LDCS HAD SETBACKS AND RETROGRESSION IN 1980’S.

Mar 28, 1990

LDCS HAD SETBACKS AND RETROGRESSION IN 1980’S.

GENEVA, MARCH 26 (BY CHAKRAVARTHI RAGHAVAN) -- The setbacks and retrogression experienced by most of the Least Developed Countries in the 1980's could still be reversed and the countries put back on the path of sustained development through strengthened development partnership based on complementarily of commitments, according to the UN Conference on Trade and Development.

This view is presented by UNCTAD in its documentation for the seventh session of the Intergovernmental Group on LDCs, which is acting as the Preparatory Committee for the second UN Conference on LDCs set for 1-16 September in Paris. The two-week IGG meeting, attended by more than 500 delegates and observers from the UN system, intergovernmental and non-governmental organisations, is the final run up for the Paris meeting.

The Preparatory Committee has been charged with the task of reviewing progress at the national and international level of the implementation of the Substantial New Programme of Action (SNPA), adopted at Paris at the first UN Conference in 1981, and formulate appropriate national and international policies and measures for accelerating the development process in the LDCs.

The present meeting is the culmination of a process that began with a meeting at The Hague in September 1988 of an eminent persons group, and several regional and international meetings at non-governmental and intergovernmental levels, and culminating in a Ministerial meeting in Dacca, Bangladesh of the LDCs.

As John Sankey of the United Kingdom, who is chairing the Preparatory Committee, put it at the opening session, "despite the good intentions of the SNPA, the '80's saw a deterioration in most of the LDCs. But the lessons learnt and the experience gained will help us to elaborating a strategy for the 1990’s".

Two of the several documents before the meeting, the UNCTAD 1989 Least Developed Countries Report and a note by the secretariat on the "Elements for a Programme of Action for 1990's", paint a dismal picture of retrogression and all-round deterioration in economic and social conditions of the LDCs with very few bright features.

Perhaps the only "growth factor" in the 1980's for the LDCs, apart from population, has been the increase in the number of countries classified as LDCs.

In 1981, at the time of the first UN conference, the UN had classified 31 countries as LDCs. Now in 1990, thanks to the operation of the international economic system, the UN list of LDCs stand at 42: eleven more of the "other developing countries", having experienced setbacks in their development, have joined the ranks of the "most wretched of the earth" in terms of the UN criteria of per capita incomes, literacy and industrial production and other criteria.

"In sum", the secretariat note says, "the 1980's can be considered as a period of setbacks and retrogression. Most LDCs have had to cut back imports, abandon national development programmes, and undergo a process of forced adjustment with austerity".

"The ensuing fall in investment and the deterioration of productive capacity and physical infrastructure have impaired the ability of LDCs to resume growth and development and meet basic needs of their population. Their serious economic and social problems have been aggravated, and the modest gains of past economic development, eroded. Finally ... (there is) the vicious circle which operates between overall poverty, population growth and environmental degradation".

The generally dismal record of performance of LDCs could be explained largely in terms of inadequate policies and support measures, UNCTAD says. "The inadequacies are reversible and this is per se a distinct source of hope: it man-made action is a major cause of past shortcomings, man-made action can also be the cause of future success".

As the UNCTAD note puts it "on the average, and in most cases, SNPA targets have been stranded by under-achievement".

In the 1980's, the 2.2 percent annual GDP growth attained by LDCs fell not only far short of the SNPA target of 7.2 percent, but lower than the 3.6 percent growth rates recorded in the 1970's. But with an annual population growth rate of 2.4, the LDCs in 1980's saw a fall in per capita incomes.

Other targets too fell by the wayside. Manufacturing output grew at two percent as against a nine percent target. Instead of eradication of illiteracy, the 80's saw an increase in their absolute numbers.

Instead of the ODA target of 0.15 percent of GNP of the donor countries, the LDCs got 0.09 percent. Even this does not tell the whole story: the 0.15 percent was the target for 31 LDCs with a current population of 348 million. The 0.09 percent achievement has been for 42 LDCs with a population of 413 million.

And while aid has lagged behind needs of the LDCs, their trade deficits, debt burden and fiscal imbalances have been growing beyond the proportions previously experienced by them.

The marginalisation of the LDCs in the world economy has also increased: their share in world exports in 1988 amounted to only 0.3 percent as against the 1.4 percent in 1960.

As against this dismal picture, some LDCs did manage to achieve GDP growth rates above population expansion, with five of them (Bhutan, Botswana, Cape Verde, Maldives and Yemen) registering an average six percent growth in 1980-1987. In six of the LDCs agricultural production was above four percent, in four manufacturing output equalled or surpassed SNPA targets.

According to the 1989 LDC report, the capacity to generate foreign exchange through items other than traditional commodities has been the single strongest common feature of the LDCs that achieved relatively high GDP growth rates.

Bhutan's main foreign exchange earner was export of hydroelectric powers Botswana's diamonds, Cape Verde's transport facilities and fish, Maldives' tourism and garments, and Yemen's migrant remittances.

"Apart from this common feature, this subset of LDCs do not present any other common characteristic, be it continental location, size of country, geographical situation, environmental strength or even relative weight of debt and debt-service", according to the report.

"This correlation", UNCTAD says, "suggests that the external sector may serve as an engine of growth for LDCS, but has so far proved to be a bottleneck because of commodity concentration of their exports and the world market conditions for commodities".

But the high GDP growth rate connected to foreign exchange earnings does not automatically strengthen the national economy, and the benefits do not permeate to all sections of the population. In four of the five high-performing countries, the manufacturing sector contributed for less than ten percent of GDP and in all of them agricultural production has been below population.

The SNPA had set a GDP growth rate target of 7.2 percent. The actual growth rates of the LDCs as a whole was lower than that in 1970's: 2.3 percent a year during 1980-1987 as against the 3.6 in the 1970’s. With a population growth rate of 2.4 percent in the 1980's, there was thus deterioration in per capita growth.

As against an SNPA target of four percent for agriculture, the actual rate was two percent. Food production failed to match population growth, and average per capita food production declined by 0.8 percent. Manufacturing output grew at two percent, less than half the growth rate of the 1970’s and less than a quarter of the SNPA target of nine percent.

Domestic savings saw drastic reductions, an ineluctable consequence of reed to maintain minimal consumption levels in face of declining economic growth and worsening foreign exchange constraints.

Over a third of all LDCs for whom data was available have had negative savings rates over extended periods in the 1980's.

The secretariat note stresses the importance of strengthening human and institutional capacities in the LDCs and for measures to motivate all social and economic agents to participate in the development process. Measures should also be taken at institutional levels for improving capabilities for policy-making and management and creating an environment propitious to development of public and private sectors.

The domestic measures to be undertaken by the LDCs would need support through substantial increase in ODA, since the LDCs would not be able to raise sufficient finance internally in the short to medium term. According to UNCTAD projects, LDCs could reach an annual average growth rate of five percent in latter part of the 1990's and raise their domestic savings rate to an average of seven percent of GDP, if they are provided ODA increasing to a level of $ 36 billion (in 1988) prices by year 2000.

In 1988, ODA to LDCs was $ 12.3 billion.

To achieve the $ 36 billion target, donors should double their ODA to LDCs in next five years compared to current levels and provide on average 0.20 percent of GNP by end of 1990 (compared to the present 0.09 percent and the SNPA target of 0.15 percent).

The successful implementation of the LDCs' development plans also need substantial alleviation of their debt burden, owned mainly to public creditors, but also to multilateral financial institutions and private banks.

Debt service payments, UNCTAD underscores, should not absorb more than a small proportion of new financial flows. ODA bilateral debt should be written-off by all bilateral creditors, by applying the 1978 UNCTAD resolutions.

For other public debt greater use should be made of the debt reduction options of the Toronto Summit of 1988. The options themselves should be improved through new instruments such as interest subsidy schemes to alleviate debt burden owed to multilateral financial institutions. The IMF should also consider rolling over a part of LDC areas through recourse to its resources. Instruments such as 'buy-backs' and conversion schemes with support from IFIs as through the World Bank Debt Reduction Facility (DRF) should also be used.

UNCTAD also calls for support for LDCs' efforts at diversification and export promotion through national import promotion offices (in importing countries) and the second window of the Common Fund, through elimination of all tariff and non-tariff barriers on all products of actual and/or potential export interest to LDCs and through automatic compensatory finance to absorb shortfalls in export earnings and avoiding disruption.

Third world countries should also grant increased preferential market access to LDC exports.

The establishment of effective follow-up mechanisms, globally and in each LDC, is also seen by UNCTAD as a key to the successful implementation of the programme. Towards this end, UNCTAD has set out arrangements to be made at national, regional and global levels.