Reflections on a tumultuous decade for LDCs: An interview with Debapriya Bhattacharya, Special Adviser on LDCs to the Secretary General of UNCTAD

15 October 2010

Least developed countries (LDCs) have emerged scarred by the global economic crisis. Tighter integration in the global economy, which spurred economic growth in LDCs in the first part of this decade, also made these countries highly vulnerable to the recent financial turmoil that originated in rich countries.  The Fourth United Nations Conference on LDCs (UN LDC IV), taking place in Turkey next year, offers an opportunity to reflect on a tumultuous decade for LDC economies, and plan next steps for more resilient growth. For a sense of what to look forward to from a trade-policy perspective at UN LDC IV, TNI spoke to Debapriya Bhattacharya, Special Adviser on LDCs to the Secretary General of UNCTAD.

TNI: Do we have reason to be optimistic about the trade-performance of LDCs in recent years?

D.B: During the last decade growth rates for LDCs as a whole have been quite good, in concert with the overall growth in the global economy before the food, fuel and financial crises. The flow of investment and trade, and to a degree Overseas Development Assistance, has also been at a high level.

However, it is important to understand that this aggregate growth conceals some very serious structural deficiencies. The first point is that the average growth rate obscures a lot of variance among LDCs. It is the export-oriented LDCs that have enjoyed the highest growth rates, which pulls up the overall average. But non-exporting African LDCs did not experience the same levels of economic growth.  In the case of trade, the expansion that we have seen is largely a product of high commodity prices, which have benefited a handful of LDCs. Similarly, with respect to investment, much of the money has gone into natural resource extraction.

The point is that, while there has been a good average growth rate in LDCs, the overall distribution of that growth has not been inclusive or broad based. It is also very fragile, as it is subject to the volatility of global commodity prices. Most importantly, LDCs did not experience any structural changes to their economies - changes that will create more gainful employment based on development of the productive capacities as well as equal distribution of incomes and opportunities. In fact, inequality has increased. Indeed the prospect of sustainability of such nature of growth remains suspect.

TNI: The UN LDC IV Conference is an opportunity to put a spotlight on these issues. What to you would make this conference a success?

D.B.: It is an important opportunity to reflect on the development experience of LDCs over the last decade, and for the international development community to assess the effectiveness of their support measures. Unfortunately, the usual UN conference has a stereotypical model, in which you come out with a long wish list: a Christmas tree, so to speak, on which everyone hangs their demands. We have seen the fundamental limitation of this approach.

This time around, we will need to look very strategically at the key issues that can trigger the productive capacity of LDCs. We also need more political commitment along with identification of specific tools for achieving the critical objectives. Instituting an accountable monitoring and implementation mechanism will be also decisive.

TNI: What are these key issues?

D.B.: The issues can be approached at three levels.  The first involves systemic issues. An obvious problem is that LDCs are not only marginal recipient of non-binding international support measures, but also have to deal with a weak, often non-transparent, implementation process of these measures. Indeed, the problem of poor delivery is partly a result of a lack of LDC participation in the global economic governance process.  It will also be important to examine how LDCs can be protected from the vagaries of the global market.  The recent financial crisis was not a result of LDCs, but they were at the receiving end in many ways. Another systemic issue is the question of how much domestic policy space is granted to LDCs to allow them to develop their own development strategies. In the post-crisis scenario, now that many developed and developing countries are reinventing the economic role of the state, perhaps there is an opportunity for LDCs to regain their sovereignty over their own policy making.

Then there are sectoral or cross-cutting issues. For instance, while we have seen a relatively higher share of ODA go to health and education, there has been a great neglect in supporting building of physical infrastructure and processing capacities, which is critical for the competitiveness of LDC economies. This includes development of agriculture and manufacturing, transport connectivity and electricity generation, e-communications and trade facilitation.  Here we will need to look beyond traditional emphasis on preferential market access, which is losing its importance as the multilateral MFN rate falls, towards other major obstacles like rules of origin, non-tariff barriers, and standards. Building indigenous scientific and technological capacity also remains critical.

The third level involves addressing the specific vulnerabilities of sub-groups of LDCs. The last ten years have shown that LDCs are extremely diverse in their circumstances, yet united by a common misfortune of structural handicaps. So this time around we will need to be more fine-tuned towards the concrete needs of the LDCs that are, inter alia, small island states, land-locked countries, extremely commodity dependent ones and post-conflict societies.

TNI: Going forward, are you optimistic about the trend towards greater South-South cooperation?

D.B.: South-South cooperation is an emerging element in the global landscape of development cooperation, and its dynamics are only just being explored. We would need well thought strategy to realise its potential and it should get reflected in the outcome document of the upcoming LDC conference.

For example, the advanced developing countries are a huge and growing market, which LDCs would like to tap into as a major source of trade expansion and economic growth. These countries may also be an important source of investment, finance and technology in the LDCs' pursuit for structural transformation of their economies. In this context, regional integration involving the LDCs and other southern countries can be a major vehicle for scaling up developments. Can these virtuous prospect be materialised in the near future? A lot will depend on shaping an institutional arrangement that is based on principle of genuine partnership and fundamentally different from the post-colonial arrangements that we have seen. These are questions to be tested on the ground.

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