Press Release ECE/GEN/00/31
Geneva, 6 December 2000
UN/ECE Regional Conference on
"FINANCING FOR DEVELOPMENT" Opens; Main Problems Discussed
Panel Notes Disparities in Wealth, Development
A two-day conference on boosting financing for
"transition" economies in Central and Eastern Europe opened this morning with a
panel discussion on the major problems affecting official assistance and foreign direct
investment in such countries.
The session, entitled the "UN/ECE Regional Conference on Financing
for Development," is organized by the United Nations Economic Commission for Europe
(UN/ECE) in cooperation with the European Bank for Reconstruction and Development (EBRD)
and the United Nations Conference on Trade and Development (UNCTAD). One aim of the
meeting is to offer input to a High Level Intergovernmental Event on Financing for
Development to be convened next year by the United Nations General Assembly.
ECE Executive Secretary Danuta Hübner said in her opening remarks that
the meeting was intended to provide regional visibility for European issues at next year's
High Level Event but also was important for its own sake -- that it would help European
countries devise steps that could be taken at home to tackle the problems of economic
transition.
The Chairman of the session, Jorgen Bøjer of Denmark, who is also
Chairman of the Preparatory Committee of next year's High Level Event, told the meeting
that financing for development was an innovative process that took a holistic approach to
the challenges and opportunities posed by economic globalization. All relevant actors and
stakeholders had to be involved for the process to succeed, he said.
A panel discussion followed on the theme of "Financing the Process
of Transformation and Development in the ECE Transition Economies: What are the Main
Problems?" at which a series of participants contended that transition issues needed
more attention and resources from the more privileged corners of Europe.
Harald Kreid, Chairman of the ECE, said the countries of the West had
to be aware that development was not a zero-sum game and that a "beggar-thy-neighbour
approach" would not work. Rich countries had an interest, economically, in turning
poorer countries into rich ones with whom they could trade, he said, and because the
transition process had proved more difficult and longer-lasting than anticipated, there
was a danger of disenchantment in transition countries -- confidence in free-market
democracy and in Government institutions could erode, causing security, migration and
other difficulties for all of Europe.
Other panellists were Ignacio Garrido, Vice Governor of the Council of
Europe Development Bank; Lambe Arnaudov, Deputy Minister of the Economy of the Former
Yugoslav Republic of Macedonia; Willem Buiter, Chief Economist of the European Bank for
Reconstruction and Development (EBRD); Ms. Hübner, Executive Secretary of the United
Nations Economic Commission for Europe (UN/ECE); Marcelo Selowsky, Chief Economist of the
World Bank for the Europe and Central Asia Region; Michael Tutty, Vice President of the
European Investment Bank (EIB); and Alexei Ulyukaev, First Deputy Minister of Finance of
the Russian Federation.
The Conference will resume at 3 p.m. with two parallel panel sessions,
one on "mobilizing financial resources for transformation and development -- the
domestic dimension" and the other on "the role of official assistance in
creating conditions for sustainable development."
Opening statements
DANUTA HÜBNER, Executive Secretary of the United Nations Economic
Commission for Europe (UN/ECE), said the meeting was intended to provide regional
visibility for European issues at next year's global High Level Event, but also would be
important for its own sake, within the region, in terms of finding solutions for the
problems faced by European transition countries. Much could be done "at home,"
within Europe, and she hoped the session would result in a clearer vision of what to do
and how to do it.
JORGEN BØJER of Denmark, Conference Chairman and Chairman of the
Preparatory Committee of the 2001 High Level Intergovernmental Event on Financing for
Development, said financing for development was an innovative process that took a holistic
approach to development and to the challenges and opportunities posed by economic
globalization. All relevant actors and stakeholders had to be involved. He was glad that,
within Europe, such a useful regional conference could be held.
At the intergovernmental level, the Preparatory Committee had
established contacts with the Bretton Woods institutions, Mr. Bøjer said, and useful
interactions had been held with representatives of civil society, but to date progress in
designing next year's global conference had been slower and more laborious than
anticipated; the name, for example, was still to be settled -- it was not, one would hope,
to be called, in the end, a "High Level Event". There was resistance in some
quarters to holding another "world conference", but the chief difficulties
centred around different perceptions of globalization held by the countries of the South
and North. There was truth to the views held by both sides, and coordinated leadership was
needed to find the common ground on which all countries could work. He hoped the outcome
of this regional session would include an enrichment of the fund of shared analysis of how
financing for development might come about, Mr. Bøjer said -- that would be even more
important than commitments for financial aid.
Panellists' statements
IGNACIO GARRIDO, Vice Governor of the Council of Europe Development
Bank, said the bank focused on social development; it sought the social cohesion that
development could produce and was a fairly old institution -- it had been created in 1956.
There were 35 member countries, of which 14 were transition countries; according to its
statutes the institution could only intervene through loans or guarantees; it currently
financed social projects in some 15 countries in transition.
Long-term loans were particularly sought and needed in this part of
Europe; the bank's conditions for granting a loan in Eastern Europe were the same as for
elsewhere in Europe; that was true even if more risk was involved and the recipient
country had limited access to regional and world markets. Among the purposes of loans were
to deal with the consequences of population movements and natural disasters; and to foster
education, housing, rural modernization, job creation through capacity building and
training, development of small- and medium-sized enterprises, and conservation of
historical patrimony.
LAMBE ARNAUDOV, Minister of the Economy of the Former Yugoslav Republic
of Macedonia, said Macedonia was trying for inclusion to the greatest extent possible in
economic globalization, as that seemed vital for a nation that currently had a low level
of development. Maintenance of macroeconomic balance and economic stability were of great
concern to the Government; priority was being given to the creation of conditions that
would increase production and business activity, and major changes had been made to the
country's financing, foreign-trade, and tax systems in the hope of attracting increased
foreign investment. An agreement had been signed with the World Bank and International
Monetary Fund.
The Government's plan through 2003 envisaged a substantial rate of real
growth, Mr. Arnaudov said, and efforts were being made to meet international criteria for
stimulating foreign investment. It was hoped that Macedonia would become a centre of its
region and a hub for transport and business activity between neighbouring countries, but a
much greater injection of foreign capital would be required to achieve such goals.
WILLEM BUITER, Chief Economist of the European Bank for Reconstruction
and Development, said the external financing problems faced in the region differed from
country to country -- one could easily distinguish six different "sub-groups" of
countries, ranging from those relatively far advanced in their transitions to those less
well-embarked. The five poorest countries of the area posed special problems. The EBRD was
active in 26 -- it hoped soon 27 countries -- but in the future would change its
strategies and focus.
For almost every country, public finance problems were harder to solve
than external-transfer problems, Mr. Buiter said. There were problems in maintaining
spending programmes designed to meet OECD standards; in other countries there were
problems in raising sufficient funds simply to carry out the "night watchman"
functions of the State. First fiddle always had to be domestic funding and domestic
performance. In the more advanced transition countries a serious difficulty was that
investments in such matters and transportation and environment had to be increased and
maintained, for example. Private capital was increasingly widely available in these
countries, fortunately, meaning that there was less need for bilateral and multilateral
aid to overcome problems related to potential market failures. Russia was a special case
-- it had huge assets and a positive balance of assets, in a sense, except that so many of
these resources were privately held, and held externally so that they contributed little
to the tax base and to Government funding. In those countries least well off, where
external foreign investment was a trickle, there was the greatest need for direct
bilateral and multilateral aid.
DANUTA HÜBNER, Executive Secretary of the ECE, said
"diversity" best described the situation in Europe. Diversity is both good,
which allows to exploit the potential for cooperation, and bad in the sense that there is
a great disparity in wealth and living standards, as well as in advancement of
institutional and structural reforms. Only few countries with economies in transition fall
into a high level of the human development category.
Ms. Hübner emphasised the fact that nearly half of the countries of
our region face a combination of transition and development problem. In most of those
countries there has been a continuous fall in economic activities for a decade, there are
massive restructuring needs; while macroeconomic stabilisation is a must, so is the need
to accelerate catching up and reforms. To achieve a noticeable improvement in living
standards, these countries need many years of high growth. A well functioning efficient
mechanism of development financing is badly needed. Our advantage is that good examples of
efficient and effective development financing exist in Europe and can be shared with
others.
HARALD KREID, Chairman of the ECE, said no region in the world had such
disparities between rich and poor countries. The countries of the West had to be aware
that development was not a zero-sum game; a beggar-thy-neighbour approach would not work
-- in the end, both partners would be poorer off. Wealth in Europe should be created in a
mutually reinforcing process; rich countries had an interest, economically, in turning
poorer countries into rich ones with whom they could trade. This might seem obvious, but
the way things were going, apparently it wasn't -- there was too much concern with
immediate consequences in terms of job losses or other shifts in prevailing circumstances.
Long-term benefits, and benefits beyond purely economic matters, had to
be considered, Mr. Kreid said -- it was in the rich countries' interests to foster
prosperity in eastern Europe and the former Soviet Union within a reasonable span of time;
that would pay dividends in terms of enhancing security, limiting extremism, reducing
migration, and increasing standards of living everywhere. It was true that the transition
process had proved more difficult and longer-lasting than anticipated; there was a danger
of disenchantment now; confidence in free-market democracy and in Government institutions
could erode. It would not be wise to turn away from these challenges; the wealthier
nations had a moral obligation to provide more intensive aid to the transition countries,
and it also was in their best interests.
MARCELO SELOWSKY, Chief Economist of the Europe and Central Asia Region
for the World Bank, said external financing should complement internal reform. From the
countries that had been most successful, several lessons had emerged. One was the
fostering of small and mid-sized enterprises; if there was a large growth in such firms,
good things followed. A second was growth in foreign direct investment. Fiscal discipline
was important -- firms that were subsidized, didn't pay their debts, that sucked up
resources and were privileged in various ways, used up goodwill and capital in a dead-end
way that choked off the opportunity for growth in new sectors and for small and
medium-sized enterprises. Tax systems and funding had to be transparent. Hard budget
constraints had to be imposed while conditions for the entry of new firms and new capital
had to be made attractive.
Governments had to create institutions that supported new markets and
created the fiscal space to socially support the reallocation of recourses between
"old" and "new" sectors, Mr. Selowsky said. Infrastructure also had to
be maintained and developed, as difficult as that might be -- businesses couldn't grow
without utility services and roads.
MICHAEL TUTTY, Vice President of the European Investment Bank (EIB),
said that if Ireland, where he was from, had "caught up" recently with Europe,
it was because it had finally, somehow, got all its policies going in the right direction.
It was not easy -- you could get some things right, but if you didn't get them all right
it was likely that development wouldn't come. For a long while, for example, Ireland had
run public deficits that were too high; when it finally tackled that difficulty in 1987
and got its public finances in order, the country became much more attractive to foreign
investors and domestic entrepreneurs. Even then, it had taken some six years before a
development turnaround was well-established. Another crucial factor had been education.
Ireland had done that for years, yet because it didn't have other factors in order, all
that had resulted for years was that Ireland's well-trained young people had got on planes
to the United States and other places and had worked overseas. It was only recently that
they had been returning.
In transition countries, a number of key areas had to be addressed, Mr.
Tutty said; the environment needed attention, including the development of environmentally
friendly energy supplies; infrastructure had to be maintained and enhanced. The EIB was
working in these and other areas, providing loans mostly for broad policies and projects,
such as for building up bond markets and other aspects of the financial system.
ALEXEI ULYUKAEV, First Deputy Minister of Finance of the Russian
Federation, said this year Russia had 7 per cent GDP growth and 10 per cent growth in
industrial production; various other indicators were looking up. External developments in
the world economy were in part responsible, but also involved were changes in internal
economic policy. For Russia the problem wasn't external investment but in applying
resources to development. The resources existed within Russia, but they had not, in the
past, been used constructively, in part because of currency and other risks. Currently the
Government was trying to ensure 100 per cent of budget commitments -- failure to meet
announced obligations in the past had been hurting public confidence. Now risks were being
reduced. There were also problems related to the rigidity of certain limitations on
business activities, including matters related to bankruptcy and to the establishment and
registration of new businesses.
Transparency in budgetary matters was being enhanced, also to reduce
business risks, Mr. Ulyukaev said. It was hoped that such steps would lead to more
predictability and stability. Investment had grown 19 per cent this year, but more
investment had to come from banks and other traditional sources of financial flows rather
than from businesses themselves. The basic capital flows were still not sufficient, and
exchange rates had to be less vulnerable.
Discussion
A number of comments were offered from the floor, including remarks
from France, which spoke on behalf of the European Union and noted that the EU had
provided a "non-paper" to the conference on the matter of financing for
development. The representative said the EU felt the matter had to be considered from both
global and regional perspectives and that domestic policies and appropriate regulatory
frameworks had to be established in transition countries -- were in fact vital for
attracting foreign direct investment.
Representatives of several transition countries spoke, outlining
domestic measures taken to establish secure environments for business and investment but
noting difficulties ranging from influxes of refugees to unemployment rates as high as 50
per cent and imbalances in foreign financial imputs that could result, as a spokesperson
for Bosnia and Herzegovina characterized the situation in his country, in a
"Frankenstein economy". Coordinated policies were called for and achievements
noted, particularly that of Ireland, which a number of speakers cited as a hopeful example
of a European nation accomplishing substantial, sustained economic growth and development.
For further information please contact:
Economic Analysis Division
United Nations Economic Commission for Europe (UN/ECE)
Palais des Nations
CH - 1211 Geneva 10, Switzerland
Tel: (+41 22) 917 27 18
Fax: (+41 22) 917 03 09
E-mail: [email protected]
Website: http://www.unece.org/ead/ead_h.htm