|Department of Public Information • News and Media Division • New York|
Sixty-second General Assembly
7th & 8th Meetings (AM & PM)
DEVELOPING COUNTRIES NEED BOLDER, MORE INNOVATIVE SOLUTIONS TO HELP
THEM OUT OF EXTERNAL DEBT TRAP, SECOND COMMITTEE TOLD
Bolder, broader and more innovative solutions were urgently needed for developing countries to overcome external debt obstacles that blocked the achievement of development goals, several speakers told the Second Committee (Economic and Financial) today as it began its consideration of macroeconomic policy questions.
The representative of Pakistan, speaking on behalf of the “Group of 77” developing countries and China, called for more encompassing initiatives that would use effective, equitable and development-oriented measures to tackle the external debt owed by developing countries. Debt relief had been too slow and must be expanded to cover countries beyond the web of the Heavily Indebted Poor Countries (HIPC) Debt Initiative and the Multi-Debt Relief Initiative (MDRI).
He said that, in a time of declining official development assistance (ODA) and despite promises of an additional $50 billion, developing countries leaned precariously towards heavy reliance on debt cancellation and restructuring. As a result, debt sustainability must be linked to a country’s capacity to achieve national development goals. New long-term debt sustainability initiatives, such as grant-based financing, should fully erase the official multilateral and bilateral debt of heavily indebted poor countries and ease the unsustainable debt burdens of low- and middle-income developing countries.
The representative of the United States said debt relief was not a blanket solution, and must carry conditions based on a country’s poverty-reduction efforts. The United States had provided $4.5 billion in development grants to 14 countries practising good governance and sound economic policy. In addition, MDRI had forgiven almost $42 billion in debt, and the HIPC Initiative had granted almost $45 billion in bilateral debt relief to 31 countries that had completed poverty-reduction strategies. Any delays in starting the HIPC process should not be perceived as unwillingness on the part of creditors to provide debt relief since relief without responsible debt management would not help debtor countries achieve the shared goal of reducing poverty.
Ethiopia’s representative said that, while his country had benefited from debt relief programmes, relief was not enough to make significant inroads towards attaining the Millennium Development Goals. Despite having completed the HIPC Debt Initiative, and seeing its debt cut from $6 billion to $2.3 billion in 2007, Ethiopia could have achieved more progress towards achieving the Goals if more resources had been made available through the international development cooperation framework.
Benin’s representative, speaking on behalf of the African Group, said African countries needed nothing less than 100 per cent cancellation of their debts so they could achieve the growth necessary to attain the Millennium Goals. Not only should developed countries fulfil their pledges to double assistance to African countries and open their markets to exports from the continent, but they should also increase the cancellation of debt.
Indonesia’s representative, speaking on behalf of the Association of South-East Asian Nations (ASEAN), suggested debt-swap schemes as a durable solution to the serious debt problems of developing countries and their struggle to achieve the Millennium targets. Developing countries must seize opportunities to leverage their collective strengths.
Presenting the reports under the Committee’s consideration were Manuel Montes, Chief of the Policy Analysis and Development Branch in the Financing for Development Office of the Department of Economic and Social Affairs, who introduced the Secretary-General’s report on the international financial system and development; and Raja Khalidi, Officer-in-Charge of the Debt and Development Branch in the Division on Globalization and Development Strategies of the United Nations Conference on Trade and Development (UNCTAD), who introduced the Secretary-General’s report on recent developments in external debt.
Other speakers today were the representatives of Portugal (on behalf of the European Union), Guyana (on behalf of the Caribbean Community), Bangladesh, Russian Federation, Algeria, Morocco, Sudan, Malaysia, Kenya, India, Iraq, Venezuela, Côte d’Ivoire and Gambia.
The Committee will meet again at 3 p.m. on Wednesday, 17 October, to begin its consideration of operational activities for development.
The Second Committee (Economic and Financial) met this morning to take up macroeconomic policy questions, including the international financial system and development, and the external debt crisis and development.
Before the Committee was the Secretary-General’s report on international financial system and development (document A/62/119), which reviews recent trends in international official and private capital flows to developing countries and recent efforts to strengthen international institutions concerned with expanding the flow and stability of development financing.
The report notes the paradox of increasingly outward net financial flows from developing to developed countries persisted, which rose from $533 billion in 2005 to $662 billion in 2006 due to the financing of the widening current account imbalances. Commercial bank lending to developing countries grew strongly in 2006, but there was a slowdown in efforts to increase the aid effort beyond debt relief.
International financial architecture reform, the International Monetary Fund’s (IMF) engagement with low-income countries, and multilateral surveillance are among the topics discussed. The report states that, in June 2007, the IMF’s Executive Board approved, for the first time in almost 30 years, a major revision of the surveillance framework. Regional financial cooperation has progressed, including monetary cooperation programmes aimed at single currencies in Africa and in Asia. Stronger multilateral surveillance and policy coordination are needed, and, in order to re-establish its relevance to emerging market economies, IMF must be adequately equipped with predictable, flexible and affordable mechanisms capable of preventing crisis.
Also before the Committee was a letter dated 4 April 2007 from the Permanent Representative of Spain to the United Nations addressed to the Secretary-General (document A/62/71—E/2007/46), which contains a summary of the proceedings of the Intergovernmental Conference on Middle-Income Countries held in Madrid on 1 and 2 March.
The letter states that the Conference was convened on the basis of two assumptions: that cooperation with middle-income countries requires efforts at the international level; and that to achieve success, reflection and discussion must be based on analytical efforts to assess the situation of middle-income countries and define appropriate responses.
According to the letter, the Declaration offered 10 conclusions, including that middle-income countries can possibly go beyond the Millennium Development Goals because their level of progress necessitates working with a more complex and ambition development agenda. Other conclusions were that the diversity of middle-income countries requires a more precise characterization to provide clearer guidance to donors; that despite this diversity, such areas as democratic governance and international financial markets call for greater cooperation among those countries; and that the Conference has been only the beginning of a process which must be continued, especially with regard to identifying tools to combat poverty in middle-income countries.
The Committee also had before it the Secretary-General’s report on recent developments in external debt (document A/62/151), which reviews that subject area with respect to developing countries and the related recent phenomenon of capital flows from developing to developed countries.
According to the report, the total external debt of developing countries was $2.8 billion in 2006, a nominal increase from the previous $2.7 billion. Due to debt relief and favourable external conditions, developing countries as a group reduced their sovereign external debt with official and private creditors.
The report analyses the role of new borrowing strategies and new debt instruments, and reviews progress in the Highly Indebted Poor Countries (HIPC) Debt Initiative and developments in the rescheduling of the Paris Club. It also points to several issues related to the debt sustainability framework for low- and middle-income countries and discusses potential vulnerabilities arising from the increasingly important role of structured finance.
Introduction of Reports
MANUEL MONTES, Chief of the Policy Analysis and Development Branch in the Financing for Development Office of the Department of Economic and Social Affairs, introduced the Secretary-General’s report on the international financial system and development (document A/62/119).
He highlighted key chapters, including trends such as net resource outflows from developing and transition economies, which increased in 2006, and the strong net private capital flows to developing and transition economies.
On the chapter addressing the international financial architecture, he said net financial flows from the Bretton Woods institutions have tended to be negative, and progress in restoring the relevance of those institutions was an exercise in reinvigorating the role of multilateral cooperation in addressing international problems.
RAJA KHALIDI, Officer-in-Charge of the Debt and Development Branch in the Division on Globalization and Development Strategies of the United Nations Conference on Trade and Development (UNCTAD), introduced the Secretary-General’s report on recent developments in external debt (document A/62/151).
He said that in recent years developing countries had been able to reduce their sovereign external debt through debt relief programmes and a favourable external environment. However, that benign climate could change. Long-term interest rates in most major developed countries were high and there had been turmoil in some emerging markets during the first half of 2007. Several developing and transition countries had large current account deficits and overvalued exchange rates. The developing world was lending to the advanced economies. When it should be the other way around. Developing countries needed to exercise flexibility, diversity and prudence in their strategies to mobilize resources for development.
Global imbalances were of concern as some major emerging market countries appeared increasingly disengaged from the international financial institutions, he said. Reforming the governance and structure of those institutions and the development of a truly cooperative and inclusive global monetary system was necessary. Regretfully, no progress had been made in creating a mechanism to resolve sovereign default. Its creation should be a top priority. New forms of financing could also benefit low-income countries with limited market access. Credit default swaps and collateralized debt obligations could play a role in reducing the probability of debt crises. Prudence in issuing new debt and policies aimed at avoiding over-borrowing by the public and private sectors were essential in avoiding debt and financial crises. Policymakers should not be too complacent as the new debt structure could lead to new vulnerabilities.
He said excessive focus on external debt could distract policymakers from the fact that maturity and currency mismatches were the real sources of vulnerabilities and led to situations where the maturity and current composition of domestically issued debt were not included among the vulnerability indicators used to predict financial crises or debt sustainability. Since the launch of the HIPC Debt Initiative, debt relief had been too slow and it must be expedited. Debt relief initiatives should be expanded to include low-income countries. It was also necessary to scale up official development assistance (ODA) flows in order to achieve the Millennium Development Goals. It would also be worthwhile to reconsider the modalities and eligibility criteria for debt relief in a way that ensured that relief for low-income countries without jeopardizing ODA.
The representative of the United Republic of Tanzania said countries had difficulties balancing local and international debt, and asked for clarification on that matter.
Mr. KHALADI said the report emphasized that, given adequate capacity to manage public debt strategies, domestic debt could be a safer form than international debt. The right mix between the two was a matter of each country’s macroeconomic consideration. External debt should not be abandoned, but the report tried to highlight that the emergence of financial markets in developing countries for development purposes was good. Those countries could strengthen their abilities to handle an external debt crisis if domestic debt could be managed.
The representative of India asked for a clear definition of domestic debt.
Mr. KHALADI said that domestic debt was the safest form of debt, whereas there were security mismatches in external debt.
ASAD MAJEED KHAN (Pakistan), speaking on behalf of the “Group of 77” developing countries and China, said urgent, bolder and more encompassing initiatives were needed to solve developing countries’ external debt problems in an effective, equitable and development-oriented manner. Debt relief had been too slow and must be expanded to cover countries in need that were not part of the HIPC Debt Initiative and the Multi-Debt Relief Initiative (MDRI). Debt relief could free up resources for development but it should not replace other sources of financing.
He expressed serious concern that, despite promises of an additional $50 billion in ODA, aid flows had declined, leading to a heavy reliance on debt cancellation and restructuring. Debt sustainability was critical to the debt relief debate and must be linked to a country’s capacity to achieve national development goals, including the internationally agreed targets. There was a need for greater case-by-case flexibility in setting and implementing debt thresholds and consideration of debt scenarios in the face of possible external shocks. Debt sustainability analyses should also be flexible and not premised on subjective governance indicators.
Calling for new long-term debt sustainability initiatives such as grant-based financing, he said they should fully erase the official multilateral and bilateral debt of heavily indebted poor countries and lead to significant debt relief or restructuring for low- and middle-income developing countries with unsustainable debt burdens. Improved market access for developing-country exports and other measures to enhance productive capacity would also help. Developing countries had little ability to influence financial trends despite the fact that those trends significantly impacted their growth and development. In part to guard against that volatility, developing countries had accumulated large reserves that they transferred back to the deficit country. That had enlarged the net outflows of finance from developing to developed countries from $533 billion in 2005 to $662 billion in 2006. Greater and more stringent regulations and transparency were needed in handling innovative and complex financial products in developing countries as hastily conceived initiatives could devastate developing countries.
VANESSA GOMES (Portugal), speaking on behalf of the European Union, reiterated its commitment to the implementation of the Monterrey Consensus, including the primary responsibility of every country for its own development and the role of good governance, sound national policies and development strategies. Foreign direct investment (FDI) was an important complement to domestic investments, and to ensure continued and strengthened investment flows, efforts should continue to be made towards achieving a transparent, stable and predictable investment climate. Increased and more effective Aid for Trade was also needed to support developing countries, especially least developed countries.
She said a successful conclusion to the Doha Round trade negotiations depended on developed and developing countries alike. For its part, the European Union was committed to increase ODA, in line with the Paris Declaration. While the European Union recognized that remittances were private resources that should not substitute ODA, more should be done towards safe and less expensive transfers in both source and recipient countries to facilitate the impact on the development of recipient countries through the creation of an enabling policy environment. Debt relief could also play a role in liberating resources that could be directed towards sustainable growth and development. Debt cancellation would free up national resources for priority development-related purposes.
The European Union welcomed consultations by IMF to address global imbalances, she said, noting that IMF and World Bank governance reform efforts were essential to the continued effectiveness and credibility of those institutions. The European Union remained committed to ensuring the effective participation of developing countries and countries with economies in transition in international financial institutions. It looked forward to engaging with all Second Committee delegations in an open, constructive and transparent manner so that the spirit of Monterrey could be given new life in the run up to the Doha conference.
GEORGE TALBOT ( Guyana), speaking on behalf of the Caribbean Community (CARICOM), said the pursuit of prudent macroeconomic policies was pre-eminent in the region’s efforts to alleviate some of its peculiar challenges. Those policies included faster growth with social equity, coping with precipitous loss in effective price and access advantage in preferential markets for major exports, and reducing the level of indebtedness. The establishment of the Caribbean Single Market and Economy was an ambitious imperative to boost the economic viability of CARICOM, and to support new cooperation arrangements to ensure that the benefits of economic integration were more fairly distributed with the expectation that a full common market involving all Community members would be achieved by 2015.
He said an international facilitative and supportive macroeconomic framework was needed to foster the economic performance and general development of the small economies comprising CARICOM. Incoherence and gross imbalances in the global economy had adversely affected the Community, including falling ODA and persistent levels of unsustainable debt. Stable and predictable sources of financing were needed to attain sustainable levels of growth, in addition to innovative sources of financing for development. Developing countries should fulfil their obligations on ODA levels. Higher levels of international financial support were also needed to address the region’s high vulnerability to natural disasters.
ADIYATWIDI ADIWOSO ASMADY ( Indonesia), speaking on behalf of the Association of South-East Asian Nations (ASEAN), said the upcoming High-Level Dialogue on Financing for Development should focus on implementing the Monterrey Consensus and finding new, innovative funding sources. The Philippines and Indonesia had initiated debt-swap schemes as a durable solution to developing countries’ serious debt problems and their struggle to achieve the Millennium Development Goals. ASEAN was resolved to remain vigilant to the risks caused by global imbalances and volatile capital flows and to maintaining sound fiscal and monetary policies. Its strengthened financial system continued to exhibit greater resilience, a reflection of efforts to deepen the region’s financial markets.
Developing countries must seize opportunities to leverage collective strengths, she said. ASEAN was diverse and the developmental gaps among its members could be described as “One ASEAN, Many Opportunities”. The group would set up the ASEAN Economic Community by 2015, when it would comprise a single market and production base and a highly competitive, fully integrated economic region with equitable economic development. Those pillars would have wide-ranging implications for business in the region and would ensure ASEAN a more significant role in the global economic chain of the future.
She said the ASEAN Free Trade Area-Common Effective Preferential Tariff, the ASEAN Investment Area, the ASEAN Industrial Cooperation Scheme and the ASEAN Framework Agreement of Services had already helped make the Association a production base. But through its Economic Community, the region would like to achieve more. The equitable economic development pillar would give small-and medium-sized enterprises a chance to compete.
Under the integration into the global economy pillar, market access and production opportunities were extended not only to ASEAN members but also to its free trade partners. ASEAN was negotiating free trade accords with China, Republic of Korea, India, Japan, Australia and New Zealand. ASEAN, China, Japan and the Republic of Korea were partnering on short-term currency swap arrangements under the Chiang Mai Initiative to reduce the region’s vulnerability to fluctuations in international capital movements. ASEAN had launched the Bond Market Initiative to strengthen regional and international financial systems, an effort that was bearing fruit. For example, FDI into ASEAN had grown by 17 per cent, $41 billion in 2005, up from $35 billion in 2004. That was higher than 1997 FDI flows which at $34 billion had been the region’s highest prior to the Asian financial crisis.
JEAN-MARIE EHOUZOU (Benin), speaking on behalf of the African Group, said the international financial system played an important role in ensuring global macroeconomic stability, sustainable economic growth and development, poverty eradication and the attainment of the internationally agreed development goals. But Africa needed the assistance of the international financial institutions more than ever before. “In our view, poverty eradication and the attainment of the Millennium Development Goals are key areas that the international community, including international financial institutions, must address as a matter of urgency.” The African Group was disappointed by the reality that little was being done to reverse net resource flows from developing countries to the developed world.
He noted that ODA had taken a downward trend and the question of a greater voice and participation by developing countries in the decision-making of key international financial institutions had not been addressed. The African Group called for a comprehensive reform of the international financial architecture, increased debt cancellation, and delivery by donor and rich countries on their pledges to double their assistance to African countries and open their markets to African exports. African countries needed nothing less than 100 per cent cancellation of their debts in order to be able to achieve the growth necessary to reach the Millennium targets. The forthcoming review of the implementation of the Monterrey Consensus in Doha next year was an important opportunity for African countries.
GEORGE PATAKI ( United States) said that, while work remained to be done in ensuring lasting benefits and bringing remaining debtor countries through the HIPC Debt Initiative, the world was beyond the stage of crisis. It had come together to restructure or forgive the unsustainable debt of countries that had made the economic reforms necessary to ensure that relief had a lasting effect. The Multilateral Debt Relief Initiative launched in 2005 had forgiven almost $42 billion in debt. That was in addition to the almost $45 billion in bilateral debt relief given to 31 countries –- 25 of them in Africa -- that had launched or successfully completed poverty-reduction programmes under HIPC. The world must now solidify the gains by ensuring that resources were used for poverty reduction and that the “lend-and-forgive” cycle did not resume. Part of the challenge ahead was to build developing countries’ capacity to pursue sound macroeconomic policies and successfully manage debt, particularly in an increasingly complex global financial market.
Developing countries must also do their part by committing to use freed resources for poverty alleviation and economic growth, he continued. Several eligible countries had not started or completed the HIPC debt relief process. They must show the political will and capacity to effectively manage debt and economic policy. Any delays in that process should not be perceived as creditors’ unwillingness to provide debt relief. Relief without responsible debt management would not help debtor countries reduce poverty, which was a shared goal. He called for greater transparency by lenders and borrowers, as well as increased accountability to ensure that investments did not simply begin a new cycle of unsustainable debt. Good governance also attracted investment. Through the Millennium Challenge Corporation, the United States had provided development grants worth $4.5 billion to 14 countries practising good governance and sound economic policy.
ABDUL ALIM ( Bangladesh) said the external debt situation of developing countries, particularly least developed countries, remained a serious concern, in light of increased debt totalling $2.85 trillion in 2006, and of rising long-term interest rates in developed countries. Those trends had become a stumbling block towards development. The current Debt Relief Initiative had been slow, and had failed to liberate sufficient resources for concerned countries.
Aid effectiveness was an important initiative, he said, adding that his country supported the Secretary-General’s report, which emphasized the accountability and governance of recipients. There must also be a new system that allowed least developed countries to borrow, at zero interest mark-up, against their own reserves. Special weight should also be accorded to least developed countries in setting a new quota formula as their voices were critical in the Bretton Woods institutions.
TATIANA ZVEREVA ( Russian Federation) said the Bretton Woods institutions must play a significant role in monitoring the international financial system and ensuring its stability. Surveillance mechanisms were needed to regulate the system’s activity. It was to be hoped that the Committee’s debate would further reflect on and analyze the need for reforming and improving the international financial architecture. The Russian Federation was doing its part to help stabilize the international financial system through the early repayment of external debt to IMF and the Paris Club, and by providing assistance to developing countries. The Russian Federation had provided $43.5 million in financing for the IMF programme intended to help countries suffering from external shocks.
Within the framework of the Paris Club and other organizations, she said, her country was actively involved in efforts to provide ODA for least developed countries. The Russian Federation had supported the HIPC Debt Initiative since its inception as the most important source of resource mobilization for development and resolving the socio-economic issues of African countries. The Russian Federation had cancelled $11.3 billion in African debt but debt cancellation would not be effective unless developed countries made efforts to help developing countries increase their economic effectiveness. Without economic growth in developing countries, all cancelled debt would be very soon replaced by new debt.
NOR-EDDINE BENFREHA ( Algeria) said a strong global partnership was needed urgently to solve global economic imbalances and stem financial crises. Financial institutional reforms were needed to bolster efforts to ensure increased participation in decision-making by developing countries. Reforms should also address foreign currency reserves, which had been dictated by the international financial system. Reserves should be augmented to help developing countries manage their own reserves so as to serve themselves better.
He expressed the hope that the review of the Monterrey Consensus would make it possible to address those and other issues, which would help to alleviate hunger and poverty in developing countries. The United Nations should continue its efforts to focus on the links between the international financial system and development.
ZAKIA EL MIDAOUI ( Morocco) said the world was far from achieving the Monterrey Consensus and more must be done to remedy debt obstacles in developing countries. External debt was a major handicap for development and the Millennium Development Goals could not be met unless debt relief was addressed.
African countries needed the international community to be more engaged in achieving stability and development, she said. The continent’s development partners had taken some measures, but more were needed, including the fulfilment of ODA promises. For its part, Morocco had been a pioneer in implementing Basel II, which calls for the international financial system to continue to promote, among other things, sustainable economic growth and the elimination of poverty and to put in place an open, non-discriminatory trade system.
NADIA OSMAN ( Sudan) said external debt was one of the most serious hindrances to developing countries’ economic and social development. The Secretary-General’s report noted the continued improvement of their external debt situation, but that masked the debt problems faced by individual countries or groups of countries such as the least developed countries, particularly those not participating in HIPC. External debt perpetuated the vicious cycle of poverty, aid dependency, preventing the implementation of national development strategies and achievement of the Millennium Development Goals. The Sudan’s external debt had stood at $27.2 billion at the end of 2006, a $9 billion increase from the end of 2000. Approximately $6 billion of that increase had been caused by a build-up of arrears to the Paris Club and other creditors. At the end of 2006, the Sudan’s external debt stock had been the equivalent of 55 per cent of the gross domestic product and 340 per cent of its exports.
The Sudan’s unsustainable debt burden threatened macroeconomic policy stability and growth, and impeded its efforts to eradicate poverty, achieve the other Millennium targets and meet the obligations of its peace agreement, she said. It also undermined reconstruction, rehabilitation and development. A shortfall or delay in donor aid or external shocks pertaining to oil prices would limit the country’s ability to service its external debt obligations. The debt problem had forced the Sudan to rely on non-concessional facilities, albeit in a limited way, to finance critical development and social programmes aimed at addressing regional development disparities, especially in infrastructure.
The Sudan had implemented a wide range of socio-economic and political reforms, she said. It had drastically reduced inflation to single digits in 2006, thanks to sound budget management, and had set up an External Debt Unit in the Central Bank to improve governance, transparency and accountability. Still, the country had not benefited from debt relief initiatives, which remained hostage to political conditionality. The Sudan called on multilateral and bilateral donors to take urgent action to address that chronic situation, especially for countries that had met debt relief criteria.
NUSHIRWAN ZAINAL ABIDIN ( Malaysia) said unequal progress towards achieving the internationally agreed targets and global inertia had stymied efforts to reform the current international financial architecture. While ODA levels had increased somewhat since the adoption of the Monterrey Consensus, most aid was in the form of debt relief and commitments were yet to be met by donor countries. In addition, the lack of progress on IMF quota reforms reiterated a need for that institution to return to its original mandate, rely more on the power of analysis and persuasion, and cease to be the instrument of the rich and powerful.
He said the increasing instability of the international economic system was a major obstacle to developing countries, and solid macroeconomic policies were needed for them to survive and prosper in these turbulent times. For its own part, the Malaysian Government would continue to build on macroeconomic policies that had served well in the past, and to adjust them to suit the current reality. As a result of those policies, Malaysia’s growth prospects had remained strong, driven further by stronger private investment and large financial reserves.
ZACHARY MUBURI-MUITA (Kenya), noting the continued increase in resource outflows from developing to developed countries, said the trend was worrisome as it undermined developing countries’ development prospects. Though such outward resource flows addressed current account imbalances, they also reflected certain shortcomings in developing countries. It was not acceptable to continue always to identify the lack of resources as a critical factor in developing countries’ development endeavours while the same countries were keeping huge amounts of resources in developed countries. Failure to address that trend indicated the international financial system’s weakness in finding ways to retain resources to foster development in poor countries. The mix-up between debt relief and ODA was a matter of moral concern, he said. Much of the ODA increase since 2002 was accounted for by debt relief. Since debt relief did not provide any new, meaningful resources for development, it was deceptive to consider such actions as ODA. If that trend continued, it was unlikely that developing countries would be able to achieve the Millennium Goals and other internationally agreed development targets.
The nominal value of external debt had increased from $2.7 billion in 2005 to $2.8 billion in between 2005 and 2006, he continued. The increase, coupled with a rise in net resource outflows from developing to developed countries, posed a real threat to the development potential and capacity of the former. The HIPC Debt Initiative and the Multilateral Debt Relief Initiative were inadequate in many ways as they did not address all heavily indebted developing countries, such as Kenya, which was heavily indebted but not considered poor. Debt sustainability criteria and country classification should be reviewed to ensure fairness in the concerned countries. The real solution was full debt cancellation as the piecemeal approach may not be adequate and effective in the long-term.
SANTOSH BAGRODIA ( India) said there was an urgent need for reform of international financial structures, especially in view of their apparent support for resource transfers from developing to developed countries, now totalling $0.6 trillion, which would have been better spent on promoting poverty eradication in the developing world. In addition, reserve accumulation accounted for a significant portion of the resource flow from developing countries to developed countries. Reform measures should bolster the voice of developing countries affected by the Bretton Woods institutions, which should be periodically reviewed by the United Nations.
He said debt relief had also become a significant component of ODA and, strangely, countries with the most arrears and needing maximum assistance had benefited least from debt relief in terms of freeing resources for development. Debt sustainability must be defined in terms of being able to service the debt as well as allocate resources to meet the Millennium Goals.
The recent financial turmoil highlighted the need for greater surveillance in the international financial system, he said, adding that his country was concerned that the IMF’s macroeconomic stability goals were restricting the use of much-needed additional aid, particularly when assessments on a country’s absorption capacity were subjective. That had only strengthened the need for comprehensive reform that would give a voice to developing countries.
FALAH MUSTAFA BAKIR ( Iraq) said the Iraqi leadership was committed to rebuilding the country’s economy, infrastructure and institutions. The International Compact with Iraq, announced in May, aimed to achieve political progress, security and the rule of law, and economic reform and reconstruction. The Commission on Public Integrity, established in January 2004, aimed to promote the rule of law and prevent corruption at all levels of Government. During the launch of the International Compact, some creditors had offered debt relief for Iraq and other States were encouraged to take similar steps so that Paris Club members could alleviate the debt incurred during the regime of Saddam Hussein. The Iraqi people should not be forced to bear that burden as they sought to build a new country.
He requested a review of the compensation that Iraq was required to pay Kuwait as a result of its invasion and occupation of that country in 1990. Iraq had paid $22 billion through April 2007 and continued to make payments. That was too heavy a burden for Iraq at the critical juncture in its democratic and economic transition.
Security remained a big challenge in implementing the Government’s policies and programmes, he continued. Substantial progress had been made in enabling the security forces to replace coalition forces and assume primary responsibility for the country’s security. The Higher Ministerial Committee for Security Sector Reform had started its work to ensure respect for human rights. The Kurdistan region had experienced a historic period of economic growth and expansion since the collapse of Saddam Hussein’s regime that could serve as model for the rest of the country in terms of political and social development, human rights and religious tolerance.
AURA MAHUAMPI RODRIGUEZ DE ORTIZ ( Venezuela) supported the creation of an international trading system that would benefit developing countries without requiring that they open their markets even more in the face of growing protectionist measures imposed by developed countries. Developing countries had the right to greater and more just participation in the international commercial scene and their concerns must be taken seriously in international trade negotiations. Developed countries must adopt political, financial and macroeconomic policies that would take into account the realities of developing countries and enable them to work towards sustainable development. The international financial system must be open and non-discriminatory and allow for the full mobilization of financing for development, particularly domestic resources, international investment, ODA and external debt relief.
It was worrisome that most recent initiatives to alleviate the external debt crisis were limited to low-income countries and excluded middle-income countries, she said. Latin American countries were mainly middle-income countries and, despite their economic growth, most of them had to spend their own funds on debt repayments. It was necessary to search for alternatives that would prevent the creation of new debt burdens and advance the cause of international social justice. The Bretton Woods institutions must be reformed to promote innovative financing for development as well as a uniform voice and representation for developing countries. Venezuela had developed its own South-South financial policy to foster intraregional financing and reduce the region’s dependence on international capital markets. Last week, finance officials from Argentina, Bolivia, Brazil, Ecuador, Paraguay, Uruguay and Venezuela had announced the launch of the Bank of the South.
TÉTIALI ROLAND TOH ( Côte d’Ivoire) said debt impeded the implementation of development programmes and debt repayments absorbed up to one third of the national budgets of developing countries. Those countries were home to 270 million children lacking access to health care and primary education, and where two of three people had no access to safe drinking water, all Millennium benchmarks. Reaching the Millennium Goals would require developing countries to adopt national strategies to be implemented with complete transparency, but their efforts would be fruitless without the international community’s aid.
Côte d’Ivoire, in its post-conflict period, was trying to attain the normalization of its economic and financial situation, he said. Debt relief should have greater flexibility -- concerning the HIPC Debt Initiative, and Côte d’Ivoire did not approve of current conditions placed on that programme. Debt servicing was one burden too many, with 64.7 per cent of the country’s gross domestic product going to debt repayment. That situation exacerbated the Government’s efforts to implement its crisis management programme.
GENET TESHOME ( Ethiopia) said debt cancellation and reduction could make a significant contribution to increasing resources for development finance in developing countries, as it is more predictable than bilateral aid. But debt relief should not replace other sources of financing and new aid should be delivered in the form of grants rather than loans to prevent a new round of external debt payment crises. Long-term debt sustainability remained a pressing issue and emphasis should be placed on encouraging responsible borrowing and lending, and on preventing a build-up of unsustainable debt.
He said his country had benefited from debt relief under the HIPC Debt Initiative and had become eligible for the Multilateral Debt Relief Initiative. Under the Multilateral Debt Relief Initiative, the national debt had been cut to $2.3 billion in 2007 from $6 billion in 2006, and, with increased ODA, it was possible for the Government to finance priority social sectors. But he said more progress towards the Millennium Goals could have been achieved if more resources had been available through the international development cooperation framework.
Ethiopia called for an intensified and realistic involvement of multilateral financial institutions in providing policy advice, technical assistance and financial support to member countries, he said. They could then work on the basis of nationally owned reform and development strategies, and pay due regard to the special needs and implementing capacities of developing countries in the best interest of the people for achieving the Millennium Goals.
HABIB JARRA ( Gambia) said one of the highly debated irregularities of the current century was the undemocratic and unfair global financial architecture under which developing countries’ participation and influence was extremely marginal despite the fact that decisions made significantly impacted their countries’ growth and development. In order to receive fair treatment, the underprivileged must call for an all-inclusive reform of the international financial system and its governance architecture so that it would be true to the founding principles of IMF and the World Bank. The United Nations must help highly indebted countries, most of whom had debt loads that exceeded their gross domestic product. The extent of the debt crisis in the South was a great obstacle to achieving the Millennium Goals and advancing human development. The weight and dynamics of external debt showed that loans did not contribute to financing for development. The debt itself was increasing in order to cover repayment of interests and capital, thus exacerbating poverty and labour exploitation while blocking sustainable development.
Despite the relative improvement of developing the external debt situation of countries, thanks to better debt-management strategies and intense international cooperation, their total debt burdens had increased only nominally, he said. Full debt cancellation was essential. Debt equity swaps were not a solution because they often supported privatization and changes in the national structures of capital ownership in favour of foreign transnational companies. The scheme to buy back debts between developing countries was limited because it merely moved the debt burden among those countries. Gambia called for greater grant-based financing, a full cancellation of the global and bilateral debt of HIPC and significant debt restructuring or relief for low-income and middle-income developing countries with unsustainable debt burdens.
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