1. Salient trends in the international economic system
1. The 1990s continue to witness fundamental upheavals and changes in the international economic system. Major development challenges facing the international community still persist, while the international economic environment is weakened by high levels of instability and unpredictability.
2. The accelerating pace in the interrelated process of liberalization and globalization in the world economy has increased opportunities for growth and development. Through their greater integration in the world economy, developing countries have shown a commitment to play a more active role in the international economic scene. At the same time, technological change has continued to fuel realignments in the economic system - in the globalization of financial markets, the location of investments, modes of production (affecting the productivity of capital and competitivity of economies), and in the composition and direction of world trade. Key sectors of the world economy, including trade, investment, technology, services, finance, commodities and the environment, are now more closely integrated.
3. But this process of liberalization and globalization has also added new complexities and risks in managing global interdependence. For developing countries, various constraints beyond their control prevent them from fully participating in and benefiting from this process. The ability of developing countries to influence the pace and direction of global policy initiatives is still weak, while their vulnerability to the economic policy decisions taken by major developed countries, and now more so by major market institutions, has increased. Private sector mechanisms, through international financial and commodity markets, and transnational corporations, have strengthened their role in the world economy. Furthermore, interlinkages between trade, investment, money and finance, services, technology, commodities and the environment have made policy prescriptions difficult. There is a risk, therefore, that this will erode the determination of governments to intervene in a timely and decisive manner, and consequently place greater responsibility for global economic management in the hands of transnational corporations and corporate executives.
4. The dilution of national autonomy for policy has not been matched by initiatives for tackling various issues of interdependence. As a result, the macroeconomic environment crucial to the development of developing countries hardly shows any sign of improvement. This is a matter of grave concern for developing countries as it harbours the risk of further undermining the system of international development cooperation. This would aggravate the already difficult situation facing developing countries, in view of various kinds of existing and new protectionism in developed countries, weak commodity markets, decline in ODA, heavy debt burden, uncertainties in capital flows, and restrictions on, or high costs, of technology transfer. Despite the recovery in the world economy, the situation in least developed countries continues to be precarious, although a few of them have made limited progress.
5. The challenge facing the international economic system is one of political will at a time of rapidly changing perceptions and parameters. It is also a challenge to forge a renewed sense of common purpose. It is a challenge to turn away from local issues and face the great development scourges of our time - poverty; the marginalization of Africa; the economic ills of the least developed countries; debt and unemployment. Decisive and durable solutions to these problems will not be attained in the absence of a concerted international effort to tackle them. Developing countries have a critical role to play in creating enabling environments for their own structural transformation and growth, including not only the economic dimensions of reform but also the political and social ones. But they will need a conducive international environment and the assistance of their development partners to ensure that appropriate development strategies are viable and sustainable. A constructive dialogue for development is urgently needed.
6. There is a pressing need for action in a number of areas including: the provision of urgently needed and substantial resources to halt the slide of African and other developing countries into absolute poverty; fulfilment of internationally agreed aid targets in favour of developing countries and in particular the least developed countries; decisive action to put an end to the external debt problem of developing countries, especially the low-income countries; and strengthening of the institutional underpinnings of the international financial system to enable it to support the process of economic reform and development in developing countries on a more stable and predictable footing.
7. The end of the cold war and consequent relaxation in international tension opened up the possibility of increased spending on social and economic development. It was expected that part of the resources released from disarmament and reduced military expenditures would be diverted to financing development. However, this peace dividend is yet to be channelled into development. There is, therefore, an urgent need for policy measures that could enable the peace dividend to be materialized in the form of additional financial flows to developing countries.
8. The Uruguay Round Agreements and the establishment of the World Trade Organization (WTO) have a boosted the confidence of the international trading system. However, the system is yet fragile, and old tendencies to resort to unilateral and extra-territorial actions can only undermine its foundations. The credibility and sustainability of the multilateral trading system is being threatened by recourse to unilateral, and extraterritorial measures in such areas as trade, competition policy, environment and technology transfer. At the same time, environmental and social concerns are threatening to add new market access obstacles to the exports of developing countries.
2. Opportunities and challenges for growth and development
9. The twin processes of liberalization and globalization are shaping a new system of international economic relations in which the changing patterns of investment, production and trade, the global span of finance and the central role of technology are increasingly dominant. Many opportunities are inherent in these changes. However, these same forces are also posing threats and challenges to developing countries. For instance, micro-electronic-based innovations and new materials technologies are eroding the traditional comparative advantage of developing countries in labour and natural raw materials. The tendency to undermine the demand for natural raw materials from developing countries is imposing a strain on their ability to adjust to the new competitive conditions. These changing patterns are accentuating the gap between developed and developing countries. In order to benefit from the increased mobility of capital, developing countries must possess adequate technological infrastructure including energy, telecommunications, transport, water, and skilled personnel. Developing countries will need to devote more resources to accelerating the pace of their industrial growth. Increased external assistance will be required in all areas and especially with respect to the rehabilitation and upgrading of infrastructure to support private investments. This in turn will have to rely upon greater inflows of official finance through both bilateral and multilateral channels, including the provision of concessional finance to promote private investment.
10. While the conclusion of the Uruguay Round has enhanced opportunities for growth and development, it has also given rise to new challenges. The benefits of liberalization and globalization in trade may be distributed among countries unequally. The implementation of the Uruguay Round agreements will require the developing countries to assume a heavier burden of policy adjustment than developed countries. While most of the benefits of trade liberalization will be felt only in the long-run, in the near term liberalization will impose significant transitional costs on developing countries, including particular negative effects on least developed countries and net-food importing developing countries identified within the scope of the relevant Marrakesh Ministerial decisions.
11. Developing countries could well find themselves excluded from full participation in the international trading system with all the attendant negative consequences for further marginalization. To avoid this, developing countries, and in particular the least developed and other low-income countries, will need to attract investments in order to develop competitive production capacities and successfully compete in world trade. Direct measures would be needed to assist these countries to enhance their investment potential and attractiveness to foreign investors.
12. The present situation calls for a strengthening of multilateral cooperation among all countries in order to harness the positive impulses of globalization and to forestall the risks of marginalization. Governments need to regain a minimum of control over disruptive market forces in order to build confidence in the long-term stability of the international economic system. They must also define the "rules of the game" for a working partnership with the major private sector institutions in an effort to promote stable non-inflationary growth and development. The compatibility and coherence of economic policies at the global level will need to be ensured.
13. Special efforts will be needed to tackle the intractable problems of backwardness and poverty in large parts of the developing world, especially in least developed countries, low-income countries and other structurally weaker economies such as those in Africa. This will require the urgent provision of an unprecedented package of financial, technological, managerial and investable resources, supported by a very high degree of international cooperation involving both private and public sector institutions. The modalities of this effort on behalf of all developing countries, but especially on behalf of African and other least developed countries, will require a concerted multilateral dialogue among the development partners and a new approach to multilateral cooperation.
3. New and emerging issues: implications for trade and development
14. Liberalization and globalization have given rise to a new and often more complex set of issues which policy-makers will be required to address in terms both of the stability and coherence of the emerging international economic system and the cost-benefit distributional implications. These issues are of critical concern to developing countries, many of which were already severely disadvantaged by the prevailing international economic environment, and must now adjust to a rapidly evolving external environment. The issues are many and multifaceted, in keeping with the complex nature of technological change. They encompass issues of productivity; competitivity; the new division of labour; movement of factors of production, especially labour; regionalism; environment; and the coherence of domestic and international economic policies. These issues have been central to the long-standing and more traditional themes in UNCTAD such as commodities, preferences, debt, monetary and financial policies, and, more recently, questions of investment, poverty alleviation and sustainable development. Their reformulation in the new context is a testimony to the continuing validity of UNCTAD and of its renewed relevance at a time of profound change. It is UNCTAD's unique ability to deal with the interrelationships, synergies and conflicts of a complex set of issues (including trade, technology, investment, money and finance, services, commodities and environment) and to adopt its agenda in a timely forward-looking manner that distinguishes it from other competent international institutions in the development arena.
15. The following are key issues of interest to developing countries in the new context:
16. The globalization of investment has become a key factor in production strategies and world trade. Its interrelationships with trade, technology, finance, services and environmental protection are numerous. In recent years developing countries have adopted measures designed to encourage greater inflows of FDI and to maximize its contribution to their economic development. While the bulk of FDI originates in the North, some developing countries have also become important sources of outward investment. But most of these flows are concentrated in a few countries and sectors. Flows of FDI to least developed countries are negligible. Efforts will have to be made to broaden the distribution of inward FDI flows, to ensure that more developing countries benefit from such flows. The international community will need to examine policies and measures to encourage and sustain a larger share of FDI flows to developing countries, and particularly to the least developed countries. A better understanding will also be needed of the complex interrelationships between investment, technology and trade, and their consequences for developing countries and the world economy as a whole. UNCTAD could also analyze the implications of developments in this regard in other multilateral forums. UNCTAD should identify and clarify issues of interest to developing countries concerning a multilateral framework on investment, bearing in mind work undertaken in other organizations.
(b) Competition policy
17. Competition policy per se is not a new issue. However, in the present context competition policy has taken on new dimensions and significance for the stability of the international economic system and the sharing of benefits from the expansion of world trade. The increasing globalization of economic activity and the role of TNCs in that process have again brought to centre stage the issue of the "rules of the game". Fair and equitable "rules of the game" for TNCs would promote global economic efficiency, and consumer welfare, and would improve access to international markets. In view of the key role that shifting investment and production strategies are expected to play in shaping the international economic system, and the determinant role of major transnational enterprises in that process, it is of vital importance to developing countries that international consensus be reached on legally-binding measures to prevent restrictive business practices (RBPs).
18. Inconsistencies may exist between trade rules and competition principles. Such concerns have arisen in many areas, for example in the context of the General Agreements on Services (GATs) and trade related intellectual property rights (TRIPs). The TRIMs Agreement, likewise, provides that, in the course of the review of the Agreement, consideration should be given to whether it should be complemented with provisions on investment and competition policy. Furthermore, expansion of some regional trade arrangements have led to fears that global competition would be undermined.
19. The only existing multilateral instrument on RBPs is the Set of Multilaterally Agreed Equitable Principles and Rules for the Control of Restrictive Business Practices. The Set is not legally binding, but represents broad consensus of the international community on the importance of competition principles. The issues involved in seeking to elaborate a set of legally-binding rules encompassing every major aspect of competition policy are numerous and complex. A better understanding of these issues is needed in order to clarify the interests of developing countries and the policies and measures needed to protect these interests. Multilateral dialogue will be needed to forge a consensus on an appropriate competition regime in support of existing multilateral disciplines.
(c) Movement of natural persons
20. A clear imbalance has emerged in the evolving division of labour. On the one hand, capital, technology and investment have become increasingly mobile, while on the other the mobility of labour has become increasingly restricted. For developing countries which enjoy a comparative advantage in labour-intensive services (and a disadvantage in capital, technology and investment) such distortions in the workings of the international economic system will only accentuate the disadvantages and hinder their integration into the world economy. A more balanced approach is needed which will liberalize the movement of labour services in tandem with the further liberalization of trade and investment.
21. The rapid expansion in the services sector and growth of international trade in services have prompted the adoption of a multilateral framework of principles and rules to govern such trade - the General Agreement on Trade in Services (GATs) of the Uruguay Round. The inclusion in the GATs of the movement of natural persons as a mode of supply of services was a major step forward. However, the limited character of commitments with respect to the movement of natural persons (as compared with concessions made on other modes of supply) is a matter of concern for many developing countries which needs to be addressed. Apart from this, not only are the regimes different from country to country, but the use of economic needs tests makes the decision to allow movement of natural persons arbitrary and subjective.
(d) Financial markets and monetary issues
22. Globalization and liberalization have had profound effects on the growth of the world's financial markets and have intensified the impact of financial markets on monetary policies. This has weakened the role of monetary authorities not only in the setting of exchange rates but also in the flow of financial resources to developing countries. It is recognized that greater exchange-rate stability will contribute to the expansion of world trade, sustainable growth and development. Better coordination of macroeconomic policies is also essential to efforts to mobilize additional concessional and non-concessional finance for developing countries.
23. It has been seen in the past that the deregulation and liberalization of financial markets can lead to sudden and erratic movements in financial flows, to the point of threatening the very foundations of the real economy. The risks and opportunities of further liberalization need to be better understood if developing countries are to continue with confidence on this path of reform. In addition, the financial capacity of the multilateral financial institutions (MFIs) will have to be reassessed in keeping with the evolving situation. It seems clear from recent experience that the resources available to the MFIs are far from adequate to respond to urgent development needs such as poverty alleviation, debt reduction and environmental protection. Systemic threats from market-induced financial crises will need to be addressed in an entirely new approach - one that calls for the creation of a new "lender of last resort" mechanism. Funds allocated for urgent developmental purposes should not be diverted from that purpose.
(e) Compensation for the erosion of preferences
24. The erosion of preferential margins enjoyed by developing countries under the generalized system of preferences (GSP) and other arrangements, especially at the regional level, is likely to become an issue of major concern for many developing countries, particularly LDCs, as the implementation of the Uruguay Round Agreements proceeds. The consequences of the erosion of preferences enjoyed by developing countries could well be serious for some countries. The international community should be prepared to explore alternative ways of assisting developing countries to improve their competitive position in world trade.
(f) Sustainable development and poverty alleviation
25. While enhancing opportunities for growth and development, globalization and liberalization also carry substantial risks of the marginalization of developing countries and corresponding increases in poverty, which can cause worsening environmental damage. Poverty, which affects all developing countries, and environmental and natural resource degradation are closely interrelated. Poverty alleviation and sustainable development are, thus, intertwined. On the other hand, unsustainable consumption and production patterns, which characterize particularly the industrialized societies, and environmental degradation are equally closely interrelated. The developed countries bear special responsibilities for changing unsustainable consumption and production patterns.
26. Environmental concerns of developing countries, in particular environmental degradation as a result of over-exploitation of natural resources, should be duly addressed. Consideration should be given to providing developing countries with appropriate levels of resources, as well as environmentally sound technology on favourable terms, in order to assist these countries to adjust to the new global and local environmental conditions. The removal of existing distortions in international trade is also important. In particular, substantial and progressive reduction in the support and protection of agriculture - covering internal regimes, market access and export subsidies - as well as of industry and other sectors will avoid inflicting large losses on the more efficient producers, especially in developing countries. Improving the conditions of access to export markets will give developing countries better options to apply more environmentally friendly modes of production, which would allow them to avoid over-exploitation of resources.
27. There is a need for a clear understanding of the potential economic and social implications of environmental measures, in particular of internalization of environmental costs. The principles of international cooperation, partnership and transparency should be at the basis of a comprehensive approach to sustainable development.
28. While these issues have been on the UNCTAD agenda for some time, concepts are still evolving and many aspects of crucial issues remain unclear. Indeed, the problem extends beyond the relationship between poverty and the environment. Any consideration of these issues must seek to integrate a comprehensive understanding of the interactions between trade, technology, investment, debt and finance, commodities, poverty and environmental matters.
(g) Regionalism
29. Regional cooperation arrangements have been rapidly increasing and their scope has been extending beyond traditional features such as trade to include services, investment and environment policies. Ideally, regional arrangements should constitute building blocks for the multilateral trading system and, by promoting interregional trade and hence growth, they should stimulate trade with third countries. Regional trade arrangements, particularly those among major trading nations, should be sufficiently outward-oriented and avoid the risks of trade and investment diversions detrimental to the interest of developing countries. Although the implementation in letter and spirit of the Uruguay Round could ensure that such arrangements remain open and their outward orientation is enhanced, it must be emphasized that WTO rules and regulations regarding regional trading arrangements do not address in a comprehensive manner the economic effects of these arrangements. Potentially restrictive methods such as those relating to rules of origin and preferential arrangements and agreements might result in further departure from the MFN principle.
30. There is a need for UNCTAD to identify the conditions necessary to ensure that regional arrangements become more complementary to and strengthen the multilateral trading system, and to see how they might enhance the development of developing countries and take into account the interests of countries not party to them. Evolving concepts of regionalism would also need to be examined in order to benefit from the positive experiences of regional groupings, especially where these might be pertinent for suggesting innovative solutions to intractable problems such as poverty, environmental protection, unemployment, debt, infrastructural development, etc.
1. Consideration of national and international policies and strategies which are needed to enable developing countries, least developed countries, low-income countries and other structurally weaker economies such as those in Africa to take full advantage of the opportunities for growth and development offered by the new global context
(a) Policies at the national level
31. The industrial countries have particular responsibility for ensuring a stable and predictable international economic environment for development. It is important, therefore, that these countries adopt appropriate and transparent national macro-economic and structural policies aimed at promoting growth and at helping to avoid undesired exchange-rate fluctuations and financial market disturbances. Furthermore, the coordination of their macro-economic policies should take full account of the interests and concerns of the developing countries.
32. The industrial countries should also adopt appropriate structural adjustment policies in order not to subsidize sunset industries and to ensure an optimal utilization of natural, human and physical resources. Positive structural adjustment policies need to be undertaken in full recognition of the competitive advantage of developing countries in order to enable them to attain their development goals, while also benefiting consumers in developed countries.
33. The developing countries need to implement a comprehensive policy framework to ensure an enabling environment for domestic and foreign investment, notably through a stable macro-economic environment, to modernize their economies, to promote domestic savings, to foster entrepreneurship, to enhance human resource development and to increase their competitiveness. For countries having access to international private finance, there is also need to regulate capital inflows carefully so as to avoid excessive exchange rate appreciation and disruptions in the real economy resulting from sharp swings in capital flows. The LDCs should be assisted in implementing policies that enhance their capacity to overcome supply- side constraints, to diversify their production and export structure in order to move into higher value-added processing and production. LDCs should also be assisted in establishing and strengthening a legal and institutional framework compatible with the emerging international trading system, inter alia formulating trade policies and managing trade data and information geared towards building domestic capabilities.
(b) Policies and strategies at the international level
(i) to enable developing countries to take full advantage of the opportunities for growth and development offered by the new global context
Market access
34. Measures should be taken to expand the opportunities for developing countries to export to world markets, while also deepening and widening the preferences given through the GSP or other schemes to goods exported by developing countries. Where, as a result of the Uruguay Round, preferences enjoyed by developing countries are eroded, preference-giving countries should be requested to examine the possibility of a suitable compensatory scheme to mitigate the adverse impact of such erosion.
35. In sectors of particular export interest to developing countries, such as textiles and clothing and agricultural products, the commitments made by developed countries should be implemented in letter and spirit.
36. In the area of services, there are formidable barriers to market access faced by countries that rely on providing services through the temporary relocation of natural persons. Consideration should be given, therefore, to liberalization of the movement of labour services.
37. In order to enhance developing countries' competitiveness on world markets, measures should also be taken to secure their access to global information networks. There is an urgent need to assist developing countries to develop their telecommunications infrastructure and strengthen their national capacity, while achieving greater effective access to distribution channels and information networks.
38. There is a need for UNCTAD to monitor closely the implementation of the Uruguay Round Agreements with a view to promoting the interests of developing countries, particularly LDCs.
Unilateral or extraterritorial measures
39. In spite of the establishment of multilateral rules, there are tendencies to extend unilaterally the extraterritorial application of national laws, particularly in the areas of competition policy, environmental protection and transfer of technology. The extraterritoral extension of national laws is often unduly applied in connection with the operations of transnational corporations, as corporate structures and transactions increasingly straddle national borders. As unilaterally applied extraterritorial actions are detrimental to the multilateral trading system and violate its principles and obligations, countries should refrain from adopting such measures or withdraw them if already applied. There is a need to assess within UNCTAD the impact of unilateral measures on the multilateral system, as well as on the trading opportunities and development prospects of developing countries.
Investment resources and technology
40. Measures should also be taken to enhance developing countries' export capacity through the provision of adequate resources for investment (including investment in infrastructure) and the transfer of technology, especially environmentally sound technology.
41. Investment in the crucial areas of, inter alia, transport infrastructure to facilitate export trade must be supported, especially in island, land-locked and transit developing countries, through adequate financial and technical assistance, including grants and concessional loans.
42. Consideration should be given to the establishment in UNCTAD of a programme on science, technology and innovation system reviews in developing countries, pursuant to the request by the Economic and Social Council that the Commission on Science and Technology for Development and UNCTAD liaise in the inception of such a programme.
(ii) to ensure greater coherence among different areas of economic policies at the global level
43. Liberalization of national economic policies, the globalization of production and markets and rapid technological advances have set the stage for enhanced cooperation at the international level in the area of economic policy. There is still, however, a lack of coherence among different areas of economic policies at the global level which might reduce the benefits derived from globalization and liberalization. Commitments made to harmonize global trade practices have not been matched by similar commitments in other areas of global economic interest. Thus, the persistence of exchange-rate, interest-rate, and commodity-market instability continues to affect developing countries adversely. In this regard, because of their impact on the global economy, industrial countries should achieve greater coordination of their macro-economic policies in order to reduce exchange and interest rate instability, while also promoting growth and employment.
44. Another imbalance is apparent in the restrictions on movement of natural persons and on developing countries' access to technology, whereas other factors of production like capital face no such restraints. The problems of debt and financial resource flows, commodity dependence and massive poverty are not given the necessary attention to resolve them in the deliberations on economic policy at the international level.
45. Thus there is a crucial need for coordination in global economic policy with the full participation of developing countries. UNCTAD should provide a forum for policy dialogue on issues of interest to developing countries on international macro-economic policies, with a view to making contributions to the strengthening of global economic policy coordination. UNCTAD, which has the mandate and the accumulated expertise in the treatment of the interlinked issues related to trade, development, finance, investment, technology and services, would provide valuable inputs in this area. It could help to ensure that the policy actions at the global level take into account the development dimension and facilitate developing countries' access to markets, technology and finance.
(iii) to minimize the risks of new imbalances and instabilities, including in the
international financial markets
46. Liberalization of cross-border financial transactions will further expose domestic economies to international markets. This could make the management of monetary and fiscal policies more difficult, as real exchange rates and to some extent domestic interest rates could be more influenced by the movements of capital.
47. The excessive fluctuations of capital movements might be mitigated by measures such as control on short-term capital movements, when appropriate, higher reserve requirements on banks' foreign exchange liabilities, requiring banks to match the size and maturity of foreign exchange assets and liabilities, and careful regulations of transactions on derivatives.
48. Where a financial crisis cannot be prevented by such measures, multilateral institutions and major economies should be able to respond in a quick and coordinated manner. It is noted that there has been a proposal to establish a new standing facility by the IMF, the "Emergency Financing Mechanism", to assist member countries confronted with sizable outflows of private capital as a result of sudden speculation in capital markets or exogenous factors. In this regard, it is further noted that the IMF Interim Committee endorsed in October 1995 its Executive Board's recent decision to introduce an emergency financing mechanism, or procedure, to enable the IMF to respond rapidly, in order to assist member countries confronted with sizable outflows of private capital, without necessarily implying exceptional financing. Consideration should be given to proposals put forward by the Group of 24 concerning the review of IMF quotas, intensified surveillance of the policies implemented by industrial countries, and a new SDR allocation.
49. Developing countries should be fully informed about the opportunities, risks and policy implications of different types of flows, as well as risk-hedging instruments. In this regard, UNCTADshould continue to provide a regular analysis of resource flows and build up capacity to assist developing countries to react promptly and effectively to fast changes in international markets and adopt measures to mitigate the adverse impact of such changes.
(iv) to reverse the potential marginalization of the least developed countries and
other weaker economies
50. In LDCs and other structurally weak economies, such as those in Africa, commodity and market diversification measures have been rendered difficult principally by lack of investment, technology and skills to augment levels of production and efficiency.
51. In this regard, effective and sustained support of the international community is crucial and should be provided through a variety of measures ranging from enhancing market access opportunities to development finance, investment and technical assistance. Actions are needed:
(a) to render operational the Marrakesh Ministerial decisions in favour of LDCs and net food-importing developing countries;52. There is a need for UNCTAD to monitor the timely implementation of special provisions of the Uruguay Round concerning the least developed and other structurally weak economies, as part of its overall monitoring of the provisions in favour of developing countries.
2. Elements of development cooperation and development policy approaches and
strategies at the national and international levels
53. Development is a fundamental human right and the most secure basis for peace. But today, development as a common cause is in danger as some of the donors have grown weary and many of the poor dispirited. The current situation calls for deeper commitment, wider development cooperation, and effective development policy approaches and strategies, both at the national and international levels.
(a) Issues related to the problems of unemployment, poverty alleviation and sustainable development
54. The problems of unemployment and poverty alleviation are a major concern. One fifth of the world's population is suffering from absolute poverty. There can be no more urgent task for development than to tackle this. The resources must be found and the commitment shown to pursue policies and strategies that aim to reduce poverty, hunger, disease and illiteracy. While sustainable development would require that environmental protection concerns be integrated into economic, social and development policies, it should nevertheless be recognized that, for developing countries, eradication of poverty and economic and social development remain the first and overriding priority.
55. Specifically, the following actions, at different levels, are recommended:
(a) National policies for educational and skills development leading to broad range human development;56. In the context of globalization and liberalization, the effects of investment, technology and trade on poverty are complex and difficult to separate from other effects of the economy. In this regard, UNCTAD should continue to analyze this issue with the aim of identifying suitable policies and measures for poverty alleviation.
(b) Policies to expand and consolidate progress in access to markets
57. A genuine acceptance in practice of comparative advantage should lead to significant access to the markets of the major industrial countries for exports from developing countries. Industrial countries should resist the pressures to erect new barriers to their markets in the post-Uruguay Round world. Eliminating protectionism in the developed countries will be facilitated by more active policies to accelerate adjustment to structural change in full recognition of the competitive advantage of developing countries. Commitments should be made by these countries that their regional trade and economic blocs will not restrict exports from developing countries to their markets.
58. The experience of export-led growth in developing countries, taking into account learning effects and external economies, economies of scale, and the imperfect nature of most markets, implies that developing countries need to:
This may call for the gradual opening of markets in some cases.
(c) The role of government, public and private sectors in the development process
59. Governments provide the framework in which the long-term plans of economic actors can be set. The main role of government is to provide an environment supportive of economic development. This includes the functions of a regulator, facilitator and, at times, economic agent. Equality of opportunity is also an important part of any supportive national environment and hence falls within the domain of government activity.
60. Relationships between the State and the private sector are interdependent, complementary, and mutually supportive of the development process. The role of government is essential in a number of areas: provision of basic infrastructures, ensuring appropriate policy environment including well-functioning rules and institutions for the efficient management of resources, stimulating the development of entrepreneurship and promoting or undertaking, as necessary, some functions which cannot for reasons of scale or externality be adequately initiated by the private sector.
61. The experiences of some of the most successful economies in the world have shown that government intervention in partnership with business can be extremely effective in advancing development. Broadly speaking, government intervention in these countries has been designed to counteract a number of factors that typically limit the capacity and willingness of individual firms in developing countries to undertake long-term investments and modernize their methods of production and organization.
(d) Resource flows and external debt
62. Trends in resource flows point to the increasing importance of private flows and the stagnation, if not a decline in real terms, of official development assistance (ODA). It is recognized that increased foreign direct investment (FDI), as a non-debt-creating flow, would play an important role in development. However, these flows tend to be concentrated in a small number of middle-income countries. For other developing countries, despite significant steps to liberalize FDI regimes and to provide a better environment for investment, FDI flows remain marginal. Although it is recognized that developing countries should pursue efforts to ensure a stable domestic environment to attract FDI, efforts should also be sought at the international level to promote FDI to low-income countries, especially in Africa.
63. An expeditious reversal of the decline in ODA is of critical importance. Donor countries are urged to increase their ODA, in accordance with their commitments in various United Nations resolutions and with a view to meeting the internationally agreed target of 0.7 per cent of GNP. Donor countries are also urged to implement expeditiously the specific targets of 0.15 per cent of GNP set out in the Programme of Action for the Least Developed Countries for the 1990s and in its Mid-term Review.
64. The debt of low-income and some middle-income countries continues to be a major cause of concern. In the area of official bilateral debt, the adoption by the Paris Club of the Naples Terms in favour of the poorest and most indebted debtor countries is most welcome. However, the implementation so far of these new terms falls short of expectations. It is urged that Paris Club creditors revise their eligibility criteria so as to include all low-income countries with debt-servicing difficulties in the list of countries benefiting from the largest debt reduction. A generous coverage of debt to be considered for debt reduction is also necessary, especially in the case of the reduction of the whole stock of debt. In addition, consideration should be given to enlarging the benefit of debt reduction to lower-middle-income countries.
65. The problem of the debt of developing countries owed to multilateral institutions also deserves priority attention by the international community. A number of constructive proposals have been made to provide additional multilateral debt relief without diverting development assistance from other uses or increasing the pressure on bilateral donors. These include: the sale of a portion of IMF gold reserves, a new SDR allocation, and drawing on the reserves and loan-loss provisions of multilateral financial institutions. These proposals should be considered in conjunction with the proposal to establish a Multilateral Debt Facility to provide relief on the multilateral debt of developing countries; such a facility could be funded by the additional resources proposed above.
66. In the case of LDCs, their serious debt problem necessitates concrete measure to substantially alleviate the debt burden and increase concessional financing, including, inter alia: cancellation or equivalent relief for ODA debt, in accordance with Trade and Development Board resolution 165 (S-IX), expeditious implementation of the most concessional treatment under the Paris Club Naples Terms, adoption of debt reduction and debt relief programmes by non-Paris Club creditors, which have not done so, expeditious consideration of ways to address the issue of multilateral debt, reduction of commercial debt through the IDA Debt Reduction Facility and alternative mechanisms.
67. UNCTAD should continue to analyze regularly the debt problems facing developing countries with a view to making constructive proposals for effective, equitable, development oriented and durable solutions to external debt and debt-servicing problems of developing countries, and to help them exit from the rescheduling process. In addition, UNCTAD should highlight the close interaction that exists between trade and debt, especially at a time when the promotion of market liberalization and access are being discussed within the framework of the WTO.
3. New approaches to south-south economic cooperation
68. The recent changes in the global political and economic environment have made the role of ECDC, in any global strategy of development, even more important. In the new context of market-oriented reforms and export-oriented growth strategies that are being pursued by most developing countries, ECDC should also be seen as a means of increasing their capacity to produce, achieve economies of scale, and become internationally competitive, as well as of securing the integration of developing countries into the world economy.
69. New challenges and opportunities for ECDC have emerged:
(a) There is greater diversity in the economies of developing countries which has enhanced their complementarities;70. The changing global context requires that South-South cooperation include new dimensions such as:
(a) integration of the enterprise sector in ECDC processes;71. South-South cooperation should be pursued also with technical and financial assistance from the developed countries.
72. The Global System of Trade Preferences among Developing Countries should be strengthened by the successful conclusion of the second round of negotiations. Further negotiations should aim to widen the scope and sectors to be included within the GSTP in the future.
73. South-South cooperation at the subregional and regional levels should enhance market access for LDCs by neighbouring countries, and strengthen trade initiatives of LDCs in sub-regional and regional groupings, so as to support LDCs' efforts to diversify their exports. Measures should be taken to grant preferential access to the exports of LDCs on a non-reciprocal basis by developing countries under the GSTP and also to augment resources, where appropriate, for promoting ECDC and TCDC through multilateral and bilateral institutions.
74. UNCTAD should continue to analyze ways and means to strengthen South-South cooperation, in particular in the post Uruguay Round trading context.