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Global Consensus and Economic Development

Test of Address by Secretary Kissinger!

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We assemble here this week with an opportunity to improve the condition of mankind. We can let this opportunity slip away, or we can respond to it with vision and common sense.

The United States has made its choice. There are no panaceas available

only chal. lenges. The proposals that I shall announce today on behalf of President Ford are a program of practical steps responding to the expressed concerns of developing countries. We have made a major effort to develop an agenda for effective international action; we are prepared in turn to consider the pro posals of others. But the United States is committed to a constructive effort.

For some time the technical capacity has existed to provide a tolerable standard of life for the world's 4 billion people. But we, the world community, must shape the politica! will to do so. For man stands not simply at a plateau of technicai ability; he stands at a point of moral choice. When the ancient dream of mankind a world without poverty -becomes a possibility, our profound moral convictions make it also our duty. And the convening of this special session bears wit. ness that economic progress has become a central and urgent concern of international relations.

The global order of colonial power that lasted through centuries has now disappeared; the cold war division of the world into two rigid blocs has now also broken down, and major changes have taken place in the international economy. We now live in a world of some 150 nations. We live in an environment of continuing conflicts, proliferating weapons, new ideological divisions and economic rivalry. The developing na. tions have stated their claim for a greater role, for more control over their economic destiny, and for a just share in global pros. perity. The economically advanced nations have stated their claim for reliable supplies of energy, raw materials, and other products at a fair price; they seek stable economic relationships and expanding world trade, for these are important to the well-being of their own societies.

These economic issues have already become the subject of mounting confrontation

embargoes, cartels, seizures, countermeas. ures and bitter rhetoric. Over the remain. der of this century, should this trend continue, the division of the planet between North and South, between rich and poor, could become as grim as the darkest days of the cold war. We would enter an age of festering resentment, increased resort to economic warfare, a hardening of new blocs, the undermining of cooperation, the erosion of international institutions and failed devel. opment.

Can we reconcile our competing gouls? Can we build a better world, ty conscious purpose, out of the equality and cooperation of states? Can we turn the energies of all nations to the tasks of human progress? These are the challenges of our time.

We profoundly believe that neither the poor nor the rich nations can achieve their purposes in isolation. Neither can extort them from the other the developing countries least of all, for they would pay the greater cost of division of the planet, which would cut them off needlessly frora sources of capital and markets essential to their own progress.

The reality is that ample incentives exist for cooperation on the basis of mutual respect. It is not necessarily the case thai if some grow worse off, others will be worse off. But there is an opposite proposition, which we believe is true: that an economic system thrives if all who take part in it thrive. This is no theory; it is our own experience. And it is an experience that we, a people uniquely drawn from all the other peoples of the world, truly desire and hope to share with others.

Therefore it is time to go beyond the doctrines left over from a previous century that are made obsolete by modern reality.

History has left us the legacy of strident nationalism-discredited in this century by its brutal excesses a generation ago and by its patent inadequacy for the economic needs of our time. The economy is global. Recessions, inflation, trade relations, monetary stability, gluts and scarcities of products and materials, the growth of transnational enterprises-these are international phenomena and cail for international responses.

History has also left us discredited doc. trines of economic determinism and struggle. One of the ironies of our time is that systems

'Read before the seventh special session of the U.X. General Assembly on Sept. 1 by Daniel P. Moynihan, U.S. Represeëtative to the United Vations.

based on the doctrine of materialism that promised economic justice have lagged in raising economic welfare.

And contrary to the ideologies of despair, many developing countries have been increas. ing their per capita incomes at far faster rates than obtained historically in Europe and North America in coniparable stages of their growth.

It is also ironic that a philosophy of nonaligrament, designed to allow new nations to make their national choices free from the pressure of competing blocs, now has produced a bloc of its own. Nations with radi. cally different economic interests and with entirely different political concerns are com.. bined in a kind of solidarity that often clear. ly sacrifices practical interests. And it is ironic also that the most devastating blow to economic development in this decade came not from “imperialist rapacity but from an arbitrary, monopolistic price increase by the cartel of oil exporters.

The reality is that the world economy is a single global system of trade and monetary relations on which hinges the development of all our ecocomies. The advanced nations have an interest in the growth of markets and production in the developing world; with equal conviction we state that the developing countries have a stake in the markets, technological innovation, ard capital investment of the industrial countries.

Therefore the nations assembled here have a choice: We can offer our people slogans, or we can offer them solutions. We can deal in rhetoric, or we can deal in reality. My government has made its choice.

The United States firmly believes that the economic challenges of our time must unite us, and not divide us.

So let us get down to business. Let us put aside the sterile debate over whether a new economic order is required or whether the old economic order is adequate. Let us look forward and shape the world before us. Change is inherent in what we do and what we seek. But one fact does not change: that without a consensus on the realities and principles of the development effort, we will achieve nothing.

-There must be consensus, first and foremost, on the principle that our development goals can be achieved only by cooperation, not by the politics of confrontation.

- There must be consensus that acknowl. edges our respective concerns and our mutual responsibilities. All of us have rights, and all of us have duties.

-The consensus must embrace the broadest possible participation in international de. cisions. The developing countries must have a role and voice in the international system,

especially in decisions that affect them. But those nations who are asked to provide resources and effort to carry out the decisions must be accorded a commensurate voice.

We have learned from experience that the methods of development assistance of the 1950's and 60's are no longer adequate. Not only did the technical accomplishments of many programs fall short of expectations; the traditional approaches are less acceptable to the industrialized world because they have seemed to become an endless and one-sided financial burden. And they are less acceptable to the developing world because they have seemed to create a relationship of char. ity and dependency, inconsistent with equal. ity and self-respect.

Therefore we must find new means. The United States offers today concrete proposals for international actions to promote economic development. We believe that an effective development strategy should concentrate on five fundamental areas:

- First, we must apply international cooperation to the problem of insuring basic economic security. The United States proposes steps to safeguard against the econom. ic shocks to which developing countries are particularly vulnerable: sharp declines in their export earnings from the cycle of world supply and demand, food shortages, and natural disasters.

Second, we must lay the foundations for accelerated growth. The United States proposes steps to improve developing coun. tries' access to capital markets, to focus and adapt new technology to specific development needs, and to reach consensus on the condi. tions for foreign investment.

-Third, we must improve the basic opportunities of the developing countries in the world trading system so they can make their way by earnings instead of aid.

-Fourth, we must improve the conditions of trade and investment in key commodities on which the economies of many developing countries are dependent, and we must set an example in improving the production and availability of food.

-Fifth, let us address the special needs of the poorest countries, who are the most devastated by current economic conditions, sharing the responsibility among old and newly wealthy donors.

The determination of the developing na. tions to-mobilize their own effort is indispen. sable. Without it, no outside effort will have effect. Government policies to call forth savings, to institute land reform, to use external aid and capital productively, to manage and allocate national resources wisely, to promote iamy planning—for these there are no substitutes.

But there must be international as well


as national commitment. The United States is prepared to do its part. The senior economic officials of our government have jointi with me in developing our approach. Trezs. ury Secretary Simon, with whom I have worked closely on our program, will discuss it tomorrow in relation to the world econ. omy. The large congressional delegation that will attend the session, and the seriousness with which they and the executive branch have collaborated in preparing these proposals, are evidence of my country's commitment.

We ask in return for a serious internation. al dialogue on the responsibilities which con. front us all.

Insuring Economic Security

Our first task is to insure basic economic security.

The swings and shocks of economic ad. versity are a global concern tearing at the fabric of developed and developing nations alike. The cycle of good times and bad, abundance and famine, does vast damage to lives and economies. Unemployment, falling standards of living, and the ravages of infla. tion fuel social and political discontent. We have recently seen the corrosive effects in many countries.

Developing economies are by far the most vulnerable to natural and manmade disasters -the vagaries of weather and of the busi. ness cycle. Sharp increases in the prices of oil and food have a devastating effect on their livelihood. Recessions in the industrial countries depress their export earnings.

Thus economic security is the minimum requirement of an effective strategy for de velopment. Without this foundation, sound development programs cannot proceed and the great efforts that development requires from poor and rich alike cannot be sustained.

And because economic security is a global problem, it is a global challenge:

-The industrial nations must work together more effectively to restore and maintain their noninflationary expansion;

-Nations which supply vital products must avoid actions which disrupt that expansion; and

-The international community must un. dertake a new approach to reduce drastic fluctuations in the export earnings of the developing countries.

Since the economic health of the industrial countries is central to the health of the giobal economy, their efforts to avoid the extremes of recession and inflation become an inter. national, as well as a national, respons:1:17.

In a new departure this past year, the leaders of the United States and its major trading partners have begun closer coordina.

tion of their patioral economic policies. A shared serse of urgency, and the exchange of information about trends and intentions, have already influenced important policy decisions. President Ford intends to continue and intensify consultations of this kind. The successful recovery of the industrial econ. omies will be the engine of international stability and growth.

Global economic security depends, Secondly, on the actions of suppliers of vital products.

Thus the United States has believed that the future of the world economy requires discussions on energy and other key issues among oil consuming and producing nations. The Government of France is inviting industrialized, oil-producing, and developing nations to relaunch a dialogue this fall on the problems of energy, development, raw materials, and related financial issues. The United States has supported this proposal and worked hard to establish the basis for successful meetings.

But this dialogue is based on an approach of negotiation and consensus, not the exer. cise of brute economic power to gain unj. lateral advantage. The enormous, arbitrary increases in the price of oil of 1973 and 1974 have already exacerbated both inflation and recession worldwide. They have shattered the economic planning and progress of many countries. Another increase would slow down or reverse the recovery and the devel. opment of nearly every 'nation represented in this Assembly. It would erode both the will and the capacity in the industrial world for assistance to developing countries. It would, in short, strike a serious blow at the hopes of hundreds of millions around the world.

The forthcoming dialogue among consum. ers and producers is a test. For its part, the United States is prepared for cooperation. We will work to make it succeed, in our own self-interest and in the interest of all nations. We hope to be met in that same spirit.

The third basic factor in economic security is the stability of export earnings. The de. velopment programs indeed, the basic survival-of many countries rest heavily on earnings from exports of primary products which are highly vulnerable to fluctuations in worldwide demand. Countries which depend on one product can find their revenues reduced drastically if its price drops or if exports fall precipitously. Most have insufficient reserves to cushion against sharp declines in earnings, and they cannot quickly increase the exports of other products. Facing such economic problems, most cannot borrow to offset the loss or can only do so at extremely high interest rates. In such situations coun. tries are frequently forced to cut back on the imports on which their growth and survival depend. Thus the unpredictability of export earnings can make a mockery or development planning.

The question of stabilization of income from primary products has become central in the dialogue on international economic concerns. Price stabilization is not generally a promising approach. For many commodities it would be difficult to achieve without severe restrictions on production or exports, extremely expensive buffer stocks, or price levels which could stimulate substitutes and thereby work to the long-range disadvantage of producers. Even the most ambitious agenda for addressing individual commodi. ties would not result in stabilization arrangements for all of them in the near term. And focusing exclusively on stabilizing commod. ity prices would not provide sufficient protection to the many developing countries whose earnings also depend on the exports of man. ufactured goods.

The U.S. Government has recently completed a review of these issues. We have concluded that, because of the wide diversity among countries, commodities, and markets, a new, much more comprehensive approach is required-one which will be helpful to exporters of all commodities and manufac. tured goods as well.

Let me set forth our proposal. The United States proposes creation in the Intercational Monetary Fund (IMF) of a new development security facility to stabilize overall ex. port earnings.

-The facility would give loans to sustain development programs in the face of export fluctuations; up to $2.5 billion, and possibly more, in a single year and a potential total of $10 billion in outstanding loans.

-Assistance would be available to all developing countries which need to finance shortfalls in export earnings, unless the shortfalls are caused by their own scts of policy.

- The poorest countries would be permitted to convert their loans into grants under prescribed conditions. These grants would be financed by the proceeds of sales of IMF gold channeled through the proposed $2 billion Trust Fund now under negotiation.

-Eligible countries could draw most, or under certain conditions all, of their IMF quotas in addition to their normal drawing rights. Much of that could be drawn in a single year, if necessary; part automatically, part subject to balance-of-payments condi. tions, and part reserved for cases of particularly violent swings in commodity earnings.

Shortfalls would be calculated accord. ing to a formula geared to future growth as well as current and past exports. In this way

the facility helps countries protect their development plans.

- This facility would replace the IMF's compensatory finance facility; it would not be available for industrial countries.

The United States will present its detailed proposals to the Executive Directors of the International Monetary Fund this month.

This development security facility would provide unprecedented protection against disruptions caused by reductions in earnings -both for countries whose exports consist of a few commodities and for those with diversi. fied and manufactured exports, whose earn. ings also fluctuate with business cycles. In the great majority of countries, this new facility will cover nearly all the earnings shortfall.

This new source of funds also reinforces our more traditional types of assistance; without the stabilization of earnings, the benefits of concessional aid for developing countries are vitiated. For industrialized countries, it means a more steady export market. For developing countries, it helps assure that development can be pursued without disruption and makes them more desirable prospects in international capital markets. For consumers and producers, rich and poor alike, it buttresses economic security.

Thus the success of our efforts in this area will demonstrate that our interdepend. ence can strengthen the foundations of prosperity for all while promoting progress in the developing countries.

Accelerating Economic Growth

It is not enough to insure the minimal economic security of the developing coun. tries. Development is a process of growth, acceleration, greater productivity, higher living standards, and social change. This is a process requiring the infusion of capital, technology, and managerial skills on a massive scale.

Developing countries themselves will have to provide most of the effort, but interna. tional support is indispensable. Even a mod. erate acceleration of recent growth rates will require some $40 billion a year in outside capital by 1980. The requirement for technological innovation, though impossible to quantify, is similarly great.

How can these needs for capital, technology, and skills be met?

Bilateral concessional assistance from the industrialized countries has been one important source. Last year it amounted to some $7.2 billion. This must continue to youw. But realistically, we cannot expect the le! to increase significantly over the coming years. To put it frankly, the political climate for bilateral aid has deteriorated. In the industrial countries, support for aid has been eroded by domestic economic slowdown, compounded by energy problems; in the developing countries, there is resentment at forms of assistance which imply dependence.

The oil exporters bave only begun to meet their responsibility for assistance to the poorer countries. Last year their concession. ary aid disbursements were roughly $2 bil. lion; they could, and must, rise substantially

this year.

But the industrial nations and the oil exporters cannot, even together, supply all the new resources Deeded to accelerate development. It follows inescapably that the remaining needs for capital and technology can only be met, directly or indirectly, from the vast pool of private sources. This investment will take place only if the conditions exist to attract or permit it. The United States therefore believes it is time for the world community to address the basic requirements for accelerating growth in developing coun. tries:

--First, developing countries must have better access to capital markets.

-Second, we must promote the transfer of technology.

-Third, it is time to reach an international consensus on the principles to guide the beneficial operation of transnational enterprises.

major expansion of the resources of the World Bank's International Finance Corpo ration, the investment banker with the broadest experience in supporting private enterprise in developing countries. We propose a large increase in the IFC's capital, from the present $100 million to at least. $400 million.

Second, the United States proposes crea. tion of an International Investment Trust to mobilize portfolio capital for investment in local enterprises. The trust would attract new capital by offering investors a unique opportunity: participation in a managed broad selection of investments in developing country firms, public, private, and mixed. The International Finance Corporation would manage it and perhaps provide seed capital, but most of its funds would come from government and private investors. In. vestors would have their exposure to major losses limited by a $200 million loss reserve provided by governments of industrialized, oil-producing, and developing nations. This institution could be a powerful link between the capital markets and the developing world and could provide billions of dollars of essential resources.

Third, the United States will contribute actively to the work of the IMF-World Bank Development Committee to find ways to assist developing countries in their direct borrowing in the capital markets. It is encouraging that the Latin American countries are considering a regional financial safety net to underpin their access to capital markets by mutual commitments of financial backing.

Finally, we believe that all industrial coun. tries should systematically review the condi. tions for developing-country access to their national markets to assure that they offer fair and open opportunity. The United States is prepared to provide technical assistance and expertise to developing countries ready to enter long-term capital markets, and we ask others to join us.

Access to Capital Markets

First, access to capital markets: The private capital markets are already a major source of development funds, either directly or through intermediaries. The World Bank and the regional development banks borrow extensively to lend to developing nations. The United States urges the expansion of these programs. We are gratified that ad. valced countries outside of the Western Hemisphere are joining us shortly in a $6 billion expansion of the Inter-American Development Bank. We will participate in negotiations for replenishment of the Asian Development Bank, and we are seeking con. gressional authority to join the African Development Fund,

But the developing countries that have been most successful and that no longer require concessional aid, especially in Asia and Latin America, have relied heavily on borrowing in the capital markets. Their fu. ture access must be assured.

We must now find new ways to enhance the opportunities of developing countries in the competitica for capital. And we need to match in new ways potential sources of capital with the investment needs of developing rnuntries.

Several courses of action offer promise.
First, the United States will support a

Transfer of Technology

Developing countries need not only new funds but also new technology. Yet the mechanisms for the transfer of technology and for its local development are limited and are seldom at the sole command of na. tional governments, and the technologies of industrial countries must often be adapted to local economic and social conditions. New institutions and new approaches are therefore required.

For technology to spur development, it must spur growth in priority areas: energy, food, other resources strategic to the developing economies, and industrialization itself.

First, energy is critical for both agricul. tural and industrial development. The enor.

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