Fifty-ninth General Assembly

Second Committee

8^th & 9^th Meetings (AM & PM)

DEBT WRITE-OFF MUST BE TOP PRIORITY IN HELPING POOREST COUNTRIES

restore growth, meet millennium goals, second committee told

Continued Debt Servicing Makes It Impossible

For Them to Increase Savings, Boost Investment, Grow Their Economies

(Issued on 13 October 2004.)

Writing off the escalating external debt burden of the world’s poorest countries must become a top priority in helping them to restore economic growth and meet the Millennium Development Goals, speakers in the Second Committee (Economic and Financial) said today, as it began considering its agenda item on macroeconomic policy questions.

The Director of Management of the United Nations Conference on Trade and Development (UNCTAD) told the Committee that Africa’s economic growth levels must double to 7 per cent annually over the next decade in order to halve poverty by 2015.  But continued debt servicing made it impossible for that continent’s heavily indebted poor countries to increase savings and investments and, thus, grow their economies.  Eight years after launching the Heavily Indebted Poor Countries (HIPC) Debt Initiative, those nations were still far from reaching sustainable debt levels.

In fact, Nigeria’s delegate noted, the situation in many parts of Africa had worsened.  Every dollar spent on debt servicing greatly exceeded the interest and principal on borrowed capital, thus, siphoning funds from much-needed social programmes and services in health, education, food security, potable water and sanitation.  A more comprehensive, radical solution was needed, and the United Nations should take the lead in that regard.

Congo’s representative pointed out that only 14 countries had benefited from overall debt relief under HIPC, adding that 13 had reached the decision point and the remaining 11 were far from achieving the completion point to qualify for debt relief.  Congo’s debt had reached $591 million, among the highest in the world, and it had become nearly impossible for the country to pay it off.  The Congo had been through several years of devastating civil war and was now in desperate need of resources for reconstruction.

The representative of Qatar, speaking on behalf of the “Group of 77” developing countries and China, said that countries suffering or emerging from conflict needed specific mechanisms to relieve debt in order to build and sustain peace.  So did countries falling under the HIPC Debt Initiative, which had suffered shocks resulting from price collapses in their principal exports, drought and other natural disasters.  Last year, the total external debt for developing and transition countries had increased 4 per cent to $95 billion.  Creditors, as well as debtors, must share the responsibility of preventing and resolving unsustainable debt, he said, stressing the need for international assistance to rebuild economic solvency and payment capacity.

Anwarul Chowdhury, Under-Secretary-General and High Representative for the Least Developed Countries, Landlocked Developing Countries and Small Island Developing States, said that cancellation of debt for the world’s poorest countries was a moral and practical imperative, particularly in light of their struggle to eradicate extreme poverty and HIV/AIDS.  The size of the debt owed by the least developed countries was relatively insignificant and writing it off would not provoke an international financial crisis as some feared.  The recent agreement to extend the HIPC Debt Initiative was encouraging, as were initiatives by the United Kingdom and the United States regarding debt cancellation.

The representative of the Netherlands, speaking on behalf of the European Union and associated States, noted that the grouping had provided approximately 60 per cent of the HIPC Debt Initiative’s financing and would go beyond HIPC targets by officially providing 100 per cent bilateral pre-COD debt relief for all claims under HIPC.

Also during today’s debate, speakers discussed the need to improve the effectiveness of development assistance provided by international lending institutions and to increase the involvement and representation of developing countries in the economic and financial decision-making and norm-setting of the Bretton Woods institutions.

Others speaking today included the representatives of China, Russian Federation, India, Kenya, Bangladesh, Morocco, Indonesia (on behalf of the Association of South-East Asian Nations), Ecuador, Mexico, Zambia, Malaysia, Nepal, United Republic of Tanzania, Libya, Algeria, Burkina Faso, Japan, Guyana (on behalf of the Caribbean Community), Brazil (on behalf of the Rio Group), Jordan and Venezuela.

A representative of the Financing for Development Office in the Department of Economic and Social Affairs introduced one of the reports before the Committee.

The Second Committee will meet again at 10 a.m. tomorrow, Wednesday, 13 October, to take up its agenda item on the follow-up to and implementation of the outcome of the International Conference on Financing for Development.

Background

The Second Committee (Economic and Financial) met today to consider the international financial system and development, as well as the external debt crisis and development.

Before the Committee was a report of the Secretary-General on the international financial system and development (documents A/59/218 and Corr.1), which gives estimates of the net financial transfer from regional groups of developing countries in 2003 and updates developments in international financial reform.  It highlights measures taken by developing countries to contribute to international financial stability; the need for international policies to reduce developing-country exposure to international economic and financial developments; the importance of regulatory and debt instruments to assist developing countries in reducing external payment volatility and the vulnerability to crisis of their debt structures.  The report also suggests that financial mechanisms and markets be set up for developing countries to borrow abroad in their own currencies and emphasizes the need for continued work on crisis prevention and resolution, as well as broader and stronger developing- and transition-country participation in international economic decision-making and norm-setting.

Also before the Committee was a report of the Secretary-General on the external debt crisis and development (document A/59/219), which analyses developing- and transition-country debt in light of recent developments in international trade and payments, as well as capital markets. It assesses official debt relief under the Heavily Indebted Poor Countries (HIPC) Initiative and debt restructuring at the Paris Club; discusses developing-country debt management and internationally agreed mechanisms for sovereign debt owed to private creditors; and recommends that the HIPC Initiative be extended to all eligible countries, as well as the elimination of structural and micro-conditions inessential to growth and poverty alleviation.  Renewed international efforts will be needed to help those countries attain debt sustainability and the Millennium Development Goals, including increases in official development assistance (ODA).

Borrowed funds should be used to generate fiscal revenue and export supply or import-substituting capacity to avoid increased dependence on new borrowing, the report suggests, noting that the dependence of many low-income countries on a few commodities makes them particularly vulnerable to external shocks, which can lead to unsustainable debt.  The most comprehensive response to such shocks would be immediate grant contingency financing, but debt sustainability would also be greatly enhanced by market access for developing-country exports.

A satisfactory solution is still lacking for heavily indebted low- and middle-income countries that are ineligible for the HIPC Initiative, the report says.  Efforts must be continued to find an internationally agreed mechanism addressing that problem, help prevent future financial crises, and lead to more equitable burden-sharing between debtors and creditors in crisis situations.

The Committee also had before it a note by the Secretary-General on science and technology for development, which transmits the report of the Secretary-General of the International Telecommunication Union (ITU) on the first phase and progress in preparations for the second phase of the World Summit on the Information Society (documents A/59/80-E/2004/61 and Corr.1).

Introduction of Reports

JAN KREGEL, Chief of the Policy Analysis and Development Branch of the Financing for Development Office in the Department of Economic and Social Affairs, introduced the Secretary-General’s report on the international financial system and development (document A/59 /218), noting that it reviewed recent developments, with particular emphasis on developing countries.  In 2003, total net inward transfers from developing countries rose to an estimated $248 million, surpassing the previous peak, while net outward transfers from transition economies totalled $28 billion.  Robust outflows from Eastern and Southern Asia were due to strong export growth and policies supporting domestic demand, while in Latin America they resulted from tightening domestic expenditure to adjust to financial crises and service external debts.

Foreign direct investment (FDI) continued to be the most important source of external financing for developing countries, although net inflows fell last year to their lowest level in nearly a decade, he said.  Other private flows to developing countries, however, jumped to $131 billion, the highest level since 1997, offsetting the poor FDI performance.  Net official flows continued declining as net flows from multilateral development and financial institutions fell to negligible levels, despite considerable increases in ODA flows from members of the Development Assistance Committee of the Organisation for Economic Cooperation and Development (OECD).  Despite progress in several aspects of debt restructuring, agreement on a statutory approach to a speedy, fair accord with creditors that would reduce socio-economic costs of default would likely remain a major challenge.

VICTOR BUSUTTIL, Director of Management, United Nations Conference on Trade and Development (UNCTAD), introduced the report on external debt crisis and development, quoting from a recent UNCTAD study that said growth levels in Africa must double to 7 to 8 per cent per annum for the next decade in order to halve poverty by 2015, in line with the Millennium Development Goals.  He said that was incompatible with current and projected debt servicing.  The debt profile had moved from “sustainability” in the 1970s to “crisis” in the first half of the 1980s, with much debt having been contracted between 1985 and 1995 under structural adjustment programmes.  Low levels of savings and investment were among the biggest constraints on growth in low-income countries, and continued debt servicing by heavily indebted countries was a reverse transfer of resources to creditors by those nations that could least afford it.

He stressed that even full debt forgiveness would only be the first step in restoring economic growth and meeting the Millennium Development Goals.  According to UNCTAD, such a write-off for the poorest countries would represent less than half of their resource needs, with the gap being filled by increased ODA to boost domestic savings and investment for growth.  Moreover, eight years after launching the HIPC Initiative, heavily indebted poor countries were still far from achieving sustainable debt levels.  It was becoming increasingly doubtful whether HIPC beneficiaries could attain sustainable debt levels, based on export and revenue criteria, and maintain them in the long term.

Statement

ANWARUL CHOWDHURY, Under-Secretary-General and High Representative for the Least Developed Countries, Landlocked Developing Countries and Small Island Developing States, underscored the seriousness of the debt burden crisis for the world’s 50 least developed countries, which greatly inhibited their ability to implement crucial poverty reduction, food security, education and health programmes. The latest UNCTAD report estimated that the total external debt of 46 least developed countries had increased by an estimated $7.6 billion to $144.9 billion in 2002, despite efforts towards debt forgiveness.  In 2002 alone, least developed countries had paid $5.1 billion in interest on debt payments, nearly one third of the $17.5 billion in ODA received that year.  In Sao Tome and Principe and Senegal, debt servicing had absorbed almost 36 per cent of government revenues last year; in Malawi and Zambia, that rate was 30 per cent and 24 per cent, respectively. 

Last week’s agreement to extend the HIPC Debt Initiative for two years was encouraging, he continued, noting that the decision would give the 11 nations still under consideration for debt relief, of which nine were least developed countries, the opportunity to qualify.  Recent initiatives by the United Kingdom and the United States had raised expectations for concrete, tangible progress to cancel the debt of most poor nations.  Debt forgiveness should be at the core of any agreement based on those proposals.  Writing off their debt would not provoke an international financial crisis since the least developed countries’ debt size was relatively insignificant.  Cancellation of debt for the world’s poorest countries was a moral and practical imperative, particularly in light of their struggle to eradicate extreme poverty and HIV/AIDS.

Questions and Answers

Responding to questions, Mr. KREGEL said that reserve accumulation was one of the peculiarities of today’s financial system.  The decision to use external surpluses came from the belief that countries needed “self-insurance” against reversals in capital flows.  In general, reserve balances were not held in highly remunerative assets, and represented a net cost, since they were earning less interest than the cost of holding reserves. The idea was that the International Monetary Fund (IMF) should provide international reserves, but the Fund’s resources were generally insufficient to cover all financial needs, and it had had to curb lending.  One way of resolving that problem would be to increase the IMF’s resources.

One could also look at external surpluses, which were responses to large stocks of external debt, he continued.  Negative net transfers -– transfers going mainly to repay debt -- could be used internally to increase per capita growth rate.  Asian countries were building up exchange reserves to meet volatility, while Latin American countries were trying to reduce outstanding debt stocks to prevent a reversal in capital flows.  The IMF was working on an early warning mechanism for financial crises and reversals in capital, but such conditions were difficult to predict.  Another solution might be to increase flexibility in the international financial system through exchange rate management.  As yet, it was unclear what the most appropriate policy would be.

In response to a question about conditions imposed on countries seeking debt relief under the HIPC Debt Initiative, Mr. Kregel said basic performance indicators had been renewed under the recent two-year extension of HIPC.  The IMF and the World Bank were working to identify new indicators, but such indicators, which, however, had not been applied due to difficulty in reaching a consensus.  The United States and the United Kingdom had launched initiatives to deal more directly with developing countries’ persistent indebtedness by writing off the debt of all HIPC countries and extending HIPC to other nations.

Statements

SULTAN AL-MAHMOUD (Qatar), speaking on behalf of the “Group of 77” developing countries and China, noted that total external debt for developing and transition countries had increased by $95 billion, or 4 per cent, in 2003.  Net export balances in a few nations had improved in 2003, but that had not kept debt from increasing in many low- and middle-income developing countries in Latin America, the Caribbean, North Africa and the Middle East.  Debt relief was vital for economic growth and sustainable development, and countries must strike a balance between achieving and maintaining debt sustainability, promoting long-term growth and reducing poverty.

Debt sustainability should be linked to a country’s ability to achieve national development goals, he continued.  Several nations under the HIPC Debt Initiative had suffered shocks from price collapses in their principal exports, drought and other natural disasters, and special measures were needed to address those problems.  Countries suffering or emerging from conflict also needed specific mechanisms to relieve debt so they could build and sustain peace.

Emphasizing that creditors and debtors must share the responsibility of preventing and resolving unsustainable debt, he said relief could only liberate resources if it was directed towards activities related to poverty eradication, economic growth and sustainable development.  In some cases, debt repayment was almost impossible without international assistance to rebuild economic solvency and payment capacity.  Developing countries also needed market access for their exports and improved production capacity to grow and develop sustainably.

DIRK VAN DEN BERG (Netherlands), speaking on behalf of the European Union, noted that the grouping was the world’s largest provider of ODA, collectively committed to earmarking 0.39 per cent of gross domestic product (GDP) for ODA, and its members individually committed to increasing aid to at least 0.33 per cent of GDP by 2006.  The Union was on track to meet and, in some cases, exceed its ODA commitments.  Making effective use of existing aid resources was essential.  That required comprehensive measures such as enhanced joint planning, joint financial arrangements, joint monitoring and evaluation among all development partners.  Giving ownership to the partner country was also important, as was making maximum use of country systems, procedures and policies, such as Poverty Reduction Strategy Papers (PRSPs).

He said the European Union was fully committed to an open, rules-based and non-discriminatory multilateral trading system and to substantially reducing agricultural subsidies and expand market access for developing countries in order to enhance international trade.  It had also stepped up trade-related assistance to developing nations, allocating an average of nearly €700 million annually.  In April, the Union had adopted an action plan to help commodity-dependent developing countries design and implement commodity-chain strategies, develop regional markets and services, support diversification and access finance and market-based commodity-risk instruments.  It also had a proposal for a partnership with Africa on cotton.  On debt relief, it had provided approximately 60 per cent of the HIPC Debt Initiative’s financing and would go beyond HIPC targets by officially providing 100 per cent bilateral pre-COD debt relief for all HIPC countries’ claims.

ZHANG YISHAN (China) said the international community should vigorously promote reform in the international financial system and the United Nations should speed up the process.  The new financial system should follow the principles of equality and mutual benefit, giving developing countries more extensive rights to participate in financial decision-making.  Financial reform should also focus on a more rational flow of world financial resources and an effective crisis warning system.

He noted that debt in developing countries had a profound history that was linked directly to the unfair international economic order.  While the international community must tackle the existing debt problem, it must also seek its causes.  It should provide developing countries with practical assistance so that they could free themselves from the vicious debt cycle and achieve economic development.  Developed nations should fulfil the commitments made in the Monterrey Consensus, and international and regional agencies should continue to help developing countries with capacity-building.  Multilateral agencies should draw up feasible reform and development plans based on actual conditions.

NIKOLAY CHULKOV (Russian Federation) welcomed the ongoing work at the IMF to enhance oversight, adding that the Fund should create a separate instrument for regional oversight.  The balance approach, which would allow for the creation of State and private-sector vulnerability indicators on a timely basis, could in time become an important oversight instrument.  There was a need for greater ease in accessing IMF resources and increasing the effectiveness of development aid, and the Bretton Woods institutions must help developing countries put in place their own stabilization and development reform programmes.

While underscoring the importance of the HIPC Debt Initiative as a strategy for debt sustainability, he said it was not the ultimate solution to the poor countries’ debt burden.  Simply cancelling debt without calling for economic, institutional, political and social reform would not lead to the desired results.  Constantly increasing a country’s volume of credit was not rationale as it inhibited tax transparency and growth prospects, sending the wrong message to borrowing nations.  A clear, integrated approach to the debt crisis was needed, and the IMF and the World Bank should consider new mechanisms in place of debt cancellation.

RAGHUNATH JHA (India) noted that the net transfer of resources to developing countries had remained negative for the seventh year in a row, reaching the alarming sum of $248 billion in 2003.  Net inflows of FDI to those nations had fallen to the lowest level since 1996, while official flows from multilateral development and financial institutions had continued to decline in 2003.  Further, ODA had fallen far short of commitments made in the Monterrey Consensus, and any increases thus far had mostly reflected debt forgiveness, crowding out development aid.

Effective surveillance to promote stability through enhanced resilience to economic shocks and markets was the key to financial crisis prevention, he continued.  It was also vital to develop multilateral financial institutions to help countries that may face problems, which would infuse market confidence and minimize contagion risks from uncertain private capital flows.  India welcomed discussions on innovative sources of financing, which, however, should not diminish the existing level of resource flows or the need for a greater developing-country voice in existing international financial institutions.  Nor should they detract from developed-country ODA obligations or lead to greater burdens on developing countries.

RUDHWAN ADEBAYO MUSTAPHA (Nigeria) said Africa was under-represented on the boards of directors of the World Bank and thee IMF, adding that the creation of additional staff positions within two very large African constituencies, although desirable, was a stopgap measure.  Structural change was necessary.  Regarding the external debt crisis, the problem was particularly acute in Africa, where every extra dollar spent on debt servicing greatly exceeded the interest and principal on borrowed capital, siphoning funds from much-needed social programmes and services in health, education, potable water and sanitation.  In many areas of Africa, the situation had worsened.

Despite its good intentions and successes, the HIPC Debt Initiative could not, on its own, address the problem, he continued.  It required a more comprehensive, radical solution.  The international community must give effect to the numerous General Assembly resolutions on external debt.  In the absence of a multilateral forum to resolve the crisis, the United Nations offered the best opportunity to find a lasting solution.  A debate on external debt in the context of the Economic and Social Council’s spring meeting with the Bretton Woods institutions should commence the search, as well.

LAZARUS AMAYO (Kenya) noted that the participation of developing countries in international economic and financial decision-making had remained low, despite their increasing role in the global economy.  Developing countries, especially those in Africa, were grossly under-represented in the upper levels of the Bretton Woods institutions, and there was an urgent need to reform them to ensure equal opportunities for all.

He said that servicing external debt had become a major constraint to developing countries, particularly in Africa.  Maintaining debt sustainability had seriously compromised Kenya’s efforts to promote long-term growth and implement poverty-reduction policies.  Sustained poverty reduction also required increased domestic investments in infrastructure and production capacity to raise economic growth and employment.  With the country’s commitment to debt servicing, extra resources for investment in the productive sector had been lacking. The situation had been exacerbated by poor performance in export commodities in international markets and the negative effects on tourism, eroding Kenya’s ability to service its debt and attain long-term development targets.

SHAMSUL ALAM PRAMANIK (Bangladesh) said that for years developing countries had suffered from a net outflow of resources and called for a reversal of that trend.  New and innovative ways to augment current ODA flows must be explored.  Bangladesh supported the proposal to create an International Finance Facility and the recommendations of the expert group created in connection with the recently launched Action against Poverty and Hunger. While the IMF-World Bank financial sector assessment programme for crisis prevention and resolution could be useful, it should not require new conditions.  Suggested reforms must take into action social and human consequences.  Despite broad recognition of the need to increase developing countries’ representation in the international financial decision-making process, little progress had been made.  Greater cooperation and political will were needed on the part of development partners.

The serious debt problems of least developed countries required a comprehensive solution, he continued, stressing that developing countries’ total debt had increased by 4 per cent in 2003.  Bangladesh was not a heavily indebted country, but it still felt the drag of debt servicing on its resources.  The total cancellation of the bilateral and multilateral debts of least developed countries would free up resources for programmes in food, health, sanitation, potable water and education, as well as in meeting the Millennium Development Goals.

ABDELLAH BENMELLOUK (Morocco) said the economic and social situations in most developing countries were precarious, especially given their high poverty levels and vulnerability to external shocks.  The lack of international financial flows was the main obstacle to economic growth and poverty eradication, and the international community should increase capital flows to support countries in implementing the Millennium Development Goals.  Economic policies implemented by developed countries had a direct impact on the nations of the South.  The IMF played a vital role in maintaining world economic stability, avoiding crisis and promoting sustainable development.

Debt relief could free up resources for sustainable development, he continued.  However, the HIPC Debt Initiative needed flexibility to overcome the difficulties faced by countries involved in meeting the eligibility requirements.

REZLAN ISHAR JENIE (Indonesia), speaking on behalf of the Association of South-East Asian Nations (ASEAN), said that financial sector stability continued to be a main goal of the ASEAN nations.  Lessons learned from the Asian financial crisis of 1997 and 1998 had become the basis for the ASEAN Economic Community (AEC) launched in October 2003 to enhance economic development and resilience.  A Road Map for Financial Integration to achieve the AEC had identified four crucial areas -- capital market development, capital account liberalization, financial services liberalization, and ASEAN currency cooperation.  The ASEAN Surveillance Process, an AEC initiative, served as an early warning mechanism for any potential problems that could adversely affect the financial sector.  It monitored global, regional and national economic and financial developments and conducted peer review meetings of the ASEAN finance ministers to exchange information on domestic economic performance.

The ASEAN had recovered from the crisis despite the adverse challenges posed by the war in Iraq, international terrorism, the Severe Acute Respiratory Syndrome (SARS) and the avian flu, he said.  Last year, the region had posted average growth of 5 per cent, up from 4.5 per cent in 2002.  Still, the region remained vulnerable to global uncertainties and risks.  A sustained recovery was difficult considering developing nations’ debt burden.  The ASEAN supported efforts to develop and apply innovative mechanisms to comprehensively address that through, among other things, special drawing rights (SDRs), debt swaps for nature and development programmes.  It also welcomed national and international measures to manage debt over the long term.

LUIS GALLEGOS CHIRIBOGA (Ecuador) said the international community must resolve external debt, which had become a severe obstacle to economic and social goals.  Deadlines for debt servicing must be made more flexible, and the United Nations must identify specific actions and viable solutions for debt relief so that countries could fulfil the minimum requirements of the Millennium Development Goals.

It was vital to act decisively in setting up mechanisms to assist developing countries in overcoming external debt, he said.  Those mechanisms must consider the realities of each nation, especially their social situations and ability to pay.  The international community must also pay heed to external factors, such as inequalities in the multilateral trading system on debt repayment.

CARLOS RUIZ MASSIEU (Mexico) said the United Nations could help identify the steps needed in creating the machinery to attract capital and FDI flows to developing countries, which could greatly improve the investment climate and increase domestic savings.  All stakeholders from the Monterrey International Conference on Financing for Development should analyse the preconditions for improving those financial flows.  The international community must also develop machinery to guarantee that developing countries achieved debt sustainability, as well as the Millennium Development Goals.  As agreed at Monterrey, debt relief was vital in freeing up resources to promote growth and sustainable development.  Development partners must strengthen existing initiatives to reduce or cancel outstanding debt.

MWELWA MUSAMBACHIME (Zambia) said that external debt had continued to consume a large proportion of national income in developing countries, increasing by a total of $95 billion.  Long-term public-guaranteed external debt had increased in all regions, while private debt had risen in sub-Saharan Africa, Eastern Europe and Central Asia, where countries had experienced the fastest increase in total long-term debt.

He noted that some countries had reached the HIPC completion point, qualifying for the full amount of debt relief, while his country had continued to progress towards interim relief, hoping to reach full relief this year.  Zambia was trying to maintain a balance between allocating resources for external debt and implementing its PRSPs in order to qualify for the HIPC Initiative completion point.  In some cases, that meant reducing spending on domestic investment infrastructure and production needed for economic growth and employment.  The current management of external debt failed to consider exports, imports, and the size of such non-debt creating capital inflows as FDI and ODA.

RADZI RAHMAN (Malaysia) said that his own and other developing countries that had endured the painful lessons resulting from the unfettered and poorly regulated activities of financial speculators had called for reform of the international financial architecture to make it more supportive and protective of small emerging economies.  While some efforts had been made, they fell short of developing countries’ expectations and demands.  Those countries remained highly vulnerable to global uncertainties and risks despite the wide range of measures they had undertaken to improve and strengthen financial regulation and supervision.

The IMF, he said, while maintaining surveillance on the policies of developing countries, should also apply closer surveillance on the policies of major developed countries that greatly impacted the global economic environment.  There was also a need for improved information and transparency in the market, particularly concerning the role of hedge funds.  Thus far, too much emphasis had been placed on enhancing transparency in the public sector.  The private sector should be equally scrutinized.  Progress in persuading private-sector institutions, including rating agencies and offshore financial centres to be more transparent in their operations, was encouraging.

RATNA SHUMSHERE RANA (Nepal), aligning himself with the Group of 77 and China, said that in spite of optimism in the international financial situation, the global economic growth was at risk as many national economies faced severe fiscal deficits.  The economies of most of the developing countries continued to face a weak and unstable position in terms of financial flows, and existing international institutional financial arrangements had not adequately addressed their concerns.  Most developing countries would not be able to attain the Millennium Development Goals, and the international community had to make sincere and generous efforts to enable them to do so.  official development assistance could and should be a major mechanism towards that end.

He said debt repayment had become a severe burden to the developing countries.  The HIPC Initiative could serve as a complementary instrument, but it faced problems of underfunding and should be expanded to cover all least developed countries. Without the honest and generous support of the international community, the least developed countries could not get out of the vicious cycle of poverty.  Landlocked developing countries suffered from geographical bottlenecks.  The international community, including the transit developing countries, needed to be sincere in implementing the Almaty Programme of Action under the new global framework on transit-transport cooperation.  Nepal supported the establishment of new innovative financial mechanisms to contribute towards the efforts of the developing countries for their sustained economic growth.

CELESTINE MUSHY (United Republic of Tanzania) said his country had qualified for the HIPC completion point in November 2001, when it had been assured of $2 billion in debt relief in net present value terms.  The HIPC Initiative had provided necessary debt relief, allowing for investment in the social sector.  Resources released through the Initiative had been used to finance pro-poor programmes in water supply, health, education and agriculture, as well as opening doors to donor budget support for poverty reduction.

However, HIPC had failed to change the country’s debt structure, he continued. I n August 2002, Tanzania had set up a national debt strategy to strengthen national debt management and ensure that debt was sustainable. However, the total national debt was still increasing, with about 42 per cent of the budget going to debt servicing.  If 42 per cent of the budget was used to pay off debt, what was left for development?  To meet the Millennium Development Goals, the country must continue to borrow, which would push up post-HIPC debt.  When countries with weak economies had to pay principal and compound interest, debt sustainability became an elusive concept.

MOHAMMED EL KONI (Libya) said the external debt of developing countries had increased last year by 4 per cent and the ratio of debt to gross domestic product (GDP) in Latin America, the Caribbean and Africa had also risen.  Despite good efforts under the HIPC Debt Initiative in the last few years, that problem had been a major impediment to developing countries, including medium-income countries.  The international community must increase their financial assistance to developing countries and explore innovative ways to boost resources and investments in programmes that would work to erase hunger and disease, while creating jobs.

International creditors must take effective measures to alleviate debt and remove all structural conditions so that developing countries could increase debt sustainability, he continued.  Diversification of exports would also help them achieve the Millennium Development Goals.  The international financial system must also do its part in promoting sustainable development, economic growth and poverty reduction.  Libya called for reforms that would facilitate faster and more appropriate responses to the development needs of developing countries.

DJIHED BELKAS (Algeria) said the international financial system should play a significant role in promoting sustainable development, economic growth and poverty reduction.  However, despite unceasing efforts by developing countries to eradicate poverty and boost their economies, the world economy had remained unbalanced.  Financial flows were increasingly heading towards developed, rather than developing, countries, and FDI and ODA had fallen far below international commitments to ensure development and meet the Millennium Development Goals.  Developing countries had taken measures to improve international financial stability, but had remained the most vulnerable to financial crises.  Measures were needed to reform the international financial system and protect the global economy from jolts and crises.

Stressing that debt had remained a pressing question, he said it was time for the international community to implement debt-relief commitments for low-income countries.  With the HIPC Initiative failing and debt continuing to grow, a solution to the debt problem could only come from a joint decision by the international community and financial institutions to cancel debt and raise ODA to  0.7 per cent of gross national product (GNP).

DER KOGDA (Burkina Faso) said the external debt of developing countries was a great burden and an impediment to economic growth and prosperity.  The various mechanisms implemented by the international community since the 1980s to bring down debt levels had not been sufficient.  Those efforts had been marginal and limited in nature, while the HIPC Debt Initiative was too slow to be effective as conditions for eligibility were too closely tied to economic performance.  Development partners must step up FDI and ODA to heavily indebted nations, thus, enhancing their prospects for economic prosperity and political stability.

Burkina Faso had been eligible for HIPC debt relief since 1997 and was approaching the completion point, he continued.  Still, HIPC resources had been weak vis-à-vis budgetary subsidies, representing 6.8 per cent and 5.9 per cent, respectively, of health and education budgets.  The HIPC would be more effective if conditions were simplified and if sustained measures to eliminate arrears were introduced.

KAZUO SUNAGA (Japan), stressing the importance of debt sustainability in realizing poverty reduction and sustainable development, said his country had continuously supported the HIPC Debt Initiative.  Japan had cancelled its loans for HIPC, as well as other African countries, and encouraged other creditors to take part in the initiative to assist developing countries in promoting economic growth and sustainable development.

GEORGE TALBOT (Guyana), speaking on behalf of the Caribbean Community (CARICOM), said that financing for development posed major challenges for the Caribbean’s small vulnerable economies.  The dismantling of preferential trade arrangements had led to a significant decline in agriculture production and disrupted traditional lifestyles and culture.  Recent hurricanes had further exacerbated the challenges to socio-economic development and wreaked havoc on several sectors.  CARICOM member States were among the most indebted developing countries, which constrained the creation of sustainable development policies.  International financial institutions should promote policies that would unwind those large balance-sheet risks and provide credible forms of contingency finance resources to address the CARICOM nations’ financing needs.  Also necessary were policies to ensure effective surveillance of the global economy, a framework for sovereign debt restructuring and new sources of finances.

He said that, in addition to strengthening IMF surveillance on traditional macroeconomic, structural and institutional policies, and advocating a more stable pattern of external financing, greater effort was required on the part of the Group of Seven industrialized countries to coordinate macroeconomic policies.  More effective regulation of international capital markets was needed, as were multilateral rules to involve the private sector in financial crisis resolution.  Moreover, developing countries needed greater representation in decision-making and norm-setting in the Bretton Woods institutions.  The CARICOM called for greater international cooperation on tax matters and urged Member States to support the relevant resolution before the Economic and Social Council.

MAURICE MALANDA (Congo) said many developing countries had high hopes that HIPC would cancel or substantially reduce their debts.  However, only 14 nations had benefited from overall debt relief, 13 had reached the decision point with only temporary relief, and the remaining 11 were far from achieving the completion point.  Hopefully, all programmes to relieve debt would continue until they were complete.  Congo’s debt had reached $591 million -- one of the highest in the world –- and paying it off had become almost impossible.  The country had been through several years of devastating civil war, and now desperately needed resources for reconstruction.

BENEDICTO FONSECA FILHO (Brazil), speaking on behalf of the Rio Group, said debtors and creditors must share the responsibility of preventing and resolving unsustainable external debt burdens.  Debt alleviation also played an important role in freeing up resources for poverty eradication, economic growth and sustainable development programmes.  Both the public and private sectors had a role to play in developing national economic capacities.

However, in most cases those ideals had not resulted in practical action, he continued.  Debt servicing was almost impossible in some cases, since there was a lack of international assistance that would enable heavily indebted countries to achieve economic solvency and a lack of measures to foster sustainable development and growth.  Middle-income countries such as members of the Rio Group had gone to great lengths to restructure their economies, open their markets and embrace good-governance policies.  There was a need for greater international cooperation and for programmes tailored to the specific circumstances and needs of each country.

BASHEER ZOUBI (Jordan) said his country’s debt problem had begun in the 1980s, when the collapse in world oil prices had forced the Government to borrow externally in its efforts to finance growing expenditures and revitalize the economy.  That dire economic situation had deteriorated by 1989 into an economic crisis, prompting the Government to launch a 10-year reform process, which had culminated in 1999, with a sustainable macroeconomic management policy.  However, 10 years of reform had failed to overcome totally the challenges of economic growth, reduce the budget deficit or cut external debt to acceptable levels.

He said Jordan’s debt reduction efforts had included fiscal consolidations, debt payback, debt swaps, and a dynamic privatization process that had injected $1.2 billion into the economy through 60 transactions. Acknowledging the country’s efforts, the Paris Club had agreed in 2002 to reschedule $1.2 billion of the country’s debt that had been due in 2004 to 2007.  External debt service would rise substantially in 2007, as the first instalment of principal and interest of the rescheduled loans fell due.  For the next three years, a national plan had been designed to continue reform by implementing sectoral development strategies in critical domains at the micro level.

FERMIN TORO JIMENEZ (Venezuela), underscoring the pernicious impact of debt on countries of the South, said it had seriously impeded development and could lead to humanitarian catastrophe.  Solutions to insupportable debt were proferred only by the IMF and the World Bank.  The latter attempted to ensure that poor countries continued to pay their debts, but ignored the impact of debt on social development in those nations.  Debt must be approached from a different perspective, so that development plans could be translated into reality.

Several international conferences and summit had highlighted the disadvantages facing developing countries as a result of unsustainable debt, he said, but the international community must engage in a different type of dialogue to resolve debt problems.  Venezuela called on all developed countries to lighten the debt burden of developing nations and to eliminate heavily conditioned adjustment policies, which deepened poverty.

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