Today doubts are heard as to whether the United States has a real interest in participating in the leadership of the World Bank and International Monetary Fund and other multilateral institutions. In particular, questions are raised as to the type of economic relationship this country should have with developing nations and the nature of U.S. interests in the Third World. It is timely to address this subject as the Toronto meetings are about to consider matters which bear directly on it.
Let me first address the U.S. interests in developing countries. The developing countries are the new frontiers of the world economy. In 1970, the developing countries taken together accounted for roughly 30 percent of U.S. exports ($13 billion). In 1980, those same countries accounted for 37 percent of U.S. exports ($83 billion). Today we export more to the developing countries taken together than to Europe and Japan combined, and their markets have the potential for further increases. In addition to trade, U.S. investment in developing countries has increased from roughly $19 billion in 1970 to over $52 billion in 1980, and earnings from investment have increased from $5 billion to $20 billion.
Developing countries also play an increasingly important political and security role. Their mediation has been highly constructive in the Mideast, in the release of the U.S. hostages in Iran and in southern Africa. The United States and its allies depend heavily on constructive relations with developing countries whose strategic location, resource endowment or political leadership project them into a role of both regional and global significance. And the United States has a strong humanitarian interest in working with other donor nations in assisting poorer people to have better access to health care, education, housing and nutrition.
Since World War II, the United States has led the effort to strengthen cooperation between developed and developing countries, and supported institutions to that end. Many former recipients no longer need concessional assistance. And both the World Bank and the IMF have, with U.S. encouragement, adapted to changing needs of developing nations in the difficult decade of the 1970s. Yet while progress has been made, it is clear that a considerable amount of frustration characterizes relations between developed and developing countries and between the United States and some nations of the Third World.
First, the developing countries themselves face serious problems. Oil price increases, slow growth in trade, and inflation hit most of them hard. Many borrowed substantial sums and were thus hurt by increased interest rates. A large number have been hit hard by the drop in the price of raw materials. A number, like some developed countries, have found it difficult to adjust to developments in the world economy.
Second, strong domestic demands on resources and tighter budgets have led to less foreign assistance than developing nations desire and need, which has been particularly painful to the poorest countries. And domestic industries in developed nations, particularly in poor economic conditions, have sought protection against imports of highly competitive products.
It is precisely because the economic environment is difficult, and the frustration level high, that a major effort to improve economic cooperation between developed and developing countries -- and U.S. leadership of that effort -- is so important. Neither side can turn its back on the other, and yet both sides recognize that quick solutions cannot be easily attained among diverse groups, particularly in adverse economic conditions. Moreover, I believe there is also a growing recognition that too much rhetoric and doctrine by each side simply generates defensive reactions by the other.
Pragmatic steps are needed. The Toronto meetings can make important progress toward agreement on a realistic assessment of the funds which the IMF will need to support sound adjustment programs in the 1980s and on an IMF quota increase adequate to ensure that the Fund can provide that support. While there may now be differences over the size of such an increase, I believe agreement can be reached if this objective is paramount.
A quota increase is not aid, a budget expenditure or a transfer of resources. It is an investment in an effective international financial system,. It will strengthen the capability of the IMF to support programs of countries, both developed and developing, to bring demand into line with their financing capability, and thus reduce payments deficits, without provoking a crisis and without resorting to protectionist measures. Effective and adequately supported Fund programs can make it easier for countries to overcome the political obstacles to taking necessary economic remedies.
Beyond this, the world has a major opportunity at the November ministerial meeting of the GATT -- the first such meeting in nine years -- to develop a consensus for improving the rules of the international trading system. Developing and developed countries alike will suffer unless the system can be made to function more effectively, trade distortions can be reduced and responsibilities and benefits are fairly shared. Both sides have much to lose if a two-tiered trading system (developed countries playing by one set of rules and developing countries by another) is allowed to evolve.
More work is needed to reduce disortions to investment and trade resulting therefrom. Developing countries want more investment. Many firms are interested in exploring new opportunities. But the issue has been clouded by debate and uncertainty regarding conditions under which investment can take place. The GATT and the World Bank need to work togetherrto reach understandings which discourage investment-related trade distortions and encourage an environment for mutually beneficial investment.
Finally, there needs to be a consensus in this country on the role and level of U.S. foreign assistance. These programs are not popular domestically, but are important to U.S. interests. We spend heavily to develop the military capability to respond to instability abroad which affects our interests. Yet there is a strong possibility a long-run program of development cooperation would head off instability in certain cases by addressing some of its causes -- at less cost.
We tend to focus on developing nations primarily during periods of crisis. We need a far-reaching, long-term strategy to enhance our interests in developing nations in a fashion that meets their interests as well. The success of U.S. foreign and trade policy, our security interests, and our respect as a country concerned with the plight of those less fortunate than ourselves may depend on whether we have the foresight to develop such a strategy. Toronto is a good place to start.
The writer recently resigned as assistant secretary of state for economic affairs.