unctad.org | Trade and Development Board, 49th Executive Session
Statement by Mr. Supachai Panitchpakdi, Secretary-General of UNCTAD
Trade and Development Board, 49th Executive Session

08 Jun 2010

Follow-up to the Millennium Summit and preparations for the high-level plenary meeting of the General Assembly on the Millennium Development Goals: New development paths

Thank you very much, Mr. President.

I was pleased to hear you make the link between the topics of our discussions yesterday and today. Yesterday, you will recall, I focused on three elements that should be included in development strategies for the LDCs. The first is the creation of enabling and development-oriented States; the second is the reduction of commodity dependence - which is particularly important for this group of countries; and the third is the formulation of external policies that build on trade openness to create productive capacity and employment. Yesterday, I was speaking on the LDCs; today, I will elaborate on some of the areas of direct relevance to the MDGs in general.

After this meeting, I will travel to another meeting in Maryland with a group of donor countries and selected international organizations, including the head of the OECD. This annual event, the Tidewater Meeting, was first held 42 years ago and is organized by the OECD Development Assistance Committee (DAC). Every year, we touch on areas of importance to donor and recipient countries alike. Normally, I present the views of the United Nations and of recipient countries. This is always a very useful meeting. This year, we will discuss regional and economic integration, governance, science and technology for development, and the MDGs. One of my intentions is to bring our discussions here to bear on some of the discussions in Maryland, in the run-up to the General Assembly MDG Summit in September.

I think we all agree that the MDGs are one of the UN´s best efforts in the area of development strategies. We cannot talk about the UN´s third pillar on development assistance and development cooperation without formulating the kind of agendas that are already informed by the aid goals of the MDGs. Many positive things have happened since the goals were first adopted, particularly in raising awareness among donors and persuading them to pledge more funds for ODA. Of course, ODA levels move up and down over time, and so does progress on the MDGs. ODA resources have been uneven, the result of changing domestic and international circumstances and the crises of the past couple of years.

There has also been real progress on poverty reduction, especially in Asia. In Africa, we have seen advances in education, health care and gender treatment. Overall, however, we may not be able to meet all the MDG targets by 2015. But 2015 is not the end. We have to look at this set of strategies as long-term. We must of course make every effort to achieve the targets, but even if we do not meet them, we will still have a long-term development perspective that we can learn from and improve upon.

And this brings me to UNCTAD´s perspective on development - not only with regard to the MDGs, but to the ongoing evolution of development thinking post-crisis, as I touched on yesterday.

The MDGs are excellent efforts, and we all have to agree on the need to emphasize the social concerns they address. Such concerns are not misplaced, because social means and economic means must all be harnessed if we are to achieve the ultimate wellbeing of human beings, including welfare, human development, education, health, and so forth. The need for social goals is incontestable. But the question is: what is the best way to achieve the social and human development goals we have set for ourselves? This is different from the goals set out in the MDGs.

A related issue - and one that the MDGs were in part designed to address - is whether we need to readjust our approach to social concerns in light of recent events. Since the 1970s and 1980s, that approach has been guided by the Washington Consensus, which held that everything can be left to the market. Recently, it has been apparent that the market cannot adjust to externalities when it comes to social concerns. Many things have been heaped on the market, which cannot possibly address them all, including stability, growth, development, employment creation, financial stability, and social goals. Here let me quote UNCTAD´s background paper for this meeting: "Strengthening the linkages between growth, employment, distribution and human development cannot be left to market forces, but requires a strategy policy agenda and appropriate institutional support". This is a highly important paper. It sets out some of our key recent thinking, not just on the MDGs but on development more generally.

The paper emphasizes several areas that I would like to touch on today. It stresses the importance of growth and a development-oriented macroeconomic framework. It underscores the need for domestic resource mobilization. It talks about policy space and the need for countries to be the masters of their own destiny, because they cannot always rely on growth to be generated by other countries. And it discusses the need to balance external and domestic demand.

We also look at the integrated treatment of economic and social policies and the importance of productive capacity and productive investment. In everything we do, we must have a balanced treatment of social and economic issues, because ultimately, economic growth is not the final target. Growth is a means towards human development, not an end in itself.

Finally, the paper emphasizes the need to reform international governance architecture, particularly in order to build coherence across trade, financial and technology flows, in support of inclusive development.

I just returned from a meeting in Helsinki organized by DESA and the Finnish Government in preparation for this summer´s Development Cooperation Forum, where we focused on this question of coherence. We looked at how to make technical assistance, ODA, coherent with all policies, but mainly non-aid-related policies. We said the idea is not just to help countries produce more goods, develop productive capacities and open their markets, if we then turn around and say our markets are closed to them because of all kinds of conditions that must be met. This is not right; this is not coherence. If you attain your social goals of producing a lot of educated human resources and then stop working on the creation of jobs, then you do not have coherence between the goals of aid and social and economic goals.

I will conclude by going over the three areas I discussed yesterday - macroeconomic policy; inclusive development and inclusive growth; and the role of aid - all of which are linked to our discussion today on the MDGs.

These ideas on inclusive development, growth-oriented macroeconomic policies, and the developmental State are what we are trying to include in the new development path. That path should not take us away from market roles, but should balance the roles of the State and the market in order to build immunity for developing countries as they confront future challenges. Markets will always produce fluctuations that can harm these countries. These are all bits and pieces, elements of the new development path. Let me briefly go through the three ideas.

First, what we mean by growth- and development-oriented macroeconomic policies is that macroeconomic policies should not be driven mainly by the traditional belief that we must always be looking at price stability and liberalization efforts. This does not mean the two targets are not important. Liberalization efforts are important, price stability is important, but they should be seen from the perspective of development. Many countries are adopting monetary restraints and austerity programmes at a time when we are fighting the spectre of inflation. Inflationary trends have actually disappeared over the past couple of years, as we have fought to prevent deflation from hitting countries that are just innocent bystanders, causing them to lose markets, revenues, remittances, aid, and jobs while becoming even more indebted. Seeking macroeconomic policies that are development- and growth-oriented means we should not always prioritize price stability in the hope that it will induce fund flows.

If you look at some of the Asian emerging economies with excess fund flows and huge reserves, you will agree that they should avoid policies aimed at accumulating more reserves. This can be related to the idea of domestic resource mobilization, as a part of macroeconomic policies. I am saying this not because FDI is not important, but because countries that can mobilize domestic resources will be less dependent and have more space to use their macroeconomic policies for other goals. When I was an economics student many, many decades ago, we were told that if you set yourself many goals - and you can set as many goals as you like - you need to have the same number of instruments as you have goals. If you have five goals and two instruments, you will be able to reach only two goals. In the areas of domestic resource mobilization and growth-oriented macroeconomic policies, we would like to free up some of the macroeconomic instruments so that they can be used to target areas in which development can be cultivated. We do not have many instruments. We have interest rates, wage policies, exchange rates. And they are constantly overburdened.

Again, domestic resource mobilization and the right kind of progressive fiscal policies are very important. Mobilization of domestic savings will also be needed. At the same time, they will have to be accompanied by more direct management involvement by the State. The State must be development-minded in the areas of industrialization and investment in agriculture. And this must all have its own momentum.

As to my second point, inclusive development, the main driver is sustainable development - development that takes into account equity, environmental concerns, and balancing social and economic issues. In countries with high inequality, growth will never help to reduce poverty. It will even accentuate inequality and poverty in areas where there is a lot of inequality. One of the targets of our growth-oriented policies is that growth must be inclusive, which means that all segments of the population must be involved. Another target is to reduce inequality. Why is the reduction of inequality economically important? Because if you want to achieve post-economic crisis adjustment, and balance domestic and external demands, then reducing inequality will help promote domestic demand. It will also help diversify economic activities, as we were saying yesterday. And it will help in absorbing new technology. This is very important to inclusive development.

Our Trade and Development Report 2009 recommends strengthening the linkage between industrial policies and labour market policies. As we have said, MDG Goal No. 1 is poverty reduction, and yet we do not have a job creation policy. This is not to suggest creating another goal, but to say that the poverty reduction goal must also include creating productive capacity and creating jobs.

My last point today concerns the role of aid. It is gratifying to see that since the advent of the MDGs, there has been a trend towards the untying of aid. This is what we have all been asking for, but this trend should be strengthened, as so far only four donors have succeeded in offering 100% untied bilateral assistance. We have also been discussing the shortfall in disbursement. There is already a $30 billion deficit on the Gleneagles goal. My concern is the cyclicality of aid. I like to say that aid should not be cyclical, meaning that aid should have its own trends - it should not be subject to the economic wellbeing of countries. At the moment, however, it seems that aid is linked to the economic cycle.

We - both UNCTAD and the TDB President - have long insisted that it is not just the quantity of aid but the quality and the composition of aid that counts. Since the introduction of the MDGs, aid has shifted increasingly towards meeting social goals. Let me repeat: social goals are important, but we need a balanced treatment of social and economic goals.

I would like to end with a recommendation that might be difficult for us to get used to but that we need to address, and it is that aid should be more multilateralized. Bilateral aid is good, but what we are hearing from both the recipients and beneficiaries of aid is that aid needs to be multilateralized so that the recipient developing countries can truly benefit from untied aid, and also from having aid put into the right sector. Yesterday, I mentioned that we should have a sectoral treatment of aid.

Now, my proposal is that if we want to move towards a more beneficial trend of multilateralization of aid, then we may need to undertake an audit of aid and its development effectiveness. We also have to look at the coherence of aid, as I discussed in Helsinki. I hope that the Development Cooperation Forum can explore the issues to be included in this audit, and that with all these findings and recommendations on the need to reform and change the set-up of aid, a commission can be set up with oversight of this process.

Mr. President, these are my final conclusions. Thank you very much.



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