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GENEVA - The wide fluctuations
of oil prices over the last few years are a reminder
of the high level of uncertainty that still surrounds
world economic performance. It is also proof that,
despite excessive heralding of the ''new economy,''
we remain as dependent as ever on oil, especially
for transportation.
The era of cheap oil may or may not be behind us.
But there is little doubt that the years of depressed
prices which began in 1986 and ended in 1999 stoked
demand for the commodity in the industrial countries
and everywhere else, discouraged new investment in
production and refining, and delayed moves to alternative
energy sources and more environment-friendly technologies.
All of this only increased the volatility of the market.
For oil-importing developing countries faced with
the burden of high import bills, compensatory financing
from multilateral institutions on soft terms should
be considered. The World Bank's announcement that
it would make structural loans and other forms of
emergency funding available to oil-importing countries
is a step in the right direction.
On the other hand, we should not ignore the circumstances
and problems of oil-producing countries, for which
oil, a non-renewable resource, is a major -- and in
some cases the only -- source of revenue and the basis
for future economic development and diversification.
It is only to be expected that these countries would
seek stable and remunerative prices for their main
export.
It is clear that we need policies and measures which
will ensure both fair prices for producers and fair
prices for consumers. This issue must be given a prominent
place on the future international agenda.
Continued economic growth in this decade will require
increases in energy demand, particularly oil. Investments
for expanding production capacities in major oil producing
countries will be essential but remain problematic
for a number of factors, including financial constraints,
volatility in oil prices and lack of market predictability
and transparency. Lack of transparency has often resulted
in decision-making without adequate information on
plans by producing and consuming countries with respects
to levels of production, trade and consumption. An
oil crisis for lack of production or refining capacities,
such as the one experienced last year, is indeed ironic
in the midst of plentiful oil reserves.
Relying solely on market forces has proved inadequate
and generated massive misallocation of resources and
instability in energy markets. In this respect, dialogue
and cooperation between the owners of plentiful oil
reserves on the one hand, and the coordinators of
finance and technologies on the other, has become
more important than ever before. The industrial countries'
call for coordinated policy action after major increases
in oil prices last year is undoubtedly to be welcomed.
However, it contrasts sharply with the indifference
those countries showed to similar calls from the developing
world, which was reeling from the devastating consequences
of falling commodity prices. Indeed, for most commodities
exported by developing countries, the depressed prices
of 1998 are still with us.
Oil-importing developing countries thus have the worst
of both worlds: they pay more for imported oil but
still receive little for their exports. Worst of all,
this is taking place against a backdrop of diminishing
official development aid (ODA) to the weaker partners
in the world economy. Today, ODA disbursements in
real terms are at their lowest levels in 20 years.
Asymmetries and double standards prejudicial to developing
countries are also present in the multilateral trading
system, particularly as regards the balance of mutual
rights and obligations, including market access. Before
we engage in a new round of trade negotiations, we
should make the redress of such imbalances a priority.
Pressuring developing countries to further open markets
without giving them possibilities to export and find
their way out of poverty and underdevelopment is a
shortsighted approach. The risk is that these countries
will be unable to obtain the resources needed to pay
for imports of capital goods and technology from industrial
countries without increasing their debt, and that
their markets will simply dry up.
The progress made in the last two decades does not
inspire optimism, unfortunately. While investment
flows have reached unprecedented levels, long-term
capital flows to the least developed countries (LDCs)
declined in the last decade by about 40 percent in
real terms. This was the result of shrinking ODA coupled
with the failure of most LDCs to attract sufficient
private capital inflows to offset the decline.
Compounding this problem is the fact that the majority
of LDCs -- which import oil and export primary commodities
-- are currently caught in a double bind of high and
volatile oil prices on the one hand and low and volatile
primary commodity prices on the other. The deterioration
of the terms of trade has further exacerbated the
liquidity shortage, which in turn discourages much-needed
investments in the economic and social infrastructure.
All of this will have particularly serious implications
for the significant number of LDCs that are beset
with problems of domestic peace and security.
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