The complexities of Cancun: background to a summit

In October President Reagan will go to Cancun, Mexico, for a two-day International Meeting on Cooperation and Development with leaders from seven other OECD (Organization for Economic Cooperation and Development) countries and 14 developing nations (LDCs). Their purpose is to have an informal exchange of views (not to negotiate) on "the future of international cooperation for development and the reactivation of the world economy."

Despite the participants' diversity, the difficult and complex problems all face in adjusting to the challenges of the decade ahead will require cooperation in many fields.

* Trade. Exports to the industrial nations, especially of light manufactures , have been and are the key to economic progress for the middle-income countries , despite the oil price sharks. Although they amount to less than 3 percent of total goods consumed by the advanced countries, their impact on specific industries like textiles, shoes, electronic equipment, creates a constant pressure for protectionism, especially during a recession. Resisting that and maintaining their market access serves joint interests.

For many low-income LDCs, exports are more largely raw materials; these have grown more slowly and are more volatile in price. The Common Fund for Commodities is designed to facilitate agreements to stabilize these commodities.

* Energy. In the coming decade, oil-importing LDCs will be a growing, though modest, factor in global energy. Today they use only 20 percent as much commercial energy as the OECD members which have only one-third the population. But their use is increasing far faster and will rise to 30 percent by 1990 if their economies continue to grow.

These countries could enhance energy supplies. They have potential oil, gas, and coal resources but exploration has lagged. (For example, oil drilling in the US is 150 times as intensive as in these countries.) Moreover, while LDCs have two-thirds of the global hydroelectric protential, only about 10 percent has been developed.

The low-income LDCs have a special energy problem. About 80 percent of their needs for fuel in rural areas where most people live are filled by wood and charcoal. In many countries, forests are rapidly being depleted; and farmers are burning manure to replace fuel wood. The combined effect is to worsen erosion and to deplete the soil. Reforestation, which is essential in the interests of energy, agriculture, and the environment, would cost at least $1.5 billion a year. But a shift to commercial energy is inevitable as population and cities expand.

* External finance. The LDCs will continue to need outside financial support to adjust for the 1979-80 energy price rise and for development in the decade ahead. The mid dle-income counties should be able, as they were in the 1970s, to manage mainly with commercial borrowing, supplemented by nonconcessional loans from the World Bank. But the low-income LDCs will have to be helped by aid from the OECD nations and OPEC.

Here the recent US record has been almost the worst in the OECD. In 1980, aid from other OECD members reached .43 percent of GNP, and some exceeded the .7 percent target. The US, however, provided only .27 of GNP. (Major OPEC members now devote 3.1 percent of their GNP to aid.) And much of that US aid is going to middle-income countries like Egypt and Israel. The US should increase its own aid to the low-income LCDs and it should join in expanding the resources of the World Bank.

* Food and population. Some 750 million people in the LDCs now suffer from hunger and malnutrition. Global food output is keeping just ahead of population , while rising incomes in the OECD and some LDCs put added pressure on supply and prices. For the poorest countries, food aid will still be needed but they will have to be assisted in expanding their own foof output, perhaps through the World Food Council program for integrated food sector strategies. Moreover, a better food reserve system needs to be put in place to insure against shortfalls. And finally, continuing efforts must be made to foster the slowing down in population growth.

* Institutions. The LCDs will surely want to discuss the reforming of international agencies to give them more voice in decisionmaking.

Besides a favorable international environment, development will also acquire that the LDCs adopt and pursue suitable domestic policies. The middle-income countries and many low-income ones as well have shown the capacity and will to do so. But some of the poorest LDCs lack the institutions, skilled people, infrastructure, and credit needed. International agencies and bilateral programs will have to provide them more adequate aid, and technical and other assistance in developing their capacity to help themselves.

Finally, progress will ultimately depend on whether the major industrial countries, with OPEC's cooperation, succeed in reviving their own economies.

Clearly the Cancun meeting cannot settle any of these issues but it can perhaps raise their priority on the agenda of the participants and widen their perspectives. Perhaps President Reagan may come away more sympathetic to the role of the International agencies and more aware that their activities are as vital as that of private enterprise in development.