Poorer nations ride out storms
The world had a lot of bad economic weather during the 1970s. Wealthy nations may have gotten wet, but how did their less- developed cousins weather the storm?
The World Bank's annual development report, released Aug. 10, concludes that the better-off developing countries stayed relatively dry.
"It has been quite remarkable how LDCs [less developed countries] have managed to overcome the vicissitudes of the '70s," says Helen Hughes, director of economics analysis at the World Bank.
But for the poorest nations of the world, black clouds of recession and oil price hikes still dampen economic growth. Without more help from the international community, "the world will divide even more sharply between the haves and the have nots," warns the report.
It the weather clears during the next decade, the World Bank estimates middle-in- come countries will average 5.6 percent annual growth, with low-income nations tagging along at 4.1 percent. But if things go badly, both figures would be about a percentage point less. GNP (gross national product) numbers are a bit cold: Under the good scenario, the number of people living in absolute poverty would shrink from 750 million to 630 million. If the bad news case becomes reality, the poor would increase to 830 million.
Will it be the high scenario, or the low one? The answer may lie in how the industrial nations adjust their behavior in the face of today's changing economic conditions. In three key areas -- trade, energy, and finance -- a move by wealthy nations has side effects all across the world.
Trade: "Trade has provided an avenue for growth and industrialization, and for the oil- importing countries, a source of earnings to meet their increasing fuel costs," says the report. A few hard-driving underdeveloped countries, such as Singapore and South Korea, saw their exports boom, pulling their economies up by the bootstraps.
But the poorest ntions, dependent on commodities like coffee and sugar, were stymied by unstable prices. Exports did not even rise enough to keep up with oil costs.
However, if the clang of rising trade barriers is heard throughout the West, the outlook for LDCs could turn suddenly bleak.
Energy: During the 1970s, oil price hikes arrived with the suddeness of lightning storms. For middle-income countries, export growth covered the increased costs. But for low-income nations, the costs were shocking, causing the purchasing power of their exports to be one-third lower in 1980 than in 1970 .
Western nations seem to be curbing their appetities for the expensive liquid. The World Bank estimates supply and demand will balance out, resulting in real annual increases of 3 percent in the cost of oil.
Finance: The recycling of money has always been an important aspect of development. During the '70s, the means through which LDCs obtain foreign currency became increasingly important.
"Oil producers increased their aid; remittances from migrant workers in the Middle East became a significant source of foreign exchange for many countries; there was a spectacular increase in commercial bank lending to the middle-income countries," says the report.
Private bank lending leaped from $4 billion in 1970 $36 billion in 1980. The bank believes this growth was not excessive in relation to GNP or exports, and that countries like Brazil and Mexico have shown how heavy borrowing can be used wisely.
"We see no threat of a general financial crisis," says Mrs. Hughes.
But on aonther type of capital flow, the report faults the West. Cutbacks in aid, taken in the name of fiscal conservativsm, are a "cause for serious concern ," says the report. It also says more aid should be rea llocated toward the lowest-income nations.