unctad.org | ECOSOC - High-level Policy Dialogue with the Heads of International Financial and Trade Institutions
Statement by Mr. Rubens Ricupero, Secretary-General of UNCTAD
ECOSOC - High-level Policy Dialogue with the Heads of International Financial and Trade Institutions
05 Jul 1999

Mr. President,
Mr. Secretary-General,
Distinguished Ambassadors,
Ladies and Gentlemen.

We meet at the opening of ECOSOC´s annual session for the last time this century. Indeed, for the last time this millennium.

There are better ways of ending a century (or, for that matter, a millennium) than with a war superimposed on a major economic crisis amidst recurring bouts of food panic. Contrary to the poetic prediction, our world ends with a bang, not a whimper.

Wars, crises, food panics, share a common effect: they produce fear, anxiety, insecurity. They do it not only by inflicting actual pain but also by threatening to take away from us the possibility of having a future. As we live almost as much for the future as the present, without that perspective it is hard to contemplate life itself.

The century is ending with failure to solve two major threats to a future with security: mass unemployment and growing inequality. No system of organizing production was ever able to provide a productive job for every man and woman who wanted to work. Disparities in the distribution of wealth and income are on the rise, both within and between nations. According to a recent study by Raymond W. Baker and Jennifer Nordin, "...we can expect to start the next century with income disparity between the top and bottom quintiles of perhaps 150 to 1, if we are not there already."

Reversing a trend that has been consolidated after the Industrial Revolution, guaranteed employment for life has become a thing of the past. Jobs have been growing scarce and precarious, and precariousness is the opposite of security. As one delegate to the ILO put it, the world is upside down: while grown men cannot get a job and must return to school to try to become "employable" again, children who should be in school are being put to work.

Not long ago the ILO annual report estimated that one billion people, 30 per cent of the world´s workforce, were either jobless or underemployed, a staggering reminder and indictment of the wasteful and dehumanizing nature of the economy that we have created. The recent OECD´s employment outlook expects that as many as 35 million people will remain without work in the industrialized countries at the beginning of the new century. It also takes issue with the exaggerated emphasis placed on flexibility as a cure-all solution. To say that the problem can be fixed by labour-market flexibility - which is often an euphemism for more precariousness and job insecurity - plus training and education is to simplify a complex reality. Unemployment is like cancer: a single generic name for a disease with a multiplicity of causes that call for different remedies. In European countries, for instance, the average level between 10 and 11 per cent is a frightening increase in relation to an average of 3 per cent in the 1960s and early 1970s. As Nobel Prize winner Franco Modigliani says: "Data indicate that the rise in unemployment in the EU between the mid-1970s and 1997 has coincided with a reduction of the share of GDP going to investment by one third.... Removing the (labour) rigidities will not return unemployment to the level of the 1960s without a recovery of investment (as a way of stimulating aggregate demand)". Even in the United States, a model economy for job creation, it was accelerated growth over a period of eight years that eliminated the significant jobless rate that existed in the early 1990, despite the presence of the same labour flexibility as before.

In the poor parts of the world, that is, most of the planet, the turbulent events of the past two years have challenged the very core of our belief in the possibility of sustainable and sustained development. Striking, as it did, the most advanced and most integrated of the developing countries - a paradox as development was supposed to reduce the vulnerability of economies to external shocks - the crisis truly deserves to be called a "crisis of development". It raises serious questions as to whether it will be possible in future to recover the levels of dynamic economic performance that once characterized the Asian tigers and which had been, until recently, the only convincing demonstration of the possibility of development over several decades.

After all, in Latin America, 17 years after the outbreak of the debt crisis, the average growth through the 1990s will probably be less than 3 per cent, practically half of the 5,5 per cent enjoyed before the crisis.

We had all noted the dramatic effect of the crisis on employment in the worst hit countries in Asia and its disproportionate impact on women in particular. A recent UNDP paper underlines in that respect that, between April 1997 and April 1998, employment in the Republic of Korea declined by 3.8 per cent among men. But the rate for women - 7.1 per cent - was almost double. Young women, in their late teens and twenties, were particularly vulnerable, as were older women, forced into early retirement.

Worst affected were the more marginal groups in the labour force: the poor, the less educated, the young .... and women. Some went back to their villages in the countryside, returning to the life of rural serfs. Others were forced into prostitution. Even after the economy recovers from the crisis, they are more likely to become the long-term unemployed and to remain below the poverty level.

There have been recoveries lately in some local stock markets, and currencies have stabilized. But how has this translated into the real economy, into jobs and family incomes? If our goal is the raising of living standards of the poor through the creation of good, well paid jobs, it would be premature and a sign of guilty complacency to declare the crisis over without taking specific action to deal with the social and gender fallouts from it.

These effects are not likely to disappear automatically as the crisis recedes. In Latin America, there are now 80 million more people living below the poverty line that there were at the start of the 1980s. By the way, even before the last Mexican crisis, employment in that region was actually declining by an average of 0,3 per cent between 1989 and 1995 and joblessness jumped from 5,6 per cent to 7,2 per cent. What measures are being considered by the international community to ensure that the same slow death does not befall the populations of the South-East Asian countries over the next decades?

Mr. Chairman, Ladies and Gentlemen,

Developing nations have strived hard, often at considerable cost, in recent years to integrate more closely into the world economy. They have all too often been confronted with deep-seated imbalances in economic power and systemic biases in the international trading and financial systems. Projections of the gains in terms of faster growth, greater employment opportunities and poverty alleviation have proved overly optimistic as it was the case with the extravagant predictions regarding the impact of the Uruguay Round.

Whatever might be said concerning the intellectual foundations of these predictions, the empirical record has been strikingly at odds with the promises. Economic growth in developing countries during the 1990s has accelerated above that of the 1980s but has remained well below the 5.7 per cent average registered during the 1970s. Polarization among countries, with the disappearance of the "middle-class" group as the IMF rightly noted, has been a worrying trend.

Trade has certainly had a remarkable performance during recent years. But for developing countries the expansion of imports has not been matched, as a general rule, by a corresponding increase in exports. This is particularly true for Latin America where the gap has averaged 4 percentage points but the imbalance is a general one. The notable exception is China, perhaps not by coincidence, not a member of WTO yet. The reasons for this are complex but there is not denying that a combination of declines in terms of trade, losses of purchasing power of developing countries exports and big bang liberalizations of trade and capital accounts have contributed significantly to this situation.

The result is that for many developing economies, the average trade deficit in the 1990s is the higher than in the 1970s by almost 3 per cent of GDP while the average growth rate is lower by 2 per cent annually.

Some will argue that this is no problem as long as the deficits can be financed by the impressive boom of private capital inflows into developing counties peaking in 1998 at US$312 billion, a sevenfold increase over the average annual flow of the 1970s. However, taking into account the steady decline of ODA and comparing the figures in terms of purchasing power over foreign goods, the growth of real flows is only moderately higher in the 1990s (around 12 per cent) than in the inflationary years of the 1970s. The difference is wiped out altogether if China is excluded. In fact, a careful examination suggests that the surge of flows of the 1990s represents no more than a return to trend after the crisis years of the 1980s, is more heavily concentrated than in the past in a small group of emerging markets and, unlike the 1970s, much more is absorbed in activities that add little to the wealth and export creation capacities of some of the economies that received them.

The fact is that the level and composition of net capital flows into most developing countries are inadequate to meet their existing external financing requirements let alone those associated with a target growth of 6 per cent set by the United Nations. Even under optimistic assumptions, the financing needs of these countries can be estimated to exceed recent net capital flows by around 50 per cent.

Faced with this situation the time has come to rethink our policies and responsibilities. Developing countries need to protect their policy autonomy if pragmatism is to prevail over ideology. Although reform of the financial architecture with the goal of rolling back the control that finance has gained over real economic activities has rightly been attracting most attention in recent months, efforts should now turn to the trading system. As Clare Short and other enlightened personalities have been saying, the next trade round must be a truly development round. With this purpose in mind, UNCTAD is actively contributing to a positive or pro-active trade agenda for developing country negotiators.

The central focus of a development round should be on industrial countries opening up their markets to developing countries where the latter have competitive advantages and redressing the imbalance of past negotiations. Take the example of Latin American exports to Europe which have grown by only 29 per cent during the 1990s while Europe´s exports to that region have risen by 164 per cent. Several reasons may have contributed to this disparity but one of them is certainly the European barriers in agriculture, a competitive Latin America sector as suggested by the fact that Latin exports to other markets than Europe have increased by more than 120 per cent. About ten day ago, speaking before the House agriculture committee, Ms Charlene Barshefsky, the USTR, accused the EU´s Common Agricultural Policy (CAP) of responsibility for 85 per cent of the world´s agriculture export subsidies at a time when most of the industrial export subsidies have been prohibited. Ms Barshefsky referred to this practice as "the largest distortion of any sort of trade". In light of the disappointing results of ongoing discussions of CAP reform, who is taking bets that a significant liberalization of agriculture trade is in the cards?

But the panorama of protectionism is no better if we turn our eyes to industrial goods, to areas like steel and commodities like oil. In steel products we are now witnessing what I personally consider the worst setback since the Uruguay Round: the return of the so-called "voluntary" export restrictions agreements, in other words, the comeback of "managed trade". A couple of weeks ago, Brazilian steel exporters had to sign with the United States Department of Commerce Assistant Secretary for Import Administration (-what a wonderful title for a trade manager -) an agreement on hot-rolled carbon-quality steel and similar arrangements were or are about to be concluded with Russia, not a WTO-member and with Japan, in this last case conducted in such oblique fashion in the description of the United States trade expert Craig Van Grasstek so as to allow "plausible deniability" to both sides. When I heard the news, I first could not believe it was true. Then I thought how strange it was that my dear friend Ambassador George Alvares Maciel, to whom more than to anyone else goes the credit for the prohibition of grey-area measures when he chaired the Uruguay Round negotiations on non-tariff barriers, had passed away just in time of not seeing his own country forced to condone the overthrow of one of the major achievements of the Round!

Mr. Chairman, Ladies and Gentlemen,

There are not ideological arguments, nor academic lectures about free trade of the type some mainstream organizations or personalities are so fond of preaching. These are facts, hard, ugly facts that have to be overturned not by the end of a new trade round but immediately, now, if we are to encourage developing countries to persist in and even to further the path of liberalization.

There is of course nothing wrong with trade liberalization if it can be achieved in a gradual, equitable, balanced way. It might do wonders for poor peoples in general and for disadvantaged groups in particular like women. Development should be as much female as export-led. In some countries, this has represented a huge leap forward in the participation of women in the money economy.

In labour-intensive operations for export, such as the production of clothing, semiconductors, toys, sports goods and shoes, the proportion of women workers is very high as well as in international business and financial services, especially in the relatively unskilled data entry end of the business. In this regard, our challenge is to make global arrangements in trade much more supportive of the greater participation of women in development, both as agents and beneficiaries.

At the threshold of the new century, globalization appears as an unfinished business, a work in progress, a process that can still be steered and shaped by human beings according to human values. It is our duty to take this opportunity with both hands if we wish that the shape of things to come is one that will help men and women to achieve basic security and to lead an accomplished life of affection and productive work.

Thank you.


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