The UNCTAD Trade and Development Board tonight (23 October) successfully concluded its two-week annual session, by adopting agreed texts on: the causes, management and prevention of financial crisis; trade and investment opportunities and constraints for the least developed countries (LDCs); and development prospects for Africa.
Chaired by Ambassador Chak Mun See of Singapore, the Board welcomed the offer by the European Union to host the Third United Nations Conference on the Least Developed Countries, in the first semester of the year 2001. In a recommendation to the United Nations General Assembly (TD/B/45/SC.1/L.2), the Board states that the Conference will have a duration of seven days, at a venue and time yet to be decided. Preparatory meetings will be convened at the intergovernmental and at the expert level. Financing is foreseen for the participation of the LDCs in the intergovernmental preparations. The participation of relevant international institutions, in particular the United Nations Development Programme (UNDP) and the World Bank, will be sought during the preparations for, and follow-up of, the Conference. Civil society will also be involved.
The causes, management and prevention of financial crisis
Following its traditional debate on interdependence issues, the Board adopted a set of "agreed conclusions" (contained in document TD/B/45/L.2 and Corr.) on the causes, management and prevention of financial crisis. The conclusions were the result of extensive deliberations chaired by Ambassador Carlos Perez del Castillo of Uruguay. They embody a consensus that the current crisis afflicting the world economy "has systemic elements" and that "the countries affected cannot deal with the problem in isolation". The Board therefore considered that " an effective response needs to combine measures at both national and international levels." It further noted that even countries "with sound economic fundamentals and institutions have also been affected by global financial instability".
However, the Board recognized that there is no single recipe for responding to financial crises, and that domestic policies to restore growth had to be tailored to the specific circumstances of each country, with complementary action by developed countries. It rejected recourse to protectionist policies, as they "would merely serve to deepen the crisis".
The importance of a favourable external environment in attaining policy objectives in developing countries was underscored by recent events.
The Board saw a need to reform the existing international financial architecture so as to reduce the likelihood of financial crises and to manage them better. Developing countries should be fully represented in the reform process and their views should be taken into account. Effective multilateral and domestic surveillance was essential for the prevention of financial crises. Such surveillance also needed to recognize the role of global interdependence in transmitting financial instability.
Weaknesses and gaps in the existing regulatory framework for cross-border lending and financial flows had to be addressed. A consultative process should be encouraged for ensuring "greater transparency of the operations of private financial institutions, Governments and multilateral financial institutions". Greater transparency was essential for effective surveillance of policies and supervision of markets and for timely action to prevent financial instability.
"Strengthened prudential regulation and supervision of the financial system in a well-sequenced process of liberalization can contribute to greater financial stability. Domestic reforms to be considered might include: (a) increased transparency and disclosure; (b) strengthening of domestic regulatory standards; and (c) more effective burden-sharing arrangements, such as improved insolvency and debtor-creditor regimes."
According to the Board, crisis management may also require the use of "other instruments to prevent the build-up of external financial vulnerability without impeding trade or medium- and long-term investment flows". In this regard, useful lessons could be drawn from the successful experiences in a number of countries with the use of such instruments. The Board cautions, however, that "regulation and control over financial flows should not be used to sustain inappropriate policies."
Measures also had to be put in place for better management when crises arise. According to the Board, "establishing a genuine international lender of last resort with adequate resources to provide the liquidity needed to support countries facing external financial difficulties might be such a measure". But it adds that, "given the serious impediments to this, it may also be useful to explore alternative means of crisis management that would provide safeguards against speculative attacks and disruption of markets, prevent moral hazard, and secure more equitable burden-sharing between debtors and creditors. The establishment of orderly debt work-out principles could be further examined. Developed countries should also consider other actions to facilitate access to liquidity of developing countries facing external financial difficulties."
UNCTAD was requested to contribute to the debate on the strengthening and reforming of the international financial architecture by continuing to provide relevant analysis from a development perspective. Expressing its appreciation for "the sound, independent and timely analysis" provided in the UNCTAD Trade and Development Report 1998 (see TAD/INF/2759), the Board agreed that the proposals contained therein for the prevention and management of financial crises deserved wider dissemination and discussion, and further analysis.
Opportunities and constraints for LDCs in the multilateral trading system
The Board adopted a set of "agreed conclusions" on trade and investment in the LDCs (TD/B/45/SC.1/L.3) which were the outcome of discussions in Sessional Committee I, chaired by Ambassador Pekka Huhtaniemi of Finland.
With regard to trade, the Board recognized that the particular circumstances of LDCs continued to warrant "special and differential" treatment, as provided for under the Uruguay Round agreements. But the long-term challenge for LDCs was to improve their competitiveness in international markets.
The Board stressed the importance of supporting LDCs in their efforts to reverse their current marginalization in world trade and to become integrated into the world economy and international trading system. This included an expeditious accession process for LDCs which were not members of World Trade Organization (WTO), on terms consistent with their LDC status. The challenge for the accession negotiations to be held in WTO was "to combine, within a reasonable time-frame, the necessary rigorous observance of multilateral disciplines with a degree of flexibility and understanding for the difficulties and constraints faced by LDCs".
The full and effective implementation of the Marrakesh Ministerial Decision in favour of LDCs and the special and differential measures in favour of LDCs contained in the Uruguay Round agreements, further enhancement of market access for LDCs’ exports and support for their efforts at capacity-building were essential if LDCs were to become integrated in the world economy.
While moves by several developed and developing countries to increase market access for LDCs were welcomed, there remained substantial scope for further market access for agricultural and industrial products of export interest to LDCs. The Board urged the effective implementation of the WTO Action Plan for LDCs, adopted at the first WTO Ministerial Conference, and the decisions of the High-level Meeting on Integrated Initiatives for Least Developed Countries’ Trade Development; this would help to address the residual market access problems faced by LDCs.
LDCs should also receive assistance to enable them to take an active part in negotiations which were part of the built-in agenda and take an active interest in the current debate on new issues. UNCTAD’s role in that regard was emphasized.
The Board agreed that "supply-side constraints were at the root of LDCs’ weak participation in international trade" and that "the international community should help LDCs to enhance their competitiveness through commodity diversification, improvement of their trade infrastructure and trade-supporting services, and human resource development".
As the availability of adequate external financial resources was "of critical importance in sustaining growth and development in LDCs", the Board expressed concern about the significant decline in official development assistance (ODA) flows to LDCs in 1996 and called on donor countries to increase their levels of financial assistance in line with established United Nations targets. These call for the allocation of 0.15% of GDP to ODA to the LDCs for countries which had not met that target in 1990, and 0.20% by the year 2000 for those who had met the former target.
Despite the significant progress made by LDCs in implementing broadly-based economic reform programmes, most of them had not succeeded in attracting long-term investment. Although a wide range of investment opportunities existed in LDCs, particularly in the agricultural, tourism and mining sectors, LDCs still faced obstacles in trying to attract FDI and other forms of private capital. According to the Board, that situation served to underscore the critical importance of the role of official agencies in helping to promote private flows to LDCs.
The Board also recognized that without a sustained and decisive reduction in their external debt and debt service obligations, the growth prospects of LDCs and their ability to attract FDI would remain limited. The implementation of the Heavily Indebted Poor Countries (HIPCs) initiative had so far been limited. Two years after its launch, only one LDC had benefited from the fully-fledged relief provided by the initiative. Donor countries were invited to give due consideration to the proposal made by the Secretary-General of the United Nations that all remaining official bilateral debt owed by the poorest HIPCs should be converted into grants.
The Board also recognized that the improved economic performance of LDCs in recent years was mainly attributable to their own sound macroeconomic policy reforms, undertaken under most difficult domestic and external conditions. But it was concerned by the considerable uncertainty over the short-term prospects for LDCs; their fragile economies were particularly vulnerable to exogenous shocks such as the Asian financial crisis, declining commodity prices and natural calamities.
Africa: Prospects for agriculture, trade and industrialization
"Agreed conclusions" (TD/B/45/SC.2/L.2) were also adopted by the Board on prospects for Africa in the areas of agriculture, trade and industrialization. They were the outcome of the deliberations of Sessional Committee II, chaired by Ambassador Mohamed-Salah Dembri of Algeria.
The Board recognized that African countries had made determined efforts to improve macroeconomic fundamentals. But reforms had failed to address all structural constraints, especially as regards the underdevelopment of human resources and of physical infrastructure, as well as institutional limitations. The design and implementation of structural adjustment programmes should take account of these constraints. "Therefore, their conceptualization, including the premises on which they have been built, should be reviewed and adjusted to the requirements of individual countries, and coherence in policy advice should be ensured." The Board added that "full ownership of reforms, founded upon a broad-based national consensus, is a necessary condition for success."
Furthermore, the debt overhang continued to represent "a major constraint facing African countries" and had "major adverse consequences for the fiscal health of African countries". While the HIPC Initiative had been designed to contribute to an enduring solution to the debt problem," greater flexibility, additional efforts and a broader basis would help to place African countries back on the path to growth and development". The Board called for "innovative approaches" involving the affected countries, bearing in mind the joint responsibility of both debtors and creditors in the accumulation of African debt.
Taking into account the proposals contained in the UNCTAD Trade and Development Report 1998 (see TAD/INF/PR/9823), the Board suggested that "the international community may wish to consider ways and means of identifying that portion of the debt assessed as unpayable for possible action by creditors". According to the Board, UNCTAD should continue to consider the debt situation of African countries and provide technical assistance for debt management. With regard to external finance, the Board further called for a reversal in the continued fall in levels of ODA in real terms.
Other conclusions address the issue of agriculture, which was considered to be of central importance in overall economic development in most African countries. The Board considered that "promoting the tradable sector in agriculture can be greatly facilitated by better market access and reduced subsidies in industrialized countries". Moreover, "graduation into "value added" agro-based manufacturing is highly desirable. To that end, the issue of tariff peaks and tariff escalation as regards products of special export interest to African countries needs to be adequately addressed", it said. The Board also called for consideration to be given to improved market access to industrial country markets where impediments still exist.
Adequate openness to trade and full integration into the international trading system constituted a crucial objective for African countries. But the Board added that"the timing, sequencing and degree of liberalization should be adjusted to the needs and constraints of African economies as they build up their international competitiveness."
Other highlights
In 1996, at UNCTAD IX, member States had called for action to improve the participation of developing country experts in UNCTAD meetings. At its session just concluded, the Board adopted guidelines and modalities elaborated under the guidance of Ambassador Anthony Hill of Jamaica, for the financing of such experts (see document TD/B/L.3).
Under the leadership of Mr. Z. Rustomjee, Director-General of Trade and Industry of South Africa, which currently holds the presidency of UNCTAD, the Board undertook a mid-term review of UNCTAD’s activities, halfway between two quadrennial ministerial Conferences, UNCTAD IX (Midrand, South Africa, 1996) and UNCTAD X (Bangkok, Thailand, 2000). Drawing on the outcome (TD/B/45/8) of extensive consultations carried out since February by Ambassador Nacer Benjelloun-Touimi of Marocco, the discussions set in motion the preparations of the agenda for UNCTAD X.
According to Mr. Rustomjee, the review process had shown that "UNCTAD is on the right track". Among its outstanding achievements was its "intellectual leadership in the international debate on development in the new global environment". UNCTAD had an "admirable record in proposing innovative recommendations that seek to deal with the key issues confronting the global community". Mr. Rustomjee spoke about UNCTAD’s valuable analysis and research "which begins to make concrete proposals to promote growth and development in Africa". He placed special emphasis on the problem of debt, "the single most serious obstacle to sustained economic development in Africa and (that) must be addressed urgently". He also highlighted UNCTAD’s work for the LDCs, and the increased involvement of civil society in UNCTAD’s ongoing work.
Dr. Supachai Panitchpakdi, Deputy Prime Minister of Thailand, the host country of the next Conference, saw seven dimensions for UNCTAD’s work on its way to UNCTAD X. The first was the adoption of a global approach to global problems. In particular, to cope with the effects of the financial crisis, UNCTAD should investigate "a global demand management". Secondly, in light of misperceptions of globalization, UNCTAD should look at policy guidelines that a country must have to reap the benefits from globalization and to prevent the negative effects. Such guidelines related, for instance, to the legal framework, human resources development, the administrative set-up, rules of law. UNCTAD should also continue to draw lessons from the East-Asian development model. Disenchantment with the East-Asian experience did not mean that the development model had failed, Dr. Pantichpakdi argued. Rather there might have been shortcomings in adjustments to the model.
Fourth, UNCTAD should sort out what he called the "myth" of foreign direct investment (FDI) and bring a more rational analysis to "sentimental criticism" in this regard. The purpose should be to ensure productive long term investment bringing with it technological development, while preventing short-term flows from disrupting the economy. Fifth, he said, there was a great need for international organizations, especially UNCTAD and WTO, to work together in order to enhance the possibility that liberalization be kept on track. In this respect, Mr. Panitchpakdi stressed the importance of technical assistance to help make negotiations worthwhile for developing countries by making them better equipped. Sixth, marginalization, also discussed in a more or less sentimental manner, should be looked at from an impartial analytical approach, which Mr. Panitchpakdi said he was sure that UNCTAD was best placed to address. Domestic, international, or political factors should be addressed on a pragmatic basis, he stressed. Finally, the business sector - large an small - should be closely involved in UNCTAD’s work: they were the backbone of development and added rational thinking to the efforts of institutions.
Mr. Panitchpakdi chaired this year’s High-level Segment of the Board, on 22 October, devoted to regional perspectives on the impact of financial crisis on trade, investment and development. This event provided insights from business, regional United Nations Commissions and other actors on how they had been responding to the current crisis. They contributed to the search for responding to the current crisis and preventing future ones, by making practical suggestions for policy makers as well as for the private sector.
The other major public event during this session was the ninth Raúl Prebisch lecture, delivered, on 19 October, by Dr. Joseph E. Stiglitz, Vice-President for Development Economics and Chief Economist of the World Bank. Dr. Stiglitz set out the strategies, policies and processes needed to build a new paradigm for development (see TAD/INF/PR/9834).
On 19 October, the Board also paid tribute to late Dr. Kenneth K.S. Dadzie, Secretary-General of UNCTAD from 1986 to 1994, through the unveiling of his portrait at the United Nations in Geneva. The current Secretary-General, Mr. Rubens Ricupero, hailed the diplomatic skills and unconditional devotion to multilateralism of Mr. Dadzie. At a time when multilateralism was faltering, Kenneth Dadzie had steered the organization with success in consensus-building and negotiations in major areas of concern for development, he said.
