UN says Global Economy Declined in 2005

The UN Under-Secretary-General blames global imbalances, but notes positive signs, including continued robust growth in international trade, calm financial markets.

The global economy had declined measurably during 2005 compared to a strong and broad expansion in 2004, and projections of future growth were fraught with uncertainty and risk, José Antonio Ocampo, Under-Secretary-General for Economic and Social Affairs, said today in a statement to the Second Committee (Economic and Financial) as it began its general debate.

He said the decline was due partly to enormous global imbalances, including the rising external deficit of the United States on the one hand, and growing surpluses in the Asian, European and oil-exporting economies on the other. Taken together with rising oil prices, and exacerbated by natural disasters and geopolitical instability, the global economic environment could threaten immediate and longer-term growth in developing countries.

At the same time, the broad international economic environment showed some auspicious signs, he said, adding that international trade had continued to grow at a robust pace. Financial markets worldwide had generally remained calm and trade terms for several developing countries had improved considerably. The present economic strength of many developing countries demonstrated that substantial progress was possible under the right domestic and global economic conditions.

During the ensuing discussion, speakers from several oil-producing countries noted that increasing demand for energy, reduced refinery capacities caused by natural disasters, and a failure by some advanced countries to renew oil-producing technologies, which affected the supply of oil by-products, had all pushed up the price of oil. The oil-refining sector in the United States had faced significant constraints due to the recent natural disaster, and it was to be hoped that oil-producing and oil-consuming countries would cooperate in resolving the situation.

Questioned by delegates about the prospects for debt relief in middle-income countries, he said the Paris Club was using the so-called Evian Approach to reschedule debt in those nations. To another query, about developing-country terms of trade, he said they had improved in many developing countries as prices for their raw-material exports recovered in international markets, especially China.

As delegations subsequently delivered their national statements, speakers pointed to the merits and pitfalls of the 2005 World Summit Outcome Document. Ghana's representative described it as a compromise of differing interests and concerns, which did not fully satisfy the aspirations of any Member State or group of States. However, it was better to have a watered-down document to guide the way forward than to bemoan the ashes of an ambitious one that had been incinerated in the heat of deadlocked negotiations.

Several delegates pointed to the urgent need for Member States to meet the development-financing commitments laid down at United Nations conferences, and reviewed at the 2005 Summit. Indonesia's delegate, speaking on behalf of the Association of South-East Asian Nations (ASEAN), said it was vital to fulfil promises of achieving the 0.7 per cent of gross domestic product target figure for official development assistance (ODA) to developing countries, and to improve the quality and effectiveness of aid by aligning assistance with country strategies, untying aid, and enhancing developing-country capacity.

Viet Nam's representative noted that ODA was estimated to amount to only 0.3 per cent of gross domestic product by 2006, and only 0.32 per cent by 2010, which would be lower than it had been in the 1990s. Moreover, the current trend of increasing foreign direct investment (FDI) flows could not be guaranteed due to instability in the prices of oil, metals and other goods, as well as to complex developments in the financial and monetary markets, and the surge in terrorist activities.

Echoing that concern, Pakistan's delegate observed that the Summit had inadequately addressed measures to promote equitable FDI to developing countries through investment guarantee schemes, transparent risk-rating arrangements and the provision of tax and other incentives. In boosting development financing, it was important to reverse the current net outflow of resources from developing to developed nations, and to pursue innovative means of financing at the national and international levels.

Other speakers lamented the Summit's lack of commitments on trade and stressed the urgent need to carry forward the Doha Agenda at the upcoming Hong Kong round of World Trade Organization (WTO) negotiations in December. Country-level policy reforms and increased aid were not sufficient to ensuring sustained development, Ghana's delegate said, noting that commitments made at the Summit to liberalize trade and implement Doha's development dimensions would remain merely a pious declaration if the Doha Round failed to expand market access and eliminate trade-distorting subsidies; to open markets in manufacturing and services; and to address supply-side constraints.

Delegates also emphasized the need to bridge the digital divide, the importance of South-South and regional cooperation in advancing development goals, and the vulnerabilities of small-island and other marginalized economies. Other representatives underscored the importance of environmental protection in pursuing development, as well as the need for technology transfer and increased participation by developing countries in the Bretton Woods institutions.

Also speaking today were the representatives of the United Kingdom (on behalf of the European Union); Jamaica (on behalf of the "Group of 77" developing countries and China); Russian Federation; Fiji; Egypt; Morocco; Namibia (on behalf of the Southern African Development Community); Japan; Philippines; Bangladesh; Thailand; India; Algeria; Senegal; Cambodia; Cuba; United Republic of Tanzania; Tunisia; and Kenya.

The representatives of the United States and Cuba spoke in exercise of the right of reply.

A representative of the Food and Agriculture Organization (FAO) also made a statement.

The Second Committee will meet again at 10 a.m. tomorrow, Tuesday, 4 October, to continue its general debate.

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