Compensatory financing for oil-importing developing countries from multilateral institutions should be considered in response to the rise in oil prices, urged UNCTAD Secretary-General Rubens Ricupero today, addressing the opening session of the organization´s UNCTAD´s Trade and Development Board in Geneva.
The dramatic and unexpected oil price hike, which showed how much everyone had underrated the potential of oil to disrupt everyday life, has created serious concerns about the prospects of the world economy, he said. "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 elsewhere. He welcomed the call by those countries for coordinated international policy action in the face of rising oil prices but noted that it contrasted "sharply" with the "devastating" consequences of falling commodity prices.
"The world economy seems to have two faces", noted Mr. Ricupero, former Finance Minister of Brazil, "just like the Roman god Janus", who had "one face turned to the future ... and another to the past". Despite the promise of a new Golden Age offered by new information and communication technologies, "the phantoms of unsolved problems inherited from the past are casting their threatening shadow over this radiant future", he warned.
Mr. Ricupero called for the inclusion of fiscal measures, as recently introduced in France, among "appropriate" policy responses. "For oil-importing developing countries which face the burden of a rising import bill, compensatory financing from multilateral institutions on soft terms should be considered" as well. He added that "the immediate responsibility rests with policy makers in the stronger economies, who must avoid either an inflationary or a deflationary spiral". Over the longer term, he said, "the challenge remains to create a truly global and participatory approach to managing the world´s non-renewable resources".
Coordinated action to correct currency misalignments, particularly the "precipitous" drop in the euro´s value against the dollar, was "unlikely to produce the desired effect in the medium and long term", he said. Intervention in support of the euro could either damage the credibility 0f the pan-European monetary framework or precipitate renewed instability in the dollar-based economies. "A big question still taxing economists", he observed, was "whether the judicious combination of good policy and good luck" would have a soft landing in the US economy.
Major imbalances among the three largest industrial economies are still threatening the world economy, Mr. Ricupero contended. The vulnerability of developing countries to any "abrupt policy shifts" in the major industrial countries would depend on their state of economic health. But despite the measure of hope offered by developments over the past year, biases and asymmetries in the trading system, and structural uncertainty and volatility in the financial system, remained. In this domain "nothing much was achieved" by the recent IMF/World Bank meeting in Prague, meaning that growth in many countries remained dependent on unstable financial flows.
In his statement, Mr. Ricupero highlighted the basic policy challenges faced by the developing regions as a result of those developments. Latin America as a whole would have to break free from an "excessive dependence on external resources". Nonetheless, it had achieved and would continue to register "positive growth". Africa, by contrast, would have to overcome savings and foreign-exchange constraints and raise investment. The only way to end Africa´s aid dependence, he said, would be to launch a "massive aid programme" and to sustain rapid growth. In East Asia, which had registered an encouraging recovery pace, there was cause for concern because of limited corporate restructuring; rising public deficits and debt; and the dependence of the recovery on favourable global economic conditions which were subject to change.
"Double squeeze" on LDCs
As for the least developed countries (LDCs), faced with "the greatest challenge of our times - eradicating poverty through sustained development", he said they were exposed to a "double squeeze" of high oil prices and low primary commodity prices. Their "unsustainable" external debt burden undermined aid effectiveness and created an "aid-and-debt trap" in which the lack of aid effectiveness prevented an exit from the debt problem. A "bolder approach" was required, he contended, if the enhanced Highly Indebted Poor Countries (HIPC) Initiative of the IMF and World Bank was to retain its credibility.
Mr. Ricupero questioned the current diagnosis of poverty-related problems and its role in choosing the "right therapy" for the LDCs. A "New Deal" would be proposed at the Third UN Conference on the LDCs, to be held in Brussels in May 2001. The challenges for UNCTAD would be to enable the LDCs to change their prospects for the better, and to ensure that the Plan of Action adopted by UNCTAD X in Bangkok last February is implemented in its entirety.
Major Economic Issues before the Board
The Trade and Development Board - UNCTAD´s governing body, which is holding its 47th annual session from 9 to 20 October - will consider all the major economic issues on the global agenda (see TD/B/47/1 and Add.1). Regional integration in the global economy will be discussed at the Board´s high-level segment on 16 October. It will examine the impact of the consolidation and intensification of regional integration processes on financial flows and investment and enterprise development and their contribution to trade liberalization and expansion. Dr. Supachai Panitchpakdi, Deputy Prime Minister and Minister of Trade of Thailand and President of UNCTAD X, will chair the daylong session, in which Mike Moore, Director-General of WTO; Long Yongtu, Vice-Minister of Trade of China; Heiner Flassbeck, Germany´s former Deputy Finance Minister; and Harvard Business School Professor Michael Porter will participate.
On the afternoon of 17 October, a special session of the Board will be devoted to the tenth anniversary of UNCTAD´s World Investment Report. It will review the challenges ahead in the field of foreign direct investment (FDI) in the light of continued increases in FDI flows as well as the consequences of this growth, the expansion of transnational corporations´ activities and their future directions and impact. The panel will be moderated by Guy de Jonquières, Chief Editor of the Financial Times, with input from John Dunning of the University of Reading and Jeffrey Sachs of Harvard´s Centre of International Development Studies (pre-taped), among others.
Globalization and better health for the poor will be the topic of an address by Clare Short, the UK´s Secretary of State for International Development, on 19 October. Other topics on the Board´s agenda include the crisis and recovery process in emerging markets (to be considered by an expert panel on 10 October); UNCTAD´s Least Developed Countries 2000 Report, and progress in the preparatory process for the Third UN Conference on the LDCs; capital flows and growth in Africa; and UNCTAD´s assistance to the Palestinian people, in light of the territory´s changing economic policy environment.
