SPEAKERS STRESS NEED TO INCREASE CAPITAL FLOWS TO DEVELOPING COUNTRIES, REVERSE DEBT CYCLE AS SECOND COMMITTEE TAKES UP MACROECONOMIC POLICY QUESTIONS

Sixtieth General Assembly

Second Committee

8^th Meeting (AM)

SPEAKERS STRESS NEED TO INCREASE CAPITAL FLOWS TO DEVELOPING COUNTRIES, REVERSE

DEBT CYCLE AS SECOND COMMITTEE TAKES UP MACROECONOMIC POLICY QUESTIONS

Delegates Quiz Under-Secretary-General Following

Presentation of World Economic, Social Survey 2005: Financing for Development

Speakers stressed the importance of increasing capital flows to the developing world, reversing the crippling debt cycle in the poorest countries, and increasing developing-country participation in the international financial system, as the Second Committee (Economic and Financial) took up macroeconomic policy questions.

As the Committee focused on the international financial system, the external debt crisis and their relation to development, Jose Antonio Ocampo, Under-Secretary-General for Economic and Social Affairs, presented the World Economic and Social Survey 2005:  Financing for Development, noting that developing countries had recently been using increased funds to build up international reserves as a guarantee against future crises.  As a result, the net transfer of resources to the developing world had become negative, as those countries transferred increased resources to the developed world.

Quoting the survey, he pointed to several options for reducing outward transfers from developing countries, including local currency financing, as well as financing by international financial institutions in a counter-cyclical (more regular) fashion.  Proposed policies focused on increasing information flows for potential investors, channelling subsidies through donors, as well as insurance and guarantee schemes.

The survey also noted a failure to reduce significantly the rising trend in debt ratios during the 1970s and 1980s, which had burdened developing countries and thwarted development, he said.  Efforts to resolve the debt burden included the Heavily Indebted Poor Countries (HIPC) Debt Initiative, the recent initiative by the Group of 8 industrialized countries to forgive debt owed by the poorest countries, and the Paris Club’s so-called Evian Approach debt-rescheduling initiative.  However, discussion was still needed on mediation and negotiation mechanisms for private-creditor debt.

Asked during the ensuing discussion if decreased capital flows posed a major constraint on growth, Mr. Ocampo said the sharp reduction in capital had indeed affected growth in developing countries, citing the 1980s debt crisis and the East Asian financial crisis.  Responding to a comment that the negative transfer of capital from developed to developing nations could indicate increased developing-country integration into the world’s capital markets, he said it could also mean they were accumulating more international reserves as a method of self-insurance.

To a query on debt sustainability, Mr. Ocampo said countries could borrow up to 2 to 3 per cent of gross domestic product (GDP) without falling into negative debt dynamics, but the world’s poorest countries needed grant financing.  Also, since world currencies were generally from developed nations, developing countries could only borrow in those currencies, which generated additional risks for them.

As delegates subsequently made their country and agency statements, Anh-Nga Tran-Nguyen, of the United Nations Conference on Trade and Development (UNCTAD), introduced the report on external debt crisis and development, observing that many highly-indebted low- and middle-income countries continued to face unsustainable debt burdens, hindering their efforts to attain the Millennium Development Goals by 2015 without substantial additional development assistance.  For the poorest countries, assistance should come in the form of increased grant-based official development assistance (ODA) to ensure debt sustainability.

Addressing the question of private-creditor debt, she noted considerable delays in the restructuring of private debt, which led to costly defaults and worsened economic conditions.  The risk of litigation had also increased due to the lack of collective representation, vulture investors or legal implications in bilateral investment treaties.  But those experiences had also shown that economic recovery resumed quickly, and countries truly exited from debt when restructuring gave them enough breathing space and released resources for development.

Jamaica’s representative, speaking on behalf of the “Group of 77” developing countries and China, stressed that debt relief should not replace other sources of financing, and that low- and middle-income countries outside the HIPC Debt Initiative would also need a respite from overriding debt.  Expected global financial-flow patterns had reversed, and resources were increasingly being transferred from developing to developed countries in the form of loan repayments.

Taking that issue further, Indonesia’s delegate, speaking on behalf of the Association of South-East Asian Nations (ASEAN), said development had landed “on the horns of a dilemma”.  The net transfers of financial resources to developed rather than developing nations diminished the resources available for domestic consumption and investment.  In addition, debt servicing was draining the resources of developing countries and would certainly have an effect on succeeding generations, who would inherit the debt-repayment trap.  More could be done to service the poor when less was being spent paying interest to developed countries, and debt savings could be used to increase spending on better infrastructure, education and health.

India’s representative addressed the issue of developing-country participation in financial institutions, observing that the present voting system was weighted against developing countries and prevented them from mustering the 85 per cent majority required to approve important proposals.  If the International Monetary Fund (IMF) management was more equitable and transparent, it should be possible to enhance the voice of developing countries.

Also speaking today were the representatives of Morocco, Bangladesh, Malaysia, China, United Republic of Tanzania and Ecuador.

Other speakers included representatives of the Department of Economic and Social Affairs; Office of the High Representative for the Least Developed Countries, Landlocked Developing Countries and Small Island Developing States; and the International Labour Organization.

Before the meeting was adjourned, Pakistan’s delegate expressed his gratitude for the support his country had received in the wake of the devastating weekend earthquake, and expressed his condolences to Afghanistan and India, whose people had also suffered its lethal effects.

The Second Committee will meet again at 10 a.m. Tuesday, 11 October, to consider special economic assistance to individual countries or regions.

Background

The Second Committee (Economic and Financial) met today to begin its consideration of macroeconomic policy questions.

Before it was the Secretary-General’s report on the International financial system and development (document A/60/163), which assesses the allocation of financial resources by the international financial system to mobilize domestic assets, and reviews measures to improve international financial stability.

According to the report, developing countries continue to experience net outflows of financial resources, as many build up foreign reserve balances to protect against international capital flow volatility and vulnerability to financial crisis.  Measures to increase international financial system stability and provide alternate means of accessing liquidity in turbulent periods would reduce the need for large individual country reserve balances.

Given that part of the outflow of resources from developing countries is used to build up reserves in multilateral development banks, the report further recommends steps to ensure that these funds support growth and poverty reduction in the poorest developing countries, and provide liquidity support mechanisms in middle-income countries.

The report also notes that developing countries have attempted to counter the pro-cyclicality (irregularity) of international capital flows, but remain highly vulnerable to global uncertainties and risks.  Transformation of the global financial system has increased the likelihood of boom-bust cycles, and a modified, system-wide approach to prudential regulation should be introduced, which would consider the macroeconomic consequences of financial imbalances and pro-cyclicality of financial markets.

Observing that greater volatility in liberalized capital accounts has increased the need for official liquidity, the report underscores the need for emergency international or regional financing to assist with crisis prevention and management.  Further, it underscores the need for institutional mechanisms to address debt problems facing middle-income countries.

Regarding participation in international financial institutions, the report states that there have been extensive, mostly technical, discussions of that issue, but little progress over the past few years.  While such debates can be useful in elaborating proposals, real changes in representation can only occur through fundamental reform by political leaders.

The report also reviews policies to strengthen International Monetary Fund (IMF) financing of poor countries, streamline the conditionality of the Fund’s lending, implement sovereign debt restructuring, improve the role of special drawing rights in the international financial system, and support South-South cooperation in the international monetary system.

Also before the Committee was the Secretary-General’s report on External debt crisis and development (document A/60/139), which updates the state of developing-country debt, which notes that recent trends have shown smaller accumulations of debt, as well as lower debt-service burdens in developing countries, with total debt rising by only 1.7 per cent in 2004 compared to 9.3 per cent in 2003.  Most notable was the decline by 5.6 per cent of total debt stocks for countries in sub-Saharan Africa in 2004, due in part to the Heavily Indebted Poor Countries (HIPC) Initiative, as compared with the 9.4 per cent rise in 2003.

However, some countries continue to struggle for a lasting solution to their serious debt problems, the report says.  Countries in the HIPC Initiative are falling short of the Millennium Development Goals, and will need additional development assistance, including full debt cancellation.  To that end, the Group of Eight has recently agreed to cover the cost for full cancellation of HIPC multilateral debt.

The challenge for HIPC nations is to achieve lasting debt sustainability and avoid falling into a new debt trap, the report states.  Unfortunately, available information suggests that debt ratios for many of those countries have increased above levels deemed sustainable.  In most cases, fiscal deficits and lower export earnings were responsible for a deterioration of debt ratios.  Long-term debt sustainability depends on a country’s growth and exports, as well as structural development, which requires additional resources to finance investments, and increased access to export markets.  Exclusively grant-based finance for most HIPCs will be needed to avoid debt-servicing difficulties, and reach the Millennium Goals by 2015 without an increase in debt ratios.

Debt-sustainability analysis is also key to resolving the debt crisis of other low- and middle-income countries, the report says, observing that the Paris Club’s Evian approach relies on IMF Debt Sustainability Analysis to determine debt rescheduling terms.  Given the uncertainty surrounding that analysis, debt should be balanced by other views, including qualitative and policy judgements.

As for debt restructurings with private creditors, considerable delays in some cases have led to costly defaults and worsened economic conditions, the report notes.  The risk of litigation has also increased, often due to the lack of collective representation mechanisms, vulture investors or the legalities of bilateral investment treaties.  But private experiences have also shown that economic recovery resumes quickly, and countries truly exit from debt problems when debt restructurings give enough breathing space and release resource constraints on development.

Presentation by Under-Secretary-General

JOSE ANTONIO OCAMPO, Under-Secretary-General for Economic and Social Affairs, presented the World Economic and Social Survey 2005:  Financing for Development, which focuses on the six areas of the Monterrey Consensus -- mobilizing domestic resources, trade for development, private capital flows, official development financing, debt sustainability and systemic issues.  A seventh area introduced by the survey relates to the need to bring South-South cooperation to new levels.

Regarding domestic resources, he said the survey showed that domestic savings and investment had continued to be vital for overall performance in developing countries, and that there was a strong link between investment and savings.  Faster-growing countries had a higher proportion of savings, as well as domestic investment.  Special emphasis was placed on policies for deep and inclusive financial development, especially with respect to development banking systems and capital markets, which should be in each particular the country’s currency.  Such policies should focus on long-term financing, inclusive of financing (to give access to the poor), and prudential regulation and supervision.  Public-sector institutions played a role, but should be reformed to become more effective.

With respect to trade, he said the survey stressed the importance of a non-discriminatory and equitable international trading system.  Manufacturing exporters in developing countries showed better performance than non-oil commodity producers, which were experiencing a downward turn.  All commodity sectors needed to develop new instruments to deal with volatility in prices and terms of trade.  Non-oil commodity prices had fallen from more prosperous levels in the 1980s, and tended to lose market share.

As for private external financing, the survey noted that such flows had encouraged development by smoothing out the damaging effects of external shocks in some nations, he said.  There was strong evidence that private flows, apart from foreign direct investment (FDI), had enhanced business in developing countries.  Net FDI had actually demonstrated a long-term increase, with small cyclical variations, while other financial flows were strongly cyclical.  Developing countries that had experienced a reduction in capital flows during the Asian crisis had used a recent increase in funds to build up international reserves as a guarantee against future crisis.  The net transfer of resources to developing countries had recently been negative, as they increasingly transferred resources to the developed world.

He said the survey mentioned several options for reducing the transfer of outward flows, including local currency financing, and a series of options by which international financial institutions could finance developing countries in a counter-cyclical fashion.  Proposed policies focused on increasing information flows for potential investors, channelling subsidies through donors and insurance, as well as guarantee schemes.

On official development assistance (ODA), the survey noted a recovery in such financing since the Monterrey Consensus, although most of that had been in debt or emergency relief and technical assistance, he said.  In real terms, the amount of ODA for developing countries was still smaller than it had been in the 1990s.  There was also a tendency for ODA to be concentrated in a few countries -- the so-called aid darlings.  The ODA commitments made this year should continue the recent upward trend, reaching about 0.36 per cent of gross domestic product (GDP) in donor countries by 2010, which was still only half of the 0.7 per cent target.  The real challenge was to increase ODA for current development projects.  To that end, the Paris Declaration on Aid Effectiveness had focused on developing-country ownership of development strategies, donor alignment with those strategies, managing ODA for results, and mutual accountability of donors and partners.  The international community should channel aid through the budgets of developing countries, with the funds going to priority projects.  That meant untying aid and making long-term commitments to guarantee aid flows to individual recipient countries.

As for debt sustainability, he said, the survey noted a series of debt crises in the post-war period, he said, which had burdened many developing countries with debt overhangs that had been costly for development.  The rising trend in debt ratios during the 1970s and 1980s had contributed significantly to such crises, and current levels had not been significantly reduced.  Efforts to resolve that situation included the HIPC Debt Initiative, the recent Group of Eight initiative to forgive debt for the poorest countries, and the Paris Club’s so-called Evian Approach for debt rescheduling.  Discussion was still needed on mediation and negotiation mechanisms for private-creditor debt.

Mr. OCAMPO drew attention to the under-representation of Asia and Africa in international financial decision-making bodies, where, despite having produced 25 per cent of the world’s GDP, Asia had around 10 per cent of basic votes at the IMF.  In that case, basic votes should be increased relative to the continent’s economic power.  In Africa’s case, the number of basic votes had steadily decreased, and that downward trend should be addressed.

He suggested an increased focus on South-South innovative financing initiatives.  Indeed, development banks owned by Arab and Latin American countries were playing an increasing role, as was the Asian bond market initiative.  Crisis support initiatives involving the use of reserve funds, such as the Latin American Reserve Fund and the Chiang Mai Initiative of the Association of South-East Asian Nations (ASEAN)+3, had likewise shown effectiveness.  Ways to increase consultation and coordination on a regional basis should be examined.

Discussion

When asked if the decrease of capital flows posed a major constraint on growth, Mr. OCAMPO affirmed that, for developing countries as a whole, sharp reduction in capital flows had indeed affected growth.  Examples from the past included the 1980s debt crisis and the East Asian crisis.  However, he pointed out that capital flows had increased in the last three years.

Responding to a comment that the negative transfer of capital from developed to developing countries was not necessarily detrimental as it might indicate the increased integration of developing countries into the world’s capital markets, Mr. OCAMPO assented but pointed out that it could also be a sign that developing countries were accumulating more international reserves as a method of self-insurance.  That raised a further question of whether developing countries had adequate protection against capital account reversals, such as those which took place during the 1980s debt crisis and East Asian financial crisis.  Self-insurance could be perceived a sign that the international financial system was malfunctioning.

Replying to a comment that effective ODA required better alignment with the recipient country’s national budget, he said that, according to a previous report on the subject, only one fourth of ODA had been channelled in that way.  More funds should be channelled in that manner because the national budget was typically approved by the national parliaments; thus, that method of channelling funds enhanced the democratic use of such funds.

Addressing a comment regarding the Secretary-General’s definition of debt sustainability, Mr. OCAMPO said that it addressed the point that debt should not be serviced at the cost of development.  Countries could borrow up to 2 to 3 per cent of GDP without getting into negative debt dynamics, but for the poorest countries of the world, which required more than that amount, there was no alternative but grant financing.  Also, developing countries could not borrow in their own currencies because most world currencies were the currencies of developed countries.  That generated additional risks for those countries, which should be addressed.  Regarding uneven access to capital markets for low- and middle-income countries, he stressed the need to address such issues at multilateral financial conferences.

ANH-NGA TRAN-NGUYEN, United Nations Conference on Trade and Development (UNCTAD), introduced the report on external debt crisis and development (document A/60/139), noting that increases in income, exports and reserves, as well as a slower rise in total debt stocks in 2004 had been translated into lower debt-to-income and debt-service-to-export ratios for developing countries.  The growth of GDP in developing countries had outpaced the growth in debt in 2004, improving total debt-to-income ratios for all developing countries to an estimated 35.2 per cent, down from 38.6 per cent in 2003.

However, many highly-indebted low-income and middle-income countries continued to face unsustainable debt burdens, which hindered their growth and development, as well as efforts to reach the Millennium Goals by 2015.  There was increasing recognition that HIPCs were falling short of the Goals and would not be likely to reach them by 2015 without substantial additional development assistance.  In response to the Secretary-General’s call for full debt cancellation to support HIPC efforts to reach the Goals, the Group of 8 had agreed in July to cancel outstanding debt to the IMF, World Bank and African Development Bank.

Debt sustainability of the poorest countries was best secured if financial resources came in the form of grants, and if donors consequently agreed to increase substantially grant-based ODA, she said.  As for debt restructuring with private creditors, there were considerable delays in some cases, leading to costly defaults and worsened economic conditions.  The risk of litigation had also increased, especially due to a lack of collective representation mechanisms, the presence of vulture investors or legal implications in bilateral investment treaties.  But those experiences had also shown that economic recovery resumed quickly and countries truly exited from debt when debt restructuring gave enough breathing space and released resource constraints on development.

ANN ORR, Department of Economic and Social Affairs, said that in strengthening the international financial system, increased attention had been given to the design of measures at the national and international levels aimed at better preventing and managing financial crises.  Multilateral surveillance remained at the centre of crisis prevention efforts.  It was recognized that surveillance activities should focus on improving analytical tools for early identification of specific areas of country weakness.

She said that, with financial globalization, surveillance should focus on the stability of the global financial system as a whole.  There was a clear need for greater international cooperation and coordination to ensure a smooth adjustment of global macroeconomic imbalances.  That involved reinforcing the role of the IMF in supporting the management of the world economy.  It was necessary to provide larger margins of safety to deal with financial imbalances, which build up during cyclical upswings and downturns.  Regional reserve funds could be a valuable complement to the role played by the IMF.

HARRIET SCHMIDT, speaking on behalf of Anwarul Chowdhury, High Representative of the Secretary-General for the Least Developed Countries, Landlocked Developing Countries and Small Island Developing States, welcomed the Group of 8 agreement to cancel the debt of 18 HIPC nations, 13 of which were least developed.  The cancellation contributed to a decline of 5.6 per cent of total debt stocks for countries in sub-Saharan Africa in 2004, which experienced a decline in debt-to-income ratio from 58 per cent in 2003 to an estimated 49.3 per cent.  Unfortunately, that was counterbalanced by an increase in total long-term debt by an estimated $3 billion (26.6 per cent) in 2004.

She stressed that least developed countries deserved special attention, including the need for ODA in accordance with the Brussels Programme of Action, which called for 0.15 to .20 per cent of donor GDP.  That was against a backdrop of slow improvement after the long decline in the 1990s, reaching $22.5 billion or 0.08 per cent of donor’s GDP, as compared to $15.8 billion in 2002.  At the same time, least developed countries had made great strides in creating an enabling environment, mobilizing domestic resources and attracting FDI, although they still needed international financial assistance for development.

STAFFORD O. NEIL ( Jamaica), speaking on behalf of the “Group of 77” developing countries and China, said despite strong growth of the global economy in 2005, many developing countries continued to face unsustainable debt burdens.  Special measures would be required to address countries affected by exogenous shocks and natural disasters, as well as countries in or emerging from conflicts.  Debt relief could play a role in freeing up resources, but it should not replace other sources of financing.  He supported the Secretary-General’s recommendation to increase grant-based ODA.  Low- and middle-income countries outside of the HIPC Debt Initiative would also require measures to address debt problems.

He expressed concern over the reversal of expected global patterns of financial flow, where resources were increasingly being transferred from developing to developed countries in the form of loan repayments.  In addition, conditionalities imposed by the IMF and World Bank continued to undermine country ownership of programmes and hindered implementation.  Regarding the voice and effective participation of developing countries within international financial institutions, little progress had been made, and he expected the Economic and Social Council to play an integral role in addressing that problem.

REZLAN ISHAR JENIE (Indonesia), speaking on behalf of the Association of South-East Asian Nations (ASEAN), said development was finding itself on the horns of a dilemma, with net transfers of financial resources going to developed countries rather than developing nations.  That situation was detrimental to developing countries, weakening their development capacity as resources for domestic consumption and investment diminished.  Although its purpose was to enhance efficiency and stability in financial markets, and to promote global economic activity, the international financial system must also work to improve living standards for the poor.  It must be sufficiently flexible to accommodate the different levels of economic development in various regions, giving greater voice in international economic decision-making and norm-setting to developing countries.

Turning to debt, he said developing countries should not lose the momentum to find a comprehensive, lasting and development-oriented solution to the debt problem.  Debt servicing was one of the biggest drains on the resources of developing countries and would certainly have an effect on succeeding generations, which would face the unwanted “inheritance” of being trapped in the debt repayment cycle.  More could be done to serve the poor when less was spent paying interest to developed countries, and debt savings could be used to increase spending on better infrastructure, education and health.  Innovative debt schemes could provide countries faced with staggering debt servicing with adequate resources for the specific development projects outlined in their respective national development plans or strategies.

NIRUPAM SEN ( India), aligning himself with the Group of 77 and China, said there was no alternative to a far-reaching reform of the Bretton Woods institutions.  At present the voting system was weighted against developing countries, preventing them from mustering the 85 per cent majority required to approve important proposals.  If the IMF’s internal management process were more equitable and transparent, it should be possible to enhance the voice of developing countries.  In addition, short-term suggestions in the Secretary-General’s report, such as liberalizing conditionality and introducing a subsidy element for low-income countries in the Compensatory Financing Facility, merited attention as a way to strengthen further the hand of developing countries.

A crisis-prevention agenda still remained unaddressed, he said.  Effective surveillance to promote stability through the enhanced resilience of countries to economic shocks was the key to preventing crises.  The IMF’s ability to influence policies through surveillance was limited with regard to developed countries, and there was a need to improve the even-handedness of surveillance across the membership.  There was also a need for controls on speculative capital flows in order to ensure financial stability.  It was heartening to note that the IMF intended to finalize arrangements to deliver debt relief by the end of 2005.  The importance of providing financing to low-income countries should be maintained.

HASSAN ABOUTAHIR ( Morocco) noted that developing countries had continued to be net exporters of capital, which they needed to achieve their full potential.  The Group of 8 decision to forgive the debt of the poorest countries and to double assistance to Africa by 2010 would assist those countries in achieving the Millennium Goals.

He said that the quest for sound and decisive national policies, as well as increases in FDI and ODA, must be accompanied by measures to increase international trade.  The Doha Round must continue by moving towards free markets for the products and services of developing countries to support their economic growth.  Developed countries must lift tariff and non-tariff barriers to developing-country products, which would help them to build their export capacity and fuel economic growth.  The completion of the Doha Round would bring considerable advantages.

The effective participation of developing countries in international economic decision-making and standard-setting would promote the legitimacy and effectiveness of international financial institutions, he said.  As for debt, efforts to resolve the debt burdens of HIPCs should continue in order to ensure that development needs were not compromised, and that ODA was not sacrificed in favour of debt relief.

IFTEKHAR AHMED CHOWDHURY (Bangladesh), aligning himself with the Group of 77 and China, pointed to the huge amount of money that poor countries were forced to pay towards debt repayment, saying the funds could have been spent on the social sectors that their peoples needed urgently.  Within that context, debt sustainability should be redefined as the level of debt consistent with achieving development without a debt overhang.  Bangladesh welcomed the Group of 8 proposals for debt cancellation, but that debt relief should supplement other resource flows.

Also welcome, were recent efforts to “ring-fence” more countries into the HIPC Debt Initiative list, he said.  That initiative should be provided to all least developed countries, and loans to that group should be written off immediately.  In addition, the International Development Agency needed to shift to an all-grants facility.  Appropriate use of aid would always be a problem for countries with weak institutions and bad governance, he said, adding that lack of absorptive capacity made aid counterproductive.  For that reason, Bangladesh had implemented a series of institutional reforms to enhance the effectiveness of foreign aid in consultation with its development partners.

K.S. NIJHAR ( Malaysia), noting his country’s encouraging economic performance, said it had registered continued steady growth over the past few years.  With the private sector the main engine of growth, it had continued to explore new areas of comparative advantage, which had contributed to a well-diversified economic structure and increased resilience to external developments.  The financial sector had been transformed with the near completion of the restructuring, consolidation and internal rationalization of the banking sector.  Governance and risk-management practices had been improved, and the capital market structurally enhanced, significantly strengthening its role in the country’s financial system.

He said developing countries still remained highly vulnerable to the increasingly challenging and competitive global financial environment, lacking the necessary institutional capacity and highly susceptible to the volatility of external financial flows.  More must be done to restructure the international financial architecture, and further reform the Bretton Woods institutions.  The Monterrey Consensus had stressed the need to broaden and strengthen the participation of developing and transition countries in international economic decision-making and norm setting.  The international community must ensure that developing and emerging economies had representation in those institutions, consistent with their relative positions.

BAI YONGJIE (China), aligning herself with the Group of 77, said that geopolitical uncertainty, rising oil prices and the outflow of international capital to developed countries posed new challenges to world economic development.  In addition, the capacity of developing countries to ward off risks was still weak, and was coupled with their inadequate voice and representation in international financial institutions.  The international financial architecture established 60 years ago could no longer meet the current needs of Member States and needed reform.

She stressed that the system’s decision-making mechanisms should be improved, and that major industrial countries should strengthen their policy coordination with those of emerging-market and developing countries.  In terms of international exchange rate regimes, developed countries had the responsibility to step up the coordination of the three main currencies, and the World Bank and IMF should strengthen their surveillance of the policies of those countries, in particular those issuing major reserve currencies.

Turning to the issue of debt, she said the debt problems of developing countries were attributable to an unfair international economic order.  In order to solve the debt problem, there was a need to address root causes alongside its symptoms.  International and regional organizations should help developing countries to strengthen their capacity-building and infrastructure, while providing advisory and financial assistance.

DJANKOU NDJONKOU, International Labour Organization (ILO), noted that world employment had expanded by only 1.67 per cent in 2004, despite a fairly robust growth rate of 5 per cent.  Those figures pointed to a high incidence of growth in unemployment, which was not politically, socially or economically sustainable.  Though increases in trade and FDI were positive advances, they had failed to produce the employment-intensive growth needed to reduce unemployment and poverty.  Though the problem was dispersed throughout the world, it was essential that attention be paid to it nationally by placing decent work at the heart of global, national and local strategies.

In maximizing the benefits of increased trade within and between nations, structural problem must be addressed to ensure that employment growth was generated from increased investment and output growth, he said.  Better investment policies focusing on the enormous job-creating potential of small enterprises were needed.

He added that South-South cooperation was an instrument for optimizing the potential to promote development through the mobilization and sharing of existing resources and expertise.  Increased South-South cooperation would create an enabling environment that built strong links with the local economy, and addressed the unacceptable incidence of labour abuse.

CELESTINE MUSHY (United Republic of Tanzania), aligning himself with the Group of 77 and China, said it was regrettable that both the Outcome Document and the Development Committee Communiqué of 25 September 2005 lacked concrete proposals to increase developing-country participation in decision-making and norm-setting within international financial institutions.  Action should be taken to address that deficiency, and make multilateral institutions more effective, inclusive, democratic, transparent and representative.

Regarding debt, he said that while the Group of 8 decision was appreciated, concerns remained about other debts owed by the same countries to other creditors.  Consideration should also be given to cancelling those debts.  The United Republic of Tanzania had reached the completion point of the HIPC Debt Initiative in November 2001, under which debt relief amounting to $3 billion was assured.  That was a substantial amount, and it had had a visible impact on the country’s health and education sectors.  But it had not been sufficient to sustain the economic growth needed to achieve development goals.  In addition, the country’s debt burden remained significant, and the country remained far from reaching debt sustainability.  The same applied to all other members of the HIPC Debt Initiative that had reached the completion point.

MARISOL NIETO (Ecuador), aligning herself with the Group of 77 and China, said that viable long-term solutions were required to deal with the debt problems of developing countries.  One suggested solution was for all creditors to consider allowing a debt-swap for development projects.  Meanwhile, developing countries should focus on increasing public investment for development; however, debt payments often impeded those policies.  Countries seeking to restructure their debts faced an assortment of problems, including potential lawsuits brought by their creditors.

She said the current renegotiation process should establish procedures that would prevent countries from incurring additional costs as they embarked on development projects, thereby increasing their ability to undertake investments without increasing indebtedness.  Mechanisms should also be established to help countries deal with emergency situations arising from natural disasters and other crises.  While acknowledging that fiscal discipline was required to reduce debt, a new financial architecture was just as necessary, and it should be based on principles of justice rather than pure financial considerations alone.  Ecuador suggested the establishment of a debt tribunal to deal with debt-related disagreements.

ASAD MAJEED KHAN ( Pakistan) delivered a special message of thanks to Member States for their expressions of support in the wake of the devastating weekend earthquake, and expressed his heartfelt condolences to people in Afghanistan and India, whose people had likewise suffered.  The scale and level of destruction was massive, and relief efforts were complicated further by cold weather and inaccessible terrain.

He said his country was touched by the outpouring of sympathy, and expressed his deepest gratitude to all those who had pledged or provided assistance to the affected areas in Pakistan.  The people and Government would do their best in rehabilitating and reconstructing the affected areas, and would do so with the support and assistance of the international community, the United Nations system and others.

* *** *

For information media • not an official record