Ladies and Gentlemen,
I am happy to welcome you all to this year´s session of the Board, and it is a great pleasure to see so many familiar faces in the room. I would particularly like to thank my dear friend, Ambassador Petit, for his leadership of the Board over the past year, which was a crucial time for UNCTAD. In that difficult task, I am sure you will agree, he performed admirably.
I would also like to congratulate Ambassador Reyes Rodriguez on his election as President of the Board for the coming year. Under his presidency, we will continue the work begun at UNCTAD X in Bangkok. He will help guide us through the most intensive stages of preparations for LDC-III and through the Conference itself. We all look forward to working with him.
Last year, the world economy made a welcome turnaround. Robust growth was accompanied by an improvement in world trade. Some degree of normalcy returned to the currency and financial markets following the chaotic conditions of the previous two years. We hope that this year will continue or even surpass that performance, with overall growth expected to be the highest in more than a decade.
However, as this year´s Trade and Development Report so aptly put it, today´s world economy seems to have two faces, just like the Roman god Janus. To Janus we owe the name of the first month of the year and, according to the Romans, the invention of currency, which would qualify him to be the economist´s god. Janus, as you remember, had one face turned to the future - the sunrise - and another to the past - the sunset. Likewise, we face the promise of a new Golden Age, of more rapid growth boosted in part by the new information and communication technologies. At the same time, the phantoms of unsolved problems inherited from the past are casting their threatening shadow over this radiant future. As if in confirmation of the Trade and Development Report ´s metaphor, the very same Friday that the joint annual meeting of the IMF/World Bank was opening in Prague, the world was reminded of that dangerous duality by three coincidental events that took place within hours of one another: First, there was the concerted intervention by European monetary authorities in the value of the euro - a reflection of the macroeconomic imbalances among the three major economies. Second was the sharp drop in technology stocks following the announcement of Intel´s falling profits - a vivid expression of lingering doubts over stock market fluctuations and of fears about what sort of landing the United States economy would make. The third event was the release of part of the strategic oil reserves of the United States, prompted by developments in the oil markets.
Indeed, the unexpected rise of oil prices has created serious concerns about the prospects of the world economy, as could be heard in the tone prevailing at the World Bank/IMF meetings in Prague. That tone reminded us of the high level of uncertainty still surrounding world economic performance. Our incompetence as prophets can be measured in the way everybody, Governments and economists alike, consistently underrated the still-strategic potential of oil to disrupt everyday life, as we continue to be as dependent on it as ever for both individual and collective transportation. This is something that the excessive claims of the "new economy" were unable to change.
The era of cheap oil may or may not be behind us. But there is little doubt that a decade of depressed prices helped stoke demand in the industrial countries and everywhere else. It discouraged new investment in production and refining and delayed moves to alternative sources of energy and more environment-friendly technologies. At the same time, crude prices are having a much smaller influence on the cost of oil to the final consumer, with a corresponding increase in the influence of fiscal considerations. All this appears consistent with a much more volatile market than in the past. As British Chancellor Gordon Brown remarked in Prague, the terms of the debate on oil have shifted to the need for stability, in the interest of producers and consumers alike. Commodities in general unfortunately did not attract the same comments, despite the fact that their prices have been depressed for many years now.
The immediate responsibility rests with policy makers in the stronger economies, who must avoid either an inflationary or a deflationary spiral. Appropriate policy responses should include fiscal measures, when necessary, as we have recently seen in France. The industrial world is indeed better placed now than in the 1970s and 1980s to make the necessary adjustments. For oil-importing developing countries, by contrast, which face the burden of a rising import bill, compensatory financing from multilateral institutions on soft terms should be considered. For this reason we at UNCTAD were happy to hear of the World Bank´s willingness to make structural loans and other forms of emergency funding available to oil-importing countries. Such funding should in fact be offered to all developing countries according to their payments position.
The need for more active responses would seem particularly appropriate in view of the uncertainty surrounding the future course of oil prices. Over the longer term, the challenge remains to create a truly global and participatory approach to managing the world´s non-renewable resources.
Ladies and Gentlemen,
Underlying the immediate concern over oil prices are the global macroeconomic imbalances and systemic weaknesses exposed by the Asian crisis. One recently learned lesson about the global economy is that failure to resolve economic imbalances in an orderly manner will be most damaging to growth in developing countries. Even after hard-won domestic reforms, many of those countries are still dependent on highly volatile capital flows to support growth. The recent call by industrial countries for coordinated international policy action in the face of rising oil prices is therefore to be welcomed. However, it contrasts sharply with the indifference to similar calls from the developing world when faced with the devastating consequences of falling commodity prices. And indeed, for most commodities exported by developing countries, the depressed prices of 1998 are still with us; the recovery is very partial indeed. These countries have the worst of both worlds: they pay more for imported oil, but are still getting low prices for their exports.
In past weeks coordinated action has been employed to correct currency misalignments, particularly the precipitous drop in the euro´s value against the dollar. But such action is unlikely to produce the desired effect in the medium and long term. If intervention in support of the euro proves inadequate - and we recently saw that currency fall in the markets, beneath the rate established as a benchmark - then the credibility of the pan-European monetary framework may be damaged. If, on the other hand, such intervention proves excessive, then a stronger-than-expected impact on the dollar could precipitate renewed instability in the dollar-based economies, particularly the United States. Indeed, a big question still taxing economists is whether the judicious combination of good policy and good luck which has propelled the exceptional performance of that economy will have a soft landing, as we all wish, or something different.
The European Central Bank has recently acted to raise interest rates in Europe, and we have just witnessed the seventh such rise in less than two years. There have also been 20-to-25 per cent fluctuations in the relative value of the euro and the dollar over a one-year period. These facts illustrate the points made in our report, namely, that major imbalances remain among the three largest industrial economies, and that these imbalances are still threatening the world economy.
The vulnerability of developing countries to any abrupt policy shifts in the major industrial countries will, of course, depend on their current state of economic health. The picture since the beginning of last year offers a measure of hope, with better-than-anticipated recoveries in some of the economies badly affected by financial shocks. Biases and asymmetries persist in the trading system, however. And structural uncertainty and volatility continue to characterize the financial system; unfortunately, in this domain nothing much was achieved by the Prague meeting. This means that growth in many countries remains dependent on unstable capital flows.
Despite a heavy-handed response to the threat of financial contagion which tipped some Latin American economies into recession in 1999, the region as a whole registered positive growth, in large part thanks to the unexpectedly strong performance of Brazil. Recovery is now under way, and strong growth is again expected for Central America, Mexico and the Caribbean. Nonetheless, the situation in some countries remains quite fragile. A good deal hinges on conditions in world markets. Thus, for the region in general, the main policy initiative remains how to break free from an excessive dependence on external resources.
The problems facing much of Africa are of a different order. In our analyses, we have consistently shown that the continent´s savings and investment levels are too low to allow for sustained robust growth. The basic policy challenge for much of Africa is twofold: first, it must find a way to overcome savings and foreign-exchange constraints. Second, it must raise investment to the minimum necessary for an annual growth rate of at least 6 per cent, as identified by UN-NADAF. The current level of private capital inflows is too low to fill the resource gap but still high enough to make many African economies vulnerable to the arbitrage arithmetic of short-term capital flows. This also means a steadily growing dependence on official flows. But in recent years these have barely compensated for resource losses, due to unfavourable trading conditions. We believe there is only one way to end Africa´s aid dependence. This is to launch a massive aid programme and to sustain rapid growth for long enough to allow domestic savings and external private flows gradually to replace official flows. I am pleased to note that a Sessional Committee of the Board will be addressing these issues and I look forward to its conclusions.
Ladies and Gentlemen,
In contrast to continuing problems in Africa, the pace of recovery of East Asia over the past year has been encouraging. However, neither the depth of the crisis nor the speed of recovery was anticipated even by those responsible for policy, and this cautions against excessive exuberance. Despite a stronger-than-expected recovery, there are reasons for concern. First, recovery has been accompanied by only limited corporate restructuring, and the health of the financial system continues to rely on public intervention in the credit mechanism. Second, exports are unlikely to continue at their recent pace, and public deficits and debt have been on the rise in most countries seriously hit by the crisis. Finally, the recovery has so far been supported by highly favourable conditions in the world economy. Needless to say, those conditions are susceptible to change.
Let me now turn to the least developed countries, which are facing the greatest challenge of our times - eradicating poverty through sustained development. That challenge by its very nature must also be addressed by the international community. In the last decade, long-term capital flows to LDCs declined by about 40 per cent in real per capita terms. This was the result of shrinking ODA, coupled with the failure of most LDCs to attract sufficient private capital inflows to offset the decline. Superimposed on this problem is the fact that the majority of LDCs - which import oil and export primary commodities - are currently exposed to a double squeeze of high oil prices on the one hand and low and volatile primary commodity prices on the other. The deterioration of the terms of trade has further exacerbated the liquidity shortage. This in turn discourages much-needed investments in the economic and social infrastructure.
Moreover, almost two thirds of the LDCs have an unsustainable external debt burden. That burden is undermining aid effectiveness and creating a kind of "aid-and-debt trap" in which the lack of aid effectiveness in turn prevents a durable exit from the debt problem. The HIPC Initiative is important, as it widens the coverage of the types of official debt eligible for relief to include multilateral debt. But current expectations regarding the benefits of the Initiative, even in its enhanced form, are unrealistic. The relief being provided is not just coming too late and too slowly - a criticism that is already being actively addressed. Rather, the magnitude of assistance is quite simply too little. If the enhanced HIPC Initiative is to retain its credibility and succeed in removing the debt overhang of the world´s poorest countries, a bolder approach is required.
The conclusion I draw from the pessimistic scenario facing the world´s poorest countries is that, in drafting the new Programme of Action for the LDCs, now more than ever we need to aim for concrete and action-oriented solutions. During this session you will have before you the Least Developed Countries 2000 Report, which is of special importance this year. The report is of high quality and, in its focus on financing for development, it raises a central question. We are witnessing a change in the diagnosis of poverty-related problems. But is that diagnosis correct? Or are we making mistakes? In choosing the right therapy for the LDCs, much will depend on this diagnosis. I refer you in particular to the chapters in the report on ODA analysis, debt relief, and the problems posed by financial and investment flows. As the report suggests, a courageous and innovative approach will thus be required in the preparations for the Third United Nations Conference on the LDCs, to be held at Brussels in May 2001.
From the secretariat side, I am pleased to inform you that much progress has been made in those preparations. As you already know, I have had to make changes in the management structure of the conference secretariat, following the departure of the former Executive Secretary, Mrs. Anna Tibaijuka, to head UN-HABITAT. I pay tribute to her for her contribution. I am happy to say that a new management team is in place and has been fully operational for some time now. This team is being supervised by Mr. Carlos Fortin on a daily basis and is headed by Mr. John Cuddy, who has extensive experience both of LDCs and of the UN system. We have already advertised the post of Special Coordinator for the LDCs, and a prompt selection process is under way, in keeping with the speed allowed by the UN procedures. A new momentum was imparted to the preparatory process by the Intergovernmental Committee meeting, held in New York last July, and I welcome here today Ambassador Jacques Scavée, who chaired that meeting and for whose devotion, capability and team spirit we are extremely grateful. As Mr. Cuddy will make a detailed presentation on these preparations during the Sessional Committee´s meetings, I will not dwell on them at this stage.
I should like to reiterate our firm commitment to promoting a truly results-based conference in Brussels. I feel personally committed to this goal and have been to Brussels twice during the past few months to that end. Since then, I have been in constant touch with high-level authorities at the EU and elsewhere to urge the consideration of the possibility of not only ensuring the best programme of action in the negotiations, but also announcing voluntary, non-"negotiated" contributions in trade, investment, ODA and the improvement of transportation infrastructure. With these contributions, and with the measures and commitments we can expect to adopt in Brussels as a result, a powerful momentum will be created for encouraging the LDCs in their own development efforts. Our ongoing collective efforts within the secretariat are all geared towards achieving an outcome commensurate with the ethical imperative of greater solidarity with the weakest and most vulnerable countries of our planet - the LDCs.
May I also repeat that the implementation of the Bangkok Plan of Action will involve addressing some of the substantive issues I have raised today. Needless to say, we in the secretariat will spare no effort fully to implement the provisions of that Plan. We will also endeavour to ensure that the main areas of UNCTAD´s activities, including trade, investment, technology, enterprise development and other related issues, are better integrated and contribute even more to our understanding and promotion of development dynamics.
These, then, are the two challenges ahead: enabling the LDCs to change their prospects for the better, and ensuring that the Bangkok Plan of Action is implemented in all its parts, in its entirety, and with renewed vigour, which implies the need to better integrate the work of our own organization. Some initiatives have already begun. UNCTAD, a knowledge-based institution at the service of developing countries and one involved deeply in capacity-building, should integrate its work in two ways: by integrating its analysis, research, deliberations and consensus-building with practical applications in the field; and by integrating the different subjects it deals with among themselves.
We must therefore redouble our efforts on the positive agenda; commercial diplomacy; and investment capacity-building, including negotiations on bilateral and regional agreements. There are also new initiatives requiring effort, such as dispute settlement procedures and work on trade negotiations and public policy. Above all, we have to make sure that our work in trade policies and initiatives in investment, enterprise development, technology and services infrastructure are mutually reinforcing, in an integrated and harmonious way.
Thank you, Mr. President.