DOMESTIC POLICY ADVICES, AN ALIBI FOR INACTION.

Sep 6, 1986

DOMESTIC POLICY ADVICES, AN ALIBI FOR INACTION.

GENEVA SEP. 4 (IFDA/CHAKRAVARTHI RAGHAVAN) -- The chorus of advice from industrial nations about needed domestic policy changes in the third world came in for same sharp comments at the UNCTAD's trade and development board Thursday, during its general debate on the world economic situation, and on interdependence and debt issues.

Sri Lanka's Parameswaran Nagaratnam, speaking for the Group of 77 on interdependence, said: "Without a more equitable international environment, the new recipe of drastic domestic policy reform plus paultry amounts of external financing will fail, just as did the traditional recipe of monetary and financial restrictions plus minimal amounts of payments support".

Tanzania's Amir Jamal said there was a real danger of raising suspicions that the sustained and unrelenting chorus of advice to the third world about appropriate domestic policies, "may be an alibi for inaction on the part of advanced industrial economies to undertake their own structural adjustment as well as to make structural adjustment in the international monetary and financial system".

"The counterproductive nature of such a state of affairs cannot be over stressed", Jamal warned.

Earlier, Kazmir Vidas of Yugoslavia, speaking for the G77 on the debt issue stressed that adjustment was "a symmetrical process" to be shared by both industrial and third world countries.

Due to economic, social and political reasons, "the objective possibilities for third world countries to continue with such severe adjustment policies are exhausted".

"It is high time for developed countries to adopt meaningful and effective measures aimed at correcting the distortions that their macro-economic desequilibred inflicted to the international economic environment".

Despite the severe adjustment programmes carried out by the third world countries to meet external obligations, the prospects were in no way promising and the future was gloomy.

"It becomes increasingly evident that the elaboration and implementation of adjustment policies has to proceed in tandem with a strong and lasting revitalization of growth and development".

"The search for lasting solutions of the problem of indebtedness", the G77 spokesman said, "should be carried out through a political dialogue involving all interested parties: governments of developing debtor and developed creditor countries and international financial institutions".

Growth and development of the indebted countries should be the basic element of any viable scheme for solving the debt problem.

"The right approach cannot be merely a technical one. It has to take account of the various political, economic and social aspects of the problem so as to enable an urgent adoption of adequate policies and measures".

Underscoring UNCTAD's mandate and experience to set the debt issue in its development context, the G77 spokesman said it was not only necessary to ensure a full implementation of the UNCTAD, resolutions on debt, but go beyond them.

"Reaching a clear understanding on the necessity to promote a comprehensive action on debt at UNCTAD-VII will be an adequate contribution of this session of the board to the future of UNCTAD activities in this field", Vidas added.

Speaking on interdependence for the G77, Magaratnam said that though the notion of interdependence had become commonplace, conventional view paid little attention to its relevance to the development process, "perhaps because the policy implications run counter to accepted shibboleths and dogmas".

Praising the UNCTAD's TDR for asking the right questions and answering them with technical competence, the Sri Lanka Delegate added: "We in the Group of 77 are most heartened that the Secretariat has chosen to respond to the political pressures upon it in this, rather than in some other way".

The crisis of development in the third world continued unabated, with economic retrogression, and intense social and political strains, and there was "no light at the end of the tunnel, despite the truly strenuous efforts of developing countries to tighten their belts and pull themselves up by their bootstraps".

It was most regrettable that the north-south dialogue had been stalemated, and the dialogue turned into a monologue, "a lecture to developing countries to pull harder and harder on their belts and bootstraps".

While inflation had been defeated in industrial countries, it had been largely at the expense of the third world through severely depressed oil and non-.oil commodity prices, brought about by the deflationary policies ion major market economies.

The G77 spokesman sharply criticised industrial countries for use of discriminatory measures against third world countries, and outside GATT norms, through policies of protection and subsidisation of commodities, industrial raw materials and products of new technologies, where competitive international markets did not permit differential prices of a monopolistic or oligopolistic nature.

Shutting out third world exports, to protect employment in industrial countries, was "nonsensical at the best of times", since third world countries used their export earnings, not to accumulate financial assets but to import goods and services, and thus provide employment to export industries of the industrial countries.

"But it is doubly nonsensical to impede import from developing countries when they are under pressure - including from the protecting governments themselves - to increase their exports and improve their trade balances".

The conventional view being pressed upon third world countries was that the best way out of debt and development crisis was continues austerity, improved efficiency, and increased incentives to direct foreign investment.

While these effort has a role, practical experience hardly warranted "the blind faith in supply side miracles underlying current thinking", and no one could pretend that the rapid US recovery, which had now petered out, was based on such a miracle.

Any objective appraisal of needs and opportunities before third world countries clearly pointed to the fact that even with most heroic sacrifices and most brutal neglect of social objectives, growth prospects would remain grim in the absence of improved commodity prices, wider access to industrial country markets, lower interest rates, enlarged external financial flows including from official sources.

"Only ideological blinkers can hide the reality that it is only if the external variables undergo a significant improvement that developing countries can succeed in their efforts to step up their savings and investment, modernize their capital stocks and upgrade their skills, and attract foreign lenders and investors.

"Without a more equitable international environment, the new recipe for drastic domestic policy reform plus paultry amounts of external financing will fail, just as did the traditional recipe of monetary and financial restrictions, plus minimal amounts of payments support".

Tanzania's Jamal said the more restrictive MFA-4 had further aggravated the prevailing defects in the international economic system, and to a country like Tanzania the message was clear: "Do not aspire to become a significant exporter of textiles. If you do so ... your products will face restrictions in the markets of industrial countries".

The pressures that led to the more restrictive MFA-4 showed that domestic policies in industrial countries were geared to avoiding timely and adequate structural adjustment in fields where third world countries had comparative advantage, and legitimate aspirations for sustained and organic industrialisation programme.

If processed commodities such as textiles, leather goods, and sugar, were stifled in such a chronic manner, "what meaning can be attached to the generous advice given to developing countries to undertake structural adjustment?".

"Are we asked to move from hand-hoe or the ox-and-plough to computers", Jamal asked.

And if development options for the third world were going to be narrowed down through domestic policies of industrial countries, what prospects had indebted countries to earn enough to meet their debt servicing obligations and sustain development?

Referring to the African crisis, and the policy advices to these countries, Jamal added: "Very specifically, the much heralded achievement of the special UN General Assembly Session on the special problems of Africa, can unleash a backlash if timely and adequate resources are not made available to the African countries to enable them to begin to redress their historically imposed handicaps on their development".

Associating Tanzania with the views earlier of Yugoslavia, China and India, on international trade issues, Jamal added: "The impending MTN round in the GATT, and UNCTAD-VII provide opportunities to the international community which can be compared with a double-edged weapon".

"If farsighted and enlightened political leadership is brought to play on these impending events, we may yet have ground to be hopeful in what otherwise may be a further darkening of the threatening clouds overhanging us".