DEBT AND PROTECTIONISM CENTRAL ISSUES, NOW AND IN FUTURE.

Mar 28, 1984

DEBT AND PROTECTIONISM CENTRAL ISSUES, NOW AND IN FUTURE.

GENEVA, MARCH 27 (IFDA/CHAKRAVARTHI RAGHAVAN) -- The problems of Third World debt and protectionism are the central issues in the international economic situation, both in the short term and in the long-term, the secretary-general of UNCTAD, Gamani Corea told the Trade and Development Board Monday afternoon.-

Corea said these issues were crucial, both to the developing and developed countries. They were also important in terms of the long-term development of the Third World, and the future of the international trade and financial systems.-

Corea hoped that there would be "serious, through and well-informed" discussion of the two issues at the board.-

While he did not expect any "dramatic solutions" to the problems at the board, Corea hoped governments would be able to suggest possible lines for action and for meaningful programmes of work at UNCTAD that would enable governments both to formulate their positions and take suitable actions.-

There was a direct inter-dependence between the capacity of debtor countries to find markets for their exports and their capacity to service debts.-

But there were also wider relationships between debt and protectionism issues and their longer-term relevance.-

The problems would not just disappear with a return of the world to the path of recovery. The problems were more fundamental.-

The problem of protectionism was linked to the fundamental forces at work in the world economy, the long-term trends in the Industrial countries and their slower tempo of growth than before, and the lack of resilience manifest in the economies of some, if not all the Industrial countries.-

It was also related to the process of growth and transformation of the developing world, resulting in the creation of new capacities for exports of many products and the new needs for financial resources to backstop their industrialisation and development.-

On debt, Corea said, the secretariat study showed that the guidelines adopted by the board in 1980 were very relevant and helpful to the process of debt rescheduling of debt, now going on and likely to go on.-

In the rescheduling exercises, not all the objectives and guidelines had been fully achieved.-

There was a continuing tendency to adopt "a short-leash" approach of "crisis management". The development objectives and investment needs of the Third World, had received inadequate or secondary attention.-

It was no exaggeration to say that the debt problem continued to remain a serious one, at least insofar as the developing world was concerned.-

It would remain a serious and major one, despite the success of the crisis management in avoiding grave repercussions on the international financial system through rescheduling.-

For, the fundamental question remained whether as a result of the recent actions of debt rescheduling, a durable and long-term solution to the problem had emerged.-

To the extent that the debt relief provided had been linked to rescheduling of the amortisation as also of the interest payment, an element of compounded growth had been built into the problem.-

The actions taken so far had imposed high costs on the developing world in terms of their growth and stability. The greatest impact had been on the poorest and weakest countries, and the situation was particularly critical and grave for the African continent.-

"I shudder to contemplate what would be the repercussions – political, economic and social, national and international - of a decade of slow, sluggish growth in the developing countries, a prospect which is in store if the process of development does not acquire a rapid tempo and if the reactivation of development is delayed or denied".-

"The prospect is full of the gravest consequences for the whole International Community".-

From this analysis, it seemed to be imperative that for a viable and enduring solution to the debt problem, the process of recovery and development had to be accelerated to a tempo much greater than now.-

Also, it would still be necessary to address the issue of long-term increased financial flows to the Third World.-

In the medium to long-term, official aid, private foreign investment, and bank credits – none of them would be able to reach the magnitudes necessary for the accelerated development of the Third World.-

There was hence need to look into this in the context of the reform and adaptation of the international monetary and financial system.-

Any discussion of the reform and adaptation of the international monetary system must hence involve these issues, apart from the issues of exchange rate regime and balanced adjustment process.-

On the issue of protectionism and structural adjustment, the secretariat analysis had brought out four important elements.-

Firstly, the trend towards protectionism was continuing unabated despite the laudable efforts of governments to resist protectionist pressures.-

Secondly, despite the process of recovery under way in the United States and some other countries, governments have been unable to turn around the trend towards protectionism and move towards liberalism in trade.-

Thirdly, the restrictions and protectionism in trade was affecting all groups of countries, and more so the Third World.-

A variety of instruments were being used, and apart from actual measures, there were also the measures of trade harassment.-

Fourthly, all these developments continued to undermine and erode the trade system as a whole.-

There was no doubt that a better overall economic climate would help the governments to resist and reverse protectionism, and this climate could come only through accelerated recovery and reactivated development.-

Whether in terms of protectionism or debt, this was of major importance.-

The issues of protectionism and structural adjustment, to which were linked the problem of safeguards, were also related to the rules of the system.-

The GATT system evolved after the war had been drawn up in the context of tariff cuts, and not in terms of a dynamic system of structural adjustment.-

These issues were linked to the reform and adaptation of the trading system and how it would deal with the trade flows not amenable to tariffs - the intra-trade of transnational corporations, state trading systems, the issue of regional integration, and the variety of subsystems that were emerging.-

There was also the issue of how the trade of the developing countries would be dealt with in future.-

Intense discussions in UNCTAD many years ago had led to the formulation of principles of preferential and non-discriminatory treatment of the developing countries in international trade.-

There had been recently not only departures from these principles earlier agreed to, but these were being suggested or acted upon without a full consideration and discussion.-