Increased Assistance to Least Developed Countries

Chaired by Ola Ullsten
8-9 December 1984
International Development Centre
Ottawa, Canada

Introduction

1. The InterAction Council attaches particular importance to the acute problems faced by the Least Developed Countries (LDCs). It has called for a special effort, based on international solidarity and common human interest, to increase the assistance provided to these countries which, suffering acutely from the turmoil of the international economic system, are now facing natural disasters as well.

2. In particular the Council has pointed out that the poorest countries, in comparison with other groups of countries, have been forced into excessively harsh adjustment measures, particularly in response to changes in their terms of trade as a result of declining prices for their primary products coupled with a dramatic increase in oil prices. Noting that the scale of indebtedness of these countries in world terms is not substantial, the Council considers that particular measures should be taken to bring the terms of debt repayment for these countries into line with their longer term capacity to pay, while upholding the basic principle that obligations should be honoured.

3. The Council considers that there is an urgent need for a rapid increase in concessional assistance to these countries, together with measures in the field of trade and technical co-operation to increase their earnings and strengthen their domestic capabilities. In order to promote a dramatic increase in resources for the deprived peoples of these countries, the InterAction Council has expressed its intention to launch an extensive campaign so as to mobilize public opinion throughout the world, together with private sector organizations, in particular corporations and banks.

4. The Least Developed Countries as defined by the United Nations are a small group of very poor, very underdeveloped and economically very weak countries. Some 300 million people live in the 36 countries defined as least developed which together have a combined GDP of around $ 64 million. l6 of these countries are landlocked and 6 are small islands. 24 of these countries are now appealing for emergency aid in the face of famine, desertification and drought.

5. The expert group considers that this group of countries provides a focus for urgent action, taking into account the specific problems faced by each individual country. The group recognizes that widespread poverty is to be found in many other developing countries which are not, however, classified as least developed. It considers that an effort should be made first to mobilize international action for the LDCs as a basis for more widespread efforts at a later stage.

6. The fragile process of development which has been taking place in these countries is now breaking down. The expert group reviewed the causes of this desperate situation and concluded that it has come about as a result of the following related factors:

- Inherent weaknesses in human resources, technical skills and physical and organizational infrastructure;

- An unforeseen combination of adverse international economic tendencies, including a substantial worsening in their terms of trade, a reduction in international markets for their products, high and unpredictable interest rates and substantial increases in the price of oil;

- Inappropriate domestic policies which are now being corrected in many countries;

- Natural disasters, desertification, drought, etc;

- Political instability, conflict, civil disturbances and substantial movements of refugees from country to country, five million in Africa alone.

7. The InterAction Council can play a positive role in promoting policy change together with increased flows of financial and other resources to assist the LDCs. The efforts of the Council should be based on the following premises:

- The situation of the LDCs, although desperate, is not hopeless. The countries, generally speaking, do have the potential to develop so as to provide a tolerable quality of life to the bulk of their populations. However, the process of development will be long and difficult and results should not be expected quickly. Sustained and increased assistance from the international community will be essential.

- Urgent action is required to stem the current rapid decline and preserve the gains which have been made in several decades of development efforts. Such immediate action to face the present crisis must be accompanied by and consistent with increased efforts to promote systematic longer term development.

- Careful co-ordination is required between the policy measures of the countries concerned and the policies adopted by developed countries and the wider world community to create an international economic environment within which these countries can develop.

- There are inescapable humanitarian reasons for the world community to make every effort to assist the deprived peoples of those countries. In addition it is in the political and economic interest of the developed countries to reverse the current decline in the LDCs.

8. The action of the Council should be directed to promoting increased efforts by all groups of countries. The Western developed countries, the Centrally Planned Economies, the Oil-Producing Countries can all make increased efforts, as can those developing countries which, having reached a more advanced stage, can provide considerable, relevant assistance. In addition to governmental efforts, a substantial contribution should be made by non-governmental organizations, by private companies, by commercial banks and by concerned groups and individuals throughout the world.

LINES OF ACTION

The group proposes that the InterAction Council should pursue 4 principal lines of action, in addition to its activities through informal channels:

1. High-level missions of Members of the Council to the LDCs. 2. High-level missions of members of the Council to the developed countries; 3. Consultations with the leaders of international organisations and private sector organisations; 4. A systematic effort to obtain public support.

1. Missions to LDCs

9. The Council should send a series of high-level missions to the LDCs to explain its views and to promote support in these countries for policies to accelerate development. The membership of the Council, drawn from both developed and developing countries, should enable it to act effectively to promote policy change in the developing countries. The Council should take advantage of high-level intergovernmental meetings, for example, of the Organisation of African Unity to be held in 1985, to advance its action proposals.

10. The missions of the Council to the LDCs should emphasize among other points, the following:

(a) The essential need for longer term plans for economic and social development in each country as a basis for coherent and sustained development efforts. Political and economic uncertainties and shortage of expert staff and adequate data make planning particularly difficult in Least Developed Countries. Medium and long-term development plans are, however, essential as a framework for the effective use of scarce resources.

(b) The need for increased efforts to develop human resources with particular emphasis on basic education and technical training. Many of the critical development activities in the LDCs such as agriculture, health and population planning are principally the responsibility of women who remain, however, largely untrained. Emphasis should be placed on the problems encountered by women as an integral part of human resource development.

(c) The need for changes in fiscal and economic policies to create appropriate conditions for increased productivity and economic growth. Government policies for agricultural prices, investment, exchange rates and the role of the public and para-statal sectors for example, are critical to the development process. It is widely recognized that mistakes have been made in the past. As part of a substantial effort to generate and utilize additional assistance from the world community, the necessary changes in national policies are a key factor.

The Council can play a valuable role in promoting domestic support for the changes required, providing external support to governments who wish to undertake difficult and controversial changes in policy.

(d) The need for vigorous and sustained efforts to increase food production to meet domestic requirements. There is substantial potential in many LDCs to increase domestic food production which would have immediate beneficial effects in ameliorating hunger, malnutrition and poverty and would also reduce balance of payments problems.

(e) The need in almost all the LDCs for effective programmes to limit the growth of population.

(f) The need for more effective efforts in the countries concerned to reduce environmental degradation and develop indigenous energy resources. Under the pressure of urgent short-term needs the governments of LDCs have very limited human, physical and financial resources available to preserve the physical environment. International support is essential, but a corresponding framework of national policy and organization is urgently required in many countries if the current decline is to be reversed.

(g) The need to promote co-operation among the LDCs themselves in the technical and economic sectors so as to make the most effective use of scarce resources in the development of infrastructure, productive capacities, markets, research and training, etc.

(h) The need to diminish the amount of resources devoted to armaments, and to make renewed efforts to reduce tensions and conflict.

2. Missions to Developed Countries

11. By virtue of its membership the InterAction Council is well placed to promote increased efforts by the developed countries in parallel with those of the LDCs themselves. In close co-ordination with the missions to the Least Developed Countries proposed above, the Council should undertake to send high-level missions to the capitals of key developed countries. Among other points the missions should stress the following:

Increasing Assistance

(a) The LDCs are critically dependent on help from the developed countries, and assistance of all kinds should be increased in a coherent manner, through increased ODA, debt relief, food assistance, energy assistance, trade measures, etc.

At the UN Conference in 1981 specifically focussed on LDCs, it was agreed that aid flows should double, to $ 14.1 billion by 1985 representing 0.15% of the GDP of the developed countries. In this respect developed countries have entered into commitments in the past which some have not fulfilled. In spite of the current difficulties encountered by many developed countries of both East and West, official development assistance on concessional terms to the LDCs must be substantially increased in real terms and provided on a more predictable basis.

(b) Besides a real increase in assistance to LDCs there is a clear need for improvement in the orientation and co-ordination of assistance from different sources to ensure the greatest impact from the resources made available. This requires the strengthening of mechanisms, such as Round Tables and consortia to secure greater assistance and to improve the coherence of domestic and international inputs within the framework of agreed longer term objectives and policies.

(c) The governments of developed countries should also take particular measures to encourage the flow of assistance through the private sector, through non-governmental organisations and academic institutions, etc.

Reducing The Debt Burden

(d) Developed countries which have not already done so should consider reducing, deferring or cancelling debt service liabilities for bilateral ODA.

(e) In a similar way, the terms of multilateral ODA debt should be renegotiated either to conform to IDA terms, or to reduce interest rates or to extend the repayment period or to combine some or all of these options. The unpredictability of interest and exchange rates, and of financial flows from trade and assistance have adverse effects on the fragile economies of LDCs. Measures to improve predictability would make a major contribution to successful economic management and development planning in these countries.

Debt Structure of LDCs in 1982

Private Debt    $ 3. billion
Multilateral ODA

$ 14.5 billion
Bilateral ODA

$ 16.3 billion
===============

Total debt burden

$ 34.6 billion
Private debt service

$ 453 million
Multilateral ODA service

$ 24l million
Bilateral ODA service    $ 321 million
===============

Total debt service

$ 1 015 million
Use of IMF resources cumulative to 1984: $ 2 208 million

Improving Market Access

(f) The LDCs, relying heavily on the export of a few commodities, have been particularly hard hit by the decline in terms of trade for their products and by reduced access to developed countries' markets. In 1981, the LDCs exported a total of $ 7.3 billion, which declined to $ 6.8 billion in 1982. The governments of developed countries should make particular efforts to increase access to their markets for products from the LDCs and, in general, to provide some degree of predictability for the export earnings of these countries.

Food and Energy Assistance

(g) As a result of declining per capita food production, many LDCs have become regularly dependent on food assistance from other countries, importing about 5m tons of cereals per year of which food aid accounts for around 3m tons. In Africa, aggravated by the current crisis brought about by natural catastrophe,desertification and conflict, food production has fallen by 14% between 1981 and 1983.

These problems of food production - and of environmental degradation - are aggravated by the shortage of available energy resources and the high price of energy imports. The developed countries, and where possible, other developing countries should arrange to make available on a long-term basis, food and energy supplies to LDCs on stable and concessionary terms. They should also ensure that emergency measures are compatible with more fundamental measures to revive and sustain the process of development to solve the underlying problems.

Reducing Armaments Expenditures

(h) In this situation of economic and social decline, the governments of these countries continue to spend substantial resources on the purchase of armaments from the developed countries. The governments of developed countries should also consider what measures might be taken to reduce the flows of arms to these countries, to promote the resolutions of conflicts and the reduction of tensions so that the maximum amount of scarce resources can be devoted to social and economic development.

Public Education

(i) To provide a sound basis of political support for increased efforts to assist the LDCs, the governments of developed countries should take particular measures to promote public education and wide understanding of the need for increased assistance. It is also essential to counter widespread criticism of the effectiveness of aid activities by emphasizing the many examples of successful bilateral, multilateral and non-governmental co-operative projects, and explaining in realistic terms what can be achieved over a period of time.

3.Consultations with leaders of International and Non-Governmental Organisations and of the Private Sector

12. In conjunction with the missions to governments proposed in 1. and 11. above, members of the Council should undertake consultations with leaders of the key international organisations and non-governmental and private sector interests. The role of multilateral co-operation is of particular importance to the LDCs in such fields as investment, public finance and human resource development as well as in most sectors of economic activity.

13. The Council should take advantage of presently planned international events to advance its proposals, particularly the OAU summit and the Review and Appraisal of the Substantial New Programme of Action for LDCs to take place later in 1985.

14. The expert group devoted considerable attention to the mechanisms which might be proposed to promote increased and more efficient flows of assistance to the LDCs. Among the points to be raised are the following:

(a) Increased co-operation is needed between those international organisations which are concerned with a different aspect of the development problems. In particular, the activities of the World Bank in supporting major long-term development programmes must be more clearly linked to those of UNDP and other UN agencies concerned with specialised sectoral problems, which create the conditions within which investments can succeed.

(b) As each LDC faces specific problems in its own unique situation, further efforts must be made to establish where necessary and to strengthen Consultative Groups or Round Tables for each country, through which the various donors and international organizations can co-operate in a carefully considered effort to provide assistance. Increased co-operation between the World Bank and UNDP is very important in this respect.

Aid groups, Round Tables or Consultative Groups for individual countries or groups of countries should focus on: 1. Assessment of the economic setting; 2. Policies and programmes of the recipient countries; 3. Needs for technical assistance, investment finance, and budgetary support; 4. Modalities for the provision and use of the assistance required; 5. Follow-up on performance by donors as well as recipients.

(c) The potential of new institutional approaches at the international level for increasing assistance to LDCs and their trade performance should be carefully examined. The group considered three such possibilities:

A special facility to be established for Africa as a channel for increased assistance; increase in the allocations to LDCs within the framework of the IDA; and measures, such as a widened STABEX scheme to increase and make more predictable the export earning of the LDCs.

The group recognized the difficulties attendant on the creation or adaptation of international mechanisms, but considered that as a long-term objective, such options should be considered.

(d) In addition to the efforts of governments and inter-governmental organizations, increased efforts should be made by the private sector - both companies and banks - and by non-governmental, academic and charitable organizations. The expert group underlined the important role which could be played by commercial banks in providing new credit and in enterprises in providing know-how and commercial expertise to improve productivity and increase output in the agricultural and energy sectors in particular. There is also a major opportunity for increased assistance in training, research and human resource development in general, through greater assistance from non-governmental, academic and professional organizations in developed countries.

4. An Effort to Obtain Public Support

15. The Council has already expressed its intention to launch an extensive campaign to mobilize public opinion throughout the world to promote a dramatic increase in resources for the deprived peoples of the LDCs.

16. As a result of the deep crisis in Africa, there is now widespread concern in Western developed countries and a willingness to provide assistance. It is essential that every effort be made to face the urgent problems which now confront the LDCs, but it is also important that short-term crisis efforts should be compatible with the necessary measures to strengthen and sustain the longer-term processes of development. Public opinion must be brought to understand that early results and easy solutions are not attainable although positive progress can certainly be demonstrated. A carefully considered campaign should be undertaken, under the auspices of the Council, to promote a more profound understanding of the problems of poverty and underdevelopment faced by the LDCs, so as to create solid public support for longer-term assistance.

17. The group suggests that the Communications Committee be asked to advise on the conception and implementation of such a campaign.