EU Presidency Statement - Commodities and external debt

Mr. Chairman,

I have the honour to take the floor on behalf of the European Union. The countries of Central and Eastern Europe associated with the European Union (Bulgaria, Estonia, Hungary, Latvia, Lithuania, Poland, the Czech Republic, Romania, Slovakia and Slovenia) and the other associated countries (Cyprus, Malta and Turkey) as well as Iceland align themselves with this statement.

Mr President,

With regard to item 92(b) on commodities, the Secretary General's report draws a very bleak picture of the situation. Long- running trends do seem to be snowballing: the diminishing importance of commodities in world trade, the declining share of developing countries, particularly in Africa, in commodities exports, falling prices for most commodities without a matching drop in consumer prices, and so on. In addition, the recent sharp rise in the price of crude oil has negative effects on the balance of payments of many LDCs and other developing countries.

The European Union is seriously concerned about the impact of this situation on the economies of developing countries, in particular the least- developed countries. It believes that it is only through determined efforts to diversify exports and process commodities locally that producing countries will be able to reap the full benefits of the multilateral trade system and check fluctuations in their export earnings. The European Union is aware, however, that this development will take time, that it will only be effective if market access for these products is guaranteed, and that it will require significant financial and technical assistance. This is why the Cotonou Agreement concluded this year with the ACP countries provides for a special account to be set up for the compensation of losses in export earnings from agricultural products and minerals.

The European Union also regrets the recent failure of certain international commodities agreements in which it actively took part. It is forced to acknowledge the inefficiency of agreements with economic clauses intended to stabilise commodities prices, as witnessed by the decision to liquidate the International Natural Rubber Organisation. It nonetheless continues to think, as does the Secretary- General, that commodity organisations bringing together producers and consumers still have a practical value.

Mr President,

I would now like to move on to item 92(c) on external debt. The European Union recognises that to a certain extent the burden of debt- servicing is an important obstacle among others to action by the poorest developing countries to eradicate poverty. The substantial reduction in debt servicing allowed by the HIPC initiative will thus release significant resources to tackle poverty effectively.

This is why the European Union supports the debt cancellation measures for heavily- indebted poor countries decided on under the enhanced HIPC initiative, which aims to cut their debts to a sustainable level. As stressed during the general discussion, the European Union sees this initiative as an essential ingredient in the fight against poverty and for achieving the sustainable development objectives of the developing countries. Accelerated implementation of the initiative should enable the beneficiary countries not only to mobilise resources for reducing poverty, especially by allocating them to social sectors such as education and health, but also to promote the participation of civil society and human development.

Nevertheless, the European Union is not convinced by calls for total debt cancellation, in particular of multilateral debt, or for the lifting of conditions imposed by the HIPC procedure. Above and beyond the difficulties in financing such a step, total cancellation of debts held by bilateral donors and international financial institutions for developing countries would destroy the trust which is at the heart of lender- borrower relations, and would have the effect of depriving recipient countries of the future funding they will need to ensure their development. Furthermore, the conditions attached to the HIPC procedure make sure that the amounts released by debt cancellations will definitely be invested in development. Without a strict economic policy, a climate of trust with international financial institutions and sustained support from donors, developing countries will not escape from the cycle of over- indebtedness, despite benefiting from a total cancellation of their debt.

The European Union is mindful of the difficulties in implementing the HIPC initiative in countries emerging from conflicts or still in their grip. It is pleased to note that at the Prague meetings, the IMF and the World Bank agreed to integrate their work in conflict countries. The Union is aware that time is needed in order to establish an anti- poverty strategy and policy, based on genuine "ownership" by the governments of beneficiary countries and on a close dialogue with civil society. But it believes that a quality objective is not incompatible with a swift implementation of debt cancellation.

The European Union calls on eligible countries to take the necessary political and economic measures to begin this process. The Union also urges those creditor countries which have not yet done so to contribute to the financing of the enhanced HIPC initiative in order to share the burden fairly, recalling that, even though it only represents less than a third of world GDP, it has contributed 58% of payments to the HIPC financial funds. The European Union will ensure that the finance allocated to the initiative is not allocated at the expense of other official development assistance channels, and reaffirms its commitment to reaching the goal of 0,7% of GDP for official development assistance as soon as possible.

The European Union is aware that the difficulties experienced by low- income and medium- income countries which are not eligible for the HIPC initiative may call for measures at national and international level. The European Union is willing to examine any specific situation in the appropriate fora, in particular the Paris Club, provided that such examination is warranted by the finding, under an IMF programme, that there is a need for funding in the countries in question. The Union also considers positively the introduction of Poverty Reduction Strategy Papers (PRSP) in middle- income countries, since poverty still represents a serious concern in many of these countries.

Thank you, Mr President.

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