Oil price rise ‘also threat to oil producers’

Press, Volume CXIV, Issue 33455, 9 February 1974, Page 1

Oil price rise ‘also threat to oil producers’

’»cw Zealand Press Association) W ELLINGTON, February 8. A warning that the huge increase in the price of oil was a threat to the stability of the economies of oil-consuming and oil-producing countries alike, was given in Wellington by the president of the World Bank (Mr Robert McNamara).

Speaking at a joint meeting of the New Zealand Institute of International Affairs and the New Zealand Association of Economists, Mr McNamara said that if no other changes had affected international trade in 1973 other than the present oil price increases, the current account surplus for developed nations would have turned into a deficit of SUSII,UOOm while the deficit for developing countries would have doubled to SUS23,OOOm.

“Individual nations may, seek to finance the deficits by, unilateral, beggar-my-neigli-' bour policies of drastic ex-change-rate adjustments and severe trade restrictions,” he' said, “but such efforts to ex-i pand exports and restrict im- i ports, if pursued by many nations, can only lead to a; world-wide deflationary’ j spiral. { “Alternatively, many | nations may be forced, due to' inadequate financing, to reduce petroleum imports, and as a consequence to suffer serious slow-down in their' domestic economic activity! and in their international; trade.” Oil-producing countries oni the other hand, said Mr McNamara, would face a’ mirror-image of these problems — how to find secure; and profitable opportunities j for the investment of their, revenues. India’s example Tn the case of developed countries the European; money market, other inter-1 national capital markets and! the International Monetary i Fund would provide the funds | to bridge a period of adjustment, but for the developing; nations no plan had yet been • formulated. Citing the example of India. Mr McNamara pointed out that that country’s bill for petroleum would rise 1 from SUS4ISm in 1973 to sL'Sl3som in 1974. “If economic disaster is to! be avoided, countries such as India will need huge addi-;

. tional quantities of long-term, ; concessionary aid — both for 1974 and for the several additional years required to adlijust their economies to the : ! new terms of trade. ■ i “The World Bank is giving urgent attention to this problem. Workable solutions .'must be found, but they are inot on the horizon yet.” , Mr McNamara emphasised the necessity for the 'developed nations—of which New Zealand was one—to

(realise that it was in their I ■ own interests to make a( greater effort to assist the] 1100 countries and 2000 m .people of the developing' (world. ■ "It is clear that no degree’ ■of outside assistance can , isolve the internal problems] ; of social equity in developing I, ] countries unless the Govern- i. 'ments of those countries , themselves are willing to take : the steps that are necessary,” ] he said. “The evidence, by and] large, is that most develop-i ing countries will take steps! .once they fully realise the; gravity of the situation. I “If we are to expect, hotvlever, the developing nations! ]to undertake these efforts—l efforts that often call for a I great deal of political cou-i

rage and leadership—w e have to understand that the rich nations must themselves display more social equity toward the poor nations. Later effort Drawing attention to the fact that it was now clear that developed countries by 1975 would reach only half of the 0.7 per cent of gross national product aid target set by the United Nations, Mr McNamara said this would leave the second half of the decade for a redoubled effort. “If the wealthy nations are : serious about their responsibilities, they can use those five years to demonstrate it,” he said. Mr McNamara welcomed the New Zealand Government’s intention to meet the 0.7 per cent target by 1976. , “The fact is that positive [ actions in support of aid, such as those adopted by I New Zealand—as well as ithose being taken by other relatively small countries, including the Netherlands, Belgium and the Scandinavian nations—have an altogether disproportionate effect on the ultimate performance of the major Powers,” he said. Aid needs In a press conference after the address, Mr McNamara said that meetings earlier in the day with the Minister of Finance (Mr Rowling) and the Cabinet Economic Committee had been aimed at finding out how the World Bank could be more effective in its development programme. There had also been discussion, he said, on ways in [which New Zealand and World Bank aid programmes icould be co-ordinated.