By Shalmali Guttal Development Equals Economic Globalisation
The first Preparatory Committee (Prepcom) Meeting for Financing for Development (FFD), held in the United Nations (UN) headquarters in New York from February 12 – 23, seemed unable to move beyond an over simplified equation between development and economic globalisation. Going by the discussions at the Prepcom, it seems clear that unless fundamental changes are brought about in the international financial system, architecture, institutions and governance in favour of poor and developing countries, these countries are likely to pay a far higher price for development than before. What would make it more expensive? Further speeding up and consolidation of the processes, structures and institutions of economic globalisation parading as development.
The center-piece of discussions at the Prepcom was the report of the UN Secretary General (SG) that outlined six major areas to be covered in deliberations about financing for development: 1) Mobilising domestic financial resources for development; 2) Mobilising international resources for development: foreign direct investment and other private flows; 3) Trade; 4) Increasing financial cooperation for development through, inter-alia, official development assistance; 5) Debt, and; 6) Addressing systematic issues: enhancing the coherence and consistency of the international monetary, financial and trading systems in support of development. The SG’s report was a result of discussions over the past year at regional inter-governmental meetings, dialogues with the business community and civil society, and lengthy negotiations among staff from the UN FFD Bureau, the World Bank, the International Monetary Fund (IMF) and the World Trade Organisation (WTO).
Given this backdrop, it was only to be expected that the SG’s report would be a compromise document reflecting the views of “all stakeholders” in both financing and development processes. However, the report gives new meaning to the word “compromise.” Rather than exploring and discussing ways to address historical, structural and institutional impediments to sustainable development financing, the report hails the processes of economic globalisation as the only viable solutions to the resource crunch that developing countries are currently facing. Unfortunately, the SG’s report appears to be a thinly veiled plan for further liberalisation and privatisation of all key sectors in developing countries—from trade to essential services–with greater reliance on market mechanisms and the private sector for delivering public goods and services. The report does not highlight the important role of government and public policy in ensuring equity, social and economic justice, or in protecting vulnerable and disadvantaged populations from further economic violence. Instead, it squarely locates the proper place of public policy to create an enabling environment for private sector initiatives and capital flows through good governance, and appropriate sectoral and institutional reforms.
The above was contested by a number of developing country delegations. On behalf of the Group of 77 and China, Ambassador Bagher Asadi from the Islamic Republic of Iran pointed out in his opening statement that ongoing processes of globalisation have changed the parameters of development and development financing. The very same financial features that have facilitated greater financial integration have also brought increased financial risks and created instability. Similar sentiments were echoed by delegations from (among others) Nigeria, Ghana, Saint Lucia and Cuba.
The contradictions inherent in easy conflations between economic globalisation and development were succinctly pointed out by the Pakistan’s Ambassador in his opening remarks:
“…While globalisation may mean different things to different people, there is a general agreement that economic globalisation means marketization of global economy. Market is perhaps the most efficient way of achieving certain economic goals but market cannot be allowed to make major social and political decisions. In fact, the empirical evidence has established that global markets fall far short of addressing the social development aspect of economic activity. The supporters of globalisation must argue against this evidence… One cannot help but ask, if globalisation is working well then why are there so many poor people at a time there has never existed such great wealth? Why is the number of least developed countries increasing? Why is the environment on the edge of collapse? …there is a tendency to oversimplify the whole issue by saying that ‘no-one is in charge here.’ And then there is the most commonly used acronym ‘TINA’ meaning ‘There is no Alternative.’ …If it is so then one is to believe that income disparities would continue to rise and poor will become poorer and rich will become richer”
As it turned out, the supporters of economic globalisation had no need to argue against the evidence presented by the Ambassador from Pakistan. The SG’s report had already done such a good job of re-packaging the TINA argument to promote the primacy of market-based policies, mechanisms and institutions in national development.
A Narrow View of both Financing and Development
The SG’s report presents an extremely narrow view of both financing and development. In the introductory section, the SG’s report states that the high level event on FFD is not meant to “revisit the goals and content of development,” but rather, the “need for finance to meet these development needs.” Surprisingly, the report makes almost no links between different methods of financing and their long term social, economic, environmental and political impacts.
The compromise with the Bretton Woods Institutions (BWIs) and the WTO is amply reflected in both the analyses and recommendations made in the SG’s report. While the report advocates the importance of domestic resource mobilisation, it offers no analysis of how the domestic financial resources of many developing countries have been constrained by several years of structural adjustment programmes (SAPs), or, how SAPs have contradicted existing national development strategies and squeezed national budgets to limit the provision and quality of essential goods and services. Instead, the document recommends that developing country governments, supported by international institutions, facilitate civil society and private sector resources towards the provision of infrastructure and services, while maximising public resources in the provision of “non-commercial” services such as safety nets. Interestingly, there is no mention of policy initiatives such as land reform or the redistribution of productive assets and income sources in these “non-commercial” services.
Many of the report’s recommendations appear to be based on the assumption that under-development and poverty arise primarily from of a shortage of capital; therefore, the solution lies–naturally!—in more capital. For example, the report argues for public support for financial services such as micro-credit and rural credit for the poor through “a wide range of financial intermediaries” (page 15). It recommends that countries “remove institutional and regulatory obstacles, such as restrictions on cost recovery, lack of secure transaction laws and weak property registries” and argues for “public-private partnership funds” to develop innovative financial tools” (page 15). Overall, the report emphasises the financial integration of all sectors at all levels to the national and global economy. However, the report does not recognise the importance of policy supports (such as guaranteed commodity and product prices, protection of local markets, access to appropriate technology and skills training, etc.) without which, small-scale producers and borrowers can easily fall further into debt and lose the assets or capacity that they already have.
In the section on trade, the SG’s report recommends aggressive trade liberalisation in both goods and services for developing countries, with a global, “fully funded” assistance programme for those countries interested in pursuing this path. But it offers little analysis of how trade liberalisation, without sufficient and adequate domestic protective measures, has affected the economies of most developing countries. Nor does the report discuss how to address problems of declining and fluctuating terms of trade, and the impacts of agreements in the WTO on the economic and technological capacities of developing countries, particularly the Least Developed Countries, the Small Island Developing States, and other low-income developing countries. In fact, the report does not address the structural inequities in the global trading regime at all, but instead focuses on how developing countries can make appropriate policy adjustments to fit into the regime through the WTO. Again, there is plenty of rhetoric about the importance of external trade as an important a source of revenue for developing countries, but shockingly little discussion about international policy supports needed by which developing countries can actually use trade as a vehicle for national development.
The section on debt in the SG’s report displays a similar narrow and ahistorical approach with obvious creditor biases. The report praises the HIPC initiative and frames the debt issue in questions of the “creditworthiness” of low-income countries, and the moral hazard created by some types of debt relief. But it does not examine the conditionalities accompanying debt relief measures that actually perpetuate the debt cycle, the failure of past debt sustainability criteria in assessing the impacts of heavy debt servicing, and the moral hazard created by creditor agencies and governments through loans for poorly assessed projects or programmes. While the report acknowledges that external debt has been a significant obstacle in the development efforts of poorer countries, it fails to make the required links between debt, and the global economic and financial environment, particularly the proposed direction of public finance in guaranteeing corporate, rather than public welfare.
Such contradictions were highlighted by delegations from many developing countries. Again, delegates from Iran, on behalf of the Group of 77 and China, provided sharp critiques of the neo-liberal, market biases in the recommendations of the SG’s report. The Cuban delegation pointed out how debt relief measures were doomed to failure without international, longer-term, supportive policy measures that ensured the economic health and independence of indebted countries, especially in areas such as trade, technology transfer, and access to capital. Many developing country delegations argued for a thorough examination of the impacts of international economic and political policy environments on domestic policy making, and a comprehensive articulation of an enabling international economic environment for developing countries without the imposition of prescription and conditionalities by the richer countries of the north.
Legitimising the Bretton Woods Institutions
One of the most disheartening aspects of the Prepcom–and what appears to be the entire FFD process—is the legitimisation of the Bretton Woods Institutions (BWIs) and the WTO by the UN system. The SG’s report gave a prominent role to the BWIs in every section of the report and at no point did it question the self-initiated expansion of mandates by these institutions. On the contrary, it appeared that the SG needs to support these institutions as a way to claim a more central role for UN agencies. Sadly, the report undermines the potential negotiating power of sectoral/expert UN agencies, including the Economic and Social Council (ECOSOC), by relegating their roles to those of research, coordination and dialogue, while endorsing further decision making powers for the BWIs, WTO and their associated IFIs.
The Prepcom was opened by high-ranking UN officials, followed by representatives from the BWIs. FFD Bureau staff wasted no opportunity to emphasise the importance, value and quality of cooperation from the BWIs in the FFD process and the preparation of the SG’s report. In reports of meetings between the BWIs, the WTO and the FFD Bureau, it was clear that the BWIs and WTO were not willing to entertain any challenge to their legitimacy, and also, that no such challenge would be mounted from within the ranks of the UN agencies. While the pragmatic aspects of cooperating with the BWIs and the WTO were obvious, it appeared equally that the UN needed to highlight its association with these institutions in order to re-legitimise its own role in the international development and policy arena. An exception to the BWI fan club was Ambassador Jaynama Asda from Thailand, who is his capacity as co-Chair of the Prepcom proceedings, pointed to the need for a systematic re-examination of the operations and mandates of the BWIs, the WTO and International Financial Institutions (IFIs).
On their part, many developing country delegations stated the importance of examining and addressing the coherence and consistence of international monetary, financial and trading systems in terms of their impacts on development and developing countries. The Group of 77 and China stated that existing institutional arrangements are lagging far behind the processes of economic and financial integration at the global level, and argued for broader and more effective participation of developing countries in international norm setting and decision making processes. A number of southern delegations asserted the importance of reforming the international financial architecture, and improving its governance, transparency and accountability. Not surprisingly, challenges to the expanded mandates of the BWIs, WTO and IFIs by southern delegations were made through implication, rather than clear or direct language.
The message did come across though and the empire struck back with the full weight of its leading spokespersons. The BWIs, WTO and associated financial institutions had nothing to fear with the European Union (EU) and the United States (US) present to protect their positions. While the EU expressed its support more indirectly, the US Deputy Representative did not waste any words:
“So far, we believe that the UN has benefited from the expertise of the Bretton Woods institutions and WTO in preparing for the High-level event. By working with thee organizations the UN has gained new understanding and insight into the realities of sustainable development financing… To ensure that the World Bank, IMF and WTO continue to a meaningful role in this process, their independent mandates must be fully respected…. We are concerned that the Financing for Development process may be used a vehicle for the UN to interfere in the governance and decision-making mechanisms of the Bretton Woods institutions and the WTO. Any such attempt, if made, will seriously undermine not only the credibility of these institutions, but also the UN’s work in development generally. We will oppose any such attempt.”
The barely veiled threat delivered by the US Deputy Representative so early in the proceedings did not have its fully intended effect. The highly orchestrated maneuvering for power among the UN, the BWIs, the WTO and various country delegations continued for the remainder of the Prepcom, with the shifting alliances that have become a trademark of such events. However, a number of southern delegations such as Iran, Egypt, Pakistan, Cuba, Nigeria, Ghana and the Caribbean states continued to place their national and regional priorities firmly on the table.
Financing for Whom?
At present, it is not clear whether, and to what degree the FFD process can be shaped by the priorities of developing countries that have fought hard over the last few years for this event. Going by its recent performances, it is hardly likely that the UN will be willing to champion the causes of its poorer and less powerful members. It is equally unlikely that members of the Group of 77 and China will be able to arrive at a common position to present unified opposition to the current leaders of the global economic and financial regimes. And unfortunately, many southern governments that are willing to challenge the dominant economic-financial powers, seem either unwilling or unable to work with progressive civil society actors nationally and internationally to generate broad based support and endorsements for their policy platforms.
In the absence of the above, the FFD process is likely to become yet another avenue for the entrenchment of market structures, mechanisms and actors in the name of development. Unless checked early in the play, the FFD process could quite easily result in further legitimising economic globalisation and financing for its principle agents rather than financing the development priorities of the less advantaged and vulnerable people of this world.