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Post-Istanbul Conference on LDCs--Honing three-pronged approach to combat poverty

At first blush, the official aid flow from rich countries to the LDCs has actually declined over the years, and has failed to meet the initial official aid commitments targeting 0.7 per cent of the rich country’s GDP, which was made under the auspices of the United Nations Conference on Trade and Development (UNCTAD) in the early 1970s. In Istanbul, the rich country aid commitments were left vague and seemed to have down-scaled the original target, hovering around 0.15 per cent to 0.20 per cent of an individual rich country’s GDP. Although there is a down-trend in official aid commitments, the external financial flows to LDCs has, however, been maintained by the rising levels of private investment flows, as indicated by the recent surge in FDI to poor countries. The FDI flows to LDCs is close to half of the total net external resource flows into the world’s poorest economies. Yet, the external private investment scenario looks still grim and uneven.

LDCs absorbed less than one per cent of the world’s total FDI flows, concentrating to only ten of them, and more than half of the total private investment flows are shared by only four oil exporting LDCs. Crises-laden country like Nepal could not perform well in this field due to deteriorating business environment and inconsistency in policy measures in comparison to other better achievers, such as Bangladesh and Cambodia. There is no sign of improvement in FDI in poor-performing LDCs, including Nepal, without effecting the much-talked one-window system to further remove investment barriers, and enforcing the property rights laws with assurance of congenial business environment.

There is a ray of hope in the debt-relief initiative, since the multilateral effort has provided debt relief to some heavily indebted poor countries. This was invigorated by the Jubilee 2000 Campaign devoted to debt relief for the world’s poorest economies, over a decade ago. The campaign has been successful in cutting debt stock, which continue to impede economic performance in many LDCs, but without improving significantly in the level of debt service payments. Though the debt-relief initiative looks somewhat encouraging, the Istanbul meet remained tight-lipped for more debt relief programmes, encompassing more LDCs, not necessarily to be heavily indebted poor countries such as Nepal.

There could be one complication when taking steps to raise the level of official aid and debt-relief initiatives. The LDCs relishing with increased flow of rich country aid and debt could be plagued by what is called “Dutch disease” problems, as the IMF has warned. This is the situation when an influx of foreign exchange, whether through aid or remittances, appreciates the local currency’s exchange rate, making the country’s export dearer and creating job losses in the export sector, and also making it difficult to protect jobs against surge in cheaper foreign imports. So, LDCs better rely on themselves and mobilize domestic resources, focusing on trade.

However, promoting external trade is not as simple and flawless with regard to LDCs, despite the provision of preferential market access to the world’s poorest countries in the rich country markets. While their competitiveness in the international market is ascertained by one or two products—most probably labour-intensive or agro based— they have to face market access problems related to tariffs or non-tariff barriers. The rich country tariffs on labour-intensive products are either subject to tariff peak or tariff escalation, inhibiting LDCs to promote manufacturing goods, neither horizontally nor vertically. The challenges are even more acute in case of agriculture exports due to stringent sanitary and phytosanitary requirements, and the difficulty to compete with heavily subsidized farm products in rich country markets.

In Istanbul, these realities in the trade sector of the LDCs were barely taken into consideration, except for reiterating implementation of duty-free, quota-free market access, as stipulated in the World Trade Organization’s (WTO) Hong Kong Summit, and the early conclusion of the Doha trade talks. Now, the time is right for LDCs to be certain about whether or not the much talked duty-free, quota-free programme and the Doha Development Agenda of the WTO would truly be meaningful for them.

Source: The Himalayan Times