ECONOMY: IMF to the Rescue of Global Trade

By Emad Mekay Reprint | | Print |

Emad Mekay

WASHINGTON, Apr 14 2004 (IPS) - The International Monetary Fund is trying to coax developing countries, wary of western-dictated "free trade", to shelve protection of their own industries and embrace global trade liberalisation.

The International Monetary Fund is trying to coax developing countries, wary of western-dictated "free trade", to shelve protection of their own industries and embrace global trade liberalisation.

The IMF unveiled a programme Tuesday, the Trade Integration Mechanism (TIM), which would give developing countries that agree to further reduce tariffs and other protectionist measures within multilateral trade agreements access to loans and other funding..

The announcement follows a meeting last May between the IMF, World Bank and global trade agenda-setting World Trade Organisation (WTO) to develop a common approach to trade and other economic policies, called the ”coherence agenda”.

Last year in Cancun, Mexico, a strong alliance of developing countries – the so-called Group of 22 – backed by civil society organisations, banded together to demand reforms that would permit them to also share in the benefits of global trade.

Ultimately, the talks failed after the new group accused rich countries of ignoring their concerns, particularly about the need to cut agricultural subsidies in developed nations.

"This is the same as all other safety nets," said Tony Avirgan of the Washington-based economic think tank, The Economic Policy Institute. "If you don’t make the casualties in the first place, you do not need safety nets. Trade doesn’t need to create casualties".

The IMF says the new loans will be available for countries that are concerned that a broad-based lowering of tariffs might erode their access to export markets, and will help them to weather a period in which their trade preferences in industrialised nations are eliminated.

It is also promoting the TIM as a tool to help countries that fear the phasing out of world quotas on textiles by the end of 2004 will expose them to more global competition.

Some countries in the developing South also fear they will lose markets if they have to reduce their own agricultural subsidies, the Washington-based lender says, adding that TIM will help nations offset losses of tariff revenues resulting from those trade changes.

IMF Acting Managing Director Anne Krueger says countries will qualify for the funds only if the anticipated negative effect arises from multilateral trade commitments under a WTO agreement.

The programme will also be temporary, she added in a statement.

The Doha Development Agenda agreed to at a WTO ministerial conference in 2001 calls for multilateral trade liberalisation to be completed by Jan. 1, 2005. Talks to that end have been frozen since last year’s failed Cancun discussions.

Economists familiar with the new IMF plan say it is flawed and will not help developing nations.

"They (the IMF and its sister institution the World Bank) keep promising countries that if you open up your economies and if you engage in free trade, as tied up with all the rest of their economic programmes … you might suffer some short-term difficulties and in the end it’s going to be great benefits," said Avirgan.

"But this has been going on for 20, 30 years, and the benefits have not become apparent."

Others fault the short-term nature of the TIM. "It is designed to be temporary assistance when it is not at all clear that the need will be temporary," said Sarah Anderson, a fellow at the Washington-based Institute of Policy Studies.

The IMF’s announcement is also one of the first concrete results of a decision last year by three major international financial bodies – the IMF, World Bank and WTO – to cooperate in pressing poor nations to further open their markets to exports from rich nations.

The Washington-based bank and IMF travelled to the WTO in Switzerland last May to agree on a common approach to trade and other economic policies, called the ”coherence agenda”.

The organisations and their political masters from within the Group of Seven (G7) most industrialised nations view multilateral trade as an anchor of strength and stability in the world economy and the TIM, critics say, is part of that agenda.

"They (the IMF and World Bank) make it clear that the WTO came to them and asked for help to rescue the Doha Round, and this is what they came up with.. I just hope that leaders in many of these (borrowing) countries will see through this as really a very superficial response to what I think are some valid concerns about the WTO," Anderson said.

She calls the MIT the latest attempt by the IMF and the World Bank to rescue the WTO by portraying across the board trade liberalisation as good for small nations, and "to respond to the concerns that have been raised but not to do anything very substantive".

The analysts also drew a link between the initiative and the spring meetings of the Washington-based institutions, scheduled for Apr. 24¡25 here.

"They probably hurried up to do that in advance of the meeting so that they can show that they are to some degree serious," said Anderson.

In its statement Tuesday, the IMF said it will continue to give pro-free trade advice to developing nations as part of its contribution towards the implementation of the Doha Round, and that the World Bank might take part by offering extra programmes within the new plan.

This reinforces speculation that the World Bank and IMF will continue to force feed the same liberalisation policies on developing nations rather than give them the tools to develop independent views and possibly home-grown development options, critics say.

"I think they should abandon their position that across-the-board liberalisation is something that’s in the interest of every country," said Anderson. "Countries should have more space to pursue alternative models of development instead of just the same old Washington consensus model, which has always included trade liberalisation."

Avirgan agreed, likening the IMF and World Bank policies to a war. "It’s like, ‘we are going to wage war on you and then build hospitals to take care of the casualties’. The best solution is don’t wage a war in the first place".