the debtor country should in principle have an IMF adjustment programme in place before debt rescheduling. The HIPC Debt Initiative was adopted in 1996 to provide a framework within which multilateral debt of eligible countries could be reduced within six years.

Within both the Paris Club and the HIPC Debt Initiative, creditors determine the rule and procedures for debt-relief operations concerning both country eligibility and the amount and type of debt to be reduced. The HIPC Debt Initiative has the most stringent conditions and requires a complex process of debt-sustainability analysis (undertaken by the World Bank and the IMF) and a long period of proven performance.

The report concludes that debt is again a burning problem on the international agenda. The slow implementation of the HIPC Debt Initiative and the frequency of financial crises affecting middle-income countries after their rapid integration into the global financial markets are a serious concern. The inefficient level of debt-relief financing or debt-rescue packages is an important factor in failure to deal with debt problems expeditiously.

The IMF is the linchpin of international debt workout approaches, whether in the framework of the Paris and London Clubs, the HIPC Debt Initiative or recent debt-rescue packages for middle-income countries, the report says. The international community attaches importance to the IMF role of imposing and monitoring adjustment programmes and mobilizing finance (often with support of and contributions from major creditor countries). Such an approach might tilt too much towards controlling debtor countries and not giving them a voice in determining their own debt sustainability objective, the report observes. Furthermore, too much burden is put on the official sector in providing bail-out financing for private creditors, without sufficiently involving them in an equitable burden-sharing arrangement.

Because of the HIPC Debt Initiative's slow implementation process, only Uganda, so far, has benefited from full-fledged relief, the report says. And only three countries will be considered each year. The slow process may be due to inadequate funding and the complicated methodology for determining debt sustainability and working out burden sharing among creditors.

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To embark all eligible poor countries on the HIPC Debt Initiative process by the year 2000, the report suggests: simplifying debt sustainability analysis and fully involving debtors in determining sustainability criteria; shortening the implementation period; mobilization by the World Bank and the IMF of adequate financing to review all eligible countries which might involve the sale of part of the IMF's gold holdings; increased contributions by bilateral donors to the HIPC Trust Fund to deal with the debt of other multilateral institutions, especially the African Development Bank; bolder action for the poorest of the heavily indebted poor countries, including conversion into grants of all remaining official bilateral debt and clearance of the entire debt stock, if warranted.

The official funding disbursed in response to debt crises has escalated rapidly and threatens to become unsustainable, the report says. The sheer size of financial rescue packages and the rapid contagion of liquidity crises have raised doubt about the IMF's capacity to mobilize emergency financing of the magnitude required by countries in distress. There is concern that providing official financial assistance might shield also creditors and investors from the consequences of bad decisions and sow the seeds of future crises. Suggestions for international frameworks based on a few principles would allow a debtor breathing space while restructuring its economy; provide interim finance (particularly trade finance); ensure equitable burden sharing with private creditors; and lead to an orderly long-term renegotiation of debts.

Such a mechanism would involve more active IMF lending into arrears and the possibility for debtors to have recourse to IMF article VIII 2(b) to suspend payments and impose exchange controls. There seems to be some convergence of views that a policy of lending into arrears potentially provides the IMF and the official community with the opportunity to manage crises by signalling confidence in the debtor country's policies and longer-term prospects.

The Secretary-General's report on recent developments in the net transfer of resources between developing and developed countries (document A/53/228) notes that after several years of substantial net transfers of financial resources to developing countries, capital flows to several countries suddenly changed direction. In July 1997, the Asian currency crisis erupted in Thailand. In December of that year it struck the Republic of Korea. The swing in Asian financial flows dominated the overall changes, which shifted from an inflow in 1996 of $8 billion to an outflow in 1997 of $27 billion.

Policy makers were reminded that they needed to be concerned not only with the overall size of financial transfers but also with the composition of flows, since some flows were more likely to be sustained than others. Although long-term private financing, particularly in the form of foreign direct investment, maintained its pace and direction in 1997, short-term

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financial flows exhibited violent moves. A key question for policy makers thus seems to be how to foster longer-term flows while preventing excessive inflows and outflows of short-term funds. Meanwhile, flows of official development assistance (ODA) continue to decline, increasing the urgency of the question as to how to provide adequate supplies of those essential public funds for development cooperation.

China provides an example of how to avoid being affected by the crisis. China transferred $47 billion in reserves abroad, mostly through the purchase of treasury bills of reserve-currency countries. In Latin America, in 1997, financial disruption was contained as well, as some governments increased interest rates to defend their currencies and restrain domestic spending. Much of the African continent was also bypassed by the Asian currency crisis. In particular, sub-Saharan Africa did not suffer a deterioration in net financial transfers in 1997. The least developed countries, many of which are in sub-Saharan Africa, even saw a small improvement in the net transfer. In 1998, however, both groupings could be said to warrant additional resource inflows to compensate for the negative impact on the terms of trade of the fall in commodity prices, owing in part to the continuing Asian crisis. But, for most of the affected countries, the requisite additional financial flows are not expected to materialize.

As of mid-1998, moreover, volatility of international financial flows had not subsided for more than short periods. Several Asian currencies, the Russian rouble, the South African rand and the Chilean peso, were hit by the exit of short-term funds. Long-term flows and foreign direct investment continued to provide stable financing, while ODA continued to shrink, causing greater reliance on short-term financing.

Member countries of the Development Assistance Committee (DAC) of the Organization of Economic Cooperation and Development (OECD) have always been the largest sources of ODA. In 1997, total DAC aid fell to 0.22 per cent of the combined gross national product (GNP) of DAC countries, putting them the farthest they had been from the target of the GNP since that target was adopted in 1970. It appears that long-standing international cooperation commitments are being re-examined. The United States, once the largest donor, now ranked third, behind Japan and France. The United States aid ratio has fallen to 0.08 per cent of the GNP, a new low. There have also been major aid cutbacks as a share of the gross domestic product (GDP) in France and Germany, taking those countries farther from the United Nations target.

However, the ODA from Japan, the largest donor, increased by 9.6 per cent in constant prices and exchange rates, despite Japan's economic difficulties. Its ODA-to-GNP ratio also increased from 0.20 per cent to 0.22 per cent. Nevertheless, in June 1997 the Government adopted a proposal that would cut the ODA by 10 per cent in yen terms for the fiscal year starting in April 1998.

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The shrinking flows of the ODA are being reflected in the concessional flows from multilateral institutions to developing countries. In particular, the resource commitments of the operational agencies of the United Nations system, which are on a grant basis, have dropped from their high of $3.9 billion in 1995 to $3.5 billion in 1997. It has been a difficult period as well for the International Development Agency (IDA), the World Bank's concessional lending affiliate, reflecting disappointing commitments and also the implementation of new policies at the World Bank on greater selectivity in choosing projects and decentralizing operations. Commitments by the IDA fell in 1997 to 27 per cent of the peak of $7.3 billion reached in 1994.

Concessional lending commitments by most of the regional development banks also fell in 1997, a notable exception being a strong increase from the African Development Fund.

In addition to funds for general purpose lending, multilateral lending institutions have made arrangements for special funding of the multilateral debt-restructuring component of the joint World Bank/IMF initiative for the heavily indebted poor countries. Also, the African Development Bank has established a $150 million supplementary financing mechanism to assist highly indebted low-income African countries to service their loans from the banks.

The multilateral institution that typically deploys the largest amount of international loans, albeit with relatively short maturities, is the IMF. To respond quickly to crisis situations, the IMF set up an Emergency Financing Mechanism and, in December 1997, took an additional step to provide emergency resources beyond its standard loans, when it established the Supplemental Reserve Facility. The purpose of that action was to quickly disburse large amounts of financial assistance to countries in serious financial crisis when it was judged that strong adjustment policies and adequate finance could lead to the correction of a payments imbalance. The Republic of Korea was the first beneficiary of a Supplemental Reserve Facility loan, which was part of a $21 billion IMF standby facility for that country.

Several additional measures to increase its own funding were proposed by the IMF -- an increase in members' quotas, approved in February 1998, and a one time equity allocation of special drawing rights (SDRs) to double their volume. As of mid-1998, the latter had not been accepted. Also, an expansion of the Fund's emergency credit line was still pending in mid-1998.

Statements

NITIN DESAI, Under-Secretary-General for Economic and Social Affairs, introduced the reports on financing development and on global financial flows. He said a new consensus on macro-economic policy had to be framed within the context of development objectives, while also seeking to preserve those objectives. On the issue of the present state of the world's financial economy, he suggested representatives examine reports of the United Nations

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Conference on Trade and Development (UNCTAD) and the Department of Economic and Social Affairs. He noted that the latter had been written before the current crisis worsened.

There was a risk that, in addressing financial volatility, the international community might lose sight of the problem of the fall in long-term net transfers to developing countries of which the ODA was an important component. The level, which had been $35 billion between 1991 and 1996 had fallen. Last year, for the first time since 1990, the net flow was negative and, in 1998, the situation was expected to be worse. Such factors were affecting all developing countries, countries in transition and all emerging markets. There had also been a steady erosion of ODA all through the 1990s. Although recently there had been some signs of improvement. The United Kingdom had announced a big increase in its aid. The impact of the drop in net transfers was crucial in addressing financial instability.

The third dimension to consider was the problem of external debt, he said. The UNCTAD report noted the slow pace at which countries could become eligible for the HIPC Debt Initiative and the way in which they benefited.

KHALIL RAHMAN, Chief of the New York Office of UNCTAD, introduced the report on the debt situation of the developing countries as of mid-1998. He said the core of the debt burden that was unsolved before the East Asian crisis was the unsustainable debt positions of the 41 heavily indebted poor countries. Their total debt was $245 billion at the end of 1996.

The repetitive occurrence of financial crises in developing countries was a serious concern to the international community, which faced a major dilemma in formulating policies towards international capital flows. In the absence of capital controls, financial crises were likely to be increasingly frequent, severe and extensive. When a crisis occurred, defaults were inevitable in the absence of bail-outs. But bail-outs were becoming increasingly problematic. First, they protected creditors from the responsibility and full costs of poor lending decisions, thereby putting the entire burden on debtors. Second, they tended to create a moral hazard for international lenders, encouraging imprudent lending practices. Third, the funds required for bail-outs were reaching the limits of political acceptability.

The international community should give priority to working out a durable solution to the debt problems of the heavily indebted poor countries and middle-income countries affected by the recent financial crisis, he said. Adequate amounts of debt reduction were needed to remove the debt overhang and allow countries to demonstrate their ability to service remaining debt. That would put them back on a sustainable growth path.

MOCHAMAD SLAMET HIDAYAT (Indonesia), on behalf of the "Group of 77" developing countries and China, said that while financial flows for

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development had always posed a central concern for developing countries, the spreading financial crisis which struck Asia in 1997 had added a graver sense of urgency to this year's Second Committee meetings. He welcomed reports which significantly addressed the volatility of financial flows, including the impact and the distortions they had wrought on growth and development, in particular in developing countries.

Significant amounts of the private flows of capital were of a speculative nature and could easily take flight, he said. Developing countries which were unable to attract private flows became more dependent on ODA, and ODA had become an early casualty of this process. Vast numbers of people had slipped below the poverty line while the poorest and most vulnerable developing countries had plummeted into extreme poverty and destitution, putting intolerable pressures on their political and social fabric.

It had become clear that the playing field of the global economy was not a level one. There was, therefore, a dire need for a new architecture to be established. In that regard, there was also a need for an early warning system involving an adequate mechanism of surveillance. Where appropriate, macroeconomic policy and monetary and financial authorities and institutions should be coordinated, he said.

He also called attention to the importance of social safety nets integrated in the Secretary-General's report, and noted the financing and debt questions, which now seemed to threaten a global recession, if not a frightening depression.

HANS-PETER GLANZER (Austria), on behalf of the European Union, the Central and Eastern European countries associated with the European Union, Bulgaria, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, Slovakia, Slovenia, Cyprus and Iceland, said that the sudden reversal of the net transfer of resources caused several countries to suffer negative effects, although others with sound fiscal policies in place could contain financial disruption.

In contrast to the volatility of short-term borrowing, he noted, foreign direct investments continued to increase in 1997. The European Union was aware that private financial flows alone could not solve the world's ills. The ODA had to be used more effectively, he said, and although 40 per cent of the decline in ODA was attributed to the fall in the exchange rate against the United States dollar, the declining trend of total ODA, in particular of grant assistance to operational agencies of the system, was a concern.

Intensified financing for development, he said, must be at the heart of the fight against poverty. Global financial integration had helped generate a massive expansion of private capital, but that integration challenged national financial and banking systems in ensuring the sustainability of such flows,

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adequate supervisory and regulatory mechanisms, transparency and good governance were important in order to guard against vulnerability to shifts in market sentiment. The Union, therefore, welcomed measures proposed at the recent meeting of the IMF Interim Committee in order to make surveillance by the Fund more effective, to enhance transparency and to disseminate the best practices for regulation and supervision.

CELSO AMORIM (Brazil), spoke on behalf of the Common Market of the South (MERCOSUR) countries -- Argentina, Paraguay, Uruguay and the associated countries of Bolivia and Chile. He said that, given the impact of the financial crisis, it was important to strengthen the Bretton Woods institutions and to improve social, human and environmental aspects, an agenda expected from the United Nations. The recent meeting between the United States Secretary of the Treasury and the United Nations Secretary-General was welcome. The Secretary-General's report on world financial flows highlighted the difficulties confronting the international community.

Relations between international institutions and governments should be frank, based on trust and respect for transparency, he said. Multilateral institutions could not become sources of privileged information for private investment. Liberalization should respect the individual circumstances of different countries. The new architecture to strengthen institutions in crisis prevention and management must balance vulnerable sectors and ensure participation of developing countries in decision-making. It was important that a policy consensus should be concerned with the possibility of a decline in ODA, the promotion of domestic environment and the effects of direct foreign investment and capital flows.

ANWARUL KARIM CHOWDHURY (Bangladesh) said development financing was more than an undirected transfer of resources out of political compulsions. It was an investment for shared human progress. Global prosperity could not be achieved by unqualified advocacy for globalization, as the process was benefiting mainly developed and only a few developing countries. For most weaker economies, prior investment was necessary to tide them over the initial impact of globalization and to build the needed capacity to benefit from it. There was no shortcut to development financing. Markets alone could not do the job.

He said the Secretary-General's report on financing of development painted a gloomy picture of ODA. In 1997, aid continued to dry up and ODA fell by 14 per cent in real dollar terms. Few donors had maintained or even increased their level of aid despite the contraction by some of the richest nations. Four European countries continued to provide exemplary commitment to international development by keeping their aid flow above the United Nations target. In order to prepare for a high-level consultation, the Committee needed to focus on several major elements -- development financing should start with the mobilization of domestic resources for development, the allocation of national expenditures, and the prioritization of fiscal

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spending. The private sector also needed to be examined and there should be a review of legal and administrative structures to provide for speedy growth.

SETH WINNICK (United Staates) urged his colleagues to think about the financial architecture and financing for development as separate areas for discussion. He questioned the use of the term "consensus" in one of the Secretary-General's reports, and noted that his country did not necessarily agree with the report in its entirety.

Following his remarks, the United States representative made available the written text of his statement to the Committee, which he invited representatives to read.

Mr. DESAI, Under-Secretary-General for Economic and Social Affairs, responded by pointing out that the report contained the term "Washington consensus" and did not indicate a general consensus among the Members. The phrase "Washington consensus", he said, was one which had become commonly used. He added that there was extensive consultation in all deliberations, and that the intent of the report was to provide the Second Committee with a digested assessment.

OLE PETER KOLBY (Norway) said that to reverse the downward trend in ODA it was important to assure donor countries that it worked, that it led to substantial benefits and was not subject to bureaucratic tangles, incorrect practices or financial misconduct. His country favoured a new partnership between developed and developing countries -- a partnership based on good governance and results-oriented policies in developing countries, and a commitment on the part of developed countries to reach the 0.7 target set a long time ago. Norway had reached that target long ago, and planned to further increase its ODA until it reached the 1 per cent mark.

His country had repeatedly stressed that the dependence on a small group of donors for ODA was not tenable, he said. It was unrealistic to believe that, in the long run, a few countries would provide such a large share of ODA while most countries were not contributing to their capacity. Broader-based solidarity was needed. Whatever its benefits, ODA was not enough to lift developing countries out of poverty. Private capital was essential for economic growth and social development. To attract sufficient foreign investment, governments in recipient countries must ensure the right environment and conditions. Sound economic policies, respect for human rights, broad-based social investments and good governance were all essential. But the Asian financial crisis had shown that sound national economic policies were not enough to foster sustained growth and development.

The HIPC Debt Initiative was very constructive, he said, but additional measures were needed to solve the debt problems. His Government had just launched a new debt-relief strategy of bilateral debt-reduction measures to be applied on top of reductions made under multilateral schemes. A broad-based

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multilateral partnership was needed to alleviate the problems of the most vulnerable economies and sectors, and the United Nations should be at the centre of such efforts.

KAMALESH SHARMA (India) said that he wished to concentrate on the subject of financing for development. There was need for much better regulation and supervision of the financial system in all countries based on a common set of norms, better information and transparency and greater surveillance. There should be a focus not only on the financial systems of recipient countries but also on financial institutions in the capital exporting countries. Whether the IMF was sufficiently equipped to serve as donor of last resort was also of interest, he said. He questioned at what stage private sector creditors could be involved in orderly debt workout, and where full convertibility of capital accounts introduced too much potential instability.

HUGO NOE-PINO (Honduras) said Central American countries were playing their role in adopting macroeconomic reform strategies. The burden of foreign debt limited the prospects for growth and it was the poorest countries which suffered most severely under debt servicing. He then spoke of the impact of the HIPC Debt Initiative, enhanced structural adjustment facilities and the Paris Club which were all aimed to provide various kinds of broad financial relief from the debt burden. Various eligibility criteria for such programmes should be reviewed to ensure that they did not create obstacles for countries. A shorter review period would still allow countries to demonstrate their commitment to sound economic policies and thus free their resources for further development. It was important for poor countries to be able to channel resources into development areas, such as health and education. He said there were questions as to whether artificial barriers and structural adjustment programmes had improved or exacerbated the situation in developing countries.

He did not want to ignore progress in the treatment of debt at the international level, he said. However, the problem inhibited the ability of developing countries to participate in the global economy. They had a problem of access to markets not because they lacked sound economic policies, but because of previous barriers and obstacles that prevented their participation. He said he hoped that the United Nations would continue to address such problems.

ABDERRAZAK AZAIEZ (Tunisia) said that policies based on the Washington consensus were not a panacea for ending underdevelopment. As the Secretary- General's report pointed out, the measures had not put a brake on economic decline nor had they stopped the fallout from the Asian financial crisis. Privatization did not lead to dissemination of knowledge. Some initiatives did not deal with fundamental problems or protect the economies of developing countries from speculative actions. It was often difficult to distinguish between speculation and long-term investment. Developed countries must take

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into account conditions in developing countries. Given the limits of the World Bank's role, it was important to consider the proposals of UNCTAD.

JUDITH M. CARDOZE (Panama) spoke on behalf of the Rio Group. She said the United Nations was the ideal forum for international discussion on economic problems. Dialogue should pay attention to a number of factors, including the effects of the massive movements of capital. The Committee must pay attention to criticisms of the international financial system. Many formerly highly praised systems were now damaged. It was important to understand that the flows from investment portfolios did not always coincide with the needs of developing economies. The sustained reduction of ODA had obliged many countries to seek recourse to private flows, which were restricted to a few economies. The volatility of such flows had been vividly demonstrated.

She said reform of the financial monetary system mechanisms was important for creating a more favourable international economic environment. The Rio Group was concerned with the enormous debt of developing countries, which needed new and more flexible terms of payment. The international community must continue to explore new formulas and alternatives that did not affect national programmes. The heads of government and State of the Rio group affirmed their commitment to responsibly managed economic management and growth.

Monsignor GEORGE PANIKULAM (Holy See) said that in his Apostolic Letter, "Tertio Millennio Adveniente", Pope John Paul II expressed the hope that Christians would propose the year 2000 Jubilee, "as an appropriate moment to give thought, among other things, to reducing substantially, if not cancelling outright, the international debt which seriously threatens the future of many nations".

International financial institutions, he said, had drawn up an initiative for the highly indebted poorest countries, the HIPC Debt Initiative, but the number of countries which had so far qualified for debt relief under that programme was too few. It must be applied fully, more rapidly and flexibly. Debt relief, he said, was part of the question of establishing a more equitable relationship between developing and developed countries. The needs of the poorest countries should never be considered second class.

Levels of aid were at an all time low, he added. A new consensus on international development cooperation was therefore urgently needed. The social impact of all economic reform programmes must be continually examined and verified in a transparent way.

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