UNCTAD-VII: FUND’S CAPACITY FOR DIVERSIFICATION QUITE MODEST.

Jul 23, 1987

UNCTAD-VII: FUND’S CAPACITY FOR DIVERSIFICATION QUITE MODEST.

GENEVA, JULY 22 (IFDA) – UNCTAD officials differed Tuesday on the extent to which the capital of the common fund could be diverted to its second account to finance commodity development activities, thus denuding the corpus of the fund for buffer stock operations to be financed from the first account.

In other remarks, the officer-in-charge of UNCTAD’s commodity division said the capacity of the fund to finance diversification activities in commodity sector should not be exaggerated, as the funds available to it were "quite modest" compared to the billions of dollars that would be needed.

These views were given at a briefing for non-governmental organisations on the common fund and the integrated programme for commodities (IPC), given by a team of UNCTAD officials led by the deputy secretary-general, Alistair McIntyre.

The differing views on diversions from first to second accounts came in response to a query form a west European NGO who asked about juridical possibilities of transferring funds from the first account of the common fund to the second account.

The NGO representative said that at a meeting of group B delegates on Tuesday, the general feeling was "not to favour the first window operations, and kill the baby before it is born".

Aziz Meghzary, a senior UNCTAD official in the commodities division, dealing with the common fund issues and non-ICA commodities, said that there was no provision in the agreement for transferring funds from the first account or window to the second account.

The agreement was quite specific on full and complete separation of these two accounts, he noted.

The directly contributed capital (DCC) of the fund, he noted was 470 million dollars, of which 370 million dollars were paid-in shares and 100 million was in payable shares.

But the agreement provided that out of the total DCC, each country could allocate to the second account up to 100 paid-in shares (or one million dollars).

There was thus a limitation on the total amount of the DCC that could be allocated to the second account, whose operations were intended to be financed by voluntary contributions.

Another official, John Cuddy said that though the text of the agreement specifically stated this, there were others who felt that this (diversion from first to second account) could be done through interpretation of the agreement, a power vested in the board of governors.

The provision Cuddy referred to is in article 52 of the agreement enables interpretation or application of the provisions of the agreement to be decided by the executive board in the first instance, and ultimately by three-fourths majority of the governing Council, or failing that by international arbitration.

However, another NGO pointed out that it was a fundamental principle that no agreement could be interpreted to defeat the very objectives of the agreement, and any interpretation to "kill at birth" the first account would be contrary to the objectives.

He however noted talk among group B delegations that they would block in the commodity agreements concerned their having recourse to the fund resources.

McIntyre hoped that given the limited resources of the fund, too much of its income would not be spent on lawyers’ fees in disputes over interpretation.

In creating the fund, he said, governments had clearly in mind the creation of two accounts in the fund, with the idea that the second account operations would be financed by voluntary contributions, and a small contribution from the DCC.

Anything other than that would go against the broad understanding under which the treaty was negotiated.

Another official, Francisco Abbate said that of the existing ICAS, coca’s buffer stock operations were financed through a levy, but when the normal buffer stock limits were reached, there were provisions for "withdrawals" or what would come under the fund concept of "internationally coordinated nationally held stocks".

By association with the fund these could be financed by the fund, and the financial liabilities of the third world cocoa exporting countries could be reduced.

In the case of natural rubber, to be financed jointly by consumers and producers, association with the fund would mean that the governments concerned would have to put up only cash of 30 percent of the maximum financing requirements of the buffer stock, and this would be a tremendous savings for the producer countries.

In response to other questions about the fund’s resources being used for diversification activities, Brewster said the fund’s capacity should not be exaggerated.

While the fund could generate a momentum of its own, for the foreseeable future it would have modest resources of 256 million dollars of voluntary pledging.

The fund could not support horizontal diversification, and as for vertical diversification it could finance only up to pilot plant stage.

The vast amounts needed for diversification would thus have to come from international financial institutions, regional developments and other sources of finance to promote structural adjustment and development in the third world commodity sector.