DEVELOPING COUNTRY DEPENDENCE ON COMMODITIES MUST
BE ADDRESSED FOR ANY CHANCE AT MEETING ANTI-POVERTY
GOALS, SAYS DEPUTY SECRETARY-GENERAL
NEW YORK, 3 November (UN Headquarters) -- Following are Deputy Secretary-General Louise Fréchette’s remarks to the General Assembly on commodities and development in New York on 3 November:
Mr. President, it’s a real pleasure to have you with us today and I look forward to your address explaining the experience of Uganda on this very important subject of trade and commodities.
The world economy has gone through enormous changes over the last few decades. But one fact has changed very little: a large number of developing countries remain greatly dependent on the exports of primary commodities.
Out of 141 developing countries, 95 depend for more than half of their export earnings on commodities. For 70 of them, these revenues were generated by only three commodities. This makes these countries very vulnerable to price declines and volatility.
And indeed commodity prices have declined over the long-term, especially after 1980. Between 1980 and 2002, agricultural prices relative to manufacturing prices have declined by 47 per cent and the prices of metals and minerals by 35 per cent, again relative to manufacturing prices. For some individual commodities, the price declines are even larger. For instance, coffee producers now receive roughly a third of the price that prevailed in the mid-1990s.
The price declines can be explained by factors such as little growth in demand, technological advances that have lead to synthetic substitutes and oversupply, for example as a result of subsidies or misguided policies.
Needless to say, this has deprived both governments and the people of developing countries from large amounts of revenues, contributing to poverty and making it more difficult to reach the Millennium Development Goals. For a group of 81 mostly small developing countries, the foreign exchange loss amounted to more than $6 billion per year on average during the period 1995 to 2000, according to one estimate.
Lower export revenues have also endangered the success of the HIPC Initiative for heavily indebted poor countries (HIPCs). Eight HIPCs have reached the “completion point”, but some of them have experienced worsening debt indicators owing to lower commodity prices.
Little has been done about these long-standing problems. Old instruments such as contingency lending and buffer stocks have faded into history. Recently, there seems to be, as President Chirac has put it, “a conspiracy of silence”.
The Monterrey Consensus highlighted the need to mitigate the consequences of low and volatile revenues from commodity exports. So where do we go from here?
First, market access needs to be improved. It is deplorable that cocoa beans enter largely unhindered into the major developed markets, while final products can only enter at tariffs of 15 to 30 per cent, with maximum tariffs even higher. The Doha Development Round of trade negotiations should address these issues for all commodities.
Second, developing countries themselves can implement policies that reduce their vulnerability. Especially important are medium-term fiscal frameworks, social safety nets and the well-managed reserve funds to smooth large swings in public revenues. The latter also improve the accountability and transparency in the public management of receipts from the exploitation of natural resource endowments, which in several cases has been a source of conflict.
Third, dormant international financing mechanisms that compensate for fluctuations in export revenues, such as the International Monetary Fund’s Compensatory and Contingency Financing Facility, should be revived.
Fourth, new market-based approaches could be explored. This would include insurance schemes and risk management tools, and technical assistance in this area is needed.
Finally, and perhaps most important of all, is diversification. Many developing countries have made great progress in the diversification of exports, thanks to policy reforms and investments in skills, education, infrastructure and technological capabilities. Uganda, for example, has significantly increased exports of items such as fish and cut flowers. I am sure that President Museveni will provide some valuable insights on his country’s efforts.
If we are to have any chance of halving poverty by 2015 and meeting the Millennium Development Goals by 2015, we need to address the fundamental problem of commodities that many developing countries face. I urge you all to give this issue your urgent attention, and thank you for the opportunity to share my thoughts with you.
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