Wise developing-nations policy might help US ease its recession
The Philippines is launching a program to restrain imports. Brazil did the same in November, Mexico earlier. The list could go on. A decade ago that sort of news would not have concerned the United States very much. Today it should.
Developing countries now purchase 38 percent of total US exports. And during the 1970s the ''newly industrializing countries'' of the third world were the fastest-growing market for American goods. US exports to these ''NICs'' grew over 16 percent a year on average in the years 1976 through 1981.
But, says John W. Sewell, president of the Overseas Development Council, the importance of exports to developing countries receives ''insufficient'' policy attention.
''Policymakers, particularly in this country, need to understand that the United States now operates in a truly global economy in which many countries outside the OECD (Organization for Economic Cooperation and Development - the club of the noncommunist industrial nations) have become important participants.''
He added in testimony this week to the Senate subcommittee on international economic policy: ''Recovery in the industrial world is indeed crucial to restored global economic growth; but in the 1980s, it will be much harder (and perhaps impossible) to engender global recovery unless the new importance of the developing countries is taken into account.''
Rudiger Dornbusch, an economics professor at the Massachusetts Institute of Technology, makes a similar point in a paper published by Data Resources Inc., a Lexington, Mass., economic consulting firm. He points out that exports to the developing countries have been the high-growth item in world trade in the last decade.
''For the US, which sends 20 percent of its exports to Latin America, this factor is especially important.''
Professor Dornbusch notes that real growth in the major nine Latin American countries has declined from an average of more than 7 percent in the 1970-74 period, to more than 5 percent in 1975-80, to a what will be negative figure in 1981-83.
The pattern for 1983 will depend on whether interest rates decline far enough to give the heavily indebted Latin nations more funds to finance imports and growth; whether foreign commercial banks will merely roll over principal and require interest payments, or expand their lending in these countries; and whether growth in the industrial nations is moderate or negligible, the professor writes.
If these factors are negative, he says, output in Latin American nations will have to drop 4 percent to reduce imports enough to generate a surplus to service their external debts. Even his optimistic scenario has growth barely positive in per capita terms.
Mr. Sewell notes in the first six months of 1982, US exports to the NICs were down 9.8 percent compared with the first half of 1981. This is one reason for the depth of the recession in the US.
''It has affected both the quality and quantity of US jobs,'' Mr. Sewell said , referring to an estimate by the Conference Board that 79 percent of all new jobs created in the manufacturing sector between 1977 and 1980 were related to exports. Until recently, growth in capital-goods exports to the developing countries exceeded 10 percent a year.
Similarly, the 8 percent decline in exports of farm products in 1980-81 was due to poorer sales in the developing countries and Eastern Europe.
Developing countries accounted for 15 percent of world GNP in 1960, 19.2 percent in 1979, and could account for as much as 25 percent of world GNP by 2000. This progress, Mr. Sewell pointed out, came about because many developing countries took advantage of a relatively open trading system and were able to tap private capital markets for development finance.
What should be done to restore progress?
Professor Dornbusch calls for a ''coordinated monetary and fiscal expansion of the major industrial countries.'' As their growth resumes, the well-to-do nations would buy more of developing-country goods. ''With inflation worries set aside, Japan and Europe should now match the US fiscal expansion,'' he says. The US contribution should be a ''transitory reduction in the real interest rate, achieved by a more rapid rate of monetary expansion.''
Mr. Sewell urges that the US launch a ''major effort'' to stem the move towards protectionism in both industrial and poorer countries. He suggests that William Brock, the top US trade negotiator, renew his efforts within the General Agreement on Tariffs and Trade to arrange talks on trade between the industrial and developing nations. He proposed such a North-South meeting at the GATT ministerial meeting in November in Geneva, but it was sidetracked. ''Reviving that is terribly important,'' he said in a telephone interview.
The president of the nonprofit research group also wants the US to be certain the International Monetary Fund has adequate money to help out developing countries in financial distress. Secretary of the Treasury Donald Regan has said IMF quotas should not be increased more than 50 percent; but he also has proposed that an emergency fund be available for lending more quickly. Mr. Sewell hopes the combined quotas and emergency money would double the quotas.
Finally, Mr. Sewell would like the industrial nations to be more generous in their foreign aid, with more of that money going to the poorest countries.