What is to be done for Third World commodity exporters? An evaluation of the STABEX scheme

Third World economies largely dependent on commodity exports other than oil have been the principal victims of the world recession. Attempts at restructuring international commodities regimes through the creation of the Common Fund have met with little success. Accordingly, the possibility of helping commodity exporters through the provision of compensatory finance has attracted increasing attention. One possible model for a new international compensatory facility is the EEC's STABEX scheme, established as part of the Lome Convention. However, rather than operating automatically and without interfering with market mechanisms, as its proponents suggest, the administration of STABEX has depended on discretionary judgments on the part of the EEC Commission, and the scheme has introduced distortions into trade between the EEC and its partners in the Lome Convention. Transfers under the STABEX scheme have had only a minor impact on the economies of recipient countries, especially on the sectors affected by fluctuations in export earnings. STABEX is an unsatisfactory model for a new compensatory facility: additional finance to compensate LDCs for losses in export earnings might most feasibly be made available through further liberalization of the IMF's Compensatory Financing Facility.