Mar 16, 1984

DEBT PROBLEMS NEED APPROPRIATE TRADE POLICY MEASURES.

GENEVA, MARCH 14 (IFDA/CHAKRAVARTHI RAGHAVAN) -- International organisations and developed countries that, over the last two decades, strongly urged and influenced "outward-oriented" development strategies of the Third World, as a corollary "must continue to promote efforts to facilitate exports from developing countries".-

Such action, says the UN Conference on Trade and Development, might well constitute a first step in the direction of a more comprehensive round of multilateral negotiations aimed at liberalising international trade barriers.-

In a report on protectionism and structural adjustment, the UNCTAD secretariat underlines the linkages between trade and the debt problems of the Third World.-

Viable debt management by Third World countries requires accelerated export growth for them, and this could only be done through policy measures of international community for trade liberalisation.-

There was little doubt, says UNCTAD, that the current magnitude and country distribution of debt poses a serious threat to the operation of the international financial and trading system.-

At the end of 1982, of the total of 1.000 billion dollars of total net outstanding international bank lending, almost half was owed by the Third World, and (to a lesser extent) by the Socialist countries of Eastern Europe, and the rest by the OECD countries.-

The oil importing developing countries were running, at the end of 1982, a total current account deficit of 87 billion or 38 percent of their exports of goods and services.-

The current account surplus of the oil exporting developing countries has turned into a deficit of two billion, while the OECD countries had a deficit of almost four billion.-

In consequence, all countries have striven to increase their exports, and the majority have also endeavoured to cut back on imports.-

This has obviously increased tensions in the international trading system.-

The ability to service debt through export earnings has become a problem of major importance for many countries.-

While the ratio of outstanding debt, at the end of to export earnings (on goods and services) was respectively 16 percent and 73 percent for Canada and Italy, it ranged from 130 percent to 424 percent for the ten heavily indebted Third World countries, and 484 percent for Poland.-

As a result, most developing countries have been forced to adopt contractionary policies, resulting in the improvement of their trade balances.-

But this has been only at a major cost to their industrialisation strategies, and has produced low and negative growth, in turn worsening social conditions and the standard of living of their peoples.-

Their reduced import demand has also affected the developed countries, further depressing the latter's capacity utilisation of export-oriented industries.-

In considering the basic problem for trade from the international debt crisis, a number of considerations have to be borne in mind.-

Firstly, the problem affected all countries.-

Secondly, revival of world trade depended on the ability of major banks to provide the finance required for increased exports from the heavily indebted countries.-

Thirdly, the developing countries have relatively little scope for further restricting their imports to service their debt obligations.-

Moreover, their imports are an important stimulus to international economic activity. And if this stimulus is not to be further reduced, creditor countries must accept and even promote increased exports to their own markets from the indebted developing countries.-

Nearly one-fifth of the exports of the heavily indebted countries to the major trading countries are restricted by direct import controls. This is specially so in respect of imports from Argentina, Brazil and South Korea.-

It was more onerous for South Korea, almost half of whose total exports are directed to the three major markets (EEC, U.S.A. and Japan).-

Sixty percent of South Koreaís exports to those markets consisted of "sensitive" products, like textiles, clothing and footwear, household appliance and office equipment, iron and steel, and ships.-

About one-half of Brazilís total exports were also directed to the three major markets. One half of these exports were subject to direct import control measures, of which approximately one-half is accounted for by animal feed exported to the EEC.-

The other major restrictions faced by Brazil are also in sensitive areas, such as iron and steel, textiles, clothing and footwear.-

In the case of Argentina, the major trade restraints (which affect approximately 27 percent of its total exports to the three markets) concerned mainly cereals and livestock and, to a lesser extent, textiles and some labour-intensive manufactures.-

Turkey and Philippines are particularly affected by import restrictions on agricultural products, where direct controls are applied to approximately 25 percent of their shipments to these major markets.-

Even if there were greater scope for the seriously indebted countries to cut back on imports, from an international standpoint it would be very undesirable, in view of their importance as markets for exports from the developed countries.-

If these countries are not to further restrain imports, these countries will have to increase substantially their export earnings so as to meet annual debt-service obligations of about 37 percent of their exports of goods and services.-

This could not be achieved simply by increasing exports not currently subject to exports. It will clearly require a major effort by the international Community to reduce or eliminate existing trade barriers.-

The key or central element of any viable programme of developing country debt management must be based on the proposition that a major acceleration of their export growth is needed to permit these countries to maintain the normal servicing of their existing debts.-

A precondition for such an export expansion was a substantial and sustained economic recovery in the developed countries, accompanied by an immediate liberalisation of trade barriers to key export products of the developing countries.-

Mere debt rescheduling would not constitute a basic solution to the fundamental problems of the external indebtedness of the developing countries, but would merely postpone solutions to these problems.-

Hence, if appropriate trade policy measures constituted a central element of any viable solution to the Third World debt problems, "it is of obvious importance to establish, as quickly as possible, an effective mechanism for ensuring that such measures and policies are formulated and implemented".-

One approach, the secretariat suggests, would be for international institutions - such as the IMF, World Bank, and UNCTAD - to sponsor multilateral consultations among countries so as to formulate desirable trade policy initiatives to assist and encourage the expansion of exports from indebted developing countries.-

As decided at UNCTAD-VI, an important first step would be the full implementation of the "standstill", and action to reduce and eliminate quantitative restrictions and measures having a similar effect on products of particular export interest to the developing countries.-

Further, the schemes under the Generalised System of Preferences could be modified in certain ways - broadening export coverage or eliminating provisions for ceilings and quotas in order to facilitate expansion of Third World trade.-

Governments could also undertake a wide range of unilateral trade liberalisation measures, such as that of Japanís "temporary" import tariffs much below the legally bound MFN rates. These could stimulate expansion of Third World trade.-

Unilateral or multilateral action could also be undertaken with regard to non-tariff trade restrictions.-

Consultations between the developed and developing countries concerning trade policies could thus make a major contribution to alleviating the latter's financial problems.-

Such an effort could also constitute "a demonstration of the developed countriesí awareness of the true burden of developing countriesí debt problems" UNCTAD adds.-