SUNS  4308 Friday 23 October 1998

Geneva, 22 Oct (Chakravarthi Raghavan) -- A wide range of issues ranging from electronic commerce, bio-trade, micro-finance, commodity price risk management to communications and transport where government, transnational corporations and local businesses and communities could work in partnership are to figure at the "Partnership for Development Summit" to be held at Lyon (France) 9-12 November.

The major motivation of the UN Conference on Trade and Development in sponsoring this event is to show how market economy could work for the people and the poor, and how UNCTAD would be a useful and relevant organization to the governments and peoples of the developing world, UNCTAD Deputy Secretary-general Carlos Fortin said Thursday.

Speaking at a press briefing, Fortin said making profits and engaging in development need not be incompatible and could be made to support each other.

The Lyon meeting would bring together about 2000 participants from 152 countries - from governments, companies, NGOs and international officials. There would be no need for any conclusions or followup meetings, and the event and its followup would stand on its own on the
basis of the results and partnerships forged there, he added.

On the commodity risk management issue to be addressed, Fortin said the Lyon meeting would demonstrate various financial risk management techniques that could be used for trading commodities on future markets. According to UNCTAD estimates, about $1.4 billion could have
been saved by African coffee producers if they had used appropriate risk management instruments and deals, Fortin added.

Fortin was asked whether was promoting use of such instruments by developing countries at a time when even central banks and market regulators in advanced countries were having some second thoughts and showing some concerns over the overall effects and risks because of use of "derivatives" by third parties to speculate (and take short positions) on trends and movements in markets, and experts brought in by UNCTAD for the Board meeting on the Asian crisis advocated sharp restrictions on derivatives and other such trades.

The UNCTAD official dealing with commodity risk management, Mr. Lamon Rutten, said that commodity producers could benefit and have recourse to external finance at reasonable rates if only they could use such risk management instruments. He cited the example of Ghana where cocoa producers were able to get finance at just half a percentage point over libor rates, while Indonesian producers were being badly hurt, unable to get loans even at 20 percent points above Libor.

"At the end of the day," asked Rutten, "how can companies get finance and function efficiently if they are prevented by governments from using modern instruments."

Asked whether he was advocating that governments like Indonesia, Malaysia or elsewhere should remove all controls and allow forward markets and capital to operate freely, Rutten blamed governments for placing restrictions on use of such commodity instruments, resulting in losses to their producers. "Governments should remove all restrictions. It is good for the companies. They should remove all restrictions that interfere with the functioning of the commodity sector."

Mr. Fortin intervened to note that for a long time UNCTAD had advocated stabilisation of commodity prices and earnings through commodity agreements between producing and consuming governments. But that approach did not work, and the latest agreement expected to be given up
would be the agreement on natural rubber - Malaysia a principal producer having advised UNCTAD they plan to withdraw from it.

But with failure of commodity agreements, there was no mechanism in place to help developing countries in the face of the inherent instability and volatility of commodity markets. "We feel use of risk management instruments can be helpful, and they could help stabilise receipts at acceptable levels."

But the main purpose would not be to speculate as from hedge fund operations, where as recent events had shown there were clear risks in use of such financial instruments. "But we have taken a cautious line," he said. "Not too long Colombia made illegal any forward contracts. Now they have removed it."

However, added Fortin, on the wider issues UNCTAD did favour and support capital controls under specific conditions.