Transcript all LDCs - un

Addressing Specific Structural
Vulnerabilities of LDCs:
some suggestions
Giovanni Andrea Cornia
University of Florence and CDP Member
------------------------------------------------------------OHRLLS Brainstorming Meeting, NY 14-16 July 2010
Contents
• 1. A new overall development strategy? (mention)
• 2. A strategy befitting the special needs of the LDCs
(mention)
• 3. LDCs clusters & the need for taylor-made measures
• 4. Elements of a strategy for the main LDCs clusters
1. A new overall development strategy?
• Major rethinking underway (including in part in IMFWB)
• WC reduced macro imbalances -but failed in terms growth,
inequality, poverty, instability
• Recently +/- un-orthodox models tried in China, VN,
India, South America (last decade), etc.
• They differ quite a bit among each in terms of policies &
outcomes & governance (democracy)
– E.g. China vs S. America
Common elements of a new dev strategy
• 1. “New macroeconomic fundamentals” (pro-poor
macroeconomics?)
– countercyclical fiscal policy & accomodating monetary policy (low i.r.)
– sharp reduction in public debt/GDP ratio
– flexible-managed exchange rate + reserve accumulation
• 2. A new “fiscal pact”: tax/GDP rose by 5 points in LA over
2000-8, and by 6 in China. Advantages
• 3. Trade, FDI, portfolio flows regime. In L.A. only some
regulation, but with better oversight of domestic banks. In China,
VN, etc capital and trade controls
• Key issue is whether ‘trade-finance should drive growth’ or
‘growth drive trade’. In latter case the emphasis fall more than
Year 2000
Country
Year 2007
Difference (2007 minus 2000)
Tax
revenue
Nontax
Revenue
Public
expend.
Tax
revenue
NonTax
Revenue
Public
expend.
Tax
revenue
Non tax
Revenue
Public
expend.
-Chad
8.05
0.08
20.31
23.53
0.1
18.97
15.47
-0.08
-1.34
- Congo Dem Rep
4.23
0.85
11.10
11.15
1.15
16.67
6.93
0.30
5.58
- Niger
8.66
0.62
18.06
15.18
3.72
21.93
6.52
3.10
3.88
- Senegal
16.13
0.75
18.28
20.08
0.82
27.20
3.95
0.08
8.92
- Malawi
11.67
1.18
22.13
15.55
1.40
30.89
3.89
0.22
8.76
- Tanzania
8.40
1.14
14.34
12.08
1.00
21.36
3.68
-0.13
7.03
- Guinea
10.32
1.01
17.17
13.52
0.74
15.22
3.20
-0.27
-1.95
- Rwanda
9.60
0.49
20.12
12.74
0.76
26.33
3.14
0.28
6.22
- Mozambique
10.46
1.02
23.70
13.56
2.01
33.24
3.10
0.99
9.54
- Mali
13.23
0.65
22.23
15.89
0.88
24.79
2.67
0.24
2.57
- Burkina Faso
10.89
0.88
23.32
12.51
1.08
25.77
1.62
0.20
2.46
- Uganda
9.25
1.31
23.82
10.79
0.61
18.70
1.54
-0.69
-5.11
- Ethiopia
9.73
4.53
25.78
10.09
2.58
20.69
0.37
-1.94
-5.09
13.65
8.14
30.71
13.89
8.14
29.60
0.24
0.00
-1.11
4.76
5.16
10.46
4.92
10.4
18.25
0.16
5.28
7.79
- Madagascar
11.01
0.35
17.61
11.14
0.24
18.20
0.13
-0.11
0.60
- Burundi
18.34
0.92
24.26
18.02
1.48
40.27
-0.31
0.56
16.01
- Sierra Leone
8.24
1.04
23.30
7.80
1.39
14.17
-0.44
0.36
-9.13
- Central Afr.Rep.
9.76
1.30
19.31
8.64
3.50
15.14
-1.12
2.20
-4.17
19.17
0.22
31.01
17.74
0.73
24.30
-1.43
0.51
-6.71
- Guinea-Bissau
6.79
4.66
26.48
5.34
2.22
20.32
-1.45
-2.44
-6.16
- Equat. Guinea
16.19
4.85
12.65
8.85
39.72
25.76
-7.34
34.88
13.12
- Mauritania
- Sudan
- Zambia
Continues
• 4. Inclusive labour market policies (grad. also in
China)
– Reduce informalization of l.m. – enphasis on job creation
– rise in n. workers covered by collective contracts (in LA)
– rise in minimum wage, + minimum social pensions
• 5. Expanded social assistance and insurance
– CT/CCT anti poverty programmes (0.5% GDP)
• 6. “Loose ends” of the new model (in case of LA)
– Raise domestic savings rate in (L.A)
– Need for an explicit industrial policy (in L.A.)
• In agriculture and manufacturing-services
– Energy policy (in China and L.A.)
– Inequality impact (in China , VN, etc)
2. A strategy befitting the special
needs of the LDCs (mention)
• All LDCs are especially weak in terms of:
–
–
–
–
Human capital accumulation
Domestic savings
Trading capacity and market access
Ability to articulate their interest in intl arena
• Hence the ISM focus on ODA (to fill the ‘savings
gap’ and ‘human capital gap’), SDT to fill the
‘foreign exchange gap’, ‘TA for the ‘negotiating
gap’
But…
• Most-all of them are also increasingly:
– Very vulnerable to exogenous shocks (as shown by the
3F crises) & have limited safety nets to respond to them
– Vulnerable to CC shocks they did not trigger and have
limited ability to do adaptation/mitig.
– Unable to produce costly green technologies. Need for
technological leapfrogging
• They are also
– Affected by specific problems …..
All this requires that the Istanbul PA…
– Creates ‘compensation funds’ (based on international
taxation, aid, insurance) to cover the costs of exogenous
economic shocks
– New financing for adaptation/mitigation. Allocation
done on basis of index of vulnerability to CC?
– Less costly access to green technologies
– Considers specific solutions to the (domestic) problems
observed in different country clusters
Country clusters
• Identify 3-4 clusters of LDCs. The 4th PoA
may introduce measures tailored to specific
LDC groups, for instance:
– economies (mostly in SSA) with a large share
of pop and LF in rural areas, whose main
problem is low land/labor yields
– countries which despite relatively high income
are vulnerable to climatic and economic shocks
– ‘politically fragile states’ which face a high risk
of internal conflicts.
Cluster 1. Low land productivity LDCs
• In 33 LDCs agric. employs 50-70 % of LF but produce 20-30% of GDP.
• Food production/c is on average 30 % lower than in 1960s and several
countries moved from net food exporters to importers.
• In 2006, 35 LDCs were net food importers and food aid recipients in 2006.
• Land availab/c is falling, its distribution worsening. Access to irrigation
and fertilizer is low. Limited nat/intl R&D on ‘African crops’, weak input
mkts. Falling public-private investments.
• Misguided adjustment policies (removing fertilizers subs.& price support)
aggravated the situation and diverted focus on agriculture.
• Yet, evidence shows that a 1% growth in agriculture has a much bigger
poverty alleviation effect than a similar rise in mining/manufacturing
Measures for LDCs affected by low
productivity in agriculture
– subsidized provision of improved seeds and modern inputs and price
support in egalitarian agriculture (as in Malawi)
– Strengthen local capacities to develop, spread, adapt new farming technol.
– increased public expenditure in agriculture supported by steady domestic
fiscal effort and greater aid to agriculture.
– CGIAR to raise research on African crops, support R&D in national or
regional institutions.
– The ‘improved seeds/technologies for SSA‘international public goods’.
– Aid to R&D in food research in selected regional institutions in SSA
– agricultural subsidies in developed countries need to be phased out.
Otherwise, countervailing measures might be considered.
Cluster 2: Small- highly vulnerable SIDS
• SIDS have high-ish GDP/c but narrow productive
base, vulnerable to shocks (drops in migrants’
remittances or volatile export earnings from a few
products and tourism) or climatic shocks.
• Remoteness from major international markets
pushes up transport costs.
• Because of their location, these countries also
suffer extensive damages by natural disasters, and
have limited capacity to respond to them.
Measures for SIDS
•
encourage Mauritius-Laos type strategies of gradual diversification,
• establish formal insurance mechanisms against catastrophic events (as in
case of CCRI Fund) via catastrophe bonds, weather derivatives, and
commodity indexed bonds,
• In vulnerable LDC ex-ante insurance schemes best addressed their problems
than ex-post aid
• Ensure international financing for such instruments (earmarked international
taxes, such as those on carbon emissions and foreign currency transactions).
• establish ‘migrant quotas’ (i.e. quotas for the ‘temporary move of service
providers’) for the LDCs within Mode 4 negotiations in GATS,
• further reduce cost of flow of remittances to LDC,
Cluster 3: politically fragile LDCs
• A third cluster includes countries that are exiting
from a conflict and face a high risk of internal
conflict resurgence
• several of the 49 LDCs were affected from one or
more conflicts over the past 2 decades
• In such a fragile situation, exogenous shocks –
unrelated to the causes for the conflicts - tend to
aggravate the risk of falling into this vicious circle
• There is a need to address the specific causes of
the conflicts and the risk of their resurgence
Measures for ‘politically fragile states’
– monitoring of conflict predictors (e.g. horizontal
inequality, large income drops, permanent climatic
shocks), and the eruption of new
– provide support to good governance, through policies
directed at as the promotion of locally-adjusted
‘inclusive democracy’ and popular participation.
– increase aid allocations to the reconstruction and
pacification of war-thorn countries.
– support domestic tax effort aiming at the reconstruction of the social/fiscal contract.
In conclusion
• In terms of its ‘strategic content’ the IPA should be
articulated in four levels as follows:
– Be inspired by a new ‘equitable overall development
strategy’ valid for all developing countries (see above)
– Strengthen the ‘traditional support measures’ (ODA, mkt
access, TA) addressing the specific needs of all LDCs
– Include ‘new support measures’ for all LDCs i.e. (i)
‘compensation funds’ to offset the shocks of an growingly
unstable world economy (ii) new financing for adaptation
/mitigation (iii) less costly access to to green technologies
– Add changing solutions for the problems observed in
specific country clusters