Press Release
For use of information media - Not an official record

Geneva, Switzerland, 14 October 2005

• Panellists recommend tailoring development projects to specific circumstances and call for careful study of pros and cons in national efforts to attract foreign investment; developing countries urged to take advantage of temporary global upswing to diversify economies

• Secretary-General announces panel to advise on boosting UNCTAD´s impact

For much of the past 15 years, international agencies and financial institutions have called on the world´s poorest nations to reduce their debt, privatize nationally run industries and take other painful steps to attract foreign investment and benefit from the global business boom. UNCTAD´s Trade and Development Board (TDB), listening as expert panellists and representatives of developing countries reviewed the results during its annual session the past two weeks, heard a disillusioning message: Many of the globe´s least developed countries prettied themselves up as they were told to do, at great sacrifice. . . and still didn´t receive an invitation to the global economic dance. Their trade did not expand dramatically, foreign investment in many cases did not flood in, and where it did arrive it often was focused on "extractive industries" that used natural resources but did little to create jobs or spill over into boarder economic growth. In fact, profits from the extraction of oil or iron ore or bauxite were frequently spirited out of developing countries and back to corporations in the industrialized north.

Chastened and wiser, development experts and a series of government officials said during the TDB´s 3-14 October session that a current, temporary upswing in the economies of many developing nations - driven by demand from India and China for raw materials - should not be wasted. Plans for economic growth and development aid should be tailored to each country´s specific situation; poorer nations should focus on diversifying their economies; they should foster a domestic investment base that keeps profits at home; and they should temper the enticements they offer to foreign investors to avoid a "race to the bottom" . It was noted that even the current 4.4% growth rate in sub-Saharan Africa, where most of the world´s least developed countries, or LDCs, are located, is not enough to significantly reduce poverty there or to meet the United Nations Millennium Development Goals. Many participants in the meeting -- while lauding recent international agreements to cancel the foreign debt burdens of many poor nations -- therefore called for expanded development aid from industrialized countries.

New UNCTAD Secretary-General Supachai Panitchpakdi captured the prevailing mood when he told the TDB that economic theories are tools; they are not always universal truths, and not always applicable at different times and locations. He said it is important in carrying out development policies to employ common sense and to be familiar with situations at the local level so as to avoid doing things that hurt rather than help. Dr. Supachai told the Board that UNCTAD would focus on achieving "results on the ground" that have the greatest possible positive impact for the developing countries the organization is dedicated to helping.

During a panel discussion at a "high-level segment" the afternoon of 10 October, Leiv Lunde, Vice-Minister for Economic Development of Norway, told the Board that aid will never work and useful foreign investment will not be attracted unless governments in developing countries reduce corruption, operate in efficiently and transparently, spur domestic investment and reduce "capital flight." But he added that blanket prescriptions from outside are not the way to help this process; development policies have to be homegrown and tailored to local and regional circumstances. Another panellist, Arturo O´Connell of the Board of Governors of the Central Bank of Argentina, said the globalization process of the 1990s showed that financial liberalization did not, when a number of national experiences were studied, play a key role in spurring healthy economic growth. He said it could be reasonably argued that, rather than free-market finance, financial flows should be managed by both creditors and debtors.

A panel discussion later in the week on the erosion of trade preferences granted to the least developed countries led the Board to urge LDCs´ trading partners to strengthen such preferential arrangements. The global trend towards eliminating tariffs can benefit poorer nations by opening up new trade opportunities, the Board said, but some countries could be affected by the loss of preferences given to some of their export products by industrialized nations. It called for greater international support to enable LDCs to enhance their productive capacities, diversify their economies into non-preference-dependent activities, improve their use of the preferences they do receive and help them deal with any adverse effects from the loss of preferences. The Board also supported UNCTAD´s work to help LDCs, including the Integrated Framework through which a country´s trade, development and anti-poverty policies are coordinated to achieve maximum impact.

Pascal Lamy, Director-General of the World Trade Organization, speaking before the Board on 6 October, said development was a common denominator of negotiations under the WTO´s "Doha Round," and the WTO and UNCTAD will cooperate in their work on special and differential treatment (SDT), erosion of trade preferences and "aid for trade" to be granted developing nations. Governments of such countries told the Board that trade was not an end in itself but rather a means of promoting development. The Board expressed support for numerous UNCTAD programmes designed to improve developing countries´ trade performances.

A review of the economic status of Africa on 10 October concentrated on the impact of foreign direct investment. Board members were later unable to reach agreed conclusions on the topic and arranged to meet within two weeks to continue negotiations. African nations supported UNCTAD´s call for them to weigh carefully the pros and cons of foreign direct investment, and the African Union said it would look into setting general standards for investment regimes; some African nations were concerned about the weakening of governmental institutions during the structural adjustment programmes of the 1990s, and panellists said the "one-size-fits-all" approach to development that had prevailed then had not worked.

The Board was updated on 11 October on an UNCTAD investment policy review (IPR) of Kenya, with the country´s Minister of Trade and Industry reporting that as a result of the review, government emphasis had shifted from "regulating" to "facilitating" investors. The Minister, Mukhisa Kituyi, said lessons from the IPR had been "internalized", and following a period of difficult - and even declining - economic performance in the 1990s, the Kenyan gross domestic product was expected to grow at over 5% in 2005. Mr. Kituyi said foreign direct investment was up 17.6%, a new Kenya Investment Authority had begun operations, and the process for approving foreign investment licences had been reduced from months to 21 days. The Minister also said the government was committed to having domestic and foreign investment mutually reinforce each other, to improving infrastructure, to reducing the cost of doing business and to building strong economic ties to other countries in East Africa.

The news was less encouraging for the Palestinian economy. UNCTAD´s Coordinator for assistance to the Palestinian people told the Board that the decline stemming from the continuing, five-year-old crisis in the region seemed to have bottomed out, but the Palestinian economy was 15% smaller than in the year 2000 and almost one third of the population was living in extreme poverty. The crisis had caused some US$ 10 billion in damage. Fifteen regional group and individual national representatives spoke in support of UNCTAD´s technical assistance in this area, and many supported steps taken by UNCTAD to help establish a Palestinian Shippers´ Council and to further computerize customs operations at the Palestinian border with Egypt. The Board was also informed of a call by Arab trade ministers (at a recent meeting in Amman, Jordan) for Palestine to be allowed to attend the WTO´s Hong Kong ministerial meeting in December and to attain observer status with the organization. There was support for UNCTAD´s advice that Palestine follow a "pro-poor" development approach focused on preparing for statehood. While a representative of Israel said his country would have been able to endorse the report had it not had a "narrow and one-sided" political point of view that ignored the recent Israeli disengagement from Gaza, a Palestinian observer said the report was on target and that economic reforms were under way. He added, however, that Palestine would need complete sovereignty over its territory and borders for full recovery to occur and for governance and other reforms to be effective.

At the Board´s closing session, Secretary-General Supachai announced the appointment of an independent, seven-person panel to advise him on ways to make UNCTAD a more effective and prominent organization (see press release UNCTAD/PRESS/PR/2005/044).

The Trade and Development Board is UNCTAD´s chief policy-setting body and meets in plenary once per year.