Many nations fail to join the global economy

JAKARTA (JP): Key developing countries have led global economic integration over the past five years, but many other developing nations have failed to open up to the world economy, according to the latest issue of the World Bank's Global Economic Prospects and the Developing Countries 1996 report.

The report, issued in Washington yesterday, notes that there have been severe disparities and the threat of a permanent gap between fast and slow integrating economies.

Though developing countries on the whole have kept pace with the world rate of trade integration, the ratio of trade to Gross Domestic Product actually fell in some 44 out of 93 developing countries observed over the past 10 years, says the report, a copy of which was made available to The Jakarta Post yesterday.

The World Bank observes that the distribution of foreign direct investment was also skewed as eight developing countries accounted for two-thirds of capital inflow in 1990 to 1993 while half of all developing countries received little or none at all.

"But globalization also demands more of governments," the report says, noting that as firms face more intense international competition their need for clear rules, a stable environment, access to imports, efficient infrastructure and freedom from red tape increases.

Moreover, the report adds, greater reliance on private sources of finance makes it essential to retain the confidence of international capital markets.

The World Bank says successful integration will depend on fundamental economic reform, requiring difficult policy decisions that often lead to painful, yet manageable costs.

"Openness to external trade and investment is often the necessary first step to solid, sustainable economic development," the report notes.

Charting out the prospects for the world economy, the report observes:

The next 10 years will see an acceleration in the pace of international integration. Real interest rates will be moderate and growth of world trade is likely to exceed 6 percent a year in volume terms.

The growth of developing countries is likely to accelerate. Still, if current policies continue, large differences in performance in developing countries will persist. Countries with bad policies will tend to lag in integration and are likely to see only a mild rise in per capita incomes. (vin)