Global finance ignores world’s poor

Poorer countries have least say on economic policies yet are hit hardest by downturn.

Developing countries have been hit hard by a drop in aid, remittances and unemployment [AFP]

As government officials from around the world descend on New York this week for a UN conference on the economic crisis and its impact on development, the main issue up for debate is how the poorest countries can influence the way the International Monetary Fund (IMF) and the World Bank operate.

Few would agree that, in any society, denying a voice to the poor and the vulnerable is a good way to build a healthy social contract.

And there is no reason why this should be any different in the international community.

Yet developing countries have the least say on the conditions that are applied to development finance agreements with the IMF and the World Bank, despite the fact they are bearing the brunt of the economic downturn.

Special report

By the end of last year, it was already clear that the international community was unlikely to meet the eight Millennium Development Goals agreed by the UN back in 2000.

Only the goal to halve poverty appeared to be on track – and this was according to methodology used by the World Bank that some regard as less than entirely reliable.

By the middle of this year, the picture is even grimmer, with worldwide unemployment expected to reach 50 million, with most of those jobs lost in developing countries.

Job losses and wage reductions increase poverty and limit access to healthcare and adequate nutrition.

What sets this conference apart from the G8 and G20 financial summits is that, being a UN meeting, all  nations get to discuss the economic downturn in a truly global forum, as opposed to just those nations whose economic performance is determined as carrying a certain weight.

But even getting all UN members to agree to hold this conference was a struggle in itself, and it was only finally decided after arduous negotiations at the four-day UN Financing for Development Review conference hosted by Qatar in December 2008.

North-south divide

The continued clash between northern and southern world views about what role the UN should take to tackle the financial crisis was again writ large, as painfully slow negotiations took place earlier this year.

Developing countries say the conference should centre on the causes of the crisis and the need for reforms in the international monetary and financial architecture – namely the IMF and the World Bank.

Northern, or developed, governments demand that a UN-convened conference should stay focused on development issues and how to mitigate the impact of the downturn – i.e. more aid.

“As developed nations have increased stimulus packages, developing nations trying to do the same have to fight IMF conditions”

The developed nations insist that reform of the financial and monetary systems are best left to G20 leaders and the IMF and World Bank themselves.

If only that separation between reforming the IMF and the World Bank and development was so easy to make.

The reality is that it does not take long to trace the effects of the economic crisis on the developing world, or to see that poorer nations will be hit harder.

In turn, it is a fairly shared view among the main global economic institutions that failures in regulation, loose monetary policy and lax prudential supervision in the world’s dominant economies were the proximate cause of the crisis.

So the assertion that “development” aspects should be addressed separately from “systemic” ones is, at best, impractical and, at worst, a simple way to dodge a broader debate on necessary reform.

Besides, allowing the World Bank and the IMF to intervene or even define their own reform would be suspect, to say the least.

As aid, remittances and all sources of external finance are in decline, the ability of developing countries to rely on their own revenue for development is more important than ever.

Tax evasion

In order to do so, they have called for international co-operation on tax matters or else their efforts will be futile.

Co-operation measures include country-by-country reporting as part of international accounting standards, so companies will not be able to over- or under-report the value of intra-company trade to avoid paying taxes.

As industrialised economies issue large stimulus packages geared to protect domestic constituencies, the collateral effects on other, less well-off economies, should not be ignored.

The conference is discussing whether developing countries should be able to implement trade defence measures in ways that are not necessarily contemplated by the World Trade Organisation (WTO), given the exceptional circumstances.

Caliari argues there should be a greater diversity of development funding models [EPA]

Even as developed nations have increased stimulus packages developing nations trying to do the same have had to fight IMF conditions imposed on, and still linked to, growing economies.

On top of that, as the crisis leads to infrastructure financing drying up, companies that profited from the good times thanks to lucrative infrastructure deals will want to get paid for the bad times via government-backed guarantees.

In an attempt to strengthen all UN member states’ say on how global development funding is organised, Miguel d’Escoto Brockmann, the president of the UN General Assembly, appointed a Commission of Experts on Financial and Monetary Reform to table recommendations at the conference.

The commission was chaired by Dr Joseph Stiglitz, the Nobel Prize-winning economist who was formerly a chief economist with both the IMF and the World Bank.

As a number of other current and former economic policy-makers, academics and private sector representatives were also appointed to the committee, their conclusions cannot be dismissed as being ill-informed.

‘Unfettered markets’
The commission’s recommendations, issued in preliminary form in April, contain a swift indictment of “previously fashionable economic doctrines which held that unfettered markets are, on their own, quickly self-correcting and efficient”.

They state the case for short-term measures that protect the world’s poor – these can mostly be presumed to take the form of aid – but warn that without a truly inclusive response that includes longer-term reforms, global economic stability cannot be restored. 

The tendency to rely on a one-size-fits-all model of development may have exacerbated the impact of the crisis on developing countries.

The need for a larger diversity of development models cannot be seen in isolation of the need for competition within development finance that today is highly monopolistic.

So, one point of discussion has been whether new credit facilities could bring more choice into the system, especially if they have more democratic governance structures than the ones we have today.

The natural next step after the conference is to ensure that a comprehensive plan of action that incorporates this broader set of concerns is agreed.

Without this, the world’s poorest are condemned to live with the consequences, however painful they may be, of decisions that were not of their making.

Aldo Caliari is the director of the Rethinking Bretton Woods project at the Washington-based Center of Concern.

The UN conference on the global recession and development will be held in New York between Wednesday, June 24 and Thursday, June 26.

The views expressed in this article are the author’s own and do not necessarily reflect Al Jazeera’s editorial policy.

Source : Al Jazeera

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