7:14 AM Sep 26, 1994


Geneva 23 Sep (TWN) -- The debate at the Trade and Development Board on the secretariat's Trade and Development Report elicited general appreciation for its economic analysis, even as the industrialized nations disagreed with several of its main policy recommendations and conclusions.

The United States, the European Union and the observer from the International Monetary Fund were among those who disagreed with the secretariat's view that the industrialized countries, through stimulative monetary and fiscal measures, appropriate to their individual situations, should act to correct the global deflationary gap. Japan which addressed itself only to the Asian experience and the state role called for further exploration of the TDR's study and the Asian experience to find out what elements could be applied by other developing countries.

Earlier, Philippines speaking for the Asian group, strongly supported the recommendation that governments should act collectively to ensure level of global demand compatible with worldwide growth and equilibrium. On the Asian experiences, Philippines said the TDR was wise to conclude that the Asian pace-setters did not constitute a model replicable everywhere. The example of these successful countries might not be helpful for others with much more complicated factors. But the report's account of the rapidly developing economies of Asia confirmed or validated some of the important directions followed by UNCTAD as well as positions of developing countries. But the Uruguay Round agreements would eventually prevent many developing countries from using measures successfully used in East Asia.

The US, in its intervention almost at the end of the debate, saw little evidence of industrial countries being in a "deflationary mode" and needing to loosen monetary policy nor could it agree that "too much financial openness" could lead to dangerously destabilising large capital flows. In US view, while selective safeguards against speculative attacks on currencies of small countries or by large investors in the securities markets could be useful tools in some cases, predictable and beneficial capital flows are best brought about by a sound policy environment, not government controls.

As for investment incentives and effects on poverty alleviation and income distribution, for the US there was clear empirical evidence that "over time" productive investment helps alleviate poverty and income-distribution effects depended on structural elements of particular economies.

The US applauded UNCTAD's concern over lagging development in Africa, but found TDR's negative comments about Structural Adjustment in Africa too sweeping. UNCTAD should rather have chosen to reinforce the case that sound policy reform and structural adjustment are the place to start on road to balanced development. UNCTAD should also have based its policy recommendations on a broader sample of country experiences and success stories, rather than on experience of three Far East economies to support the need for greater government intervention in pursuit of demand management.

Earlier, Germany for the EU was "more optimistic" than UNCTAD and projecting a greater worldwide increase in economic activity, did not see any scope for further drop in interest rates. In the German view,, the US was continuing its policy of incremental increases in interest rates and there was no scope for reduction in Europe without a prior lowering of public debt. A considerable reduction in imbalances between savings and intents to invest would be needed in most industrial nations before there could be a reduction in interest rates.

For the EU it was also debatable whether the Far East examples really point to the successful implementation of an economic policy of the "visible hand" (of the State). UNCTAD's appraisal of reduction of government intervention and greater freedom for the market had been taken too far. In drawing conclusions, the "new global conditions" after the Uruguay Round and inappropriateness of inward looking industrial policies would also have to be taken into account.

Denmark for the Nordic countries said that only when structural adjustment programmes went hand in hand with social development to meet basic needs of the poor would a sound basis exist for economic development. The notion of the 'visible hand' as the guiding principle for success of government policies in Southeast Asia seemed to suggest that coherent and selective government policies were necessary in order to advance a country's economic and social development. But the increasing emphasis on national responsibility in no way took away obligation of developed countries to continue their support to developing countries.

Japan, in its comments, did not deal with this aspect, but both praised UNCTAD for its analysis of the East Asia experience and the roles of government for the success (which differs from the World Bank's analysis and conclusions, in its Far East Miracle) and wanted UNCTAD and its intergovernmental machinery to followup on the discussion. "It is indispensable for economic development that government plays an appropriate role" and, while there is no "absolute model of development", it is worthwhile to find out what elements of the East Asian development process could be applied in other cases, Japan added.

But unlike in the 1950s and 1960s, Japan added, the world economy was growing very slowly, the countries were now more interdependent and interlinked, while international trade rules had become more systematised and sophisticated. These differences had to be borne in mind in drawing the lessons from East Asian experience. It was as necessary to examine the effectiveness of government intervention as to be attentive when to put an end to it.

China said the development impetus in the entire world economy left no room for optimism. Despite the progress in East Asia, and generally the projected, higher than world average rate of growth in developing world, there was an imbalance in growth among developing countries and with Africa experiencing constraint deterioration of economic situation. There were several unfavourable factors affecting development of developing countries -- macro-economic environment, unstable world commodity prices, the debt crisis, continued trade protectionism in the developed world despite conclusion of the Uruguay Round and erosion of GSP preferences.

Moreover, as a result of the Uruguay Round, developing countries have to assume a larger share of policy adjustment burden than the developed. China hoped the developed countries would demonstrate their political will be giving more attention to North-South dialogues and cooperation and, in formulating macro-economic policies, take into full account needs of developing countries for a favourable external environment.

Argentina said the sort of selective intervention used in the Far East had also been used in the past by Argentina but with different degrees of success. In Argentina now, it had been possible to bring interest rates back to level of the 1970s only by achieving fiscal equilibrium, reducing inflation and reestablishing relationships with external creditors. This had enabled Argentina to achieve an investment/GNP ratio of 21 percent in 1993 compared to 16.3 percent in 1991. As for imports, while Argentina's imports were growing, its composition had shifted in favour of capital goods and external capital inflows had helped to finance this. But countries undergoing adjustment were specially vulnerable to monetary policies of industrial countries. The disorderly monetary policies in the OECD countries adversely affected inflow of capital which financed the deficit in trade balances of developing countries and made it more difficult for them to service their external debts.

Tanzania said the recent economic performance in Africa, and the poor performance in many of them, had been partly due to the deteriorating terms of trade, inadequate levels of external resource flows and increasing debt burden. Economic development in Africa had been dominated by SAPs, which restrict credit and dampen private and public investment. Future development strategies for Africa needed to encourage promotion of small- and medium-scale enterprises, improve human capital and enhance research and development capacities.

The representative of the IMF that the economic recovery strategy approved by the IMF Interim Committee in 1993 had borne fruit and a general recovery in world activity and trade was well under way and could strengthen over the medium term. And while the Fund shared concerns underlying TDR, namely the challenge of sustaining recovery and bringing about a durable expansion with higher levels of employment and low inflation, it did not share UNCTAD's policy recommendations. In the IMF view, more progress was needed in the industrial countries on fiscal consolidation. This would lower longer-term interest rates and enable monetary policy to play a more supportive role.

As for developing countries they should press ahead and deepen their market-based reforms. The TDR's concerns over capital flows into the developing countries was also "unduly alarmist" and the Fund would not endorse the suggestion about a tax on foreign exchange transactions to restrain speculation. Rather, on a case by case basis, the response should be a combination of sterilization, fiscal measures and exchange rate adaptation. The Fund also disagreed with the TDR's analysis of the successful Far East economies and argued that Hong Kong with its most laissez faire policies had been equally successful. The lessons for other developing countries were unlikely to be a larger role for government intervention in the economy, but rather one of promoting adoption of sound macropolicies, coupled with policies to enhance working of markets.

The Third World Network congratulated the UNCTAD secretariat for its courage in challenging the monolithic views flowing from the Bretton Woods institutions and proposing pragmatic, non-ideological approaches for problems of world economy and development of developing countries. While the TDR's Asian experience stressed the need for an active state role to promote development and correct market failures, the TDR's Uruguay Round assessment suggested that the late industrializers in the South would be estopped from using such instruments.

The major trading nations appeared to have incorporated rules and obligations in the new WTO trade order to choke off rising competition and lock the South into a colonial development pattern. UNCTAD should identify the obstacles to development that would arise by the new trading rules and make proposals for changes in such rules to enlarge the space for development. The analysis being done by TWN members in their countries showed that the socalled gains from the Round for developing countries was highly exaggerated and that developing countries and the poor among them would be put into a "constricting straightjacket" by the new trade order. The WTO would also expand the space for TNCs at the expense of people and this would generate social disorders in the South and the North too.

The disquieting moves and unilateral interpretations in major economies in their implementation legislation, the new trade agendas being pushed -- not for protection of environment or advance the cause of labour, but for reducing competitivity of the South -- the pronouncements of leading trade officials in the North about the impending "battle for markets" in the leading developing economies to be waged by the TNCs with the active backing of their governments, and the role of Northern Prime Ministers and Presidents in contacting over the phone their counterparts in the South to solicit favours for their TNCs or their travelling around with plane-loads of businessmen to solicit trade showed that the neo-liberal order would be a "new mercantalist order and a far cry from the talk of free market and free trade", aimed at expanding the space for TNCs and perpetuating the under-development of the South.

There was no consensus in civic society of the South over the neo-liberalism -- even if governments and businesses may appear to have embraced them -- and the growing coalitions of the South and North were joining hands to resist such an order which was being pushed by the highly visible hands of the IMF, Bank and now the WTO. New coalitions like "Fifty Years is Enough" as a response to the 50th anniversary of the BWIs was just the beginning, the TWN representative added.

The ICFTU commended the UNCTAD analysis and asked the IMF to reassess the basis for its policy recommendations at macro-economic level. There could be a huge contribution to global recovery by effective measures to raise purchasing power in developing countries which had an immense unfulfilled demand for imports to meet basic needs, investment and development.

The successful conclusion of the Uruguay Round should give a boost to trade, employment and incomes worldwide. Free access to their exports should enable developing countries to over their huge problems of unemployment and poverty and achieve development through trade and not aid. But this new momentum should be directed to improve conditions of workers all over the world. Hence the ICFTU demand for a social clause in GATT agreements, an issue now on the WTO work programme. The question of workers right and trade was here to stay and UNCTAD should initiate a serious, rational discussion of how to operate a clear, fair and multilateral procedure to ensure free trade is not a license to repress, exploit or discriminate against workers, the ICFTU said.