TFR 27 – Facilitating Development in a Changing Third World: Trade, Finance, Aid

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Today the developing countries are facing an economic crisis of major proportions. The terms of trade for most of their commodity exports have substantially declined in the past few years, and in 1981 and 1982, the overall volume of trade for manufactured exports and commodities stagnated or declined. Commercial bank lending, a principal source of financing for non-OPEC middle-income countries, decelerated so rapidly in 1982 that net credit outstanding at the end of the year may have been less in real terms than at its beginning. The concessional aid (ODA) of the OECD countries declined in nominal and real terms in 1981, principally because of reduced U.S. disbursements.

In the face of these conditions, after almost three decades of impressive economic growth in the developing world, LDC economies are generally stagnant. Some countries are experiencing a decline of already poverty-level incomes. If the present crisis is allowed to continue, increased political and social unrest is a likely consequence of these conditions.

Many of the trilateral governments and their publics have paid scant positive attention to this evolving crisis of development. This neglect in part reflects the ignorance of the public and even the vast majority of the political elites of their basic interests in the developing world. It also partly reflects disenchantment with the 'South', either because of a false impression that the 'heavy burdens' of development assistance over the years have not resulted in substantial progress or because of the strident and non-constructive tone of much of the North-South debate. In part also, the inattentiveness of our countries reflects the intrusion of other, apparently more immediately pressing policy issues, such as domestic economic and budgetary problems and East-West security issues.

In the midst of our urgent internal problems of slow economic growth and very high unemployment, are conditions in the developing world of vital concern to the trilateral countries? Are investments of political attention and financial resources to facilitate development beneficial to our national interests?

We believe the answer to both of these questions is a resounding "yes". The trilateral countries have become increasingly engaged economically, politically, and socially with the developing world, and this trend cannot but continue. In the broadest but most fundamental sense, the ability of the developing countries to continue to make economic progress is a question of long-term world stability, not just the stability of the "third" world. Given the growth of interdependence and the diffusion of knowledge, it is impossible to imagine as viable in the long term a world order in which a relatively small fraction of the population (those who live in the trilateral countries) have average incomes some forty times that of the majority of mankind living in low-income countries.1 Such a situation if existing within the boundaries of any one of our countries would be regarded as socially, morally, and politically unacceptable.

In a narrower and shorter-term sense, the restoration of normal economic conditions in the trilateral countries is closely linked to a return of satisfactory rates of growth in the developing countries. Even though almost a quarter (and the fastest growing portion) of trilateral countries' exports are destined for developing countries and the majority of imported fuels and raw materials needed for industry come from them, these basic facts of interdependence are not widely appreciated in our countries. A resumption of growth in the developing world can help reinforce economic recovery in the trilateral countries just as the recovery of the trilateral countries is vital to renewed rapid growth in the developing world.

Economic interdependence will continue and will require, over the long term, the creation of new and stronger international institutions to manage issues of interdependence. It is now politically impossible to establish the international institutions ultimately needed, but it is possible to develop policies for the longer term and to build on existing structures to create transitional regimes to deal with the shortand medium-term issues.

The current issues are so serious that if proper solutions to them are not found, short- and medium-term developments may greatly reduce the possibility of finding adequate long-term paths. The authors have therefore decided not to focus on longer-term problems in this report, but to address themselves principally to the immediate issues, keeping in mind the need for interim solutions compatible with long-term needs.

It might be objected that economic development is a question for the developing countries and thus not a principal concern of the trilateral nations. We would agree that the primary responsibility for development rests with the developing countries themselves. No matter what trilateral country policies are, economic growth in the

developing world cannot be sustained without appropriate and necessary actions by the developing countries. These actions include the formulation and effective implementation of sound macro-economic policies, efforts to improve agricultural productivity, the building of improved educational systems, the acquisition of appropriate technologies, the development of a sense of national identity bridging subnational ethnic or religious groupings, and the like.

All of these actions may be necessary for sustained growth, but they are rarely sufficient. It is also necessary that the trilateral countries, which play an essential role in the functioning of the international system, provide the kind of external environment which facilitates the development process and the harmonious integration of the developing countries in a world economic system that itself is constantly evolving to reflect their greater participation.

First and foremost, it is necessary that our countries adopt in practice, and not simply in rhetoric, coherent strategies to facilitate development in the Third World. Such strategies are not only a matter of more generous concessional assistance, but must also incorporate trade policies and policies covering private financial flows to the developing countries in an integral manner. These policies must be adapted to the differentiation within the Third World in order to better meet the needs of particular countries and regions.

Part 1 of this report deals with trade, private financial flows, and concessional assistance, diagnosing the issues and suggesting intermediate solutions. The first chapter, opening Part 1, describes the past progress and continuing requirements of different groups of developing countries. The second chapter reviews North-South trade and stresses the importance for economic growth of open access to the markets of the advanced countries as well as liberalized access to the markets of newly industrialized countries. In the third chapter, there is an analysis of the current financial crisis. The authors regard it as a "liquidity" crisis (not a "solvency" crisis) in which continued expansion of commercial bank lending, though at a more moderate rate than in the recent past, is not only necessary for the debtor countries but also sound from a banking perspective. The fourth chapter analyzes the crisis in Official Development Assistance (ODA), the major source of financing for the poorest countries, and recommends that the volume, distribution, and enhanced effectiveness of ODA need immediate attention.

In Part 2 of the report, the attitudes and policy responses of the trilateral countries are described. Chapter 5 covers Japan; Chapter 6 looks at five European countries as well as the European Community; and Chapter 7 examines Canada and the United States.

In the final chapter, the authors summarize their major arguments and restate in briefer form their principal recommendations.

The authors recognize that some topics which are important in a medium- and longer-term perspective are not examined in this report, which is primarily focused on the current crisis. We recognize, for instance, the importance of private direct investment in facilitating development, particularly in middle-income developing countries. The contribution of private direct investment will be enlarged in cases where host countries have developed a reasonable legal framework for foreign investments and where multinational corporations have learned to adapt to different socioeconomic contexts. Private direct investment is an efficient way of transferring technology and increasing productive capacities. It cannot significantly contribute, however, to the solution of the immediate dramatic difficulties in the present situation of the world economy.

This report also does not deal with some key development policy issues in many parts of the South, such as enhancing food production, expanding national energy sources, and increasing the efficiency of family planning all crucial medium- and longer-term issues discussed in many other reports. Finally, the report does not focus on global negotiations. The authors are not convinced that these negotiations can have an impact on short- and medium-term problems.

Authors

Takeshi Watanabe, Founding President, The Asian Development Bank; Japanese Chairman, The Trilateral Commission
Jacques Lesourne, Professor of Economics and Industrial Statistics, Conservatoire National des Arts et Métiers; Director, OECD Interfutures Project
Robert S. McNamara, former President, The World Bank

Table of Contents

Introduction

PART 1: STRATEGIES TO FACILITATE DEVELOPMENT
I. Growing Diversity in the Developing World
II. North-South Trade Relations
III. Financing Middle-Income Developing Countries
IV. Concessional Assistance for Low-Income Countries

PART 2: TRILATERAL ATTITUDES AND RESPONSES
V. Japan
VI. Western Europe
VII. North America

Summary and Recommendations

  • Topics: Economics, Trade, Multilateral Cooperation
  • Region:  North America, Europe, Middle East, Africa, Pacific Asia
  • Publisher:  The Trilateral Commission
  • Publication Date:  © 1983
  • Price:  Out of Print
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