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OECD Council Meetings at Ministerial Level

Meeting of the Council at Ministerial Level in June 1979

1.The Council of the Organisation for Economic Co-operation and Development met at Ministerial level on 13th and 14th June, 1979, under the chairmanship of Dr. Hannes Androsch, Vice-Chancellor and Federal Minister of Finance of Austria.

2. Renewed inflation and uncertain energy supplies have become major obstacles to achieving sustained economic growth and more jobs in OECD countries. Economic and energy policies must respond if serious consequences for both developed and developing countries are to be avoided. It will be easier to take the difficult decisions required if Member countries act together.

3. Ministers therefore agreed on the need for greater solidarity among Member countries. They carried forward the concerted action programme adopted last year, revised in the light of the current economic and energy situation, and agreed on some guidelines for policies over the medium term. They reviewed the outcome of UNCTAD V and reaffirmed their commitment to constructive co-operation with the developing countries.

I. Overcoming the Obstacles to Sustained Economic Growth

4. The programme of internationally concerted action adopted last year has yielded positive results in more internationally balanced economic growth, reduced payments imbalances and greater exchange rate stability. It is encouraging that:

5. On the other hand:

6. Inflation. Ministers agreed that the most obdurate obstacle to faster growth and more jobs is the continuing high rate of inflation in many Member countries, and the risk that it may accelerate. Inflation undermines growth directly by creating uncertainty and inhibiting investment; it may also require governments to pursue restrictive demand management policies.

7. Energy. Ministers examined the economic implications of the energy situation. They took note of the outcome of the meeting of the IEA Governing Board at Ministerial level on 21st-22nd May. There is now a real danger that, without responsible policies by oil consumers and producers alike, the energy situation will seriously damage the world economy.

8. Without effective action to restore balance in world oil markets the rise in oil prices could set off a new inflation-generated recession as in 1974-75. Many of the measures needed to reduce the growth of energy consumption quickly may be painful, but if they are not successful the inevitable consequences in terms of increased inflation leading to less growth and more unemployment will be far more costly and socially detrimental.

9. There is no escape from the reduction of real incomes caused by higher prices for imported oil; claims for compensatory increases in money incomes will only make matters worse by aggravating inflation and increasing unemployment.

l0. Payments imbalances. Welcome progress has been made in reducing payments imbalances within the OECD area, but they could re-emerge due to strengths and weaknesses in countries competitive positions, and become again a constraint on growth.

11. Higher oil import bills will inevitably worsen the current account situations of oil importing countries. While existing financial mechanisms seem capable of providing sufficient finance to meet higher current deficits in most cases, the resulting increase in indebtedness is a matter of concern to oil importing countries, especially the developing countries among them. Ministers noted that in present circumstances, countries highly dependent on the spot market may face particular difficulties.

The Policy Response

12. Ministers recognised that economic and energy policies have become inseparable. They are convinced that there is a combination of policies which can, over time, significantly ease the energy and inflation constraints on economic growth and permit continued economic and social progress. To this end they have agreed on the following guidelines for policy.

Policies for the Next 12-18 Months

13. Ministers agreed that:

Policies for Overcoming the Medium Term Constraints on Growth

The Inflation Constraint

14. Although there are differences between Member countries in the success they have had in restoring the conditions needed for sustained non-inflationary growth, improved economic performance requires consistent and sustained attention to the price stabilization objective. Countries where domestic pressures on the price level have been reduced are better placed to increase economic activity and reduce unemployment. Other countries must concentrate on achieving better price stability; as they succeed in this they will create the conditions for sustained growth and policies can become more growth-orientated.

15. Better price performance required cautious and steady monetary and fiscal policies. Budget deficits should not exceed any excess of savings in the private sector. Where rising taxes and social security charges have generated inflationary pressures the share of public expenditure in GNP will have to be restrained.

16. Better price performance also requires further efforts to seek greater consensus and where appropriate modify wage and price setting behaviour to restore the profitability of productive investment, ease inflationary pressures caused by the wage-price spiral, and facilitate necessary changes in relative prices and the structure of wages.

17. There is a risk that slow growth becomes self- perpetuating. It inhibits investment and encourages defensive attitudes on the part of Governments, business and labour such as protectionism and support for declining and inefficient activities. These reactions generally impair productivity and sharpen the inflation constraint on growth by raising costs and reducing the supply of available goods. It makes little sense to accept the need for a further period of unsatisfactory growth performance because of the inflation constraint if Governments then try to mitigate the effects on employment by measures which reduce productivity or increase costs and prices in other ways.

18. Cautious demand management policies should therefore be combined with action or the unwinding of previous actions to improve the supply side by benefiting from lower cost imports, encouraging investment, and facilitating necessary structural adjustments.

19. Ministers therefore stressed the importance of the special two-year programme on positive adjustment policies just adopted by the Organisation. All competent bodies of the Organisation will pay special attention to policies in their field of competence which have an impact on structural change. A special group of senior officials has been created to keep under review the macro-economic and international consequences of measures promoting or hindering necessary structural adjustments in the field of manpower, industrial, agricultural, regional, trade and other policies.

20. Positive adjustment should rely as far as possible on market forces to encourage mobility of labour and capital to their most productive uses. Measures to help sectors or firms in difficulty should be temporary and integrally linked to the implementation of plans to phase out obsolete capacity and reestablish financially viable entities. Positive adjustment can be facilitated by the dissemination of better information on the costs and benefits of government measures, proper consultation between labour and management, vigorous action to maintain competition and curb monopoly power, policies that encourage research, innovation and investment, well designed regional policies, and efforts to avoid unnecessary regulation and reporting requirements.

21. Ministers also reaffirmed their attachment to an open world trading system and their determination to continue to fight against protectionism in all sectors and to work towards improvements in the system. They therefore:

22. Ministers agreed that better functioning of commodity markets, including improved market access and security of supplies, would benefit both consumers and producers and reduce one potential source of inflation.

23. There was broad agreement on the need, in appropriate cases, to pursue efforts to promote higher employment, particularly among the disadvantaged groups.

Measures such as those described above should be undertaken only after consideration of their possible adverse impact on productivity and inflation.

The energy constraint

24. Without strengthened policies energy supplies over the medium run will not be sufficient to support an adequate rate of economic growth. Taking into account the different situations in Member countries, Ministers agreed on the urgent need for:

The balance of payments constraint

25. To ease the balance of payments constraints on growth:

II. World Interdependence and Relations with Developing Countries

26. Ministers considered the implications of global economic trends for relations with developing countries. They reaffirmed the need for strengthened co-operation with the developing countries which is an indispensable element in achieving more sustained and stable world economic growth and which provides an improved basis for development policies. They stressed that in view of the difficult global policy challenges ahead, improved co-operation with developing countries had assumed even greater importance.

27. Ministers discussed the results of UNCTAD V. They felt that, although the overall results of the Conference had been limited, valuable progress had been made in specific areas. It is now essentiel to continue constructive co- operation with developing countries in the appropriate fora and in the preparations for the new International Development Strategy. In this connection, Ministers noted the importance of the participation of all countries, including the industrialised countries outside OECD, in the international development effort.

28. Ministers welcomed the convening of the United Nations Conference on Science and Technology for Development to be held in August in Vienna as a major opportunity to promote effective international scientific and technological co- operation, especially for the benefit of developing countries, and pledged to work towards its successful conclusion.

29. Ministers noted the value of pragmatic forms of consultation and co-operation with developing countries in areas of significant mutual interest. The contribution that the Organisation can make in this should be actively examined.

Trade and Adjustment

30. An expansion of world production and trade and further changes in their structures are essential means to raising living standards and promoting economic and social progress in developed and developing countries alike.

31. Ministers acknowledged the desire of developing countries to industrialise further and to contribute a larger share of world trade in accordance with their comparative advantage. They stand ready to assist in this process in such areas as trade, investment and technical co- operation.

32. Ministers stressed the importance to trade relations with developing countries of the general measures to maintain and further improve the open international trade system now being taken. In particular they:

33. While OECD countries bear a particular responsibility in the maintenance of an open international economic system, they believe that developing countries, in particular those which have reached a relatively advanced stage of industrialisation and have shown their capacity to compete effectively on international markets, should gradually take a larger part in this effort: by liberalising trade both among themselves and globally, complying more fully with international rules in this field, and more generally adopting policies contributing to satisfactory trade and payments relations.

Energy Co-operation

34. Ministers reaffirmed their willingness to contribute to international energy co-operation among developed and developing countries and to discuss energy questions of mutual interest with oil-exporting and oil-importing developing countries. They welcomed the adoption by the World Bank of an energy programme which should serve to strengthen the domestic energy production of oil-importing developing countries and noted related activities by other international and regional institutions. They stressed the urgency of examining with interested developing countries the scope for strengthened co-operation to identify and develop these countries energy resources. They welcomed the report of the OECD Council Working Party established last year to develop a co-ordinated effort to help developing countries to bring into use technologies related to renewable energy, especially in the light of the forthcoming United Nations Conference on New and Renewable Energy Resources.


35. Ministers noted with satisfaction the results of the negotiations on the Common Fund. They agreed to pursue, in a positive spirit, the establishment of this mechanism as well as the current discussions and negotiations on individual commodity agreements. They emphasized their interest in examining the scope for further action to strengthen food and commodity production and processing in developing countries, bearing in mind their development needs and priorities.


36. Stemming and reversing environmental degradation through deforestation, desertification and soil and water erosion is a matter of global concern and required international co- operation. Ministers recognised that developing countries have limited resources for such purposes and need international support.

Aid and Financial Resource Transfers

37. Ministers underlined the importance and substantially- increased and stable flows of aid, finance and investment. Recognising the essential role of aid, Ministers called for an expanded, qualitatively-improved, and equitably shared collective effort for official development assistance. Concessional transfers should, as far as possible, be concentrated on the least-developed and other developing countries most in need. They invited the Development Assistance Committee, bearing in mind the studies on this subject in other international fora, to conduct an in-depth review of the scope for improved financial co-operation with developing countries, at adequate levels and reflecting their specific development problems, including their debt problems with a view to contributing positively to the new International Development Strategy.

III. International Investment and Multinational Enterprises

38. The Ministers undertook the Review foreseen in the 1976 agreements on International Investment and Multinational Enterprises. They noted with satisfaction that the three related instruments approved in 1976, dealing respectively with guidelines for multinational enterprises, national treatment for enterprises under foreign control and with incentives and disincentives for investment, have demonstrated their effectiveness as a framework for strengthened international co-operation in matters related to international investment and multinational enterprises not only for the Member governments but also for the business community and the labour organisations.

39. Ministers affirmed the continued commitment of their governments to the 1976 Declaration. They agreed to steps designed to further strengthen the effectiveness of their co-operation in future. In this connection, as regards the guidelines for multinational enterprises, where one addition is being introduced, the follow-up procedures at national and international levels are to be strengthened and developed further through additional arrangements for consultations with business and labour and for reporting. Ministers also approved new work to be undertaken on the use of investment incentives and disincentives and the international repercussions on other countries of such measures.

Source: Activities of the OECD. Copyright OECD 1979. Reproduced by permission of the Organisation for Economic Co-operation and Development.

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