Revitalizing growth and development must be a world-wide co-operative effort, UNCTAD reports.

Revitalizing growth and development must be a world-wide co-operative effort, UNCTAD reports

WITH that observation,Kenneth K. Dadzie, Secretary-General of the United Nations Conference on Trade and Development (UNCTAD), begins his overview of the Trade and Development Report, 1986 (Sales No. E.86.II.D.5), which focuses on the dynamics of the deflationary process described by Mr. Dadzie as "the single most pervasive threat to world prosperity' and its consequences for development.

The six-chapter, 172-page reportdeals with the 1980s depression and the setback to economic and social development; the macroeconomic setting: interaction of policies in major developed market economies; transmission of growth and the stability of the world economy; deflation, debt and trade; the world economy in 1985 and prospects for the near future; and debt, growth and development.

The report reviews the main characteristicsof the acute economic crisis now facing most of the world, outlining the evolution of problems and policies in the developed market-economy countries that have played a major role in shaping the current external environment for development.

The 1980s, the report states, havebeen marked by the widespread collapse of the development process, characterized by financial disorder and extended periods of negative or negligible growth in most developing countries. Declines in growth of gross national product (GNP) have been widely accompanied by reductions in investment likely to inflict serious damage on longer-term development prospects. Reduced output has been accompanied by widespread falls in living standards (most dramatic in a number of African countries), including rising unemployment rates.

There has also been a drastic slowdownin the pace of economic growth in major developed market-economy countries, the report says. After the deep recession of 1980-1982, economic activity recovered somewhat, due largely to the stimulus of recovery in the United States, but overall performance has remained extremely poor, with the GNP growth rate of seven major Organisation for Economic Co-operation and Development (OECD) countries averaging about 2.2 per cent per year between 1980 and 1985, compared with 5.7 per cent in the 1960s and 3.5 per cent in the 1970s. Moreover, expansion has concentrated primarily in Japan and the United States, while growth in major European countries barely exceeded 1 per cent.

Commodities down

A major feature of the economicrecession of the first half of the 1980s was the sharp downswing in commodities prices, the report states. Deterioration in terms of trade of commodity-exporting developing countries was a major cause of their severe balance-of-payments difficulties.

From 1981 to 1984, the cumulativeloss for developing countries in foreign exchange earnings from primary commodities exports reached $38 billion. Oil prices--long insulated by the Organization of Petroleum Exporting Countries system from cyclical variations in demand--also suffered from the world economic slowdown in the 1980s. In 1985, the system of price formation collapsed, and oil prices plunged from $28 a barrel to $12 a barrel in April 1986.

Deflationary pressures and othermonetary and financial disturbances over the first half of the 1980s significantly impaired the capacity of the international financial and trading systems to contribute to growth and development, and have fuelled protectionist pressures, the report asserts. A balanced expansion of the world economy would appear to be essential for reducing protectionist pressures and encouraging trading countries to fulfill their commitments to the multilateral trading system, it states.

Less favourable trade

As in earlier years, the report says,the evolution of major developed market economies continues to be the most important single factor shaping the external environment for development. In 1985, slowed growth in developed market-economy countries particularly, reduced demand in the United States--provided developing countries with a less favourable trading environment. The volume growth in their exports declined in 1985, after rising in 1984.

Commodity markets continued tobe weak throughout 1985, and the UNCTAD price index of non-oil primary commodities exported by developing countries fell by about 11 per cent. Interest rates declined somewhat, and there was a slight easing in the financial area, but with little effect on the developing countries. Debt-servicing difficulties persisted or reemerged for many of those countries; rescheduling of payments continued to be creditors' prevailing response.

These overall tendencies continuedthrough the opening months of 1986, the report goes on. Growth in developed market-economy countries remained slow, with better performance in the United States largely offset by poorer performance in the Federal Republic of Germany and Japan. World trade remained sluggish, although commodity prices-- excluding petroleum--advanced. Interest rates declined further, but bank lending remained depressed.

Oil prices influential

"There can be little doubt,however', the report states, "that the dominant influence in world markets during 1986 will be the sharp fall which has taken place in the price of oil.'

In the socialist countries of EasternEurope, economic growth in 1985 was not as pronounced as in the two previous years. The growth of the region's net material product (NMP) was half a percentage point lower than in 1984. The expansion of gross industrial output was more marked, approaching 1983-1984 levels, but gross output in agriculture declined or rose more slowly in some countries. A slower expansion of foreign trade for the region as a whole was attributed mainly to a drop in volume and value of exports.

A new economic policy for theregion aims at using resources more efficiently rather than increasing their availability over the next 15 years, the report states. Plans for 1986-1990 are regarded as an important step in implementing that policy, which calls for growth rates higher than those of the two previous five-year plans.

The Chinese economy continued toexpand during the first part of 1985, exceeding target rates. However, increasing concern about "overheating' of the economy led the Government to reassert central control over certain aspects and move more slowly on implementing reforms already announced. Structural reform remains a top priority of the 1986-1990 five-year plan, but emphasis during the first two years will be on controlling social demand, to solve problems of overly rapid growth rates, excessive investment in fixed assets and sharp increases in consumption funds.

Domestic expansion has also affectedChina's trade and balance of payments. Demand for consumer and intermediate goods has continued to increase imports while exports, partly affected by weakened foreign demand, have grown only marginally. The trade deficit in 1985 was estimated at $11.8 billion, whereas trade was in balance in 1984. Given the explosive import growth in 1985 and the prospects for exports in 1986, imports are likely to be curtailed in order to reduce the deficit to half the 1985 level.

Government approaches to internationalpolicy in the areas of debt, growth and development have been somewhat more positive over the past year, the report states. Explicit policy co-ordination has occurred among a small number of major developed market-economy countries, and faster growth in debtor developing countries needs to be an integral part of the international strategy on debt.

Recent discussion has focused onpolicy reform in developing countries, supported by increased financial flows from both private and official sources, as the principal means of achieving faster growth. "This approach', the report states, "has the merit of situating the debt and growth problem of developing countries in a longer-term perspective and of recognizing that current difficulties are not transitory and that their solution requires that structural factors be addressed'.

However, given the present internationaleconomic environment, formulating long-term strategies for growth and development in the developing countries will not by itself raise their growth rates. What is needed, the report concludes, is a co-ordinated approach to faster growth throughout the world economy.