Aid for the countries of Asia and Latin America
EEC - LAA
New guidelines for the 1990s
The Commission has adopted the new guidelines for cooperation
with the countries of Latin America and Asia. On the initiative of Mr Matutes,
the Commission is proposing to the Council and Parliament the implementation of
a balanced package of cooperation instruments structured along two major lines:
development aid for the poorest population groups, and economic cooperation with
regions which have high growth potential. Particular attention is given to
The new guidelines are accompanied, for the first time, by a
five - year financial perspective amounting to ECU 2 900 m for the period 19911
The Commission proposal is a response to the political need to
increase the levels of financing and adapt the instruments used for cooperation
- which had never been reviewed since it began in 1976, despite the profound
changes which have taken place in Latin America, Asia and the Community itself.
The strengthening of Community cooperation with the Latin
American and Asian (LAA) developing countries, as proposed by the Commission,
takes account of the tremendous needs of the 40 developing countries concerned,
with their population of 2 300 million and their extremely diverse economic,
social and cultural situations.
The Commission also wishes to ensure that LAA cooperation
remains consistent with the Communitys policies of cooperation with the
developing countries in the Mediterranean, the ACP countries and the countries
of Central and Eastern Europe.
There are currently two distinct approaches to cooperation
between the Community and the LAA developing countries: development aid
(financial and technical cooperation, humanitarian and food aid) and economic
cooperation (promoting exports and European investments, training, cooperation
in the fields of industry, energy, science and technology).
The Commission considers that that, in view of the serious
problems facing most of the LAA developing countries (population growth, mass
poverty, financial and environmental problems, etc.), Community support should
be maintained and strengthened through development aid.
The amount of aid involved should be consistent with the
Communitys economic strength and its worldwide responsibilities, since the
common feature of all these difficulties is that they seriously hinder
development in the countries concerned and are a major threat to world economic
equilibria. In the Commissions view, aid should continue to be targeted on
the poorest strata of society and the poorest countries but the operating
principles should be modernised (e.g. by introducing structural schemes) and
more account taken of certain specific problems such as the role of women in
development, population growth, environmental and urban problems, etc.
Accordingly, in order to take account of the diversity of
situations and new methods of granting aid, the Commission proposes six major
areas of action: (i) support for the rural sector in the broad sense, (ii) the
environment, (iii) the human dimension of development, (iv) the structural
dimension of development, (v) regional cooperation and (vi) aid relating to
At the same time the Commission considers that well - structured
and effective economic cooperation between the Community and the LAA developing
countries should be promoted.
A considerable number of LAA developing countries or regions
have a high growth potential, and this calls for closer forms of cooperation.
Economic cooperation should encourage direct contact between
operators, who are the driving force behind economic expansion, and it is thus
very much in line with the favourable trends emerging in a number of Asian and
Latin American countries: the tendency for the private sector to play an
increased role, the introduction of market rules and disciplines, the
orientation of economies towards international trade, infrastructure
modernisation and extension, the attempt to make better use of human resources
in education and research and to encourage people to invest their savings in the
The Commission intends to take action on three levels:
(i) to strengthen the scientific and technological potential of
the LAA developing countries and facilitate high - level economic and technical
dialogue with these countries by speeding up the exchange of information and
promoting technology transfers;
(ii) to ensure that the economic environment of the LAA
developing countries improves and becomes more favourable to investment and
development through appropriate institutional and regulatory support measures;
(iii) to improve the competitiveness of firms by providing
better training (technical, in particular), facilitating technological exchange,
improving market access and promoting Community investment in these countries.
The environment: an ever - present concern
In the Commissions view, it is essential to develop
cooperation on the environment with the developing countries of Latin America
and Asia, since the environment is a matter of global concern, some major
environmental problems (e.g. protection of the tropical rain forests) relate
specifically to the LAA developing countries and there is a clear need for these
countries to receive from the Community increased financial and technical
support in dealing with environmental problems.
A multiannual perspective and increased financing
In the Commissions view, considerably greater financial
resources should be allocated to LAA aid schemes so as to provide the necessary
critical mass of aid and to ensure that it is acceptable by
comparison with schemes operating in Central and Eastern Europe and the ACP
States. The Commission also considers that, for the first time, multiannual
perspectives should be established, enabling a medium - term programme of
activities to be drawn up in line with the wishes of the Council and Parliament.
In view of the financial discipline imposed by the present inter
- institutional Agreement (which expires in 1992) and of the fact that there is,
as yet, no agreement relating to the period after 1992, the Commission has
decided, for the time being, to limit its proposal to ECU 2900 million for the
five - year period 19911995. This amount takes no account of any additional
drive for growth which the Community might make nor of any re - consideration by
the Commission of its proposals.
Support of economic reform in Eastern and Central Europe:
analyses and strategies
In July 1989 the Commission was invited to coordinate the aid
efforts of 24 Western countries to Poland and Hungary. The number of recipient
countries in Eastern and Central Europe has since been expanded. The Commission
decided in the early autumn to bring together a group of high level economic
experts from the Member States, Poland and Hungary in order to establish the
analytical background for economic reform and aid from the 24 countries, the
Community, the EIB and the European Bank for Reconstruction and Development
The results of this work are now being presented by Vice -
President Christophersen in a special issue of European Economy (no. 43), which
is devoted to Economic Transformation in Hungary and Poland.
The papers in this volume emphasise the diversity in the
situations of these two countries. But they also show that the critical factors
that will determine the successes of the transition from communism to market
economies are common to both. First, the private sector is crucial. The public
sector can help to ease the transition, but only the private sector can ensure
that it is accomplished.
The second insight, which is peculiar to the work of the
Commissions group of experts, is the importance of robust
sequencing . This means, for example, that privatisation should not be
implemented until the tutelage system has been dismantled. This system of
bargaining between ministries and enterprises over taxes and subsidies lies at
the heart of the lack of competition in the bureaucratic economic system. While
it persists, the emergence of a market environment will be hampered.
Sequencing is also important in the context of credibility. If
people believe that the change in economic regime will not succeed, their
behaviour will bring this about. Hence it is necessary to convince them that the
process will be pursued systematically and thoroughly. Yet progress cannot be
too slow, since this too would jeopardise the regime change.
Similarly, macroeconomic stabilisation needs to come before
structural reform. To embark on liberalisation in conditions of high inflation
would be risky, since high inflation impedes rational economic decisions,
promotes hoarding and distorts income distribution.
None of this is to say that the same sequencing of measures will
be appropriate to all economies. It should be determined on the basis of a
detailed assessment of each countrys economic situation, though price
stability is always likely to be a priority.
Analysis of policy measures
Central and East European countries have suffered severely from
central planning and state trade within the CMEA. The absence of competitive
markets in these economies, and their exclusion from the beneficial impact of
the international division of labour have contributed to low levels of
productivity, outdated technology, slow rates of technological progress and
inefficiency in management and organisation. Centralised control of production
decisions and administered price systems have compounded these problems.
The economic measures which are summarised below would
contribute to a predictable economic environment in which price incentives can
Openness and improved access to the world market will be an
important stimulus to economic reform. It will require greater convertibility,
especially in current transactions, and stronger external monetary reserves. An
appropriate exchange rate policy will have to be devised, possibly by pegging
currencies to the ecu as a basket currency.
Several countries in transition from socialism suffer from
severe internal and external disequilibria. A firm macroeconomic stabilisation
plan capable of curbing inflation during the period of structural change will be
advisable so as to underpin reforms and signal the change of economic regime.
Sound government financial policies will be required, including
reform of the national budget by improving budgetary controls and by eliminating
financing through money creation. Reform of the fiscal system, together with
more efficient administration and greater openness in taxes and subsidies, will
be an important element. A substantial reduction in subsidies is also called
To curb inflation, firm monetary policy will be necessary. This
will require a strong, independent central bank. For goods and services,
efficient markets will imply that centralised price determination and production
planning, as well as state interference in the decision - making of firms, must
This should go hand in hand with the creation of a legal
framework that includes private property, company, competition and contract law.
Labour markets need fundamental institutional and legal reform
in order to end administered full employment and structural rigidity.
Particularly in the transitional period, the necessary training
and investment support to private or reformed socialised sectors needs careful
monitoring in order to remain conducive to liberalisation.
Improved infrastructure, a cleaner environment and more
efficient energy utilisation will improve growth prospects and facilitate
Western assistance and coordination
For the external financing needs of these countries private
financing on capital markets must be the general rule. The financing of balance
of payments gaps, the provision of structural adjustment or of stabilisation
loans would be the exception. In the first phase, however, official assistance
may play a role in external financing for many countries, not least to boost
confidence. As the transition advances sufficiently to attract a substantial
flow of private investment which will be the test of the success of reform -
official assistance can be scaled back. Some forms of public funding (technical
cooperation and lending, notably by the EBRD) will play a continuing