How the North Marginalized the South in the History of UN and Trade

How the North  Marginalized the South  in the History of UN and Trade

 

Monetary and Financial Issues in UNCTAD under Gamani Corea, by Dr. Michael Sakbani* 

 

Speech on  Gamani Corea , by Chakravarti Raghavan**                     

 

Gamani Corea (4 November 1925 – 3 November 2013) came of age as an economist at the time when the International economic system, as we know it, was established. It was clear to him and his generation of economists, hailing from the South, that the Bretton Wood Conference produced institutions with incomplete mandates designed with no reference to development problems. Corea, I.G. Patel, Manmuhan Singh, Amartya Singh, and Mahbubul Haq wrote and spoke about the shortcomings of the system throughout their careers.

 

In order to understand their stands, a little history might be in order.

 

In Bretton woods Conference, the first Committee of the Conference produced the IMF agreement which set forth the present-day International Monetary System (IMS) The Central Institution, the IMF, had decision making and qualified majorities all based on the size of a member quota. Thus, Sovereign political decisions of the main members dominated its work.

 

The prevailing IMS did not have a true international reserve system; the IMF cannot increase or decrease international liquidity. Rather, it has a pool of contributions whose size and deployment are subject to the sovereign decision of the big quota members.  In effect, this implies that it had no mandate to decide the pattern of international adjustment of the world economy and to finance it.

 

The exchange rate system was a hybrid based on the US dollar which in turn was based on gold as long as the US accepted this link at the price it chose. In August, 1971, US Treasury Secretary John Connelly abandoned the agreed price and thus brought down the system. This dollar system was plagued from the start with the Triffin dilemma of uncertainty and credibility. It also had no relationship between

 

the exchange rate and a country’s  competitive position and this was particularly so for the surplus countries. The scarce currency clause did not amount in reality to an enforceable symmetry.

 

When the IMF adopted in the 1960`s its concept of adjustment through deflation rather than growth or financing, it overlooked the difference between a one country case and the case of many countries. This led to a fallacy of composition: what is valid for one country might not be so for many countries all at the same time. There is no analytic basis to accept that one size fits all. Thus, the conditionality that stemmed from all that was inappropriate in numerous cases. Furthermore, up to the 1980`s, the IMF considered itself a monetary institution which can only lend for short term, usually less than a year. As a political institution, the IMF help was in any event, subject to the sovereign decision of the big quota members rather than anything else.

 

The second Committee produced the IBRD, an official multilateral institution for reconstructing Europe and helping finance, under certain conditions, the infrastructural needs of the developing countries. There was nothing about private finance in its report, in particular capital markets.

 

The third Committee, the Trade Committee, failed to agree on establishing an international trade organization. It referred the matter to a meeting two years later in Havana, Cuba. When the Havana Charter was drafted, it annexed trade issues of importance to the developing countries: commodities, trade in agricultural goods, terms of trade, transnationals, transfer of technology and restrictive business practices. These and the development issues raised in chapter IV, were subjects unacceptable to the US Senate. The Havana Charter therefore fell by the side.

 

Realizing that an agreement was not at hand, the developed countries set up in 1949 the GATT in order to generalize the MFN clause and boil down the trade problems to those of access.

 

Corea`s career

 

Gamani Corea’s first intellectual work was his Ph.D. dissertation on the integrated commodity program, an international topic steered under the guiding hands of Ursula Hicks and the advice of Joan Robinson, two economists outside the main stream. This topic was to guide the interest of the man throughout his professional life.

 

Returning to Sri Lanka, he joined the Central Bank and stayed there for several years. In the early 1950`s, he joined the Planning Commission and in short time became its utive Secretary. Corea`s work in the planning commission, set the course of the Sri Lankan economy for years to come. Under Corea, the Plan, at the advice of I.G. Patel, Gunnar Myrdal, Nicholas Kaldor and Jan Tinbergen, used Keynesian models with a prominent state role within a market framework. This planning was not soviet type; it was dirigisme with limits akin to French indicative planning. After a decade of such a work, he returned to the international scene by becoming Sri lanka`s ambassador to the European Community in Brussels.

 

Corea met in Cairo in 1962 Raul Prebisch, a prominent Latin American economist, who, despite his conservative central banking background, was an internationalist with trade views favorable to development.

 

The two hit it right and complemented each other. Prebisch had three principal elemental planks: a trade system that grants the developing countries a favorable, non-reciprocal treatment, an integrated commodity program for commodity trade and external financial flows that solve the two gaps problem of developing countries the savings and Payments’ gaps. Corea whole heartedly subscribed to all three. His expertise in commodity issues and interest in money and finance had in fact enriched and added to Prebisch`s planks.

 

Prebisch, impressed by Corea`s elegant “anglophonie”, asked him to write the final conclusions of the Cairo Conference on convening a UN conference on trade and development. And he was to draft again at the request of Prebisch, the position of the Group of 77 in the G.A. regarding convening the Geneva Conference of 1964 to establish UNCTAD.

 

In 1966, Prebisch convened an expert group meeting, under Corea, to look into the financial and international monetary aspects of development. The report of this expert group on finance for development and the relationship between the IMS and development, were to guide UNCTAD`s work till the mid 1970`s. Two separate outcomes hail from the work of this group and similar other work in UNCTAD: the establishment of the CFF in the IMF and that of the Staback facility.

 

The thoughtful observations of the report on the prevailing IMS were very much in line with shortcomings outlined above. The report also broached the subject of creating an international currency and linking it to the financial needs of development.

 

After Prebisch, Manuel Pérez Guerrero pursued this work in UNCTAD with vigor and determination. Under the able leadership of Sidney Dell, assisted and later on continued by Gerry Arsenis, the division of Money and Finance of UNCTAD participated in the C.20 meetings on international monetary reform held in 1972- 1974. Among other things, UNCTAD articulated the SDR Link Proposal in its two versions. UNCTAD was also invited to participate in the IMF interim Committee and in the Development Committee as an observer, a short time later.

 

At this time, the Money and Finance Division of UNCTAD succeeded in developing a simple quantitative model for estimating the needed flows of external finance for achieving the UN target of development at 5% which was dubbed the Sidney Dell model. The model calculated the external financial needs of developing countries over and above their internal savings. To finance the requisite investments to fulfil the UN development target of 5 %, it asked for official development aid of 1 % of the GDP of developed countries.

 

After Corea succeeded Pérez- Guerrero as the SG of UNCTAD 1974, he collaborated with the UNDP in setting up in 1975 the G. 24 project. This project has backstopped the representation of the G.77 views in money and finance in Washington ever since.

 

The 1970`s were years of intense activity in UNCTAD and of significant international developments. The eruption of the oil crisis created major balance of payments problems for the oil importing developing countries. UNCTAD under Corea, had an influence in promoting the establishment of the oil facility in the IMF and in modifying the formula for calculating export short falls of developing countries in the CFF. In the same decade, under the impulse of the Non Aligned Movement and the President of Mexico, the UN G.A. adopted the charter of rights and duties in the New Economic Order (NEO). Corea was one of the early supporters. He tried, to the extent possible, to bring through UNCTAD elements of that into the intergovernmental dialogue.

 

The oil deficit was financed largely by borrowing from the international capital markets. The accumulation of private debt by developing countries presaged the development of the debt problem in 1982. Corea warned of this impending problem in his report to the Nairobi Conference in 1975.

 

After Nairobi, UNCTAD pursued this anticipation and Gerry Arsenis, succeeded in obtaining a TDB decision to set up in collaboration with the UNDP, a project to restructure and revise the terms and conditions of the official debts of developing countries. The gains for developing indebted countries were in excess of 6 billion.  Subsequently, UNCTAD enlarged this work and systematized it by establishing the Debt Advisory Services. Through this project, UNCTAD helped organize a data base for the countries involved and extended technical help to their Paris club negotiations (private debt) and those of the London Club (official).

 

The documentation to the Manila Conference had proposals on IMF conditionality on the terms and conditions of aid and other external financial flows, on debt and on international monetary reform. Except for the reform, progress was made on all these topics. As to reform, the developed countries raised the issue of the appropriate forum and did not enter into the matter.

 

After the Manila Conference of 1979, Corea established a division in UNCTAD for developing country cooperation. He envisaged such a cooperation to cover monetary and financial cooperation and trade cooperation. In trade, the Division was also to take up the evolution of the GSTP and service all the regional and sub-regional groupings. In the monetary area, the Division serviced the clearing and payments arrangements and their Multilateral Coordination Committee. This work continued after the departure of Corea and in 1990-1991 produced path breaking series of studies (four studies) on establishing an International Trade Financing Facility. Unfortunately, despite the technical and substantive merits of this work, the intergovernmental expert group convened in 1991 in UNCTAD did not reach agreement. The developed countries, acknowledging the merits of the studies, held that they would consider participation after this agency is established by the developing countries, while the developing countries wanted the developed countries to participate in the initial funding of the facility. Near the end of his term, Corea convinced OPEC countries to set up in UNCTAD a Fund for South- South cooperation.

 

Corea guided UNCTAD into exploring the interdependence of trade, money and finance. In the last Conference of UNCTAD under Corea held in Belgrade in 1983, there was a separate and independent agenda item” item 8”, for interdependence

In this regard, Gerry Arsenis in a characteristic inspired form, started in1981 the annual exercise of the Trade and Development Report. This report developed and pushed the boundaries of interdependence and provided intellectual underpinning of a right conception of the globalization of the world economy in the late eighties and the first half of the nineties. Numerous topics in money and finance found treatment in the various issues of the TDR. Under Shahen Abrahamian and later, Yilmaz Akyuz, Corea`s ideas on interdependence found their full expression.

 

Corea s interests in south-south cooperation came to dominate his work after his departure from UNCTAD. He was an active supporter of UNCTAD’s work in this domain like he was of the work of the South Center. He came to realize that the North South dialogue has reached its high water mark in the early years of the 1980`s.  After the Cancun Conference, Mrs. Thatcher and Mr. Reagan abandoned this dialogue and recast the development paradigm in terms of the Washington Consensus in which the problems of developing countries were considered as ones of mismanagement and inappropriate macroeconomic policies and later on, non - market oriented policies. The North South dialogue thereafter came to a halt. But Corea still remained a firm believer in the common interest of the North and the South and the possibilities of this cooperation. He held that this cooperation along with South - South cooperation are the two sides of the solution of development problems.

 

UNCTAD s achievements in its first 25 years were not negligible: the GSP, the Common Fund, the debt relief, The G.24 Project, the framework of the Code for the TNC s, the GSTP backstopping, the backstopping of ECDC, the indirect influence on the IMF facilities and conditionality and its own TDR and Least Developed Country Report. These are significant, but surely fall short of what was hoped. A fruitful productive dialogue requires two committed parties, which was not the case in the UNCTAD inter-governmental machinery on most issues. However, it cannot be argued that UNCTAD did not change the terms of the debate on development. UNCTAD s TDR has voiced out a unique tune in challenging the Neoliberal views of the Bretton Woods institutions and offered a valid consideration of the interdependence of money, finance and trade in the “problematique” of development.

 

Corea, the Man

 

Gamani Corea was a gentleman from the South. He combined in his personality the influence of his education in Oxbridge and his experience of the development challenge in his native Sri Lanka. He believed in the possibilities and power of diplomatic persuasion. He believed that market capitalism has limits and frequently suffers market failures. His advocacy of state role was not in any sense one of anti - market ideology; It was a realistic and pragmatic assessment of the conditions of developing countries.

 

Gamani Corea was a non- pretentious man capable of appreciating the conditions of the poor, despite his aristocratic and wealthy background. His humanism marked his work in development economics, the environment, South- South and north south cooperation. He was a man capable of establishing enduring friendships. He was also a man of sharp intellect and great dry wit. His shyness and polite demeanor masked tenacious and brave convictions. His refusal to accept organizational independence from the General Assembly for UNCTAD and his firm stand that while the Secretariat is neutral in respect of member states, it stands committed to development are cases in point. In the years I worked in his office and after that, I always enjoyed our forays into economics, politics, and many cultural issues. He was well read and soundly trained.

 

He visited Italy in his early career to ask for food aid. On observing his prosperous presence, an Italian counterpart remarked that looking at him one cannot believe that Sri Lankans have a food shortage. Corea flashed his usual smile and said “but I represent their aspirations.” After the Rio Conference on the environment, I saw him in Geneva. I asked him about his evaluation of the Conference. He smiled and said we succeeded in defining the zero. Many such sharp witticisms marked his encounters and conversations.

 

For us all, Gamani is no more, but his life journey left his imprints on UNCTAD, on his friends and on the institutions associated with him. In the short span of his life on earth, he enriched our lives. Blessed be his memory.

 

Geneva, 19/3/2014.

 

 

Speech on  Gamani Corea , by Chakravarti Raghavan

 

It is both an honour and a privilege to participate and speak at this event to tribute and honour  Gamani Corea, former Secretary-General of UNCTAD and former Chair of the South Centre, a world renowned political economist with a development vision, a humanist, and a friend.

 

I first met Corea either late in 1963 or early 1964 at the UN in New York. He was among a clutch of Second Committee delegates, sitting in a corner of the lounge on 2nd floor, conferring with the Under-Secretary General for Economic and Social Affairs, Philip de Seynes, and Dr. Raul Prebisch, named by U Thant to be the Secretary-General of the UN Conference on Trade and Development, convened to meet in Geneva in 1964. He was I think a delegate from Sri Lanka, but Prebisch had asked him to be a member of a group of experts to help prepare for the conference.

 

I really came to know Corea fairly well after I came to Geneva in 1978, to work at the International Foundation for Development Alternatives (IFDA) and with IPS Third World News Agency on an ‘Alternative Information Project’, to report from a Third World perspective on activities of UN agencies in Geneva in general, and in particular the trade and development scene - UNCTAD, GATT etc.

 

Soon after, in March 1978,  we met at his office, and discovered that though from different backgrounds, born and growing up, our lives and thinking had been shaped by national freedom struggles in our countries of South Asia under British colonial rule - Corea in what was then Ceylon (now Sri Lanka) and I in then Madras (now Chennai) in India.

 

UNCTAD at that time was at the centre of North-South dialogue and negotiations on a range of issues and subjects, like commodities, and what is now known as services - shipping, technology etc - as well as core issues of world economy including trade, money and finance. There were a large number of meetings on variegated issues, with meetings often running late into the night, especially on Fridays.

 

Corea invariably was at his desk on the 9th floor of the secretariat, and sometimes in the coffee lounge (what is now called ‘serpentine bar’), waiting for meetings to convene while regional groups conferred among themselves. As a journalist following these meetings I was there too, and soon we would spend time together - waiting around, in his office or at the lounge on the first floor - discussing UNCTAD matters and wider issues of international political economy but also touching on our own personal lives and background.

 

After coming out of high school in 1938, I spent two years at home, waiting to enter college: I was two years younger than the minimum entry age of 15 for University at that time. There were no distractions: no TV, no internet, and some short-wave radio. I had spent the two years at home - going through my father’s library, haphazardly – law books, religious and philosophical literature in Sanskrit and some in Tamil and English, English classic novels, Adam Smith, Marx, Gandhi, Nehru among others. After joining the profession too I had done some haphazard reading of politics and economics.

 

When I met Corea in 1978, and came to know him well, he took on hand the task of guiding me in some detailed reading and re-reading of economics literature - classical, neo-classical, marxian and development economics, and trade, money and finance - an almost one-to-one economics crash course (without having to do term papers!)

 

During his tenure at UNCTAD, and later when he retired and was staying not too far my home in Geneva, we used to meet at least once a week. We were of the same age group, he was a few months younger. So when we used to meet, I used to tease him that as one younger to me, according to our South Asian culture (which at least in our younger days, transcended religion, language and national boundaries), he had to bow and pay obeisance to me, but that he could not do so as he was my teacher. I, as a student, had to pay obeisance to him, but could not do so since he was younger to me. He would laugh and say, but we can have a drink together!

 

Much of what I say now on Gamani, his life and outlook, is drawn from his own narration. A number of close associates of his in UNCTAD are due to speak, and I shall leave it to them to speak on this, but touch upon other aspects of his life and work.

 

Gamani Corea was born into a renowned and affluent political family of Sri Lanka (his mother's brother, Sir John Kotlewala, was a Prime Minister of Ceylon), while his grandfather, Victor Corea, was a freedom fighter. He was an only child and the family on his mother's side was so affluent that no one in the family ever thought of guiding him into any particular educational discipline or a professional career. Everyone, on both sides of his family, were in politics and belonged to prominent political families of Ceylon/Sri Lanka, but Gamani was thought to be too shy and reserved for the rough and tumble of political life.

 

However, by himself, Gamani began taking an interest in the national politics of Ceylon (but not to plunge into politics); till the end, he had good relations with both the main political parties of Sri Lanka, and in terms of even national polity, both sides listened to him, but did not always follow his wise counsel.

 

When he learnt that a meeting with Gandhi in 1945, and spending 10 days with him in camp, had changed my outlook and brought me first into politics briefly, and then to journalism, he told me that in his student and younger days, he had been very much influenced by the freedom struggle under Gandhi and Nehru in neighbouring Colonial India. "I would get hold as a young man of every writing of Jawaharlal Nehru and read him avidly," he told me. "It gave me a perspective and impelled me to take interest in politics and development, that carried over into my post-university career in the Central Bank, and then United Nations and the development aspects there," he said.

 

After an educational career in Colombo and then Oxford and Cambridge (1945-52), Corea  came back to Colombo to enter government service in the economic departments of planning, as research director in the Central Bank, and in the government as Secretary of the Department of Planning, Governor of the Central Bank, and then in diplomatic service, as Ceylon's ambassador to the EEC in Brussels, and several UN positions, including as member of the UN Committee on Development Planning. Prebisch named him to a panel of experts preparing for UNCTAD-I, and later in the work of UNCTAD itself where, during the Prebisch era, he chaired a commodity conference on cocoa.

 

Prebisch too, in conversations with me in 1979 at UNCTAD-V, Manila, and again in 1983, at the G77 Ministerial meeting in Buenas Aires, thought very highly of Gamani.

 

Corea was appointed in 1973 as Secretary-General of UNCTAD for an initial three-year term, when the second S-G, Manuel Perez-Guerrero, resigned to become a Minister in Venezuela.

 

He assumed the post in April 1974, and was reappointed thrice, his last term ending in December 1984. He continued in the post at the request of then UN Secretary-General Javier Perez de Cuellar, and then was told (indirectly) that he would not be continued. The OECD countries were by then dead set against Corea for his role in giving intellectual support for the Group of 77 efforts at restructuring the world economy and international economic system (money, finance and trade) for a more equitable and just order.

 

At the 1982 GATT Ministerial meeting in Geneva, when the US was trying to expand the role of GATT by including many unrelated areas into the ‘trading system’, merely by adding ‘trade-related’, Gamani spoke out very strongly and firmly in support of the position of the developing countries, who were united under the leadership of Brazil and India, and the informal group was insisting that the unfinished businesses of the Tokyo Round should first be taken up and accords reached, before any new issues like intellectual property, services or investment could be considered as issues for negotiations as trade issues. He also undertook and published studies at UNCTAD on ‘services’, ‘technology’, ‘intellectual property’ and others subjects sought to be brought on GATT agenda, in particular their wider role in development.

 

Sometime later, when he was on the South Commission, he told Branislav Gosovic in the Commission secretariat, that the main reason for annulling his third term in UNCTAD and giving him only one year was the fear by the US and the OECD group of countries that Corea "would spoil" their attempts to launch a new round of GATT multilateral trade negotiations with new issues and preparations for it at the GATT.

 

Prebisch, as head of UNCTAD, shaped international economic thinking in development economics and raised awareness within the UN system of the development problematic in the newly independent ex-colonies, and their need for special treatment and assistance for development, such as official development aid, generalized schemes of preferences in trade and the like.

 

Corea carried forward the Prebisch outlook, providing intellectual weight and economic arguments to the secretariat proposals, and with calls for restructuring the global economy and international economic relations and governance, and addressing problems of development and money, finance and trade in an interdependent manner.

 

He had an inner conviction and strength, and an outlook that was visionary, developmental and egalitarian. Within UNCTAD he developed several programmes to help development, and remained firm in his view that UNCTAD should remain a part of the UN, an organ of the UN General Assembly devoted to Trade and Development.

While not confrontational or using harsh language, he stood up throughout his tenure to pressures and bullying tactics of the United States or European Communities and their attempts to influence senior staff appointments by planting their own men. He also stood up to the IMF and World Bank, whose leadership attempted sometimes to scoff at UNCTAD views, and alternative thinking differing from IMF/World Bank ideology and rulebook.

 

After retirement from UNCTAD, Corea continued in international public life, specially in the economic and development arena, and was a member of the South Commission. After the Commission wound up and the South Centre was set up in 1991, he played an important role in its work. He was trusted by South Centre Chair Julius Nyerere, and acted as the final authority and filter approving policies, documents and publications of the Centre. He was consulted on a daily basis, both while he was in Geneva (a lot of the time) and when he was in Colombo, and was one of the key persons to help put the Centre on its feet.

 

He became chairman of the Board of the South Centre, assuming the post about three years after Nyerere died. He resigned his chairmanship after a mild stroke which impacted on his writing abilities.

 

As an important member of the Centre, he participated in some of the civil society meetings in the preparations and run-up to the 1992 Earth Summit in Rio.

 

At the time of the 1991 second preparatory committee meeting in Geneva for UNCED, it was fashionable for officials of the secretariat, including the Secretary-General of that Conference, Mr. Maurice Strong, to advise developing countries not to adopt or follow a consumerist Northern style of development.

 

Speaking at the civil society meeting at that time, Corea scoffed at such efforts of the North to constrain the development of the South to maintain the North's own consumption and life-styles. He told the NGO forum and the Group of 77, that if such an effort is made, even if governments of the South accept at Rio such instruments to curb their development, "long before global warming, the world will be engulfed in global disorder"

 

Corea was also present at Rio, as a member of the Sri Lanka delegation. At the end of that Summit, in an interview with Thalif Deen of the IPS for the Conference newspaper Terra Viva, Gamani famously summed up the outcome as: "We negotiated the size of the zero."

 

Thank you.

 

*Dr. Michael Sakbani is a professor of economics and Finance at the Geneva campus of Webster-Europe. He is a senior international consultant to the UN system, European Union and Swiss banks. His career began at the State university of NY at Stoney Brook,then the Federal Reserve Bank of New York followed by UNCTAD where he was Director of the divisions of Economic Cooperation, Poverty Alleviation, and UNCTAD`s Special Programs. Published over 100 professional papers.

 

**Chakravarthi Raghavan, former Editor-in-Chief of Press Trust of India (PTI). Former senior IPS correspondent at the United Nations in Geneva and Special Envoy of this agency to all major international meetings on development. Editor Emeritus of the SUNS.