Two thirds of the 48 countries designated by the United Nations as the least developed in the world lost ground to other developing and low-income countries in the 1990s, states UNCTAD´s Least Developed Countries 2000 Report1, released today. And unless significant improvements are made in international development cooperation - encompassing aid and debt relief policies, private capital flows and the international trade regime - these countries will remain "pockets of poverty" in the global economy.
Nations are categorized as least developed countries (LDCs) because of their poverty, weak human resources and low level of economic diversification. And most of the 614 million people who live in the LDCs - just over one tenth of the world´s entire population - survive on less than US$2 a day. Their life expectancy is 50 years, and half of the adults are illiterate. Almost a quarter of the LDCs are "caught in a downward spiral in which economic regress, social stress and violent conflict mutually reinforce each other", warns UNCTAD Secretary-General Rubens Ricupero in a foreword to the report. " Official Development Assistance to the LDCs has dropped by 45% in real per capita terms since 1990, and although private capital flows have generally been increasing, this has not been sufficient to offset the decline. Thus, total capital flows per capita into LDCs have fallen by 30% since 1990. This, combined with the “unsustainable” external debt of two thirds of the LDCs, contributes to the bleak picture". Furthermore, both LDCs and their official creditor-donors are "wed in an aid-and-debt trap" in which high debt levels impede effective aid, and ineffective aid prevents a solution to the debt problem. Uncoordinated aid flows have contributed to financial uncertainty and distorted government finances in many LDCs. In addition, the aid system has eroded state capacity, undermining the possibility of genuine national ownership.
Nonetheless, the LDCs´ economies as a whole grew faster in the 1990s than the 1980s, according to the report, which assesses their economic growth and social trends over the past decade. But their real GDP per capita grew at only 0.9% during 1990-1998 - only 0.4%, if Bangladesh is excluded. This does not compare favourably with other developing countries, whose per capita growth rate was 3.6% a year over the same period, or with other low-income countries that registered 5.4% growth (largely attributable to substantial growth in China and India).
The picture is mixed. In 15 LDCs, including seven in Asia, GDP per capita growth exceeded 2% a year during 1990-1998. But there are 22 LDCs which were stagnant or in economic regress. In 11 of these, all of which experienced serious armed conflicts and internal instability during the 1990s, the real GDP per capita has been declining by more than 3% annually. Overall, 32 least developed countries have either fallen relatively behind the other developing countries in terms of per capita income, or experienced absolute deterioration in living standards between 1990 and 1998.
"Pockets of Poverty" Will Remain Unless Cooperation Improves
The LDCs have undoubtedly made some social progress over the past 20 years. But on average the gap between them and other developing countries has grown apace. They continue to lag behind in terms of life expectancy and infant mortality. And although male primary school enrolments seem to have picked up in the early 1990s, the gender gap in education is much greater in LDCs than in other developing country groups, and the difference has widened substantially. Improved social prospects are dim: Only eight LDCs are on target to reach the United Nations goal of universal primary education by 2015, and only four are expected to reduce infant mortality by two thirds.
What economic growth there was during the 1990s has been too slow in most of these countries to make a significant dent in their high rates of poverty, according to the report. At the start of the decade, per capita health expenditure in the LDCs was an average US$11 a year, while for other developing countries it was slightly below US$100, and in the OECD countries, US$1700.
The recent increases in oil prices are likely to have particularly detrimental effects on most LDCs. This is because of the close connection between economic performance and terms of trade during the past decade. The terms of trade of most of these countries, which export primary commodities and import oil, worsened in 1998 and 1999. On the one hand, the LDCs are suffering from a drop in commodity prices whose breadth and depth has not been seen since the early 1980s and, on the other, they are being squeezed by the threefold increase in oil prices between March 1999 and August 2000. The full effects of this are still working themselves out. But there will inevitably be a major economic shock, UNCTAD predicts.
Even disregarding recent economic setbacks, and assuming the growth rate of 1990-1998 continues, only four LDCs - Bhutan, Lao People´s Democratic Republic, Lesotho and Sudan - can be expected to reach a GDP per capita of US$900, which is one of the threshold criteria for graduation from the LDC category. Another eight countries would meet this criterion only in the next 50 years.
The LDC 2000 Report predicts that an increasing number of the 22 LDCs where real GDP per capita either declined or was stagnant during the period 1990-1998 will be caught in a vicious circle. But even for those LDCs which are growing, there is an ever-present danger that external shocks, natural disasters and negative spillover effects from neighbouring LDCs will disrupt economic activity and throw them off their fragile growth trajectories. If sustainable solutions cannot be found, citizens of many LDCs will continue to face an unenviable choice between poverty at home and social exclusion abroad, as illegal workers or second-class citizens in other countries.
The UNCTAD report concludes that, although a new approach to international cooperation is being formulated, the current diagnosis for change which underlies that approach is "flawed in several crucial respects". The new approach, "which has moved so rapidly in the last three years in the areas of aid and debt policies", must incorporate the "trade dimension", urges UNCTAD Secretary-General Ricupero. "It is through international trade that the LDCs will make their way in the world."
UNCTAD´s proposal for a New Deal for the LDCs, which is set out in the report, will be at the forefront of discussions at the Third United Nations Conference on the Least Developed Countries, to be held at Brussels from 14 to 20 May 2001.