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Finance … Development September 1979
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A recognition of interdependence: UNCTAD V: An analysis of the results of the Manila session of the United Nations Conference on Trade and Development against the background of discussions on North-South issues

Author(s):
International Monetary Fund. External Relations Dept.
Published Date:
September 1979
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Mahmud A. Burney

Few recent international conferences have evoked as conflicting and diverse responses as UNCTAD V. Why such contradictions in perception? In order to form an opinion on whether Manila was a success or not, it may be helpful to reflect briefly on the genesis of the UNCTAD, and the changing external environment which provided the backdrop for UNCTAD V. Conflict and confrontation in the UNCTAD are somewhat analogous to fear and anger engendered at initial stages of agrarian reform, trade unions, and independence movements. There have been many initiatives in these other movements that were resisted or even at first condemned, and that later acquired general acceptance.

The postwar period saw an impetus to independence movements as well as to the establishment of technical institutions to rebuild war-shattered economies and to prevent a recurrence of the events which led to the depression of the 1930s. While the United Nations facilitated the process of territorial independence of a large number of countries in Asia and Africa, the technical agencies sought innovative solutions to socioeconomic problems. But this left a gap: there was no forum in which to discuss economic development in the changing political environment of the postcolonial era. The need for such a forum was felt particularly by the countries of Latin America: having been politically independent for some time, they were anxious to participate as full partners in the international economic system. The enormous difference in wealth between these and the industrial countries meant that in order for them to gain entry into the international system on equitable terms some form of united front had to be organized among the developing nations. Accordingly, such Latin American intellectual leaders as Dr. Raúl Prebisch began to mobilize and organize the newly independent Asian and African countries at the United Nations. The developing countries found support at that time from the socialist countries, which were also critical of the international trading system.

These efforts resulted in the United Nations Conference on Trade and Development held in Geneva in 1964. UNCTAD I was the first of a series of global conferences that were to be held over the next 15 years on various aspects of the economic relationship between poor and industrial countries. The meeting concentrated on proposals to reduce trade barriers, to improve the access of exports of manufactured goods from developing countries to markets in the developed world (through, inter alia, the Generalized System of Preferences (GSP)), and for mechanisms to stabilize commodity earnings. The developing countries used UNCTAD I as an occasion to air their common frustrations. They also urged the developed countries to fill the gap left in the UN system by the abortive International Trade Organization (ITO) conceived in Havana in 1948. While the developed countries were not prepared to create an organization in the image of the ITO—arguing that the developing countries’ problems in the area of trade could be handled by the General Agreement on Tariffs and Trade (GATT)—they conceded the need for an umbrella institution which would help an economic dialogue. The Geneva conference led to the creation of the UNCTAD.

Catalytic role

The UNCTAD faced two difficulties: finding issues around which a heterogeneous group of developing countries could rally and, if successful in that effort, running the risk of alienating the powerful industrial countries. Nevertheless, under the leadership of Prebisch, the UNCTAD pursued a number of ideas and proposals which later became an accepted part of the North-South agenda. The GSP, the resource needs of the developing world (and the 1 per cent of gross national product (GNP) target for resource transfers, subsequently subdivided and set at 0.7 per cent of GNP for official development assistance), price stabilization, terms of trade, and transfer of technology were all first brought into the dialogue by the UNCTAD, and have since become an integral part of the work program of bilateral and multilateral institutions, including the Organisation for Economic Cooperation and Development (OECD), the GATT, and the International Monetary Fund and the World Bank.

Over the last 15 years, the UNCTAD secretariat has performed a catalytic role in rendering these ideas generally acceptable through a complex process of negotiation, reflecting national and regional interests. For example, the original concept of the Common Fund gave little importance to its “second window” to finance commodity-related activities, such as market promotion, research and development, and certain aspects of diversification; emphasis was placed instead on buffer stock financing and its role in support of commodity agreements. But during the preparatory phases of UNCTAD IV (1976), the African countries, believing that they would stand to benefit little from stock financing, prevailed on the developing countries as a group to include in the negotiating package a very substantial role for this second window.

Fifteen years and four conferences later, the environment in which the UNCTAD functions has changed dramatically. In what follows, an attempt is made to analyze this change and to indicate how it has affected the economic dialogue between various groups of countries.

Changing environment

Perhaps the most important change was the emergence of three foci of economic power in the industrial world (North)—Japan, the United States, and Western Europe. The United States, a continental economy, depended less on trade than Japan and Western Europe. Japan’s reliance on raw material imports from the developing countries (the South) made it somewhat more receptive to some of the developing countries’ demands. Strong historical and cultural links between countries of Western Europe and the developing world also influenced Europe’s approach to the Third World. The Scandinavian countries and the Netherlands represent another view—that the changes in existing arrangements could occur through accommodation. In consequence, the North did not at the time of UNCTAD V face the South as solidly as it had at the Conference on International Economic Cooperation (CIEC) in Paris in 1977.

If the developed countries did not speak with one voice, neither did the developing countries. The interests of developing countries differed according to their degrees of development and economic and political affiliations. Since the early 1970s, for instance, two regional blocs of developing countries—a cluster of countries in South America and the group of countries belonging to the Association of South East Asian Nations—had not only drawn closely together, they had also achieved and sustained rates of economic growth unprecedented in the history of the Third World. The oil-surplus countries in North Africa and West Asia, too, along with some of their neighbors, had achieved a degree of prosperity that was not common in the developing countries. It was the Third World “residual”—the poorest countries, mostly in South Asia and in sub-Saharan Africa—that continued to face the classic problem of underdevelopment. Similarly, even though the Lomé arrangement on trade with the European Community remained loosely defined, for example, it was attractive enough for a number of small African, Caribbean, and Pacific countries to identify their interests with those of Europe. The countries of the Third World were prepared to live with this diversity, which not only gave the movement maturity but also made it possible to sustain it.

In addition, there appeared to be a growing recognition on the part of both the North and the South of the importance of bringing the socialist countries into the dialogue. The socialist countries had not participated in the Paris discussion; in other forums including UN conferences on, for example, population, the environment, and industrialization, they had taken the back row. But the current patterns of world trade—in particular, the trade in food-grains and fuel in which the Union of Soviet Socialist Republics was playing an increasing role—meant that without the full participation of the socialist countries, any new world economic order agreed to by the North and the South would not be complete.

Main issues debated

The agenda drawn up for UNCTAD V reflected these changes in the environment. In particular, UNCTAD V sought to address the structural problems faced by the world economy. In this respect, it was different from UNCTAD II and IV, where the emphasis had been on adopting measures such as the GSP and the Common Fund, which were aimed not at introducing structural changes in the world economy, but at removing some of the imperfections in existing structures. In Manila, however, the agenda focused on structural change in three main areas: trade, money and finance, and interdependence between different sectors of the world economy. Greater control of developing countries over processing their minerals and raw materials, a greater say by them about the distribution of international liquidity, and better access to the world financial markets are examples of the type of structural change they sought. Also, the session chose to look carefully at international institutions on the assumption that those in existence were no longer dealing adequately with the present world situation.

To some, the debate in the negotiating forums on trade, finance, and interdependence may have seemed open-ended and repetitive. In actual fact, by bringing to the surface the very different perceptions of different groups of countries about these matters, it brought the participants closer to achieving some understanding. For instance, in the trade negotiating group much of the discussion focused on the recently concluded Tokyo Round (see “The Multilateral Trade Negotiations—a background note” by Mark Allen in this issue). The developing countries argued that the Round was essentially incomplete as it had not dealt with the problems they faced in their trade with the developed countries and, therefore, wanted the trade negotiations to continue. Some of their large trading partners in the industrial world, on the other hand, urged them to bring the present round of negotiations to an end by signing the Geneva agreement of the MTN. Despite these very different positions, there was a degree of understanding that the problems of the developing countries remained unresolved. The difference was more on agreeing on the machinery to deal with these problems and less on their definition.

In the negotiating group on money and finance, some of the developing countries sought to obtain greater control over the creation and management of international liquidity. Others urged the developed countries to subscribe to a system that would ensure a massive and predictable transfer of concessionary resources to poor nations, such as the UN target of 0.7 per cent of GNP for official aid, establishing a link between the creation of special drawing rights and development, and international taxation. Once again, beneath surface differences, there was a notable degree of understanding on the nature of the problem. The developing countries’ need for an increase in external capital flows, both concessionary and on market terms, was not an issue. (It can be estimated that the non-oil developing countries will probably have an aggregate deficit of US$40-50 billion by 1980.) Nor was the demand that the Third World should have a larger say in international money matters an issue. Many developed countries felt that the recent changes in the International Monetary Fund—such as the creation of the supplementary financing facility and the new guidelines on conditionality—would eventually satisfy the developing countries in the area of international finance. On the other hand, some Third World countries felt that in determining their financial and monetary policies, many national and international institutions had not been sufficiently responsive to the needs of poor nations.

The negotiating group on interdependence between the economies of the world started its session with debate on the question whether the world’s economic structure should be deliberately restructured to accommodate the needs of its various parts, or whether it should be allowed to evolve under the pressure of events. No one questioned the need for a change in the international economic order. But money, finance, and trade are important elements of the international structure; since the question of changing those substructures was being considered in separate negotiating groups, it was soon recognized that any discussion on interdependence should follow, and not precede, the discussions on trade, money, and finance. This recognition itself was an important advance made at UNCTAD V: restructuring of the world economy follows from agreements to modify arrangements in various specialized fields, rather than vice versa.

Judgments about the significance and achievements of UNCTAD V have varied widely, both in the developed and the developing countries. Many of the differences appeared in formal statements during the session itself. There was also substantial skepticism in the post-conference analysis about the results of the session. During the session, the “Father of UNCTAD,” Dr. Raul Prebisch, urged developing countries to reorder their priorities by moving away from imitating the consumption patterns of the developed world, to developing their own resources. He also argued that, although the international community possessed resources and technology to overcome inequality among men as well as reduce the imbalance among nations, it lacked the institutions that could readily use the available resources and skills for improving human welfare.

Despite the debate and the differences, however, consensus agreements were reached at this session on some aspects of the transfer of resources to the developing world, commodities, protectionism, economic cooperation among developing countries, and a number of other issues. On the other hand, central problems, such as how to stabilize commodity export earnings, how to handle rising energy costs, and how developing countries could affect the international financial environment, were unresolved. Nevertheless, the session was a watershed in the progress of North-South negotiations.

New direction

The dialogue at Manila on international economic issues between the various groups of countries did not reflect the confrontation of some of the earlier debates. UNCTAD V concerned itself more directly with the economic issues being faced by the international community. In what way are the results of the UNCTAD V discussions likely to influence the future of deliberations? The answer to this question will have to be speculative.

First, the Manila session may have brought to a close, at least for the foreseeable future, the current phase of open North-South confrontation on economic issues. There is now recognition that in many areas the interests of the North and the South are not divergent but convergent. Both groups have common interests in the expansion of world trade, the exploitation of new sources of energy, the orderly migration of labor and of private resources, the reduction of the brain drain, and so on. On these and many other issues, the countries of the North and the South are not likely to array themselves on opposite sides of a political divide. If this perception is right, we are likely to see the dialogue proceed further in smaller forums with the active participation of only those participants directly concerned with some particular facet of the international economic scene. For instance, a massive transfer of concessional resources is primarily of interest to the poorest countries of the Third World. Similarly, a handful of developing countries are concerned that the flow of private capital should be orderly. In other words, one may see fewer global conferences and more businesslike sessions between smaller groups of countries, leaving global bodies like the General Assembly and the UNCTAD to debate and guide political decisions to support negotiations at regional levels.

UNCTAD I, Geneva 1964

  • The creation of a forum to attract attention to issues supporting the developing countries, not covered by existing institutions.

  • The formalization of the Group of 77 and beginning of discussion on a few issues such as terms of trade, resource gap, and Generalized System of Preferences (GSP).

UNCTAD II, New Delhi 1968

  • Between 1964 and 1968 the UNCTAD secretariat focused more seriously but still sporadically on GSP, the needs of the developing countries for assistance, terms of trade, technology transfer, and selected development policies.

  • The Conference led the OECD to initiate work on a scheme of preferences.

  • Dr. Raul Prebisch retired in 1969 as the Secretary-General of the UNCTAD.

UNCTAD III, Santiago 1972

  • Unlike the Geneva and New Delhi meetings, where these issues were considered separately, UNCTAD III saw discussion on interrelationships between trade, money, finance, and development at a technical level.

  • Initiation of an effort by Mr. Robert McNamara, President of the World Bank, to mobilize global support for the poor, suggesting ways to integrate the bottom 40 per cent of the population in the development process.

UNCTAD IV, Nairobi 1976

  • Stocktaking of progress in various forums (CIEC, GATT) on decisions taken at the Sixth and Seventh Special Sessions of the UN General Assembly in 1974 and 1975, respectively, particularly in the light of the oil price increase, monetary instability, recession, inflation, increased balance of payments gap of the non-oil developing countries, decline in commodity prices, and the uncertainty that the minimum development needs in many developing countries would be met.

  • Main emphasis on commodities (Integrated Program for Commodities—Common Fund) and to a lesser degree on external debt.

  • Resolution on a Common Fund symbolized G-77 unity.

UNCTAD V, Manila 1979

  • Emphasis on trade and financial flows aspects of the relationships between developed and developing countries.

  • Emphasis on growing interdependence between different parts of the world economy.

  • Efforts to bring socialist countries into the dialogue on economic issues.

  • Emphasis on trade liberalization and concern about expanding protectionism.

Second, the progressive blurring of the North-South distinction is likely to result in the inclusion of some, if not all, socialist countries in the international dialogue. The very active participation by the People’s Republic of China in the Manila discussions suggests that that country is now prepared to play an important role in reshaping the international trade and financial system.

Third, it appears that the differences between various groups of countries on the question of mechanisms for handling international economic problems will be gradually ironed out. If and when this happens, it is likely to be accompanied by the creation of new institutions, or changes in existing ones. Some of the new institutions may be informal, such as the economic summit between the industrial nations or future summits between the industrialized and developing countries, and between the Organization of Petroleum Exporting Countries (OPEC) and the developing countries. Some may be more formal, such as the possible Third World secretariat discussed by the Group of 77 at their Arusha meeting prior to UNCTAD V.

These trends—the move toward disaggregation of economic issues, the active participation of some of the socialist countries in the international economic system, and the emergence of new international institutions—will naturally influence future sessions of the UNCTAD. In Manila, the UNCTAD sought a new and expanded mandate to oversee issues pertaining to trade, money, and development.

The mandate was not expanded. At the UNCTAD, however, the developed countries agreed to the need for a review of the international economic system. To some extent, reviews are already being undertaken—the UN’s work on the International Development Strategy for the 1980s is an example of the way the international community is looking at the world’s current economic situation, problems, and prospects. The message that those reviews give is the message of Manila: the importance of interdependence between the various parts of the complex world economic system. Recognition of this interdependence must be the basis for further evolution of the system into one that is more equitable, involves greater participation by more countries, and functions more smoothly. Differences in viewpoints between the various sectors in the world economic drama will continue to exist. But these differences will be resolved not in an environment of confrontation, with one side overcoming somehow the resistance of the other, but in an atmosphere of accommodation. In this effort, the UNCTAD has a very useful role to play. Between now and 1983, when it meets for its sixth session, the UNCTAD has a great deal of ground to cover. But the journey has already begun: the course was charted in Manila.

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