By Roberto Savio
SAN SALVADOR, Aug 20 2015 (IPS)

The long saga on Greece is apparently over – European institutions have given Athens a third bailout of 86 billion euros which, combined with the previous two, makes a grand total of 240 billion euros.

Roberto Savio

There is no doubt that the large majority of European citizens are convinced that this is a great example of solidarity, and that if Greece is not now able to walk on its own feet, the responsibility will lie solely with Greek citizens and their government.

But this is only due to the fact that the media system has, by and large, ceased to provide alternative views … and some people even ignore that the bailout is a loan, and therefore increases the country’s debt.

In fact, the productive economy of Greece saw very little of that money because the bailouts were merely financial operations and Greek citizens, not only did not see anything, they have even had to pay a brutal price.

The truth behind the operation has been aptly described by Mujtaba Rahman, the respected chief Eurozone analyst for the London-based Eurasia Group, who said: “The bailout is not really about a growth plan for Greece, but a plan to make sure the European Central Bank (ECB) and the International Monetary Fund (IMF) get paid, and the euro area does not break up.”

And the purpose of this third bailout is clear. Of the famous 86 billion, 36 billion will go to pay the debt with the other European governments (and first of all Germany). Another 25 billion will go to recapitalize the Greek banks, because much capital left the country, heading for safer European banks. Another 18 billion will go to pay interest on the debt which Greece has been piling up. And, finally, seven billion will go to pay the debt of the state with Greek enterprises.“How could any economist, even in the first year of studies, fail to understand that, by cutting consumption and raising taxes you are bound to depress an already depressed economy?”

So, seven will go to the real economy and nothing to the citizens, who will have now to go through several new drastic measures of austerity, which will further depress their standards of living and their ability to spend.

Financially, the bailouts have been a success. All the losses and bad exposure of European institutions have been passed on to Greece. Before the first bailout, French banks were exposed with bad bonds for 63 billion euros, now only for 1.6 billion with no losses. German banks have gone from 45 to five billion.

What is intriguing is that a number of studies show that until the very last moment, when it was widely known that Greece was in deep crisis, European banks and investors continued to buy Greek bonds.

Were they certain that Greece would pay? No, but they were confident that the Greek government would be rescued, and that they would therefore recover their investments, which is exactly what happened.

The financial system has now a life of its own and has nothing to do with real economy, which it dwarfs by being 40 times larger (if we judge by the volumes of daily financial transactions against the production of goods and services). Capital is untouchable and circulates freely in Europe, unlike its citizens. And now there is a great wave of legislation to introduce lower taxation for the richest one percent!

During the negotiations, one frequent accusation levelled against the Greeks was that they were unable to have their rich ship-owners pay their share of taxes. Of course, ship-owners place their money where it cannot be reached.

But is this not hypocritical when we know that there are at least two trillion euros stashed in fiscal paradises, and that, just to give one example, nobody has got Ryanair to really pay taxes? Not to mention the fact that when he was prime minister of Luxembourg, European Commission President Jean-Claude Juncker granted secret tax rebates to over a hundred international companies?

Now Agence France Press has circulated a new astonishing study from the German Leibnitz Institute of Economic Research, which says that Germany has profited from the Greek crisis to the tune of 100 billion euros, saving money through lower interest payments on funds the government borrowed amid investor “flights to safety” and “these savings exceed the cost of the crisis – even if Greece were to default on its entire debt.”

Meanwhile, a large number of studies point out how, by having a positive balance of trade with its European partners, Germany is in fact sucking capital from Europe.

Interpreting the third bailout and its conditions of austerity as a mere economic operation would be to commit a great error.

No economist can believe that Greece will be able to pay back and not only because it has always had a fragile economy, with little industry and with tourism as its main source of income (aggravated by decades of mismanagement and the corruption of its traditional parties, the very parties that European leaders would like to see come back).

Greece is already in recession and now the doubling of VAT is going to compress consumption further, also because there will now be further reductions in pensions and public salaries (which have been already cut by 20 percent).  It is widely believed that the Greek debt will now reach 200 percent of its GDP, up from 170 percent prior to the bailout.

How could any economist, even in the first year of studies, fail to understand that, by cutting consumption and raising taxes you are bound to depress an already depressed economy?

Well, it is no coincidence that the IMF, which is the Rotary Club of conservative economists, has refused to join this bailout. The IMF has said it will not put in any money unless European creditors (which is a diplomatic way of saying Germany) accept a restructuring of the Greek debt.

It is clear that the bailout has not been a technical but a political operation. Many European leaders, starting with Juncker himself, intervened in last month’s internal Greek referendum, asking Greeks to vote against Prime Minister Alexis Tsipras. They indicated clearly and openly, in a campaign that the Wall Street Journal repeated in the United States, that the revolt against austerity and the neoliberal economy should be stopped dead in its tracks to avoid political contagion.

For her part, German Chancellor Angela Merkel has declared on German television that she has come to the conclusion that °Tsipras has changed°. This has an air of dejà vu … was it not then British Prime Margaret Thatcher who, intent on destroying the trade unions, launched her famous TINA slogan – There Is No Alternative?

And is there no alternative to this kind of Europe? (END/COLUMNIST SERVICE)

Edited by Phil Harris   

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

Excerpt:

By Daya Thussu
LONDON, Jul 22 2015 (IPS)

The formal opening of the BRICS Bank in Shanghai on Jul. 21 following the seventh summit of the world’s five leading emerging economies held recently in the Russian city of Ufa, demonstrates the speed with which an alternative global financial architecture is emerging.

The idea of a development-oriented international bank was first floated by India at the 2012 BRICS summit in New Delhi but it is China’s financial muscle which has turned this idea into a reality.

Daya Thussu

The New Development Bank (NDB), as it is formally called, is to use its 50 billion dollar initial capital to fund infrastructure and developmental projects within the five BRICS nations – Brazil, Russia, India, China and South Africa – though it is also likely to support developmental projects in other countries.

According to the 43-page Ufa Declaration, “the NDB shall serve as a powerful instrument for financing infrastructure investment and sustainable development projects in the BRICS and other developing countries and emerging market economies and for enhancing economic cooperation between our countries.”

The NDB is led by Kundapur Vaman Kamath, formerly of Infosys, India’s IT giant, and of ICICI Bank, India’s largest private sector bank. A respected banker, Kamath reportedly said during the launch that “our objective is not to challenge the existing system as it is but to improve and complement the system in our own way.”

The launch of the NDB marks the first tangible institution developed by the BRICS group – set up in 2006 as a major non-Western bloc – whose leaders have been meeting annually since 2009. BRICS countries together constitute 44 percent of the world population, contributing 40 percent to global GDP and 18 percent to world trade.“Our objective is not to challenge the existing system as it is but to improve and complement the system in our own way” – Kundapur Vaman Kamath, head of the New Development Bank (NDB)

In keeping with the summit’s theme of ‘BRICS partnership: A powerful factor for global development’, the setting up of a developmental bank was an important outcome, hailed as a “milestone blueprint for cooperation” by a commentator in The China Daily.

The Chinese imprint on the NDB is unmistakable. The Ufa Declaration is clear about the close connection between the NDB and the newly-created Asian Infrastructure Investment Bank (AIIB), also largely funded by China. It welcomed the proposal for the New Development Bank to “cooperate closely with existing and new financing mechanisms including the Asian Infrastructure Investment Bank.” China is also keen to set up a regional centre of the NDB in South Africa.

If economic cooperation remained the central plank of the Ufa summit, there is also a clear geopolitical agenda.

The Global Times, China’s more nationalistic international voice, pointed out that the establishment of the NDB and the AIIB will “break the monopoly position of the International Money Fund (IMF) and the World Bank (WB) and motivate [them] to function more normatively, democratically, and efficiently, in order to promote reform of the international financial system as well as democratisation of international relations.”

The reality of global finance is such that any alternative financial institution has to function in a system that continues to be shaped by the West and its formidable domination of global financial markets, information networks and intellectual leadership.

However, China, with its nearly four trillion dollars in foreign currency reserves, is well-placed to attempt this, in conjunction with the other BRICS countries. China today is the largest exporting nation in the world, and is constantly looking for new avenues for expanding and consolidating its trade relations across the globe.

China is also central to the establishment of the Shanghai Cooperation Organisation (SCO), a Eurasian political, economic and security grouping whose annual meeting coincided with the seventh BRICS summit. Founded in 2001 and comprising China, Russia, Kazakhstan, Kyrgyzstan, Tajikistan and Uzbekistan, the SCO has agreed to admit India and Pakistan as full members.

Though the BRICS summit and the SCO meeting went largely unnoticed by the international media – preoccupied as they were with the Iranian nuclear negotiations and the ongoing Greek economic crisis – the economic and geopolitical implications of the two meetings are likely to continue for some time to come.

For host Russia, which also convened the first BRICS summit in 2009, the Ufa meeting was held against the background of Western sanctions, continuing conflict in Ukraine and expulsion from the G8. Partly as a reaction to this, camaraderie between Moscow and Beijing is noticeable – having signed a 30-year oil and gas deal worth 400 billion dollars in 2014.

Beijing and Moscow see economic convergence in trade and financial activities, for example, between China’s Silk Road Economic Belt initiative for Central Asia and Russia’s recent endeavours to strengthen the Eurasian Economic Union. The expansion of the SCO should be seen against this backdrop. Moscow has also proposed setting up SCO TV to broadcast economic and financial information and commentary on activities in some of the world’s fastest growing economies.

Whatever the outcome, it is clear that a new international developmental agenda is being created, backed by powerful nations, and to the virtual exclusion of the West.

China is the driving force behind this. Despite its one-party system which limits political pluralism and thwarts debate, China has been able to transform itself from a largely agricultural self-sufficient society to the world’s largest consumer market, without any major social or economic upheavals.

China’s success story has many admirers, especially in other developing countries, prompting talk of replacing the ‘Washington consensus’ with what has been described as the ‘Beijing consensus’. The BRICS bank, it would seem, is a small step in that direction.

Edited by Phil Harris    

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

Excerpt:

By Joaquín Roy
BARCELONA, Jul 7 2015 (IPS)

The decisive result of the Greek referendum held Jul. 5, in which voters overwhelmingly rejected (61.3 to 38.7 percent) the terms of an international bailout, has opened a new chapter not only for the future of Greece, but also in terms of the essence of the European Union itself.

Paradoxically, the future of the euro may become a secondary issue.

Joaquín Roy

In the coming week, the pages will be turned on some chapters of European history that had been regarded as a fixed part of the script.

The fact that, in their time, previous Greek governments blatantly misrepresented the country’s financial situation in order to secure entry into the euro zone will have to be put aside.

The authorities in Brussels will have to be forgiven for turning a blind eye so that the country using the world’s oldest existing currency, and that had founded a mythical democracy, should not be excluded from the inaugural party of Europe’s spectacular expansion.

The eternal European habit of brinkmanship and coming to last-minute arrangements – so that summits produce neither winners nor losers, but everyone can go home feeling vindicated – will have to be given up for practical reasons.

This battle may still cause significant damage and a high number of casualties.

In the first place, although the voting reflects clear overall rejection of E.U. impositions, Greek society remains dangerously divided on the choice presented to it by Prime Minister Alexis Tsipras. The problems the Greek people face in their daily lives will not disappear after the referendum.“If there is no new bailout or a massive debt write-off, the [Greek] government may be forced by its inability to satisfy the citizenry’s demands to choose between two evils … the humiliation of urgent humanitarian aid from the European Union … [or] the dangerous path of seeking protection from external interests”

Those who voted in favour of accepting the conditions of the European institutions and the International Monetary Fund (IMF) will blame those who backed Tsipras for the costs they will all have to bear. Those who voted No and “won” the contest may well feel disappointed when they see the economic situation worsening, or not noticeably improving.

The referendum results indicate that conservatives and the middle classes decided to support the bailout conditions because they at least had some assets. On the other hand, the majority of people who have nothing, or who have lost nearly everything, preferred to carry on the struggle and reject E.U. pressures.

It is worth noting that the proportion of No votes in the referendum was higher than the proportion of ballots cast for the left-wing Tsipras in the recent elections that propelled his party to power.

If there is no new bailout or a massive debt write-off, the government may be forced by its inability to satisfy the citizenry’s demands to choose between two evils. On the one hand it may have to accept the humiliation of urgent humanitarian aid from the European Union, as has been suggested at the eleventh hour. On the other hand, it might take the dangerous path of seeking protection from external interests, as recent overtures towards Moscow appear to indicate.

E.U. leaders may pursue the threats they made in the final hours of the referendum campaign. The president of the European Parliament, Martin Schulz, might have found himself in the uncomfortable position of having to take action to back up his last-minute arguments about the dire consequences of exiting the euro. Now, however, he has backed down and appears to be leaning toward negotiation.

Other E.U. leaders are also in awkward positions. Where will European Council President Donald Tusk and Commission President Jean-Claude Juncker be if Berlin’s hard line prevails?

Or conversely, where will everyone be if traditional negotiation and classic compromise are now being reconsidered?

A traditional forecast is that the European leaders in Brussels, backed by the IMF, will opt for negotiation, because they do not want to go down in history as participants in a conflict with unpredictable consequences. It does not suit the Greek prime minister to overstep the mark, either, and he could therefore make the European Union an offer it cannot refuse. For their part, German Chancellor Angela Merkel and other holders of the enormous debt know that if Greece exits the euro, repayment will be impossible.

In the distance, the United States has expressed concern over the development of this process. Economic convulsion in Europe is not in the interests of Washington; moreover, from its standpoint, two issues are crucial for preventing damage from spilling over into other vital dimensions.

The first is the threat that Greece may be tempted to drift into the sphere of Russia’s protection.

The second is the disturbing sight of the European Union under a divided leadership and with damaged financial underpinnings at the height of negotiations for the proposed Transatlantic Trade and Investment Partnership (TTIP), a free trade agreement between the European Union and the United States.

Indecisive leaders in Europe will make it very difficult for U.S. President Barack Obama to exercise his negotiation mandate granted by Congress, increasing the likelihood that the project will be delayed until a new U.S. president takes office.

In conclusion, the decisions taken now in Brussels and other European capitals will determine whether or not there will be further harm to the essence of the European Union – and to the euro, the jewel in the crown and the cause of the whole drama. (END/COLUMNIST SERVICE)

Edited by Pablo Piacentini/Phil Harris   

Translated by Valerie Dee

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

Excerpt:

Is the G7 commitment to an energy transition that aims to gradually phase out fossil fuel emissions this century to avoid the worst of climate change just hot air? Credit: CC BY-SA 2.5

By Lucy Cadena
LONDON, Jun 11 2015 (IPS)

One of the promises made by the leaders of the world’s seven richest nations when they met at Schloss Elmau in Germany earlier this week was an energy transition over the next decades, aiming to gradually phase out fossil fuel emissions this century to avoid the worst of climate change.

Let us be clear: a target of zero fossil fuels by 2100 puts us on track for warming on an unmanageable scale. The only commitment made by the G7 this week was a commitment to climate chaos.

Putting our faith in as-yet-underdeveloped technology fixes such as ‘carbon capture and storage’ and ‘geo-engineering’ to save us in the next 85 years, while the solutions to the climate crisis – renewable technology and community energy systems – exist here and now, is senseless.“The only way to avoid the worst of climate change is to act now, with urgency and ambition. Not by 2100, nor 2050. We need real commitment to real solutions – and the best place the G7 can start is by taking its money – public money – out of dirty energy”

The only way to avoid the worst of climate change is to act now, with urgency and ambition. Not by 2100, nor 2050. We need real commitment to real solutions – and the best place the G7 can start is by taking its money – public money – out of dirty energy.

While the G7 gathered on Jun. 7 and 8, this was the message from people from around the world, who are calling for a ban on all new dirty energy projects and an end to the financing of dirty energy.

The G7’s role in upholding the current dirty energy system is not limited to the subsidies they pour into fossil fuels daily.

G7 countries also directly finance – and profit from – dirty energy projects, particularly in the global South, and in regions where poverty and limited energy access devastate families.

These include projects affecting communities deeply reliant on clean air, water, and land that is polluted and stolen from them, projects among populations most vulnerable to the effects of climate change, and projects where people face harassment and human rights violations for speaking out.

France

Last week, France, host of the 30 November-11 December 2015 Paris climate summit – the U.N. gathering to set the agenda for global climate commitments in the next decades – announced that two of the summit’s key sponsors will be EDF and ENGIE (formerly GDF-Suez).

The French state holds 84 percent and 33.3 percent of shares in these companies respectively. Both are involved in the construction of several very controversial, polluting projects across the world.

EDF is currently planning the destructive Mphanda Nkuwa mega-dam on the Zambezi River in Mozambique, in the face of fierce opposition from local communities and environmental organisations.

A letter from civil society reminds French President François Hollande that these and other projects place EDF and ENGIE among the top 50 companies that contribute the most to global climate change.

With 46 coal-fired power plants between them, EDF and ENGIE are responsible for emitting 151 million tonnes of CO₂ a year – which amounts to about half the total of France’s overall emissions.

Italy

The Italian state owns a considerable number of shares – almost one-third – in oil and gas company ENI. According to a recent report by Amnesty International, last year alone ENI reported 349 oil spills in the Niger Delta from its own operations.

The figure is remarkable – almost unbelievable. Each spill triggers a human and ecological crisis. The scale of the devastation and ENI’s failure to safeguard communities and ecosystems begs the question: is this sheer incompetence, recklessness, or simply utter indifference to the welfare of local communities?

Japan

Japan, the next offender on the G7 list, is the number one public financier of coal plants globally among the Organisation for Economic Cooperation and Development (OECD) countries.

Japan has 24 coal-powered projects either under construction or planned, many of them in Indonesia, Vietnam and India, where the more vulnerable local populations live under the cloud of plants’ toxic emissions.

Emissions of deadly sulphur dioxide and nitrogen oxides from coal plants are currently highest in Indonesia, where the planned Batang coal power plant is set to become the largest ever Japanese-financed plant in Southeast Asia.

United States

A report by Oil Change International indicates that the United States government alone provides 5.1 billion dollars in national subsidies to fossil fuel exploration each year – that’s 5.1 billion dollars into seeking out new sources of civilisation-destroying energy sources.

Canada

Likewise, Canada’s expanding oil sector (caused by the growth in dirty tar sands production, known as ‘the biggest industrial project on Earth’) continues to reap the benefits of massive national subsidies.

United Kingdom

The U.K. government spent 300 times more supporting dirty energy overseas than it contributed towards renewable energy projects during its last term.

The 2012-2013 annual report of UK Export Finance, the country’s export credit agency, announced spending on projects such as a 147 million pounds (228 million dollars) guarantee to support oil and gas exploration by Petrobras in Brazil and 15 million pounds (23 million dollars) in guarantees to a loan for a gas power project in the Philippines.

Domestically, the government is prioritising drilling for new oil and gas, which will require huge subsidies. Hailing carbon-emitting gas as a ‘bridge fuel’ towards a cleaner energy system, the government is delaying investment in renewables to push fracking onto a population that vehemently opposes the dash for gas.

Germany

Meanwhile, Germany – the host of the G7 meeting – has been much lauded for its ‘Energiewende’ (‘Energy Revolution’), with a rapidly increasing use of renewable energy compensating for its nuclear phase-out in recent years.

However, German euros still make their way into the dirty energy machine – through sizeable tax exemptions afforded to fossil fuel producers’ exploration activities – allowing such companies to go further and dig deeper to uncover more carbon that needs to stay in the ground.

G7 Must Catch Up

The G7 countries have done the most to cause climate change. According to the Climate Equity Reference Calculator, they are responsible for 70 percent of historical carbon emissions, while hosting only 10 percent of the global population.

A commitment to a phase-out of fossil fuels in eight decades’ time is not a commitment. It is an easy promise for a politician, who probably will not even be in power in the next decade, to make. It is an easy promise for a rich nation, whose citizens are not the most vulnerable, to make.

G7 societies have grown rich by exploiting the human and natural world. They owe an enormous ‘climate debt’ to developing nations – yet they can barely scrape together the money they promised to the developing world via the Green Climate Fund.

Whether it’s an oil spill in Nigeria, a mega-dam in Mozambique or a coal plant in Java, the sources of our publicly-owned dirty energy are always sites of ecological and social devastation.

Access to energy is a right, but it should not come at the cost of other people’s rights – to clean air and drinking water, to land and food sovereignty, and to sustainable societies.

The international movement for climate justice is building, and will keep up pressure on governments to take money out of dirty energy and reinvest it in democratic renewable solutions that benefit everyone.

The global shift towards a just energy transformation has long been under way. Now, it’s snowballing. People from around the world are showing the way and implementing community-owned renewable energy solutions.

There is a hunger for change, despite continued inaction from governments. G7 leaders, take note: you are trailing far behind and have a lot of catching up to do!

Edited by Phil Harris

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

Excerpt:

By Roberto Savio
ROME, Jun 9 2015 (IPS)

Only 50 years of Cold War (and the fact that German Chancellor Angela Merkel grew up in East Germany) can possibly explain the strange political power of the United States over Europe.

After a bilateral meeting between Merkel and U.S. President Barack Obama (so much for transparency and participation), the Jun. 7-8 G7 summit opened in Germany and we found out that there had been a trade-off.

Roberto Savio

Merkel agreed that Europe should continue the sanctions against Russia – and so the other members of the G7 duly agreed – and Obama toned down the U.S. position on Greece.

That position had been forcefully expressed by U.S. Treasury Secretary Jacob Lew a few days earlier to European leaders: solve the Greek problem, or this will have a global impact that we cannot afford. This had suddenly accelerated negotiations, with the hope then that everything would be solved before the G7 summit.

But Greece did not accept the plan of the President of the European Commission, Jean-Claude Juncker, which was suspiciously close to International Monetary Fund (IMF) positions.

At the G7 summit, Obama softened the U.S. position on Greece, and even said that “Athens must implement the necessary reforms.”

Obstinacy on sanctions against Russia ignores the fact that, in a very delicate economic moment, Europe has lost a considerable part of its exports because of Russia’s retaliatory block on European imports. It is also difficult to see what advantage there is for Europe in pushing Russia into the arms of China. We will soon be seeing joint naval exercise between the two countries, which will only escalate tensions.

But let us look at Greece given that its tug of war with Europe has now been going on for five years.

Let us recall briefly. Greece had been spending much more than it could by distributing public jobs under any government, by giving easy pensions to everyone, and so on. Then, in 2009, the centre-left Panhellenic Socialist Movement (PASOK) won the elections and we found out that the figures Athens had been giving Brussels were false.

The real deficit stood at almost 12.5 percent of gross domestic product (GDP), confirmation of what the European Union and its bodies had long suspected but which it had done nothing about.“Europe is now led by Germany and the Germans are convinced that what they did at home is valid everywhere. Together with the countries of northern Europe, they look on the people of southern Europe as unethical, people who want to enjoy life beyond their means”

To avoid going into the agonising details of the continuous negotiations between Greece and the European Union, I jump to the January elections this year which the left-wing Syriza party won and its leader Alexis Tsipras was named Prime Minister on a clear programme: stop the austerity programme imposed by the “Troika” – IMF, EU and the European Central Bank (ECB) – on behalf of the European countries, led by Germany, Netherlands, Austria and Finland.

Greece is on its knees. Officially, unemployment has gone from 11.9 percent in 2010 to 25.5 percent today, but it is widely considered to be around 30 percent. Among young people, it is close to 60 percent. GDP has gone into a 25 percent decline, Greek citizens have lost about 30 percent of their revenues and public spending has been slashed to the point that hospitals have great difficulty in functioning.

Yet, the request (order) of the “Troika” is simple – cut everything the deficit has been eliminated.

So, for example, cut pensions, which have been already been cut twice. In any case, this would reap a paltry 100 million euros but would cripple people who are living on less than 685 euro a month. Or, raise VAT on tourism, from the present 6.5 percent to 13.6 percent, which would be a deadly blow to Greece’s only important source of income.

This is the plan presented by Juncker, whose arrival as head of the European Commission was accompanied by a grandiose Marshall Plan for Europe, a plan which has since disappeared totally from the scene.

In an article a few days ago titled ‘Europe’s Last Act?”, Joseph E. Stiglitz, Nobel laureate in economics, argues that the idea of austerity as a uniform recipe for Europe is missing reality.

“The troika badly misjudged the macroeconomic effects of the program that they imposed. According to their published forecasts, they believed that, by cutting wages and accepting other austerity measures, Greek exports would increase and the economy would quickly return to growth. They also believed that the first debt restructuring would lead to debt sustainability.

“The troika’s forecasts have been wrong, and repeatedly so. And not by a little, but by an enormous amount. Greece’s voters were right to demand a change in course, and their government is right to refuse to sign on to a deeply flawed program.”

It is on austerity that the paths of the United States and the European Union divide.

The United States has embarked on investing for growth, despite pressure from the Republican party for austerity, and the U.S. economy is picking up again.

But Europe is now led by Germany and the Germans are convinced that what they did at home is valid everywhere. Together with the countries of northern Europe, they look on the people of southern Europe as unethical, people who want to enjoy life beyond their means. As The Economist put it in an article on the Greek crisis: “In German eyes this crisis is all about profligacy”.

It did not help that another very minor crisis – that of Cyprus between 2012 and 2013 – confirmed Germany’s view about the profligacy of the south of Europe. In the case of Cyprus, the “Troika” settled the crisis at a cost of 10 billion euros.

There is widespread agreement that the crisis of Greece, which represents just two percent of the total European budget, could have been settled at the beginning with a 50-60 billion euro loan. But only since Tsipras became prime minister, and with popular support started to refuse to accept the creditors’ plan, has Greece has become a very important issue.

There is now talk of a “Grexit”, or Greece’s exit from the European Union. This would have a cascade effect, and it would mean the end of Europe as a common dream, of a Europe based on solidarity and communality.

In the G7, Obama has insisted on investments and demand as a way out of the crisis. Merkel has again repeated that Europe does not need stimulus financed by debt, but stimulus coming from the reform of inefficient economies. At this point, perhaps “everything is always about something else”, as the late award-winning Sri Lankan journalist Tarzie Vittachi once told me.

An enlightening comment on the Greek situation has come from Hugo Dixon writing in The New York Times of Jun. 7. The Greek prime minister “will have to choose between saving his country and sticking to a bankrupt far-left ideology. If he is smart, he can secure a few more concessions from creditors and a goodish deal for Greece. If not, he will drag the country into the abyss.”

And then, it is interesting to note that one of the main reasons for being so hard with Syriza is that the citizens of Spain, Portugal and Ireland, who were the first to swallow the bitter pill of austerity, would revolt if they saw a different path for Greece, and it just happens that those countries have conservative governments.

The entire European political system reeled with shock at the victory of Syriza, and again a few days ago at the victories of the left-wing anti-establishment Podemos party in municipal elections in Spain.

For some reason, the very authoritarian and conservative government of Viktor Orbán in Hungary, the victory of the very conservative Andrzej Duda as president in Poland, as well as the rise of Matteo Salvini’s anti-European and anti-immigration Lega Nord party in Italy create no panic, not even if Salvini looks to Russian President Vladimir Putin and Marine Le Pen, leader of France’s right-wing Front National, as figures of reference.

So, the real issue now in the case of Greece is to punish an anti-establishment figure like Tsipras and show that the radical left cannot run a country.

Who really believes that there will masses of citizens in Madrid, Lisbon or Dublin taking to the streets to protest if Europe does a somersault of solidarity and idealism, and lowers its requests or dilutes them over more time? (END/COLUMNIST SERVICE)

Edited by Phil Harris   

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

Excerpt:

By Roberto Savio
ROME, May 19 2015 (IPS)

The victory of the Conservative Party and the debacle of the Labour Party in the recent British general elections is yet another sign of the crisis facing left-wing forces today, leaving aside the question of how, under the British electoral system, the Labour Party actually increased the number of votes it won but saw a reduction in the number of seats it now holds in Parliament (24 seats less than the previous 256).

Roberto Savio

If the proportional rather than uninominal system had been used, the Conservative Party with its 11 million votes would have won 256 and not 331 seats in Parliament (far short of the absolute majority of 326 needed to govern), while at the other extreme the United Kingdom Independence Party with nearly four million votes would have landed 83 and not just the one seat it ended up with – results that would be hard to imagine anywhere else and a good example of insularity.

To an extent, the recent British general elections mirrored the U.S. presidential elections in 2000 when Democratic candidate Al Gore won around half a million more popular votes than Republican candidate George W. Bush but failed to win the majority of electoral college votes on which the U.S. system is based. The outcome was eight years of George W.  Bush administration, the war in Iraq, the crisis of multilateralism, and all the paraphernalia of “America’s exceptional destiny”.

Let us venture now into an analysis that will have the politologues among us cringing.“The left has tried to mimic the winners, instead of trying to be an alternative to the process of neoliberal globalisation and, since the beginning of the world financial crisis in 2008 … it has had no real answer to the crisis”

It is now generally recognised that the end of the Soviet Union has given free way to a kind of capitalism without control, marked by an unprecedented supremacy of finance which, in terms of volume of investments, overwhelmingly exceeds the real or productive economy.

In its wake, neoliberal thinking has found the left totally unprepared, because part of its function had been to provide a democratic alternative to Communism, which was suddenly no longer a threat.

The left therefore has tried to mimic the winners, instead of trying to be an alternative to the process of neoliberal globalisation and, since the beginning of the world financial crisis in 2008 (with its bail-out cost so far of over four trillion dollars), it has had no real answer to the crisis.

Ever since the industrial revolution, the identity of the left had been to press for social justice, equality of opportunities and redistribution, while the right placed the emphasis on individual efforts, less role for the state and success as motivation.

Continuing with this brutal simplification, we have to add that the left, from Marx to Keynes, always studied how to create economic growth and redistribution – Marx by abolishing private property, social democrats through just taxation.

But it never studied the creation of a progressive agenda in the event case of an economic crisis such as the one we are now facing, with structural unemployment, young people obliged  to accept any kind of contract, new technologies which are making the concept of classes disappear, and rendering trade unions – erstwhile powerful actors for social justice – irrelevant.

It is unprecedented that the top 25 hedge fund managers received a reward in 2014 of 11.62 billion dollars, yet neither U.S. President Barack Obama nor Ed Miliband, then still leader of the Labour Party at the recent British general elections (until he resigned after election defeat), saw it fit to denounce this obscene level of greed.

Meanwhile, Europe as a political project is clearly in disarray, and now faces a “Grexit” on its southern flank and a “Brexit” on its northern flank.

In the case of a “Grexit” (the possible abandonment of the European Union by Greece), Greece faces the prospects of having to make substantial concessions to Europe, thus reneging on the promises of Alexis Tsipras who was voted in as prime minister in rebellion against years of dismantlement of public and social structures imposed in the name of austerity.

What is at stake here is the very neoliberal model itself and not only is ordoliberal Germany supported by allies like Austria, Finland and the Netherlands erecting a wall against any form of leniency, but countries which accepted painful cuts and where conservatives are now in power, like Spain, Portugal and Ireland, see leniency as giving in to the left.

A “Brexit” (the possible abandonment of the European Union by Britain) is a different affair. It is a game being played by British Prime Minister David Cameron to negotiate a more favourable agreement for Britain with the European Union.

A referendum will be held before the end of 2017 and the four million people who voted for the UKIP in the recent elections, plus the country’s “Euro-sceptics”, threaten to push Britain out of the European Union, especially if Cameron does not manage to obtain some substantial concessions from Brussels.

Meanwhile, if Europe is in disarray, the United States has a serious problem of governance. Analyst Moisés Naím, who served as editor-in-chief of Foreign Policy magazine from 1996 to 2010, has pinpointed a few examples of how this has translated into self-inflicted damage.

One concerns China which, after waiting five years trying to get the Republican-dominated Congress to authorise and increase in its stake in the International Monetary Fund (IMF) from a ridiculous 3.8 percent to 6 percent (compared with the 16.5 percent of the United States), got fed up and established an alternative fund, the Asian Infrastructure Investment Bank (AIIB).

Washington tried unsuccessfully to kill the initiative by putting pressure on its allies but first the United Kingdom, then Italy, Germany and France announced their participation in the new bank, which now has 50 member countries and the United States is not one of them.

Another example was the attempt by the Republican-dominated Congress to kill the Export-Import Bank of the United States (Ex-Im Bank) which has provided support for U.S exporters to the tune of 570 billion dollars since it was set up by President Franklin D. Roosevelt in 1934.  In just the last two years, China has provided 670 billion dollars in support for its exporters. Moral of the story: U.S. companies will be at a clear disadvantage.

As Larry Summers, a great proponent of U.S. hegemony, put it, “the US will not be in a position to shape the global economic system”.

The latest snub to the U.S. role of world leader came from four Arab heads of state who snubbed a U.S.-Gulf States summit at Camp David on May 14. The summit had been called by Obama to reassure the Gulf states that the ongoing negotiations with Iran over a nuclear agreement would not diminish their relevance, but the rulers of Saudi Arabia, United Arab Emirates, Oman and Bahrain deserted the summit.

However, there is no more striking example of mistake-making than the joint effort by the United States and Europe to push Russian President Vladimir against the wall over his engagement in Ukraine by imposing heavy sanctions.

There was no apparent reflection on the wisdom of encircling a paranoid and autocratic leader, albeit one with strong popular support, by progressively also bringing in all Eastern and Central European countries. The result of this encirclement of Russia is that China has now come to the rescue of Russia, by injecting money into the country’s asphyxiated economy.

China will invest around six billion dollars in the construction of a high speed railway between Moscow and Kazan, is financing a 2,700 kilometre pipeline for the supply of 30 billion cubic metres of Russian gas over a period of 30 years, plus several other projects, including the establishment of a two billion dollar common fund for investments and a loan of 860 million dollars to the Russian Sberbank bank.

So, the net result is that Russia has been pushed out of Europe and into the arms of China, and the two are now starting joint naval and military manoeuvres.  Is this in the interest of Europe?

At the end of the day, the decline of Europe and the United States perhaps comes down to a decline of political vision, with democracy being substituted by partocracy, and the statesman of yesteryear being substituted by very much more modest and self-referential political leaders.

This is all taking place amid a growing disaffection with politics, which is now aimed basically at administrative choices, making corruption easy. At least this is what around one-third of electors now appear to believe when they are asked if they think that they can make a difference at elections … and this is why a rapidly growing number of people are deserting the ballot box. (END/COLUMNIST SERVICE)

Edited by Phil Harris   

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

Excerpt:

By Roberto Savio
ROME, Apr 20 2015 (IPS)

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

Roberto Savio

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Edited by Phil Harris   

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

Excerpt:

By Kinda Mohamadieh
GENEVA, Apr 6 2015 (IPS)

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

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

Kinda Mohamadieh

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Edited by Phil Harris   

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

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

Excerpt:

By Yilmaz Akyüz
GENEVA, Mar 30 2015 (IPS)

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

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

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

Yilmaz Akyuz

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Edited by Phil Harris   

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

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

Excerpt:

By Roberto Savio
ROME, Mar 25 2015 (IPS)

The United Kingdom has been accused of “sleepwalking” into the Ukraine crisis – and the accusation comes from no less than the House of Lords, not usually considered a place of critical analysis.

In a scathing report, the upper house of the U.K. parliament has said that the United Kingdom, like the rest of the European Union, has sleepwalked into a very complex problem without looking into the possible consequences, letting bureaucrats taking critical political decisions.

Roberto Savio

It said that it was only when the conflict was well entrenched that political leaders decided to negotiate the Minsk ceasefire agreement, reached by Angela Merkel of Germany, Francois Hollande of France, Vladimir Putin of the Russian Federation and Petro Poroshenko of Ukraine, with the notable absence of U.K. Prime Minister David Cameron.

In fact, it was left up to bureaucrats of the European Union and the North Atlantic Treaty Organisation (NATO) to take decisions regarding Ukraine, the same kind of bureaucrats as those appointed by the International Monetary Fund (IMF), the European Central Bank (ECB) and the European Commission who, with their usual arrogance, decided the European bailout conceded to Greece where it is widely known that the priority was to refund European (especially German) banks.

The media have a great responsibility in this situation. In all latter day conflicts, from Kosovo to Libya, the formula has been very simple. Let us divide conflicts into good and bad, let us repeat the declarations of the ‘good guys’ and demonise the ‘bad guys’. Let us not go into analytical disquisitions, complexities and side issues because readers do not like that. Let us be to the point and crisp.“The media have a great responsibility … the formula has been very simple. Let us divide conflicts into good and bad, let us repeat the declarations of the ‘good guys’ and demonise the ‘bad guys’. Let us not go into analytical disquisitions, complexities and side issues because readers do not like that”

The latest example. All media have been talking of the Iraqi army engaged in taking back the town of Kirkuk from the Caliphate, the Islamic State. But how many are also informing that two-thirds of the Iraqi army is actually made up of soldiers from Iran? And that the Americans engaged in overseeing this offensive are in fact accepting cooperation from Iran, formally an archenemy?

How many have been reporting that the ongoing negotiations over the nuclear capabilities of Iran are really based on the need to restore legitimacy to Iran, because it has become clear that without Iran there is no way to solve Arab conflicts? And how many have informed that all radical Muslims have received financial support from  Saudi  Arabia, which is intent on supporting Salafism, the Muslim school which is at the basis of al-Qaeda and now of the Islamic State?

Recent history shows the West has gone into a number of conflicts (Kosovo in 1999, Afghanistan in 2001, Iraq in 2003, Libya in 2011 and Syria in 2012), without looking beyond the immediate consequences, and without any consideration for long-term analysis. The costs of those conflicts have always exceeded the benefits foreseen. An auditor company could not certify any of those conflicts in terms of costs and benefit.

Let us start from the collapse of Yugoslavia, and let us remind ourselves that the West has three principles of international law under which to shield itself as a result of its actions.

One is the principle of inviolability of state borders, which was not applied to Serbia, but is now the case for Ukraine. The second is the principle of self-determination of people, which was used in Kosovo for the Albanian minority living in that part of Serbia but it is not considered valid now for the Russian populations of East Ukraine. The third is the right to intervene for humanitarian interventions, which was used first in Libya, and is now under consideration for Syria.

The drama of the Balkan conflicts was due to a very unilateral action by Germany, which decided to extrapolate Croatia and Slovenia from the Yugoslav federation as its zone of economic interest. The then Minister of Foreign Affairs, Hans-Dietrich Genscher, pushed this in an unprecedented way throughout the West.

It was the first time that Germany had play an assertive role, with U.S. support, and it was a Cold War reflex – let us eliminate the only country left after the collapse of the Soviet Union, which still inspires itself to a socialist state and not to a market economy.

Serbia, which considered itself heir to the Kingdom of Serbia (out of which Josep Broz Tito had created the socialist Yugoslavia), intervened and a terrible conflict ensued, with civilians paying a dramatic cost.

That conflict renewed dormant ethnic and religious divisions, about which everybody knew, but Genscher, who was then no longer in the German government, explained at a meeting in which the author participated: “I never thought the Serbians would resist Europe.”

It is interesting to note in this context that just a few weeks ago, the International Court of Justice ruled that neither Serbia nor Croatia had engaged in a genocidal war. The news was reported by many media, but without a word of contextualisation.

The Federal Republic of Yugoslavia had been destroyed to implement the winning theory of “free market against socialism”. Did the creation of five mini-states improve the lives of the people? Not according to statistics, especially of youth unemployment, which was unknown in the days of Tito.

Then there was Iraq where, in the aftermath of the Twin Towers attack in September 2001, the rationale for attacking the country was based on assertions that Iraqi leader Saddam Hussein was both harbouring and supporting al-Qaeda, the group held responsible for the attack, and possessed weapons of mass destruction that posed an immediate threat to the United States and its allies. These, which turned out to be lies, were blindly propagated by the media

But if, as is widely believed, petroleum was the cause, let us look at figures as an accounting company would do. That war is estimated to have cost at least two trillion dollars, without considering human life and physical destruction.

Iraq’s annual petroleum output at full pre-war capacity was 3.7 million barrels per day. Now a part of that is under the control of the Islamic State and Kurds have taken more than one-third under their control. But even at the full production, it would have taken more than 20 years to recoup the costs of the war.

It is, to say the least, unlikely that the United States would have had all that time – and since the war, has spent more than a further trillion dollars just in occupation and military costs.

And what about Afghanistan where there is no petroleum? Two trillion dollars have also been spent there … and the aim of that war was just to capture al-Qaeda leader Osama bin Laden!

Among others, it was said that democracy would be brought to Afghanistan. Now, after more than 50.000 deaths, nobody speaks any longer of institutional building, and the United States and its allies are simply trying to extricate themselves from a country whose future is bleak.

Now, the question I want to raise here is the following: what has happened to looking beyond the immediate consequences and long-term analysis in foreign policy?

Is it possible that nobody in power questioned the wisdom of an intervention in Libya for example, even assuming that Muammar Gaddafi was a villain to remove?  Did any of them ask what would happen afterwards? Did any of those in power ask what it would mean to support a war to remove Bashar al-Assad in Syria and what would happen after?

It appears that the House of Lords is right, we are taken into conflict by sleepwalkers. The West is responsible either for creating countries which are not viable (Kosovo), or for disintegrating countries (Yugoslavia and now probably Iraq), or for opening up areas of instability (Libya, Syria).

Without mentioning Ukraine where intervention is aimed at pushing the country towards Europe and NATO, thus provoking the potential retaliation of Russian leader Vladimir Putin.

Those errors have cost hundreds of thousands of lives, displaced millions of people and, altogether, cost at least seven trillion dollars. Who is going to wake the sleepwalkers up? (END/IPS COLUMNIST SERVICE)

Edited by Phil Harris   

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

Excerpt:

By Roberto Savio
ROME, Mar 19 2015 (IPS)

For a long time, citizens of the United States have firmly believed that their country has an exceptional destiny, and continue to do so today even though their political system has become totally dysfunctional.

The three pillars of U.S. democracy – legislative, executive and judicial – are no longer on speaking terms,  so dialogue or the possibility of bipartisan policy has virtually disappeared.

In this context, to please his opponents, and with a view to the U.S. presidential elections in 2016, President Barack Obama is increasingly being pushed to act as strong guy.

Roberto Savio

This is the only reasonable explanation on why he has suddenly declared Venezuela a security threat to the United States, just months after starting the process of normalisation of relations with Cuba, a long-time U.S. enemy in Latin America and ally of Venezuela.

The country’s president, Nicolas Maduro, is extremely happy because his denunciations of a U.S. plot with Venezuela’s opposition to have him removed have now been officially justified – by no less than the United States itself. Even the New York Times, in an editorial on Mar. 12, wondered about the wisdom of such move.

The problem is that, behind Obama’s back, U.S. Republican senators are doing unprecedented things, like writing an admonitory letter to the Supreme Guardian of Iran, Ayatollah Ali Khamenei, indicating that any nuclear agreement made with Obama would last only as long as he remained in office.

That letter must have made Khamenei and Iran’s hardliners very happy, because they have always said that the United States cannot be trusted, and that the ongoing nuclear negotiations make no sense."This escalation [over Ukraine] has already taken a direction that clear heads should exam with a long-term perspective. Are the members of NATO – an institution that needs conflict to justify its new life now that the Soviet Union no longer exists – ready to enter a war, just to keep making the point? "

We are now facing an extension of the concept of the exceptional destiny of the United States, in which its foreign policy can also be exceptional, not subject to logic and rules.

Across the Atlantic, what is certainly exceptional is that while Europe has practically always followed U.S. foreign policy, even when it is against its interests as is the case of the confrontation with Russia over Ukraine, the United Kingdom – which has a special relationship with the United States – is now indulging in some divergent action.

Through its Chancellor of the Exchequer, George Osborne, the United Kingdom has announced that it intends to join the Chinese initiative for the creation of an Asian Infrastructure Investment Bank (AIIB), in which Beijing is investing 50 billion dollars. This has raised the ire of the United States because the AIIB is seen as an alternative to the World Bank and the Asian Development Bank, in which the United States (and Japan) have powerful interests.

Shortly after Cameron’s move, France, Germany and Italy followed, while Australia will also join and South Korea will have to do so. This will leave the United States isolated, opening up a new “exceptional” dimension – economic might (China) is more attractive than military might (United States).

U.K. Prime Minister David Cameron has responded to U.S. irritation by declaring that the United Kingdom is joining the AIIB because “we think that it’s in the UK’s national interest”.

Of course, Cameron is playing up to his financial constituency, which is very aware of its interest, even when it does not coincide with U.S. interest. After all, China’s share of global manufacturing output, which was three percent in 1990, had risen to nearly 25 percent by 2014.

Even worse is that Cameron has also decided to cut spending on defence and while the U.K. government currently meets the two percent of GDP target that the United States expects all members of the North Atlantic Treaty Organisation (NATO) to pay into the alliance, it has only committed itself to continuing that until the end of the current Parliament in May.

For the U.S. administration, this could be taken as a sign of weakness by Russian President Vladimir Putin who, it argues, should be put under growing pressure and shown that the confrontation over Ukraine will escalate until he backs down.

This escalation has already taken a direction that clear heads should exam with a long-term perspective. Are the members of NATO – an institution that needs conflict to justify its new life now that the Soviet Union no longer exists – ready to enter a war, just to keep making the point?

The signals are those that precede a war.

U.K. Defence Secretary Michael Fallon has declared that Russia is “as great a threat to Europe as ‘Islamic States’.” Troops are amassing in the Baltic States to serve as a deterrent for a possible Russian invasion. The U.S. Republican Congress is overtly asking for the supply of massive and heavy weapons to the Ukrainian army.  Hundreds of U.S. troops have been assigned to Ukraine to bolster the Kiev regime against Russian-backed rebels in the east. The United Kingdom is sending 75 military advisers.

Meanwhile, according to the New York Times, the Polish government is supporting the creation and training of militias, and plans to provide military training to any of the many Poles who are increasingly concerned that “the great Russian behemoth will not be sated with Ukraine and will reach out once again into the West.” The same is happening in the Baltic States, which all have a sizable Russian presence and think Putin could invade them at any moment.

Media everywhere have engaged in a frenzy of personal vilification of Putin and in the popular pastime of using Putin and Ukraine to justify military expansionism – to advocate tit for tat what Putin is doing.

It is difficult to look to Putin with sympathy, but this confrontation has again pushed the Russian people behind its leader, and at an unprecedented level that now stands at around 80 percent.

The Guardian has reported veteran Russian leftist Boris Kagarlitsky as commenting that most Russians want Putin to take a tougher stand against the West “not because of patriotic propaganda, but their experience of the past 25 years”, and it would be a mistake to underestimate the role that humiliation can play in history.

It is commonly accepted that Hitler emerged from the frustrations of the German people after the heavy penalties that they had to pay the victors after the First World War. The same sense of humiliation made the war of Slobodan Milosevic against NATO popular with the Serbian population.

It is the humiliation of the Arabs divided among the winners of the First World War which is at the roots of the Caliphate, or the Islamic State, which claims that Arabs are finally going to be given back their dignity and identity.

And it is also humiliation over the imposition of austerity which is now creating a strong anti-German sentiment in Greece, to which Germans respond with a sense of righteous indignation (52 percent of Germans now want Greece to leave the Euro).

Has anyone considered who is going to take over Russia if Putin goes away? Certainly not those who are now in the opposition. Has anyone considered what it would mean to take on responsibility for a very weak state like Ukraine?

The International Monetary Fund (IMF) has now approved a 17.5 billion dollar relief fund for Ukraine but warned that the country’s rescue “is subject to exceptional risks, especially those arising from the conflict in the East.”

In fact Ukraine needs to plug a hole of at least 40 billion dollars in the immediate term, and economists all agree that the country does not have a viable economy. It will require many years of consistent help to reach some economic equilibrium – if there is no war.

Europe is close to recession and apparently unable even to solve the problems of Greece, but goes headlong into supporting Kiev against Russian-backed rebels. NATO can support Ukrainian soldiers up to their last man, but it is impossible that they will beat Russia. Will the West then intervene or back off and lose face, after many deaths and much waste and destruction?

A widespread view now is that sanctions should starve Russia, which will have lost its revenues from oil. What if Putin does not back down, sustained by the Russian people? Are Europeans ready to go to war to please the Republican Congress in the United States? (END/IPS COLUMNIST SERVICE)

Edited by Phil Harris   

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

Excerpt:

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

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

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

Frédéric Mousseau

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Edited by Phil Harris   

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

Excerpt:

Engineers working on a 512 km pipeline to scale up the amount of gas transported to Dar es Salaam plants for electricity generation and other industrial supplies. Allegations of corruption in Tanzania’s energy sector are holding up foreign aid disbursement. Credit: Juma Mtanda

By Kizito Makoye
DAR ES SALAAM, Jan 18 2015 (IPS)

As foreign donors drag their feet on injecting badly needed cash into the government’s coffers, local analysts are increasingly worried that this will affect implementation of key development projects that require donor funding.

Donors – including the United Kingdom, Germany and the World Bank – are withholding 449 million out of 558 million dollars pledged for the 2014/15 budget, pending a satisfactory outcome to investigations over corruption in the energy sector.

Senior government officials have been accused by the Parliament of authorising controversial payments of 122 million dollars to Pan Africa Power Solutions Tanzania Limited (PAP), which claims to have bought a 70 percent share of the Independent Power Tanzania Limited (IPTL) – a private energy company contracted by the government to produce electricity.The government’s inability to wipe out corruption in the energy sector is setting a bad precedent because the country is poised to prosper economically in the wake of massive discoveries of natural gas resources.

“Many infrastructure development projects that require donor funding will probably stall due to this problem,” Benson Bana, a political analyst at Dar es Salaam University, told IPS. “Donors are keen to see their money is spent on intended objectives and government must learn a lesson to ensure that public funds are managed well.”

East Africa’s second largest economy after Kenya  is currently implementing a myriad of projects that require donor funding in the energy and  infrastructure sectors, such as construction of ports, roads and power plants  under a  25.2 billion dollar five-year development plan.

But the government said last year that the impending delay in the disbursement of aid funds may prompt it to shelve some critical projects until the next financial year.

The international Monetary Fund (IMF) has added its voice to the ongoing standoff between Tanzania and foreign donors, saying that further delay in disbursement of aid would certainly affect the country’s economic performance.

“Performance … was satisfactory through June, but has deteriorated since and risks have risen, stemming from delays in disbursements of donor assistance and external non-concessional borrowing, and shortfalls in domestic revenues,” the IMF said in a statement posted on its website in January 2015.

Tanzania is one of the biggest aid recipients in sub-Saharan Africa, with an annual aid inflow in grants and concessional loans ranging from 20 to 30 percent of its budget.

The move by donors to freeze aid over corruption concerns, said the IMF, is a stunning blow to the country’s economy.

“It will be critical to the business environment to address the governance issues raised by the IPTL case, which would also unlock donor assistance,” the IMF said.

The Ministry of Finance has unveiled a 19.6 trillion shilling (11.6 billion dollar) budget with plans to borrow 2.96 trillion shillings from domestic sources and about 800 million dollars from external sources to finance key projects.

“Achieving our revenue target is a matter of life or death; we are very serious in our quest to reduce reliance on foreign aid and we are refining our business environment to attract investments that can yield revenues,” said Finance Minister Saada Mkuya.

Critics told IPS that it is not wise for Tanzania to cling to unpredictable foreign aid to finance its budget after more than 50 years of political independence.

“For a country like ours to keep depending on donors to finance our development is not healthy, there’s no doubt many project will fail to take off because of this standoff,” Humphrey Moshi, an economist and professor at the University of Dar es Salaam, told IPS.

Political observers say that the government’s inability to wipe out corruption in the energy sector is setting a bad precedent because the country is poised to prosper economically in the wake of massive discoveries of natural gas resources.

“Corruption in the energy sector can be reduced by introducing strong accountability systems in the sector,” Zitto Kabwe, the chairman of a parliamentary oversight committee on public accounts, told IPS, adding that “legislations that subject contracts to parliamentary vetting and transparency would really help.”

Latest data from the Tanzania Petroleum Development Corporation show that Tanzania has estimated reserves of 53.2 trillion cubic feet of natural gas off its southern coast.  According to local analysts, these resources are more than enough to put the country on a path of economic development while ending its dependence on aid.

As the government grappled to bridge gaps in its budget, donors last week said  that they would only release the rest of the aid money pledged after seeing appropriate action taken against officials implicated in the so-called “escrow scandal”.

“Budget support development partners in Tanzania take the emerging IPTL case with the utmost seriousness and are carefully monitoring its development  as the case involves  large amounts of public funds,” Sinikka Antila, Finland’s ambassador to Tanzania and chairperson of Tanzania’s donor group, was quoted as saying.

In November last year, parliament called on government to sack senior officials, including the country’s Attorney General and  energy minister who, it said, had played an instrumental role to facilitate the dubious IPTL-PAP deal. The Attorney General, Frederick Werema, has since resigned.

In December, in a desperate bid to win back donor confidence, President Jakaya Kikwete sacked Anna Tibaijuka – a senior cabinet minister holding the land and human settlement development portfolio – for allegedly having received a1.6 billion shilling gift from one of the IPTL’s shareholders contrary to the government’s public leadership code of ethics.

In what appears to be a show of strength, the United States, through its Millennium Challenge Corporation (MCC), has expressed serious concern about the country’s sluggish pace in controlling corruption and has urged the government to take firm concrete steps to combat corruption as a condition for the approval of future aid.

“Progress in combating corruption is essential to a new MCC compact, as well to an overall improved business climate in Tanzania,” Mark Childress, U.S. Ambassador to Tanzania said in December 2014.

“We are encouraged by the State House’s announcement of December 9 that it will soon address the parliamentary resolutions linked to IPTL, and we urge quick government action, given the impact on several key development issues.”

Tanzania was one of 10 countries discussed by the MCC Board, which met in December to determine the eligibility of countries to begin or continue the compact development process.

If finalised, this would be Tanzania’s second MCC compact. Between 2008 and 2013, the MCC funded a 698 million dollar compact for investment projects in water, roads and electric power throughout Tanzania.

Edited by Phil Harris    

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

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

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

Manuel F. Montes

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

(Edited by Phil Harris)

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

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

Excerpt:

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

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

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

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

Frédéric Mousseau

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Excerpt:

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

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

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

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

Shyam Saran

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Excerpt:

By Chakravarthi Raghavan
GENEVA, Jul 22 2014 (IPS)

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

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

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

Chakravarthi Raghavan

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Excerpt:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

'The Seven Deadly Sins and the Four Last Things'. Painting by Hieronymus Bosch, kept in the Museo del Prado, Madrid

By Roberto Savio
ROME, Jun 9 2014 (IPS)

It is a great pity that, beside opening the doors to ethics, social justice and peace, Pope Francis does not also give indications of updating  traditional theology. The most urgent task is to update the Seven Deadly Sins.

The update should be done on their social impact and viciousness. How it is possible to equate, for example, sloth and gluttony with greed? In the 1987 film Wall Street, Gordon Gekko, a wealthy, unscrupulous corporate raider played by Michael Douglas, says that greed, not gluttony, moves man. And it is very doubtful that all the people who are now moved by greed are also victims of gluttony, when they usually are on a diet!

Roberto Savio. Credit: IPS

According to the United Nations, throughout the world there are over 1.5 billion people who are obese or overweight compared with 842 million who suffer from undernourishment. The problem is that the obese or overweight are not usually the result of overfeeding but of junk food marketing by large corporations (McDonald’s and the like) – and the poor are the most overweight because junk food is cheap.

And sloth is certainly not a social threat, even if urban legend has it that people are poor because they do not want to work.

So, let us concentrate on greed, and see why it is time for an update.“We are rushing forward to the past, and the times of Queen Victoria, when an obscure German philosopher and economist by the name of Karl Marx was working … on his denunciation of exploitation, and preparing his Communist Manifesto”

We have reached a point where the preachers of ethics are central bankers. Speaking last week in London at the Conference on Inclusive Capitalism, Christine Lagarde, Managing Director of the International Monetary Fund (IMF), said that ”some prominent firms have even been mired in scandals that violate the most basic ethical norms.” And Bank of England Governor Mark Carney warned that “unbridled faith in financial markets” before the crisis, rising inequality and recent “demonstrations of corruption” has damaged “social capital”.

This must have gone down well in the country of understatement. According to Lagarde, the big banks are still being subsidised to the tune of 70 billion dollars in the United States and 300 billion dollars in the Eurozone. And in spite of this, regulators around the world have imposed 5.8 billion dollars in penalties for attempting to manipulate market benchmark rates.

Mark Carney solemnly told the London conference: “Ultimately … integrity can neither be bought nor regulated. Even with the best possible framework of codes, principles, compensation schemes and market discipline, financiers must constantly challenge themselves to the standards they uphold.”

And this is exactly the problem. James Dimon, the head of JP Morgan, the world’s largest bank, and with a 74 percent raise in salary for 2013, considers regulations “un-American”. In 2013, the bank paid 18.6 billion dollars in fines. The U.S. Attorney General, Eric Holder, has just slapped a 2.6 billion dollar fine on Credit Suisse for helping U.S. citizens to evade taxes. In December 2013, the European Commission levied fines totalling 1.04 billion euros (1.42 billion dollars) on Barclays, Deutsche Bank, RBS and Société Générale for having manipulated the Euribor benchmark interest rate. Are we therefore to think that this is “un-European”?

It is worth noting that, in this orgy of fines, none of those bankers responsible ever went to jail. They just received salary increase, as the case of James Dimon shows. Banks are inanimate objects, they cannot go to jail. The U.S. Justice Department has gone to great lengths to guarantee that banks will not be treated like criminals because banks cannot be put out of business. These are “the standards they uphold”.

A new contribution to theology has been revealed in Stress Test: Reflections on Financial Crises, a recently published book by Timothy Geithner, President of the Federal Reserve Bank of New York, and U.S. Treasury Secretary during the 2007-2009 crisis. Writing in the Financial Times of May 28, Martin Wolf says: “Mr. Geithner argues not only that crises are sure to recur but that governments must react with overwhelming force … the government must borrow more, spend more and expose taxpayers to more short-term risk – ‘even if it seems to reward incompetence and venality, even if it fuels perceptions of an out-of-control, money-spewing, bailout-crazed big government’.”

But Geithner “also offers a law of unintended consequences. The safer the visible financial system is made, he argues, the greater the danger that the fragility will emerge somewhere less visible, but possibly even more dangerous.” So the new theology of the financial system is that because it is impossible to make it safe, let us not introduce regulations which, Geithner says, “often be self-defeating.”

Yet, until 1999, when then U.S. President Bill Clinton (culminating a process started by Ronald Reagan) repealed the Glass-Steagall Act which had separated commercial and investment banking for seven decades, we had nothing of what we see today.

Deposit banks were obliged to use citizens’ funds under tight regulations, and the money they raised through deposits was used to finance commercial and capital growth. Now, all the money goes into speculation, and as everybody knows, banks have little patience with small investors and citizens because returns are much smaller than from the various instruments of financial speculation. If anything goes wrong, states are obliged to bail the banks out.

Where does this logic lead? Obviously into taking many risks (the higher, the better return), taking home the highest possible salaries, and knowing that the collectivity is there to bail you out when needed. Clearly, this logic could not exist, if it was not as a shining daughter of greed.

It is a sign of the times that in her speech in London, Lagarde used the same language that Oxfam used at this year’s World Economic Forum in Davos. She reminded the audience that “the 85 richest people in the world, who could fit into a single London double-decker, control as much wealth as the poorest half of the global population– that is 3.5 billion people.”

Now, we know from French economist Thomas Piketty, author of the best-selling book Capital_in_the_Twenty-First_Century, that the growth of this concentration of capital is faster than that of general growth, which is a way to say that these 85 people will continue to suck money from the general market, and therefore the rich will become richer and the poor will become poorer.

In other words, what we are witnessing is a progressive reduction of the middle class, while we are rushing forward to the past, and the times of Queen Victoria, when an obscure German philosopher and economist by the name of Karl Marx was working in the British Library in London on his denunciation of exploitation, and preparing his Communist Manifesto.

This trend is happening everywhere, and at every level. The increase in sales of giant U.S. retailer Walmart fell from 5 percent in 2012 to just 1.6 percent last year. Under Walmart’s pay plan, pay increases would only take effect after growth of 2 percent. So what did its brilliant accountants come up with? They took into in consideration only certain items, making sure to come up with a figure of 2.02 percent growth, permitting William S. Simon, president and chief executive officer of Walmart U.S. to receive a salary increase of 1 million dollars, taking his total salary to 13 million dollars. Meanwhile, the average full-time Walmart employee makes 27,000 dollars a year.

Worse still is the case of restaurants chains, which are setting up a strong line of attack to U.S. President Barack Obama’s idea of raising minimum wages (just like they did in Germany). Ever heard of a chain called Chipotle Mexican Grill? Even if you have, the odds are that you did not know that last year, Steve Ellis, its co-chief executive officer, made 25.1 million dollars while the other co-chief executive officer, Montgomery Moran, made another 24.4 million dollars. As you can see, they make even more than James Dimon.

The average salary at one of Chipotle Mexican Grill’s 1,600 restaurants is 21,000 dollars. Therefore, one employee with this salary would have to work for more than a thousand years to equal one year of the co-chief executive officer’s salaries.

By the way, Mr. Ellis has received more than 145 million dollars in Chipotle stocks since 2011, and Mr. Moran at least 104.5 million.

Now, is it possible that it is the gluttony of Mr. Ellis and Mr. Moran that creates such a world of absurd inequalities? No, but greed certainly does.

Time to update the Seven Deadly Sins, Pope Francis … (END/COLUMNIST SERVICE)

Excerpt:

Residents of Bangalore, India, who live in extreme poverty. Credit: bandarji/ CC by 2.0

By Jim Lobe
WASHINGTON, Oct 26 2013 (IPS)

Key multilateral institutions charged with improving regulation of the international financial system are failing to democratise their governance and adequately consider the impact of their actions on the world’s poor, says a new report by anti-poverty groups.

The 68-page study, entitled “Global Financial Governance & Impact Report”, gave higher marks on both counts to the International Monetary Fund (IMF) and the World Bank than to other institutions, notably various rule-making bodies on international taxation, the Group of 20 (G20), and the Basel-based Financial Stability Board (FSB).

Overall, however, the study, which was released by the ten-year-old Washington-based New Rules for Global Finance Coalition, found all agencies’ governance and impact on poor countries “very disappointing”.

“Too much of the governance of global finance remains ad hoc, with non-transparent, non-inclusive, largely unaccountable and un-responsible institutions wielding great power,” according to the coalition, which includes ActionAid, the South African Institute of International Affairs, and the Jubilee USA Network."Those who are often most affected by the rules aren't there when these rules are being made."
-- Jo Marie Griesgraber

Despite increased integration of poverty reduction into the work of the IMF and the Bank, in particular, “there are huge gaps between declarations and actions,” according to New Rules, which also includes the Institute for Agriculture and Trade Policy, the Tax Justice Network, the South African Institute of International Affairs, Germany-based World Economy, Ecology & Development (WEED), and the Heinrich Boell Foundation of North America.

“All have a very long way to go before they can confidently declare that they are having a strong positive impact on equitable and sustainable development,” the report said.

“The problem is that all of the wealthy countries have a seat at the table in these institutions, while those who are often most affected by the rules aren’t there when these rules are being made,” New Rules executive director Jo Marie Griesgraber told IPS.

“What we’re trying to do is make room at the decision-making table for excluded peoples and thereby ensure that their decisions and processes benefit everyone,” she added. “This is an initial attempt to assess how these institutions are performing in that regard.”

Most experts believe that the 2008 financial meltdown was caused primarily by key national and international institutions’ failure to adequately regulate increasingly sophisticated transactions in an ever-more globalised financial marketplace – a product of the neo-liberal orthodoxy that guided many of the world’s economic policy-makers, including in the IMF and the World Bank, in the 1980s.

In the wake of the crisis, however, world leaders decided that greater regulation was required to keep the global economy from falling into a 1930s-like depression and to impose greater discipline on financial markets.

So they replaced the G8 with the G20 as the key forum for global financial policy-making; boosted lending resources and modified strategies of the IMF and the Bank; and created the Financial Stability Board (FSB) to develop and coordinate global financial regulatory policies to promote stability.

The new report marks the first effort to assess how well these rule-making agencies have performed with respect to their own internal governance, including their “transparency” in internal processes; accountability to all governments and to civil society; involvement of the poor in decision-making; and responsibility to promote “more just and economically sustainable global development, especially for people in low income countries.”

The institutions were given scores ranging from 1 (poor) to 4 (excellent) on each of the four criteria, as well as an overall score.

For the aggregate scores, the IMF, the World Bank, and the FSB all rated a 2 (moderate), while the G20 and the new tax authorities were given 1.5. On transparency, the IMF and the World Bank scored highest at close to 3 (good), while the G20 was the lowest at 1.5.

The IMF also scored highest (2.5) on inclusiveness, higher than the World Bank (2), despite the latter’s long-standing commitments to consult closely with civil society. But with respect to responsibility, the IMF and tax-related agencies received the lowest possible score.

Regarding the impact of these institutions on the world’s poorest, New Rules said it was not possible to use a common framework such as the one it applied in assessing governance. Instead, it used independent specialists and experts from within the coalition’s member organisations to evaluate each institution.

The IMF gained the highest score on impact at 2.6, followed closely by the World Bank (2.4) and the G20 (2.1), which was praised for its coordinated stimulus package devised at its 2009 London Summit, its establishment of the FSB, and its efforts at reducing transfer costs of remittances by migrants from poor countries.

The FSB received a 1.4 score, while the tax authorities received the lowest possible score in large part because none addressed the problem of “offshore” tax havens, or secrecy jurisdictions that are estimated to hold 21 to 32 trillion dollars of the world’s private wealth.

That failure, according to the report, is due primarily to the fact that the status quo powers continue to control the OECD and that the IMF and have deliberately weakened the U.N. Tax Committee.

The World Bank strongly criticised the study. “This report is deeply flawed, and it misses the mark on the World Bank’s increased push for results, our huge strides in openness, and our strong focus on accountability,” David Theis, a Bank spokesman, told IPS by email.

He noted that the “2012 Aid Transparency Index: Publish What You Fund” rated the Bank, along with the British aid agency DFID, first among all donors at the country level on transparency.

Requests to the IMF for reaction to the report went unanswered.

Griesgraber said the new report was “an initial attempt, and we know there’s a lot of room for improvement.…Our report is a challenge to the institutions. If you don’t like our data and conclusions, show us where we’re wrong.”

But, she suggested, the report’s focus on the inclusion of the poor in the governance of institutions that oversee the global financial system and the poverty-reduction impact of these same institutions offered important insights that call for greater study.

“The fact that the voices of low-income countries and the world’s poor citizens are rarely heard in the forums governing global finance almost certainly explains why they have disappointingly low impact on improving their lives,” said the report.

Thousands of civil servants have marched through the Greek capital, Athens, and the second largest city, Thessaloniki, amid a two-day nationwide strike against planned job cuts.

Schools and courts were closed and hospitals were functioning with reduced staff on Wednesday and Thursday while trains were halted for four hours, and journalists joined in with a three-hour work stoppage, pulling news broadcasts off the air.

Efforts to reduce the 600,000-strong civil service, long seen by critics as wasteful and corrupt, have been resisted by labour unions who say the scheme will only worsen the plight of Greeks enduring a sixth year of recession.

The latest strikes, called by public-sector umbrella union ADEDY, came days before representatives of the “troika” of European Union, European Central Bank and International Monetary Fund (IMF) lenders visit Athens to check on progress made on promised reforms.

“A long, onerous and painful winter has begun,” said ADEDY, which together with private-sector union GSEE represents about 2.5 million workers in this country of 11 million people.

“The truth is that with every troika visit, our national dignity is destroyed. The economy and society are ruined,” it added.

Policy defended

Speaking for the government, health minister Adonis Georgiadis told Al Jazeera: “Greece was the last Soviet state in the European Union. This has to be ended and we will end it now. This is for the benefit of the Greek people.

“We will be liberals and we will let the market work as all ordinary and good and serious people are doing in the rest of the world. Why be afraid of that?”

Government plans call for the suspension on partial pay of 25,000 civil servants this year in a drive to reduce the size of the public sector and meet conditions to continue receiving rescue loans.

Many of those suspended are expected to eventually lose their jobs.

Officials have, however, pledged not to back down.

The government claims it will set up basic state insurance for the 1.4 million jobless and the poor by the end of the year.

It will also take some of the pressure off hospitals through a chain of primary healthcare centres.

But it admits that a lot of state health care may end up being outsourced to the private sector.

Al Jazeera’s John Psaropoulos, reporting from Athens, said: “Slimmer state services in health and education may bode well for the bottom line but they will likely deepen the divide between the haves and the have-nots.

“These state workers fearful of losing their jobs know which camp they’re likely to end up in.”

Austerity measures

Greece has been depending on bailout loans from the IMF and other European countries since May 2010.

In return, it has implemented a series of strict austerity measures to reform its economy.

James Meadway, a senior economist at the New Economics Foundation think-tank in London, believes the protesters are right in their demands.

“Austerities of increasing severities have been applied in some European countries and we are not seeing any serious or sustained recoveries in these economies,” he told Al Jazeera.

“Precisely because austerity is the thing that drives recession. You are setting up this vicious circle of decline in which Greece is very much trapped.

“There are different options like investment and spending by government and creating jobs or perhaps looking to institutions like the German state bank KFW, which has created some 200,000 jobs a year over the last few years and the government action could be used to actually promote recovery in places like Greece, Spain or Portugal.

“But Greece is doing the exact opposite.”

Published under an agreement with Al Jazeera.

President Barack Obama signs the Dodd-Frank Wall Street Reform and Consumer Protection Act in July 2010. Credit: Lawrence Jackson, Official White House Photo/Leader Nancy Pelosi/CC by 2.0

By Carey L. Biron
WASHINGTON, Aug 28 2013 (IPS)

Three years after the passage of landmark legislation aimed at strengthening regulation of major U.S. companies, one of the most criticised disparities characterising today’s corporate culture – the outsized compensation offered to top executives – continues to grow.

These extraordinarily lucrative salaries and benefits appear to have little connection to overall corporate performance. According to estimates released Wednesday, 38 percent of the top-paid chief executive officers (CEOs) of U.S. companies over the past two decades were fired or headed companies that were either bailed out by taxpayers or forced to pay significant fraud-related fines.

“An alarming number of CEOs are not adding exceptional value to [the U.S.] economy. They are extracting vast sums from it,” a new report from the Institute for Policy Studies, a Washington think tank, stated.“An alarming number of CEOs are not adding exceptional value to economy. They are extracting vast sums from it.”
-- The Institute for Policy Studies

“American chief executive compensation continues on what has become an inexorable upward march, even as the overall economy sputters through five years of Great Recession and tepid recovery. The most widely heralded CEO pay reforms…have so far done little to slow the executive pay march.”

The study looks at the performance of the 241 CEOs who have ranked among the United States’ 25 highest-paid executives at some point over the past 20 years. Researchers found that many of their companies reported “blatantly” poor performances.

Nearly a quarter of the companies either shut down or received government bailouts following the 2008-2009 financial crash. Eight percent of these CEOs were fired but still received final bonuses averaging 48 million dollars, while an additional eight percent headed companies that had to pay fraud-related settlements of more than 100 million dollars per firm.

“Shareholder representatives say that the problem of excessive CEO pay is so widespread that even if you wanted to create a portfolio of those companies that enforce reasonable CEO pay, it would be very difficult to do so,” Sarah Anderson, an author of the new report and director of the Global Economy Project at the Institute for Policy Studies, told IPS.

“This is not just a problem of a few bad apples,” Anderson said. “Rather, it’s about a corporate culture that’s encouraging CEOs to demand this type of compensation – even though it’s bad for workers, shareholders and taxpayers.”

The U.S. model

The average compensation for heads of the country’s 500 largest companies was around 12.3 million dollars in 2012, according to estimates by the AFL-CIO, one of the United States’ largest trade union federations. Excluding an unusual massive pay cut taken by one executive (Apple CEO Tim Cook), that figure rose five percent over 2011, despite the fact that median incomes for most U.S. households fell from 2009 to 2011 by 0.4 percent.

CEO pay has skyrocketed in recent years compared to average U.S. salaries. In 1993, executive salaries were around 195 times those of average workers, according to the AFL-CIO. Last year, they were 354 times larger.

“Two decades have essentially recalibrated our nation’s moral sensibilities,” the Institute for Policy Studies report states. “The outrageous has become the everyday.”

Meanwhile, this U.S. “model” of outsized executive salaries is widely credited with encouraging executives in other countries, particularly Europe, to push for similar levels of compensation, to the anxiety of top economic analysts.

“We must move in the direction of more prudent compensation practices,” Christine Lagarde, head of the International Monetary Fund, the Washington-based institution tasked with ensuring global economic stability, said in January at the World Economic Forum.

“Excessive inequality is corrosive to growth; it is corrosive to society…We can already see too many signs of waning commitment – dilution of reforms, delays in implementation, inconsistency of approaches.”

In the aftermath of the 2008-2009 financial crisis, much of the legislative push to reel in executive pay in the United States became part of a huge bill known as the Dodd-Frank Act, which is aimed at strengthening oversight of the financial services industry and broader corporate culture.

While that bill, signed into law in 2010, mandated federal regulators to take multiple steps to address the issue of excessive executive compensation, today relatively few of these rules have been finalised.

Some of those that have – including allowing shareholders to vote regularly on executive salaries – are less effectual than was anticipated. In fact, the new report includes a detailed “scorecard” of the efficacy of these reforms, both proposed and potential, that affect executive compensation in the United States and Europe.

Recent polling suggests that support among the U.S. public for strengthened regulation is growing. In July, pollsters found that 83 percent of likely U.S. voters supported tougher regulations for financial companies – up from 73 percent last year (respondents weren’t specifically asked about executive pay).

President Barack Obama has also recently stepped up calls for regulators to move more quickly on Dodd-Frank rules, including on executive pay and equality issues more broadly.

“We’ve got more work to do,” Obama said on Jul. 24. “Nearly all the income gains of the past 10 years have continued to flow to the top one percent.”

“The average CEO has gotten a raise of nearly 40 percent since 2009. The average American earns less than he or she did in 1999.”

Narrowing pay ratios

Some movement is ongoing to address executive compensation. In early September, the Securities and Exchange Commission (SEC), which regulates all companies listed on U.S. stock exchanges, is slated to finalise a rule that would require corporations to regularly publish the ratio of pay between its workers and executives.

While some business interests have derided such disclosure as unnecessary (and legislation proposed in June would undo it completely), at least one important lobby group, the Business Roundtable, told IPS that it would be withholding judgement until after details of the rule, known as Section 953(b), are published.

And while there is some concern over how the SEC will allow companies to define their employee pool when calculating this ratio, advocates of stricter regulation are saying this would be an important step.

“We do think this is a big deal, in that it legitimises the idea that narrow ratios are a good practice,” the Institute for Policy Studies’ Anderson says.

“Eventually, you could also use those ratios in other ways – considering that ratio when determining government contracts, for instance, or linking the ratio to favourable tax policies.”

A farmer in his banana field, which was destroyed by a tropical storm. Credit: Desmond Brown/IPS

By Desmond Brown
CASTRIES, St. Lucia, Jun 15 2013 (IPS)

The Caribbean has the unenviable reputation as one of the most disaster-prone regions in the world, a situation exacerbated by climate change and vulnerability that experts warn could have significant economic consequences if unaddressed.

As a result, a comprehensive strategy to build Caribbean resilience ought to include adaptation to the effects of climate change, Warren Smith, president of the Barbados-based Caribbean Development Bank (CDB), the region’s premier lending institution, has suggested.

Calling the Caribbean “the most vulnerable region in the world to natural hazards”, Smith said that “a growth strategy, in the context of the Caribbean reality, will be found wanting if it does not address resilience in all of its manifestations”.

Natural hazards “have been increasing in intensity and adversely impacting the region’s economic growth”, he added while addressing the bank’s governors recently, citing a recent International Monetary Fund (IMF) report which found that in the past 60 years, Caribbean countries have been hit with 187 natural disasters, primarily cyclones and floods."[The Caribbean is] the most vulnerable region in the world to natural hazards."
-- Warren Smith

The report estimated the annual economic cost of damage from natural hazards at one percent of gross domestic product (GDP) – a considerable drag on economic growth and a central factor in debt accumulation.

“In the face of these daunting statistics, the IMF has suggested that small island developing states in the Caribbean should be seen as frontline states for climate change funding,” Smith said.

“Growth prospects for our most vulnerable countries will be enhanced if resources for climate resilience can be front-loaded as part of a more comprehensive adjustment package,” he added. “Climate adaptation interventions should be fast-tracked and targeted at the most vulnerable economic sectors, primarily tourism and agriculture.”

St. Lucia’s prime minister, Kenny Anthony, told IPS the CDB had shown keen interest in providing assistance to the region on the issue of climate change. Together with the European Investment Bank, the CDB was refining projects to be funded under a 65-million-dollar Climate Action Line of Credit (CALC).

“This credit line provides an opportunity for low-cost financing for projects aimed at building resilience against climate change,” he described. “The region should…embrace this opportunity and make every effort to use these resources to help deal with reducing greenhouse gas emissions, land degradation and dwindling water supplies,” he told IPS.

Small Caribbean states include Antigua and Barbuda, the Bahamas, Barbados, Belize, Dominica, Grenada, Guyana, St. Kitts and Nevis, St. Lucia, St. Vincent and the Grenadines, Suriname, and Trinidad and Tobago.

Six of these countries rank in the top 10 most disaster-prone countries in the world in terms of disasters per land area or population. The rest of the Caribbean is not far behind, with all the countries among the top 50 hot spots.

The frequency of disasters varies significantly within the Caribbean, with Jamaica and the Bahamas having the highest probability of a hurricane striking in any given year. However, for most other countries, the probability of a hurricane remains high, above 10 percent per year.

The CDB president said “bitter experience” has taught the region that even the most carefully crafted fiscal adjustment programme can be quickly derailed by a major climate event, adding that adequate insurance coverage could be an efficient way of transferring some of this risk.

He cited the Caribbean Catastrophe Risk Insurance Facility (CCRIF) as “an excellent vehicle for this purpose” but said the challenge is that a borrowing member country (BMC) of the CDB, going through acute fiscal adjustment, would be unlikely to purchase adequate insurance coverage.

“The CCRIF estimates that, based on current levels of coverage purchased by Antigua and Barbuda, Jamaica, and St. Kitts and Nevis, the CCRIF payouts for Hurricanes Georges and Gilbert, would have been a mere one to two percent of total national losses,” he said.

“The prevailing view in sections of the donor community is that countries in fiscal and debt distress should front-load their reforms. This notion should be broadened to include the front-loading of climate resilience support,” he added.

Smith noted the CCRIF is ideally placed to provide two practical forms of such support to Caribbean countries, adding that donor assistance could be provided to these countries to increase the level of their catastrophic insurance cover to a more acceptable level.

The CCRIF recently request a new injection of donations to help make flood insurance more affordable, he pointed out, a move that “would open up yet another window for transferring some of the risk associated with flooding, which is now an almost annual event in the Caribbean”.

The costs associated with the frequent recurrence of natural disasters in the region are high. Since the early 1960s, the Caribbean has experienced average losses equivalent to almost one percent of GDP in damages each year, and such economic costs are on the rise. Losses have risen from .9 percent of GDP per year in the 1980s and 1990s to 1.3 per cent of GDP in the 2000s.

Natural disasters have also taken the lives of 1,345 people over the past 60 years, though they have by no means defeated Caribbean countries.

Guyana, often dubbed the breadbasket of the Caribbean, says it is pioneering an aggressive approach to accelerating economic diversification and building greater resilience, with significant returns emerging from these efforts.

“Gone are the days when our heavy dependence on the traditional products, sugar, rice and bauxite, left our economic fortunes to the vagaries and vicissitudes of these industries,” Ashni Singh, Guyana’s finance minister, told IPS.

“Today, buoyant activity in mineral exploration and extraction, agricultural diversification, information and communications technology (ICT), construction and financial services and adventure tourism, all form the basis for a broader-based and more resilient Guyanese economy.”

He also pointed to “aggressive efforts at migrating from dependence on fossil fuels to reliance on hydropower to meet the needs of our national electricity grid”, with increased generation capacity and improved reliability and affordability.

Informal settlers on prime land in Papua New Guinea’s capital, Port Moresby, are living under tarpaulins amid the debris of their homes after two attempted evictions to make way for a luxury waterfront development. Credit: Catherine Wilson/IPS

By Carey L. Biron
WASHINGTON, Apr 18 2013 (IPS)

Two of the world’s largest multilateral institutions have released new data linking greater urbanisation with higher levels of human development, and are announcing that they will place greater priority on issues of urbanisation in coming decades.

According the World Bank and International Monetary Fund (IMF), urban areas in the developing world look set to pull in a staggering 96 percent of the additional 1.4 billion people expected in those countries by 2030. According to some metrics, that could offer significant opportunities – if done correctly.

Unveiling a major joint annual report here on Wednesday, the two Washington-based institutions noted that more-urbanised countries have shown far higher strengthening of development indicators than have less-urbanised countries. This is particularly striking with regards to the Millennium Development Goals (MDGs), the international development-related aims agreed to in 2000 and which are to be achieved by 2015.

“Countries with a degree of urbanization above 60 percent are expected to achieve 50 percent more MDGs than those with a degree of urbanization of 40 percent or less,” the new Global Monitoring Report 2013 (GMR) states. “In fact, virtually no country has graduated to a high-income status without urbanizing, and urbanization rates above 70 percent are typically found in high-income countries.”

The GMR report, now in its 10th year, offers an annual snapshot of global progress towards the MDGs. An accompanying brief suggests that significant progress has been made in reducing extreme poverty in recent decades, with those living on 1.25 dollars a day going from half the developing world in 1981 to 21 percent in 2010 – despite the population in those countries increasing by nearly 60 percent during that period.

A notable outlier in this data is sub-Saharan Africa, however, where levels of extreme poverty have doubled over the past three decades, to around 414 million. The World Bank recently unveiled a new goal of ending extreme poverty by 2030.

“The sharp increase in the number of poor people in Africa is a sad indictment of the fact that the needs of rich countries and elites have too often been pursued at the expense of the poorest,” Emma Seery, a spokesperson with Oxfam, a humanitarian group, told IPS in an e-mail.

“Accelerating progress towards the World Bank’s goal of ending extreme poverty means taking tough choices and tackling the vested interests that stand in the way of a fairer world.”

While the new GMR offers a far sunnier view of the international macroeconomic environment than it did last year, with head IMF economists suggesting that today’s situation is far more conducive to achieving the MDGs, the MDG “scorecard” Wednesday was rather gloomier.

“There’s really no time to be complacent,” Jos Verbeek, a World Bank economist and lead author of the GMR, told reporters at the report’s launch. “Current analysis shows that without a vast acceleration of progress, the world should expect that globally hardly any additional MDG will be attained.”

Yet Verbeek suggests that fast-growing levels of urbanisation could offer governments a key opportunity. Urbanisation and higher incomes have been found to go hand in hand, he points out, and urban areas have been found to be doing far better at attaining the MDGs than rural areas, particularly in rates of extreme poverty.

“One conclusion is that we should encourage urbanisation – not hinder it or try to slow it down – while another conclusion is we should facilitate mobility, particularly in those countries that have partly urbanised,” Verbeek notes.

“How do we promote urbanisation? … Better urban planning comes first, which will allow government and city officials to be in the driver’s seat, and not be pushed around by private financiers or donors, who often emphasise their own priorities, which are not always aligned with the country or the city.”

Rural-urban divide

At the same time, nearly three-quarters of the global poor continue to live in rural areas. Reflecting a broad consensus, both the bank and fund are clear that efforts need to be increased in coming years to help bridge the rural-urban divide.

“Providing high-quality health and education remains a huge challenge that is vital to reducing poverty wherever it occurs,” Oxfam’s Seery says.

“But for the rural majority of poor people, access to land and investment in smallholder agriculture are also crucial steps towards escaping the poverty trap. The World Bank’s call to end the scourge of extreme poverty is timely and requires tackling these obstacles head on.”

Further, while much of the correlation between development and urbanisation is because service provision is far more efficient when people live closely together, World Bank and IMF officials are clear that poorly planned urbanisation can also have the opposite effect – resulting in slums in which many inhabitants are deprived of both civic amenities and, at times, civil rights.

“Poets wax eloquent about rural settings and rustic life, but … it’s frightfully expensive to provide basic provisions to people in rural areas – ironically, poor countries are least able to serve people living in rural settings, even though most of the people in poor countries live in rural areas,” Kaushik Basu, the World Bank’s chief economist, told reporters Wednesday.

“The urban indicators for most of these targets are superior to the same indicators in the rural sector. At the same time, if you allow for completely unplanned development of the urban areas, what you’ll get is development of the slums, where there will be pockets in which the standard of living will be much worse.”

Basu warns that “unfettered urbanisation is [no] cure-all”. He also emphasises that urban planning is not an area in which market forces alone can deliver acceptable results, stating instead that this process needs “conscious effort” – clearly indicating an area in which the bank sees its technical support increasing in coming years.

Already, experts today estimate that almost a billion people live in slums, nearly two-thirds of which are thought to be in Asia – one of the world’s fastest-urbanising areas.

“To cope with urban growth, a coordinated package of essential infrastructure and services is needed,” the GMR states.

“Only by meeting essential needs related to transportation, housing, water and sanitation as well as education and healthcare can cities avoid becoming hubs of poverty and squalor.”

A confluence of factors could make 2013 the most fruitful opportunity in years – and for years – for potentially major action on climate change, according to a leading voice on climate change policy, the British economist Nicholas Stern.

Nicholas Stern has been credited with having had perhaps the most significant impact on the international public understanding of the threats posed by climate change. Credit: IMF

“This combination of political circumstances in 2013 is as good as it’s likely to get,” Stern said Tuesday in a major address at the International Monetary Fund (IMF) headquarters here, warning that failures of political will had made action on climate change progress occur “far too slowly”.

Still, he cited new or renewed administrations in the United States and China that won’t have to face further elections, alongside strong pledges by leaders in both Washington and Beijing. Stern also noted new commitments by the IMF, World Bank and Organisation for Economic Cooperation and Development (OECD), continued support from European leaders, and important movement among developing countries.

“Look at plans in Ethiopia, Mexico, South Africa – these countries have leaderships taking this issue very seriously,” he said. “So 2013 is the best possible year to try to redouble efforts to create political will that hitherto has been much too weak … [but] we need to do much better at knowing what others are doing and to collaborate.”

Stern, the author of a major 2006 report for the U.K. government on the economic impacts of climate change, has been credited with having had perhaps the most significant impact on the international public understanding of the threats posed by climate change. Yet at the IMF on Tuesday, he warned that his landmark study “badly underestimated” these risks.

Warning that the world now looks on track to raise the global temperature by as much as five to seven degrees Celsius by the end of this century – which he said would result in a “radical transformation” – Stern noted that his previous forecasting “should have been much stronger”.

“Today, emissions are at the top of or even above what we thought about then, while some effects are coming through faster,” he said.

“We didn’t say enough about the interactions of climate ecosystems. Further, regarding those elements missing from the scientific models, we now recognise those are even more important than we thought at the time … a lot of things aren’t in the models simply because scientists don’t fully understand them yet.”

Modelling human welfare

In fact, Stern puts down these underestimates to an inherent inability of the types of models that both scientists and economists still use in forecasting global weather systems changes.

“The failure … is that lasting destruction isn’t a part of these models – they’re ahistorical in terms of economic impact,” Stern, a former U.K. chief economist for the World Bank, said.

“Following the Pakistan floods in 2007, some parts of the country saw development pushed back by 20 years. But if these types of events were to happen, say, every 10 years, the current models don’t allow us to speak about this.”

Stern called for a “new generation” of modelling that can take into consideration the impact of climate change on human lives and human welfare.

“If we had to describe the destructive events of the last century – World War I, World War II, the Holocaust – we wouldn’t do it in terms of aggregate gross domestic product,” he said. “Instead, we have to learn to discuss risk to describe, as well as we can, all dimensions, including loss of life. What would we be ready to pay to reduce this risk?”

Stern was particularly disparaging about three aspects of the current global discussion on climate change. First and foremost, he warned against the common tendency, particularly among policymakers, to view the discussion as one of climate action versus jobs and economic growth.

Second, he noted the danger of decoupling issues of development, mitigation and adaptation to climate change, stating these three always need to be considered “bound up” together.

Third, he pointed out the “acute contradiction” of believing simultaneously that current pricing of oil and gas – widely seen as far too low – can coexist with a goal of keeping the planet’s temperature rise to just 2 degrees Celsius this century.

Single biggest threat

Stern’s appearance at the IMF comes as both the fund and its sister institution, the World Bank, are taking significant new steps into the global climate discussion. He called both lenders “absolutely fundamental to this whole story”.

The economist was introduced on Tuesday by IMF managing director Christine Lagarde, and spoke just hours after World Bank President Jim Kim gave a major address here on the bank’s new climate focus for coming decades.

“It’s not odd or off point for the World Bank and the IMF to be talking about climate change as the single biggest long-term threat to economic growth,” Rachel Kyte, the bank’s vice-president for sustainable development, said Tuesday, speaking alongside Stern.

“If we have a mission that is aimed at speeding up the rate at which we end poverty, building more inclusive societies through shared prosperity, then climate change is the rug that will get pulled out from beneath all of our clients. And it will be pulled unevenly, with the poor and vulnerable suffering the most.”

While many are applauding the new climate focus by both of these institutions, some are expressing concerns about a current lack of policy harmonisation. On Wednesday, 55 civil society organisations from 20 countries sent an open letter to President Kim, urging the World Bank to stop funding fossil fuel projects unless they are specifically aimed at increasing energy access for the very poor.

“Nicholas Stern puts a significant emphasis on getting the price of carbon right, and clearly bank officials do understand this,” Janet Redman, director of the Sustainable Energy and Economy Network at the Institute for Policy Studies, a Washington think tank, told IPS.

“Yet there’s a sense that the poorest of the poor still need dirty fuels to facilitate energy access. In fact, there’s been a lot of work, including by the bank, showing that burning fossil fuels not only doesn’t increase energy access for the poorest of the poor, but actually increases poverty.”

In response, the bank’s Kyte told Bloomberg News Wednesday that her institution’s fossil fuel-related lending last year amounted to around 19 percent of total energy funding, aimed at ensuring that poor countries can deal with everyday needs. She also said that, over the past decade, the bank has doubled its investments in renewables.

A Shell oil refinery in Martinez, California. Credit: cc by 1.0

By Carey L. Biron
WASHINGTON, Mar 27 2013 (IPS)

The International Monetary Fund (IMF) is urging national governments around the world to roll back or eliminate subsidies on petroleum-based energy sources, estimating that this alone could result in a 13-percent decline in global carbon dioxide emissions.

In an unusual new paper marking its full entry into the climate change debate, the Washington-based fund on Wednesday said the cost of “pre-tax” subsidies for these products, when consumers pay less than the cost of supply, stood at about 480 billion dollars in 2011.

Further, the “post-tax” cost of these subsidies – wherein a government doesn’t charge enough to take into account the negative ramifications of energy consumption, including environmental impact – are far higher. Suggesting a figure far higher than previous estimates, the IMF puts this number at around 1.9 trillion dollars, or 2.5 percent of global GDP.

While developing countries and emerging economies account for much of the pre-tax subsidies, IMF researchers have found that developed countries make up some 40 percent of the post-tax total. The United States leads all countries in this regard, at nearly a half trillion dollars in annual subsidies, followed by Russia and China.

The implication is that these countries should be charging consumers far higher for coal, gasoline and other petroleum products, both in order to offset their negative impacts and to give consumers a clearer understanding of the full consequence of their use. Following on previously stated policy, the IMF is also reiterating its support for some sort of carbon tax.

“By boosting energy consumption and thus emissions, subsidies aggravate climate change and worsen local pollution and congestion,” David Lipton, the IMF’s first deputy managing director, said in a major speech here on Wednesday.

“Our estimates indicate that subsidy reform could play a significant role in offsetting climate change … These estimates point to the substantial benefits of using fiscal instruments to achieve climate change objectives. The time has come for subsidy reform and carbon taxation.”

The new estimates on the environmental and other costs of energy subsidies – what the IMF refers to as “externalities” – are far higher than previous such estimates. In part, this is because the IMF is incorporating traffic-related costs, such as from accidents and congestion.

But for the majority of this cost estimate, IMF officials say they are using a fairly conservative figure of 25 dollars per tonne of carbon dioxide, from a widely referenced 2010 study by the United States Interagency Working Group on Social Cost of Carbon. Other estimates for this number have been significantly higher, up to 80 dollars per tonne.

More productive spending

The new paper looks into the environmental impact of energy subsidies, including the distortions that subsidies cause by leading consumers to make decisions without reference to their full impact. But it also outlines several additional ramifications of these practices, particularly in developing countries.

For instance, over decades these subsidies have been found to crowd out investment in energy production, including in renewables. Simultaneously, they constrict state coffers such that governments have less money with which to fund public spending, for instance on education, health or infrastructure.

“In countries across sub-Saharan Africa, governments are spending an average of three percent of GDP on energy subsidies – the same as on public health – so reducing these subsidies would free up space for more productive spending that is much needed,” Roger Nord, a senior advisor in the IMF’s African Department, told reporters Wednesday.

“As elsewhere, energy subsidies in Africa benefit principally those who are already better off. Take electricity – the poor are typically not even connected to the grid; they don’t have air conditioning or SUVs.”

Subsidies have also discouraged much-needed investment in electricity production. Nord notes that the total production in sub-Saharan Africa is lower than that of Spain, while the past three decades have seen no per capita increase in electricity production.

There have been examples of success in this regard. Proponents point to Ghana, for instance, which was able to reduce subsidies and, in turn, to allocate part of those savings to rural electrification. Likewise, when Kenya liberalised its energy sector it was able to double new investments in power generation in just 10 years, a stark contrast with many other African countries.

Fierce politics

At a time of continued concern over mounting debt in capitals throughout the world, the IMF is emphasising the short-term implications that reducing or eliminating energy-related subsidies would have on governments in search of new revenues. And indeed, coupled with the new and increasing concern over global climate change, it would seem as though the push to roll back subsidies would be newly pertinent for many policymakers.

Yet while Wednesday’s paper constitutes the most significant public stance the IMF has taken on this issue, the fund’s research teams have telling governments for years that reducing subsidies would bring in additional revenue – with relatively little change on the ground.

Likewise, as energy costs have increased, other multinational groupings have begun to raise alarms. Most prominently, the Group of 20 (G20) countries have now twice committed to halting “inefficient” energy subsidies over the “medium term”.

Yet according to the new analysis, most countries have seen little progress in following through on this pledge. Certainly this is the case in the world’s largest subsidiser, the United States.

“The United States government has subsidised fossil fuels for the past 100 years,” Doug Koplow, the founder of Earth Track, an energy subsidy watchdog, told IPS.

“We subsidise the extraction, capital formation and clean-up of extraction sites, as well as offer corporate structures that entirely exempt oil and gas companies from corporate taxation. In the last two decades, we have also started significant subsidies for renewable energy. To a great extent, this is all just hardwired into the system.”

Meanwhile, despite widespread understanding that change is needed, significant political inertia on the subject here does not appear to be dissipating.

“Almost every year we get new proposals to reform these subsidies that inevitably get defeated, and I don’t have a lot of confidence that will change in the near future,” Koplow says.

“In some countries – New Zealand is a typical example – severe fiscal crises have indeed allowed governments to deal with all of their energy subsidies at once, and this could happen in the U.S. as well. But the politics on this stuff is fierce.”

Political leaders in Cyprus are working on an alternative proposal to stave off bankruptcy after parliament overwhelmingly rejected an international bailout plan.

Nicos Anastasiades, president of Cyprus, has met party leaders and central bank officials on Wednesday to work out how they can raise billions of euros in funds to stave off bankruptcy.

The president also met representatives of his country’s potential creditors, from the International Monetary Fund, European Central Bank and European Commission. However, no statement was issued on the result of those talks.

The talks come a day after MPs rejected terms set by the EU and IMF to raise money in return for the 13-billion-dollar bailout by seizing up to 10 percent of people’s bank savings, with zero votes in favour, 36 against and 19 abstentions.

Meanwhile, with Russian banks and individuals heavily invested in the island, Cyprus’ finance minister has asked Moscow for help to avert a financial meltdown.

Government spokesman Christos Stylianides said that a meeting had begun at the central bank to discuss a “Plan B” on how the administration could raise funds and reduce the 5.8 billion euros (7.5 billion dollars) that must be found domestically.

Central Bank deputy governor Spyros Stavrinakis said that no decision had been taken on when banks would reopen after they were shut at the weekend.

He said that the new plan being worked on Wednesday had not yet been presented to the EU and IMF.

Russia talks

Michael Sarris, Cyprus’ finance minister, said that he had reached no deal on financing with his Russian counterpart, Anton Siluanov, but talks were continuing.

Cypriot officials disclosed that the country’s energy minister was also in Moscow, ostensibly for a tourism exhibition.

Cyprus has found big gas reserves in its waters near Israel but has yet to develop them.

“We’ll now continue our discussion to find the solution by which we hope we will be getting some support,” Sarris said after initial talks with Siluanov.

ECB support

Austria’s finance minister made clear the European Central Bank (ECB) could soon pull the plug on Cypriot banks after the island’s parliament bailout rebuffal.

Not a single politician voted for the proposed levy that would have taken up to 10 percent from larger accounts, many of which are held by foreigners, while sparing smaller savers with fewer than 20,000 euros in the bank.

It was the first time a national legislature had rejected the conditions for EU assistance, after three years in which politicians in Greece, Ireland, Portugal, Spain and Italy all accepted biting austerity measures to secure aid.

The ECB is keeping the Cypriot banking sector going by allowing the local central bank to extend emergency support.

It said it would end that if there was no bailout deal and it was clear the banks had no hope of becoming solvent again.

For now, the ECB says it will continue allowing banks access to credit. But analysts note that if there is no bailout deal within days, the ECB will have to end it.

*Published under an agreement with Al Jazeera.

More than 130 scholars, former government officials and policymakers are calling on the U.S. Congress to enact pending legislation enabling broad governance reforms within the International Monetary Fund (IMF) that would strengthen the voice of developing countries within the institution.

A new open letter, sent Monday to both houses of Congress, comes as President Barack Obama’s administration has formally requested approval to affirm the reforms. Although officials at the IMF’s Washington headquarters agreed on the changes in 2010, the effort has since been stymied by lack of action from the United States, the Fund’s most powerful member.The legitimacy of the Fund overall is probably the most poignant and relevant issue at stake in this reforms process.

Ironically, it was the United States, together with rising “middle income” economies, that spearheaded the push for a re-allotment of IMF “quotas”, or voting rights based on economic shares, in the first place. Due to Washington’s inability to greenlight the new changes, the process has already blown two deadlines.

“Realignment of IMF quota shares, while preserving U.S. influence in the IMF, will enable the IMF to respond to shifts in the global economy, involving emerging powers more deeply in the institution and avoiding their disengagement,” the open letter, obtained by IPS, states.

“Congressional enactment … will sustain U.S. leadership in global financial matters. Failure to act would diminish the role of the United States in international economic policy-making and undermine U.S. efforts to promote growth and financial stability.”

Those taking part in the new letter include former officials from previous presidential administrations, Washington think tanks, universities, and activist and watchdog organisations.

Last week, a similar letter was sent by 19 former high-ranking U.S. officials, including former World Bank presidents (Robert Zoellick and James Wolfensohn), Treasury secretaries (Henry Paulson, John Snow, Lawrence Summers), foreign policy luminaries (Zbigniew Brzezinski, William Cohen) and others.

Although the president has been delegated the power to oversee U.S. dealings with multilateral lending institutions, Congress still needs to approve any related actions. While President Obama’s administration continues to support the IMF governance changes, it put off broaching the subject until after the presidential elections in November.

Last week, reports arose that the U.S. Treasury, the administration’s lead department on dealing with international financial institutions, had finally proposed a legislative provision that would formally allow the president to approve the reforms. Given that the changes would also double the size of the IMF’s holdings to around 720 billion dollars, the new legislation would also allow for a re-allocation of previously approved U.S. support for the Fund.

This last point is important, as the administration would be able to transfer some 65 billion dollars from an emergency IMF fund into the U.S. quota – maintaining its predominance without allocating any extra money (the United States’ overall commitment to the IMF is around 100 billion dollars). That would be quite a feat in the current economic climate of austerity, with some Republicans opposing giving any new money to the Fund.

“The United States is committed to implementing the 2010 quota and governance reform,” a Treasury spokesperson told IPS. “We are actively working with Congress to get quota legislation completed as soon as possible. As the only country with a veto, implementing the quota reform will enable the U.S. to preserve its leadership in the IMF without any new financial commitments.”

Indeed, while the quota changes would significantly increase the currently underweighted influence of fast-rising economies such as Brazil, China, India and Turkey, it would not do so by cutting down on the United States’ nearly 17 percent voting share within the Fund.

Rather, it would decrease the cumulative share of European members, which nearly all observers say is currently outsized in terms of gross domestic products. The Netherlands and Spain, for instance, both have voting shares similar in size to Brazil’s, despite the fact that the Spanish economy is less than two-thirds the size of the Brazilian.

Pending legitimacy

The hold-up in reforms passage is widely seen, including by many signatories of the new letter, as a potential loss of legitimacy both for the IMF and for the United States’ longstanding control of the organisation. Increasingly frustrated “middle income” countries, for instance, are already in discussions on how to create parallel multilateral lending institutions outside of the IMF – in which their voices would be far more influential.

“The United States took the initiative on these reforms in order to sustain U.S. leadership in the IMF, and many now feel that Washington needs to see through those commitments – U.S. leadership will weaken if doesn’t pass these reforms,” Nathan Coplin, a coordinator with New Rules for Global Finance, a Washington watchdog, and an organiser of the new letter, told IPS.

“The legitimacy of the Fund overall is probably the most poignant and relevant issue at stake in this reforms process. The next few years will really tell whether the stakeholders will become a lot more engaged and help to set new standards. Beyond lending, the Fund can also start to define a different kind of leadership role.”

Still, for many who have been pushing for changes to the IMF’s functioning, the most important aspect of this governance tweaking is that it would open the door to further modifications.

“We actually feel that these reforms are not comprehensive enough, but the Fund also won’t be able to push forward with any new reforms until these go through,” Coplin says. Indeed, another round of changes is already due by January.

“The quota reforms of 2010 are steps, baby steps, in the right direction for better IMF governance,” Eric LeCompte, executive director of Jubilee USA Network, a Washington-based alliance working on debt reduction for developing countries, told IPS. “The IMF has a long road to walk before it is as inclusive as the United Nations, but these reforms point in the right direction.”

The new U.S. legislation has already run into trouble, however. Members of Congress are currently at work on a major finance bill that needs to pass before Mar. 27, in which the Treasury’s proposal could be inserted.

Yet Republicans in the House of Representatives – many of whom, in 2010, tried to end U.S. contributions to the IMF – have refused to include the provision. It now remains to be seen whether the Democratic-controlled Senate will include the IMF language in its version, which observers say would significantly increase the proposal’s chance of passage this month.

If the provision is not included in the end-March legislation, the reforms process could again be forced into limbo for several additional months.

The International Monetary Fund (IMF) has announced that it will miss an internal deadline to agree on a new formula by which to apportion voting rights in the 188-member institution.

According to a report by the Fund’s Washington-based executive board made public on Thursday, discussions over the past year “have provided important building blocks for agreement on a revised quota formula that better reflects members’ relative positions in the global economy.” But a deadline to agree to a new formula by this month has now passed.

The announcement marks a potentially significant stumbling block in a two-year campaign to increase the voice of emerging economies, rebalance the institution’s governance structures to take into account a new global economic order, and re-establish a level of legitimacy that many observers say the Fund has lost in recent years.

The results of those two years of work have been “meagre”, Paulo Nogueira Batista, IMF executive director for Brazil and 10 other countries, said Thursday in a statement sent to IPS.

“Since 2011, IMF reform has practically ground to a halt,” Batista warned, speaking in his own capacity. “Now, we have an attempt to paper over the fact that the review of the quota formula has not been completed either. The IMF is approaching what we could call a ‘credibility cliff’.”

He places particular blame for the hold-up in the reforms process on European members of the Fund, noting in addition that “the fundamental problem in IMF governance is the glaring overrepresentation of Europe.”

Emerging economies are calling on the Fund to rework its voting shares to be based more on gross domestic product (GDP) and less on a vague notion of an economy’s “openness”, as pushed by Europe.

The European Union’s share of GDP is around 20 percent “and falling”, Batista notes, even though EU members continue to hold nearly a third of total voting shares. More specifically, he points out that under the current formula, the Netherlands and Spain, for instance, both have voting shares similar in size to Brazil’s, despite the fact that the Spanish economy is less than two-thirds the size of the Brazilian.

“We are disappointed that an agreement on the quota formula has not yet been reached,” Amar Bhattacharya, director of the Group of 24 (G24) bloc of developing countries, told IPS from the group’s Washington secretariat.

“The reform formula must reflect changes that are taking place in the global economy. It must be equitable in that it enhances the voices of emerging markets and especially of the poor, and that it should not produce the kind of outcome as in the past where a significant part of the adjustment came on the back of other emerging countries.”

Bhattacharya suggests that the current deadline is far less important than the final cut-off date for putting the new formula into effect, in January 2014. Still, he stresses that the failure to reach agreement by this month underlines that much work – both technical and political – remains to be done in proving that the IMF remains a relevant institution.

“Quota and governance reform is certainly central to the effectiveness, legitimacy and credibility of the IMF, and this quota issue has become a litmus test as to whether the Fund can adapt its governance structure to the new economic world,” Bhattacharya said.

“The important thing for all of us is to strive to achieve a goal that ensures that the Fund is a truly multilateral institution of the 21st century.”

Politicisation potential

Still, breaking the recent deadline – which had already been pushed off once – could have lasting consequences. Although around 75 percent of the IMF’s member countries have agreed to a new quota formula (out of 85 percent required for passage), some of those votes may now need to go back before national legislatures to get new approval.

That process could delay the agenda by six months or more, warns Bessma Momani, an associate professor of political science at the University of Waterloo, in Canada, and a senior fellow with the Centre for International Governance Innovation (CIGI), a think tank.

“We won’t be completely starting from scratch, but this means that the political bargaining that had to happen as precursor may now have to be renegotiated, and that means setting back the schedule quite a bit,” Momani told IPS.

Of particular interest over coming months will be whether there is any movement on the issue in the U.S. Congress. While the administration of President Barack Obama is widely seen as supporting the IMF reforms process, the president had not wanted to risk raising the issue in the midst of the tight election campaign that ended with his re-election in November.

As such, the United States, which has nearly 17 percent of IMF voting shares, has not formally approved the quota reforms. If it had, the Fund’s 85 percent requirement for approval would likely have been easily met and the governance changes would now be pending policy.

“Ultimately, of course, this comes down to different Congressional interests. But the problem is that the longer the IMF is in the media, particularly over the troubles in Europe, the more difficult it will be for many members of Congress,” Momani says.

“So, if we were now at the point we were a year ago, where few constituents had much interest in talking about the IMF, this provision could have passed more quietly. But every day the issue of the IMF generally is in the news, the more potential there is for politicisation.”

Still, she suggests that over the past two decade the IMF has indeed been changing, and that this process is potentially being stepped up today.

“Reform is the only way forward to reinstate the legitimacy the Fund has lost over the years, and quota reform is actually only a small measure. But with the IMF we have to recognise that it is reforming, it’s on that path – it’s slow, because institutional change will always be slow,” Momani says.

“At the end of the day, it’s not just about leadership and quotas but about the content of policies themselves, and the Fund is becoming more open to accepting unorthodox ideas. In particular, the more it listens to the experiences of people, to ensure it’s not just promoting textbook policies but rather programmes that can work in each individual country, the better.”

Protestors at a Jan. 17 rally sing songs against Malawi’s president, Joyce Banda. Credit: Mabvuto Banda/IPS

By Mabvuto Banda
LILONGWE, Jan 22 2013 (IPS)

She has taken a personal pay cut, promised reforms, resumed aid flows from Western donors and put her predecessor’s private jet up for sale.

Malawi’s president Joyce Banda seems to be making all the right moves to win over the hearts and minds of this impoverished southern African nation’s roughly 14 million people.

With over 65 percent of the population living below the poverty line, 1.4 million children involved in child labour and 74 percent of the country scratching out a living on less than 1.25 dollars a day, Malawi is desperate for change, and Banda has been the face of it for nearly a year.

Riding on a groundswell of popular support, the president came into office in April 2012 after the sudden death of her mercurial predecessor, Bingu wa Mutharika; but that popularity is eroding fast as she implements painful austerity policies to fix a sputtering economy.

The aid-dependent country teetered under the late Mutharika, whose squabbles with international donors led to a freeze in major assistance packages amounting to about 500 million dollars.

The cut in aid, which has traditionally accounted for 40 percent of the country’s budget, coincided with a steady decline in tobacco sales, Malawi’s main export earner, which have gone down by more than 50 percent since 2010.

In fact, experts here say that the high-level visit early this month by IMF Chief Christine Lagarde may have done more harm than good for Banda’s waning popularity.

Already the president has capitulated to unpopular reforms demanded by the IMF and other Western donors on whom Malawi is heavily dependent, such as devaluing the currency by 49 percent, increasing petroleum prices three times in her presidency and cutting off subsidies by moving to an automatic fuel price adjustment mechanism.

These reforms have had devastating domino effects on the country’s poor, affecting people like Shadreck Kumwembe, a primary school teacher who earns less than a dollar a day.

“My real income has halved in the last few months because of the devaluation, and yet food prices have been going up — I can’t afford to pay for everything,” Kumwembe, who also disclosed that he has not received his salary from the government in the last three months, told IPS.

Commodity prices have soared and pushed inflation to 33.3 percent in December – far higher than the government’s forecast of around 18 percent for 2012.

The latest data from the Centre for Social Concern, a local research institution focusing on the cost of living in urban Malawi, showed that since Banda took over, a family of six now needs an average of 200 dollars per month to meet basic food demands – bad news in a country where the minimum monthly wage is about 20 dollars.

On Jan. 17, just a few days after Lagarde’s visit, thousands of Malawians took to the streets peacefully in all three major cities of the country for the first large-scale protests under Banda, against what they described as “the IMF’s wrong economic prescriptions”.

“I blame IMF policies for all these high prices and job losses we are experiencing. Lagarde’s insistence that Malawi continues on this path underlines how out of touch the IMF is with reality,” said James Chivunde, a civil servant who joined the protests last week.

“Late President Mutharika refused to listen to them (IMF) to devalue the kwacha (the local currency) because he knew exactly how that was going to impact us,” Lloyd Phiri, another protestor, told IPS.

According to John Kapito, head of the watchdog known as the Consumers Association of Malawi, Banda has “transferred power” to the IMF and the World Bank.

“Like many leaders of poor countries, the problem with Joyce Banda is that she doesn’t think on her own. She is listening to everything that the IMF and the World Bank are telling her. She (agreed) to devalue the kwacha, agreed to remove subsidies on fuel without considering the impact of these decisions on the poor,” said Kapito, who helped organise the latest demonstrations.

Meanwhile, the IMF is adamant that the only way out of the cycle of poverty is for Malawi to continue to abide by the Fund’s prescriptions.

“There have been huge efforts undertaken by the Malawian government and the Malawi population and it is really important to stay the course,” Lagarde said during a press conference held in the capital Lilongwe on Jan. 5.

She assured that the country is at a tipping point, that soon inflation will start dropping and prompt the Reserve Bank of Malawi (RBM) to revisit the base lending rate.

“Investors will return and we are confident that growth will resume,” she added.

Some local economic experts are inclined to agree with these sentiments.

“There will be no quick fixes, but any U-turn from the current course will be disastrous,” said Ben Kalua, professor of economics at Chancellor College, part of the University of Malawi.

“What is needed is a credible and consistent policy aimed at making economic growth more inclusive by ensuring the development and protection of social safety nets and expanding access to financial services so that everybody, including the poor, has access to credit,” he said.

Executive director of the Malawi Economic Justice Network, Dalitso Kubalasa, also backed the IMF and blamed the late Mutharika for delaying implementation of economic reforms.

“We are now paying the cost of the previous administration’s (policies) but we have to stay the course to (solve) the economic problems,” Kubalasa told IPS.

While admitting that the government underestimated the impact of austerity policies on the masses, Finance Minister Ken Lipenga stressed that donor support is enabling the government to implement a fiscal budget that provides adequate resources for the delivery of social services and to increase resources allocated for cushioning the most vulnerable.

“We have introduced food for work programmes aimed at assisting the poorest in our communities to cope with the unintended effects of the reforms,” Lipenga told IPS.

But Banda’s waning popularity may affect successful implementation of the reforms as she prepares for an election next year. Her biggest test will come when the parliament convenes in February, when she will be forced to reckon with the fact that many members of her governing party are losing faith in her leadership.

(END)

The International Monetary Fund (IMF)’s internal auditor has criticised the Fund’s recent policy on foreign currency reserves, and has offered an implicit warning that the United States’ outsized influence within the institution has resulted in policy that was insufficiently evidence-based.

The findings, which were publicised in an unusually narrow report on Wednesday but follow months of discussion, are seen as a victory for a bloc of “middle income” developing countries, particularly China, that have advocated hoarding larger stockpiles of foreign currency as insurance against the effects of the international financial crisis.

Starting in 2009, the IMF began advising governments around the world not to depend too greatly on such reserves, anxious over the potential impact on the global economy. The Washington-based Fund offers yearly inspections on – and in certain cases nearly oversees – economies around the world, and remains one of the most powerful forces in defining the functioning of the international financial system.

That system has been upended in the aftermath of the 2008-09 financial meltdown, however, and some key IMF tenets have increasingly been called into question, particularly by fast-rising economies such as Brazil, China, India and others. The IMF itself has realised that the Fund now needs to offer advice on finance rather than just macroeconomic policy, a new focus for which it is still strengthening its capacity.

Now, auditors with the Independent Evaluation Office (IEO) of the IMF have suggested that the Fund’s spotlight on reserves was “not helpful”, criticising its economists for focusing on symptoms rather than on underlying causes of financial instability.

Around the world, the analysts point out, foreign reserves amount to only around 10 trillion dollars – a large amount, thought not when compared to, for instance, the 105 trillion dollars in the banking system or the 117 trillion dollars in the fund management industry.

Plus, the governments and central banks that hold these reserves are relatively more interested in maintaining the stability of the international monetary system than are private-sector interests, seemingly further decreasing the potential for reserves to upset the global financial equilibrium.

Many officials, the report states, feel that IMF advice would have been better served by focusing instead on “other developments … that they considered to be of more pressing concern than reserves”.

U.S.-China factor

The IEO investigators hint that the IMF may have chosen to follow such a policy approach for less than apolitical reasons.

“The evaluation found a broadly held view that (the IMF management’s) emphasis on excessive reserve accumulation was a response to frustration among some member countries with the IMF’s inability to achieve exchange rate adjustments in Asian countries with persistently large current account surpluses,” the audit states.

This has struck many as a direct reference to longstanding frustrations voiced by the IMF’s single largest shareholder, the United States, about a chief economic rival, China.

“When the IMF talks about imbalances, that’s generally code for China and the United States,” Jo Marie Griesgraber, executive director of New Rules for Global Finance, a Washington-based international network, told IPS.

“While the United States is desperately trying to jumpstart its economy, policymakers are holding interest rates low, but this is trashing other countries’ attempts to hold down the appreciation of their own currencies. Brazil is perhaps the most prominent example in this regard.”

Brazil has been at the forefront in pushing up its foreign reserves, continuing to increase this cushion as the world economy has continued to roil.

While Griesgraber suggests that powerful countries such as China and Brazil will increasingly get away with flouting IMF diktat, she warns that smaller countries continue to get squeezed by overlapping responsibilities imposed by the World Trade Organisation and various bilateral treaties – responsibilities often, and still, demanded by Washington.

Meanwhile, with the largest trove of international reserves in the world, estimated at some three trillion dollars, China is given special attention in the IEO report. Washington has long accused Beijing of holding down the yuan’s exchange rate in order to keep exports cheaper. (Significant reserves can be one result of an artificially low exchange rate.)

The exchange-rate issue even became a central point during the recent presidential election here, with President Barack Obama’s Republican opponent, Mitt Romney, pledging that he would formally declare China a “currency manipulator” on his first day in office.

And while many analysts have suggested that Beijing’s currency manipulation isn’t really much of a factor anymore, the 2012 presidential election saw both candidates trying to take a harder line on the issue.

Costly self-insurance

IMF managers, meanwhile, have rejected several of the audit’s findings, warning that the IEO investigators have understated the potential disturbances caused by excessive reserves and have misconstrued the breadth of the Fund’s response in dealing with the global economic downturn.

While IMF staff did not respond specifically to any broader accusation of politicisation, others have urged caution in this regard.

“Reserves have multiple purposes,” Dev Kar, lead economist with Global Financial Integrity, a Washington-based watchdog, and a former senior economist at the IMF, told IPS in an e-mail. “While a large accumulation serves the insurance purpose … such an accumulation can impose a cost on other countries (for example, inhibiting corrective action on the exchange rate).”

He continued: “So research cannot be seen as kowtowing before any country’s economic or political agenda. The facts are what they are. The interpretation lies in the eyes of the beholder.”

On the other hand, Griesgraber emphasises that the fact that countries are feeling the urge to build up the cushion of significant reserves in the first place underscores a broader problem facing the IMF, which was originally created to offer just this type of insurance for economies facing uncertainty.

“If the IMF is not fulfilling the purpose for which it’s designed, it makes sense to have some form of self-insurance,” she says. “At the same time, we can’t forget that this has a high opportunity cost for many countries, which are forced to use their own money for interest payments rather than using it to build roads, strengthen health systems, and other social expenditures.”

Economists and development experts are applauding a new policy by the International Monetary Fund supporting government attempts to control the cross-border flow of money, a major ideological shift for the institution.

Still, certain critics, including voices within the IMF itself, are warning that the change does not go far enough.

A major new “institutional view” released publicly this week, the result of three years of rethinking, admits that “capital flows … carry risks, which can be magnified by gaps in countries’ financial and institutional infrastructure”. It also notes that those risks, related more broadly to economic liberalisation of the type pushed by the IMF, are particularly present for countries that have not “reached certain levels … of financial and institutional development”.

In this, the Washington-based IMF has formally begun coming to terms with the fact that full market liberalisation will not always promote economic growth, and in fact can prove disastrous in certain situations.

Fragile economies can be injured by both sudden influxes and sudden outflows of money – the “bubbles” that have been repeatedly discussed in recent years. Hence, the desire by many economists and government officials to institute certain restrictions on those capital flows.

These can include a spectrum of tools, such as certain types of taxes, limits on how much of a national asset can be sold internationally, or requirements on how long foreign investments need to stay in a country.

For years, however, the IMF has held a rigid line, demanding, uniformly, that such controls only be used as tools of “last resort”, essentially pushing for markets to regulate themselves. In this, the Fund was backed particularly by the U.S., which has some of the most open markets in the world – and is home to some of the most active international companies.

Such an approach was firmly in line with the so-called Washington Consensus that has defined the global financial framework for the past half-century. As yet, U.S. treaties, as under the World Trade Organisation, still routinely demand rolling back capital controls.

But institutional thinking on the issue has been changing for more than a decade now, instigated particularly by the meltdown of several Asian economies during the late 1990s. The current international economic crisis, which has little spared those countries that have followed IMF diktat, has now motivated the Fund to crystallise this new institutional approach.

Following recent IMF board approval, Fund officials will now be able to suggest to countries that they put reins on their processes of economic liberalisation. For those countries with pre-existing IMF agreements that would prohibit such actions, the Fund is suggesting renegotiating these treaties.

“The financial crisis highlighted the risks of capital flows, especially in environments where financial regulation and supervision had not kept pace with the ability to manage the risks of large capital flows,” Vivek Arora, assistant director in the Fund’s strategy, policy, and review department, told journalists from the IMF headquarters in Washington.

“While previously we thought of the risks of capital flows being largely associated with countries that were newly liberalising, it became clear, from the financial crisis, that even countries that have long benefitted from capital flows, which are quite sophisticated at managing them, can also be vulnerable to financial risks.”

Pro-liberalisation bias

Still, the new “institutional view” does not move nearly as far as some would like, with IMF policy continuing to emphasise that capital controls should be “generally temporary”.

According to an analysis e-mailed to IPS by Bhumika Muchhala, coordinator of the Finance Development Programme with the Third World Network, there have been significant disagreements between some developing countries and the United States, European Union and others, resulting in repeated rescheduling of votes on the new policy.

“Brazil and India were both opposed to the paper, while other developing countries, including China, accepted the final compromise,” Muchhala writes. “It’s noteworthy that the media spin is on the Fund ‘dropping opposition’ to capital controls, (which is) definitely a platform for civil society to keep dismantling anti-regulation ideology.”

The IMF executive director for Brazil and 10 other countries, Paulo Nogueira Batista, Jr., has been outspoken in his criticism of the new policy, warning that although the new paper shows “some progress”, it still “suffers from a lack of balance”.

“The IMF is eager to adopt a prescriptive approach and to advise countries on how to liberalize and manage capital flows. However, the institution’s track-record in this area is far from stellar,” Batista warns in an e-mailed statement, speaking in his own capacity.

“Many studies do not find a positive relationship between capital account liberalization and economic growth. This is not completely reflected in the Fund’s ‘institutional view’. The prominence given to capital flow liberalization is symptomatic of the pro-liberalization bias that still prevails in the IMF.”

Batista says that, instead, the IMF should now be in a “learning mode … listening more to policy makers and financial sector practitioners who are often better placed to understand capital flows.”

Washington Consensus lives

The IMF represents only the tip of an ideological movement that has been ascendant for decades.

“For 30 years, students of economics who meant well were taught only free market ideology, while countervailing perspectives were trashed,” Rick Rowden, a development consultant currently based in Delhi, told IPS. “It would be interesting to see whether the free market think tanks, university departments and corporate media have also now reconsidered their positions, as the IMF has done.”

While Rowden, too, welcomes the new IMF positioning, he cautions against thinking that any major ideological shift is underway at the Fund.

“Arguably more important is to ask if the IMF will similarly relent on its manic obsession with keeping inflation extremely low in developing countries,” he says.

“Is the IMF now also suddenly in favour of trade protection and subsidy support for building domestic industries? Are they suggesting developing countries actually should ‘discriminate’ and against foreign investors and tilting the playing field in favour of building up domestic firms? I think not.”

He continues: “While the IMF’s about-face on capital controls is promising, the oft-cited pronouncements of the death of the Washington Consensus are quite premature.”

There are numerous reasons to believe that the forces that have been driving growth in developing and emerging economies since 2009 cannot be sustained over the medium term. At the same time, it is impossible to return to the extremely favourable international economic conditions that prevailed before the eruption of the global crisis.

Yilmaz Akyuz

This means that unless there are fundamental changes in the way these countries are integrated into the world economy, the stunning recent ascent of the South may prove to be a passing phenomenon, and the speed of its convergence with the income levels of advanced economies may slow considerably in the coming years.

Developing countries face two interrelated challenges, which demand a rethinking of their strategies:

In the immediate future, they face the risk of a significant drop in their growth rates, which could be quite severe if the European recession deepens, bringing down the U.S.

Second, in the medium term they cannot go back to the kind of growth they enjoyed during the subprime expansion even if the advanced countries succeed in recovering fully and settling on a rigorous and stable growth path.

Developing countries now have a narrower policy space for a countercyclical response to deflationary and destabilising impulses than they had after the Lehman collapse in September 2008.

In the past few years, fiscal and external imbalances have widened significantly in many emerging economies. Despite this, they need to deploy all possible means to prevent a sharp slowdown of economic activity and a hike in unemployment.

In the aftermath of last week’s elections to the International Monetary Fund (IMF)’s executive board, Brazil and others are expressing frustration that a reforms process aimed at increasing the representation of developing countries is being stymied by European countries.

IMF chief Christine Lagarde has urged members to act on a suite of reform measures that would significantly increase the voices of developing countries, with mixed results. Credit: MEDEF/cc by 2.0

“There was some movement, but in my opinion this so-called reduction in the number of European chairs has petered out into a reshuffling that is largely cosmetic in nature,” Paulo Nogueira Batista, the IMF executive director for Brazil and several other Latin American and Caribbean countries, told IPS. “The Europeans have cleverly upgraded the representation of the emerging markets of the E.U., such as Turkey and Poland.”

The IMF’s executive board, based at the institution’s Washington headquarters, consists of 24 members, most of which represent shifting constituencies of the Fund’s 188 members. In 2010, a package of reforms was agreed to, aimed at rectifying longstanding concerns over the IMF’s governance imbalance.

While these reforms were meant to be finalised during the annual meetings of the IMF and World Bank, held Oct. 9-13 in Tokyo, and implemented this coming January, both deadlines now look set to be missed as the United States focuses on its presidential election and IMF members are deadlocked on key issues.

Part of this reforms package includes changes in who sits on the executive board, with the Europeans agreeing to give up two seats in order to increase the representation of developing countries. That process has now led to an unusually large amount of movement on which countries will align with which constituencies – the most significant changes in this regard since the early 1990s.

The second part of the reforms process has to do with voting rights, based on “quotas” arrived at through a contentious and complex formula that has favoured developed economies. Calls have mounted for the system to change, particularly to take into account a changed global economic situation in which so-called middle income countries (particularly the BRICS, referring to Brazil, Russia, India, China and South Africa) are increasingly crucial players.

Batista says that reforms of the quotas formula constituted the single most controversial topic discussed in Tokyo. Countries including the United States, Brazil and most of the BRICS want the formula to be based on gross domestic product, while the Europeans stress the issue of economic “openness”, which would specifically favour EU economies.

“The Europeans use a highly unusual definition for ‘openness’ – a definition so strange that I have proposed we rename this ‘Europeanness’,” Batista said, speaking not in his official capacity. “The main role seems to be to artificially inflate the quotas of European countries.”

In recent days, Batista, already one of the more outspoken of the IMF executive directors, has been openly critical of the European bloc at the Fund.

“What we’ve seen in Tokyo is that, unfortunately, some Europeans are backtracking on their pledges to quota review,” he told IPS shortly after arriving back to Washington from Tokyo. “This is a major concern, as the credibility of the Fund, of the G20 and of the individual countries is predicated on the faithful implementation of what they sign up to in the communiqués – and we’re not going to take this lightly.”

Post-crisis model

Over the past year, Brazil has played an increasingly central role in enunciating the demands of developing countries, a push that has been particularly embodied by the IMF reforms process.

“Brazil has been wonderful in that they have outright threatened not to turn over certain financial commitments to the IMF until the quota reforms move forward – not only regarding the 2010 agreements, but surrounding the 2013 deadline as well,” Jo Marie Griesgraber, the executive director of the New Rules for Global Finance Coalition, a Washington-based international network, told IPS.

“The Brazilians have been very forthright in this process – putting out notes on ridiculous anomalies, presenting these to the board and then, very unusually, making them public afterwards.”

Now the world’s sixth largest economy – larger than that of the U.K. – Brazil has in recent years been making a concerted effort to step up its bilateral relations throughout much of the Global South, particularly in Africa. Under former president Luiz Inacio Lula da Silva, the country opened more than a dozen new embassies across Africa, with the 37th reportedly opening soon, in Malawi.

Brazilian officials have increasingly focused on foreign aid funding, which a 2010 tabulation suggested was already reaching four billion dollars a year across all parts of the government, and growing rapidly. That’s a significant turnaround for a country that for decades was a net aid recipient.

More importantly, Brazilian aid has become characterised by a uniquely forceful emphasis on South-South technical assistance, particularly focused on agriculture and social issues. This is an approach that could increase substantially given new projects now in the works.

Today, Brazil is at the centre of a global push to define a new development paradigm, which has only received greater momentum – and focus – in the aftermath of the global economic crisis.

“What’s at stake here is not just about IMF voting share. Since the crisis, the previously preferred models, the so-called Washington Consensus, have been called into question,” Gregory Chin, a senior fellow with the Centre for International Governance Innovation, in Waterloo, Canada, told IPS.

“The BRICS countries are advocating a different understanding of best practices on national development, and the Brazilians have been the leading diplomatic force in pushing these changes.”

Such models, including what is known as countercyclical financing, directly contradict the approaches long pushed by institutions such as the IMF and the U.S. Treasury. Yet with several of the emerging economies having weathered the financial crisis better than anticipated, Chin says that such models are now gaining greater attention in the Washington headquarters of the IMF, the World Bank and beyond.

Beyond the BRICS

Even as Brazil and others work to strengthen the reforms process within the IMF, Chin points to the broader parallel effort to set up a BRICS-funded development bank.

“That is, they have one foot outside of the system versus one foot inside,” Chin says. “They’ve made sure to create for themselves this alternative track, because they’ve seen how slow things are happening in the IMF.”

Analysts are now looking to the next BRICS summit, to be held in Durban, South Africa, in March, with the South African hosts reportedly pushing hard for agreement on a major announcement on a BRICS development bank. Many are also weighing whether such an institution would be able to move beyond a BRICS-only institution to work throughout the developing world – potentially falling in line with Brazil’s focus on South-South cooperation.

“Brazil is trying to increase its role in the IMF and other international organisations and G20, and I think this is happening – all of the BRICS countries are raising their involvement in these institutions in the hope that these institutions will change fundamentally,” IMF executive director Batista says.

“Hopefully, the IMF will eventually no longer be a ‘North Atlantic monetary fund’, dominated by the North Atlantic. Although we are running up against a lot of institutional inertia, the IMF and other international fora must become truly international if they want to be relevant in today’s world economy.”