COMMITTEE TOLD NO LONG-TERM ESCAPE FROM INDEBTEDNESS CRISIS POSSIBLE WITHOUT PROVISION FOR SUSTAINABLE GROWTH, DEVELOPMENT

Press Release
GA/EF/2865

COMMITTEE TOLD NO LONG-TERM ESCAPE FROM INDEBTEDNESS CRISIS POSSIBLE WITHOUT PROVISION FOR SUSTAINABLE GROWTH, DEVELOPMENT

Second Committee Concludes Debate On Macroeconomic Policy Question

The failure to find a lasting and equitable solution to the external debt crisis had allowed creditor countries to take actions against debtor countries that amounted to political strangulation, the representative of Libya told the Second Committee this afternoon as it concluded its consideration of macroeconomic policy questions.

External debt was the most serious obstacle to development in developing countries, he continued, with the burden carried by African countries being heavier than by any other. Despite the good faith manifested by creditor countries, many were reluctant to address the problem holistically. He hoped that the various initiatives adopted by the international community to provide debt relief would not be laden with conditions. While those proposals contained some viable remedies, what was dangerously lacking was political will to recognize the right of human development.

The representative of the Philippines said that a durable solution to the debt problem of developing countries should not simply provide a definitive exit from their unsustainable debt burden. It should also put them on a path towards sustainable economic growth and development. Laudable though the Cologne initiative and the United States pronouncements on debt relief were, there was a need to avoid the usual web of procedural complications, and the required financing for the Heavily Indebted Poor Countries (HIPC) Debt Initiative must be made immediately available. The “Cologne HIPC flexibilities” should be made retroactive to countries that had already completed their negotiations before the meeting of the G-7 group of industrialized countries in Cologne.

The representative of South Africa said that the net transfer of the meager resources of the Least Developed Countries (LDCs) to developed countries condemned them to a state of perpetual underdevelopment. Failure by developed countries to meet their commitments, and the half-hearted implementation of the outcomes of the

Second Committee - 1a - Press Release GA/EF/2865 10th Meeting (PM) 11 October 1999

Uruguay Round of multilateral trade negotiations, worsened the situation. Additionally, the indebtedness was a disincentive for Foreign Direct Investment (FDI).

It was important, he said, for African countries to address the question of the “flight of capital”, particularly that which was obtained through illegal means. It was incongruous for a corrupt elite to engage in illicit transfers of capital -- and still expect others to invest their resources in Africa’s economy.

Statements were also made by the representatives of Botswana, Venezuela, Haiti and the Republic of Korea.

The Committee will meet again at 10 a.m. tomorrow to begin its consideration of the implementation of the first United Nations Decade for the Eradication of Poverty (1997-2006).

Committee Work Programme

The Second Committee (Economic and Financial) met this afternoon to conclude its consideration of macroeconomic policy questions.

Statements

Z. J. NTAKHWANA (Botswana) said that at a recent high-level seminar on African debt, attended by Finance Ministers from sub-Saharan Africa, representatives of the United Nations Development Programme (UNDP), the World Bank and the International Monetary Fund (IMF), it was concluded that debt relief alone was not a panacea, and that Africa was in need of an integrated approach to the goals of economic growth and social development. In addition, accountable systems of government and sound economic management principles must be embraced, and the debt solution must be consistent with sustainable and long-term social and economic development. Another conclusion was that a successful solution to the African debt situation demanded an intricate and deep understanding of its structure, nature and origins.

The Seminar also made some proposals for possible options to address the way forward, he continued. First, there must be a reduction in the time frame required before the securing of debt relief. Second, there should be a relaxing of stringent requirements pertaining to fiscal and other ratios. Third, the Heavily Indebted Poor Countries (HIPC) initiative must facilitate greater aid flows -- and in particular, positive net flows, even after cancellation of the debt overhang. Further, it was vital to develop a framework to ensure that savings accruing from debt relief were directed towards priority Government expenditure. Lastly, there should be a debt write-off for both bilateral and multilateral debt for all African countries.

MARIO GUGLIELMELI (Venezuela) said that as a developing country dependent on the export of its commodities, Venezuela had been seriously affected by the drop in income from oil sales. His country had honoured each and every one of its international commitments. Despite the economic difficulties it faced, its external debt had been cut down over the years. It was necessary to set up a new way of managing external debt so as to service it more appropriately. There was also a need to change the debt profile, and channel resources on a priority basis for social development. He was aware of the extensive work done by the United Nations to study major developments regarding external debt, and supported all practical steps designed to help countries find a way out of the problem. In that connection, he called on bilateral and multilateral creditors to help developing countries manage their external debt.

International efforts must be stepped up to find a lasting solution to the problem, he continued. An effective policy to reduce the debt burden would help strengthen the global economy. He hoped that a proper investment climate could be created for foreign direct investment. He also hoped that developed countries would rally around the HIPC initiative, and that the Bretton Woods institutions would provide assistance in emergency situations to those countries that needed it. Major policy changes were needed by the international financial institutions, as well as a positive re-channeling of funds into developing regions. The time had come for a direct appeal to the IMF to adopt debt relief measures. Restructuring the debt of the poorest and most highly indebted countries was a top priority. He was seriously concerned at plummeting prices being fetched by exports from developing countries.

SIPHITI SIBEKO (South Africa) said the net transfer of the meager resources of the Least Developed Countries (LDCs) to developed countries condemned those countries to a state of perpetual underdevelopment. Failure by the developed countries to meet their commitments, and the half-hearted implementation of the outcomes of the Uruguay Round of multilateral trade negotiations, further worsened the situation. Moreover, indebtedness was a disincentive for Foreign Direct Investment (FDI). Creditor countries and multilateral financial institution should continue to extend concessional financial assistance to developing countries. That would help in the implementation of economic reforms and structural adjustment programmes undertaken by developing countries with a view to extricating themselves from the debt overhang.

It was also important for African countries to address the question of the “flight of capital”, particularly when such flight was illegal. It was incongruous for a corrupt elite to have engaged in illicit transfers of capital -- and then expect others to invest their resources in Africa’s economy. There was, however, also an urgent need for market access for the products of the developing countries. Moreover, it was vital to address the question of subsidies in the developed countries, especially in the agricultural sector and in “grandfather” industries. The continued recourse to new forms of protectionism, within the framework of various World Trade Organization (WTO) agreements and directed against the competitive products of the developing countries, should be discouraged.

LIBRAN N. CABACTULAN (Philippines) said that a durable solution to the debt problem of developing countries should not simply provide a definitive exit from their unsustainable debt burden. It should also put them on a path towards sustainable economic growth and development. That was why the reduction of debt must be accompanied with the infusion of new money. Laudable though the Cologne initiative and the United States pronouncements on debt relief were, there was a need to press on.

The international community must first ensure that such initiatives were not entangled in the usual web of procedural complications. It must further ensure that the required financing for the HIPC initiative be made immediately available. Third, it must ensure that the upper limits of those expected flexibilities -– for example, deeper degrees of cancellation –- be the rule rather than exceptions. Fourth, it must ensure that “Cologne HIPC flexibilities” should be made retroactive to countries that had completed their negotiations before the G-7 Group meeting in Cologne.

Finally, a durable solution to the debt problem would not be complete unless linked with a decisive action to address the debt burden of other countries, particularly the debt-distressed middle-income countries.

CHRISTIAN TOUSSAINT (Haiti) said that the developing countries had begun the decade with a feeling of optimism. The end of the cold war, and the resolution of several regional conflicts, had contributed to a situation favourable to growth. That was why several governments had embarked on economic reforms despite the social costs such reforms entailed. The international macroeconomic situation, however –- influenced by the Uruguay Round of trade negotiations, the financial crisis in Asia and especially the burden of debt -– had upset all plans for reform and development.

After 1994, the Government of Haiti drew up a programme to relaunch economic modernization. However, because of debt obligations, the available means were initially insufficient to set aside the capital necessary for the hoped-for leap forward. The difficult economic situation in Haiti meant that the country did not qualify for debt relief under the HIPC initiative frameworks. He welcomed the Cologne initiative and the announcement by the United States on bilateral debt forgiveness. He further hoped that the Haitian application would not be subject to discriminatory and restrictive clauses, because everywhere, debt had the same consequences: poverty and social instability.

ALI AL-AUJALI (Libya) said many developing countries had been set back by the recent financial crises, and had been unable to meet the basic social needs of their people. The hardest hit were women, children and the elderly. That was of great concern when viewed from the standpoint of future human development. The economic and social calamities that had buffeted the world in the 1980s still overshadowed the global economy, and during that period, social programmes had been hardest hit. The decline of social spending had continued throughout the period -– which was rightly called the ”last decade for development”. The worst –affected developing countries found themselves poorer at the end of the decade than they had been at the beginning.

The common denominator among countries that suffered during that time was the external debt burden and its servicing, he said. Moreover, the debt carried by African countries was heavier than any others. External debt was the most serious obstacle to development in developing countries. Their failure to find a lasting and equitable solution had allowed creditor countries to take actions against debtor countries that amounted to political strangulation. Despite the good faith manifested by creditor countries, many were reluctant to address the problem comprehensively and holistically. He hoped that concrete steps would follow the various debt-relief initiatives adopted and that they would not be laden with conditionalities and correspondingly slow to relieve the burden. While the proposals contained some viable remedies for the problem, what was dangerous was the lack of political will that would enable the international community to recognize the right of the human person to development.

CHOI SEOK-YOUNG (Republic of Korea) said that problems associated with the debt burden were complex, interrelated and structural in nature. The strategy for debt relief should be designed in a comprehensive manner, taking into account all relevant sectors and stakeholders involved. His country welcomed the Cologne initiative, the enhanced HIPC initiative and the new Poverty Reduction and Growth Facility, and was considering making due contribution to the HIPC Trust Fund.

Political will to translate the new debt-relief initiatives into action would be crucial. At the international level, the initiatives should continue to provide developing countries with an enabling environment and capacity building geared to engineer their ultimate exit from poverty and underdevelopment. At the national level, a policy for sustainable development should be formulated and implemented in a transparent and participatory manner, with special attention going to the social sectors. Sound social policies, driven by governments, should be the centrepiece of the structural adjustment associated with the HIPC initiative to increase the efficiency within those sectors.

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