Inter Press ServiceAnis Chowdhury - Author - Inter Press Service

Corruption in Bangladesh: Will Development Partners Remain Complicit?

Anis Chowdhury — Tue, 28 Apr 2026 07:13:44 +0000

By Anis Chowdhury
SYDNEY, Apr 28 2026 (IPS)

Bangladesh remains one of the most corrupt countries in the world. Its corruption perception index (CPI) score, 24, is 18 points below the global average score of 42, and 21 points lower than the Asia-Pacific region’s average of 45. One of the main sources of corruption is over-priced aid-funded projects as they lack competitive bidding. Projects funded through Government-to-Government deals drive up costs by more than 400% compared to more transparent alternatives, and around 35% of project costs are lost to corruption and inefficiency.

Anis Chowdhury

These are well-researched and well-known facts. Yet development partners continue to advance loans (packaged as aid) to Bangladesh violating the United Nations Principles of Responsible Sovereign Lending.

Complicity

Development partners – traditional and non-traditional – cannot deny their complicity. The most culpable is the World Bank, followed by the Asian Development Bank (ADB) and Japan International Cooperation Agency (JICA). The shares of Bangladesh’s external debt liabilities to them are around 29%, 23% and 18%, respectively, totalling 70% of total external debt. Russia and China are Bangladesh’s main non-traditional development partners, with their respective shares of total external debt at 11% and 7%. All donors offered loans rampantly to the fascist regime to achieve their strategic and business interest, ignoring its extensive corruption and wide-spread human rights violations.

The World Bank briefly demonstrated its adherence to responsible lending principles when it cancelled $1.2 billion IDA credit for the Padma Bridge project in 2012, citing high-level corruption allegations. But its lending subsequently increased as if to expiate itself for the cancellation of the Padma Bridge loan. Mr. Hasan, one of the most corrupt ministers in the deposed Hasina Government, boasted, “once the World Bank cancelled its credit to finance Padma Bridge but now [in 2023] it has proposed to provide $2.25 billion”. To embarrass (or absolve?) the Bank, Sheikh Hasina presented a picture of the Padma Multipurpose Bridge to World Bank President David Malpass at the loan signing ceremony.

While Dhaka boasted that the Padma Bridge project was “entirely funded” by the government, China Exim Bank in fact provided $2.67 billion preferential buyer’s credit. The project costed approximately $3.6-$3.9 billion, nearly 3 times the initial estimate of $1.2 billion (the amount sought from the World Bank), largely due to corruption. The cost over-run triggered crises in both the forex and local currency markets, leading to the erosion of the country’s foreign exchange reserves.

The International Monetary Fund (IMF) provided the lifeline at the dying hours of Hasina’s kleptocratic regime when it approved $4.7 billion in January 2023 with some vague conditionality, such as raising revenues, implementing structural reforms to create a conducive environment to expand trade and foreign direct investment, deepening the financial sector, and developing human capital.

The IMF chose to turn a blind eye to widespread corruption, including the looting of banks by the regime’s cronies, gross violations of human rights and election engineering to hold on to power. Can the IMF absolve itself of responsibility for enabling the survival of the collapsing repressive and corrupt regime to commit human rights violations and abuses during the mass uprising against it a year and half later?

Old habits die hard

Corruption in Bangladesh has deep roots; corruption’s tentacles have reached almost the entire body polity of the country to become a ‘social culture’. Nevertheless, the Interim Government, led by Nobel Laureate Professor Yunus, took some bold reform initiatives to strengthen the Anti-Corruption Commission (ACC) and the integrity of the financial sector.

Thus, it is deeply disappointing that the newly elected government replaced the highly professional central bank governor with a failed business person with no background in banking or international macroeconomics within the first week of assuming power. A loan defaulter himself, the new governor immediately relaxed the loan rules. The government also amended the Interim Government’s Bank Resolution Ordinance to allow the return of the restructured banks to previous owners who looted these banks.

These changes, together with the new government’s rejection of the Interim Government’s ordinances concerning the ACC, the independence of judiciary and the human rights commission, are clear signs of the old habits’ refusal to die and the persistence of corruption.

Another old habit, i.e., addiction to loans (so-called aid), denies to die. As of April 2026, the External Relations Division (ERD) of the Ministry of Finance has been instructed to look for up to $3 billion from development partners. Interestingly, the ERD’s main activity is foreign fund searching through its ‘fund searching committee’ which meets periodically to review (code name for naming and shaming section chiefs) its monthly loan signing targets. Instead, the ERD should have been focusing on fostering and strengthening economic relations – trade and investment – as its name implies.

One direct damage of aid addiction is the lethargy in mobilising domestic resources – Bangladesh’s tax-GDP ratio (around 7%) is not only low compared with the averages for low-income countries (13.5%) and middle-income countries (18.9%), but has also been declining from its peak of around 9% in 2012 since its borrowing from development partners accelerated.

Of course, the other collateral damage is the persistence of corruption. IMF research finds that countries with “voracious” and “fractious” politics divert large amounts of public resources to unproductive transfers to powerful interest groups.

Development partners’ responsible roles

All development partners – multilateral and OECD DAC members – ostensibly are in favour of “good governance”, meaning against corruption. The World Bank “considers corruption a major obstacle… to promoting shared prosperity”. The IMF views corruption as “a major obstacle to economic growth, stability, and development”. The ADB “maintains a zero-tolerance stance against corruption, viewing it as a major obstacle to development, poverty reduction, and economic growth”.

Unfortunately, the evidence of their complicity presented above tells a different story from their avowed anti-corruption posture. This casts doubt on their role as development partners. Global evidence shows that donors do not systematically allocate aid to less corrupt countries.

The citizens of the country expect that development partners remain true to their declared anti-corruption stance and advance concessional loans provided the government commits to strict monitorable anti-corruption measures and deep structural reforms. In particular, urgently needed funds should be considered if:

To achieve deep structural reform, the focus should be on strengthening domestic revenue mobilisation and reorientation away from the aid-dependent development model to a trade and investment led development model. Therefore, development partners should open up their markets, encourage investment in productive sectors and help develop Bangladesh’s productive capacity.

On the other hand, if they remain complicit and advance loans in a highly corruption-prone environment, any future pro-people government will have the right to declare such loans as “odious” and to refuse repayment obligation.

Anis Chowdhury, Emeritus Professor, Western Sydney University (Australia). He held senior UN positions in Bangkok and New York and served as Special Assistant to the Chief Advisor for Finance (with the status and rank of State Minister) in the Professor Yunus-led Interim Government. E-mail: anis.z.chowdhury@gmail.com

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“War-Shock Inflation” and Inflation Phobia: Lessons of History for Central Bankers

Anis Chowdhury — Tue, 21 Apr 2026 04:58:07 +0000

By Anis Chowdhury
SYDNEY, Apr 21 2026 (IPS)

The global economy, is at the precipice of “stagflation” – growth slowdown and higher inflation – due to the energy price shock following the illegal US-Israel war on Iran. The International Monetary Fund (IMF) has recently termed this as a “textbook negative supply shock”. For the first time since the 1970s, the prospect of stagflation seems real.

Anis Chowdhury

What can central bankers learn from the 1970s stagflation?

Prospects of global stagflation

The IMF simulated three possible macroeconomic scenarios depending on the duration of this conflict and the extent of damages to energy infrastructure in the region. These range from a marginal drop in this year’s forecast global growth rate – from 3.4% to 3.1% – to a moderate decline to 2.5% and a sharp decline to 2%. The projected spikes in “headline inflation” – covering all goods and services, including volatile items, e.g., energy and food – range from 4.4% to 5.8% in 2026.

The IMF rightly doubts whether inflation can be checked with monetary tightening without causing substantial increase in unemployment. But it does not offer any solutions; instead advises the central banks to remain ready “to act decisively to maintain price stability”.

The IMF’s overall policy advice is conservative. However, it acknowledges the need for monetary and fiscal policy to support economic activities if the if financial conditions tighten sharply and global activity deteriorates markedly.

Inflation phobia and policy over-reaction

Ben Bernanke and his co-researchers found that the recession in the 1970s did not result from the oil-price shocks “per se, but from the resulting tightening of monetary policy”. Bob Barsky and Lutz Kilian found “that the oil price increases were not nearly as essential a part of the causal mechanism generating the stagflation of the 1970s as is often thought”. Ed Nelson blamed central banks’ “faulty doctrine” for the 1970s stagflation.

So, it was not inflation that caused output to decline, but rather, inappropriate and draconian efforts to curb inflation that inevitably repressed growth, and produced world’s first stagflation. This may happen again if central bankers overreact and tighten the financial conditions to kill the current “textbook supply shock” inflation.

The problem is the central bankers’ dogmatic group-thinking despite contrary empirical evidence. For example, the fear of unhinged inflation expectations and wage-price spirals do not have any empirical basis as reported in IMF research and the Australia’s Reserve Bank.

Yet, the central bankers and the IMF favour monetary tightening fearing the risk of “unhinged” inflation expectations and wage-price spirals.

Revisiting the inflation target

The central bankers’ group-thinking bias insists on an inflation target of 2% – a figure “plucked out of the air”, yet became “global economic gospel”. Don Brash, the acclaimed former Governor of the Reserve Bank of New Zealand, who was the first central bank governor to adopt a 2% inflation target admitted that it was based on a chance remark by then New Zealand Finance Minister Roger Douglas “during the course of a television interview”. It became “the mantra, repeated endlessly” as Brash and his colleagues “devoted a huge amount of effort” to preaching his new gospel “to everybody who would listen – and some who were reluctant to listen”.

Olivier Blanchard, the IMF’s former Chief Economist, questioned the wisdom behind the 2% inflation target and argued for a higher, e.g., 4% target following the 2008-2009 global financial crisis. IMF research also advocated for a long-run inflation target of 4%. Such a moderately higher inflation should widen policy space.

Joe Gagnon and Chris Collins argued that “the case for raising the inflation target is stronger” than it is usually thought. Their research revealed that “the benefits [of a higher inflation target] clearly exceed the costs”.

Thus, one should not be surprised when The Financial Times says, “It is time to revisit the 2% inflation target”.

Rethinking inflation

Almost all central bankers see inflation as an outcome of excess demand, caused by either an increase in aggregate demand or a decrease in aggregate supply at a given price. Prices rise to eliminate the excess demand.

A common view is that higher prices lead to demand for higher wages which in turn cause higher prices, thus generating wage-price spirals. Therefore, central bankers focus on containing demand by raising interest rate regardless of the sources of inflation.

On the other hand, optimal policy-mix differ when inflation is seen as the result of a distributional conflict or disagreement. Guido Lorenzoni and Iv´an Werning analysed the impacts of supply shocks arising from “non-labour” inputs, such as energy under the different relative bargaining powers of labour and firms where the non-labour input price is perfectly flexible, and goods prices are more flexible than wages.

They found that the optimal policy response to a supply shock coming from the scarce non-labour input is to “run the economy hot”, i.e., to allow demand to exceed supply capacity and higher inflation. Their findings imply that it would be more efficient to reach the adjustment with the help of higher price inflation than through lower price inflation and deeper wage deflation by causing higher unemployment.

David Ratner and Jae Sim analysed the trade-off of anti-inflationary measures considering inflation as an outcome of distributional conflict. They found that restrictive anti-inflationary measures are more costly in terms of unemployment.

Interestingly, their finding corroborates the IMF’s observation that the aggregate supply curve has become flatter making restrictive anti-inflationary measures more costly in terms of higher unemployment. Unfortunately, the central bankers’ anti-inflation group bias dismisses the higher unemployment or growth declines due to restrictive policies as “short-term pains for long-term gains”.

Recent IMF research revealed permanent scars of recessions, including those arising from external shocks and macroeconomic policy mistakes; they all “lead to permanent losses in output and welfare”. The Lancet reported “substantial effects on suicide rates”. The Body Economic: Why Austerity Kills, investigated the human cost of austerity policies during economic crises to emphasise that health indicators can significantly deteriorate.

Optimal policy response

In light of the above, the central bankers should reconsider their hawkish anti-inflationary policy-setting.

The governments around the world are trying to ease fuel-price impacts by fiscal measures such as a temporary reduction of fuel excise duty, subsidies and price caps. The mainstream commentators, including the IMF, argue that these measures may have significant fiscal costs if the crisis lingers on, and would put extra-burden on central banks, which are focused on controlling inflation.

Significantly, the optimal policy-mix should include tax revenue raising measures. Governments should consider enhancing tax progressivity. In particular, an excess profit tax should be imposed on the beneficiaries of higher interest rates and fuel prices, such as banks and fuel companies to fund cost of living support measures.

Dr. Ken Henry, Australia’s former Treasury Secretary has recently argued that a 100% tax on windfall profits from gas would be “socially optimal”. Tony Wood held “A windfall profit tax may be the least-worst solution to the gas crisis”.

Research based on US data reveals that an excess profit tax reduces existing racial and ethnic inequalities and inequalities between groups with different educational attainments. It can also accelerate renewable energy transition when increasing geopolitical tensions and climate impacts threaten continued volatility in fossil fuel and gas markets.

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The Political Economy of Bangladesh’s LDC Graduation

Anis Chowdhury — Tue, 07 Apr 2026 08:17:29 +0000

By Anis Chowdhury
SYDNEY, Apr 7 2026 (IPS)

Bangladesh is scheduled to graduate from the least developed country (LDC) status in November this year after more than half a century. Bangladesh joined the UN club of LDCs in 1975 and consistently met all three graduation criteria – per capita Gross National Income (GNI), human asset and economic vulnerability – since 2018.

Anis Chowdhury

However, there is resistance and the current government has requested the UN for a delay. This is not surprising given the capture of the state by the business class, especially the ready-made garments (RMG) sector. In FY 2024-25 alone, the RMG sector received more than USD 1.3 million (BDT 16 crore) in cash subsidies and tax concessions despite the Interim Government’s effort to gradually phase out cash incentives.

RMG’s dominance and failure to diversify

Bangladesh is indeed a leading, often the highest, user of Duty-Free Quota-Free (DFQF) facilities among LDCs, largely driving its RMG sector growth through the European Union (EU)’s Everything But Arms (EBA) scheme. This reliance on preferential access has made Bangladesh a dominant exporter among LDCs.

However, the RMG sector’s dominance also made Bangladesh highly vulnerable. In the late 1970s when the RMG sector started its journey, it accounted for less than 5% of Bangladesh’s total exports. By the end of the 1990s, this proportion had reached about three-fourths. After more than four decades, since 2013, it has been hovering between 80-85%, according to the Bangladesh Garment Manufacturers and Exporters Association (BGMEA).

Bangladesh’s heavy reliance on a single export item makes its export basket one of the least diversified among the global economies. This is starkly different from South Korea, a country from which Bangladesh received technical assistance to usher in its RMG sector. South Korea’s textile industry accounted for 33.3% of exports in 1970; it declined to 22.6% within two decades in 1990 as the economy diversified. By 1975 South Korea became a major exporter of electrical machinery and appliances, transport equipment and various other manufacturing products.

Bangladesh’s vulnerability does not arise only from its export product concentration. Bangladesh’s export market is also not diversified with close to 60% going to the EU and UK with apparel comprising more than 90%. The USA, which does not provide any LDC related preferential market access, accounts for about 16% Bangladesh’s exports.

Here, too, Bangladesh’s experience differs from that of South Korea. With the diversification of the economy, South Korea’s exports by destination also became less concentrated. For example, while around 63% of South Korea’s export went to Japan alone in 1960, the combined market share of Japan and the USA fell to around 56% by 1975.

The South Korean State’s autonomy from groups with a vested interest is well documented. Thus, its policies were driven by broader national interest. On the other hand, Bangladesh’s policy space has been captured by the RMG sector.

Undoubtedly, the preferential treatment by the state helped the RMG sector expand rapidly; but at the high cost of failure to diversify. Professor Munir Quddus of Prairie View A&M University and President, Bangladesh Development Initiative (BDI) compared the RMG sector’s support environment with Leather exports to demonstrate the RMG sector’s state capture. His findings, summarized below, are revealing:

The usual justification for such preferential treatment is that RMG is the “largest export sector and foreign exchange earner”. But the argument is perverse. Given some of these subsidies have been in existence for nearly 50 years, prudent policymaking demands that it is high time to redirect scarce resources to support other potentially dynamic export sectors.

Being used to state support, the RMG sector ignored the need for raising productivity. The sector’s average labour productivity is lower than Bangladesh’s competitor countries except Cambodia. The sector’s compliance with the environmental and labour standards has also come under scrutiny. However, it seems by becoming too big through state support, the sector’s demand cannot be ignored.

The cosy relationship between the RMG sector leaders and the fallen kleptocratic regime is well-known. The regime allowed them to flourish through loan defaults and state subsidies and in return the business leaders were cheering on the fascist regime hoping to see its continuation. Understandably, they were fearful that they might not enjoy the same crony relationship with the Interim Government led by Nobel Laureate Professor Muhammad Yunus; thus, they cried foul and campaigned for a postponement of LDC graduation.

LDC graduation as structural transformation

The Interim Government accepted the White Paper’s recommendation and viewed the LDC graduation momentum as an opportunity to accelerate structural transformation of the economy. Despite bureaucratic inertia, it did succeed in improving business environment, such as significant reductions in times to obtain business licenses/certificates/permits, simplifications of customs procedures and fast-tracked implementation of national logistic and national tariff policies. It also identified the bottlenecks for potential sectors, such as pharmaceuticals, leather & footwear, electronics, light engineering and fishing & agro-based industries and took measures to remove or ease them.

No doubt a lot still needs to be done as part of an ongoing process of reform and policy adjustment. But that cannot be used as a justification to request a delay on the basis that the preparation is inadequate, particularly when Bangladesh’s macroeconomic performance is far better than the most LDCs, including Nepal and Lao People’s Democratic Republic (Lao PDR), the two countries scheduled to graduate along with Bangladesh.

Thanks to the macroeconomic management of the Interim Government which succeeded in preventing a total collapse of the economy; it restored discipline in the financial and banking sector, rebuilt the country’s foreign exchange reserves, stabilized the exchange rate and earned the confidence of international financial leaders to re-open trade financing and maintain foreign investment inflows. It earned the diaspora community’s confidence resulting in increased remittances. The Interim Government concluded Economic Partnership Agreement (EPA) with Japan in record time, ensuring duty-free market access for 99.9% of its products. It also initiated EPA talks with other major trade partners, including the EU.

Graduation delay: Bad signal for LDCs and win for vested interest

The UN-DESA uses three criteria for LDCs – GNI per capita, human asset index (HAI) and economic vulnerability index (EVI). Its evaluation in February 2025 shows that Bangladesh is in a much better position than Nepal and Lao PDR in terms of GNI per capita and EVI. Bangladesh with higher GNI per capita is economically less vulnerable than Nepal and Lao PDR, both of which suffer from additional disadvantages of landlockedness.

Bangladesh’s economy is projected to grow at a faster rate (around 5.0%–5.1% in FY 2005-26 and 5.7% in FY 2026-27 according to the ADB) than both Nepal and Lao PDR despite slightly elevated inflation rates. Bangladesh also performs better in logistics, ranked 88th out of 139 countries by the World Bank compared to Nepal’s rank of 114th and Lao PDR’s 115th. Bangladesh also has better productive capacity according to the UNCTAD’s productive capacity index.

Bangladesh will continue to enjoy DFQF market access for three more years after its graduation as endorsed by the WTO. Australia and Canada indicated extended periods of DFQF access until at least 2034. The UK will allow 92% Bangladesh products duty-free access after 2029. Therefore, a delay for a better performing Bangladesh will be a bad signal for the LDCs aspiring to graduate from LDC status.

It will also mean a win for the vested interest groups and stalling of the momentum towards accelerated structural transformation. The state capture by the RMG sector has already become clear; a highly professional and successful central bank governor has been replaced with a failed (loan defaulter) garment sector businessperson with no background in banking or international macroeconomics. The Transparency International Bangladesh views “such a decision risks turning the central bank once again into an instrument of business lobbies dependent on defaulted loans and political connections, rather than safeguarding national interest, as was the case during the authoritarian kleptocratic regime”.

Bangladesh will be better off spending its diplomatic efforts to secure GSP+ facilities in the EU and EPA with its trading partners instead of lobbying for a LDC graduation delay. It should worry more about EU’s new, stricter and mandatory Environmental, Social, and Governance (ESG) regulations. Whereas ESG failure may cost Bangladesh 30% of EU exports, strict compliance can function as powerful catalysts for production upgrading and accelerating structural transformation while achieve sustainable development goals (SDGs).

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A Year of High Expectations and Frustrations

Anis Chowdhury — Thu, 08 Jan 2026 12:13:38 +0000

By Anis Chowdhury
DHAKA, Bangladesh, Jan 8 2026 (IPS)

As many of you know, out of the blue, I have been called in to assist the Interim Government led by Nobel Laureate Professor Muhammad Yunus in stabilising the economy left in ruins by the fallen autocratic-kleptocratic regime that looted the banks, stole public money and robbed small investors in the capital market to siphon off billions of dollars out of the country. I had never served in a government; neither had I ever expected this opportunity. However, my UN experience and political economy understanding have been handy.

Anis Chowdhury

Reflecting back the year that we have just passed, I trust, you have been well as we wished each other at the start of 2025 the best of our health and spirit. Unfortunately, despite our earnest wish, the world was not peaceful during 2025.

Hopes and global disorder

Hopes kindled briefly for justice for the Palestinians as the European powers, including Australia (a European settler colony) were forced to recognise the Palestine State, and Narcissist Trump pushed for some peace in both Ukraine and Gaza in his mad desperation for a Nobel Peace Prize.

Yet Gaza is still being bombarded with Israel’s genocidal intent, making a mockery of deranged Trump’s rhetorical claim of achieving “peace in the Middle East for the first time in 3,000 years”, and the illegal occupation of the West Bank along with settler violence continues unabated with complete immunity in blatant violations of international laws.

Narcissist Trump sanctioned the International Criminal Court (ICC) and International Court of Justice (ICJ) in his desperate attempt to save Israeli war criminals, including Benjamin Netanyahu and justify Israel’s genocide and settler violence. Trump upended his assault on the rule-based order with arbitrary so-called ‘reciprocal tariff’.

Bangladesh

As for the post-fascist Hasina Bangladesh, the year 2025 began with high expectations. And as for me, the year 2025 has been extra-ordinary.

Today, I am pleased to say that we have been able to avert a full-blown crisis. Heart-felt thanks to our ‘remittance fighters’ who whole-heartedly trusted the Interim Government’s various reform initiatives. Expatriate Bangladeshis sent a record $30.04 bn in remittances in the 2024–25 fiscal year, the highest amount ever received in a single fiscal year in the country’s history. Forex reserves surged to $33 bn, hitting 3-year high as December remittances crossed $3bn. You can get a report card by Finance Advisor, Dr. Salehuddin and myself, published in the Daily Star on 18 August 2025.

Of course, not everything has been rosy. The much-hoped systemic transition remains full of uncertainty. I see systemic transition as the process of total transformation of a caterpillar inside a cocoon. We still do not know whether the ‘caterpillar in the cocoon’ will turn out to be a butterfly or a moth. People are genuinely worried as the past systemic transition opportunities were wasted.

I myself found road-blocks at every turn. Bureaucratic inertia and resistance have frustrated my efforts for genuine reforms. It has been a real-life experience of the classic British political satire, “Yes, Minister”. Like Sir Humphrey Appleby, the bureaucrats will display outwardly extra-ordinary humbleness, but will politely defy citing rules of business. Bureaucratic resistance is the main stumbling block for achieving coordination, coherence and integration in policy making and implementation, thus, causing wasteful duplications, inefficiency and lack of effectiveness.

Nevertheless, I achieved some success. One of them is the agreement to expand the voluntary Bangladesh National Cadet Corps programme to cover ALL youths (aged 18) in 10-12 years, so that we can have a disciplined workforce to be readily deployed during any national emergency. Needless to say, that this is an imperative to realise demographic dividend. We are hoping to roll out the programme from July 2026 to coincide with the July Revolution anniversary.

Despite frustrations and uncertainties, I am hopeful as I can see a seismic shift in the political dynamics of the country. This coincides with the demographic shift – the youth (15-30 years) representing nearly 30% of the population. These youths have a different vocabulary of politics; they want justice, inclusion, self-respect, and dignity – they are fiercely nationalist.

Recently martyred Hadi is their embodiment. The establishment is understandably threatened and tried to silence the youth by assassinating Hadi; but they failed to extinguish the flame, instead, everyone has become a Hadi, standing unwavering in their commitment to carry out Hadi’s mission of building a just nation where citizens can live with dignity, free from fear, subjugation, and oppression. Hadi re-centred our national conscience on Insaf: justice, dignity, and fairness not as rhetorical slogans, but as non-negotiable ethical foundations of the State and society.

In an era of moral drift, Hadi reminded the nation that no political order can last without justice at its core. He ignited a generation with civic courage and moral responsibility. Free from fear, patronage, or transactional politics, young people saw in Hadi a new model of leadership: ethical, principled, and accountable. In doing so, he reshaped the future political character of Bangladesh and moved national thinking beyond entrenched legacy power structures toward people-centric, principled governance. He challenged the inevitability of corruption and coercion, insisting instead that politics could be reclaimed as a moral vocation. His life poses an enduring question to those who seek power: Will you serve justice, or merely rule?

Let me end this year-end message with my personal tribute to Khaleda Zia, who has recently passed away after a long illness imposed on her by the vindictive Hasina regime, falsely convicting her and imprisoning in a substandard cell. Like her husband, Shaheed President Zia, she was thrust into the whirlpool of history. They never sought power; but when the responsibility fell on their shoulders, they carried out their duties to the nation whole-heartedly and selflessly; thus, they became a true statesman (woman), winning hearts and minds of their people.

Perhaps Khaleda Zia’s most enduring legacy lies in her extraordinary restraint and dignified disposition, even under severe and prolonged adversity. Her self-restraint, rooted in grace rather than weakness, distinguished her from many of her contemporaries and offers a powerful lesson for today’s often abrasive and confrontational political culture.

Warmest regards and best wishes for the New Year

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Bangladesh Economy: Turning Demographic Challenges into Opportunities

Anis Chowdhury and Khalid Saifullah — Mon, 10 Mar 2025 14:42:06 +0000

By Anis Chowdhury and Khalid Saifullah
SYDNEY, Mar 10 2025 (IPS)

Speaking at the recent annual conference of the Bangladesh Administrative Service Association, Chief Adviser Dr Muhammad Yunus has emphasised the need to create opportunities for young people, asserting that Bangladesh’s large population is not a burden but a valuable resource.

A day later, Deputy Commissioners (DCs) proposed the introduction of universal military training for youths, aiming to involve them in the country’s defence efforts.

Of course, this is a political decision, and it requires serious examinations of the proposed programme’s budgetary implications.

We have done some preliminary budget estimates. The good news is that we can introduce the programme progressively over 5-8 years, say beginning with 10% of those turning 18 years as a pilot and then gradually cover the entire cohort of 18-20 years old who are able to serve.

The context – seismic demographic shift

In 50 years since independence, Bangladesh’s population more than doubled from around 70 million (7 crore) to around 174 million (17 crore), turning Bangladesh as one of the most densely populated countries in the world. Despite a rapid fall in fertility, Bangladesh’s population will continue to grow largely due to the momentum effect. UN Population Division projects that Bangladesh’s total population will reach its peak in 2071 with a population of 226 million.

Bangladesh is well into the third phase of demographic transition, having shifted from a high mortality-high fertility regime to a low mortality-low fertility one. As shown in the population pyramid (Figure 1), there is a youth bulge comprising about 28% of the population in the age bracket 15-29.

Figure 1: Bangladesh’s population by age (2024)

Source: UN-DESA, https://www.populationpyramid.net/bangladesh/2024/

The UN projects that by 2030, the proportion of youth in the age bracket 15-29 years will decline to around 25% and by 2050 to around 20%. So, this is our demographic moment that comes only once (see Figure 2).

Source: UN-ESCAP, https://www.population-trends-asiapacific.org/data/BGD

As Professor Yunus stressed, young population is a blessing – a source of strength, energy and vigour. A country with a large number of young people not only has a large pool of work force, but also a large pool of potential future leaders – often referred to as “demographic dividend”.

However, demographic dividend is not prearranged. It is an opportunity provided by the age structural transition. This window of opportunity opens for a population only once. If missed, it may become a “demographic curse”.

A country can “become old before becoming developed” – as we see in the case of Sri Lanka- characterised by a large proportion of elderly population (non-working age) while the nation still struggles with poverty and infrastructure issues. Thus, the country not only has fewer working-age people (i.e., a smaller work force), but also has to support a large number of people in their older age. Such a demographic situation potentially hinders a country’s economic progress and creates challenges for its social welfare systems.

Thus, an increase in the proportion of young people in a country’s population structure can bring a huge dividend provided this raw power is converted into highly skilled human resources, absorbed in productive employment and turned into entrepreneurs.

This can be shown by decomposing the neo-classical production function as follows:
Y/P = Y/SE x SE/E x E/LF x LF/WP x WP/P, where Y = GDP, P = population, E = employment, SE = skilled employment, LF = labour force, WP = working-age population.

Thus, GDP per capita (Y/P) is the product of:

Bangladesh’s demographic dividend may become a mirage. The recent student/youth unrest which began with a demand for quota reform and ultimately toppled the Hasina regime is a clear indication of the economy’s inability to absorb these youthful people in productive employment or turn them into entrepreneurs. The official unemployment figure of about 3-4% based on outdated labour force survey methodology does not reflect the reality.

National service – a feasible urgent solution

Our most critical challenge is preventing demographic curse and reaping demographic dividend. Mandatory national service, comprising some basic defence training, IT and general literacy-numeracy and vocational skills, will not only bring enormous economic benefits, but also prepare the country for disaster management, especially due to climate crisis. It will also act as an effective deterrent against possible threat to our national sovereignty.

Currently, we have around 1.6 crore (15.9 million) youths in the age bracket 20-24 – roughly 87 lakh females and 73 lakh males. Of the youth turning 18 years, about 29 lakh are able to serve, excluding child-bearing females (around 25%) and those with various disabilities.

If 10% of the youth turning 18 years are included in the programme in the first year, and Tk 12,000 per month (equivalent to the current minimum wage) is used for each participant, then 5.8% of the total 2024-25 budget proposed by the fallen regime would been required for defence. This is marginally higher than 5.3% allocated in the proposed 2024-25 budget. This figure rises to 5.9% and 6.2% if training each participant requires Tk15,000 and Tk20,000, respectively.

The above rough and ready estimates assume no change in the exiting allocation for other defence expenses. Nor does the exercise consider efficiency gains.

Obviously, budgeting cannot be done in isolation. The first place to find money is reallocation as required by reprioritisation. It should be mentioned here that the fallen regime in its last budget proposed for 2024-25 in June 2024, increased defence budget by 11% over the revised defence budget for 2023–24. Therefore, this has to be examined seriously; the priorities of the ‘new Bangladesh’ cannot be the same as the fallen regime’s.

Money can also come from the savings that might result in other sectors, e.g., education as there will be reduced pressure to expand post- secondary education. If necessary, the costs of such programmes have to be shared through higher taxes for the sake of securing a prosperous future of this country.

Empowering the youth

Training and skill development through mandatory national service is just one element in the supply side of the equation. The pool of available talent needs to be empowered and deployed to yield demographic dividend. Otherwise, it will be wasted and may even turn into a disruptive force.

Our most critical challenge is preventing demographic curse. Not only we have to reap demographic dividend, but also ensure what is referred to in the literature as ‘second demographic dividend’. While the ‘first demographic dividend’ due to the rise in the proportion of working-age population is transitory, the ‘second demographic dividend’ can be perpetual.

For this to happen countries need to invest in skill upgrading, support entrepreneurial initiatives and innovative/flexible work environment to allow working even in older age and asset accumulation by workers.

Especially, given the advancement in technology, and particularly Artificial Intelligence (AI), we urgently need to rethink skill development for our youth. Many university degrees may soon become obsolete because the skills they offer are prone to automation.

Ironically, many blue-collar, hands-on jobs are likely to survive because they require mental and motor skills humans have developed over millennia and are really difficult to automate. We consider them low-skill because we take those skills for granted. On the other hand, jobs which require high-level critical thinking will also survive. We need urgent actions to prevent our youth from falling into the “middle”.

Act now

Professor Yunus has rightly understood the key message of youth revolt that the youth should be placed at the heart of strategies as they are committed to creating a new world which is inclusive, fair and just. Therefore, it is logical that his government initiates the measures when the aspirations of the revolution are still fresh in the minds.

Anis Chowdhury, Emeritus Professor, Western Sydney University (Australia); held senior UN positions at Bangkok & New York in economic & social affairs

Khalid Saifullah, Statistician with years of experience working in international organisations

This opinion editorial was first published in New Age (24 Feb. 2025), Dhaka, Bangladesh

IPS UN Bureau

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The Year 2024: Hopes & Despairs

Anis Chowdhury — Mon, 13 Jan 2025 12:06:02 +0000

By Anis Chowdhury
SYDNEY, Jan 13 2025 (IPS)

Thank God, we have survived another year of genocide, war, destruction and climate crisis. The passing year of 2024 has been a mixture of hope and despair. It began with some hope as the International Court of Justice (ICJ) ruled in favour of South Africa’s case against Israel for committing genocide and ordered Israel to take all measures within its power to prevent the commission of all acts within the scope of Article II of the Genocide Convention, and to take immediate and effective measures to enable the provision of urgently needed basic services and humanitarian assistance to address the adverse conditions of life faced by Palestinians in the Gaza Strip.

Anis Chowdhury

Alas, the hope quickly vanished as the genocide continues by the very people who promised, “never again” and worked tirelessly for the Genocide Convention. Officially, more than 45,000 killed – mostly women and children. According to the prestigious medical journal Lancet, the actual death toll by July 2024 reached more than 186,000 due to the cumulative effects of Israel’s destruction of hospitals, blocking of aid, cutting off water & electricity supplies and every other means of ethnic cleansing.

Ironically, it is possible for the apartheid state of Israel to trample on the ICJ and the international humanitarian laws only because of its backing by the US and its allies. One grapples with the inexplicable spectacle of its stone-faced Western allies ignoring, and indeed justifying, the slaughter and starvation of Palestinians in Gaza.

I wrote three pieces for IPS trying to explain the inexplicable – Gaza Massacre and Western Hypocrisy (4 Mar., 2024); ‘Unbounded’ Impunity Emboldens Israel (27 Feb., 2024) and The West’s Frankenstein Moment (14 Feb., 2024). Amidst the continued horror, injustice and the miseries of the occupied Palestinian people, I thought it was pointless to write or make academic analyses.

Instead, I opted for activism and joined the mass protests that became a regular feature around the world, loudly and defiantly declaring, “From the River to the sea, Palestine will be free”, where the two – Palestinians and Jewish people – will live as free citizens, enjoying full democratic and economic rights to realise their full potential as equal human beings.

My children and grandchildren also joined as we drew inspiration from the resilience of the Palestinians, refusing to surrender and demanding to live with dignity.

It seems people power is beginning to have some positive impact. More countries, especially in the Global South, are taking a firm stance against the apartheid state of Israel; breaking with their Western allies. Norway, Ireland, Spain and Slovenia recognized the State of Palestine. Australia changed its position to support a vote at the UN demanding Israel end the occupation of Gaza, East Jerusalem and the West Bank.

Yet, there were more disappointing events: Israel expanded its ruthless bombing to Lebanon and assassinated key figures, eliminating likely partners in a possible peace deal; the war in Ukraine became more protracted while Putin threatens to use nuclear war-heads. And the US, the supposed leader of the so-called rule-based ‘free world’, elected a narcissist, Donald Trump, as its President, bent on wrecking the rules, claiming US supremacy and exceptionalism. The CoP29 climate summit ended with disappointment as the world’s most vulnerable nations have been abandoned, and there has been little progress on reducing fossil fuels.

The fate of the displaced people in Sudan, Myanmar and elsewhere became worse, as conflict drags on. Amnesty International reported, “the Arakan Army unlawfully killed Rohingya civilians, drove them from their homes and left them vulnerable to attacks. These attacks faced by the Rohingya come on top of indiscriminate air strikes by the Myanmar military that have killed both Rohingya and ethnic Rakhine civilians”.

The Rohingya people – the world’s largest stateless population – continue to face persecution and abuse. They now face a double-edged sword as the Arakan Army tightens the noose around Myanmar’s Junta.

Conflict in Sudan has led to a man-made famine, the world’s largest hunger crisis, and the worst internal displacement crisis in the world. Nearly 20 months of war has made more than one-fifth of the country, over 12 million people, displaced from their homes.

Nevertheless, there have been some sparks of hope. The heroic people of Syria and Bangladesh overthrew their repressive regimes, which seemed almost impossible the day before; and it appears a new dawn has come for these nations.

People in both Syria and Bangladesh are hoping for a just, equitable and democratic society. However, they are also genuinely apprehensive as such a systemic transition is fraught with uncertainty. It is like a caterpillar’s morphosis inside a cocoon – it can come out either as a butterfly or as a moth.

The shadow of the failed ‘Arab Spring’ in Egypt, Algeria and Tunisia haunts the Syrian people. They also fear the sectarian conflict and big-power games that followed in Libya as Israel pounds and expands its occupation.

In the case of Bangladesh, the last three attempts at systemic transition have ended in disappointments. The high hope for a democratic, just society evaporated quickly as the country witnessed unprecedented extra-judicial killings, vote rigging and finally turning into a one-party state within about 3 years of its independence earned at the cost of millions of lives. The second attempt post 1975 was skidded by Ershad’s coup whose military-civilian regime was neither a butterfly nor a moth – rather a hybrid. Then the third attempt post 1990, turned into a monster with the tyrant Hasina’s kleptocratic rule by theft and extreme repression.

Despair must not overtake hope. Human history is the stories of struggles; but our ability to rise after every fall, to emerge from the depths of despair with new found determination and unwavering hope determines our progress.

Anis Chowdhury, Emeritus Professor, Western Sydney University (Australia). Held senior United Nations positions in New York and Bangkok. E-mail: anis.z.chowdhury@gmail.com

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Bangladesh in Crisis: Which way out?

Anis Chowdhury — Mon, 16 Dec 2024 19:36:23 +0000

By Anis Chowdhury
SYDNEY, Dec 16 2024 (IPS)

This piece is not about the crisis or the chaos that the country is now facing after successfully toppling the autocratic regime of Sheikh Hasina. Rather, it is about the crisis of confidence and social capital or trust — interlinked, nonetheless.

Anis Chowdhury

The thread that binds a nation together is trust or social capital. There could be many factors that contribute to social capital, but one that stands out is equity or fairness. Social capital or trust is low in a country where income and wealth gaps are high, and the general people feel unfairly treated or deprived.

The fallen autocratic regime prided itself on rapid economic growth, averaging approximately 6 per cent a year. However, the regime’s kleptocratic system of ruling by plunder and favour to its cronies has contributed to accelerated wealth and income gaps as well as relative deprivation; thus, it has caused fissures in the social fabric.

Rising relative deprivation

Income and wealth gaps have yawned wide, turning a reasonably equitable society at the time of independence into one of the most unequal societies. The Gini coefficient, a common measure of income inequality, has increased from 0.36 in 1973 to 0.499 in 2022, according to the latest (2022) Household Income and Expenditure Survey (HIES) of the Bangladesh Bureau of Statistics.

The Gini coefficient was 0.39 in 1990–1991, marginally above the 1973 value (0.36), accelerating to 0.46 in 2010. Income inequality in Bangladesh has deepened since 2016. The 2022 survey reveals that about 30 per cent of the income generated in the country is concentrated within the top 5 per cent of household. This proportion was 27.82 per cent in the 2016 Household Income and Expenditure Survey.

Furthermore, the top 10 per cent of the wealthiest households in Bangladesh hold about 41 per cent of total income. This proportion was about 38 per cent in 2016. Concurrently, the income share for the bottom 50 per cent of households decreased to about 19 per cent in 2022 from 20.23 per cent in 2016.

Disturbingly, there has been a secular transfer of income from the lowest quintile of the households to the highest quintile. The average annual loss of the bottom 1st quintile’s share in the national income has been -0.71 per cent as opposed to the average annual gain of 0.46 per cent for the highest (top) quintile during 1973–2010. The middle-class also lost; income shares of 2nd, 3rd and 4th quintiles declined since 1973.

This does not augur well for our democracy. Nor can we celebrate this development in a country where one of the founding principles is socialism.

Suppression of democracy driving growing disparities

PROFESSOR MG Quibria of Morgan State University and ADB’s former Senior Advisor pointed out, ‘possession of political capital opens up myriad economic opportunities, including preferential access to finance and business, restructuring and loan default options, lucrative employment, access to privileged information, tax evasion or even outright corruption’.

The link between corruption and economic growth could be debated, but it is a method of plunder and primitive capital accumulation by the lumpen bourgeoisie that exacerbates inequality of wealth.

An environment conducive to unchecked corruption emerges when democracy is suppressed and the institutions that ensure accountability, transparency and the separation of powers between various branches of the government are weakened. Where democratic institutions are weak, political capital is a powerful instrument for advancing one’s economic and social position.

Unfortunately, suppression of democracy in Bangladesh began as soon as it emerged as an independent nation with the rigging of its first parliamentary elections in 1973. It is ironic that a country, where democracy is one of its founding principles, turned into a one-party state in 1975 within four years of its independence, shutting down most of the news media and allowing only state-run ones.

Sadly, instead of trust — built through accountability and transparency — election manipulations became the norm for all political parties to gain power and then retain it. Therefore, each successive government became more repressive, more lacking in accountability and more vigorous in election rigging.

However, such regimes suffer from legitimacy deficits — both legal and moral; they can only survive by allowing corruption and distributing favour. Thus, a vicious circle develops — a regime that resorts to more election manipulations becomes more beholden to its cronies, allowing them to plunder the state.

Undoubtedly, this process reached its zenith during Sheikh Hasina’s rule. Unchecked corruption, tax evasions and financial crimes such as defrauding bank loans enabled Bangladesh to become the global leader in wealth growth during 2010–2019. New York-based research firm Wealth-X, reported a remarkable 14.3 per cent annual increase in the number of individuals with a net worth exceeding $5 million, surpassing Vietnam, which ranked second with a 13.2 per cent growth rate.

Neoliberalism and the demise of democracy

BANGLADESH is not alone in witnessing widening income and wealth gaps and consequently democratic backslides. This is a global phenomenon coincided with the embrace of the neoliberal economic philosophy of privatisation, liberalisation, deregulation and globalisation dictated by the interests of the corporate power.

In the process of multinational corporations-driven globalisation, the civil society simply became apolitical NGOs, happy to receive crumbs from the donors to engage in so-called development activities. Citizens became ‘stake-holders’ together with the large corporations and donors, instead of ‘right-holders’.

Bereft of rights and no longer an end itself of development, citizens are now ‘human resources’, an epitaph cleverly designed to hide that they are simply fodder for the profit machines of corporations. In a deregulated economy, workers are dehumanised, constrained to socialise and participate in political activities.

Should one be surprised in the falling share of wages in the national income, stagnating or falling real wages and tragedies like the ‘Rana Plaza incident’?

Under the corporate globalisation, schools and universities — both public and private — are no longer places of learning where youths are transformed into enlightened citizens and agents of change, and where visionary future social-political leaders are produced. They are simply factories for mass-producing so-called ‘job-ready’ certificate or diploma holders, apathetic to social, economic and political issues.

An additional boost to accelerating inequality in Bangladesh comes from a three-stream education system (Bengali-medium national curriculum, traditional religious curriculum and English-medium overseas curriculum). It perpetuates inter-generational inequality.

Which way out?

ONE can get some cue in AK Sen’s observation that ‘a country becomes fit through democracy,’ and democracy versus development is a false dichotomy. Sen defines development as freedom — freedom from hunger and poverty; freedom from fear and persecution; and freedom to express, associate and participate. In sum, freedom to enhance one’s capabilities to attain one’s full potential as a human being.

Sen insists that political and civil rights are ends in themselves. Their denial cannot be acceptable even if it promotes economic growth and some well-being as such a development path is not sustainable. Suppression of political and civil rights results in growing income and wealth inequalities, where obnoxious, luxurious living by the few coexists with a large populous struggling to survive. This fuels a sense of relative deprivation contributing to violent social conflict.

Therefore, the first step is strengthening democratic institutions or consolidation of democracy. This requires the depoliticisation of administration and civic associations.

There exists a large volume of research findings showing that the politicisation of administration and the organisation of civic associations along party lines not only boost corruption but also accelerate social cleavage.

Civic associations where members hold different political views help build trust among political parties. They can agree on critical national issues while still disagreeing on details.

A depoliticised public administration serves a wider citizenry. In the process, the government, even though led by the winning party, governs for all and becomes inclusive, thus strengthening the trust between the state and the governed.

As for the political parties, they need to practise democracy themselves. That is, all party posts should be open for contest and there should be transparent rules for elections. As the primary organisational vehicles of electoral democracy, political parties are themselves judged in terms of their democratic character.

The most engaging models of internal party democracy are inclusive, participatory, deliberative and accountable and include fair distribution of power. It involves non-discriminatory open memberships and the inclusion of all party members in decision-making processes, leadership selection, policy formulation, as well as ensuring accountability of party leadership to its members. In short, internal rules of political parties should be guided by inclusiveness, clarity, transparency, accountability and independence. Their interaction with society should be based on dialogue, interdependence and cooperation.

In the economic arena, there is an urgency for reorienting to pursue strategies for growth with equity. This is an imperative if Bangladesh is serious about its state principle of socialism. The state has to recapture its lost leverage over the corporate sector to protect the interest of the wider community and to ensure decent jobs and a fair living wage.

It has to give priority to citizens’ well-being over balancing the budget and be bold enough to use its fiscal power to redistribute the growing wealth by using progressive taxation and widening public provisions of basic services, such as healthcare, education, housing and universal social protection. There is ample evidence of a close negative association between the tax-GDP ratio and inequality as well as between public social expenditure and inequality, clearly indicating the redistributive role of the government.

State actions are needed to smoothen the rough edges of the market forces that manifest in exclusion and inequality, which are found to fuel social and political unrest harming growth in the long run. Equity of access, opportunities and outcomes are fundamental aspects of socialism. They enhance both economic and political freedom, essential for rights-based development that empowers citizens and expands their capabilities.

Weakened democratic institutions and rising inequality create a vicious circle that leads to diminished trust — among citizens and between the state and citizens — which chips away social capital, the glue that binds society.

Bangladesh has to find the solution to its woes in its founding principles — a democratic polity and a socialist economic construct. Both are critical in rebuilding trust and social capital, needed to overcome the current national crisis.

Anis Chowdhury is emeritus professor, Western Sydney University, Australia. He held senior United Nations positions (economic and Social affairs) in New York and Bangkok.

IPS UN Bureau

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Climate Justice Needs Recognition of Common, but Differentiated Responsibilities

Anis Chowdhury — Tue, 15 Oct 2024 07:13:56 +0000

By Anis Chowdhury
SYDNEY, Oct 15 2024 (IPS)

Climate justice recognizes differential impacts of climate crisis between rich and poor, women and men, and older and younger generations. The UN Secretary-General António Guterres emphasized, “as is always the case, the poor and vulnerable are the first to suffer and the worst hit.” However, all people should have the agency to live life with dignity. Thus, climate justice looks at the climate crisis through a human rights lens.

Anis Chowdhury

Climate justice also recognizes that while “no country is immune”, impacts vary between rich and poor countries. And poor countries, lacking means to handle, are the worst sufferers, even though they contribute least to the crisis. This unfairness highlights unequal historical responsibility that countries bear in relation to the climate crisis.

Thus, climate justice synthesizes the recognition of rights and differentiated impacts. It asserts that every individual and country have the right to development, and the countries, businesses, and people that have become wealthy from emitting large amounts of greenhouse gases have a responsibility to help those affected by climate change, particularly the most vulnerable countries and communities, who often are the ones that have contributed the least to the crisis.

Differentiated contributions and impacts
The Intergovernmental Panel on Climate Change (IPCC) reports that between 2010 and 2020 human mortality from floods, droughts, and storms was 15 times higher in highly vulnerable regions. The IPCC also finds that globally, the 10% of households with the highest per capita emissions contribute 34–45% of global household greenhouse gas emissions, while the bottom 50% contribute 13–15%. It warns, children and young people today will bear the full force of climate change impacts as they advance through life even though they have not contributed to the climate crisis in a significant way.

The World Bank estimates that only one-tenth of the world’s greenhouse gases are emitted by 74 lowest income countries (LICs), but they will be most affected by the effects of climate change. The World Bank also finds that compared to the 1980s, these LICs have already experienced approximately 8 times as many natural disasters in the past 10 years. It warns, by 2050, unchecked climate change might force more than 200 million people to migrate within their own countries, pushing up to 130 million people into poverty and unravelling decades of hard-won development achievements.

Within the same country, the impacts of climate change may be felt unevenly due to structural inequalities based on race, ethnicity, gender, and socioeconomic status. For example, women are more severely affected; people with disabilities are at increased risk, including threats to their health, food security, access to water energy, and sanitation, and livelihoods; and Indigenous Peoples are facing increasing threats and risks to their lives, livelihoods, and traditional knowledge.

Six dimensions of justice
Climate justice “insists on a shift from a discourse on greenhouse gases and melting ice caps into a civil rights movement with the people and communities most vulnerable to climate impacts at its heart,” said Mary Robinson, former President of Ireland and former United Nations High Commissioner for Human Rights.

Thus, climate justice encompasses ideas of fairness, equity, and ethical responsibility. It goes beyond simply mitigating carbon emissions; and delves into the distribution of climate impacts, the participation of marginalized communities in decision-making, and the recognition of diverse perspectives and experiences related to climate change.

A survey of Australian environmental groups reveals 6 dimensions of climate justice – distributive justice, procedural justice, recognition justice, relational justice, inter-generational justice and transformative justice.

Distributive justice emphasizes that some countries and communities disproportionately bear the brunt of climate change and its costs. Procedural justice calls for the inclusion of impacted countries and communities in decision-making processes.

Relational justice highlights the importance of fostering collaborative relationships between countries, groups and communities to advance climate justice. Fair, equal and respectful relationships are seen as essential in developing equitable climate change responses.

Intergenerational justice expresses concerns about the impacts of climate change on future generations. Protests by hundreds of thousands of schoolchildren highlight the intergenerational injustice of climate change. They demand world leaders to act now to save the planet and their future.

Transformative justice focuses on social and institutional inequalities that drive and perpetuate climate change. Some argue that addressing climate justice requires a fundamental shift away from the capitalist global economic system. Others argue for fair transition to a low-carbon world while creating jobs and driving more rapid and inclusive economic growth.

Climate justice highlights the over-arching principle, “Leve No One Behind”, of the UN Agenda 2030 for Sustainable Development Goals (SDGs).

Climate justice demands translating commitments into reality, enabling stronger and deeper collaboration, and facing up to the greatest challenge of our times.

As Mary Robinson emphasized, “by working together we can create a better future for present and future generations”.

Failed commitments widen trust deficits
Sadly, as Oxfam draws attention, Rich countries’ continued failure to honour their US$100 billon climate finance promise – made at the 2009 Copenhagen Climate Summit – threatens negotiations and undermines climate action. Oxfam also exposes the claim by the OECD – a rich country club – that “Developed countries materially surpassed their USD 100 billion climate finance commitment in 2022”.

Independent assessments by the World Resources Institute (WRI) and Overseas Development Institute (ODI) reveal that such exaggerated claim is due to flawed accounting systems. After adjusting data to eliminate double counting, produces smaller numbers than the OECD. The country-by-country breakdown of responsibility shows that very few are contributing enough.

Climate finance analysts criticized the quality of climate finance and the way the OECD calculates the figures. Harjeet Singh, a veteran climate justice activist, said the process of providing and accounting for climate finance “is riddled with ambiguity and inadequacies. Much of the funding is repackaged as loans rather than grants and is often intertwined with existing aid, blurring the lines of true financial assistance”.

Climate finance continues to be predominantly delivered as loans a large share of which has been non-concessional. This has added to debt pressures.

Developing countries remain frustrated and sceptical as they lost trust due to developed countries’ continued failure to meet their overall aid commitment of 0.7% of GNI agreed more than half a century ago.

Common, but differentiated responsibilities
The unmet US$100 billion commitment will expire in 2025, anyway. The US$100 billion goal is a fraction of what is needed to support developing countries to achieve climate goals of the Paris Agreement.

The United Nations Framework Convention on Climate Change finds that developing countries will require at least US$6 trillion by 2030 to meet less than half of their existing Nationally Determined Contributions.

As UNCTAD highlights, developing countries face the double challenge of simultaneously investing in development and in climate mitigation and adaptation, while addressing the costs of loss and damage.

The scale of this challenge is staggering when close to 900 million people in the world do not have access to electricity, and more than 4 billion people do not have a social safety net they can rely on.

This challenge can only be met by truly upholding “common, but differentiated responsibilities”. That is, when rich countries and communities recognize their non-immunity and respect the development rights of poor countries and vulnerable communities. Only then will a new spirit of cooperation usher in to establish climate justice.

IPS UN Bureau

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Excerpt:

Odious Debts: What Can Bangladesh Learn from Ecuador?

Anis Chowdhury and Khalilur Rahman — Mon, 16 Sep 2024 18:46:39 +0000

By Anis Chowdhury and Khalilur Rahman
SYDNEY, NEW YORK, Sep 16 2024 (IPS)

Bangladesh’s White Paper committee will review foreign loan deals signed by the fallen kleptocratic regime. We recommend that it identifies and declares the loans or portions of loans that did not benefit the nation as unpayable, because they were siphoned off the country by corrupt politically powerful elites, or worse used to buy deadly weapons and surveillance equipment to oppress people. Such loans are “odious” – they stink and are detestable.

Anis Chowdhury

It is not clear if sufficient courage will be summoned to even include the loans from the international organisations and significant and powerful donor countries. However, this is vital as nearly 45% of Bangladesh’s debt is owed to multilateral organisations, such as the Asian Development Bank (ADB), the World Bank and the International Monetary Fund (IMF), whereas about 27% of the total loans is from bilateral donor countries, such as Japan and European Union.

These multilateral organisations and countries continued to irresponsibly provide life-lines to the autocratic Hasina regime despite fully knowing the regime’s wide-scale corruption and gross abuse of human rights, including suppression of democracy. It was public knowledge that the kleptocrats took large sums of ill-gotten money illegally out of the country.

Bangladesh can learn from Ecuador in dealing with these powerful organisations and significant donor countries with a view to cancelling or substantially reducing its odious debt burden.

Ecuador’s bold steps
Ecuador provides an example of a government which officially decided to investigate the process of indebtedness in order to identify its illegitimate debts and to make its debts sustainable for the sake of development. In July 2007, about seven months after winning the Presidency, President Rafael Correa created the Comisión para la Auditoria Integral de la Deuda Pública (CAIC – Comprehensive Public Credit Audit Commission). Rafael Correa’s idea was to take action to end repayment of a portion of the debt identified as fraudulent and illegitimate.

The Commission included representative of Ecuador’s social movements (e.g., indigenous peoples, feminists, labour unions and social-environmental activists) as well as international campaigners for cancellation of illegitimate debts. The government side was represented by the Ministry of Finance, the Comptroller’s Office, the Anti-Corruption Commission and the Public Prosecutors’ office.

Khalilur Rahman

The CAIC’s mandate was to conduct a comprehensive audit of the debts accumulated by Ecuador between 1976 and 2006. The term “comprehensive” is very important because the audit needed to avoid being limited to an accounting analysis of the country’s indebtedness. It was fundamental to measure the human and environmental impact of the policy of indebtedness.

Starting in November 2008, Ecuador suspended repayment of a large part of its debt deemed “odious”. Specifically, the country ended payment of interest due on the Ecuadorian securities traded on Wall Street amounting to approximately US$3.2 billion.

Quite unsurprisingly, the international financial press fed a lot of negative publicity and fear mongering that the action would severely impact Ecuador’s credit rating and foreign investment. However, in June 2009, the holders of 91% of the bonds in question accepted the Ecuador government’s proposal to buy them back at 35% of face value.

Thus, Ecuador repurchased US$3.2 billion worth of debt while disbursing US$900 million. This meant a saving of US$2 billion on the capital due, and the savings on the interest that would no longer had to be paid. The total amount saved is a little over US$7 billion.

Rafael Correa declared in his inaugural speech on 10 August 2009 that this “means a gain of more than US$300 million annually over the next 20 years – amounts that will go not into the creditors’ portfolios but will go to national development”.

Positive impacts
The debt reduction enabled the government to greatly increase social expenditures, in particular in the areas of health and education. Between 2007 and 2017, the Correa Government doubled social spending. By 2016, poverty had been reduced by 41.6%. Inequality, measured by the Gini coefficient, had fallen by 16.7%.

Despite predictions of chaotic and painful days ahead by the international financial press, nothing bad happened. Ecuador’s victory over its private foreign creditors was total. When the country decided a few years later to issue new debt securities on the financial markets, the investors crowded in to buy them. That is because they were convinced that the country’s situation had improved.

Lessons for Bangladesh
Bangladesh is not included in the list of debt-distressed countries and the latest IMF-World analysis finds Bangladesh’s external debt sustainable. The World Bank’s Country Director Abdoulaye Seck has recently said that the Bank is not concerned about Bangladesh’s debt payments.

However, concerned observers believe that the situation can quickly turn into a debt crisis. Thus, urgent actions are needed, including identifying odious debts and refusing the illegitimate obligation to repay them.

It is arguably unprecedented for a sovereign with a sustainable level of debt to refuse to honour existing obligations. President Rafael Correa asserted that this action was justified because these obligations were illegitimate.

Bangladesh must argue the same. We have good reasons to believe it will. Unlike Sheikh Hasina’s former Finance Minister Abul Maal Muhith, who famously declared that embezzlement in the order of US$ 40 million from the banks amounted to nothing, the Head of the Interim Government Prof. Yunus regards every taxpayer penny as valuable. We trust he will not hesitate to lead from the front.

In pursuing the matter, the government must not be discouraged to act for fear of pushbacks, especially when the parties mostly affected involve multilateral financial institutions.

Nevertheless, Bangladesh does not have to take a hostile position as Ecuador did when it declared the World Bank’s country representative as a person non-grata and expelled him, and withdrew from the World Bank’s International Centre for Settlement of Investment Disputes (ICSID). A more measured approach involving quiet negotiations should yield considerable benefits.

As a practical step, the Interim Government should immediately request the UN Secretary-General to set up an UN-led independent commission to review all debts incurred by the repressive autocratic regime that it replaced.

Actions on odious debt are absolutely doable and will not only provide Bangladesh additional fiscal resources for urgent social programmes, but also will incentivise all types of lenders to act responsibly. It will also give the lenders an opportunity to clear their names.

While Ecuador’s case was unique in dealing with commercial lenders in contemporary history, Bangladesh’s firm stance on odious debt will be an exceptional case involving official lenders – both multilateral and bilateral. Both Bangladesh and Ecuador cases can be powerful examples of ensuring developing countries’ debt sustainability and continued socio-economic progress.

Anis Chowdhury, Emeritus Professor, Western Sydney University (Australia) & former Director of UN-ESCAP’s Macroeconomic Policy & Development Division.

Khalilur Rahman, former head of economic, social and development affairs at the Executive Office of the UN Secretary-General; former head of UNCTAD’s Technology Division and Trade Analysis Branch and its New York Office; founder of East West University, Bangladesh.

IPS UN Bureau

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Recovering stolen assets: No weakening of resolve

Anis Chowdhury and Khalilur Rahman and Ziauddin Hyder — Wed, 04 Sep 2024 17:26:29 +0000

By Anis Chowdhury and Khalilur Rahman and Ziauddin Hyder
SYDNEY, NEW YORK, WASHINGTON DC, Sep 4 2024 (IPS)

The White Paper on the state of Bangladesh’s economy will include a review of “smuggled money”, according to the head of the committee, Debapriya Bhattacharya, entrusted to prepare the White Paper.

Anis Chowdhury

We strongly endorse this initiative given the huge scale of stolen assets, but it must not end with a review. It should be accompanied and followed up by vigorous actions to bring back the assets stolen during the fifteen years of despotic rule of the deposed Prime Minister Sheikh Hasina.

Previously Bhattacharya referred to the issue of bringing back siphoned money as “a complex issue”; but this should not dampen the resolve to strongly pursue this important matter. It will likely take many years of sustained efforts to repatriate a significant portion of such assets and the current interim government led by Professor Muhammad Yunus should put in place an action plan supported by necessary mechanisms, including international cooperation arrangements, which would be continuously pursued over the coming years. Strong and sustained political will be critical to the success of these efforts.

Bangladesh can learn from other countries in in its pursuit of recovering stolen assets.

Success cases: A positive trend
It is encouraging that despite complexities and difficulties, there have been cases of significant success based on international cooperation. Over US$10 billion of stolen assets have been returned between 1997 and 2023. Since its inception in 2007, the UN-World Bank joint “Stolen Asset Recovery Initiative” (STaR), helped recover close to US$2 billion stolen assets.

Khalilur Rahman

There has been a significant increase in the value of corruption-related assets recovered since 2019, driven partly by large asset returns to Malaysia related to the 1MDB scandal. Increasingly countries are signing agreements and publishing information on corruption-related asset returns. Examples include:

US ruled that stolIn 2020,

the US and Jersey returned US$311 million to Nigeria

Philippines was able to repatriate US$683 million

Peru recovered nearly over US$180 million

Nigeria recovered US$505 million

the US transferred over US$20.6 million to Nigeria

the UK returned £4.2 million to Nigeria

the UK returned around £450,000 to Moldova

British authorities returned US$1.9 million to Nigeria

US and Switzerland repatriated US$84 million to Kazakhstan

As of year-end 2020, the Philippine government recovered P174.2 billion in Marcos ill-gotten wealth and as of 2021, 35 years since the people power revolution, the Presidential Commission on Good Government (PCGG) that Cory Aquino established, has been running after P125.9 billion more in ill-gotten wealth from the Marcos family.

Ziauddin Hyder

It took more than three decades for the Philippines to recover a significant amount of its assets stolen by Marcos and his family. Nevertheless, the Philippines case demonstrates the political will to persist and doggedness in pursuit of ill-gotten money. The PCGG is housed proudly in a building recovered from the Marcos family. In 2023, it received government budget of ₱166.47 million (US$2.95 million). Its staff have traced money through jurisdictions all over the world and fought their way through hundreds of court cases.

Nigeria and Peru have taken an average of five years to achieve successes. This reflects improvements in the processes and increased international efforts as well as cooperation in recent years.

Haiti cannot be Bangladesh’s role model
The main challenge is the weakening of political will to continue pursuing illicit assets as it happened in post-Jean Claude Duvalier Haiti. The Duvalier case has been a slow and laborious process taking decades to unfold.

Haiti’s lack of political will was highlighted in 1989 by an attorney working on Duvalier’s case on behalf of the Haitian government. According to The New York Times, despite sending twenty-five requests for assistance to Haitian officials regarding cases in New York, by September 1988, Haiti’s government had “inexplicably stopped cooperating—and, not so incidentally, stopped paying its legal bills.”

Renewed asset recovery efforts in the US by the Haitian government of President Aristide yielded only minimal results, with the most well-known being the recovery of US$350,000 from Duvalier’s wife’s account at the Bank of New York.

Some believe that, had Haiti not dropped the original Duvalier asset recovery, the Haitian government could have recovered between US$25 and US$75 million by 1990. However, the resulting debacle left Duvalier free and the majority of his assets untouched. Meanwhile, Haiti had to face a US$1.2 million legal bill and with justice denied.

Why Bangladesh must persist
Notwithstanding complexities, in recent years there have been significant successes due to enhanced law enforcement tools and improved international cooperation from well-meaning countries and financial centres. These help the fight against corruption and impunity.

Recovering stolen assets should not be focused simply on money. It must also be seen as a tool of deterrence as well as fighting the impunity. Stolen asset recovery serves three distinct purposes: (i) recovering monies to fund governments programmes, especially helping the victims of the fallen regime;(ii) providing a semblance of justice for victims of a political culture of impunity; and (iii) deterring officials and politically connected elites from engaging in corruption.

Therefore, the efforts to bring back lost assets should not be regarded as a stand-alone undertaking; but should become an integral part of the agenda of reforming the state so that incentives and opportunities of siphoning off scarce resources are effectively removed.

Anis Chowdhury, Emeritus Professor, Western Sydney University (Australia) & former Director of UN-ESCAP’s Macroeconomic Policy & Development Division.

Ziauddin Hyder, Former Director Research BRAC and Adjunct Professor, University of the Philippines at Los Banos

IPS UN Bureau

Follow @IPSNewsUNBureau

Recovering Bangladesh’s Stolen Wealth

Anis Chowdhury and Khalilur Rahman and Ziauddin Hyder — Tue, 27 Aug 2024 23:00:57 +0000

By Anis Chowdhury and Khalilur Rahman and Ziauddin Hyder
SYDNEY, NEW YORK, WASHINGTON DC, Aug 27 2024 (IPS)

Bangladesh bleeds as over US$3 billion drains from Bangladesh annually through offshore accounts. According to a recent report, close to US$150 billion was siphoned off the country during 15 years of kleptocratic Hasina regime’s mis-rule. Nearly US$50 billion went out of the country in the first six years (2009-2015) of the Hasina regime.

Anis Chowdhury

Urgent action is needed not only to stop this fatal bleeding, but also to recover the country’s stolen wealth.

Corruptions and illicit transfer of funds
Bangladesh has been a fertile ground for corruption and usurpation of public money. A 2011 UNDP report ranked Bangladesh at the top along with Angola among least developed countries (LDCs) for “illicit financial flows”.

Corruption and illicit transfer of funds reached an unprecedented level during the fallen Sheikh Hasina’s autocratic regime as the regime’s survival became increasingly reliant on letting its cronies and kleptocrats rob banks. A staggering US$8.4 billion was misappropriated from banks alone through irregularities, misuse of powers, and money laundering.

Another major source of corruption by kleptocrats has been grossly inflated aid- and foreign debt-funded mega projects. Tax evasion by politically connected elites has been a major source of revenue loss, estimated at US$703 million a year.

A 2017 Global Financial Integrity Report found illicit financial flows from Bangladesh the highest among LDCs. On average as much as US$8.3 billion per year has been laundered from Bangladesh through trade mis-invoicing alone – by inflating import price and under-pricing exports – between 2009 and 2018.

Khalilur Rahman

Besides using “hundi”, criminals also use their children studying abroad as “money mules” to transfer illegally acquired wealth. Various schemes, such as “golden visa”, “second home”, of destination countries like Canada, Portugal, Australia, Malaysia, Dubai – also provide easy means to launder illegally gained wealth.

It is reported that 252 Bangladeshi bureaucrats, police and other officials bought houses in the United States by laundering the country’s money. Bangladeshis top the list of foreign buyers of real estates in Dubai. Canada’s “Begumpara” has become the “forbidden paradise” of wealthy Bangladeshis. One ex-minister of the previous regime alone owns 350 properties, worth approximately over US$264 million, in the UK.

The offshore financial wealth of Bangladeshis is estimated at 0.7% of the nation’s GDP. Illicit fund transfer from Bangladesh is estimated at 2.2% of the country’s total revenue in fiscal year 2019-20, and deprives Bangladesh of over US$700 million worth of revenue income.

Kleptocracy: Rule by thieves
Under Sheikh Hasina, state institutions served regime elites or kleptocrats to exploit citizens. This undermined democratic norms and weakened economy’s foundation. Kleptocrats often stash their ill-gotten gains outside the country.

Ziauddin Hyder

Had the ill-gotten money remained and invested in the country, the economy would have at least benefitted even though at the cost of rising disparities and misgovernance. However, with such a large illicit outflow of funds, the country has the worst of both – an increasingly precarious economy, unable to create productive and decent jobs for a growing youth population, and inequality of income and wealth rapidly growing to an obnoxious level – while all state institutions are captured by regime’s partisans.

Recovering stolen wealth for sustainable development
Corruption and illicit transfer of funds are a major drag on development. Therefore, asset recovery is included in the Sustainable Development Goals (SDG) under Goal 16.4 and in the commitments under the Addis Ababa Action Agenda on Financing for Development.

The recovery of stolen assets is a fundamental principle of the UN Convention against Corruption. Chapter V of the convention provides a framework for the return of stolen assets, requiring states parties to take measures to restrain, seize, confiscate, and return the proceeds of corruption.

However, there is no single international authority responsible for recovering laundered money. Several mechanisms and institutions work together to address this issue. There are a number of international laws and conventions that can be used to claim laundered money. These agreements provide a framework for cooperation between countries in combating money laundering, terrorist financing, and other financial crimes.

Bangladesh can seek assistance of the United Nations, the World Bank and Interpol. The United Nations Office on Drugs and Crime (UNODC) and the World Bank have a joint Stolen Asset Recovery Initiative (StAR) to support international efforts to end safe havens for corrupt funds. Since its establishment in 2007, StAR has assisted over 35 countries in drafting legal frameworks, setting up the institutional structure, and building the skills necessary to trace and return stolen assets.

Interpol assists countries to recover and return assets obtained corruptly. Interpol works closely with a number of national, regional and international bodies such as the International Anti-Corruption Coordination Centre, which brings together specialist law enforcement officers from multiple agencies around the world to tackle allegations of grand corruption and help bring corrupt elites to justice.

Political will is critical
The recovery and return of criminal assets is a complex process. It can take many different shapes, depending on the type of corruption offense, how the recovery effort is initiated and by whom. It also depends on whether a criminal conviction exists in the state of origin, whether criminal or civil process is used – or both; as well as which legal mechanisms to restrain assets are available in the destination state. Whether the state harmed by corruption has requested a return of their stolen assets is fundamentally important.

However, the most critical factor is political will. Collusive abuse of power is the most important reasons why nothing happens to the perpetrators of high-level corruption and illicit transfer of funds.

Bangladesh itself has the Money Laundering Prevention Act, which criminalises laundering and authorises the confiscation of laundered assets. Bangladesh has also signed mutual legal assistance treaties (MLATs) with other countries.

Sadly, the country does not effectively use any of the tools to recover laundered money, whether during Hasina’s autocratic rule or prior to it. Bangladesh is yet to sign MLATs with popular money laundering destinations – Australia, Canada, Cyprus and Switzerland.

Time to act now
The leading national dailies have recently carried editorials highlighting the urgent need to recovering the country’s smuggled money. Politicians are also raising the issue with important countries, such as Switzerland. The President of the Bangladesh Economic Association has urged for the formation of a separate commission to stop corruption, money laundering and recovery of undisclosed money.

There is also momentum in some destination countries. For example, Sheikh Hasina’s niece, Tulip Siddiq, a British Bangladeshi Labour Party lawmaker and a minister, is being investigated by the UK parliament’s standards for a London property.

Bangladeshi diaspora community has been active in exposing money laundering and real estate investments by corrupt Bangladeshi politicians and elites in various countries; and is campaigning to confiscate their assets.

Thus, there is a momentum; and the interim government must act now. This is the best opportunity for the country to recover its billions of dollars of stolen asset. The head of the interim Government, Professor Yunus, must use his international standing and good will to request the United Nations, the Interpol and destination countries to assist Bangladesh in this regard.

The interim Government should also initiate MLATS with missing popular destination countries and become a party to the OECD’s Convention on Mutual Administrative Assistance in Tax Matters and “Common Reporting Standard”. This will allow Bangladesh to obtain the bank account and other financial information of Bangladeshis living in the signatory countries.

Anis Chowdhury, Emeritus Professor, Western Sydney University (Australia) & former Director of UN-ESCAP’s Macroeconomic Policy & Development Division.

Khalilur Rahman, former Secretary of the UN Secretary-General’s High-level Panel on Technology Bank for LDCs; former head of UNCTAD’s Trade Analysis Branch and its New York Office.

Ziauddin Hyder, Former Director Research BRAC and Adjunct Professor, University of the Philippines at Los Banos

Dealing with Bangladesh’s Odious Debt

Anis Chowdhury and Khalilur Rahman — Fri, 16 Aug 2024 06:20:04 +0000

By Anis Chowdhury and Khalilur Rahman
SYDNEY, NEW YORK, Aug 16 2024 (IPS)

Bangladesh has become increasingly indebted since 2009. The country’s external debt stock increased from US$23.3 billion in 2008 to US$100.6 billion in December 2023 (see figure below). Thanks to the country’s mega-projects led so-called development with borrowed money under the now deposed authoritarian regime of Sheikh Hasina.

Anis Chowdhury

The new government should urgently put a moratorium on debt re-payments using UN Security Council resolution 1483 that granted a debt-shield to prevent creditors from suing the government of Iraq to collect sovereign debt. The new government then initiate an independent review of all debt contracts under the autocratic regime to determine beneficial uses of incurred debts. The review should declare the proportion that was wasted through corruptions or used for financing repressions of the regimes as “odious”.

Odious debt is a concept in international law that refers to debt “incurred by rulers who borrowed without the people’s consent and used the funds either to repress the people or for personal gain”. There are moral, economic and legal arguments for not re-paying the odious portion of debts.

Autocrat’s debt bonanza
Bangladesh’s average external debt stock jumped from US$10.7 billion over more than 3 decades (1972-2008) to US$52.6 billion during 2009-2023 when Hasina’s autocratic regime consolidated power by unprecedented machinating three consecutive elections, making State institutions partisan and unleashing brutal repressions.

Corruptions, money laundering, and poor project management as well as selections meant that the revenue flows or returns from these mega-projects are far less than what is required for servicing the debt. Gross external debt-GDP ratio increased from around 28% in 2016 to around 37% in 2023. Likewise, external debt-export earnings ratio increased from 56.3% in 2016 to 116.6% in 2023. These key indicators indicate that Bangladesh is heading for a corruption induced debt crisis, temporarily given respite by the International Monetary Fund (IMF).

The IMF’s loan will have to be repaid with interests; paying debts by borrowing; or using one line of credit to pay for another line of credit cannot be sustained for long. There are better ways to deal with unstainable debts, especially when the indebtedness is due to creditors’ continued lending despite well documented evidence that the borrowed money is misused and siphoned off the country.

Khalilur Rahman

Irresponsible lending is odious
Lenders should be held responsible for irresponsible lending knowing the extent of corruption, misuse and repression in the country, and that the borrowed money was providing a life-line to a highly corrupt and repressive regime. The debt-funded mega projects were used by the regime to legitimize its misrule and suppression of people’s democratic rights. Such debts are odious.

Such debts are odious, and violet the “Principles on Promoting Responsible Sovereign Lending and Borrowing”, developed by the United Nations Conference on Trade and Development (UNCTAD). These Principles demand that lenders refuse to lend to the regime, thus preventing wasteful or harmful spending. These Principles not only make a repressive regime less likely to survive, but also ensure debt sustainability.

Core international legal norms and principles, such as Good Faith, Transparency, Impartiality, Legitimacy and Sustainability are applied in the UNCTAD Roadmap and Guide to Sovereign Debt Workout Mechanisms and in the UN General Assembly resolution A/RES/69/319 on Sovereign Debt Restructuring Processes, adopted in September 2015.

Moral, economic and legal arguments for repudiating odious debts
The prospect of yoking innocent generations of citizens to the repayment of a corrupt and repressive regime’s profligate debt is simply distasteful; morally repugnant; economically untenable, and legally indefensible.

The moral case for repudiating odious debts arises from the premise that some regimes are so repugnant that they should be actively condemned by the international community. The world should not stand by silently as a regime murders its own people or loots the country’s wealth while ordinary citizens starve.

The economic justification for repudiating odious debts rests on the prospect of increasing the welfare of the country in at least three ways: (1) there will be a lower debt burden to service; (2) odious regimes, which reduce welfare, are less likely to emerge; and (3) should they emerge, they are less likely to survive for a long time.

The legal argument for repudiating odious debts is consistent with the accepted view that equity constitutes part of the content of “the general principles of law of civilized nations”, one of the fundamental sources of international law stipulated in the Statute of the International Court of Justice. Thus, the international law obligation to repay debt can never be absolute, and has been frequently limited or qualified by a range of equitable considerations, some of which may be regrouped under the concept of “odiousness.”

In many countries legally individuals do not have to repay if others fraudulently borrow in their name, and corporations are not liable for contracts that their chief executive officers or other agents agree to without any authority.

An analogous legal argument is: sovereign debt incurred without people’s consent and not benefiting the people should not be transferable to a successor government, especially if creditors are aware of these facts in advance.

Historical precedence
The doctrine of odious debt originated in 1898 after the Spanish-American War. The United States argued during peace negotiations that neither it nor Cuba should be held responsible for debt the colonial rulers had incurred without the consent of the Cuban people and not used for their benefit.

Other historical cases of repudiating odious debts include: Soviet repudiation of Tsarist debts; Treaty of Versailles (1919) and Polish debts; Tinoco arbitration (1923) – (Great Britain vs Costa Rica); German repudiation of Austrian debts (1938); Treaty of Peace with Italy (1947).

In recent decades, major shareholders forced the IMF to cut all lending to the former President of Croatia, Franjo Tudjman, in 1997, after he was accused of resorting to political violence and appropriating public funds.

The Khulumani Support Group, representing 32,000 individuals who were “victims of state-sanctioned torture, murder, rape, arbitrary detention and inhumane treatment” filed a law suit in 2002 in the New York Eastern District Court against 8 banks and 12 transnational companies demanding apartheid reparations.

In 2003, the concept of odious debts was used by the US to argue for cancelling Iraq’s debts of over US$125 billion incurred by Saddam Hussain after his overthrow. It was argued that such debt not only impeded a successful rebuilding of post-authoritarian States, but that the debts were never legitimate inheritances of the new government.

Treasury Secretary John Snow held “the people of Iraq should not be saddled with those debts incurred through the regime of a dictator who has now gone.” Undersecretary of Defence Paul Wolfowitz emphasised that much of the money borrowed by the Iraqi regime had been used “to buy weapons and to build palaces and to build instruments of oppression.”

After an evaluation, the Government of Norway in 2006 determined that obligations arising out of lending to certain developing countries as part of the Ship Export Campaign of 1976–1980, and guaranteed through the Norwegian Institute for Export Credits, should be cancelled on grounds that Norway ought to share responsibility with debtor countries for the programme’s failure.

The Norwegian case is not an example of “odious debt”, but is due to the notion of co-responsibility and reflect the idea that repayment may be subject to broader considerations of the equities of the debtor–creditor relationship.

What needs to be done
The Interim Government of Bangladesh should immediately put a stop to external debt servicing and request the UN Secretary-General to set up an UN-led independent commission to review all debts incurred by the repressive autocratic regime that it replaced. The UN-led review commission must not include lenders – multilateral and bilateral – due to likely conflict of interest, especially when they irresponsibly continued to lend to the regime, knowing its corruptions and usurpation of democracy.

This requires political will as powerful countries and international financial institutions may be offended.

The people have expressed their strong will to build a new country based on the principles of accountability, fairness, equity, inclusiveness and justice.

The burden of odious debts of the repressive regime and irresponsible lendings must not weigh on rebuilding of a new Bangladesh.

Anis Chowdhury, Emeritus Professor, Western Sydney University (Australia) & former Director of UN-ESCAP’s Macroeconomic Policy & Development Division.

Khalilur Rahman, former Secretary of the UN Secretary-General’s High-level Panel on Technology Bank for LDCs; former head of UNCTAD’s Trade Analysis Branch and its New York Office.

IPS UN Bureau

Follow @IPSNewsUNBureau

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The Demise of Democracy and Human Rights Violations in Bangladesh: International Financial Institutions’ Culpability

The Demise of Democracy and Human Rights Violations in Bangladesh: International Financial Institutions’ Culpability

Anis Chowdhury and Khalilur Rahman — Tue, 06 Aug 2024 05:03:56 +0000

By Anis Chowdhury and Khalilur Rahman
SYDNEY, NEW YORK, Aug 6 2024 (IPS)
The International Monetary Fund (IMF), World Bank and Asian Development Bank (ADB) are complicit in the gross human rights violations and death of democracy in Bangladesh. They continued to supply financial blood line to the regime, well-documented for its corruptions, human rights violations – such as forced disappearances and tortures in custody – and riggings of votes, including politicization of state institutions in its slide into autocracy. This is despite their professed commitment to transparency, accountability and good governance (IMF, World Bank, ADB).

Anis Chowdhury
A democratically elected government must not bear responsibility for any loan agreements that these organizations had with a regime remaining in power through rigged elections. The financial support from these multilateral institutions have provided legitimacy to a regime which is regarded widely as illegal, thus enabled it to survive.

Continued life-line from the IMF, World Bank and ADB
The IMF approved Bangladesh’s US$4.7 billion bailout in January 2023. The first review of the bailout plan was cleared in December and gave Bangladesh immediate access to about US$468.3 million for its economy and about US$221.5 million in support of its climate change agenda.

On 21 June, 2024 the World Bank’s Board of Executive Directors approved two projects totalling US$900 million. The Bank’s yearly commitment of loans increased from US$2 billion in 2015 to US$3 billion in 2018.

The (ADB) has been a major source of external financing in Bangladesh, providing an average of US$2 billion per year since 2016. As of 31 December 2023, ADB has committed 726 public sector loans, grants, and technical assistance totalling US$31.8 billion to Bangladesh. Cumulative sovereign and non-sovereign loan and grant disbursements to Bangladesh amount to US$23.52 billion.

Legitimizing an undemocratic regime
The government led by Sheikh Hasina retained power in successive terms since 2014 through rigged elections, unprecedented in the history of the country. She used her majority in parliament to change the constitution, especially the system of a neutral care-taker government to conduct elections, as well as to politicize state institutions with the sole aim of clinging to power.

Khalilur Rahman
The elections in 2014 were preceded by a severe government crackdown on the opposition, including widespread arrests, violence, attacks on religious minorities, and extrajudicial killings by the government, with around 21 people killed on the election day.

In 2018, the ballot boxes were filled the night before the election day. Following the rigged 2018 election, Deutsche Welle (DW) reported the findings of the Bertelsmann Foundation that Bangladesh has turned into an autocracy. Time Magazine in its cover story (30 Nov. 2023) expressed grave concerns about the fate of democracy in Bangladesh under the “Hard Power” of Sheikh Hasina. The New York Times (3 Sept. 2023) reported how “democracy in Bangladesh is quietly being crushed”.

The recent election, held on 7 January 2024, was a sham, was characterized by bans of the opposition candidates and boycotts by the main opposition party, ‘dummy’ candidates, coerced voting and a low voter turn-out.

Unfortunately, the IMF, the Bank and ADB turned a blind eye and continued to support the regime with a doubtful legitimacy. This has enabled the regime to become not only increasingly authoritarian, but also extremely corrupt.

Enabling corruption
Laudably in 2012, the Bank pulled out of a project to build Bangladesh’s largest bridge, citing corruption concerns. However, it seems the Bank has been looking to absolve itself.

The Bank’s recently approved loan of US$900 million to Bangladesh is apparently for strengthening fiscal and financial sector and ensuring sustainable and climate-resilient growth. This time, the Bank seems not to care that around 54.40% of funding for climate change mitigation projects was embezzled or wasted through various irregularities and corruptions, and the country’s financial sector “has long been devilled by scandalous corruption”.

Bangladesh is the 10th most corrupt country in the world. As Sheikh Hasina’s regime turned into a kleptocracy after her winning power in 2008, nearly US$50 billion was siphoned off Bangladesh in six years (2009-2015). Money laundering by Bangladeshi elites is a “common knowledge”. The names of 89 Bangladeshis have appeared in the Paradise Papers and 6 Bangladeshis have been named in Pandora Papers of the International Consortium of Investigative Journalists (ICIJ).

There is a clear link between autocracy and corruption. The US has imposed sanctions on a former Army Chief for his “significant involvement in corruption”. A former Police Chief is also investigated for wide-scale corruption. Both played a significant role in undermining the democratic election process in Bangladesh and institutionalizing political repression.

A 2021 investigative documentary on Bangladesh, All the Prime Minister’s Men by Al Jazeera, exposed wide-scale corruption by powerful political and military figures connected to Sheikh Hasina herself.

Odious loans not a democratically elected government’s responsibility
Bangladesh is at a historic cross-road as it has just witnessed the demise of an autocratic and corrupt regime. In a re-born Bangladesh, the new democratically elected government should review all loan agreements of the corrupt and illegitimate regime, including those with China. If found dubious and the proportion lost in corruption, should be declared as “odious”.

As United Nations Conference on Trade and Development (UNCTAD) emphasizes, the international law obligation to repay debt has never been accepted as absolute. The obligation to repay loans is limited only to the category or portion that are not deemed odious.

Anis Chowdhury, Emeritus Professor, Western Sydney University (Australia) & former Director of UN-ESCAP’s Macroeconomic Policy & Development Division.

Khalilur Rahman, former Secretary of the UN Secretary-General’s High-level Panel on Technology Bank for LDCs; former head of UN-OHRLLS’s Policy Development, Coordination and Monitoring Service for LDCs’; former head of UNCTAD’s Technology and Logistics Division, Management Division, Trade Analysis Branch and its New York Office.

IPS UN Bureau

Follow @IPSNewsUNBureau


A Bleak Future 50 Years after the New International Economic ‘Non-order’?

Anis Chowdhury — Wed, 03 Jul 2024 09:29:38 +0000

By Anis Chowdhury
SYDNEY, Jul 3 2024 (IPS)
Fifty years ago on 1 May 1974, the Sixth Special Session of the General Assembly (April–May) adopted a revolutionary declaration and programme of action on the establishment of a New International Economic Order (NIEO) “based on equity, sovereign equality, interdependence, common interest and cooperation among all States, irrespective of their economic and social systems”. The hope was that a NIEO would “correct inequalities and redress existing injustices, make it possible to eliminate the widening gap between the developed and the developing countries and ensure steadily accelerating economic and social development and peace and justice for present and future generations”. Alas, what evolved is far from what was envisioned or called for.

Anis Chowdhury
Failed aid promise

The NIEO resolution reaffirmed the minimum target – originally defined in the strategy for the second Development Decade – of 1% of the gross national product (GNP) of each developed country to be transferred to developing countries, out of which 0.7% of GNP would be as official development assistance (ODA).

But, ODA steadily declined from around 51% of GNI in the early 1960s to around 32% during 2017-2021. Oxfam estimated that 50 years of broken promises meant a US$5.7 trillion aid shortfall by 2020. Only five countries met the ODA target of 0.7% of GNI: Denmark (0.70%), Germany (0.83%), Luxembourg (1.00%), Norway (0.86%) and Sweden (0.90%).

Unreformed international monetary system and financing of development

The NIEO resolution called for (i) full and effective participation of developing countries in all phases of decision-making at the International Monetary Fund (IMF) and the World Bank; (ii) adequate and orderly creation of additional liquidity through the additional allocation of special drawing rights (SDRs); and (iii) early establishment of a link between SDRs and additional development financing.

None has materialised. Despite repeated commitments, and notwithstanding some minor improvement between 2005 and 2015, the representation of developing countries in international financial institutions, regional development banks and standard-setting bodies, e.g., OECD’s international taxation, has remained largely unchanged. The governments of the largest developed countries continue to hold veto powers in the decision-making bodies of these institutions.

The unchanged mechanism for allocating SDRs in proportion to countries’ IMF quota shares meant that most of the latest SDRs allocation of (about US$650 billion) in 2021 went to advanced economies; developing countries received only about one third, the most vulnerable countries receiving much less. While both G7 and G20 called for a voluntary rechannelling of US$100 billion worth of unused SDRs, only a fraction has actually been rechannelled to developing countries.

Increased indebtedness

The NIEO resolution envisioned “appropriate urgent measures …to mitigate adverse consequences for … development … arising from the burden of external debt”. These included debt cancellations, moratorium, rescheduling or interest subsidisation, and reorientation of international financial institutions lending policies.

Failure to fulfil aid promises and reform the global financial architecture, including the IMF quota-based SDRs allocations, forced developing countries to borrow from commercial sources at exorbitantly high interest rates with shorter maturity terms and no mechanism for restructuring. This has exacerbated the debt crisis. Almost 40% of all developing countries (52 countries) suffer from severe debt problems and extremely expensive market-based financing.

Only after extensive lobbying by civil society organisations, did the IMF and the World Bank jointly take the Heavily Indebted Poor Countries Initiative in 1996, supplemented by the Multilateral Debt Relief Initiative in 2005. Despite the IMF’s debt service relief, and some limited G20 debt service suspension during the Covid-19 pandemic for low-income countries (LICs), the debt crisis worsened, with 60% LICs already at high risk of or in debt distress.

Rising food insecurity

The NIEO resolution called for the accumulation of buffer stocks of commodities in order to offset market fluctuations, combat inflationary tendencies, and ensure grain and food security.

Developing countries are far from attaining food security. Even before the Ukraine war, food insecurity around the world was rising. The Food and Agricultural Organization (FAO) estimated that in 2022 approximately 30% of the global population (2.4 billion people), did not have constant access to food. Among them, around 900 million people faced severe food insecurity, and an additional 122 million people have been pushed into hunger since 2019. World Bank projections show that by 2030, over 600 million people will still struggle to feed their families.

Meanwhile, Africa turned from a net-exporter to a net-importer of food since the adoption of NIEO resolution. While developing countries had an overall annual agricultural trade surplus of almost US$7 billion in the early 1960s, “since the beginning of the 1990s they have generally been net importers of agricultural products, with a deficit in 2001, for example, of US$11 billion.”

Deindustrialisation

The NIEO resolution called for “all efforts … by the international community” for “the industrialization of the developing countries”.

Except for a few countries in Asia, deindustrialisation has become the unfortunate fate for developing countries. For Africa, the GDP share of manufacturing declined from around 17% in 1990 to around 11% in 2019, and Africa remains the least industrialised region in the world. In most central Asian countries, manufacturing’s GDP shares declined from around 20% in the early 1990s to less than 10% in 2015. Large Latin American countries, e.g., Argentina, Brazil, Chile and Mexico also witnessed declines in manufacturing’s GDP shares.

The deindustrialisation has seen increasing specialisation in commodities, resource-based manufactures and low productivity services. Thus, majority of developing countries remain vulnerable to commodity price swings.

Even late-comer Asian developing countries, including China, face the risk of premature deindustrialisation. Some, e.g., Malaysia, the Philippines and Thailand, are already are in a ‘middle-income trap’.

Trade and technology barriers

The NIEO resolution asked for “improved access to markets in developed countries through the progressive removal of tariff and non-tariff barriers and of restrictive business practices”.

Yet, there has been a resurgence of protectionism in OECD countries since the late 1970s. The trade protectionism under different guises, such as health and sanitary standards, persisted even after the establishment of the World Trade Organization (WTO). The World Bank has warned, “protectionist measures are on the rise… [and] detrimental policies have been outpacing trade-liberalizing policies”.

The NIEO resolution also emphasised that developing countries needed to be given “access on improved terms to modern technology and to adapt that technology, as appropriate… and … adapt commercial practices governing transfer of technology to the requirements of the developing countries”.

Still, strengthened intellectual property rights, reinforced in the WTO’s agreement on Trade-Related Intellectual Property Rights (TRIPs), have raised the costs of acquiring technology, reducing technology transfers, raising transnational corporations (TNCs)’ monopoly powers. Developed countries refused to relax TRIPs to allow developing countries’ access to Covid-19 vaccines, drugs and testing technologies.

Unabated power of transnational corporations

The NIEO resolution demanded “permanent sovereignty of States over natural resources”; and “regulation and control over the activities of transnational corporations… to prevent interference in the internal affairs of the countries … to eliminate restrictive business practices…to conform to the national development plans and objectives of developing countries, …to transfer …technology and management skills to developing countries on equitable and favourable terms; to regulate the repatriation of the profits … and to promote reinvestment of their profits in developing countries”.

The UN Commission on TNCs, a body created in 1974 for the purpose, struggled to agree on the draft code of conduct on TNCs, and in 1994 was replaced by a Commission of the Trade and Development Board of UNCTAD.

TNCs continue to influence and mould domestic and international politics to their interests. TNCs have governments at their beck and call – witness their consistent success at dodging tax payments. Stringent WTO’s TRIPS was adopted at the behest of TNCs, especially to protect monopoly profits of big transnational pharmaceutical companies.

TNCs exert political influence to liberalise trade and investment; obtain subsidies; reduce their tax burdens; dilute working conditions; relax environmental protection. As Dani Rodrik noted, the WTO is heavily influenced by major banks and TNCs. Through the World Economic Forum (WEF), the TNCs are now setting global economic agenda.

Diminished States

The NIEO resolution contained the Charter on Economic Rights and Duties of States. However, neo-liberalism promoted by US President Reagan and UK Prime Minister Thatcher sees State as a problem. Privatisation, liberalisation and deregulation have significantly eroded the State from its customary intervention in regulating economic growth and promoting redistribution. The erosion of the State as an institution is visible in underfunded social programmes, a smaller public sector, weakened regulatory structures, foregone infrastructure projects, public assets sales and continued privatisation.

Questionable legitimacy of global economic governance

The NIEO resolution demanded that the United Nations, in particular the Economic and Social Council, be entrusted with the responsibility of setting global economic agenda and coordinating it as the most inclusive organisation with legitimacy. Besides the TNC takeover of global economic agenda setting through WEF, non-inclusive informal country groupings, e.g., G7 and G20, with questionable legitimacy and formal bodies, e.g., OECD and Bank for International Settlements, are acting as norm-setters. Thus, developing countries remain unpresented and disadvantaged.

Opportunity lost

The NIEO resolution was initiated in the wake of the collapse of the post-World War II Bretton Woods System in 1971, aimed at supporting development aspirations of developing and newly decolonised countries. However, the developed world failed to see that more orderly world growth and prosperity of developing countries would have benefited them too.

Instead, they engaged in protected negotiations dragging on for about two years. The resolution was adopted by a divisive majority vote (123 for, 50 against and 1 abstention) amidst fierce opposition from developed countries.

The United States took the position that “it cannot and does not accept any implication that the world is now embarked on the establishment of something called the New International Economic Order”. The NIEO effectively went into oblivion after President Reagan declared in 1981, “We should not seek to create new institutions”.

Thus, the developed world ensured NIEO’s failure while the global economy continues to struggle under a “non-system”. The world economy has also become more crisis prone; we had the Latin American debt crisis in the 1980s, the 1997-98 Asian financial crisis, the 1998 Russian financial crisis, the 2000 Turkish lira crisis and the 2002 Argentine crisis within a short span of two decades. And the global financial and economic crisis showed, a crisis originating in one corner of the globe can quickly engulf the whole world.

Yet, we still do not have a global financial governance mechanism to deal with such crises fairly. What is most disappointing may not be the failure of the NIEO as such, but the hope that it inspired.

A bleak future?

Initiated by Progressive International, delegates from over 25 countries of the Global South assembled in Havana on 27 January 2023 to declare their intent to build a NIEO fit for the 21st century, countering the TNCs’ global economic agenda setting behind the WEF. The signatories of NIEO-Mark II seek to rebuild the collective power of emerging and developing countries for fundamentally transforming the international system, and for alternative ways to respond to global crises.

NIEO-Mark II is essentially, a call for shared and differentiated responsibilities for equitable development. Developed countries acknowledge the principle of ‘common but differentiated responsibilities’, formalised at the 1992 Rio Earth Summit. But they have failed to meet their financing commitments and reneged on various targets to address global warming.

Amidst ongoing global challenges, including the climate emergency geopolitical conflicts, public health crisis, global food insecurity, outstripping the response capacity of the UN, the UN Secretary-General has called for a Summit of the Future – Our Common Agenda to be held on 22-23 September 2024.

The Summit of the Future is expected to find multilateral solutions for better tomorrow; resulting in an inter-governmentally agreed “Pact for the Future” to tackle emerging threats and opportunities.

What is the chance that the nations would agree to the “Pact for the Future”? To what extent the Pact will accommodate NIEO-Mark II?

The world now is more divided than it was in the 1970s when NIEO-Mark I was first proposed. Yet, plagued by ideological conflicts, NIEO-Mark I failed, making the world more crisis prone. One can only hope that the rising ideological and geo-political tensions do not lead to a bleak future.

Anis Chowdhury, Emeritus Professor, Western Sydney University (Australia). Served as a senior official at the UN Department of Economic Social Affairs (UN-DESA, New York) and UN Economic and Social Commission for Asia and the Pacific (UN-ESCAP, Bangkok) between 2008-2016.

IPS UN Bureau

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Gaza Massacre and Western Hypocrisy

Anis Chowdhury — Mon, 04 Mar 2024 18:09:19 +0000

By Anis Chowdhury
SYDNEY, Mar 4 2024 (IPS)
Israeli troops opened fire targeting the Palestinians, gathered around food aid trucks, killing at least 112 and injuring hundreds on 29 February. The massacre happened, about a month after the International Court of Justice (ICJ) ordered provisional measures for Israel to refrain from all acts under the Genocide convention. Ironically Israel was supposed to report to the Court, within one month, of all measures taken in line with its order. Israel has been emboldened by a beholden US.

Anis Chowdhury
Beholden US
The US rejected the South Africa’s genocide case against Israel before the ICJ as “counterproductive, meritless and without any evidence”. It continued to “believe that allegations of genocide are unfounded” even after the ICJ provisional orders and noted that the court did not call for a ceasefire.

President Joe Biden did not condemn the shootings, but said Washington was checking “two competing versions” of the killings. He only feared that the event would complicate the on-going efforts to broker a hostage exchange deal and a temporary so-called humanitarian pause. So, the US asked only for a clarification from the Israeli government while the rest of the world demanded an independent inquiry.

Unsurprisingly, Israel initially pinned “the blame on the crowd”, crushed and trampled in a stampede when aid trucks arrived; then the IDF inquiry found no wrongdoing by its soldiers “felt threatened” when hundreds of Palestinians approached them. It did not care to say how an army, equipped with most advanced weapons, could be threatened by hungry unarmed Palestinians, requiring indiscriminate firing.

Three days later, the US Vice-President, Kamala Harris, called for an immediate ceasefire. She called out Israel for not doing enough to ease a “humanitarian catastrophe”.

However, hypocritically, she ignored that it is her country that is allowing this to happen. The US repeatedly blocked all ceasefire attempts at the United Nations, continues to supply deadly weapons and unconditionally finance Israel’s war. It has urged the ICJ not to issue a ruling calling for Israel’s immediate withdrawal from the occupied Palestinian territories.

Worse, Kamala Harris now “urges” Hamas to accept a ceasefire deal even when Israel declined to send its negotiators to Cairo for the latest round of ceasefire talks, claiming without evidence that Hamas’s Gaza chief Yahya Sinwar has no intention of reaching an agreement and plans to escalate violence over Ramadan.

Hypocrisy galore
As the US provides diplomatic cover and signs blank cheques for Israel, Israel continues to block aid deliveries to Gaza. It knows very well that US calls for opening more entry points and accelerating aid deliveries are just lip-service.

The US and its Western allies were quick to defund the UNRWA, responding to unfounded Israeli allegations against it. This was despite repeated warnings by the United Nations and humanitarian organisations about the impending famine and on-going humanitarian disasters, and ICJ’s provisional order for all parties to take all measures to prevent plausible genocidal acts.

Having allowed this humanitarian catastrophe to occur, Harris now says, “People in Gaza are starving. The conditions are inhumane and our common humanity compels us to act”. This act now merely involves air dropping of food, simply a public relations move.

Dave Harden, former USAID director to the West Bank, told Al Jazeera “The airdrops are symbolic and designed in ways to appease the domestic base”.

Scott Paul, who leads Oxfam’s US government advocacy work, said on X, “Oxfam does not support US airdrops to Gaza, which would mostly serve to relieve the guilty consciences of senior US officials whose policies are contributing to the ongoing atrocities and risk of famine in Gaza”.

While Palestinians in Gaza have been pushed to the absolute brink, dropping a paltry, symbolic amount of aid into Gaza is deeply degrading to Palestinians. As Dave Harden said, “Really what needs to happen is more crossings [opening] and more trucks going in every day… The US has the ability to compel Israel to open up more aid and by not doing that we’re putting our assets and our people at risks and potentially creating more chaos in Gaza”.

Mahjoob Zweiri, the director of the Gulf Study Centre in Doha, agrees. He asked, “Why not send food in through Karem Abu Salem? There are 2,000 trucks waiting to get into Gaza” at border crossings, while food and medicines pile up for months past their expiry dates.

The number of trucks decreased by 40% since the ICJ ruling, according to the United Nations Office for the Coordination of Humanitarian Affairs (OCHA).

Israel continues killings
Israeli attacks have killed at least 3,523 Palestinians in Gaza in the month after the ICJ ordered Israel to prevent genocide. An average of 120 Palestinians were killed every day. At least 5,250 Palestinians were injured in Israeli attacks.

Since ICJ’s call for ensuring humanitarian aid deliveries, Israel successfully maimed UNRWA. It banned the UN rapporteur for the West Bank and Gaza and moved to boot out UNRWA from buildings on state lands. It stopped renewing visas to aid workers providing vital humanitarian support to Gaza. Israel claims, without evidence, that many of the humanitarian organisations have a hostile political agenda.

“The stark absence of humanitarian space and lack of supplies we’re witnessing in Gaza is truly horrific,” says Lisa Macheiner, Médecins Sans Frontières / Doctors Without Borders (MSF) project coordinator in Gaza.

“If people are not killed by bombs, they are suffering from food and water deprivation and dying from lack of medical care”, as Israel is using “humanitarian aid as a strategic weapon”.

Anis Chowdhury is Adjunct Professor, School of Business, Western Sydney University. He held senior United Nations positions in the area of Economic and Social Affairs in New York and Bangkok.

IPS UN Bureau

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‘Unbounded’ Impunity Emboldens Israel

Anis Chowdhury — Tue, 27 Feb 2024 08:07:45 +0000

By Anis Chowdhury
SYDNEY, Feb 27 2024 (IPS)
Israel continues to reject calls for a ceasefire in Gaza and now readies itself for an assault on Rafah with a Ramadan deadline for the release of all hostages. It emphatically says, it will oppose any international attempt at creating a Palestinian State, regarded as an “unilateral recognition”. Its unrestrained bombings and ground assaults so far have resulted in close to 30,000 Palestinian deaths more than half of whom are women and children. they have brazenly ignored the International Court of Justice (ICJ) order to take all measures to prevent a plausible genocide. Many thousands are facing starvation and death even when the United Nations Security Council (UNSC) demanded unhindered aid flows to besieged Gaza. All these were possible due to Israel’s ‘unbounded’ impunity which emboldens it.

Anis Chowdhury
‘Unbounded’ impunity
This begins with accepting uncritically whatever Israel claims or does. Take for example, President Biden claimed that Hamas beheaded babies. Echoing a statement made that same day by a spokesperson for Israeli Prime Minister Benjamin Netanyahu, he even said that he had seen “confirmed pictures of terrorists beheading children.”

President Biden did not fully retract his assertion even after the Israeli government said it could not confirm the report made by Netanyahu’s office; it was left to a White House spokesperson to walk it back. Then President Biden repeated that Hamas “were cutting babies’ heads off”, without offering any evidence. Yet he had no sympathy or condemnation that babies were dying and their bodies rotting inside Gaza’s largest hospital, Al-Shifa, as Israel bombed it, shell it and cut off its essential supplies.

Israel justified its targeting of Al-Shifa claiming that it was Hamas’s command and control centre. Even when it failed to provide any credible evidence, the US claimed “confidence” in the Israeli intelligence authorities. An investigation by The Washington Post found among other things that “the rooms connected to the tunnel network discovered by the IDF showed no immediate evidence of military use by Hamas; none of the five hospital buildings identified by Hagari appeared to be connected to the tunnel network, and no evidence that the tunnels could be accessed from inside hospital wards”.

President Biden doubted Palestinian claims of the death tolls due to Israel’s “indiscriminate bombing” by his own admission. Then the White House downplays Biden’s remarks while the US continues to provide military assistance and diplomatic support, including repeated vetoes against cease-fire resolutions at the UNSC, the latest being on 21 February. The Guardian’s cartoonist, Fiona Katauskas, explained the US veto as “It’s not that we’re anti-ceasefire so much as pro-not standing up to Netanyahu”.

As of 19 February, Israel’s assault in Gaza has killed more than 29,000 Palestinians, making it one of the deadliest and most destructive military campaigns in recent history. Additionally, more than 69,000 Palestinians have been wounded, overwhelming the territory’s hospitals, less than half of which are even partially functioning.

All these are not sufficient to waver the US support for Israel. Thus, the US and its Western allies accept Israel’s claim that there is no “uninvolved Palestinians”. “It is an entire nation out there that is responsible,” Israel’s Isaac Herzog said as Israel ordered 1.1 million Palestinians to evacuate their homes.

Israel’s US-led Western allies were quick to sacrifice the most fundamental basis of justice, that is, the presumption of innocence until proven guilty when they suspended funding for the UN Relief and Works Agency (UNRWA) responding to the Israeli accusation that some 10 UNRWA employees were involved in the 7 October Hamas attack. This puts the burden of proof on the accused, not on the accuser as the presumption of innocence requires to guard against “type I error” or “false positive” that an innocent is punished wrongly.

The action ignores the good work of thousands of UNRWA employees and the fact that hundreds of them sacrificed their lives in serving humanity in an extreme situation. The US and its Western allies have not restored funding even when “the allegations against staff remain murky”, and the UNRWA sacked the accused denying their fundamental right to justice, and promptly instituted an investigation.

Suspension of UNWRA funding reinforces Israel’s narrative that Palestinians deserve collective punishment as no Palestinian is innocent. It also serves Israel’s attempt to by-pass or scuttle ICJ’s order as well as the UNSC resolution to ensure uninterrupted flows of aid and essential supplies – food, fuel, water and medicine, in particular.

Expansionist Israel
The uncritical acceptance of Zionist narratives helped Israel expand its border beyond the 1947 (November) UN General Assembly Resolution 181 (II), recommending the creation of independent Arab and Jewish States and a Special International Regime for the city of Jerusalem and its surroundings. The Arab state was to have a territory of 11,100 square kilometres (42%), the Jewish state a territory of 14,100 square kilometres (56%), while the remaining 2% – comprising the cities of Jerusalem, Bethlehem and the adjoining area—would become an international zone.

In the 1948 war Israel expanded its territory to 77% of Palestine, including a large part of Jerusalem. Over half of the Palestinian population fled or were expelled which the Palestinians call “Nakba” or “catastrophe”. The official Zionist narrative asserted that the Yishuv (the Jewish community in Palestine before 1984) faced annihilation on the eve of the1948 war. It also portrayed the Arab side as Nazis.

However, Simha Flapan’s 1987 book, The Birth of Israel: Myths and Realities, relying on declassified Israeli documents, debunked this narrative and showed that there was no such danger. The Jewish community easily won the diplomatic battle in the UN, backed by the US, the first country to recognise Israel, and was favoured by the balance of military power on the ground. Yet, the myth of annihilation became central in driving unconditional Western support for Israel.

The 1967 Six-Day War culminated in Israel’s absorption of the whole of historical Palestine, including the West Bank (from Jordan) as well as additional territory from, Egypt (Gaza Strip and all of the Sinai Peninsula up to the east bank of the Suez Canal) and Syria (Golan Heights). By the end of the war, Israel expelled another 300,000 Palestinians from their homes, including 130,000 who were displaced in 1948, and gained territory that was three and a half times its size.

Inconsistent, but mostly supportive, policies of the US and its Western allies towards Israel’s annexations of occupied Palestinian territories and settlements violating the international law allowed Israel to absorb all of Palestine – “from the River to the Sea”. At the recent ICJ hearing on Israel’s occupation of Palestine, the US argued that Israel should not be ordered to immediately and unconditionally end occupation, while the UK sought to block the hearing. Thus, the Western powers acquiesce with Israel’s claims of Jewish people’s “historical right to Judea and Samaria” hypocritically promoting a so-called “two-state solution”.

Emboldened Israel
Unsurprisingly, the US and its Western allies did not raise concerns when on 22 September Netanyahu brandished map of Israel that included West Bank and Gaza at his UN speech. Sadly, but understandably, the lone protesters were dispossessed Palestinians. Laith Arafeh, Palestinian Ambassador to Germany, tweeted, “No greater insult to every foundational principle of the United Nations than seeing Netanyahu display before the UNGA a ‘map of Israel’ that straddles the entire land from the river to the sea, negating Palestine and its people”.

Netanyahu’s new Middle-East map was spun as ushering a “new era of peace”; but ironically in less than a month the region exploded. Knowing fully that the US and its Western allies are firmly with Israel, Netanyahu defiantly declared, “We won’t capitulate to any pressure”.

Netanyahu rejects demands for a Palestinian state, winning overwhelming backing of Israel’s parliament. The emboldened Israel’s blue-print for “day after” is a smack on the face of the US and its Western allies, exposing their deceit and hypocrisies.

Anis Chowdhury is Adjunct Professor, School of Business, Western Sydney University. He held senior United Nations positions in the area of Economic and Social Affairs in New York and Bangkok.

IPS UN Bureau

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The West’s Frankenstein Moment

Anis Chowdhury — Wed, 14 Feb 2024 18:29:25 +0000

By Anis Chowdhury
SYDNEY, Feb 14 2024 (IPS)
Israel continues to defy its strongest backer the US and its western allies in its quest to control the land from the “River to the Sea”, and in the process ethnic cleansing of the Palestinian population. Israel’s Prime Minister Benjamin Netanyahu is determined to push ahead with a ground offensive against Gaza’s southernmost town of Rafah despite mounting warnings from aid agencies and the international community that an assault on Rafah would be a catastrophe. He also snubbed the US on the latest hostage release and ceasefire deal brokered by Qatar and Egypt. The interim order of the International Court of Justice (ICJ) to take all effective measures to stop “plausible” genocide in Gaza seems irrelevant to Israel. Josep Borrell, the EU’s foreign policy chief admits that Netanyahu “doesn’t listen to anyone”.

Anis Chowdhury
Israel’s impunity

One should not be surprised at all at Israel’s defiance. It has been enjoying impunity ever since it was established in 1948. When David Ben-Gurion, the head of the Jewish Agency, proclaimed the establishment of the State of Israel on 14 May, 1948, the US President Harry S. Truman recognised the new nation on the same day. Israel has violated 28 resolutions of the United Nations Security Council (UNSC) which are legally binding on the UN Member States.

Between 1972 and February 2023 the US has cast a veto 53 times in the UNSC against anti-Israel resolutions or condemnations of Israel. An opinion piece in Israel’s reputable newspaper, Haaretz asked, “When Will the U.S. Get Tired of Helping Israel With UN Vetoes?” It vetoed every attempt by the UNSC for a permanent ceasefire in Israel’s latest onslaught on Gaza, following 7 October Hamas attack on Israel that have resulted in nearly 30,000 deaths most of whom are children and women.

When Joe Biden met with Benjamin Netanyahu and his war cabinet during his visit to Israel, immediately following the Hamas attack, President Biden assured them: “I don’t believe you have to be a Jew to be a Zionist, and I am a Zionist”. Faced with global outcry and domestic pressure, especially within the Democratic Party and growing dissent of administration staff, President Biden expressed some frustrations, saying Israel’s bombardment of Gaza is “indiscriminate” or Israel’s reaction to the 7 October Hamas attack was “over the top”.

But the US and its allies’ military, financial and diplomatic supports for Israel continue unconditionally. The US and its Western allies, especially Germany and the UK, are critical of South Africa’s case against Israel at the ICJ seeking an interim injunction against plausible violations of the Genocide Convention. They dismissed it as “meritless, counterproductive, and completely without any basis in fact whatsoever”, or “wrong and provocative”, rushing to defend Israel at the ICJ, while Israel’s President called it “atrocious and preposterous.”

The West has failed to stop Israel’s illegal settlements in the occupied land of Palestine. Occasionally the US and its Western allies have used some stronger words like “deeply dismayed”, “deeply troubled” and “strongly opposed,” not to mention banal expressions such as “against unilateral steps” and “calls for restraint and stability”, reiterating their “commitment to a 2-State solution”.

As the Haaretz opinion piece observed, “These bland themes carry no consequences. They’re not much different from the “thoughts and prayers” that American politicians offer after a mass shooting. These hollow statements from Washington have become the foreign policy version of “nothing to see here, carry on.”

The US and its Western allies condemn “form the River to the Sea, Palestine will be free” as anti-Semitic. But fail to mention the Likud Party’s manifesto which says “The right of the Jewish people to the land of Israel is eternal and indisputable and … [the land, i.e., Judea and Samaria] between the Sea and the Jordan [River] there will only be Israeli sovereignty”. No one raised any concerns when Netanyahu in September 2023 gleefully displayed at the annual UN General Assembly Session the new Middle-East map with Israel from the “River to the Sea”, less than a month before the 7 October Hamas attack.

Why should one be surprised when Israel’s influential finance minister, Bezalel Smotrich, accused President Joe Biden of engaging in an “anti-Semitic lie” in reaction to Biden’s administrative order of sanctions against violent Zionist settlers in the occupied West Bank? Is it not ironic that a self-declared non-Jew Zionist is accused of anti-Semitism? Netanyahu termed the US sanctions as “drastic” and declared “there is no place for drastic steps on this matter.”

Ariel Sharon spoke the truth

Ariel Sharon, the former prime minister of Israel, said in an acrimonious argument with his Foreign Minister Shimon Peres, “Every time we do something, you tell me Americans will do this and do that. I want to tell you something very clear; don’t worry about American pressure on Israel; we, the Jewish people, control America ….”.

Supporting Israel has historically been incredibly politically popular in the US, bolstered by a well-funded pro-Israel lobby in Washington, such as the American Israel Public Affairs Committee (AIPAC). James Petras in his “The Power of Israel in the United States” (2006), provided detailed analysis and documentation of the power of Israel via the Israeli, Jewish or Pro-Zionist Lobby. He explored the extraordinary extent of US political, economic, military and diplomatic support for the state of Israel, along with the means whereby such support is generated and consolidated.

Petras’ book sheds light on the AIPAC spying scandal and other Israeli espionage against America; the fraudulent and complicit role of America’s academic “terrorist experts” in furthering criminal government policies, and the orchestration of the Danish cartoons to foment antipathy between Muslims and the West. James Petras argued that Zionist power in America ensured unconditional US backing for Israeli colonisation of Palestine and its massive uprooting of Palestinians.

Frankenstein’s fate?

In Mary Shelley’s 1818 novel Frankenstein, the scientist Victor Frankenstein creates a monster. The monster attempts to fit into human society, but finds itself rejected; thus, becoming vengeful, especially against its creator.

The monster killed Frankenstein’s younger brother, best friend and bride on their wedding night, whereupon Frankenstein’s father died of grief. Finally, Frankenstein dedicated himself to destroying his creation. But the monster goaded him to pursuing him the North, through Scandinavia and into Russia, staying ahead of him the entire way. Suffering from severe exhaustion and hypothermia, Victor Frankenstein died at the end.

As Israel tramples over all the international institutions, including the UN, the US and its Western allies have become complicit in the destruction of the rule-based world order that they themselves created. Israel’s open defiance of the US and its Western allies is a clear sign that it is too late to reign in the monster they created. As the US and its Western allies are losing influence and credibility in the Global South, one wonders whether the US-led West is facing Frankenstein’s fate.

Anis Chowdhury is Adjunct Professor, School of Business, Western Sydney University. He held senior United Nations positions in the area of Economic and Social Affairs in New York and Bangkok.

IPS UN Bureau

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Qur’an Burning: Rage, Ignorance and Prejudice

Anis Chowdhury — Tue, 22 Aug 2023 07:27:35 +0000

By Anis Chowdhury
SYDNEY, Aug 22 2023 (IPS)
Qur’an burning has become a symbol of intolerance and “Islamophobia”, especially in some Western countries. Following the public burning of a Quran in front of Stockholm’s largest mosque on June 28 during the Islamic Eid al-Adha festival, a copy of the Qur’an was set on fire in the Danish capital on 24 July. Naturally, these events provoked protests from Muslims all over the world, including in Sweden and Denmark. The Swedish Prime Minister Ulf Kristersson is “extremely worried” that such protests could result in more burning of the Quran – thus creating a vicious circle – as the Swedish police received a large number of applications for anti-Islam protests.

Anis Chowdhury
Muslim rage
Burning a copy of the Qur’an itself is not what angers the Muslims. In fact, burning is one of the preferred options for disposing damaged or unusable copies respectfully.

The Muslim anger is due to the disrespect and desecration of the Devine Book which have become a mainstay of far-right extremists in the West.

The Qur’an haters demonstrate their disregard for the Book by throwing it to the ground, sometimes wrapped in bacon or soaked in alcohol – both prohibited in Islam –ripped it apart and spit on copies of the Quran, and dragged it around on a leash like a dog before burning. Some called it “The Whore Book” and “Shit Book”, and told people to urinate on it.

They also insult and ridicule Prophet Muhammed. Besides publishing his caricature cartoons, some called Prophet Muhammad a paedophile murderer.

Far right ignorance
The Qur’an is the only source that confirms the previous Scriptures – the Torah and the Gospel; “…this divine writ [Qur’an], setting forth the truth which confirms whatever there still remains [of earlier revelations]” (3:3). The Qur’an is “… bestowed … in confirmation of whatever [of the truth] you [Jews and Christians] already possess” (4:27).

It is only in the Qur’an where we find unblemished stories of the past prophets and messengers. It purges the perverse narrations, for example, about two daughters of Prophet Lot, or of a sinner female prostitute some describing her as Christ’s wife.

The Qur’an devotes one full chapter to categorically establish Mary’s chastity and virgin birth of Jesus by God’s will. It honours Mary: “O Mary! Behold, God has elected you and made you pure, and raised you above all the women of the world” (3:42).

The Qur’an also devotes one full chapter on Prophet Joseph to establish Joseph’s righteousness and upright character even when Potiphar’s wife attempted to seduce him.

Western prejudice
Contrary to the common belief that the Qur’an promotes violence and intolerance, the Qur’an declares sanctity of life: “do not take any human being’s life, which God has declared to be sacred other than in [the pursuit of] justice” (6:151; 17:33; 25:67). Therefore, “if anyone slays a human being [unjustly] …it shall be as though he had slain all mankind; whereas, if anyone saves a life, it shall be as though he had saved the lives of all mankind” (5:32).

The Qur’an promotes tolerance: “O men! Behold, We have created you all out of a male and a female, and have made you into nations and tribes, so that you might come to know one another” (49:13). It commands believers: “Do not insult those they call upon besides God, lest they insult God out of hostility and ignorance” (6:108); and to declare, “… we make no distinction between any of them [God’s messengers]” (2:136, 2: 285, 3:84, 4:152).

The Qur’an guarantees freedom of religion: “Unto every one of you have We appointed a [different] law and way of life. And if God had so willed, He could surely have made you all one single community: but [He willed it otherwise] in order to test you … Vie, then, with one another in doing good works!” (5:48). The Qur’an declares sanctity of “monasteries and churches and synagogues and mosques … – would surely have been destroyed” [if not protected by God] (22:40).

The Qur’an prohibits female infanticides (81:8-9) and establishes the human dignity of women (17:70), including their rights to own properties, earn income and alimony (2:231, 2:233, 2:240, 2:241).

The Qur’an is a Guidance for mankind. The Qur’an opens by referring to God as the Lord of all creations (1:1) and concludes by calling God as the Lord of mankind (114:1). Nowhere it refers to God as exclusive to Muslims.

A Book for pondering
The Qur’an says, “there are messages indeed for people who think!” (13:3; repeated 20 times). This is a Book for those who have knowledge; who understand (38:29). Thus, the Qur’an was revealed with the first verse commanding, “Read in the name of your Sustainer; … Read – for your Sustainer is the Most Bountiful One; who has taught [man] the use of the pen; taught man what he did not know” (96:1).

Therefore, burning the Qur’an is a foolish act. Only the fools are oblivious of what is lost if the Qur’an is vanished as they wish. Thus, the only way to avert the risk of violence spiralling as the Swedish PM feared is to create awareness about the Qur’an. The State must bear the responsibility to educate and prevent spreading of misinformation, hate and prejudice.

IPS UN Bureau

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Reserve Bank of Australia Review Fails Ordinary Australians

Anis Chowdhury — Mon, 15 May 2023 17:54:30 +0000

By Anis Chowdhury
SYDNEY, May 15 2023 (IPS)
The Reserve Bank of Australia (RBA)’s latest interest rate hike comes before the ink of the much-awaited review of the RBA, released on 20 April, has dried. The threat of more increases to come is a clear sign of an emboldened RBA as the government accepts all of the panel’s utterly disappointing 51 recommendations.

Anis Chowdhury
RBA Review
The Treasurer, Hon Dr Jim Chalmers, announced the Review in July 2022, designed to ensure that Australia’s monetary policy arrangements and the operations of the RBA continue to support strong macroeconomic outcomes for Australia in a complex and continuously evolving landscape.

The recommendations of the three-person panel, charged with reviewing the structure, governance, and effectiveness of the RBA, range from creating a separate board to make decisions on interest rates, to giving the Bank a simpler dual mandate to pursue both price stability and full employment.

Utter disappointment
The Review report fails to question the long-held taboos about inflation and Central Bank’s role in a social democracy. While the Review panel leaves the RBA’s 2-3% inflation target unchanged, it outrageously recommends dropping from the RBA’s mandate “economic prosperity and welfare of the people of Australia” and the removal of government’s power to intervene in the RBA’s decisions.

This will make the RBA more inflation hawkish, and more aggressive in its use of the blunt interest rate tool without much regard for the consequences on jobs, especially when the RBA’s full employment mandate is left vague.

Without the power to intervene in the RBA’s decisions, such hawkish interest rate hikes will force the government to cut its expenditure as it has to pay more on interest for its debts while its tax revenue shrinks when the economy slows.

Thus, the well-being of ordinary citizens, especially those who will lose jobs, will worsen as the government struggles to find money for targeted budget support. No wonder the Treasurer termed the latest RBA interest rate decision as “Pretty brutal”.

Voodoo of 2-3% inflation target
In accepting the RBA’s current 2-3% inflation target, the Review panel ignores the fact that the 2-3% inflation target has become a “global economic gospel” without any empirical or theoretical basis.

The 2-3% target was plucked out of the air and it became a universal mantra after a chance remark by the then Finance Minister of New Zealand in a television interview followed by relentless preaching.

The recommendation ignores the changed circumstance since the 2-3% inflation target was first adopted. In the wake of the 2008-2009 Global Financial Crisis, many, including the then IMF’s Chief Economist, Olivier Blanchard suggested a 4% inflation target would be more appropriate.

The inflation-unemployment trade-off relationship (i.e., the Phillips curve) has become flatter over the years due to labour market deregulations, off-shoring and other developments. This means trying to dogmatically achieve such a low inflation target would require a much higher unemployment rate as recognised by the former Fed Chair and current US Treasury Secretary Janet Yellen. That is, the interest rate must rise more steeply inflicting serious damages to the business finances, household spending and government budget.

Full employment, a poor cousin
The Review panel recommends “full employment” mandate along with inflation target. However, while the inflation target has a numerical figure (2-3%), there is no such specific target mentioned for unemployment that may be consistent with the concept of full employment. When asked during a press conference, the Treasurer said, “It’s a contested concept”.

The report mentions full employment 100 times! But does not say what it means; instead, the panel accepts the current RBA’s definition and measure of full employment based on a contestable concept of a “non-accelerating inflation rate of unemployment” (NAIRU). That is, full employment is consistent with an unemployment rate below which inflation will accelerate.

There is general consensus that models based on NAIRU are basically wrong. An article in the RBA Bulletin acknowledged, “Model estimates of the NAIRU are highly uncertain and can change quite a bit as new data become available”. Thus, James Galbraith argued for ditching the NAIRU. And an op-ed in The Financial Times concluded, “The sooner NAIRU is buried and forgotten, the better”.

Social democracy sacrificed
The panel thinks, there are too many factors that affect prosperity and welfare. So, it recommends removal of the RBA’s third mandate “economic prosperity and welfare of the people of Australia”, enshrined in the 1959 RBA Act.

Furthermore, the panel seeks to remove the government’s ability to overrule an RBA decision because it “undermines the independent operation of monetary policy”.

With these recommendations implemented, the RBA will not be bound to the commitment to build a fairer society, although economic prosperity and people’s welfare can remain as an “overarching purpose”.

The Winner
A super independent RBA will have all the power it needs to use its sole weapon, interest rate rises, to keep inflation at 2-3%. The emboldened RBA will declare the consequences to its actions on the job markets as consistent with a vaguely defined full employment, and economic prosperity and welfare of the people.

It can simply assert that job and income losses are short-term pains for long-term gains, without having to provide any evidence. There are no such things as short-term pains.

For many, job loss may cause permanent damages to their mental health, self-esteem and social life often leading to suicides. IMF research shows that the scarring effects of recessions can be permanent.

Thus, the clear winner of the recommended reforms, is the RBA, not the ordinary people struggling to find decent jobs to enable them to put a roof over their heads and two square meals on their tables.

Meanwhile, the RBA’s ideological anti-inflationary fight with a blunt interest rate tool benefits the big four banks. They are “tipped to rake in record $33 billion” in profits from rising interest rates when everyday Aussies and small businesses battle rising bankruptcies and job losses.

Anis Chowdhury is Adjunct Professor, School of Business, Western Sydney University. He held senior United Nations positions in the area of Economic and Social Affairs in New York and Bangkok.

IPS UN Bureau

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Australia Leads Against Large Multinational Corporations’ Tax Dodging

Kate Lappin and Anis Chowdhury — Mon, 06 Feb 2023 14:54:50 +0000

By Kate Lappin and Anis Chowdhury
MELBOURNE and SYDNEY , Feb 6 2023 (IPS)
Australia is set to become the first country or jurisdiction to require large multinational corporations (MNCs), with a global consolidated income of at least AU$1 billion, to publicly report country-by-country (CbC) tax information. The new Labor Government announced on 25 October, 2022 in its budget paper that MNC’s public CbC tax reporting will begin from 1 July, 2023. Australia’s public CbC reporting rules will apply to all companies headquartered in Australia and companies headquartered elsewhere with sufficient nexus in the country.

Kate Lappin
The announcement received very little media attention, perhaps overlooked as a technical amendment. Yet public CbC reporting could be a vital weapon in the fight against corporate tax avoidance in Australia and, more importantly, in low-income and highly indebted countries that lose even greater proportions of public revenue to tax havens.

All countries in the Organisation for Economic Cooperation and Development (OECD), including Australia and the US, have required large MNCs to privately report CbC tax data under Action 13 of the OECD/G20 project against Base Erosion and Profit Shifting (BEPS). In November 2022, the European Parliament approved a directive to mandate public CbC reporting for large MNCs within the bloc, with a range of limitations discussed below, from 22 June, 2024.

The Australian move comes a month before a new push at the United Nations to convene a global tax body to set international taxation standards, after years of faltering efforts among the world’s richest countries at the OECD.

Losing billions
The Paradise Papers and the Luxembourg Leaks of the International Consortium of Investigative Journalism (ICIJ) shed light on tax manoeuvres of more than 100 MNCs. Apple alone shifted profits around the world to accumulate US$252 billion offshore. A 2021 ICIJ study revealed that, in one year alone, MNCs shifted US$1 trillion offshore, depriving governments of hundreds of billions in revenue.

Anis Chowdhury
Corporate profit shifting, as the practice is called, to dodge tax, costs countries US$500 billion to US$650 billion in lost tax revenue annually, according to a report by a high-level United Nations panel, published in 2021.

Research by the Centre for International Corporate Tax Accountability and Research uncovered tax dodging by MNCs that bled money from public services and workers including in scandal ridden aged care homes in Australia. It exposed how Microsoft receives billions in outsourced government IT Contracts, while lodging over AU$2billion in profits via its Bermuda based subsidiaries where it pays little tax.

Almost 800 large corporations paid no tax in 2020-21, Australian Taxation Office report reveals. The country loses about AU$8 billion a year due to MNCs profit-shifting.

Poor countries bleed most
The 2021 ICIJ study finds African countries the most “vulnerable” to profit-shifting. In 2017, the Tax Justice Network found that low-income countries were the biggest victims of profit shifting.

In some countries such as Zambia and Argentina, losses exceeded 4% of GDP. In Pakistan the losses due to profit shifting were 40% of total tax revenues, and in Chad, the estimated losses were larger than all taxes collected (106.2% of total tax revenue)!

The State of Tax Justice 2021 finds that low-income countries collectively lose the equivalent of 48% of their public health budgets.

Low-income countries rely more heavily on corporate income tax for the revenue required to fund cash-starved public services, making corporate tax transparency vital in addressing global poverty and inequality.

Rich countries serving corporate interests
International taxation rules have been designed by rich nations, especially by their club, OECD. Tax justice activists, such as the African Tax Administration Forum allege that developing countries are “not at the table” at the OECD, but on the menu, with OECD rules designed to allow multinationals to continue to extract profits in the global south, without making fair contributions.

The OECD’s standards for MNCs tax reporting are riddled with loopholes. As Oxfam points out, the OECD rules do not allow people in low-countries to have access to information about MNCs’ profit made or tax paid in their countries and nor do most tax authorities in low-income countries.

Similarly, the European Union’s CbC reporting is seriously watered-down. Tax transparency is only required for the 27 EU member states and the 21 black-listed or grey-listed jurisdictions on their flawed list of tax havens. Oxfam points out this means secrecy is retained for more than 75% of the world’s nearly 200 countries. The EU also provide a “corporate-get-out-clause” for “commercially sensitive information” for 5 years; and limit reporting to companies with consolidated turnover above EUR 750 million, excluding 85 – 90% of MNCs.

Unions’ play a critical role
The Labour movement has taken on the fight to end corporate tax avoidance. Labour’s share in GDP has been declining since the early 1970s in advanced countries and since the early 1980s in developing countries. Some unions have recognised that corporate tax avoidance erodes the public services workers need and undermines collective bargaining, while increasing corporate power.

The global union federation, Public Services International (PSI), co-ordinated union action to in support of public CbC reporting amongst other tax reforms. PSI joined the technical committee that drafted new Global Reporting Initiative (GRI) Tax Standards and worked with union pension funds to back the standards, which are now widely regarded as the best benchmark for corporate tax accountability.

In Australia PSI and affiliates exposed corporate tax avoidance in aged care, labour hire companies and corporations receiving large government contracts and worked with unions to shape the Labor party’s policy platform.

The announcement reflects one of the recommendations PSI and the International Trade Union Congress made to the Australian Treasury in its submission on Multinational Tax integrity and enhanced tax transparency.

Can Australia lead?
Since being elected in May 2022, the new Australian government has sought to improve its international standing by setting stronger climate targets, increasing engagement with Pacific Island countries and rebuilding capacities of the Department of Foreign Affairs and Trade. If the government can make good on its promise to implement the GRI standards and require public CbC reporting, it will have significantly contributed to the global public good and set a precedent for the EU and other countries to follow.

In addition to setting new tax transparencies standards, the Albanese Government should support the push by African countries for a truly inclusive UN tax convention – which could slash the scope for tax abuse by MNCs and wealthy individuals. Together, these contributions would deliver more to low-income countries than Australia’s entire development aid budget.

Kate Lappin is the Asia Pacific Regional Secretary for Public Services International (PSI), the Global Union Federation representing more than 30 million workers who deliver public services in 154 countries and territories. Kate headed the Asia Pacific forum on Women, Law and Development (APWLD) for eight years and has worked across labour, feminist and human rights movements for more than 20 years.

Anis Chowdhury is Adjunct Professor, Western Sydney University. He served as Director of Macroeconomic Policy & Development and Statistics Divisions of UN-ESCAP (Bangkok) and Chief, Financing for Development Office of UN-DESA (New York).

IPS UN Bureau

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The Year of Debt Distress and Damaging Development Trade-Off

Anis Chowdhury — Fri, 27 Jan 2023 07:27:36 +0000

By Anis Chowdhury
SYDNEY, Jan 27 2023 (IPS)
As the year 2022 drew to an end, the United Nations Conference on Trade and Development (UNCTAD) warned, “Developing countries face ‘impossible trade-off’ on debt”, that spiralling debt in low and middle-income countries (LMICs) has compromised their chances of sustainable development.

Anis Chowdhury
In early December, an opinion piece in The New York Times headlined, “Defaults Loom as Poor Countries Face an Economic Storm”. And the World Bank’s International Debt Report highlighted rising debt-related risks for all developing economies—low- as well as middle-income economies.

Debt on the rise
Debt build-up accelerated in the wake of the 2008-2009 global financial crisis (GFC). The World Bank’s, Global Waves of Debt reveals that total (public & private; domestic & external) debt in emerging market and developing economies (EMDEs) reached an all-time high of around 170% of GDP ($55 trillion) – more than double the 2010 figure – by 2018, before the onset of the COVID-19 pandemic.

Total debt in low-income countries (LICs), after a steep fall from the peak of around 120% of GDP in the mid-1990s to around 48% ($137 billion) in 2010, increased to 67% of GDP ($270 billion) in 2018.

Pandemic debt
The COVID-19 pandemic greatly lengthened the list of EMDEs in debt distress as rich nations and institutions dominated by them, e.g., the World Bank, failed to provide any meaningful debt reliefs or increase financial support to adequately respond to the health and economic crises.

The World Bank’s chief economist advised, “First fight the war [pandemic], then figure out how to pay for it”. The IMF’s managing director counselled, “Please spend, spend as much as you can. But keep the receipts”.

The World Bank’s International Debt Statistics 2022 reveals that the external debt stock of LMICs in 2021 rose to $9.3 trillion (an increase of 7.8% compared to 2020) – more than double a decade ago in 2010. For many countries, the increase was by double digit percentages.

Riskier debt
Over the past decade, the composition of debt has changed significantly, with the share of external debt owed to private creditors increasing sharply. At the end of 2021, LMICs owed 61% of their public and publicly guaranteed external debt to private creditors—an increase of 15 percentage points from 2010.

The private creditors charge higher interest rates, and offer little or no scope for restructuring or refinancing at favourable terms, as they maximise profit. The private creditors also usually offer credits for shorter duration, while development financing needs are for longer-terms.

Failed aid promises
Development needs of developing countries have increased many-folds, especially for meeting internationally agreed development goals, such as the Millennium Development Goals (MDGs) and now Sustainable Development Goals (SDGs). The LMICs’ estimated aggregate investment needs are $1.5–$2.7 trillion per year—equivalent to 4.5–8.2% of annual GDP— between 2015 and 2030 to just meet infrastructure-related SDGs. But the rich nations spectacularly failed to honour their promises of finance made at the 2015 UN conference on financing for development (FfD) in Addis Ababa.

In fact, they failed all their past aid promises, e.g., to provide 0.7% of their gross national income (GNI) as aid, a promise made over half a century ago. While aid hardly reached half the promised percentage of GNI, it in fact declined from the peak of around 0.55% of GNI in the early 1960s to around 0.34% in recent years. Oxfam estimated 50 years of unkept promises meant rich nations owed $5.7 trillion to poor countries by 2020!

At their 2005 Gleneagles Summit, G7 leaders pledged to double their aid by 2010, earmarking $50 billion yearly for Africa. But actual aid delivery has been woefully short. G7 and other rich OECD countries also broke their 2009 pledge to give $100 billion annually in climate finance until 2020.

Promoting private finance
Meanwhile institutions dominated by rich nations – the World Bank and OECD, in particular – promoted private financing of development. The World Bank, the IMF and multilateral regional development banks, e.g. Asian Development Bank jointly released From billions to trillions, just before the 2015 FfD conference.

The document optimistically but misleadingly advised governments to “de-risk” development projects for enticing trillions of dollars of private capital in public private partnerships (PPPs). While de-risking effectively meant governments bearing financial risks, or socialise private investors’ loss, PPPs are found to have dubious impacts on SDGs, especially poverty reduction and enhancing equity.

Meanwhile the OECD donors advocated “blended finance” (BF) to use aid money to leverage, again trillions of dollars of private capital. But as The Economist noted, BF is struggling to grow, stuck since 2014 “at about $20 billion a year…far off the goal of $100 billion set by the UN in 2015”, despite suspected double counting. Like PPPs, BF has effectively transferred risk from the private to the public sector. On average, the public sector has borne 57% of the costs of BF investments, including 73% in LICs.

Collateral damage
In the wake of the GFC the rich countries followed so-called unconventional monetary policies that kept interest rates exceptionally low – in some cases at zero – for a decade. This saw capital flowing from rich countries to EMDEs in search for higher returns, as exceptionally low interest rates enticed EMDE governments and businesses.

The opportunity to borrow at low rates also made the EMDE governments lazy in their domestic revenue mobilisation efforts. Such policy complacency was rewarded by the donor community, especially the World Bank, through its now discredited Doing Business Report, encouraging a harmful race to the bottom tax competition among countries to cut corporate and other direct taxations. The World Bank and IMF also advised to remove or lower easier to collect indirect taxes, e.g., excise duties in exchange for regressive and difficult to implement goods & services or value-added tax in poorer countries.

Bleeding revenues
Meanwhile transnational corporations (TNCs) continue to avoid and evade paying taxes using creating accounting, aided by tax havens, mostly situated in rich nations’ territories. Developing countries lost approximately $7.8 trillion in illicit financial flows from 2004 to 2013, mostly through TNCs’ transfer mispricing, or the fraudulent mis-invoicing of trade in cross-border tax-related transactions.

African countries received $161.6 billion in 2015, primarily through loans, personal remittances and aid. But, $203 billion was extracted, mainly through TNCs repatriating profits and illegally moving money out of the continent.

International tax rules are designed by the rich nations. They continue to oppose developing countries’ demand for an inclusive international tax regime under the auspices of the UN.

Perfect storm
Global supply-demand mis-matches due to the pandemic, the Ukraine war and sanctions are a perfect recipe for a perfect storm. The advanced countries’ inflation fight is causing adverse spill-over on developing countries.

Higher interest rates have slowed the world economy, and triggered capital outflows from developing countries, depreciating their currencies, besides lowering export earnings. Together, these are causing devastating debt crises in many developing countries, similar to what happened in the 1980s.

In October 2022, a United Nations Development Programme (UNDP) report estimated that 54 countries, accounting for more than half of the world’s poorest people, needed immediate debt relief to avoid even more extreme poverty and give them a chance of dealing with climate change.

Rich nations fail again
As pandemic debt distress became obvious, the G20 countries devised the so-called Debt Service Suspension Initiative (DSSI) for 75 poorest countries, supposedly to provide some modest relief between May and December 2020. DSSI does not cancel debt, but only delays re-payments, to be paid fully later with the interest cost accumulating – thus effectively “kicks the can down the road”. As the private lenders refused to join the G20’s initiative, unsurprisingly only 3 countries expressed interest in DSSI. Moreover, the G20 initiative does not address debt problems facing MICs, many of which also face debt servicing, including repayment issues.

Although the IMF acted innovatively at the start of the pandemic debt distress with debt service cancellation for 25 eligible LICs (estimated at $213.5 million), the World Bank’s Chief refused to supplement, let alone complement the IMF’s debt service cancellation for the most vulnerable LICs. Nonetheless, the Bank’s President hypocritically advocates debt relief as “critical”. He wants to have the cake and eat it too; apparently wanting to increase lending, but without sacrificing the institution’s AAA credit rating.

China debt trap diplomacy?
Meanwhile the rich nations accuse China of “debt trap diplomacy” that China is deliberately pushing loans to poorer countries for geopolitical and economic advantages. Less than 20% of LICs external debt is owed to China as against more than 50% to the commercial lenders.

Most Chinese loans are concessional, and China has provided more debt relief than any other country, bilaterally negotiating around $10.8 billion of relief since the onset of the pandemic.

Unsurprisingly, independent studies debunked the Western accusation. And China has emerged as a major source of development finance for poorer countries. A recent IMF study concluded, “Beijing’s foreign assistance has had a positive impact on economic and social outcomes in recipient countries”.

Damaging trade-off
Rising debt servicing in the face of higher import costs, falling export revenues and declining remittances, are forcing developing countries to a damaging trade-off. They are forced to service external debt owed to rich nations and international financiers at the cost of development.

For many African nations, the increased cost of debt repayments is the equivalent of public health spending in the continent, according to the UNCTAD. But, “No country should be forced to choose between paying back debts or providing health care”.

IPS UN Bureau

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The Year of Inflation Exposes Dogma and Class Bias

Anis Chowdhury — Tue, 17 Jan 2023 08:58:55 +0000

By Anis Chowdhury
SYDNEY, Jan 17 2023 (IPS)
Inflation worries topped Ipsos’s What Worries the World survey in 2022 overtaking COVID concerns. The return of inflation caught major central banks, e.g., the US Federal Reserve (Fed), Bank of England, European Central Bank “off guard”. The persistence of inflation also surprised the International Monetary Fund (IMF). The return of inflation and its persistence exposed the poverty of the economics profession, unable to agree on its causes and required policy responses. It also exposed the profession’s anti-working class biases.

Anis Chowdhury
Inflation goof
Almost all major central banks as well as the IMF dismally failed to see the coming of inflation. In December 2020, the US Fed forecast that prices would rise by less than 2% in 2021 and 2022. It failed spectacularly when in December 2021, it estimated that inflation in 2022 would be just 2.6% even though prices were already rising by more than 5% a year.

The US Fed was not alone in failing to see inflation coming. The Governor of Australia’s central bank – the Reserve Bank of Australia (RBA) – was so confident of low inflation that he declared in March 2021 that the interest rate would remain at a historic low until at least 2024. Inflation in advanced economies during 2021 exceeded the average of forecasters’ expectations by around 5–8 percentage points. The IMF’s forecasts have badly and repeatedly undershot inflation.

There was a widespread view among most central bankers and leading economists that the price increases (or inflation) that began in mid-2021 were temporary, and price increases would slow or inflation would drift downwards in 2022. Some, of course, insisted otherwise, and wanted immediate anti-inflationary measures. Thus, policy confusion ruled.

Inflation phobia and dogma
Soon inflation phobia overtook and central banks were advised to act decisively with interest rate hikes even if it meant slowing the economy or a rise in unemployment. Exaggerated claims were made without evidence that not acting now would be more costly later.
References to rare episodes of hyperinflation were made to justify tough policy stances.

The dogmatic inflation hawks ignored the fact that, in most cases, inflation does not accelerate to become harmful hyperinflation, but remains moderate. They also ignored their own neo-classical macroeconomic model, which suggests small welfare loss from moderate inflation.

Notwithstanding the IMF’s Article IV preamble which provides that economic policies should aim to foster “orderly economic growth with reasonable price stability, with due regard to [country specific] circumstances”, a one-size-fits-all policy of steep interest rate hikes became the only medicine to be applied to achieve a universal inflation target of 2%, a figure plucked from thin air. Yet, central bankers and mainstream economists boast their credibility!

Inflation excuse for class war
Inflation is primarily an expression and outcome of conflicting claims over the distribution of national output and income, e.g., firms’ profit mark-ups vis-à-vis workers’ wages. Thus, no sooner inflation spiked early in the year due to slow adjustment of COVID-induced supply shortages to pent-up demand, exacerbated by war and sanctions, leading central bankers and mainstream economists found an excuse to weaponise economic policies against the working class.

Stoking the fear of wage-price spirals, they advocate the use of an interest rate sledgehammer to create unemployment and, in turn, discipline labour. This is despite research within the IMF and the Reserve Bank of Australia which found no evidence of wage-price spirals since the 1980s due to declines in labour’s bargaining power. Thus, Bloomberg headlined, “Fattest Profits Since 1950 Debunk Wage-Inflation Story of CEOs”.

Research conducted by the IMF also found increases in firms’ or corporations’ market power, resulting in higher prices and profit margins. Yet, the IMF does not think such factors “are contributing in any sizeable way to the current inflationary environment”. Instead, it justifies such fattening of profits on the ground that “they provide flexible buffers between general wage and general price increases” and that it is only a catching-up “after taking a hit in 2020”!

But no such compassion is extended to the working people who have lost their lives and livelihoods. The calls for “front-loaded interest rate hikes simply got louder. The Bank for International Settlements (BIS) warned, “With the prospect of higher wages as workers look to make up for the purchasing power they lost, inflation could be high for long”.

Labour a clear loser
Labour is a clear loser. Labour’s income share in the GDP has been in decline since the early 1970s. Casualisation, off-shoring, anti-union legislation and technological progress have greatly reduced labour’s bargaining power, while privatisation and dilution of anti-monopoly legislation hugely strengthened corporate power and their collusive anti-competitive behaviour. Meanwhile, CEO compensation packages swelled to obnoxious levels, rising 940% since 1978 in the US as opposed to a 12% rise for workers during that period. Profiting from the pandemic, CEO pay increased by 16% in 2020 when workers suffered, and to a record level in 2021.

Leading central bankers and mainstream economists conveniently created a dogma around a 2% inflation target to justify their anti-labour stance. The 2% inflation target has become a global norm akin to the law of gravity, even though it has no theoretical or empirical basis. The law of gravity differs depending on altitude, but the 2% target is said to be universal regardless of circumstances!

Collateral damage
Meanwhile, the advanced countries’ inflation fight is causing adverse spillover into developing countries. Higher interest rates have slowed the world economy, and triggered capital outflows from developing countries, thereby depreciating their currencies and lowering their export earnings.

Together, these are causing devastating debt crises in many developing countries, similar to what happened in the 1980s. The rating agency S&P estimates that central bank rate rises could land global borrowers with US$8.6t in extra debt servicing costs in the coming years.

Instead of providing genuine debt-relief, the G20 kicked the can down the road. As wealthy nations failed the poor countries during the pandemic, the IMF is moving to debt-distressed countries with conditionality-laden one-size-fits-all austerity packages. Thus, a Foreign Policy op-ed asked, “The International Monetary Fund: Holy Grail or Poisoned Chalice?”

Meanwhile, the chiefs of the World Bank and the BIS urged “supply-side” policies professed to increase labour force participation and investment. These are code words for further labour market deregulation, privatisation and liberalisation.

IPS UN Bureau

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Living Another Year Dangerously

Anis Chowdhury — Mon, 02 Jan 2023 12:22:42 +0000

By Anis Chowdhury
SYDNEY, Jan 2 2023 (IPS)
2022 has been a year of great uncertainty when it seemed the world perilously reached the brink of self-destruction – be it human-induced climate change or military conflict. Welcoming 2022, we had enough reasons to be optimistic; but it was another ‘year of living dangerously’ – Tahun vivere pericoloso in the words of Soekarno, or an annus horribilis in the words of the late Queen Elizabeth.

Anis Chowdhury
No end to Covid-19
The joy of the COVID vaccine discovery quickly vanished as the ‘vaccine apartheid‘ blatantly prioritised lives in rich nations, especially of the wealthy, over the ‘wretched of the earth’, and corporate profit triumphed over people’s lives. Meanwhile, Dr Anthony Fauci’s sober warning of a more dangerous COVID variant emerging this winter may come to be true as China, the country of 1.4 billion, struggles to deal with the surge in cases since it has largely abandoned its unpopular ‘zero COVID’ policy.

New cold war turns into proxy war
Whereas the global pandemic required extraordinary global unity, unfortunately, a ‘new cold war’ quickly turned into a ‘hot war’, bringing the world to the verge of a devastating nuclear war for the first time since the 1962 Cuban missile crisis. Russia, finding itself cornered by an expanding NATO, decided most foolishly to invade Ukraine, believing it could overrun the country without any resistance. While the heroic Ukrainians continue to defend their motherland, Russia seems to have become bogged down in a proxy war with NATO.

If the proxy war with Russia was not enough, the US is recklessly provoking China towards another ‘hot war’, following Trump’s trade war. Clearly the monopoly capital of the US and its military-industrial complex are pushing the US to a ‘Thucydides Trap‘. More than 60 years ago, President Eisenhower, in his farewell address to the nation, warned about the military-industrial complex, a formidable union of defence contractors and the armed forces. Eisenhower, a retired five-star Army general, who led the allies on D-Day, saw the military-industrial complex as a threat to democratic government and global peace. Alas, his dire warning fell on deaf ears.

Western hypocrisy exposed
The Russian invasion of Ukraine exposed Western pretence. The Western mainstream media unashamedly declared the dislocation of Ukrainians intolerable because the victims are blue-eyed, blond-haired Europeans, not “uncivilized” third world inhabitants or “barbaric” Arabs. Western duplicity is nowhere as blatant as it is in the case of the Palestinian plight. To them, Russia’s occupation and annexation of parts of Ukraine is illegal; but Israel’s occupation and annexation of Palestinian land as well as gross human rights violations are justified on various professed grounds, e.g., right to protection from “terrorist acts”.

Leadership vacuum
The world now needs Eisenhower to resist the military-industrial complex; it needs Teddy Roosevelt to break monopoly capital’s stranglehold and to protect consumers, workers and the environment; it needs Franklin Roosevelt to promote multilateralism and social justice; it needs Kennedy to defuse crises. At the height of the ‘old cold war’, Kennedy ate humble pie by quietly removing the security threat to the USSR posed by offensive weapons (Jupiter MRBMs) deployed in Turkey, and publicly pledging that the US would never invade Cuba or attempt another Bay of Pigs operation. Eisenhower was magnanimous enough to bear the lion’s share of financing the USSR’s proposal for global efforts to eradicate smallpox – the leading cause of death and blindness then.

Alas, we see no such signs in a world of Trump, Biden, Johnson, Marcon and Scholz. Even ‘out of touch‘, billionaire Sunak does not inspire any hope, despite being the first coloured person of colonial descent to occupy the 10 Downing Street. Sunak will probably try to prove himself holier than the Pope, instead of promoting the interest of former colonies or descendants of colonial subjects or downtrodden.

No better leadership in the South
The South is also devoid of visionaries, such as Nkrumah or Nehru who promoted non-alignment and Southern unity. Nehru’s land is now overtaken by Modi’s Hindutva movement, openly promoting violence against minorities. Unsurprisingly, Modi was in sync with Trump; but he equally cosies up to Biden professing to promote democracy and human rights. Sadly, Mandela’s South Africa is mired in scandal after scandal.

Although many, including myself, eagerly looked forward to Lula’s victory in Brazil, neither his return to power nor the so-called ‘second pink tide’ in Latin America should make one overly joyous. The Left has demonstrated its propensity to fracture or implode easily, e.g., contributing to Correa’s defeat in Ecuador, or aiding the Right to strike back in Peru. In Colombia, Finance capital, mining giants and the elite have already ganged up on Petro’s vow to tackle inequality with tax and land reforms and his proposed ban on new oil and gas exploration. Chile’s Boric has faced setbacks including the rejection of a new constitution, forcing his concessions to the Centre-Right. Constitutional coup is a common strategy of the established vested interest.

Some inspirations down under
Down under, the Australians soundly defeated an increasingly autocratic and unaccountable conservative government in May. It was the government that implemented inhumane off-shore detention centres for people seeking to escape persecution and starvation in their own countries (about to be emulated by the UK Tory Govt.). It also was cruel enough to pursue vulnerable people on social security payments with a robotic program whilst cutting taxes for the wealthy and letting them evade tax. It was the government which created plumb jobs for the boys. It was the government which continued to deny climate science and refused to act.

Finally, the Australians got rid of it. Labor showed extraordinary discipline in opposition, and in government, it stood up to big business and vested interests. It has quickly moved to put in place the processes to:

• set up an independent anti-corruption body with real teeth;
• recognise the voice of First Nations people;
• respect human rights of asylum seekers languishing in detention centres;
• address environmental degradation & achieve 43% emissions reduction target by 2030;
• restore labour rights, fair and decent wages;
• review RBA’s performance to ensure monetary policy serves broader national interest, not the finance; and
• balance geo-political alliances.

Its progressive agenda is quite long. Let me end here, wishing the Australian Labor Government success to inspire other nations – large and small, developed and developing; and with best wishes for you to be safe and remain healthy, even if not quite bright-eyed and bushy-tailed.

IPS UN Bureau

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Developing Countries Need Monetary Financing

Anis Chowdhury and Jomo Kwame Sundaram — Tue, 01 Nov 2022 08:05:08 +0000

By Anis Chowdhury and Jomo Kwame Sundaram
SYDNEY and DAKAR, Nov 1 2022 (IPS)
Developing countries have long been told to avoid borrowing from central banks (CBs) to finance government spending. Many have even legislated against CB financing of fiscal expenditure.

Central bank fiscal financing
Such laws are supposedly needed to curb inflation – below 5%, if not 2% – to accelerate growth. These arrangements have also constrained a potential CB developmental role and government ability to respond better to crises.

Anis Chowdhury
Improved monetary-fiscal policy coordination is also needed to achieve desired structural transformation, especially in decarbonizing economies. But too many developing countries have tied their own hands with restrictive legislation.

A few have pragmatically suspended or otherwise circumvented such self-imposed prohibitions. This allowed them to borrow from CBs to finance pandemic relief and recovery packages.

Such recent changes have re-opened debates over the urgent need for counter-cyclical and developmental fiscal-monetary policy coordination.

Monetary financing rubbished
But financial interests claim this enables national CBs to finance government deficits, i.e., monetary financing (MF). MF is often blamed for enabling public debt, balance of payments deficits, and runaway inflation.

As William Easterly noted, “Fiscal deficits received much of the blame for the assorted economic ills that beset developing countries in the 1980s: over indebtedness and the debt crisis, high inflation, and poor investment performance and growth”.

Hence, calls for MF are typically met with scepticism, if not outright opposition. MF undermines central bank independence (CBI) – hence, the strict segregation of monetary from fiscal authorities – supposedly needed to prevent runaway inflation.

Jomo Kwame Sundaram
Recent International Monetary Fund (IMF) research insists MF “involves considerable risks”. But it acknowledges MF to cope with the pandemic did not jeopardize price stability. A Bank of International Settlements paper also found MF enabled developing countries to respond countercyclically to the pandemic.

Cases of MF leading to runaway inflation have been very exceptional, e.g., Bolivia in the 1980s or Zimbabwe in 2007-08. These were often associated with the breakdown of political and economic systems, as when the Soviet Union collapsed.

Bolivia suffered major external shocks. These included Volcker’s interest rate spikes in the early 1980s, much reduced access to international capital markets, and commodity price collapses. Political and economic conflicts in Bolivian society hardly helped.

Similarly, Zimbabwe’s hyperinflation was partly due to conflicts over land rights, worsened by government mismanagement of the economy and British-led Western efforts to undermine the Mugabe government.

Indian lessons
Former Reserve Bank of India Governor Y.V. Reddy noted fiscal-monetary coordination had “provided funds for development of industry, agriculture, housing, etc. through development financial institutions” besides enabling borrowing by state owned enterprises (SOEs) in the early decades.

For him, less satisfactory outcomes – e.g., continued “macro imbalances” and “automatic monetization of deficits” – were not due to “fiscal activism per se but the soft-budget constraint” of SOEs, and “persistent inadequate returns” on public investments.

Monetary policy is constrained by large and persistent fiscal deficits. For Reddy, “undoubtedly the nature of interaction between [fiscal and monetary policies] depends on country-specific situation”.

Reddy urged addressing monetary-fiscal policy coordination issues within a broad common macroeconomic framework. Several lessons can be drawn from Indian experience.

First, “there is no ideal level of fiscal deficit, and critical factors are: How is it financed and what is it used for?” There is no alternative to SOE efficiency and public investment project financial viability.

Second, “the management of public debt, in countries like India, plays a critical role in development of domestic financial markets and thus on conduct of monetary policy, especially for effective transmission”.

Third, “harmonious implementation of policies may require that one policy is not unduly burdening the other for too long”.

Lessons from China?
Zhou Xiaochuan, then People’s Bank of China (PBoC) Governor, emphasized CBs’ multiple responsibilities – including financial sector development and stability – in transition and developing economies.

China’s CB head noted, “monetary policy will undoubtedly be affected by balance of international payments and capital flows”. Hence, “macro-prudential and financial regulation are sensitive mandates” for CBs.

PBoC objectives – long mandated by the Chinese government – include maintaining price stability, boosting economic growth, promoting employment, and addressing balance of payments problems.

Multiple objectives have required more coordination and joint efforts with other government agencies and regulators. Therefore, “the PBoC … works closely with other government agencies”.

Zhou acknowledged, “striking the right balance between multiple objectives and the effectiveness of monetary policy is tricky”. By maintaining close ties with the government, the PBoC has facilitated needed reforms.

He also emphasized the need for policy flexibility as appropriate. “If the central bank only emphasized keeping inflation low and did not tolerate price changes during price reforms, it could have blocked the overall reform and transition”.

During the pandemic, the PBoC developed “structural monetary” policy tools, targeted to help Covid-hit sectors. Structural tools helped keep inter-bank liquidity ample, and supportive of credit growth.

More importantly, its targeted monetary policy tools were increasingly aligned with the government’s long-term strategic goals. These include supporting desired investments, e.g., in renewable energy, while preventing asset price bubbles and ‘overheating’.

In other words, the PBoC coordinates monetary policy with fiscal and industrial policies to achieve desired stable growth, thus boosting market confidence. As a result, inflation in China has remained subdued.

Consumer price inflation has averaged only 2.3% over the past 20 years, according to The Economist. Unlike global trends, China’s consumer price inflation fell to 2.5% in August, and rose to only 2.8% in September, despite its ‘zero-Covid’ policy and measures such as lockdowns.

Needed reforms
Effective fiscal-monetary policy coordination needs appropriate arrangements. An IMF working paper showed, “neither legal independence of central bank nor a balanced budget clause or a rule-based monetary policy framework … are enough to ensure effective monetary and fiscal policy coordination”.

Appropriate institutional and operational arrangements will depend on country-specific circumstances, e.g., level of development and depth of the financial sector, as noted by both Reddy and Zhou.

When the financial sector is shallow and countries need dynamic structural transformation, setting up independent fiscal and monetary authorities is likely to hinder, not improve stability and sustainable development.

Understanding each other’s objectives and operational procedures is crucial for setting up effective coordination mechanisms – at both policy formulation and implementation levels. Such an approach should better achieve the coordination and complementarity needed to mutually reinforce fiscal and monetary policies.

Coherent macroeconomic policies must support needed structural transformation. Without effective coordination between macroeconomic policies and sectoral strategies, MF may worsen payments imbalances and inflation. Macro-prudential regulations should also avoid adverse MF impacts on exchange rates and capital flows.

Poorly accountable governments often take advantage of real, exaggerated and imagined crises to pursue macroeconomic policies for regime survival, and to benefit cronies and financial supporters.

Undoubtedly, much better governance, transparency and accountability are needed to minimize both immediate and longer-term harm due to ‘leakages’ and abuses associated with increased government borrowing and spending.

Citizens and their political representatives must develop more effective means for ‘disciplining’ policy making and implementation. This is needed to ensure public support to create fiscal space for responsible counter-cyclical and development spending.

IPS UN Bureau

Follow @IPSNewsUNBureau


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Anis Chowdhury and Jomo Kwame Sundaram — Tue, 25 Oct 2022 04:22:58 +0000

By Anis Chowdhury and Jomo Kwame Sundaram
SYDNEY and KUALA LUMPUR, Oct 25 2022 (IPS)
Widespread adverse reactions to the UK government’s recent ‘mini-budget’ forced new Prime Minister Liz Truss to resign. The episode highlighted problems of macroeconomic policy coordination and the interests involved.

Macro-policy coordination
But macroeconomic, specifically fiscal-monetary policy coordination almost became “taboo” as central bank independence (CBI) became the new orthodoxy. It has been accused of enabling CBs to finance government deficits. Critics claim inflation, even hyperinflation, becomes inevitable.

Anis Chowdhury
Government finance ministries and CBs are the two main macroeconomic policy protagonists. Poor ‘macro-policy’ coordination has generated problems, including contradictory policy responses. This has meant more macroeconomic and financial instability, worrying markets and investors.

Fiscal policy – notably variations in government tax and spending – mainly aims to influence long-term growth and distribution. CB monetary policy – e.g., variations in short-term interest rates and credit growth – claims to prioritize price and exchange rate stability.

By the early 1990s, the ‘Washington consensus’ implied the two macro-policy actors should work independently due to their different time horizons. After all, governments are subject to short-term political considerations inimical to monetary stability needed for long-term growth.

Claiming to be “technocratic”, CBs have increasingly set their own goals or targets. CBI has involved both ‘goal’ and ‘instrument’ independence, instead of ‘goal dependence’ with ‘instrument independence’.

CBI was ostensibly to avoid ‘fiscal dominance’ of monetary policy. Meanwhile, government fiscal policy became subordinated to CB inflation targets. For former Reserve Bank of Australia Deputy Governor Guy Debelle, monetary policy became “the only game in town for demand management”.

Debelle noted that except for rare and brief coordinated fiscal stimuli in early 2009, after the onset of the global financial crisis, “demand management continued to be the sole purview of central banks. Fiscal policy was not much in the mix”.

Jomo Kwame Sundaram
Sub-optimal outcomes
But more than three decades of “divorce” between independent CBs and fiscal authorities have failed to deliver its promised benefits. Instead, monetary policy dominance has worsened financial instability.

Adam Posen found the costs of disinflation, or keeping inflation low, higher in OECD countries with CBI. Carl Walsh found likewise in the European Community.

For Guy Debelle and Stanley Fischer, CBs have sought to enhance their credibility by being tougher on inflation, even at the expense of output and employment losses.

Committed to arbitrary targets, independent CBs have sought credit for keeping inflation low. They deny other contributory factors, e.g., labour’s diminished bargaining power and globalization, particularly cheaper supplies.

John Taylor, author of the ‘Taylor rule’ CB mantra, concluded CB “performance was not associated with de jure [legislated] central bank independence”. De jure CB independence has not prevented them from “deviating from policies that lead to both price and output stability”.

The de facto independent US Fed has also taken “actions that have led to high unemployment and/or high inflation”. As single-minded independent CBs pursued low inflation, they neglected their responsibility for financial stability.

CBs’ indiscriminate monetary expansion during the 2000s’ Great Moderation enabled asset price bubbles and dangerous speculation, culminating in the global financial crisis (GFC).

Since the GFC, “the financial sector has become [increasingly] dependent on easy liquidity… To compensate for quantitative easing (QE)-induced low return…, [holders of safe long-term government bonds] increased the risk profile of their other assets, taking on more leverage, and hedging interest rate risk with derivatives”.

Independent CBs also never acknowledge the adverse distributional consequences of their policies. This has been true of both conventional policies, involving interest rate adjustments, and unconventional ones, with bond buying, or QE. All have enabled speculation, credit provision and other financial investments.

They have also helped inefficient and uncompetitive ‘zombie’ enterprises survive. Instead of reversing declining long-term productivity growth, the slowdown since the GFC “has been steep and prolonged”.

Workers’ real wages have remained stagnant or even declined, lowering labour’s income share and widening income inequality. As crises hit and monetary policies were tightened, workers lost jobs and incomes. Workers are doubly hit as governments pursue fiscal austerity to keep inflation low.

Dire consequences
The pandemic has seen unprecedented fiscal and monetary responses. But there has been little coordination between fiscal and monetary authorities. Unsurprisingly, greater pandemic-induced fiscal deficits and monetary expansion have raised inflationary pressures, especially with supply disruptions.

This could have been avoided if policymakers had better coordinated fiscal and monetary measures to unlock key supply bottlenecks. War and economic sanctions have made the supply situation even more dire.

Government debt has been rising since the GFC, reaching record levels due to pandemic measures. CBs hiking interest rates to contain inflation have thus worsened public debt burdens, inviting austerity measures.

Thus, countries go through cycles of debt accumulation and output contraction. Supposed to contain inflation, they adversely impact livelihoods. Many more developing countries face debt crises, further setting back progress.

Needed reforms
Sixty years ago, Milton Friedman asserted, “money is too important to be left to the central bankers”. He elaborated, “One economic defect of an independent central bank … is that it almost invariably involves dispersal of responsibility… Another defect … is the extent to which policy is … made highly dependent on personalities… third … defect is that an independent central bank will almost invariably give undue emphasis to the point of view of bankers”.

Thus, government-sceptic Friedman recommended, “either to make the Federal Reserve a bureau in the Treasury under the secretary of the Treasury, or to put the Federal Reserve under direct congressional control.

“Either involves terminating the so-called independence of the system… either would establish a strong incentive for the Fed to produce a stabler monetary environment than we have had”.

Undoubtedly, this is an extreme solution. Friedman also suggested replacing CB discretion with monetary policy rules to resolve the problem of lack of coordination. But, as Alan Blinder has observed, such rules are “unlikely to score highly”.

Effective fiscal-monetary policy coordination requires appropriate supporting institutions and operating arrangements. As IMF research has shown, “neither legal independence of central bank nor a balanced budget clause or a rule-based monetary policy framework … are enough to ensure effective monetary and fiscal policy coordination”.

Although rules-based policies may enhance transparency and strengthen discipline, they cannot create “credibility”, which depends on policy content, not policy frameworks.

For Debelle, a combination of “goal dependence” and “instrument or operational independence” of CBs under strong democratic or parliamentary oversight may be appropriate for developed countries.

There is also a need to broaden membership of CB governing boards to avoid dominance by financial interests and to represent broader national interests.

But macro-policy coordination should involve more than merely an appropriate fiscal-monetary policy mix. A more coherent approach should also incorporate sectoral strategies, e.g., public investment in renewable energy, education & training, healthcare. Such policy coordination should enable sustainable development and reverse declining productivity growth.

As Buiter urges, it is up to governments “to make appropriate use of … fiscal space” created by fiscal-monetary coordination. Democratic checks and balances are needed to prevent “pork-barrelling” and other fiscal abuses and to protect fiscal decision-making from corruption.

IPS UN Bureau

Follow @IPSNewsUNBureau


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Anis Chowdhury and Jomo Kwame Sundaram — Tue, 18 Oct 2022 06:01:56 +0000

By Anis Chowdhury and Jomo Kwame Sundaram
SYDNEY and KUALA LUMPUR, Oct 18 2022 (IPS)
Preoccupied with enhancing their own ‘credibility’ and reputations, central banks (CBs) are again driving the world economy into recession, financial turmoil and debt crises.

Wall Street ‘cred’
Most CB governors believe ‘credibility’ is desirable and must be achieved by fighting inflation at any cost. To justify their own more harmful policies, they warn inflation is ‘damaging’.

Anis Chowdhury
They argue CBs need ‘independence’ from governments to pursue ‘credible’ monetary policy. Inflation targeting to ‘anchor’ inflation expectations is supposed to generate desired ‘confidence’. But CBs have been responsible for many costly failures.

The US Fed deepened the 1930s’ Great Depression, the 1970s’ stagflation and the early 1980s’ contraction, besides contributing to the 2008-09 global financial crisis (GFC). Hence, CB notions of ‘credibility’ and ‘independence’ need to be reconsidered.

Milton Friedman – whom many central bankers revere – blamed the 1930s’ Great Depression on US Fed actions and inactions. Instead of providing liquidity support for businesses struggling with short-term cash-flow problems, it squeezed credit and economies.

But why did the Fed behave as it did? Some economic historians insist it was “to promote the interests of commercial banks, rather than economic recovery”.

Monetary policy before and during the Great Depression “was designed to cause the failure of non-member banks, which would enhance the long-run profits of the Fed’s member banks and enlarge the [Fed’s] regulatory domain”.

Others concluded, “Federal Reserve errors seem largely attributable to the continued use of flawed policies” to defend the ‘gold standard’, and its poor understanding of monetary conditions.

Central banks contractionary
Worse, few lessons were learnt. Instead of protecting the gold standard, or being counter-cyclical, fighting inflation is the new CB preoccupation. Even worse, most CBs now commit to an arbitrarily-set inflation target of 2%, first promoted by the Reserve Bank of New Zealand over three decades ago.

Jomo Kwame Sundaram
Major CB interventions have caused both economic booms or bubbles and busts or contractions, often without mitigating inflation. Such “go-stop” monetary policy swings have caused asset price bubbles and financial fragility besides sudden contractions.

Ben Bernanke’s research team found the major damage from the 1970s’ oil price shocks was due to the “tightening of monetary policy” response. Other research attributed the 1970s’ stagflation largely to the Fed’s “go-stop” monetary policy, worsened by policymakers’ “misperceptions” and “faulty doctrine”.

Hence, “in substantial part the Great Stagflation of the 1970s could have been avoided, had the Fed not permitted major monetary expansions in the early 1970s”.

Labour pays
Likewise, Fed chair Paul Volcker sharply raised interest rates during 1979-81 “to a crushing level of nearly 20 per cent by the middle of 1981”.

This precipitated the “ensuing recession that started in July 1981 [which] became the most severe downturn since the second world war”. US unemployment reached nearly 11% in late 1982, the highest since the Great Depression.

Volcker’s actions betrayed the Fed’s dual mandate to pursue both full employment and price stability. First in the Employment Act of 1946, it was re-codified in the 1978 ‘Humphrey-Hawkins’ Full Employment and Balanced Growth Act.

Eventually, the long-term unemployed “became invisible to both the labour market and to policymakers”. Many became deskilled as others fell victim to criminality, substance abuse, and mental illness, even suicide.

The overall health of Americans became “poorer for years as a result of the deep economic recession in 1981 and 1982”.

Sending Global South south
Volcker’s actions caused developing country debt crises, with decades lost in Latin America and Africa. A recent New York Times opinion-editorial warned, “The Powell pivot to tighter money in 2021 is the equivalent of Mr. Volcker’s 1981 move”, and “the 2020s economy could resemble the 1980s”.

Yet, invoking CB credibility, many with power and influence are urging the Fed to stick to its guns with Volcker’s “courage to take out the baseball bat to slam the economy and slay inflation”!

The World Bank warns of dire developing country debt crises following policy-induced recessions. Meanwhile, the International Monetary Fund has warned developing economies with dollar-denominated debt of imminent foreign exchange crises.

Stop-go new norm
Fed, Bank of England and European Central Bank policy approaches still justify “go-stop” monetary policy reversals. Resulting booms or bubbles and busts also feature in other recent crises, e.g., the GFC.

Following the 1997 East Asian financial crises, Mexican, Russian and post-US ‘dotcom bubble’ bust, the Fed eased monetary policy too much for too long during the ‘Great Moderation’.

CBs enabled credit expansion in the 2000s, culminating in the GFC. More worryingly, the “near-consensus view” is that independent CBs have failed to achieve – let alone protect – financial stability.

Easy credit and rising stock and housing markets have involved rapid credit and loan growth worsening asset price bubbles. Regulatory oversight became increasingly lax as investors ‘chased yield’. Leverage grew, using dodgy ‘derivative’ products, making proper risk assessment difficult.

Guy Debelle, once Deputy Governor of Australia’s CB, noted, “The goal of financial stability has generally been left vague”. Hence, CBs failed to see significant build-up of financial instability”. Soon after, the Lehman Brothers’ collapse precipitated the GFC.

QE magic from bubble to bust
Governments withdrew fiscal ‘stimuli’ too soon. So, major CBs aggressively pursued ‘unconventional monetary policies’, especially ‘quantitative easing’, to keep economies afloat.

Extraordinary monetary expansion provided vital liquidity, but poor coordination also fuelled asset price bubbles. Thus, unviable enterprises survived, undermining productivity growth.

With less investment in the real economy, supply capacity is falling behind still growing demand. Pandemic, war and sanctions have also disrupted supplies.

Raising interest rates, CBs now race to reverse earlier monetary expansion. Credit contractions are squeezing economies, hitting poorer countries especially hard.

Reviewing historical data, the author of the ‘Taylor rule’ – whom many CBs profess to follow – concluded, “The classic explanation of financial crises, going back hundreds of years, is that they are caused by excesses – frequently monetary excesses – which lead to a boom and an inevitable bust”.

Independence for what?
CB independence (CBI) advocates often claim low inflation during the Great Moderation was due to CB credibility. But inflation in most countries declined from the mid-1990s, with or without CBI.

The alleged causation has been much exaggerated, and is certainly not as strong as argued. Claiming CBI ensures low inflation also denies other relevant variables, e.g., labour market casualization and globalization.

Debelle observed, “How much [low inflation] can be attributable to central bank independence or the inflation target is difficult to disentangle …[Favourable] assessment mostly relies on assertion, rather than empirical proof”.

Milton Friedman argued crisis responses involve inherently political decisions, best not left to the unelected. A modern CB’s “responsibilities overlap with other government functions”. So, CBs must be subject to political authority while maintaining operational independence.

CBI fetishism has also allowed central bankers to ignore distributional consequences of monetary policies. This has often enabled financial asset owners, speculators and creditors. CBI has also meant neglecting development responsibilities.

Emphasizing CBI also implies “a very narrow view of central bank functions”. This has made economies more prone to financial instability and crisis. Clearly, CBI is no harmless ‘elixir’ ensuring low inflation.

IPS UN Bureau

Follow @IPSNewsUNBureau


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Anis Chowdhury and Jomo Kwame Sundaram — Mon, 10 Oct 2022 10:05:52 +0000

By Anis Chowdhury and Jomo Kwame Sundaram
SYDNEY and KUALA LUMPUR, Oct 10 2022 (IPS)
The dogmatic obsession with and focus on fighting inflation in rich countries are pushing the world economy into recession, with many dire consequences, especially for poorer countries. This phobia is due to myths shared by most central bankers.

Anis Chowdhury
Myth 1: Inflation chokes growth
The common narrative is that inflation hurts growth. Major central banks (CBs), the Bretton Woods institutions (BWIs) and the Bank of International Settlements (BIS) all insist inflation harms growth despite all evidence to the contrary. The myth is based on a few, very exceptional cases.

“Once-in-a-generation inflation in the US and Europe could choke off global growth, with a global recession possible in 2023”, claimed the World Economic Forum Chief Economist’s Outlook under the headline, “Inflation Will Lead Inexorably To Recession”.

The Atlantic recently warned, “Inflation Is Bad… raising the prospect of a period of economic stagnation or even a recession”. The Economist claims, “It hurts investment and makes most people poorer”.

Jomo Kwame Sundaram
Without evidence, the narrative claims causation runs from inflation to growth, with inevitable “adverse” consequences. But serious economists have found no conclusive supporting evidence.

World Bank chief economist Michael Bruno and William Easterly asked, “Is inflation harmful to growth?” With data from 31 countries for 1961-94, they concluded, “The ratio of fervent beliefs to tangible evidence seems unusually high on this topic, despite extensive previous research”.

OECD evidence for 1961-2021 – Figures 1a & 1b – updates Bruno & Easterly, again contradicting the ‘standard narrative’ of major CBs, BWIs, BIS and others. The inflation-growth relationship is strongly positive when 1974-75 – severe oil spike recession years – are excluded.

The relationship does not become negative even when 1974-75 are included. Also, the “Great Inflation” of 1965-82 did not harm growth. Hence, there is no empirical basis for setting a particular threshold, such as the now standard 2% inflation target – long acknowledged as “plucked from the air”!

Developing countries also have a positive inflation-growth relationship if extreme cases – e.g., inflation rates in excess of 20%, or ‘excessively’ impacted by commodity price volatilities, civil strife, war – are omitted (Figures 2a & 2b).

Figure 2a summarizes evidence for 82 developing countries during 1991-2021. Although slightly weakened, the positive relationship remained, even if the 1981-90 debt crises years are included (Figure 2b).

Myth 2: Inflation always accelerates
Another popular myth is that once inflation begins, it has an inherent tendency to accelerate. As inflation supposedly tends to speed up, not acting decisively to nip it in the bud is deemed dangerous. So, the IMF chief economist advises, “Don’t let inflation ‘genie’ out of the bottle”. Hence, inflation has to be ‘nipped in the bud’.

But, in fact, OECD inflation has never exceeded 16% in the past six decades, including the 1970s’ oil shock years. Inflation does not accelerate easily, even when labour has more bargaining power, or wages are indexed to consumer prices – as in some countries.

Bruno & Easterly only found a high likelihood of inflation accelerating when inflation exceeded 40%. Two MIT economists – Rüdiger Dornbusch and Stanley Fischer, later International Monetary Fund Deputy Managing Director – came to a similar conclusion, describing 15–30% inflation as “moderate”.

Dornbusch & Fischer also stressed, “Most episodes of moderate inflation were triggered by commodity price shocks and were brief; very few ended in higher inflation”. Importantly, they warned, “such [moderate] inflations can be reduced only at a substantial … cost to growth”.

Myth 3: Hyperinflation threatens
Although extremely rare, avoiding hyperinflation has become the pretext for central bankers prioritizing inflation prevention. Hyperinflation – at rates over 50% for at least a month – is undoubtedly harmful for growth. But as IMF research shows, “Since 1947, hyperinflations in market economies have been rare”.

Many of the worst hyperinflation episodes in history were after World War Two and the Soviet demise. Bruno & Easterly also mention breakdowns of economic and political systems – as in Iran or Nicaragua, following revolutions overthrowing corrupt despotic regimes.

A White House staff blog noted, “The inflationary period after World War II is likely a better comparison for the current economic situation than the 1970s and suggests that inflation could quickly decline once supply chains are fully online and pent-up demand levels off”.

Myth 4: Evidence-based policymaking
Central bankers love to claim their policymaking is evidence-based. They cite one another and famous economists to enhance the aura of CB “credibility”.

Unsurprisingly, the Reserve Bank of New Zealand promoted its arbitrary 2% inflation target mainly by endless repetition – not strong evidence or superior logic. They simply “devoted a huge amount of effort” to preaching the new mantra “to everybody who would listen – and some who were reluctant to listen”.

The narrative also suited those concerned about wage pressures. Fighting inflation has provided an excuse to further weaken workers’ working conditions and pay. Thus, labour’s share of income has been declining since the 1970s.

Greater central bank independence (from the executive) has enhanced the influence and power of financial interests – largely at the expense of the real economy. Output and employment growth weakened as a result, worsening the lot of the many, especially in the global South.

Fact: Central banks induce recessions
Inappropriate CB policies have often slowed economic growth without mitigating inflation. Hawkish CB responses to inflation can become self-fulfilling prophecies with high inflation seemingly associated with recessions or growth collapses.

Before becoming Fed chair, Ben Bernanke’s research team concluded, “an important part of the effect of oil price shocks [in the 1970s] on the economy results not from the change in oil prices, per se, but from the resulting tightening of monetary policy”.

Thus, central bank interventions have caused contractions without reducing inflation. The longest US recession after the Great Depression – in the early 1980s – was due to Fed chair Paul Volcker’s 1979-81 interest rate hikes.

A New York Times opinion-editorial recently warned, “The Powell pivot to tighter money in 2021 is the equivalent of Mr. Volcker’s 1981 move”, and “the 2020s economy could resemble the 1980s”.

Fearing an “extremely severe” world recession, Columbia University history professor Adam Tooze has summed up the current CBs’ interest rate hike frenzy as “the single most dramatic simultaneous tightening of monetary policy ever”!

Phobias, especially if based on unfounded beliefs, never offer good bases for sound policymaking.

IPS UN Bureau

Follow @IPSNewsUNBureau


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Anis Chowdhury and Jomo Kwame Sundaram — Tue, 04 Oct 2022 05:49:13 +0000

By Anis Chowdhury and Jomo Kwame Sundaram
SYDNEY and KUALA LUMPUR, Oct 4 2022 (IPS)
Central banks (CBs) around the world – led by the US Fed, European Central Bank and Bank of England – are raising interest rates, ostensibly to check inflation. The ensuing race to the bottom is hastening world economic recession.

Going for broke
New UK Prime Minister Liz Truss has already revived ‘supply side economics’, long thought to have been fatally discredited. Her huge tax cuts are supposed to kick-start Britain’s stagnant economy in time for the next general election.

Anis Chowdhury
But studies of past tax cuts have not found any positive link between lower taxes and economic or employment growth. Oft-cited US examples of Reagan, Bush or Trump tax cuts have been shown to be little more than economic sophistry.

Reagan’s Council of Economic Advisers chairman, Harvard professor Martin Feldstein found most Reagan era growth due to expansionary monetary policy. Volcker’s interest rate hikes to fight inflation were reversed. This enabled the US economy to bounce back from its severe 1982 monetary policy inflicted recession.

George W Bush’s 2001 and 2003 tax cuts also failed to spur growth. Instead, deficits and debt ballooned. “The largest benefits from the Bush tax cuts flowed to high-income taxpayers”. Likewise, Trump tax cuts failed to lift the US economy, with billionaires now paying much less than workers.

After Boris Johnson stepped down, UK Conservative Party leadership contenders started by promising more tax cuts. But The Economist was “sceptical that such cuts will lift Britain’s growth rate”. Instead, it worried tax cuts would compound inflationary pressures, triggering ever tighter monetary policy.

The Economist concluded, “It is hard to spot a connection between the overall level of taxation and long-term prosperity”. Unsurprisingly, The Economist sees Truss’ “largest tax cuts in half a century” as “a reckless budget, fiscally and politically”.

Jomo Kwame Sundaram
While such tax cuts mainly benefit the very rich, the costs of such monetary and fiscal policies are borne by workers and other consumers. Workers are harshly punished by austerity measures, losing both jobs and incomes to interest rate hikes.

Tax cuts usually make things worse. Typically, these require cutting social protection and essential public services, ostensibly to balance the budget. So, already greater wealth and income inequalities will worsen.

Governments have to cut public investments due to ballooning budget deficits. Higher interest rates and public spending cuts will also derail efforts needed to transition to more sustainable, greener futures.

Class war
Policy fights over inflation have many dimensions, including class. Instead of helping people cope with rising living costs, increasing interest rates only makes things worse, hastening economic slowdowns. Thus, workers not only lose jobs and incomes, but also are forced to pay more for mortgages and other debts.

Unemployment, lower incomes, deteriorating health and other pains hurt workers. As workers want higher incomes to cope with rising living expenses, such austere policies are deemed necessary to prevent ‘wage-price spirals’.

As usual, workers are being blamed for the resurgence of inflation. But research by the International Monetary Fund (IMF) and others has found no evidence of such wage-price spirals in recent decades.

Experience and evidence suggest very low likelihood of such dialectics in current circumstances, although some nominal wages have risen. Since the 1980s, labour bargaining power and collective wage determination have declined.

Policymakers should address stagnant, even declining real wages in most economies in recent decades. These have hurt “low-paid workers much more than those at the top”. Even the Organization for Economic Cooperation and Development club of rich countries has “worryingly” noted these trends.

The IMF Deputy Managing Director has explained why wages do not have to be suppressed to avoid inflation. Letting nominal wages rise will mitigate rising inequality, plus declining labour income shares (Figure 1) and real wages.

Source: IMF, World Economic Outlook, April 2017

Profit margins had already risen, even before the Ukraine war and sanctions. US trends prompted the Bloomberg headline, “Fattest Profits Since 1950 Debunk Wage-Inflation Story of CEOs”. Aggregate profits of the largest UK non-financial companies in 2021 rose 34% over pre-pandemic levels.

Policymakers should therefore restrain profits, not wages. Recent price increases have been due to rising profits from mark-ups. Recent trends have made it “easier for firms to put their prices up” notes the Reserve Bank of Australia Governor.

Addressing inequality
The IMF Managing Director (MD) recently warned, “People will be on the streets if we don’t fight inflation”. But people are even more likely to protest if they lose jobs and incomes. Worse, the burden of fighting inflation has been put on them while the elite continues to enrich itself.

Raising interest rates is a blunt means to fight inflation. It worsens living costs and job losses, while tax cuts mainly benefit the rich. Instead, the rich should be taxed more to enhance revenue to increase public provisioning of essential services, such as transport, health and education.

The IMF MD noted raising taxes on the wealthy will help close the yawning gap between rich and poor without harming growth. Public provision of childcare and labour market programmes (e.g., retraining) will improve labour supply. Easing worker shortages can thus dampen price pressures.

The current situation requires addressing growing inequality. Redistributive fiscal measures – taxing high earners to fund expanded social protection and public provisioning – are time-tested means to address disparities.

Increasing top tax rates and tax system progressivity are also socially progressive, checking growing inequality. Meanwhile, as consumer prices spiral, rising profits and high executive remuneration have to be checked.

Supply-side policies
The World Bank and Bank of International Settlements heads have urged reducing the current focus on demand management to counter inflation. They both insist on addressing long-term supply bottlenecks, but do not offer much practical guidance.

Poorly coordinated ‘unconventional’ monetary policies since the 2008-09 global financial crisis have created property and stock market bubbles. These damage the real economy, worsen inequality and slow labour productivity growth, with the worst spill over effects in developing counties.

Addressing supply bottlenecks can involve tax incentives and credit policies. But discredited supply-side mantras – e.g., labour market deregulation – must be discarded. Related fiscal and monetary policies – e.g., tax cuts for the rich and inappropriate interest rate hikes – should also be abandoned.

Governments are losing chances to boost productivity, achieve low carbon transformation and cut inequalities. Instead, policymakers should pro-actively push desired economic changes by favouring less carbon-intensive and more dynamic investments.

This may also require checking CBs’ monetary policy independence to more effectively coordinate fiscal with monetary policies. But this should not undermine CBs’ ‘operational independence’ to foster “orderly economic growth with reasonable price stability”.

Governments must rise to the extraordinary challenges of our times with pragmatic, appropriate and progressive policy initiatives. To do this well, they must boldly reject the ideologies and dogmas responsible for our current predicament.

IPS UN Bureau

Follow @IPSNewsUNBureau


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Inflation Phobia Hastens Recessions, Debt Crises

Anis Chowdhury and Jomo Kwame Sundaram — Tue, 27 Sep 2022 05:42:52 +0000

By Anis Chowdhury and Jomo Kwame Sundaram
SYDNEY and KUALA LUMPUR, Sep 27 2022 (IPS)
Inflation phobia among central banks (CBs) is dragging economies into recession and debt crises. Their dogmatic beliefs prevent them from doing right. Instead, they take their cues from Washington: the US Fed, Treasury and Bretton Woods institutions (BWIs).

Costly recessions
Both BWIs – the International Monetary Fund (IMF) and World Bank – have recently raised the alarm about the likely dire consequences of the ensuing contractionary ‘race to the bottom’. But their dogmas stop them from being pragmatic. Hence, their policy analyses and advice come across as incoherent, even contradictory.

Anis Chowdhury
Ominously, the Bank has warned, “[t]he global economy is now in its steepest slowdown following a post-recession recovery since 1970”. As “central banks across the world simultaneously hike interest rates in response to inflation, the world may be edging toward a global recession in 2023”.

Warning “Increased interest rates will bite”, the IMF Managing Director has urged countries to “buckle up”, acknowledging anti-inflationary measures threaten recovery. “For hundreds of millions of people it will feel like a recession, even if the world economy avoids” two consecutive quarters of contracting output.

She also noted US Fed rate hikes have strengthened the dollar, raising import costs and making it costlier to service dollar-denominated debt. But reciting the mantra, she claims if inflation “gets under control, then we can see a foundation for growth and recovery”.

This contradicts all evidence that low inflation comes at the expense of robust growth. Per capita output growth and productivity growth both fell during three decades of low inflation. Also, low inflation has not prevented financial crises.

Even if growth recovers, recessions’ scars remain. For example, an IMF study found, “the Great Recession of 2007–09 has left gaping wounds”. Over 200 million people are unemployed worldwide, over 30 million more than in 2007.

A 2018 San Francisco Fed study assessed the Great Recession cost Americans about $70,000 each. The Harvard Business Review estimated, over 2008-10, it cost the US government “well over $2 trillion, more than twice the cost of the 17-year-long war in Afghanistan”.

Jomo Kwame Sundaram
Counting the costs
“The human and social costs are more far-reaching than the immediate temporary loss of income.” Such effects are typically much greater for the most vulnerable, e.g., the youth and long-term unemployed.

Studies have documented its harmful impacts on wellbeing, particularly mental health. Recessions in Europe and North America caused over 10,000 more suicides, greater drug abuse and other self-harming behaviour. Adverse socio-economic and health impacts are worse in developing countries with poor social protection.

Interest rate hikes during 1979-82 triggered debt crises in over 40 developing countries. The 1982 world recession “coincided with the second-lowest growth rate in developing economies over the past five decades, second only to 2020”. A “decade of lost growth in many developing economies” followed.

But Bank research shows interest rate hikes “may not be sufficient to bring global inflation back down”. The Bank even warns major CBs’ anti-inflationary measures may trigger “a string of financial crises in emerging market and developing economies”, which “would do them lasting harm”.

Developing country governments’ external debt – increasingly commercial, costing more and repayable sooner – has ballooned since the 2008-09 global financial crisis. The pandemic has caused more debt to become unsustainable as rich countries oppose meaningful relief.

No policy consensus
The Bank correctly notes, “A slowdown … typically calls for countercyclical policy to support activity”. It acknowledges, “the threat of inflation and limited fiscal space are spurring policymakers in many countries to withdraw policy support even as the global economy slows sharply”.

It also suggests, “policymakers could shift their focus from reducing consumption to boosting production…to generate additional investment and improve productivity and capital allocation…critical for growth and poverty reduction.”

However, it does not offer much policy guidance besides the usual irrelevant platitudes, e.g., CBs “must communicate policy decisions clearly while safeguarding their independence”.

It even blames “labor-market constraints”. For decades, the Bank promoted measures to promote labour market flexibility, ostensibly to increase participation rates, reduce prices, via wages, and re-employ displaced workers.

Such policies since the 1980s have accelerated declining productivity growth and real incomes for most. They have reduced labour’s share of national income, increasing inequality. To make matters worse, the Bank misleadingly attributes many policy-induced economic woes to high inflation.

In May, the IMF Deputy Managing Director argued wages did not have to be suppressed to avoid inflation. She called for CB vigilance and “forceful” actions against inflation, which “will remain significantly above central bank targets for a while”.

No more Washington Consensus
In June, a Fund policy note advised allowing “a full pass-through of higher international fuel prices to domestic users”. It advised recognizing the supply shock causes of contemporary inflation and protecting the most vulnerable.

But more alarmist Fund staff urge otherwise. In July, its ‘chief economist’ urged, “bringing [inflation] back to central bank targets should be the top priority … Central banks that have started tightening should stay the course until inflation is tamed”.

Although he acknowledged, “[t]ighter monetary policy will inevitably have real economic costs”, without any evidence, he insisted, “delaying it will only exacerbate the hardship”.

In August, the Bank of International Settlements (BIS) head urged shifting attention from managing demand to enabling supply. He warned central bankers had for too long assumed that supply adjusts automatically and smoothly to shifts in demand.

He warned, “Continuing to rely primarily on aggregate demand tools [i.e., the interest rate] to boost growth in this environment could increase the danger, as higher and harder-to-control inflation could result”.

But the BIS ‘chief economist’ soon urged major economies to “forge ahead with forceful” interest rate hikes despite growing threats of recession. He did not seem to care that the rate hike gamble to fight inflation may not work and its costs could be astronomical.

Inflation fear mongering
Influential economists at the US Fed, Bank of England, Fund and BIS fear “second-round” effects of mainly supply-shock inflation due to “wage-price spirals”.

But Fund research acknowledged, “little empirical research …[on]… the effects of oil price shocks on wages and factors affecting their strength”. It found very low likelihood of such ‘pass-through’ effects due to significant labour market changes, including drastic declines in unionization and collective bargaining.

It reported “almost zero pass-through for 1980-1999” and negligible effects during 2000-19, before concluding, “In a broad stroke, the pass-through has declined over time in Europe”. Similar findings have been reported by others.

Reserve Bank of Australia (RBA) research found “the current episode has many differences to the 1970s, when a wage-price spiral did emerge”. It concluded, “There are a number of factors that work against a wage-price spiral emerging, … implying that the overall risk in most advanced economies is probably quite low”.

Australian professor Ross Garnaut has suggested, “the spectre of a virulent wage-price spiral comes from our memories and not current conditions”. Sadly, despite all the evidence, including their own, the Fund and RBA still urge firm CB actions against inflation!

IPS UN Bureau

Follow @IPSNewsUNBureau


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Anis Chowdhury and Jomo Kwame Sundaram — Tue, 20 Sep 2022 06:20:28 +0000

By Anis Chowdhury and Jomo Kwame Sundaram
SYDNEY and KUALA LUMPUR, Sep 20 2022 (IPS)
Policymakers have become obsessed with achieving low inflation. Many central banks adopt inflation targeting (IT) monetary policy (MP) frameworks in various ways. Some have mandates to keep inflation at 2% over the medium term. Many believe this ensures sustained long-term prosperity.

Anis Chowdhury
The now universal 2% inflation target “was plucked out of the air”. This was acknowledged by Reserve Bank of New Zealand (RBNZ) Governor Don Brash who first adopted IT. The target was due to NZ Finance Minister Roger Douglas’ “chance remark” of achieving “genuine price stability, around 0, or 0 to 1 percent”.

IT discord
Heads of major central banks – such as the US Federal Reserve Bank (Fed), Bank of England (BoE) and German Bundesbank – committed to keep inflation at 2% soon after NZ. Although typically ‘medium-term’, IT’s high costs are portrayed as necessary, but brief. Worse, promised growth benefits have not materialized.

The Articles of Agreement of the International Monetary Fund (IMF) never endorsed any fixed inflation target. Article IV states, “each member shall: (i) endeavor to direct its economic and financial policies toward the objective of fostering orderly economic growth with reasonable price stability, with due regard to its circumstances”.

This makes clear much depends on conditions and circumstances. The sensible priority then would be to sustain prosperity with “reasonable price stability”, and not to commit to an arbitrary universal IT at any cost. Yet, many IMF officials promote the 2% target.

Jomo Kwame Sundaram
During the 2008-09 global financial crisis (GFC), the IMF Managing Director appealed for more imagination in designing monetary policy, appreciating “just how intricate the global economic and financial web had become”.

For him, “Monetary policy needs to look beyond its core focus on low and stable inflation” to promote balanced and equitable growth, while minimizing adverse spill-overs on developing economies.

An IMF chief economist even asserted low inflation and economic progress was a “divine coincidence”, and insisted a 2% inflation target was too low. After the GFC, an IMF working paper argued for a long-run inflation target of 4% for advanced countries.

A Bank of Canada working paper concluded, “the current state of economic research – both empirical and theoretical – provides little basis for believing in significant observable benefits of low inflation such as an increase in the growth rate of real GDP”.

IT benefits?
Any objective consideration of actual IT experiences would have led to its rejection long ago. IT is clearly inimical to growth and equity, let alone the Sustainable Development Goals (SDGs). Four central bank (CB) experiences offer valuable lessons about IT’s likely consequences.

The US Fed is, by far, the most important CB globally, while the BoE has been historically important. The Bundesbank has been the most inflation averse in the post-war period, while the RBNZ was the world’s IT pioneer.

NZ’s inflation during 1961-90 averaged 9%, more than the US’s 5.1% and the UK’s 8%. Yet, the mighty Fed and the venerable BoE sought to emulate the miniscule RBNZ! Germany’s well-known inflation-phobia is attributed to its inter-war ‘hyperinflation’ and its bloody aftermath. Inflation there averaged 3.4% over 1960-90, i.e., even before IT.

None achieved sustained economic prosperity despite reaching inflation targets of 2% or less. Average per capita GDP growth declined sharply in the US, UK and Germany, while rising negligibly in NZ (Table 1).

Table 1. Pre- & post-IT average per capita growth & inflation (%)

Long-term declines in their growth rates followed declining investments (Table 2). IT advocates claim high inflation causes uncertainty, thus reducing investments, but lower inflation has clearly done worse.

Table 2. Pre- & post-IT investment/GDP (%)

As the investment rate declined with IT, so did productivity growth in the UK, Germany and NZ (Table 3). While productivity growth has risen negligibly with IT in the US, it has trended down in all four economies (Figures 1-4). US hourly output grew at only 1.4% after 2004, “half its pace in the three decades after World War II”.

Table 3. Pre- & post-IT productivity growth (%)

Figures 1-4. Declining productivity growth, 1990-2021

Most advanced economies have experienced productivity slowdowns since the 1970s. With the European Central Bank’s strict IT framework, the euro zone also saw marked slowdowns in productivity growth during 1999-2019.

Declining productivity growth often becomes the pretext for depressing real wages and working conditions, compelling workers to work more to compensate for lost earnings. Productivity and growth slowdowns are seen as “secular stagnation”.

All this has been blamed on inflation. But lowering inflation has not reversed this trend, which has actually accelerated since the GFC. Many explanations have been offered, but the reasons for this failure remain moot.

IT, low inflation, tax cuts and market reforms are supposed to improve economic performance. Weaker investment and economic growth, due to contractionary macroeconomic policies, slowed US productivity growth.

Similarly, The Economist observed, “Drooping demand crimped incentives to invest and innovate”. It ascribed declining UK productivity growth to cuts in innovation investments due to “austerity policies” and “severe reduction in credit”, inter alia.

Concluding “no doubt … the cost … was huge”, it estimated, “Britain’s GDP per person in 2019 would have been £6,700 ($8,380) higher than it turned out to be” had productivity growth not fallen further after the GFC.

There is growing acknowledgement that widespread “unconditional” CB commitment to 2% inflation targets – in the face of the current inflationary upsurge – is likely to worsen slowdowns. This is likely to compound debt crises in many developing countries.

The adverse socio-economic impacts of recessions are well documented. Policy-induced recessions – supposedly to curb inflation – will compound the effects of pandemic, war and sanctions.

Pragmatism, not dogma
Central bankers should not be dogmatic. Instead, pragmatic approaches are urgently needed to address the current inflationary surges. This is especially necessary when inflation worldwide is mainly due to supply shocks.

Western policymakers must consider the adverse spill-over impacts on developing countries, already on the brink of debt crises due to protracted slowdowns. Government debt – with more higher cost commercial borrowings – has been rising since the GFC, Western ‘quantitative easing’ and Covid-19.

Almost all central bankers know it is almost impossible to achieve 2% inflation in current circumstances. Yet, they insist not raising interest rates now will cause much economic damage later.

But such claims clearly have no theoretical or empirical bases. Hence, it is recklessly dogmatic to enforce a 2% target by falsely claiming inaction would be even more harmful.

IPS UN Bureau

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Anis Chowdhury and Jomo Kwame Sundaram — Tue, 13 Sep 2022 05:44:42 +0000

Elizabeth II dancing with Nkrumah, 1961.
By Anis Chowdhury and Jomo Kwame Sundaram
SYDNEY and KUALA LUMPUR, Sep 13 2022 (IPS)
After a quarter century of economic stagnation, African economic recovery early in the 21st century was under great pressure even before the pandemic, due to new trade arrangements, falling commodity prices and severe environmental stress.

European scramble for Africa
Africa’s borders were drawn up by European powers, especially following their ‘Scramble for Africa’ from 1881 ending by World War One. Various culturally, linguistically and religiously different ‘ethnic’ groups were forced together into colonies, to later become post-colonial ‘nations’.

Europeans came to Africa seeking slaves and minerals, later building colonial empires. The US attended the 1884 Berlin Congress, dividing Africa among European powers. Colony-less ‘latecomer’ Germany got Southwest Africa and Tanganyika, now Namibia and mainland Tanzania respectively.

Namibia’s Herero and Nama peoples revolted unsuccessfully against German occupation in 1904. General Lothar von Trotha then ordered “every Herero … shot”. Four-fifths of the Herero and half the Nama died!

Communities were surrounded, with many killed. Others were held, with many dying in concentration camps, or driven into the desert to die of starvation. In 1984, the UN Whitaker Report concluded the atrocities were among the worst 20th century genocides.

Asymmetric interdependence?
Europe’s post-Second World War recovery benefited immensely from their primary commodity exporting colonies. After the wartime devastation, European imperial powers relied on colonial currency arrangements for precious foreign exchange.

Imperial power also ensured captive colonial markets for uncompetitive post-war European manufactures. Recovery and competition brought down commodity prices, especially after the Korean War boom. For well over a century, such prices have declined against those for manufactures.

As decolonization became inevitable, French politicians promoted the notion of ‘Eurafrica’, mimicking the US Monroe Doctrine’s claim to Latin America. French elite discourse insisted African independence should be defined by (asymmetric) ‘interdependence’, not ‘sovereignty’.

Although Germany lost its few colonies in Africa after losing the First World War, the influential West German Die Welt wondered wistfully in 1960, “Is Africa getting away from Europe?”

From decolonization to Cold War
The US was the first nation to recognize Belgian King Leopold II’s personal claim to the Congo River basin in 1884. When Leopold’s brutal atrocities and exploitation of his private Congo Free State domain, killing millions, could no longer be denied, other European powers forced Belgium to directly colonize the country!

Since then, the US has shaped the Congo’s destiny. The US has been keenly interested in its massive mineral resources. Congolese uranium, the richest in the world, was used in the Hiroshima and Nagasaki nuclear bombs. But Washington would not allow Africans control of their own strategic materials.

Patrice Lumumba became the first elected prime minister of the Democratic Republic of the Congo (DRC). An advocate of pan-African economic independence, his wish for genuine independence and sovereign control of DRC resources threatened powerful interests.

Lumumba was brutally humiliated, tortured and murdered in January 1961. The shameful assassination involved both US and Belgian governments which collaborated with Lumumba’s Congolese rivals.

Struggling to stand up
Pan-Africanist leader Kwame Nkrumah wanted independent Ghana to chart an ‘anti-imperialist’ path, staying non-aligned in the Cold War. He wanted hydroelectric dams to power Ghana’s industrial progress, beginning by smelting its bauxite to develop an aluminium value chain.

The US, UK and World Bank agreed to finance the Akosombo Dam, on condition it provided cheap energy to a Kaiser Aluminium subsidiary to process alumina for export to Kaiser. This arrangement was only rescinded decades later, early this century.

Ghana made technical cooperation agreements with the Czechs and Soviets to build two other dams. But both were ended after Nkrumah was overthrown in a military coup abetted by Washington in February 1966. Thus, Nkrumah’s development ambitions for Ghana were killed.

A scaled-down Bui dam was finally built by Chinese contractors decades later. Nkrumah’s 1965 book, Neo-colonialism: The Last Stage of Imperialism, was probably the final straw in embarrassing the West.

Elsewhere, Tanzania’s Julius Nyerere’s Ujamaa ‘African socialism’ focused on developing villages and food security. Western antagonism ensured Ujamaa’s failure, while his efforts were harshly condemned to deter other Africans from trying to chart their own paths.

Meanwhile, Nyerere’s pro-Western contemporaries were supported by the West. Such countries, e.g., neighbouring Kenya and Uganda, received much more Western aid although their development records have not been much better.

A luta continua
At independence, Zambia had no universities, with only 0.5% completing primary education. The country’s copper mines were mostly in British hands. Most people survived on limited land for the villagers, without electricity and other amenities.

Hemmed in by Western-supported racist states, President Kenneth Kaunda – a devout Christian – sought foreign help to bypass hostile South Africa and Rhodesia (now Zimbabwe) to change the landlocked nation’s fate.

After the US and World Bank refused to help, he reached out to the Soviet bloc and China. China built a $500 million railway linking Zambia to the Indian Ocean through Tanzania.

Côte d’Ivoire has long been a major producer of cocoa and coffee. But three decades of misrule by its pro-Western founding father, Felix Houphouet-Boigny, ensured endemic poverty and stark inequalities, culminating in civil war.

In 2020, almost 40% of its people lived in ‘extreme poverty’. In 2019, the middle-income country’s human development index score was a low 0.538, which dropped to 0.346, when adjusted for inequality.

Both Kaunda and Houphouet-Boigny later abandoned their early, more neo-colonial policies. Zambia nationalized copper mines, hoping to improve living conditions, instead of enriching foreign investors.

Meanwhile, Ivorian cocoa was withheld to secure better prices. But both efforts failed, as copper and cocoa prices collapsed. Thus, both nations were severely punished for trying to better their fates.

Non-alignment best
During the first Cold War, Western hostility to African aspirations forced many to turn to the ‘socialist camp’ to build infrastructure and develop human resources. Washington then was as concerned with economic gain as countering ‘Reds’.

The Kennedy administration had increased foreign aid, urging allies to do likewise. But instead of supporting African aspirations, the West pursued its own economic interests while claiming to support post-colonial aspirations.

Increasing African government indebtedness over the 1970s forced many to accept structural adjustment programme policy conditions imposed by international financial institutions from the 1980s. Of course, developing countries following International Monetary Fund (IMF) and World Bank prescriptions became Western darlings.

Nyerere observed: “The IMF … makes conditions and says, ‘if you follow these examples, your economy will improve’. But where are the examples of economies booming in the Third World because they accepted the conditions of the IMF?”

Cold War considerations have also meant US interest in Africa has waxed and waned. Now, the West warns of imminent Chinese ‘take-overs’ and nefarious Russian designs. China seems more interested in financing and building infrastructure, while Putin promotes Russian exports.

Neglected by the US after the first Cold War until its 21st century African initiatives, including Africom, African nations have increasingly welcomed alternatives to the West, albeit somewhat warily.

Together, the world can help Africa progress. But if support for the long cruelly exploited continent remains hostage to new Cold War considerations, Africans will choose accordingly. Non-alignment is now the pan-African choice.

IPS UN Bureau

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Anis Chowdhury and Jomo Kwame Sundaram — Tue, 06 Sep 2022 05:22:14 +0000

By Anis Chowdhury and Jomo Kwame Sundaram
SYDNEY and KUALA LUMPUR, Sep 6 2022 (IPS)
As rich countries raise interest rates in double-edged efforts to address inflation, developing countries are struggling to cope with slowdowns, inflation, higher interest rates and other costs, plus growing debt distress.

Rich countries’ interest rate hikes have triggered capital outflows, currency depreciations and higher debt servicing costs. Developing country woes have been worsened by commodity price volatility, trade disruptions and less foreign exchange earnings.

Anis Chowdhury
Rising debt risks
Almost 60% of the poorest countries were already in, or at high risk of debt distress, even before the Ukraine crisis. Debt service burdens in middle-income countries have reached 30-year highs, as interest rates rise with food, fertilizer and fuel prices.

Developing countries’ external debt has risen since the 2008-09 global financial crisis (GFC) – from $2 trillion (tn) in 2000 to $3.4tn in 2007 and $9.6tn in 2019! External debt’s share of GDP fell from 33.1% in 2000 to 22.8% in 2008. But with sluggish growth since the GFC, it rose to 30% in 2019, before the pandemic.

The pandemic pushed up developing countries’ external debt to $10.6tn, or 33% of GDP in 2020, the highest level on record. The external debt/GDP ratio of developing countries other than China was 44% in 2020.

Borrowing from international capital markets accelerated after the GFC as interest rates fell. But commercial debt is generally of shorter duration, typically less than ten years. Private lenders also rarely offer restructuring or refinancing options.

Lenders in international capital markets charge developing countries much higher interest rates, ostensibly for greater risk. But changes in public-private debt composition and associated costs have made such debt riskier.

Private short-term debt’s share rose from 16% of total external debt in 2000 to 26% in 2020. Meanwhile, international capital markets’ share of public external debt rose from 43% to 62%. Also, much corporate debt, especially of state-owned enterprises, is government-guaranteed.

Meanwhile, unguaranteed private debt now exceeds public debt. Although private debt may not be government-guaranteed, states often have to take them on in case of default. Hence, such debt needs to be seen as potential contingent government liabilities.

Jomo Kwame Sundaram
Sri Lankan international capital market borrowings grew from 2.5% of foreign debt in 2004 to 56.8% in 2019! Its dollar denominated debt share rose from 36% in 2012 to 65% in 2019, while China accounted for 10% of its external borrowings.

Private borrowings for less than ten years were 60% of Lankan debt in April 2021. The average interest rate on commercial loans in January 2022 was 6.6% – more than double the Chinese rate. In 2021, Lankan interest payments alone came to 95.4% of its declining government revenue!

Commercial debt – mostly Eurobonds – made up 30% of all African external borrowings with debt to China at 17%. Zambian commercial debt rose from 1.6% of foreign borrowings in 2010 to 30% in 2018; 57% of Ghana’s foreign debt payments went to private lenders, with Eurobonds getting 60% of Nigeria’s and over 40% of Kenya’s.

More commercial borrowing
Thus, external debt increasingly involved more speculative risk. Public bond finance, foreign debt’s most volatile component, rose relative to commercial bank loans and other private credit. Meanwhile, more stable and less onerous official credit has declined in significance.

Various factors have made things worse. First, most rich countries have failed to make their promised annual aid disbursements of 0.7% of their gross national income, made more than half a century ago.

Worse, actual disbursements have actually declined from 0.54% in 1961 to 0.33% in recent years. Only five nations have consistently met their 0.7% promise. In the five decades since promising, rich economies have failed to deliver $5.7tn in aid!

Second, the World Bank and donors have promoted private finance, urging ‘public-private partnerships’ and ‘blended finance’ in “From billions to trillions: converting billions of official assistance to trillions in total financing”.

Sustainable development outcomes of such private financing – especially in promoting poverty reduction, equity and health – have been mixed at best. But private finance has nonetheless imposed heavy burdens on government budgets.

Third, since the GFC, developed economies have resorted to unconventional monetary policies – ‘quantitative easing’, with very low or even negative real interest rates. With access to cheap funds, managers seeking higher returns invested lucratively in emerging markets before the recent turnaround.

Large investment funds and their collaborators, e.g., credit rating agencies, have profitably created new means to get developing countries to float more bonds to raise funds in international capital markets.

Making things worse
Policy advice from donors and multilateral development banks (MDBs), rating agencies’ biases and the lack of an orderly and fair sovereign debt restructuring mechanism have shaped commercial lending practices.

Favouring private market solutions, donors, MDBs and the IMF have discouraged pro-active development initiatives for over four decades. Hence, many developing countries remain primary producers with narrow export bases and volatile earnings.

They have urged debilitating reforms, e.g., arguing tax cuts are necessary to attract foreign direct investment (FDI). Meanwhile, corporate tax evasion and avoidance have worsened developing countries’ revenue losses. Thus, net revenue has fallen as such reforms fail to generate enough growth and revenue.

Credit rating agencies often assess developing countries unfavourably, raising their borrowing costs. Quick to downgrade emerging markets, they make it costlier to get financing, even if economic fundamentals are sound.

The absence of orderly and fair debt restructuring mechanisms has not helped. Commercial lenders charge higher interest rates, ostensibly for default risks. But then, they refuse to refinance, restructure or provide relief, regardless of the cause of default.

When will we learn?
Following the 1970s’ oil price hikes, western, especially US banks were swimming in liquidity as oil exporters’ dollar reserves swelled. These banks pushed debt, getting developing country governments to borrow at low real interest rates.

After the US Fed began raising interest rates from 1977 to fight inflation, other major central banks followed, raising countries’ debt service burdens. Ensuing economic slowdowns cut commodity exporters’ earnings.

In the past, the IMF and World Bank imposed ‘one-size-fits-all’ ‘stabilization’ and ‘structural adjustment’ measures, impairing development. Developing countries had to implement severe austerity measures, liberalization and privatization. As real incomes declined, progress was set back.

With the pandemic, developing countries have seen massive capital outflows, more than in 2008. Meanwhile, surging food, fertilizer and fuel prices are draining developing countries’ foreign exchange earnings and reserves.

As the US Fed raises interest rates, capital flight to Wall Street is depreciating other currencies, raising import costs and debt burdens. Thus, many countries need financial help.

Debt-distressed countries once again seek support from the Washington-based lenders of last resort. But without enough debt relief, a temporary liquidity crisis threatens to become a debt sustainability, and hence, a solvency crisis, as in the 1980s.

IPS UN Bureau

Follow @IPSNewsUNBureau


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Anis Chowdhury and Jomo Kwame Sundaram — Tue, 30 Aug 2022 05:41:36 +0000

By Anis Chowdhury and Jomo Kwame Sundaram
SYDNEY and KUALA LUMPUR, Aug 30 2022 (IPS)
Most sub-Saharan African French colonies got formal independence in the 1960s. But their economies have progressed little, leaving most people in poverty, and generally worse off than in other post-colonial African economies.

Decolonization?
Pre-Second World War colonial monetary arrangements were consolidated into the Colonies Françaises d’Afrique (CFA) franc zone set up on 26 December 1945. Decolonization became inevitable after France’s defeat at Dien Bien Phu in 1954 and withdrawal from Algeria less than a decade later.

Anis Chowdhury
France insisted decolonization must involve ‘interdependence’ – presumably asymmetric, instead of between equals – not true ‘sovereignty’. For colonies to get ‘independence’, France required membership of Communauté Française d’Afrique (still CFA) – created in 1958, replacing Colonies with Communauté.

CFA countries are now in two currency unions. Benin, Burkina Faso, Côte d’Ivoire, Guinea-Bissau, Mali, Niger, Senegal and Togo belong to UEMOA, the French acronym for the West African Economic and Monetary Union.

Its counterpart CEMAC is the Economic and Monetary Community of Central Africa, comprising Cameroon, the Central African Republic, the Republic of the Congo, Gabon, Equatorial Guinea and Chad.

Both UEMOA and CEMAC use the CFA franc (FCFA). Ex-Spanish colony, Equatorial Guinea, joined in 1985, one of two non-French colonies. In 1997, former Portuguese colony, Guinea-Bissau was the last to join.

Such requirements have ensured France’s continued exploitation. Eleven of the 14 former French West and Central African colonies remain least developed countries (LDCs), at the bottom of UNDP’s Human Development Index (HDI).

French African colonies
Guinea was the first to leave the CFA in 1960. Before fellow Guineans, President Sékou Touré told President Charles de Gaulle, “We prefer poverty in freedom to wealth in slavery”.

Guinea soon faced French destabilization efforts. Counterfeit banknotes were printed and circulated for use in Guinea – with predictable consequences. This massive fraud brought down the Guinean economy.

Jomo Kwame Sundaram
France withdrew more than 4,000 civil servants, judges, teachers, doctors and technicians, telling them to sabotage everything left behind: “un divorce sans pension alimentaire” – a divorce without alimony.

Ex-French espionage documentation service (SDECE) head Maurice Robert later acknowledged, “France launched a series of armed operations using local mercenaries, with the aim of developing a climate of insecurity and, if possible, overthrow Sékou Touré”.

In 1962, French Prime Minister Georges Pompidou warned African colonies considering leaving the franc zone: “Let us allow the experience of Sékou Touré to unfold. Many Africans are beginning to feel that Guinean politics are suicidal and contrary to the interests of the whole of Africa”.

Togo independence leader, President Sylvanus Olympio was assassinated in front of the US embassy on 13 January 1963. This happened a month after he established a central bank, issuing the Togolese franc as legal tender. Of course, Togo remained in the CFA.

Mali left the CFA in 1962, replacing the FCFA with the Malian franc. But a 1968 coup removed its first president, radical independence leader Modibo Keita. Unsurprisingly, Mali later re-joined the CFA in 1984.

Resource-rich
The eight UEMOA economies are all oil importers, exporting agricultural commodities, such as cotton and cocoa, besides gold. By contrast, the six CEMAC economies, except the Central African Republic, rely heavily on oil exports.

CFA apologists claim pegging the FCFA to the French franc, and later, the euro, has kept inflation low. But lower inflation has also meant “slower per capita growth and diminished poverty reduction” than in other African countries.

The CFA has “traded decreased inflation for fiscal restraint and limited macroeconomic options”. Unsurprisingly, CFA members’ growth rates have been lower, on average, than in non-CFA countries.

With one of Africa’s highest incomes, petroleum producer Equatorial Guinea is the only CFA country to have ‘graduated’ out of LDC status, in 2017, after only meeting the income ‘graduation’ criterion.

Its oil boom ensured growth averaging 23.4% annually during 2000–08. But growth has fallen sharply since, contracting by -5% yearly during 2013–21! Its 2019 HDI of 0.592 ranked 145 of 189 countries, below the 0.631 mean for middle-ranking countries.

Poor people
With over 70% of its population poor, and over 40% in ‘extreme poverty’, inequality is extremely high in Equatorial Guinea. The top 1% got over 17% of pre-tax national income in 2021, while the bottom half got 11.5%!

Four of ten 6–12 year old children in Equatorial Guinea were not in school in 2012, many more than in much poorer African countries. Half the children starting primary school did not finish, while less than a quarter went on to middle school.

CFA member Gabon, the fifth largest African oil producer, is an upper middle-income country. With petroleum making up 80% of exports, 45% of GDP, and 60% of fiscal revenue, Gabon is very vulnerable to oil price volatility.

One in three Gabonese lived in poverty, while one in ten were in extreme poverty in 2017. More than half its rural residents were poor, with poverty three times more there than in urban areas.

Côte d’Ivoire, a non-LDC CFA member, enjoyed high growth, peaking at 10.8% in 2013. With lower cocoa prices and Covid-19, growth fell to 2% in 2020. About 46% of Ivorians lived on less than 750 FCFA (about $1.30) daily, with its HDI ranked 162 of 189 in 2019.

CFA’s neo-colonial role
Clearly, the CFA “promotes inertia and underdevelopment among its member states”. Worse, it also limits credit available for fiscal policy initiatives, including promoting industrialization.

Credit-GDP ratios in CFA countries have been low at 10–25% – against over 60% in other Sub-Saharan African countries! Low credit-GDP ratios also suggest poor finance and banking facilities, not effectively funding investments.

By surrendering exchange rate and monetary policy, CFA members have less policy flexibility and space for development initiatives. They also cannot cope well with commodity price and other challenges.

The CFA’s institutional requirements – especially keeping 70% of their foreign exchange with the French Treasury – limit members’ ability to use their forex earnings for development.

More recent fiscal rules limiting government deficits and debt – for UEMOA from 2000 and CEMAC in 2002 – have also constrained policy space, particularly for public investment.

The CFA has also not promoted trade among members. After six decades, trade among CEMAC and UEMOA members averaged 4.7% and 12% of their total commerce respectively. Worse, pegged exchange rates have exacerbated balance of payments volatility.

Unrestricted transfers to France have enabled capital flight. The FCFA’s unlimited euro convertibility is supposed to reduce foreign investment risk in the CFA. However, foreign investment is lower than in other developing countries.

Total net capital outflows from CFA countries during 1970–2010 came to $83.5 billion – 117% of combined GDP! Capital flight from CFA economies was much more than from other African countries during 1970–2015.

IPS UN Bureau

Follow @IPSNewsUNBureau


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How NOT to Win Friends and Influence People

Anis Chowdhury and Jomo Kwame Sundaram — Tue, 23 Aug 2022 05:23:52 +0000

By Anis Chowdhury and Jomo Kwame Sundaram
SYDNEY and KUALA LUMPUR, Aug 23 2022 (IPS)
After four years of Trump’s ‘America first’ isolationism, US President Joe Biden announced “America is back”. His White House has since tried to find allies against China and Russia.

But it has not found many, especially in the Global South. His summit with Southeast Asian leaders was well attended, but promised little. Worse, his Summit of the Americas revealed fading US influence in its long-time backyard.

Anis Chowdhury
Africa not aligned
The latest U.S. Strategy Towards Sub-Saharan Africa (SSA) was expected to do better on the continent of Trump’s “shithole countries”. But it delivered little more than rhetoric. As with its Indo-Pacific Economic Framework for Prosperity, it is seen as “a hamburger without the beef”.

Biden’s strategy explicitly seeks to “counter harmful activities” by China and Russia, and “to expose and highlight the risks of negative PRC and Russian activities in Africa”. But it offers no evidence of such threats.

It asserts China “sees the region as an important arena to challenge the rules-based international order, advance its own narrow commercial and geopolitical interests, undermine transparency and openness”.

Similarly, it insists “Russia views the region as a permissive environment for parastatals and private military companies, often fomenting instability for strategic and financial benefit.”

Presenting Biden’s SSA strategy in South Africa (SA), US Secretary of State Anthony Blinken claimed, “Our commitment to a stronger partnership with Africa is not about trying to outdo anyone else”. He emphasized, “our purpose is not to say you have to choose”.

While “glad” the US was not forcing Africa to choose, SA foreign minister Naledi Pandor reminded the Blinken mission no African country can be “bullied” or threatened thus: “either you choose this or else.” The host also reminded her guests of the plight of the Palestinian people and life under apartheid.

Jomo Kwame Sundaram
Visiting Rwanda just before Blinken’s announcement, US Ambassador to the United Nations Linda Thomas-Greenfield had threatened, “Africa could face consequences if they trade in U.S.-sanctioned commodities”.

Pandor described the US Congressional bill, ‘Countering Malign Russian Activities in Africa Act’ as “offensive legislation”. The bill, the 2021 Strategic Competition Act and the US Innovation and Competition Act have all been criticized by Africans, including governments, as “Cold War-esque”.

Calling for diplomacy, not war, Pandor urged, “African countries that wish to relate to China, let them do so, whatever the particular form of relationships would be.”

US credibility in doubt
Biden’s SSA strategy has four explicit objectives – foster openness and open societies, deliver democratic and security dividends, advance pandemic recovery and economic opportunity, and support conservation, climate adaptation, and a just energy transition.

The US strategy paper refers to the 2022 G7 Partnership for Global Infrastructure and Investment (PGII) promising $600bn. Confident the PGII will “advance U.S. national security”, the White House has pledged $200bn “to deliver game-changing projects to strengthen economies”.

After all, the 2005 G7 Gleneagles Summit promise – to double aid by 2010, with $50bn yearly for Africa – remains unfulfilled. Actual aid has been woefully short, with no transparent reporting or accountability.

Over half a century ago, rich nations promised 0.7% of their national income in development aid. The US has long ranked lowest among the G7, spending only 0.18% in 2021. Worse, US aid effectiveness is worst among the world’s 27 wealthiest nations.

Meanwhile, rich countries have fallen far short of their 2009 pledges to provide $100bn in climate finance annually until 2020 to help developing countries adapt to and mitigate global warming.

After his stillborn Build Back Better World initiative, many doubt how much Congress will approve, and what will be for SSA. Likewise, before mid-2021, the Biden administration promised support for pandemic containment.

But it did not support developing countries’ request to the World Trade Organization (WTO) for a temporary waiver of related patents. The June 2022 WTO compromise was nothing less than “shameful”.

Supplies of Covid pandemic needs from China and Russia have been decried as “vaccine diplomacy”. Sanctions against Russia have disrupted contracted delivery of 110 million doses of its vaccine. This jeopardizes UNICEF efforts to vaccinate many countries, including Zambia, Uganda, Somalia and Nigeria.

With 43.87 vaccine doses per 100 people – less than a third of the 157.71 world average, or under a quarter of the US mean of 183 doses per 100 people – Africa had the lowest Covid-19 vaccination rate, by far, in mid-August 2022.

The SSA strategy paper highlights US-Africa HIV-AIDS partnerships. But it is silent about Big Pharma getting a US sanctions threat against SA for producing generic HIV-AIDS drugs. The US only backed down after a worldwide backlash as Nelson Mandela stood firm.

West still exploiting Africa
Biden’s SSA strategy promises to “engage with African partners to expose and highlight the risks of negative PRC and Russian activities in Africa” in line with the US 2022 National Defense Strategy.

But it ignores why Africa remains underdeveloped and poor. After all, Africa has around 30% of the world’s known mineral reserves, and 60% of its arable land. Yet, 33 of its 54 nations are deemed least developed countries.

The New Colonialism report showed British companies control Africa’s key mineral resources, with 101 mostly UK companies listed on the London Stock Exchange having mining operations in 37 SSA countries.

Together, they controlled over a trillion dollars’ worth, while $192 billion is drained yearly from Africa via profit transfers and tax dodging by foreign companies.

France retains control of its former colonies’ monetary systems, requiring them to deposit foreign exchange reserves with the French Treasury. It has never hesitated to topple ‘unfriendly’ governments through coups and its military.

Recently, the US promised to continue providing intelligence, surveillance and reconnaissance support on Africa to France, using its advanced drone and satellite technology.

As ex-colonial powers continue to control and exploit SSA, policies imposed by donors, the International Monetary Fund and multilateral development banks have ensured its continuing underdevelopment and impoverishment.

Once a net food exporter, Africa has become a net food importer. With more pronounced Washington Consensus policies since the 1980s, food insecurity has worsened. SSA has also deindustrialized, making it more resource dependent and vulnerable to international commodity price volatility.

Forget the past?
Many Africans have suffered much due to colonialism, racism, apartheid and other oppressions. Pan-Africanism contributed much to the non-aligned movement during the old Cold War. Julius Nyerere famously declared in 1965, “We will not allow our friends to choose our enemies”.

Half a century later, Mandela reminded the West not to presume its “enemies should be our enemies”. Older Africans still remember the former Soviet Union and China for their support through past struggles, when most of the West remained on the wrong side of history.

Africans are correctly wary of the new “Greeks bearing gifts” and promises. While most do not want a new Cold War, many see China and Russia offering more tangible benefits. Unsurprisingly, 25 of Africa’s 54 states did not support the March 2022 UN General Assembly resolution condemning Russia’s invasion of Ukraine.

IPS UN Bureau

Follow @IPSNewsUNBureau


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Stagflation: From Tragedy to Farce

Anis Chowdhury and Jomo Kwame Sundaram — Tue, 16 Aug 2022 05:24:41 +0000

By Anis Chowdhury and Jomo Kwame Sundaram
SYDNEY and KUALA LUMPUR, Aug 16 2022 (IPS)
Half a century after the 1970s’ stagflation, economies are slowing, even contracting, as prices rise again. Thus, the World Bank warns, “Surging energy and food prices heighten the risk of a prolonged period of global stagflation reminiscent of the 1970s.”

In March, Reuters reported, “With surging oil prices, concerns about the hawkishness of the Federal Reserve and fears of Russian aggression in Eastern Europe, the mood on Wall Street feels like a return to the 1970s”.

Anis Chowdhury
Stagflation in the 1970s
Worse, it seems few lessons have been learnt from the last stagflation episode. There is no agreed formal definition of stagflation, which refers to a combination of economic stagnation with high inflation, e.g., when unemployment and prices both rise.

When growth is weak and many are jobless, prices rarely rise, keeping inflation low. The converse is true when growth is strong. This inverse relationship between economic activity and inflation broke down with supply shocks, particularly oil and other primary commodity price surges during 1972-75.

Non-oil primary commodity prices on The Economist index more than doubled between mid-1972 and mid-1974. Prices of some commodities, e.g., sugar and urea fertilizer, rose more than five-fold!

As costlier energy pushed up production expenses, businesses raised prices and cut jobs. With higher food, fuel and other prices, rising costs, coupled with income losses, reduced aggregate demand, further slowing the economy.

Fed chokes economy to cut inflation
Years before becoming US Fed chair in 2006, a Ben Bernanke co-authored paper noted, “Looking more specifically at individual recessionary episodes associated with oil price shocks, we find that … oil shocks, per se, were not a major cause of these downturns”.

Jomo Kwame Sundaram
They concluded, “an important part of the effect of oil price shocks on the economy results not from the change in oil prices, per se, but from the resulting tightening of monetary policy”. Their findings corroborated others, e.g., by James Tobin.

Following Milton Friedman and Anna Schwartz, other economists also found “in the postwar era there have been a series of episodes in which the Federal Reserve has in effect deliberately attempted to induce a recession to decrease inflation”.

The US Fed began raising interest rates from 1977, inducing an American economic recession in 1980. The economy briefly turned around when the Fed stopped raising interest rates. But this nascent recovery soon ended as Fed chair Paul Volcker raised interest rates even more sharply.

The federal funds target rate rose from around 10% to nearly 20%, triggering an “extraordinarily painful recession”. Unemployment rose to nearly 11% nationwide – the highest in the post-war era – and as high as 17% in some states, e.g., Michigan, leaving long-term scars.

Interest rate hikes reduced needed investments. Outside the US economy, these sharp and rapid interest rate hikes triggered debt crises in Poland, Latin America, sub-Saharan Africa, South Korea and elsewhere.

Earlier open economic policies meant “the increase in world interest rates, the increased debt burden of developing countries, the growth slowdown in the industrial world…contributed to the developing countries’ stagnation”.

Countries seeking International Monetary Fund (IMF) financial support had to agree to severe fiscal austerity, liberalization, deregulation and privatization policy conditionalities. With per capita incomes falling and poverty rising, Latin America and Africa “lost two decades”.

Stagflation reprise
The IMF chief economist recently reiterated, “Inflation is a major concern”. The Bank of International Settlements has warned, “We may be reaching a tipping point, beyond which an inflationary psychology spreads and becomes entrenched.”

Central bankers’ anti-inflationary efforts mainly involve raising interest rates. This approach slows economies, accelerating recessions, often triggering debt crises without quelling rising prices due to supply shocks.

Economic recoveries from the 2008-09 global financial crisis (GFC) remained tepid for a decade after initially bold fiscal responses were quickly abandoned. Meanwhile, ‘quantitative easing’, other unconventional monetary policies and the Covid-19 pandemic raised debt to unprecedented levels.

GFC trade protectionist responses, US and Japanese ‘reshoring’ of foreign investment in China, the pandemic, the Ukraine war and sanctions against Russia and its allies have reversed earlier trade liberalization.

Higher interest rates in the rich North have triggered capital flight, causing developing country currencies to depreciate, especially against the US dollar. The slowing world economy has reduced demand for many developing country exports, while most migrant worker remittances decline.

Interest rate hikes have worsened debt crises, particularly in the global South. The poorest countries have seen an $11bn surge in debt payments due while grappling with looming food crises. Thus, developing country vulnerabilities have been worsened by international trends over which they have little control.

Lessons not learned
Supply-side cost-push inflation is very different from the demand-pull variety. Without evidence, inflation ‘hawks’ insist that not acting urgently will be costlier later.

This may happen if surging demand is the main cause of inflation, especially if higher costs are easily passed on to consumers. However, episodes of dangerously accelerating inflation are very rare.

Acting too quickly against supply-shock inflation can be unwise. The 1970s’ energy crises sparked greater interest in energy efficiency. But higher interest rates in the 1980s deterred needed investments, even to reverse declining or stagnating productivity growth.

Raising interest rates also accelerated recessions. But similar commodity price rises before the 1970s’ and imminent stagflation episodes – involving energy and food respectively – obscure major differences.

For instance, ‘wage indexing’ – linking wage increases to price rises – enhanced the 1970s’ inflation spiral. But labour market deregulation since the 1980s has largely ended such indexation.

The IMF acknowledges globalization, ‘offshoring’ and labour-saving technical change have weakened unionization and workers’ bargaining power. With both elements of the 1970s’ wage-price spirals now insignificant, inflation is more likely to decline once supply bottlenecks ease.

But the wage-price spiral has also been replaced by a profit-price swirl. Reforms since the 1980s have also enhanced large corporations’ market power. Greater corporate discretion and reduced employees’ strength have thus increased profit shares, even during the pandemic.

In November 2021, Bloomberg observed the “fattest profits since 1950 debunks wage-inflation story of CEOs”. Meanwhile, the Guardian found “Companies’ profit growth has far outpaced workers’ wages”.

Corporations are taking advantage of the situation, passing on costs to customers. The net profits of the top 100 US corporations were “up by a median of 49%, and in one case by as much as 111,000%”!

Meanwhile, many more consumers struggle to meet their basic needs. Interest rate hikes have also hurt wage-earners, as falling labour shares of national income have been exacerbated by real wage stagnation, even contraction.

Hence, policymakers should ease supply bottlenecks and address imbalances to accelerate progress, not raise interest rates causing the converse. Thus, they should rein in corporate power, improve competition and protect the vulnerable.

Allowing international price rises to pass through, while protecting the vulnerable, can accelerate the transition to more sustainable consumption and production, including cleaner renewable energy.

IPS UN Bureau

Follow @IPSNewsUNBureau


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