Financial systems and development

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Box 1.1 Project 1992 and the developing countries
The European Community (EC) plans to "complete the ucts legally marketed in one member state, whether
internal market" by 1992 by removing barriers to the manufactured in the EC or imported into the EC, can
free circulation of goods, services, and factors of pro- circulate freely throughout the EC. This should be es-
I duction. The aim is to promote European specializa- pecially welcome to relatively small suppliers in the
tion, strengthen competition, and increase efficiency. developing countries, since the added costs of techni-
But Project 1992 is bound to have substantial implica- cal barriers are particularly onerous for them.
tions for non-EC countries. The EC market accounts for The third measure is the opening up of public procureabout
30 percent of the export earnings of the develop- ment. This will extend to four key areas not covered by
ing countries.
the relevant GATT code: energy, telecommunications,
To achieve the free movement of goods and services transport, and water supply. To the extent that public
within the EC, three measures will be required, each of procurement concentrates on high-technology sectors,
which has an impact on the developing countries. The the change will matter more to the industrial than to
i first is the abolition of border controls. These are used to the developing countries.
enforce national quantitative restrictions (QRs). They If Project 1992 promotes faster domestic growth withaffect
mainly imports of textiles and clothing covered out raising external trade barriers, Europe will import
by the Multifibre Arrangement, but other imports from more, and the developing countries would benefit. The
developing economies, such as bananas from Latin distribution of the new demand among exporters will
America and toys from Asia, are also affected. The EC depend on its composition and on existing trade prefmay
convert national QRs into community-wide QRs. erences. The main focus of Project 1992 is on trade in
I What happens will depend on the outcome of the Uru- manufactures. The effects of the single market on deguay
Round.
veloping countries will depend on their competitive-
The second measure is the elimination of technical bar- ness and on the EC's trade policy toward them. The
riers to trade. This will proceed along two separate ave- nature of EC trade preferences toward different groups
nues: mutual recognition (most barriers) and harmoni- of developing countries may also change as a result of
zation (health, safety, and environmental regulations). the introduction of a unified market.
The principle of mutual recognition implies that prod-
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1.7). Countries with an appropriate real exchange community and multilateral organizations, at the
rate have usually experienced faster and more sta- very time that developing countries are coming to
ble growth than the rest. As development pro- accept it.
ceeds, it becomes even more important to adopt
and maintain an industrialization strategy that is The debt problem
neutral toward production for domestic or foreign
markets. Although many developing countries have had
In the Uruguay Round the developing countries difficulty in servicing their external debt, from the
are for the first time playing a significant role in start of the debt crisis in 1982 the focus has been on
multilateral trade negotiations. Thirteen develop- the seventeen highly indebted middle-income
ing and industrial countries have formed the countries whose debts are primarily to the com-
Cairns Group to promote their common interests mercial banks. This reflects the systemic risk that
as agricultural producers. The developing coun- the failure of creditor banks might have posed to
tries have recognized their stake in the world trad- the international financial system in the early years
ing system. This reinfoTrces the need for a success- of the crisis. Although some banks remain at risk,
ful conclusion to the Uruguay Round and for the debt strategy they have followed since 1982 has
adherence to the spirit as well as the letter of the sought to remove this systemic risk by building up
principles of the GATT. The proposed strengthen- appropriate provisions for doubtful assets. In the
ing of the GATT, including its surveillance of coun- past few years the debt problems of Sub-Saharan
tries' trade policies, should help to bring this Africa have won official recognition. These probabout.
The failure of the Uruguay Round would lems differ from those of the other highly indebted
not only hamper the growth of world trade but countries in that the debt is owed mainly to govalso
represent a rejection of the development strat- ernments. Nonetheless, virtually all the debtor
egy that has been promoted by the international countries have been adversely affected by the rise
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