Inter Press Service » Eye on the IFIs http://www.ipsnews.net Journalism and Communication for Global Change Fri, 01 Aug 2014 21:10:17 +0000 en-US hourly 1 http://wordpress.org/?v=3.9.1 World Bank Board Declines to Revise Controversial Draft Policies http://www.ipsnews.net/2014/07/world-bank-board-declines-to-revise-controversial-draft-policies/?utm_source=rss&utm_medium=rss&utm_campaign=world-bank-board-declines-to-revise-controversial-draft-policies http://www.ipsnews.net/2014/07/world-bank-board-declines-to-revise-controversial-draft-policies/#comments Thu, 31 Jul 2014 01:11:09 +0000 Jim Lobe http://www.ipsnews.net/?p=135842 By Jim Lobe
WASHINGTON, Jul 31 2014 (IPS)

A key committee of the World Bank’s governing board Wednesday spurned appeals to revise a  draft policy statement that, according to nearly 100 civil-society groups, risks rolling back several decades of reforms designed to protect indigenous populations, the poor and sensitive ecosystems.

While the Committee on Development Effectiveness did not formally endorse the draft, it approved the document for further consultation with governments, non-governmental organisations (NGOs), and other stakeholders over the coming months in what will constitute a second round a two-year review of the Bank’s social and environmental policies.“The proposed ‘opt-out’ for protections for indigenous peoples, in particular, would undermine existing international human rights law." -- Joji Carino

At issue is a draft safeguard framework that was designed to update and strengthen policies that have been put in place over the past 25 years to ensure that Bank-supported projects in developing countries would protect vulnerable populations, human rights, and the environment to the greatest possible extent.

“The policies we have in place now have served us well, but the issues our clients face have changed over the last 20 years,” said Kyle Peters, the Bank’s vice president for operations policy and country services.

He stressed that the draft provisions would also broaden the Bank’s safeguard policies to include promoting social inclusion, anti-discrimination, and labour rights, and addressing climate change.

But, according to a number of civil-society groups, the draft, which was leaked over the weekend, not only fails to tighten key safeguards, in some cases, it weakens them substantially.

“The World Bank has repeatedly committed to producing a new safeguard framework that results in no-dilution of the existing safeguards and which reflects prevailing international standards,” according to a statement sent to the Bank’s executive directors Monday by Bank on Human Rights (BHR), a coalition of two dozen human-rights, anti-poverty, and environmental groups that sponsored the letter.

“Instead, the draft safeguard framework represents a profound dilution of the existing safeguards and an undercutting of international human rights standards and best practice,” the coalition, which includes Amnesty International, Human Rights Watch, and the NGO Forum of the Asia Development Bank, among other groups, said.

Perhaps the most dramatic example of that dilution is a provision that would permit borrowing governments to “opt out” of the Indigenous Peoples Standard that was developed by the Bank to ensure that Bank-funded projects protected essential land and natural-resource rights of affected indigenous communities.

“We have engaged with social and environmental safeguard development with the World Bank for over 20 years and have never seen a proposal with potential for such widespread negative impacts for indigenous peoples around the world,” said Joji Carino, director of the Forest Peoples Programme.

“The proposed ‘opt-out’ for protections for indigenous peoples, in particular, would undermine existing international human rights law and the significant advances seen in respect for indigenous peoples rights in national laws,” she added.

But Mark King, the Bank’s chief environmental and social standards officer, insisted that the draft’s provisions represented a “strengthening of existing policy” that, among other provisions, introduces “Free, Prior and Informed Consent of Indigenous Peoples” in all Bank-supported projects.

“In exceptional circumstances when there are risks of exacerbating ethnic tension or civil strife or where the identification of Indigenous Peoples is inconsistent with the constitution of the country, in consultation with people affected by a particular project, we are proposing an alternative approach to the protection of Indigenous Peoples,” he said, adding that any such exception would have to be approved by the Bank’s board.

The Bank, which disburses as much as 50 billion dollars a year in grants and loans, remains a key source of project funding for developing countries despite the rise of other major sources over the past 20 years, notably private capital and, more recently, China and other emerging economies, which have generally imposed substantially fewer conditions on their lending.

Faced with this competition, the Bank has been determining how to make itself more attractive to borrowers by, for example, streamlining operations and reducing waste and duplication. But some critics worry that it may also be willing to exercise greater flexibility in applying its social and environmental standards – a charge that Bank officials publicly reject, despite the disclosure of recent internal emails reflecting precisely that concern.

Under prodding by NGOs and some Western governments in the 1980’s and 1990’s, the Bank had established itself as a leader in setting progressive social and environmental policies.

More recently, however, “it has fallen behind the regional development banks and many other international development institutions in terms of safeguarding human rights and the environment,” according to Gretchen Gordon, BHR’s co-ordinator.

“The Bank has an opportunity to regain its position as a leader in the development arena, but unfortunately this draft backtracks on the last decade of progress,” she told IPS. “We hope that the [next round of] consultations will be robust and accessible to the people and communities who are most affected, and that at the end of the day, the Bank and its member states adopt a strong safeguard framework that respects human rights.”

While welcoming the Bank’s new interest in issues such as discrimination and labour rights, the BHR statement criticised what it called the framework’s movement from “one based on compliance with set processes and standards, to one of vague and open-ended guidance…”

According to the statement, the draft threatens long-standing protections for people who may be displaced from their homes by Bank-backed mega-projects and may permit borrower governments and even private “intermediary” banks to use their own standards for assessing, compensating and resettling affected communities “without clear criteria on when and how this would be acceptable.”

In addition, according to BHR, the draft fails to incorporate any serious protections to prevent Bank funds from supporting land grabs that have displaced indigenous communities, small farmers, fishing communities and pastoralists in some of the world’s poorest countries to make way for major agro-industrial projects.

“We had hoped that the new safeguards would include strong requirements to prevent governments like Ethiopia from abusing its people with Bank funds,” said Obang Metho, executive director of the Solidarity Movement for a New Ethiopia, a group that has brought international attention to Bank-backed land grabs in his home country. “But we are shocked to see the Bank instead opening the flood-gates for more abuses.”

The draft was based on a five-month-long consultation involving more than 2,000 people in more than 40 countries and a review of other multilateral development banks’ environmental and social standards, according to the Bank.

In a teleconference with reporters, King denied that the Bank was lowering its existing standards. In addition to broadening existing standards, he said, the Bank will “use as much as possible the borrower country’s own existing systems to deliver social and environmental outcomes that are consistent with our values.”

He and Peters also stressed that more attention will be paid to assessing and addressing the risks of social and environmental damage during project implementation, as opposed to the more “up-front approach” the Bank has taken in the past.

Jim Lobe’s blog on U.S. foreign policy can be read at Lobelog.com.

Editing by: Kitty Stapp

The writer can be reached at ipsnoram@ips.org

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Is Europe’s Breadbasket Up for Grabs? http://www.ipsnews.net/2014/07/is-europes-breadbasket-up-for-grabs/?utm_source=rss&utm_medium=rss&utm_campaign=is-europes-breadbasket-up-for-grabs http://www.ipsnews.net/2014/07/is-europes-breadbasket-up-for-grabs/#comments Wed, 30 Jul 2014 21:29:03 +0000 Kanya DAlmeida http://www.ipsnews.net/?p=135828 Ukraine is the world’s third-largest exporter of cotton and the fifth-largest exporter of wheat. Credit: Bigstock

Ukraine is the world’s third-largest exporter of cotton and the fifth-largest exporter of wheat. Credit: Bigstock

By Kanya D'Almeida
NEW YORK, Jul 30 2014 (IPS)

Amidst an exodus of some 100,000 people from the conflict-torn eastern Ukraine, ongoing fighting in the urban strongholds of Donetsk and Luhansk between Ukrainian soldiers and separatist rebels, and talk of more sanctions against Russia, it is hard to focus on the more subtle changes taking place in this eastern European nation.

But while global attention has been channeled towards the political crisis, sweeping economic reforms are being ushered in under the leadership of the newly elected president Petro Poroshenko, who recently brokered deals with the World Bank and International Monetary Fund that have rights groups on edge.“These reforms sound good on paper, but when you look more closely you see they are actually designed to benefit large multinational corporations over workers and small-scale farmers." -- Frédéric Mousseau

Even before Poroshenko assumed office on Jun. 7, international financial institutions (IFIs) were rushing emergency missions into the country, with IMF European Department Director Reza Moghadam declaring on a Mar. 7 visit, “I am positively impressed with authorities’ determination, sense of responsibility and commitment to an agenda of economic reform.”

After years of dangling a 17-billion-dollar loan – withheld in part due to ousted President Viktor Yanukovych’s refusal to implement a highly contested pension reform bill that would have raised the retirement age by 10 years, and his insistence on curbing gas price hikes – the IMF has now released its purse strings.

The World Bank followed suit, announcing a 3.5-billion-dollar aid package on May 22 that the Bank’s president, Jim Yong Kim, said was conditional upon the government “removing restrictions that hinder competition and […] limiting the role of state control in economic activities.”

While these reforms include calls for greater transparency to spur economic growth, experts are concerned that Ukraine’s rapid pivot to Western neoliberal policies could spell disaster, particularly in the immense agricultural sector that is widely considered the ‘breadbasket of Europe.’

A quiet land-grab

Ukraine is the world’s third-largest exporter of cotton and the fifth-largest exporter of wheat. Agriculture accounts for about 10 percent of gross domestic product (GDP), with vast fields of fertile soil yielding bumper harvests of grain and cereals each year.

According to a 2013 forecast by the U.S. Department of Agriculture, Ukraine is poised to become the world’s second biggest grain exporter in the world (after the U.S.), shipping over 30 million tonnes of grain out of the country last year.

The World Bank estimates that farmers and agricultural workers made up 17 percent of the country’s labour force as of 2012. And according to the Centre for Eastern Studies, agricultural exports soared in the last decade, from 4.3 billion dollars in 2005 to 17.9 billion dollars in 2012.

Lush soil and a rich agrarian culture do not immediately add up to nationwide dividends. Potential investors have cited“red tape” and “corruption” as hindrances to development, as well as a communist legacy that forbids the sale of land.

But the past decade has seen an abrupt change in Ukraine’s agricultural sector, with foreign investors and agri-business hugely expanding ownership and influence in the country.

According to a report released Monday by the U.S.-based Oakland Institute, over 1.6 million hectares of land have been signed over to multinational companies since 2002, including “over 405,000 hectares to a company listed in Luxembourg, 444,800 hectares to Cyprus-registered investors, 120,000 hectares to a French corporation, and 250,000 hectares to a Russian company.”

A deal brokered between China and Yanukovych prior to the political crisis – now disputed under the present regime – granted Beijing control over some three million hectares of prime farmland in the east, an area about the size of Belgium that totals five percent of Ukraine’s arable land.

This changing climate has been a boon for investors and corporations, with Michael Cox, research director at the investment bank Piper Jaffray, referring to Ukraine as one of the “most promising growth markets for farm-equipment giant Deere, as well as seed producers Monsanto and DuPont.”

Such statements have raised a red flag among researchers and trade watchdogs.

OI Executive Director Anuradha Mital told IPS, “IFIs are imposing Structural Adjustment Programmes (SAPs) in Ukraine, which we know – from the experience of the Third World – will undoubtedly lead to severe austerity measures for the people and increase poverty among the Ukrainians.”

“Ukraine is also one of the 10 pilot countries in the World Bank’s new Benchmarking the Business of Agriculture (BBA) project,” Mittal told IPS, referring to a brand new initiative, still in the development stage, which is connected to the Bank’s controversial Doing Business rankings.

This index has been criticised by numerous groups including the International Trade Union Confederation (ITUC) – comprised of over 176 million members hailing from 161 countries – for favouring low taxes for transnational corporations and lowering labour standards in developing countries as a means of attracting foreign investment.

The Bank itself says the BBA will largely serve as a tool for improving agricultural output.

“The world needs to feed nine billion people by 2050,” a World Bank spokesperson told IPS.

“For small-scale farmers to be more productive and far more competitive, they need access to land, finance, improved seed, fertiliser, water, electricity, transport and markets.

“By identifying and monitoring policies and regulations that limit access of smaller producers to these critical components of success, BBA is being designed as a tool to foster an enabling environment that boosts local and regional agribusinesses,” she concluded.

David Sedik, senior policy officer at the Food and Agriculture Organisation’s (FAO) regional office for Europe and Central Asia, believes such an initiative is sorely needed in Ukraine, where “the primary beneficiaries of subsidies granted by the agricultural VAT system are… large agri-holding companies, the overwhelming majority of which are Ukrainian.”

“The list of needed reforms is quite long, and could start with building a more transparent land market,” he told IPS. “A first step in this direction could be the lifting of the moratorium on land sales.”

“The BBA project seems to support the construction of a transparent and inclusive system of agricultural regulation, something Ukraine lacks,” Sedik added.

But the OI report’s co-author Frédéric Mousseau says initiatives like the BBA and others exist primarily to pry open Ukraine’s doors, hitherto sealed by its socialist traditions, to foreign capital.

“These reforms sound good on paper, but when you look more closely you see they are actually designed to benefit large multinational corporations over workers and small-scale farmers,” Mousseau told IPS.

“Ranking systems like the BBA push for contract farming, which entails farmers working for corporations, instead of as subsistence producers. We are denouncing this rhetoric, and its attendant struggle between different foreign interests over Ukraine’s resources.”

Research into the impacts of the Bank’s ‘Doing Business’ rankings in eight countries – including Mali, Sierra Leone, Sri Lanka and the Philippines – has yielded similar results: sharp increases in foreign investments and land-grabbing in a bid to appear more ‘business friendly’.

Further, Mousseau said, arrangements such as the Association Agreement between the European Union and Ukraine offer glimpses into an agricultural future steered by corporate interests.

“Until now, Ukraine had banned the use of GMOs in the agriculture sector,” Mousseau stated. “So when we anaylsed the EU Association Agreement we were surprised by article 404, which states very clearly that both parties agree to expand the use of biotechnologies.”

Such clauses, experts say, could strengthen existing initiatives such as Monsanto’s Ukraine-based ‘Grain-basket of the Future’ project (which offers 25,000-dollar loans to rural farmers) and Cargill’s 200-million-dollar stake in UkrLandFarming, the eighth largest land cultivator in the world.

These developments give weight to the title of OI’s report, ‘Walking on the West Side’, a reference to the role of Western interests in Ukraine’s unfolding political crisis.

“It is necessary to see this in context of the U.S.– Russia struggle over Ukraine,” Joel Kovel, U.S. scholar and author of over 20 books on international politics, told IPS.

“Geostrategic politics and neoliberal economics fit together within the overall plan …in which global finance capital under American control and neoconservative leadership imposes austerity, seeks dominion over the easternmost portion of Europe, and continues the policy of encircling Russia,” he stated.

Editing by: Kitty Stapp

The writer can be contacted at kanyaldalmeida@gmail.com

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BRICS – The End of Western Dominance of the Global Financial and Economic Order http://www.ipsnews.net/2014/07/brics-the-end-of-western-dominance-of-the-global-financial-and-economic-order/?utm_source=rss&utm_medium=rss&utm_campaign=brics-the-end-of-western-dominance-of-the-global-financial-and-economic-order http://www.ipsnews.net/2014/07/brics-the-end-of-western-dominance-of-the-global-financial-and-economic-order/#comments Wed, 23 Jul 2014 07:17:42 +0000 Shyam Saran http://www.ipsnews.net/?p=135688

In this column, Shyam Saran, former Indian Foreign Secretary and currently Chairman of India’s National Security Advisory Board, argues that the new financial institutions put in place by the BRICS countries at their recent summit in Brazil will alter the global financial landscape irreversibly.

By Shyam Saran
NEW DELHI, Jul 23 2014 (IPS)

The sixth BRICS Summit which has just ended in Brazil marks the transition of a grouping based hitherto on shared concerns to one based on shared interests.

Since the inception of BRICS (bringing together Brazil, Russia, India, China and South Africa) in 2009, it has been seen as a mainly flag waving exercise by a group of influential emerging economies, with little in terms of convergent interest other than signalling their strong dissatisfaction over persistent Western dominance of the world economic, financial as well as security order, but unable to fashion credible alternative governance structures themselves.

However, with the Fortaleza Summit finally announcing the much awaited establishment of the New Development Bank (NDB) with a 50 billion dollar subscribed capital and a Contingency Reserve Arrangement (CRA) of 100 billion dollars, the monopoly status and role of the Bretton Woods institutions – the World Bank and the International Monetary Fund (IMF) – stand broken.

Shyam Saran

Shyam Saran

True, it may take the NDB and the CRA considerable time and experience to evolve into credible international financial institutions but that clearly is the intent.

BRICS leaders have kept the door open for other stakeholders, but will retain at least a 55 percent equity share. They have also been careful to declare that these new institutions will supplement the activities of the World Bank and the IMF, and this has also been the initial response from the latter.

Nevertheless, the emergence of an alternative source of financing with norms different from those followed by the established institutions will alter the global financial landscape irreversibly.

It may be noted for the future that the one component of the global financial infrastructure where Western companies still remain supreme is the insurance and reinsurance sector. Global trade flows, in particular energy flows are almost invariably insured by a handful of Western companies which also determine risk factors and premiums.

In Brazil, the BRICS countries have given notice that they will examine the prospect of pooling their capacities in this sector. A more competitive situation in this sector can only be a positive development for developing countries.“The emergence of an alternative source of financing [BRICS Bank] with norms different from those followed by the established institutions will alter the global financial landscape irreversibly”

The BRICS initiatives were born out of mounting frustration among emerging countries that even a modest restructuring of the governing structures of the Bretton Woods institutions, to reflect their growing economic profile, was being resisted. The commitment made in 2010 at the G20 to enlarge their stake in the IMF remains unfulfilled while the restructuring of the World Bank is yet to be taken up.

The longer the delay in such restructuring, the more rapid the consolidation of the new BRICS institutions is likely to be. It is this factor which played a role in helping resolve some of the differences among the BRICS countries over the structure and governance of these proposed institutions.

The setting up of the BRICS institutions owed a great deal to the energy and push displayed by China. It is doubtful that the proposals would have been actualised had China not put its full weight behind them and showed a readiness to accommodate other member countries, in particular India. Russia became more enthusiastic after being drummed out of the G8 and subjected to Western sanctions.

Chinese activism on this score must be seen in the context of other parallel developments in which China has also been the prime mover and sometimes the initiator. These are:

1. The proposal for setting up an Asian Infrastructure Investment Bank (AIIB) to fund infrastructure and connectivity projects in Asia, in particular, those which would help revive the maritime and land “Silk Routes” linking China with both its eastern and western flanks. The parallel with the NDB is hard to miss.

2. The consolidation of the Chiang Mai Initiative Multilateralisation (CMIM) and the associated Asian Multilateral Research Organisation (AMRO) among the Association of Southeast Asian Nations (ASEAN) + 3 (China, Japan and the Republic of Korea). The CMIM is now a 240 billion dollar financing facility to help member countries deal with balance of payments difficulties. This is similar to the 100 billion dollar CRA set up by BRICS.

AMRO has evolved into a mechanism for macro-economic surveillance of member countries and provides a benchmark for their economic health and performance. This would enable sound lending policies and may very well be linked in future to the AIIB. The CMIM and the AMRO thus provide building blocks which could serve as the template for the NDB, the CRA and the AIIB.

3. In addition to the CMIM and the AMRO, there are ongoing initiatives within ASEAN + 3 to develop a truly Asian Bond Market which could mobilise regional savings into regional investments through local currency bonds. To support this initiative, a regional Credit Guarantee and Investment Facility has been established. A Regional Settlement Intermediary is proposed to facilitate cross-border multi-currency transfers.

These developments are taking place just when there is a rapidly growing Chinese yuan-denominated bond market, the so-called dim-sum bonds, which have become an important source of corporate financing. This reduces the dependence on euro and U.S. dollar-denominated bonds. The NDB could tap into this market to build up its own finances.

It is important to keep in mind this broader picture in assessing the significance of the decisions taken at the Fortaleza Summit. In systematically pursuing a number of parallel initiatives, China is attempting to create an alternative financial infrastructure which would have it in the lead role. The dilemma for other emerging countries is that there appear to be no credible alternatives, especially since the Western countries are unwilling to cede any enhanced role to them.

The Fortaleza Summit marks the beginning of the end of the post-Second World War Western dominance of the global economic and financial order. The existing institutions will now have to share space with the new entrants and may be compelled to adjust their norms to compete with the latter.

The prime mover behind the establishment of a rival network of financial institutions is China, whose global profile and influence is likely to increase as the various building blocks it has put in place come together to shape a new global financial architecture. This is still in the future but the trend is unmistakable. (END/IPS COLUMNIST SERVICE)

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From Havana to Bali, Third World Gets the Trade Crumbs http://www.ipsnews.net/2014/07/from-havana-to-bali-third-world-gets-the-trade-crumbs/?utm_source=rss&utm_medium=rss&utm_campaign=from-havana-to-bali-third-world-gets-the-trade-crumbs http://www.ipsnews.net/2014/07/from-havana-to-bali-third-world-gets-the-trade-crumbs/#comments Tue, 22 Jul 2014 08:27:23 +0000 chakravarthi-raghavan http://www.ipsnews.net/?p=135663

In this column, Chakravarthi Raghavan, renowned journalist and long-time observer of multilateral negotiations, analyses agreements to liberalise world trade since the Second World War up the recent Bali conference, and concludes that the Northern powers have always imposed their own interests to the detriment of Third World countries and their development aspirations.

By Chakravarthi Raghavan
GENEVA, Jul 22 2014 (IPS)

The world of today is considerably different from the one at the end of the Second World War; there are no more any colonies, though there are still some ‘dependent’ territories.

In the 1950s and 1960s, as the decolonisation process unfolded, in most of the newly independent countries leaders emerged who had simply fought against foreign rule, without much thought on their post-independence economic and social objectives and policies.

Some naively thought that with political independence and power, economic well-being would be automatic.

Chakravarthi Raghavan

Chakravarthi Raghavan

By the late 1950s, the former colonies, and those early leaders within them who yearned for better conditions for their peoples, realised that something more than political independence was needed, and began looking at the international economic environment, organisations and institutions.

In the immediate post-war years, the focus of efforts to fashion new international economic institutions (arising out of U.S.-U.K. wartime commercial policy agreements) was on international moves for reconstruction and development in war-ravaged Europe.

As a result, in the sectors of money and finance, the Bretton Woods institutions [the International Monetary Fund (IMF) and the International Bank for Reconstruction and Development (IBRD) or World Bank], were established – even ahead of agreeing on the United Nations Charter and its principle of sovereign equality of states (one nation, one vote in U.N. bodies) – on the basis of the ‘one-dollar one-vote’ principle.“Within the Bretton Woods institutions, there was no direct focus on promoting ‘development’ of the former colonies; what little happened was at best a side-effect of the lending policies of these institutions and the few crumbs that fell off the table here and there, often to further Cold War interests”

In pursuing their wartime commercial policy agreements, the United Kingdom and the United States submitted proposals in 1946 to the U.N. Economic and Social Council (ECOSOC) for the establishment of an international trade body, an International Trade Organization (ITO).

ECOSOC convened the U.N. Conference on Trade and Employment to consider the proposals; the Preparatory Committee for the Conference drafted a Charter for the trade body, and it was discussed and approved in 1948 at a U.N. conference in Havana.

Pending ratification of the Havana Charter, the commercial policy chapter of the planned international trade body was fashioned into the General Agreement on Tariffs and Trade (GATT) and brought into being through the protocol of provisional application, as a multilateral executive agreement to govern trade relations, i.e., governments agreeing to implement their commitments to reduce trade barriers and resume pre-war trading relations through executive actions subject to their domestic laws.

At Havana, during the negotiations on the Charter, Brazil and India had expressed their dissatisfaction, but had reluctantly agreed to the outcome and the provisional GATT.

The U.S. Senate, as a result of corporate lobbying, was however unwilling to allow the United States to be subject to the disciplines of the Havana Charter and did not consent to an ITO Charter; the result was that the provisional GATT remained provisional for 47 years, until the Marrakesh Treaty which brought the World Trade Organization (WTO) into being in 1995.

Within the Bretton Woods institutions, there was no direct focus on promoting “development” of the former colonies; what little happened was at best a side-effect of the lending policies of these institutions and the few crumbs that fell off the table here and there, often to further Cold War interests.

From about the early 1950s, to the extent that it provided any reconstruction and development loans to the developing world, the IBRD acted in the interests of the United States, its largest single shareholder, and favoured the private sector.

For example, early Indian efforts to obtain IBRD loans for the public sector to set up core industries like steel, which needed large infusions of equity capital that the Indian private sector was in no position to provide, were turned down, based purely on the ideological dogma of private-vs-public-enterprise.

It was only much later that a separate window, the International Development Association (IDA), was created at the World Bank to provide soft loans (with low interest and long repayment periods) to low-income countries.

But the IDA did not function as professed and did not provide loans to set up industries or promote development in poorer countries; in actual practice it acted to advance the interests of the developed countries in the Third World.

IDA loans came with conditionalities to promote structural adjustment programmes, such as unilateral trade liberalisation, resulting in deindustrialisation of the poorer African countries. Even worse, IDA loans came with additional conditionalities to cater to the fads and fashions of the day and the concerns of Northern, in particular Washington-based, civil society.

The IDA “donor countries” dominated its governance and used their clout there to sway IDA lending – initially, the IDA obtained funds from the United States and other developed countries, and there were two or three substantial replenishments thereafter.

Subsequently, the funds from loan repayments and the profits of the World Bank (earned by lending at market rates to developing countries) were used to fund IDA, with small new contributions from the “donors” at every replenishment.

Though developing countries borrowing from the IBRD at market rates thus turned out to be the funders of the IDA, they had no voice in IDA governance, and the developed countries, with very little new money, have maintained control over the IDA and IBRD policies, to promote their own policies and the interests of their corporations in developing countries.

On the trade front, in successive rounds of negotiations at the GATT, the group of major developed countries (the United States, Canada, Europe, and later Japan) negotiated among themselves the exchange of tariff concessions, but paid little attention to the developing countries and their requests for tariff reduction in areas of export interest to them.

The only crumbs that fell their way were the result of the multilateralisation of the bilateral concessions exchanged in the rounds, through the application of the “Most Favoured Nation” (MFN) principle. From the Dillon Round on (through the Kennedy and Tokyo Rounds), each saw new discriminatory arrangements against the Third World and its exports.

In the Uruguay Round (1986-94), culminating in the Marrakesh Treaty, the developing countries undertook onerous advance commitments in goods trade, and in new areas such as ‘services’ trade and in intellectual property protection, on the promise of commitment of developed countries to undertake a major reform of their subsidised trade in agriculture and other areas of export interest to developing countries.

These remain in the area of promises while, after the 2013 December  Bali Ministerial Conference, the United States, Europe and the WTO leadership are attempting to put aside as ‘out of date’, all past commitments, while pursuing the ‘trade facilitation’ agreement, involving no concessions from them, but resulting in the equivalent of a 10 percent tariff cut by developing countries.

In much of Africa, this will complete the “deindustrialisation process” and ensure that the Third World will remain “hewers of wood and drawers of water”.  (END/IPS COLUMNIST SERVICE)

 

* This text is based on Chakravarthi Raghavan’s recently published book, ‘The THIRD WORLD in the Third Millennium CE’.

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As Winds of Change Blow, South America Builds Its House with BRICS http://www.ipsnews.net/2014/07/as-winds-of-change-blow-south-america-builds-its-house-with-brics/?utm_source=rss&utm_medium=rss&utm_campaign=as-winds-of-change-blow-south-america-builds-its-house-with-brics http://www.ipsnews.net/2014/07/as-winds-of-change-blow-south-america-builds-its-house-with-brics/#comments Fri, 18 Jul 2014 14:36:36 +0000 Diana Cariboni http://www.ipsnews.net/?p=135624 Russian President Vladimir Putin, Prime Minister of India Narendra Modi, President of Brazil Dilma Rousseff, President of China Xi Jinping and South African President Jacob Zuma take a family photograph at the 6th BRICS Summit held at Centro de Eventos do Ceara' in Fortaleza, Brazil. Credit: GCIS

Russian President Vladimir Putin, Prime Minister of India Narendra Modi, President of Brazil Dilma Rousseff, President of China Xi Jinping and South African President Jacob Zuma take a family photograph at the 6th BRICS Summit held at Centro de Eventos do Ceara' in Fortaleza, Brazil. Credit: GCIS

By Diana Cariboni
MONTEVIDEO, Jul 18 2014 (IPS)

While this week’s BRICS summit might have been off the radar of Western powers, the leaders of its five member countries launched a financial system to rival Bretton Woods institutions and held an unprecedented meeting with the governments of South America.

The New Development Bank (NDB) and the Contingent Reserve Arrangement signal the will of BRICS countries (Brazil, Russia, India, China and South Africa) to reconcile global governance instruments with a world where the United States no longer wields the influence that it once did.“The U.S. government clearly doesn't like this, although it will not say much publicly.” -- Mark Weisbrot

More striking for Washington could be the fact that the 6th BRICS summit, held in Brazil, set the stage to display how delighted the heads of state and government of South America – long-regarded as the United States’ “backyard”— were to meet Russia’s president Vladimir Putin.

At odds with Washington and just expelled from the Group of Eight (G8) following Russia’s intervention in the Ukrainian crisis, Putin was warmly received in the region, where he also visited Cuba and Argentina.

In Buenos Aires, Putin and the president of Argentina, Cristina Fernández, signed agreements on energy, judicial cooperation, communications and nuclear development.

Argentina, troubled by an impending default, is hoping Russian energy giant Gazprom will expand investments in the rich and almost unexploited shale oil and gas fields of Vaca Muerta.

Although Argentina ranks fourth among the Russia’s main trade partners in the region, Putin stressed the country is “a key strategic partner” not only in Latin America, but also within the G20 and the United Nations.

Buenos Aires and Moscow have recently reached greater understanding on a number of international issues, like the conflicts in Syria and Crimea, Argentina sovereignty claim over the Malvinas/Falkland islands and its strategy against the bond holdouts.

Meanwhile, the relationship between Washington and Buenos Aires remains cool, as it has been with Brasilia since last year’s revelations of massive surveillance carried out by the National Security Agency against Brazil.

Some leftist governments –namely Bolivia, Venezuela and Ecuador— frequently accuse Washington of pursuing an imperialist agenda in the region.

But it was the president of Uruguay, José Mujica –whose government has warm and close ties with the Barack Obama administration— who better explained the shifting balance experienced by Latin America in its relationships with the rest of the world.

Transparency clause

In an interview before the summit, Ambassador Flávio Damico, head of the department of inter-regional mechanisms of the Brazilian foreign ministry, said a clause on transparency in the New Development Bank’s articles of agreement “will constitute the base for the policies to be followed in this area.”

Article 15, on transparency and accountability, states that “the Bank shall ensure that its proceedings are transparent and shall elaborate in its own Rules of Procedure specific provisions regarding access to its documents.”

There are no further references to this subject neither to social or environmental safeguards in the document.

After a dinner in Buenos Aires and a meeting in Brasilia with Putin, Mujica said the current presence of Russia and China in South America opens “new roads” and shows “that this region is important somehow, so the rest of the world perhaps begins to value us a little more.”

Furthermore, he reflected, “pitting one bloc against another… is not good for the world’s future. It is better to share [ties and relationships, in order to] keep alternatives available.”

Almost at the same time, Washington announced it was ready to transfer six Guantanamo Bay detainees to Uruguay, one of the subjects Obama and Mujica agreed on when the Uruguayan visited the U.S. president in May.

Mujica has invited companies from United States, China and now Russia to take part in an international tender to build a deepwater port on the Atlantic ocean which, Uruguay expects, could be a logistic hub for the region.

But beyond Russia, which has relevant commercial agreements with Venezuela, the real centre of gravity in the region is China, the first trade partner of Brazil, Chile and Perú, and the second one of a growing number of Latin American countries.

China’s president Xi Jiping travels on Friday to Argentina, and then to Venezuela and Cuba.

“The U.S. government clearly doesn’t like this, although it will not say much publicly,” said Mark Weisbrot, co-director of the Center for Economic and Policy Research.

“With a handful of rich allies, they have controlled the most important economic decision-making institutions for 70 years, including the IMF [International Monetary Fund], the World Bank, and more recently the G8 and the G20, and they wrote the rules for the WTO [World Trade Organisation],” Weisbrot told IPS.

The BRICS bank “is the first alternative where the rest of the world can have a voice.  Washington does not like competition,” he added.

However, the United States’ foreign priorities are elsewhere: Eastern Europe, Asia and the Middle East.

And with the exception of the migration crisis on its southern border and evergreen concerns about security and defence, Washington seems to have little in common with its Latin American neighbours.

“I wish they were really indifferent. But the truth is, they would like to get rid of all of the left governments in Latin America, and will take advantage of opportunities where they arise,” said Weisbrot.

Nevertheless, new actors and interests are operating in the region.

The Mercosur bloc (Argentina, Brazil, Paraguay and Uruguay) and the European Union are currently negotiating a trade agreement.

Colombia, Chile, México and Perú have joined forces in the Pacific Alliance, while the last three also joined negotiations to establish the Trans-Pacific Partnership.

In this scenario, the BRICS and their new financial institutions pose further questions about the ability of Latin America to overcome its traditional role of commodities supplier and to achieve real development.

“I don’t think that the BRICS alliance is going to get in the way of that,” said Weisbrot.

According to María José Romero, policy and advocacy manager with the European Network on Debt and Development (Eurodad), the need to “moderate extractive industries” could lead to “changes in the relationship with countries like China, which looks at this region largely as a grain basket.”

Romero, who attended civil society meetings held on the sidelines of the BRICS summit, is the author of “A private affair”, which analyses the growing influence of private interests in the development financial institutions and raises key warnings for the new BRICS banking system.

BRICS nations should be able “to promote a sustainable and inclusive development,” she told IPS, “one which takes into account the impacts and benefits for all within their societies and within the countries where they operate.”

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BRICS Forges Ahead With Two New Power Drivers – India and China http://www.ipsnews.net/2014/07/brics-forges-ahead-with-two-new-power-drivers-india-and-china/?utm_source=rss&utm_medium=rss&utm_campaign=brics-forges-ahead-with-two-new-power-drivers-india-and-china http://www.ipsnews.net/2014/07/brics-forges-ahead-with-two-new-power-drivers-india-and-china/#comments Thu, 17 Jul 2014 18:07:51 +0000 Shastri Ramachandaran http://www.ipsnews.net/?p=135604 By Shastri Ramachandaran
NEW DELHI, Jul 17 2014 (IPS)

The Sixth BRICS Summit which ended Wednesday in Fortaleza, Brazil, attracted more attention than any other such gathering in the alliance’s short history, and not just from its own members – Brazil, Russia, India, China and South Africa.

Two external groups defined by divergent interests closely watched proceedings: on the one hand, emerging economies and developing countries, and on the other, a group comprising the United States, Japan and other Western countries thriving on the Washington Consensus and the Bretton Woods twins (the World Bank and the International Monetary Fund).

The first group wanted BRICS to succeed in taking its first big steps towards a more democratic global order where international institutions can be reshaped to become more equitable and representative of the world’s majority. The second group has routinely inspired obituaries of BRICS and gambled on the hope that India-China rivalry would stall the BRICS alliance from turning words into deeds.The stature, power, force and credibility of BRICS depend on its internal cohesion and harmony and this, in turn, revolves almost wholly on the state of relations between India and China. If India and China join hands, speak in one voice and march together, then BRICS has a greater chance of its agenda succeeding in the international system.

In the event, the outcome of the three-day BRICS Summit must be a disappointment to the latter group. First, the obituaries were belied as being premature, if not unwarranted. Second, as its more sophisticated opponents have been “advising”, BRICS did not stick to an economic agenda; instead, there emerged a ringing political declaration that would resonate in the world’s trouble spots from Gaza and Syria to Iraq and Afghanistan.

Third, and importantly, far from so-called Indian-China rivalry stalling decisions on the New Development Bank (NDB) and the emergency fund, the Contingency Reserve Arrangement (CRA), the Asian giants grasped the nettle to add a strategic dimension to BRICS.

With a shift in the global economic balance of power towards Asia, the failure of the Washington Consensus and the Bretton Woods twins in spite of conditionalities, structural adjustment programmes and “reforms”, financial meltdown and the collapse of leading banks and financial institutions in the West, there had been an urgent need for new thinking and new instruments for the building of a new order.

Despite the felt need and multilateral meetings that involved developing countries, including China and India which bucked the financial downturn, there had been no sign of alternatives being formed.

It is against this backdrop – of the compelling case for firm and feasible steps towards a new global architecture of financial institutions – that BRICS, after much deliberation, succeeded in agreeing on a bank and an emergency fund.

From India’s viewpoint, this summit of BRICS – which represents one-quarter of the world’s land mass across four continents and 40 percent of the world population with a combined GDP of 24 trillion dollars – was an unqualified success. The success is sweeter for the National Democratic Alliance (NDA) government led by the Bharatiya Janata Party (BJP) because the BRICS summit was new Prime Minister Narendra Modi’s first multilateral engagement.

For a debutant, Modi acquitted himself creditably by steering clear of pitfalls in the multilateral forum as well as in bilateral exchanges – particularly in his talks with Chinese President Xi Jiping, with Russian President Vladimir Putin and with Brazilian President Dilma Rousseff – and by delivering a strong political statement calling for reform of the U.N. Security Council and the IMF.

In fact, the intensification and scaling up of India-China relations by their respective powerful leaders is an important outcome of the meeting in Brazil, even though the dialogue between the Asian giants was on the summit’s side-lines. Nevertheless, Modi and Xi spoke in almost in one voice on global politics and conflict, and on the case for reform of international institutions.

The new leaders of India and China, with the power of their recently-acquired mandates, sent out an unmistakable signal that they have more interests in common that unite them than differences that separate them.

Against this backdrop, Indian Prime Minister Modi’s outing was significant for other reasons, not least because of the rapport he was able to strike up, in his first meeting, with Chinese President Xi. The stature, power, force and credibility of BRICS depend on its internal cohesion and harmony and this, in turn, revolves almost wholly on the state of relations between India and China. If India and China join hands, speak in one voice and march together, then BRICS has a greater chance of its agenda succeeding in the international system.

As it happened, Modi and Xi hit it off, much to the consternation of both the United States and Japan. They spoke of shared interests and common concerns, their resolve to press ahead with the agenda of BRICS and the two went so far as to agree on the need for an early resolution of their boundary issue. They invited each other for a state visit, and Xi went one better by inviting Modi to the Asia-Pacific Economic Cooperation meeting in China in November and asking India to deepen its involvement in the Shanghai Cooperation Organisation (SCO).

Modi’s “fruitful” 80-minute meeting with Xi highlights that the two are inclined to seize the opportunities for mutually beneficial partnerships towards larger economic, political and strategic objectives. This meeting has set the tone for Xi’s visit to India in September.

Although strengthening India-China relationship, opening up new tracks and widening and deepening engagement had been one of former Indian Prime Minister Manmohan Singh’s biggest achievements in 10 years of government (2004-2014), after a certain point there was no new trigger or momentum to the ties. Now Xi and Modi are investing effort to infuse new vitality into the relationship which will have an impact in the region and beyond.

As is the wont when it comes to foreign affairs and national security, Modi’s new government has not deviated from the path charted out by the previous government. BRICS as a foreign policy priority represents both continuity and consistency. Even so, the BJP deserves full marks because it did not treat BRICS and the Brazil summit as something it had to go through with for the sake of form or as a chore handed down by the previous government of Manmohan Singh.

Before leaving for Brazil, Modi stressed the “high importance” he attached to BRICS and left no one in doubt that global politics would be high on its agenda.

He pointed attention to the political dimension of the BRICS Summit as a highly political event taking place “at a time of political turmoil, conflict and humanitarian crises in several parts of the world.”

“I look at the BRICS Summit as an opportunity to discuss with my BRICS partners how we can contribute to international efforts to address regional crises, address security threats and restore a climate of peace and stability in the world,” Modi had said on eve of the summit.

Having struck the right notes that would endear him to the Chinese leadership, Modi hailed Russia as “India’s greatest friend” after he met President Vladimir Putin on the side-lines of the summit.

India belongs to BRICS, and if BRICS is the way to move forward in the world, then BRICS can look to India, along with China, for leading the way, regardless of political change at home. That would appear to be the point made by Modi in his first multilateral appearance.

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BRICS Build New Architecture for Financial Democracy http://www.ipsnews.net/2014/07/brics-build-new-architecture-for-financial-democracy/?utm_source=rss&utm_medium=rss&utm_campaign=brics-build-new-architecture-for-financial-democracy http://www.ipsnews.net/2014/07/brics-build-new-architecture-for-financial-democracy/#comments Wed, 16 Jul 2014 20:41:04 +0000 Mario Osava http://www.ipsnews.net/?p=135601 The five BRICS leaders pose for the cameras at the sixth annual summit in the Brazilian city of Fortaleza. Credit: Agência Brasil/EBC

The five BRICS leaders pose for the cameras at the sixth annual summit in the Brazilian city of Fortaleza. Credit: Agência Brasil/EBC

By Mario Osava
FORTALEZA, Brazil, Jul 16 2014 (IPS)

The BRICS alliance (Brazil, Russia, India, China and South Africa) launched the New Development Bank (NDB) and Contingency Reserve Arrangement (CRA) during its sixth summit, institutionalising a new financial architecture for the emerging powers.

Two other agreements, one for Cooperation among Export Credit and Guarantees Agencies and another on Cooperation for Innovation among national development banks, complete the structure established Tuesday Jul. 15 by the five heads of state in the northeastern Brazilian city of Fortaleza.

The BRICS Summit concludes Wednesday with a meeting between the five leaders and the presidents of the Union of South American Nations (UNASUR) held in Brasilia, as well as several bilateral meetings.

The NDB and CRA are not being created “against anyone,” but as a “response to our needs,” said the summit host, Brazilian President Dilma Rousseff, at a press conference after the meeting with Vladimir Putin (Russia), Narendra Modi (India), Xi Jinping (China) and Jacob Zuma (South Africa).

BRICS leaders reject interpretations that the mechanisms have been created in opposition to or as alternatives to the World Bank and the International Monetary Fund (IMF), part of the Bretton Woods global financial system established in the 1940s.

Social inclusion - a voice from India

A key promoter of the New Development Bank and the country that will appoint the first NDB president, India was also the voice of social concerns at the Sixth BRICS Summit.

Prime Minister Narendra Modi said in Fortaleza that fighting poverty should be the main focus of the group, especially through construction of the Sustainable Development Goals which will shape the development agenda after 2015.

Food security is another issue that Modi identified as a priority, as did members of the Indian business community who participted in the BRICS Business Forum on Monday Jul. 14. It is a highly sensitive topic in India, where hundreds of millions of people live in poverty, most of them subsistence farmers in rural areas.

BRICS should not be a centralised, hierarchical institution, but should focus attention on local areas and people, and involve youth, Modi said in his speech at the Summit. He suggested the creation of a Young Scientists’ Forum and a BRICS university, using the internet for intensive contact between students in the five countries.

The uniqueness of BRICS, he said, is that “for the first time” it brings together a group of nations on the basis of “future potential,” rather than existing characteristics. This “forward looking” idea creates fresh perspectives and institutional changes for a more stable world, overcoming present economic conflicts and turbulence, Modi said.

The theme of the BRICS Summit is “Inclusive growth: sustainable solutions.”

Chinese President Xi Jinping said his country, which is the major trading partner of 128 nations, seeks “win-win” cooperation to promote better world economic governance.

Africa is in urgent need of “inclusive and dynamic growth,” said Jacob Zuma, the president of South Africa, while Russian President Vladimir Putin proposed the formation of a BRICS Energy Association, with a fuel reserve bank to ensure the energy security of its member states.

The NDB will complement existing multilateral and regional financial institutions, whose lack of resources constrain financing of infrastructure projects in developing countries, according to the summit’s final declaration, signed by the participating heads of state.

The CRA, a mechanism through which the five countries make available a total of 100 billion dollars from their reserves, is a currency pool that provides financial security for its members, without departing from the IMF, summit speakers said.

If one of the BRICS countries wishes to borrow more than 30 percent of the sum it is entitled to, in order to overcome threats to its balance of payments, it will have to face questions from the IMF about conditions of payment, said the Brazilian finance minister, Guido Mántega.

Brazil, Russia and India can withdraw up to the value of their contributions of 18 billion dollars each. South Africa may take out twice the five billion dollars it will contribute to the mechanism, and China up to half its 41 billion dollar commitment.

The new institutions “consolidate” the BRICS alliance, Mántega said. Before they become operational, they must be ratified by the countries’ parliaments, he said.

The bank and the reserve fund are so constituted as to prevent aspirations of dominance, Rousseff said. The countries will have equal shares in the NDB, of 10 billion dollars each, and equal voting rights. The capital may later be doubled.

Bank presidents and its governing councils will be appointed on a rotating basis.

China will contribute 41 percent of CRA funds but decisions will be taken by a broader majority, reaching consensus for the negotiation of larger loans, Mántega said.

But the NBD headquarters will be located in the Chinese city of Shanghai, and it will be difficult to avoid the economic and monetary weight of the Asian power from translating into greater decision-making power for Beijing.

The NDB’s composition avoids inequalities at the outset, but equal participation is only a formality as “in practice the future trend will be towards greater Chinese influence,” according to Carlos Langoni, former president of the Brazilian Central Bank.

To be effective, the bank will have to increase its initial capital of 50 billion dollars, recruiting new financing resources, and in this as well as in crises the “dominant role” of the country offering most capital and guarantees is an influential factor, added Langoni, who is the present director of the World Economics Centre at the Getulio Vargas Foundation.

China is interested in diversifying its investments, in multilateral and regional institutions as well as bilaterally. In recent years it has become the largest investor in Latin America.

It already participates in several regional financial mechanisms, such as the Chiang Mai Initiative, similar to the CRA and involving countries of the Association of Southeast Asian Nations, and it is seeking to establish the Asian Infrastructure Investment Bank, as an alternative to the Asian Development Bank in which Japan has decisive influence.

Langoni believes that the BRICS, with the CRA resting on “mega-economies” with their enormous currency reserves, will in the long term be able to “grow faster and have more weight than the IMF, which is already facing difficulties raising funds because of its rules.”

However, the IMF will remain the most powerful multilateral financial body over the next decade, he said.

The rise of the BRICS reflects a multipolar world, as the alliance includes military powers like Russia and China, nuclear powers like both these countries and India, and “moderators” without military ambitions like Brazil and South Africa.

Progress in strengthening and institutionalising the group at its Fortaleza summit could help reduce border tensions existing between China and India, or between Russia and the West, Langoni said.

In his view, what cements the group is its “frustration over the action of multilateral bodies, particularly the IMF,” in the face of the financial crises. These institutions are very complex and made up of a large number of countries.

The BRICS countries can operate with greater ease with their own financial instruments, which can also supply their urgent needs for investment in infrastructure, especially in Brazil and India, he argued.

The BRICS “found their identity” by working with the Group of Twenty (G20) industrial and emerging countries to defend the stimulation of growth, rather than recession-inducing austerity, after the 2008 global financial crisis, Mántega pointed out. Later they came to demand reform of the IMF, which spearheaded response to the crisis.

Some reforms to grant emerging countries greater participation in IMF decision-making were approved by the G20, but then stalled because they were rejected in the U.S. Congress.

The IMF is regarded as extremely undemocratic, because the United States has power of veto and some countries of the industrial North have a majority of votes, in contradiction with the present correlation of economic forces and the weight of emerging powers.

The absence of reforms “negatively impacts on the IMF’s legitimacy, credibility and effectiveness.” The reforms must lead to the “modernisation of its governance structure so as to better reflect the increasing weight of emerging markets and developing countries (EMDCs),” says the Fortaleza Declaration, signed by the five BRICS leaders.

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North’s Policies Affecting South’s Economies http://www.ipsnews.net/2014/07/norths-policies-affecting-souths-economies/?utm_source=rss&utm_medium=rss&utm_campaign=norths-policies-affecting-souths-economies http://www.ipsnews.net/2014/07/norths-policies-affecting-souths-economies/#comments Wed, 16 Jul 2014 08:40:13 +0000 Yilmaz Akyuz http://www.ipsnews.net/?p=135587

In this column, Yilmaz Akyuz, chief economist of the South Centre in Geneva, argues that in recent years developing countries have lost steam as recovery in advanced economies has remained weak or absent due to the fading effect of counter-cyclical policies and the narrowing of policy space, and he recommends measures to reduce the external financial vulnerability of the South.

By Yilmaz Akyuz
GENEVA, Jul 16 2014 (IPS)

Since the onset of the crisis, the South Centre has argued that policy responses to the crisis by the European Union and the United States has suffered from serious shortcomings that would delay recovery and entail unnecessary losses of income and jobs, and also endanger future growth and stability. 

Despite cautious optimism from the International Monetary Fund (IMF), the world economy is not in good shape. Six years into the crisis, the United States has not fully recovered, the Euro zone has barely started recovering, and developing countries are losing steam. There is fear that the crisis is moving to developing countries.

Yilmaz Akyuz

Yilmaz Akyuz

There is concern in regard to the longer-term prospects for three main reasons.

First, the crisis and policy response aggravated systemic problems, whereby inequality has widened. Inequality is no longer only a social problem, but also presents a macroeconomic problem. Inequality is holding back growth and creating temptation to rely on financial bubbles once again in order to generate spending.

Second, global trade imbalances have been redistributed at the expense of developing countries, whereby the Euro zone especially Germany has become a deadweight on global expansion.

Third, systemic financial instability remains unaddressed, despite the initial enthusiasm in terms of reform of governance of international finance, and in addition new fragilities have been added due to the ultra-easy monetary policy.“The external financial vulnerability of the South is linked to developing countries’ integration in global financial markets and the significant liberalisation of external finance and capital accounts in these countries” – Yilmaz Akyuz

The policy response to the crisis has been an inconsistent policy mix, including fiscal austerity and an ultra-easy monetary policy. While the crisis was created by finance, the solution was still sought through finance. Countries focused on a search for a finance-driven boom in private spending via asset price bubbles and credit expansion. Fiscal policy has been invariably tight.

The ultra-easy monetary policy created over one trillion dollars in fiscal benefits in the United States – which was more than the initial fiscal stimulus; the entire initial fiscal stimulus was limited to 800 billion dollars.

There was reluctance to remove debt overhang through comprehensive restructuring (i.e. for mortgages in the United States and sovereign and bank debt in the European Union). Thus, the focus was on bailing out creditors.

There was also reluctance to remove mortgage overhang and no attempt to tax the rich and support the poor, particularly in the United Kingdom and the United States – where marginal tax rates are low compared with continental Europe. There has been resistance against permanent monetisation of public deficits and debt, which does not pose more dangers for prices and financial stability than the ultra-easy monetary policy.

The situation in the United States has been better than in other advanced economies. The United States dealt with the financial but not with the economic crisis, whereby recovery has been slow due to fiscal drag and debt overhang. And employment is not expected to return to pre-crisis levels before 2018.

As for the Euro zone, Japan and the United Kingdom, all have had second or third dips since 2008. None of them have restored pre-crisis incomes and jobs.

Meanwhile, trade imbalances have not been removed, but redistributed. East Asian surplus has dropped sharply and Latin America and sub-Saharan Africa have moved to large deficits. Developing countries’ surplus has fallen from 720 billion dollars to 260 billion dollars. On the contrary, advanced economies have moved from deficit to surplus, whereby U.S. deficits have fallen and the Euro zone has moved from a 100 billion dollars deficit to a 300 billion dollars surplus.

As tapering comes to an end and the U.S. Federal Reserve stops buying further assets, the attention will be turned to the question of exit, normalisation and the expectations of increased instability of financial markets for both the United States and the emerging economies.

This exit will also create fiscal problems for the United States because, as bonds held by the Federal Reserve mature and quantitative easing ends, long-term interest rates will rise and the fiscal benefits of the ultra-easy monetary policy would be reversed.

Developing countries lost steam as recovery in advanced economies remained weak or absent due to the fading effect of counter-cyclical policies and the narrowing of policy space. China could not keep on investing and doing the same thing. Another factor contributing to the change of context in developing countries has been the weakened capital inflows that became highly unstable with the deepening of the Euro zone crisis and then Federal Reserve tapering. Several emerging economies have been under stress as markets are pricing-in normalisation of monetary policy even before it has started.

The external financial vulnerability of the South is linked to developing countries’ integration in global financial markets and the significant liberalisation of external finance and capital accounts in these countries. These include opening up securities markets, private borrowing abroad, resident outflows, and opening up to foreign banks. While developing countries did not manage capital flows adequately, the IMF did not provide support in this area, tolerating capital controls only as a last resort and on a temporary basis.

Several deficit developing countries with asset, credit and spending bubbles are particularly vulnerable.  Countries with strong foreign reserves and current account positions would not be insulated from shocks, as seen after the Lehman crisis. When a country is integrated in the international financial system, it will feel the shock one way or another, although those countries with deficits remain more vulnerable.

In regard to policy responses in the case of a renewed turmoil, it is convenient to avoid business-as-usual, including using reserves and borrowing from the IMF or advanced economies to finance large outflows. The IMF lends, not to revive the economy but to keep stable the debt levels and avoid default. It is also inconvenient to adjust through retrenching and austerity.

Ways should be found to bail-in foreign investors and lenders, and use exchange controls and temporary debt standstills. In this sense, the IMF should support such approaches through lending into arrears.

More importantly, the U.S. Federal Reserve is responsible for the emergence of this situation and should take on its responsibility and act as a lender of last resort to emerging economies, through swaps or buying bonds as and when needed. These are not necessarily more toxic than the bonds issued at the time of subprime crisis. The United States has much at stake in the stability of emerging economies. (END/IPS COLUMNIST SERVICE)

 

*   A longer version of this column has been published in the South Centre Bulletin (No. 80, 30 June 2014).

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New BRICS Monetary Fund May Reproduce Inequalities http://www.ipsnews.net/2014/07/new-brics-monetary-fund-may-reproduce-inequalities/?utm_source=rss&utm_medium=rss&utm_campaign=new-brics-monetary-fund-may-reproduce-inequalities http://www.ipsnews.net/2014/07/new-brics-monetary-fund-may-reproduce-inequalities/#comments Sat, 12 Jul 2014 00:11:13 +0000 Mario Osava http://www.ipsnews.net/?p=135511 Mega-projects like the Itaipú hydropower station shared by Brazil and Paraguay could in future be financed by the new fund and new bank to be launched by BRICS leaders in the Brazilian city of Fortaleza. Credit: Mario Osava/IPS

Mega-projects like the Itaipú hydropower station shared by Brazil and Paraguay could in future be financed by the new fund and new bank to be launched by BRICS leaders in the Brazilian city of Fortaleza. Credit: Mario Osava/IPS

By Mario Osava
FORTALEZA, Brazil, Jul 12 2014 (IPS)

The first common institutions to be set up by Brazil, Russia, India, China and South Africa – the BRICS – are financial, and have arisen as a result of reforms to an international system that continues to largely ignore the growing influence of emerging countries.

But the Contingency Reserve Arrangement (CRA), the BRICS countries’ monetary fund, will also be unbalanced in the composition of its resources, leading to the possible reproduction of these inequalities. The cement that binds the BRICS together is their aspiration to wield more power in international economic bodies.

The CRA and a development bank will be formally established at the Sixth BRICS Summit, to be held in Brazil on Tuesday Jul. 15 in the northeastern city of Fortaleza and on Wednesday Jul. 16 in Brasilia. On Monday, preparatory meetings will take place between ministers, members of the business community and the group’s central banks.

The reserve fund will have 100 billion dollars to come to the rescue of any of its members suffering an exchange crisis. China would contribute 41 percent of the total, South Africa – the smallest partner – five percent, and the other countries 18 percent each.

These percentages reflect the size of each country’s economy. However, participation in the New Development Bank (NDB), the other instrument that will be established at the summit, will be on the basis of equal shares: 10 billion dollars each and equal voting rights for each member.

This is the big difference between the NDB and the World Bank, of which it is a reflection. “The NDB is democratic,” Christopher Wood, a researcher for the South African Institute of International Affairs in Johannesburg, told IPS.

This aspect of the NDB is also very different from the CRA, where China, as the largest country, “will probably have a disproportionate influence,” but it is hoped that the design of the institution will prevent it from being overly one-sided, Wood said.

Negotiations have been under way to create the development bank and the monetary mechanism since 2012, and now only a legal review is required before they are signed by the five BRICS leaders in Fortaleza, announced José Alfredo Graça Lima, the undersecretary- general for political affairs at the Brazilian foreign ministry.

BRIC, an acronym coined in 2001 by U.S. economist Jim O’Neill for the four emerging powers that are changing the shape of the world, began to hold meetings of heads of state and government in 2009, forming “a coalition” that was joined by South Africa in 2011.

“It is not a bloc” that adopts common policies for trade and other sectors, Brazilian diplomats said in response to critical observations about the discrepancies between the countries in different economic or political international forums.

The huge countries, or “whale-economies,” are getting to know each other and have expanded their dialogue. They have “a positive role in democratising international relations,” Graça Lima said.

Cooperation between the five countries is already ongoing in more than 30 areas, and their societies are also interacting through business and academic forums and other means, said Flavio Damico, the head of the Brazilian foreign ministry’s department of inter-regional mechanisms.

But the cement that binds the BRICS together is their aspiration to wield more power in international economic bodies. “The structure of power and privileges” of the global financial and political system “has remained set in stone” since 1945, and will have to change “to adjust to present reality,” he said.

The blocking of a proposed reform of the International Monetary Fund (IMF) in the U.S. Congress spurred the BRICS countries to make headway with their own solutions. The CRA will probably “not substantially change the world economic order in the short term, but it certainly could erode the centrality of the IMF in the long run,” said Wood.

The CRA is being formed in the context of persistent after-effects of the 2008 financial crisis and the “systemic imbalances in the global economy, perpetuated by the monetary policies of advanced economies, such as the United States and the European Union,” Vivan Sharan, an expert on BRICS with the Observer Research Foundation in India, told IPS.

With the “monetary safety net,” BRICS will be signalling “lesser levels of dependence on Bretton Woods institutions such as the IMF, which urgently requires structural and governance reform,” he said. But the group is not aiming at “a recalibration of the global economic order,” he said.

Brazilian economist Fernando Cardim, professor emeritus of economics at the Federal University of Rio de Janeiro, doubts the CRA will be successful. Its resources will be too few, as its entire funds would not even be able to protect Brazil alone from mass capital flight, he argued.

Moreover, it will not necessarily prevent potential intra-BRICS strife, as China will have decisive powers “similar to or even greater than those of the United States over the IMF,” and is likely to wield power with less subtlety, he said.

But the BRICS institutions are not seeking to substitute for or confront the IMF or the World Bank. The CRA’s goal is to “complement” them, as “an additional line of defence” for the five countries, which are not facing balance of payment difficulties, according to Graça Lima.

The IMF’s resources total 937 billion dollars, more than nine times the value of CRA funds, and it will continue to play a key role for the CRA itself and other monetary mechanisms created to combat financial crises, Wood said.

In the Chiang Mai Initiative, a similar mechanism adopted by the Association of Southeast Asian Nations after the region’s 1997-1998 crisis, and which is backed by China, South Korea and Japan, countries must first request IMF assistance if they wish to draw a large loan from the funding pool, said Wood.

The NDB, already known as the BRICS Development Bank, is less controversial, although it has drawn criticism from social and environmental activists. The plan is for it to begin financing infrastructure and sustainable development projects in two years’ time, after obtaining parliamentary approval from member countries.

Its starting capital of 50 billion dollars is limited in comparison with the needs of BRICS members and other developing countries that could benefit from loans and even join the bank. It is less than the amount loaned annually by Brazil’s National Bank for Economic and Social Development (BNDES).

The Indian government, for instance, estimates that one trillion dollars are needed for financing domestic infrastructure projects over the next five years, around half of which is to come from the private sector.

However, new sources of funding are important because Indian infrastructure projects are facing serious liquidity challenges, as they are over-dependent on banking sector finance due to “the non-existence of a robust corporate bond market,” said Sharan in New Delhi.

“South Africa has a lot to gain,” as the NDB will focus on large infrastructure projects, a common problem amongst all the BRICS, and can offer long-term financing which is often difficult to obtain, particularly from the private sector, Wood said.It will also support project preparation, like surveying work, which often needs to be done before financing for the project can be accessed.

The NDB is authorised to double its funds, but its key importance is that co-financing projects acts as a catalyst, by reducing the risk and cost burden for other lenders and so attracting resources from private investors and national and multilateral development banks around the world, according to Wood and the Brazilian diplomats.

With additional reporting from Ranjit Devraj in New Delhi and Brendon Bosworth in Johannesburg.

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Ever Wondered Why the World is a Mess? http://www.ipsnews.net/2014/07/ever-wondered-why-the-world-is-a-mess/?utm_source=rss&utm_medium=rss&utm_campaign=ever-wondered-why-the-world-is-a-mess http://www.ipsnews.net/2014/07/ever-wondered-why-the-world-is-a-mess/#comments Fri, 11 Jul 2014 15:57:45 +0000 Roberto Savio http://www.ipsnews.net/?p=135508

Addressing this column to the younger generations, Roberto Savio, founder and president emeritus of the Inter Press Service (IPS) news agency and publisher of Other News, offers ten explanations of how the current mess in which the world finds itself came about.

By Roberto Savio
ROME, Jul 11 2014 (IPS)

While the Third World War has not been formally declared, conflicts throughout the world are reaching levels unseen since 1944.

Of course, for the large majority of people throughout the world, news about these conflicts is just part of our daily news, but another share of our daily news is about the mess in our countries.

This is so complex and confusing that many people have given up the effort to attempt any form of deep understanding, so I thought it would be useful to offer ten explanations of how we succeeded in creating this mess.

Roberto Savio. Credit: IPS

Roberto Savio. Credit: IPS

1)   The world, as it now exists, was largely shaped by the colonial powers, which divided the world among themselves, carving out states without any consideration for existing ethnic, religious or cultural realities. This was especially true of Africa and the Arab world, where the concept of state was imposed on systems of tribes and clans.

Just to give a few examples, none of the present-day Arab countries existed prior to colonialism. Syria, Lebanon, Iraq, the Gulf Countries (including Saudi Arabia) were all parts of the Ottoman Empire. When this disappeared with the First World War (like the Russian, German and Austro-Hungarian empires), the winners – Britain and France – sat down at a table and drafted the boundaries of countries to be run by them, as they had done before with Africa. So, never look at those countries as equivalent to countries with a history of national identity.“Do not go with the tide ... search for the other face of the moon. And if they tell you that they know, well, just look at the results” – Roberto Savio

2)   After the end of the colonial era, it was inevitable that to keep these artificial countries alive, and avoid their disintegration, strongmen would be needed to cover the void left by the colonial powers. The rules of democracy were used only to reach power, with very few exceptions. The Arab Spring did indeed get rid of dictators and autocrats, just to replace them with chaos and warring factions (as in Libya) or with a new autocrat, as in Egypt.

The case of Yugoslavia is instructive. After the Second World War, Marshal Tito dismantled the Kingdom of Yugoslavia and created the Socialist Federal Republic of Yugoslavia. But we all know that Yugoslavia did not survive the death of its strongman.

The lesson is that without creating a really participatory and unifying process of citizens, with a strong civil society, local identities will always play the most decisive role. So it will take some before many of the new countries will be considered real countries devoid of internal conflicts.

3)   Since the Second World War, the meddling of the colonial and super powers in the process of consolidation of new countries has been a very good example of man-made disaster.

Take the case of Iraq. When the United States took over administration of the country in 2003 after its invasion, General Jay Garner was appointed and lasted just a month, because he was considered too open to local views.

Garner was replaced by a diplomat, Jan Bremmer, who took up his post after a two-hour briefing by the then Secretary of State, Condolezza Rice. Bremmer immediately proceeded to dissolve the army (creating 250,000 unemployed) and firing anyone in the administration who was a member of the Ba’ath party, the party of Saddam Hussein. This destabilised the country, and today’s mess is a direct result of this decision.

The current Iraqi Prime Minister, Nouri al-Maliki, whom Washington is trying to remove as the cause of polarisation between Shiites and Sunnis, was the preferred American candidate. So was the President of Afghanistan, Hamid Karzai, who is now virulently anti-American. This is a tradition that goes back to the first U.S. intervention in Vietnam, where Washington put in place Ngo Dihn Dien, who turned against its views, until he was assassinated.

There is no space here to give example of similar mistakes (albeit less important) by other Western powers. The point is that all leaders installed from outside do not last long and bring instability.

4)   We are all witnessing religious fighting and Islam extremism as a growing and disturbing threat. Few make any effort to understand why thousands of young people are willing to blow themselves up. There is a striking correlation between lack of development/employment and religious unrest. In the Muslim countries of Asia (Arab Muslims account for less than 20 percent of the world’s Muslim populations), extremism hardly exists.

And few realise that the fight between Shiites and Sunnis is funded by countries like Saudi Arabia, Qatar and Iran. Those religions have been living side by side for centuries, and now they are fighting a proxy war, for example in Syria. Saudi Arabia has been funding Salafists (the puritan form of Islam) everywhere, and it has provided nearly two billion dollars to the new Egyptian autocrat, Abdel Fattah el-Sisi, because he is fighting the Muslim Brotherhood, which predicates the end of kings and sheiks and power for the people. Iraq is also becoming a proxy war between Saudi Arabia, defender of the Sunnis, and Iran, defender of the Shiites.

So, when looking at these wars of religion, always look at who is behind them. Religions usually become belligerent only if they are used. Just look at European history, where wars of religion were invented by kings and fought by people. Of course, once the genie is out of the bottle, it will take a long time to put it back. So this issue will be with us for quite some time.

5)   The end of the Cold War unfroze the world, which had been kept in stability by the balance between the two superpowers. Attempts to create regional or international alliances to bring stability have always been stymied by national interests. The best example is Europe. While everybody was talking about Crimea, Ukraine and Vladimir Putin (who had been made paranoiac about Western encirclement, from the George Bush Jr. administration onwards) and how to bring him to listen to the United States and Europe, European companies continued trade in spite of a much talked about embargo. And now, Austria has quietly signed an agreement with Russia to join the South Stream, a pipeline that will bring Russian gas to Europe – so much for the unity of a Europe which has been clamouring about the need to reduce its energy dependence on Russia.

A multipolar world is in the making, but it has to be seen how stable it will be. In Asia, China and Japan are increasing their military investments, as are surrounding countries. And while local conflicts, like Syria, Iraq and Sudan, are not going to escalate into a larger conflict, this would certainly be the case in Asia.

6)   In a world more and more divided by a resurgence of national interests, the very idea of shared governance is losing its strength, and not only in Europe. The United Nations has lost its significance as the arena in which to reach consensus and legitimacy. The two engines of globalisation – trade and finance – are not part of the United Nations, which is stuck with the themes of development, peace, human rights, environment, education and so on. While these issues are crucial for a viable world, they are not seen as such by those in power. Conclusion: the United Nations is sliding into irrelevance.

7)   At the same time, values and ideas which were considered universal, such as cooperation, mutual aid, international social justice and peace as an encompassing paradigm are also becoming irrelevant. French President Francois Hollande meets U.S. President Barack Obama, not to discuss how to stop the genocide in Sudan, or the kidnapping of children in Nigeria, but to ask him to intervene with his Minister of Justice to reduce a giant fine on a French bank, the BNP-Parisbas, for fraudulent activities. The outstanding problem of climate control was largely absent in the last  G7 meeting, not to talk of nuclear disarmament … and yet these are the two main threats to the planet!

8)   After colonialism and totalitarian regimes, the key phrase after the Second World War was “implementation of democracy”. But after the end of the Cold War, democracy was taken for granted. In fact, in the last twenty years, the formula of representative democracy has been losing its glamour. Pragmatism has led to the loss of long-term vision, and politics have become more and more mere administration.

Citizens feel less and less related to parties, which have basically become self-centred and self-reliant.  International affairs are not considered tools of power by parties, and decisions are taken without participation. This leads to choices which often do not represent the feelings and priorities of citizens.

The way in which the bailout of Cyprus from its financial crisis a few years ago was treated in the European Commission was widely recognised as a blatant example of lack of transparency. Few people certainly make more mistakes than many …

9)   A very important element of the mess has been the growth of what its proponents, especially in the financial world, call the “new economy” – an economy that contemplates permanent unemployment, lack of social investments, reduced taxation for large capital, the marginalisation of trade unions, and a reduction of the role of the State as the regulator and guarantor of social justice. Inequalities are reaching unprecedented levels. The world’s 85 richest individuals possess the same wealth as 2.5 billion people.

10)   All this brings its corollary. It is not by chance that all mainstream media worldwide have the same reading of the world. Information today has basically eliminated analysis and process, to concentrate on events. Their ability to follow the world mess is minimal, and they just repeat what those in power say. It is very instructive to see media which are very analytical about national affairs and very superficial about international issues. The media depend largely on three international news agencies, which represent the Western world and its interests. Have you read anywhere about the gas agreement between Austria and Russia?

So, a final point: never be satisfied with what you read in the newspapers, always try to get additional and opposite viewpoints through the net. This will help you to look at the world with your eyes, and not with the eyes of somebody else who is probably part of the system which has created this mess. Do not go with the tide … search for the other face of the moon. And if they tell you that they know, well, just look at the results. So, be yourself and, if you make a mistake, at least it will be your mistake. (END/IPS COLUMNIST SERVICE)

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World’s Poorest Nations Seek Presence in Post-2015 Agenda http://www.ipsnews.net/2014/07/worlds-poorest-nations-seek-presence-in-post-2015-agenda/?utm_source=rss&utm_medium=rss&utm_campaign=worlds-poorest-nations-seek-presence-in-post-2015-agenda http://www.ipsnews.net/2014/07/worlds-poorest-nations-seek-presence-in-post-2015-agenda/#comments Tue, 08 Jul 2014 18:18:36 +0000 Thalif Deen http://www.ipsnews.net/?p=135433 Cambodia is one of the world’s 48 Least Developed Countries. Credit: Michelle Tolson/IPS

Cambodia is one of the world’s 48 Least Developed Countries. Credit: Michelle Tolson/IPS

By Thalif Deen
UNITED NATIONS, Jul 8 2014 (IPS)

The 48 least developed countries (LDCs), described as the poorest of the world’s poor, want to be an integral part of the U.N.’s post-2015 development agenda currently under discussion.

An Open-ended Working Group (OWG), which will continue its 13th round of negotiations next week, is expected to come up with a set of new Sustainable Development Goals (SDGs) to replace the eight Millennium Development Goals (MDGs) which reach their deadline by the end of next year."The neo-liberal policies that have failed LDCs will continue to drive the agenda." -- Demba Dembele

Ambassador Gyan Acharya, U.N. Under-Secretary-General and High Representative for LDCs, Land-locked Developing Countries (LLDC) and Small Island Developing States (SIDS), describes the post-2015 economic landscape as “a once-in-a generation opportunity for transformational change” for the world’s poorest nations.

However, negotiations remain tricky for LDCs in the 30-member OWG, according to diplomats involved in the negotiations.

Since LDCs constitute only six (Bhutan, Bangladesh, Benin, Tanzania, Democratic Republic of Congo and Tanzania) among the 30, they find themselves totally outnumbered by the “big voices”.

Still, LDCs are apparently better prepared than in previous U.N. fora, primarily because of “back-stopping” support from the UN-Office of the High Representative (OHRLLS).

But some LDC non-governmental organisations (NGOs) question whether a post-2015 agenda will help LDCs at all.

Demba Dembele, coordinator of the Senegal-based Forum for African Alternatives, told IPS, “What is written on paper will not be what will be implemented.”

The agenda will be hijacked by the United States, the European Union (EU), the World Bank, the International Monetary Fund (IMF) and the World Trade Organisation (WTO), he predicted.

“This means the neo-liberal policies that have failed LDCs will continue to drive the agenda, so as all special programmes for LDCs, since 1981, have failed,” he said. “Why should this one work?”

“I don’t share the ambassador’s optimism,” said Dembele, one of the main organisers of the 2011 World Social Forum held in Dakar, Senegal.

“What is needed is a paradigm shift away from market fundamentalism,” he declared.

Speaking at last month’s roundtable in London, which focused on LDCs and the post-2015 agenda, Ambassador Acharya painted a grim picture for LDCs.

He pointed out most of the LDCs have been buffeted by the effects of the world economic downturn and find themselves on the frontline of climate change.

Rising sea levels, coastal erosion, land degradation, desertification and shortened growing seasons have hit them hard, said Acharya, a former Permanent Representative of Nepal to the United Nations.

This is a particularly cruel blow since agriculture provides the livelihood for 70 percent of the population of LDCs.

For Ambassador Acharya, climate change is “the elephant in the room that no one is prepared to face”.

The London meeting was hosted by the Overseas Development Institute (ODI), a leading independent UK development think-tank.

Azeb Girmai, a civil society activist in Ethiopia, one of the LDCs in Africa, describes how climate change is affecting her country’s economy:  “We’ve had more droughts and more frequent floods, and increasingly erratic rainfall, and studies have shown that crop yields decreased by 13 percent between 1991 and 2008 because of climate change.”

She said “this is in a country where 85 percent of the population are farmers or rely on rain-fed agricultural production.”

Clare Melamed, director of the ODI’s Growth, Poverty and Inequality section, told the London meeting: “With discussions on the Open Working Group at a crucial stage, we want to make sure that a new set of goals resulting from the negotiations, works for the poorest countries.”

Dr. Arjun Karki, president of Rural Reconstruction Nepal, and international coordinator of LDC Watch, a network of LDC NGOs,
said “there should be no more excuses, or failed development paradigms based on predatory economic liberalisation in trade, finance and investment which have only led to multiple crises and a widening inequality gap.”

He said LDC Watch demands a “stand-alone goal” for LDCs so that the most vulnerable and marginalised countries are kept at centre stage.

Given the shortcomings of the MDGs, LDC governments and civil society want to ensure that SDGs have something to offer them.

There have been suggestions for specific targets within the SDGs, and a process to test how goals and targets would work for them.

This would also help direct resources towards LDCS, to level the playing field and make rapid progress possible.

“One crucial aspect of the negotiations on new goals is to agree a ‘means of implementation’, or a deal on what countries will do to help each other to achieve them,” said Melemed.

“This is particularly important for LDCs, who suffer some of the worst problems and have the least capacity to deal with them alone,” she added.

Two elements that LDCs want to see included in the SDGs are a stress on building capacity and strengthening global partnerships.

Given their young and dynamic population, the LDCs have a huge potential skills base, so they need support to take advantage of this asset and develop e-technology and set up science and technology agreements.

And to overcome the shortcomings of the MDGs, LDCs insist that the SDGs need to emphasise differential and preferential treatment, rather than seeking a set of overall goals for all to pursue.

Perhaps one of the strongest arguments for helping the LDCs work their way out of poverty is enlightened self-interest on the part of richer countries.

As Dr. Karki pointed out, “In LDCs, underdevelopment, hunger, economic weakness and insecurity create political instability, war and internal conflict, and the effects of this instability spill over into developed countries in the form of increased refugees and regional instability.”

U.N. Secretary General Ban Ki-moon puts it this way: (Supporting LDC development) “is not only a moral imperative, but also a means to promote a stable and peaceful global order.”

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For the Caribbean, a United Front Is Key to Weathering Climate Change http://www.ipsnews.net/2014/07/for-the-caribbean-a-united-front-is-key-to-weathering-climate-change/?utm_source=rss&utm_medium=rss&utm_campaign=for-the-caribbean-a-united-front-is-key-to-weathering-climate-change http://www.ipsnews.net/2014/07/for-the-caribbean-a-united-front-is-key-to-weathering-climate-change/#comments Wed, 02 Jul 2014 16:09:24 +0000 Desmond Brown http://www.ipsnews.net/?p=135338 A seawall in Dominica. A recent report has called for specific measures to protect small islands from sea level rise. Credit: Desmond Brown/IPS

A seawall in Dominica. A recent report has called for specific measures to protect small islands from sea level rise. Credit: Desmond Brown/IPS

By Desmond Brown
PHILIPSBURG, St. Maarten, Jul 2 2014 (IPS)

As the costs of climate change continue to mount, officials with the Commonwealth grouping say it is vital that Small Island Developing States (SIDS) stick together on issues such as per capita income classification.

Deputy Commonwealth Secretary General (Economic and Social Development) Deodat Maharaj told IPS the classification affects the ability of countries like Antigua and Barbuda, Grenada and others to access financing from the international financial institutions.

“To my mind, the international system has to take special consideration of countries such as Antigua and Barbuda, Grenada and others,” he said.

“The example I like to use is the example of Grenada. You would recall Hurricane Ivan about 10 years ago. It damaged about 70 percent of the housing stock in Grenada. It cost a billion U.S. dollars in damages, equivalent to two years GDP.

“So the countries in the Caribbean can move from high income or middle income to almost zero income with an economic shock or natural disaster,” Maharaj added.

Maharaj, whose appointment took effect earlier this year, said the Commonwealth is preparing “an analytical framework based on research, a case, so that countries such as Grenada when there is a natural disaster their international debt obligation for a particular period of time will be suspended so that they don’t have to continue to pay their debt when it is that they have suffered a natural disaster.”

On the issue of collaboration, one of only three female prime ministers in the Caribbean has reaffirmed her country’s commitment to dealing with climate change and all the issues associated with the global phenomena.

“I would like to reaffirm my strong belief in collaboration with other nations,” Sarah Wescot-Williams, the prime minister of St. Maarten, told IPS.

“Economic issues have forced us to look at ways and means of getting together and we are working collaboratively with other Caribbean nations to mitigate the effects of climate change as well as social issues of unemployment, crime and health.”

Prime Minister of St. Maarten Sarah Wescot-Williams (left) and Chair of the Caribbean Tourism Organisation Beverly Nicholson-Doty. Credit: Desmond Brown/IPS

Prime Minister of St. Maarten Sarah Wescot-Williams (left) and Chair of the Caribbean Tourism Organisation Beverly Nicholson-Doty. Credit: Desmond Brown/IPS

St. Maarten recently developed and approved its National Energy Policy “and as such we have very specific goals and objectives to reach by 2020 in terms of reduction and promoting alternative, new green ideas, new green products,” Wescot-Williams explained.

She reiterated a point made while addressing regional leaders recently. “I told them we should not only look out for the bigger impacts of climate change or look at those developments as something that is far from us, far from our homes, but look at small things like beach erosion, something that St. Maarten is seeing.

“A report has been issued not very long ago indicating that unless specific measures are taken, a great part of what is now land will no longer be as far as the smaller islands, including St. Maarten, are concerned.”

How they are ranked by financial institutions such as the International Monetary Fund (IMF) and World Bank is a major issue for Caribbean countries.

Camillo Gonsalves, a former ambassador to the United Nations, says it affects these countries’ ability to secure the required funding to effectively deal with climate change.

He noted that most Caribbean countries are ranked as middle-income countries, and using that metric alone makes his country, St. Vincent and the Grenadines, with its one-billion-dollar Gross Domestic Product (GDP), “richer than China”.

“If that is the metric by which we determine economic health and access to concessionary financing, and our ability to borrow ourselves out of a crisis or to spend ourselves out of a crisis, it is clearly a flawed measure,” he said.

He noted that within three hours last Christmas Eve, a trough system left damage and loss in St. Vincent equal to 17 percent of GDP, while the country also suffered natural disasters in 2010, and 2011 – the loss and damage from each of which was in double digits.

This, however, is the measure by which the World Bank, the IMF determine the economic strength of Caribbean countries, Gonsalves said, adding that these international institutions do not consider the region’s vulnerabilities.

“The Caribbean small island developing states are among the most heavily indebted states in the world,” Gonsalves said, noting that the debt-to-GDP ratio in the region ranges from 20 percent in Haiti – which received significant debt forgiveness after the 2010 earthquake – to 139 percent in Jamaica, with St. Kitts and Nevis and Grenada at 105 and 115 per cent, respectively, even as the European Union has set itself a debt-to-GDP ratio of 65 per cent.

“If your debt-to-GDP ratio is 139 percent and you are struck by a natural disaster… how do you borrow yourself out of that crisis? Where do you find money immediately to build your roads, your houses, your bridges, your hospitals that have been damaged? How can you set money aside in preparation for the next climate event if you have a debt to GDP ratio of over 100 per cent or approaching 100 per cent, and your debt servicing charges are that high?” Gonsalves said.

Agreeing with Wescot-Williams and Maharaj that there is strength in unity, Gonsalves, who serves as foreign affairs minister for St. Vincent and the Grenadines, said the upcoming Third United Nations Conference on Small Island Developing States (SIDS) in Samoa is an ideal opportunity for regional countries to do more than just talk about collaboration.

“The issue of how we are ranked and classified has to be rectified – not addressed, not flagged, not considered. It has to be rectified in Samoa. That has to be one of our prime objectives going into this conference,” he said.

The Samoa conference will be held from Sep. 1-4 under the theme “The Sustainable Development of Small Island States Through Genuine and Durable Partnerships”.

It will seek to assess progress and remaining gaps; renew political commitment by focusing on practical and pragmatic actions for further implementation; identify new and emerging challenges and opportunities for the sustainable development of SIDS and means of addressing them; and identify priorities for the sustainable development of SIDS to be considered in the elaboration of the post-2015 U.N. development agenda.

Maharaj said “one big challenge” for his organisation is the advancement of the interest of small states.

“When I think about the Caribbean and I think about development…we need to think about development not only in terms of five years, 10 years or 15 years,” he said.

“I would like to think about and imagine what will the Caribbean be in the year 2050 at the time when our grand- and great-grandchildren will be around and many of us won’t be here,” Maharaj added.

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IMF Issues “Revolutionary” Warning on Corporate Tax Avoidance http://www.ipsnews.net/2014/06/imf-issues-revolutionary-warning-on-corporate-tax-avoidance/?utm_source=rss&utm_medium=rss&utm_campaign=imf-issues-revolutionary-warning-on-corporate-tax-avoidance http://www.ipsnews.net/2014/06/imf-issues-revolutionary-warning-on-corporate-tax-avoidance/#comments Thu, 26 Jun 2014 21:31:47 +0000 Carey L. Biron http://www.ipsnews.net/?p=135215 By Carey L. Biron
WASHINGTON, Jun 26 2014 (IPS)

The staff at the International Monetary Fund (IMF) has issued an unusually stark warning over the lack of harmonised global tax policies, pointing out that these gaps are allowing for widespread tax gaming by corporations with particularly negative impacts for developing countries.

Anti-poverty advocates are lauding a new staff paper from the fund released Wednesday. Its findings not only coincide with civil society calls for major taxation reforms at the national and international levels, but also repeatedly push back against longstanding tax-related dogma, including that offered by the Washington-based IMF itself.“As tax dodging knows no border, it makes sense to move to the international level to create such a worldwide entity.” -- Catherine Olier of Oxfam

“This is, frankly, a revolutionary paper,” Jo Marie Griesgraber, the executive director of the New Rules for Global Finance Coalition, a Washington-based international network, told IPS.

“It looks very carefully at many aspects of tax planning, and each time says that this has very negative impact on developing countries … Ultimately, it says that traditional tax theory is essentially uninformed by empirical knowledge.”

The paper is the result of a new focus on tax-dodging among the Group of 20 (G20) industrialised countries, which directed the fund to undertake related research. The findings are particularly notable in their sustained focus on the impacts on developing countries.

“Our technical assistance work in developing countries frequently encounters large revenue losses through gaps and weaknesses in the international tax regime,” Michael Keen, deputy director of the IMF’s Fiscal Affairs Department, said in a statement.

“The sums involved for them can be large, not just relative to corporate tax but relative to all tax revenue: 10-15 percent in some cases. The paper reports new evidence that these effects are in fact systematically more important for developing countries.”

Corporate tax rates in all countries have plummeted in recent decades, the paper notes.

Low-income countries have seen these rates degrade from near 50 percent in 1980 to under 30 percent last year. Others have seen similar plunges, with high-income countries seeing corporate taxation fall from around 40 percent three decades ago to little more than 20 percent today.

Such trends have been tracked for years. Yet in the aftermath of the global financial crisis, rich and middle-income countries have begun actively discussing how to maximise their tax revenues, with a focus on ending corporate accounting gimmickry.

Rich companies and individuals could be stashing away as much as 20 trillion dollars overseas in order to escape national taxation, according to some estimates.

“Developed countries today need more income and are mad because not everyone is paying their taxes,” Griesgraber says.

“And that anger is also translating into public pressure. People who pay their taxes even during a difficult recession are even madder than the governments.”

“Meaningless” designations

According to the IMF data, developing countries should perhaps be the most incensed by the impacts of today’s global taxation hodgepodge. The paper offers new findings on the ramifications of what the fund terms “spillover effects” – the ways in which one country’s tax rules impact on another country, which can also be thought of in terms of tax competition between countries.

This phenomenon has been significantly exacerbated as multinational companies have increasingly learned how to legally “move” their operations – largely on paper – for tax benefit. Such companies appear to be based in countries with low taxes, despite doing most of their work in another country that, in turn, is unable to place levies on the company’s full earnings.

“Current international tax arrangements rest on concepts of companies’ ‘residence’ and the ‘source’ of their income, both of which globalization has made increasingly fragile (some would say meaningless),” the paper states.

“At its core, a key issue in assessing any international tax arrangement is how it divides the rights to tax between source and residence countries … The allocation of rights is especially important for low-income countries, however, as flows are for them commonly very asymmetric – they are essentially ‘source’ countries.”

The fund staff found that the impact of these spillover effects on corporate tax bases are “significant and sizable” but are “especially pronounced for low-income countries”. Compared to rich countries, the paper notes, “the base spillovers from others’ tax rates are two to three times larger” in developing countries, and “statistically more significant”.

Particularly problematic has been the extractives industry, though the fund also calls out telecommunications companies. The paper recounts IMF experiences in multiple countries where corporate tax trickery has eaten up much of a project’s revenue, such as a “gold mining sector in which USD 100 billion has been invested over the last decade, but which is almost entirely debt financed”.

The fund ultimately goes so far as to suggest that countries should be extremely careful about signing any bilateral tax treaty, urging developing country governments instead to signal openness to investment by other means. Through such agreements, countries can sign away their right to levy full tax rates and give an upper hand to foreign corporations.

“The IMF analysis raises some very worrying concerns about the impact of tax rules and practices in rich countries on the ability of poor countries to raise their own revenues,” Diarmid O’Sullivan, a tax justice policy advisor with ActionAid, a watchdog group, said Wednesday.

“We see a clear message to … major capital-exporting countries to review their tax rules and make sure they are not harming the ability of poor countries to raise the revenues they need for their development.”

Comprehensive approach

One key step being pushed by governments and civil society today to cut down on corporate tax avoidance entails the automatic exchange of tax information between governments. Doing so, proponents say, would quickly clear up the discrepancies that can be exploited by tax-dodgers.

In February, the Organisation for Economic Co-operation and Development (OECD), comprised of 34 rich countries, unveiled just such a proposal. Still, anti-poverty campaigners have warned that developing economies were not included in discussions around the OECD plan – though a roadmap is due by September on facilitating poor countries’ participation in such exchanges, an OECD official told IPS.

Some are now hoping that this new flurry of work could be leading towards the formalisation of a stricter international framework on tax policy, in line with the globalised environment of today’s multinational corporations. Indeed, the IMF’s new paper notes that “the case for an inclusive and less piecemeal approach to international tax cooperation grows.”

Indeed, a decade and a half ago an IMF official proposed the establishment of a World Tax Authority, an idea that campaigners are now hoping to revive.

“As tax dodging knows no border, it makes sense to move to the international level to create such a worldwide entity,” Catherine Olier, a policy advisor with Oxfam International, an advocacy and humanitarian group, told IPS.

“Modalities about its functionalities and mandate would remain to be determined, but it could have a role in setting minimum standards to avoid harmful tax competition between countries – and, if ambitious, an international dispute mechanisms to fight countries that deliberately put in place tax policies with too much negative spillover effect on others.”

The IMF and OECD reports will both go before the G20 at a summit in November.

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Argentina Seeks to Ward Off “Paradoxical” Default http://www.ipsnews.net/2014/06/argentina-seeks-ward-paradoxical-default/?utm_source=rss&utm_medium=rss&utm_campaign=argentina-seeks-ward-paradoxical-default http://www.ipsnews.net/2014/06/argentina-seeks-ward-paradoxical-default/#comments Tue, 17 Jun 2014 23:06:26 +0000 Diana Cariboni http://www.ipsnews.net/?p=135049 Screenshot of Argentine President Cristina Fernández during her Monday Jun. 16 televised address to the nation. Credit: TV Pública

Screenshot of Argentine President Cristina Fernández during her Monday Jun. 16 televised address to the nation. Credit: TV Pública

By Diana Cariboni
MONTEVIDEO, Jun 17 2014 (IPS)

Argentina finds itself in a strange position since the U.S. Supreme Court rejected its appeal Monday to take a case in which a small group of creditors is suing this country for full repayment: it is on the brink of default even though it is one of the countries in the world that has done the most to dig itself out of debt.

The Supreme Court decision in the case Republic of Argentina v. NML Capital leaves in place a 2012 ruling handed down by the second district court of New York, ordering Buenos Aires to pay bondholders, immediately and in full, some 1.5 billion dollars – an amount that includes interest and penalties.

But it also sets a precedent with respect to all of the unpaid debt in the hands of other speculative bondholders, totalling around 16 billion dollars.

This amount, however, “is equivalent to just three percent of Argentina’s GDP,” economist Ramiro Castiñeira, with the Econométrica consultancy, told IPS.

“It doesn’t make sense for Argentina to default over that amount, when it is one of the countries that has advanced the most in reducing its debt in the past few years,” Castiñeira argued.

Brazil, for example, owes interest payments this year equivalent to five percent of GDP, on top of principal payments amounting to more than 12 percent of GDP, he said.

The problem is that Argentina does not have 16 billion dollars in cash – the equivalent of half of its foreign reserves, which were hit hard by a series of restrictive monetary policies that fuelled capital flight.

Argentine President Cristina Fernández complained about the Supreme Court ruling Monday night, calling it “extortion” while stressing that her country would continue to make repayments to lenders who had agreed on renegotiated settlements.

After Argentina defaulted on its foreign debt in late 2001 during the worst economic crisis in the country’s history, the government made enormous efforts to work its way out of debt, which had reached 160 percent of GDP.

It repaid the World Bank and International Monetary Fund (IMF) in full and restructured the debt held by 92.4 percent of bondholders, at a deep discount, in 2005 and 2010.

The debt shrank to manageable volumes. In late May, Argentina reached an agreement with the Paris Club of creditor nations for repaying overdue debts. And earlier this year, the government agreed on a package to compensate Spanish oil company Repsol for the 2012 nationalisation of its subsidiary YPF.

But the situation produced by the Supreme Court ruling could jeopadise everything achieved so far.

The sentence prohibits banks in New York from making interest and principal payments to creditors that accepted the restructuring unless the New York-based hedge fund NML Capital is paid.

On Jun. 30, Buenos Aires is to pay 532 million dollars for bonds issued under foreign legislation.

To avoid the embargo, payment jurisdicion could be modified by means of a voluntary swap. “The idea might seem tempting, but it is impracticable and would also mean falling into technical default” by changing the parameters set when bonds are issued, Argentine economist Leonardo Stanley, associated with the Centro de Estudios de Estado y Sociedad (CEDES) think tank , told IPS.

Although Fernández’s statement was ambiguous, Stanley’s interpretation is that the president expressed a willingness to pay. That means “negotiations will have to start with the holdouts [creditors who refused the restructuring], which could take place within the context of what the judge handling the case [in New York] is asking for,” he said.

Stanley said: “From here on out the decision is political. Just as it reached agreements recently with Repsol and the Paris Club, the government should sit down and negotiate with Paul Singer,” whose hedge fund, Elliott Management, is the parent company of NML Capital.

The economic impact is inevitable, he added, “although the current government would not necessarily have to deal with it,” as Fernández’s term ends in December 2015. For that reason, “any proposal would have to be made in the legislative sphere,” which would help boost “transparency and credibility,” he said.

In her address to the nation Monday, Fernández said “this case has repercussions for the entire global financial system. [The ruling] validates a business model on a global scale which, if it continues to be reinforced, will produce unimaginable tragedies.”

Eric LeCompte, executive director of the religious anti-poverty organisation Jubilee USA Network, said in a statement that “For heavily indebted countries supporting poor people, this is a devastating blow. These hedge funds are [now] equipped with an instrument that forces struggling economies into submission.”

“Argentina may not have used the best options or strategies,” said Stanley. But the stance taken by the U.S. Supreme Court shows that “despite the institutional crisis, the lobbying power of the financial sector is intact,” he added.

And if countries begin to doubt the benefits of issuing a bond under New York jurisdiction, the ruling “could also hurt that sector, and the United States…which has gone from being the world’s creditor to one of its biggest debtors,” he argued.

Peter Hakim, president emeritus of the Washington-based Inter-American Dialogue think tank, said “Both the U.S. Treasury and the IMF were also concerned about the broader effect of what would be considered an Argentine default, and also worried about the impact on other debt negotiations.

“Remember the U.S. Treasury [along with the IMF], although it did not join the lawsuit, basically supported Argentina’s contention that it should be able to pay the holdouts the same amount as it was paying creditors who had accepted Argentina’s debt restructuring.
“ U.S. relations with Argentina… have improved in recent months as Argentina has pursued a more orthodox and moderate set of economic policies (including efforts to reform its notoriously manipulated economic statistics, repay its Paris Club obligations, settle the claims of Repsol, etc).”

But the immediate future of those ties depends on how Buenos Aires reacts in this case, for which a solution could be possible if the Argentine goverment demonstrates greater flexibility, Hakim said.

“The Fernández government will have to resist the temptation to turn the decision into a domestic political issue,“ he said.

But that seems difficult to do. For decades the management of the country’s debt has been a central factor in economic and political crises. In her speech Monday, Fernández summed up the history of this issue.

The portion of bonds that Singer and his allies are pressing Argentina to pay is illustrative on its own. In 2008, NML Capital purchased the bonds at a nominal price of 370 million dollars. But at the time they were only worth 48 million dollars.

Thirty percent had been issued during the administration of Carlos Menem (1989-1999), when the peso was pegged to the dollar.

The rest were issued during the “megaswap” – a financial operation cooked up in 2001 to give Argentina breathing space by stretching out the government’s principal and interest payments, which backfired and increased the public debt by tens of billions of dollars.

Former president Fernando de la Rúa (1999-2001) and his economy minister Domingo Cavallo were prosecuted for the megaswap and an international arrest warrant was issued for David Mulford, at the time chairman international of the Credit Suisse First Boston bank and former U.S. Treasury official.

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U.S. Supreme Court “Validates” Vulture Fund Activities http://www.ipsnews.net/2014/06/u-s-supreme-court-validates-vulture-fund-activities/?utm_source=rss&utm_medium=rss&utm_campaign=u-s-supreme-court-validates-vulture-fund-activities http://www.ipsnews.net/2014/06/u-s-supreme-court-validates-vulture-fund-activities/#comments Tue, 17 Jun 2014 00:55:22 +0000 Carey L. Biron http://www.ipsnews.net/?p=135033 The Supreme Court of the United States. Credit: Mark Fischer/CC by 2.0

The Supreme Court of the United States. Credit: Mark Fischer/CC by 2.0

By Carey L. Biron
WASHINGTON , Jun 17 2014 (IPS)

The U.S. Supreme Court’s decision to reject an appeal by the Argentine government will embolden aggressive “holdout” creditors, anti-poverty groups say, and make it far more difficult to arrive at debt-relief agreements for poor countries.

The move, announced Monday, is a definitive setback for Argentina, which has been battling two U.S. hedge funds for years to allow a major debt-restructuring agreement to go forward. Yet the court’s decision is also being seen as a significant loss for poor countries looking for debt relief.

“I’m still reeling from this news,” Eric LeCompte, executive director of Jubilee USA Network, an umbrella of religious anti-poverty groups, told IPS.

“Not only is the behaviour of the hedge funds validated, but it has actually been encouraged. Now they have new legal instruments to force countries like Cote D’Ivoire and Zambia into submission pretty quickly.”

As per tradition, the court did not explain why it was declining Argentina’s appeal and, instead, letting stand a lower-court decision that requires Argentina to pay some 1.5 billion dollars to creditors. Following that verdict, in August, the Argentine government stated it would never comply with the order, though it has since softened its stance.

A second decision, also handed down by the Supreme Court on Monday, was overwhelmingly in favour of the hedge funds, allowing bondholders to force global banks to assist in tracing Argentine assets.

At issue is a strategy adopted by a small number of hedge funds, based particularly here in the United States, to purchase reduced-rate debt from poor countries with little hope of repayment. These firms then file lawsuits against those governments for failure to repay, looking to scoop up government revenues and international aid monies when they eventually start to flow.

Perniciously, these firms maintain the lawsuits even as other investors agree to reduce some debts, accepting lower-than-expected returns that nonetheless allow the indebted government to begin to recover economically.

Even a single such “holdout creditor” or “vulture fund” can gum up the entire debt-restructuring process, as legally the deal can’t go forward without approval from all creditors.

The landmark case has been the one involving Argentina, which in 2001 defaulted on billions of dollars’ worth of bonds after years of a roiling economy. Twice over the following decade the Argentine government offered to swap its externally held bonds for new ones worth about a quarter of their value.

While some 93 percent of Argentina’s creditors eventually agreed to such a deal, the arrangement has been rejected by two New York-based hedge funds, NML Capital and Aurelius. Those two subsequently sued the Argentine government, and NML was the lead plaintiff in the Supreme Court case.

The Argentine government had yet to comment on Monday’s rulings by deadline. In a statement to the media, NML said, “Now it is time for Argentina to honour its commitments to its creditors, which would benefit both Argentina’s economy and its international standing.”

*An enticing option*

Close observers of the process worry that the Supreme Court’s decision will not only embolden the rest of Argentina’s creditors, but could now lead other investors to see such “holdout” strategies as both acceptable and enticing.

“This behaviour was already among the most profitable in the world, and this ruling now deems it both legitimate and even more profitable, given that investors will have to spend less on litigation,” Jubilee USA’s
LeCompte says.

“It’s hard to say how many investors will now want to jump in, but we can only assume that investors will inevitably be interested in actions that are both legally legitimised and extremely profitable.”

The United Nations has noted that the United States is the “preferred jurisdiction” for holdout creditors, though Monday’s decision will initially help fewer than 100 U.S.-based hedge funds. Still, some have
suggested that Aurelius and NML fought so hard around the Argentina case less for the money immediately at stake than for the model that a favourable ruling would solidify for the future.

The potential negative impacts of Monday’s decision could thus be many and varied. Communities living in extreme poverty, for instance, could now have their state and international assistance assets become openly targeted and collected by predatory investors.

Multilateral lenders such as the International Monetary Fund (IMF) or the Paris Club, which has facilitated debt relief for 90 countries worth some 573 billion dollars, could also see their debt-restructuring attempts
become far more difficult. Legitimate investors will likely increasingly decide against taking part in such restructuring, after all, given that their investments could now be in jeopardy.

As the current legal battle has played out in recent years, the IMF, the World Bank, the administration of President Barack Obama and a broad collection of investors have all formally sided with Argentina.

At the beginning of this month, an IMF spokesperson stated that the fund “remains deeply concerned about the broad systemic implications that the lower court decision could have for the debt-restructuring process in general.”

*Medium-term solutions*

There are multiple international efforts afoot that could either undercut predatory investors or, more broadly, create a formal international arbitration system to address sovereign debt.

Just last week, members of the IMF executive board discussed a new staff paper aimed at preventing global economic crises. According to an analysis from Jubilee USA and New Rules for Global Finance, a Washington watchdog group, proposals are being sought to “limit or eliminate extreme predatory and
holdout behaviour that violate global debt relief policies, debt restructuring and sound operation of the financial system.”

Several U.N. bodies are also currently looking at various ways to outlaw holdout-type behaviour. Groups such as Jubilee are pushing a series of principles on responsible lending and borrowing.

Similar domestic legislation is expected to be introduced in the U.S. Congress later this year, though past such proposals have failed. Still, some suggest that discussion around the Supreme Court case could now motivate increased interest in the issue of holdout creditors.

At both the domestic or international level, however, any such move would offer a solution only in the medium term. Argentina now likely faces a Jun. 30 deadline to arrive at new repayment terms with all of its bondholders, including NML and Aurelius, though the country says paying what could
amount to some 15 billion dollars would risk another default.

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Foreign Aid Funding Luxury Hotels in Myanmar http://www.ipsnews.net/2014/06/foreign-aid-funding-luxury-hotels-in-myanmar/?utm_source=rss&utm_medium=rss&utm_campaign=foreign-aid-funding-luxury-hotels-in-myanmar http://www.ipsnews.net/2014/06/foreign-aid-funding-luxury-hotels-in-myanmar/#comments Sun, 01 Jun 2014 08:25:48 +0000 Michelle Tullo http://www.ipsnews.net/?p=134672 The vast majority of investment in Myanmar is concentrated in Yangon and other cities. Credit: Jose Javier Martin Espartosa/CC CC BY-SA 2.0

The vast majority of investment in Myanmar is concentrated in Yangon and other cities. Credit: Jose Javier Martin Espartosa/CC CC BY-SA 2.0

By Michelle Tullo
WASHINGTON, Jun 1 2014 (IPS)

New investments from the International Finance Corporation (IFC), the World Bank’s private-sector investment arm, may perpetuate economic inequality rather than alleviate poverty in Myanmar, critics here are warning.

The IFC has proposed five new investment projects for Myanmar (also known as Burma). But the U.S. Campaign for Burma, a rights group here, is calling on the multilateral funder to slow down these projects and analyse their potential social effects.

“The IFC has the responsibility to use its financial influence to promote transparency and reform in Burma’s corrupt business environment,” Rachel Wagley, the group’s policy director, said this week.

“Regrettably, the IFC’s recent investment proposals seem to mark a deviation from the IFC’s earlier objective to bolster the growth of microfinance in Burma and may instead exacerbate socioeconomic inequality in the country.”

In 2012, the U.S. Congress repealed sanctions prohibiting U.S. investment in Myanmar to signal its support for the country’s new nominally reformist government, which was slowly instituting democratic reforms after decades under military dictatorship.

That same year, the Washington-based IFC opened its office in Myanmar and began to assess the country’s investment and business climate. Given that over 30 percent of the population lives below the poverty line, IFC officials decided that the country office’s goal would be poverty alleviation, and eventually proposed five investment projects aimed at achieving this goal.

Yet of those five, three involve the construction of upscale hotels. The U.S. Campaign for Burma says it is alarmed by what appears to be a lack of environmental and social safeguards.

For one of the projects, which would develop four hotels, the IFC’s expected development impact is to “create 437 direct and indirect jobs (46 percent female) … and create demand for locally-sourced materials, services, and labour.” In addition, the project would “contribute to the domestic economies through increased tax revenue and foreign exchange inflows.”

The goal of another project, to build a business complex and more hotels, is to install what the IFC calls “critical business infrastructure”.

“The Project will add much needed supply of international standard office, retail and hospitality infrastructure to Yangon,” a project document states. “International standard business infrastructure such as these are of critical importance in attracting foreign investments in the country.”

Yet U.S. Campaign for Burma executive director Jennifer Quigley notes that the international business community has been flocking to the country since 2012.

“And any problems are not for lack of hotel rooms – that’s not what Burma needs to have a thriving business environment,” Quigley told IPS. “The issue isn’t a lack of funding but restrictions that make sure only a few benefit monetarily from foreign trade and investment.”

Safeguards concern

Another of the IFC-proposed projects, known as Yoma Equity, would provide about 30 million dollars to a programme run by Yoma Bank, a national institution, to finance small- and medium-sized businesses. Such investments are aimed at increasing access to finance for small-scale ventures and to fuel growth in the country’s private sector.

Yet while Quigley’s office supports IFC funding for small- and medium-sized enterprises, she worries that the project will not be well regulated.

“It’s widely considered that the performance standards of the IFC are very good, but then the IFC doesn’t require them to be applied,” she says. “Over 50 percent of projects are classified in such a way that they don’t require the standards.”

The IFC categorises projects in one of four ways, three of which are regulated by the agency’s environmental and social performance standards. The fourth type of project, however, known as FI for ‘financial intermediary’, is excused from these assessments.

Yoma Equity, for instance, is classified as FI-2, meaning that “its business activities have potential limited adverse environmental or social risks or impacts that are few in number,” according to the IFC’s website.

Yet according to Serene Jweied, a spokesperson for the IFC, even FI projects must follow regulations.

“Every financial institution we work with must adhere to our environmental and social requirements and integrity standards,” Jweied told IPS.

“Should IFC engage with Yoma Bank, this requirement would apply to this client as well, and Yoma Bank would have to develop an environmental and social management system commensurate with the risks of the projects and/or clients it finances.”

However, once Yoma Bank develops its own safeguards, as a financial intermediary the IFC would leave any assessment of these safeguards up to the bank itself.

Last year, an independent assessment by the Compliance Advisor/Ombudsman, an internal auditor, criticised the IFC’s regulations of financial intermediaries.

The report looked, for instance, at a loan for 30 million dollars that the IFC gave to Corporation Dinant, a Honduran agribusiness company owned by one of the country’s richest men, Miguel Facusse. Dinant has been accused of killing, kidnapping or forcibly evicting peasants from land claimed by the company.

In response, the IFC has admitted to missteps around Dinant.

Reinforcing oligarchy

In the case of Yoma Equity, the intermediary corporation is less shady than Dinant but, according to observers, still questionable.

Serge Pun chairs the Serge Pun & Associates Group (SPA Group), one of Myanmar’s largest conglomerates, as well as Yoma Bank.

Quigley notes that Pun’s business dealings have raised social concerns in various sectors over the years. Indeed, the U.S. State Department recommended placing sanctions on Pun in 2008.

These never went forward, however, and as a result Pun has developed a reputation in Myanmar as a “good crony”: less corrupt than the others, and one of the few options for a local business partner.

“Everyone is investing in him,” she says, “so the IFC is perpetuating the same oligarchy that’s in place. The IFC is coming in and reinforcing the status quo.”

Meanwhile, the potential broader impact of the IFC’s projects is also under scrutiny. The majority of Burmese live in rural areas, after all, and agriculture is the livelihood of up to 70 percent of the population, according to Oxfam.

Yet most of the IFC’s projects are focusing on urban areas. Experts say this is simply continuing a broader trend being seen in Myanmar since its economy began to open up.

“A significant factor contributing to the urban versus rural income inequality is that the vast majority of investment in Burma is concentrated in the urban sector, despite the fact that only one-third of the population lives in these areas,” Dennis McCornac, of Loyola University, stated in a recent essay.

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OP-ED: Caribbean Religious Leaders Inspire IMF Sunday Schools http://www.ipsnews.net/2014/05/op-ed-caribbean-religious-leaders-inspire-imf-sunday-schools/?utm_source=rss&utm_medium=rss&utm_campaign=op-ed-caribbean-religious-leaders-inspire-imf-sunday-schools http://www.ipsnews.net/2014/05/op-ed-caribbean-religious-leaders-inspire-imf-sunday-schools/#comments Mon, 05 May 2014 15:36:38 +0000 Eric LeCompte http://www.ipsnews.net/?p=134106 The Caribbean Debt Network meets in Grenada. Credit: Bernard Lauwyck

The Caribbean Debt Network meets in Grenada. Credit: Bernard Lauwyck

By Eric LeCompte
WASHINGTON, May 5 2014 (IPS)

Last Fall, I witnessed the Grenada Council of Churches insert themselves into negotiations between their government and the International Monetary Fund (IMF) around the island’s debt restructuring and presumed austerity policies. Religious leaders called from pulpits across the tiny island for a “Jubilee” or national debt cancellation.

When I recently returned to the Spice Isle, I was awed by what I saw – the religious experiment in Grenada was spreading like wild fire to other Caribbean countries."Our churches are on the front lines of fighting poverty in the Caribbean. We see how the debt crisis is hurting the poorest people on the islands." -- Presbyterian Minister Osbert James

At Blessed Sacrament Catholic Church, overlooking the Caribbean Sea, the Caribbean Council of Churches, four Catholic Dioceses and various religious leaders from across the region gathered to launch the Caribbean Debt Network.

They came from St. Vincent’s and The Grenadines, Barbados, Dominica, Trinidad and Tobago, Jamaica and Grenada, knowing their unity is more vital than ever.

Out of the 20 most heavily indebted countries in the world, six are Caribbean countries.

The islands are dotted with makeshift shacks, where depending on the island, 20 percent to 50 percent of the population lives in poverty. Various islands see high unemployment rates from 30 to upwards of 50 percent.

Like dominoes, island after island is going through International Monetary Fund IMF debt restructurings that demand austerity policies that hurt millions of people living in extreme poverty.

Among most Caribbean tourist areas, you can’t avoid the working poor.

In fact, the plight of the vulnerable along with infrastructure challenges are so palpable on the small islands, you scratch your head wondering why the IMF calls these countries “Middle Income.” When a poor country is defined as Middle Income, they cannot apply for existing debt relief processes such as the Heavily Indebted Poor Countries Initiative or HIPC.

The process by which economists define a country as Middle Income is by averaging the total income of everyone in the country (per capita). In other words if 99 people make one dollar and one person makes 100,000 dollars, the average income per person is 1,001 dollars.

In a place like Grenada, where the poverty rate ranges from 38 to 50 percent, the income levels are skewed. The religious community uses the words “social sin” to describe how income inequality is hidden from us as struggling Caribbean economies are denied relief because of what they are called.

Even with HIPC, any poor country will tell you it’s not a walk in the park. The IMF and other international financial institutions acknowledge that the process offers too little debt relief, too late, with too many benchmarks. However, when struggling economies go through the painful act of debt restructuring without even the framework of HIPC, it’s wrangling a hurricane.

And real hurricanes are real threats. In 2004, 200 percent of Grenada’s GDP was wiped out in three hours by Hurricane Ivan. With powerful hurricanes landing every 10 years and financial crises in other parts of the world impacting the Caribbean’s primary industry of tourism, countries across the region seem destined for never-ending cycles of austerity and debt.

“Our churches are on the front lines of fighting poverty in the Caribbean. We see how the debt crisis is hurting the poorest people on the islands,” notes the new chair of the Caribbean Debt Network, Presbyterian Minister Osbert James.

James’s historic cathedral, among many structures unrepaired since the 2004 Hurricane, still lacks a roof.

While it’s still too early to assess Grenada’s debt restructuring, we can see that the Jubilee model is opening up shop on other Caribbean islands.

At Blessed Sacrament Catholic Church, the regional Caribbean religious leaders launched the new coalition in a conference room aptly named The Upper Room. For Christians, it evokes Pentecost when the Holy Spirit empowered religious leaders to inspire others. Pentecost is derived from the more ancient Jewish holiday, Shavuot, which celebrates the gift of our covenant with God and God’s abundance.

At the founding conference last week, the religious community sought to spread Pentecost and Shavuot. They resolved the following:

1. To raise the awareness of the effects of the sovereign debt on Caribbean Countries

2. To establish a structure within which our countries can resolve indebtedness fairly

3. To build a Jubilee coalition to achieve debt resolution, sustainable development and fiscal responsibility at all levels

4. To illustrate how sovereign debt impacts issues of concern, such as human trafficking, drug trafficking, climate change and HIV/Aids.

5. To work with governments and with our international partners on all aspects of debt

6. To encourage the Governments of Grenada and Antigua & Barbuda to champion the cause of a special initiative for resolving Caribbean indebtedness to achieve a sustainable debt level

Eric LeCompte is the Executive Director of Jubilee USA Network and serves on UN expert working groups that focus on debt restructuring and financial reforms. He recently returned from Grenada where he supported the launch of the Caribbean Debt Network.

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Q&A: The Case for Cutting African Poverty in Half http://www.ipsnews.net/2014/04/qa-case-cutting-african-poverty-half/?utm_source=rss&utm_medium=rss&utm_campaign=qa-case-cutting-african-poverty-half http://www.ipsnews.net/2014/04/qa-case-cutting-african-poverty-half/#comments Fri, 18 Apr 2014 18:58:08 +0000 Bryant Harris http://www.ipsnews.net/?p=133768 Informal traders at Malanga market on the outskirts of Maputo, Mozambique. Most of the products on offer are purchased in Zimbabwe or South Africa. Credit: Nastasya Tay/IPS

Informal traders at Malanga market on the outskirts of Maputo, Mozambique. Most of the products on offer are purchased in Zimbabwe or South Africa. Credit: Nastasya Tay/IPS

By Bryant Harris
WASHINGTON, Apr 18 2014 (IPS)

As the World Bank wrapped up its semi-annual joint meetings with the International Monetary Fund (IMF) here last weekend, it reaffirmed its commitment to bringing extreme poverty below three percent of the global population by 2030 while increasing the income of the poorest 40 percent of the population of each country.

However, some suggest that in sub-Saharan Africa, this may be impossible.It’s not easy to fix a country, rebuild institutions and get growth going while making sure it’s consistent, shared and inclusive. Poverty pockets exist in the large, vital countries.

“Even under our ‘best case’ scenario of accelerated consumption growth and income redistribution from the 10 percent richest to the 40 percent poorest segment of population, the 2030 poverty rate would be around 10 percent,” says a new report from the African Development Bank (AfDB). “A more realistic goal for the region seems to be reducing poverty by a range from half to two thirds.”

Although extreme poverty will likely remain high in Africa by 2030, AfDB’s chief economist, Mthuli Ncube, the new report’s chief author, painted a cautiously optimistic picture as to the prospects for poverty reduction in Africa during an interview with IPS.

Q: Even though the World Bank goal is to reduce extreme poverty by less than three percent globally by 2030, Africa won’t be able to meet that goal. Can you give us more background as to why that is?

A: Our view is that it’s a good goal to have … but it differs from region to region. The region that is likely to achieve this ambitious goal is Asia, not Africa. Although Africa has made tremendous progress, there’s still a lot of work to do. Under our baseline scenario, Africa will achieve something like 25 to 27 percent poverty levels in the year 2030. Currently it’s about 48 percent. So in this case we’re talking about something like a 50 percent reduction, maybe.

It’s a monumental task. Why? We’ve some challenges in Africa. One is fragility. If you look at some of the large countries with a lot of poverty – like the [Democratic Republic of Congo], it is a fragile country. It’s not easy to fix a country, rebuild institutions and get growth going while making sure it’s consistent, shared and inclusive. Poverty pockets exist in the large, vital countries.

Even if you have growth, growth is just simply not shared. If you use a more inclusive definition of growth and poverty reduction … service delivery around health care and education is very difficult. These are large countries where governments are decentralised.

Q: Nigeria is one of the more populous countries, and it’s now surpassed South Africa as Africa’s largest economy. Yet it still seems like there’s a large degree of extreme poverty there. How does income inequality play into extreme poverty?

A: In Nigeria, the new figure says that the size of the economy is 510 billion dollars, larger than South Africa. Income per capita has gone up to about 2,400 dollars, so it looks much better than before. But after this announcement, it doesn’t change people’s lives. They’re still poor. So it becomes an overall aggregate figure and that speaks to inequality.

Inequality is high and it also has a way of slowing a country down in its poverty-reduction drive. The more poverty you have, the less productive you become, which impacts your ability to grow.

Our analysts show that the long-term [obstacle] in dealing with extreme poverty is to get the children of the poor into school, to have them stay in school and finish school. That is the only way. Education is the biggest driver of getting people out of extreme poverty … and into the middle class. And then, because they all have decent incomes and jobs, they will keep their children out of poverty.

Let’s not forget, in the interim, the role of short-term social protection programmes. Brazil had an incredible track record under [President Luis Inacio Lula da Silva], with a programme called Bolsa Familia that got 30 to 40 million people out of poverty through social protection programmes.

There are countries in Africa trying to do that – Rwanda, South Africa and Ethiopia. Ethiopia is the one country that I think is going to rotate out of extreme poverty by 2030, so it’s going to be the most successful in dealing with poverty out of the large-population countries.

Ultimately there need to be some short-term measures, but the long-term measure is education.

Q: Which sub-Saharan African countries are doing particularly well at reducing extreme poverty?

A: Ethiopia is the one that we can really highlight because it’s a large population, nearly 85 million, and they’re dealing with the reduction of extreme poverty as a problem. First, the big story about poverty reduction is sustaining growth, and Ethiopia’s had a wonderful growth rate for the past 10 years.

Second is making sure that it’s inclusive, shared and creates opportunity. It should create jobs and finance services for access to education, health, housing and so forth. All those are strategies for sharing wealth.

It’s also about social protection programmes that keep the people out of poverty and then allow them to make progress. Let me tell you this story about the Grinka Programme in Rwanda. You leave one pregnant cow to a poor household, and that cow will have a calf and another one and so forth. And if it’s a female calf, you pass that calf on to the next poor family and then the next poor family.

In the next few years, that programme is going to take about 300,000 families in Rwanda out of poverty. Why? These families can harvest the milk and consume it. Secondly, they can sell the milk and the manure, but also use [the manure] to grow vegetables, which they can then sell and make money. So you create a whole economic ecosystem around the cow.

I even suggested this for Somalia. Maybe there’s an asset-replacement programme that could cause similar results elsewhere. This is a case of what I would call productive social protection, because you’re giving someone an asset that produces something and it actually works.

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U.S. Blasted on Failure to Ratify IMF Reforms http://www.ipsnews.net/2014/04/u-s-blasted-failure-ratify-imf-reforms/?utm_source=rss&utm_medium=rss&utm_campaign=u-s-blasted-failure-ratify-imf-reforms http://www.ipsnews.net/2014/04/u-s-blasted-failure-ratify-imf-reforms/#comments Sat, 12 Apr 2014 00:31:45 +0000 Jim Lobe http://www.ipsnews.net/?p=133620 By Jim Lobe
WASHINGTON, Apr 12 2014 (IPS)

While Republicans complain relentlessly about U.S. President Barack Obama’s alleged failure to exert global leadership on geo-political issues like Syria and Ukraine, they are clearly undermining Washington’s leadership of the world economy.

That conclusion became inescapable here during this week’s in-gathering of the world’s finance ministers and central bankers at the annual spring meeting here of the International Monetary Fund (IMF) and the World Bank.The delays are clearly damaging Washington’s global economic and geo-political agenda: persuading other G20 countries to adopt expansionary policies and punish Moscow for its moves against Ukraine.

In the various caucuses which they attended before the formal meeting began Friday, they made clear that they were quickly running out of patience with Congress’s – specifically, the Republican-led House of Representatives – refusal to ratify a 2010 agreement by the Group of 20 (G20) to modestly democratise the IMF and expand its lending resources.

“The implementation of the 2010 reforms remains our highest priority, and we urge the U.S. to ratify these reforms at the earliest opportunity,” exhorted the G20, which represent the world’s biggest economies, in an eight-point communiqué issued here Friday.

“If the 2010 reforms are not ratified by year-end, we will call on the IMF to build on its existing work and develop options for next steps…” the statement asserted in what observers here called an unprecedented warning against the Bretton Woods agencies’ most powerful shareholder.

The message was echoed by the Group of 24 (G24) caucus, which represents developing countries, although, unlike the G20, its communique didn’t mention the U.S. by name.

“We are deeply disappointed that the IMF quota and governance reforms agreed to in 2010 have not yet come into effect due to non-ratification by its major shareholder,” the G24 said.

“This represents a significant impediment to the credibility, legitimacy and effectiveness of the Fund and inhibits the ability to undertake further, necessary reforms and meet forward-looking commitments.”

The reform package, the culmination of a process that began under Obama’s notoriously unilateralist Republican predecessor, George W. Bush, would double contributions to the IMF’s general fund to 733 billion dollars and re-allocate quotas – which determine member-states’ voting power and how much they can borrow – in a way that better reflects the relative size of emerging markets in the global economy.

In addition to enhancing the IMF’s lending resources, the main result of the pending changes would increase the quotas of China, Brazil, Russia, India, and Turkey, for example, at the expense of European members whose collective representation on the Fund’s board is far greater than the relative size of their economies.

Spain, for instance, currently has voting shares similar in size to Brazil’s, despite the fact that the Spanish economy is less than two-thirds the size of Brazil’s. And of the 24 seats on the IMF’s executive board, eight to ten of them are occupied by European governments at any one time.

The reforms would only change the status quo only modestly. While the European Union (EU) members currently hold a 30.2 percent quota collectively, that would be reduced only to 28.5 percent. The biggest gains would be made by the so-called BRICS (Brazil, Russia, India, China, and South Africa) – from 11 percent to 14.1 percent — although almost all of the increase would go to Beijing.

Washington’s quota would be marginally reduced – from 16.7 percent to 16.5 percent, preserving its veto power over major institutional changes (which require 85 percent of all quotas). Low-income countries’ share would remain the same at a mere 7.5 percent collectively, although their hope – shared by civil-society groups, such as Jubilee USA and the New Rules for Global Finance Coalition — is that this reform will make future changes in their favour easier.

Thus far, 144 of the IMF’s 188 member-states, including Britain, France, and Germany and other European countries that stand to lose voting share, have ratified the package. But, without the 16.7 percent U.S. quota, the reforms can’t take effect.

The Obama administration has been criticised for not pressing Congress for ratification with sufficient urgency. But, realising that its allies’ patience was running thin, it pushed hard last month to attach the reform package to legislation providing a one-billion-dollar bilateral aid package for Ukraine during the crisis with Russia over Crimea.

While the Democratic-led Senate approved the attachment, the House Republican leadership rejected it, despite the fact that Kiev would have been able to increase its borrowing from the IMF by about 50 percent under the pending reforms.

House Republicans – who, under the Tea Party’s influence, have moved ever-rightwards and become more unilateralist on foreign policy since the Bush administration – have shown great distrust for multilateral institutions of any kind.

Both the far-right Heritage Foundation and the neo-conservative Wall Street Journal have railed against the reforms, arguing variously that they could cost the U.S. taxpayer anywhere from one billion dollars to far more if IMF clients default on loans, and that the changes would reduce Washington’s ability to veto specific loans.

They say the IMF’s standard advice to its borrowers to raise taxes and devalue their currency is counter-productive and could become worse given the Fund’s new emphasis on reducing income inequalities; and that, according to the Journal, the reforms “will increase the clout of countries with different economic and geo-political interests than America’s.”

Encouraged by, among others, the U.S. Chamber of Commerce and their Wall Street contributors, some House Republicans have indicated they could support the reforms. But thus far they have insisted that they would only do so in exchange for Obama’s easing new regulations restricting political activities by tax-exempt right-wing groups.

Meanwhile, however, the delays are clearly damaging Washington’s global economic and geo-political agenda – persuading other G20 countries to adopt expansionary policies and punish Moscow for its moves against Ukraine – during the meetings here.

“The proposed IMF reforms are a no-brainer,” according to Molly Elgin-Cossart, a senior fellow for national security and international policy at the Center for American Progress. “They modernise the IMF and restore American leadership on the global stage at a time when the world desperately needs it, without additional cost for American taxpayers.”

Further delay, especially now that the G20 appear to have set a deadline, could in fact reduce Washington’s influence.

While she stressed she was not prepared to give up on Congress, IMF managing director Christine Lagarde told reporters Thursday the Fund may soon have to resort to a “Plan B” to implement the reforms without Washington’s consent.

While she did not provide details of what are now backroom discussions, two highly respected former senior U.S. Treasury secretaries suggested in a letter published Thursday by the Financial Times that “the Fund should move ahead without the U.S. …by raising funds from others while depriving the U.S. of some or all of its longstanding power to block major Fund actions.”

C. Fred Bergsten and Edwin Truman, who served under Jimmy Carter and Bill Clinton, respectively, suggested that the IMF could make permanent an initiative to arrange temporary bilateral credit lines of nearly 500 billion dollars from 38 countries who could decide on their disposition without the U.S.

More radically, they wrote, the Fund could increase total country quota subscriptions that would remove Washington’s veto power over institutional changes.

“The U.S. deserves to lose influence if it continues to fail to lead,” the two former officials wrote.

Jim Lobe’s blog on U.S. foreign policy can be read at Lobelog.com.

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“Sanitation for All” a Rapidly Receding Goal http://www.ipsnews.net/2014/04/sanitation-rapidly-receding-goal/?utm_source=rss&utm_medium=rss&utm_campaign=sanitation-rapidly-receding-goal http://www.ipsnews.net/2014/04/sanitation-rapidly-receding-goal/#comments Sat, 12 Apr 2014 00:10:32 +0000 Michelle Tullo http://www.ipsnews.net/?p=133616 An open drainage ditch in Ankorondrano-Andranomahery. Madagascar receives just 0.5 dollars per person per year for WASH programmes . Credit: Lova Rabary-Rakontondravony/IPS

An open drainage ditch in Ankorondrano-Andranomahery. Madagascar receives just 0.5 dollars per person per year for WASH programmes . Credit: Lova Rabary-Rakontondravony/IPS

By Michelle Tullo
WASHINGTON, Apr 12 2014 (IPS)

World leaders on Friday discussed plans to expand sustainable access for water, sanitation and hygiene, focusing in particular on how to reach those in remote rural areas and slums where development projects have been slow to penetrate.

The meeting, which took place amidst the semi-annual gatherings here of the World Bank and International Monetary Fund (IMF) could be the world’s largest ever to take place on the issue."Ministers are much happier to talk and support a hydro project, like a huge dam, and are less happy to open up a public latrine." -- Darren Saywell

Water, sanitation and hygiene, collectively known as WASH, constitute a key development metric, yet sanitation in particular has seen some of the poorest improvements in recent years.

Participants at Friday’s summit included U.N. Secretary-General Ban Ki-moon, World Bank President Jim Yong Kim, UNICEF Executive Director Anthony Lake as well as dozens of government ministers and civil society leaders.

“Today 2.5 billion people do not have access to clean water, sanitation and hygiene,” the World Bank’s Kim said Friday. “This results in 400 million missed school days, and girls and women are more likely to drop out because they lack toilets in schools or are at risk of assault.”

Kim said that this worldwide lack of access results in some 260 billion dollars in annual economic losses – costs that are significant on a country-to-country basis.

In Niger, Kim said, these losses account for around 2.5 percent of gross domestic product (GDP) every year. In India the figure is even higher – around 6.4 percent of GDP.

Friday’s summit was convened by UNICEF.

“UNICEF’s mandate is to protect the rights of children and make sure they achieve their full potential. WASH is critical to what we hope for children to achieve, as well as to their health,” Sanjay Wijesekera, associate director of programmes for UNICEF, told IPS.

“Every day, 1400 children die from diarrhoea due to poor WASH. In addition, 165 million children suffer from stunted growth, and WASH is a contributory factor because clean water is needed to absorb nutrients properly.”

Over 40 countries came to the meeting to share their commitments to improving WASH.

“Many countries have already shown that progress can be made,” Wijesekera said. “Ethiopia, for example, halved those without access to water from 92 percent in 1990 to 36 percent in 2012, and equitably across the country.”

A water kiosk in Blantyre, Malawi. Credit: Charles Mpaka/IPS

A water kiosk in Blantyre, Malawi. Credit: Charles Mpaka/IPS

Good investment

Indeed, the Millennium Development Goal (MDG) for water halved the proportion of people without access to improved sources of water five years ahead of schedule. Yet the goal to improve access to quality sanitation facilities was one of the worst performing MDGs.

In order to get sanitation on track, a global partnership was created called Sanitation and Water for All (SWA), made up of over 90 developing country governments, donors, civil society organisations and other development partners.

“Sanitation as a subject is a complicated process … You have different providers and actors involved at the delivery of the service,” Darren Saywell, the SWA vice-chair, told IPS.

“NGOs are good with convening communities and community action plans. The private sector is needed to respond and provide supply of goods when demand is created. Government needs to help regulate and move the different leaders in the creation of markets.”

In addition, sanitation and hygiene are not topics that can gain easy political traction.

“It is not seen as something to garner much political support,” Saywell says. “Ministers are much happier to talk and support a hydro project, like a huge dam, and are less happy to open up a public latrine.”

Saywell says that an important part of SWA’s work is to demonstrate that investing in WASH is a good economic return.

“Every dollar invested in sanitation brings a return of roughly five dollars,” he says. “That’s sexy!”

Sustainable investments

Friday’s summit covered three main issues: discussing the WASH agenda for post-2015 (when the current MDGs expire), tackling inequality in WASH, and determining how these actions will be sustainable.

“We would like the sector to the set the course for achieving universal access by 2030,” Henry Northover, the global head of policy at WaterAid, a key NGO participant, told IPS.

Although the meeting did not set the post-2015 global development goals for WASH, it was meant to call public attention to the importance of these related goals and ways of achieving them.

“Donors and developing country governments need to stop seeing sanitation as an outcome of development, but rather as an indispensable driver of poverty reduction,” Northover said.

WaterAid recently published a report on inequality in WASH access, Bridging the Divide. The study looks at the imbalances in aid targeting and notes that, for instance, Jordan receives 850 dollars per person per year for WASH while Madagascar, which has considerably worse conditions, receives just 0.5 dollars per person per year.

The report says this imbalance in aid targeting is due to “geographical or strategic interests, historical links with former colonies, and domestic policy reasons”. Northover added to this list, noting that “donors are reluctant to invest in fragile states.”

“In India, despite spectacular levels of growth over the past 10 years, we have seen barely any progress in the poorest areas in terms of gaining access to sanitation,” he continued. “Regarding inequality, we are talking both in terms of wealth and gender: the task falls to women and girls to fetch water, they cannot publicly defecate, and have security risks.”

Others see funding allocation as only an initial step.

“Shift the money to the poorer countries, and then, so what?” John Sauer, of the non-profit Water for People, asked IPS. “The challenge is then the capacity to spend that money and absorb it into district governments, the ones with the legal purview to make sure the water and sanitation issues get addressed.”

Friday’s meeting also shared plans on how to use existing resources better, once investments are made.

“If there is one water pump, it will break down pretty quickly,” WaterAid’s Northover said. “This often requires some level of institutional capability for financial management.”

Countries also described their commitments to make sanitation sustainable. The Dutch government, for instance, introduced a clause in some of its WASH agreements that any related foreign assistance must function for at least a decade. East Asian countries like Vietnam and Mongolia are creating investment packages that also help to rehabilitate and maintain existing WASH systems.

“This is probably one of the biggest meetings on WASH possibly ever, and what we mustn’t forget is that the 40 or 50 countries coming are making a commitment to do very tangible things that are measurable, UNICEF’s Wijesekera told IPS. “That bodes well for achieving longer-term goals of achieving universal access and equality.”

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