Jul 22, 1987


GENEVA, JULY 20 (IFDA/CHAKRAVARTHI RAGHAVAN) – The secretariat of UNCTAD is intending to convene the meeting of the ratifying states to the common fund agreement "immediately, or as soon as possible after the achievement of necessary ratifications" to reach the requirement of two-thirds of the directly contributed capital (DCC).

The secretary-general of UNCTAD, Kenneth Dadzie, disclosed this Monday at a closed door meeting of the Group of 77, which he addressed to clarify the situation about the common fund.

Peru (accounting for 0.33 percent of DCC) announced at the meeting that its internal national procedures for ratification were moving towards completion, and before the end of UNCTAD-VII, it hoped to be able to deliver the ratification documents.

Dadzie said that 94 countries accounting for 59.06 percent of the DCC of 400 million dollars had ratified the agreement before UNCTAD-VII convened.

With the signatures of Soviet Union and Cote D’Ivoire, and their announced decision to complete ratifications quickly, enough ratifications to achieve the balance of 1.47 percent to reach the two-thirds requirement would need to be met to enable the agreement to enter into force, Dadzie said.

If the countries whose contributions have been guaranteed by the OPEC special fund or Norway were now to complete their ratifications, the target would be met.

Tough Dadzie suggested that these ten countries would incur no financial responsibility, and they would only have to sign the necessary agreements with the OPEC special fund or Norway respectively, to enable them to ratify, some of them would incur a slight addition financial liability.

For some there will be a small additional liability in cash, and for all but two there will be some contingent liability at a future date that may or may not arise.

The four OPEC beneficiaries are Laos, Maldives, Burma and Mauritania, and together they account for 0.89 percent of the DCC. The OPEC special fund has agreed to pay on behalf of each of the LDCS one million dollars, the minimum contribution to the DCC.

In the case of Burma, it leaves a balance of 58.700 dollars, and in the case of Mauritania 98.651 dollars, to be paid by them.

The beneficiaries of the Norwegian offer are Costa Rica (0.27 percent), El Salvador (0.27), Honduras (0.24), Madagascar (0.23), Mozambique (0.23), and Swaziland (0.23) – a total of 1.47 percent.

The Norwegian offer is to provide each of them whit 500.000 dollars, and the balance is to be met by the countries concerned.

The additional liability for Costa Rica and El Salvador are 968.197 dollars each, for Honduras 598.651,8, and 558.700 dollars each for Madagascar, Mozambique and Swaziland.

In addition to the paid-in shares, Burma, Mauritania (among OPEC beneficiaries) and all the Norwegian beneficiaries would also have some additional contingent liability in the form of "payable shares", which they could be called upon to meet, at some future date, if the fund is unable to meet its liabilities for borrowings on firs account operations.

This contingent liability of additional payable shares would amount to 19.975 dollars for Burma and Swaziland, 29.962 dollars for Mozambique, 39.951 dollars for Mauritania, 49.938 dollars for Madagascar, 79.902 dollars for Costa Rica and 89.889 dollars for El Salvador.

In the case of all ratifying countries (and thus for OPEC and Norwegian beneficiaries), the actual cash liability on "paid-in" sharesis much less.

Under the agreement, within 60 days of its entry into force, 30 percent of its total subscription of paid-in shares is to be deposited by each ratifying country in cash, and one year after this another 20 percent in cash.

The balance of 50 percent of paid-in shares is to be deposited in the form of irrevocable, non-negotiable, non-interest bearing promissory notes.

The first ten percent of such notes is to be deposited along with the second instalment of cash deposit, and these promissory notes are encashable as and when decided by the executive board of the fund.

The balance of 40 percent in promissory notes is to be deposited two years after the payment of the first cash instalment, and these are encashable as and when decided by a two-thirds majority vote of the executive board.

Promissory notes allocated to the second account are encashable as and when decided by the executive board.

Dadzie told the G77 that apart from the beneficiaries of the OPEC or Norwegian offer, there were also a number of other G77 members, whose actions for early ratifications would be important.

Firstly, the socialists countries had been pointing out to him that it "looks strange" that third world countries who have been in the forefront of the process of establishing the fund had not yet themselves taken action to ratify what was in effect "their own creation".

Secondly, the sooner the remaining third world countries ratified the agreement, the greater would be the share of the G77 in the voting power within the governing Council.

The fund when it became operational, Dadzie said, would have three functions:

--To contribute through its first account to financing international buffer stocks and internationally coordinated national stocks within the framework of international commodity agreements (ICAS) that would associate themselves with the fund,

--To finance through the second account, measures in the field of commodities other than stocking, and

--To promote coordination and consultation through its second account of measures in the field of commodities other than stocking, and their financing, with a view to providing a commodity focus to activities in the commodity economy and in intergovernmental work on commodities.

On "rumours" that some Group B countries were having "second thoughts" on their ratifications, Dadzie told the G77 that "these rumours seem to be without foundation", but one or two of them were giving thought to be bests modalities for bringing into operation the first and second accounts of the fund.

Answering questions from members, Dadzie said the secretariat would convene the necessary meeting of the ratifying states immediately, or as soon as possible following the achievement of the ratifications.

It was only thereafter that procedures for the meetings of the Preparatory Commission for the fund would be set in motion.

The Commission is to prepare draft rules of procedure for the fund, and draft regulations for the operation of the two accounts.

At that stage the secretariat would also consider the shape of secretariat arrangements to be made for servicing the Commission.

But meanwhile, the secretariat was making demarches to a number of individual countries, as well as other socialist states, in the hope they could speed up the ratification processes, so as to secure the needed ratifications to make the agreement effective during the course of the Conference or very shortly thereafter.

The officer-in-charge of UNCTAD’s commodity division, Havelock Brewster, said the question of convening a meeting of the ratifying states (to set a final date for completion of ratifications by signatories) would involve a political judgement as to whether full ratifications (for two-thirds majority) would be attained before the second date that would be set.

Ethiopia’s Gebre Medhin Getachew, the G77 coordinator for commodities, thanked Dadzie for the efforts he had deployed to bring the fund into operation. It was due as much to the diplomatic efforts of Dadzie as the goodwill of the countries who had recently signed the agreement and announced their intention to ratify that the prospect of the fund becoming operational soon had become possible.

The G77 were in touch with several delegations, particularly those where their treasuries would not incur any financial responsibility, to seeped up the ratifications, and these countries had assured the G77 that these steps would be taken.

The G77 would be taking the necessary steps, during the Conference or immediately thereafter, to get in touch with authorities in capitals to accelerate the ratification process, and keep up the momentum, to enable the fund to become operational as soon as possible.

Getachew said that the resources pledged to the second account would be too small for undertaking the commodity diversification activities in the commodity dependent countries, and the second account funds should be used only as "seed money". Otherwise before too long the second account funds would be exhaustively (...) the secretary-general, Getachew suggested, should also begin to explore how additional resources within the framework of the fund could be raised to enable horizontal and vertical diversification of commodity economy of third world countries.

He also wondered whether the possibility of setting up a third window for the fund had been explored.

Dadzie said that the resources in the second account would do no more than "supplement" the vast quantum of finances needed for supporting diversification. The secretariats own proposals for diversification did not envisage the setting up of a third window.

(An UNCTAD expert group, set up after UNCTAD-VI, has suggested that an additional facility for compensating commodity related export earnings shortfalls should be set up, and the resources provided should be lent to promote structural adjustment and diversification, and such a facility could be established as a third window or account of the common fund, though it would require an amendment of the agreement).

Brewster said that the second account is to be funded mainly through voluntary contributions, and so far a sum of 256 million dollars had been pledged by 25 countries.

When the agreement entered into force with two-thirds requirement of the DCC, a sum of about 319 million outs of the total DCC of 470 million, would become available to the first account.

As and when ICAS associated themselves with the fund, and seek finances for their buffer-stock operations, they would have to make some contributions to the fund, which would raise money from the capital markets to finance the operations.

The fund’s resources on the first account would thus be very much "expandable", he said.

As regards the second account, apart form the voluntary pledges, members of the fund could also allocate a portion of their contribution to the first account for the second account, he suggested.

Article ten of the agreement provides that each member may allocate to the second account a part of its subscription to the fund (and not to the first account) of paid-in and payable shares, with a view to an aggregated allocation to the second account on a voluntary basis of 70 million dollars.

The intention behind this was to provide the second account a king of corpus that would not be expended but out of whose earnings, some of the administrative expenses of the second account could be met.