Agricultural Reform
August/September 1990 OECP
SOCIAL POLICY STUDIES
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0 35 i M i [\
agriculture
Published every two months in English and French by the ORGANISATION AGRICULTURAL REFORM: A HESITANT START FOR ECONOMIC CO-OPERATION AND DEVELOPMENT. Gérard Viatte et Frédéric Langer
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165 i August/September 1990
Agricultural reform has been making tentative steps towards policies that more accurately reflect world market prices. But the pace varies, with some OECD countries making more rapid progress than others. Agricultural Reform: A Hesitant Start
Gérard Viatte and Frédéric Langer
Agriculture is today again a major issue in international discussions, for two main reasons: the Uruguay Round, in which it is one of the difficult sectors for negotiation; and the process of agricultural reform decided on by the OECD Council of Ministers in 1987 and monitored by the OECD Secretariat every year. The latest report on the progress made and the setbacks which have occurred has just been issued. 1
It is not unusual for the press to report In the process of agricultural reform The current agricultural policy reform is that two countries, or groups of coun¬ some OECD countries are further ahead reflected not least in changes in agricultural tries, at a particular meeting have than others (box, p. 5), although all of support as measured by producer subsidy agreed on everything - except agriculture. them want to be given credit for their equivalents (PSEs), the value of transfers This has always been more or less the efforts. This process of reform can be to from domestic consumers and taxpayers case, for agriculture is a sector with a the advantage of international co-operation to agricultural producers (Table). The very long-established tradition of protection¬ and to the objectives set by the OECD, rapid growth in support in the first half of ism, with producers in almost every especially if the momentum created by the the 1980s (there was a 70% increase country receiving government support. Uruguay Round encourages both OECD between 1 984 and 1 987) has been stopped. and non-OECD countries to follow more Gérard Viatte is Director of the OECD Food, Agricul¬ 1 . Agricultural Policies, Markets and Trade: Moni¬ and more market-oriented agricultural ture and Fisheries Directorate; Frédéric Langer works toring and Outlook 1990, OECD Publications, Paris, in the Agricultural Policies Division there. policies. 1990; see also the reports for 1988 and 1989.
The OECD OBSERVER 165 August/September 1990 AGRICULTURE
Support in 1 987 - at $1 73 billion - was the OECD countries for their agricultural sec¬ ered very slightly. In the European Com¬ highest of the decade. In that year produ¬ tors is still well above the already high munity, intervention prices have on the cers obtained almost half their agricultural figure of the first half of the 1980s (the whole declined slightly and the interven¬ income from these transfers. Since then 1979-85 average was around $100 billion). tion system has been tightened. But the the relative importance of this source has In absolute terms the European Com¬ Community milk reserve has been raised, declined, to $160 billion in 1988 and $141 munity ($53 billion), Japan ($34 billion) and which could result in a 1 % increase in the billion in 1989, and a further decrease of the United States ($32 billion) account for total milk quota. As for the policy of about 5% is expected in 1990. In spite of the bulk of agricultural support. But the 'maximum guaranteed quantities' (MGQ), the recent decrease, total support by the comparison is more significant if support the probability that it will achieve its full is assessed as a percentage of the value potential for reducing cereal production of production. On this basis a group of decreases as the intervention price rises, THE URGENCY countries with high support rates stands as was the case in 1989. OF REFORM RE-AFFIRMED out: Switzerland, Norway, Finland and In the United States, target prices have Extracts from the 1990 Communiqué Japan (over 70%). Another group is of the OECD Council at Ministerial Level around the OECD average (about 40%): Table AGRICULTURAL SUPPORT [...] Ministers agree to take urgent steps the European Community, Austria, to reform agricultural policy, as regards sup¬ Canada and the United States. Then IN TERMS OF PRODUCER port and protection, so as to permit greater come two countries where assistance to SUBSIDY EQUIVALENT (PSE)1 liberalisation of trade. They reaffirm their agriculture is particularly low: Australia PSE commitment to the long-term objective of (10%) and New Zealand (5%). in national currency and the reform, i.e., to allow market signals to as % of production value
influence the orientation of agricultural pro¬ 1979-85 duction and to establish a fair and market- Progress (average) oriented agricultural trading system. Minis¬ and Setbacks Australia A$ millions 1,103 1,677 1,650 ters are prepared to negotiate in line with % 11 10 10 the agreed objectives of the Punta del Este The progress - and setbacks - in the Austria Sch. millions 16,330 28,993 25,428 and Mid-term Review Declarations, although reform of agricultural policy are reflected % 29 49 44 they differ on how an approach to these also in the measures taken by countries in Canada C$ millions objectives should be expressed at this 4,936 7,476 6,224 % 30 43 35 stage. Some feel that negotiations should particular cases, when they are judged by proceed to seek specific policy commit¬ the yardstick of the principles advocated EC ECU millions 35,425 52,847 48,091 ments in each area of the negotiations: by OECD Ministers (box, p. 6 ). % 35 43 38 internal support, barriers to market access In Australia, for instance, supplement¬ Finland Mk millions 10,719 17,434 19,093 and export subsidies; and to develop new ary market price support for dairy produce % 57 74 72 rules for sanitary and phytosanitary meas¬ and administered pricing for wheat and Japan Y billions 4,631 4,750 4,649 ures. Others prefer to seek reductions in sugar have been abolished. The under¬ % 64 75 72 support and protection with commitments writing arrangement for wheat has been New Zealand NZ$ millions 917 443 321 encompassing all measures affecting % 23 7 5 directly or indirectly import access and replaced by a government guarantee, NKr millions export competition, as well as rules for sani¬ which will be gradually lowered, for bor¬ Norway 10,945 17,202 17,815 % 71 76 74 tary and phytosanitary measures. In pur¬ rowings by the Australian Wheat Board. suing the long-term objective, account will These measures, and others taken in Sweden SKr millions 10,018 15,396 14,512 % 42 52 47 be taken of proposals aimed at addressing 1989/90, should result in reduced support participants' non-trade concerns. Ministers and an improved market orientation. Switzerland SF millions 5,128 7,196 6,964 express their determination and commit¬ % 67 75 In New Zealand, the reduction in cus¬ ment to make every effort to overcome the toms duties on certain kinds of meat, the United States $ millions 28,466 39,295 32,253 differences and to develop by the July Trade % 26 35 27 Negotiations Committee meeting an appro¬ abolition of the New Zealand Poultry OECD total $ millions 98,784 162,985 141,168 priate framework to achieve the objective Board, the privatisation of the Rural Bank¬ % 34 45 39 defined above; and subsequently to reach ing and Finance Corporation and the de¬ agreement on how far and on what time¬ crease by a third in budget aid to agricul¬ 1 . Producer subsidy equivalent (PSE) is the value table it is to be done, and to develop streng¬ of transfers to farmers resulting from agricultural ture should further reduce the already low policies. These transfers are financed by consu¬ thened and more operationally effective volume of support. mers in the form of market price support and/or by GATT rules and disciplines. Ministers agree In a number of other countries, meas¬ taxpayers through direct payments and other that the results of the negotiations must be forms of support. The PSE concerns all products; ures have been taken which are a step to¬ it is net because the extra cost of animal feed has translated into binding country programmes been deducted (otherwise it would be counted that achieve greater liberalisation of trade. wards reform but involve only minor twice). Ministers invite the Organisation to changes, or which have been offset by 2. Estimate. continue to support the process of agricul¬ retrograde measures. In Canada, cereal 3. Provisional. tural reform [...]. transport subsidies have been reduced 4. EC of the Ten for 1979-85, and EC of the Twelve since then. and the overall milk quota has been low
ïïie OECD OBSERVER 165 August/September 1990 AGRICULTURE
5
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. . .->.', . < . : 'My ; *<< . | i K been reduced for virtually all the products creases are allowed for producers already concerned and loan rates have been low¬ receiving a high degree of support, when ered. Yet, although the gap between the production levies are reduced or when a target price and loan rate has remained government undertakes to offset fully the practically unchanged, the support pro¬ increase in farmers' costs for a certain vided for farmers by this measure (since number of years. The easing of quantita¬ deficiency payments bridge the gap be¬ tive restrictions on production (in the form tween the two prices) could even rise if of increased quotas, for example) without market prices decreased more than target a corresponding reduction in price sup¬ prices. By and large, the mechanisms port simultaneously increases the which insulate producers from market sig¬ economic distortions connected with pro¬ nals have not been altered and market duction quotas, the degree of protection orientation has not significantly improved. of the sectors concerned, and agricultural There are many countries where the support. percentage PSE (that is, the PSE as a per¬ These examples, both encouraging and centage of the value of production) is high cautionary, show that, although the path and which have not modified the system of agricultural reform now seems to be of import barriers and export subsidies better defined or marked, much has still linked to their policy of internal agricultural to be done for reform to be effectively im¬ price support. In some cases it is even plemented in practice. Broadly speaking, possible to speak of a widening of the gap progress in reducing assistance to between domestic operating conditions in agriculture on a concerted basis and in a agriculture and market mechanisms. This market orientation is limited and uneven. may occur, for example, when price in Although regulatory action to limit supply
is an efficient means of curbing product¬
OECD PRINCIPLES FOR AGRICULTURAL POLICY REFORM ion and budget expenditure and of bolstering world prices, it is still applied in Extracts from the 1987 Communiqué a way which results in economic distort¬ of the OECD Council at Ministerial Level ions. Progress with measures affecting The long-term objective is to allow market When production restrictions are trade (import restrictions, export sub¬ signals to influence by way of a progressive imposed or productive farming resources sidies) has been negligible. Although are withdrawn by administrative decision, and concerted reduction of agricultural sup¬ many countries are increasingly turning to port, as well as by all other appropriate these steps should be taken in such a way direct aid to support their farmers' in¬ means, the orientation of agricultural pro¬ as to minimise possible economic distor¬ comes, most of these measures are linked duction; this will bring about a better alloca¬ tions and should be conceived and imple¬ tion of resources which will benefit consu¬ mented in such a way as to permit better to production or the use of factors of pro¬ mers and the economy in general. functioning of market mechanisms. duction. Measures to protect the environ¬ In pursuing the long-term objective of Rather than being provided through price ment are also on the increase, but few of agricultural reform, consideration may be guarantees or other measures linked to pro¬ them have been implemented as part of given to social and other concerns, such as duction or to factors of production, farm the comprehensive reform of agricultural income support should, as appropriate, be food security, environment protection or policy with the long-term objective of in¬ overall employment, which are not purely sought through direct income support. This creasing market orientation. economic. The progressive correction of approach would be particularly well suited The OECD has pushed further the ana¬ policies to achieve the long-term objective to meeting the needs of, amongst others, will require time; it is all the more necessary low-income farmers, those in particularly lysis of some of these policies. The part that this correction be started without delay. disadvantaged regions, or those affected by which quantitative restrictions could play The most pressing need is to avoid further structural adjustment in agriculture. in connection with reform has been deterioration of present market imbalances. The adjustment of the agricultural sector studied by the OECD.2 On the face of it, It is necessary: will be facilitated if it is supported by com¬ such restrictions cannot improve the func¬ - on the demand side, to improve pro¬ prehensive policies for the development of tioning of market mechanisms. But their spects as much as possible inside as well various activities in rural areas. Farmers and effect on the total volume of aid to agri¬ as outside the OECD area; their families will thus be helped to find sup¬ culture is governed by various factors. - on the supply side, to implement meas¬ plementary or alternative income. ures which, by reducing guaranteed In implementing the above principles Depending on the level of quotas and prices and other types of production governments retain flexibility in the choice prices, they may result in the burden of incentives, by imposing quantitative pro¬ of the means necessary for the fulfilment of public aid being shifted from the taxpayers duction restrictions, or by other means, their commitments. 2. Reforming Agricultural Policies: Direct Income will prevent an increase in excess supply. Support and Quantitative Restrictions on Output, OECD Publications, Paris, forthcoming 1990.
The OECD OBSERVER 1 65 August/September 1 990 AGRICULTURE
to consumers. Within a quota system itself, it is very difficult to bring about structural Figure WORLD PRICES OF MAIN AGRICULTURAL COMMODITIES1 adjustment if the quotas are not transfer¬ US$ per tonne or US$ per 10 tonnes2 able and if there are no provisions for abolishing the system. On the other hand, 250 -i if the quotas are negotiable, the total vari¬ able production cost rises (by the value of the quota). The best approach is to use quotas as a temporary measure to facili¬ tate the transition to a lower volume of production, a procedure which can be simulated.3 Beef $/tonne More has also been learned about the place of direct income support in agricul¬ tural reform.4 The Secretariat has provi¬ sionally identified four main categories of Wheat $/tonne SMP3 $/10 tonnes measures that could comply with the ministerial guidelines. They are: direct in¬ .Butter $/10 tonnes come support for structural adjustment, cyclical income stabilisation, a minimum income guarantee, and the provision of
public goods. But in each of these Maize $/tonne categories the characteristics of the measures that cause least distortion would vary. In all cases the measures
should be intended to provide income Sugar $/10 tonnes support while allowing market signals to influence production decisions, and they should be part of a strategy to reduce support.
World Markets 1 . Temperate zone. 2. Price in dollars deflated by the unit value of exports of manufactured goods, 1 985= 1 00. Still under Threat 3. Skimmed milk powaer.
Source: OECD.
All in all, exchange-rate movements and developments on world commodity mar¬ (Figure). It was growth in international de¬ non-OECD countries will be decisive. kets have this year once again contributed mand, in a generally favourable economic It is difficult to foresee the situation in more to reducing assistance to agriculture situation, which kept up dollar prices. The the countries of east and central Europe than have changes or adjustments to na¬ firmness of prices for meat and dairy and the USSR. In the short term demand tional policies. But it would be unwise to products can be attributed to the for foodstuffs in some countries will be consider the present market situation as buoyancy of demand as well as to a slight subject to constraints that could be either secure or satisfactory. decrease in production partly due, for attenuated by food aid. In the longer term, The situation is unsatisfactory to the ex¬ dairy products, to policies intended to some of the countries of east and central tent that agricultural trade was again af¬ limit supply and, for meat, to a number of Europe will be able to develop their agri¬ fected in 1989 by substantial domestic cyclical and policy factors. cultural exports provided they opt for support and by trade measures in the Production in the OECD area, nonethe¬ market-oriented reform and have access form of export subsidies and import re¬ less, still has a high potential for growth to other markets. The main uncertainties strictions, which have persisted despite By 1990-93 cereal surplus in the OECD concern the import requirements of the relatively high international prices. Neither area could return to, even exceed, the USSR and China, although they will prob¬ does it seem secure if one looks at amounts of the early 1980s. Similarly, ably decrease in the medium term. medium-term market prospects. Admit¬ dairy production should start to rise again tedly, world markets for the main agricul¬ in 1990, although at a slower pace than 3. Alison Burrell, The Management of Dairy Quotas, OECD Publications, Paris, forthcoming 1990. tural commodities produced in OECD that which led to the record surpluses of 4. See Reforming Agricultural Policies: Direct countries remained firm in 1989 after the the recent past. As demand in the OECD Income Support and Quantitative Restrictions on steep price increases observed in 1988 area is practically marking time, that of Output.
The OECD OBSERVER 1 65 August/September 1 990 AGRICULTURE
The efforts by some of the developing countries to improve their self-sufficiency and the financial difficulties of many of them will not contribute to an increase in demand on international markets.
An Opportunity to be Seized
These prospects offer all the more reason to pursue agricultural reform in the OECD countries. Without policy adjust¬ ments, assistance to agriculture will prob¬ ably stay at its current amount, which is
AGRICULTURE AND THE URUGUAY ROUND
The Uruguay multilateral trade negotia¬ tions launched in September 1986 by the Punta del Este Declaration should be com¬ pleted in December 1990. They concern agriculture as well as the other sectors of the economy. In addition, all policies concerning agricultural trade are included in the negotiations - national agricultural poli¬ cies as well as trade policies in the usual meaning of the term. The first year was devoted to identifying the major problems in agricultural trade, to considering the principles which should govern this trade and the submission of ini¬ tial proposals by participating countries. A Mid-term Review was held in Montreal in & December 1988, but did not lead to an agreement that could be used as a basis for future negotiations. In Geneva in April 1989, still very high. It is because of this pro¬ form along the lines defined by the Minis¬ however, the participating countries spect and the macro-economic climate ters of the OECD countries. This opportu¬ approved a text on the Mid-term Review which is now conducive to structural nity must be boldly taken and fully ex¬ including a section on agriculture, which adjustment that bolder and more general ploited. defined a framework approach for these measures must be taken to set up a firm negotiations. This text stated in particular process of agricultural policy reform in that the long-term objective was to 'esta¬ OECD countries. blish a fair and market-oriented agricultural trading system and that a reform process OECD Bibliography should be initiated through the negotiation of commitments on support and protection Agricultural Policies, Markets and With the Uruguay Round (box, left), the and through the establishment of streng¬ Trade: Monitoring and Outlook 1990, representatives of the GATT countries 1990 thened and more operationally effective now have an efficient instrument for re¬ GATT rules and disciplines.' The partici¬ Reforming Agricultural Policies: Direct Income Support and pants asked for 'substantial progressive form in their hands. Moreover, agricultural Quantitative Restrictions on Output, reductions in agricultural support and pro¬ reform is one of the crucial factors in these forthcoming 1990 tection'. negotiations which are to be completed in Alison Burrell, The Management of In the short term - i.e., up to December December 1990. Much remains to be Dairy Quotas, forthcoming 1990 1 990 - the participants undertook 'to ensure done by that date if the objectives stated National Policies and Agricultural that current domestic and export support in the Punta del Este declaration and in Trade. Country Study: Norway, 1 990 and protection levels in the agricultural the Mid-term Review of the Uruguay National Policies and Agricultural sector are not exceeded'. Proposals for this Trade. Country Study: Switzerland, Round are to be achieved. Any progress purpose were submitted by the main con¬ 1990 tracting parties in 1989. in this context will make it possible to OECD Economic Studies, No. 13, strengthen the process of agricultural re- Winter 1989-1990.
The OECD OBSERVER 1 65 August/September 1 990 EDUCATION
hy should OECD countries continue to be concerned about educational buildings? Although the massive and rapid expan¬ versai entitlement; moreover, for a perioq sion of public education which took place of at least nine years, and in many OECD"" in post-war decades is over, and the qual¬ countries for rather longer, it is compul¬ fifth of that total; thus iiTTound figures ity of education and the content of the sory. The quality and suitability of the education premises-related costs account curriculum pose more pressing problems, buildings in which children are educated for 1 % of GDP. there are cogent reasons nonetheless. is not irrelevant to the quality and effect¬ Third, the pressure for change, both First, virtually everyone has to spend a iveness of the educational process as a pedagogical and administrative, in teach¬ considerable part of his or her formative whole.1 ing and learning, is ever-present in educa¬ years in school. From being the privilege Second, OECD countries devote, on av¬ tion systems and the information revolution of the few, education has become a uni- erage, more than 5% of their GDP to edu¬ is intensifying it. If educational buildings cation. The cost of building (including do not reflect, and, indeed, anticipate Richard Yelland is Head of the Programme for Edu¬ cational Building in the OECD Directorate for Social debt-servicing), running, cleaning, heating 1. Schools and Quality: An International Report, Affairs, Manpower and Education. and maintaining schools approaches one- OECD Publications, Paris, 1989.
The OECD OBSERVER 165 August/September 1990 EDUCATION
young children of twenty years ago have moved, leaving their middle-aged parents in the family home, and several empty schools in the neighbourhood (box).
Tools for Properly Management The design of modem school buildings should involve teachers and architects alike. Education authorities are typically responsible for a stock of hundreds, some¬ those changes, the capacity of the system cheap. Building professionals estimate times thousands, of sites and buildings to adapt itself will be impaired. that the annual maintenance budget for a which have accumulated over the years, Thus a more rigorous approach to prop¬ building should be equivalent to 1.5% of and whose value runs into astronomical erty management is not only desirable for its capital value; many authorities spend sums. An education authority seeking to the educational and economic benefits it less than half that amount. make the best use of these resources can bring now. It is also a prerequisite for must keep its property stock continually a successful response to the challenges Schools under review. It must try to evaluate the that the 21st century is likely to pose. costs and benefits of several different Although schools take many shapes in a Changing World courses of action. Some are relatively and sizes - from the one-teacher village An old school building, even one in straightforward, such as determining primary school to the 3,000-pupil city high excellent condition, can still be unsatis¬ when the cost of repairing a school ex¬ school - it is probably fair to say that a factory if the sizes and shapes of the ceeds the cost of replacing it, or deciding child of 1890, transplanted to one of rooms it contains are not appropriate to where to site a new school. Others are today's schools, would have little difficulty its current use. A secondary school with more difficult. How can schools of different in recognising its function and in feeling at classrooms designed for 40 pupils can, of types and different ages be fairly com¬ home. Indeed, many of today's schools, course, be used for classes of 25, at the pared? What are the financial, environ¬ particularly in rural areas and the inner cost of some wasted space; but a primary mental and human costs of bussing pupils cities, were already in use in 1890. That a school designed for the teaching methods across town? Can it be right to close a building may last for centuries while the of the 19th century may less easily be school which is only fifteen years old? activities that go on inside it change fre¬ adapted to those of the 20th, especially As long as large numbers of new quently poses particular problems for where the internal walls are load-bearing schools were urgently required, these those responsible for the planning and de¬ and cannot be taken down or moved. questions were seldom asked, but they sign of educational buildings. At any given Newer buildings avoid load-bearing walls become more pertinent, and more difficult time a small percentage of the building so far as possible and incorporate a range to answer, when enrolments are falling, as stock will be new or recent, much of it will of room sizes to allow for adaptability and has been the case in most OECD coun¬ be old but serviceable, and some will be flexibility.2 tries in recent years. The threatened clo¬ obsolete. There are other ways in which new sure of a school arouses such hostile There is no prima facie reason that an demands can be placed on buildings. reactions from the people who see them¬ old school building should be an inap¬ Making it possible for people in wheel¬ selves losing one of the pillars of commu¬ propriate one, provided it is of the right chairs - staff and students - to enter and nity life that administrators and decision¬ quality. This necessitates adequate to move around schools has become a makers may be tempted to seek refuge in maintenance (which is frequently not widespread policy aim. Providing access the status quo, hoping that the problem forthcoming), occasional adaptation (for in older buildings can be very costly. City- will go away. Occasionally it does - a new example to improve sanitary facilities), centre schools built before the age of the factory may open in the area, bringing refurbishing (to improve energy efficiency) automobile lack adequate parking space new residents - but more often it simply and sometimes major rebuilding (as when and getting in and out of the building can gets worse, and the action that eventually the presence of dangerous, but previously involve crossing busy roads. When acci¬ has to be taken is more drastic than that accepted materials, such as asbestos, is dents happen they are often serious and which would have sufficed earlier. discovered). None of these things comes sometimes fatal.3 Perhaps the single most important tool 2. Roger Clynes, Adaptability and Flexibility in Finally, even a sound and suitable build¬ that an education authority has to have at Educational Facilities, OECD, Paris, 1990; available free of charge from the Programme for Educational ing may be of little use if it is not located its disposal is a reliable property-manage¬ Building, OECD Directorate for Social Affairs, Man¬ where the pupils are. Everyone is familiar ment information system. This must include power and Education. with rural schools that are threatened with information about the precise location of 3. Safety and Security in Educational Buildings, closure because there are no longer the buildings for which the authority is OECD, Paris, 1988; available free of charge from the responsible, their size, age, condition, Programme for Educational Building, OECD Direc¬ enough children to fill them, or with sub¬ torate for Social Affairs, Manpower and Education. urban residential areas from which the current use and value. The processing
10 The OECD OBSERVER 1 65 August/September 1 990 EDUCATION
Figure RECURRENT EXPENDITURE ON SCHOOLS IN SWEDEN, 1984
power of even a simple personal computer can then enable the analysis of the effects of a wide range of courses of action in a fraction of the time of fifteen years ago. But such analysis will only be as accu¬ rate and up-to-date as the information in the data-base allows it to be. Sometimes information is collected in a way which does not permit the analysis desired, but a far more frequent pitfall is the attempt to collect too much information, which can result, at best, in delays and cost over¬ runs, and at worst in the cancellation of the project. The secret of success is the
CAPITALISING ON FLUCTUATING DEMAND
In new residential areas, primary school enrolments typically peak and Total Expenditure1 Premises-related Expenditure2 then fall to a relatively stable number. Teaching Cleaning One response to this rise and fall in Ë1 Premises Energy demand has been to use temporary Books and Equipment Maintenance and Repairs transportable or relocatable classrooms. Other Staff The disadvantages of temporary build¬ ings include depreciating capital value, relatively high maintenance and opera¬ 1. Primary and lower secondary schools. ting costs, the expense of relocation, 2. All schools.
and an aesthetically inferior appearance. Source: OECD. These problems have been solved in a primary school design recently approved in South Australia. Some of collection of core information in a central pupils. Even when enrolments are appar¬ the classrooms have been sited and data-base, leaving more detailed informa¬ ently stable demands are changing in designed so that they can be readily tion to subsidiary, but compatible data¬ other ways. Curriculum content, converted to medium-density housing. bases.4 pedagogical methods, and educational Each 'house' has an initial capital cost which is higher than that of relocatable Once reliable data is available the pro¬ technology are all dynamic factors, never accommodation, but the capital appre¬ cess of comparing options can begin. more so than at present. ciation of the 'houses' is estimated to Techniques for the economic appraisal of New curricula, with their emphasis on cancel out the initial cost penalty after alternative courses of action do not have technology and 'hands-on' experience, approximately seven years. These esti¬ to be complex.5 The task is not to make pose questions about the provision, mates are based on assumptions about absolute assessments of each proposal maintenance and accommodation of local property values, inflation and inter¬ but to compare them one with another. equipment. When computers first came est rates; in different circumstances the The essential thing is to ensure that the into schools they were put into computer break-even point could come sooner or later. costs of each option are evaluated over rooms where often they were treated to From the educational and aesthetic time. If this is not done there is a risk that an especially clean and air-conditioned points of view the new design is prefer¬ the option with the cheapest initial cost environment, and were kept safe behind able to the relocatable classroom. will be chosen, even though in the long especially secure doors. Now the time Pupils, parents, teachers, and local resi¬ run it may be much the most expensive. may not be far away when all schools will dents much prefer attractive permanent The final choice, of course, should be buildings to temporary huts. Land¬ made on educational and social grounds. 4. Martin Garden, Towards a Core Information scaping and tree-planting can be deve¬ System, OECD, Paris, 1986; available free of charge loped without the destruction which is from the Programme for Educational Building, OECD likely when temporary accommodation Matching Directorate for Social Affairs, Manpower and Educa- is relocated. The compatibility of design Supply and Demand tion. with the permanent core of the school 5. Sam Cassels, The Application of Economic Ap¬ praisal to Educational Building, OECD. Paris, 1987; and surrounding houses is a further Nor can the education authority sit back available free of charge from the Programme for Edu¬ advantage. when it has apparently matched the sup¬ cational Building, OECD Directorate for Social Affairs, ply of school places to the number of Manpower and Education.
Trie OECD OBSERVER 1 65 August/September 1 1 EDUCATION
for small, remote schools, which can be networked to larger establishments. In¬ stead of closing the village school it may be enough to install a micro-computer, a modem and a satellite dish. Severely handicapped children, who were unable to go to ordinary schools, may be able to join in classes from their own homes. The essence of the challenge lies not in change itself, but in the rate of change. Many large companies in the 1 960s invested with what appeared to be considerable Will the computer revolutionise the shape of schools as well as pedagogical methods foresight in powerful mainframe computers have as many computers as desks. The difficult issues for planners and designers. housed in massive hangars. The lucky evidence so far is that a pupil working at In spite of some differences of emphasis, ones had a few years use out of these a computer requires more space than one most schools in OECD countries were monsters, the unlucky saw their project become obsolete before it was even com¬ working with books at a desk. But com¬ built on the supposition that pupils would pleted. OECD public education systems puters are getting smaller and it is by no be taught in groups of fixed size (whether means clear that this situation will con¬ 25 or 30 or even 40) and in a certain way. are in an analogous position. They have to make decisions about their hardware - tinue. Hitherto the presence of computers Classroom size and layout reflect teaching their buildings and equipment - without and printers has implied the presence of method, and although one no longer sees any certainty that they will not be overtaken many metres of cables. Even if one cannot tiers of desks bolted to the floor and facing by events. predict with certainty how much cabling the master's rostrum, there is still a certain will be required in future it is at least poss¬ uniformity in classroom design. This ible to limit the pressure for costly adapt¬ broadly reflects a past homogeneity in ations by leaving open the possibility for pedagogical practice which is showing The current work of the OECD Pro¬ cabling every workplace. signs of breaking down. More and more gramme on Educational Building sets out Vocational education is the sector pupils spend time working in small to help those responsible for national edu¬ where the variety of equipment which groups, or doing individual project work; cation systems by seeking answers to schools require to prepare their pupils teachers more frequently work in small some of their questions. The future may adequately is growing most dramatically. teams with their colleagues, teaching be unknowable, but it is not impossible to Many vocational schools possess what smaller classes. make some educated guesses about it. amounts to a museum of 19th- and 20th- Designing schools which can accom¬ The sharing of experience remains a valu¬ century tools and equipment. All too few modate these and other changes without able way of solving common problems. It are adequately provided with the up-to- losing the advantages of the traditional is ironic that as the pace of change has date machinery that industry is using. And approach is the challenge facing school increased, responsibility in OECD coun¬ how can one teach a practical course designers today. The involvement of tries for planning, designing and managing (painting motor vehicles, for example) teachers in the briefing of the architect is schools has increasingly been decen¬ without equipment and ventilation com¬ an important step in ensuring that the solu¬ tralised. Central control through legis¬ parable with that found in the industry. tion adopted is workable and does not lation, norms and standards has given This is expensive, and raises health and create new constraints of its own. Archi¬ place to devolved responsibility for man¬ safety issues. Perhaps more students tects who try to impose their view on agement. In these circumstances the should do their practical work on industrial teachers without consulting them will be importance of exchanging information premises, and more use should be made unsuccessful. Experiments with 'open and experience - locally, nationally and of simulators. Where full-scale production plan' schools in the 1960s and 1970s, internationally - is growing. equipment is available in an educational where teachers had not been brought in institution ways must be found for it to be to the briefing and design process, failed. used more intensively and it should be Information technology, moreover, used for industrial production.6 opens up possibilities which until a few New teaching styles present even more years ago were only dreams. A teacher OECD Bibliography can talk to, be seen by, and correct the 6. Questions such as these were the subject of a re¬ work of pupils who are ten, or one Education in OECD Countries, cent OECD symposium in Finland on facilities for voc¬ 1986-87, 1990 ational education and training; it recognised that there hundred, or one thousand miles away. Pathways for Learning, 1989 are many ways in which education and industry can The potential for the exchange of informa¬ co-operate to provide facilities for vocational training. Information Technologies in tion between schools in different countries A report of this symposium will be issued shortly by Education, 1989 the Programme on Educational Building. is dramatic, but there are implications too Surplus Space in Schools, 1985.
12 The OECD OBSERVER 165 August/September 1990 EDUCATION
The Environment al School
Can environmental awareness be taught in school? Is it possible in the last years of the 20th century to prepare the citizens of the 21st to understand and implement the concept of 'sustainable economic development'? And what are the pedagogical implications, for theory and for practice?
Kathleen Kelley-Lainé The growing awareness that the a substantial role in defining their projects, environment is one of the more that they took responsibility for carrying important priorities in the future twelve OECD member countries participa¬ them out, and that the objective of their development of education has led to the ting appointed a co-ordinator to provide work was to change the local environment. establishment of an OECD programme, the practical and analytical link between Seven principal themes have been 'Environment and School Initiatives'. The selected schools and the OECD Secretariat. addressed in the programme: aim from the outset has been to examine One of the main criteria in the choice of how to overcome some of the main school projects which show innovative school was that the pupils or students had practical and political barriers to the teach¬ ways of teaching and learning environ¬ ing and learning of environmental issues Kathleen Kelley-Lainé works in the Centre for Educa¬ mental issues, ranging from scientific and tional Research and Innovation in the OECD Directo¬ when 'teaching the environment' economic to cultural subjects. Each of the rate for Social Affairs, Manpower and Education. how to deal with new forms of inter-
Tne OECD OBSERVER 1 65 August/September 1 990 13 EDUCATION
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action between teachers, students and and available for education in member become part of an interactive system, the community countries. producing information that is then fed the changing roles of teachers and stu¬ It has been a tacit understanding of the back into the system and used to change dents in environmental education participating countries that young people it. So what are the principal elements of the integration of various disciplines should experience the fact that they can 'knowledge-production'? and the question of quality standards and contribute to their society through activi¬ First, knowledge can be viewed as the assessment ties that are respected, that they can active creation of personal 'meaning', as the scope of environmental education themselves influence the world in which the manifestation of students' powers to (natural, cultural, social, economic, techno¬ they live. ascribe personal significance to environ¬ logical, architectural, and so on) mental situations (a 'holistic' under¬ how to foster and assess 'dynamic' Knowledge standing). qualities in students from Initiative what support structures are necessary
Knowledge is traditionally considered INFORMATIVE ANALYSIS
as preceding the educational experience, IN ITALY MODIFYING MARKET as something that teachers transmit to BEHAVIOUR IN NORWAY students willing to take it in. The conven¬ In Italy four schools in Mantua are co¬ tional picture of a classroom involves a operating, within the framework of their Students of the Kontra Upper Secondary teacher presenting his or her pupils with a normal instruction, to analyse periodically School in Norway conducted market mass of information which they then have the surface and ground waters of nearby research on the detergent-buying habits of communities. After negotiations with the to assimilate. the local population and at the same time authorities, the students (aged 15 to 19) are 'Action-research', which directly informed the members of the local commu¬ now officially requested to take samples, nity whom they interviewed about the engages the investigative abilities of the discuss their preliminary analysis on site, impact of phosphates on the environment. pupil in experiment and analysis, is changing make detailed chemical bacteriological and They succeeded in modifying buying - and that image. When teachers encourage microplankton analyses back at their consequently selling - behaviour in favour action-research, the process of teaching schools and submit comprehensive reports of detergents without phosphates. and learning can actively create knowledge. to the authorities. In such situations students and teachers
14 The OECD OBSERVER 165 August/September 1 990 EDUCATION
the OECD programme, brought these |A-l--AfW&A-4--4- three modes of the production and acqui¬ 1- Il sition of knowledge into creative tension. Many teachers brought the differences to îf the foreground in their case studies, asking how knowledge can best be acquired to enrich and develop the experi¬ ence and perceptions of their students of the practicalities of living in the environ¬ ment without abusing it. They argued that the acquisition of knowledge should be integrated into a process which enables
ENCOURAGING BUSINESS
AWARENESS IN AUSTRIA
A village primary school, the Volksschule, in Thomasroith, Austria, carried out a number of projects, one of which was to try to change the practice of using non-bio¬ degradable plastic bags for shopping. The inquiry was called 'Use Cloth - Not Plas¬ tics'; the students were 9 and 10 years old, in the fourth form. Using a questionnaire developed in the class the pupils examined the extent to which local merchants were prepared to offer alternatives to plastic bags. The results showed that local shop¬ Second, knowledge can also be pro¬ tended to involve older pupils since the keepers were basically prepared to offer duced as the outcome of discipline-based methods of inquiry require relatively their customers not only plastic bags, but inquiry. It is not simply 'information' which advanced standards of knowledge. also moderately priced hessian (burlap) bags. The pupils then sent a letter to the is learned; so, too, are the techniques of Third, and more traditionally, editor of the regional paper to thank the analysis to generate knowledge which can knowledge can be transmitted as bodies local shops for their commitment, and be used in disciplines relevant to the of information organised as subjects, a expanded the inquiry to the district capital, environment - biology and physics, for conception which emphasises a passive Vocklabruck, where their parents did much example, but also such subjects as role for the student in learning by memory of their shopping: within two weeks the market research, economics and history. and a pedagogical approach based on pupils found out which shops in Vocklabruck Environmental education, conceived as a 'information processing' techniques. offered their customers environmentally form of discipline-based inquiry, has The initial qoals, agreed at the outset of acceptable shopping bags. The eight that were identified received a letter of thanks from the pupils:
Dear Members of the Management, PARK PLANNING IN AUSTRIA For one year our school has been partici¬
At a secondary school in Austria, the enterprising skills or 'dynamic' qualities that pating in a large OECD environment project. Bundesrealgymnasium in Imst, students may form the responsible citizens of the So we, the pupils, are now actively involved as keen observers of our local environment. worked out a design for a municipal park future, people who recognise the import¬ which was given preference over the official ance of their environment and are therefore Thus, when shopping, we noticed that your municipal design that already existed. After concerned for its survival. The projects business offers the customers not only many negotiations with local politicians, chosen were monitored by the co-ordinators plastic bags, but also cloth or paper bags. public information events, and with the help who worked throughout the two-year period We would like to thank you most sincerely of experts and the press they finally were with their teachers. The teachers wrote case for your environmental commitment, and we authorised by the community council to plan studies, analysing the pedagogical processes hope that many other shops will follow your the park according to their ideas and to that were engaged during the working example. supervise the construction. period. This gave them the opportunity to Best regards, The aim of the project was to combine examine their own pedagogical activities in The girls and boys the teaching and learning of environmental collaboration with their students. of Thomasroith Primary School. awareness with the develooment of the
The OECD OBSERVER 1 65 August/September 1 990 15 EDUCATION
LEARNING aOrVlAM FROM THE LEARNERS
A conference held at Linz, in Austria, in September 1988, was highly unusual among OECD events of the sort. It was attended by 350 participants from 1 1 member countries; it was unique in that 150 of them were stu¬ dents from the ages of nine to 19 years. They were accompanied by 120 teachers and took an active part in the programme. When not attending the conference, they visited Austrian schools where they were able to exchange learning experiences involving environmental education with fellow students from Austria; accommoda¬ tion was provided by Austrian families throughout the week. The Conference was also attended by administrators from Minis¬ tries of Education and Environment, as well as experts and researchers in environmental education. After initial presentations by a number of experts, the major part of the Conference was devoted to the presentation of school projects that had been developed during the two-year period. The students and their teachers exhibited their work with enthusiasm and imagination. The presentations took various forms: theatre, music, slide shows, video or plain lecture. An exhibition was set up before the open¬ allow the development of innovative vironmental education sets the scene for ing of the conference. Each country had a : pedagogies in schools for the teaching understanding policy trends in OECD stand, illustrating the work carried out, and i and learning of environmental issues. member countries. Yet in many of them giving an opportunity for all participants to : the gap between policy statements on get to know the students and teachers dur- | paper and the translation of environmental ing the 'project market', ask questions and take away written information. All countries Over the past few years many new con¬ objectives into curricular activities is substantial. contributed to a large public exhibition that cepts - 'sustainable development', en¬ was set up at the end of the Conference at vironmental economics,1 global warm¬ the Upper Austria Cultural Centre in Linz. ing,2 the polluter-pays principle,3 This was then opened to the public for a bioethics, 'ecocentrism', and so on - have month. come to occupy an increasingly promi¬ nent place in public debate. The formula¬ OECD Bibliography
students to use it in clarifying and resol¬ tion of policies that will allow these issues Economic Instruments for ving problems and issues which are real to be understood, taught, learned and Environmental Protection, 1989 and personal for them. criticised in schools is in its early days. Jean-Philippe Barde, 'The Economic It is hoped that the various projects Practically all the member countries offi- Approach to the Environment', The OECD Observer, No. 158, June/July developed in the course of this work will cally address the issue of the environment 1989 within their formal education system. Gérard Dorin, The Warming of the 1. See David Pearce and Anil Markandya, 'Pricing Moreover, the preamble to the resolution Earth', The OECD Observer, No. 156, the Environment', The OECD Observer, No. 151, April/May 1988, and Jean-Philippe Barde, The on environmental education passed by February/March 1989 Economic Approach to the Environment', The OECD the Council of the European Communities Agricultural and Environmental Observer, No. 158, June/July 1989. Policies. Opportunities for and the EC Ministers of Education in May Integration, 1989 2. See Gérard Dorin, 'The Warming of the Earth', The 1988 directly links environmental condi¬ OECD Observer, No. 156, February/March 1989. Ferenc Juhasz and David Juckes, tions and economic activities and em¬ 'Cultivating the Environment', The 3. See Ferenc Juhasz and David Juckes, 'Cultivating OECD Observer, No. 156, February/ the Environment', The OECD Observer, No. 1 56, Feb¬ phasises the integration of environmental March 1989 ruary/March 1989, and Henri Smets, 'Environmental concerns in other policies of the Commu¬ Environmental Policy Benefits: Accidents: The Polluter Now Pays', The OECD nity. It points out that education and train¬ Observer, No. 160, October/November 1989. Monetary Valuation, 1989 ing in environmental matters are priority David Pearce and Anil Markandya, 4. Twenty-one OECD member countries currently activities.4 participate in the second phase of the project 'Envi¬ 'Pricing the Environment', The OECD ronment and School Initiatives'. The international thrust to promote en Observer, No. 151, April/May 1988.
16 Tie OECD OBSERVER 165 August/September 1990 ENVIRONMENT Swapping Debt for Nature
Michel Potier
Debt can have highly adverse effects on the environment in developing countries. A new instrument, 'debt-for-nature swaps', could provide a means of funding environmental protection there. Its impact on debt reduction is small as yet - barely $100 million, less than a thousandth part of overall Third World indebtedness. But it could have substantial effect on environmental protection, and not only for the debtor countries.
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ebt affects environmental protect- A debt-for-nature swap is an arrange¬ D' ion in a range of ways, all restrict¬ ment by which an indebted developing ing the ability of Third World coun¬ country undertakes, in exchange for can¬ tries to manage their natural assets in a cellation of a portion of its foreign debt, to way that promotes sustainable develop¬ Madagascar's lemurs have seen establish local currency funds to be used the island's extensive forests reduced ment.1 The same is true of fluctuations to finance a conservation programme. to bare hillside. and downtrends in commodity prices, The mechanism brings a number of part¬ especially when coupled with lower inflows ners together: the debtor government, the of foreign capital and growing debt creditor, and a non-governmental organi¬ service. sation (NGO), often international, con¬ The rising cost of oil imports has forced cerned with the environment. The NGO some African countries into intensive will act as intermediary between creditor forest clearance to meet household lip and debtor, the debtor's central bank, and needs. But the consequences have been m an agency on the spot (generally an NGO particularly serious in Latin America, on . as well) which will receive the proceeds of account of the scale of its indebtedness. the debt conversion and implement the In order to service their debt, Latin conservation programme. American countries have made impress¬ The first stage is to establish the terms ive efforts to find new products to export of the debt conversion. The debtor gov¬ raw materials, foodstuffs and resource-in¬ ernment, the central bank and the local tensive manufactures - thereby accent¬ agency have to agree on the exchange uating the pressure on their natural resources and on the environment as a 1 . See Jean-Philippe Barde, 'The Path to Sustainable Development', The OECD Observer, No. 164, June/ whole. July 1990. Against this background, considerable 2. In their final declaration, the Heads of State and thought has been given - not least at the Government emphasised the potential value for the de¬ Summit of the Arch, in Paris, on 14 July veloping countries of mechanisms based on debt-for- nature swaps, noting that 'in special cases ODA debt 19892 - to ways and means of combining forgiveness and debt-for-nature swaps can play a use¬ LDC debt reduction and environmental ful role in environmental protection'. The scope and fu¬ protection. ture prospects for such mechanisms had earlier been considered by the OECD Environment Committee (re¬ Michel Potier is Head of the Economics Division of the port by the World Resources Institute for the Environ¬ OECD Environment Directorate. ment Directorate).
The OECD OBSERVER 1 65 August/September 1 990 17 ENVIRONMENT
rate for converting dollar-denominated debt to local currency, the percentage of face value at which to redeem the loan, the types of financial instruments to be issued and the conservation programme to be set in hand. Next, the money to acquire the dis¬ counted debt must be found. Creditor banks are generally reluctant to make outright donations; funds are generally secured from private donors or bilateral aid agencies. Last, acquiring debt titles requires an experienced agent to enter into a formal exchange agreement with the creditor bank, which will transfer custody of the title to the debtor country's central bank. The central bank then converts the title into cash, local currency bonds or some other instrument to fund the agreed con¬ servation work. The funds or instruments are then held by the local agencies, pri¬ vate or public, responsible for setting the programme in hand. The mechanism is advantageous for all the participants: for the debtor country it is an opportu¬ nity to buy back part of its debt and raise funds for conservation without ceding any The Ecuadorean part of the Amazon basin will benefit from the ten million dollars' worth of debt that have been converted for use in conservation. part of its sovereignty, since the debt-for- nature swap (unlike conventional debt- adjacent areas with a wealth of fauna and istrative structures to carry out the plans, equity swaps) does not result in a foreign flora, the Yacuma regional park, the in conducting socio-economic studies of stake in a local corporation Cordebeni watershed and Chimane forest, the indigenous population, and in arrang¬ for the creditor bank it is a means of would also be protected. The operation ing for special financing from the Interna¬ relinquishing claims that may well be un¬ was financed by an international NGO, tional Tropical Timber Organisation to set recoverable Conservation International, which raised up a forestry programme that will allow for the NGOs it generates additional $100,000 from an American foundation to sustainable use. funding for conservation work. purchase debt notes with a face value of Costa Rica $650,000 from a commercial bank. The Five Bolivian Government established a local The country which has made the largest Pilot Schemes currency fund worth $250,000 to be used volume of debt-for-nature swaps to date for managing and protecting the reserve is Costa Rica. Between 1987 and 1989, To date, five countries have taken part (the government contributed the local equi¬ through donations totalling $10.1 million, in debt-for-nature swaps: Bolivia, Costa valent of $100,000, and the US Agency the country converted $72 million of its Rica, Ecuador, Madagascar and the for International Development funded the foreign debt into $36 million of local cur¬ Philippines. balance). rency bonds. The money has gone to fi¬ The fund was to be administered by a nance purchases of land to enlarge the Bolivia local agency representing Conservation parks and maintain them, to strengthen Bolivia was the first country to sign a debt- International and the Ministry of Agriculture public and private institutions and to re- for-nature agreement, in 1987. The Bolivian and Peasant Affairs. The Bolivian Govern¬ afforest thousands of hectares of small¬ Government undertook to enact the high¬ ment paid out its contribution some holdings. est degree of legal protection for the Beni 21 months after the agreement was It is noteworthy that, alongside private biosphere reserve, an area of 135,000 hect¬ signed; the legislation to protect the Beni donations from the industrial countries, ares containing 13 of 18 recognised reserve has still to be introduced. two governments have taken part in the threatened species of wild animals, and a In spite of the delays, considerable pro¬ Costa Rican debt conversion programme. group of nomadic hunter Indians. Three gress has been made in creating the admin The Netherlands has backed a re-afforest-
18 The OECD OBSERVER 165 August/September 1990 ENVIRONMENT
ation programme by providing $5 million for tree nurseries, and for loans and tech¬ nical assistance to small farmers. Sweden has provided $3.5 million to support the Guanacaste National Park project, for park management, research and environ¬ mental education. These improvements have had a number of tangible consequences: more tourists, watershed protection for the hy¬ droelectric system, and the opportunity for new environmental programmes run by stronger institutions.
Ecuador
In early 1988 the Ecuadorian Government authorised a local conservation group, Fundaciôn Natura, to exchange up to $10 million in foreign debt for local currency bonds to fund conservation activity. The swap was completed in the following year, thanks to a donation by the World Wildlife Fund of the United States (WWF-US). Under this debt-for-nature agreement, in¬ terest on the bonds (which are at market rates) would finance the development of management plans for national parks, re¬ ception facilities, environmental education programmes and sustainable use of natu¬ ral resources (in the Amazon region and the Andean highlands, and along the Pacific coast), training of park personnel (seminars, field work), scientific research and land purchases to protect areas of ex¬ ceptional biological diversity. The princi¬ pal of the bond issue will become the en¬ dowment of Fundaciôn Natura. The swap has slightly reduced Ecuado¬ rian debt (less than 1 % of the total) and strengthened the private agency that can improve environmental management in areas neglected by the government be¬ cause of budget constraints.
Madagascar
The US Agency for International Develop¬ ment made a grant, in August 1989, of a million dollars to WWF-US. It was to allow the Fund to buy back between $2 and $3 million of Madagascar's commercial debt in exchange for measures to safeguard its tropical forests, threatened with extinction by large-scale clearance. The programme covers re-afforestation It would take five to six hundred years to re-establish the biosphere that disappears with the and the training of 400 forestry warders. It felling of the rainforests. Transforming national debt into national parks may help preserve a part is still too early to assess the results. of it.
The OECD OBSERVER 1 65 August/September 1 990 19 ENVIRONNEMENT
local currency instrument rapidly loses value the impact of debt-for-nature swaps has been confined to commercial debt, bought in with private or public donations, while the banks have been unready to donate their notes. Accordingly, even if the credits as¬ signed to this new instrument are in¬ creased considerably, they will clearly make no more than a marginal contribu¬ tion to reducing countries' external com¬ mercial debt. This novel mechanism can in no way be seen as a means of over¬ coming the entire debt crisis. But for the environment, local and worldwide, it is one step forward.
Debt-for-nature swaps are a new, and novel, mechanism which both reduces debt and furthers conservation programmes. To be a complete success, any debt swap, including this one, must be accompanied by fundamental structural reform - the development of policy and programmes to attract international finance. Debt-for- nature swaps should be regarded neither as a miracle solution for the indebtedness of developing countries, nor as the sole means of helping LDCs to promote policies of sustainable development. Yet exper¬ iments such as that in Costa Rica are of Succesful debt-for-nature swaps require the co-operation of the local people in the management real interest. Will they be imitated else¬ of the resources they preserve. where?
The Philippines their outcome. But a number of comments can be made at this point: An agreement was signed in June 1988 between the Philippine Government and some developing countries may be un¬ WWF-US to provide up to $2 million for willing to accept the conditional character of agreements of this kind. But some are debt conversion. The swap would be used OECD Bibliography changing their stance: Brazil, very reluc¬ to finance programmes in park manage¬ The State of the Environment: 1 991 , ment and environmental education, training tant at first, has now given the go-ahead forthcoming 1991 for consideration of this mechanism, in and research, to be carried out primarily by Jean-Philippe Barde, The Path to conjunction with local and international a local conservation agency, the Haribon Sustainable Development', The OECD NGOs Foundation. WWF-US has so far bought up Observer, No. 164, June/July 1990 OECD Environmental Data. $390,000 in debt notes. It is too early as donor countries may not all be willing to delegate major responsibility for an Compendium 1989, 1989 yet to assess the impact of this scheme. Economic Instruments for internationally-funded environmental pro¬ Environmental Protection, 1989 gramme to NGOs What Environmental Policy Benefits: the slow pace at which some debtor Monetary Valuation, 1989 Results? governments are complying with their Renewable Natural Resources. contractual obligations (enacting protect¬ Economic Incentives for Improved Management, 1989 As an instrument for financing conser¬ ive legislation, making their local currency Jean-Philippe Barde, The Economic vation measures, debt-for-nature swaps contributions) may cancel out the conser¬ Approach to the Environment', The are still too recent and modest in scope vation benefits to be expected, especially OECD Observer, No. 158, June/July for firm conclusions to be drawn about in countries with high inflation where the 1989.
20 The OECD OBSERVER 1 65 August/September 1 990 ECONOMY
Spotlight on Germany
The offer by the Federal Republic of the non-convertible East German mark by labour market, wages cannot be raised Germany (FRG) in February 1 990 to a currency with assured convertibility and to FRG rates overnight, and if wages open immediate talks on economic credibility implies immediate liberalisation are generally set too high in relation to and monetary union with the German of almost all trade and capital flows. That productivity - measured at competitive Democratic Republic (GDR) was designed in turn means bringing the prices of trad¬ prices - there will be a serious risk of only partly as a first step towards com¬ able goods in the GDR into line with world unemployment. The higher the 'real wage plete reunification. It was also an urgent market prices and virtually eliminating the gap', the worse the impact, both in terms attempt to staunch the massive migration exchange risk for foreign investors. Giving of jobs lost and new jobs not created in of East Germans to the FRG and to pre¬ monetary sovereignty to the Bundesbank the goods-producing sector. Yet labour- vent the economic and political collapse will also ensure credible control of mone¬ intensive service activities are very under¬ of the GDR. Nevertheless, it was hoped tary aggregates during the transitional developed in the GDR, and they could that by accelerating the process of inte¬ period and will in turn - and for the first absorb much of the labour laid off in gration the momentum towards early time - subject state-owned enterprises in industry. political reunification would be maintained the GDR to strict budget constraints. One of the central questions that had to in parallel with the introduction of sweep¬ By European standards, the GDR is a be resolved when deciding on a monetary ing economic and institutional reforms in relatively small country: its population of union was the conversion rate between the GDR. some 16 million is about one-quarter of the Deutschmark and the East German To begin with, a step-by-step approach that of the FRG, and its GNP is only 1 0 to mark. The treaty signed by the two Ger¬ towards economic integration was advo¬ 15% as big. The difference in net dispos¬ man states in mid-May envisaged a rate of cated by most economists, although the able wage-earner income between the 1:1 to be applied to wages, pensions and GDR was thought to be better placed than two countries is about 50%. This is re¬ limited amounts of individual savings other East European countries to estab¬ flected in poorer housing and lower rates accounts, while a rate of 2:1 was to be lish a market economy and close the wide of ownership of cars and household appli¬ applied to all other financial assets and gap in living standards between East and ances in the GDR. In the mid-1980s it was liabilities. The choice of conversion rate West. Yet the flow of migrants from East estimated that output per person em¬ had to take into consideration both the in¬ to West continued not only after the ployed in the GDR was about half that of terests of holders of financial assets, for breaching of the Berlin Wall but even after the FRG; the productivity gap has widened whom a high rate would be advantageous, the rapid organisation of elections in the further since then, and relative average and those of net debtors, who would be¬ GDR and the offer of early currency union labour productivity in the GDR is probably nefit from a low rate. In particular, there with the FRG. In the nine months to March now around a third of the FRG figure. It is was deemed to be a critical conversion 1990, the GDR lost over 3% of its popula¬ likely to take decades rather than years rate for liabilities of non-financial sectors tion and 6-7% of its labour force. for the GDR to catch up with the FRG even to the banks beyond which the debt-ser¬ A rapid move towards monetary union if productivity increases at close to double- vice burden on enterprises would begin to was seen as the most effective way of digit rates. Productive capital stock per be intolerably high, entailing massive stabilising the situation and setting in train worker in the GDR is little more than one- bankruptcies and compromising the pro¬ the reforms that are a prerequisite to third of a worker in the FRG, and a sustained spects of the GDR catching up economi¬ establishing the Deutschmark as the sole increase in investment will be required to cally with the FRG. The GDR as a whole legal tender, accounting unit and store of close that gap. does not have an excessively high foreign monetary wealth in the GDR. Replacing In spite of the creation of a unified debt/GNP ratio, although that has to be
The OECD OBSERVER 165 August/September 1990 21 ECONOMY
set against its poor export potential. possible, such as reducing regional sub¬ At a conversion rate of 1:1, average sidies to border areas and cutting defence gross monthly income in the GDR is some INDICATORS spending. In addition, the expansion of 60% below that of the FRG, felt as more the FRG workforce through the integration or less corresponding to the difference in GNP CONSUMER PRICES 1 of GDR immigrants should give a boost to aggregate labour productivity. A 1:1 con¬ revenue. To finance two-thirds of the GDR version rate was thus considered reason¬ change from previous year % government borrowing requirement, a able. 25 'German Unity Fund' has been set up, worth DM 115 billion over the near four- Implications and-a-half years. But that sum represents for the FRG only part of the external financing that the GDR requires. The difference between the := 5 total investment called for in the GDR and The Bonn government hopes the in¬ . 1 1 1 1 II LLJJ I^uj troduction of a social market economy in savings generated locally is put at around the GDR will fuel expectations of a rapid -5 DM 40-50 billion a year for the next few increase in living standards and thus put a -10 years, no less than around 10% of total 25 brake on emigration. Nevertheless, the av¬ capital formation in the FRG. A substantial 20 erage wage differential between the two part of the financing required may come Germanies will continue to provide an in¬ from private companies in FRG, which have started to invest in the GDR. centive for East Germans to seek employ¬ ment in the FRG, which will have a favour¬ In spite of the speed with which the economic unification process has taken able impact on labour supply, output and wage inflation there (Figure). The West off, it will take considerably more time to German economy is already operating at integrate the two economies than the -10 rapid moves towards political unification close to full capacity and upward pressure 82 83 84 85 86 87 88 89 90 9HK 83 85 86 87 88 89 90 91 suggest. The potential real and financial on wages has been building up. UNEMPLOYMENT 2 CURRENT BALANCE flows are huge, and both sides have a The initial impact is likely to come in the % of labour force % of GNP form of increased demand as a result of limited capacity to absorb large demand OECD average 1. Private consumption deflators. and supply shocks simultaneously without the boost in purchasing power in the GDR 2. National definitions. and the free access to 'western goods'. being thrown off balance. A large part of the capital stock in the GDR is either ob¬ The windfall capital gain might lead solete or should be replaced on environ¬ households to dip into their savings - spending is likely to be concentrated on mental grounds - and that is as true of newly converted into DM - to finance con¬ durables and travel, where supply is rela¬ sumption. In addition, demand in the GDR tively elastic, whether imported from the housing and infrastructure as of business plant and equipment. is likely to be boosted by spending out of FRG or elsewhere. transfer payments from the FRG to both Nor should the boost to demand from For the FRG, the net transfer of goods and services to the GDR should be facili¬ households and enterprises, and there transfer payments put an undue burden may also be a private and public invest¬ on the FRG economy. It is accepted that tated by the forecast slowdown in de¬ ment boom in the GDR. Yet the often- income transfers will be required to en¬ mand in some major export markets and higher import demand. The expected voiced fears about the dangers of an up¬ sure adequate pensions in the GDR, pro¬ surge in inflation are probably exagger¬ vide a minimum welfare safety net and bail growth in imports will help revive the inter¬ national adjustment process, which in the ated, since the average wealth of GDR out the unemployment regime. Bridging fi¬ households is only a fraction of that in the nance will be required to tide over the in¬ FRG has gone into reverse since late FRG and the implied increase in DM evitable lag between payments and re¬ 1988. There was a large increase in the foreign trade surplus of the FRG in 1989, money supply is no larger than the growth ceipts from social security contributions. in aggregate output. In addition, since - initially, at least - un¬ taking it to a new record high, and the cur¬ An initial spending spree, especially for employment is bound to rise, support will rent account surplus surged to 4.5% of GNP. Over the next 18 months, though, high-quality consumer goods, cannot be have to be provided for redundant work¬ the surplus is expected to decline to 4% ruled out, but GDR households are un¬ ers. But most estimates put the annual of GNP, and for the extended Deutsch¬ likely to draw too heavily on their savings. cost of financial support programmes in mark zone it could drop to around 3.5%, For one thing, GDR savers will be able to the GDR at around 1 .5-2% of GNP, which which would be welcome from both an obtain relatively high real interest rates on should not put excessive pressure on the their financial assets for the first time. capital market or call for substantial tax international and a domestic viewpoint. Second, in view of the uncertainties about increases.
employment prospects, precautionary The public finances of the FRG are Source: OECD Economic Surveys: Germany, OECD savings can be expected to grow. Third, healthy, and various budget offsets are Publications, Paris, 1990.
22 The OECD OBSERVER 165 August/September 1 ECONOMY
cheap credit and have been protected from foreign competition by a variety of import restrictions. Up to 1988, only piece¬ meal attempts were made to introduce market-oriented reforms, aimed mainly at improving the balance of payments. Con¬ flicting regional interests, entrenched atti¬ tudes and political interference prevented more comprehensive reforms. Neverthe¬ less, the Bank Law did represent an important first move towards increasing control on the banking sector and boost¬ Yugoslavia ing interest rates to realistic levels. The stabilisation package adopted in May 1 988 was accompanied by a standby facility from the IMF and had a large degree of liberalisation of prices, imports, Since the summer of 1988 monthly rate of inflation attaining 60%, the foreign exchange transactions and direct Yugoslavia has embarked on an authorities took steps to reverse this foreign investment among its key ele¬ ambitious programme of institu¬ explosive trend by introducing an ingenious ments. Thanks to a rapid improvement in tional and structural reforms, aimed at stabilisation package. the balance-of-payments position, the creating a flexible market-oriented eco¬ The most important measures are: dismantling of import controls proceeded nomy. The measures already introduced the imposition of a six-month wage and at a fast pace. By the end of 1989 only include price and import liberalisation, the partial price freeze 13% of goods remained subject to quo¬ removal of restrictions on foreign invest¬ the introduction of a new and convert¬ tas, compared with 46% two years earlier. ment, and changes in the organisation ible dinar (equal to 10,000 old dinars) Private companies as well as socialised and operation of industrial companies and pegged to the Deutschmark at a fixed rate enterprises are now permitted to import banks. Particular attention has been paid (7 dinars = 1 DM) guaranteed for the dura¬ goods. to financial indiscipline in both the indus¬ tion of the wage freeze The system of foreign-exchange alloca¬ trial and banking sectors; to this end the tight credit and monetary targets and tion was abolished and a unified foreign government introduced more effective the imposition of new prudential criteria exchange-market established. Foreign instruments of monetary and fiscal con¬ on commercial banks so as to curb credit investment was made easier by new trols. expansion legislation introduced in January 1989, A major medium-term goal is to improve fiscal consolidation, including higher giving non-Yugoslav companies a choice efficiency and raise overall productivity. taxes to service the public-sector debt, of corporate structures. The law prompted The kind of reforms being implemented in previously financed through money crea¬ a surge in applications, two-thirds for joint Yugoslavia necessarily take time to pro¬ tion. ventures with local interests, although duce an effect, and the reform programme The measures succeeded in reducing most operations were very small and the has not yet managed to correct the the monthly consumer price inflation to total value of foreign investment remains underlying rigidities of the economy. Infla¬ 12.7% in February 1990 and to nearly zero limited. Nevertheless, the new legal frame¬ tion pressures have therefore remained in May, with the current balance of pay¬ work should continue to stimulate foreign strong and have in turn impeded the ments in convertible currencies continuing investment and help expand Yugoslavia's return to sustainable growth. to be in considerable surplus. The cost of large unexploited export potential. In this transitional phase towards a this adjustment was a further small drop Perhaps the most important reforms market economy the authorities under¬ in GDP in the first four months of this year. were the new laws governing the organi¬ estimated the importance of maintaining The authorities intend to pursue the same sation and operation of the socialised some form of control over prices and policies in the second half of the year so banking and enterprise sector. The wages. Thus inflation quickly soared to as to bring a lasting reduction in inflation. February 1989 Law on Financial Opera¬ astronomical figures after the price freeze tions of Enterprises established more real¬ was ended in May 1988, while output and Reforming istic financial criteria for assessing the employment stagnated. The only benefi¬ Business Behaviour solvency of enterprises. A direct conse¬ cial outcome was the continuation of quence was that one in 1 5 companies was substantial current balance-of-payments Yugoslavia's socialised enterprises declared insolvent, although bankruptcy surpluses in convertible currencies, bol¬ have traditionally been sheltered from procedures have been started against stering Yugoslavia's foreign exchange market forces. They have been cushioned less than one-fifth of them because of a reserves. In December 1989, with the financially through the easy availability of combination of local political pressure and
The OECD OBSERVER 1 65 August/September 1 990 23 ECONOMY
JSS^^jmJÊ
OECD HEADQUARTERS, PARIS
Vacancies can occur in the OECD Secretariat in the following disciplines:
Public Administration the reluctance of creditors to take such determined, compared to 40% at the end Balance of Payments steps. of 1987. National Accounts Other laws, such as the Law on Social Alongside these institutional reforms, Agricultural Economics Capital, opened the way for the creation considerable progress has been made in Development Economics of a wide variety of corporate entities consolidating public sector finances. But Energy Economics under all types of ownership and for the the harmonisation of taxation throughout Industrial Economics transformation of socially owned enter¬ the Federation, another important goal, Labour Economics prises into other forms of social or mixed has not advanced very far as yet. Dispari¬ Monetary Economics ownership. It is too early to judge the ties in tax rates, tax bases and exemptions Econometrics extent to which such reforms stimulate between regions, sectors and branches of Urban Studies entrepreneurship. The new legislation industry have hampered the integration of Fiscal Policy does not remove all the problems the Yugoslav economy, with adverse effects Nuclear Engineering connected with the absence of well- on competition and resource allocation. Macro-economics defined property and management rights Nuclear Physics and the associated impediments to com¬ Short-term Costs, Education Policies Social Affairs petition. For one thing, the consent and Long-term Benefits Statistics co-operation of local and regional govern¬ Computing and Communications ments are required for changes in corpo¬ The fundamental reforms under way rate ownership, and for another there are inevitably entail costs in the short term. no incentives for workers in self-managed Supporting policies are necessary to Qualifications: enterprises to privatise the viable ones alleviate the effects of the rehabilitation relevant university degree; at least two or among them. Restrictions on the creation and restructuring of industry and banking, three years' professional experience; very good knowledge of one of the two official or expansion of private companies - as which are bound to result in higher unem¬ languages of the Organisation (English and on the size of private-sector farms - have ployment. Active labour-market and French) and ability to draft well in that lan¬ been lifted, and the private sector is income-support policies are required to guage; good knowledge of the other. expected to play a progressively larger spread the social costs of unemployment Initial appointment: role in the restoration of sustainable and reduce the costs to the economy as a two or three years growth. whole by promoting labour mobility and Basic annual salary: Although monetary targets are still ulti¬ flexibility. Existing fiscal provisions could from FF 233,000 or FF 303,000 (Adminis¬ mately set by the Federal Assembly, the prove to be insufficient, and the lack of trator) and from FF 336.000 (Principal reform of the banking sector has included strong federal institutions responsible for Administrator), supplemented by further ad¬ an increase in the powers and indepen¬ competition and the infrastructure work ditional allowances depending on residence dence of the National Bank of Yugoslavia, vital for Yugoslavia as a whole could and family situation. whose control over money supply has increase the costs of adjustment. Vacancies are open to both male and female been reinforced by a number of measures. Patience and perseverance are called candidates from OECD member countries. Commercial banks can no longer provide for until the reforms begin to take effect. Applications, in English or French (specifying preferential loans on a selective basis and The measures are impressive to the extent area of specialisation and enclosing detailed any subsidisation of priority sectors now that they represent a clear break with the curriculum vital), should be marked 'OBS' has to be done through the budget. Liquid¬ past and have prompted moves towards and sent to: ity credits are no longer granted to banks political pluralism, which should in turn automatically but are now dependent on reinforce the reform process. A lasting Personnel Division an assessment by the National Bank of reduction in inflation is a key prerequisite OECD the credit-worthiness of recipient institu¬ for the success of the strategy, so it is 2, rue André-Pascal tions. essential that the macro-economic stance 75775 PARIS CEDEX 16 The lifting of price controls, which had is not relaxed and a non-accommodating FRANCE been in force for nearly half a century, was exchange-rate policy is maintained. Only an indispensable part of the reform. if disruptive shocks to the disinflation pro¬ Between mid-1988 and September 1989, cess are kept under firm control will it be they were progressively removed, leaving possible to prevent the economy from very few prices subject to administrative relapsing into a new vicious circle of stag¬ restrictions. In spite of the temporary flation and balance of payments difficul¬ price-curbs introduced in December ties. 1989, replacing indirect controls by direct ones and freezing a quarter of prices for six months, some three-quarters of pro¬ Source: OECD Economic Surveys: Yugoslavia, ducer and retail prices are now freely OECD Publications, Paris, 1990.
24 The OECD OBSERVER 165 August/September 1990 DEVELOPMENT Development Co-operation: Latest Figures
et disbursements of Official The OECD has just source flows to developing countries from Development Assistance (ODA) released the 1989 figures all sources - from DAC and non-DAC N from member countries of the countries and from multilateral institutions for development OECD Development Assistance Committee - reached an estimated $109 billion, com¬ (DAC)1 to developing countries and multi¬ co-operation. pared with $104 billion in 1988. The in¬ lateral institutions fell from $48.1 billion in What do they reveal? creases of 1987 and 1988 had resulted 1988 to $46.5 billion in 1989. Allowing for from higher disbursements, both official changes in prices and in exchange rates and private. In 1989 the increase was vis-à-vis the US dollar, this was a de¬ their ratios of ODA to GNP. The largest accounted for mainly by higher private crease of 2% in real terms. The total ODA increases in volume were reported by reaching developing countries from all Belgium, Sweden, Denmark, France, 1. The members of the OECD Development Assistance Committee are Australia, Austria, Belgium, sources (DAC and non-DAC countries and Finland and Germany. Canada, Denmark, Finland, France, Germany, Ireland, Norway, Denmark, Sweden and the multilateral institutions) amounted to Italy, Japan, the Netherlands, New Zealand, Norway, Netherlands continue to stand out as the $51.3 billion in 1989 - virtually the same Sweden, Switzerland, The United Kingdom, the United States and the Commission of the European Com¬ as in 1988. countries with the highest ODA/GNP munities. As a share of the combined GNP of ratios, with Norway and Denmark in front 2. Notes and similar instruments made out in favour at 1.02% and 1.00% respectively. Japan DAC members, ODA declined from 0.36% of multilateral institutions and payable on demand are in 1988 to 0.33% in 1989. This decrease is now the biggest aid donor with an abso¬ recorded in DAC statistics on their date of deposit or lute amount of $9.0 billion; the United issue. Usually, only a few transactions are involved, was primarily the result of special factors each for a large sum, with issue following completion States is the second, with $7.7 billion. in the timing of contributions to multi¬ of parliamentary approval processes and the sub¬ lateral institutions, mainly the International sequent departmental authorisation procedures. Thus, even if notes are issued in each fiscal year (which is Development Association of the World Resources Reaching not always the case: delays are not infrequent), a Bank.2 Developing Countries country's data for a calendar year may inciude the Nine out of the eighteen DAC member issues for two (or more) fiscal years - or none. As a result, the data for a given country, or for members countries reported higher ODA outflows in When one adds private sources and combined, may appear to move erratically in some real terms, seven of these nine also raising other official flows to ODA, net total re years, even if the underlying trend is much smoother.
The OECD OBSERVER 1 65 August/September 1 990 25 DEVELOPMENT
flows - which, indeed, are estimated to Table 2 have grown by 5% over 1988 to $41 billion. ODA PERFORMANCE OF DAC COUNTRIES Net Official Development Finance net disbursements (ODF), which includes ODA, less-conces¬ $ million % of GNP sional multilateral flows and certain bilat¬ Annual eral flows, reached an estimated $67 billion 1989 % change average 1989/88 at 1988 % change 1989 1988 1988 1989 in in volume' in 1989, up by about 2.5% at constant prices and actual ' actual ' volume2 1988/89 prices and exchange rates. This was due exchange 1983/84 largely to a marked increase in non-con¬ rates cessional disbursements from bilateral Australia 1,017 1,101 933 0.46 0.37 -15.2 1.5 official sources (in particular, disburse¬ Austria 282 301 295 0.24 0.23 -2.1 0.0 ments of untied non-concessional loans Belgium 716 618 740 0.41 0.47 19.6 -3.0 by the Japanese Export-Import Bank Canada 2,302 2,347 2,114 0.50 0.44 -9.9 4.0 under Japan's recycling programme, and Denmark 1,003 922 1,048 0.89 1.00 13.6 5.4 large refinancing for some major debtors). Finland 705 608 673 0.59 0.63 10.8 16.8 There was a positive flow of net export France credits - the first since 1985 - mainly re¬ incl. DOM/TOM 7,467 6,865 7,731 0.72 0.78 12.6 3.0 flecting short-term business. As in recent excl. DOM/TOM 5,140 4,777 5,322 0.50 0.54 11.4 3.8 years, medium- and long-term export Germany 4,953 4,731 5,168 0.39 0.41 9.2 -0.3 credit disbursements amounted to nearly Ireland 49 57 51 0.20 0.17 -10.2 -0.4 $20 billion on a gross basis, but the net Italy 3,325 3,193 3,290 0.39 0.39 3.0 13.8 figure (i.e., after repayments are taken into Japan 8,958 9,134 9,500 0.32 0.32 4.0 3.6 account) was approximately zero. Netherlands In spite of higher investment flows to 2,094 2,231 2,228 0.98 0.94 -0,1 2.4 European developing countries and the New Zealand 87 104 90 0.27 0.22 -12.9 -1.4 Far East, net foreign direct investment in Norway 919 985 956 1.10 1.02 -2.9 4.3
1989 was down slightly as a result of less Sweden 1,809 1,534 1,767 0.86 0.98 15.2 4.9 intensive debt-equity conversions and Switzerland 559 617 604 0.32 0.30 -2.1 3.2 sharp reductions in a few countries (prin¬ United Kingdom 2,588 2,545 2,637 0.32 0.31 -0.3 1.1 cipally China); direct investment flows re- United States 7,664c 10,141 7,362 0.21 0.15 -27.4 -2.0
TOTAL 46,498 48,132 47,188 0.36 0.33 -2.0 2.2
Table 1 - - - Unweighted average 0.51 0.51 - - TOTAL ODA FLOWS 1 . At current prices and dollar exchange rates. FROM DAC COUNTRIES 2. At 1988 exchange rates and prices. Source: OECD net disbursement
1980-85 1987 1988 1989 average $ billion, 1988 prices mained at the higher volume established Official and private debt consolidations, and exchange rates in 1987. together with official creditors' conces¬ Total ODA 41.4 44.6 48.1 47.2 Aggregate net bank lending increased sional action, including unilateral ODA
Bilateral 28.7 32.2 33.2 35.0 markedly, due to a large build-up of inter¬ forgiveness played a substantial role in est arrears in Latin America and the re¬ To multilateral maintaining the buoyancy of net resource agencies 12.7 12.4 14.9 12.2 appearance as net borrowers in financial flows in 1989: an estimated $2 billion of Percentage change markets of several countries (including interest arrears was capitalised by official overprevious year South Korea); it nonetheless remained creditors. The total forgiveness of the
Total ODA 3.1 -1.3 7.8 -2.0 significantly below the volume of the mid- ODA debt of poorer countries by DAC countries in 1988 and 1989 amounted to Bilateral 5.5 -0.3 3.1 5.4 1980s. It is interesting, too, that the stock $5 billion. To multilateral markets emerging in a number of (mainly agencies -2.4 -3.9 12.1 -18.1 Asian) developing countries are attracting After a period of substantial net dis¬ a growing amount of net portfolio invest¬ As percentage of GNP bursements in 1981-84, the IMF ('use of ment ($4 billion in 1988 and higher IMF credit') cycle is still in a phase in Total ODA 0.36 0.35 0.36 0.33 amounts in 1989). which repayments on past lending exceed Bilateral 0.25 0.25 0.25 0.24 Grants by private voluntary organisa¬ new disbursements (-$3 billion in 1989, To multilateral tions continue to represent an important the main negative figures involving Asia). agencies 0.11 0.10 0.11 0.09 resource flow to poorer countries, Net disbursements under the IMF Structural Source : OECD amounting to some $4.2 billion in 1989. Adjustment Facility (SAF) and the Enhanced
26 The OECD OBSERVER 165 August/September 1990 DEVELOPMENT
Structural Adjustment Facility (ESAF) A decline of 2.3% in total ODA may amounted to $0.5 billion in 1987 and 1988 seem disappointing. But the nature of the respectively and $1.2 billion in 1989. system through which these resources are Average international interest rates in provided makes the figures for any one 1989 were higher than in 1988. Neverthe¬ year less informative than they may appear less, total actual interest payments in¬ at first sight. Over the past five years ODA creased only moderately as there was a has risen at an annual average rate of sharp increase in interest arrears (arrears 2.3%, and most DAC members are com¬ to commercial banks alone increased mitted to a continuing growth in their con¬ from $7 billion to $1 5 billion during 1 989). tributions, both in absolute terms and as a proportion of their GDP.
OFFICIAL DEVELOPMENT AID, COUNTRY BY COUNTRY
Australia Belgium appropriations until a target of 1 % of GNP Australian aid disbursements (on a calen¬ Belgium's net ODA disbursements rose was reached in 1992. This has been dar year basis), after registering an in¬ by 20% in real terms to US$716 million in achieved two years ahead of schedule. crease in the ODA/GNP ratio from 0.34% 1989 and, expressed as a share of GNP, Finland in 1 987 to 0.46% in 1 988, dropped sharp¬ recovered from 0.40% in 1988 to 0.47% ly by 15% in real terms to the equivalent in 1989. A marked rise in contributions to Following the decision taken by the Fin¬ of US$1,017 million or 0.37% of GNP in multilateral institutions, reflecting mainly nish government in 1980 to achieve 0.7% 1989. This decline was brought about by the payment in 1989 of two instalments of GNP in terms of ODA appropriations by lower contributions to international finan¬ on the contribution to IDA, more than the end of the decade, the growth of Fin¬ cial institutions (which were exceptionally made up for a decline in bilateral aid. nish ODA has been one of the most rapid large in 1988), while bilateral disburse¬ and sustained among DAC Members. In Canada ments increased by 4% in real terms. As 1989 ODA net disbursements increased part of a general policy of budget restraint, In April 1989 the Canadian government by 11% in real terms to US$705 million Australia has cut its aid programme: aid cut its aid programme as part of a general and the ODA/GNP ratio rose from 0.59% allocations on a fiscal year basis have policy of budget restraint. As a result, to 0.63%. It can be expected that the dropped from 0.45% of GNP in the 1985/ Canadian ODA net disbursements declined 0.7% ODA disbursement target will be 86 aid budget to 0.37% in 1988/89 and to by 10% in real terms to the equivalent of attained at the latest in 1991. an estimated ratio of 0.33% in 1989/90. US$2,302 million in 1989 and the ODA/ France The Australian Minister for Foreign Affairs GNP ratio dropped from 0.50% in 1988 to and Trade has declared his intention, in 0.44%. In his budget address of February The growth of French ODA is one of the connection with the 1989/90 budget exer¬ 1990, the Minister of Finance announced most rapid among DAC members. Aid to cise, to work towards increases in the that there will be a 5% cash growth of the independent countries (i.e., excluding ODA/GNP ratio. development assistance budget for each flows to France's overseas territories, the of the next two fiscal years. For the years 'DOM/TOM') increased by 11% in real Austria thereafter, the principle has been main¬ terms to US$5,140 million in 1989 and, Austrian ODA net disbursements declined tained that ODA will remain formula- expressed as a share of GNP, rose from in 1989 by 2% in real terms to US$282 funded as a percentage of GNP and that 0.50% to 0.54%. When flows to the DOM/ million. The ODA/GNP ratio fell from the ODA/GNP ratio will resume growth; TOM are included, French aid rose by 0.24% in 1988 to 0.23% in 1989. Although the target of 0.47% of GNP for aid budget 13% to the equivalent of US$7,467 mil¬ Austria's contributions to international appropriations for FY 1994/95 has been lion. Bilateral ODA expanded by 13% in financial institutions, which had been retained. real terms reflecting increases in grant exceptionally large in 1988, diminished, disbursements, including, in particular, Denmark total ODA fell only slightly as an absolute debt cancellation. Contributions to multi¬ amount, since bilateral ODA (grants and Danish ODA net disbursements rose by lateral and programmes rose by 8% in real loans, including concessional export 14% in real terms to US$1,003 million. terms over 1989 figures largely as a result credits) increased sharply - by 29% in real The ODA/GNP ratio increased from of a sharp rise in contributions to IDA. Aid terms. The Austrian authorities maintain 0.89% in 1988 to 1 % in 1989, the highest is expected to continue to increase in the their intention of reaching the average ratio ever reached by Denmark and the coming years since France remains com¬ ODA/GNP ratio of DAC members in the second highest of DAC members in 1989. mitted to raising ODA to independent near future, while improving the quality of ODA is likely to stay high: in 1985 the countries to 0.7% of GNP as soon as poss¬ their programme. Danish Parliament voted to increase aid ible.
Trie OECD OBSERVER 165 August/September 1990 27 DEVELOPMENT
Germany of US$2,094 million in 1989: a decline in be expected to remain high in view of the
In 1989 German ODA net disbursements multilateral contributions (which was ex¬ government's stated policy of maintaining increased by 9% in real terms to pected) offset an increase in bilateral aid appropriations at a figure correspond¬ US$4,953 million. In relation to GNP, total ODA. Expressed as a share of GNP, ODA ing to 1 % of GNP. ODA rose from 0.39% in 1988 to 0.41% declined from 0.98% in 1988 to 0.94%, Switzerland in 1989. This is due to a 17% increase in remaining well above the 0.7% of GNP multilateral contributions and a 5% in¬ target for the nineteenth consecutive year. ODA from Switzerland decreased by 2% crease in bilateral ODA. According to the ODA is expected to continue to represent in real terms to US$559 million in 1989. present budget plan, ODA appropriations close to 1 % of GNP, given the determina¬ Expressed as a share of GNP it fell from tion of the Netherlands to continue to 0.32% in 1988 to 0.30% in 1989. A of the Ministry for Economic Co-operation devote 1.5% of net national income to are to increase by an annual average of decrease in contributions to regional 2.4% during the period 1989-93. development co-operation. development banks, reflecting the timing of note deposits with these institutions, New Zealand Ireland accounted for the decline in aid. Other
New Zealand ODA disbursements multilateral contributions and bilateral Ireland's ODA decreased by 10% in real terms to US$49 million and fell back from dropped sharply by 1 3% to the equivalent ODA rose during the year. According to 0.20% of GNP in 1988 to 0.17% in 1989 of US$87 million in 1 989. The decline was the Financial Plan of the Confederation, the result of lower bilateral ODA disburse¬ as a result of declines in both bilateral and ODA will continue to progress towards the multilateral aid disbursements. In view of ments which (because of a bunching of DAC average and the ODA/GNP ratio is the government's determination further to student subsidies on a calendar year expected to represent 0.34% in 1994. Re¬ reduce the budget deficit, the outlook for basis) had been exceptionally large in quests have been presented to parliament the volume of Irish aid remains uncertain. 1988. These are to be replaced by a new for a SF 3.3 billion programme for financial fees scholarship scheme for students and technical assistance (about US$2 bill¬ Italy from developing countries which will allow ion at 1989 exchange rates) and a SF 840 Aid from Italy increased by 3% in real for a better targeting of ODA funding by million (about US$513 million) programme terms to US$3,325 million in 1989 and re¬ recipient countries and educational re¬ for the financing of economic and com¬ mained stable at 0.39% when expressed quirements. In relation to GNP, total ODA mercial policy measures, including debt as a share of GNP. Contributions to multi¬ declined from 0.27% in 1988 to 0.22% in relief, for commitment over the period lateral institutions, which had been unusu¬ 1989, the lowest ratio reported by New 1991-94. ally low in 1988 owing to the absence of Zealand since 1973. United Kingdom contributions to the International Develop¬ ment Association, rose by 60% and out¬ Norway Following a sharp increase in 1988, United weighed a 15% decline in bilateral ODA Following an increase in 1988, Norwegian Kingdom ODA net disbursements re¬ disbursements. ODA disbursements declined in 1989 by mained virtually unchanged in real terms 3% in real terms to US$919 million, re¬ at US$2,588 million in 1989. In relation to Japan flecting a 9% decline in multilateral con¬ GNP, ODA declined marginally from 0.32% Japanese ODA net disbursements in¬ tributions. The ODA/GNP ratio fell from in 1988 to 0.31% in 1989. Future aid creased by 4% in real terms to US$8,958 1.10% in 1988 to 1.02% in 1989 but re¬ figures announced in the statement on million, making Japan the largest donor mained the highest among DAC members. public expenditure of November 1989 indi¬ among DAC members in 1989. There was Aid appropriations for 1990 correspond to cate an increase in aid expenditure aver¬ an 12% increase in bilateral ODA. But 1 .09% of GNP as estimated at the time of aging 5.3% per annum during the fiscal growth in the total programme was af¬ the budget proposal. ODA disbursements year period 1989/90-92/93. fected by a 15% decrease in multilateral are expected to remain above 1 % of GNP United States contributions resulting from accidental given the government's policy of main¬ timing factors. The ODA/GNP ratio re¬ taining a high ODA volume. United States aid, which had increased in mained at 0.32%. Aid disbursements are 1988 by 10%, declined by 27% in real Sweden expected to continue to increase in view terms in 1989 to US$7,664 million. As a of the fourth medium-term ODA expan¬ Sweden's ODA disbursements rose by share of GNP, US net ODA disbursements sion plan, aiming at disbursing more than 15% to US$1 ,809 million in 1989. The in¬ fell from 0.21% to 0.15%. This sharp US$50 billion between 1 988 and 1 992 and crease reflects higher bilateral disburse¬ decline in 1989 from 1988 was mainly raising Japan's ratio of ODA to GNP ments which increased by 18% in real because two instalments amounting to closer to the DAC average. terms. In relation to GNP, Swedish total US$1,910 million on the contribution to ODA rose from 0.86% in 1988 to 0.98% IDA were paid in the calendar year 1988. Netherlands in 1989, the highest ratio reported by Bilateral ODA, which has tended to de¬ Aid from the Netherlands remained virtu¬ Sweden since 1982 and the third highest cline gradually over the past few years, ally stable in real terms at the equivalent among DAC Members in 1989. ODA can also decreased by 3% in real terms.
28 The OECD OBSERVER 1 65 August/September 1 990 New OECD Publications
SUE FILL IN THE FORM WITH THIS ISSUE FILL IN THE FORM WITH THIS ISSUE FILL IN THE FORM WITH THIS ISSUE FILL IN T
AGRICULTURAL TRADE MINING AND METALLURGY Economy LIBERALISATION INVESTMENT IN THE THIRD WORLD
OECD ECONOMIC SURVEYS Implications for Developing Countries The End of Large Projects? 1989-90 Series edited by Ian Goldin and Odin Knudsen Olivier Bomsel, with Isabel Marques, ISSN 0376-6438 OECD/World Bank Djibhl Ndiaye and Paulo de Sa DENMARK May 1 990 June 1990 April 1990 (41 90 04 1) ISBN 92-64-13366-6, 520 pp. This report examines in detail nine major mining F180 £18.00 US$32.95 DM60 (10 90 13 1) ISBN 92-64-13383-6, 148 pp. projects in Africa, Asia and Latin America from See The OECD Observer, No. 163, April/May See The OECD Observer, No. 164, June/July the standpoint of the investment decisions be¬ 1990. 1990. hind them and their ultimate success or failure. The report also analyses the global evolution of ICELAND investment in the mining sector, notably the May 1 990 '10 BESTSELLERS' substitution of growing foreign direct invest¬ (10 90 17 1) ISBN 92-64-13365-8, 114 pp. ment for declining official multilateral financing, (To order, please use the form ITALY and draws pertinent conclusions for potential inserted in this issue.) May 1 990 foreign investors and public authorities in (10 90 19 1) ISBN 92-64-13357-7, 140 pp. 1. OECD ECONOMIC SURVEYS developing countries. See The OECD Observer, No. 164, June/July (4190 05 1) ISBN 92-64-13382-8, 218 pp. 1989-1990 Series : France 1990. F135 £16.00 US$28.00 DM52 (10 90 14 1) ISBN 92-64-13356-9 Each study : F50 E6.00 US$11.00 DM21 FF50 £6 US$11 DM21 CHANGING COMPARATIVE Subscription to the 1989-90 Series (20 to 24 suveys to be published): ADVANTAGE F720 £84.30 US$158.00 DM310 2. OECD ECONOMIC SURVEYS IN FOOD AND AGRICULTURE 1989-1990 Series : Australia Lessons from Mexico Agriculture (10 90 04 1) ISBN 92-64-13326-7 Irma Adelman and J. Edward Taylor FF50 £6 US$11 DM21 AGRICULTURAL POLICIES MARKETS April 1990 AND TRADE 3. OECD ECONOMIC SURVEYS This innovative study reveals that Mexico, nor¬ 1989-1990 Series : Austria mally thought of as an industrially advanced Monitoring and Outlook 1990 (10 90 11 1) ISBN 92-64-13355-0 developing country, is highly dependent on April 1990 FF50 £6 US$11 DM21 domestic agricultural performance. Applying (51 90 01 1) ISBN 92-64-1 3381 -X, 304 pp. F170 £23.00 US$40.00 DM74 a new analytical tool - a food accounting 4. MAIN ECONOMIC INDICATORS See pp. 4-8 of this OECD Observer matrix - the authors demonstrate that an Historical Statistics 1969-1988 agriculture-led development strategy empha¬ NATIONAL POLICIES (31 90 20 3) ISBN 92-64-03296-7 sising productive peasant agriculture is to be AND AGRICULTURAL TRADE FF430 £52 US$90 DM168 preferred for Mexico, and could be equally COUNTRY STUDIES appropriate for many other developing coun¬ 5. NUCLEAR ENERGY These publications presents an analysis of the tries. IN PERSPECTIVE support to agriculture in the countries in ques¬ (41 89 08 1) ISBN 92-64-13369-0, 66 pp. (66 90 01 1) ISBN 92-64-13320-8 F50 £6.00 US$11.00 DM20 tion for 1979-88. It contains detailed measure¬ FF120 £14.50 US$25 DM47 ments of the levels of assistance granted for the main agricultural commodities using the 6. FINANCIAL MARKET TRENDS. Employment concepts of Producer and Consumer Subsidy No. 45 and Social Affairs Equivalents. It examines the development and (27 90 01 1) effects of national policies on agricultural pro¬ FF80 £10 US$17 DM33 LABOUR MARKET POLICIES duction, consumption and trade in light of the FOR THE 1990s principles for agricultural reform laid down in 7. OECD Social Policy Studies, No. 7 May 1 990 the OECD Ministerial communiqués of 1987 HEALTH CARE SYSTEMS This report provides a framework for a com¬ and 1988. IN TRANSITION parative analysis of labour-market policies in SWITZERLAND The Search for Efficiency OECD countries. The size and nature of each June 1990 (81 89 05 1) ISBN 92-64-13310-0 country's policy effort is documented and dis¬ (51 90 03 1) ISBN 92-64-13385-2, 176 pp. FF140 £17 US$30 DM55 F95 £12.00 US$20.00 DM37 cussed on a comparative basis. Against this background and considering the likely evolu¬ NORWAY 8. Public Management Studies tion of the socio-economic environment of the FLEXIBLE PERSONNEL May 1 990 1 990s, the thrust and emphasis of future labour (51 90 02 1) ISBN 92-64-13384-4, 168 pp. MANAGEMENT market policies are outlined. F95 £12.00 US$20.00 DM37 IN THE PUBLIC SERVICE (81 90 01 1) ISBN 92-64-13363-1, 144 pp. (42 90 01 1) ISBN 92-64-13353-4 F110 £13.00 US$23.00 DM43 Development FF90 £11 US$19 DM35 See The OECD Observer, No. 164, June/July 1990 Development Centre Studies 9. AGRICULTURAL POLICIES Local Initiatives for Employment Creation AGRICULTURE AND ECONOMIC IN THE 1990s CRISIS (41 90 01 1) ISBN 92-64-1 3350-X IMPLEMENTING CHANGE: FF120 £14.50 US$25 DM47 Lessons from Brazil ENTREPRENEURSHIP Ian Goldin 10. ADVANCED MATERIALS AND LOCAL INITIATIVE July 1990 Government Policy April 1990 (41 89 09 1) ISBN 92-64-13392-5, 136 pp. (84 90 01 1) ISBN 92-64-13360-7, 80 pp. F90 £11.00 US$19.00 DM35 and Technological Challenge F70 £8.50 US$15.00 DM27 See The OECD Observer, No. 161, December (93 89 04 1) ISBN 92-64-13255-4 See The OECD Observer, No. 158, June/July FF190 £23 US$40 DM78 1989/January 1990. 1989.
The OECD OBSERVER 165 August/September 1990 29 also presents projections of the nuclear indus¬ Energy try's future natural uranium requirements and Transport reviews the status of uranium exploration, re¬ IEA (International Energy Agency) Road Transport Research sources and production in over forty countries. ANNUAL OIL MARKET REPORT (66 90 02 1 ) ISBN 92-64-1 3364-X, 358 pp. BEHAVIOURAL ADAPTATIONS F250 £30.00 US$52.00 DM97 June 1990 TO CHANGES NUCLEAR ENERGY DATA 1990/ This report examines major developments in IN THE ROAD TRANSPORT SYSTEM world oil markets during 1989. It also reviews DONNÉES SUR L'ÉNERGIE June 1990 important changes which have affected the pe¬ NUCLÉAIRE 1990 Behavioural adaptations of road users are of troleum industry over the past decade. In addi¬ May 1 990 particular concern to road safety authorities tion to key statistics for 1989, the report pre¬ Bilingual/bilingue and programme developers. This report re¬ sents historical data on oil consumption, sup¬ Nuclear Energy Data is the OECD Nuclear views the state-of-the-art in this field and the ply, stocks, and prices - as well as information Energy Agency's annual compilation of basic research conclusions of OECD countries likely on reserves, refining, trade and industry financ¬ statistics on electricity generation and nuclear to contribute to the efficiency of road safety ing. It is a useful reference for executives and power in OECD countries. The reader will find policy actions and long-term initiatives. analysts. quick and easy reference to the present status (77 90 011) ISBN 92-64-13389-5, 140 pp. (61 90 06 1) ISBN 92-64-13387-9, 80 pp. F125 £15.00 US$26.00 DM48 F180 £22.00 US$38.00 DM70 of and projected trends in total electricity gen¬ erating capacity, nuclear generating capacity, ECMT (European Conference of Ministers of IEA (International Energy Agency) and actual electricity production, as well as on Transport) COAL INFORMATION 1990 supply and demand for nuclear fuel cycle ser¬ TRANSPORT POLICY
June 1990 vices. AND THE ENVIRONMENT (66 90 05 3) ISBN 92-64-03370-X, 44 pp. ECMT Ministerial Session A comprehensive reference book on current F50 £6.00 US$11.00 DM20 world coal market trends and long-term pro¬ Prepared in co-operation with spects. Contains analysis and country-specific Financial Affairs the OECD statistics for OECD member countries and April 1990 selected non-OECD countries on coal prices, FINANCIAL MARKET TRENDS Transport policy-makers will face enormous demand, trade, production and emission stan¬ No. 46 difficulties in trying to reduce the adverse dards for coal-fired boilers. Essential facts on May 1990 environmental effects of transport. This report coal-importing and exporting ports and coal- Special Feature: Recent Trends in the Organi¬ analyses some of the challenges ahead and fired power stations in coal-importing regions sation and Regulation of Securities Markets examines how Ministers of Transport are are included. (27 90 02 1) ISSN 0378-651 X, 150 pp. addressing them. It contains the preparatory (61 90 03 1) ISBN 92-64-13388-7, 550 pp. Single issue: F470 £56.00 US$99.00 DM183 F80 £10.00 US$17.00 DM33.00 work and the conclusions of a major meeting of Subscription (3 issues) Transport Ministers on the subject. These con¬ ENERGY POLICIES AND PROGRAMMES F170 £19.90 US$38.00 DM73 clusions are standards against which progress OF IEA COUNTRIES can be monitored at the international level. 1989 Review Fiscal Affairs (75 90 01 1) ISBN 92-821-1147-4, 330 pp. F225 £27.00 US$48.00 DM88 June 1990 THE PERSONAL INCOME TAX BASE Every year, the IEA reviews the progress of its A Comparative Survey Statistics 21 member countries in reducing their vulnera¬ May 1990 bility to supply disruptions and adapting their This report presents for the first time data on OECD ECONOMIC OUTLOOK energy economies to changed circumstances. the personal income tax base broken down by HISTORICAL STATISTICS 1960-1988/ Each country's performance is assessed sepa¬ decile groups for 17 OECD countries on the PERSPECTIVES ÉCONOMIQUES rately. These country reviews support an overall basis of a common methodology. For each survey of developments in energy markets, STATISTIQUES RÉTROSPECTIVES country it indicates which sources of income energy-related environmental issues and 1960-1988 are subject to tax and which are not and sum¬ energy policies and programmes, including June 1990 marises the different ways in which govern¬ research, development and demonstration Bilingual ments provide tax reliefs. After discussing the activities. The national reports offer policy re¬ The Economics and Statistics Department problems posed by the use of different con¬ commendations by teams of experts from other (ESD) of the OECD publishes statistics on the cepts and the unavailability of some statistical IEA governments and the IEA Secretariat. main subjects influencing the development of data, the report provides estimates of average (61 90 04 1) ISBN 92-64-13386-0, 700 pp. the economy, such as national accounts, for¬ F430 £52.00 US$90.00 DM167 tax rates at different income levels in each eign trade, labour force, leading indicators and OECD Nuclear Energy Agency country. short-term statistics. Most are available as (23 90 03 1 ) ISBN 92-64-1 3368-2, 268 pp. SAFETY ASSESSMENT F190 £23.00 US$40.00 DM75 printed publications, on magnetic tapes and on OF RADIOACTIVE WASTE diskettes, and, in the case of foreign trade by TAXPAYERS' RIGHTS REPOSITORIES commodity, on microfiche. In addition, the AND OBLIGATIONS Proceedings of the 1989 ESD puts forward its own forecasts in its semi¬ A Survey of the Legal Situation annual publications OECD Economic Out¬ Paris Symposium, in OECD Countries look, based on a review of each member coun¬ Organised by the OECD Nuclear Energy June 1990 try. Particular attention is paid to the policies Agency, International Atomic Energy (23 90 01 1) ISBN 92-64-13390-9, 120 pp. that governments are adopting to solve present F100 £12.00 US$21.00 DM39 Agency, Commission of the European economic problems. Communities in co-operation (12 90 01 3) ISBN 92-64-03372-6, 170 pp. Industry F100 £12.00 US$21.00 DM39 with the French Atomic Energy Commission TECHNICAL ENGINEERING SERVICES FOREIGN TRADE BY COMMODITIES June 1990 Aiding Structural Adjustment New Series 'C7 (66 90 06 3) ISBN 92-64-03334-3, 1024 pp. COMMERCE EXTÉRIEUR F530 £64.00 US$112.00 DM205 and Competitiveness May 1 990 PAR PRODUITS URANIUM RESOURCES, (70 90 01 1) ISBN 92-64-13367-4, 132 pp. Nouvelle Série 'C PRODUCTION AND DEMAND F80 £10.00 US$17.00 DM31 ISSN 0474-540X Bilingual A Joint Report by the OECD Nuclear 1988: Volume 2, 470 pp. Energy Agency and the International Public Management April 1990 United States/États-Unis Atomic Energy Agency PARTNERSHIPS Germany/Allemagne May 1990 FOR RURAL DEVELOPMENT Iceland/lslande Nuclear power generating capacity can con¬ May 1990 Switzerland/Suisse tinue to expand only if there is confidence in an (42 90 02 1) ISBN 92-64-13380-1, 164 pp. Turkey/Turquie adequate supply of uranium. This report pre¬ F130 £16.00 US$28.00 DM50 Yugoslavia/Yougoslavie sents compilations of uranium resource and See The OECD Observer, No. 162, February/ Available on a subcription basis only 1988 Data, 5 volumes: production data established in early 1989. It March 1990. F1 800 £211.00 US$396 DM648
30 The OECD OBSERVER 165 August/September 1990 Where to obtain OECD Publications
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Director: Lucien Dantin Printed in France IS OECD Council Meets at Ministerial level Communiqué
The Council of the OECD met on 30 Economic Planning, of Japan. Brisk growth in OECD countries has been and 31 May 1990 at Ministerial Ministers noted the statement by converging to an overall pace which ought level. The meeting was chaired by Mr Budimir Loncar, Federal Secretary for to be sustainable over the medium term. Mr Jean-Pascal Delamuraz, Federal Foreign Affairs of Yugoslavia, concerning There has been significant, if uneven, Counsellor, Head of the Federal Depart¬ the request for adhesion of his country to progress in the reduction of external im¬ ment of Public Economy of Switzerland. the Organisation. balances. Balanced action across the full The Vice-Chairmen were Mr Paolo Cirino range of monetary, fiscal and structural
Pomicino, Minister of Budget, Mr Renato Macro-economic Policies policies, supported by a further Ruggiero, Minister for Foreign Trade, and strengthening of international economic in the Current Ms Susanna Agnelli, Under-Secretary of co-operation, is needed to: State, Deputy Minister of Foreign Affairs, Economic Situation lower inflation of Italy, and Dr Tara Nakayama, Minister enhance job creation and help to bring for Foreign Affairs, Mr Kabun Muto, Minis¬ Ministers are broadly satisfied with the unemployed, and particularly the long- ter of International Trade and Industry and economic developments over the past term unemployed, back into employment Mr Hideyuki Aizawa, Minister of State for year, but note that certain risks remain. reduce external imbalances
OECD Ministers welcome the historic GENERAL POLICY STATEMENT Fifth, OECD governments are determined changes taking place in Europe, particularly to continue to offer all feasible support to in Germany. These developments, together the countries of central and eastern Europe with the recent evolution of a number of the Second, they pledge their resolve to fight striving to achieve market-oriented eco¬ developing countries, represent a move¬ protectionism in all its forms, and to give nomic systems and pluralistic democracies. ment towards the basic values which are their unreserved support to the strengthen¬ Ministers consider that OECD should play a common to the OECD countries: pluralistic ing of the open, multilateral trading system. distinct and important role by engaging in a democracy, respect for human rights, and a They are committed to bringing the Uruguay policy dialogue to promote the process of competitive market economy. They improve Round to a successful conclusion by the economic reform, with the objective of inte¬ the prospect of a truly integrated global end of this year. This will require improved grating the reforming countries into the economic system. market access and transparent, strengthened international economic system. The OECD countries intend to conduct multilateral rules in all areas. Such action Sixth, Ministers stress that many environ¬ and co-ordinate their policies in ways which should both complement domestic efforts to mental problems now have a world-wide will support these changes, to the benefit of improve competitive conditions, and provide dimension, requiring increased attention all. They recognise that globalisation and in¬ the necessary assurances to all countries to and action. The solution of these problems terdependence present great opportunities, enable them to accept fully the obligations requires concerted, broadly compatible and will co-operate actively both with one of a strengthened GATT system. policies in all countries if sustainable deve¬ another and with the rest of the world to Third, they state their commitment to lopment at the world level is to be ensured. exploit these opportunities. assisting the developing countries, in parti¬ The Organisation should therefore further The 1 990 meeting of the OECD Council at cular the least developed amongst them, in intensify the role it plays in this co-operative Ministerial level has reached the following their efforts towards economic growth and effort, particularly as regards the integration broad, fundamental, and closely inter¬ social progress, by enhancing market access of economic and environmental policy related conclusions: to OECD economies, by improving the making, and the optimum use of market First, Ministers agree to build upon the transfer of developmental resources, and mechanisms. good economic results of recent years with through stable non-inflationary OECD The rapid and far-reaching changes which policies aimed at non-inflationary growth, so growth. This commitment will not be altered are today affecting the world and enhance that high employment and fair social condi¬ by the support being lent to reforming coun¬ the process of global integration call for tions can be sustained. To achieve this re¬ tries in central and eastern Europe. ever-closer international co-operation. In quires the maintenance of firm and balanced Fourth, Ministers direct the Organisation responding to these changes, OECD has an macro-economic policies, a further reduction to pursue and deepen its dialogue with the increasingly important role to play, by of external imbalances, continued progress Dynamic Asian Economies, whose role and reason of its ability to analyse problems of with structural policies, and the fostering of responsibilities are steadily increasing in the economic and social policy and to work out open competitive markets. world economy. appropriate solutions. MINISTERIAL COMMUNIQUÉ
promote exchange market stability both within and outside the OECD area, agricultural and industrial-support poli¬ sustain a sound growth of productive calls for an increase of the saving rate in cies, considerably more has to be done. investment many OECD countries, leading to a higher Ministers are particularly concerned to im¬ encourage higher saving, where appro¬ saving rate for the OECD area as a whole. prove performance in these domains priate. It is important that increased saving rates while sustaining progress across the full Strong OECD growth and enlarged are accompanied by a further reduction in range of structural reforms. Successful market access will benefit all countries external imbalances. In countries where completion of the Uruguay Round by the through increased world trade, and provide public-sector borrowing is still too high, end of this year will do much to advance support for the structural changes neces¬ further efforts will be made to reduce it as structural reforms in these areas in the sary for a better economic performance. quickly as possible. Where there is a need 1990s. Progress towards economic union by the for additional private-sector saving, this Ministers invite the Secretary-General European Community, current efforts to will be actively sought, though the policies and the relevant committees to continue create a European Economic Space, the necessary to promote it may differ from to develop, deepen and strengthen the prospective unification of Germany, and country to country. Ministers therefore Organisation's structural surveillance the economic reforms in central and east¬ look forward to further studies by the programme. To this end they commit ern Europe will be of great importance in OECD in this respect. member governments to provide the this respect. It is essential that employment increase OECD with the requisite data. They em¬ The recent tightening of monetary pol¬ without raising inflationary pressure, in phasise the importance of such multi¬ icy in many countries has contributed to part through appropriate labour-market, lateral peer review as a means to foster bearing down on inflation pressure. Infla¬ manpower, education and training poli¬ the process of structural reform, including tion has nevertheless risen in a number of cies. This is now of particular importance, through identifying the costs of inaction countries. To affirm their commitment to given that labour mismatch and a general and the most promising ways to over¬ price stability, monetary authorities will shortage of high skills are evident in a come obstacles to change, and bringing continue to exercise due vigilance and re¬ number of countries. this information to public attention. straint, especially where inflation is still Ministers emphasise the importance of too high, or where financial markets signal maintaining strong international economic rising inflation expectations. Lower infla¬ co-operation founded on appropriate Agricultural tion will by itself reduce inflation expecta¬ domestic policies. Such co-operation Reform tions, contribute to lower interest rates, eases the task of the authorities in any one and provide the basis for sustainable country across a wide range of macro- Ministers took note of the joint report growth. economic and structural policy issues. It by the Agriculture and Trade Committees, Fiscal policy will continue to underpin a can thereby help to avoid unnecessary and Agricultural Policies, Markets and stable economic environment by further undesired exchange-rate and financial- Trade: Monitoring and Outlook 1990, and moves towards well-established object¬ market disturbances, in turn contributing endorsed its conclusions. OECD countries ives: achieving and maintaining a sound to the implementation of desirable but have made only limited and uneven pro¬ public-sector position, and improving politically difficult structural reforms. Inter¬ gress in implementing the agreed long-term public management and the allocative ef¬ national economic co-operation has over objectives of the policy reform. Agricul¬ ficiency of the public sector. Fiscal policy recent years contributed to a more stable, tural markets continue to be characterised will reinforce monetary policy efforts to and more predictable, world economy. It by wide use of internal support and other achieve price stability. has thereby helped to boost confidence measures adversely affecting trade, and Most OECD countries will be facing in¬ and anchor expectations, and should con¬ persistent international tensions and dis¬ creasing pressures on expenditure over tinue to do so. putes. While surpluses have been re¬ the coming decade from: rising health duced in the short-term, problems caused care and pension requirements of aging Structural Reform by insufficient structural adjustment in the populations; the growing cost of educa¬ in OECD Countries agricultural sector remain to be solved. tion and the need for greater skills as well Policies, including some of those which as, in some countries, catering for except¬ Structural reform has increased have been a factor in curbing production, ional employment needs; environmental economic efficiency on a broad front and remain costly to OECD countries, as well considerations; and, in many cases, in¬ will continue to be given high priority. as to many other countries. Assistance to vesting in or repairing the infrastructure. Ministers noted the reports by the Secret¬ agriculture as measured by Producer To meet these pressures, governments ary-General and the Economic Policy Subsidy Equivalents dropped in 1989 for will determine ways to improve public Committee on Progress in Structural Re¬ the second consecutive year, but this was management and the content of public form. They noted that in some areas - largely due to non-policy factors, and was expenditure, and identify those expendi¬ foreign direct investment, taxation, and still higher than the average of 1979 to ture items which can most effectively be especially financial markets - strong pol¬ 1985. Secretariat estimates suggest that subjected to competition. Ministers look icy interdependence among countries has total transfers from consumers and tax¬ to further studies by the OECD to help been a stimulus to continuing and sub¬ payers, due to agricultural policies, member countries carry out these tasks. stantial progress in structural reform. In amounted to about US$ 245 billion for the The need for a high level of investment, other areas, however, notably trade, and OECD area as a whole in 1989, compared MINISTERIAL COMMUNIQUÉ
with about US$ 280 billion in 1988, but analysis of the short and long-term impact Policy, Trade, and Industry Committees, still higher than in any year before 1986. of the reforms under way in central and to consider how this important data base Against this background, Ministers agree eastern Europe; and improved assess¬ might most effectively be used to to take urgent steps to reform agricultural ment of medium-term market trends. strengthen the common international un¬ policy, as regards support and protection, derstanding of the economic effects of all so as to permit greater liberalisation of Rural types of industrial subsidies. This work trade. They reaffirm their commitment to Development could lead to the eventual definition of the long-term objective of the reform, i.e., commonly accepted OECD guidelines. to allow market signals to influence the Ministers invite the Organisation to im¬ Ministers noted the efforts and wel¬ orientation of agricultural production and plement the recommendations of the comed the progress made to date in the to establish a fair and market-oriented Council Working Party set up to design a Liaison Group between the OECD Council agricultural trading system. Ministers are programme for work on rural development Working Party on Shipbuilding and the prepared to negotiate in line with the issues. Particular attention should be de¬ Republic of Korea on the elaboration of agreed objectives of the Punta del Este voted to the interlinkage of social, the framework and principles of an agree¬ and mid-term Review Declarations, al¬ economic, agricultural, and environmental ment to: eliminate all measures of assist¬ though they differ on how an approach to policies at both the micro and the macro ance and practices that are obstacles to these objectives should be expressed at level, and to the contribution that an inte¬ normal competitive conditions; and im¬ this stage. Some feel that negotiations grated approach to rural development can prove transparency in the commercial should proceed to seek specific policy make to the process of agricultural reform shipbuilding and repair industry. They commitments in each area of the negotia¬ and, inter alia, to the resolution of the prob¬ confirm their commitment to co-operate tions: internal support, barriers to market lems of remote areas and communities. in concluding an effective agreement as access and export subsidies; and to soon as possible. They encourage other develop new rules for sanitary and Industrial countries which have important shipbuild¬ phytosanitary measures. Others prefer to Subsidies ing industries to participate in its im¬ seek reductions in support and protection plementation. Furthermore, in this context with commitments encompassing all Industrial subsidies have generally im¬ Ministers recall the importance of dealing measures affecting directly or indirectly peded rather than promoted structural ad¬ generally with trade-distorting practices in import access and export competition, as justment by retaining resources in sectors the Uruguay Round. well as rules for sanitary and phyto¬ in decline, and by diverting them from use sanitary measures. In pursuing the long- in more efficient industries. Subsidies can Financial Markets and term objective, account will be taken of also distort trade flows, create grounds for Foreign Direct Investment proposals aimed at addressing partici¬ trade frictions, and bear heavily on public pants' non-trade concerns. Ministers ex¬ budgets. Ministers therefore are firmly of The process of financial market integra¬ press their determination and commit¬ the view that rigorous attention must be tion continues unabated, domestically ment to make every effort to overcome the paid to the transparence and manage¬ and internationally. The OECD Codes of differences and to develop by the July ment of such assistance, and that every Liberalisation have played a significant Trade Negotiations Committee (TNC) effort should be made to eliminate or bring role in this process, and Ministers ask the meeting an appropriate framework to under enhanced discipline subsidies which Organisation continually to strengthen achieve the objective defined above; and have trade distorting effects. They note in and extend these Codes, to ensure that subsequently to reach agreement on how this context the opportunity provided by there is no backsliding on existing obliga¬ far and on what timetable it is to be done, the Uruguay Round, and express their de¬ tions, and to help prevent protectionist in¬ and to develop strengthened and more termination to develop more operationally vestment policies. The trend towards the operationally effective GATT rules and effective GATT rules and disciplines. formation of large financial institutions disciplines. Ministers agree that the re¬ In view of these considerations, Minis¬ operating in global markets provides new sults of the negotiations must be trans¬ ters welcome the report of the first phase challenges for financial regulation and lated into binding country programmes of the Industry Committee's project on supervision. Ministers call upon the Or¬ that achieve greater liberalisation of trade. 'Subsidies and Structural Adjustment' as ganisation to monitor this trend, and to Ministers invite the Organisation to con¬ an important contribution to increased analyse its implications for market effi¬ tinue to support the process of agricultural transparency of subsidy programmes, ciency and financial stability, in order to reform by: further study of particular which should foster greater subsidy disci¬ assist the responsible national and inter¬ aspects of this process, in particular of pline. Ministers encourage the Industry national regulatory organisations to direct income support not linked to pro¬ Committee to achieve the early comple¬ develop and strengthen arrangements for duction; continued quantitative monitor¬ tion of the second phase of the project, containing systemic risk and to avert ing of agricultural support and protection which will further increase transparency. fragmented and divergent regulatory ap¬ in OECD and major non-OECD countries, The regular provision of data by member proaches. Monitoring the globalisation of and of their effect on international trade; countries will give rise to a base of interna¬ financial markets requires increasing at¬ analysis of the impact of reductions in ag¬ tionally comparable data. Ministers invite tention to developments in financial sys¬ ricultural support and protection, includ¬ the Secretary-General, drawing on the tems outside the OECD area, notably in ing the impact on developing countries; continued co-operation of the Economic economies in the Pacific Basin and in cen- MINISTERIAL COMMUNIQUÉ
tral and eastern Europe. The implications employment, and skill shortages. Minis¬ of financial market integration for the im¬ ters welcome the statement by the Man¬ pact of tax policies on saving and the in¬ power and Social Affairs Committee on ternational allocation of investment merit the New Framework for Labour Market further study. Finally, the continuing finan¬ Policies developed by the OECD. The aim cial market integration must also be taken of this New Framework is to develop a into account in the development of meas¬ comprehensive, active labour-supply pol¬ ures to prevent money laundering. icy, emphasising the quality of the labour The process of liberalisation of foreign force, the reduction of inequalities in direct investment and international co-op¬ access to jobs and training, and en¬ eration in that field are very important for couraging participation in society. A re¬ the development of international economic port on the development of these policies relations. Ministers reaffirmed their com¬ is expected in time for the Ministerial mitment to the 1976 Declaration on Inter¬ Council in 1992. Ministers support the national Investment and Multinational En¬ Committee's programme for systematic terprises and the need for a strengthened analysis and monitoring of labour-market National Treatment Instrument. Ministers policies as a contribution to the structural noted the reports by the competent Com¬ adjustment objectives of the Organisation. mittee of the Organisation and welcomed They also welcome the establishment by the significant progress it has made in the the Secretary-General of a High Level review of the 1976 Declaration including Group of Experts on 'Women and Struc¬ in the drafting of a binding instrument, tural Change in the 1990s', and look for¬ based on the principles of standstill, non¬ ward to receiving the Group's recommen¬ discrimination, transparency and rollback dations for policy action. of existing measures constituting except¬ Ministers agree that an integrated ap¬ ions to National Treatment. Ministers proach must be developed which involves urged the Organisation to make every ef¬ the private sector fully, and which ensures fort to resolve the remaining issues with a the appropriate interaction between social, view to adopting the new instrument as labour-market, education and training pol¬ soon as possible. They called for a report icies in order to support those who want new energy resources, diversifying sup¬ on the proposal for a new National Treat¬ to participate more actively in the labour ply, improving energy efficiency, further ment Instrument at their next meeting in force and in employment, but meet obsta¬ liberalising energy trade, and developing 1991 and agreed to consider at that time cles or disincentives. and applying new, renewable and non- the Report on the review of the 1976 De¬ Efforts are being made by member carbon-emitting energy technologies to claration and Decisions on International countries to expand and to improve the ensure system flexibility. Investment and Multinational Enterprises quality of education and training through¬ In pursuing these objectives, it will be and the proposals put forward in this re¬ out the population, on a lifelong basis. increasingly important to integrate en¬ port (including the addition to the Declara¬ Meeting the needs of disadvantaged vironmental and economic considerations tion of a section on co-operation to avoid groups will be of special importance. and to develop flexible mechanisms which conflicting requirements being imposed These will be among the main themes of permit markets to seek these multiple on multinational enterprises and of a new the meeting of the Education Committee objectives most efficiently. The effects of chapter on environmental protection in the at Ministerial level in November 1990, and energy production, transport and use on OECD Guidelines for Multinational Enter¬ Ministers look forward to the results of the environment pose clear challenges for prises). that meeting. all fuels. Of particular concern are the transport and electricity sectors, which to¬ Labour-market Policies Energy gether constitute the fastest growing end- and Human Resource use sectors, and the major source of con¬ Development Energy markets continue to adjust and ventional emissions, and especially of evolve in response to the challenges those related to climate change. These Ministers recognise the importance of posed by the environment, the renewed challenges call for continued close moni¬ active labour-market policies in order to growth in oil imports, and the rapid de¬ toring and analysis of energy develop¬ support the continuation of non-inflatio¬ velopments in the economies both within ments and of improvements in energy nary growth of output and reduction of and outside the OECD. The balance be¬ efficiency in member countries and else¬ unemployment and to cope with the chal¬ tween oil demand and supply may be¬ where, as well as the co-operation with lenges that will be faced by OECD coun¬ come tighter in coming years. There is a other international organisations in the tries in the 1990s - effects of technologi¬ need therefore to maintain energy security analysis of strategies to address environ¬ cal change on work, demographic trends levels among OECD countries, by rein¬ mental concerns while continuing to (including the implications for international forcing existing efforts to prepare for support energy security and economic migration), persistent long-term un possible energy emergencies, developing development goals. MINISTERIAL COMMUNIQUÉ
able interpretation or application of GATT table, into GATT on the basis of rules still erodes the rule-based multi¬ strengthened GATT rules and disciplines lateral framework. Many domestic policy significant progress in agriculture - as decisions affect trade adversely. Protect¬ outlined in the second paragraph under ionist pressures remain strong. Ministers the sub-title 'Agricultural Reform'. therefore reaffirm their determination strengthened multilateral rules and dis¬ firmly to reject tendencies towards man¬ ciplines, particularly in areas of: aged trade approaches, bilateralism, sec- safeguards, rules of origin, subsidies and toralism, grey-area measures and uni¬ countervailing measures, and updated lateral action. They will promote better and strong disciplines for dumping and integration of developing countries and anti-dumping measures. A comprehen¬ former centrally-planned economies into sive safeguard agreement is needed the open and multilateral trading system based on the Most Favoured Nation under a strengthened and modernised (MFN) principle. Concerning subsidies GATT. and countervailing measures, rules are The successful outcome of the Uruguay needed which effectively discipline Round has the highest priority on the domestic subsidies so as to avoid trade international economic agenda. A failure distortions and the risk of competitive would have a range of negative conse¬ subsidisation. Improved disciplines must St*"- quences for the trading system, the global also cover countervailing measures so economy, and international economic co¬ that they do not become barriers to legiti¬ operation. It is imperative now to achieve mate trade a bold, balanced outcome on key issues further improvements in dispute settle¬ e Présidant of the OECD Ministerial meeting, to form an overall package encompassing ment procedures, in conjunction with Jean-Pascal Delamuraz, Head of the Federal interests and concerns of the widest it of Public Economy (Switzerland), strengthened rules and disciplines in spe¬ the right of the Secretary-General range of participating countries. The cific areas including the new ones, leading ' ' in, Jean-Claude Paye. shape of the final package and outline sol¬ to a commitment to operate only under utions in all areas of the negotiations, in¬ the multilateral rules cluding negotiating texts, must be estab¬ a comprehensive and balanced multi¬ Attention must also be placed on en¬ lished by July and definitive agreement lateral framework of contractually enforce¬ ergy developments outside the OECD. reached by the end of the year. However, able rules to liberalise services trade - Non-OECD energy consumption accounts there are major stumbling blocks in a with no sector excluded a priori, and with for half of world total energy consumption, number of key areas. Ministers therefore the broadest possible country participa¬ and this share is expected to rise for the express their determination to make the tion, and taking into account the experi¬ foreseeable future. While important dis¬ necessary difficult political decisions and ence and achievements under the relevant tinctions exist between the different non- instruct their negotiators to make rapid OECD Codes OECD countries, member countries' ex¬ progress, especially where substantial an agreement, with the fullest possible perience in energy policy can be shared divergences still exist. participation, to reduce and eliminate with those countries of central and east¬ The Uruguay Round must achieve sig¬ trade restrictive and distorting effects of ern Europe who wish to do so, as well as nificant liberalisation for all participants by trade-related investment measures by ex¬ with developing countries as appropriate. producing a coherent set of clear and en¬ panding on GATT disciplines, including These exchanges have advantages both forceable rules and disciplines adapted to provisions for transparency and respect for OECD and non-member countries. the new realities of world trade and to be for the principles of national and MFN implemented within a strengthened GATT treatment Open Multilateral framework. Ministers recognise that an agreement, with the fullest possible OECD countries must take a lead by sig¬ participation, to provide for adequate, Trading System nalling concrete steps they are ready to substantive standards and effective and The open multilateral trading system take as their contribution to achieving, in appropriate enforcement for protection of confronts a combination of great oppor¬ particular: intellectual property rights, including pro¬ tunities and challenges. Trade is buoyant a substantial and balanced package of visions for transparency and respect for and contributes significantly to the favour¬ measures to improve market access in¬ the principles of national and MFN treat¬ able economic climate now prevailing. In¬ cluding: ambitious new commitments and ment. creasing global interdependence offers liberalisation measures in the tariff and OECD Ministers recognise the import¬ promise of strong trade expansion in the non-tariff fields; the rollback of all trade ance of positive responses they must give future. Nevertheless, the world trading restrictive or distorting measures incon¬ in fields of interest to developing coun¬ system remains fragile and under tension. sistent with GATT; and the liberalisation tries, in order to foster better integration A significant and growing proportion of in¬ of the textile and clothing sector through of a growing number of those countries ternational trade is not, or not adequately, progressive dismantling of trade barriers into the international trading system. Such covered by GATT disciplines. Question and its integration, under a precise time responses must come in such fields as MINISTERIAL COMMUNIQUE
tropical products and all other market ac¬ between OECD and non-OECD countries, contributing to environmentally sustain¬ cess issues covered in the preceding in particular those which base their de¬ able development is a central task for the paragraph, including agriculture and text¬ velopment on the mutually supporting international community as a whole. The iles, together with strengthened multi¬ principles of pluralistic democracy, re¬ integration of environmental concerns into lateral rules and disciplines. At the same spect for human rights, and market eco¬ development projects and programmes, time, developing countries, in their diver¬ nomy. They invite the Organisation to con¬ while increasing benefits, will often result sity, should now signal how they intend to tinue to give high priority to co-operation in increased costs, requiring the mobilisa¬ contribute to the political momentum in with the developing countries, in particular tion of additional financial resources and the Uruguay Round. To obtain full benefits the least developed; to deepen its con¬ technological transfers, including from from a strengthened system, these coun¬ tacts and dialogue with the Dynamic Asian donors. tries will have to make appropriate con¬ Economies and the countries of central Developments and policies in the OECD tributions to the process. Scope for action and eastern Europe; and actively to area, notably in regard to growth and in¬ exists in areas such as rationalisation and develop the analytical work necessary to terest rates, will have a considerable influ¬ simplification of trade regimes; more ef¬ those ends. ence on the economic performance of the fective rules on the measures taken for developing countries. This being so, balance of payments reasons; tariff bind¬ Developing Ministers acknowledge the importance of ing and liberalisation of tariff and non-tariff Countries the contribution that can be made to the barriers; and participation in the agree¬ development of these countries in the ments covering new areas. Differences in Development co-operation is a critical context of the Uruguay Round, notably by levels of economic development could be global issue, given the wide and diver¬ further opening their countries' markets to accommodated through various transi¬ sified range of political, social, economic, developing country exports and by re¬ tional arrangements. environmental, population and debt prob¬ moving the distortions which are harming Ministers confirm their determination to lems to be considered. It should be open them at present. Ministers also recall the achieve a far-reaching, substantive result to new approaches. Ministers endorse the importance of substantial additional aid in all areas of the Uruguay Round by the policy statement on 'Development Co¬ efforts, in both quantity and quality. In this end of the year. Such an outcome should operation in the 1990s' made by DAC Aid respect they note the quantitative targets provide the basis for a commitment to Ministers and Heads of Aid Agencies last established by international organisations strengthen further the institutional December. In this context, Ministers for official development assistance. Serious framework of the multilateral trading sys¬ stress the following important themes: debt problems still remain an impediment tem, building on its contractual nature. developing countries themselves are ul¬ to growth and development in many de¬ This important question should be consid¬ timately responsible for their develop¬ veloping countries. Ministers therefore ered in due course, when the successful ment. Their own policies and institutions stress the need for continued resolute ac¬ completion of the current negotiation has are central to achieving broad-based and tion to resolve debt problems, and reaffirm been secured. sustainable growth, as are the active par¬ support for the strengthened debt strat¬ ticipation of their populations and their egy. They recognise the specific difficulties Export ability to mobilise domestic resources which the least developed countries en¬ Credits the developed countries cannot be counter, and express the hope that the prosperous for long if developing coun¬ next Paris Conference will be the opportu¬ Ministers welcome that the competent tries face growing mass poverty, nity for jointly defining priority objectives bodies in the OECD continue closely to economic and financial instability and and reciprocal arrangements which will monitor implementation of the 1987 pack¬ environmental degradation better meet the needs of these countries. age of reform measures on the OECD Ar¬ development co-operation remains They encourage bilateral and multilateral rangement on Guidelines for Officially- essential, in particular for the least assistance agencies, including the multi¬ Supported Export Credits. They also wel¬ developed countries, in support of im¬ lateral development banks, to continue come that these bodies have started proved policies, institutions and infra¬ their efforts to integrate environmental negotiations on a balanced package of structures. Particular emphasis should be considerations into all aspects of their measures to reduce substantially, through put on the development of human re¬ activities. improved discipline and transparency, sources, to help developing countries to those distortions resulting from the use of stimulate the productive energies of their Dynamic officially-supported commercial and tied people - men and women alike - and to Asian Economies aid credits. They urge that negotiations achieve competitive markets and dynamic should be expedited and that a final report private enterprise should be submitted to Ministers in 1 991 . in many countries a slowing of popula¬ The emergence of dynamic, market- tion growth is a condition for sustainable oriented economies in East and South- Relations development. Supporting the efforts of East Asia has significantly expanded the with non-OECD countries developing countries to implement effect¬ foundations for sustained global ive population programmes, especially economic growth. Ministers consider that Ministers welcome the continued through voluntary family planning, is a further progress in the dialogue with these strengthening of the economic ties matter of priority Dynamic Asian Economies is a matter of MINISTERIAL COMMUNIQUE
high priority. They welcome the recent cumstances and requirements. Ministers Ministers welcome the progress made by successful completion of four informal welcome the series of actions undertaken the Organisation in the analysis of environ¬ workshops covering: technology and the by the G24 and co-ordinated by the Com¬ mental issues, and call for a further globalisation of the economy, financial mission of the European Communities, to broadening and deepening of its work in market reform, trade policies, and macro- support the reform process in Poland and this area. This includes in particular: economic linkages. They wish the Hungary, and note their willingness to developing environmental indicators; momentum of this dialogue to be main¬ consider extending such assistance to designing guidelines for the use of tained and intend, in close consultation countries in central and eastern Europe economic instruments and of market with these new important partners, to that are seriously engaged in political and mechanisms to achieve environmental chart its further development without economic reforms. Ministers note with goals; evaluating the economic dimen¬ delay. They call for a report at their meet¬ satisfaction the signing of the treaty sions of the major environmental prob¬ ing in 1991. instituting the European Bank for Recon¬ lems and their possible solution; analysing struction and Development (EBRD). the interlinkages between environmental Central and Eastern Ministers warmly endorse the welcome and trade policies; assessing the con¬ Europe already given by the Organisation to the tribution which could be made by tech¬ recommendation in the concluding docu¬ nological breakthroughs, energy conser¬ A process of political and economic re¬ ment from the CSCE Bonn Conference vation and efficiency, and social and form of major importance for the world is inviting the OECD to consider hosting economic activities which put less strain under way in central and eastern Euro¬ meetings of experts from the CSCE par¬ on the environment; and assessing the pean countries. OECD governments are ticipating states and OECD member world-wide economic cost of alternative willing to support this process, the suc¬ states to promote the process of strategies for greenhouse gas abatement. cess of which will depend ultimately on economic reform. The Ministers confirm Ministers expect this work to identify the efforts made by these countries them¬ the Organisation's decision to take full ac¬ new significant policy initiatives. They wel¬ selves. The OECD has an important role count of the Bonn Conference's invitation come the convening of an OECD Environ¬ to play in this respect, and is prepared to in the implementation of the Work Pro¬ ment Ministers meeting next January, and develop further its co-operation with these gramme of the OECD's Centre for Co-oper¬ its theme of 'Integration of Environmental countries as they frame their policies dur¬ ation with European Economies in Transi¬ and Economic Decision-making'. This ing the period of transition to a market tion, and note with approval that several should provide a comprehensive, high economy, and seek to integrate them¬ conferences, seminars and meetings of level assessment of OECD's role, ac¬ selves into the international economic experts are planned for the months ahead. tivities and next steps in the environmen¬ system. Ministers agree that improved ac¬ They ask for a report to the 1 991 Ministerial tal field and give policy guidance to gov¬ cess to OECD markets is essential as Meeting on the Organisation's activities ernments. Ministers intend to build on the these countries implement both internal relating to central and eastern Europe. results of both the Environment Ministers' market reforms and trade policies in line meeting and the work of the Organisation with the multilateral rules of the game. Environment to draw conclusions at their meeting in Ministers expect the evolving OECD 1991 about economic and environmental programme of activities relating to central Improving environmental conditions policy integration. and eastern European countries to draw and promoting sustainable development Ministers, particularly concerned about on the Organisation's principal strengths have become increasingly fundamental possible global climate change, strongly in economic analysis - in particular in the objectives. Environmental and economic support the work of the Intergovernmental field of structural policies - and in policy considerations need to be integrated in Panel on Climate Change, and underline dialogue. These activities, which will be the decisions of all segments of society - the importance of the Second World Cli¬ given impetus by the recently established governments, industry and individuals. mate Conference in Geneva in November. Center for Co-operation with European Many of the problems are of a transbor¬ They stress the importance of continued Economies in Transition, will include the der, or even a global, nature, requiring that work of the OECD in collaboration with the monitoring and assessment of the eco¬ all countries co-operate in solving these International Energy Agency on the eco¬ nomic and social effects of the transition issues. Member countries fully recognise nomic aspects of policy options in respect process in those countries. They will be their special responsibility in the interna¬ of climate change. In this connection, implemented in close co-operation with tional effort to seek solutions to global en¬ Ministers invite the Secretary-General to other international organisations active in vironment problems. Other countries, in¬ present to next year's meetings of the the field, including the IMF, the World cluding those of central and eastern Council and the Environment Committee Bank, and the ECE, and with the Commis¬ Europe, as well as of the developing at Ministerial level a report on the status of sion of the European Communities. Minis¬ world, seem increasingly ready to play an OECD and other international organisa¬ ters expect this programme to benefit, as active role. The recent Bergen Conference tions' work in this field, including propo¬ it already has, from input from the partner on regional follow-up to the Report of the sals for future OECD activities, and a pre¬ countries themselves, and thereby to be World Commission on Environment and liminary assessment of different types of responsive to perceived needs, not least Development has provided new momen¬ economic instruments and of guidelines in the environmental field, and to be flex¬ tum and direction for international environ¬ for their use. ible so that it can be adapted to cir mental co-operation. 31 May 1990 OECD Economic Outlook
Highlights
The Policy Challenges Ahead
The flow of economic data since late last year has generally The striking political changes in central and eastern Europe confirmed an easing of growth in the OECD area, to a pace of raise questions of how economies that were previously centrally about 3%. Inflation, on average, slowed somewhat in the second planned can best manage the transition to a market economy - half of last year, but was higher in a number of countries early and how OECD countries can best support this process. And in 1990. Allowing for temporary factors, prices are rising at an developments in these economies could begin to affect macro- annual rate of about 4% for the OECD as a whole. The current- economic trends in OECD countries. Indeed, some part of the account imbalances of the United States, Japan and Germany substantial increase of long-term interest rates over the winter shrank more than generally expected in late 1989. OECD project¬ may reflect expectations of significant additional claims on world ions for the next 1 8 months are for growth in the area averaging saving arising from changes in central and eastern Europe, and 3%, with virtually no change in the average inflation rate, only most immediately, from German monetary and economic union. limited further adjustment of external imbalances, and un¬ This has given a further edge to the question of whether saving employment remaining at about 61/2%.1 rates in OECD countries are adequate. Developments in financial markets over the winter months Recent developments have re-affirmed rather than altered the contrasted with the reasonably steady course of both economic requirements of economic policy. Achieving sustained growth of activity and inflation. Long-term interest rates have risen sharply. output and employment in the 1990s depends on: durably low Exchange rates moved widely - some in a direction favourable inflation; a stable economic environment; and attention to a to external adjustment (as with the appreciation of the DM broad range of economic policies that influence the level of against the dollar in late 1 989) and some not (as with the depre¬ investment, its productivity, and the efficient use of resources ciation of the yen through 1989 and into 1990). Japanese equity more generally. These latter include policies that affect saving; prices declined markedly from record figures. And new credit the volume and composition of public expenditure; structural problems have been exposed in North American junk bond and reform in markets for tradable goods; and pressures on environ¬ real estate lending markets. On balance, these financial-market mental resources. developments are not expected to affect economic develop¬ ments significantly; but they do raise policy issues, which are reviewed below. 1. OECD Economic Outlook, No. 45, OECD Publications, Paris, 1990.
Containing The extent of inflationary pressures the pace to which it had slowed by the suggests that OECD economies are end of the 1970s. Inflation operating at levels of aggregate demand This situation requires a careful balance Monetary policies have been restrictive very near to, and in some countries above, in the setting of monetary policy. There is for some time in most OECD countries so their current potential output. This applies little to suggest that a sharp further tight¬ as to counter actual or anticipated inflation¬ even to those economies where unem¬ ening of monetary conditions is required, ary pressures. Average inflation is pro¬ ployment remains high. Unemployment which could trigger an unwelcome slow¬ jected to crest this year after a few years today is largely a structural problem call¬ down in activity. On the other hand, most of slow upward drift. But there has been ing for structural policy responses. There economies are some way from price sta¬ no clear turnaround yet in those countries is virtually no scope for a more rapid, sus¬ bility. Maintaining the credibility of anti- where demand pressures have been tained expansion of demand unless the inflationary monetary policies means greatest. And some slippage can be seen supply potential of economies can be im¬ keeping monetary conditions restrictive over the past year in countries that had proved, especially as underlying product¬ until there are clear signs that demand achieved low inflation. ivity growth has not picked up much from pressures are subsiding and that inflation- ECONOMIC OUTLOOK
any expectations are receding. One con¬ Table 1 cern which arose from market-led increases GROWTH OF REAL GNP/GDP IN THE OECD AREA1 in long-term interest rates during the winter is that they were signalling faltering seasonally adjusted at annual rates ( %)
market confidence in the commitment of Share in change from oreviousyear change from previous half-year monetary authorities to achieving price total OECD 1989 1990 1991 stability over the medium-term. This is a 1988 1989 1990 1991 1987 II I II I II reminder that policy credibility is fragile; United States 36.0 4.4 3.0 2.3 2.5 2.4 2.1 2.5 2.5 2.4 monetary vigilance has to be maintained. Fiscal policy could be more supportive Japan 19.0 5.7 4.9 4.7 4.0 5.9 4.4 3.9 4.0 4.0 of monetary policy in keeping demand Germany 8.9 3.6 4.0 3.9 3.4 0.9 5.5 3.7 3.4 3.1 pressure under control, not by fine-tuning France 7.0 3.8 3.7 3.1 2.9 2.5 3.4 3.1 2.8 2.8
budgets to fluctuations in short-term Italy 6.0 4.2 3.2 3.1 3.2 2.5 3.3 3.1 3.2 3.1
prospects, but by more assiduous pursuit United Kingdom 5.4 4.5 2.3 0.9 1.9 2.4 0 1.5 2.0 2.1 of medium-term budget objectives in Canada 3.3 5.0 2.9 2.0 2.6 2.2 1.9 1.8 2.7 3.0 countries where significant deficits per¬ Total of above countries 85.8 4.6 3.5 3.0 3.0 3.0 3.0 3.0 3.0 2.9 sist. This would moderate upward press¬ Other OECD countries2 14.2 3.4 3.8 2.5 2.7 2.8 2.4 2.6 2.7 2.8 ures on interest rates generally, across Total OECD 100.00 4.4 3.6 2.9 2.9 3.0 2.9 2.9 2.9 2.9 closely integrated financial markets. It may also be appropriate to set more am¬ Four major European countries 27,4 4.0 3.4 2.9 2.9 2.0 3.4 3.0 2.9 2.8 bitious medium-term budgetary object¬ OECD Europe 39.8 3.8 3.5 2.9 2.8 2.2 3.3 2.9 2.8 2.8 ives in countries where budgets are in EEC 34.3 3.9 3.5 3.0 3.0 2.2 3.4 3.0 3.0 2.9
good shape, given the persistent strength Total OECD less of domestic demand and consequent the United States 64.0 4.4 3.9 3.3 3.2 3.3 3.4 3.1 3.2 3.2
pressures on interest rates. The desirabil¬ Industrial Production:
ity of shifting somewhat the burden of re¬ Major seven countries - 6.4 4.1 2.3 3.1 2.3 2.0 3.0 3.0 3.1
straining inflation from monetary policy to Total OECD - 6.1 4.0 2.4 3.1 2.4 2.2 3.0 3.0 3.1 fiscal policy can also be seen in terms of Share in enhancing national saving flows. to some extent by lower private saving, total % change from previous year but experience suggests that such offsets OECO 1988 1989 1990 1991 Saving would be far from complete. 1987 More In seeking to improve public-sector Austria 0.9 4.2 3.8 3.4 2.9 financial balances, restraining public ex¬ Belgium 1.1 4.3 4.2 3.3 2.7 Denmark 0.8 -0.2 1.1 1.1 2.0 The adequacy of saving is of growing penditure is likely to become increasingly Finland 0.7 5.2 5.0 1.7 1.1 concern against a background of persist¬ important - but also increasingly difficult. Greece 0.4 3.9 2.9 1.4 2.1 ently high interest rates, continuing slow Relaxation of East-West tensions may Iceland 0 -0.9 -3.8 0.1 productivity growth and capacity tight¬ allow some scaling back of defence ex¬ Ireland 0.2 1.2 4.0 3.8 3.7 ness. Total saving in the OECD has risen penditure, but sources of increasing press¬ Luxembourg 0 4.3 3.5 3.4 3.0 somewhat as a share of GNP over the last ure on public expenditure can be clearly Netherlands 1.7 3.0 4.3 3.3 3.1 few years, but remains well below its seen. Aging populations will raise pension Norway 0.7 0.9 5.0 2.7 3.9 share in the 1960s and '70s. For some payments and the overall costs of health Portugal 0.3 3.9 5.4 4.0 4.0 countries, large current-account deficits care, which are in any case on a rising Spain 2.3 5.2 4.9 4.2 3.8 are a further indication of inadequate trend. Containing or preventing damage Sweden 1.3 2.3 2.1 0.7 0.1 national saving. The scope for high rates to the environment in the future does not Switzerland 1.4 3.0 3.3 2.6 2.4 of investment in a reformed central and have to be a burden on the public sector Turkey 0.5 3.7 1.7 4.2 4.3 eastern Europe will intensify competition insofar as the costs are borne by the pri¬ Total of above for savings. New investment opportunities vate sector under the 'polluter pays' and countries 12.4 3.4 3.7 2.8 2.7 will also arise in developing countries that related principles, although the task of Australia 1.6 3.6 4.9 0.3 2.8
pursue sound financial policies and mar¬ cleaning up past environmental damage New Zealand 0.3 1.7 0.7 2.0 2.9 ket-oriented development strategies. All may fall heavily on to the public sector. Total of above this suggests that increasing saving The fiscal consolidation of recent years 17 countries 14.2 3.4 3.8 2.5 2.7 should be a policy concern in most coun¬ has often followed the line of least resist¬ /. Aggregates were computed on the basis of 1987 GNP/GDP weights expressed in 1987 US dollars. tries. ance, involving a shift in public expendi¬ 2. Halt-yearly data must be interpreted with care. The most direct contribution that gov¬ ture away from maintenance and invest¬ ernments can make to boosting national ment; neglected infrastructure requires disincentives to private saving by shifting saving available for productive investment urgent attention in some countries. the weight of taxation away from saving is to improve public-sector financial bal¬ A second line of attack on the problem and towards consumption. Relying more ances. Higher public saving may be offset of inadequate global saving is to reduce on sales or value-added taxes is one way ECONOMIC OUTLOOK
Table 2 term objective of price stability. A steady monetary policy is needed to anchor PRIVATE CONSUMPTION DEFLATORS IN THE OECD AREA1 expectations and confidence, especially percentage changes; seasonally adjusted at annual rates given that expectations, always important 1989 1990 1991 1988 1989 1990 1991 in financial markets, are now playing an II I II I II even larger role as a consequence of the United States 3.9 4.4 4.8 4.6 3.4 5.6 4.5 4.6 4.6 easing of regulatory and liquidity con¬ Japan -0.1 1.7 2.8 2.5 2.2 3.0 2.9 2.5 2.4 straints over the past decade or so.
Germany 1.2 3.1 2.6 3.3 1.5 2.6 3.6 3.2 3.2 The appropriate course of monetary
France 2.7 3.3 3.0 2.8 3.4 2.9 2.8 2.8 2.8 policy action becomes more difficult to
Italy 5.3 6.0 6.1 5.6 5.7 6.4 5.9 5.6 5.2 assess when very large exchange-rate movements between major currencies United Kingdom 4.8 5.5 4.5 5.3 6.6 3.9 3.8 5.8 5.6 threaten medium-term external adjust¬ Canada 3.7 4.6 4.4 5.2 4.7 4.4 4.1 6.5 3.8 ment, as was the case when the yen pro¬ Total of above countries 2.8 3.8 4.0 4.0 3.4 4.4 4.0 4.0 3.9 gressively weakened through 1989 and into Other OECD countries2 6.6 7.7 8.0 7.2 8.0 8.2 7.8 7.3 6.7 1990. In this recent episode, co-ordinated Total OECD 3.3 4.3 4.6 4.4 4.0 4.9 4.5 4.5 4.3 exchange-market intervention was useful
Four major European countries 3.2 4.3 3.8 4.1 3.9 3.8 3.9 4.1 4.0 at times, but its limitations were once
OECD Europe 4.3 5.4 5.2 5.1 5.2 5.2 5.2 5.2 4.9 again evident. More fundamentally, mone¬
EEC 3.3 4.4 4.2 4.3 4.3 4.1 4.2 4.4 4.2 tary-policy adjustments in line with
Total OECD less the United States 3.0 4.3 4.5 4.4 4.3 4.6 4.5 4.5 4.1 domestic requirements also helped to keep momentum from building up. The
1989 1990 1991 yen nevertheless weakened to levels
Austria 2.6 3.2 3.6 most important in countries that have which, if they had been sustained, might Belgium 3.1 3.1 3.3 large budget deficits or large current-ac¬ well have resulted in competitiveness dis¬ Denmark 5.0 2.8 3.0 count deficits, and especially in those that parities that would reverse the structural Finland 5.5 6.5 5.3 have both. adjustment processes now in train. Greece 15.6 20.5 19,0 Should these levels be approached again, Financial Market Iceland 21.1 14.1 some shading of monetary policies in the Ireland 4.0 3.0 3.1 Disturbances United States and Japan could be war¬ Luxembourg 3.4 3.1 3.3 Disturbances in several key sectors of ranted. But such a course would carry Netherlands 1.1 2.4 2.7 stock, bond and exchange markets raised risks, and would be durably effective only Norway 4.4 4.7 4.7 questions of whether, how and when if pursued in conjunction with policies that Portugal 12.7 12.0 11.0 underpin sustainable medium-term trends monetary policy should react to such dis¬ Spain 6.6 6.8 6.4 in the two economies, notably more resol¬ turbances. These questions remain perti¬ Sweden 6.5 10.6 9.3 ute budget-deficit reduction in the United nent even though long-term interest rates Switzerland 3.6 4.5 3.5 have recently softened a bit, and the yen States and continuing structural adjust¬ Turkey 71.8 62.0 51.9 ment in Japan. and the Tokyo stock market have turned Total of above countries 7.9 8.2 7.4 around. Australia 6.7 6.8 6.3 Central and Eastern Is it necessary or wise to protect the real New Zealand 5.7 5.1 3.8 Europe Total of above economy from financial disturbances? In 17 countries 7.7 8.0 7.2 recent years, economies have proved The integration of the economies of t. Aggregates were computed on the basis ot 1987 GNP/GDP weights robust and resilient in the face of the central and eastern Europe into the global expressed in 1987 US dollars. paper-wealth losses and financial turbu¬ 2. Half-yearly data must be interpreted with care. economy holds out the promise of very lence. In any case, attempts to forestall substantial benefits over the medium to such losses are unlikely to be successful longer term, both to these countries and to do this; modifying the structure of in¬ over the medium term. When financial- world-wide. How far this promise is come taxation is another. There may also market adjustments occur on a systemic realised will depend on: be a case for schemes which strengthen scale, it may be important to provide tem¬ how fully the legal and other institu¬ the inducements to particular forms of porary liquidity support to the economy - tional foundations of a market economy saving, but they could introduce addi¬ as it was after the 1987 stock-market are put in place tional distortions. If they mainly divert sav¬ crisis. But fine tuning of liquidity to volatile how completely current rigidities and ings from one form to another, they could financial-market adjustments would add distortions, in particular subsidies and cost more in budgetary terms than they to financial and economic uncertainty. other factors that prevent price signals contribute to net private saving. Concern about financial-market effects on from working, are dismantled The desirability of stronger global sav¬ the real economy has to reach very high whether public finances are put on a ing flows may argue for policies to boost levels before it would seem warranted to sound footing saving in all countries. But policy action is divert monetary policy from its medium- whether these societies persevere with ECONOMIC OUTLOOK
agreement about the broad magnitude of Table 3 possible short-term increases of GDR net UNEMPLOYMENT IN THE OECD AREA demand for goods and services from the national definitions Federal Republic and other OECD coun¬
1989 1990 199 tries; the projections here embody an 1988 1989 1990 1991 II I II I II increase in GDR imports of DM 40 to Unemployment rates (%p 50 billion ($25 to 30 billion) at an annual
United States 5.5 5.3 5.3 5.4 5.3 5.3 5.4 5.4 5.5 rate by the second half of 1991.2 Developments in central and eastern Japan 2.5 2.3 2.2 2.3 2.2 2.2 2.3 2.3 2.3 Europe, and policy issues arising from Germany 6.1 5.5 6.1 5.9 5.5 6.0 6.2 6.1 5.7 them, must be allowed neither to hold up France 10.0 9.5 9.3 9.2 9.5 9.4 9.3 9.2 9.2 progress on dealing with problems within 12.1 12.1 12.2 12.3 12.0 12.2 12.3 12.3 12.3 Italy the OECD area nor to slow widening inter¬ 5.8 6.0 6.2 6.4 6.5 United Kingdom 8.2 6.2 6.1 6.5 action between the OECD and other non-
Canada 7.8 7.5 7.7 8.2 7.5 7.6 7.9 8.1 8.3 OECD economies.
Total of above countries 6.2 5.7 5.8 5.9 5.7 5.8 5.8 5.9 5.9 Moving Ahead Other OECD countries 9.4 8.9 8.8 8.8 8.8 8.8 8.8 8.8 8.7 with Structural Reforms Total OECD 6.9 6.4 6.4 6.5 6.3 6.4 6.5 6.5 6.5
Four major European countries 8.9 8.1 8.2 8.2 7.9 8.1 8.3 8.2 8.2 OECD countries have continued to in¬
OECD Europe 9.2 8.6 8.6 8.5 8.4 8.5 8.6 8.6 8.5 crease the flexibility of their economies,
EEC 9.9 9.0 8.9 8.8 8.9 8.9 9.0 8.9 8.8 though progress has been uneven across countries and especially across policy Total OECD less the United States 7.5 6.9 6.9 7.0 6.8 6.9 7.0 7.0 7.0 areas.3 In some areas - notably financial Unemployment (millions) markets and also foreign direct invest¬ North America 7.7 7.5 7.7 8.0 7.6 7.7 7.8 8.0 8.1 ment, taxation, competition and regulat¬ 15.3 15.4 15.5 15.1 15.3 15.5 15.5 15.5 OECD Europe 16.4 ory policies - progress has been continuing Total OECD 26.3 24.9 25.3 25.8 24.7 25.1 25.5 25.7 25.8 and substantial, spurred by strong inter¬ national policy interlinkage. There has also % 1988 1989 1990 1991 developing countries are relevant. The key been visible progress in improving the ef¬ Austria 3.6 3.4 3.2 3.2 to successful development is not primarily ficiency and management of the public Belgium 10.3 9.3 8.7 8.3 finance from abroad, although this can sector and in making labour markets more Denmark 8.6 9.3 9.3 9.0 help if a climate attractive to investment is responsive, including through increased Finland 4.6 3.5 3.8 4.5 established. Rather, it involves: attention to education and training. In Greece 7.7 7.5 7.9 8.2 both areas, nonetheless, there is substan¬ Iceland 0.6 1.7 2.3 gaining political acceptance for market- tial scope for further action. Ireland 16.7 15.5 14.9 14.6 oriented structural changes, which will involve short-term costs for some groups On the other hand, trade, agriculture Luxembourg 1.4 1.3 1.3 1.3 and industrial-support policies are areas Netherlands 8.3 7.4 6.8 6.4 having and exploiting opportunities to in which progress in structural reform has Norway 3.2 5.0 5.0 4.9 expand exports been disappointing and serious interfer¬ Portugal 5.8 5.3 5.3 5.3 allowing open import regimes to exert ence continues with the price signals re¬ Spain 19.5 17.3 16.1 15.2 competitive pressures and provide price quired for smoothly functioning markets. Sweden 1.6 1.4 1.6 2.0 signals essential for structural change. The open multilateral trading system is Switzerland 0.7 0.6 0.6 0.6 Given the scale of economic restructur¬ under threat from a wide range of opaque, Turkey 9.8 10.4 10.9 11.2 ing and public-sector consolidation re¬ non-tariff restrictions. Agricultural policies - Total of above countries 9.7 9.3 9.1 9.0 quired in central and eastern Europe, the both domestic supports and border Australia 7.1 6.1 6.9 7.2 near-term macro-economic impact on the measures which interfere with the working New Zealand 6.0 7.2 7.2 7.2 rest of the world from developments in Total of above most of these countries is likely to build of market forces - are very costly. Last 9.4 8.9 8.8 8.8 17 countries only slowly. A demand impetus is likely to year they involved transfers from OECD /. As percentage of labour force. be felt more rapidly from the economy of governments and consumers estimated at what is now the German Democratic Re¬ $245 billion. The inefficiencies introduced economic reform when moves to more public (GDR). German monetary union is by agriculture policies have reduced OECD output by over $70 billion in recent flexible, more dynamic economies initially taking place on 2 July, backed up by rapid involve the displacement of workers and steps toward broader economic and so¬ 2. See OECD Economic Surveys: Germany, OECD threaten vested interests cial integration. Publications, Paris, 1990, and 'Spotlight on Germany', The OECD Observer, No. 165, August/September whether OECD countries respond by There is considerable uncertainty about 1990. opening their markets fully to exports from the current state of the GDR economy and 3. A special separate supplement to OECD central and eastern Europe. about the way it will respond over the Economic Outlook No. 45 reviews recent progress in Some lessons from the heavily-indebted medium term. Nonetheless, there is some structural reform in both of these dimensions. ECONOMIC OUTLOOK
portant to ensure that objectives are set in Table 4 the light of economic criteria, and are pur¬ CURRENT BALANCES OF OECD COUNTRIES sued in least-cost ways. $ billion; seasonally adjusted at annual rates The policy response to environmental
1989 1990 1991 problems has typically been to impose di¬ 1988 1989 1990 1991 II I II I II rect regulation. This approach may be United States -125.6 -103.7 -100 -97 -101.0 -101 -98 -98 -96 best in some circumstances, for example
Japan 79.6 57.2 49 59 50.2 48 49 55 64 when the pollution is localised and arises
Germany 48.5 52.7 63 62 48.9 62 64 63 61 from very few sources. But, in general, the costs associated with the 'command and France -3.4 -3.6 -2 -3 -6.8 -3 -2 -3 -4 control' approach to environmental pro¬ Italy -6.0 -11.6 -9 -10 -10.7 -8 -9 -9 -11 tection are hidden, and often very high. United Kingdom -26.6 -34.0 -29 -23 -36.3 -31 -27 -23 -23 Economic instruments, such as charges Canada -8.4 -16.6 -20 -23 -18.2 -19 -21 -23 -23 on pollution, offer more efficient and Total of above countries -41.7 -59.7 -48 -35 -73.8 -52 -44 -38 -32 hence lower-cost solutions by providing Other OECD countries -7.9 -24.7 -29 -32 -26.0 -28 -30 -31 -33 the right signals and incentives to firms
Total OECD -49.7 -84.4 -77 -67 -99.8 -80 -74 -69 -65 and households. OECD economies are
Four major European countries 12.6 3.5 24 26 -4.8 21 27 28 24 beginning to experiment more with instru¬
OECD Europe 15.3 -3.7 10 8 -13.7 9 12 11 5 ments based on market principles of re¬ source allocation; this approach should EEC 14.7 -0.9 15 14 -10.4 13 18 17 12 be pushed ahead vigorously.5 Total OECD less the United States 75.9 19.3 23 30 1.1 21 24 29 31 Concerns about possible long-term cli¬
1988 1989 1990 1991 mate changes that could result from a Uruguay Round to extend these results. build-up of greenhouse gases in the Austria -0.3 0 0.2 -0.3 These sentiments are widely endorsed in atmosphere call for a co-operative inter¬ Belgium-Luxembourg 3.5 3.8 4.6 3.7 official statements; the challenge now is to Denmark -1.8 -1.4 -1.6 -1.7 national approach to assessing risks and translate them into co-operative action. Finland -3.0 -4.9 -6.4 -6.5 developing a response strategy. Little is More generally, an overall economic cli¬ Greece -1.0 -2.6 -3.6 -3.4 yet known about the costs or the benefits mate conducive to sustained, efficient and Iceland -0.2 -0.1 -0.1 -0.1 of moves to reduce greenhouse gas emis¬
Ireland 0.7 0.5 0.3 0.2 profitable investment and to structural sions. In the near term, it is especially
Netherlands 5.4 6.9 7.8 8.8 flexibility requires strong competition, important to identify actions that not only
Norway -3.7 0.2 1.6 3.2 operating in response to market-deter¬ reduce such emissions but that are also Portugal -1.1 -0.6 -1.1 -1.4 mined price signals. Past reductions in beneficial in other respects. Beyond this, Spain -3.7 -11.0 -14.7 -17.6 barriers to trade have enhanced competi¬ great uncertainty attaches to the implica¬ Sweden -2.2 -5.0 -7.7 -11.1 tion, and this is one reason to push ahead tions of major steps and it is important to Switzerland 8.4 6.0 7.0 8.0 in reducing them further. There are none¬ avoid costly mistakes. Economic analysis Turkey 1.6 1.0 0.3 0.5 theless sectors that will remain isolated is an essential tool to sharpen estimates of Total of above countries 2.7 -7.1 -13.2 -17.7 from the pressures of international com¬ the costs of alternative responses and of Australia -9.9 -15.7 -14.3 -12.8 petition, and there may be a few where an the trade-offs involved, and to provide New Zealand -0.7 -1.8 -1.8 -1.4 undue concentration of global market some guidance as to how best to take ac¬ Total of above power could emerge, particularly if official count of uncertainty. These issues are 17 countries -7.9 -24.7 -29.3 -32.0 encouragement is given to mergers and being looked at with increasing urgency in joint action. Enlarged scope for contesting national and international agencies, in¬ years.4 The harmful effects of present in¬ these markets might alleviate concerns in cluding the OECD. This work should con¬ dustrial subsidies - and not least those this respect; competition policy must none¬ tribute to the identification of sound policy which distort trade flows - may be more theless stand ready to check tendencies approaches to deal with concerns about difficult to quantify, but all indications are towards abuse of dominant market posi¬ climate change in the years to come. tions. that they are significant. 8 June 1990 The Uruguay Round offers the opportu¬ Environmental nity to make real progress on all three Concerns fronts. Failure to achieve clear success 4. See Gérard Viatte and Frédéric Langer, 'Agricultural would have adverse consequences for Environmental issues are receiving in¬ Reform: A Hesitant Start', The OECD Observer, No. 165, August/September 1990; Agricultural Poli¬ economic performance over the 1990s. creasing attention. Some, such as climate cies, Markets and Trade: Monitoring and Outlook Governments must address these admit¬ change, have potential economic implica¬ 1990, OECD Publications, Paris, 1990; OECD tedly complex, and often politically diffi¬ tions on a much larger scale than the Economic Studies, No. 13, Winter 1989-1990, OECD Publications, Paris, 1990. cult issues of the Round with sufficient adjustments undertaken to date in 5. See Jean-Philippe Barde, 'The Economic Approach vigour and commitment to achieve re¬ response to environmental problems. In to the Environment', The OECD Observer, No. 158, sults; and they must continue beyond the dealing with such problems it will be im June/July 1989.