Third United
Nations Conference on the Least Developed Countries
Secretary-General
of the Third United Nations Conference on the Least Developed Countries
at the
International
Community Response
Brussels, 14 May
2001
I would like to focus my remarks this morning on international aspects of poverty reduction in the least developed countries. In adopting this subject, I do not wish to deny the importance of good national policies and institutions for success in reducing poverty. They are, we are all agreed, absolutely essential. However, good national policies and institutions will be insufficient unless they are complemented by a supportive international environment.
1. An
International Poverty Trap?
This has
become particularly important as a result of globalization. Globalization is
changing the parameters of action for governments, enterprises and households.
One important implication of increasing international interdependence, which is
the hallmark of globalization, is that what happens within countries is
increasingly dependent on what happens elsewhere. We see this, for example, in
the contagion effects of financial crises which spread amongst middle-income
countries.
We are, I believe, less aware of the full implications of globalization for the least developed countries. But what we may have been witnessing over the last 20 years or so is the emergence of an international poverty trap.
The idea of a poverty trap is familiar to us all. It is set out with tragic immediacy in the World Bank’s Voices of the Poor study, which brilliantly depicts the experience of poverty and highlights how different dimensions of poverty – inadequate assets and incomes, hunger and sickness, lack of education, powerlessness, insecurity, inability to claim rights and disorganization – interact at the individual and household level. But the interlocking causes of poverty which trap households in persistent misery also operate at higher levels, and can trap entire communities, regions of individual countries and broader geographic regions in poverty. For national economies, for example, low income leads to low savings, low investment, low productivity, high population growth, high poverty and back again to low savings. Economic underdevelopment interacts with poor governance, and in the worst cases, a depressing cycle of economic regress, social stress and internal conflict and instability emerges.
The
possibility that we are witnessing the emergence of an international poverty
trap is evident in the economic performance of the poorest countries in the
world economy. For the least developed countries, the trend is clear. As
UNCTAD’s Least Developed Countries 2000
Report documents, real GDP per capita in the LDCs as a whole grew at only
0.9 per cent during 1990-1998, and excluding Bangladesh, at only 0.4 per cent.
There were variations within the group. But there are 22 LDCs which have been
either stagnant or in economic regress during the same period. Moreover, in
total, two-thirds of the LDCs have been losing ground to other developing
countries and other low- income countries during the 1990s.
The
causal mechanisms of the international poverty trap that seems to be emerging
remain to be defined. However, focusing on those least developed countries
which are getting stuck, some of the key elements seem to be present when a
country has the following economic configuration. It is commodity-dependent and
highly indebted; it has limited possibilities to increase domestic resource
mobilization in the short run, but is largely excluded from private
international capital markets and bypassed by FDI; it is aid-dependent and the
donors are also the major creditors; and finally, its domestic policies are
donor-driven.
2. Policy
issues
Delineating
the causal mechanisms through which international and national factors can
interact to engender an international poverty trap must be a major priority for
defining better policies to support the least developed countries. But here I
would like to highlight three policy issues which are important for
establishing a better future for the least developed countries and for the
translation of our common vision of poverty reduction into pragmatic and
effective action. These are: (i) policy
coherence at the global level; (ii) public-private partnerships in financing
development; and (iii) the relationships between the least developed countries
and more advanced developing countries.
a. Global
policy coherence
Regarding policy coherence at the global level, it is important that the international community increases the positive synergies between actions to improve the international financial architecture and actions to improve the international trade regime. For poor countries, the breakdown of an effective international commodity policy is a key element missing from today’s international system. We all know that we cannot go back to the old-style international commodity agreements. But neither aid effectiveness nor a sustainable exit from the debt problem can be envisioned if nothing is done in this area. The challenge is to develop a market-based international commodity policy that will offset the negative impact on poverty of falling and unstable commodity prices.
Greater global policy coherence can also be achieved by effective solution to the external debt problem, which is so important for two-thirds of the LDCs. The debt overhang is of pivotal importance because it dampens private domestic investment and export development, it deters private capital inflows, and it distorts and undermines aid effectiveness. From our work in The Least Developed Countries 2000 Report, we are not convinced that sufficient debt relief is being provided to ensure a sustainable exit to the debt problem. Too little fiscal space is being opened in the short term, and the forecasts of the future financing gap after debt relief are based on export and import projections which are simply too optimistic to be credible.
It is noteworthy that a progress report on ‘The challenge of maintaining long-term external debt sustainability’ presented at the April 2001 meetings of the Development Committee of the IMF and World Bank also highlighted the issue of the forecasts within the HIPC Initiative. We must reflect and act on the implications of these findings, particularly in the light of recent commodity price trends. We must ensure that debt relief does not create false expectations, which would be very destructive for private sector activity. Moreover, we must consider how private investment can be crowded in by relief on debts to official creditors. In the end it is an improved investment climate and enhanced productive capacities which will provide the solid basis for poverty reduction.
b. Public-private partnerships in
development finance
Public-private partnerships are important for financing development in the least developed countries. Indeed, there is a need for a joint approach to development finance which seeks synergies between domestic resources, private capital inflows, ODA and debt relief. But a roadmap for achieving this must be in tune with the current realities of the LDCs. In these countries, the notion of public-private partnerships needs to be considered over a much longer time horizon.
It is striking in this respect that, despite a widespread move to reach far-reaching economic liberalization in many least developed countries, aid flows have been declining. In real per capita terms, net ODA to LDCs has dropped by 45% since 1990. Most of the LDCs are not receiving sufficient private capital inflows to offset declining aid, even after deep trade liberalization and reform of the regulatory framework for FDI. Against this background aid flows will have to increase in the short and medium term in order to promote domestic resource mobilization, increased private domestic investment and private capital inflows.
Of course, more aid will not work unless measures are taken to improve aid effectiveness. This requires action on the part of both donors and recipients. OECD/DAC has useful guidelines for effective aid practices based on long experience. The introduction, alongside recipient performance monitoring, of donor performance monitoring indicators, in line with these guidelines, could be a pragmatic and practical device for promoting the effective partnerships which we are all agreed are necessary for enhancing the quality of aid.
There is also a need for innovative approaches to aid. In this regard, I am happy to report that ILO and UNCTAD have been jointly exploring the applicability of a particular Brazilian approach to poverty reduction in the context of African least developed countries. The approach, which we are calling the MISA approach, involves providing a cash transfer (minimum income) to poor families conditional on school attendance by their children. The approach has had good results in Brazil and has also been successfully applied in Mexico. The Report of an Advisory Group commissioned jointly by the two organizations argues that it is both feasible and desirable in African LDCs and that, within the context of PRSPs and adapted in line with national contexts and priorities, it can support the achievement of International Development Goals.
I believe the MISA approach merits discussion at this conference during the interactive debates on education and human resource development. The approach reduces current poverty and future poverty, contributes to the reduction of child labour and also enhances human capital development. It is not simply a welfare benefit but also a social investment, a ‘capability’ benefit, to use Amartya Sen’s terminology. It is a new idea and it could presage new forms of aid, such as International Social Funds.
c. Least developed countries and more
advanced developing countries
One of the key changes of the 1990s which is affecting how we approach poverty reduction in the least developed countries is the increasing differentiation amongst developing countries. I believe that it is now necessary to think about the problems and prospects of the least developed countries not simply as a North-LDC relationship but also in terms of the relationship between the LDCs and more advanced developing countries and emerging markets.
One key to growth and poverty reduction in the LDCs is economic growth and sustained industrialization in these more advanced developing countries. But the relationship between the two groups of countries is structured by the relationship of both to the North. At the moment, various asymmetries in the international system are making it difficult for the more advanced developing countries to deepen industrialization and move up the technological ladder, and they are also facing adverse consequences from global financial instability and the ways in which it is addressed. This is tending to make the relationship between the more advanced developing countries and the LDCs competitive rather than complementary.
A major challenge for poverty reduction is to structure the relationships of both more advanced developing countries and the LDCs with the North in a way which enables the emergence of complementary synergies between the more advanced developing countries and the LDCs. All groups of countries can benefit. The expansion of the LDC economies can provide markets for more advanced developing countries, and the latter can avoid the adverse spillover effects which would occur if they have a stagnant or regressing economy, with a rapidly growing population, on their doorstep. Moreover, the North will also benefit from this synergetic growth-in-tandem between LDCs and more advanced developing countries in the South.
We have much to learn about the new economic relationships in the global economy. This is what we have to focus on in the coming decade for effective poverty reduction in the least developed countries. Without a global perspective we shall not succeed in achieving our common goals. International Development Goals require International Development Means.
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