PRESS BRIEFING ON 2003 TRADE AND DEVELOPMENT REPORT

PRESS BRIEFING ON 2003 TRADE AND DEVELOPMENT REPORT

A mixture of sound macroeconomic and microeconomic policies was essential to avoid the recent failures of many developing countries in meeting the challenges of globalization and competitiveness on international markets, correspondents were told at a Headquarters press briefing launching the 2003 Trade and Development Report.

Jan Kreger, a Senior Interregional Adviser for the United Nations Conference on Trade and Development (UNCTAD), said “We don’t have a ready answer, but what we’re attempting to do is draw attention to the fact that simply placing emphasis on introducing sound macroeconomic fundamentals is not sufficient to allow developing countries to reach a sustainable growth path, and that we need to continue and to do more research in order to attempt to identify ways in which we can make these two sets of policies compatible.”

The thrust of the Report, Mr. Kreger said, was that the current trend of a single, sound macroeconomic policy for all had, in some parts of the developing world, achieved the opposite of the desired effect, pushing down investments and impeding the structural changes necessary to strengthen domestic industries and international competitiveness.

Macroeconomic policies in the 1980s and 1990s favoured monetary restrictions and extremely high interest rates, which spurred income levels and exports, and thus expanded external accounts, he said.  However, when debt-servicing was a major part of the country’s external account, as was the case in Argentina in 2000-2001, the cost of high interest rates on debt payments would offset improvements to the trade balance.

The sound macroeconomic policies of reigning in inflation, reducing trade barriers and shrinking government’s role in economic activity had succeeded in providing price stability, he said.  It had failed, however, to prepare domestic industries to compete internationally, boost exports and foreign exchange earnings, and thus meet debt-servicing commitments.  Substantial policy changes, including the Washington Consensus, to resolve Latin America’s debt crisis had not reduced overall levels of indebtedness in the region.

The two-part document, released today, provides an overview of contemporary conditions in the global economy, as well as the role of capital accumulation in producing growth and structural change in the developing world.  It will also serve as a background document at the June 2004 UNCTAD conference in Sao Paolo, Brazil.

The Report compares investment performance in the last two decades in Latin America and Asia, noting a marked divergence.  In the 1960s and 1970s, both regions had similar growth rates, per capita levels of income, and investment-to-national income ratios.  By the 1980s, the share of investment in national income had reached 30 to 35 per cent in some Asian countries, but fallen well below 20 per cent in Latin America. 

A minimum of a 20 per cent investment-to-national-income ratio was generally necessary to produce positive growth, Mr. Kreger said.  However, in Latin America that figure was as high as 25 per cent, in order for rates to absorb rapid population growth.  Brazil’s current investment-to-national income ratio was only 17 per cent. 

The Report also considers the impact of investment on structural change and technology.  Mr. Kreger said “de-industrialization” took place in most developed economies.  When nations’ per capita incomes reached $8,000 to $9,000, consumption, production and employment usually shifted from manufactured goods to services.  This process, however, had occurred prematurely in Latin America, at income levels that were too low to provide sustainable growth.  Service sectors in those nations could not keep pace with the resulting job-creation demands.

Responding to a reporter’s question on the one-policy solution to economic imbalances worldwide, Mr. Kreger reaffirmed that economic policy must be tailored to a region’s or nation’s specific needs, taking into account its stage of economic development and industrial infrastructure.

While the Report focused particularly on macroeconomic policies’ impact on Asia and Latin America, it also included some analysis of conditions in Africa and the Middle East, he said.  The report noted similar difficulties in those regions as in Latin America, in terms of a drop in investment relative to gross domestic product and the difficulties in providing restructuring in order to increase competitiveness.

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