Inter Press Service » Eye on the IFIs http://www.ipsnews.net Turning the World Downside Up Fri, 24 Oct 2014 18:31:22 +0000 en-US hourly 1 http://wordpress.org/?v=3.9.2 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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World Bank Pushes Private Sector for Major Investments in Infrastructurehttp://www.ipsnews.net/2014/10/world-bank-pushes-private-sector-for-major-investments-in-infrastructure/?utm_source=rss&utm_medium=rss&utm_campaign=world-bank-pushes-private-sector-for-major-investments-in-infrastructure http://www.ipsnews.net/2014/10/world-bank-pushes-private-sector-for-major-investments-in-infrastructure/#comments Thu, 09 Oct 2014 23:58:56 +0000 Carey L. Biron http://www.ipsnews.net/?p=137095 A new road is built near Victoria Falls on the Zimbabwe-Zambia border. Credit: David Brossard/cc by 2.0

A new road is built near Victoria Falls on the Zimbabwe-Zambia border. Credit: David Brossard/cc by 2.0

By Carey L. Biron
WASHINGTON, Oct 9 2014 (IPS)

The World Bank has initiated a major call to action for private sector investors around infrastructure projects in developing countries.

World Bank Group President Jim Yong Kim on Thursday launched a new initiative, worth some 15 billion dollars, aimed at motivating banks, pension funds and other institutional investors to turn their focus to the pressing, and growing, infrastructure needs in developing countries.“Institutional investors have deep pockets – insurance and pension funds have some 80 trillion dollars in assets.” -- World Bank President Jim Yong Kim

In announcing the new Global Infrastructure Facility (GIF), Kim estimated these needs would require up to a trillion dollars of additional investment each year through the end of this decade. That’s twice as much as these countries are currently spending.

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

“Given the scale of infrastructure financing needs in developing countries, we definitely welcome an initiative like this,” Marilou Uy, the incoming director of the Group of 24 (G24) developing countries and a former bank official, told IPS.

“The private sector’s role here is especially important: to find good models to work with, so that private investment in developing countries can start to rise again and grow to levels even higher than before.”

In a surprise to many, the bank’s sister organisation, the International Monetary Fund (IMF), this week came out forcefully in favour of public spending, particularly on infrastructure. The IMF and World Bank are currently holding semi-annual meetings here in Washington.

The GIF will start a number of pilot ventures later this year, reportedly with a focus on climate-friendly projects and those that can promote trade. But it will not be financing these initiatives directly.

Rather, it will aim to turn the private sector’s attention back towards the road, bridges, energy production and other large-scale physical projects that make up the foundation of any country’s economic and social development.

“Institutional investors have deep pockets – insurance and pension funds have some 80 trillion dollars in assets,” Kim said Thursday, speaking with reporters.

“But less than 1 percent of pension funds are allocated directly to infrastructure projects, and the bulk of that is in advanced countries. The real challenge is not a matter of money but a lack of bankable projects – a sufficient supply of commercially viable and sustainable infrastructure investments.”

Fundamental bottleneck

The World Bank is hoping the GIF will function as a conduit through which major investors, together with the development institution’s own experts, can advise governments how to structure infrastructure projects in order to entice investors looking for long-term opportunities. Kim said a “massive infrastructure deficit” in developing countries today constitutes a “fundamental bottleneck” in addressing poverty, the bank’s key mandate.

Perhaps in response to past criticisms, the bank also notes that the GIF will not simply try to move as much money into these projects as possible.

“We know that simply increasing the amount invested in infrastructure may not deliver on the potential to foster strong, sustainable and balanced growth,” Bertrand Badre, the institution’s managing director, said in a statement. “A focus on the quality of infrastructure is vital.”

The GIF will focus on fostering particularly complex partnerships between the public and private sectors, known as PPPs. In anticipation of Thursday’s announcement, the World Bank Group’s private-sector arm, the International Finance Corporation (IFC), has reportedly been ramping up its PPP units around the world.

Yet the growing dependence on the private sector in development aims continues to spark concern among many development advocates and anti-poverty campaigners, who worry that the goals of for-profit entities are often at odds with the public good.

“While the bank’s new infrastructure facility is welcome, we are concerned that any sudden push into new big-ticket infrastructure deals must improve the lives of ordinary people,” Nicolas Mombrial, the head of the Washington office of Oxfam International, a humanitarian and advocacy group, said Thursday.

“Therefore, the World Bank must ensure that new infrastructure lending comes fitted with proper safeguards in place to protect the poorest and most vulnerable communities from clients that might be more interested in profit over development. We need safeguards for people and not just for investors.”

The head of the GIF, meanwhile, cautions that the initiative is still in its very early days.

“I have been meeting with civil society organisations who were really interested in engaging with us on the GIF,” Jordan Schwartz, the official in charge of the new programme, told IPS.

“Like them, we want to ensure that decisions around infrastructure investment are sensitive to a wide range of environmental, social and economic considerations, so that not only is there benefit for the poor and for economic activity generally but so the investments are sustainable. We look forward to continuing that dialogue.”

PPP worries

Concerns around public-private partnerships are particularly notable around public water systems. In recent years, private companies around the world have shown growing interest in stepping into partnerships to resuscitate public water infrastructure that has often been underfunded for decades.

The World Bank’s IFC has been a major proponent of such deals. Yet some of these have sparked powerful backlash from critics who note that water privatisation has often resulted in higher costs and inequitable service.

This week, for instance, activists in Nigeria stepped up a campaign to urge the government to pull out of discussions with the IFC around a potential water project in Lagos. They say the scheme’s details are being kept from the public.

“Around the world, the IFC advises governments, conducts corporate bidding processes, designs complex and lopsided water privatisation contracts, dictates arbitration terms, and is part-owner of water corporations that win the contracts it designs and recommends, all while aggressively marketing the model to be replicated around the world,” Akinbode Oluwafemi, with Environmental Rights Action, a Nigerian advocacy group, told reporters Wednesday in Lagos, according to prepared remarks.

“Not only do these activities undermine democratic water governance, but they constitute an inherent conflict of interest within the IFC’s activities in the water sector, an alarming pattern seen from Eastern Europe to India to Southeast Asia.”

According to World Bank estimates, public money makes up some two-thirds of PPP financing around the world today. Watchdog groups say this underscores the heavy government subsidies that these projects have typically required, especially for important improvements.

“The GIF is part of a larger, renewed push for big infrastructure, which is troubling in part because of the history of human rights and environmental abuses associated with these projects,” Shayda Naficy, director of the International Water Campaign at  Corporate Accountability International, an advocacy group, told IPS.

“But it is also troubling because even where infrastructure is a dire need, as it is in the water sector, the emphasis being placed on the private sector is leading us in pursuit of illusory solutions. At least in the case of water, the private sector is not interested in making these investments in infrastructure.”

Edited by Kitty Stapp

The writer can be reached at cbiron@ips.org

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World Bank Reports Major Global Support for Carbon Pricinghttp://www.ipsnews.net/2014/09/world-bank-unveils-major-global-support-for-carbon-pricing/?utm_source=rss&utm_medium=rss&utm_campaign=world-bank-unveils-major-global-support-for-carbon-pricing http://www.ipsnews.net/2014/09/world-bank-unveils-major-global-support-for-carbon-pricing/#comments Tue, 23 Sep 2014 00:28:18 +0000 Carey L. Biron http://www.ipsnews.net/?p=136817 By Carey L. Biron
WASHINGTON, Sep 23 2014 (IPS)

Seventy-three countries and 22 lower-level governments offered formal support Monday for a global price on carbon dioxide emissions, including China, Russia and the European Union.

Together, these countries account for more than half of all greenhouse gas emissions, according to the World Bank, which unveiled a major new push towards global carbon pricing. Other backers include South Africa, Indonesia, Mexico and the Philippines.“If governments put good policies and carbon pricing in place, investors can help finance the transition to a low carbon economy.” -- Stephanie Pfeifer

The World Bank also announced that more than a thousand corporations and investors have recently signed several high-level statements on the issue, urging policymakers to take substantive steps towards a global price on carbon emissions.

The data comes as more than 100 government leaders are in New York this week for a United Nations-sponsored summit where governments and the private sector are to announce new climate-related commitments. Around that event, a record 310,000-plus demonstrators took to the streets in New York on Sunday, urging action.

“Today we see real momentum,” World Bank Group President Jim Yong Kim said Monday. “Governments representing almost half of the world’s population and 52 percent of global GDP have thrown their weight behind a price on carbon as a necessary, if insufficient, solution to climate change and a step on the path to low carbon growth.”

While there are several ways to impose a financial cost on carbon – including a tax, a trading system and others – proponents say any of these would bring multiple benefits. They would create economic incentives to both reduce emissions and boost the development of renewable energies, while resulting revenues could be used to finance adaptation and mitigation efforts.

Still, carbon prices have also been blamed for raising costs on day-to-day items, including food. Poorly structured carbon taxes could thus impact most immediately on the poor.

The new support builds on a public statement of backing for carbon pricing that the World Bank published in June. At that time, 40 national and more than 20 sub-national carbon taxes or trading schemes had been set up, accounting for a bit more than a fifth of global emissions.

On Monday, Kim also announced a new public- and private-sector grouping, the Carbon Pricing Leadership Coalition, that will begin meeting to “advance carbon pricing solutions” in advance of widely anticipated negotiations next year in Paris. There, the global community is expected to agree on a new framework for responding to climate change.

“Carbon pricing if expanded to this scale and then globally has the potential to bring down emissions in a way that supports clean energy and low-carbon growth while giving businesses the flexibility to innovate and find the most efficient choices,” the World Bank noted in a feature story on the new initiatives Monday. “This is a wake-up moment.”

Investor energy

Of course, government representatives have been meeting to discuss options around combating climate change for decades, and there is near universal agreement today that actions taken thus far have not been commensurate with the threat.

Further, market-based schemes such as carbon pricing would only offer a partial solution. Yet even so, the World Bank’s new list of supporters doesn’t include some of the most important players, including the United States and India.

The current phase in the climate discussion is nonetheless distinctive for the new corporate support for some sort of global action around climate change, particularly for a broad price on carbon. Just in the past few days, a series of major calls to action have been made by multinational companies and some of the world’s largest institutional investors.

“Support for carbon pricing among the investor community is greater than it’s ever been,” Stephanie Pfeifer, chief executive of the Institutional Investors Group on Climate Change (IIGCC), told IPS.

“Climate change puts the investments and savings of million of people at risk. Investors support ambitious action on climate change and a strong carbon price to reduce these risks and to unlock capital for low carbon investments.”

The London-based IIGCC was involved in developing a major statement from global investors on climate change. The most recent version, released last week, included nearly 350 signatories representing some 24 trillion dollars in assets, and called for carbon pricing, greater support for renewable energy and efficiency, and the phasing out of fossil fuel subsidies.

“Investors are willing and able to invest in low carbon energy,” Pfeifer says. “If governments put good policies and carbon pricing in place, investors can help finance the transition to a low carbon economy.”

Environment and economy

The newly stepped-up interest around climate change on the part of corporate executives and investors underscores a strengthening understanding of climate issues as posing threats beyond the environmental. Increasingly, corporations are being forced to explain to their shareholders how climate change and related regulation could impact on their underlying finances – and how prepared they are for that eventuality.

Last week, a widely discussed study found that many of the world’s largest companies, including the oil giant ExxonMobil and financial services firm Goldman Sachs, are already incorporating internal carbon prices into their financial planning and risk management. “[M]ajor corporations not only recognize climate-related regulatory risks and opportunities, but also are proactively planning for them and are outpacing their governments in thinking ahead,” the report found.

Some proponents say this engagement by the private sector could now provide key energy ahead of the Paris climate negotiations next year.

“These are vast and marked changes, and very different from any other time I can remember. The level of interest on the part of the private sector is radically different than it was even five years ago,” Mindy Lubber, the president of Ceres, a U.S. coalition of investors and others focused on sustainability, told IPS.

“It goes without saying that financial and corporate leaders calling for action does change the debate. It moves the discussion from one of the environment versus the economy to one about both.”

Still, some are concerned that the new focus on the private sector’s role in addressing climate change, including at this week’s U.N. summit, is inverting the proper role of government and state regulation.

“We’re increasingly seeing the private sector telling government how companies can be supported on energy and climate issues,” Janet Redman, director of the Climate Policy Program at the Institute for Policy Studies, a Washington think tank, told IPS.

“That’s a perversion, with public sector energy going into supporting the private sector. Instead, the public sector has to set goals and a framework for how we all need to act, both individuals and the private sector.”

Edited by Kitty Stapp

The writer can be reached at cbiron@ips.org

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Environmental Funding Bypasses Indigenous Communitieshttp://www.ipsnews.net/2014/09/environmental-funding-bypasses-indigenous-communities/?utm_source=rss&utm_medium=rss&utm_campaign=environmental-funding-bypasses-indigenous-communities http://www.ipsnews.net/2014/09/environmental-funding-bypasses-indigenous-communities/#comments Sat, 20 Sep 2014 12:37:39 +0000 Amantha Perera http://www.ipsnews.net/?p=136758 Multi-million-dollar environmental conservation efforts are running headlong into the interests of small local communities. Credit: Amantha Perera/IPS

Multi-million-dollar environmental conservation efforts are running headlong into the interests of small local communities. Credit: Amantha Perera/IPS

By Amantha Perera
BALI, Indonesia, Sep 20 2014 (IPS)

When she talks about the forests in her native Kalimantan, the Indonesian part of the island of Borneo, Maridiana Deren’s facial expression changes. The calm, almost shy person is transformed into an emotionally charged woman, her fists clench and she stares wide-eyed at whoever is listening to her.

“The ‘boohmi’ (earth) is our mother, the forest our air, the water our blood,” says the activist, who has been taking on mining and oil industries operating in her native island for over a decade.

Deren, who counts herself among the Dayak people, works as a nurse and has had numerous run-ins with powerful, organised and rich commercial entities. They have sometimes been violent – she was once stabbed and on another occasion rammed by a motorcycle.

After years of taking on wealthy corporations, Deren is now facing a new opponent, one she finds even harder to tackle – her own government.

“They want to [designate] our forests as conservation areas, and take them away from us,” she tells IPS.

“Billions of dollars are spent on climate-friendly projects the world over, but very little of that really trickles down to the level of the communities that are affected,” Terry Odendahl, executive director of the Global Greengrants Fund
She alleges that under the guise of the scheme known as REDD+ (Reducing Emissions from Deforestation and Forest Degradation), which provides financial incentives for developing countries to cut down on carbon emissions, governments are encroaching on indigenous people’s ancestral lands in remote areas like Kalimantan.

The REDD scheme, which came into effect at the close of the United Nations Framework Convention on Climate Change (UNFCCC) negotiations in Bali, Indonesia in 2007, works by calculating the amount of carbon stored in a particular forest area and issuing ‘carbon credits’ for the preservation or sustainable management of these carbon stocks.

The carbon credits can then be sold to polluting companies in the North wishing to offset their harmful emissions. Now, according to indigenous communities worldwide, the programme has become just another way for interested parties to strip small communities of their ancestral lands.

It is not only in Indonesia that large, multi-national and multi-million-dollar environment conservation efforts are running headlong into the interests of local communities. In the Asia-Pacific region, India and the Philippines are witnessing similar conflicts of interest, a pattern that is repeated on a global scale, according to experts and researchers.

In India, activists claim, successive governments have been trying to use the 1980 Forest Conservation Act to take over forests from indigenous communities for decades.

“Now they can use REDD+ as an added reason to take over forests, it is becoming a major issue where communities that have lived off and taken care of forests for generations are deprived of them,” Michael Mazgaonkar, a member of the Indian advisory board at the U.S.-based Global Greengrants Fund, which specialises in small grants to local communities, told IPS.

In the northern Indian state of Manipur, for instance, the Asian Human Rights Commission reports that forest clearing for the purpose of constructing the Mapithel dam on the Thoubal River in the Ukhrul district has, since 2006, ignored the objections of indigenous communities in the region.

Well-oiled global entities undermining grassroots interests under the guise of ‘development’ is a frequent occurrence, according to Mary Ann Manahan, a programme officer with the think-tank Focus on the Global South in the Philippines.

She takes the example of assistance provided by the Asian Development Bank (ADB) in the aftermath of Typhoon Haiyan that devastated the country in late 2013.

“It was a one-billion-dollar loan, that came with all kinds of conditions attached. It stipulated what kind of companies could be [contracted] with the funding” and how the funds could be spent, she said.

“By doing that, the loan limited how local communities could have benefited from the funds by way of employment and other benefits,” Manahan added.

According to Liane Schalatek, associate director at the Heinrich Böll Foundation of North America, which aims to promote democracy, civil rights and environmental sustainability, close to 300 billion dollars are allocated annually to environmental funding worldwide but it is unclear “how this money is spent.”

What is clear is that the bulk of that funding goes to governments and large corporations, while only a small portion of it ever reaches the communities who live in areas that are supposedly being protected or rehabilitated.

“Billions of dollars are spent on climate-friendly projects the world over, but very little of that really trickles down to the level of the communities that are affected,” Terry Odendahl, executive director of the Global Greengrants Fund, told IPS.

She and others advocate for donors to take a much closer look at how funds are allocated, and who reaps the benefits. Others argue that without the input of local communities, ancestral wisdom dating back generations could be lost.

Mazgaonkar pointed to the example of development in the Sundarbans, the single largest mangrove forest in the world, extending from India to Bangladesh in the Bay of Bengal. The region has long been vulnerable to changing climate patterns and the increasing prevalence of natural disasters like cyclones, typhoons and rising sea levels.

“To stop storm tides, a large bilateral funder [recently] built a big wall [on the island of Sagar, located on the western side of the delta], which has created a new set of problems like pollution and fish depletion.”

He said the project went ahead, even though local women advocated growing mangroves as a more viable solution to the problem.

“What is lacking is priorities on how and where we are spending money,” Maxine Burkett, a specialist in climate change policy at the University of Hawaii, told IPS, adding that a clear policy needs to be laid out vis-à-vis development and assistance that impacts indigenous people.

In March, the Rights and Resources Initiative (RRI), a collection of organisations that work on land rights for forest dwellers, found that despite the hype on REDD+ it has not led to the predicted increase in recognition of indigenous lands. In fact, recognition of ancestral lands was five times higher between 2002 and 2008 than it was 2008-2013.

An RRI report analysing the ability of indigenous communities to benefit from carbon trading in 23 lower and middle-income countries (LMICs) found, “[T]he existing legal frameworks are uncertain and opaque with regard to carbon trading in general but especially in terms of indigenous peoples’ and communities’ rights to engage with, and benefit from, the carbon trade.”

The report warned that because of the opaque nature of carbon trading laws, governments could use the 2013 Warsaw Framework on REDD+, adopted at last year’s Conference of the Parties to the United Nations Framework Convention on Climate Change (COP 19) held in the Polish capital, to transfer the rights of indigenous communities to state entities.

New RRI research released last week in the run-up to U.N. Secretary-General’s Climate Summit, said that the 1.64 billion dollars pledged by donors to develop the REDD+ framework and carbon markets could secure the rights of indigenous communities living on 450 million hectares, an area almost half the size of Europe.

In order for that to happen, however, the land rights of indigenous communities have to become a priority among major donors and multilateral institutions.

“Secure land tenure is a prerequisite for the success of climate, poverty reduction and ecosystem conservation initiatives,” according to RRI.

Edited by Kanya D’Almeida

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World Bank Tribunal Weighs Final Arguments in El Salvador Mining Disputehttp://www.ipsnews.net/2014/09/world-bank-tribunal-weighs-final-arguments-in-el-salvador-mining-dispute/?utm_source=rss&utm_medium=rss&utm_campaign=world-bank-tribunal-weighs-final-arguments-in-el-salvador-mining-dispute http://www.ipsnews.net/2014/09/world-bank-tribunal-weighs-final-arguments-in-el-salvador-mining-dispute/#comments Tue, 16 Sep 2014 00:05:17 +0000 Carey L. Biron http://www.ipsnews.net/?p=136639 By Carey L. Biron
WASHINGTON, Sep 16 2014 (IPS)

A multilateral arbitration panel here began final hearings Monday in a contentious and long-running dispute between an international mining company and the government of El Salvador.

An Australian mining company, OceanaGold, is suing the Salvadoran government for refusing to grant it a gold-mining permit that has been pending for much of the past decade. El Salvador, meanwhile, cites national laws and policies aimed at safeguarding human and environmental health, and says the project would threaten the country’s water supply.“This mining process would use some really poisonous substances – cyanide, arsenic – that would destroy the environment. Ultimately, the people suffer the consequences." -- Father Eric Lopez

The country also claims that OceanaGold has failed to comply with basic requirements for any gold-mining permitting. Further, in 2012, El Salvador announced that it would continue a moratorium on all mining projects in the country.

Yet using a controversial provision in a free trade agreement, OceanaGold has been able to sue El Salvador for profits – more than 300 million dollars – that the company says it would have made at the goldmine. The case is being heard before the International Centre for the Settlement of Investment Disputes (ICSID), an obscure tribunal housed in the Washington offices of the World Bank Group.

“The case threatens the sovereignty and self-determination” of El Salvador’s people, Hector Berrios, coordinator of MUFRAS-32, a member of the Salvadoran National Roundtable against Metallic Mining, said Monday in a statement. “The majority of the population has spoken out against this project and [has given its] priority to water.”

The OceanaGold project would involve a leaching process to recover small amounts of gold, using cyanide and, critics say, tremendous amounts of water. Those plans have made local communities anxious: the United Nations has already found that some 90 percent of El Salvador’s surface water is contaminated.

On Monday, a hundred demonstrators rallied in front of the World Bank building, both to show solidarity with El Salvador against OceanaGold and to express their scepticism of the ICSID process more generally. The events coincided with El Salvador’s Independence Day.

“We’re celebrating independence but what we’re really celebrating is dignity and the ability of every person to enjoy a good life, not only a few,” Father Eric Lopez, a Franciscan friar at a Washington-area church that caters to a sizable Salvadoran community, told IPS at the demonstration.

“This mining process would use some really poisonous substances – cyanide, arsenic – that would destroy the environment. Ultimately, the people suffer the consequences: they remain poor, they are sick, women’s pregnancies suffer.”

Provoking unrest?

The case’s jurisdictions are complicated and, for some, underscore the tenuousness of the ICSID’s arbitration process around the Salvador project.

It was another mining company, the Canada-based Pacific Rim, that originally discovered a potentially lucrative minerals deposit along the Lempa River in 2002. The business-friendly Salvadoran government at the time (since voted out of power) reportedly encouraged the company to apply for a permit, though public concern bogged down that process.

Frustrated by this turn of events, Pacific Rim filed a lawsuit against El Salvador under a provision of the Dominican Republic-Central American Free Trade Agreement (DR-CAFTA) that allowed companies to sue governments for impinging on their profits. While Canada, Pacific Rim’s home country, is not a member of DR-CAFTA, in 2009 the company created a subsidiary in the United States, which is.

In 2012, ICSID ruled that the lawsuit could continue, pointing to a provision in El Salvador’s investment law. The country’s laws have since been altered to prevent companies from circumventing the national judicial system in favour of extra-national arbiters like ICSID.

Last year, OceanaGold purchased Pacific Rim, despite the latter’s primary asset being the El Salvador gold-mining project, which has never been allowed to go forward. Although OceanaGold did not respond to a request for comment for this story, last year the company noted that it would continue with the arbitration case while also seeking “a negotiated resolution to the … permitting impasse”.

For its part, the Salvadoran government says it has halted the permitting process not only over environmental and health concerns but also over procedural matters. While these include Pacific Rim’s failure to abide by certain reporting requirements, the company also appears not to have gained important local approvals.

Under Salvadoran law, an extractive company needs to gain titles, or local permission, for any lands it wants to develop. Yet Pacific Rim had such access to just 13 percent of the lands covered by its proposal, according to Oxfam America, a humanitarian and advocacy group.

Given this lack of community support in a country with recent history of civil unrest, some warn that an ICSID decision in OceanaGold’s favour could result in violence.

“This mining project was re-opening a lot of the wounds that existed during the civil war, and telling a country that they have to provoke a civil conflict in order to satisfy investors is very troublesome,” Luke Danielson, a researcher and academic who studies social conflict around natural resource development, told IPS.

“The tribunal system exists to allow two interests to express themselves – the national government and the investor. But neither of these speak for communities, and that’s a fundamental problem.”

Wary of litigation

Bilateral and regional investment treaties such as DR-CAFTA have seen massive expansion in recent years. And increasingly, many of these include so-called “investor-state” resolution clauses of the type being used in the El Salvador case.

Currently some 2,700 agreements internationally have such clauses, ICSID reports. Meanwhile, although the tribunal has existed since the 1960s, its relevance has increased dramatically in recent years, mirroring the rise in investor-state clauses.

ISCID itself doesn’t decide on how to resolve such disputes. Rather, it offers a framework under which cases are heard by three external arbiters – one appointed by the investor, one by the state and one by both parties.

Yet outside of the World Bank headquarters on Monday, protesters expressed deep scepticism about the highly opaque ISCID process. Several said that past experience has suggested the tribunal is deeply skewed in favour of investors.

“This is a completely closed-door process, and this has meant that the tribunal can basically do whatever it wants,” Carla Garcia Zendejas director of the People, Land & Resources program at the Center for International Environmental Law, a watchdog group here, told IPS.

“Thus far, we have no examples of cases in which this body responded in favour of communities or reacted to basic human rights violations or basic environmental and social impact.”

Zendejas says the rise in investor-state lawsuits in recent years has resulted in many governments, particularly in developing countries, choosing to acquiesce in the face of corporate demand. Litigation is not only cumbersome but extremely expensive.

“Governments are increasingly wary of being sued, and therefore are more willing to accept and change polices or to ignore their own policies, even if there’s community opposition,” she says.

“Certain projects have seen resistance, but political pressure often depends on who’s in power. Unfortunately, the incorrect view that the only way for development to take place is through foreign investment is still very engrained in many of the powers that be.”

While there is no public timeframe for ISCID resolution on the El Salvador case, a decision is expected by the end of the year.

Edited by Kitty Stapp

The writer can be reached at cbiron@ips.org

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OPINION: Africans’ Land Rights at Risk as New Agricultural Trend Sweeps Continenthttp://www.ipsnews.net/2014/09/opinion-africans-land-rights-at-risk-as-new-agricultural-trend-sweeps-continent/?utm_source=rss&utm_medium=rss&utm_campaign=opinion-africans-land-rights-at-risk-as-new-agricultural-trend-sweeps-continent http://www.ipsnews.net/2014/09/opinion-africans-land-rights-at-risk-as-new-agricultural-trend-sweeps-continent/#comments Mon, 01 Sep 2014 10:55:28 +0000 Janah Ncube http://www.ipsnews.net/?p=136444 An irrigated field in Kakamas, South Africa. Due to weak land tenure found in many African countries, large land transfers place local communities at significant risk of dispossession or expropriation. Credit: Patrick Burnett/IPS

An irrigated field in Kakamas, South Africa. Due to weak land tenure found in many African countries, large land transfers place local communities at significant risk of dispossession or expropriation. Credit: Patrick Burnett/IPS

By Janah Ncube
NAIROBI, Sep 1 2014 (IPS)

Agriculture in Africa is in urgent need of investment. Nearly 550 million people there are dependent on agriculture for their livelihoods, while half of the total population on the continent live in rural areas.

The adoption of a framework called the Comprehensive African Agriculture Development Program (CAADP) by Africa’s leaders in 2003 confirmed that agriculture is crucial to the continent’s development prospects. African governments recently reiterated this commitment at the Malabo Summit in Guinea during June of this year.The need for private sector investment in Africa is manifest, but the quality of those inflows of capital is vital if it is to enhance the livelihoods of millions of food producers in Africa.

After decades of underinvestment, African governments are now looking for new ways to mobilise funding for the sector and to deliver new technology and skills to farmers. Private sector actors are also looking for opportunities within emerging markets in Africa.

Large-scale public-private partnerships (PPPs) are an emerging trend across the continent. These so called ‘mega’ PPPs are agreements between national governments, aid donors, investors and multinational companies to develop large fertile tracts of land found near to strategic infrastructure such as roads and ports.

Tanzania, Malawi, Mozambique, Ghana and Burkina Faso all host this type of scheme. Several African countries have signed up to global initiatives such as the New Alliance for Food Security and Nutrition, supported by the rich, industrialised economies of the G8; and GROW Africa, a PPP initiative supported by the World Economic Forum.

For governments, these arrangements offer the illusion of increased capital and technology, production and productivity gains, and foreign exchange earnings.

But as Oxfam reveals, mega-PPPs present a moral hazard with serious downsides, especially for those living in areas pegged for investment.

In particular, the land rights of local communities are at risk. Within just five countries hosting mega-PPPs, the combined amount of land in target area for investment is larger than France or Ukraine.

While not all of this land will go to investors, governments have earmarked over 1.25 million hectares for transfer. This is equal to the entire amount of land in agricultural production in Zambia or Senegal.

Due to weak land tenure found in many African countries, this land transfer places local communities at significant risk of dispossession or expropriation.

These arrangements also threaten to worsen inequality, which is already severe in African countries, according to international measurements. Mega-PPP investments are likely be delivered by – and focus on – richer, well connected companies or wealthier farmers, bypassing those who need support the most. More land will also be placed into the hands of larger players further reducing the amount available for small-scale producers.

The ability of small and medium sized enterprises to benefit from these arrangements is also in doubt. The size of just four multinational seed and agro-chemical companies partnering with a mega-PPP in Tanzania have an annual turnover of 100 billion dollars – that’s triple the size of Tanzania’s economy.

These asymmetries of power could lead to anti-competitive behaviour and squeeze out smaller local and national companies from emerging domestic markets. Larger companies may also gain influence over government policies that perpetuate their control.

These types of partnership also carry serious environmental risks. An example of this is the development of large irrigation schemes for new plantations. They can reduce water availability for other users, such as local communities, smaller farmers and important other rural groups like pastoralists.

The need for private sector investment in Africa is manifest, but the quality of those inflows of capital is vital if it is to enhance the livelihoods of millions of food producers in Africa. The current mega-PPP model is unproven and risky, especially for smallholder farmers and the poor.

At the very heart of the agenda to enhance rural livelihoods and eradicate deep-seated poverty in rural areas should be a clear commitment towards approaches that are pro-smallholder, pro-women and can develop local and regional markets. The protection of land rights for local communities is also – and equally – paramount.

Oxfam’s experience of working with smallholder farmers shows that private sector investment in staple food crops, and the development of rural infrastructure such as storage facilities, combined with public sector investment in support services such as agricultural research and development, extension services and subsidies for seeds and credit, can kick-start the rural economy.

Robust regulation is also vital, to ensure that private sector investment can ‘do no harm’ and also ‘do more good’ by targeting the areas of the rural economy that can have the most impact on poverty reduction. African governments should put themselves at the forefront of this vision for agriculture.

These represent tried and tested policies towards rural development in other contexts. This approach, rather than one that subsidises the entrance of large players into African agriculture, would truly represent a new alliance to benefit all.

Edited by Kitty Stapp

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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World Bank Urged to Rethink Reforms to Business-Friendliness Reporthttp://www.ipsnews.net/2014/08/world-bank-urged-to-rethink-reforms-to-business-friendliness-report/?utm_source=rss&utm_medium=rss&utm_campaign=world-bank-urged-to-rethink-reforms-to-business-friendliness-report http://www.ipsnews.net/2014/08/world-bank-urged-to-rethink-reforms-to-business-friendliness-report/#comments Tue, 26 Aug 2014 21:20:33 +0000 Carey L. Biron http://www.ipsnews.net/?p=136361 Workers arrive early in the morning at the One World Apparel factory in Port-au-Prince to assemble garments for export from Haiti. Credit: Ansel Herz/IPS

Workers arrive early in the morning at the One World Apparel factory in Port-au-Prince to assemble garments for export from Haiti. Credit: Ansel Herz/IPS

By Carey L. Biron
WASHINGTON, Aug 26 2014 (IPS)

Civil society groups from several continents are stepping up a campaign urging the World Bank to strengthen a series of changes currently being made to a major annual report on countries’ business-friendliness.

The World Bank is in the final stages of a years-long update to its Doing Business report, one of the Washington-based development institution’s most influential analyses yet one that has also become increasingly controversial. Critics now say the first round of changes, slated to go into effect in October, don’t go far enough."It’s a public relations exercise but with reasonably solid metrics behind it, and it’s the joining of these two things that makes Doing Business valuable in the policy world.” -- Scott Morris of the Center for Global Development

On Monday, a coalition of 18 development groups, watchdog organisations and trade unions called on the World Bank Group to take “urgent action” to implement “significant changes” to the Doing Business reforms. In particular, they are asking the bank to adhere more closely to detailed recommendations made last year by a bank-commissioned external review panel chaired by Trevor Manuel, a former planning and finance minister for South Africa.

“It looks like the flaws found by the Independent Panel chaired by Trevor Manuel will be ignored and its recommendations are nowhere close to being implemented,” Aldo Caliari, director of the Rethinking Bretton Woods Project at the Center of Concern, a Catholic think tank here, told IPS. “This is in spite of a wide chorus of civil society organisations and shareholders that supported them.”

While the World Bank’s mission is to fight global poverty, Caliari and others dispute whether the Doing Business report’s metrics are pertinent to poor communities. Others say they can be outright detrimental.

Both civil society investigations and the Manuel commission have suggested “how little relevance the areas and indicators have to the reforms that matter to small and medium companies in developing countries,” Caliari says. “They seem far more oriented to support operations of large transnationals in those countries.”

Such concerns stem from the outsized influence that the Doing Business report has built up, particularly in the developing world, since it was introduced in 2003. Reportedly, the report is used by some 85 percent of global policymakers.

The core of the report remains a simple aggregated ranking of countries, known as the Ease of Doing Business index. While based on a complex series of business-friendliness metrics, the high profile of the index results has inevitably led governments to compete among one another to raise their country’s ranking and, hopefully, strengthen foreign investment.

Yet a direct effect of this competition, critics say, is governments being pushed to adhere to a uniform set of policy recommendations. These include lowering taxes and wages and weakening overall industry regulation, thus potentially endangering the poor.

“[T]he report’s role is to inform policy, not to outline a normative position, which the rankings do,” the 18 groups wrote to World Bank Group President Jim Kim at the end of July. “Doing Business needs to become better aligned with moves towards greater country-owned and led development and an appreciation of the importance of a country’s circumstances, stage of development and political choices.”

In its report last June, the Manuel commission likewise urged the bank to drop the ranking system entirely, noting that this constituted “the most important decision the Bank faces with regard to the Doing Business report.”

Maintained but reformed

In response, the bank is reforming the methodology behind its ranking calculations. In part, this includes broadening its analysis to use data from two cities in most countries, rather than just one.

More broadly, the new calculations will constitute an effort simultaneously to continue to offer a relative score for each country but also to decrease the importance of the specific ranking.

“This approach will provide users with additional information by showing the relative distances between economies in the ranking tables,” an announcement on the changes stated in April. (The bank was unable to provide additional comment by this story’s deadline.)

“By highlighting where economies’ scores are close, the new approach will reduce the importance of difference in rankings,” the announcement continues. “And by revealing where distances between scores are relatively greater, it will give credit to governments that are reforming but not yet seeing changes in rankings.”

Some development scholars have pushed against the Manuel commission’s recommendations on the index, defending the need for the bank to maintain its aggregate rankings in some form.

“The Doing Business report isn’t a research exercise – it’s a policymaking tool. Because of the rankings it has a unique value, particularly for those countries that have a long way to go on economic reform,” Scott Morris, a senior associate at the Center for Global Development, a think tank here, told IPS after the Manuel commission’s report was published.

“Internally, it gives government officials something simple and targeted to latch onto, much more than a 500-page report would do. It’s a public relations exercise but with reasonably solid metrics behind it, and it’s the joining of these two things that makes Doing Business valuable in the policy world.”

Decent jobs created?

Yet others warn that the rankings themselves continue to be problematic, even in their new form.

The reforms are “not satisfactory, as the rankings will continue to influence the policy agenda of many developing countries despite their methodological flaws,” Tiago Stichelmans, a policy and networking analyst at the European Network on Debt and Development, told IPS in an e-mail.

“The problem of the rankings is the fact that they are based on regulatory measures in a single city (which is due to become two cities) for every country and are therefore irrelevant to many communities. The rankings also have a bias in favour of deregulatory measures that have limited impact on development.”

Of course, many would support the idea of tracking country-by-country policies aimed at encouraging industry to help bolster development metrics. But Stichelmans says this would require major changes, including a move away from the report’s current focus on reforms to the business environment.

“A shift from promoting low tax rates and labour deregulation to taxes paid, decent jobs created and [small and medium enterprises] supported would be a step in the right direction,” he says.

Ideas from NGOs have included indicators on corruption and human rights due diligence, Stichelmans continues, “but this must be accompanied by a drastic overhaul.”

For now, some of the newly announced changes are expected to be incorporated into the Doing Business report for 2015, slated to be released in late October. Other reforms, including some yet to be announced, will be introduced in future reports.

Edited by: Kitty Stapp

The writer can be reached at cbiron@ips.org

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Cry for Argentina: Fiscal Mismanagement, Odious Debt or Pillage?http://www.ipsnews.net/2014/08/cry-for-argentina-fiscal-mismanagement-odious-debt-or-pillage/?utm_source=rss&utm_medium=rss&utm_campaign=cry-for-argentina-fiscal-mismanagement-odious-debt-or-pillage http://www.ipsnews.net/2014/08/cry-for-argentina-fiscal-mismanagement-odious-debt-or-pillage/#comments Thu, 14 Aug 2014 20:01:34 +0000 Ellen Brown http://www.ipsnews.net/?p=136137 By Ellen Brown
SONOMA, California, Aug 14 2014 (IPS)

Argentina has now taken the U.S. to The Hague for blocking the country’s 2005 settlement with the bulk of its creditors. The issue underscores the need for an international mechanism for nations to go bankrupt.

Better yet would be a sustainable global monetary scheme that avoids the need for sovereign bankruptcy.Better than redesigning the sovereign bankruptcy mechanism might be to redesign the global monetary scheme in a way that avoids the continual need for a bankruptcy mechanism.

Argentina was the richest country in Latin America before decades of neoliberal and IMF-imposed economic policies drowned it in debt. A severe crisis in 2001 plunged it into the largest sovereign debt default in history.

In 2005, it renegotiated its debt with most of its creditors at a 70 percent “haircut.” But the opportunist “vulture funds,” which had bought Argentine debt at distressed prices, held out for 100 cents on the dollar.

Paul Singer’s Elliott Management has spent over a decade aggressively trying to force Argentina to pay down nearly 1.3 billion dollars in sovereign debt. Elliott would get about 300 million dollars for bonds that Argentina claims it picked up for 48 million. Where most creditors have accepted payment at a 70 percent loss, Elliott Management would thus get a 600 percent return.

In June 2014, the U.S. Supreme Court declined to hear an appeal of a New York court’s order blocking payment to the other creditors until the vulture funds had been paid. That action propelled Argentina into default for the second time in this century – and the eighth time since 1827.

On Aug. 7, Argentina asked the International Court of Justice in the Hague to take action against the United States over the dispute.

Who is at fault? The global financial press blames Argentina’s own fiscal mismanagement, but Argentina maintains that it is willing and able to pay its other creditors. The fault lies rather with the vulture funds and the U.S. court system, which insist on an extortionate payout even if it means jeopardising the international resolution mechanism for insolvent countries.

If creditors know that a few holdout vultures can trigger a default, they are unlikely to settle with other insolvent nations in the future.

Blame has also been laid at the feet of the IMF and the international banking system for failing to come up with a fair resolution mechanism for countries that go bankrupt. And at a more fundamental level, blame lies with a global debt-based monetary scheme that forces bankruptcy on some nations as a mathematical necessity. As in a game of musical chairs, some players must default.

Most money today comes into circulation in the form of bank credit or debt. Debt at interest always grows faster than the money supply, since more is always owed back than was created in the original loan. There is never enough money to go around without adding to the debt burden.

As economist Michael Hudson points out, the debt overhang grows exponentially until it becomes impossible to repay. The country is then forced to default.

Fiscal mismanagement or odious debt?

Besides impossibility of performance, there is another defense Argentina could raise in international court – that of “odious debt.” Also known as illegitimate debt, this legal theory holds that national debt incurred by a regime for purposes that do not serve the best interests of the nation should not be enforceable.

The defence has been used successfully by a number of countries, including Ecuador in December 2008, when President Rafael Correa declared that its debt had been contracted by corrupt and despotic prior regimes. The odious-debt defence allowed Ecuador to reduce the sum owed by 70 percent.

In a compelling article in Global Research in November 2006, Adrian Salbuchi made a similar case for Argentina. He traced the country’s problems back to 1976, when its foreign debt was just under six billion dollars and represented only a small portion of the country’s GDP. In that year:

An illegal and de facto military-civilian regime ousted the constitutionally elected government of president María Isabel Martínez de Perón [and] named as economy minister, José Martinez de Hoz, who had close ties with, and the respect of, powerful international private banking interests.

With the Junta’s full backing, he systematically implemented a series of highly destructive, speculative, illegitimate – even illegal – economic and financial policies and legislation, which increased Public Debt almost eightfold to 46 billion dollars in a few short years.

This intimately tied-in to the interests of major international banking and oil circles which, at that time, needed to urgently re-cycle huge volumes of “Petrodollars” generated by the 1973 and 1979 Oil Crises.

Those capital in-flows were not invested in industrial production or infrastructure, but rather were used to fuel speculation in local financial markets by local and international banks and traders who were able to take advantage of very high local interest rates in Argentine Pesos tied to stable and unrealistic medium-term U.S. dollar exchange rates.

Salbuchi detailed Argentina’s fall from there into what became a 200 billion dollars debt trap. Large tranches of this debt, he maintained, were “odious debt” and should not have to be paid:

“Making the Argentine State – i.e., the people of Argentina – weather the full brunt of this storm is tantamount to financial genocide and terrorism. . . . The people of Argentina are presently undergoing severe hardship with over 50% of the population submerged in poverty . . . . Basic universal law gives the Argentine people the right to legitimately defend their interests against the various multinational and supranational players which, abusing the huge power that they wield, directly and/or indirectly imposed complex actions and strategies leading to the Public Debt problem.”

Of President Nestor Kirchner’s surprise 2006 payment of the full 10 billion dollars owed to the IMF, Salbuchi wrote cynically:

“This key institution was instrumental in promoting and auditing the macroeconomic policies of the Argentine Government for decades. . . . Many analysts consider that . . . the IMF was to Argentina what Arthur Andersen was to Enron, the difference being that Andersen was dissolved and closed down, whilst the IMF continues preaching its misconceived doctrines and exerts leverage. . . . [T]he IMF’s primary purpose is to exert political pressure on indebted governments, acting as a veritable coercing agency on behalf of major international banks.”

Sovereign bankruptcy and the “Global Economic Reset”

Needless to say, the IMF was not closed down. Rather, it has gone on to become the international regulator of sovereign debt, which has reached crisis levels globally. Total debt, public and private, has grown by over 40 percent since 2007, to 100 trillion dollars. The U.S. national debt alone has grown from 10 trillion dollars in 2008 to over 17.6 trillion today.

At the World Economic Forum in Davos in January 2014, IMF Managing Director Christine Lagarde spoke of the need for a global economic “reset.”

National debts have to be “reset” or “readjusted” periodically so that creditors can keep collecting on their exponentially growing interest claims, in a global financial scheme based on credit created privately by banks and lent at interest. More interest-bearing debt must continually be incurred, until debt overwhelms the system and it again needs to be reset to keep the usury game going.

Sovereign debt (or national) in particular needs periodic “resets,” because unlike for individuals and corporations, there is no legal mechanism for countries to go bankrupt. Individuals and corporations have assets that can be liquidated by a bankruptcy court and distributed equitably to creditors.

But countries cannot be liquidated and sold off – except by IMF-style “structural readjustment,” which can force the sale of national assets at fire sale prices.

A Sovereign Debt Restructuring Mechanism ( SDRM) was proposed by the IMF in the early 2000s, but it was quickly killed by Wall Street and the U.S. Treasury. The IMF is working on a new version of the SDRM, but critics say it could be more destabilising than the earlier version.

Meanwhile, the IMF has backed collective action clauses (CACs) designed to allow a country to negotiate with most of its creditors in a way that generally brings all of them into the net. But CACs can be challenged, and that is what happened in the case of the latest Argentine bankruptcy. According to Harvard Professor Jeffrey Frankel:

“[T]he U.S. court rulings’ indulgence of a parochial instinct to enforce written contracts will undermine the possibility of negotiated restructuring in future debt crises.”

We are back, he says, to square one.

Better than redesigning the sovereign bankruptcy mechanism might be to redesign the global monetary scheme in a way that avoids the continual need for a bankruptcy mechanism. A government does not need to borrow its money supply from private banks that create it as credit on their books.

A sovereign government can issue its own currency, debt-free. But that interesting topic must wait for a follow-up article. Stay tuned.

Ellen Brown can be found on her Web of Debt Blog.

Edited by: Kitty Stapp

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IFC Warned of Systemic Safeguards Failures in Hondurashttp://www.ipsnews.net/2014/08/ifc-warned-of-systemic-safeguards-failures-in-honduras/?utm_source=rss&utm_medium=rss&utm_campaign=ifc-warned-of-systemic-safeguards-failures-in-honduras http://www.ipsnews.net/2014/08/ifc-warned-of-systemic-safeguards-failures-in-honduras/#comments Wed, 13 Aug 2014 00:34:01 +0000 Carey L. Biron http://www.ipsnews.net/?p=136085 By Carey L. Biron
WASHINGTON, Aug 13 2014 (IPS)

For the second time this year, an internal auditor has criticised the World Bank’s private sector investment agency over dealings in Honduras, and is warning that similar problems are likely being experienced elsewhere.

The investigation found that the bank’s private sector investment agency, the International Finance Corporation (IFC), took on a significant stake in a Honduran bank but undertook “insufficient measures” to assess that institution’s own investments. These included at least one company involved in a deadly land dispute.“The philosophy of the World Bank is to ‘end poverty’, but what has happened in this process has been the opposite.” -- La Plataforma Agraria de Honduras

The auditor, known as the Compliance Advisor/Ombudsman (CAO), also levels a broader critique of the IFC’s investments in third-party groups such as the Honduran bank. When dealing with these “financial intermediaries”, the CAO warns, financial considerations appear to be receiving far more attention from officials than the environmental and social policies meant to safeguard local communities.

“IFC acquired an equity stake in a commercial bank with significant exposure to high risk sectors and clients, but which lacked capacity to implement IFC’s environmental and social requirements,” the CAO states in a report released Monday.

“The absence of an environmental and social review process that was commensurate to risk meant that key decision makers … were not presented with an adequate assessment of the risks that were attached to this investment.”

The report focuses on a 2011 IFC investment, worth 70 million dollars, in Banco Ficohsa, Honduras’s third-largest bank. CAO found that important information was withheld between IFC offices over the extent of business between Banco Ficohsa and Corporacion Dinant, an agribusiness company that for years has been accused of waging a violent campaign to expand its palm oil plantations in the country’s Aguan Valley.

In January, CAO issued critical findings on a separate IFC investment in Dinant, from 2009, worth 30 million dollars. Dinant is owned by Miguel Facusse Barjum, one of the wealthiest businessmen in the country and reportedly a backer of the 2009 military coup that ousted a pro-reform president.

Over the past half-decade, more than 100 people have reportedly been killed in the Aguan Valley in clashes between Dinant security personnel and local cooperatives.

IFC has put on hold the Dinant deal and enacted a plan aimed at ameliorating the situation. The new report does not find evidence that the Banco Ficohsa deal was aimed at funnelling additional funds to Dinant, but CAO researchers suggest that the effect was the same.

“[W]aiving a key financial covenant and then taking an equity position in Ficohsa … facilitated a significant ongoing flow of capital to Dinant, outside the framework of its environmental and social standards,” the report states.

Local civil society groups say the effect has been devastating.

“The philosophy of the World Bank is to ‘end poverty’, but what has happened in this process has been the opposite,” La Plataforma Agraria de Honduras, a Honduran network, told IPS in Spanish.

“Instead, we’ve seen greater wealth for corporations and transnational landowners and greater poverty for the poor, who have been driven from their lands. And although the previous CAO report was very critical, the World Bank has continued to finance Dinant through Ficohsa.”

Beneath the intermediaries

In a formal response also released Monday, the IFC does not dispute the CAO findings. But it does suggest that they are no longer relevant, following changes put in place in part in response to the January CAO report on Dinant.

New procedures, for instance, will now allow for additional oversight visits to “medium risk clients”. Multiple new processes will also aim to close information gaps of the type that led to the Ficohsa revelations, including the creation of a new vice-president-level position to focus on “risk and sustainability”.

“Under this new structure, [environmental and social] risk will receive the same weight and attention as financial and reputation risk,” two IFC vice-presidents wrote in a letter to CAO.

Yet the remarkably critical CAO report has already added momentum to an ongoing campaign to convince the World Bank Group to reform the IFC’s dealings with financial intermediaries such as Banco Ficohsa. Such deals have become increasingly important to the IFC’s portfolio over the past decade, but they have traditionally offered far less oversight for the agency.

In such projects, the IFC requires the intermediary to set up a system aimed at ensuring that stringent environmental and social safeguards are met. But analysis of the effects of this system on the ground is left to the intermediary.

“This issue has been questioned in many cases – where a financial intermediary is the one doing the disbursements and the IFC is completely separate and doesn’t know what’s going on,” Carla Garcia Zendejas, a programme director at the Center for International Environmental Law (CIEL), a Washington-based watchdog group, told IPS.

“That’s the case here. Even if you have a system in place to assess these risks, if you’re not doing that properly the whole system is worthless.”

Systemic reassessment

The CAO has repeatedly questioned the IFC’s policies on investments in financial intermediaries (a broad investigation can be found here). This time, the investigators are clear that the Honduras situation is likely not an isolated incident.

“[T]he shortcomings identified in this investigation … are indicative of a system of support to [financial intermediaries] which does not support IFC’s higher level environmental and social commitments,” CAO states.

“CAO’s findings raise concerns that IFC has, through its banking investments, an unanalyzed and unquantified exposure to projects with potential significant adverse environmental and social impacts.”

The auditor warns that, under current disclosure mechanisms, “this exposure is also effectively secret”, and calls for a “reassessment” of the agency’s management of social and environmental risk in its dealings with financial institutions.

Rights advocates note that similar concerns are cropping up in IFC investments in financial intermediaries elsewhere.

“One of this report’s main findings is that there is a breakdown in the IFC’s systems approach to [financial intermediaries], especially in risk categorization,” Jelson Garcia, of the Bank Information Center (BIC), a watchdog group here, told IPS in an e-mailed statement. “This … links to recent cases in Myanmar and India as yet another example of the IFC needing to take stringent and urgent reforms of its financial markets lending approach.”

Advocacy groups say a primary concern is the IFC’s institutional culture, which they say prioritises the volume of loans disbursed over their quality. BIC, CIEL and others are now calling on World Bank Group President Jim Yong Kim to order the preparation of a reform plan in time for the next big World Bank Group meetings, in October.

Edited by: Kitty Stapp

The writer can be reached at cbiron@ips.org

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What Do the World Bank and IMF Have to Do With the Ukraine Conflict?http://www.ipsnews.net/2014/08/what-do-the-world-bank-and-imf-have-to-do-with-the-ukraine-conflict/?utm_source=rss&utm_medium=rss&utm_campaign=what-do-the-world-bank-and-imf-have-to-do-with-the-ukraine-conflict http://www.ipsnews.net/2014/08/what-do-the-world-bank-and-imf-have-to-do-with-the-ukraine-conflict/#comments Tue, 12 Aug 2014 13:26:25 +0000 Frederic Mousseau http://www.ipsnews.net/?p=136051 Typical agricultural landscape of Ukraine, Kherson Oblast. Credit: Dobrych (Flickr)/CC-BY-SA-2.0, via Wikimedia Commons

Typical agricultural landscape of Ukraine, Kherson Oblast. Credit: Dobrych (Flickr)/CC-BY-SA-2.0, via Wikimedia Commons

By Frederic Mousseau
OAKLAND, United States, Aug 12 2014 (IPS)

Mostly unreported as the Ukraine conflict captures headlines, international financing has played a significant role in the current conflict in Ukraine.

In late 2013, conflict between pro-European Union (EU) and pro-Russian Ukrainians escalated to violent levels, leading to the departure of President Viktor Yanukovych in February 2014 and prompting the greatest East-West confrontation since the Cold War.

Frédéric Mousseau

Frédéric Mousseau

A major factor in the crisis that led to deadly protests and eventually Yanukovych’s removal from office was his rejection of an EU association agreement that would have further opened trade and integrated Ukraine with the European Union. The agreement was tied to a 17 billion dollars loan from the International Monetary Fund (IMF). Instead, Yanukovych chose a Russian aid package worth 15 billion dollars plus a 33 percent discount on Russian natural gas.

The relationship with international financial institutions changed swiftly under the pro-EU government put in place at the end of February 2014 which went for the multi-million dollar IMF package in May 2014.

Announcing a 3.5 billion dollars aid programme on May 22, World Bank president Jim Yong Kim lauded the Ukrainian authorities for developing a comprehensive programme of reforms, and their commitment to carry it out with support from the World Bank Group. He failed to mention the neo-liberal conditions imposed by the Bank to lend money, including that the government limit its own power by removing restrictions that hinder competition and limiting the role of state control in economic activities. “The stakes around Ukraine's vast agricultural sector, the world’s third largest exporter of corn and fifth largest exporter of wheat, constitute a critical factor that has been overlooked. With ample fields of fertile black soil that allow for high production volumes of grains, Ukraine is the breadbasket of Europe”

The rush to provide new aid packages to the country with the new government aligned with the neo-liberal agenda was a reward from both institutions.

The East-West competition over Ukraine, however, is about the control of natural resources, including uranium and other minerals, as well as geopolitical issues such as Ukraine’s membership in the North Atlantic Treaty Organization (NATO).

The stakes around Ukraine’s vast agricultural sector, the world’s third largest exporter of corn and fifth largest exporter of wheat, constitute a critical factor that has been overlooked. With ample fields of fertile black soil that allow for high production volumes of grains, Ukraine is the breadbasket of Europe.

In the last decade, the agricultural sector has been characterised by a growing concentration of production within very large agricultural holdings that use large-scale intensive farming systems. Not surprisingly, the presence of foreign corporations in the agricultural sector and the size of agro-holdings are both growing quickly, with more than 1.6 million hectares signed over to foreign companies for agricultural purposes in recent years.

Now the goal is to set policies that will benefit Western corporations. Whereas Ukraine does not allow the use of genetically modified organisms (GMOs) in agriculture, Article 404 of the EU agreement, which relates to agriculture, includes a clause that has generally gone unnoticed: both parties will cooperate to extend the use of biotechnologies.

Given the struggle for resources in Ukraine and the influx of foreign investors in the agriculture sector, an important question is whether the results of the programme will benefit Ukraine and its farmers by securing their property rights or pave the way for corporations to more easily access property and land.

By encouraging reforms such as the deregulation of seed and fertiliser markets, the country’s agricultural sector is being forced open to foreign corporations such as Dupont and Monsanto.

The Bank’s activities and its loan and reform programmes in Ukraine seem to be working toward the expansion of large industrial holdings in Ukrainian agriculture owned by foreign entities.

Amid the current turmoil, the World Bank and the IMF are now pushing for more reforms to improve the business climate and increase private investment. In March 2014, the former prime minister ad interim, Arsenij Yatsenyuk, welcomed strict and painful structural reforms as part of the 17 billion dollars IMF loan package, dismissing the need to negotiate any terms.

The IMF austerity reforms will affect monetary and exchange rate policies, the financial sector, fiscal policies, the energy sector, governance, and the business climate.

The loan is also a precondition for the release of further financial support from the European Union and the United States. If fully adopted, the reforms may lead to significant price increases of essential consumer goods, a 47 to 66 percent increase in personal income tax rates, and a 50 percent increase in gas bills. These measures, it is feared, will have a devastating social impact, resulting in a collapse of the standard of living and dramatic increases in poverty.

Although Ukraine started implementing pro-business reforms under president Yanukovych through the Ukraine Investment Climate Advisory Services Project and by streamlining trade and property transfer procedures, his ambition to mould the country to the World Bank and IMFs standards was not reflected in other realms of policy and his allegiance to Russia eventually led to his removal from office.

Following the installation of a pro-West government, there has been an acceleration of structural adjustment led by the international institutions along with an increase in foreign investment, aimed at further expansion of large-scale acquisitions of agricultural land by foreign companies and further corporatisation of agriculture in the country.

The experience of structural adjustment programmes around the developing world foretells that it will increase foreign control of the Ukrainian economy as well as increase poverty and inequality. As Western powers get ready to impose sanctions on Russia for its transgressions in Ukraine, it remains unclear how programmes and conditionalities imposed by the World Bank will improve the lives of Ukrainians and build a sustainable economic future.

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World Bank Board Declines to Revise Controversial Draft Policieshttp://www.ipsnews.net/2014/07/world-bank-board-declines-to-revise-controversial-draft-policies/?utm_source=rss&utm_medium=rss&utm_campaign=world-bank-board-declines-to-revise-controversial-draft-policies http://www.ipsnews.net/2014/07/world-bank-board-declines-to-revise-controversial-draft-policies/#comments Thu, 31 Jul 2014 01:11:09 +0000 Jim Lobe http://www.ipsnews.net/?p=135842 By Jim Lobe
WASHINGTON, Jul 31 2014 (IPS)

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Editing by: Kitty Stapp

The writer can be reached at ipsnoram@ips.org

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

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

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

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

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

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

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

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

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

A quiet land-grab

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Editing by: Kitty Stapp

The writer can be contacted at kanyaldalmeida@gmail.com

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

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

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

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

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

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

Shyam Saran

Shyam Saran

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

By Chakravarthi Raghavan
GENEVA, Jul 22 2014 (IPS)

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

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

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

Chakravarthi Raghavan

Chakravarthi Raghavan

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

 

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

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

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

By Diana Cariboni
MONTEVIDEO, Jul 18 2014 (IPS)

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

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

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

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

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

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

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

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

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

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

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

Transparency clause

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Social inclusion - a voice from India

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

By Yilmaz Akyuz
GENEVA, Jul 16 2014 (IPS)

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

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

Yilmaz Akyuz

Yilmaz Akyuz

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

 

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

By Roberto Savio
ROME, Jul 11 2014 (IPS)

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

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

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

Roberto Savio. Credit: IPS

Roberto Savio. Credit: IPS

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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