* UNCTAD tells LDCs to increase state role in development
* Improved "governance" key -- but so is performance
* LDC GDP per head ex Bangladesh seen shrinking
By Jonathan Lynn
GENEVA, July 16 (Reuters) - The state should play a bigger role in development policies in the world's poorest countries to help them pull out of the global financial crisis, a United Nations agency said on Thursday.
The report, by the U.N. Conference on Trade and Development (UNCTAD), assumes that economic growth in most of the 49 least developed countries (LDCs) will not keep up with their population increase this year.
"This is a very serious situation and dealing with it will require national and international action," said Charles Gore, a senior UNCTAD economist and one of the authors of the report.
"The crisis has exposed more than ever the shortcomings of the current development paradigm," he told a news conference. "LDCs should seize the crisis as an opportunity for a change."
UNCTAD says that developing countries need to go beyond institutional reform and focus on good "governance" -- the way a country is run. This should be based on participation, fairness, decency, accountability, transparency and efficiency, it said.
The real test will be whether poor countries can use that approach to carry out policies that generate a better economic performance, it said.
Governments should use fiscal policy to provide a stimulus to counter the crisis and invest in infrastructure, with foreign aid helping to fund deficits, while encouraging the private sector to mobilise resources, it said.
UNCTAD said developing countries should invest in boosting agricultural productivity to address food security, reflecting concerns illustrated in last week's pledge by leaders of the G8 rich countries to commit $20 billion in aid over three years to help poor nations feed themselves. [ID:nLA547470]
The report also looks at how developing countries can use industrial policy to build up manufacturing -- traditionally a weak spot in African economies -- by focusing on technology and knowledge to develop sectors with high returns.
GROWTH COALITIONS
Gore said governments in developing countries were increasingly keen to find policies that enable them to boost production and employment, and they could quickly introduce approaches advocated by UNCTAD such as setting up "domestic growth coalitions" between the private and public sectors.
Among countries doing this, Rwanda is formulating a national strategy, Zambia is identifying priority sectors that are competitive, Bangladesh has boosted farming productivity and developed manufacturing exports and Malawi has moved from being a net food importer to an exporter by subsidising fertiliser, he said.
The report is based on data from the U.N. Department of Economic and Social Affairs forecasting that the economies of the 49 LDCs will grow 2.7 percent in 2009 against an average 7.4 percent a year in 2003-2008.
Excluding Bangladesh, which accounts for about 25 percent of the group's output, growth will be only 2.1 percent, lower than population growth resulting in a fall in GDP per head, with African countries that rely more on commodity experts harder hit than Asian states. (For the UNCTAD report go to http://www.unctad.org/Templates/meeting.asp?intItemID=2068&lang=1&m=17647 ) (For the latest UNDESA forecasts go to http://www.un.org/esa/policy/wess/wesp2009files/wesp09update.pdf )