UNCTAD-VII: RECYCLING NORTHERN SURPLUSES TO SOUTH ONLY SOLUTION.

Jul 28, 1987

UNCTAD-VII: RECYCLING NORTHERN SURPLUSES TO SOUTH ONLY SOLUTION.

GENEVA, JULY 24 (IFDA/CHAKRAVARTHI RAGHAVAN) – Efforts to avoid world recession and promote growth through macro-economic coordination among major economies to correct mutual imbalances would be less successful than efforts involving recycling of these surpluses to promote third world development through long-term low conditionality, low interest programme loans, UNCTAD-VII was told Friday.

The Director of the Helsinki-based World Institute for Development Economic research (WIDER), Lal Jayawardena, was speaking in the general debate in the plenary of the Conference, and explaining the recent wider plan for recycling Japanese trade surpluses.

Earlier, the Foreign Minister of South Korea, Kwang Soo Choi said the "graduation concept" being promoted by the industrialised countries really meant that under the present international economic order "developing countries should always remain underdeveloped".

This, Choi said, would introduce "a confrontational element rather than a cooperative spirit into future north-south relations".

Choi made this comment after expressing concern over protectionist pressures of industrialised countries "being concentrated on a few developing countries which have weathered out difficult economic situations comparatively better than other developing countries".

On the view of what he called "major economic powers" that the newly industrialising countries (NICS) should take on greater responsibility, Choi said the primary responsibility for solving the current world economic problems lay with the industrialised countries rather than on the third world.

The NICS were doing their utmost within their economic capabilities to maintain an open trading system, while the major trading countries were increasingly resorting to bilateral negotiations, rather than multilateral ones, to solve current trade problems, he added.

UNCTAD-VII, he noted, was meeting at a time of "great difficulty", but if all the participating countries "make their best efforts to reach desirable and practical solutions, a new impetus will surely be given to activities of UNCTAD as it enters the third decade of its existence".

Choi called for solutions to debt problems through joint efforts of creditor and debtor countries, and international financial institutions and banks.

He also underscored the importance of implementing the integrated programme for commodities (IPC), including the early functioning of the common fund, and said that stabilisation of commodity prices benefited not only third world countries but others too in the long run.

South Korea is a net importer of primary commodities.

Sri Lanka’s Trade and Shipping Minster, M. S. Amarasiri said the objectives and elements of the integrated programme for commodities (IPC) remained "more valid than ever before", and only such an integrated approach could deal adequately and comprehensively with current situation.

The Sri Lanka Minister expressed appreciation to the Soviet Union for its action in signing the common fund agreement, and said the earliest implementation of the agreement was essential for promoting price stabilisation and commodity development.

Underscoring the net transfer of resources from the third world to industrialised countries, the Sri Lanka Minister said that unless these trends were reversed, the prospects for sustained growth would remain gloomy.

Debt reconstruction should replace debt rescheduling, and it should include debt relief and renewed flows of resources.

Contrasting the ongoing work in the Uruguay round and the growing trade tensions in real world outside, Amarasiri said small traders like Sri Lanka "need a guarantee against unilateral and arbitrary trade actions" which only an open, non-discriminatory, multilateral system could provide.

But the Uruguay round was limited and would not be a panacea for problems of the third world, and parallel and coordinated measures should be undertaken in UNCTAD to address these and other problems.

Thailand’s Commerce Minister, Montree Pongpanit said a true and effective multilateral framework was needed to carry out the process of cooperation and ensure that interdependence worked to the benefit of all participants.

Bilateral relations would continue, but they should be conducted under the disciplines of multilateral framework.

Pongpanit added: "we must seek to avoid at all costs the use of unilateral power to impose the will of one country on another. Unfortunately, this has been the case too often in our relations with some of the world’s leading economies".

Referring to resistance in industrial countries to structural adjustment, he cited the textile and clothing sector and agriculture subsidisation as examples of refusal to restructure in the face of changing comparative advantage.

The structural problems of the commodity sector, he said, might indicate a need to shift emphasis from price stabilisation to development measures.

On the common fund, the Thai Minister said his country was taking the necessary steps towards ratification, though the internal process had proved more complex than they had expected, involving amendments to national laws and parliamentary approval.

"More time will be needed ... but we are working earnestly towards ratification", he said.

The last speaker on Friday, Dr. Lal Jayawardena, Director of the UN University’s World Institute for Development Economic Research (WIDER) explained the WIDER plan recycling surpluses of countries like Japan to promote third world development.

The WIDER plan calls on Japan to launch a 125 billion dollar five year plan for resource transfers to the third world, at an annual 25 billion dollar rate.

The plan calls for Japan to run a trade surplus, and the government raising funds on its domestic markets (from corporate private savings), and provide loans through a Japanese government agency – in the form of quick disbursing long term programme loans, and using increased Japanese ODA (in terms of its ODA/GNP ratio) to provide an interest subsidy.

Jayawardena said that recent simulations showed that a 25 billion dollar annual domestic fiscal expansion in Japan would reduce U.S. trade deficits by three billion dollars in the first year, two billion in the second and one billion in the third.

But recycling the 25 billion to Latin America reduced U.S. deficits by 11.5 billion in each of the three years.

And when the recycling was widened to include all non-oil third world countries, with the total split equally between Latin America and other third world countries, the improvement in U.S. trade balance was 9.5 billion in first year and 8.5 billion in each of two subsequent years.

Third world countries he noted had experienced a turnaround in net transfers of 60 billion dollars in the 80’s, and ODA would need to be tripled to a level of 90 billion merely to restore the status quo ante.

But there were limits to needed financing through the ODA route, and hence the wider recommendations for recycling, in effect using the "third window" approach of the world bank immediately after the first oil price rise, and using increased ODA shares to subsidise the interest on these quick disbursing programme loans.

In recycling the surpluses, Jayawardena said, it was necessary to avoid the wastefulness associated with the entirely unconditional recycling of OPEC surpluses in the 1970’s through private banks, which had now created the debt problems.

A kind of long-range policy conditionality should be introduced so that debtor countries would effect economic policy reform in exchange for passing on to them the discounts at which commercial bank debt appeared to be currently trading in the market place.

At a press conference, Jayawardena was asked how far the Japanese recycling, could be separated from other Japanese moves as in GATT in relation to foreign investment, intellectual property rights and services issues where they virtually sought a free hand for foreign capital in the third world?

He was also asked whether WIDER had done any study of the overall consequences of these, as also placing in the hands of the world bank the administration of such funds and conditionality, when the Bank was now clearly promoting the interests of the industrial world in the GATT round?

Jayawardena said that the institute had in hand a range of studies on implications of conventional fund/bank sponsored stabilisation and adjustment programmes in the third world, with a view to defining alternative economic policy packages to achieve adjustment and development goals at a possible lower social cost than now incurred.

However, he was not aware of the Japanese moves within the GATT context. The WIDER plan had stayed away from the foreign direct investment issues, he added.