New York, 17 February 2004
Statement by Mrs. Brigita Schmögnerová,
1. None of the countries which are members of the UNECE currently qualify as least developed countries. Despite this, many of them face similar economic and social problems as the LDCs, such as high levels of poverty, falling real incomes, high unemployment, absence or severe deterioration of social safety nets, lack of reliable access to safe drinking water, sanitation, housing and clean energy, declining life expectancy, rising child mortality and malnutrition, the growing threats of HIV/AIDS and deteriorating educational status.
At its 2003 meeting the Expert Group Meeting of the UN Committee on Development Policy reviewed the situation in countries with economies in transition and highlighted the fact that nine countries have been classified as low income by the World Bank in at least one of the past three years, namely Armenia, Azerbaijan, Georgia, Kyrgyzstan, the Republic of Moldova, Tajikistan, Turkmenistan, Ukraine and Uzbekistan. The Expert Group noted that some of these countries now have lower Gross National Income per capita than many current LDCs and several of them would also comply with the Economic Vulnerability Index criteria for inclusion in the list of the LDCs. However, as a result of a relatively high Human Assets Index (HAI) due to past social policies, none of these low-income countries qualify as least developed. Concerns were expressed, however, that if the economies of some of these countries do not improve in the near future, erosion in social progress might lead to the lowering of their HAI scores.
Since they do not qualify as LDCs, low-income countries of the UNECE region do not benefit from trade, financial preferences and other commitments included in the 2001 Brussels Declaration and Programme of Action for the Least Developed Countries for the Decade 2001-2010 offered by international financial and trade institutions as well as other developmental partners.
We firmly believe that the international community must substantially increase its attention and support to the efforts of low-income countries with economies in transition regardless of their status vis-à-vis the LDC list.
2. During the 1990s, both absolute and relative poverty levels increased in the UNECE region, particularly in the CIS and South-east Europe. Using the World Bank figure of $2 a day poverty line, an estimated 50 million people living in Eastern and Southern Europe and the CIS are below the poverty line. There are variations in absolute poverty rates across the region, with rates significantly higher in the CIS than elsewhere.
Poverty in Eastern and South-eastern Europe and the CIS is linked either to transformation (like deep transitional recession) and/or dissolution of States frequently followed by war conflicts. In the late 1990s or 2000 at the latest, positive economic growth began in the low-income countries with economies in transition. Despite this, poverty is falling very insignificantly and disparities in incomes are widening. There is therefore an urgent need to implement pro-poor growth policies that would generate employment, and prevent further deepening of income disparities and the growth of poverty. A proper policy mix of fiscal, monetary and social policies is needed.
This should be fully recognized by the IMF, the World Bank and other IFIs when formulating their conditionality. The IMF's financing facility PRGF does not necessarily reflect this requirement and is more of a replica of traditional IMF programmes which are hostile to poverty reduction. The effectiveness of the conditionality of IFIs can only be increased if it is customized to country-specific requirements and is the result of policy dialogue.
3. The appropriate policy mix needs to be accompanied by the development of institutions that would improve the efficiency of governments, including public administration, fiscal management, increased transparency and accountability, democratisation of the decision-making process and strengthening the fight against corruption. It is unlikely that real improvements in poverty reduction will be achieved until governance is improved. Stimulating pro-poor growth and reducing income inequalities will often require a fight against vested interests that often hold back restructuring, competition and efforts to improve public expenditure management such as the introduction of public procurement. Renewed emphasis on institution building and continued capacity building at both national and local levels to ensure delivery on reforms remain essential. The United Nations regional commissions provide a forum for the exchange of best practices and experiences in good governance and contribute to governance improvement through their technical cooperation.
4. In the past decade, the transition economies in the UNECE region have faced the challenge of mobilizing the external resources required for industrial restructuring, the development of infrastructure, etc. Low-income countries with economies in transition have not been able to attract private resources in the form of FDI, international bond issues, bank loans or portfolio investments in local securities. Mobilization of private resources will require further progress in reform and improving the creditworthiness of the states. Attracting FDI is a high priority for low-income States with economies in transition. In most cases a lack of progress towards economic stabilization, lower stages of economic reform, often low security and political instability decrease the ability to attract FDI and private foreign financing. A major improvement in these factors is needed if low-income countries want to compete for FDI.
5. Within the UNECE region, a number of countries (Kyrgyzstan, Serbia and Montenegro, the Republic of Moldova and Tajikistan) are severely indebted and rely mainly on official sources of finance. Adequate support from the international community in the form of generous financing and debt relief where appropriate, and continuing policy advice will be beneficial. Conditionality applied prior to debt restructuring should improve and not deteriorate prospects for growth in the affected countries.
6. Although the external financing needs of low-income transition countries must be met increasingly by private financing, official resources will remain indispensable for some time. In this context, further coordination of donors is needed, and should be increasingly demand-led and not supply-led. At the same time, donors should have a coordinated strategy on how to avoid a syndrome of aid-dependence. Aid dependent growth, such as that in some low income Western Balkan countries, should gradually be disappearing and new factors of growth (FDI, trade etc.) developed. Otherwise, reduction of aid might reverse progress achieved.
7. Trade is in general recognized as the important instrument of economic development. In most low-income economies in transition, traditional trade links have been disrupted and have not been adequately substituted. Lack of synchronisation of the WTO accession process in the region might have further negative implications on new WTO members. This was experienced by Kyrgyzstan immediately after its accession to the WTO. Increased cooperation in the process of the WTO accession among the accession countries might be beneficial to them and the regional commissions might initiate or further promote this cooperative approach.
Intra-regional trade should further develop. Some of the low-income countries with economies in transition have diverted most of their trade to the EU. Their bilateral agreements with the EU include asymmetric trade arrangements in favour of economies in transition. In spite of this, they are not granted full market access in agricultural and some non-agricultural products of major importance to them. Further elimination of tariff and non-tariff barriers in trade with the EU is needed to ensure their increased market access and positive impact on development.
Low-income economies in transition in Central Asia, and the Caucasus should also aim to restore trade links among themselves. This would not only be beneficial for their economies but could help to build and strengthen trust, minimize political tensions and prevent new conflicts. Regional trade policy dialogue has a potential for strengthening development and security in the region.
The Economic Commission for Europe is committed to strengthening its support of the development of the low-income countries of Eastern Europe, the Caucasus and Central Asia, and their integration into the European and world economies. As the UNECE is not a financial or development institution, its assistance to these countries is limited to the provision of technical assistance and policy advice in the areas of its expertise: transport, trade facilitation, entrepreneurship and small and medium-sized enterprise development, protection of the environment, namely the sustainable management of water, energy and wastes. In spite of our limited resources, we are committed to strengthening our support to those who are most in need. We are also committed to strengthening our on-going cooperation in support of these countries with UNDP, UNCTAD, DESA and other organisations and agencies of the UN as well as other partners.
I would also like to use this opportunity to call upon governments as well as international organizations to strengthen their attention to the United Nations Programme for Central Asia (SPECA) coordinated by two regional commissions, UNECE and ESCAP. The five former Soviet Union republics in Central Asia face big challenges such as the transformation to a democracy and market-based economy, the destruction of the former trade links which ensured the distribution of water and energy, but also weak governments, new security threats such as drugs and arms trafficking, increasing poverty and the degradation of education and health. Some of them have a better capacity to deal with the challenges and have achieved better results; progress in some of them is very unsatisfactory.
SPECA includes initiatives in transport development, investment mobilisation, SME development, and water and energy management. A recent achievement of SPECA is the Cooperation Strategy to Promote the Rational and Efficient Use of Water and Energy Resources in Central Asia.
This year the UNECE, working with other partners, will start the implementation of a project funded from the UN Development Account entitled "Capacity-building for Air Quality Management and the Application of Clean Coal Technologies in Central Asia". It will support capacity-building for transboundary water cooperation in Eastern Europe, Caucasus and Central Asia, begin implementation of the "Water, Environment and Security in Central Asia" initiative, and will carry out activities aimed at the modernisation of governance systems in the fields of health, water and waste management in Southern Caucasus, and continue its work in support of entrepreneurship and SMEs.
I would like to stress that the UNECE stands ready to strengthen its cooperation with other partners in support of these and other activities in low-income countries of Eastern Europe, Caucasus and Central Asia and I reiterate my appeal to all participants in this ECOSOC meeting to mobilize and energize our efforts in support of these countries.