The Multinational Monitor


N E W S   M O N I T O R

U.N. Pushes New Scheme for Third World Finance

The United Nations agency specializing in international trade is seriously considering the idea of a development bank owned and operated by Third World countries.

Acting on the suggestion of the developing nations' caucus in March 1982, the United Nations Conference on Trade and Development (UNCTAD) has just completed a feasibility study on the proposed "South Bank." The report is now being examined by a variety of interested parties, including the Committee on Economic Cooperation Among Developing Countries.

One impetus for moving quickly towards a South Bank is the current worldwide squeeze on credit and new investment. According to the September UNCTAD Bulletin, private bank lending to developing countries has all but collapsed in the last 18 months. And, to compound this problem, restrictive monetary policies in the industrialized nations have generally caused a decline in economic growth worldwide, which hurts the poorest countries the most.

Official development assistance is also on the decline. According to the Organization for Economic Cooperation and Development (OECD), this aid has been declining in real terms and most likely will continue to do so in the near future. According to the DECD, the International Development Association, the "soft loan" agency of the World Bank, has fallen substantially short of its resource requirements. Furthermore, the amounts of International Monetary Fund disbursements to individual countries are not expected to increase in the near future.

There is no doubt that the Third World needs capital and that capital is becoming scarcer. The proposed South Bank, though not easy to fund, is described by UNCTAD as capable of performing several functions:

  • financing programs whose benefits would be widely shared among members, for example, commodity stabilization programs;

  • improving the ability of member countries to bargain with multinational corporations by providing an independent source of finance, particularly for projects involving development and exploitation of natural resources;

  • promoting industrial diversification, especially through. providing finance for export credits; and

  • improving conditions for trade within the Third World through support for regional and subregional payments arrangements and reserve credit schemes.

South Bank might also spare developing countries some of the political pressure exerted on them by the industrial powers, which now control the major financial institutions.

UNCTAD looked into the possibility of simply upgrading existing Third World development banks, such as the OPEC Fund for International Development, but concluded that none of these institutions could perform adequately the job required of South Bank.

According to the UNCTAD feasibility study, South Bank should have a start-up capitalization of some $38 billion. By comparison, the capitalization of the World Bank is $80 billion and rising.

But UNCTAD says that "for a capitalization of $38 billion the study envisages total paid-up capital of only about $4.8 billion, of which about $1.5 billion should be in convertible currency." The remainder of the capitalization would be in various forms of collateral.

The $1.5 billion in currency, the study continues, "would not be beyond the reach of the 40 or so countries which account for over nine-tenths of the GNP of the South and whose aggregate GNP is more than 50 times the suggested paid-up capital."

UNCTAD says it has identified at least 15 Third World nations with comfortable balance of payments positions and good credit ratings that might form the nucleus of the proposed bank. Government experts from the Third World caucus known as the Group of 77 are currently considering their next move on the proposal.

This article is reprinted from Africa News, a weekly publication on African political and economic developments available from P.O. Box 3851, Durham, NC 27702. Subscription prices are $25/year for individuals, $45/year for non-profits, and $78/year for businesses.

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