Economic and Social Council

2007 Organizational Session

3^rd Meeting (AM)

WORLD ECONOMY EXPECTED TO DECELERATE IN 2007, ECONOMIC AND SOCIAL COUNCIL TOLD

Council Hears Presentation on Recent United Nations Report; Decides to Meet

With Bretton Woods Institutions on 16 April; Elects Members of Subsidiary Bodies

After three years of broad-based, upward growth, the world economy was expected to decelerate in 2007 as a result of a slowdown of the United States economy, said José Antonio Ocampo, Under-Secretary-General for Economic and Social Affairs, in a briefing to the Economic and Social Council at the third meeting of that body’s 2007 organizational session today.

The Council had met to discuss preparations for its annual substantive meeting in Geneva in July, but also heard a presentation by Mr. Ocampo on the recently-published World Economic Situation and Prospects 2007, which was jointly produced by the Department of Economic and Social Affairs, the United Nations Conference on Trade and Development (UNCTAD) and five United Nations regional commissions. 

According to that report, Mr. Ocampo said world economic growth would decrease from 3.8 per cent in 2006 to 3.2 per cent in 2007.  Similar slowdowns in Japan and Western European nations meant that those countries were not expected to replace the United States as the main driver of world economic growth.

An upside to the situation, Mr. Ocampo said, was that least developed countries had grown at an average rate of 7 per cent per year in recent years -– faster than most industrialized countries -- and their growth was predicted to remain strong in 2007.  That development spelled “good news” for reducing world inequalities and presented a marked contrast to preceding decades, which had seen industrialized countries grow faster than those in the developing world.

An interactive discussion took place following the presentation by the Under-Secretary-General, who was accompanied by Rob Vos, Director of the Development Policy and Analysis Division, Department of Economic and Social Affairs.  During the exchange, members suggested that more attention be paid in future reports to measuring the impact of growth on citizens of developing countries and analyzing the sustainability of that growth.

While taking up a slate of organizational issues earlier in the day, the Council adopted a draft decision naming 16 April as the date of its special high-level meeting with the Bretton Woods institutions, the World Trade Organization and the United Nations Conference on Trade and Development, to be held in New York.  The Council also adopted a decision on the operational activities segment of its 2007 substantive session, deciding to devote that segment to the triennial comprehensive policy review of operational activities for development.  [Both proposals were contained in document E/2007/L.1.  The Council agreed to turn to the other draft proposals found in document E/2007/L.1 at a later date.]

Carlos Ruiz Massieu of Mexico, facilitator of the informal consultations on the 2007 high-level segment told the Council that an agreement had yet to be reached on themes for the 2007 substantive session, but that the Council would be informed of any progress.

Also, by adopting a draft resolution on the venue and dates of the sixty-third session of the Economic and Social Commission for Asia and the Pacific (document E/2007/L.2), the Council agreed to hold that meeting in Almaty, Kazakhstan from 17 to 23 May.  The Secretary of the Council explained, prior to the adoption of that resolution, that the cost of the session would be defrayed by the Government of Kazakhstan, resulting in no additional costs to the Organization.

In thanking the Council, the representative of Kazakhstan said the session’s high-level panel meeting would consider the Asian and Pacific region’s road map for the achievement of their internationally agreed development goals, while a ministerial round table would centre on the theme “Development of health system in the context of enhancing economic growth towards achieving the Millennium Development Goals in Asia and the Pacific”.

In other business, the Council elected Sri Lanka, by acclamation, to the Commission on Population and Development for the term from the forty-first session in 2007 through the forty-fourth session in 2011, but postponed the election of one member from the Western European and Other States for the same period. 

Turkey was elected, also by acclamation, to the Commission for Social Development for the term from the forty-sixth session in 2007 through the forty-ninth session in 2011, while the election of one member from the Eastern European States for the same period was postponed.

The Council also elected Brazil, by acclamation, to the Intergovernmental Working Group of Experts on International Standards of Accounting and Reporting for the term effective immediately through 31 December 2009.  The Council postponed the election of three members from the Asian States; two members from the Latin American and Caribbean States; and two members from the Western European and Other States for the same term.

It elected by acclamation Egypt and Zimbabwe to the Executive Board of the International Research and Training Institute for the Advancement of Women (INSTRAW) for the term effective immediately through 31 December 2009 and postponed the election of two members from the Eastern European States for the same period.

Further, the Council elected by acclamation Argentina to the Governing Council of UN-Habitat for the term effective immediately through 31 December 2010 and postponed the election of two members from the Latin American and Caribbean States for the same period.  The President reminded the Council of an existing vacancy on the Governing Council for a member from the Asian States for the period effective immediately through 31 December 2008.  There were no candidates for the post to date. 

The Council then elected by acclamation Luxembourg to the Organizational Committee of the Peacebuilding Commission to replace Belgium for the term effective immediately through 22 June 2008.

Vice President Leo Merores of Haiti, who presided in place of Council President Dalius Cekuolis of Lithuania, said the Council should hold elections for candidates for the 10 new seats on the Commission on Science and Technology for Development.  Since the Secretariat had received only five endorsements to date, he reminded regional groups that had not yet done so to submit candidates as soon as possible for the remaining seats so that the Council could elect candidates for those seats during its next meeting.

The Economic and Social Council will meet again at a date to be announced.

Briefing by Under-Secretary-General

JOSÉ ANTONIO OCAMPO, Under-Secretary-General for Economic and Social Affairs, said that, after three years of rapid economic growth, the world should expect a slowdown in 2007 from a growth rate of 3.8 to 3.2 per cent, based on the United Nations measurement of world gross product.  The world economic slowdown was driven by a weakening United States economy, whose annual growth rate had fallen from 3.4 per cent to an estimated 3.2 per cent.  A similar slowdown was expected in Japan and Western Europe, which meant that no country could take the place of the United States as the world’s economic driver. 

However, he said that least developed countries could expect rapid growth, averaging nearly 7 per cent per year -- faster than most industrial countries.  Such a development was “good news” for reducing world inequalities and presented a marked contrast to preceding decades, where industrialized countries had grown faster than those in the developing world.

Meanwhile, transition economies had benefited from a high demand for oil, gas and metals in 2006, in particular the Commonwealth of Independent States (CIS), he said.  Rising export revenues in those countries, in turn, had spilled over into strong domestic demand, while an increase in private capital flows to the Russian Federation and Kazakhstan, along with official assistance and remittances for citizens of smaller CIS economies, acted as an important source of funding for domestic spending.  But growth in that region was expected to slow down later in the year.

He said the rapid growth of China and India, coupled with their linkages to other developing countries through South-South trade and foreign direct investment, made them the alternative engines of growth for developing countries, including commodity-exporting countries in Africa and Latin America.  Specifically, the nations of sub-Saharan Africa enjoyed four consecutive and “historic” years of growth.

However, he continued, developing countries continued to remain vulnerable to economic slowdown as a result of turmoil in commodities and financial markets, as shown in May and June 2006.  Nevertheless, developing countries had done well in recent years because of high commodities prices and good financial conditions, in sharp contrast to the last two decades.  High oil prices were a favourable factor to developing countries, although some did suffer.  A strong market for agricultural goods and metals were other reasons for their growth.

In terms of international financial conditions, he said 2006 had seen the lowest risk premium level ever seen by the developing world, even when compared to the last historical low prior to the East Asian financial crisis.  Because of that, the availability of private financing to the developing world had been exceptionally good.  Despite such favourable circumstances, however, developing countries continued to be a source of financing for industrialized countries, belying the fact that “capital should flow downhill”.  There was a net outward transfer of $658 billion by developing countries and $125 billion by economies in transition.

In addition, weak reserves meant the developing world was not insulated from major shock, he said.  Furthermore, the threat of a severe downturn in the United States housing market -- weakening that country’s economy, and thus the global economy -- continued to pose great risks.  The United States deficit of $870 billion meant that the country’s indebtedness had deepened, thus undermining the sustainability of the current global balancing act and calling for an urgent “global rebalancing”.

Indeed, the macroeconomic policies of major economies were not adequate for reducing global imbalances, he said.  Consultative mechanisms were needed to produce a more coordinate macroeconomic policy; while the International Monetary Fund (IMF) had begun its programme of “multilateral surveillance”, it needed strengthening.  The world also needed to think seriously about a multi-currency reserve system that was less reliant on the American dollar.  The Economic and Social Council would do well to raise the subject at its dialogue with the Bretton Woods institutions in the spring.

Interactive Dialogue

During the ensuing question-and-answer period, the representative of Paraguay said the differing stages of development of developing countries must be acknowledged.  Landlocked countries and countries with less access to energy sources had greater developmental problems.   Latin America was lagging behind other regions in development despite its abundant energy resources and agricultural products.

In response, Mr. OCAMPO said the report highlighted the problems facing several energy-importing countries.  It was evident in Latin America that Paraguay and other countries had deteriorating trade balances due to energy prices.  That was not the case in Chile due to the bullish behaviour of copper, a major Chilean export.  The contrast between energy-exporting and energy-importing countries was clearly evident in figures on Latin America.  In the last 10 years, South America had performed better than Central America.  The reverse was true now.   Mexico and Brazil had performed more poorly than the rest of the region.  Last year’s World and Economic Social Survey revealed that countries exporting manufacturing products performed better in the long term than countries exporting commodities.

The representative of Benin said this year’s report had taken into account the global economic impact on the least developing countries and had noted sustained but even growth in those countries.  How could one analyze those countries’ challenges to achieving sustainable economic growth?  Could there be a model for economic growth not pegged to the United States currency? 

In response, ROBERT VOS, Director of the Department of Economic and Social Affairs (DESA), Development Policy and Analysis Division, said the report showed that great reliance on the United States dollar created greater risk for global economic imbalances.  A further decline of the United States dollar could affect major countries holding official reserves in dollars.  The goal was to move to a global economic system pegged to a multilaterally backed currency.

The representative of Ethiopia asked about implementation of the millennium targets in Africa and the role of the New Partnership for Africa’s Development (NEPAD) in that process, while the representative of the Netherlands asked about the effect of macroeconomic policy changes on growth in the African region.  To what extent could pro-poor policies stimulate economic development in African countries?

Mr. VOS responded that NEPAD’s growth rate was still below target.  African economies must become less reliant on commodity exports and must diversify in order to decrease their reliance on global economic fluctuations.  They needed sustained growth, higher growth rates and greater investment in infrastructure and education.  In a couple of months, the Economic Commission for Africa would release a report on how to diversify export products and strengthen growth.

As to the question from the representative of Costa Rica about priority public policy areas to reduce domestic and regional inequalities, Mr. OCAMPO said growth had been almost 6.8 per cent last year in the Caribbean, including in the Dominican Republic and Cuba.  The region was made up mostly of service exporting countries.  The struggle against inequality required greater public social spending.

The representative of Kenya asked about efforts to resume the Doha Round of trade talks and whether multilateral policy on debt and aid would take into account the collapse of Doha.  How could the developing countries receive equal development support in return for the resources transferred to developed countries?  What were better indicators to reflect the realistic situation faced by poor people who were getting power despite global economic expansion?

In response, Mr. OCAMPO said opportunities for negotiations were narrow (three months), given the difficulties of pending issues.  Nevertheless, there were no indications that world trade had weakened in the meantime.  Regarding resource transfer, he said a multicurrency reserve system rather than a system pegged to the United States dollar would be more stable, even for the United States.  But it would mean, in turn, that developing countries were not likely to have a world currency in the foreseeable future.  They were thus forced to accumulate international reserves, which then became transfers to the industrialized countries.  France had pushed for special drawing rights of the IMF, which were the only truly global reserve currency.  The only way to eliminate dissymmetry and manage the situation was through an institution like the IMF.

The representative of Mauritania asked to what extent economic growth had impacted people’s access to basic services.  Unemployment of young people in West Africa showed that joblessness was on the rise.

Mr. VOS said it was difficult to predict what would happen regarding the World Trade Organization negotiations, but consultations on Aid for Trade were continuing despite the stalemate, thereby helping developing countries strengthen their capacity for trade.  Unemployment was indeed a concern; the report focused on the short-term economic outlook, though its authors would have liked it to incorporate such issues.

The representative of the United Nations Children’s Fund (UNICEF) stressed the need for freedom in the use of fiscal instruments, noting that fiscal caps had been imposed in many countries advised by the IMF and the World Bank.

Mr. VOS said that it was important that economies were able to avoid pro-cyclical adjustments and to survive the different cycles such as price drops in oil.  He stressed the need to create stable resources and to stabilize long-term expenditures.

In closing remarks, the Council President expressed hope that by week’s end the Council would finalize the theme of the 2007 high-level segment and the programme of the 2007 substantive session.

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For information media • not an official record