Monetary and Financial Issues in UNCTAD under Gamni Corea
Monetary
and Financial Issues in UNCTAD under Gamani Corea
(Published by the South Center, A Tribute to Gamani Corea: his Life, Work and Legacy), Geneva, 2014.
By
Dr.
Michael Sakbani*
The System of International Cooperation
Gamani Corea came of age as an economist at
the time when the International economic system, as we know it, was
established. It was clear to him and his
generation of economists, hailing from the South, that the Bretton Wood Conference
produced institutions with incomplete mandates designed with no reference to
development problems. Corea, I.G. Patel, Manmohan Singh, Amartya Sen, and
Mahbubul Haq wrote and spoke about the shortcomings of the system throughout their
careers
In order to understand their stands, a little
history might be in order.
In the Bretton Woods Conference, Committee I
of the Conference produced the IMF agreement which set forth the present-day international
monetary system (IMS) The central Institution, the IMF, had decision making and
qualified majorities all based on the size of a member quota. Thus, Sovereign
political decisions of the main members dominated its work.
The prevailing IMS did not have a true
international reserve system; the IMF cannot increase or decrease international
liquidity. Rather, it has a pool of contributions whose size and deployment are
subject to the sovereign decision of the big quota members. In effect, this implies that it had no
mandate to decide the pattern of international adjustment of the world economy
and to finance it.
The exchange rate system was a hybrid based
on the US dollar which in turn was based on gold as long as the US accepted
this link at the price it chose. In August, 1971, US Treasury Secretary John Connelly
abandoned the agreed price and thus brought down the system. The US at the time
had a gold stock of $13 billion and official dollar liabilities in excess of
$100 billion. This dollar system was plagued from the start with the Triffin
dilemma of uncertainty and credibility. It also had no relationship between the
exchange rate and a country’s competitive position and this was particularly so
for the surplus countries. The scarce currency clause did not amount in reality
to an enforceable symmetry.
When
the IMF adopted in the 1960`s its concept of adjustment through deflation rather
than expansion or financing, it overlooked the difference between a one country
case and the case of many countries. This led to a fallacy of composition: what
is valid for one country might not be so for many countries all at the same
time. There is no analytic basis to accept that one size fits all. Thus, the conditionality
that stemmed from all that was inappropriate in numerous cases. Furthermore, up
to the 1980`s, the IMF considered itself a monetary institution which can only
lend for short term, usually less than a year. As a political institution, the IMF
help was in any event, subject to the sovereign decision of the big quota
members rather than anything else.
Committee II produced the IBRD, an official
multilateral institution for reconstructing Europe and helping finance, under
certain conditions, the infrastructural needs of the developing countries.
There was nothing about private finance in its report, in particular capital
markets.
Committee III, the Trade Committee, failed to
agree on establishing an international trade organization. It referred the
matter to a meeting two years later in Havana, Cuba. When the Havana Charter
was drafted, it annexed trade issues of importance to the developing countries:
commodities, trade in agricultural goods, terms of trade, transnationals,
transfer of technology and restrictive business practices. These and the
development issues raised in chapter IV were subjects unacceptable to the US Senate.
The Havana Charter therefore fell by the side.
Realizing that an agreement was not at
hand, the developed countries set up in 1949 the GATT in order to generalize
the MFN clause and boil down the trade problems to those of market access.
Corea`s
Career in UNCTAD
Gamani Corea’s first intellectual work was
his Ph.D. dissertation on the integrated commodity program, an international
topic steered under the guiding hands of Ursula Hicks and the advice of Joan
Robinson, two economists outside the main stream. This topic was to guide the professional
interest of the man throughout his professional life.
Returning to Sri Lanka, he joined the
Central Bank and stayed there for several years. In the early 1950`s, he joined
the Planning Commission and in short time became its Executive Secretary
reporting directly to the Prime Minister. Corea`s work in the planning
commission, set the course of the Sri Lankan economy for years to come. Under
Corea, at the advice of I.G. Patel, Gunnar Myrdal, Nicholas Kaldor and Jan
Tinbergen, the Plan used Keynesian models with a prominent state role within a
market framework. This planning was not soviet type; it was dirigisme with
limits akin to French indicative planning. After a decade of such a work, he returned
to the international scene by becoming Sri lanka`s ambassador to the European Community
in Brussels.
Corea met in Cairo in 1962 Raul Prebisch, a
prominent Latin American economist, who, despite his conservative central
banking background, was an internationalist with trade views favorable to
development.
The two hit it right and complemented each
other. Prebisch had three principal elemental planks: a trade system that
grants the developing countries a favorable, non-reciprocal treatment, an
integrated commodity program for commodity trade and external financial flows
that solve the two gaps problem of developing countries the savings and
Payments’ gaps. Corea whole heartedly subscribed to all three. His expertise in
commodity issues and interest in money and finance had in fact enriched and
added to Prebisch`s planks.
Prebisch, impressed by Corea`s elegant “anglophonie”,
asked him to write the final conclusions of the Cairo Conference on convening a
UN conference on trade and development. And he was to draft again at the
request of Prebisch, the position of the Group of 77 in the G.A. regarding
convening the Geneva Conference of 1964 to establish UNCTAD.
In 1965, Corea contributed to Prebisch`s
report to UNCTAD I. In 1966, Raul Prebisch convened an expert group meeting,
under Corea, to look into the financial and international monetary aspects of
development. With the able help and backstopping of Sidney Dell, the director
of the UNCTAD`s office in New York, Corea`s expert group report explored the
relationship between the monetary and financial systems and development. Its conclusions and proposals were to guide UNCTAD`s
work till the mid 1970`s. Two separate outcomes hail from the work of this
group and similar other work in UNCTAD and elsewhere: the establishment of the Complementary
Financing Facility (CFF) in the IMF and that of the commodity stabilization facility.
The thoughtful observations of the report
on the prevailing IMS were very much in line with shortcomings outlined above.
The report also broached the subject of creating an international currency and
linking it to the financial needs of development. It should be recalled that
the question of international liquidity and the basis of the international
reserve system were subject of wide ranging debate at the time.
After Prebisch, Manuel- Perriz Guerrero
pursued this work in UNCTAD with vigor and determination. Under the able
leadership of Sidney Dell, assisted by Gerry Arsenis, the division of Money and
Finance of UNCTAD participated in the Committee of 20, (C.20) meetings on international monetary reform held
in 1972- 1974. Among other things, UNCTAD articulated the SDR Link Proposal in
its organic and non-organic versions.
At this time, the Money and Finance
Division of UNCTAD succeeded in developing a simple quantitative model for estimating
the needed flows of external finance for achieving the UN target of development
at 5% which was dubbed in the Press as the Sidney Dell model. In fact, the
origins of this work were due to the work that Gerry Arsenis did in ESA in the
early 1960`s and published in 1964. The estimates made by Arsenis were referred
to in Prebish`s 1965 report. Thereafter, under the leadership of Sidney Dell,
the division of Money and finance made annual calculations of developing
country capital requirements. In the New Delhi Conference, 1968, the Division
made more systematic presentation of its calculations.
The so called Dell model estimated the
external financial needs of developing countries over and above their internal
savings necessary to fulfil the UN development target of 5%. . To finance the
requisite investments, it asked for external inflows of 1 % of the GDP of
developed countries, of which .7 is in ODA (Official development aid).
After Corea succeeded Perriz- Guerrero as
the SG of UNCTAD 1974, he collaborated with the UNDP in setting up in 1975 the
G. 24 project. This project has backstopped the representation of the G.77 views
in money and finance in Washington ever since. And this coincided with the
establishment of the Development Committee which gave UNCTAD an observer status
as in the Interim Committee.
The 1970`s were years of intense activity
in UNCTAD and of significant international developments. The eruption of the
oil crisis created major balance of payments problems for the oil importing developing
countries. UNCTAD under Corea, had an influence in promoting the establishment
of the oil facility in the IMF and in modifying the formula for calculating
export short falls of developing countries in the CFF. In the same decade,
under the impulse of the Non Aligned Movement and the President of Mexico, the
UN G.A. adopted the charter of rights and duties in the New International Economic
Order (NIEO). Corea was one of the early supporters. He tried, to the extent
possible, to bring through UNCTAD elements of that into the intergovernmental
dialogue.
The oil deficit was financed largely by
borrowing from the international capital markets. The accumulation of private
debt by developing countries presaged the development of the debt problem in
1982. Corea warned of this impending problem in his report to the Nairobi
Conference in 1976.
After Nairobi, UNCTAD pursued this
anticipation in the annual reports to the TDB and CIFT. In 1980, Gerry Arsenis, succeeded in
obtaining the TDB decision number 222 to set up in collaboration with the UNDP,
a project to restructure and revise the terms and conditions of the official
debts of developing countries. The gains for developing indebted countries were
in excess of 6 billion. Subsequently, UNCTAD
enlarged this work and systematized it by establishing the Debt Advisory
Services. Through this project, UNCTAD helped organize a data base for the
countries involved and extended technical help to their Paris club negotiations
(official debt) and those of the London Club (Private).
The documentation to the Manila Conference in1979
had proposals on IMF conditionality, on the terms and conditions of aid and
other external financial flows, on debt and on international monetary reform.
Except for the reform, progress was made on all these topics. As to reform, the
developed countries raised the issue of the appropriate forum and did not enter
into the matter.
After the Manila Conference of 1979, Corea
established a division in UNCTAD for developing country cooperation. He
envisaged such a cooperation to cover monetary and financial cooperation and
trade cooperation. In trade, the Division was also to take up the evolution of
the GSTP and service all the regional and sub-regional groupings. In the
monetary area, the Division serviced the clearing and payments arrangements and
their Multilateral Coordination Committee as well as the monetary unions
schemes of developing countries. This work continued after the departure of
Corea and in 1990-1991 produced path breaking series of studies (four studies)
on establishing an International Trade Financing Facility. Unfortunately, despite
the technical and substantive merits of this work, the intergovernmental expert
group convened in 1991 in UNCTAD did not reach agreement. The developed
countries, acknowledging the merits of the studies, held that they would
consider participation after this agency is established by the developing
countries, while the developing countries wanted the developed countries to
participate in the initial funding of the facility. Near the end of his term, Corea
convinced OPEC countries to set up in UNCTAD a Fund for South- South
cooperation.
Corea guided UNCTAD into exploring the
interdependence of trade, money and finance. In the last Conference of UNCTAD under
Corea held in Belgrade in 1983, there was a separate and independent agenda
item, ” item 8”, for interdependence on the agenda.
In
this regard, Gerry Arsenis in a characteristic inspired form, started in1981
the annual exercise of the Trade and Development Report. This report developed
and pushed the boundaries of interdependence and provided intellectual
underpinning of a right conception of the globalization of the world economy as
this process unfolded in the late eighties and the first half of the nineties.
Numerous topics in money and finance found treatment in the various issues of
the TDR. Under Shahen Abrahamian and later, Yilmaz Akyuz, Corea`s ideas on
interdependence found their full expression.
Corea s interests in south-south
cooperation came to dominate his work after his departure from UNCTAD. He was
an active supporter of UNCTAD’s work in this domain like he was of the work of
the South Center. He came to realize that the North South dialogue has reached
its high water mark in the early years of the 1980`s. After the Cancun Conference, Mrs. Thatcher and
Mr. Reagan abandoned this dialogue and recast the development paradigm in terms
of the Washington Consensus in which the problems of developing countries were
considered as ones of mismanagement and inappropriate macroeconomic policies and
later on, non - market oriented policies. The North South dialogue thereafter
came to a halt. But Corea still remained a firm believer in the common interest
of the North and the South and the possibilities of this cooperation. He held
that this cooperation along with South - South cooperation are the two sides of
the solution of development problems.
UNCTAD s achievements in its first 25 years
were not negligible: the GSP, the Common Fund, the debt relief, The G.24
Project, the framework of the Code for the TNC s, the GSTP backstopping, the
backstopping of ECDC, the indirect influence on the IMF facilities and
conditionality and its own TDR and Least Developed Country Report. These are
significant, but surely fall short of what was hoped. A fruitful productive
dialogue requires two committed parties, which was not the case in the UNCTAD
inter-governmental machinery on most issues. However, it cannot be argued that UNCTAD
did not change the terms of the debate on development. UNCTAD s TDR has voiced
out a unique tune in challenging the Neoliberal views of the Bretton Woods
institutions and offered a valid consideration of the interdependence of money,
finance and trade in the “problematique” of development.
Corea,
the Man
Gamani Corea was a gentleman from the
South. He combined in his personality the influence of his education in
Oxbridge and his experience of the development challenge in his native Sri
Lanka. He believed in the possibilities and power of diplomatic persuasion. He
believed that market capitalism has limits and frequently suffers market
failures. His advocacy of state role was not in any sense one of anti - market ideology;
It was a realistic and pragmatic assessment of the conditions of developing
countries.
Gamani Corea was a non- pretentious man
capable of appreciating the conditions of the poor, despite his aristocratic
and wealthy background. His humanism marked his work in development economics, the
environment, South- South and north south cooperation. He was a man capable of
establishing enduring friendships. He was also a man of sharp intellect and
great dry wit. His shyness and polite demeanor masked tenacious and brave
convictions. His refusal to accept organizational independence from the General
Assembly for UNCTAD and his firm stand that while the Secretariat is neutral in
respect of member states, it stands committed to development are cases in
point. In the years I worked in his office and after that, I always enjoyed our
forays into economics, politics, and many cultural issues. He was well read and
soundly trained.
He visited Italy in his early career to ask
for food aid. On observing his prosperous presence, an Italian counterpart
remarked that looking at him one cannot believe that Sri Lankans have a food
shortage. Corea flashed his usual smile and said “but I represent their
aspirations.” After the Rio Conference on the environment, I saw him in Geneva.
I asked him about his evaluation of the Conference. He smiled and said we
succeeded in defining the zero. Many such sharp witticisms marked his encounters
and conversations.
For us all, Gamani is no more, but his life
journey left his imprints on UNCTAD, on his friends and on the institutions
associated with him. In the short span of his life on earth, he enriched our
lives. Blessed be his memory.
Geneva, 19/3/2014.