Inter Press Service » Eye on the IFIs http://www.ipsnews.net Turning the World Downside Up Thu, 28 May 2015 17:04:46 +0000 en-US hourly 1 http://wordpress.org/?v=4.1.5 Opinion: Finance Like a Cancer Growshttp://www.ipsnews.net/2015/05/opinion-finance-like-a-cancer-grows/?utm_source=rss&utm_medium=rss&utm_campaign=opinion-finance-like-a-cancer-grows http://www.ipsnews.net/2015/05/opinion-finance-like-a-cancer-grows/#comments Tue, 26 May 2015 07:18:16 +0000 Roberto Savio http://www.ipsnews.net/?p=140797 By Roberto Savio
ROME, May 26 2015 (IPS)

It is astonishing that every week we see action being taken in various part of the world against the financial sector, without any noticeable reaction of public opinion.

It is astonishing because at the same time we are experiencing a very serious crisis, with high unemployment, precarious jobs and an unprecedented growth of inequality, which can all be attributed, largely, to speculative finance.

Roberto Savio

Roberto Savio

This all began in 2008 with the mortgage crisis and the bursting of the derivatives bubble in the United States, followed by the bursting of the sovereign bonds bubble in Europe.

It is calculated that we will need to wait until at least 2020 to be able to go back to the levels of 2008 – so we are talking of a lost decade.

To bail out the banks, the world has collectively spent around 4 trillion dollars of taxpayers’ money. Just to make the point, Spain has dedicated more than its annual budget on education and health to bail out the banking sector … and the saga continues.

Last week, five major banks agreed to pay 5.6 billion to the U.S. authorities because of their manipulations in the currency market. The banks are household names: the American JPMorgan Chase and Citigroup, the British Barclays and the Royal Bank of Scotland, and the Swiss UBS.“To bail out the banks, the world has collectively spent around 4 trillion dollars of taxpayers’ money”

In the case of UBS, the U.S. Department of Justice took the unusual step of tearing up a non-prosecution agreement it had reached earlier, saying that it had taken that step because of the bank’s repeated offences. “UBS has a ‘rap sheet’ that cannot be ignored,” said Assistant U.S. Attorney General Leslie Caldwell.

This is a significant departure from the Justice Department’s guidelines issued in 2008, according to which collateral consequences have to be taken into account when indicting financial institutions.

“The collateral consequences consideration is designed to address the risk that a particular criminal charge might inflict disproportionate harm to shareholders, pension holders and employees who are not even alleged to be culpable or to have profited potentially from wrongdoing,” said Mark Filip, the Justice Department official who wrote the 2008 memo.

Referring to the case of accounting giant Arthur Andersen, which certified as valid the accounts of the Enron energy company that went into bankruptcy for faking its budget, Filip said that “Arthur Andersen was ultimately never convicted of anything, but the mere act of indicting it destroyed one of the cornerstones of the Midwest’s economy.”

This was in fact a declaration of impunity, which did not escape the managers of the financial system, under the telling title of “Too Big to Fail”.

Two weeks ago, a judge from the Federal District Court of Manhattan, Denise L. Cote, condemned two major banks – the Japanese Nomura Holdings and the British Royal Bank of Scotland – for misleading two mortgage public institutions, Fannie Mae [Federal National Mortgage Association] and Freddie Mac [Federal Home Loan Mortgage Corporation], by selling them mortgage bonds which contained countless errors and misrepresentations.

“The magnitude of falsity, conservatively measured, is enormous,” she wrote in her scathing decision.

Nomura Holdings and the Royal Bank of Scotland were just two of 18 banks that had been accused of manipulating the housing market. The other 16 settled out of court to pay nearly 18 billion dollars in penalties and avoid having their misdeeds aired in public.

Nomura Holdings and Royal Bank of Scotland refused any settlement and instead went to court against the U.S. government, arguing that it was the housing crash which caused their mortgage bonds to collapse. Judge Cote, however, wrote that it was precisely the banks’ criminal behaviour which had exacerbated the collapse in the mortgage market.

It is worth noting that, until now, the cumulative fines inflicted by the U.S. government on just five major banks since 2008 amount to a quarter of a trillion dollars. No one has yet gone to jail – fines have been paid and the question closed.

Now the question: is all this due to the misconduct of a few greedy managers or is it due to the new “ethics” of the financial sector?

By the way, let us not forget that it was revealed recently that 25 hedge fund managers took close to 14 billion dollars only last year and that the highest paid manager took for himself the unthinkable amount of 1.3 billion dollars, equal to the combined average salaries of 200,000 U.S. professionals.

Well, just a week ago, the respected University of Notre Dame was reported as having published a startling report, based on a survey of more than 1,200 hedge fund professionals, investment bankers, traders, portfolio managers from the United States and the United Kingdom, in which about one-third of those earning more than 500,000 dollars a year said that they “have witnessed or have first-hand knowledge of wrongdoing in their workplace.”

The report went on to say that “nearly one in five respondents feel financial services professionals must sometimes engage in unethical or illegal activity to be successful in the current financial environment” and in any case,  nearly half of the high income professionals consider authorities to be ”ineffective in detecting, investigating and prosecuting securities violations.”

A quarter of respondents stated that if they saw that there was no chance of being arrested for insider trading to earn a guaranteed 10 million dollars, they would do so.

And nearly one-third “believe compensation structures or bonus plans in place at their companies could incentivise employees to compromise ethics or violate the law.”  It should also be noted that the majority were worried their employer “would likely to retaliate if they reported wrongdoing in the workplace.” So, the bonus that goes to those in the financial sector every year practically amounts to a bribe for silence on misconduct.

At the same time, we have learned that in Guatemala the Governor of the Central Bank has been arrested for embezzling 10 million dollars. Of course, everything is a question of scale…but in sociology there is a mechanism called “demonstration effect”.

The example of Wall Street and the City will increasingly seep down once a new “ethic” is in place. It will propagate if it is not stopped … and this is not happening.

A final note. In the same week (how many things have happened in such a short space of time), the Federal Trade Commission of Columbia accused four respected cancer charities of misusing donations worth millions of dollars.

One of them, the Cancer Fund of America, declared that it spent 100 percent of proceeds on hospice care, transporting patients to chemotherapy sessions and buying medication for children. The Federal Trade Commission found in fact that less than three percent of donations was spent on cancer patients.

The “new ethic” is in reality a cancer, and it is metastasising rapidly. (END/COLUMNIST SERVICE)

Edited by Phil Harris   

The views expressed in this article are those of the author and do not necessarily represent the views of, and should not be attributed to, IPS – Inter Press Service. 

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Opinion: Lack of Trade Finance a Barrier for Developing Countrieshttp://www.ipsnews.net/2015/05/opinion-lack-of-trade-finance-a-barrier-for-developing-countries/?utm_source=rss&utm_medium=rss&utm_campaign=opinion-lack-of-trade-finance-a-barrier-for-developing-countries http://www.ipsnews.net/2015/05/opinion-lack-of-trade-finance-a-barrier-for-developing-countries/#comments Sat, 02 May 2015 08:31:29 +0000 Roberto Azevedo http://www.ipsnews.net/?p=140122

In this column, Roberto Azevêdo, sixth Director-General of the World Trade Organization (WTO), argues that lack of capacity in the financial sector has a very significant impact on the trading potential of poor countries and calls for giving prominence to trade finance in the development debate at a time when the Sustainable Development Goals (SDGs) are being finalised.

By Roberto Azevêdo
GENEVA, May 2 2015 (IPS)

Up to 80 percent of global trade is supported by some form of financing or credit insurance. Yet in many countries there is a lack of capacity in the financial sector to support trade, and also a lack of access to the international financial system. Therefore the ability of these countries to use simple instruments such as letters of credit is limited.

The impact of these limitations on a country’s trading potential can be very, very significant.

WTO Director-General Roberto Azevêdo. Credit: WTO/CC BY SA-2.0

WTO Director-General Roberto Azevêdo. Credit: WTO/CC BY SA-2.0

After the financial crisis, the supply of trade finance has largely returned to normal levels in the major markets, but not everywhere and not for everyone.

The structural difficulties of poor countries in accessing trade finance have not disappeared – indeed the situation may well have declined due to the effects of the crisis.

There are indications that markets are even more selective now. Under increased regulatory scrutiny, many institutions have lowered their risk-appetites and are focusing more on their established customers. Some are deliberately decreasing their number of clients in a so-called “flight to quality”.

In this environment, the lower end of the market has been struggling to obtain affordable finance, with the smaller companies in the smaller, less-developed countries affected the most.

I was particularly struck by the fact that the financing gaps are the highest in the poorest countries, notably in Africa and Asia. And I was struck by the size of those gaps.

A survey by the African Development Bank of 300 banks operating in 45 African countries found that the market for trade finance was somewhere between 330 and 350 billion dollars.

It also found that this could be markedly higher if a significant share of the financing requested by traders had not been rejected.“The lower end of the market has been struggling to obtain affordable finance, with the smaller companies in the smaller, less-developed countries affected the most”

Based on such rejections, the estimate for the value of unmet demand for trade finance in Africa is between 110 and 120 billion dollars.

This gap represents one-third of the existing market.

The main reasons for the rejection of requests for financing were:

  • the lack of creditworthiness or poor credit history
  • the insufficient limits granted by endorsing banks to local African issuing banks
  • the small size of the balance sheets of African banks, and
  • insufficient U.S. dollar liquidity

Some of these constraints are structural, and can only be addressed in the medium to long term. The retreat of global banks from Africa, and from other poor countries, is one such issue.

The Asian Development Bank conducted a similar survey in Asia, looking at countries like Viet Nam, Cambodia, Bangladesh, Pakistan and India.

According to preliminary estimates, the unmet demand there is around 800 billion dollars.

Small and medium-sized enterprises are the most credit-constrained as 50 percent of their requests for trade finance are estimated to be rejected. This is compared with just seven percent for multinational corporations.

Moreover, two-thirds of the companies surveyed reported that they did not seek alternatives for rejected transactions.

Therefore, these gaps may be exacerbated by a lack of awareness and familiarity among companies – particularly smaller ones – about the many options which exist.

A large majority of firms stated that they would benefit from greater financial education.

These findings are particularly striking as Africa and developing Asia are two areas of the world in which trade has grown fastest in the past decade.

But the potential evolution of new production networks is faster than the ability of the local financial sectors to support them.

In this way the lack of development of the financial sector can be a significant barrier to trade.

It can prevent developing countries from integrating into the trading system and accessing further trade opportunities.

And it can therefore prevent them from leveraging trade as a powerful source of development.

So we need to respond to this problem.

The exchanges that we have here can form part of this response. We need to join together in order to advocate action in this area and to devise practical solutions.

Of course, there is no magic bullet. This is a complex issue. However, that should not discourage our efforts.

The trade finance facilitation programmes that I outlined earlier are one example of practical action that we can take.

Of course this only fills part of the gap, so our response needs to be more fundamental.

In July this year, the United Nations’ major ‘Financing for Development’ conference will take place in Addis Ababa. And I think it is essential that we put trade finance on the agenda there.

In this way we can ensure that this issue is given its proper prominence in the development debate, especially at a time when the all-important U.N. Sustainable Development Goals are being finalised.

Edited by Phil Harris    

The views expressed in this article are those of the author and do not necessarily represent the views of, and should not be attributed to, IPS – Inter Press Service. 

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Opinion: Pillar of Neoliberal Thinking is Vacillatinghttp://www.ipsnews.net/2015/04/opinion-pillar-of-neoliberal-thinking-is-vacillating/?utm_source=rss&utm_medium=rss&utm_campaign=opinion-pillar-of-neoliberal-thinking-is-vacillating http://www.ipsnews.net/2015/04/opinion-pillar-of-neoliberal-thinking-is-vacillating/#comments Mon, 20 Apr 2015 14:27:03 +0000 Roberto Savio http://www.ipsnews.net/?p=140225

In this column, Roberto Savio, founder and president emeritus of the Inter Press Service (IPS) news agency and publisher of Other News, argues that the latest figures from the IMF only confirm what many citizens already know – that the economic situation is worsening. However, he notes, what is new that there are now signs that the IMF has woken up to reality, indicating that “an important pillar of neoliberal thinking is vacillating”.

By Roberto Savio
ROME, Apr 20 2015 (IPS)

This month’s World Economic Outlook released by the International Monetary Fund (IMF) only confirms that consequences of the collapse of the financial system, which started six years ago, are serious. And they are accentuated by the aging of the population, not only in Europe but also in Asia, the slowing of productivity and weak private investment.

Roberto Savio

Roberto Savio

Average growth before the financial crisis in 2008 was around 2.4 percent. It fell to 1.3 percent between 2008 and 2014 and now the estimates are that it will stabilise at 1.6 percent until 2020, in what economists call the “new normal”. In other words, “normality” is now unemployment, anaemic growth and, obviously, a difficult political climate.

For the emerging countries, the overall picture does not look much better. It is expected that potential growth is expected to decline further, from an average of about 6.5 percent between 2008 and 2014 to 5.2 percent during the period 2015-2020.

The case of China is the best example. Growth is expected to fall from an average 8.3 percent in the last 10 years to somewhere around 6.8 percent. The result is that the Chinese contraction has worsened the balance of exports of raw materials everywhere.

The crisis is especially strong in Latin America, and in Brazil the fall in exports has contributed to worsening the country’s serious crisis and increasing the unpopularity of President Dilma Rousseff, already high because of economic mismanagement and the Petrobras scandal.“Progressive parties were able to build their success during economic expansion but the Left has not developed much economic science on what to do in period of crisis”

This, by the way, opens up a reflection which is fundamental. From Marx to Keynes, redistribution theories were all basically built on stable or expanding economies.

Progressive parties were able to build their success during economic expansion but the Left has not developed much economic science on what to do in period of crisis. What it tends to do is mimic the receipts and proposals from the Right and, when the crisis is over, it has lost its identity and has declined in the eyes of the electorate.

From this perspective, the situation in Europe is exemplary. All those right-wing xenophobic parties which have sprouted up – even in countries long held to be models of democracy such as the Nordic countries – have developed since 2008, the beginning of the financial crisis. In the same period of time, all progressive parties have lost weight and credibility. And now that the IMF sees some improvement in the European economy, it is not the traditional progressive parties that are the beneficiaries.

The term that the IMF gives to the current economic moment is “new mediocrity” – which is a franker way of saying “new normal” – and it observes that in the coming five years, we will face serious problems for public policies like fiscal sustainability and job creation.

In fact, every day, the macroeconomic figures, which have become the best way to hide social realities, are becoming less and less realistic if we go back to microeconomics as we have done during the last 50 years.

The best example is the United Kingdom, which is the champion of liberalism. Each year it has cut public spending and now claims to have growth in employment, with 600,000 new jobs in the last year. The only problem is that if you look into the structure of those jobs, you will find that the large majority are part-time or underpaid, and employment in the public sector is at its lowest since 1999.

A clear indicator is the number of people who visit the food banks created to meet the needs of the indigent. In the world’s sixth largest economy, their numbers have grown from 20,000 before the crisis seven years ago to over one million last year. And the same has happened all over Europe, albeit to a lesser extent in the Nordic countries.

U.K. economists have published studies on how austerity has affected growth. According to the Office for Budgetary Responsibility, established by the U.K. government, austerity blocked economic growth by one percent between 2011 and 2012. But, according to Simon Wren-Lewis of Oxford University, the figure is actually about five percent (or 100 billion pounds).

In other words, fiscal austerity reduces growth, and this creates large deficits which call for more fiscal austerity. It is a trap that Nobel laureate Keynesian economists Joseph Stiglitz and Paul Krugman have described in detail to no avail. We are all following the “liberal order” of Germany, which think its reality should be the norm and that deviations should be punished.

Now, while we can all agree that much of this is obvious to the average citizen in terms of its impact on everyday life, what is important and new is that the IMF, the fiscal guardian which has imposed the Washington Consensus (basically a formula of austerity plus free market at any cost) all over the Third World with tragic results, has woken up to reality.

Don’t get me wrong – I’m not implying that the IMF is becoming a progressive organisation, but there are signs that an important pillar of neoliberal thinking is vacillating.

Of course, those responsible for the global crisis – bankers – have come out with impunity. The world has exacted over three trillion dollars from its citizens to put banks back on their feet. The over 140 billion dollars in fines that banks have paid since the beginning of the crisis is the quantitative measure of illegal and criminal activities.

The United Nations calculates that the financial crisis has created at least 200 million new poor, several hundred millions of unemployed, and many more precarious jobs, especially for young people. And, yet, nobody has paid, while prisons are full of people who are there for minor theft, the social impact of which is infinitesimal by comparison.

In 2014, James Morgan, the boss of Morgan Stanley, cashed in 22.5 million dollars, Lloyd Blanfein, the boss of Goldman Sachs, 24 million, James Dimon, the boss of J.P. Morgan, 20 million. The most exploited of all, Brian Moynihan of the Bank of America, a paltry 13 million. Nobody stops the growth of bankers.

Edited by Phil Harris   

The views expressed in this article are those of the author and do not necessarily represent the views of, and should not be attributed to, IPS – Inter Press Service. 

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Opinion: A Long History of Predatory Practices Against Developing Countrieshttp://www.ipsnews.net/2015/04/opinion-a-long-history-of-predatory-practices-against-developing-countries/?utm_source=rss&utm_medium=rss&utm_campaign=opinion-a-long-history-of-predatory-practices-against-developing-countries http://www.ipsnews.net/2015/04/opinion-a-long-history-of-predatory-practices-against-developing-countries/#comments Mon, 06 Apr 2015 19:11:12 +0000 Kinda Mohamadieh http://www.ipsnews.net/?p=139820

In this column, Kinda Mohamadieh, a researcher at the South Centre, argues that the predatory practices of ‘vulture funds’ and their systemic implications represent a threat to the development of indebted poor countries.

By Kinda Mohamadieh
GENEVA, Apr 6 2015 (IPS)

The world’s attention turned to the practices of vulture funds after the U.S. Supreme Court affirmed a lower court opinion in the NML Capital vs Argentina case, which forbids the country from making payments on its restructured debt.

Argentina had defaulted in 2001 and went through two rounds of negotiations to restructure its debt, both in 2005 and 2010. In June 2014, the court ordered Argentina to pay the ‘vulture funds’ that held out and did not accept the terms of the debt swaps.

Kinda Mohamadieh

Kinda Mohamadieh

The vulture funds had held out with the aim of achieving what amounts to a 1,600 percent return on their original investment. The funds concerned had purchased the Argentinian bonds in 2008 at 48 million dollars and the court ruling ordered Argentina to pay them 832 million dollars.

Nobel laureate Joseph Stiglitz noted that this was “the first time in history that a country was willing and able to pay its creditors, but was blocked by a judge from doing so”.

While this case brought the term ‘vulture funds’ into the public sphere, the predatory practices of these entities did not start with Argentina.

According to a former U.N. independent expert on the effects of foreign debt and other related financial obligations of states on the full enjoyment of all human rights, the term ‘vulture funds’ describes “private commercial entities that acquire, either by purchase, assignments or some other form of transaction, defaulted or distressed debts, and sometimes actual court judgments, with the aim of achieving higher returns.”

Basically, vulture funds are hedge funds whose modus operandi focuses on three main steps including: (1) purchasing distressed debt on the secondary market at deep discounts far less than its face value; (2) refusing to participate in restructuring agreements with the indebted state; and (3) pursuing full value of the debt often at face value plus interest, arrears and penalties, including through litigation, seizure of assets or penalties.“The African Development Bank has reported that at least twenty heavily indebted poor countries have been threatened with or have been subjected to legal actions by commercial creditors and vulture funds since 1999”

Many developing countries have been exposed to the predatory practices of vulture funds, especially African and Latin American countries.

The African Development Bank has reported that at least twenty heavily indebted poor countries have been threatened with or have been subjected to legal actions by commercial creditors and vulture funds since 1999. These countries include Sierra Leone, Cote d’Ivoire, Burkina Faso, as well as Angola, Cameroon, Congo, Democratic Republic of the Congo, Ethiopia, Liberia, Madagascar, Mozambique, Niger, Sao Tome and Principe, Tanzania, and Uganda.

Peru was targeted by NML Capital in the year 2000. According to media reports, the fund spent almost four years in the courts to win a ruling that forced Peru to settle for almost 56 million dollars on distressed debt, which the fund had initially bought for 11.8 million dollars.

The African Development Bank has documented that up until the year 2007, 25 judgments in favour of vulture funds had yielded nearly one billion dollars. Out of this amount, 72 percent of the judgments have been against African countries. The reported number of outstanding cases against debtor countries has doubled since 2004.

According to the World Bank and the International Monetary Fund (IMF), 54 court cases were instituted against 12 heavily indebted poor countries between 1998 and 2008. The IMF estimates that in some cases claims by vulture funds constitute as much as 12 to 13 percent of a country’s gross domestic product.  The World Bank estimates that nearly one-third of countries that are eligible for debt relief and other poverty alleviation programmes are the targets of nearly 26 vulture funds.

Concerned about the extent of the threat posed by such predatory practices and their systemic implications, several international authorities and multilateral institutions have voiced their concern about the matter.

The African Development Bank has warned that by precluding debt relief and costing millions in legal expenses, these vulture funds undermine the development of the most vulnerable African countries.

In June 2014, the heads of state and government of the Group of 77 and China, in their declaration issued on the occasion of the ‘For a New World Order for Living Well’ summit held in Santa Cruz de la Sierra, Bolivia, reiterated the importance of “not allowing vulture funds to paralyse the debt restructuring efforts of developing countries” and stressed that “these funds should not supersede the state’s right to protect its people under international law.”

The IMF had cautioned that upholding the decision against Argentina would harm future sovereign debt restructuring attempts. In 2013, the IMF stated that “if upheld, [the Court of Appeals decision] would likely give hold-out creditors greater leverage and make the debt restructuring process more complicated”.

In 2007, G8 finance ministers had expressed concern about actions of some litigating creditors against heavily indebted poor countries, and agreed to work together to identify measures to tackle this problem based on the work of the Paris Club.

In September 2014, a resolution on the activities of vulture funds and the effects of foreign debt and other related international financial obligations of states on the full enjoyment of all human rights, particularly economic, social and cultural rights, was presented by Argentina and adopted at the 27th session of the U.N. Human Rights Council which took place in Geneva.

It is also worth noting that the 26th session of the Human Rights Council in June 2014 had adopted a resolution titled ‘Elaboration of an international legally binding instrument on Transnational Corporations and Other Business Enterprises with Respect to Human Rights’.

This resolution sets in place a process of negotiations towards an international legally binding instrument on transnational corporations and their liability in the area of human rights. (END/IPS COLUMNIST SERVICE)

Edited by Phil Harris   

The views expressed in this article are those of the author and do not necessarily represent the views of, and should not be attributed to, IPS – Inter Press Service. 

* This column is based on a longer version published in published in the South Centre’s South Bulletin 83 of 12 February 2015.

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Opinion: Crisis Resolution and International Debt Workout Mechanismshttp://www.ipsnews.net/2015/03/opinion-crisis-resolution-and-international-debt-workout-mechanisms/?utm_source=rss&utm_medium=rss&utm_campaign=opinion-crisis-resolution-and-international-debt-workout-mechanisms http://www.ipsnews.net/2015/03/opinion-crisis-resolution-and-international-debt-workout-mechanisms/#comments Mon, 30 Mar 2015 08:34:01 +0000 Yilmaz Akyuz http://www.ipsnews.net/?p=139924

In this column, Yilmaz Akyüz, chief economist at the South Centre in Geneva, looks at the role of international debt workout mechanisms in debt restructuring initiatives and argues, inter alia, that while the role of the IMF in crisis management and resolution is incontrovertible, it cannot be placed at the centre of these debt workout mechanisms because its members represent both debtors and creditors.

By Yilmaz Akyuz
GENEVA, Mar 30 2015 (IPS)

Debt restructuring is a component of crisis management and resolution, and needs to be treated in the context of the current economic conjuncture and vulnerabilities.

International debt workout mechanisms are not just about debt reduction, but include interim arrangements to provide relief to debtors, including temporary hold on debt payments and financing.

They should address liquidity as well as solvency crises but the difference is not always clear. Most start as liquidity crises and can lead to insolvency if not resolved quickly.

Yilmaz Akyuz

Yilmaz Akyuz

Liquidity crises also inflict serious social and economic damages as seen in the past two decades even when they do not entail sovereign defaults.

International mechanisms should apply to crises caused by external private debt as well as sovereign debt. Private external borrowing is often the reason for liquidity crises. Governments end up socialising private debt. They need mechanisms that facilitate resolution of crises caused by private borrowing.

Only one of the last eight major crises in emerging and developing economies was due to internationally-issued sovereign debt (Argentina). Mexican and Russian crises were due to locally-issued public debt; in Asia (Thailand, Korea and Indonesia) external debt was private; in Brazilian and Turkish crises too, private (bank) debt played a key role alongside some problems in the domestic public debt market.

We have had no major new crisis in the South with systemic implications for over a decade thanks to highly favourable global liquidity conditions and risk appetite, both before and after the Lehman Brothers bank collapse in 2008, due to policies in major advanced economies, notably the United States.

But this period, notably the past six years, has also seen considerable build-up of fragility and vulnerability to liquidity and solvency crises in many developing countries."There are problems with standard crisis intervention: austerity can make debt even less payable; creditor bailouts create moral hazard and promote imprudent lending, and transform commercial debt into official debt, thereby making it more difficult to restructure”

Sovereign international debt problems may emerge in the so-called ‘frontier economies’ usually dependent on official lending. Many of them have gone into bond markets in recent years, taking advantage of exceptional global liquidity conditions and risk appetite. There are several first-time Eurobond issuers in sub-Saharan Africa and elsewhere.

In emerging economies, internationally-issued public debt as percentage of gross domestic product has declined significantly since the early 2000s. Much of the external debt of these economies is now under local law and in local currency.

However, there are numerous cases of build-up of private external debt in the foreign exchange markets issued under foreign law since 2008. Many of them may face contingent liabilities and are vulnerable to liquidity crises.

An external financial crisis often involves interruption of a country’s access to international financial markets, a sudden stop in capital inflows, exit of foreign investors from deposit, bond and equity markets and capital flight by residents. Reserves become depleted and currency and asset markets come under stress. Governments are often too late in recognising the gravity of the situation.

International Monetary Fund (IMF) lending is typically designed to bail out creditors to keep debtors current on their obligations to creditors, and to avoid exchange restrictions and maintain the capital account open.

The IMF imposes austerity on the debtor, expecting that it would make debt payable and sustainable and bring back private creditors. It has little leverage on creditors.

There are problems with standard crisis intervention: austerity can make debt even less payable; creditor bailouts create moral hazard and promote imprudent lending, and transform commercial debt into official debt, thereby making it more difficult to restructure; and risks are created for the financial integrity of the IMF.

Many of these problems were recognised after the Asian crisis of the 1990s, giving rise to the sovereign debt restructuring mechanism, originally designed very much along the lines advocated by the U.N. Conference on Trade and development (UNCTAD) throughout the 1980s and 1990s (though without due acknowledgement).

However, it was opposed by the United States and international financial markets and could not elicit strong support from debtor developing countries, notably in Latin America. It was first diluted and then abandoned.

The matter has come back to the attention of the international community with the Eurozone crisis and then with vulture-fund holdouts in Argentinian debt restructuring.

After pouring money into Argentina and Greece, whose debt turned out to be unpayable, the IMF has proposed a new framework to “limit the risk that Fund resources will simply be used to bail out private creditors” and to involve private creditors in crisis resolution. If debt sustainability looks uncertain, the IMF would require re-profiling (rollovers and maturity extension) before lending. This is left to negotiations between the debtor and the creditors.

However, there is no guarantee that this can bring a timely and orderly re-profiling. If no agreement is reached and the IMF does not lend without re-profiling, then it would effectively be telling the debtor to default. But it makes no proposal to protect the debtor against litigation and asset grab by creditors.

There is thus a need for statutory re-profiling involving temporary debt standstills and exchange controls. The decision should be taken by the country concerned and sanctioned by an internationally recognised independent body to impose stay on litigation.

Sanctioning standstills should automatically grant seniority to new loans, to be used for current account financing, not to pay creditors or finance capital outflows.

If financial meltdown is prevented through standstills and exchange controls, stay is imposed on litigation, adequate financing is provided and contractual provisions are improved, the likelihood of reaching a negotiated debt workout would be very high.

The role of the IMF in crisis management and resolution is incontrovertible. However, the IMF cannot be placed at the centre of international debt workout mechanisms. Even after a fundamental reform, the IMF board cannot act as a sanctioning body and arbitrator because of conflict of interest; its members represent debtors and creditors.

The United Nations successfully played an important role in crisis resolution in several instances in the past.

The Compensatory Financing Facility – introduced in the early 1960s to enable developing countries facing liquidity problems due to temporary shortfalls in primary export earnings to draw on the Fund beyond their normal drawing rights at concessional terms – resulted from a U.N. initiative.

A recent example concerns Iraq’s debt. After the occupation of Iraq and collapse of the Saddam Hussein regime, the U.N. Security Council adopted a resolution to implement stay on the enforcement of creditor rights to use litigation to collect unpaid sovereign debt.

This was engineered by the very same country, the United States, which now denies a role to the United Nations in debt and finance on the grounds that it lacks competence on such matters, which mainly belong to the IMF and the World Bank.

Edited by Phil Harris   

The views expressed in this article are those of the author and do not necessarily represent the views of, and should not be attributed to, IPS – Inter Press Service. 

* This article is partly based on South Centre Research Paper 60 by Yilmaz Akyüz titled Internationalisation of Finance and Changing Vulnerabilities in Emerging and Developing Economies.

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Development and Taxes, a Vital Piece of the Post-2015 Puzzlehttp://www.ipsnews.net/2015/03/development-and-taxes-a-vital-piece-of-the-post-2015-puzzle/?utm_source=rss&utm_medium=rss&utm_campaign=development-and-taxes-a-vital-piece-of-the-post-2015-puzzle http://www.ipsnews.net/2015/03/development-and-taxes-a-vital-piece-of-the-post-2015-puzzle/#comments Fri, 20 Mar 2015 22:07:30 +0000 Lyndal Rowlands http://www.ipsnews.net/?p=139795 A fairer more cooperative global tax structure is needed to help achieve Post-2015 development goals. Credit: Eoghan OLionnain CC by SA 2.0 License https://creativecommons.org/licenses/by-sa/2.0/.

A fairer more cooperative global tax structure is needed to help achieve Post-2015 development goals. Credit: Eoghan OLionnain CC by SA 2.0 License https://creativecommons.org/licenses/by-sa/2.0/.

By Lyndal Rowlands
UNITED NATIONS, Mar 20 2015 (IPS)

Public funds are vitally important to achieving the Sustainable Development Goals (SDGs), making corporate tax avoidance trends a pressing issue for post-2015 Financing for Development discussions.

A draft agenda circulated this week for the Financing for Development (FfD) post-2015 Development Conference to be held in Addis Ababa in July places domestic public finances as a key action agenda item.“This is no longer an issue about developing countries versus rich countries. I think you have to get beyond geography and start thinking about this as a battle between wealthy elites and everybody else.” -- Nicholas Shaxson

The agenda acknowledges the need for greater tax cooperation considering “there are limits to how much governments can individually increase revenues in our interconnected world”.

Over 130 countries, represented by the Group of 77 (G-77), called for greater international tax cooperation to be included on the agenda, in recognition of the increasingly central role of tax systems in development.

These calls come in light of the Luxembourg Leaks and Swiss Leaks, which have revealed in recent months how some of the world’s biggest multinational corporations avoid paying billions of dollars of taxes through deals with ‘tax havens’ in wealthy countries.

Two reports out this week, from Oxfam and the Tax Justice Network, both look at the impacts of corporate tax avoidance on global inequality.

Catherine Olier, Oxfam’s European Union policy advisor, told IPS, “Corporate tax avoidance is actually a very important issue for developing countries because according to the International Monetary Fund, the poor countries are more reliant on corporate tax than rich countries.”

Olier said that considerable funds are needed to make the SDGs possible.

“If we look at what’s currently on the table in terms of Official Development Assistance (‘international aid’) or even leveraging money from the private sector, this is never going to be enough to finance the SDGs,” she said.

“Tax is definitely going to be the most sustainable and the most important source of financing,” Olier said.

Oxfam’s report called on European institutions, especially the European Commission, to “analyse the negative impacts one member state’s tax system can have on other European and developing countries, and provide public recommendations for change.”

Nicholas Shaxson from the Tax Justice Network told IPS that tax havens are predominantly wealthier countries, but that they negatively impact both rich and poor countries.

“This is no longer an issue about developing countries versus rich countries. I think you have to get beyond geography and start thinking about this as a battle between wealthy elites and everybody else,” he said. “That’s where the battle line is, that’s where the dividing line is.”

He added that corporate taxes were particularly important to developing countries, in part because it was more difficult to leverage tax revenue from a poorer constituency.

“In pure justice terms, in terms of a large wealthy multinational extracting natural resources or making profits in a developing country and not paying tax, I think that nearly everyone in the world would agree in their gut that there’s something wrong with that situation,” Shaxson said.

Shaxson is the author of the Tax Justice Network’s (TJN) report: Ten Reasons to Defend the Corporation Tax, published earlier this week.

The report argues that trillions of dollars of public spending is at risk, and that if current trends continue, corporate headline taxes will reach zero in the next two to three decades.

Meanwhile, Oxfam reported in January that the “combined wealth of the richest 1 percent will overtake that of the other 99 percent of people next year [2016] unless the current trend of rising inequality is checked.”

Oxfam is calling for a Ministerial Roundtable to be held at the FfD Conference to help facilitate the establishment of a U.N. inter-governmental body on tax cooperation.

Olier told IPS that while developing countries have expressed support for greater tax cooperation, there has so far been less support from Organisation for Economic Co-operation and Development (OECD) member countries, including European countries and the United States.

Follow Lyndal Rowlands on Twitter @LyndalRowlands

Edited by Kitty Stapp

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Opinion: Greece and the Germanisation of Europehttp://www.ipsnews.net/2015/03/opinion-greece-and-the-germanisation-of-europe/?utm_source=rss&utm_medium=rss&utm_campaign=opinion-greece-and-the-germanisation-of-europe http://www.ipsnews.net/2015/03/opinion-greece-and-the-germanisation-of-europe/#comments Wed, 04 Mar 2015 15:02:38 +0000 guillermo-medina http://www.ipsnews.net/?p=139475

In this column, Guillermo Medina, a Spanish journalist and former Member of Parliament, analyses the negotiations between Greece and the Eurogroup and concludes that Germany, currently Europe’s dominant power, has achieved its basic goal: the consolidation of austerity as the fundamental dogma of the new European economic order. This, says the author, is a milestone in the political tussle in the European Union since the reunification of Germany between moving towards a Europeanised Germany or a Germanised Europe.

By Guillermo Medina
MADRID, Mar 4 2015 (IPS)

At last, on Tuesday Feb. 24, the Eurogroup (of eurozone finance ministers) approved the Greek government’s commitment to a programme of reforms in return for extending the country’s bailout deal.

The agreement marks the end of tense and protracted negotiations. It consists of a four-month extension for the second bailout programme worth 130 billion euros (over 145 billion dollars), in force since 2012 and which was due to expire on Feb. 28. The first bailout was for 110 billion euros, equivalent to 123 billion dollars.

Guillermo Medina

Guillermo Medina

During this period, the European Central Bank (ECB) will provide Greece with liquidity and the terms of a new bailout will be hammered out.

The eleventh-hour agreement was no doubt motivated partly by fears that a “Grexit” – Greek withdrawal from the eurozone monetary union – would have triggered a financial earthquake with unforeseeable consequences. The result is a very European-style compromise that averts catastrophe and gains time while avoiding facing the underlying problems.

In exchange for an extension of financial support from Greece’s partners and creditors, Prime Minister Alexis Tsipras will have to submit all his government’s measures during this period to Eurogroup inspection.

But the deal promises Greece more than just restrictions. The country will have to pay its debts to the last euro, but if, as seems probable, deadlines for primary surplus targets are extended, the country will have greater ability to pay (France has just secured this for itself).

In the final document, Greece promised to adopt a tax reform that would make the system fairer and more progressive, as well as reinforce the fight against corruption and tax evasion and reduce administrative spending.“Germany has undeniably secured its basic goal: the enshrining of austerity as the fundamental dogma of the new European economic order, although political prudence and even self-interest have softened the application of the dogma, and may continue to do so in future”

If the government pursues these goals, together with the fight against contraband, efficiently and with determination (as indeed it should, because they are part of its programme and target its domestic enemies), the income will be helpful for the application of its social and economic programmes.

In view of the successive positions that Greece has had to relinquish in the course of the negotiations, it appears that the country has achieved the little that could be achieved.

The negotiations between Greece and its European partners mark a milestone in the political tussle in the European Union since the reunification of Germany in 1990, between moving towards a Europeanised Germany or a Germanised Europe.

Germany has undeniably secured its basic goal: the enshrining of austerity as the fundamental dogma of the new European economic order, although political prudence and even self-interest have softened the application of the dogma, and may continue to do so in future.

Germany has openly tried to impose its convictions and its hegemony on Europe. Greece was only the immediate battlefield. Brussels and Berlin have been divided from the outset about how to solve the Greek crisis, but Germany prevailed.

However, the masters of Europe do not have any interest in “destroying” Greece, and so cutting off their nose to spite their face. They are satisfied with a demonstration of the asymmetry of power between the two sides, and the public contemplation of assured failure for whoever defies the status quo and supports any policy that deviates from the one true official line.

The problem with a Germanised Europe is not the preponderant role that Germany would play, but that it would impose a “Made in Germany” model of Europe that conforms to its own interests. That is how it would differ from a Europeanised Germany.

The Greek crisis has highlighted the ever-widening contrast between the values and ideals that we consider to be central to the European project, such as solidarity, mutual aid and social justice, and the new values that set aside basic aims like full employment, social welfare and equal opportunities.

It is paradoxical that Europe, which is apparently absent from or baffled by threats from the opposite shore of the Mediterranean, should take a harsh, tough attitude with a small partner overwhelmed by debt. It is also paradoxical that structural reforms are demanded of Greece, without admitting Europe’s own urgent need to redesign the eurozone and reframe the policies that have led to the poor performance of its monetary union.

The Greek crisis and the difficulties in overcoming it have a great deal to do with a design of the euro that benefits financial interests, particularly Germany’s.

The project neglected the harmonisation of tax policies and created a European Central Bank that lacked the powers that permit the U.S. Federal Reserve and the Bank of England to issue money and buy state debt.

As is well known, the ECB has made loans to European banks at very low interest rates, and they in turn have made loans to states, including Greece, at much higher interest. Government debts thus mounted up, and in order to pay they were forced to cut public spending.

Why does Europe persist in following failed policies while refusing to follow those that have lifted the United States out of recession? The only explanation is stubborn attachment to an ideological vision of economic policy that is devoid of pragmatism.

How can insistence on the path of error be explained at such a time? There may well be a quota of incompetence, but the basic reason is, as Nobel prize-winners Joseph Stiglitz and Paul Krugman affirm, that the goal of the policies imposed by the “Troika” (European Commission, ECB and International Monetary Fund) is to protect the interests of financial capital. And this is because the powers of political institutions, the media and academia, are dominated by financial capital, with German financial capital at the core.

Financial interests are essentially capable of shaping the decisions of European governance institutions. In the United States this subservience is less clear-cut, allowing hefty penalties to be imposed on certain banks, as well as the development of other economic strategies.

This is because independent mechanisms of control and oversight exist, the Federal Reserve has well-defined goals (whereas the ECB has spent years fighting the insistent threat of inflation), and there is democratic administration with the political will to resist.

In conclusion: the issue is to clarify what sort of Europe the citizens of Europe want, and what institutional changes are needed to achieve it.

And even more importantly, having seen the consecration of German hegemony over the Old World, what sort of German leadership would be compatible with a united Europe based on solidarity? Is this even possible? (END/IPS COLUMNIST SERVICE)

Translated by Valerie Dee/Edited by Phil Harris    

The views expressed in this article are those of the author and do not necessarily represent the views of, and should not be attributed to, IPS – Inter Press Service. 

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OPINION: The Corporate Takeover of Ukrainian Agriculturehttp://www.ipsnews.net/2015/01/opinion-the-corporate-takeover-of-ukrainian-agriculture/?utm_source=rss&utm_medium=rss&utm_campaign=opinion-the-corporate-takeover-of-ukrainian-agriculture http://www.ipsnews.net/2015/01/opinion-the-corporate-takeover-of-ukrainian-agriculture/#comments Tue, 27 Jan 2015 13:20:34 +0000 Frederic Mousseau http://www.ipsnews.net/?p=138850

In this column, Frédéric Mousseau, Policy Director at the Oakland Institute, argues that the United States and the European Union are working hand in hand in a takeover of Ukrainian agriculture which – besides being a sign of Western governments’ involvement in the Ukraine conflict – is of dubious benefit for the country’s agriculture and farmers.

By Frederic Mousseau
OAKLAND, United States, Jan 27 2015 (IPS)

At the same time as the United States, Canada and the European Union announced a set of new sanctions against Russia in mid-December last year, Ukraine received 350 million dollars in U.S. military aid, coming on top of a one billion dollar aid package approved by the U.S. Congress in March 2014. 

Western governments’ further involvement in the Ukraine conflict signals their confidence in the cabinet appointed by the new government earlier in December 2014. This new government is unique given that three of its most important ministries were granted to foreign-born individuals who received Ukrainian citizenship just hours before their appointment.

Frédéric Mousseau

Frédéric Mousseau

The Ministry of Finance went to Natalie Jaresko, a U.S.-born and educated businesswoman who has been working in Ukraine since the mid-1990s, overseeing a private equity fund established by the U.S. government to invest in the country. Jaresko is also the CEO of Horizon Capital, an investment firm that administers various Western investments in the country.

As unusual as it may seem, this appointment is consistent with what looks more like a takeover of the Ukrainian economy by Western interests. In two reports – The Corporate Takeover of Ukrainian Agriculture and Walking on the West Side: The World Bank and the IMF in the Ukraine Conflict – the Oakland Institute has documented this takeover, particularly in the agricultural sector.

A major factor in the crisis that led to deadly protests and eventually to president Viktor Yanukovych’s removal from office in February 2014 was his rejection of a European Union (EU) Association agreement aimed at expanding trade and integrating Ukraine with the
EU – an agreement that was tied to a 17 billion dollar loan from the International Monetary Fund (IMF).

After the president’s departure and the installation of a pro-Western government, the IMF initiated a reform programme that was a condition of its loan with the goal of increasing private investment in the country.“The manoeuvring for control over the country’s [Ukraine’s] agricultural system is a pivotal factor in the struggle that has been taking place over the last year in the greatest East-West confrontation since the Cold War”

The package of measures includes reforming the public provision of water and energy, and, more important, attempts to address what the World Bank identified as the “structural roots” of the current economic crisis in Ukraine, notably the high cost of doing business in the country.

The Ukrainian agricultural sector has been a prime target for foreign private investment and is logically seen by the IMF and World Bank as a priority sector for reform. Both institutions praise the new government’s readiness to follow their advice.

For example, the foreign-driven agricultural reform roadmap provided to Ukraine includes facilitating the acquisition of agricultural land, cutting food and plant regulations and controls, and reducing corporate taxes and custom duties.

The stakes around Ukraine’s vast agricultural sector – the world’s third largest exporter of corn and fifth largest exporter of wheat – could not be higher. Ukraine is known for its ample fields of rich black soil, and the country boasts more than 32 million hectares of fertile, arable land – the equivalent of one-third of the entire arable land in the European Union.

The manoeuvring for control over the country’s agricultural system is a pivotal factor in the struggle that has been taking place over the last year in the greatest East-West confrontation since the Cold War.

The presence of foreign corporations in Ukrainian agriculture is growing quickly, with more than 1.6 million hectares signed over to foreign companies for agricultural purposes in recent years. While Monsanto, Cargill, and DuPont have been in Ukraine for quite some time, their investments in the country have grown significantly over the past few years.

Cargill is involved in the sale of pesticides, seeds and fertilisers and has recently expanded its agricultural investments to include grain storage, animal nutrition and a stake in UkrLandFarming, the largest agribusiness in the country.

Similarly, Monsanto has been in Ukraine for years but has doubled the size of its team over the last three years. In March 2014, just weeks after Yanukovych was deposed, the company invested 140 million dollars in building a new seed plant in Ukraine.

DuPont has also expanded its investments and announced in June 2013 that it too would be investing in a new seed plant in the country.

Western corporations have not just taken control of certain profitable agribusinesses and agricultural activities, they have now initiated a vertical integration of the agricultural sector and extended their grip on infrastructure and shipping.

For instance, Cargill now owns at least four grain elevators and two sunflower seed processing plants used for the production of sunflower oil. In December 2013, the company bought a “25% +1 share” in a grain terminal at the Black Sea port of Novorossiysk with a capacity of 3.5 million tons of grain per year. 

All aspects of Ukraine’s agricultural supply chain – from the production of seeds and other agricultural inputs to the actual shipment of commodities out of the country – are thus increasingly controlled by Western firms.

European institutions and the U.S. government have actively promoted this expansion. It started with the push for a change of government at a time when president Yanukovych was seen as pro-Russian interests. This was further pushed, starting in February 2014, through the promotion of a “pro-business” reform agenda, as described by the U.S. Secretary of Commerce Penny Pritzker when she met with Prime Minister Arsenly Yatsenyuk in October 2014.

The European Union and the United States are working hand in hand in the takeover of Ukrainian agriculture. Although Ukraine does not allow the production of genetically modified (GM) crops, the Association Agreement between Ukraine and the European Union, which ignited the conflict that ousted Yanukovych, includes a clause (Article 404) that commits both parties to cooperate to “extend the use of biotechnologies” within the country.

This clause is surprising given that most European consumers reject GM crops. However, it creates an opening to bring GM products into Europe, an opportunity sought after by large agro-seed companies such as Monsanto.

Opening up Ukraine to the cultivation of GM crops would go against the will of European citizens, and it is unclear how the change would benefit Ukrainians.

It is similarly unclear how Ukrainians will benefit from this wave of foreign investment in their agriculture, and what impact these investments will have on the seven million local farmers.

Once they eventually look away from the conflict in the Eastern “pro-Russian” part of the country, Ukrainians may wonder what remains of their country’s ability to control its food supply and manage the economy to their own benefit.

As for U.S. and European citizens, will they eventually awaken from the headlines and grand rhetoric about Russian aggression and human rights abuses and question their governments’ involvement in the Ukraine conflict? (END/IPS COLUMNIST SERVICE)

Edited by Phil Harris   

The views expressed in this article are those of the author and do not necessarily represent the views of, and should not be attributed to, IPS – Inter Press Service. 

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OPINION: Greece Gives EU the Chance to Rediscover Its Social Responsibilityhttp://www.ipsnews.net/2015/01/opinion-greece-gives-eu-the-chance-to-rediscover-its-social-responsibility/?utm_source=rss&utm_medium=rss&utm_campaign=opinion-greece-gives-eu-the-chance-to-rediscover-its-social-responsibility http://www.ipsnews.net/2015/01/opinion-greece-gives-eu-the-chance-to-rediscover-its-social-responsibility/#comments Sat, 24 Jan 2015 14:30:34 +0000 Marianna Fotaki http://www.ipsnews.net/?p=138804 Alexis Tsipras (centre), Syriza’s charismatic 40-year-old leader, has been campaigning under the banner “Hope is on its way.” Credit: Mirko Isaia/cc by 2.0

Alexis Tsipras (centre), Syriza’s charismatic 40-year-old leader, has been campaigning under the banner “Hope is on its way.” Credit: Mirko Isaia/cc by 2.0

By Marianna Fotaki
COVENTRY, England, Jan 24 2015 (IPS)

The European Union should not be afraid of the leftist opposition party Syriza winning the Greek election, but see it as a chance to rediscover its founding principle – the social dimension that created it and without which it cannot survive.

Greece’s entire economy accounts for three per cent of the euro zone’s output but its national debt totals €360 billion or 175 per cent of the country’s GDP and poses a continuous threat to its survival.

Courtesy of Marianna Fotaki

Courtesy of Marianna Fotaki

While the crippling debt cannot realistically be paid back in full, the troika of the EU, European Central Bank, and IMF insist that the drastic cuts in public spending must continue.

But if Syriza is successful – as the polls suggest – it promises to renegotiate the terms of the bailout and ask for substantial debt forgiveness, which could change the terms of the debate about the future of the European project.

It would also mean the important, but as yet, unaddressed question of who should bear the costs and risks of the monetary union within and between the euro zone countries is likely to become the centrepiece of such negotiations.

The immense social cost of the austerity policies demanded by the troika has put in question the political and social objectives of an ‘ever closer union’ proclaimed in the EU founding documents.The old poor and the rapidly growing new poor comprise significant sections of Greek society: 20 per cent of children live in poverty, while Greece’s unemployment rate has topped 20 per cent for four consecutive years now and reached almost 27 per cent in 2013.

Formally established through the Treaty of Rome in 1957, the European Economic Community between France, Germany, Italy and the Benelux countries tied closely the economies of erstwhile foes, rendering the possibility of another disastrous war unaffordable. Yet the ultimate goal of integration was to bring about ‘the constant improvements of the living and working conditions of their peoples’.

The European project has been exceptionally successful in achieving peaceful collaboration and prosperity by progressively extending these stated benefits to an increasing number of member countries, with the EU now being the world’s largest economy.

Since the economic crisis of 2007, however, GDP per capita and gross disposable household incomes have declined across the EU and have not yet returned to their pre-crisis levels in many countries. Unemployment is at record high levels, with Greece and Spain topping the numbers of long-term unemployed youth.

There are also deep inequalities within the euro zone. Strong economies that are major exporters have benefitted from free trade and the fixed exchange rate mechanism protecting their goods from price fluctuations, but the euro has hurt the least competitive economies by depriving them of a currency flexibility that could have been used to respond to the crisis.

Without substantial transfers between weaker and stronger economies, which accounts for only 1.13 per cent of the EU’s budget at present, there is no effective mechanism for risk sharing among the member states and for addressing the consequences of the crisis in the euro zone.

But the EU was founded on the premise of solidarity and not as a free trade zone only. Economic growth was regarded as a means for achieving desirable political and social goals through the process of painstaking institution building.

With 500 million citizens and a combined GDP of €12.9 trillion in 2012 shared among its 27 members the EU is better placed than ever to live up to its founding principles. The member states that benefitted from the common currency should lead in offering meaningful support rather than decimating their weaker members in a time of crisis by forcing austerity measures upon them.

This is not denying the responsibility for reckless borrowing resting with the successive Greek governments and their supporters. However, the logic of a collective punishment of the most vulnerable groups of the population must be rejected.

The old poor and the rapidly growing new poor comprise significant sections of Greek society: 20 per cent of children live in poverty, while Greece’s unemployment rate has topped 20 per cent for four consecutive years now and reached almost 27 per cent in 2013.

With youth unemployment above 50 per cent, many well-educated people have left the country. There is no access to free health care and the weak social safety net from before the crisis has all but disappeared. The dramatic welfare retrenchment combined with unemployment has led to austerity induced suicides and people searching for food in garbage cans in cities.

A continued commitment to the policies that have produced such outcomes in the name of increasing the EU’s competitiveness challenges the terms of the European Union’s founding principles. The creditors often rationalise this using a rhetoric that assumes tax-evading unproductive Greeks brought this predicament upon themselves – they are seen as the undeserving members of the euro zone.

Such reasoning creates an unhealthy political climate that gives rise to extremist nationalist movements in the EU such as the Greek criminal Golden Dawn party, which gained almost 10 per cent of votes in the last European Parliament elections.

Explaining the euro zone debt crisis as a morality tale is both deleterious and untrue. The problematic nature of such moralistic logic must be challenged: one cannot easily justify on ethical grounds forcing the working poor to bail out a banking system from which many wealthy people benefit, or transferring the consequences of reckless lending by commercial outlets to the public.

Nor can one explain the acquiescence of creditors to the machinations of the nepotistic self-serving corrupt elites dominating the state over the last 40 years that got Greece into the euro zone on false data and continue to rule it. As I have argued, the bailout money was given to the very people who are largely responsible for the crisis, while the general population of Greece is being made to suffer.

Greece’s voters are determined to stop the ruling classes from continuing their nefarious policies that have brought the country to the brink of catastrophe, but in the coming elections their real concern will be opposing the sacrifice of the futures of an entire generation.

The views expressed in this article are those of the author and do not necessarily represent the views of, and should not be attributed to, IPS-Inter Press Service.

Edited by Kitty Stapp

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OPINION: Banks, Inequality and Citizenshttp://www.ipsnews.net/2015/01/opinion-banks-inequality-and-citizens/?utm_source=rss&utm_medium=rss&utm_campaign=opinion-banks-inequality-and-citizens http://www.ipsnews.net/2015/01/opinion-banks-inequality-and-citizens/#comments Thu, 22 Jan 2015 13:27:17 +0000 Roberto Savio http://www.ipsnews.net/?p=138778

In this column, Roberto Savio, founder and president emeritus of the Inter Press Service (IPS) news agency and publisher of Other News, argues that alarming figures on what has gone wrong in global society are being met with inaction. Citing data from Oxfam’s recent report on global wealth, he says that the rich are becoming richer – and the poor poorer – in a society where finance is no longer at the service of the economy or citizens.

By Roberto Savio
ROME, Jan 22 2015 (IPS)

Every day we receive striking data on major issues which should create tumult and action, but life goes on as if those data had nothing to do with people’s lives.

A good example concerns climate change. We know well that we are running out of time. It is nothing less than our planet that is at stake … but a few large energy companies are able to get away with their practices surrounded by the deafening silence of humankind.

Roberto Savio

Roberto Savio

Another example comes from the world of finance. Since the beginning of the financial crisis in 2009, banks have paid the staggering amount of 178 billion dollars in fines – U.S. banks have paid 115 billion, while European banks 63 billion. But, as analyst Sital Patel of Market Watch writes, these fines are now seen as a cost of doing business. In fact, no banker has yet been incriminated in a personal capacity.

Now we have other astonishing data from Oxfam – if nothing is done, in two years’ time the richest one percent of the world´s population will have a greater share of its wealth than the remaining 99 percent.

The richest are becoming richer at an unprecedented rate, and the poorest poorer. In just one year, the one percent went from possessing 44 percent of the world´s wealth to 48 percent last year. In 2016, therefore, it is estimated that this one percent will possess more than all the other 99 percent combined.

The top 89 billionaires have seen their wealth increase by 600 billion dollars in the last four years – a rise of five percent and equal to the combined budgets of 11 countries of the world with a population of 2.3 billion people.

In 2010, that figure was owned by 388 billionaires, and this striking and rapid concentration of wealth has, of course, a global impact. The so-called middle class is shrinking fast and in a number of countries youth unemployment stands at 40 percent, meaning that the destiny of today’s young people is clearly much worse than that of their parents.“In a world where the value of solidarity has disappeared (Europe’s debate on austerity is a good example), apathy and atomisation have become the reality. We are going back to the times of Queen Victoria, substituting a rich aristocracy with money coming from trade and finance, not production”

It will probably take some time before those figures become part of general awareness but it is a safe bet that they will not lead to any action, as with climate change. U.S. President Barack Obama is the only leader who has announced a tax increase on the rich, although he stands little chance of succeeding with his Republican-dominated Congress.

In a world where the value of solidarity has disappeared (Europe’s debate on austerity is a good example), apathy and atomisation have become the reality. We are going back to the times of Queen Victoria, substituting a rich aristocracy with money coming from trade and finance, not production. But up to a point: 34 percent of today’s billionaires inherited all or part of their wealth, and – interestingly – “inheritance tax is the most avoidable of levies”, as James Moore noted Jan. 20 in The Independent.

The “father of modern times”, late U.S. President Ronald Reagan, saw it clearly when he said that the rich produce richness, the poor produce poverty. So let the rich pay less taxes.

Well, in a just-released report, the U.S. Institute on Taxation and Economic Policy notes that in 2015 the poorest one-fifth of Americans will pay on average 10.9 percent of their income in taxes, the middle one-fifth 9.4 percent, and the top one percent just 5.4 percent.

Now, 20 percent of the richest billionaires are linked to the financial sector and it is worth recalling that this sector has grown more than the real economy, and has regulations only at national level. At global level, finance is the only activity which has international body of some kind of governance, as do labour, trade and communications, to name just a few.

Finance is no longer at the service of the economy and citizens. It has its own life. Financial transactions are now worth 40 trillion dollars a day, compared with the world’s economic output of one trillion.

At national level, there are now attempts half-hearted attempts to regulate finance. But let us look what is happening in United States. The new bland regulation is the Dodd–Frank Wall Street Reform and Consumer Protection Act, commonly known as the Dodd-Frank, and it does not go as far as restoring the division between deposit banks, which was where citizens put their money and which could not be used for speculation, and investments banks, which speculate … and how!

This separation was abolished during the U.S. presidency of Bill Clinton, and is considered the end of banks at the service of the real economy. In any case, the lobbyists on Wall Street are intent on having the Dodd-Frank chipped away at, little by little.

There is some schizophrenia when we look at the relations between capital and politics. The U.S. Supreme Court has eliminated any limit to contributions from companies to political elections, declaring that the companies have the same rights as individuals. Of course, there are not many individuals who can shell out the same figures as a company, unless you’re one of the 89 billionaires!

Meanwhile, banks are not only responsible for the corruption of the political system, and for the illegal activities which have earned them billions of dollars, they are also responsible for funding only big investors, and leaving everybody else out from easy credit. The efforts of the Chairman of the European Central Bank,  Mario Draghi, to have banks give credit to small companies and individuals has gone largely nowhere.

But a new and imaginative initiative comes from the very stern Dutch bankers. All 90,000 bankers in the Netherlands are now required to take an oath: “I swear that I will endeavour to maintain and promote confidence in the financial sector. So help me God”.

This is not so much oriented towards the customer, and it is very self-serving; and it brings God in as the regulator of the Dutch banking system. Perhaps the Dutch bankers have been paying heed to the words of Goldman Sach’s CEO Lloyd Blankfein who said at the time of the financial crisis in 2009 that bankers were “doing God’s work”.

Well God will have to be actively involved. All the three biggest Dutch banks – Rabobank, ABN Amro and ING Groep – have been involved in scandals that have hurt consumers, or were nationalised during the financial crisis, costing taxpayers more than 140 billion dollars. In one case, Rabobank was fined one billion dollars.

New York’s Wall Street and London’s City are said to be open to the idea of introducing a similar oath.

It is probably only that kind of Higher Power which could turn the tide in this world of growing inequality and lack of ethics. (END/IPS COLUMNIST SERVICE)

Edited by Phil Harris   

The views expressed in this article are those of the author and do not necessarily represent the views of, and should not be attributed to, IPS – Inter Press Service. 

The author can be contacted at utopie@ips.org

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Haitians Worry World Bank-Assisted Mining Law Could Result in “Looting”http://www.ipsnews.net/2015/01/haitians-worry-world-bank-assisted-mining-law-could-result-in-looting/?utm_source=rss&utm_medium=rss&utm_campaign=haitians-worry-world-bank-assisted-mining-law-could-result-in-looting http://www.ipsnews.net/2015/01/haitians-worry-world-bank-assisted-mining-law-could-result-in-looting/#comments Tue, 13 Jan 2015 00:26:23 +0000 Carey L. Biron http://www.ipsnews.net/?p=138611 The road to Baradares in north central Haiti. The aim of the new draft mining law appears to be a massive expansion of Haiti’s mining sector. Credit: Lee Cohen/cc by 2.0

The road to Baradares in north central Haiti. The aim of the new draft mining law appears to be a massive expansion of Haiti’s mining sector. Credit: Lee Cohen/cc by 2.0

By Carey L. Biron
WASHINGTON, Jan 13 2015 (IPS)

With Haiti’s Parliament having dissolved on Tuesday, civil society groups are worried that the Haitian president may move to unilaterally put in place a contentious revision to the country’s decades-old mining law.

Starting in 2013, that draft was written with technical assistance from the World Bank. Last week, a half-dozen Haitian groups filed a formal appeal with the bank’s complaints office, expressing concern that the legislation had been crafted without the public consultation often required under the Washington-based development funder’s own policies.“The process has been very opaque, with a small group of experts from the World Bank and Haitian government officials drafting this law.” -- Sarah Singh

The aim of the new draft mining law appears to be a massive expansion of Haiti’s mining sector, paving the way for the entry of foreign companies already interested in the country’s significant gold and other deposits.

“Community leaders … are encouraging communities to think critically about ‘development’, and to not simply accept projects defined by outsiders,” Ellie Happel, an attorney in Port-au-Prince who has been involved in the complaint, told IPS.

“These projects often fail. And, in the case with gold mining, residents learn that these projects may threaten their very way of life.”

Haiti’s extractives permitting process is currently extensive and bureaucratic. Yet the new revisions would bypass parliamentary oversight altogether, halting even a requirement that agreement terms be made public, according to a draft leaked in July.

Critics worry that this streamlining, coupled with the Haitian government’s weakness in ensuring oversight, could result in social and environmental problems, particularly damaging to a largely agrarian economy. Further, there is question as to whether exploitation of this lucrative minerals wealth would benefit the country’s vast impoverished population.

“The World Bank’s involvement in developing the Draft Mining Law lends the law credibility, which is likely to encourage investment in the Haitian mining sector,” the complaint, filed with the bank’s Inspection Panel on Wednesday, states.

“[T]his increased investment in the mining sector will result in … contamination of vital waterways, impacts on the agriculture sector, and involuntary displacement of communities. Complainants are also concerned about the exclusion of Haitian people from the law reform process, particularly when contrasted with the reported regular participation of the private sector in drafting the new law.”

An opaque process

The complaint comes five years after a devastating earthquake struck Haiti, and as political instability is threatening reconstruction and development progress made in that catastrophe’s aftermath. Elections have been repeatedly put off for more than two years, and by Tuesday so many members of Parliament are slated to have finished their terms that the body would lack a quorum.

On Sunday Haitian President Michel Martelly indicated that a deal might be near. But the leftist opposition was reportedly not part of this agreement, and has repeatedly warned that the president is planning to rule by decree.

The Inspection Panel complaint, filed by six civil society groups operating under the umbrella Kolektif Jistis Min (the Justice in Mining Collective), contextualises its concerns against this backdrop of instability. “[T]he Haitian government may be poised to adopt the Draft Mining Law by decree, outside the democratic process,” it states.

Even if the political crisis is dealt with soon, concerns with the legislation’s drafting process will remain.

The Justice in Mining Collective, which represents around 50,000 Haitians, drew up the complaint after the draft mining law was leaked in July. No formal copy of the legislation has been made public, nor has the French-language draft law been translated into Haitian Creole, the most commonly spoken language.

“The process has been very opaque, with a small group of experts from the World Bank and Haitian government officials drafting this law,” Sarah Singh, the director of strategic support with Accountability Counsel, a legal advocacy group that consulted on the complaint and is representing some Haitian communities, told IPS.

“They’ve had two meetings that, to my knowledge, were invite-only and held in French, at which the majority of attendees were private investors and some big NGOs. Yet the bank’s response to complaints of this lack of consultation has been to say this is the government’s responsibility.”

The Justice in Mining Collective is suggesting that this lack of consultation runs counter to social and environmental guidelines that undergird all World Bank investments. These policies would also call for a broad environmental assessment across the sector, something local civil society is now demanding – to be followed by a major public debate around the assessment’s findings and the potential role large-scale mining could play in Haiti’s development.

Yet the World Bank is not actually investing in the Haitian mining sector, and it is not clear that the institution’s technical assistance is required to conform to the safeguards policies. In a November letter, the bank noted that its engagement on the Haitian mining law has been confined to sharing international best practices.

Yet Singh says she and others believe the safeguards do still apply, particularly given the scope of the new legislation’s impact.

“This will change the entire legal regime,” she says. “The idea that bank could do that and not have the safeguards apply seems hugely problematic.”

A World Bank spokesperson did confirm to IPS that the Inspection Panel has received the Haitian complaint. If the panel registers the request, she said, the bank’s management would have around a month to submit a response, following which the bank’s board would decide whether the complaint should be investigated.

Parliamentary moratorium

Certainly sensitivities around the Haitian extractives sector have increased in recent years.

Minerals prospecting in Haiti has expanded significantly over the past half-decade, though no company has yet moved beyond exploration. In 2012, when the government approved its first full mining permit in years, the Parliament balked, issuing a non-binding moratorium on all extraction until a sector-wide assessment could take place.

Meanwhile, Haitians have been looking across the border at some of the mining-related problems experienced in the Dominican Republic, including water pollution. Civil society groups have also been reaching out to other countries in the Global South, trying to understand the experiences of other communities around large-scale extractives operations.

Current views are also being informed by decades of historical experience in Haiti, as well. Since the country’s independence in the early 19th century, several foreign companies have engaged many years of gold mining.

That was a “negative, even catastrophic, experience,” according to a statement from the Justice in Mining Collective released following the leak of the draft mining law in July.

“Mining exploitation has never contributed to the development of Haiti. To the contrary, the history of gold exploitation is one marked by blood and suffering since the beginning,” the statement warned.

“When we consider the importance of and the potential consequences of mineral exploitation, we note this change in the law as a sort of scandal that may facilitate further looting, without even the people aware of the consequences.”

Edited by Kitty Stapp

The writer can be reached at cbiron@ips.org

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OPINION: No Nation Wants to Be Labeled “Least Developed”http://www.ipsnews.net/2015/01/opinion-no-nation-wants-to-be-labeled-least-developed/?utm_source=rss&utm_medium=rss&utm_campaign=opinion-no-nation-wants-to-be-labeled-least-developed http://www.ipsnews.net/2015/01/opinion-no-nation-wants-to-be-labeled-least-developed/#comments Sat, 10 Jan 2015 01:21:15 +0000 Ahmed Sareer http://www.ipsnews.net/?p=138573 A dhoni in the Maldives. Credit: Nevit Dilmen/cc by 3.0

A dhoni in the Maldives. Credit: Nevit Dilmen/cc by 3.0

By Ahmed Sareer
NEW YORK, Jan 10 2015 (IPS)

Since 1971, Maldives is one of only three countries that have graduated from the ranks of the world’s “least developed countries” (LDCs) – the other two being Botswana and Cape Verde.

The Maldives graduated on Jan. 1, 2011. The review of LDCs conducted in 1997 concluded that the Maldives was ready for immediate graduation.

Ambassador Sareer. UN Photo/Eskinder Debebe

Ambassador Sareer. UN Photo/Eskinder Debebe

The Maldives government argued that the U.N. criteria for graduation should include a “smooth transition period” in order to bring into place adequate adjustments necessary for full transition into middle-income country status.

The U.N. Resolution adopted on Dec. 20, 2004 endorsed and adopted these arguments. Under that resolution, the Maldives was set to graduate from the list of LDCs on Jan. 1, 2008.

Just six days after adoption of the resolution, the Indian Ocean tsunami struck the Maldives.

The Maldives economy, which had grown at an average of eight percent per annum for two consecutive years, was devastated by the tsunami: 62 percent of the GDP was destroyed; over seven percent of the population was internally displaced; social and economic infrastructure damaged or destroyed in over one quarter of the inhabited islands; 12 inhabited islands were turned into complete rubble.

Following the disaster, and on the request of the Maldives, the General Assembly decided to defer the graduation until 2011, with a smooth transition period until 2014.Donors often assess a country’s need by its developmental status at the U.N., which traps countries such as the Maldives in a vicious cycle being now termed as the “Middle Income Paradox”.

Graduation from LDC does not help a country to overcome the development challenges it faces. Graduation does not make a country less vulnerable to the consequences of its geography.

It is no secret that small island states being assessed for graduation, do not meet the threshold for economic vulnerability.

Small island states often achieve their high development status because of high and consistent investment in human resources, and the social sector as well as government administration.

This leaves limited financial resources for the country to prepare for natural disasters or to carry out mitigation and adaptation measures.

Countries often have to rely on multilateral and bilateral donors for assistance for environmental projects: donors that often assess a country’s need by its developmental status at the U.N., which traps countries such as the Maldives in a vicious cycle being now termed as the “Middle Income Paradox”.

However, all this is conveniently ignored or overlooked.

Graduation from LDC status need not be feared, nor does it need to be an obstacle in a country’s development path. We only fear what we don’t know.

The Maldives’ experience showed that due to the infancy of the graduation programme, the relatively low number of countries that have graduated, and the lack of coordinated commitment from bilateral partners, the graduation process has been far from smooth.

The General Assembly Resolution, which the Maldives helped to coordinate, adopted in December 2012 provided a smooth transition for countries graduated from the LDC list.

The resolution has put into place greater oversight ability for the U.N. and articulated the need for a strengthened consultative mechanism for the coordination of bilateral aid.

The Maldives has tried to make the path for subsequent graduates smoother. Yet, it is a fact that the graduation process still relies on flawed criteria.

While no country wants to be termed the “Least” on any group, it cannot be denied that inherent vulnerabilities and geo-physical realities of some of the countries that often extend beyond their national jurisdiction, need help that are specific and targeted, in order to improve the resilience of those countries.

It is for that reason that the Maldives lobbied extensively with the World Trade Organisation (WTO) to extend the application of TRIPS for all LDCs.

Following graduation, the Maldives also applied to join the EU’s Generalised System of Preferences but new regulations prevented Maldives from the scheme. This posed a significant loss to our fishing industry, which is the export sector in the economy.

The Maldives has been continually exploring the viability of a “small and vulnerable economy” category at the U.N., similar to that which exists in the World Trade Organisation.

Such a category will acknowledge the particular needs of countries arising from the smallness of their economies and inherent geographical realities.

Small island states have continually argued that special consideration needs to be given to SIDS that are slated for graduation. Yet, these voices of concern have fallen largely on deaf years.

But the needs of our people, the development we desire cannot wait to be recognised.

That is why the Maldives decided to take our development path into our own hands. This can be done by consistently employing good policies.

Development is the result of a combination of bold decisions and an ability to seize the opportunities. SIDS have shown to the world that we are not short of smart ideas. Rather than relying on others, we have to develop our own economies our way!

Edited by Kitty Stapp

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The Rise and Fall of the World’s Poorest Nationshttp://www.ipsnews.net/2015/01/the-rise-and-fall-of-the-worlds-poorest-nations/?utm_source=rss&utm_medium=rss&utm_campaign=the-rise-and-fall-of-the-worlds-poorest-nations http://www.ipsnews.net/2015/01/the-rise-and-fall-of-the-worlds-poorest-nations/#comments Wed, 07 Jan 2015 01:08:45 +0000 Thalif Deen http://www.ipsnews.net/?p=138541 Fish being brought in and processed at a market in Cambodia’s northwestern Battambang province. As an LDC, Cambodia exports products duty-free to the EU. Credit: Michelle Tolson/IPS

Fish being brought in and processed at a market in Cambodia’s northwestern Battambang province. As an LDC, Cambodia exports products duty-free to the EU. Credit: Michelle Tolson/IPS

By Thalif Deen
UNITED NATIONS, Jan 7 2015 (IPS)

The world’s 48 Least Developed Countries (LDCs) – a special category of developing nations created by the General Assembly in 1971 but refused recognition by the World Bank – have long been described as “poorest of the poor” in need of special international assistance for their economic survival.

But only three – Botswana, Cape Verde and the Maldives – have so far “graduated” from being classified as an LDC to a developing nation, based primarily on their improved social and economic performance."This mechanical setting of a target for graduation is impractical and has the potential of undesirable tension for development cooperation at national and global levels." -- Ambassador Anwarul Karim Chowdhury

At a U.N.-sponsored ministerial meeting of Asian and Pacific nations in Nepal last month, four more LDCs, namely Bangladesh, Bhutan, Cambodia and Laos, were singled out as countries on the “threshold of graduation” based on their recent economic and social indicators.

And as economies improve, some predict that at least six more countries – Tuvalu, Vanuatu, Kiribati, Samoa, Angola and Equatorial Guinea (two African nations dependent on oil incomes) – are likely to be forced out of the ranks of LDCs, possibly by 2020 or beyond.

But this outlook may be premature due to several factors, including the impact of the global economic recession, the long-term effects of the decline in oil prices, reduced purchasing power due to falling national currencies, and in the case of Africa, the spread of Ebola.

Ambassador Anwarul Karim Chowdhury, the first U.N. Under-Secretary-General and High Representative for LDCs, Landlocked Developing Countries, and Small Island Developing States (2002-2007), told IPS the 2011 LDCs Conference in Istanbul, Turkey, set an objective of graduating 50 percent of LDCs out of the group by the year 2020.

“But this mechanical setting of a target for graduation is impractical and has the potential of undesirable tension for development cooperation at national and global levels,” he pointed out.

The foremost objective of graduation should be to bring LDCs out of poverty and their structural handicaps, he noted.

“But given the current distressing situation in most of the LDCs in both areas, it would be unwise for either the LDCs or their development partners to go towards realising this target,” Chowdhury added.

The people of these countries, particularly civil society, should be involved in the process to ensure that common people of LDCs do not become the greatest victims, he said.

“This is a reality in LDCs which we should not lose sight of,” he declared.

According to the United Nations, LDCs represent the poorest and weakest members of the international community, comprising more than 880 million people and accounting for less than 2.0 per cent of global Gross Domestic Product (GDP).

Fighting poverty in the LDCs is a key component towards reaching the U.N.’s landmark 2015 Millennium Development Goals (MDGs).

LDCs currently benefit from a range of special support measures from bilateral donors and multilateral organisations, and special treatment under regional and multilateral trade agreements.

The benefits that will be lost or reduced due to LDC graduation include trade preferences, official development assistance (ODA) including development financing and technical cooperation, and other forms of assistance, such as travel support for participation at U.N. conferences and other meetings of multilateral bodies.

As a result, special attention needs to be given to these special measures for graduating LDCs.

Arjun Karki, president of Rural Reconstruction of Nepal and international coordinator of LDC Watch, a network of LDC non-governmental organisations (NGOs), told IPS the aim of the 2011 Istanbul Programme of Action was to enable at least 24 LDCs (half of the existing 48) to graduate by 2020, so the current proposals for graduation have not reached this level.

The majority of LDCs (34 out of 48) are in Africa and to date only two African nations, Angola and Equatorial Guinea, are expected to graduate by 2020.

In both these cases, graduation is solely based on their income criterion (of Gross National Income per capita having exceeded at least twice the upper threshold of 1,190 dollars) while they fare low in the human assets and economic vulnerability criteria.

He said LDCs can only graduate when both LDC governments and development partners take action and it is vital they both have the political will to achieve this.

Gyan Chandra Acharya, the current Under-Secretary-General and High Representative for LDCs, Landlocked Developing Countries and Small Island Developing States, told delegates at the ministerial meeting in Nepal “the path towards graduation should not be an end in itself but should be viewed as a launching pad towards meaningful and transformative changes in the economic structures and the life conditions of people in graduated and graduating LDCs.”

He said sustainable graduation agenda needs to be tied up with that of productive capacity development, structural transformation resilience building and sustainable improvement in human and social capital.

Some of the practices being considered include enhancing investment in the productive sector, upgrading technologies and increasing protection from external shocks, such as climate related events, economic crises and natural disasters, according to a statement released by his office.

Chowdhury told IPS basically, graduation is a positive effort which requires the sincere and wholehearted engagement of both LDCs and their development partners.

“However, fixing an arbitrary target and using a technical approach for graduation could undermine realization of a good objective,” he stressed.

He also warned the ongoing economic crisis in the industrialised countries influenced the setting of the Istanbul target. “As the first High Representative of the new U.N. office established in 2002 to champion the cause of the worlds most vulnerable countries, I had worked diligently to make a space for the smooth transition in the graduation process,” Chowdhury explained.

That arrangement, he said, had made the LDCs less uncomfortable to engage in the process.

“I recall fully the agonising interactions for the graduation of Cape Verde and the Maldives during my tenure,” he said.

The consultative mechanism set up during the smooth transition needs to be closely monitored by the High Representative personally to ensure that the concerns of the graduating LDC have the true support of the U.N. system, he cautioned.

“This was part of my regular firsthand contacts with all of the Cape Verde graduation process,” he added.

Chowdhury also said overcoming of the constraints in two of the three determinants for LDC status to be eligible for graduation requires the full understanding by all sides of the real situation of LDCs.

“It is a pity that the biggest development assistance provider, the World Bank, has refused to accept LDCs in its work as a special category of countries as identified by the United Nations,” he said. “And my repeated visits to and efforts with the Bank headquarters did not get any response for the inclusion of LDCs.”

Edited by Kitty Stapp

The writer can be contacted at thalifdeen@aol.com

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Changes to World Bank Safeguards Risk “Race to the Bottom”, U.N. Experts Warnhttp://www.ipsnews.net/2014/12/changes-to-world-bank-safeguards-risk-race-to-the-bottom-u-n-experts-warn/?utm_source=rss&utm_medium=rss&utm_campaign=changes-to-world-bank-safeguards-risk-race-to-the-bottom-u-n-experts-warn http://www.ipsnews.net/2014/12/changes-to-world-bank-safeguards-risk-race-to-the-bottom-u-n-experts-warn/#comments Fri, 19 Dec 2014 01:11:37 +0000 Carey L. Biron http://www.ipsnews.net/?p=138341 By Carey L. Biron
WASHINGTON, Dec 19 2014 (IPS)

An unprecedented number of United Nations special rapporteurs and independent experts are raising pointed concerns over the World Bank’s ongoing review of its pioneering environmental and social safeguards, particularly around the role that human rights will play in these revamped policies.

In a letter made public Tuesday, 28 U.N. experts raise fears that the Washington-based development funder could foster a “race to the bottom” if proposed changes go forward. The document accuses the bank of selective interpretation of its own charter and its obligations under international law.“The bank is not just any old actor in relation to these issues. It is the gorilla in the room.” -- U.N. Special Rapporteur Philip Alston

“[B]y contemporary standards the [safeguards revision] seems to go out of its way to avoid any meaningful references to human rights and international human rights law, except for passing references,” the letter, addressed to World Bank Group President Jim Yong Kim, states.

“[T]he Bank’s proposed new Safeguards seem to view human rights in largely negative terms, as considerations that, if taken seriously, will only drive up the cost of lending rather than contributing to ensuring a positive outcome.”

The World Bank says its safeguards constitute a “cornerstone of its support to sustainable poverty reduction”, and the institution is currently updating these policies for the first time in two decades. Yet when the bank released a draft revision of those changes in July, the proposal set off a firestorm of criticism across civil society.

Critics warn that the revisions would allow the World Bank to shift responsibility for adherence to certain social and environmental policies on to loan recipients, while prioritising self-monitoring over up-front requirements. The new guidelines could also exempt recipient governments from abiding by certain aspects of the policies.

The bank has since extended the period intended to gather response to the draft, which was supposed to end this month, through this coming spring.

“The bank is not just any old actor in relation to these issues. It is the gorilla in the room,” Philip Alston, the U.N. Human Rights Council’s special rapporteur on extreme poverty and human rights, told IPS. “What it does on safeguards, and what it doesn’t do on human rights, makes a huge difference in terms of setting global standards.”

The letter, which Alston spearheaded, is a rarity in multiple ways. Not only are formal missives from the U.N. human rights system to the World Bank uncommon, but close observers say that no such previous letter has garnered the support of so many U.N. rights experts.

Those who signed the letter “are deeply concerned that the bank is planning to turn the clock back 20 years or more,” Alston says, “and replace its existing standards with a system that will simply pass the blame for ignoring human rights considerations on to others, thus letting the bank off the hook.”

Competitive pressures

Since the 1970s, the World Bank has been a pioneer in working to ensure that its development assistance does not lead to or exacerbate certain forms of discrimination or environmental degradation.

Yet the institution has never mandated that the programmes it funds comply with international human rights standards, largely on the concern that politicising the bank’s lending could complicate its country-by-country anti-poverty focus. (Others, including Alston, maintain that human rights can no longer be considered a political issue.)

Consensus is growing, however, around the idea that sustainable development is impossible without a specific focus on human rights. Other multilateral institutions, including the U.N. Development Programme, have explicitly brought their assistance guidelines in line with international human rights obligations.

At the same time, the World Bank is experiencing greater competitive pressure. According to many analysts, including this week’s letter, this is due to the recent creation of several new multilateral development lenders, funded particularly by fast-rising economies including China, Russia and India.

These entities are widely expected to put less emphasis on prescriptive and at times laborious requirements such as the World Bank’s environmental and social safeguards. In such a context, however, Alston and others say the bank has an added responsibility to focus on the results that, they suggest, only core respect for human rights can bring.

The bank’s management counters that the institution has been a leader in highlighting the interdependence between respect for human rights and development outcomes for at least two decades. Today, officials involved with the safeguard review maintain that both human rights and non-discrimination principles have been expanded upon in the new draft.

“Our draft proposal goes as far or further than any other multilateral development bank in the degree to which it protects the vulnerable and the marginalized,” Stefan Koeberle, the bank’s director of operations risk, told IPS in a statement.

“We are currently engaged in extensive consultations on the draft, and we have received a variety of constructive proposals to strengthen the language further. We will continue to carry out our role as an organization charged with achieving poverty reduction and shared prosperity, through sound policies that achieve beneficial environmental, social, and economic outcomes for all concerned.”

U.S. leadership?

The concerns voiced by the U.N. experts come just after three U.S. lawmakers told the Obama administration that the World Bank’s safeguards revision were resulting in a “dilution of existing protections”.

In a letter to U.S. Treasury Secretary Jacob Lew, the lawmakers note that a November evaluation by an Asian Development Bank (ADB) auditor had “foreshadowed” some of these concerns. The trio urged U.S. intervention.

“The Department of Treasury has a history of successfully leading coalitions that call upon regional and national development banks to implement strong safeguards,” the letter states.

“We expect the Treasury to demonstrate similar leadership in this case, so that the World Bank’s safeguards are at least as strong as the strongest safeguards of the ADB and other multilateral financial institutions.”

The United States is the World Bank’s largest member, and watchdog groups say the new flurry of formal critical response is significant.

“U.N. human rights experts and the U.S. Congress have joined the chorus of voices trying to shake the World Bank into finally recognising that human rights should be central to all that it does, and particularly in safeguarding against harm,” Jessica Evans, a senior advocate with Human Rights Watch, told IPS.

If the bank refuses to institutionalise “rigorous human rights due diligence,” Evans continues, “the only conclusion that can be drawn is that the World Bank wants to retain an ability to finance violations of international human rights law while complying with its own policies.”

Bank officials say the next draft of the safeguards revision should be made public by mid-2015.

Edited by Kitty Stapp

The writer can be reached at cbiron@ips.org

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World Bank Calls for Development Policy “Redesign” around Human Behaviourhttp://www.ipsnews.net/2014/12/world-bank-calls-for-development-policy-redesign-around-human-behaviour/?utm_source=rss&utm_medium=rss&utm_campaign=world-bank-calls-for-development-policy-redesign-around-human-behaviour http://www.ipsnews.net/2014/12/world-bank-calls-for-development-policy-redesign-around-human-behaviour/#comments Thu, 04 Dec 2014 22:29:13 +0000 Carey L. Biron http://www.ipsnews.net/?p=138108 By Carey L. Biron
WASHINGTON, Dec 4 2014 (IPS)

The World Bank has taken an unusual but highly visible step away from traditional economics, encouraging policymakers and development implementers to place far more emphasis on research into local human behaviour when drawing up plans and projects.

Such a focus would strengthen understanding on the ways in which habits, biases and collective impulses impact on interventions in, say, health, education or encouraging personal savings. The bank emphasises that such a focus is important for understanding the behavioural peculiarities of not just poor communities but also policymakers, including those within the World Bank itself.“If you know lots of people who pay taxes, you are more likely to pay taxes. That may be as important or more important as the likelihood of getting caught.” -- Varun Gauri, a co-director of the new WDR

These new prescriptions come in the bank’s most high-profile annual study, the World Development Report (WDR), which was formally released here on Thursday.

“[D]evelopment policy is due for its own redesign based on careful consideration of human factors,” the report states, noting that the analysis draws from findings in behavioural economics, cognitive science, anthropology and other fields.

“Because human decision making is so complicated, predicting how beneficiaries will respond to particular interventions is a challenge. The process of devising and implementing development policy would benefit from richer diagnoses of behavioural drivers … and early experimentation.”

The World Development Report is a thematic study, and since its introduction in the late 1970s has generally focused on issues of traditional priority for development policy – jobs, gender, agriculture, etc. Members of the World Bank’s leadership admit that the focus of this year’s WDR – formally subtitled “Mind, Society, and Behaviour” – was a gamble.

Yet they also say that a greater focus on human behaviour throughout the process of creating development policy could have a landmark impact on efficacy, efficiency and other goals that ultimately make the difference between a successful versus middling intervention.

“The use of these methods in the development policy world is very minimal, and all of the motivations for doing this World Development Report were precisely because of that deficiency,” Kaushik Basu, a senior vice president and chief economist at the bank, told IPS.

“So there’s real a possibility of … a paradigm adjustment, whereby governments, development practitioners and others make use of this new range of instruments available to improve delivery to the doorstep. I feel the scope for that is huge.”

Private sector lessons

Traditional economics views human decision-making as straightforward and rational, based on a clean mix of self-interest and logic. Yet the WDR cites copious research over the past decade or more indicating that, in fact, humans arrive at decisions due to a variety of factors, many of which are immediate and unrelated to the broader issue under consideration.

On the one hand, for instance, the World Bank points to research suggesting that poverty and crisis situations make it increasingly difficult for many people to make rational or long-term decisions. On the other hand, the report notes that people can often be “unexpectedly generous”.

The private sector, of course, has known about and directly exploited approaches offered by the behavioural and cognitive sciences for years. Indeed, rarely is a new advertisement or product publicly offered before being extensively considered from a variety of such perspectives.

Yet this is new territory for the bank, and for much of the development world.

“The World Bank is quite dogmatically wedded to the idea of free markets, information about pricing, rational decision-making. So for them to take a step back and highlight the additional information out there that might help remove limitations – that’s very good,” Hans Bos, the vice president and director of the International Development, Evaluation, and Research (IDER) programme at the American Institutes for Research, told IPS.

“What this report didn’t do very well is to explain the practical implications of following these approaches. In order to really know what is working in a local context you need to keep testing things, but we can’t spend three-quarters of the development budget on research. So we need to come up with a better way to do research.”

The World Bank is now hoping that by putting its stamp of approval on this body of research, and by using its global influence, it can spur additional related research. It is also hoping to convince development policymakers to take human behaviour – particularly local behaviour – into account when designing with new projects.

“For example, can simplifying the enrolment process for financial aid increase participation? Can changing the timing of fertilizer purchases to coincide with harvest earnings increase the rate of use?” the report asks.

“Can marketing a social norm of safe driving reduce accident rates? Can providing information about the energy consumption of neighbours induce individuals to conserve?”

This latter issue, of the collective social impact on individual decision-making, is a key one, the WDR’s researchers note.

“If you know lots of people who pay taxes, you are more likely to pay taxes. That may be as important or more important as the likelihood of getting caught,” Varun Gauri, a co-director of the new WDR, told IPS.

“That increase in tax receipts would have a huge impact on development prospects in a number of countries [in terms of] law-abidingness and corruption or other areas where you could have large, paradigm-changing impact.”

Self-reflection

Gauri notes that many of the factors that need to be taken into consideration regarding communities receiving development interventions – their biases, their potential illogic – should also be applied to policymakers designing these interventions.

“A lot of the findings that have been conducted to date focus on households and consumers and their choices. But these findings apply to everybody, including to policymakers themselves,” Guari says.

“So to the extent that these findings can have a huge paradigm-shifting impact, it may be as a result of policymakers themselves thinking through their own biases, thinking through the cognitive illusions they’re under before they make policies for an entire country.”

This self-reflexive tone is welcome, the American Institutes for Research’s Bos says. Indeed, he suggests it should have been the report’s primary focus.

“I think this report would have been far more powerful if it had started with analysis of [the World Bank’s] own practices,” he says.

“Often it’s much easier for us rational donors to change how we do our business than it is to go into a poor country and tell them how to do things differently. Starting with ourselves would be a far better way of applying these lessons.”

Edited by Kitty Stapp

The writer can be reached at cbiron@ips.org

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OPINION: The Decline of Social Europe is Part of a World Trendhttp://www.ipsnews.net/2014/11/opinion-the-decline-of-social-europe-is-part-of-a-world-trend/?utm_source=rss&utm_medium=rss&utm_campaign=opinion-the-decline-of-social-europe-is-part-of-a-world-trend http://www.ipsnews.net/2014/11/opinion-the-decline-of-social-europe-is-part-of-a-world-trend/#comments Wed, 26 Nov 2014 12:15:40 +0000 Roberto Savio http://www.ipsnews.net/?p=137963

In this column, Roberto Savio, founder and president emeritus of the Inter Press Service (IPS) news agency and publisher of Other News, argues that social criteria are taking a back seat to financial and economic criteria in the policies of European countries.

By Roberto Savio
ROME, Nov 26 2014 (IPS)

After the Italian sea search-and-rescue operation Mare Nostrum at a cost of nine million euros a month, through which the Italian Navy has rescued nearly 100,000 migrants – although perhaps up to 3,000 have died – from the Mediterranean since October 2013, Europe is now presenting its new face in the Mediterranean.

The European Union is launching Joint Operation Triton with a monthly budget of 2.9 million euros and funds secured until the end of the year. Its function is to enforce border controls – not to save “boat people” – and it will patrol just thirty nautical miles from the coast, which pales in comparison with Italy’s Mare Nostrum operation which saw patrols being sent close to the Libyan coast.

Roberto Savio

Roberto Savio

Even with this very limited operation, British Prime Minister David Cameron has said that the United Kingdom will not contribute because operations that save migrants make them more willing to try to cross the Mediterranean. Of course, there is a perverted logic in this: the more migrants that die, the greater will be the discouragement for others to try.

Following this logic through, the ideal situation therefore would be to reach a death rate that would stop illegal immigration once and for all!

In this context, it is worth noting that the U.K. government is considering withdrawal from the European Convention of Human Rights (something that even Russian President Vladimir Putin has never considered). The argument is that nobody can be above U.K. courts.

London is also refusing to pay its share of increased of contributions to the European Union and is considering how to put an annual cap on the number of Europeans who are entitled to work legally in the United Kingdom.“Since 1986, the year of signing of the Single European Act, Europeans have never been able to agree on a minimum social basis, which would have given them rights as workers to act collectively as Europeans in the face of a market which is economically unified, but with no common social legislation”

And finally, the U.K. government received with great uproar the sentence of the European Court of Justice, which placed a European cap on banker bonuses, rejecting Britain’s claims that it was illegal. The British argument was that pay levels (also of discredited bankers) were part of social policy and thus under the authority of member states not of the European Union.

Meanwhile, the same Court has issued another sentence under which E.U. member states are not obliged to support European citizens who do not have economic activities in the E.U. countries to which they have migrated. And the German Parliament is now preparing a law to expel European immigrants who do not find a job within six months.

Of course, this will open the doors to all other countries to reduce the free movement of Europeans in Europe, a cornerstone of the original vision of a solidary Europe. Now Europeans will be obliged to take any job, and therefore the law of market will become the primary criterion for their movements in Europe.

Since 1986, the year of signing of the Single European Act, Europeans have never been able to agree on a minimum social basis, which would have given them rights as workers to act collectively as Europeans in the face of a market which is economically unified, but with no common social legislation.

In fact, the point has now been reached where social criteria are the last to be used to judge whether a country is recovering or not, well after economic and financial criteria.

A devastated Greece is now again being considered in financial markets because its economic indicators are on the up. And, at the last G20 meeting in Brisbane, Spain was touted as the example that austerity policies – those indicated by German Chancellor Angela Merkel as the example for laggards like Italy and France – are the correct way out of the crisis.

At the same time, a very different source, Caritas, has reported that only 34.3 percent of Spaniards live a normal life, while 40.6 percent are stuck in precariousness, 24.2 percent are already suffering moderate exclusion and 10.9 percent are living in severe exclusion.

To understand the trend, six years ago, 50.2 percent of Spaniards had a normal life. Now, one citizen in four is suffering exclusion, and of those 11 million excluded citizens, 77.1 percent have no job, 61.7 percent no house and 46 percent no health care support.

According to UNICEF’s recent report on children under recession, 76.5 million children in the rich countries live in poverty, and in Spain, 36.3 percent of the country’s children (2.7 million) are living in a state of precariousness.

What is now new is that some major financial institutions have started to draw attention to social issues.

Janet L. Yellen, chairwoman of the U.S. Federal Reserve, has declared that she is concerned about the growing inequality of wealth and income in the United States, and that chances for people to advance economically appear to be diminishing. And Mario Draghi, governor of the European Central Bank, is now constantly mentioning the issues of “unbearable unemployment “and “growing exclusion”.

In the background there is the proven fact that countries which took emergency measures to reduce public borrowing have mostly had weaker growth, like most European countries (with the exception of Germany, helped by a boom in machinery exports to Russia and China), while those which introduced a policy of stimulus, like the United States, Japan and Britain, have done much better, also in reducing unemployment.

But Merkel continues to ignore calls from the International Monetary Fund (IMF), the World Bank and other monetary institutions – she is only interested in pleasing her constituency, which is increasingly looking to its immediate interests and losing sight of European perspectives.

In all this, the banks continue to be uninterested in any social perspective. A few days ago, European and U.S. regulators imposed new fines worth 4.5 billion dollars on a number of major banks (we are now approaching the 200 billion dollar mark since the crisis started in 2008) for illegal activities.

Jamie Dimon, the CEO of the largest of them, JP Morgan, declared in an interview with Andrew Ross Sorkin of CNBC that it is important that United States creates a “safe harbour” where JPMorgan’s illegal practice of hiring the relatives of political leaders “is not punished”.

In Dimon’s country, between 2009 and 2010, 93 percent of economic growth ended up in the pockets of one percent of the population, according to Nobel economics laureate Joseph Stiglitz, and the 16,000 families with wealth of at least 111 million dollars have seen their share of national wealth double since 2012 to 11.2 percent.

The last U.S. presidential elections cost 3.4 billion dollars, and most of that came from this small minority. Democracy, where all votes are equal, is increasingly becoming a plutocracy where money elects.

Meeting leaders of social movements on Oct. 26, Pope Francis told them: “They call me a communist [for speaking of] land, work and housing … but love for the poor is at the centre of the Gospel.” Certainly, governments are doing otherwise …

(Edited by Phil Harris)

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G20 Seeks to Streamline Private Investment in Infrastructurehttp://www.ipsnews.net/2014/11/g20-seeks-to-streamline-private-investment-in-infrastructure/?utm_source=rss&utm_medium=rss&utm_campaign=g20-seeks-to-streamline-private-investment-in-infrastructure http://www.ipsnews.net/2014/11/g20-seeks-to-streamline-private-investment-in-infrastructure/#comments Tue, 18 Nov 2014 02:00:43 +0000 Carey L. Biron http://www.ipsnews.net/?p=137803 Water pouring through the sluice gates at Gariep Dam in Port Elizabeth, South Africa. Credit: Bigstock

Water pouring through the sluice gates at Gariep Dam in Port Elizabeth, South Africa. Credit: Bigstock

By Carey L. Biron
WASHINGTON, Nov 18 2014 (IPS)

Industrialised countries have agreed to collaborate on a new programme aimed at funnelling significant private-sector investment into global infrastructure projects, particularly in developing countries.

The Global Infrastructure Initiative, agreed to Sunday by governments of the Group of 20 (G20) countries, will not actually be funding new projects. But it will seek to create investment environments that are more conducive to major foreign investors, and to assist in connecting governments with financiers.In developing countries alone these needs could require up to a trillion dollars a year of additional investment, though currently governments are spending just half that amount.

The initiative’s work will be overseen at a secretariat in Australia, the host of this weekend’s G20 summit and a government that has made infrastructure investment a key priority. This office, known as the Global Infrastructure Hub, will foster collaboration between the public and private sectors as well as multilateral banks.

“With a four-year mandate, the Hub will work internationally to help countries improve their general investment climates, reduce barriers to investment, grow their project pipelines and help match investors with projects,” Australian Prime Minister Tony Abbott and Treasurer Joe Hockey said Sunday in a joint statement. “This will help improve how infrastructure markets work.”

Some estimate the undertaking could mobilise some two trillion dollars in new infrastructure investment over the next decade and a half. This would be available to be put into electrical grids, roads and bridges, ports and other major projects.

The G20 has emerged as the leading multilateral grouping tasked with promoting economic collaboration. Together, its membership accounts for some 85 percent of global gross domestic product.

With the broad aim of prompting global economic growth, the Global Infrastructure Initiative will work to motivate major institutional investors – banks, pension funds and others – to provide long-term capital to the world’s mounting infrastructure deficits. In developing countries alone these needs could require up to a trillion dollars a year of additional investment, though currently governments are spending just half that amount.

In recent years, the private sector has turned away from infrastructure in developing countries and emerging economies. Between 2012 and last year alone, such investments declined by nearly 20 percent, to 150 billion dollars, according to the World Bank.

“This new initiative very positively reflects a clear-eyed reading of the evidence that there are infrastructure logjams and obstacles in both the developing and developed world,” Scott Morris, a senior associate at the Center for Global Development, a Washington think tank, told IPS. “From a donor perspective, this indicates better listening to what these countries are actually asking for.”

Still, Morris notes, it remains unclear what exactly the Global Infrastructure Initiative’s outcomes will be.

“The G20 clearly intends to prioritise infrastructure investment,” he says, “but it’s hard to get a sense of where the priorities are.”

Lucrative opportunity

The Global Infrastructure Initiative is the latest in a string of major new infrastructure-related programmes announced at the multilateral level in recent weeks.

In early October, the World Bank announced a project called the Global Infrastructure Facility, which appears to have a mandate very similar to the new G20 initiative. At the end of the month, the Chinese government announced the creation of a new Asian Infrastructure Investment Bank (AIIB).

Many have suggested that the World Bank and G20 announcements were motivated by China’s forceful entry onto this stage. As yet, however, there is little clarity on the G20 project’s strategy.

“With so many discreet initiatives suddenly underway, I wonder if the new G20 project doesn’t cause confusion,” Morris says.

“Right now it’s very difficult to see any division in responsibilities between the G20 and World Bank infrastructure projects. The striking difference between them both and the AIIB is that the Chinese are offering actual capital for investment.”

The idea for the new initiative reportedly came from a business advisory body to the G20, known as the Business 20 (B20). The B20 says it “fully supports” the new Global Infrastructure Initiative.

“The Global Infrastructure Initiative is a critical step in addressing the global growth and employment challenge, and the business community strongly endorses the commitments of the G20 to increase quality investment in infrastructure,” Richard Goyder, the B20 chair, said Monday.

“The B20 estimates that improving project preparation, structuring and delivery could increase infrastructure capacity by [roughly] 20 trillion dollars by 2030.”

Goyder pledged that the business sector would “look to be heavily involved in supporting” the new projects.

Poison pill?

Yet if global business is excited at the prospect of trillions of dollars’ worth of new investment opportunities, civil society is expressing concern that it remains unclear how, or whether, the Global Infrastructure Initiative will impose rules on the new projects to minimise their potential social or environmental impacts.

“Private investment in infrastructure is crucial for closing the infrastructure funding gap and meeting human needs, and the G20 initiative is an important move by governments to catalyse that private investment,” Lise Johnson, the head of investment law and policy at the Columbia Center on Sustainable Investment at Columbia University, told IPS.

“It is key, however, that the initiative and the infrastructure hub develop procedures and practices not only to promote development of infrastructure, but to ensure that projects are environmentally, socially and economically sustainable for host countries and communities.”

Prominent multilateral safeguards policies such as those used by the World Bank are typically not applied to public-private partnerships, which will likely make up a significant focus of the G20’s new infrastructure push. Further, regulatory constraints could be too politically thorny for the G20 to forge new agreement.

“In the 2013 assessment of the G20’s infrastructure initiative by the G20 Development Working Group, only one item of the whole infrastructure agenda ‘stalled’ – and that was the work on environmental safeguards,” Nancy Alexander, director of the Economic Governance Program at the Heinrich Boell Foundation, a think tank, told IPS.

“I’ve always gotten the feedback from the G20 that such policies are matters of national sovereignty.”

The G20 is now hoping that trillions of dollars in infrastructure spending will create up to 10 million jobs over the next 15 years, spurring global economic growth. Yet Alexander questions whether this spending will be a “magic bullet” or a “poison pill”.

“Some of us are old enough to remember how recklessly the petrodollars of the 1970s and 1980s were spent – especially on infrastructure … Then, reckless lenders tried to turn a quick profit without regard to the social, environmental and financial consequences, including unpayable debts,” she says.

“Seeing the devastation wrought by poorly conceived infrastructure, many of us worked to create systems of transparency, safeguards and recourse at the multilateral development banks – systems that are now considered too time-consuming, expensive and imperialistic.”

Edited by Kitty Stapp

The writer can be reached at cbiron@ips.org

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OPINION: Obstacles to Development Arising from the International Systemhttp://www.ipsnews.net/2014/11/opinion-obstacles-to-development-arising-from-the-international-system/?utm_source=rss&utm_medium=rss&utm_campaign=opinion-obstacles-to-development-arising-from-the-international-system http://www.ipsnews.net/2014/11/opinion-obstacles-to-development-arising-from-the-international-system/#comments Wed, 12 Nov 2014 09:16:18 +0000 Manuel F. Montes http://www.ipsnews.net/?p=137705

In this column, Manuel F. Montes, senior advisor on Finance and Development at the South Centre in Geneva, argues that the limited number of successfully developing countries since the 1950s has provoked a debate over whether the success of these countries required their success in eluding international obstacles to development. The question, he says, is to evaluate features of the international system on the basis of how these features are conducive to enabling long-term investment toward economic diversification. This column is based on a more extensive Research Paper* prepared by the author for the South Centre.

By Manuel F. Montes
GENEVA, Nov 12 2014 (IPS)

As the international community wades into the political discussions regarding the alternatives to the Millennium Development Goals (MDGs) after 2015 and the design of the Sustainable Development Goals (SDGs) as mandated by the Rio+20 conference, it is timely to consider the question of whether development is a matter mostly of individual effort on the part of nation-states or whether there are elements in the international economic system that could serve as significant obstacles to national development efforts.

If there are obstacles in the international economic system, it is important that the post-2015 development agenda and the SDGs address the question of the elimination or the reduction of these obstacles.

Manuel F. Montes

Manuel F. Montes

The limited number of successfully developing countries since the 1950s has provoked a debate over whether the success of these countries required their success in eluding international obstacles to development.

The question is to evaluate features of the international system on the basis of how these features are conducive to enabling long-term investment toward economic diversification.

Terminologies of previous development orthodoxies litter the development literature – import substitution, industrialisation, basic needs, structural adjustment, Washington Consensus and Millennium Development Goals (MDGs).

Each of these orthodoxies tended to be a reaction to perceived weaknesses or missing elements from the immediately previous one. The most recent orthodoxy, as exemplified by the MDGs, is that development is about poverty eradication.

But poverty eradication is an overly narrow, possibly misleading, perspective on development.“Poverty eradication is a desired outcome of development but its achievement is permanent only with the movement of a significant proportion of the population from traditional, subsistence jobs to productive, modern employment”

Poverty eradication is a desired outcome of development but its achievement is permanent only with the movement of a significant proportion of the population from traditional, subsistence jobs to productive, modern employment.

The association of development with poverty reduction created for the donor community the pride of place in economic policy in developing countries.

But this place can be at the cost of reducing the responsibility of donor countries in helping to maintain an enabling international environment for development in trade, finance, human resource development and technology.

In the MDGs, these issues are crammed into “MDG-8”, the so-called global partnership for development, with a very selective and poorly defined set of targets.

Development requires not just higher levels of income, nutrition, education, and health outcomes but in the first place involves higher levels of productivity and capabilities.

Higher levels of productivity and capabilities are possible only with structural transformation of the economy.

In turn, in most societies, according to a report by the Secretary-General of the U.N. Conference on Trade and Development (UNCTAD), such a structural transformation has been “associated with a shift of the population from rural to urban areas and a constant reallocation of labour within the urban economy to higher-productivity activities.”

Structural transformation is only possible with substantial and sustained investment over decades in new activities and products, not just in anti-poverty programmes.

Where the international economic system is hostile to investment in new, productivity enhancing economic activities is where its elements create obstacles to development.

One example of an externally based obstacle is aid volatility which has been shown to have highly negative impacts on macroeconomic performance and domestic investment.

Capital and technological investments are required to overcome the enormous productivity gap between developing and developed countries which characterises the world economy.

In 2008, a ratio of the average Gross National Income (GNI) per worker in the countries of the Organisation for Economic Cooperation and Development (OECD) versus those in the least developed countries (LDCs) was 22:1 in favour of the OECD countries.

This imbalance has worsened by a factor of five in comparison to the earliest days of capitalist development. In the nineteenth century, taking the Netherlands and the United Kingdom as the richest countries and Finland and Japan as the poorest, the productivity gap was only between 2 to 1 and 4 to 1.

The international economic system is lacking crucial mechanisms for delivering long-term, stable resources required by developing countries to upgrade their capabilities.

Dependence on commodity exports sustains the productivity gap between developed and developing countries.

Abundant global liquidity and growing trade imbalances fuelled a commodity boom in the 2000s which benefited many developing countries, including many LDCs.

All previous global liquidity booms had ended with serious economic crises in developing countries. The more recent commodity price boom did not introduce an enduring improvement in macroeconomic balances, especially for low-income countries (LICs).

While in the 2000s LDCs experienced the strongest growth rates since 1970s, according to UNCTAD, more than one-quarter of LDCs actually saw GDP per capita decline or grow slowly in the 2002-2007 global boom.

Even the middle income region of Latin America presents evidence of insignificant structural improvement in fiscal and current account balances.

Previous commodity boom periods had similarly not been an occasion for structural change in LDCs. UNCTAD suggests that between the 1970s and 1997, manufacturing as a proportion of GDP increased by less than two percentage points in LDCs as a group, a period which saw various episodes of commodity and global liquidity booms.

When considering LDCs from Africa alone and including Haiti, manufacturing fell from 11 to 8 percent during the same period.

Developing countries had extensively liberalised their trade regimes in the 1980s. In the aftermath, UNCTAD finds that some LDCs have more open trade regimes than other developing countries, and others are more open than even developed countries.

These policies had been intended to facilitate economic diversification. Instead of the expected outcome, greater trade liberalisation has been accompanied by greater concentration in the structure of exports.

The international economic system labours under the constraint that the highest decision-making bodies in key institutions, such as the International Monetary Fund (IMF), do not provide sufficient voting weight and policy influence to countries most affected by their operations.

One effort under way but under enormous political obstruction is to update voting weights in line with the changed economic structure. Even the G20, where important developing countries sit, has been unable to advance progress. (END/IPS COLUMNIST SERVICE)

(Edited by Phil Harris)

The views expressed in this article are those of the author and do not necessarily represent the views of, and should not be attributed to, IPS – Inter Press Service. 

*  Click here for the Research Paper on which this column is based.

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OPINION: Global Governance – We Need to Bring Civil Society to the Tablehttp://www.ipsnews.net/2014/11/opinion-global-governance-we-need-to-bring-civil-society-to-the-table/?utm_source=rss&utm_medium=rss&utm_campaign=opinion-global-governance-we-need-to-bring-civil-society-to-the-table http://www.ipsnews.net/2014/11/opinion-global-governance-we-need-to-bring-civil-society-to-the-table/#comments Tue, 04 Nov 2014 18:51:48 +0000 Nigel Martin http://www.ipsnews.net/?p=137596

Nigel Martin is the founder of FIM - Forum for Democratic Global Governance. He is the coauthor with Rajesh Tandon of the book "Global Governance, Civil Society and Participatory Democracy - A View from Below," which is available through the Academic Foundation.

By Nigel Martin
MONTREAL, Nov 4 2014 (IPS)

A poorly understood phenomenon is quietly but effectively shaping the daily lives of all citizens sharing this planet.

Governance from the global level is growing exponentially and will, inevitably, assume an even greater impact on us all. Most of us understand vaguely that decisions which are made concerning the environment, macro-economic issues such as financial flows or more circumscribed problems such as Ebola, are made at supranational levels.

Courtesy of FIM

Courtesy of FIM

What very few people appreciate is that the above examples are but a micro-sample of the extent to which our world has already become globalised, and how its form of governance is changing radically.

The current instruments of global governance, be they, for example, the U.N., the WTO, the IMF or the G20, are already powerful, but they meet no meaningful definition of democratic governance. There is minimal, if any, participation by elected officials and they function in a highly ambiguous legal context.

The same can be said of more recent groupings often created by countries which consider themselves unfairly represented at the traditional multilateral tables, such as BRICS, or the recently announced infrastructure investment bank created by 21 Asian nations led by China and India.

While the nation state is slowly dying as a significant actor in our governance, the decisions being taken globally remain largely unaccountable to any electorate. This governance vacuum has been steadily filled by the corporate community, who fosters its own interests ─ which quietly assume a broadening of inequalities and the inevitability of collateral damage.

On the other hand, civil society organisations (CSOs) are, at their best, the voice of those who are the collateral damage. Yet, civil society is not without tools of its own. Collectively it is non-partisan; it derives its incredible energy not from the wish to attain individual wealth and power, but from a desire to serve the common good.

Even when functioning at the global level, it retains close contact to its base. It often brings creative and dynamic alternatives to the table. It can mobilise millions of citizens. Modern communication technology enhances its ability to function in real-time. Its leadership can be global, ad-hoc and transitory.Confronted with an erosion of their powers and a redefinition of what constitutes national sovereignty, governments seldom welcome direct CSO participation in multilateral fora.

The role of CSOs in channeling citizen’s voices and bringing participatory democracy to the global sphere is a defining issue of our 21st century. However, huge segments of civil society are still being left behind. Most of these voices are from the South.

How do we bring the largely “missing voices” of Southern civil society to the supranational, multi-governmental organisations’ table?

FIM – Forum for Democratic Global Governance, the southern-driven international non-governmental organisation that I had the privilege to create in 1998 and to manage for its first 15 years, was created in an attempt to bring answers to that question. In some ways inadvertently, it became a focal point for this effort.

Over the years, its experience and the tireless work of the hundreds of Southern CSOs that are part of our network have enabled us to identify key factors that make such participation possible, such as the need to help civil society actors understand the multilateral system(s); to facilitate and promote linkages between CSOs and networks involved in engagement with multilateral institutions; to document initiatives, reflexions and success to broaden knowledge basis and avoid costly repetitions.

Our vision is long term. Changes in global governance take time, a notion not often appreciated by donors who seek quickly identifiable results.

Observers of the multilateral sphere all agree that at the level of organised civil society, much is happening and that its vigorous and growing efforts to democratise global governance are starting to bear fruit.

When FIM began, in 1999, to identify successful examples of civil society influence on multilateral bodies, we thought that after five or six of them, we would have completed the circuit. Today, there are probably hundreds of striking examples to choose from.

FIM’s latest book, “Global Governance, Civil Society and Participatory Democracy – A View from Below“, captures some of the important shifts in global governance over the past 15 years. It discusses key work done with a host of multilateral bodies and the quiet emergence of organised civil society as a significant actor in efforts to create transparent and accountable governance.

It also highlights the fact that the challenges for CSOs and those they represent remain enormous. Confronted with an erosion of their powers and a redefinition of what constitutes national sovereignty, governments seldom welcome direct CSO participation in multilateral fora.

The corporate community will not readily share spaces it has occupied alone for decades. The value-added contribution of CSOs to the democratic process will remain directly proportional to how strongly they are able to maintain and strengthen their local-to-global linkages.

We must also bear in mind that participatory democracy within the arena of global governance will not be enough in itself to attain true democratic governance at the multilateral level. This will require the establishment of a functioning relationship between the direct voice of civil society and its elected representatives.

To that end, global civil society will need to continue to strengthen direct engagement by any and all citizens in their own governance, well beyond a simple vote every four years, and to ensure that all citizens are represented at the global level by elected spokespeople who are legally accountable to their electorate.

No matter how prescient, eloquent and dynamic civil society activists are, without being elected they cannot claim sole representativeness of the poor and dispossessed.

It has been said that in a democracy the people are right even when they are wrong. This imperfection is frightening to those who believe that they possess a unique truth and who seek strong centralised power in order to implement their truth. If they succeed, inevitably their own imperfections surface catastrophically.

Governance by the people allows for open and honest efforts to correct mistakes and strive for balance. Now, we need this wonderful model at the global level.

Edited by Kitty Stapp

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Global South Brings United Front to Green Climate Fundhttp://www.ipsnews.net/2014/10/global-south-brings-united-front-to-green-climate-fund/?utm_source=rss&utm_medium=rss&utm_campaign=global-south-brings-united-front-to-green-climate-fund http://www.ipsnews.net/2014/10/global-south-brings-united-front-to-green-climate-fund/#comments Fri, 24 Oct 2014 00:29:03 +0000 Carey L. Biron http://www.ipsnews.net/?p=137357 By Carey L. Biron
WASHINGTON, Oct 24 2014 (IPS)

The United Nations’ key mechanism for funding climate change-related mitigation and adaptation in developing countries is now ready to receive funds, following a series of agreements between rich and poor economies.

The agreements covered administrative but potentially far-reaching policies that will govern the mechanism, known as the Green Climate Fund (GCF). This forward momentum comes just weeks ahead of a major “pledging session” in Berlin that is meant to finally get the GCF off the ground.“One thing that was different in this meeting was the willingness of developing countries to take a stand for certain principles.” -- Karen Orenstein of Friends of the Earth

“The fund now has the capacity to absorb and programme resources that will be made available to it to achieve a significant climate response on the ground,” Hela Cheikhrouhou, the GCF’s executive director, said Saturday following a series of board meetings in Barbados.

The GCF constitutes the international community’s central attempt to help developing countries prepare for and mitigate climate change. The undertaking thus includes an implicit acknowledgment by rich countries that the developing world, although the least responsible for climate change, will be the most significantly impacted.

At the Copenhagen climate summit in 2009, donors agreed to mobilise 100 billion dollars a year by 2020, in an undefined mix of public and private funding, to help developing countries. The GCF is to be a cornerstone of this mobilisation, using the money to fund an even split between mitigation and adaptation projects.

The GCF opened a secretariat last year, in South Korea, but pledges have since come in slowly. Currently, the aim is to get together 15 billion dollars as starter capital, much of which will have to be achieved at the November pledging session.

The fund’s capitalisation did get a fillip last month, when France and Germany pledged a billion dollars each and lesser amounts were promised by Norway, South Korea and Mexico. On Wednesday, Sweden pledged another half-billion dollars, aimed at setting “an example to … other donors.”

Still, that brings the total funding for the GCF to less than three billion dollars, under a fifth of the goal for this year alone.

“The good news is that this meeting finished laying a strong foundation for the fund,” Alex Doukas, a sustainable finance associate with the World Resources Institute, a think tank here, told IPS. “It’s now nearly ready to go – but it can’t get far without ambitious pledges in November.”

Significant attention is now shifting to the United States and European Union, which have yet to announce pledges. Anti-poverty campaigners have estimated that fair pledges would be around 4.8 billion dollars for the United States and six billion dollars for the European Union.

Country ownership

The GCF now has the institutional capacity to receive the funding around which its operations will revolve, but important decisions remain regarding how the fund will disburse that money.

“There’s now more clarity on how the fund will invest, but little guidance on exactly what it will invest in,” Doukas, who attended last week’s board meeting in Barbados, says. “The board has serious homework between now and its next meeting in February to ensure that it has rules in place to prioritise high-impact climate solutions that also deliver development benefits.”

Still, some important initial headway was made in Barbados around how these projects will be defined. Indeed, development advocates express cautious optimism the new agreements will put greater control over these decisions in the hands of national governments.

For instance, projects green-lighted by the GCF will now be required to have a “no objection” confirmation from the government of the country in which the project will be based.

“If you do not have the no-objection [requirement], the funding intermediaries will be able to impose their own conditionalities, even their own programmes, on a country,” Bernarditas Muller, the GCF representative from the Philippines, said during negotiations, according to a civil society summary.

Observers say this agreement came about because developing countries banded together and pushed against demands from rich governments. (The GCF board includes 24 members, half from poor and half from rich countries.)

“One thing that was different in this meeting was the willingness of developing countries to take a stand for certain principles,” Karen Orenstein, an international policy advisor with Friends of the Earth who attended the Barbados discussions, told IPS.

“The no-objection procedure in particular is something we’ve been fighting for, for a long time. If an active no-objection is not provided within 30 days, a project is suspended – that is quite important.”

Still, Orenstein, too, worries that significant decisions have against been pushed off to future meetings of the GCF board.

“The fund still leans too heavily towards multilateral development banks and the private sector,” she says.

“It’s not that the GCF shouldn’t be appealing to the private sector, but we want to sure that the priorities are being driven by developing countries. Even though we have these new agreements, there’s still not nearly enough emphasis on having priorities be set at the country level and below.”

New development discourse

At the same time, under this weekend’s agreements developing countries will now be able to access funding directly from the GCF, rather than having to go through an intermediary. In addition, monies pledges to the fund will not be able to be “earmarked” for particular uses by the donor government.

“Traditionally, a lot of funds for climate change have been delivered through multilateral organisations. They haven’t necessarily done a bad job, but in many cases there’s a trade-off between a country’s priorities versus that of the organisation’s,” Annaka Carvalho, a senior programme officer with Oxfam America, a humanitarian and advocacy group, told IPS.

“Making sure that countries are in the driver’s seat in directing where these resources are going is really important. Ultimately, only national governments are accountable to their citizens for delivering on adaptation and investing in low-emissions development.”

Carvalho, who was also at the Barbados negotiations, says that the opportunity once the GCF gets off the ground isn’t only about reacting to climate change. She says the fund can also help to bring about a new development paradigm.

“We’ve been hoping the fund will act as a catalyst for shifting the development discourse away from the forces that have caused climate change and instead towards clean energy and resilient livelihoods,” she says.

“A core part of the fund is supposed to realise sustainable development, but there’s always this line between climate and development. In fact, disconnecting these two issues is impossible.”

Edited by Kitty Stapp

The writer can be reached at cbiron@ips.org

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