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The International Economic Environment
surrounding Developing Countries
AOYAMA Toshikatsu＊

1. Changes of the Primary Commodity Market
In the 1950’s and 1960’s after the Second World War, developing countries1 hadachieved their political independence shaking off the yoke of colonialism underwestern countries. Up until then, they had been suffering under the economic
oppression by suzerains which was based on an economic exploitative system
reflected in colonialism. This economic system was established mainly on plantations
and associated with agricultural products. Similarly, natural resources such as minerals
were developed and exported under the dominance of suzerains. Even after theachievement of political independence, their former suzerains maintained an economic
influence over export trade and their importers continued to export primarycommodities2 at low costs. Under such conditions, developing countries tied to exports
for income, were unable to gain sufficient export incomes as long as their exports ofprimary commodities were dominated by western countries many of which wereformer suzerains. And most developing countries were reduced to poverty eventhough international economic growth accelerated in spite of having achieved theirpolitical independence.
In order to break through such situations, developing countries were challenged
to form a third political power block to make head way against the industrialized
western countries and the United States. The symbolic international conference was“the Bandung Conference”which was held in Indonesia in 1955. One of the principal
objectives of the Conference was to free developing countries from the economic
regimes imposed by developed countries solely bent on gain. There was a need to＊ Professor, Graduate School of International Cooperation Studies, Kobe University.
（Currently, Counselor, Embassy of Japan in NZ）

Journal of International Cooperation Studies, Vol.21, No.1（2013.7）

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recover and establish profitable management of their primary commodities including
natural resources. They officially affirmed that the ownership of natural resources
belonged to developing countries and only then could they be considered as part of
the wealth of the international society. Simultaneously, they urge that the trade ofprimary commodities should be implemented under the management of developing
countries with favorable conditions respecting the fact that developing countries
possess the natural resources and cultivate agricultural products to the benefit ofdeveloped countries.
However, the terms of the export of primary commodities were not actually
sufficient to satisfy the needs to fill up the hunger of the local people. The reasons
being that the local economic system was still plantation based and export prices ofprimary commodities were still controlled by developed countries in the international
economic arena. Even if they could earn satisfactory export incomes from a few
primary commodities, their earnings entered the pockets of middlemen or bribery
officials without return or distribution to the local people. In order to make restorationand distribution to the local people, there were no domestic laws and the lack ofgovernance ability in enforcement. Under such circumstances, some developing
countries started to change their economic policy in order to transform the economy
into a self-sufficiency economy without depending on the export income of primarycommodities.
As for the ownership of natural resources, it had been decided to discuss it at theUnited Nations Conference on Trade and Development（UNCTAD）which wasestablished in 1964. Developing countries argued for the need to recover economic
sovereignty from developed countries at that time. Although they had gained politicalsovereignty by achieving their independence, the economic exploitative systemthrough trade continued as usual under the dominance of developed countries. Under
such a situation, the export prices of primary commodities were decided by the importcountries, which were the western countries and the United States. The distribution of
wealth continued to be unequal in the international economic system, and theunfairness of the distribution was not restored to developing countries, and their

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export incomes remained poor. Therefore, at the UNCTAD, they concentrated theirefforts on urging the establishment of a new international economic regime which
could assure their economic sovereignty and allow them to realize a fair distribution of
wealth generated from primary commodities, including natural resources. This3
assertion came to fruition in the New International Economic Order（NIEO）
which

was formed along the proposals put forward during the 1970’s by some developing
countries through the United Conference on Trade and Development（UNCTAD）topromote the interests of developing countries. Following this, the Declaration for the
Establishment of the New International Economic Order and the Program of Action
etc. were adopted by the United Nations General Assembly in 1974.
The preamble of the declaration states that the establishment of the New
International Economic Order be based on equity, sovereign equality, interdependence,common interest and co-operation among all States, irrespective of their economic andsocial systems. It shall correct inequalities and redress existing injustices, make itpossible to eliminate the widening gap between developed and developing countries
and ensure steadily accelerating economic and social development and peace andjustice for present and future generations.
The declaration packaged the concepts to promote the interests of developing
countries by improving the terms of commodity trade, increasing development
assistance, developed-country tariff reductions and so on. It was a challenge to revise
the international economic system in favor of developing countries, replacing theBretton Woods4 system, which had benefited developed countries, particularly theleading states such as western countries and the United States. However, the ideologyof the NIEO was too ambitious to realize all of the various actions so that an
unproductive discussion was repeated at the UN Conference. However, in the field ofprimary commodities, the establishment of several new International Commodity
Organizations and the Common Fund for Commodities（CFC）which came into force
in 1989, were realized.

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2. Establishment of the International Commodity Organizations
One of the main reason why developing countries urged their economic
sovereignty under the NIEO was that there was a strong sense of impending crisis
since prices of primary commodities in the international trade were still dominatedand managed by transnational companies in connection with developed countries
which triggered distortion in the distribution of wealth. And in line with the above,
there was the idea that developing countries would be able to secure equal
distribution of the wealth, by controlling the supply of primary commodities including
natural resources with their ownership, and by removing the domination of thetransnational companies in the international trade market.
However, such a concept of controlled trade was essentially opposed to the freemarket principles of classic economics where the prices of primary commodities wereautomatically fixed in relation to the actual demand and supply under the competitive
free trade market.
The concept of controlled trade was embodied in the resolution of the UNCTAD
in 1976 under the name of the Integrated Program for Commodities（IPC）. The IPC
also affirmed one part of the concept for the New International Economic Order（NIEO）. The pillars of the IPC were to establish the new International Commodity
Organizations and the Common Fund for Commodities（CFC）. The Committee on
Commodities in the UNCTAD agreed to the establishment of new International
Commodity Organizations such as the International Tropical Timber Organization（ITTO）, the International Natural Rubber Organization（INRO）, and the International
Jute Organization（IJO）in addition to existing International Commodity Organizations
such as the International Tin Organization（ITO）, the International Coffee
Organization（ICO）, the International Sugar Organization（ISO）and so on. The
producer and consumer countries of the International Commodity Organizations would
attempt to stabilize the international prices of primary commodities throughnegotiations and consultations among them. Concretely, in order to realize theappropriate pricing, they adopted the technical methods of the“Buffer Stock System”5
6
7“Export Quota System”
and“Production Management”
etc.

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The Buffer Stock System（BSS）had been adopted only by the ITO at that time,
but the INRO and ISO were interested in the BSS as an effective method in order tostabilize commodity prices. On the other hand, most developing countries were
essentially negative to the adoption of the Export Quota System and Production
Management through the International Commodity Organizations, since they worried
about the effect on their export incomes. As the result of severe confrontations amonginterested countries, most of the International Commodity Organizations changed theirmain function to merely an exchange of information on their own commodities.
Furthermore, the International Tin Organization（ITO）failed in 1985 due to thefailure of management of the buffer stock system. It was almost impossible tocorrectly predict future amounts of supply and demand. As a result of that, thecontrolled trade of commodities faced difficulty in managing international trade on theside of developing countries. This occurrence seriously affected and made a negative
impact upon other International Commodity Organizations. After this event, manyInternational Commodity Organizations became nominal and lost any effectivenessthey might have had.
On the other hand, the Common Fund for Commodities（CFC）as another pillarof the Integrated Program for Commodities（IPC）had been established in 1989 forthe purpose of supporting the functions of the International Commodity Organizations
by means of providing mainly funds for mainly loans through the first account. But in
effect, donor countries could not provide sufficient funds, moreover, the opinions on
how to manage the functions of the CFC between developed and developing countries
were seriously confounded due to the lack of available resource funds. The CFC inconsequence contracted what might be called functional disease. Meanwhile, theInternational Commodity Organizations had also been falling into decay and the CFC
could not find lending partners and had to suspend management of the funds. The
CFC was forced to transform into an aidgranting agency which approved projects
which focused on commodity development, namely research and development geared
towards productivity and quality enhancement, vertical diversification, and trade andmarket expansion.

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Consequently, I can say that the International Commodity Organizations could notprovide effective measures to realize equal distribution of primary commodities andnatural resources for developing countries. At the same time, they could not support
commodity production and export from developing countries which might havesignificantly contributed to the expansion of employment opportunities and theimprovement of export incomes, for the benefit of the local populace of developing
countries. And it was unfortunate that in 1980’s fluctuations and weakening prices ofprimary commodities affected most developing countries.
3. Transformation of the International Economic Regime
The international economic regime was changing drastically in the 1970’s, while
the controlled trade manner of primary commodities deadlocked, and the UNCTAD
was unable to take more effective measures as a substitute for the International
Commodity Organizations to contribute to the economic development of developing
countries. The transformation of the International Economic Regime was brought
about by the Dollar Shock in 1971 8 due to a shift to a floating exchange rate systemfrom a fixed one, and then the First Oil crisis in 1973 9 and Second one in 1979 10.
The Dollar-Shock brought into question the credibility of the dollar as an axis
currency and the influence of the United States in the international economy went into
decline. This sudden transformation saw a remarkable increase in transactions on
foreign exchange markets due to the shift to a floating exchange rate system.
Speculative transactions gained margins bet against fluctuations of the exchange rates.
Speculative values were far above the actual transactions of trade. In time, thespeculative excesses promoted market fundamentalism which maximizes efficiency byleaving everything to the market.
In the First and Second Oil crises, the OPEC countries succeeded in raising the oil
price and a large quantity of dollars streamed from Japan and other oilimporting
countries to the OPEC countries. The OPEC Fund was established in order to jointly
manage these dollars. The OPEC Fund trusted European banks to manage their

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assets. As a result of that, the resources of the OPEC Fund streamed throughEuropean banks as Euro-Dollars which provided loans for developing countries,
particularly in Africa. These Euro-Dollar loans resulted in heavy debt problems indeveloping countries in the 1980’s.
In the 1960’s, the export-import of primary commodities was mainly conducted in
actual transactions. But, in the 1970’s, forward transactions, developed by thecommodity trades of the Chicago stock exchange market, gradually expanded to othercountries and became the main stream of market transactions. Afterward, forward
transactions developed into a speculative business of their own. They needed large
amounts of capital compared to actual transactions. Therefore, under suchcircumstances, surplus Euro-Dollars were utilized for the speculative business. And theEuro-Dollars resulted in promoting speculative business. In addition, as forward
transactions became activated, they had an influence on the primary commodity
prices. Since primary commodities are easily affected by irregular weather conditions,prices on forward transactions tended to fluctuate, but under the speculative business,this was exacerbated. Moreover, primary commodity prices were not flexible enoughto reflect such movements of supply and demand. When prices increase in response toa rise in demand, supply of primary commodities naturally goes up. But the increased
supply is slow to go down in response to a decline of demand due to the smallscale
production system of developing countries. Therefore, the market started to takeprecautions against sudden rises in demand because of the problems associated withfluctuation and downward stiffness of prices. In consequence, prices were generally
hanging low in the long term, particularly in the 1980’s, which was unsatisfactory fordeveloping countries. Such unfavorable conditions on primary commodity prices
decreased the export incomes of developing countries and became the main factors
which generated acute debt problems.
4. Developing countries in globalization
The liberalization of the financial and capital transactions based upon the Plaza
Agreement in 1985 11, further accelerated the speculative transactions through foreign

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exchange markets and forward transactions. Since that time, hedge funds came into
being gathering resources from certain men of prosperity and ordinary investors tobenefit from speculation. Subsequently, they became a factor of disturbance in theinternational economy. At the same time, a financial instrument called“derivatives”
appeared in the international financial markets, giving hedges funds even moreleverage. This kind of trans-boundary economic activity was accelerated by theremarkable progress of Information Technology which became a symbol of theeconomic transformation in the 1990’
s. This stream of the international economy finally
led to“globalization”.
Globalization stimulates and enlarges speculative funds, and these become
unstable factors in the international economy. Evidence of this was seen in theeconomic and currency crisis which occurred in Thailand on July 1997, and in the
resulting waves in Malaysia, Indonesia and South-Korea etc. over the short term.
Many economic analysts around the world paid attention to the trans-boundary
turmoil caused by the speculation of hedge funds which invited internal economic
crises in Asia with the sudden collapse in value of foreign currencies in the exchange
markets. As the result of that, it led to a drastic decrease of foreign currency reserves,
aggravation of inflation and forfeiture of employment opportunities and so on.
It also became clear that globalization of financial markets is a profitableinternational economic regime for developed countries, particularly for westerncountries and the United States, when linked with the swelling and speculative money
which has been dominating world markets. The integration of the international
economy leans predominantly on the trade policies of developed countries because of
their superior economic power, technological competence and access to information
content. On the contrary, in many developing countries, the market economy isunderdeveloped and the infrastructure is feeble. Under such circumstances, it isextremely difficult for them to be able to achieve economic development by means ofentering the stream of globalization. Preferably, they should be facing up to the risksof being marginalized by the international economic regime and looking for ways
around this.

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Globalization is said to be based on the free trade system and closely linked to the
Washington Consensus12 which promote assures the liberalization of finance. To
encourage developing countries to participate in the WTO13, developing countries
should be assured that their economic interests would be enhanced by joining theWTO, and in consequence, be more involved in the international economy. However,
the economies of many developing countries were still premature and they wereconfronted with structural obstacles to satisfy the various economic conditions needed
to become a member of the WTO. Therefore, they remain outside the framework of
the WTO and cannot participate in the benefits of the open trade system. And in lightof the Asian economic and currency crisis mentioned above, we see that the guidanceof the IMF linked with the Washington Consensus failed to improve the policies ofAsian countries which continued to trouble them.
5. Key issues to resolve the economic difficulties in developing countries
Many developing countries are still suffering from various economic difficulties
which continue to marginalize them from the stream of globalization such as
accumulation of external debt, hanging low prices of primary commodities, and a lackof funds to develop for their economies. In addition to this, environmental problems are
emerging namely, desertification, global warming and air and water pollutions, which
require a global approach that will transcend the national interests of developed anddeveloping countries.
In many ways, international society is becoming increasingly interdependent, andthe survival and prosperity of one nation is closely related to the survival andprosperity of all other nations. This sense of global interdependence has become a kindof leitmotif of the international community and may be the key needed to develop
support to overcome the economic difficulties of developing countries.
One of the most serious economic problems confronting developing countries isexternal debt. Not only does external debt seriously constrain the economic
development of developing countries, but remains a troublesome problem for the

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international economy as a whole. The promotion of a flexible approach between the
debtors（developing countries）and creditors（developed countries）is essential to thesolution of this problem. That is to say, in order to relieve the debt burdens on
developing countries, the creditors should make more effort to implement expansion ofconcessional loans, extend limits for repayments and increase grants of aid cooperation
etc. On the other hand, the debtors should also make an effort to put into effecteconomic reforms for their development which will contribute to the maintenance ofinternational trust.
In addition to this, developing countries are also faced with sluggish prices ofprimary commodities. As already mentioned, many developing countries rely to agreat degree on export income derived from the export of a few primary commodities,
but as the price of primary commodities was sluggish in remaining at low level, there
was a shortage of funds for their economic development. And the International
Commodity Organizations could not support to realize an equal distribution of primarycommodities and natural resources for developing countries They could not also
effectively respond to the fluctuation of weakening prices of primary commodities byusing their technical methods of the“Buffer Stock System”,“Export Quota System”
and“Production Management”. But, we saw that exchange of transparent informationis still useful at the International Commodity Organizations. The reason being thatadministered measures which are contrary to market principles cannot resolvecommodities problems and that the effective actions taken in line with the market
mechanism will play a major role in its solution.
Under such circumstances, there are two key issues to ameliorate a function of
the commodity market. First, it is important to promote the exchange of transparent
information in the International Commodity Organizations. Therefore, manyInternational Commodity Organizations have changed their function with a view to
exchanging information on their commodities. Second, developing countries should
promote the diversification on their economies by increasing the degree to whichprimary commodities are processed prior to export. This will allow them access togrant aid from the second account of the Common Fund for Commodities（CFC）, as

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well as Official Development Assistance（ODA）from developed countries.
In terms of the lack of development funds, against the background of external
debt and commodity problems, a reverse flow of capital was seen around the world.
That is, capital flow from developing countries was greater than that from developed
ones. This was a major impediment to the development efforts of developing countries.
In order to address this problem, developed countries should promote capital flow todeveloping countries by implementing measures to recycle funds through expansion of
Official Development Assistance（ODA）, particularly through the increase of grantaids, expansion of concessional loans and extension of rescheduled limit of repayments
etc.
Simultaneously, in order to increase their export incomes, it is necessary fordeveloping countries to get preferential treatment through the generalized system ofpreferences in framework of the open trade system. From this point of view,
developed countries should constantly implement a special preferential tariff policy ofzero or near zero percent on agricultural, fishery and mining products fromdeveloping countries.
In terms of Official Development Assistance（ODA）, the donor（developed）
countries have been striving to extend, in a practical and flexible manner, various
kinds of cooperation that can enhance the self- reliance of the recipient（developing）
countries. By not only increasing the amount but also improving the quality such astechnical assistance, the donor countries should endeavor to meet the real needs of therecipient countries. Concretely, they should make more effort to expand grant aids anddebt relief measures and place greater emphasis on human resources development
which is essential if long-term development is to be achieved. On the other hand, therecipient countries should also accelerate their structural adjustment efforts, including
improvement of environmental conditions to receive direct investment from overseas.
At the same time, they need to reduce fiscal expenditures, control inflation andmaintain stable foreign exchange rate, as well as find ways to nurture the domestic
private sector and to further develop human resources.

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In conclusion, I can say that globalization has been inclined to accelerate economic
disparities between developed and developing countries and has promoted an unequal
distribution of wealth. Developing countries are even now in an inferior situation toachieve economic self-reliance. In order to realize a fair global economic society,developed countries must pursue not only economic rationality, but also social
rationality. They need effective and flexible manners based on the morals and ethics inwhich developed countries grew. And developing countries need to enjoy their own
economic interests. And the result will be the creation of an equal, fair, and contented
international society with reduced economic disparities between developed anddeveloping countries.
Notes
１

There is no official definition of“developing countries”and“developed countries”.（1）The Development Aid Committee（DAC）in the OECD categorizes developing countries as“Low Income Countries”“Lower Middle Income Countries”“Upper Middle Income
Countries”according to their annual per capita income.（2）The Development Planning
Committee（DPC）in the UN designated“Least among Less Developed Countries（LLDC）”
according to an average GDP of the last three years and“Most Seriously Affected Countries（MSAC）”affected by the Oil Crises in 1973 and 1979.（3）The World Bank categorizes
developing countries（borrowers of loans）based on two criteria according as GNP per capita（Low Income Countries, Lower Middle Income Countries and Upper Middle Income
Countries）and an amount of debt（Group1 ～ Group5）.（4）The IMF categorizes developing
countries（recipients of grants）based on four criteria according to the amount of export,
capital, debt and an average of GNP per capita.
２ The concept of primary commodities includes agricultural products and natural resources
such as minerals in developing countries excluding industrial processed products.
３ The main concepts of the NIEO were（1）Developing countries must be entitled to regulate
and control the activities of multinational corporations operating within their territory.（2）They must be free to nationalize or expropriate foreign property on condition favorable tothem.（3）They must be free to set up association of primary commodities and all States must
recognize this right.（4）International trade should be based on the need to ensure stable,
equitable, and remunerative prices for raw materials, generalized non-reciprocal and nondiscriminatory tariff preferences and so on.
４ The Bretton Woods system was the first monetary and financial agreement signed by theparticipated nation-states for the United Nations Monetary and Financial Conference which
was held in New Hampshire in the United States in 1945 just after the Second World War.
The structure of the system consists of the establishments of the International MonetaryFund（IMF）and the International Bank for Reconstruction and Development（IBRD）which
afterward became the World Bank（WB）.
５ The Buffer Stock System was an attempt to use commodity storage for the purpose ofstabilizing prices in a commodity market. Specifically, commodity is bought and stored when
there is a surplus in the economy, and then it is sold from the store when there is economic
shortage in the economy.

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The Export Quota System is a scheme to adjust the proportion of amounts of export amongproducer countries with bidding at the decisions of the international commodity organizations.
７ The Production Management is a scheme to arrange the amount of production ofcommodities in developing countries without bidding according to consultations of theinternational commodity organizations.
８ In 1971, Mr. Richard M Nixon President of the US officially announced the so-called gold
standard which was related to the unilateral cancellation of the direct convertibility of the US
dollar into gold, shift to a floating exchange rate system from a fixed one and other measures
to recover huge budget and trade deficits of the US.
９ In 1973, due to the outbreak of the fourth Middle East War in 1973, the OPEC countries
jointly decided to raise oil export prices and implement an oil embargo on the US and otherwestern countries which politically supported Israel.
10 In 1979, there was a cut in oil production due to the Iranian Revolution, the OPEC countries
jointly decided to raise oil export prices. But this action did not increase oil export prices
because of the progress which had been made on the global oil security system of oil importcounties since the First Oil crisis.
11 The Plaza Agreement was an accord signed by five countries -France, West Germany,
Japan, the US, and the UK- on September 1985 at the Plaza Hotel in New York City, which
depreciated the US dollar in relation to the Japanese yen and German Deutsche Mark byintervening in currency markets.
12 The Washington Consensus is a term used to describe ten policy prescriptions as a baselineof directions for developing countries in need of assistance from the IMF and the World Bank
which laid out in 1989. These prescriptions are in framework of free market fundamentalism
in keeping the liberalization of the financial and capital transactions.
13 The terms of accession to be a World Trade Organization（WTO）are dependent on the
country’s stage of economic development, namely the degree of privatization in the economy,transparency of the domestic regulations and domestic trade policy consistent with the WTO
rules and so on.