Developing countries face serious obstacles to economic growth and experience high volatility in their foreign exchange earnings, closely linked to the variability of exports and capital. They have little ability to carry out the type of counter-cyclical policies that developed countries use to counter shocks. The IMF and other IFIs have been in charge of providing financing at times of cyclical Balance of payments crises, but their role has been constrained by limited availability of resources. This paper proposes a Counter-cyclical Financing Mechanism (CCFM), managed by the IMF. Emerging and developing countries would qualify for the facility, intended to offset the effect of cyclical declines in GDP, exports and private capital flows. With adequate cooperation and macro-policies, access would be automatic and based on shortfalls calculated for one year and up to two years. Charges would be the same as at present, with lower interest charges applied to low-income countries. Excluding China, a total amount of some US$120-140 billion would cover significant deviations on an annual basis (about one third of total loans by the IMF and World Bank/IDA, and only 1 percent of total international debt securities outstanding). The financing would be raised through an extraordinary increase in IMF quotas and special bond issues by the IFIs.

The paper examines the case of cocoa as an illustration of the problems faced by primary commodity producers. The impact of market liberalisation within cocoa producing countries and industrial countries, the main consumers, on the cocoa price and cocoa farmers is examined. The paper shows that the market liberalisation cannot be held responsible for such improvements in productive efficiency as occurred over time, which was one of the two stated goals of these measure. Nor is there convincing evidence that the producer’s share in the export price increased, which was the other goal. A serious consequence of the preoccupation with market liberalisation, however, was that it diverted attention from the problems that are of main concern to cocoa producers, viz., the market volatility, low prices, and the producers’ share in the value chain. The paper then goes on to explore the kinds of action that might be considered to address these issues. It makes a case for filling the institutional vacuum that has been created as a result of the abolition of state marketing authorities in several cocoa producing countries. The paper attempts to show that the conditions are favourable for a cocoa producers’ alliance to emerge, which is desirable from the viewpoint of regulating cocoa supplies to prevent further price declines.