WORLD ECONOMY POISED TO RECORD BETTER GROWTH RATE THAN IN RECENT YEARS, SECOND COMMITTEE TOLD

Press Release
GA/EF/2933

WORLD ECONOMY POISED TO RECORD BETTER GROWTH RATE THAN IN RECENT YEARS, SECOND COMMITTEE TOLD

The world economy was poised to record a much better rate of growth than in recent years, Rubens Ricupero, Secretary-General of the United Nations Conference on Trade and Development (UNCTAD), told the Second Committee (Economic and Financial) this morning as it began its consideration of trade and development, commodities, and external debt crisis and development.

He said that there had been an impressive recovery in world trade, that the recovery of East and Southeast Asia had been unfolding at breathtaking speed, and that the United States economy had continued to grow with very low inflation and very low employment rates, all of which showed that the world economy was in solid condition.

Camilo Reyes Rodriguez, President of the forty-seventh session of the UNCTAD’s Trade and Development Board, said that with the recovery from the recent financial crisis now underway, complacency was the greatest danger. Strengthening domestic financial systems remained a major challenge for emerging markets and other developing countries that wanted to reduce the risk of similar crises.

Singapore’s representative, speaking on behalf of the Association of South-East Asian Nations (ASEAN), said that trade should not be seen as an end in itself, but as a means of development for developing countries. Despite its flaws and the opposition it was currently facing, trade, although not always sufficient, remained necessary for developing countries to achieve prosperity. Without the liberalization of trade, developing countries had no markets for their products and, therefore, no income for reinvestment.

Speaking on behalf of the “Group of 77” developing countries and China, Nigeria’s representative stated that as the international community grappled with the challenge posed by the current situation in the commodities market and the international trading system, any attempt at significant progress was in danger of being reversed if the problem of the external debt of developing countries was not resolved. The Heavily Indebted Poor Countries (HIPC) Debt Initiative was suffering from a cocktail of problems, most prominent of which were unending and excessive conditionalities, restrictions over eligibility and cumbersome procedures.

Second Committee - 1a - Press Release GA/EF/2933 26th Meeting (AM) 26 October 2000

France’s representative, speaking on behalf of the European Union and associated States, said that while the Union supported debt cancellation measures under the enhanced HIPC Initiative, it was not convinced by calls for total debt cancellation or for the lifting of conditions imposed by the HIPC procedure. Total cancellation of debts would destroy the trust at the heart of lender-borrower relations, and would deprive recipient countries of future funding needed to ensure their development.

Furthermore, he added, the conditions attached to the HIPC procedure made sure that the amounts released by debt cancellations would definitely be invested in development. Without a strict economic policy, a climate of trust with international financial institutions and sustained support from donors, developing countries would not escape the cycle of over-indebtedness, despite benefiting from a total cancellation of their debt.

Statements were also made by the representatives of Colombia (on behalf of the Rio Group), Bangladesh, Norway, Libya, Russian Federation, Brazil (on behalf of the Southern Common Market (MERCOSUR)) and Malta. The Observer for the Holy See also spoke. A representative of the European Community made a second statement on behalf of the European Union.

The Committee will meet again at 3 p.m. today to continue its discussion of trade and development, commodities and debt and development.

Second Committee - 3 - Press Release GA/EF/2933 26th Meeting (AM) 26 October 2000

Committee Work Programme

The Second Committee (Economic and Financial) met this morning to begin its consideration of macroeconomic policy questions, in particular trade and development, commodities, and external debt crisis and development.

The Committee had before it a note by the Secretary-General transmitting a report of the Secretary-General of the United Nations Conference on Trade and Development (UNCTAD) on transit environment in the landlocked States in Central Asia and their transit developing neighbours (document A/55/320). According to the report, the Central Asian countries, during the first decade of their independence, have been grappling with the problems of transition to a market- based economy, a struggle that is likely to spill over into the next decade.

The report highlights the economic recovery and emerging trade and transit patterns in Central Asia. It also includes a summary of the current developments to improve physical infrastructure, solve short-term problems and adjust to longer-term trends. Measures designed to overcome non-physical barriers to the available transit transport corridors include creating a conducive legal environment for transit operations and strengthening national and institutional systems, among others. There is an effort to work towards a framework for better cooperation and coordination in the Central Asia region.

The Committee also had before it the report of the Secretary-General on international trade and development (document A/55/396). The report highlights developments in the multilateral trading system and other issues arising from General Assembly resolution 54/198.

According to the report, the main developments in the multilateral trade system are related to the Third World Trade Organization (WTO) Ministerial Conference (Seattle, 29 November-3 December 1999), which ended without launching new multilateral trade negotiations or agreeing to a future WTO work programme. The report includes a summary of main developments since Seattle, including the outcome of the UNCTAD X and its relevance for the WTO process, the resumption of work in the WTO, new WTO accessions, regional integration developments and the WTO dispute system.

The report also highlights the work of UNCTAD in relation to capacity and consensus-building in developing countries and economies in transition. The UNCTAD has undertaken a number of initiatives to strengthen technical assistance to developing countries, in particular the least developed, landlocked and small-island developing countries, with a view to promoting their further integration into the multilateral trading system.

Also before the Committee was the report of the Trade and Development Board on the following sessions: its twenty-third executive session (document A/55/15, Supplement 15, Part I); its twenty-fourth executive session (document A/55/15, Supplement 15, Part II); its resumed twenty-fourth executive session (document A/55/15, Supplement 15, Part III); and its forty-seventh session (document A/55/15, Supplement 15, Part IV).

The report on world commodity trends and prospects, which was prepared by UNCTAD, is contained in a note by the Secretary-General (document A/55/332). It states that the importance of commodities in world trade is declining, and developing countries are losing their share in world commodity trade, even for their traditional export products. Except for a few successful countries, many have not been able to capture significant market shares in, or even enter, the rapidly growing markets for high-value agricultural products and processed items.

The present report identifies and reviews the issues currently affecting commodity markets and commodity-exporting developing countries. It provides information on the declining trend and current collapse of commodity prices and an overview of the evolution of world commodity trade since the 1970s. It also reviews the changes in market structures, emphasizing the twin trends of concentration in global markets and liberalization in producing countries, and examines the impact of these trends on commodity-exporting countries.

According to the report, there is a clear link between poverty and dependence on commodities. Efforts aiming at reducing poverty would, therefore, have to attach due importance to commodity issues. The key market access problems faced by commodity exporters should be urgently addressed, with the elimination of tariff peaks and tariff escalation, placing agricultural commodities on the same footing as other products in the international trading system and ending trade-distorting agricultural support measures by developed countries. However, improved access to markets is not sufficient by itself. Enhanced financial and technical assistance is required for addressing supply- side constraints, which particularly affect the least developed countries.

The Secretary-General's report on recent developments in the debt situation of developing countries (document A/55/422) states that there are serious shortcomings in the international approach to the debt problems of developing countries and economies in transition. Overcoming these difficulties would call for action on three fronts - the Heavily Indebted Poor Countries (HIPC) Debt Initiative, the official debt of non-HIPC countries, and commercial debt.

The point, the report states, is not to see full and swift debt relief as a panacea for the deep-seated policy challenges facing these countries. It would, however, be one less problem for their policy makers to deal with. Many of these countries are unable to meet their external debt-servicing obligations, and for them debt relief will simply formally acknowledge a situation that already exists and stop the accumulation of arrears that are unlikely ever to be paid.

Statements

RUBENS RICUPERO, Secretary-General of the United Nations Conference on Trade and Development (UNCTAD), said it was clear that if the international community was to realize an economic transition brought about by new technologies, confidence was necessary, as it was the basis of long-term investment. How to do achieve this was the main goal of the major conference that UNCTAD was preparing.

Confidence was under threat in many different fields, he said. The most obvious example was the unravelling of the peace process in the Middle East. This was the first example of the failure of the international community to find a solution to one of the central and outstanding problems of the times. This had come to pass at the exact moment that the public was experiencing another breakdown in confidence. This was related to the sudden increase in oil prices. In addition to this combination of the political problems in the Middle East and the trend in oil prices, he added the weakening of the Euro, and the volatility in the stock exchanges and how this would effect a soft landing for the United States economy. All of those events explained why the psychology of people the world over had begun to evolve in a negative direction.

The underlying reality was still a positive one, he said. The world economy was poised to record a much better rate of growth than in recent years. He also believed that there had been an impressive recovery in world trade. Rates of growth in trade had been impressive, particularly in terms of electronic goods. The recovery of East and Southeast Asia had been unfolding at breathtaking speed. The United States economy had continued to grow with very low inflation and very low employment rates. All of those forces showed that the world economy was still in a solid condition.

The erosion of confidence, he said, could create problems for a better future in terms of economic growth and development. For the restoration of confidence, the United Nations system was irreplaceable. It was the United Nations system that could bring a degree of impartiality and give a voice to those who were weak and vulnerable. The Conference on Least Developed Countries would be an occasion to test the will of the international community to fight poverty. The Conference on Financing for Development was another important opportunity for the international community. He pledged that UNCTAD would do its part by providing analysis and research in the areas of national measures, regional integration, and international architecture for finance, trade and investment.

CAMILO REYES RODRIGUEZ, President of the forty-seventh session of the Trade and Development Board, introduced the reports of the Board before the Committee, focusing on the Board’s forty-seventh session. He said that following the East Asian experience, there seemed little doubt that severe economic and social damage could result from incorrect diagnosis and policy recommendations in countries facing a financial crisis. The Board agreed that reliance on a policy package designed around tighter monetary and fiscal measures was not optimal, and that the strong recovery in some economies affected by the crisis was, in part, the result of unconventional policy responses.

With the recovery now underway, complacency was the greatest danger, he warned. Strengthening domestic financial systems remained a major challenge, not only for emerging markets, but also for other developing countries that wanted to reduce the risk of similar crises. However, with continuing reliance on external markets and resources to fuel growth, many developing countries were also vulnerable to a slowdown in the industrial countries and to any abrupt changes in their macroeconomic policies.

Although global economic growth had been buoyant over the past three years, he said that it had been unequally distributed across the regions of the world economy. In particular, growth disparities within the industrialized world had resulted in growing and unsustainable trade imbalances, while technological and financial innovations had aggravated the underlying fragility of current financial and trade flows. A tightening of monetary policy in the industrial countries could, under those circumstances, prove very damaging to developing countries. However, it was generally felt that the developed countries were in a better position than in the past to correct the existing global imbalances smoothly, without jeopardizing the growth prospects of the developing countries.

With regard to Africa, the Board agreed that despite significant policy reforms, current levels of saving and investment in Africa were too low to ensure sufficient investment in human capital and social and physical infrastructure, he said. Official development assistance (ODA) represented an important source of external financing in Africa, and the Board encouraged the international community to increase ODA and to maintain a substantial level of such flows for a sufficiently longer period, in order to fill the investment gap. Over the long term, private capital flows and domestic savings would replace official financing, thereby reducing the aid dependence of African countries.

YVES DOUTRIAUX (France), speaking on behalf of the European Union, Bulgaria, Estonia, Hungary, Latvia, Lithuania, Poland, Czech Republic, Romania, Slovakia, Slovenia, Cyprus, Malta, Turkey and Iceland, said that the Union supported the debt cancellation measures for heavily indebted poor countries decided under the Heavily Indebted Poor Countries (HIPC) Debt Initiative, which aimed to cut their debts to a sustainable level. Nevertheless, it was not convinced by calls for total debt cancellation, particularly of multilateral debt, or for the lifting of conditions imposed by the HIPC procedure. Total cancellation of debts held by bilateral donors and international financial institutions for developing countries would destroy the trust which was at the heart of lender-borrower relations, and would have the effect of depriving recipient countries of the future funding they would need to ensure their development.

Furthermore, the conditions attached to the HIPC procedure made sure that the amounts released by debt cancellations would definitely be invested in development, he said. Without a strict economic policy, a climate of trust with international financial institutions and sustained support from donors, developing countries would not escape the cycle of over-indebtedness, despite benefiting from a total cancellation of their debt.

The Union, he said, was aware that the difficulties experienced by low- income and medium-income countries, which were not eligible for the HIPC Initiative, might call for measures at the national and international level. It was willing to examine any specific situation in the appropriate forum, provided that such an examination was warranted by a need for funding in the countries in question.

RICHARD WYATT, a representative of the European Community, speaking on behalf of the European Union, said that trade and the trading system, both at the multilateral and regional levels, must provide a significant contribution to the realization of wider sustainable development objectives. While globalization and a full integration in the world economy through trade and investment was bringing, on balance, many benefits to emerging economies, it had not done so for the least developed countries. This situation was chiefly the result of structural weaknesses of the least developed and other low-income economies which needed to be addressed through sound domestic policies supported by a collective effort of the international community.

The European Union, he said, had spearheaded an initiative in the WTO to grant duty and quota free market access to cover essentially all the least developed countries’ exports. As far as the Community was concerned, it was ready to work towards full elimination of duties and quotas. This would be an important effort, which it hoped would be followed by other countries. However, enhanced market access for developing countries would be easily missed if their business sectors were not able to seize them. Human and institutional capacity- building was a fundamental priority, both in terms of facilitating the implementation of existing commitments and with respect to future negotiations.

Enhancing the contribution of the WTO to the promotion of sustainable development should be considered a crucial objective for future trade negotiations, he said. With respect to the new round, there needed to be substantial improvements in market access across the board. There also needed to be new WTO rules on investment, competition and trade facilitation to improve the governance of the world economy. The continuum of trade-development- environment needed to be effectively addressed at all levels in the trade and development debate. Finally, it was important to stress the Union’s efforts in the area of regional integration. For developing countries, regional integration could be an important stepping stone in preparing for their full integration into the world economy.

MAURICIO BAQUERO (Colombia), speaking on behalf of the Rio Group, said that the efforts that the Group had made to integrate their economies into the international trading system required a multilateral trading system that promoted free trade for the benefit of all. International trade that was free of restrictions and distortions was a key requirement for the success of the development process. The Group proposed, once again, the launching of a new round of trade negotiations under the auspices of the WTO that would be global and comprehensive with no sector being excluded. This new trade round must ensure the removal of agriculture export subsidies of the developed countries and any factor that distorted world trade to the disadvantage of the developing countries.

The Rio Group attached great importance to the deepening of regional and subregional integration based on “open regionalism”, which fostered reciprocal trade while also helping to increase trade flows in the international economy. A large number of countries in the region were concerned with the volatility of commodity prices whose levels in real terms had remained very low. It was important to ensure growth in the commodity export market by promoting stability in commodity prices and marketing conditions so that the exporting countries could benefit from the value-added products.

On the subject of the external debt problem, the Rio Group wished to express its satisfaction at the efforts that had recently been made in the search for a lasting solution to the problem of the external debt of the developing countries. Nevertheless, the Group believed that there was an urgent need to intensify the search for mechanisms that would permit countries to gain adequate access to external resources for the financing of development.

C.M. SHAFI SAMI, Foreign Secretary of Bangladesh, said that trade was the single-most important engine of growth for the fragile economies of the least developed countries. Yet those countries, over the past decade, had seen a decline of their share in international trade. Those countries, 10 per cent of the world population, had an export level of merely 0.4 per cent of world trade. While most developing countries had seen an expansion of their trading opportunities, the least developed countries had seen a steady decline in their share from 0.6 per cent in the 1970s and 0.5 per cent in the 1980s. The regressive and relentless marginalization was ample evidence that, despite some measures initiated recently, no whole-hearted effort had been launched to turn around the downward spiral.

The asymmetries and imbalances of the international economy must be redressed, he said. Market access must be improved for least developed countries without further delay. It was ironic that products from the poorest countries were faced with 30 per cent more tariff than the global average, despite the miniscule share of least developed countries in world trade. All products from all least developed countries should have free access to international markets. Also, there should be a reduction of tariff levels and simplification of tariff structures in developed countries. For exports from least developed countries, those restrictions should be totally eliminated.

JOSTEIN LEIRO (Norway) said that the important role of trade in enhancing economic growth and social development in developing countries had been fully recognized by their partners in development. Trade had proved to be an important “engine of growth” and a successful vehicle for internal resource mobilization and private sector development. Many developing countries had benefited from increased trading opportunities in the rapidly globalizing world. There was a need to secure better integration for all developing countries into the multilateral trading system. Market access for products of export interest to these countries had to be improved, and differential treatment provisions and other trade rules must be fully implemented.

In this respect, he said that UNCTAD had an important role to play as a forum for intergovernmental deliberations and consensus-building in the process of globalization, and the interdependence of trade, investment and sustainable development. Technical cooperation constituted a crucial element in the process of integrating the least developed countries into the world economy. Good governance, sound macroeconomic policies and improved economic conditions for trade must go hand in hand.

The economies of poor developing countries were severely strained by heavy debt burdens. Norway believed that the enhanced HIPC Debt Initiative would give the poorest and most indebted countries a new start. His delegation strongly supported the renewed efforts of the Bretton Woods institutions in implementing the enhanced HIPC Debt Initiative, and welcomed that up to 20 countries could reach their decision point by the end of this year.

LOH TUCK WAI (Singapore), speaking on behalf of the Association of South-East Asian Nations (ASEAN), said that for ASEAN the financial crisis had come as a severe shock after years of rapid growth. The crisis demonstrated that no country was immune to the consequences of the instability of the world financial market, regardless of their strong economic policies and solid growth. The ASEAN today acknowledged that there was need for a better understanding of the relationship between trade and international financial and monetary stability.

The crisis further exposed the difficulties of managing a domestic economy in an increasingly integrated global economy, he continued. At the national level, individual ASEAN countries had responded to the crisis and the challenges posed by globalization with generally successful policies based on their own domestic circumstances. While those different remedies were not “anti- globalization”, the end goals were to maximize the opportunities and minimize the risks and costs of globalization.

He said that in the pursuit for freer trade, trade should not be seen as an end in itself, but as a means of development for developing countries. Despite its flaws and the opposition it was currently facing in some quarters, trade, although not always sufficient, remained necessary for developing countries to achieve prosperity. Without trade liberalization, developing countries had no markets for their products and, therefore, no income for reinvestment. The ASEAN countries knew that too well because continued liberalization of the world trading system had been a continuing source of dynamism for its economies and people.

ABDUSSALAM OWN (Libya) said that the fact that a certain number of countries had embraced the liberalization of the economy had made it possible to increase the flow of capital in investment. That did not mean, however, that world development had taken place in a fair and just way. Developing countries had been deprived of the benefits of globalization. The various financial crises that had succeeded each other had negative effects on other countries, which confirmed the fact that the world financial system was ill-equipped to deal with its many problems.

Despite the world’s quickly growing economy, the African countries had not been able to achieve tangible progress in their macroeconomies. Those countries were facing restrictions on trade imposed by a certain number of developed countries. There was also the problem of external debt and the decrease in ODA. It was not possible for developing countries to adjust to the current system because of their lack of income and the weakness in their financial markets. In world trade, the relationship between developing countries and the developed countries was far from balanced.

There was a need to introduce changes in the economic system, with a promotion of a healthy model of interdependence, he said. The international community should take into account the problems encountered by the developing countries. Despite the resolutions adopted by the General Assembly calling on the international community to take measures to increase the fairness of the international trading system, the developed countries were still sticking to their policies of imposing their will on the rest of the world community.

His country was among the many countries that had been the target of economic sanctions imposed by the United States. This had resulted in the freezing of assets and other coercive measures that were being continued to this day. His delegation called on the international community to take quick and prompt action to prevent some of the developed countries from using economic measures on a unilateral basis against other countries.

YURI N. ISAKOV (Russian Federation) said that he was particularly concerned with the popularity of hidden protectionism, which was growing both in developed and developing countries. As a result, unjustified application of anti-dumping measures was spreading, thereby depriving exporters from developing countries and countries in transition of their natural competitive advantages. He favoured improving international monitoring of the agreed dispute settlement proceedings and action to counter protectionism.

Further trade liberalization, he said, should be undertaken with full consideration of the condition of the world economy. The pace and depth of the liberalization of access to internal markets should fully take into account, among other things, the peculiarities and level of economic development of different countries. The most significant task of the international community was to more vigorously apply the principle of universality of the multilateral trade system. He was particularly concerned that accession to the WTO was becoming ever more difficult for developing countries, economies in transition, and, especially, the least developed countries. He supported the European Union’s proposal for a fast track for the accession of the least developed countries into the WTO.

A. L. OLUKANNI (Nigeria), speaking on behalf of the “Group of 77” developing countries and China, said that the world continued to witness the declining importance of commodities in world trade. Regrettably, the developing countries had also continued to lose their share in the world commodity trade. That loss was felt more in developing countries in Africa and the least developed countries. More worrisome was that the prices of commodities had remained at their lowest levels in many years, with obvious implications for the earnings of commodity-dependent developing countries. In view of the clear link in developing countries between poverty and commodities, the efforts at reducing poverty in those countries would continue to be hampered.

As the international community grappled with the challenge posed by the current situation in the commodities market and the international trading system, any attempt at significant progress was in danger of being reversed if the problem of the external debt of developing countries was not definitely resolved, he said. The HIPC Initiative was suffering from a cocktail of problems, most prominent of which were unending and excessive conditionalities, restrictions over eligibility and cumbersome procedures. There was an urgent need for radical action on three fronts –- the HIPC Initiative, official debts, and non-HIPC and commercial debts.

LUIZ TUPY CALDAS DE MOURA (Brazil), speaking on behalf of the Southern Common Market (MERCOSUR), said that in the last eight years, MERCOSUR’s trade and liberalization programmes had offered an unprecedented impetus for countries to trade within their block. The MERCOSUR was now a global trading partner and was keen to maintain broad and diversified trading partners. Although it practiced the principles of open regionalism, MERCOSUR was increasingly facing greater obstacles with regard to its exports.

It was necessary to provide new opportunities for developing countries and to guarantee them access to foreign markets, he said. Costly subsidy schemes increasingly marginalized developing countries. The effort of the Uruguay Round must continue, especially with regard to the elimination of subsidies. It was essential that the current international trading system become a more balanced one. An open system was essential to promoting sustainable development.

Given the complexity of the current system, Uruguay supported the discussions of the WTO, but felt that it was premature to discuss commitments. The WTO should be a force of inclusion, and it should respect the aspirations of development. It was also important to promote the broad and active involvement of developing countries in the negotiations.

RENATO R. MARTINO, observer for the Holy See, said that debt relief was not an end in itself. Its success was linked to the manner in which the resources freed were utilized effectively within a broad framework for human development. However, debt relief was urgent if the United Nations wished to move forward rapidly in the fight against poverty and achieve the development targets set by Governments. Linking debt relief to concrete measures for the reduction of poverty was a significant move, as it would help ensure that the benefits which accrued from debt relief were directed to social sectors, such as health and education.

The enhanced HIPC Initiative, in its current form and on its own, was not sufficient to help the least developed countries tackle their problems and achieve faster economic growth, he continued. Substantial volumes of funds destined for development assistance were still being diverted to debt servicing. At a time when there was a clear awareness of how productive social expenditure could be the key to long-term sustainable development, the poorest countries still faced unacceptably high levels of unproductive expenditure in debt servicing. The community of nations and international institutions must look

closer at how to achieve greater debt relief for the poorest nations, even, in some cases, to the point of totally canceling debt.

PIERRE HILI (Malta) informed the Committee that his delegation would like to co-sponsor the draft resolutions on enhancing complementarities among international instruments related to environment and sustainable development (document A/C.2/55/L.11), and on the permanent sovereignty of the Palestinian people over their natural resources (A/C.2/55/L.7).

DANIEL LE GARGASSON (France), announced that the European Union had decided to co-sponsor the draft resolution on the integration of economies in transition into the world economy (document A/C.2/55/L.4).

* *** *