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OECD Council Meetings at Ministerial Level

Meeting of the Council at Ministerial Level in June 1981

1. The Council of the Organisation for Economic Co-operation and Development met at Ministerial level on 16th-17th June, 1981, under the Chairmanship of Mr.Jose Desmarets, Deputy Prime Minister and Minister of Planning, and Mr. Willy Claes, Deputy Prime Minister and Minister of Economic Affairs, for Belgium. Attention was concentrated on Member countries economic prospects and policies, current trade problems, the energy situation and relations with developing countries.

I. Economic Prospects and Policies

2. Despite some encouraging developments, notably the way in which OECD Countries have adjusted to the second oil shock, Ministers recognised that they were meeting at a time when OECD economies were facing particularly difficult and complex problems, with unemployment high and continuing to rise, inflation stubbornly high despite weak activity, money and exchange markets afflicted by inflationary expectations and uncertainty, and persistent global adjustment problems.

3. Ministers recognised that these problems have their roots in economic developments and policies going back a number of years. External circumstances, including two massive oil shocks, have been a major factor. It is also clear, with hindsight, that insufficient attention to the medium-term inflationary and structural consequences of some policies adopted over the past two decades has contributed to current difficulties. Ministers noted that, just as it took time for these problems to develop, it will take time to resolve them.

4. Reviewing performance over the past year, Ministers agreed, however, that there were some encouraging factors. The general adoption of non-accommodating monetary and fiscal policies in the wake of the 1979-80 oil crisis has helped prevent higher oil prices from pushing up the domestically generated underlying rate of inflation. In contrast to the first oil crisis, there has not been a serious profit squeeze or decline in business confidence that would have sapped the recovery of investment over the longer term. The demand for energy, and oil imports in particular, has been reduced substantially as a result of increasing adaptation to the higher energy prices and vigorous energy policies.

5. Looking ahead, some further slowdown of inflation can be expected. In the United States, recent buoyant growth is expected to moderate for a time. In Japan, steady growth is expected to continue, with some acceleration next year. In many other OECD countries, particularly in Europe, the recovery in demand and activity may come later this year or early in 1982, but may be insufficient to prevent a further rise in the already high levels of unemployment, especially in view of the expected rapid growth of the labour force.

6. Significant exchange rate variations have taken place during recent months. The pronounced depreciation of continental European currencies and the appreciation of the dollar will raise the price of imports in Europe and thereby weaken domestic demand, increase inflationary pressures and contribute to worsening unemployment prospects in the near term. Recovery will also be delayed by the sharp rise in interest rates in many countries, resulting in part from efforts to limit further depreciation of their currencies. On the other hand, an improvement in the competitive position of Europe can be foreseen provided that the inflationary consequences of the depreciation are contained. This in turn can help to promote a stronger recovery later this year and improve exports and employment prospects.

7. Ministers discussed the likely duration of the transition to improved growth and economic performance. In particular, it was noted that the constraints on the conduct of monetary policy in some European countries may lessen progressively when their external positions begin to improve; also some relief might be provided if the modest easing of oil prices is sustained for a period. A relatively rapid downward adjustment of inflation, inflationary expectations and interest rates in the United States would also ease the path to the achievement of better economic performance for other countries. Conversely, the persistence of other factors putting downward pressure on European currencies or a slower adjustment of U.S. interest rates might tend to lengthen this transition. These are difficult questions, and therefore assessments differed.

8. Assessments also differed over the risks, in this transition period, to better longer-term performance. Some emphasized that ill-timed action to reflate demand would risk undoing the progress made on reducing inflation and would result in a further entrenching of inflationary expectations, with consequent worsening of growth performance. Others stressed that, in the absence of strengthened demand, there would be increased risks of protracted high unemployment, heightened protectionist pressures, amplified structural distortions and weakened investment and productivity gains.

Policy Stance

9. Ministers emphasized that the objective of economic policy was to enhance the well-being of people. In the present circumstances curbing inflation and reducing unemployment must be of prime concern. Ministers reaffirmed that bringing down inflation and inflationary expectations is the indispensable condition for re-establishing the basis for durable increases in employment and more vigorous sustainable growth. The most effective policies to reduce unemployment in the long run are those which improve the overall performance of OECD economies by revitalising productive investment and enhancing market efficiency. All possible steps should be taken to implement these policies in ways that provide a basis for increased employment.

10. Ministers recognised that achievement of these objectives requires the balanced use of a range of available policy instruments, taking account of the interdependence among countries and the need to find the right balance between action directed to conjunctural and structural problems, the demand and supply sides, and the short and medium run. To this end, Ministers agreed:

11. Ministers reiterated the importance of a co-operative approach to the conduct of macro-economic policies and the importance of taking into account the effects of their actions on others. They affirmed again that nowhere is such co-operation more important than in maintaining the open trade and payments system.

II. Trade Problems and Policies

12. Ministers noted that despite the deterioration of the economic situation, governments have managed to keep the general Orientations of their trade policies in line with the objectives of the Declaration on Trade policy adopted in June 1980. Ministers agreed however that the persistence of serious economic difficulties and consequential protectionist pressures required increased and vigorous efforts by governments to avoid a progressive erosion of the open and multilateral trading system. They emphasized in particular the dangers inherent in recourse to trade measures not subject to agreed rules and disciplines and to trade-distorting subsidies and practices.

13. Ministers discussed the interrelations between trade, industrial, agricultural, fisheries and macroeconomic policies. They agree that:

14. Ministers reaffirmed the objectives of the Declaration on Trade policy adopted last year and their determination to maintain and improve the open international trading system. They agreed on the need to strengthen multilateral co- operation in order to reduce the difficulties and to ensure that trade flows continue to play an efflcient role in the achievement of structural adjustment and of other general economic objectives. Their Governments will make full use of existing international institutions and multilateral rules and procedures in the trade field, recognising that in certain respects some of these rules and procedures require improvement and adaptation to current requirements. Moreover Ministers stressed the general desirability of transparency so that all trading partners may assess the content and impact of trade measures.

15. More specifically, Ministers:

III. Energy Policies

16. Ministers reviewed the action taken on energy in various fora and agreed that:

17. Ministers particularly stressed the risk of complacency due to the present easing of the market and pointed out the need to continue strong efforts to reduce vulnerability to possible future supply disruptions, and that it is therefore necessary to encourage the rational use of energy and increased energy supplies.

18. In this respect, Ministers took note of the oral report by the Honourable J.L. Carrick of Australia, Chairman of the meeting of the Governing Board of the International Energy Agency on I 5th June, on the results of that meeting.

IV. Relations with Developing Countries

19. Ministers emphasized the continuing fundamental commitment of their governments to co-operate with the developing countries in their mutual interests to achieve better economic growth and sustained improvements in the welfare of their peoples. Successful adaptation to growing world economic interdependence and stronger resilience of developing countries are important factors for world stability and peace. While development depends, of course, first and foremost on the developing countries themselves, Ministers emphasized the continued contribution which must be made, by their countries and other countries in a position to do so, both to development co-operation and to the promotion of the effective and mutually beneficial functioning of the world economy.

20. In the current world economic situation, Ministers were acutely aware of the balance-of-payments burdens and other economic problems affecting many developing countries. They agreed that present world economic difficulties, including problems of stagflation in many industrial countries and the disequilibrium in international payments, must be addressed urgently, recognising that their solution will require sustained efforts. They believe that successful implementation by the governments of OECD countries of the policies outlined in the preceeding sections should help the developing countries in their adjustment and development efforts. They noted that developing countries too will wish to judge carefully their domestic economic policy stance.

International Financial Co-operation and Official Development Assistance

21. Ministers welcomed as an important achievement in international co-operation the expanded role of the International Monetary Fund in the financing and adjustment of global payments imbalances, particularly those of developing countries. They underlined the importance of providing the multilateral development institutions with appropriate resources. They stressed the urgency of efforts to complete the procedures necessary to enable the IDA, an essential source of concessional assistance for the poorer developing countries, to resume its activities.

22. Ministers noted that in 1980 offlcial development assistance flows from DAC Members as a group were 40 per cent higher, in real terms, than in 1970. Ministers agreed that further increases in official development assistance are important for developing countries, in particular for the most disadvantaged among them. They affirmed the determination of their governments to contribute, to the best of their ability, to an increased international development assistance effort in accordance with their commitments to the international aid objectives. Ministers welcomed the aid given by OPEC countries and expressed the hope that these countries would further strengthen their contribution to the international aid effort. They considered that CMEA countries should make a greater and more effective development assistance contribution

23. Ministers agreed that experience gained over the last two decades had brought about an improvement in aid quality. Aid had made a significant contribution to the advances that have occurred in developing countries production capacity, infrastructure and human resources. In this regard, Ministers emphasized the importance of the policies of both recipient and donor governments in facilitating greater effectiveness of development assistance.

24. Ministers endorsed the work of the OECD Development Assistance Committee on improving the volume and quality of aid and noted the decision, in principle, by the World Bank/lMF Development Committee to establish a task force to carry forward and widen the continuing study of the problems affecting the volume and quality and effective use of concessional flows, both in the shorter and longer term.

25. Ministers stressed the urgent character of the problems and needs of the most disadvantaged developing countries. They agreed to pay special attention to the problems of these countries. Ministers considered the United Nations Conference on the Least-Developed Countries to be an important opportunity to provide impetus to national and international action for strengthening the development of these countries. They declared their intention to play a constructive role in working towards realistic measures to achieve this objective.

Trade and Investment

26. Ministers recalled their determination, as expressed in the 1980 OECD Declaration on Trade Policy, to strengthen trade relations with developing countries, taking into account the desirability of differential and more favourable treatment for developing countries, having in mind their special and differing needs, in particular those of the least-developed among them. They recognised the crucial importance of export earnings for developing countries and the favourable effects of high growth in these countries for the world economy. They reaffirmed the need to avoid restrictive measures which might inhibit the dynamic development of trade with developing countries. They underlined that, in addition to liberalisation of trade by industrialised countries, mutual benefits for all trading partners would derive from progressive trade liberalisation efforts by developing countries in a position to do so and, more generally, from the further integration of developing countries into the international trading system.

27. Ministers welcomed the agreement on the establishment of the Common Fund. They expressed their determination to continue their efforts to promote international co-operation in the commodity field. They also welcomed the work of the Organisation on investment in commodity production as well as on broader supply and demand issues in the interests of producers and consumers alike.

28. Ministers agreed that international private capital flows play an essential role in development. They endorsed continuing efforts by the Organisation to facilitate these flows. They noted the significant and particularly effective role of direct investment, which carries with it the advantages of technical, managerial and marketing expertise. They underlined the importance of an appropriate investment climate, and expressed the hope that activities in the United Nations in the areas of international investment, the transfer of technology and restrictive business practices would contribute to expanded and mutually beneficial investments.

Food Production and Food Security

29. Ministers agreed that food production and food security in developing countries are of major concern. They considered that development assistance efforts, including appropriately designed food aid, to assist domestic efforts and policies in developing countries to strengthen food production and to improve food distribution and nutritional standards, are matters of priority. In this context policies aimed at improved market stability and at enhanced food trade are also essential for attaining food security.

Meeting Developing Countries Energy Needs

30. Ministers stressed the scope for realising significant mutual benefits in diversifying world energy supplies by means of helping developing countries to deal with their particular energy problems, which range from the difficulty of meeting their oil importing requirements to the growing shortage of fuelwood. Ministers agreed that the development of conventional energy resources was a priority area for co- operation with developing countries. Financing and development of energy production will be an important task for both private and public sector institutions. In this regard, there is a need to expand the lending operations of the World Bank in the energy sector and to examine how additional energy lending could be most appropriately financed and organised. Ministers looked forward to the United Nations Conference on New and Renewable Sources of Energy as the first occasion to lay the basis for increased national efforts as well as intensified regional and international co-operation.

North-South Dialogue

31. Ministers expressed their satisfaction that the International Development Strategy for the 1980s had been adopted. They recognised that the impact of the Strategy will depend upon the efforts of both industrialised and developing countries to reach the objectives set out in the Strategy. They agreed that it is essential to continue to review with developing countries the problems of the world economy and development issues in comptent international fora and to seek constructive international co-operation, building on mutual interests and contributing to the development of developing countries. They agreed that a wide ranging dialogue, conducted in a flexible and realistic manner, taking account of the diversity in the problems, needs and responsibilities of participating countries, as well as their common interests, should make a positive contribution to international co-operation. They recalled the agreement by their governments at the United Nations in 1979 to launch the Global Negotiations after adequate preparations had been made, and affirmed their readiness to carry forward international consultations and co-opration with the developing countries on a wide range of matters of common interest.

Source: Activities of OECD. Copyright OECD 1981. Reproduced by permission of the Organisation for Economic Co-operation and Development.

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