INTEGRATION OF ECONOMIES IN TRANSITION INTO WORLD ECONOMY OFTEN LEADS TO HEIGHTENED POVERTY, SECOND COMMITTEE TOLD

20 October 1998

Press Release
GA/EF/2829

INTEGRATION OF ECONOMIES IN TRANSITION INTO WORLD ECONOMY OFTEN LEADS TO HEIGHTENED POVERTY, SECOND COMMITTEE TOLD

19981020 Texts Introduced on Business and Development, Industrial Development Cooperation, Operational Activities for Development

Transition had in many instances resulted in marked changes in the distribution of wealth, leading to heightened poverty, particularly among the most vulnerable segments of society, the representative of Croatia told the Second Committee this morning as it considered the integration of the economies in transition into the world economy.

He added that the changes in the economic system in countries with transitional economies had affected all aspects of their social development, causing increased unemployment and other social problems. Technical assistance, policy advice and aid by the international community should be maintained, he stressed. Ignoring those issues would only result in more serious economic and social problems in the future.

Many economies in transition had made real progress towards macroeconomic stabilization and economic growth, said the representative of the Russian Federation. Unfortunately, those market reforms usually had grave social ramifications. Also, indices of many economies in transition continued to worsen. The task of full integration into the world economy not only remained, but had become more pressing.

The representative of Norway said the current crisis had affected prospects for economies in transition. An example of that trend was the lack of export opportunities to those markets. However, challenges for economies in transition must be met primarily by their governments. There was a need for those countries to carry out good governance, sound macroeconomic policies, transparency, and stability.

To address the crisis, there should be an expansion of the agenda for future cooperation between countries in transition and the agencies of the United Nations, said the representative of Belarus. It was also important for transitional economies to get technical support in establishing relevant institutions for the management of a market economy.

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Statements were also made by the representatives of the United States, Kyrgyzstan, Kazakhstan, Armenia, Poland, Azerbaijan, Romania and Ukraine.

Also this morning, the Committee heard the introduction of three draft resolutions.

Sponsored by Indonesia, on behalf of the "Group of 77" developing countries and China, a text on the triennial policy review of operational activities for development of the United Nations system would have the Assembly emphasize that the pilot phase of the United Nations Development Assistance Framework should promote a country-driven, coherent response by the United Nations system to achieve greater impact at the country level, in conformity with and in support of national priorities as expressed in the country strategy notes or relevant national development plans.

Also sponsored by the Group of 77, a text on industrial development cooperation would have the Assembly request the United Nations Industrial Development Organization (UNIDO) to support the efforts of the developing countries to intensify and expand industrial cooperation among themselves with respect to, among other issues, trade in manufactured products, industrial investments and business partnerships, as well as industrial technology and scientific exchanges.

A draft introduced by the United States on action against corruption and bribery would have the Assembly call upon Member States to take all possible measures to further the implementation of the United Nations Declaration against Corruption and Bribery in International Commercial Transactions and relevant international declarations, and to ratify international instruments against corruption.

The Committee will meet again at 3 p.m. today to resume its consideration of sustainable development and international economic cooperation. Under that general heading, the Committee will discuss renewal of the dialogue on strengthening international economic cooperation through partnership, and cultural development.

Committee Work Programme

The Second Committee (Economic and Financial) met this morning to resume its discussion of sustainable development and international cooperation. Under that general heading, the Committee will take up consideration of integration of the economies in transition into the world economy. It is also scheduled to hear the introduction of draft resolutions on business and development, industrial development cooperation, and operational activities for development of the United Nations system.

A report of the Secretary-General on integration of the economies in transition into the world economy (document A/53/336), reviews the work done by various United Nations agencies and the Secretariat in providing policy advice and technical cooperation to economies in transition. General Assembly resolution 51/175 called upon those agencies to help transition economies develop the social and political framework for economic and market reforms and, in particular, aid in the development of the necessary conditions for attracting foreign investments.

On the activities on the United Nations Secretariat, the report states that the Department of Economic and Social Affairs had undertaken a range of activities to help the economies in transition. Specific projects included the preparation of a strategy for implementing market-based reforms, attracting foreign investment and encouraging export-led growth in the former Yugoslav Republic of Macedonia; and the preparation of a strategy for post-conflict reconstruction and the transition to a market economy in Bosnia and Herzegovina. It had also convened an international workshop on macroeconomic forecasting in the Commonwealth of Independent States (CIS) countries in Moscow, and prepared macroeconomic forecasting models and related training of personnel in Belarus and Ukraine.

Reviewing activities of other bodies, the report states that the United Nations Conference on Trade and Development (UNCTAD) is implementing projects to strengthen the capacity for the management of external debt in Armenia, Belarus and Uzbekistan, and a project in the Republic of Moldova on international financial markets and debt. It has also provided assistance to Belarus, Lithuania, Russian Federation and Viet Nam in elaborating their approaches in the initial phase of accession to the World Trade Organization.

The United Nations Development Programme (UNDP) has also helped economies in transition by devoting special efforts to help them attract foreign direct investments, the report states. In addition to programmes designed to strengthen government institutions, the judiciary and the parliament, the UNDP has supported activities to improve policies, promote good governance and the rule of law, and strengthen the human resource base, all critical to the creation of a business-friendly environment. It has also continued support for the Empretec Programme, which promotes entrepreneurship

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and development of small and medium-sized enterprises in economies in transition.

On steps taken by the Food and Agriculture Organization (FAO), the report states that during 1996-1998, work was initiated to enhance understanding of the role of the agricultural sector during transition with comparative research conducted in Bulgaria, Poland and Slovakia. Technical cooperation projects on agricultural policies and strategies were carried out in Croatia, Estonia and Slovakia, and are currently being carried out in Bosnia and Herzegovina. In the Republic of Moldova, a strategy for the grain sector is currently being elaborated. The FAO also assisted the Albanian Ministry of Agriculture and Food in strengthening its agricultural policy analysis unit, and in its reorganization.

The report also covers the activities of the World Bank and the International Monetary Fund (IMF). In the Russian Federation and Ukraine, the Bank has supported structural reforms aimed at sustained and predictable reductions in fiscal deficits. With Bank support, both Kazakhstan and the Russian Federation are improving tax administration and budget management.

In addition to financial support, the report states, the IMF has undertaken technical cooperation activities in economies in transition in three broad areas: design and implementation of fiscal and monetary policies; institution-building such as the development of central banks, treasuries, tax and customs departments, and statistical services; and drafting and review of economic and financial legislation. That collaboration has included joint financing with the European Union, UNDP, World Bank, central banks and bilateral partners.

On the work of the United Nations Industrial Development Organization (UNIDO), the report states that its activities are being directed primarily to support institutions rather than individual enterprises, thus emphasizing upstream activities such as policy advisory services and institutional capacity-building. A new project in the Russian Federation will strengthen the capacity and capabilities of women managers and entrepreneurs to participate in market economy-oriented activities.

Drafts for Introduction

Sponsored by Indonesia, on behalf of the "Group of 77" developing countries and China, a 55-operative paragraph draft resolution on the triennial policy review of operational activities for development of the United Nations system (document A/C.2/53/L.8) would have the Assembly stress that the needs and priorities of recipient countries require increasing the flexibility and decentralization of operational activities to the country level. It would strongly reaffirm that the efficiency, effectiveness and impact of the operational activities of the United Nations system must be enhanced by a substantial increase in their funding on a predictable,

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continuous and assured basis commensurate with the increasing needs of developing countries. The Assembly would urge developed countries, in particular those whose overall performance is not commensurate with their capacity, to increase substantially their official development assistance (ODA), including contributions to the operational activities of the United Nations system.

Further, by the text, the Assembly would express serious concern at the persistent insufficiency of resources for the operational activities for development of the United Nations, in particular the decline in contributions to core resources, and the need to urgently reverse that trend. It would emphasize that recipient governments have the primary responsibility for coordinating, on the basis of national strategies and priorities, all types of external assistance, including that provided by multilateral organizations, in order to integrate effectively such assistance into their development process.

The Assembly would emphasize that the pilot phase of the United Nations Development Assistance Framework should promote a country-driven, coherent response by the United Nations system to achieve greater impact at the country level, in conformity with, and in support of national priorities as expressed in the country strategy notes or relevant national development plans. The importance of ensuring full government participation in, and full ownership of the formulation of the United Nations Development Assistance Framework would be stressed. It would be noted that the country strategy note remains a voluntary initiative.

The United Nations Development Group would be urged to work in a fully transparent and accountable manner towards a more coherent United Nations performance in the development field, while respecting the specific mandates and identities of its members under the coordination of governments. The Secretary-General would be requested to make the resident coordinator system more participatory in its functioning at the field level by making greater use of thematic groups and adopting a more consultative approach within the United Nations system.

The Assembly would also call for further simplification and harmonization of the rules of procedure used by the United Nations development system in its operational activities, in particular, by the promotion of greater consistency in the presentation of budgets at the Headquarters level, the sharing of administrative system and services, the rationalization of existing procedures in the field, and in the development of common databases in consultation with national governments.

Also, by the draft's provisions, the Assembly would also decide that the objective of capacity-building and its sustainability should continue to be an essential part of the operational activities of the United Nations system at the country level. That would be done with the aim of integrating activities and providing support to efforts to strengthen national capacities

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in the fields of policy and programme formulation, development management, planning implementation, coordination, monitoring and review.

The Assembly would decide that, where governments so desire, the United Nations system should be ready to engage in providing an enabling environment to strengthen the capacity of civil societies and national non-governmental organizations (NGOs) involved in development activities. It would further decide that the United Nations system should use, to the fullest extent, available national expertise and endogenous technologies in the implementation of operational activities.

In addition, the Assembly would call for further work on the development of common guidelines at the field level for the recruitment, training and remuneration of national project personnel, including national consultants, in the formulation and implementation of development projects and programmes supported by the United Nations development system to enhance the coherence of the system.

The Assembly would decide that the members of the United Nations Development Group should continue to work on promoting and expanding national execution, including through the simplification of relevant procedures so as to contribute to the advancement of national ownership.

Further, by the text, the Assembly would request the organizations and bodies of the United Nations system to undertake efforts in the context of national execution and capacity-building to enhance the absorptive capacity in developing countries, in particular in the least developed countries and Africa. All United Nations entities would be invited to mainstream economic and technical cooperation among developing countries in their development activities. The proposal on a United Nations day for South-South cooperation would be welcomed. The UNDP would be requested to substantially increase the allocation of core resources to enable the Special Unit for technical cooperation among developing countries (TCDC) to carry out Assembly mandates. All funds and programmes would be urged to increase procurement of goods and services from developing countries, both as a mechanism for promoting South-South cooperation and enhancing national execution. The need for gender mainstreaming in United Nations operational activities would be stressed.

Also stressed would be the important role of the Economic and Social Council in ensuring coordination of United Nations operational activities for development. The United Nations system would be called upon to bear in mind, in implementing the resolution, the specific requirements of the continuum from humanitarian assistance through rehabilitation to development, while ensuring that scarce resources for development are not diverted to humanitarian assistance and that sufficient additional resources for humanitarian assistance are made available by the international community. The Assembly would decide that, as an integral part of the next comprehensive triennial policy review, in consultation with Member States, it would conduct

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an evaluation of the impact of the pilot phase of the United Nations Development Assistance Framework in the field of operational activities.

By a draft resolution on industrial development cooperation, also sponsored by Indonesia on behalf of the Group of 77, the Assembly would call upon the international community, and relevant bodies and organizations of the United Nations system, in particular the United Nations Industrial Development Organization (UNIDO), to support the efforts of the developing countries to intensify and expand industrial cooperation among themselves with respect to, among other issues, trade in manufactured products, industrial investments and business partnerships, as well as industrial technology and scientific exchanges.

The Assembly would also request that UNIDO undertake an in-depth assessment and analysis of best practices in the area of industrial policies and strategies, and of lessons learned in industrial development, taking into account the financial crisis and the impact of globalization on the industrial structure of the developing countries, bodies and organizations of the United Nations system, in particular UNIDO, in the context of its new programme reorientation, to expand its activities in the promotion of cleaner and sustainable industrial development of developing countries.

The Assembly would also emphasize the importance of financing for industrial development, including the use of ODA, innovative funding modalities, and market based mechanisms and instruments for the industrial development of the developing countries and, in that regard, request relevant entities of the United Nations system, including UNIDO and UNCTAD in the context of their strategic partnership, to intensify their efforts to mobilize resources for the industrial development of the developing countries, especially by means of investment promotion activities, and the development of small and medium-sized enterprises and various forms of business partnerships involving both local and foreign enterprises.

By a draft resolution on action against corruption and bribery (document A/C.2/53/L.7), the Assembly would call upon Member States to take all possible measures to further the implementation of the United Nations Declaration against Corruption and Bribery in International Commercial Transactions and relevant international declarations, and to ratify international instruments against corruption.

The Assembly would request the United Nations Conference on Trade and Development (UNCTAD), the regional commissions, the funds and programmes of the United Nations and specialized agencies within their respective mandates, to assist Member States, at their request, in implementing relevant conventions, declarations, and instruments as well as national programmes to combat corruption and bribery. The work of the Commission on Crime Prevention and Criminal Justice in combating corruption and bribery would be commended. The Secretary-General would be requested to report to the General Assembly's

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fifty-fifth session on measures taken by Member States, regional organizations, NGOs and the United Nations system to implement the text.

The draft resolution is sponsored by Argentina, Bulgaria, Canada, Mexico, Nicaragua, Russian Federation, Ukraine, Uruguay, Venezuela and United States.

Introduction of Draft Resolutions

MOCHAMAD HIDAYAT (Indonesia), on behalf of the Group of 77 and China, introduced a draft resolution on the triennial policy review of operational activities for development of the United Nations system.

PRIANTI DJATMIKO-SINGGIH (Indonesia), on behalf of the Group of 77 and China, introduced the draft resolution on industrial development cooperation.

SETH WINNICK (United States) introduced the draft resolution on action against corruption and bribery.

Statements

DEBORAH LINDE (United States) said that the Russian Federation's transition to democracy was one of the defining economic challenges of the century. The United States had played a leading role in providing support for market reforms there. When policy makers were committed to reform, the International Monetary Fund (IMF) and the World Bank were better able to help nations reach their goals.

Stability had evaporated for the moment in the Russian Federation, but that setback should not destroy what had been achieved in the past years, she said. The United States had helped it build a strong legal system, pursue social development and overcome environmental hazards. Her country had also worked closely with other nations and international organizations to help countries attain political democracy and market economies.

YURY ISAKOV (Russian Federation) said it was necessary to thoroughly analyse the contribution the United Nations system had made to help economies in transition integrate into the world economy, emphasizing adjusting strategies used, given the lessons learned from the financial crisis. That task had been made easier because several United Nations system agencies and the Bretton Woods institutions had recently paid justifiable close attention to this.

By 1998, many economies in transition had made real progress towards macroeconomic stabilization and economic growth, he said. At the same time, the same nations had clearly carried out reforms at different speeds and depths and with different effectiveness. Unfortunately, market reforms usually had grave social ramifications. As the United Nations Development

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Programme (UNDP) Human Development Report showed, indices of many economies in transition continued to worsen.

Therefore, the task of full integration into the world economy not only remained, but had become more pressing, he said. Many countries, including Russia, experienced serious difficulties in free access to markets, and had a pressing need for improved external conditions of trade, financial and economic activities. Russia's accession to the World Trade Organization was not going without a hitch. Additionally, developments in world financial markets had revealed imperfect and vulnerable banking and financial systems in many economies in transition. In these circumstances, the need to improve coordination between the United Nations system and the Bretton Woods institutions was more relevant, and the Bretton Woods bodies needed to solve a new problem of identifying nascent crises.

Forecasts for future growth had been adjusted consequent to the Asian financial crisis and the Russian meltdown, he said. Russia's gross domestic product might shrink by 6 per cent in 1998. Inflation rates in some economies in transition might rise to 30 per cent. Experts said the crisis might have consequences for the entire global economy, and global growth was expected to drop from 3 to 2 per cent.

Perhaps the most important problem for Russia was to restore attractiveness and stability for foreign investors, for which efficient innovative assistance from the international community was essential, he said. The key criteria for such assistance should be: determination of priority tasks, taking into account the specific local economic and social conditions; coordination of all participants in programmes at regional, national and inter-agency levels; and due reflection of the social component in joint efforts. The United Nations had a unique potential to ensure a comprehensive approach.

The Russian Federation took a positive view of the Secretary-General's report, he said. It correctly noted that the United Nations system had a wide mandate and real capabilities to effect full-fledged integration. Russia took the opportunity to express gratitude to all United Nations agencies which were helping solve these problems. In future, the report should not only enumerate measures but should estimate impacts on economies in transition.

OLE PETER KOLBY (Norway) said that the current global financial crisis had affected the prospects for economies in transition, and noted the lack of export opportunities to dynamic markets as an example. His country believed that challenges for economies in transition must be met primarily by their governments. In this respect, Norway would again emphasize the need for good governance, sound macroeconomic policies, transparency, and stability.

He said that it was evident that the region would also need a conducive international economic environment. He added that the European Union played a

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pivotal role in assisting Central and Eastern European Economies. He also emphasized the role of the Organization for Security and Cooperation in Europe (OSCE) in contributing to peace and stability, which he termed a precondition for economic and social progress.

ULADZIMIR GERUS (Belarus) said that, in the last five or six years, countries in transition had seen many successes in carrying out economic reforms. However, the rapidly spreading economic crisis had already brought about substantial corrections in many States in Central and Eastern Europe. To address the crisis, there should be an expansion of the agenda for future cooperation between countries in transition and the agencies of the United Nations. It was also important for transitional economies to get technical support in establishing relevant institutions for the management of a market economy, among other things.

With the spread of globalization and interdependence, it was important to have early warning of crises and mechanisms for deterring the spread of such crises, he said. The economic crisis had caused difficulties in the current stage of the transition process in many countries. Those States counted on international support to deal with the crisis.

MARAT OUSSOUPOV (Kyrgystan) said he was happy to note that the economies in transition were receiving support from the United Nation system. With the help of United Nations Industrial Development Organization, there had been a regional meeting to assist efforts in economic cooperation in Central Asia. His Government had also taken a number of efforts to improve economic management and reform the financial sector, which had helped the process of transforming from a centralized economy to free market relations.

However, his country's lack of outlets to the sea created difficulties to free movement and trade, he said. In that connection, special attention should be given to the revitalization of the Silk Road trading route, which for centuries had been a catalyst for trade and intellectual activity. Development, trade, economies and culture would be improved by restoring the Silk Road trading route.

AKMARAL ARYSTANBEKOVA (Kazakhstan) said that her country viewed the work of the United Nations Conference on Trade and Development (UNCTAD) to develop programmes for improving the efficiency of transport operations in the landlocked Central Asian countries as an important effort to promote the integration of those countries into the world economy. Kazakhstan, was interested in continuing cooperation with United Nations agencies in the area, and planned to act as coordinator of the draft resolution on the transit environment in the landlocked Central Asian States and neighbouring developing transit countries.

She said that a number of important environmental programmes were also under way, including a project for the support of the private sector, the

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development of small and medium-size businesses, and assistance in the conduct of the population census in Kazakhstan in 1999. She announced her country's regional conference, "Central Asia 2010: Economic and Social Development Prospects," organized jointly with the UNDP.

PARUYR HOVHANNISYAN, (Armenia) said that countries in transition had significant potential, including in high-tech and mining industries, and a well-educated, competitive labour force. Yet, as in any other country in transition, foreign investment was crucial. He noted that economic problems were aggravated by landlocked Armenia's economic blockade by Turkey and Azerbaijan.

Armenia had expressed its commitment to develop cooperation and to become a founding member and active participant of the Black Sea Economic Commission, he said. Armenia, considered that maximizing intra-regional economic cooperation with trade as a locomotive was of great importance.

ALEKSANDRA DUDA (Poland) said there was still an urgent need in her country for further restructuring, particularly in sectors of heavy industry and coal mining. Several legislative steps needed to be taken, especially in pensions, health care and taxation -- currently under consideration. In spite of all its efforts, Poland faced a number of problems including widening trade deficits, double-digit inflation and unemployment. The reforms carried out since 1989 were indispensable, although painful for the weakest groups of the population. Poland experienced massive unemployment, drug abuse, other illegal economic activities and organized crime, she said. In cooperation with other countries, Poland was learning to deal with those new ills. In regard to organized crime, the United Nations system was a perfect forum for dialogue and developing cooperation in that field. FIKRET PASHAYEV (Azerbaijan) said the integration of countries in transition into the world economy was very important. Countries in transition had established new markets for capital and markets for a highly qualified labour force. Due to the current economic crisis, there had been a sharp worsening of economic indicators, a drop in gross domestic product, a lack of financial resources to support reforms, a decline in living standards, and a growth in unemployment. An important area for improvement was in attracting foreign capital and investment, he said. His country had taken measures to create a favourable climate to attract investment. A rapid settlement of the conflict with Armenia would promote the flow of foreign capital. OVIDIU IERULESCU (Romania) said the globalization and liberalization process was transforming the world economy and the framework of international economic relations, creating new opportunities and challenges for both. The openness towards integration into the global economy offered a new vision of how States, especially those with economies in transition, had to cooperate in order to achieve economic growth and prosperity, and how better to adapt their national institutional and legal frameworks in order to facilitate successful integration into the world economy. Joint cooperation should be focused on

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the creation of conditions that would better integrate the economies in transition into the multilateral economic system, creating opportunities for them to benefit from the liberalization process prevailing in the world. The integration of economies in transition into the world economy was a complex process in which Romania was assuming its responsibilities at the national, regional and international levels. He said that at the national level, radical political and economic changes after 1990 had marked the country's passing from a centralized to an open economy, based on the principles of a market economy. Romania's experience in the transition process confirmed that speedy reform based on internal political consensus was preferable to the gradual approach to reform. The positive effects of the so-called "shock therapy" approach appeared earlier, both at national level and in relation with integration into the world economy. At the regional level, Romania's main goal, based on national consensus, was full integration, as soon as possible, into the European Union, he said. Romania's accession to the Central Europe Free Trade Agreement (CEFTA) and its participation in the Central European Initiative and the Black Sea Economic Cooperation Organization were convergent with that goal. At the international level, Romania was committed to working closely with all partners in an open and rules-based multilateral system of trade and investment. Romania fully supported the work achieved by the Bretton Woods institutions, the World Trade Organization and UNCTAD in the field of financial flows, trade and investment. SERHIY REVA (Ukraine) said the current global financial crisis had brought new tests for the new emerging market economies. This time, the world financial crisis had left practically no country outside its negative impact. Under those circumstances, Ukraine considered that the only way out was an acceleration of structural reforms, adjustment of national expenditures to the available resources of non-inflational funding, and close work with private creditors. He said the package of anti-crisis measures undertaken by Ukraine had minimized the impact of the crisis on the country's economy and had allowed it to overcome its first wave. Ukraine had managed to keep the inflation level under control, to intensify investments, and to renew the production in some important industries. Moreover, his country was grateful for the timely response of international financial institutions, and had positively assessed efficiency and effectiveness in terms of financial and technical assistance provided. IVAN NIMAC (Croatia) said the changes in the economic system in countries with economies in transition had affected all aspects of their social development, causing increased unemployment and other social problems. Transition had in many instances resulted in marked changes in the distribution of wealth, leading to heightened poverty, particularly among the most vulnerable segments of society. The relatively modest outlays being made at present by the international community in terms of technical assistance, policy advice and aid to countries with economies in transition, should be maintained. Ignoring those issues would only result in the need to confront much more serious economic and social problems in the future. * *** *