Frank McCourt, founder of Project Liberty, speaking with Foreign Policy CEO Andrew Sollinger at the Geoeconomics Forum. Credit: IPS

By Umar Manzoor Shah
SRINAGAR, India, Apr 17 2026 (IPS)

As war in the Middle East ripples through global markets, policymakers, economists, and industry leaders gathered in Washington this week to agree that economics is no longer separate from geopolitics. It is now its core instrument.

At the Geoeconomics Forum hosted by Foreign Policy alongside the Spring Meetings of the International Monetary Fund and World Bank, speakers repeatedly pointed to a world shaped by shocks, where supply chains, energy flows, and technology have become tools of power.

“Geoeconomics is no longer a backdrop to global politics. It is the key and critical element,” said Foreign Policy CEO Andrew Sollinger in his opening remarks.

The urgency of that shift is tied closely to the ongoing conflict in the Gulf, which has disrupted energy markets and exposed vulnerabilities in global trade systems. The war has made the world understand how quickly regional crises can cascade into worldwide economic instability, affecting everything from fuel prices to industrial production.

Participants at the forum described a transformed global order where governments increasingly deploy economic tools once considered neutral or technical.

Trade policy, capital flows, and supply chains now serve strategic goals. Critical minerals, essential for semiconductors and artificial intelligence systems, have become geopolitical leverage points. Energy routes such as the Strait of Hormuz have turned into potential choke points with global consequences instead of just transit corridors.

“Geopolitics and economics have always been linked. We are going back to a school of thought that sees them as inextricable,” Jacob Helberg, U.S. Under Secretary for Economic Affairs, said in his address.

Helberg pointed to growing competition over rare earth minerals, where China dominates processing and has begun using export controls as a strategic tool. At the same time, logistics corridors and manufacturing hubs have emerged as additional pressure points in the global system.

“The stack is totally interlinked,” he said, referring to the chain from raw materials to finished technology. “There are choke points at every layer.”

The forum repeatedly returned to a central theme: fragmentation.

Countries are adapting to a “shock-prone” world marked by conflict, pandemics, and financial instability. This has led to a shift away from global integration toward more regional and strategic economic blocs.

Middle powers, in particular, face difficult choices. As competition intensifies between the United States and China, many nations are weighing how to align their economic and technological futures.

Dr Pedro Abramovay, Vice President, Programs, Open Society Foundations, argued that the moment offers both risk and opportunity for these countries.

“We need to make sure that middle powers act as middle powers and not just middlemen,” he said, stressing that democracy can shape their role in a changing order.

Abramovay said the current moment has exposed long-standing imbalances in the global system.

“It unveils the reality that existed before,” he said, referring to earlier global arrangements that often did not serve the interests of the Global South.

He noted that domestic political pressure is now reshaping how countries engage globally. Leaders can no longer align externally without responding to internal constituencies.

“That internal pressure can empower those middle powers to assert their sovereignty and negotiate effectively,” Abramovay said.

The forum highlighted growing calls for a reworked international order grounded in sovereignty and public interest rather than narrow economic gain.

“We need to have clear clarity of agenda. We need to have commitment of those leaders expressing that they are there, not representing big corporations or, again, interests and organisations that speak for themselves, but exactly speaking in the name and representing the majority of the world,” Abramovay added.

Frank McCourt, founder of Project Liberty, warned against framing the future as a binary choice between U.S. private-sector dominance and Chinese state-led models.

“This is a false dichotomy,” he said, arguing for a third path that aligns technology with democratic values.

He highlighted growing unease among countries that feel caught between competing systems, noting that many are exploring alternative frameworks for digital governance and economic cooperation.

Human Impact Behind the Strategy
While much of the discussion focused on high-level strategy, speakers acknowledged the human consequences of geoeconomic shifts.

Energy shocks translate into higher costs for households. Supply chain disruptions affect jobs and access to goods. Decisions made in boardrooms and ministries ripple outward to communities worldwide.

“The best-laid plans can be interrupted by unforeseen circumstances. You have to pivot, adapt, and build better,” Sollinger said.

That message echoed throughout the event.

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View of a demonstration by social organizations in a Buenos Aires square in July. The scene occurs almost every day in the capital of Argentina, a country where poverty has held steady at around 40 percent of the population since before the COVID-19 pandemic. The possibility of a social uprising is one of the fears in the face of the deepening socioeconomic crisis. CREDIT: Daniel Gutman/IPS

By Daniel Gutman
BUENOS AIRES, Jul 27 2022 (IPS)

Darío is a locksmith in Flores, a traditional middle-class neighborhood in the Argentine capital, who will have to stop working in the next few days. “Suppliers have suspended the delivery of locks, due to a lack of merchandise or because of prices,” he laments. His case is an illustration of an economy gone mad in a country that once again finds itself on the brink of the abyss.

The problems that have been dragging on in this South American country, where the vast majority of the population has become poorer over the last four years and social unrest is on the rise, exploded this month with an exchange and financial crisis that created enormous uncertainty about what lies ahead.

The Central Bank ran out of dollars, and imports, which in large part are a source of inputs for domestic production, were restricted to the maximum. The result is fear, speculation, increased social unrest and out-of-control inflation, which is causing price references to be lost and some companies and businesses are hedging their bets with preventive increases, or they even decide not to sell.

Today, in the streets and in the media, the questions raised are whether the country is on the eve of a social outbreak and whether President Alberto Fernández, so politically isolated that he is questioned by his own government coalition, will reach the end of his term in December 2023.

At that time, Argentina will be celebrating 40 years of democracy, marked by a succession of economic crises that have left an aftermath of growing inequality and have caused distrust to spread easily in society at the first signs that things are not going well.

The crisis deepened at the beginning of the month, when the Jul. 2 resignation of then Economy Minister Martín Guzmán triggered a 50 percent drop in the parallel exchange rate — known locally as the dollar blue — the only one that can be freely acquired in a country with exchange controls, and this, in turn, further fuelled inflation, which in 2021 stood at 50 percent and this year is already expected to end above 90 percent.

“There has been a series of imbalances in Argentina’s macroeconomy for years, which means that today the government does not have the tools to deal with exchange rate and financial pressures,” Sergio Chouza, an economist who teaches at the public University of Buenos Aires (UBA), told IPS.

“In this country the value of the dollar dominates expectations about prices and as a result it is increasingly difficult to avoid a ‘spiral’ of inflation. At the same time, government bonds have collapsed and are already yielding less than those of Ukraine,” he adds.

Chouza says that the COVID-19 pandemic was one of the major contributing factors in triggering a situation that seems to have gotten out of control.

“There was an expansion of public spending, as in most of the world. But the problem is that while most countries financed it with credit, Argentina could not do so because it was already over-indebted,” the expert explains.

Homeless people who survive by picking through garbage in Buenos Aires sleep on the corner of a central street in Argentina’s capital. In 2021 the country experienced an economic recovery after the first year of the pandemic, but a rise in inflation in 2022 has aggravated the crisis once again. CREDIT: Daniel Gutman/IPS

Social protests

The square in front of the Palacio de Tribunales, in the heart of downtown Buenos Aires, is overflowing with people. The youngest protesters hold banners from social movements from poor outlying neighborhoods, but there are also entire families with small children in their arms. Traffic in the surrounding area is completely cut off as the columns of marchers continue to pour in.

It is a Thursday in July, but this is an image that can be seen practically every day in the Argentine capital, where the most vulnerable social sectors are staging a series of protests because, in the midst of the crisis, the government has suspended the expansion of the Potenciar Trabajo program.

This is the name of the National Program for Socio-productive Inclusion and Local Development, which offers a stipend from the government in exchange for four hours of work in social enterprises, such as soup kitchens or urban waste recyclers’ cooperatives.

“In our neighborhoods things have been very hard for many years, but now it’s getting worse because we can no longer afford to put food on the table,” Fernando, who preferred not to give his last name, told IPS. He is a young man from Laferrere, one of the poorest localities on the outskirts of Buenos Aires, who was a waiter in a bar before becoming unemployed in 2021. Today he does occasional construction work.

Santiago Poy, a researcher at the Observatory of Social Debt at the private Argentine Catholic University (UCA) tells IPS that, with the combination of currency devaluation and inflation since 2018, wages have lost around 20 percent of their purchasing power.

“Poverty stood at around 25 percent in 2017, climbed to 40 percent in 2019 and remained steady after that. Today there is a feeling of widespread impoverishment, despite the fact that the unemployment rate is only seven percent, because 28 percent of workers are poor,” says Poy, describing the situation in this Southern Cone country of 47.3 million people.

After the height of the pandemic in 2020, social indicators improved in 2021 but are worsening again this year and the vast social assistance network does not seem to be sufficient to curb the decline.

“Social aid is not going to solve things in Argentina, because the macroeconomy is a permanent factory of poverty,” says Poy.

One of the operations carried out last weekend by Economy Ministry personnel in supermarkets in Buenos Aires, in order to control price hikes on basic products and “dismantle speculative maneuvers,” as reported. CREDIT: Economy Ministry

The price race

“I am ashamed to set some prices at which I have to sell such basic things as bread, flour or sugar,” Fernando Savore, president of the Federation of Grocery Stores of the province of Buenos Aires, which groups 26,000 businesses in the country’s most populous region, tells IPS.

Savore says that since the beginning of the year the price hikes by suppliers have been constant, but that they skyrocketed in the first week of July, after the economy minister resigned.

“We have seen increases of more than 10 percent in food and more than 20 percent in cleaning products. I don’t think they are justified, but every time the dollar goes up, prices go up,” says Savore, who adds that grocers are hesitant to sell some products because of uncertainty about the costs of restocking them.

And in a context of overall jitters, the government unofficially leaks rumors about economic measures, which do not then materialize but fuel the sense of uncertainty.

President Fernández said that the lack of dollars would be solved if agricultural producers sold a good part of their soybean harvest, which they are currently withholding, worth 20 billion dollars.

They are obliged to export at the official exchange rate, whose gap with the parallel dollar has reached a record level of more than 150 percent, and they are apparently waiting for a devaluation.

On Jul. 25, the new economy minister, Silvina Batakis, met in Washington with the managing director of the International Monetary Fund (IMF), Kristalina Georgieva, to assure her that this country will comply with the agreement signed with the multilateral lender this year, which includes goals to reduce the fiscal deficit and increase the Central Bank’s reserves.

But in Argentina, few people dare to predict where the crisis is heading, and how quickly it will evolve.

A garbage picker walks down Santa Fe Avenue, one of the main avenues in Buenos Aires. Argentina suffered a deep economic and social decline in 2018 and 2019, which was accentuated in 2020 by the pandemic. Although in 2021 there was a rebound, the most vulnerable did not benefit. CREDIT: Daniel Gutman/IPS

By Daniel Gutman
BUENOS AIRES, Feb 2 2022 (IPS)

Accustomed for decades to recurring economic crises, and hit hard in recent years by a steady loss of purchasing power, Argentines were informed on Friday Jan. 28 of a last-minute agreement with the IMF which, in the words of center-left President Alberto Fernández, takes “the noose off their necks”.

The understanding, which will refinance a gigantic 45 billion dollar loan that the IMF (International Monetary Fund) gave Argentina in 2018, was reached within hours of the first installment falling due in 2022. Argentina owed 18 billion dollars in payments this year, which the country could not afford and which have now been postponed until 2026.

After exhausting other sources of financing and resorting to the IMF in 2018, Argentina underwent a pronounced economic and social decline, which led to then center-right President Mauricio Macri’s failure to win re-election in late 2019.

When recovery was expected in 2020, the country was hit by the COVID-19 pandemic and a historic collapse of more than 10 percent of the economy. And although there was a rebound in 2021, it did not benefit the most vulnerable, as inflation exceeded 50 percent and was even higher in the case of staple foods.

This South American country of 45 million inhabitants which is the third largest economy in Latin America has, according to official data, a poverty rate of more than 40 percent, a proportion that climbs to 54 percent among children under 14 – a phenomenon that is partly explained by the higher proportion of large families among the poor.

However, Argentina was heading for an even greater economic and social catastrophe, warned the president, if it did not reach an agreement with the IMF.

“We had an unpayable debt that left us with no present and no future, and now we have a reasonable agreement that will allow us to grow,” said Fernández.

Thus, the IMF is once again lending money to Argentina to pay its debt, thanks to an agreement subject to quarterly reviews of the national accounts that -according to the government- do not imply a structural adjustment, like the many that the country has experienced in the context of its traumatic relationship with the multilateral financial organization.

“The best thing about this agreement with the Fund is what was avoided,” economist Andrés Borenstein, professor of public finance at the public University of Buenos Aires (UBA), told IPS in Buenos Aires.

“Without this understanding, the country would run out of financing and the consequences would be paid by those who have the least, because there would be more inflation, a greater decline in the real value of wages and a sharper devaluation of the currency,” he explained.

The government sought to allay the fears of the public who, based on past experience, associate agreements with the IMF with public spending cuts that lead to a decrease in economic activity and to general impoverishment.

“Compared to previous agreements that Argentina signed, this one does not contemplate restrictions that postpone our development,” said Fernández. “There will be no drop in real spending and there will be an increase in public works investment by the national government.”

Analysts, however, do not take the president’s words at face value. “It is true that the agreement is quite reasonable for the situation Argentina was in, but, as in any IMF program, there will be adjustments,” said Borenstein.

“Sharp increases in utility rates are coming and that will have an indirect impact on inflation and consumption,” he added.

Indeed, in a brief communiqué, the IMF pointed out that it had agreed with the Argentine government to reduce the large state subsidies to energy companies, with the aim of gradually reducing the fiscal deficit – which will increase the burden

Argentine President Alberto Fernández announced on Jan. 28 the agreement with the International Monetary Fund which, he said, took “the noose off the country’s neck”. CREDIT: Casa Rosada

on society.

Between realism and skepticism

Although the agreement was described as positive by most economists and even by the opposition, it sparked an internal crisis in the government, with one wing believing that the negotiation was too soft.

The clearest sign of the crisis was the resignation of Máximo Kirchner (son of former president and current vice-president Cristina Fernández Kirchner) as president of the ruling party’s bloc in the Chamber of Deputies, with a letter in which he stated that the IMF has been “the key trigger for every economic crisis since the return of democracy” in Argentina in 1983.

On the street, skepticism prevailed. In response to questions from IPS, the most frequently heard comment was that this news will not change anything for ordinary people, who see inflation as their main daily problem and believe it will continue to be so.

Juan Galíndez, who commutes almost two hours a day from a poor suburb of Buenos Aires to the city center to watch over cars parked outside a club, told IPS: “I don’t care about the IMF agreement because I know it won’t change anything for me. As long as I can get a few pesos to live on, I’m fine.” Galíndez works in the informal economy and depends on tips from customers of the club.

The plight of the poor in Argentina, however, is cushioned by a strong social assistance scheme that benefits almost 45 percent of the population in its various forms.

“Argentina has had a decade of economic stagnation and 30 years of a more structural deterioration,” Agustín Salvia, director of the Social Debt Observatory at the private Argentine Catholic University (UCA), told IPS. “Since 2018, what we have seen is a debt crisis to which the pandemic was added and this had very harsh consequences: it raised poverty levels from 35 to 48 percent at its peak, in 2020.”

The expert said that as of 2021, when the COVID vaccines began to arrive, restrictions on movement were relaxed and a process of economic recovery began, and poverty decreased although it has not returned to pre-pandemic levels.

A clothing and footwear store in downtown Buenos Aires tries to attract customers with big sales, despite constantly rising prices in Argentina. CREDIT: Daniel Gutman/IPS

“It stabilized at around 40 percent, because there is little investment from small or large companies that generate quality employment. What is growing the most is precarious informal work, with low wages that lose against inflation, and self-employment,” said Salvia.

The inflation that hits the poor especially hard is fundamentally driven, according to economists, by a fiscal deficit that in 2021 reached three percentage points of gross domestic product (GDP) and that is difficult to lower without social costs, in a country that spends 40 percent of its budget on pensions and other social security benefits.

In the understanding with the IMF, a path of progressive reduction of government spending was established, which postpones the zero deficit goal until 2025, in the next presidential term, which begins in December 2023.

“The agreement imposes some conditions of course, but this time the IMF is not demanding structural reforms that affect pensions or labor rights, as it has in the past, which means that they are a little more lax,” said economist Martín Kalos.

Kalos told IPS that reducing the fiscal deficit was a path that Argentina was going to have to go down with or without IMF surveillance: “While no country likes to be audited on its sovereign policy decisions, this was an agenda that Argentina was not going to be able to escape.”

The harmful effects of falling corporate tax rates have been acknowledged in a recent International Monetary Fund (IMF) research paper. This trend, since the early 1980s, has been especially detrimental for developing countries, which rely on direct taxation much more than developed economies.

Acknowledging that existing international corporate tax rules are unfair, set by developed country governments scantly considering their effects on poor countries, IMF Managing Director, Christine Lagarde, called for a new system earlier this year.

BWIs and corporate tax rates

However, neither the IMF research nor Lagarde say anything about why corporate tax rates have been falling across all country groups for over three decades.

Jomo Kwame Sundaram

The neo-liberal ‘counter-revolution’ against Keynesian and development economics saw the brief popularity of ‘supply side’ economics during the early 1980s. The Washington Consensus of the US Treasury Department and the two Washington-based Bretton Woods institutions (BWIs) – the IMF and the World Bank (WB) – ensured its global impact.

All serious empirical research has discredited Chicago Professor Arthur Laffer’s claim that lowering corporate tax rates boosts investment and growth rates. Significantly, this included work by US President Ronald Reagan’s first Council of Economic Advisers chair, Martin Feldstein, and Doug Elmendorf, his Congressional Budget Office Director.

Instead, most growth during the Reagan era was due to expansionary monetary policy, as lower interest rates helped the economy rebound from the severe recession in 1982. Likewise, the 2001 and 2003 Bush tax cuts also failed to spur growth, according to Andrew Samwick, chief economist to his Council of Economic Advisers.

All serious empirical research has discredited Chicago Professor Arthur Laffer’s claim that lowering corporate tax rates boosts investment and growth rates

Despite their dubious premises, the Laffer curve and similar claims have re-emerged under the Trump presidency, which has already brought corporate tax rates to new lows.

Beggar thy neighbour

To qualify for BWI support, developing country governments were expected to undertake tax reforms, by lowering typically progressive direct tax rates in favour of regressive indirect taxation, such as value-added taxation (VAT), often dubbed the goods and services tax (GST).

A review of IMF tax policy recommendations to Sub-Saharan African countries during 1998-2008 confirmed that in typical ‘one-size-fits-all’ fashion, they invariably included reducing corporate and even, personal income tax rates as well as both export and import taxation, besides introducing or expanding VAT.

As an IMF paper concluded about the ostensible justification for its advice, “The complete abolition of corporate income tax would be the most direct application of the theoretical result that small open economies should not tax capital income.”

Vito Tanzi and Howell Zee, of the IMF’s Fiscal Affairs Department, even recommended taxing labour, instead of capital. They argued that “small countries should not levy source-based taxes on capital income” because, compared to labour, capital was highly mobile and could escape such taxes.

The WB’s controversial Doing Business Report (DBR) argues likewise; paying taxes was one of 11 criteria DBR 2017 used to rank a country’s business environment although the WB’s enterprise survey found tax incentives not critical among factors affecting foreign direct investment (FDI) inflows.

Policy advocacy despite evidence

Thus, BWI advice, ostensibly to encourage investment, particularly FDI, led to the harmful competition that has lowered corporate tax rates since the 1980s. Earlier IMF research found that such ‘beggar-thy-neighbour’ tax competition has caused unnecessary loss of revenue for many developing countries.

Anis Chowdhury

OECD research found that direct tax concessions barely diverted, let alone attracted international investment flows. The Economist also found the relationship between tax rates and investment as well as growth rates to be weak.

A G20 report noted, “Tax incentives generally rank low in investment climate surveys in low-income countries, and there are many examples in which … investment would have been undertaken even without them. And their fiscal cost can be high, reducing opportunities for much-needed public spending …, or requiring higher taxes on other activities.”

Regressive tax incidence

Corporate tax rate declines over recent decades have contributed to overall tax incidence becoming more regressive as direct taxes have declined, and indirect taxes, such as VAT, have risen. VAT adoption has been central to BWI tax policy advice to developing countries.

A study of IMF advice on tax matters in 54 IMF Article IV reports between 2005 and 2008 to 10 low-income countries and 10 middle-income countries found that, “VAT was recommended or endorsed by the IMF in 90 per cent of the overall sample…”

An IMF paper found that the BWIs presume that tax is distortionary, and the tax system should focus on raising revenue while minimizing associated distortions. This precluded using taxation for other purposes, e.g., progressive redistribution. Recent IMF research shows that reduced tax progressivity has contributed to growing inequality since the 1980s.

Quo vadis?

Recognition of taxation’s potential for both resource mobilization and reducing inequality can still bring about fundamental changes in BWI conditionalities, advice and technical assistance for developing countries. Greater developing country engagement in designing international reforms to reduce tax avoidance and evasion by transnational corporations will be crucial.

The migrants photographed here were being loaded on to a cargo plane in Kufra, located in southeastern Libya. Credit: Rebecca Murray/IPS

By Thalif Deen
UNITED NATIONS, Sep 3 2015 (IPS)

The military conflicts and political instability driving hundreds of thousands of refugees into Europe were triggered largely by U.S. and Western military interventions for regime change – specifically in Iraq, Afghanistan, Libya and Syria (a regime change in-the-making).

The United States was provided with strong military support by countries such as Germany, Britain, France, Italy and Spain, while the no-fly zone to oust Libyan leader Muammar Gaddafi was led by France and the UK in 2011 and aided by Belgium, Denmark, Norway and Canada, among others.

“[European leaders] stay silent about the military intervention and regime change in which Europeans were major actors, interventions that have torn the refugees’ homelands apart and resulted in civil war and state collapse.” -- James A. Paul, former executive director of the New York-based Global Policy Forum
Last week, an unnamed official of a former Eastern European country, now an integral part of the 28-nation European Union (EU), was constrained to ask: “Why should we provide homes for these refugees when we didn’t invade their countries?”

This reaction could have come from any of the former Soviet bloc countries, including Hungary, Slovakia, Bulgaria, Romania, the Czech Republic, Slovakia or Latvia – all of them now members of the EU, which has an open-door policy for transiting migrants and refugees.

The United States was directly involved in regime change in Afghanistan (in 2001) and Iraq (in 2003) – and has been providing support for the ouster of Syrian President Bashar al-Assad battling a civil war now in its fifth year.

U.N. Secretary-General Ban Ki-moon, who says he is “horrified and heartbroken” at the loss of lives of refugees and migrants in the Mediterranean and Europe, points out that a large majority of people “undertaking these arduous and dangerous journeys are refugees fleeing from places such as Syria, Iraq and Afghanistan.”

James A. Paul, former executive director of the New York-based Global Policy Forum, told IPS the term “regime change refugees” is an excellent way to change the empty conversation about the refugee crisis.

Obviously, there are many causes, but “regime change” helps focus on a crucial part of the picture, he added.

Official discourse in Europe frames the civil wars and economic turmoil in terms of fanaticism, corruption, dictatorship, economic failures and other causes for which they have no responsibility, Paul said.

“They stay silent about the military intervention and regime change in which Europeans were major actors, interventions that have torn the refugees’ homelands apart and resulted in civil war and state collapse.”

The origins of the refugees make the case clearly: Libya, Syria, Iraq, Afghanistan are major sources, he pointed out.

Also many refugees come from the Balkans where the wars of the 1990s, again involving European complicity, shredded those societies and led to the present economic and social collapse, he noted.

Vijay Prashad, professor of international studies at Trinity College, Connecticut, and the George and Martha Kellner Chair in South Asian History, told IPS the 1951 U.N. Refugee Convention was dated.

He said the Covenant “was written up for the time of the Cold War – when those who were fleeing the so-called Unfree World were to be welcomed to the Free World”.

He said many Third World states refused this covenant because of the horrid ideology behind it.

“We need a new Covenant,” he said, one that specifically takes into consideration economic refugees (driven by the International Monetary Fund) and political (war) refugees.

At the same time, he said, the international community should also recognize “climate change refugees, regime change refugees and NAFTA [North American Free Trade Agreement] refugees.”

The 1951 Convention guarantees refugee status if one “has a well-founded fear of persecution because of his/her race, religion, nationality, membership in a particular social group or political opinion.”

Asked about the Eastern European reaction, Prashad said: “I agree entirely. But of course one didn’t hear such a sentiment from Lebanon, Turkey, Jordan and others – who also welcomed refugees in large numbers. Why say, ‘Why should we take [them]?’ Why not say, ‘Why are they [Western Europe and the U.S.] not doing more?’” he asked.

While Western European countries are complaining about the hundreds of thousands of refugees flooding their shores, the numbers are relatively insignificant compared to the 3.5 million Syrian refugees hosted by Turkey, Jordan and Lebanon – none of which invaded any of the countries from where most of the refugees are originating.

Paul told IPS the huge flow of refugees into Europe has created a political crisis in many recipient countries, especially Germany, where neo-Nazi thugs battle police almost daily, while fire-bombings of refugee housing have alarmed the political establishment.

The public have been horrified by refugees drowning in the Mediterranean, deaths in trucks and railway tunnels, thousands of children and families caught on the open seas, facing border fences and mobilized security forces.

Religious leaders call for tolerance, while EU politicians wring their hands and wonder how they can solve the issue with new rules and more money, Paul said.

“But the refugee flow is increasing rapidly, with no end in sight.  Fences cannot contain the desperate multitudes.”

He said a few billion euros in economic assistance to the countries of origin, recently proposed by the Germans, are unlikely to buy away the problem.

“Only a clear understanding of the origins of the crisis can lead to an answer, but European leaders do not want to touch this hot wire and expose their own culpability.”

Paul said some European leaders, the French in particular, are arguing in favour of military intervention in these troubled lands on their periphery as a way of doing something.

Overthrowing Assad appears to be popular among the policy classes in Paris, who choose to ignore how counter-productive their overthrow of Libyan leader Gaddafi was a short time ago, or how counter-productive has been their clandestine support in Syria for the Islamist rebels, he declared.

Paul also said “the aggressive nationalist beast in the rich country establishments is not ready to learn the lesson, or to beware the “blowback” from future interventions.”

“This is why we need to look closely at the ‘regime change’ angle and to mobilize the public understanding that this was a crisis that was largely ‘Made in Europe’ – with the active connivance of Washington, of course,” he declared.

Edited by Kanya D’Almeida

As the Third International Conference on Financing for Development opens in the Ethiopian capital, Addis Ababa, Monday, all eyes are on the United Nation’s post-2015 development agenda, billed as the most ambitious and far-reaching poverty eradication plan in the organisation’s history.

On the eve of the conference, on Jul. 10, some of the world’s leading development banks announced plans to extend 400 billion dollars in financing towards the U.N.’s Sustainable Development Goals (SDGs) over a three-year period.

The African Development Bank, Asian Development Bank, European Bank for Reconstruction and Development, European Investment Bank, Inter-American Development Bank, World Bank Group (referred to as the MDBs), together with the International Monetary Fund (IMF), have also “vowed to work more closely with private and public sector partners to help mobilize the resources needed to meet the historic challenge of achieving the SDGs”, said a press release issued this past weekend.

Christine Lagarde, managing director of the IMF, announced here in Washington on Jul. 8 that the Fund has decided to increase developing nations’ access to credit to promote sustainable growth.

The changes, approved by the IMF executive board on Jul. 1, will expand concessional facilities – money-lending mechanisms – to developing countries by 50 percent.

More aid will be targeted at poor and vulnerable countries, and the IMF will maintain a zero-percent interest rate on rapid credit facility loans to fragile states and countries hit by natural disasters

Lagarde referred to three major international conferences – including the financing conference underway in Ethiopia, the U.N. summit slated to take place in New York City in September, and the year-end climate negotiations scheduled to be held in Paris – as “rare windows of opportunities” for the international community, including the IMF, to help developing countries achieve the SDGs.

“These three [meetings] combined can help us change the music,” she said. “We have a chance to collectively take a new approach.”

First laid out in the Rio+20 summit in 2012, the SDGs currently comprise 17 goals, ranging from reducing poverty and inequality to combating climate change. They are expected to form the global blueprint from which member states will derive their national policies over the next 15 years.

The goals come on the heels of the Millennium Development Goals (MDGs), eight poverty reduction targets set out in 2000 that will expire by the end of this year.

Many are worried that the SDGs are too broad and may be costly.

A United Nations report by the Intergovernmental Committee of Experts on Sustainable Development Financing released in August 2014 puts the estimate of eradicating extreme poverty in all countries, one of the goals, at around 66 billion dollars annually.

The cost of investments required to achieve “climate-compatible” scenarios may go up to several trillion dollars per year.

United Nations Under-Secretary General for Economic and Social Affairs Wu Hongbo said in an IMF Survey published on Apr. 18 that achieving the SDGs will cost more than the MDGs.

“In addition to eradicating poverty, this agenda will cover economic, social and environmental issues, so huge amounts of financial resources will be required for its implementation,” he said.

Other than international aid, the report calls for the use of private resources, partnerships and innovative mechanisms to finance implementation of the SDGs.

But international aid is still crucial for many least developed countries, especially nations on the African continent and landlocked developing states.

In 1970, a target was set for developed countries to allocate 0.7 percent of their Gross National Income (GNI) as Official Development Assistance (ODA) to developing countries. However, only five developed countries from the Organisation for Economic Cooperation and Development (OECD) have reached the target so far.

ODA is the measure of resource flows to developing countries for economic development and welfare.

Charles Kenny, senior fellow at the Center for Global Development in Washington, D.C. said in a blog post on Jul. 7 that aid flows alone could not float the multi-trillion-dollar price tag of the SDGs.

“The truth is that development is no longer mostly about aid,” he said.

He referred to remittances from migrants living overseas, foreign direct investment and private lending to developing countries as well as domestic government revenues as other lucrative sources of financing.

The IMF has contributed to the goals by providing advice, assistance and lending to the countries.

Lagarde said that the IMF will focus on mobilising domestic revenue, especially through increasing the tax ratios in developing countries. She said that tax ratios in developing countries are below 15 percent in comparison to the OECD average of 34 percent.

“Money raised in that simple, fair and broad-based system and well spent on the right policies can be a game changer,” she said.

Eliminating inefficiency by combating corruption and untargeted subsidies was another IMF goal. Around 30 percent of public spending is lost due to inefficiencies in the public investment process, she said.

“They [developing countries] can’t do it by themselves,” Lagarde said. “If the international community participates in that effort, it will go a lot further.”

Edited by Kanya D’Almeida

The heads of state of three of the five BRICS countries - Russia, India and Brazil – pose for a photograph during the 2014 BRICS Summit. Credit: Official Flickr Account for Narendra Modi/CC-BY-SA-2.0

By Kanya D'Almeida
UNITED NATIONS, Jul 7 2015 (IPS)

Just days ahead of a summit of the BRICS group of emerging economies (Brazil, Russia, India, China and South Africa) in which the five countries are expected to formally launch their New Development Bank (NDB), 40 NGOs and civil society groups have penned an open letter to their respective governments urging transparency and accountability in the proposed banking process.

“In terms of the type of development the bank delivers, we don't have signs yet that the NDB will go in a qualitatively different direction than the Washington Consensus institutions." -- Gretchen Gordon, coordinator of Bank on Human Rights
The NDB is expected to finance infrastructure and sustainable development in the global South.

With an initial capital of 100 billion dollars, it was born from a combination of circumstances including emerging economies’ frustration with the largely Western-dominated World Bank Group (WBG) and International Monetary Fund (IMF).

According to a 2014 Oxfam Policy Brief, another factor leading to the creation of the BRICS Bank was a major gap in financing for infrastructure projects, with official development assistance (ODA) and funding from multilateral institutions meeting just two to three percent of developing countries’ needs.

Strained by economic sanctions as a result of the Ukrainian crisis, Moscow has been particularly keen to bring the fledgling lending institution to its feet and has been pushing international rating agencies to rate the bank’s debt, as a necessary first step for it to begin operations.

Even without counting the contributions of its newest member – South Africa – the four BRIC nations represent 25 percent of global gross domestic product (GDP) and 41.4 percent of the world’s population, or roughly three billion people.

In addition, the borders of these countries enclose a quarter of the planet’s land area on three continents.

But even as the five political leaders prepare to take centre stage in the Russian city of Ufa on Jul. 9, citizens of their own countries are already expressing doubts that the nascent financial body will truly represent a break from traditional, Western-led development models.

“The existing development model in force in many emerging and developing countries is one that favors export-oriented, commodity driven strategies and policies that are socially harmful, environmentally unsustainable and have led to greater inequalities between and within countries,” said the statement, released on Jul. 7

“If the New Development Bank is going to break with this history, it must commit itself to the following four principles: 1) Promote development for all; 2) Be transparent and democratic; 3) Set strong standards and make sure they’re followed; 4) Promote sustainable development,” the signatories added.

Gretchen Gordon, coordinator of Bank on Human Rights, a global network of social movements and grassroots organisations working to hold international financial institutions accountable to human rights obligations, told IPS, “[Although] the Bank’s Articles of Agreement have an article on Transparency and Accountability […] thus far we haven’t seen any indication of operational policies on transparency or anything relating to accountability mechanisms.”

“And unfortunately,” she added, “there is no open engagement with civil society on these questions.”

“In terms of the type of development the bank delivers, we don’t have signs yet that the NDB will go in a qualitatively different direction than the Washington Consensus institutions,” Gordon told IPS in an email.

“That is why civil society groups in BRICS countries are calling for a participative and transparent process to identify strategies and policies for the NDB that can set it on a different path and actually deliver development.”

A primary concern among NGOs has been that the BRICS bank will replicate the old “mega-project” model of development, which has proven to be a failure both in terms of poverty eradication and increased access to basic services.

A recent international investigation revealed that in the course of a single decade, an estimated 3.4 million poor people – primarily from Asia, Africa and Latin America – were displaced by mega-projects funded by the World Bank and its private sector lending arm, the International Finance Corporation (IFC).

Though these projects were ostensibly aimed at strengthening transportation networks, expanding electric grids and improving water supply systems, they resulted in a worsening of poverty and inequality for millions of already marginalised people.

Following closely on the heels of this damning expose, a major report by the international watchdog Human Rights Watch (HRW) found that the Bank’s lax safeguards and protocols resulted in a range of rights violations against those who spoke out against the economic, social and environmental fallout of Bank-funded projects.

Behind this track record, rights groups and NGOs are concerned that a new development bank operating on within a broken framework will contribute to the spiral of violence and poverty that has marked the age of mega-projects.

At a time when one billion people lack access to an all-weather road, 783 million people live without clean water supplies and 1.3 billion people are not connected to an electricity grid, there is no doubt that the developing world stands to gain greatly from a Southern-led financial institution.

What remains to be seen is to what extent the new bank will move away from the old model of financing and truly set a standard for inclusive and pro-poor development.

Edited by Kitty Stapp

Seventy-year old Elise Young’s small box of mixed sweets and biscuits and the plastic bucket containing some ice and a handful of drinks is hardly enough to pay the 18-dollar electricity bill each month and buy food. Credit: Zadie Neufville/IPS

By Zadie Neufville
KINGSTON, Jun 2 2015 (IPS)

For Jamaicans like Roxan Brown, the Caribbean nation’s International Monetary Fund (IMF) successes don’t mean a thing. Seven consecutive tests have been passed but still, the mother of two can’t find work and relies instead on the kindness of friends and family.

The 32-year-old has been in several government-sponsored training programmes and has even filed for help under the Programme of Advancement Through Health and Education (PATH), a safety net set up to assist the poor. But she fails to qualify and can’t understand why.In the long history of Jamaica's on-again off-again relationship with the IMF, it is the poorest of this nation’s 2.8 million people who suffer the heaviest burden. With most earnings going to pay loans, there is nothing left for government assistance.

The single mother spends each day making phone calls, sending messages and making as many trips as she can afford, hopeful that one will result in a job. Roxan is desperate to help her son who graduated high school last year and has qualified for college. Her daughter is in secondary school and is preparing to sit exams.

Several miles away in the south coast village of Denbigh, the two elderly women sitting outside the May Pen Health Centre tell their stories of hardship. Five days a week, they scratch out a meagre living selling a few sweets, biscuits, some bottled water, drinks and fruits to make ends meet. Neither have pensions and none qualify for even the basic of government assistance under PATH.

Seventy-year old Elise Young’s small box of mixed sweets and biscuits and the plastic bucket containing some ice and a handful of drinks is hardy enough to pay the 18-dollar electricity bill each month and buy food.

“It’s very rough but I still have to live,” she said, noting that her daughter, who generally helps out with a few dollars a week, is now unemployed.

Next to her sits Iona Samuels, an on-again-off again vendor who sells a few dozen oranges and bananas to make ends meet. Iona is lucky: she lives rent-free, house-sitting for a friend who lives in Canada. Her on-again off-again business is due to the many times she is unable to restock the plastic crates that serve as her stall because she uses all the cash to buy food and pay water and light bills.

“Sometime I buy two dozen oranges and two dozen bananas and I only sell half. Sometimes I don’t make a profit because I have to sell them for what I pay for them and I have to eat and pay the bills,” she explains.

Iona admits that advancing age has slowed her ability to do more strenuous work. She is concerned that government has no programmes for  “the poor and vulnerable” people like her.

The good fortune that allows Iona to live rent-free also goes against her in her quest for government assistance with her daily expenses.

“I live in a house that is fully furnished, so I am unable to qualify for anything. There is no consideration that the house is not mine. It is my friend’s house. There is a gas stove, and a television so I don’t qualify for help,” Iona complains.

Iona Samuels (left) and her friend Pearl. Credit: Zadie Neufville/IPS

In the long history of Jamaica’s on-again off-again relationship with the IMF, it is the poorest of this nation’s 2.8 million people who suffer the heaviest burden. With most earnings going to pay loans, there is nothing left for government assistance.

Media reports cite information from the U.S.-based Centre for Economic Policy and Research, which states that three years into its latest IMF programming, Jamaica’s economy is suffocating, struggling to reach its current quarterly growth rate of between 0.1 and 0.5 percent.

After 20 years of improvement to the country’s poverty rate, the number of Jamaicans living below the poverty line has ballooned in recent years from 9.9 percent in 2007, to 12.3 in 2008, 16.5 percent in 2009 and 19.9 percent in 2012. And if the 2014 research by the local Adventist Church is correct, today there are 1.1 million Jamaicans living in poverty.

The most pressing problem is the country’s debt, which the government readily admits has severely hampered its economic growth. According to the World Bank website, Jamaica’s debt to GDP (Gross Domestic Product) ratio, estimated at 140 percent at the end of March 2015, is among the highest in the developing world.

For the Portia Simpson Miller-led administration that won the 2011 general elections on a ticket of being a friend of the poor, there is not much caring left, at least not under the IMF. The Planning Institute of Jamaica (PIOJ) reports that while the IMF programme is necessary, it is still not sufficient to unlock the kind of growth necessary to boost the economy and grow jobs.

According to the PIOJ,  “Economic recovery remains fragile” even as the country successfully completed the IMF assessments with improvements in most macro-economic indicators and outlook for growth.

The World Bank states on its website that, “For decades, Jamaica has struggled with low growth, high public debt and many external shocks that further weakened the economy. Over the last 30 years real per capita GDP increased at an average of just one percent per year, making Jamaica one of the slowest growing developing countries in the world.”

Simply put, Jamaica continues to spend far more than it earns. But while individual sectors continue to show improvements, manufacturers and the international community blame the cost of fuel, high energy costs and crime as impediments to growth.

Last year, Jamaica paid the IMF over 136 million dollars more than it received, and the country still owes the World Bank and Inter-American Development Bank over 650 million dollars through 2018. Even so, government continues to struggle to maintain social gains such as free healthcare and free primary and secondary education.

There are those who believe government is not doing enough to create jobs and that the available jobs are going to government supporters. There are those who blame the private sector, and they in turn point to a depreciating dollar, high cost of fuel and high-energy costs. And of course there is crime.

With unemployment rate at an alarming 14.2 percent and youth unemployment estimated at twice the national rate, things are not looking good for Roxan, who falls into that category.

Edited by Kitty Stapp

Mechanisation and the incorporation of new technologies in sectors like the construction industry means that men are the preferred candidates for certain jobs. Credit: Neeta Lal/IPS

By Neeta Lal
NEW DELHI, Mar 30 2015 (IPS)

It calls itself the ‘world’s largest democracy’ but the 380 million working-aged women in India might disagree with that assessment.

Recent research shows that only 125 million women of a working age are currently employed, with the number of women in the workforce declining steadily since 2004.

"It is imperative to acknowledge that we have a crisis at hand, and we [must] work towards female empowerment to help India realise its full economic potential." -- Preet Rustagi, joint director of the Institute for Human Development in New Delhi
Experts say these figures should serve as a wake-up call for Asia’s third largest economy, adding that unless this nation of 1.2 billion people begins to provide equal opportunities for women, it will miss out on vital development and poverty-reduction goals.

According to a report released earlier this month by the International Monetary Fund (IMF), India’s female labour force participation (FLFP) rate is amongst the lowest among emerging markets and peer countries.

India’s FLFP – the share of employed women or job seekers among the working-age female population — is 33 percent, almost half of the East Asian average of 63 percent and well below the global average of around 50 percent.

The IMF’s findings amplify what has been already been identified as a disconcerting trend in India lately – the absence of a diverse and inclusive workforce.

A debate is currently raging across the country about the skewed gender balance in Indian corporate boardrooms where women hold barely five percent of seats – lower than all the other countries that comprise the BRICS group of emerging economies (Brazil, Russia, India, China and South Africa).

A progressive new law was passed in 2013 that requires all companies listed on the national stock exchange to have at least one female board member by August 2014. However, the deadline had to be extended to April 2015 as only a few companies came forward to appoint women to these top positions.

The lack of women workers in India is a “huge missed opportunity” for the country’s economic growth, lamented IMF Managing Director Christine Lagarde on a recent trip to this country of 1.2 billion people.

Gender diversity in the workplace isn’t just about political correctness; it is an economic imperative, economists say.

A study undertaken by the IMF in 2013 proves that India’s growth has been stunted by women’s exclusion from the workforce.

“Assuming the gender gap is halved by 2017 and cut to one-fourth of its 2008 value in 2027, India’s per capita income could be 10-13 percent higher than under the baseline scenario of unchanged gender inequality in 2020 and 2030, respectively,” the report stated.

Counting and accounting for women’s labour

Some say the primary explanation for the apparent ‘absence’ of working women is a dearth of national-level data on the informal sector. Since a majority of women perform mostly unpaid, domestic labour on a regular basis, their contribution to the economy does not ‘count’ when the country tallies up its records of the formal labour market.

Because women primarily perform unpaid domestic labour, they do not always ‘count’ in the country’s records of the formal economy. Credit: Neeta Lal/IPS

“A woman’s work in her own household is not counted as an economic activity, and does not get factored into the national income statistics,” explains Preet Rustagi, joint director of the Institute for Human Development in New Delhi.

“This situation is even worse than the case of services by a paid domestic help, which is at least considered an economic activity and is counted in the country’s income.”

Rustagi tells IPS that this is unfortunate, as women’s domestic duties in India cover a range of responsibilities like cooking, caring for the elderly, and rearing children, all work that is crucial to the economy and all of Indian society.

In the villages, women additionally engage in the vital task of animal husbandry, which is also excluded from enumeration, elaborates Rustagi.

Cultural norms also scupper women’s entry into the formal workforce, say analysts.

“The entrenched Indian patriarchal culture idealises women in, and restrict them to, the roles of housewives and mothers. Notions of socio-ritual superiority of a group or family can be directly linked to higher restrictions on women including their physical mobility and work outside homes,” explains Bhim Reddy, associate editor of the Indian Journal of Human Development who has researched extensively on recruitment practices in labour markets.

Reddy adds that a higher school enrolment rate, especially for women between the ages of 14 and 21, has also contributed to an asymmetrical workforce.

“A large section of females in this age group that used to be part of the work force earlier is now in schools and colleges, and this is getting reflected in a drop in the female LFPR,” elaborates Reddy.

But research by Everstone Capital, an investment management company, shows that while the number of women enrolling in college has grown manifold, it has not translated into a proportionate increase of women graduates in the workforce.

At 22 percent, the rate of India’s female graduates entering the workforce is lower than the rate of illiterate women finding jobs.

Worse, participation of Indian women in the workforce plummeted from 33.7 percent in 1991 to 27 percent in 2012, according to United Nations statistics. In 2011-12, less than 20 percent of the total workers in non-agricultural sectors was women.

Surprisingly, female labour participation has been found to be particularly low even among urban, educated women — a demographic typically assumed to experience fewer social barriers.

According to government statistics, in 2009-10, the proportion of those attending to domestic duties (and therefore out of the formal labour force) was 57 percent among urban females with graduate degrees or higher, compared to just 31 percent among rural females with primary or middle school education.

Experts say the advent of mechanisation and incorporation of new technologies in agriculture and the construction industry have led to the ‘masculinisation’ (or preference for males for a certain job profile) of employment patterns.

Exploitation and harassment in the workplace have worsened the situation. India passed a new law against sexual harassment last year, under which organisations with more than 10 workers have to set up grievance committees to investigate all complaints.

However, according to a study by Jawaharlal Nehru University, less than 20 percent of employers in the capital, New Delhi, comply with the rules.

Household surveys show that a more welcoming environment would compel many stay-at-home women to take on regular work. At present, issues of transport, workplace safety and hostile attitudes result in many women opting out of full-time employment.

Apart from sensitisation campaigns, activists advocate greater investments in infrastructure, safe public transportation, better childcare facilities at work and tax breaks to lure Indian women into the workforce.

“It is imperative to acknowledge that we have a crisis at hand, and we then work towards female empowerment to help India realise its full economic potential,” says Rustagi.

Edited by Kanya D’Almeida

By Roberto Savio
ROME, Nov 26 2014 (IPS)

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

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

Roberto Savio

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

(Edited by Phil Harris)

Excerpt:

An Ebola treatment centre in Kenema, Sierra Leone, on the day of a visit from Anthony Banbury, Special Representative of the Secretary-General and Head of the UN Mission for Ebola Emergency Response (UNMEER). Credit: UN Photo/Ari Gaitanis

By Carey L. Biron
WASHINGTON, Nov 13 2014 (IPS)

The United States proposed Tuesday that the international community write off 100 million dollars in debt owed by West African countries hit hardest by the current Ebola outbreak. The money would be re-invested in health and other public programming.

U.S. Treasury Secretary Jack Lew will be detailing the proposal later this week to a summit of finance ministers from the Group of 20 (G20) industrialised countries. If the idea gains traction among G20 states, that support should be enough to approve the measure through the International Monetary Fund (IMF), where the United States is the largest voting member."The plan is for that money to be re-invested in social infrastructure, including hospitals and schools … to deal with the short-term problem of Ebola but also the long-term failure of the health systems that allowed for this outbreak.” -- Jubilee USA’s executive director Eric LeCompte

“The International Monetary Fund has already played a critical role as a first responder, providing economic support to countries hardest hit by Ebola,” Lew said in a statement to IPS.

“Today we are asking the IMF to expand that support by providing debt relief for Sierra Leone, Liberia and Guinea. IMF debt relief will promote economic sustainability in the worst hit countries by freeing up resources for both immediate needs and longer-term recovery efforts.”

These three countries together owe the IMF some 370 million dollars, according to the U.S. Treasury, with 55 million dollars due in the coming two years. Yet there are already widespread fears over the devastating financial ramifications of Ebola on Guinea, Liberia and Sierra Leone, in addition to the epidemic’s horrendous social impact.

Last month, the World Health Organisation warned that the virus now threatens “potential state failure” in these countries. The World Bank, meanwhile, estimates that the virus, which has already killed more than 5,000 people and infected more than 14,000, could cost West African countries some 33 billion dollars in gross domestic product.

Of course, much of the multilateral machinery is often too cumbersome to respond to a fast-moving viral outbreak. Yet there is reason to believe that the U.S. plan could have both immediate and long-term impacts.

That’s because the plan would see the IMF tap a unique fund set up in the aftermath of the 2010 Haiti earthquake, which facilitated the cancellation of nearly 270 million dollars of Haitian debt to the IMF. Called the Post-Catastrophe Debt Relief (PCDR) Trust, it is aimed specifically at responding to major natural disasters in the world’s poorest countries.

Originally, the PCDR Trust was capitalised with more than 420 million dollars. Today, a U.S. Treasury spokesperson told IPS, the trust has some 150 million dollars in it – money that would be available almost immediately.

“Our proposal is for the IMF to provide debt relief for these Ebola-affected nations from this trust,” the spokesperson said. “The U.S. would like to see around 100 million dollars put toward this effort, however the precise amount will need to be determined in consultations with the IMF and its membership.”

The IMF, meanwhile, says it is preparing to consider the proposal. In September the Washington-based agency made available 130 million dollars in immediate support to Guinea, Liberia and Sierra Leone.

“We are very glad that some donors have expressed an interest in increasing support for the Ebola-affected countries. We are reaching out to all donors to see how we might be able to take this forward … using all the tools available to us,” an IMF spokesperson told IPS.

“[Debt relief] decisions are made according to the merits of the particular case and this would be approached in the same way. We would expect the Board to be briefed soon on this topic.”

Ebola’s “natural disaster”

For development and anti-poverty advocates, debt obligations on the part of poor countries constitute a key obstacle to a government’s ability to respond to critical social needs, both in the short and long term.

In the West African epicentre of the current Ebola outbreak, many analysts have held chronic low national health spending directly responsible for allowing the epidemic to spiral out of control. And when looking at feeble public sector spending, it is impossible not to take into account often crushing debt burdens.

For instance, Guinea spent a little more than 100 million dollars on public health in 2012 but paid nearly 150 million dollars that same year on internationally held debt, according to World Bank figures provided by Jubilee USA, an anti-debt advocacy network that has spearheaded the push for the United States to make the current proposal.

“As bad as Ebola has been, some of these countries have far greater challenges with deaths from malaria than from Ebola,” Eric LeCompte, Jubilee USA’s executive director, told IPS.

“The amount is incredibly important because it cancels a significant portion of the debt completely. And the plan is for that money to be re-invested in social infrastructure, including hospitals and schools … to deal with the short-term problem of Ebola but also the long-term failure of the health systems that allowed for this outbreak.”

LeCompte was also involved in the creation of the Post-Catastrophe Debt Relief Trust, in the aftermath of the Haitian earthquake. His office has advocated for the fund’s monies to be used since then – for instance, to react to flooding in Pakistan and Typhoon Haiyan in the Philippines.

But he says these and other proposals have been rejected by the IMF’s membership, on the rationale that these countries were developed enough to be able to mobilise financing in other ways. (The IMF says PCDR funds are for response to “the most catastrophic of natural disasters” in “low-income countries”, when a third of a country’s population has been affected and a quarter of its production capacity destroyed.)

Not only are Guinea, Liberia and Sierra Leone among the poorest countries in the world, but the Ebola outbreak there has a potentially direct impact on the rest of the globe.

“This is a very clear opportunity to point to the 150 million dollars left in that fund and to note that Ebola is every bit the same as the Haitian earthquake in terms of being a regional calamity,” LeCompte says.

“The difference is that this is also a long-term investment in the very problems that allow Ebola to spread. So we’d be not only addressing the current issue, but also the next disease outbreak in that region.”

It is unclear whether there is a mechanism in place to top up the PCDR Trust in the future. The IMF states that “Replenishment of the Trust will rely on donor contributions, as necessary.”

But for his part, LeCompte says the fund has the potential to fill a significant gap: offering a pot of money, immediately available, that could be quickly mobilised to deal with true crises afflicting the world’s poorest countries, from hurricanes to major financial defaults.

Edited by Kitty Stapp

The writer can be reached at cbiron@ips.org

By Demba Moussa Dembele
DAKAR, Aug 29 2014 (IPS)

A few years ago, nobody could have imagined that some 50 Heads of States and Prime Ministers from Africa would meet the President of the United States for a summit. Yet, the first Africa/United States Summit took place in Washington from August 4 to 6, making headlines around the world.

It is obvious that geopolitical considerations were behind this summit, with the shadow of the BRICS (Brazil, Russia, India, China and South Africa) hanging over the meeting.

Demba Moussa Dembele

The United States would have never organised such a summit if the global balance of power had not been gradually shifting towards emerging powers, notably towards China and the BRICS.

Western economic domination is being eroded, as illustrated by the deepening crisis of the Eurozone and the worsening deficits of the United States. Meanwhile, the BRICS are increasing their economic and financial weight in the world economy, and represent about 20 percent of the world’s GDP and 17 percent of world trade, with China now the second economy behind the United States.

For most observers, the BRICS Summit in Fortaleza and Brasilia (Brazil) in mid-July heralds a new world monetary and financial order in the next decades or so. Observers from the South and the West are predicting the gradual shift to a new balance of monetary and financial order, with the BRICS at the centre.“Growing China-Africa ties are a disturbing development for Western countries, the European Union (EU) and the United States. They view these relations as a threat to their “traditional” neo-colonial relationships with Africa”

Indeed, the decision to set up the BRICS bank and the Contingency Reserve Arrangement (CRA) is seen as a serious challenge to the World Bank and the International Monetary Fund (IMF), which have been the tools of Western countries for more than half a century. They will gradually become more and more irrelevant to developing countries, as these increasingly turn to BRICS’ financial institutions.

On the other hand, China and the other members of the BRICS group are challenging the hegemony of the U.S. dollar through several swap arrangements, aimed at boosting their trade by using their own currencies. One of the most significant arrangements is the swap between China and Russia, when one takes into account the 400 billion dollars gas deal signed between Russia’s Gazprom and the China National Petroleum Corp. (CNPC).

The French online newspaper, Mediapart (July 5, 2014), reported that in the oil and gas sector, the top three investors in 2013 were all from the BRICS – PetroChina (50.2 billion dollars), Gazprom (44.5 billion dollars) and Petrobras (41.5 billion dollars). The first Western company was Total, which ranked seventh with 30.8 billion dollars.

It is obvious that these developments are of great concern to the United States, especially in light of the BRICS’ drive to strengthen their economic and financial relations with Africa and South America.

In a 2013 report, the United Nations Economic Commission for Africa (UNECA) indicated that Africa’s trade with the BRICS had doubled since 2007 to 340 billion dollars in 2012. It projected that the trade would reach 500 billion dollars by 2015.

Trade between China and Africa is estimated at about 200 billion dollars in 2013. It has become Africa’s main trading partner. And most African countries are now turning to China for loans while Chinese companies are involved in building roads, bridges, and other infrastructures across Africa.

Growing China-Africa ties are a disturbing development for Western countries, the European Union (EU) and the United States. They view these relations as a threat to their “traditional”, neo-colonial relationships with Africa.

While the European Union has tried to lock African countries into Economic Partnership Agreements (EPAs) – as part of a scheme to create a free trade area (FTA) between the European Union and the African, Caribbean and Pacific (ACP) group of countries – since 2007, the United States seems to be “wakening up” only now to the reality of the fast-changing economic landscape in Africa.

A Paris-based magazine, Jeune Afrique, wrote that with this Summit, Barack Obama was organising a “catch-up meeting”. The reason, said the magazine, was that the United States has lost too much ground to China and to a lesser degree to Europe. It is estimated that trade between Africa and the United States doubled between 2000 and 2010, while trade between Africa and China increased twenty-fold over the same period!

Most observers believe that without China building strong and growing economic and financial ties with Africa, the United States would not have thought about organising such a Summit. Clearly, China’s role in Africa has given a greater “respectability” to the continent and elevated its standing with Western countries, which are now looking at Africa through a new light.

Catching up for will not be an easy exercise for the United States. For one thing, its imports from Africa are essentially composed of crude oil, which accounts for 91 percent of total trade. Second, in its relations with Africa, security concerns have always topped the U.S. agenda.

This is why during the George W. Bush Administration, the United States set up “Africa Command” (AFRICOM) with the view to “helping” African countries fight “terrorism”. And the aim is to move AFRICOM headquarters – now in Germany – to Africa, preferably in the Gulf of Guinea, which is home to the bulk of African oil reserves. U.S. companies, like Chevron and ExxonMobil, have already invested billions of dollars in the area in order to control huge chunks of those reserves.

At the end of the Africa-U.S. Summit, Obama announced that 33 billion dollars will be invested in Africa between 2014 and 2017. But only seven billion dollars will come from public funds in order to boost trade between the United States and Africa, 14 billion dollars will come from the private banking and construction sectors, while 12 billion dollars are part of the “Power Africa” project aimed at bringing electricity to households and the industrial sector. This programme is financed by the World Bank and U.S. private companies such as General Electric.

So, the 33 billion dollars announcement is not really a “gift” made by president Barack Obama to African leaders, as some newspapers erroneously presented it. It will essentially serve the interests of U.S. private companies in their drive to compete against BRICS and European companies in Africa.

But, beyond “catching up” with China and the European Union, the Africa-U.S. Summit should be viewed in the context of the discourse on “Africa Rising”. Indeed, for neoliberal ideologues, Africa seems to hold the solution to the crisis of global capitalism.

In January 2014, Japanese Prime Minister Shinzo Abe toured Africa. In a speech at the headquarters of the African Union, in Addis Ababa, he was quoting as saying that “with its immense resources, Africa is holding the hopes of the world.” This was an echo to a report by the French Senate, released in December 2013, with the incredible title ‘Africa is our Future’.

This may explain French military adventures in Africa over the last several years, from Cote d’Ivoire to Libya, from Mali to the Central African Republic, among others.

Several forums are being organised to advise Western corporations to invest in Africa and tap into its resources. Apparently, Africa has become the “new frontier” of global capitalism, at the expense of its own people. As the renowned Egyptian economist Samir Amin used to say: “the West cares about Africa’s resources, not about its people.” (END/IPS COLUMNIST SERVICE)

(Edited by Phil Harris)

Excerpt:

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

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

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

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

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

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

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

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

A quiet land-grab

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Editing by: Kitty Stapp

The writer can be contacted at kanyaldalmeida@gmail.com

Chandrasekhar Chalapurath, an economist at Jawaharlal Nehru University in New Delhi, talks about development banks in India, at the International Seminar on the BRICS Bank. Credit: Mario Osava/IPS

By Mario Osava
FORTALEZA, Brazil, Jul 17 2014 (IPS)

The creation of BRICS’ (Brazil, Russia, India, China and South Africa) own financial institutions was “a disappointment” for activists from the five countries, meeting in this northeastern Brazilian city after the group’s leaders concluded their sixth annual summit here.

The New Development Bank (NDB) and the Contingent Reserve Arrangement (CRA), launched Tuesday Jul. 15 at the summit in the northeastern Brazilian city of Fortaleza, represent progress “from United States unilateralism to multilateralism,” said Graciela Rodriguez, of the Brazilian Network for the Integration of Peoples (REBRIP).

But “the opportunity for real reform was lost,” she complained to IPS at the International Seminar on the BRICS Bank, held in this city Wednesday and Thursday Jul. 16-17 as a forum for civil society organisations in parallel to the sixth summit.

The format announced for the NDB “does not meet our needs,” she said.

The NDB will promote “a new kind of development" only if its loans are made conditional on the adoption of low-polluting technologies and are guided by the Millennium Development Goals and their successors, the Sustainable Development Goals. -- Carlos Cosendey, international relations secretary at the Brazilian foreign ministry
The bank’s goal is to finance infrastructure and sustainable development in the BRICS and other countries of the developing South, with an initial capital investment of 50 billion dollars, to be expanded through the acquisition of additional resources.

“We want an international system that serves the majority, not just the seven most powerful countries (the Group of Seven),” that does not depend on the dollar and that has an international arbitration tribunal for financial controversies, said Oscar Ugarteche, an economics researcher at the National Autonomous University of Mexico.

“It is unacceptable that a district court judge in New York should put a country at risk,” he told IPS, referring to the June ruling of the U.S. justice system in favour of holdouts (“vulture funds”) in their dispute with Argentina, which could force another suspension of payments.

“We need international financial law,” similar to existing trade law, and an end to the dominance of the dollar in exchange transactions, which enables serious injustice against nations and persons, like embargoes on payments and income in the United States, he said.

“Existing international institutions do not work,” and the proof of this is that they have still not overcome the effects of the 2008 financial crisis, said the Mexican researcher.

Major powers like the United States and Japan have unsustainable debt and fiscal deficits, yet are not harassed by the International Monetary Fund (IMF), in contrast to the treatment meted out to less powerful nations, particularly in the developing South.

During the seminar, organised by REBRIP and Germany’s Heinrich Böll Foundation, oft-repeated demands were for civil society participation, transparency, environmental standards and consultation with the populations affected by projects financed by the NDB.

These demands have not yet been included in the NDB but may be discussed during its operational design over the next few years, while the group’s parliaments ratify its approval, said Carlos Cosendey, international relations secretary at the Brazilian foreign ministry, in a dialogue with activists.

Participants at one of several panels at the International Seminar on the BRICS Bank, held Jul. 16-17 in Fortaleza, Brazil. Credit: Mario Osava/IPS

Cosendey said that a disadvantage of the multilateral bank was the need for its regulations not to be confused with infringement of national sovereignty of member states. The political, cultural, legal and ethnic differences between the five countries could pose a major obstacle to the adoption of common criteria, he said.

The NDB can be constructive “if it integrates human rights” into its principles and presents solutions for the social impacts of the projects it finances, said Nondumiso Nsibande, of ActionAid South Africa, an NGO.

“We need roads, other infrastructure and jobs, as well as education, health and housing,” but big projects tend to harm poor communities in the places where they are carried out, she told IPS. It is still not known what levels of transparency and social concern the bank will have, she said.

In the view of Chankrasekhar Chalapurath, an economist at Jawaharlal Nehru University in New Delhi, the NDB will alleviate India’s great needs for infrastructure, energy, long distance transport and ports. However, he does not expect it to make large investments in one key service for Indians: sanitation.

Having an Indian as the bank’s first president, as the five leaders have decided, will help attract more investments, but he said people’s access to water must remain a priority.

Cosenday said the NDB will promote “a new kind of development.”

But Chalapurath told IPS that this will only happen if its loans are made conditional on the adoption of low-polluting technologies and are guided by the Millennium Development Goals and their successors, the Sustainable Development Goals, as well as human rights and other best practices.

Adopting democratic processes within the bank will facilitate dialogue with social movements, parliaments and society in general, he said.

Incorporating environmental issues and gender parity is also essential, said Ugarteche and Rodriguez, who regards this as necessary in order to make progress towards “environmental justice.”

Not only roads and ports need to be built; even more important is the “social infrastructure” that includes sanitation, water, health and education, said Rodriguez, the coordinator of the REBRIP working group on International Economic Architecture.

Mobilising resistance to large projects that affect local populations in the places they are constructed will be part of the response to the probable priority placed by the NDB on financing physical infrastructure projects, she announced.

The social organisations gathered in Fortaleza, with representatives from Brazil, India, China, South Africa and other countries that are not members of the group, are preparing to coordinate actions to influence the way the bank and its policies are designed, and to monitor its operations and the actions of the BRICS group itself.

Brazilian economist Ademar Mineiro, also of REBRIP, said there was potential for national societies to influence the format and policies of the NDB, and time for them to organise and mobilise. “It is an unprecedented opportunity,” he told IPS.

Russia did not originally support the BRICS bank, preferring private funding. But Mineiro said its position changed after the United States and the European Union involved multilateral financial institutions like the World Bank in sanctions against Moscow for its annexation of Crimea, a part of Ukraine.

BRICS evolved “from the economic to the political,” with its members demanding more power in the international system. The alliance is one of the pillars of the Chinese strategy to conquer greater influence, including in the West, said Cui Shoujun, a professor at the School of International Studies of Renmin University in China.

“The BRICS need China more than the other way round,” he told IPS, adding that the Chinese economy is 20 times larger than South Africa’s and four times larger than those of India and Russia.

As well as seeking natural resources from other countries, among the reasons why China has joined and supports BRICS is strengthening the legitimacy in power of the Communist Party through internal stability and prosperity, the academic said.

(END)

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

By Yilmaz Akyüz
GENEVA, Jul 16 2014 (IPS)

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

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

Yilmaz Akyuz

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Excerpt:

The staff at the International Monetary Fund (IMF) has issued an unusually stark warning over the lack of harmonised global tax policies, pointing out that these gaps are allowing for widespread tax gaming by corporations with particularly negative impacts for developing countries.

Anti-poverty advocates are lauding a new staff paper from the fund released Wednesday. Its findings not only coincide with civil society calls for major taxation reforms at the national and international levels, but also repeatedly push back against longstanding tax-related dogma, including that offered by the Washington-based IMF itself.“As tax dodging knows no border, it makes sense to move to the international level to create such a worldwide entity.” -- Catherine Olier of Oxfam

“This is, frankly, a revolutionary paper,” Jo Marie Griesgraber, the executive director of the New Rules for Global Finance Coalition, a Washington-based international network, told IPS.

“It looks very carefully at many aspects of tax planning, and each time says that this has very negative impact on developing countries … Ultimately, it says that traditional tax theory is essentially uninformed by empirical knowledge.”

The paper is the result of a new focus on tax-dodging among the Group of 20 (G20) industrialised countries, which directed the fund to undertake related research. The findings are particularly notable in their sustained focus on the impacts on developing countries.

“Our technical assistance work in developing countries frequently encounters large revenue losses through gaps and weaknesses in the international tax regime,” Michael Keen, deputy director of the IMF’s Fiscal Affairs Department, said in a statement.

“The sums involved for them can be large, not just relative to corporate tax but relative to all tax revenue: 10-15 percent in some cases. The paper reports new evidence that these effects are in fact systematically more important for developing countries.”

Corporate tax rates in all countries have plummeted in recent decades, the paper notes.

Low-income countries have seen these rates degrade from near 50 percent in 1980 to under 30 percent last year. Others have seen similar plunges, with high-income countries seeing corporate taxation fall from around 40 percent three decades ago to little more than 20 percent today.

Such trends have been tracked for years. Yet in the aftermath of the global financial crisis, rich and middle-income countries have begun actively discussing how to maximise their tax revenues, with a focus on ending corporate accounting gimmickry.

Rich companies and individuals could be stashing away as much as 20 trillion dollars overseas in order to escape national taxation, according to some estimates.

“Developed countries today need more income and are mad because not everyone is paying their taxes,” Griesgraber says.

“And that anger is also translating into public pressure. People who pay their taxes even during a difficult recession are even madder than the governments.”

“Meaningless” designations

According to the IMF data, developing countries should perhaps be the most incensed by the impacts of today’s global taxation hodgepodge. The paper offers new findings on the ramifications of what the fund terms “spillover effects” – the ways in which one country’s tax rules impact on another country, which can also be thought of in terms of tax competition between countries.

This phenomenon has been significantly exacerbated as multinational companies have increasingly learned how to legally “move” their operations – largely on paper – for tax benefit. Such companies appear to be based in countries with low taxes, despite doing most of their work in another country that, in turn, is unable to place levies on the company’s full earnings.

“Current international tax arrangements rest on concepts of companies’ ‘residence’ and the ‘source’ of their income, both of which globalization has made increasingly fragile (some would say meaningless),” the paper states.

“At its core, a key issue in assessing any international tax arrangement is how it divides the rights to tax between source and residence countries … The allocation of rights is especially important for low-income countries, however, as flows are for them commonly very asymmetric – they are essentially ‘source’ countries.”

The fund staff found that the impact of these spillover effects on corporate tax bases are “significant and sizable” but are “especially pronounced for low-income countries”. Compared to rich countries, the paper notes, “the base spillovers from others’ tax rates are two to three times larger” in developing countries, and “statistically more significant”.

Particularly problematic has been the extractives industry, though the fund also calls out telecommunications companies. The paper recounts IMF experiences in multiple countries where corporate tax trickery has eaten up much of a project’s revenue, such as a “gold mining sector in which USD 100 billion has been invested over the last decade, but which is almost entirely debt financed”.

The fund ultimately goes so far as to suggest that countries should be extremely careful about signing any bilateral tax treaty, urging developing country governments instead to signal openness to investment by other means. Through such agreements, countries can sign away their right to levy full tax rates and give an upper hand to foreign corporations.

“The IMF analysis raises some very worrying concerns about the impact of tax rules and practices in rich countries on the ability of poor countries to raise their own revenues,” Diarmid O’Sullivan, a tax justice policy advisor with ActionAid, a watchdog group, said Wednesday.

“We see a clear message to … major capital-exporting countries to review their tax rules and make sure they are not harming the ability of poor countries to raise the revenues they need for their development.”

Comprehensive approach

One key step being pushed by governments and civil society today to cut down on corporate tax avoidance entails the automatic exchange of tax information between governments. Doing so, proponents say, would quickly clear up the discrepancies that can be exploited by tax-dodgers.

In February, the Organisation for Economic Co-operation and Development (OECD), comprised of 34 rich countries, unveiled just such a proposal. Still, anti-poverty campaigners have warned that developing economies were not included in discussions around the OECD plan – though a roadmap is due by September on facilitating poor countries’ participation in such exchanges, an OECD official told IPS.

Some are now hoping that this new flurry of work could be leading towards the formalisation of a stricter international framework on tax policy, in line with the globalised environment of today’s multinational corporations. Indeed, the IMF’s new paper notes that “the case for an inclusive and less piecemeal approach to international tax cooperation grows.”

Indeed, a decade and a half ago an IMF official proposed the establishment of a World Tax Authority, an idea that campaigners are now hoping to revive.

“As tax dodging knows no border, it makes sense to move to the international level to create such a worldwide entity,” Catherine Olier, a policy advisor with Oxfam International, an advocacy and humanitarian group, told IPS.

“Modalities about its functionalities and mandate would remain to be determined, but it could have a role in setting minimum standards to avoid harmful tax competition between countries – and, if ambitious, an international dispute mechanisms to fight countries that deliberately put in place tax policies with too much negative spillover effect on others.”

The IMF and OECD reports will both go before the G20 at a summit in November.

The Caribbean Debt Network meets in Grenada. Credit: Bernard Lauwyck

By Eric LeCompte
WASHINGTON, May 5 2014 (IPS)

Last Fall, I witnessed the Grenada Council of Churches insert themselves into negotiations between their government and the International Monetary Fund (IMF) around the island’s debt restructuring and presumed austerity policies. Religious leaders called from pulpits across the tiny island for a “Jubilee” or national debt cancellation.

When I recently returned to the Spice Isle, I was awed by what I saw – the religious experiment in Grenada was spreading like wild fire to other Caribbean countries."Our churches are on the front lines of fighting poverty in the Caribbean. We see how the debt crisis is hurting the poorest people on the islands." -- Presbyterian Minister Osbert James

At Blessed Sacrament Catholic Church, overlooking the Caribbean Sea, the Caribbean Council of Churches, four Catholic Dioceses and various religious leaders from across the region gathered to launch the Caribbean Debt Network.

They came from St. Vincent’s and The Grenadines, Barbados, Dominica, Trinidad and Tobago, Jamaica and Grenada, knowing their unity is more vital than ever.

Out of the 20 most heavily indebted countries in the world, six are Caribbean countries.

The islands are dotted with makeshift shacks, where depending on the island, 20 percent to 50 percent of the population lives in poverty. Various islands see high unemployment rates from 30 to upwards of 50 percent.

Like dominoes, island after island is going through International Monetary Fund IMF debt restructurings that demand austerity policies that hurt millions of people living in extreme poverty.

Among most Caribbean tourist areas, you can’t avoid the working poor.

In fact, the plight of the vulnerable along with infrastructure challenges are so palpable on the small islands, you scratch your head wondering why the IMF calls these countries “Middle Income.” When a poor country is defined as Middle Income, they cannot apply for existing debt relief processes such as the Heavily Indebted Poor Countries Initiative or HIPC.

The process by which economists define a country as Middle Income is by averaging the total income of everyone in the country (per capita). In other words if 99 people make one dollar and one person makes 100,000 dollars, the average income per person is 1,001 dollars.

In a place like Grenada, where the poverty rate ranges from 38 to 50 percent, the income levels are skewed. The religious community uses the words “social sin” to describe how income inequality is hidden from us as struggling Caribbean economies are denied relief because of what they are called.

Even with HIPC, any poor country will tell you it’s not a walk in the park. The IMF and other international financial institutions acknowledge that the process offers too little debt relief, too late, with too many benchmarks. However, when struggling economies go through the painful act of debt restructuring without even the framework of HIPC, it’s wrangling a hurricane.

And real hurricanes are real threats. In 2004, 200 percent of Grenada’s GDP was wiped out in three hours by Hurricane Ivan. With powerful hurricanes landing every 10 years and financial crises in other parts of the world impacting the Caribbean’s primary industry of tourism, countries across the region seem destined for never-ending cycles of austerity and debt.

“Our churches are on the front lines of fighting poverty in the Caribbean. We see how the debt crisis is hurting the poorest people on the islands,” notes the new chair of the Caribbean Debt Network, Presbyterian Minister Osbert James.

James’s historic cathedral, among many structures unrepaired since the 2004 Hurricane, still lacks a roof.

While it’s still too early to assess Grenada’s debt restructuring, we can see that the Jubilee model is opening up shop on other Caribbean islands.

At Blessed Sacrament Catholic Church, the regional Caribbean religious leaders launched the new coalition in a conference room aptly named The Upper Room. For Christians, it evokes Pentecost when the Holy Spirit empowered religious leaders to inspire others. Pentecost is derived from the more ancient Jewish holiday, Shavuot, which celebrates the gift of our covenant with God and God’s abundance.

At the founding conference last week, the religious community sought to spread Pentecost and Shavuot. They resolved the following:

1. To raise the awareness of the effects of the sovereign debt on Caribbean Countries

2. To establish a structure within which our countries can resolve indebtedness fairly

3. To build a Jubilee coalition to achieve debt resolution, sustainable development and fiscal responsibility at all levels

4. To illustrate how sovereign debt impacts issues of concern, such as human trafficking, drug trafficking, climate change and HIV/Aids.

5. To work with governments and with our international partners on all aspects of debt

6. To encourage the Governments of Grenada and Antigua & Barbuda to champion the cause of a special initiative for resolving Caribbean indebtedness to achieve a sustainable debt level

Eric LeCompte is the Executive Director of Jubilee USA Network and serves on UN expert working groups that focus on debt restructuring and financial reforms. He recently returned from Grenada where he supported the launch of the Caribbean Debt Network.

While Republicans complain relentlessly about U.S. President Barack Obama’s alleged failure to exert global leadership on geo-political issues like Syria and Ukraine, they are clearly undermining Washington’s leadership of the world economy.

That conclusion became inescapable here during this week’s in-gathering of the world’s finance ministers and central bankers at the annual spring meeting here of the International Monetary Fund (IMF) and the World Bank.The delays are clearly damaging Washington’s global economic and geo-political agenda: persuading other G20 countries to adopt expansionary policies and punish Moscow for its moves against Ukraine.

In the various caucuses which they attended before the formal meeting began Friday, they made clear that they were quickly running out of patience with Congress’s – specifically, the Republican-led House of Representatives – refusal to ratify a 2010 agreement by the Group of 20 (G20) to modestly democratise the IMF and expand its lending resources.

“The implementation of the 2010 reforms remains our highest priority, and we urge the U.S. to ratify these reforms at the earliest opportunity,” exhorted the G20, which represent the world’s biggest economies, in an eight-point communiqué issued here Friday.

“If the 2010 reforms are not ratified by year-end, we will call on the IMF to build on its existing work and develop options for next steps…” the statement asserted in what observers here called an unprecedented warning against the Bretton Woods agencies’ most powerful shareholder.

The message was echoed by the Group of 24 (G24) caucus, which represents developing countries, although, unlike the G20, its communique didn’t mention the U.S. by name.

“We are deeply disappointed that the IMF quota and governance reforms agreed to in 2010 have not yet come into effect due to non-ratification by its major shareholder,” the G24 said.

“This represents a significant impediment to the credibility, legitimacy and effectiveness of the Fund and inhibits the ability to undertake further, necessary reforms and meet forward-looking commitments.”

The reform package, the culmination of a process that began under Obama’s notoriously unilateralist Republican predecessor, George W. Bush, would double contributions to the IMF’s general fund to 733 billion dollars and re-allocate quotas – which determine member-states’ voting power and how much they can borrow – in a way that better reflects the relative size of emerging markets in the global economy.

In addition to enhancing the IMF’s lending resources, the main result of the pending changes would increase the quotas of China, Brazil, Russia, India, and Turkey, for example, at the expense of European members whose collective representation on the Fund’s board is far greater than the relative size of their economies.

Spain, for instance, currently has voting shares similar in size to Brazil’s, despite the fact that the Spanish economy is less than two-thirds the size of Brazil’s. And of the 24 seats on the IMF’s executive board, eight to ten of them are occupied by European governments at any one time.

The reforms would only change the status quo only modestly. While the European Union (EU) members currently hold a 30.2 percent quota collectively, that would be reduced only to 28.5 percent. The biggest gains would be made by the so-called BRICS (Brazil, Russia, India, China, and South Africa) – from 11 percent to 14.1 percent — although almost all of the increase would go to Beijing.

Washington’s quota would be marginally reduced – from 16.7 percent to 16.5 percent, preserving its veto power over major institutional changes (which require 85 percent of all quotas). Low-income countries’ share would remain the same at a mere 7.5 percent collectively, although their hope – shared by civil-society groups, such as Jubilee USA and the New Rules for Global Finance Coalition — is that this reform will make future changes in their favour easier.

Thus far, 144 of the IMF’s 188 member-states, including Britain, France, and Germany and other European countries that stand to lose voting share, have ratified the package. But, without the 16.7 percent U.S. quota, the reforms can’t take effect.

The Obama administration has been criticised for not pressing Congress for ratification with sufficient urgency. But, realising that its allies’ patience was running thin, it pushed hard last month to attach the reform package to legislation providing a one-billion-dollar bilateral aid package for Ukraine during the crisis with Russia over Crimea.

While the Democratic-led Senate approved the attachment, the House Republican leadership rejected it, despite the fact that Kiev would have been able to increase its borrowing from the IMF by about 50 percent under the pending reforms.

House Republicans – who, under the Tea Party’s influence, have moved ever-rightwards and become more unilateralist on foreign policy since the Bush administration – have shown great distrust for multilateral institutions of any kind.

Both the far-right Heritage Foundation and the neo-conservative Wall Street Journal have railed against the reforms, arguing variously that they could cost the U.S. taxpayer anywhere from one billion dollars to far more if IMF clients default on loans, and that the changes would reduce Washington’s ability to veto specific loans.

They say the IMF’s standard advice to its borrowers to raise taxes and devalue their currency is counter-productive and could become worse given the Fund’s new emphasis on reducing income inequalities; and that, according to the Journal, the reforms “will increase the clout of countries with different economic and geo-political interests than America’s.”

Encouraged by, among others, the U.S. Chamber of Commerce and their Wall Street contributors, some House Republicans have indicated they could support the reforms. But thus far they have insisted that they would only do so in exchange for Obama’s easing new regulations restricting political activities by tax-exempt right-wing groups.

Meanwhile, however, the delays are clearly damaging Washington’s global economic and geo-political agenda – persuading other G20 countries to adopt expansionary policies and punish Moscow for its moves against Ukraine – during the meetings here.

“The proposed IMF reforms are a no-brainer,” according to Molly Elgin-Cossart, a senior fellow for national security and international policy at the Center for American Progress. “They modernise the IMF and restore American leadership on the global stage at a time when the world desperately needs it, without additional cost for American taxpayers.”

Further delay, especially now that the G20 appear to have set a deadline, could in fact reduce Washington’s influence.

While she stressed she was not prepared to give up on Congress, IMF managing director Christine Lagarde told reporters Thursday the Fund may soon have to resort to a “Plan B” to implement the reforms without Washington’s consent.

While she did not provide details of what are now backroom discussions, two highly respected former senior U.S. Treasury secretaries suggested in a letter published Thursday by the Financial Times that “the Fund should move ahead without the U.S. …by raising funds from others while depriving the U.S. of some or all of its longstanding power to block major Fund actions.”

C. Fred Bergsten and Edwin Truman, who served under Jimmy Carter and Bill Clinton, respectively, suggested that the IMF could make permanent an initiative to arrange temporary bilateral credit lines of nearly 500 billion dollars from 38 countries who could decide on their disposition without the U.S.

More radically, they wrote, the Fund could increase total country quota subscriptions that would remove Washington’s veto power over institutional changes.

“The U.S. deserves to lose influence if it continues to fail to lead,” the two former officials wrote.

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

Residents of Nairobi's Mathare slum, one of the largest in Kenya. Credit: Miriam Gathigah/IPS

By Farangis Abdurazokzoda
WASHINGTON, Apr 10 2014 (IPS)

Global income inequality threatens economic and social viability, according to a World Bank report released Thursday, reiterating a new but increasingly forceful narrative from both the bank and International Monetary Fund (IMF).

Yet as the two Washington-based institutions gather here this week for semi-annual meetings, anti-poverty campaigners are calling on the bank and IMF to translate such rhetoric into practice.“Fewer than 100 people control as much of the world’s wealth as the poorest 3.5 billion combined.” -- World Bank President Jim Yong Kim

“World Bank President Jim Kim and IMF Managing Director Christine Lagarde have been vocal about the dangers of skyrocketing inequality, but there is still a long way to go,” Max Lawson, the head of policy and advocacy for Oxfam GB, a humanitarian and advocacy group, told IPS.

“There’s no trade-off between growth and inequality,” concurred his colleague, Nicolas Mombrial, of Oxfam America. “There will be no inclusive growth if economic inequality remains out of control.”

Oxfam and other groups are now calling on the World Bank and IMF to take concrete action to address issues associated with wealth inequality worldwide. IMF policies in particular have been criticised in the past for particularly negative impacts on poor and marginalised communities.

“We are pleased to see the IMF recognise that drastic fiscal consolidation policies have been a drag on growth, something that unions have been saying since the inappropriate shift to austerity made in 2010,” Sharan Burrow, general secretary of the International Trade Union Confederation (ITUC), said Thursday.

“The IMF’s undermining of labour standards and collective bargaining institutions in several European countries, for example, has already had important impacts on income distribution that are likely to intensify in the future. We urgently call for a review and major changes in the Fund’s labour market policies.”

Oxfam’s Lawson lists at least three areas that he would like to see receive serious consideration by the IMF and the World Bank.

“First of all, it is necessary to develop a more adequate measurement of income inequality,” he says. “This needs to look at not only the income of the bottom 40 percent of the world’s income earners are measured but also the income flows of the world’s top 10 percent.”

Lawson suggested that the IMF, given its constant and influential interaction with the world’s governments, would be particularly well placed to advance a stronger measurement of inequality.

“Secondly, it is necessary to reform taxation schemes,” Lawson continued. “It is not fair that a billionaire pays a lower percentage in tax than a bus driver. And thirdly, it is essential to provide access to universal health care and education.”

Oxfam is also calling on governments to address inequality by focusing more robustly on tax dodging and related financial secrecy. Along with others, the group is calling for a global goal to end extreme inequality as part of the discussion around the post-2015 international development goals.

“We cannot hope to win the fight against poverty without tackling inequality,” Oxfam says. “Widening inequality is creating a vicious circle where wealth and power are increasingly concentrated in the hands of a few, leaving the rest of us to fight over crumbs from the top table.”

Widening gap

Inequality has become a particularly prominent topic in international policy discussions over the past two years. In part this is because, in the aftermath of the global economic downturn of 2008, the rich have bounced back much more quickly than the poor – thus widening the inequality gap.

A recent list of global billionaires published by Forbes underscored the scope of the problem. According to that data, just 67 people have as much wealth as the poorest 3.5 billion people.

“Fewer than 100 people control as much of the world’s wealth as the poorest 3.5 billion combined,” World Bank Group President Jim Yong Kim said Thursday at the start of the World Bank-IMF Spring Meetings. At similar meetings last year, Kim announced a new bank goal of eliminating extreme poverty by 2030.

Yet on Thursday he warned that economic growth is not enough to reach that goal.

“Even if all countries grow at the same rates as over the past 20 years, and if the income distribution remains unchanged, world poverty will only fall by 10 percent by 2030, from 17.7 percent in 2010,” he said.

“We need a laser-like focus on making growth more inclusive and targeting more programmes to assist the poor directly if we’re going to end extreme poverty.”

Kim’s warning is underscored in a press release published on Thursday by the bank.

“Rising inequality of income can dampen the impact of growth on poverty,” the paper says.

“In countries where inequality was falling, the decline in poverty for a given growth rate was greater. Even if there is no change in inequality, the ‘poverty-reducing power’ of economic growth is less in coun­tries that are initially more unequal.”

The paper emphasises that the governments and donors can’t aim only to lift people out of extreme poverty, but also have to ensure that people aren’t “stuck just above the extreme poverty line due to a lack of opportunities that might impede progress toward better livelihoods.”

“Persistent inequality, where the rich are continuously advantaged and the rest struggle to catch up, makes people frustrated with the system,” Carol Graham, a scholar at the Brookings Institution, a Washington think tank, told IPS.

“Such inequality pre-programmes the public perception downward. And even in countries where there is a progress with regard to inequality, and social frustration impacts political instability.”

In a blog post, Carol Graham and another researcher tie recent protests in Chile, Brazil, Russia, Turkey, Venezuela, Ukraine and even the Arab Spring to widening income differential or inequality.

“The protesters are not a nothing-to-lose risk taker, but middle-aged, middle income, and more educated than average people who are unhappy about an unfair advantage of the rich and a lack of opportunities for the poor,” they write, calling the “prototypical” protestors “frustrated achievers”.

“Extreme inequality is particularly dangerous in countries in political and economic transition,” they note.

Despite pressure from the Barack Obama administration, Ukraine’s new prime minister, and a veritable who’s who in Washington’s foreign policy and financial establishment, Congress adjourned Friday for a 10-day recess without approving emergency assistance for an increasingly beleaguered and economically bereft Ukraine.

The failure to pass a billion-dollar package of loan guarantees – just two days before a Moscow-backed plebiscite in Crimea is expected to endorse secession from Ukraine and integration with Russia – resulted largely from Republican opposition to reforming the International Monetary Fund (IMF), the Washington-based multilateral agency that is expected to take the lead in any rescue of Kiev’s debt-ridden economy.The reform is part of a larger movement to make the governance of major international institutions more representative by providing a stronger voice for middle-income countries, in particular.

While the Democrat-led Senate Foreign Relations Committee combined both the aid and the IMF reform package, Republican leaders in the House, which passed the aid package as a stand-alone measure last week, said they opposed adding the IMF provisions, which, among other measures, would permit the Fund to lend more money to needy clients, including Ukraine.

“I understand the administration wants the IMF money, but it has nothing at all to do with Ukraine,” said House Speaker John Boehner just as the Senate was poised to pass its version of the emergency bill.

He spoke after Secretary of State John Kerry exhorted lawmakers to approve the Senate package during a hearing Thursday before flying off for his latest – and apparently inconclusive – meeting on the Ukraine crisis with Russian Foreign Minister Sergei Lavrov in London Friday.

“We must have IMF reform, we must have the quota,” he said in a reference to the increase in Ukraine’s ability to borrow more from the Fund if the package goes through. “It would be a terrible message to Ukraine for everybody to be standing up talking, appropriately, about what’s at stake and not to be able to follow through.”

He was backed up by a letter sent to the Congressional leadership by more than two dozen former cabinet officials, including former national security advisers Henry Kissinger, Brent Scowcroft, Zbigniew Brzezinski, and Condoleezza Rice, and former Treasury Secretaries Robert Rubin, Larry Summers, and Robert Zoellick, among many others.

“The immediate importance of a strong IMF role for countries in crisis is apparent now in Ukraine, which seeks help from the U.S. and IMF to maintain its independence and economic health,” according to the letter. “Implementation of IMF quota reform would mean Ukraine would be able to borrow 60 percent more in rapid IMF financing (from one billion dollars to 1.6 billion dollars) than is possible today.”

Coupled with other aid, the letter, which was coordinated by the Bretton Woods Committee, asserted, the “geopolitical position” of its government in dealing with the current crisis with Russia should be enhanced.

The IMF reform package, which was adopted by the Fund’s governing board in 2010, cannot take formal effect until the U.S. approves it given the effective veto power Washington wields in the agency.

In addition to providing the Fund with additional lending resources, its main effect would be to reallocate countries’ quotas to increase the currently underweighted influence of emerging economies, such as Brazil, China, India, and Turkey, while decreasing the cumulative share of European members whose representation on the board – and whose access to the IMF’s lending facilities, especially in the wake of the eurocrisis — far exceeds their actual share of the global economy.

Spain, for instance, has voting shares similar in size to Brazil’s, despite the fact that the Spanish economy is less than two-thirds of Brazil’s. Of the 24 seats on the IMF’s executive board, at least eight are held by European governments at any one time.

The reform is thus part of a larger movement to make the governance of major international institutions more representative by providing a stronger voice for middle-income countries, in particular.

The Obama administration has played a significant role in this effort, heralding it as the kind of governance reform of global institutions that is essential for the international system of the 21^st century, as the legacies of imperialism and colonialism of the previous two centuries fade into history.

Administration officials have applied some of the same reasoning in response to Russia’s de facto occupation of Crimea.

“You just don’t in the 21st century behave in 19th century fashion by invading another country on (a) completely trumped up pretext,” Kerry said earlier this month as the crisis unfolded.

But most Republican lawmakers have resisted Obama’s version of 21^st century global governance, particularly when it comes to the reform of international institutions like the IMF, preferring instead to maintain the status quo ante, even if it results in delays at a critical moment in desperately needed financial aid to Ukraine.

Two senators who voted against the bill in the Foreign Relations Committee, including two likely 2016 Republican presidential candidates, Rand Paul and Marco Rubio, noted that Russia’s IMF quota would be increased – if only from 2.5 percent to 2.7 percent – if the reform took effect.

“This legislation is supposed to be about assisting Ukraine and punishing Russia, and the IMF measure completely undercuts both of these goals by giving Putin’s Russia something it wants,” Rubio argued. Paul noted that any loans provided to Ukraine would probably be used to repay Moscow for billions of dollars in debts it accumulated by importing Russian gas.

House Republicans have also objected to the reforms because they would double Washington’s contribution quota to 63 billion dollars, although that amount would have no direct budgetary impact because it would be shifted from Washington’s share of an emergency fund created by the IMF to cope with the 2008 financial crisis to the agency’s general fund.

Republicans, however, counter that the U.S. won’t be able to exercise as much influence over loans from the general fund and have expressed concern that some of the U.S. funding could be on the hook if European countries to which the IMF has lent many times their quota default.

But the Bretton Woods letter stressed that Washington’s clout – both in financial and foreign-policy terms – in dealing with Ukraine and other hot spots would be enhanced by approval of the reforms, pointing out that when Russia went to war with George in 2008, the IMF helped prevent an economic collapse in Tbilisi, just as it supported Easter European countries after the fall of the Berlin Wall.

“An undeniable fact is that the IMF has been a vital tool in every administration’s foreign policy arsenal since the Fund’s inception,” said the Committee’s director, Randy Rodgers.

In another letter sent to Boehner earlier in the week by the Committee and the activist New Rules for Global Finance Coalition, nearly 200 policy experts, business and academic leaders, and former U.S. officials also called for passage of the IMF reform provisions.

In addition to the New Rules Coalition, officials from a number of anti-poverty groups that have been critical of IMF austerity programmes, such as Oxfam America, a dozen church groups, and Jubilee USA network, signed the letter, calling the quota reform a step toward greater democratisation of the Fund.

“We know we can’t do anything additional in terms of governance reform until this passes,” New Rules’ director Jo Marie Griesgraber told IPS. “This begins to wear down the European over-representation …and enables Ukraine to double its quota.”

Several Republicans on the Senate Foreign Relations Committee also deplored the failure of their House colleagues to support the bill.

The IMF “can provide stability at a time we need it,” said Sen. Lindsey Graham, one of the most prominent anti-Moscow hawks in the Senate. Calling it a “strategic tool” for U.S. foreign policy, he said, “We would be short-sighted to not embrace this reform.”

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

Biomass is the basic source of fuel for many in the southern Mexican state of Chiapas. Credit: Mauricio Ramos/IPS

By Carey L. Biron
WASHINGTON, Mar 13 2014 (IPS)

The International Monetary Fund (IMF) is wading strongly into the global debate over the impact of growing income inequality, offering a series of controversial findings that push back on long-held economic orthodoxy – of which the fund itself has long been a key proponent.

The IMF, arguably the world’s premiere financial institution, is stating unequivocally that income inequality “tends to reduce the pace and durability” of economic growth. In a paper released Thursday, the fund also suggests that a spectrum of approaches to “progressive” redistribution – national tax and spending policies that are purposefully tilted in favour of the poor – would decrease inequality and hence “is overall pro-growth”.“This is the final judgment on inequality being bad for growth.” -- Nicolas Mombrial

“This is the final judgment on inequality being bad for growth,” Nicolas Mombrial, a spokesperson for Oxfam, a humanitarian group, told IPS in a statement.

“The IMF’s evidence is clear: The solutions to fighting inequality are investing in health care and education, and progressive taxation. Austerity policies do the opposite, they worsen inequality … We hope this signals a long-term change in IMF policy advice to countries – to invest in health and education and more progressive fiscal policies.”

For the past half-century, the Washington-based IMF has operated as the world’s “lender of last resort” for failing economies. In return for offering short-term loans to governments in economic crisis, the fund typically demands the imposition of a range of often stringent austerity measures aimed at solidifying the country’s finances.

After years of frustration over these conditions by anti-poverty campaigners, the IMF has recently engaged in a broad reappraisal of this approach. In November, the fund proposed an overhaul of its debt-restructuring guidance, though formal introduction of this proposal has now been pushed back to June, following pushback.

“Although the main points are not new, the IMF paper is nonetheless significant because the organisation has typically been at the more conservative end in its policy advice – from being seen to restrict measures that would ameliorate the worst impacts of crises on those in deepest poverty, for example, to promoting quite damagingly regressive changes to tax systems in their country advice,” Alex Cobham, a research fellow with the London office of the Center for Global Development (CGD), a think tank based here, told IPS.

“Nonetheless, we should not expect massive or immediate changes in IMF policy. The situation of tax policy demonstrates very well how the organisation can continue to promote in-country the same approaches that their own research has discredited.”

Hot subject

The new advice on income inequality will likely be received sceptically in many corners, though the fund is giving the findings its full backing. While Thursday’s release came in the form of a staff paper, the report was given a high-profile rollout here, including an introduction from the fund’s second-highest official, David Lipton.

“Some may be surprised that the fund is engaging in this debate on the design of redistributive policies … [but] one reason why we are discussing this issue today is it’s becoming a hot subject,” Lipton, the fund’s first deputy managing director, said Thursday at the report’s unveiling.

“The interest in redistribution, as reflected in public surveys and our discussions with our members, shows that interest is higher than in the past. Our members want to explore with us how they can pursue distributive policies in an efficient manner.”

The IMF is quick to note that the new paper, which builds on a research note released last month, constitutes not recommendations but rather advice to its 188-country membership, while country-specific design for any redistributive mechanism remains of paramount importance. Nonetheless, the “efficient” options it is offering to both developing and developed governments consider are striking.

These include placing higher taxes on the rich than on other segments of society, as well as strengthening property taxes, potential for which the fund says is particularly significant in developing countries. It also suggests considering increasing the age at which citizens become eligible for pensions and other state old-age programmes.

Many of these suggestions have long been pushed by development advocates as well as global labour-rights activists.

“We’re pleased that the IMF has finally caught up with what the global union movement has been saying for years – that inequality is the number one threat to the economic recovery,” Philip Jennings, the general secretary of UNI Global Union, said in a statement. “The only way out of this crisis is inclusive, sustainable economic growth with a living wage for all.”

CGD’s Cobham says the paper will give support to policymakers who want to tackle inequality, and could serve as the basis for a broader global agreement on the issue.

“It may in fact mark an important moment in establishing the breadth of the consensus that reducing income inequality should be one of the targets of the post-2015 framework that will succeed the Millennium Development Goals,” he says.

Greatest risk

A half-decade since the start of the global economic crisis, inequality has risen to the top of global agendas.

In January, the World Economic Forum warned that the growing gap between rich and poor, brought about by globalisation, constituted “the most likely risk to cause an impact on a global scale in the next decade”. The previous month, President Barack Obama likewise stated that income inequality is “the defining challenge of our time”.

Much of this new focus is because the global concentration of wealth that has taken place over the past three decades has increased in recent years, and today stands at modern record levels. According to analysis by Credit Suisse, just one percent of the global population owns around half of the world’s wealth.

According to the new IMF paper, this trend is particularly pronounced in the West, especially in the United States. In developing countries, income inequality has been growing in the Middle East and North Africa, though recently it has begun to decrease in sub-Saharan Africa and, particularly, in Latin America.

Despite this recent downward trend, however, Latin America retains one of the highest levels of inequality of any region.

While the fund points to a variety of social spending as a key way to reduce these levels, the IMF’s Lipton warns that such spending needs to be better designed or risk increasing inequality.

“Fiscal policy has played a major role in reducing inequality in the past and is the primary tool available for governments to affect income distribution,” he said Thursday. “Whether these policies help, or hurt growth, is all a matter of design.”

Civil society activists from five Arab countries are urging the International Monetary Fund (IMF) to ease pressure on their governments to reduce food and fuel subsidies until stronger social-protection schemes and other basic reforms are implemented.

In a new report, the Arab NGO Network for Development (ANND) and the Egyptian Center for Economic and Social Rights (ECESR) argue that social safety nets in Egypt, Jordan, Morocco, Tunisia, and Yemen are inadequate – or, in some cases, too corrupt — to compensate for the loss of critical subsidies on which the poor and even the middle class depend."The pressure should be on the global community that is pushing these austerity measures without considering the actual context or impact on low-income people." -- Leila Hilal

Indeed, in the absence of stronger safety nets, even the gradual removal of subsidies for key commodities may contribute to continuing unrest across the region as the three-year-old “Arab Awakening” plays out, according to the 20-page report.

“In the near term, the unwinding of subsidies cannot serve as the panacea for the serious budgetary and fiscal difficulties facing most Arab states,” according to the report, which was released here Thursday by the Middle East Task Force of the New America Foundation (NAF), a non-partisan think tank.

“By continuing to press Arab governments to remove subsidies, the IMF has inadequately responded to the sweeping social and political changes stemming from the 2011 uprisings and subsequent period of unrest,” it said.

The report also called on the IMF to urge national governments to take other measures, notably instituting progressive tax systems and cutting the military budget, in order to increase revenues and cut spending. Governments must also be encouraged to consult more with civil-society organisation (CSOs), labour unions, and local authorities regarding economic-reform programmes, according to the report.

Jo Marie Griesgraber, who directs New Rules for Global Finance Coalition, welcomed the report, saying it was the latest indication of growing interest by grassroots groups both in the Arab world and in other countries in transition, such as Ukraine and Burma, in the IMF and of their understanding that national economic problems need to be addressed at the global level.

At the same time, she noted that the authors may be overstating the leverage the IMF enjoys over national governments with which it is required under its charter to negotiate agreements.

Bakeries struggled to produce bread in the face of Egypt’s 2011 wheat shortage. Credit: Emad Mekay/IPS

“I’m sure, if given a choice, the IMF would prefer that reducing subsidies would not be the first policy option they would want to implement to reduce deficits,” she told IPS. “It’s a government policy, and the government is going to agree to cut subsidies to the poor before it agrees to cut military expenditures.”

“The IMF can’t do everything; you need the World Bank; you need regional banks; you need an international court to throw corrupt officials in jail; you need a national political commitment for people to pay taxes,” she said. “The IMF is too limited in what it alone can do, although it serves as a convenient scapegoat for governments.”

Leila Hilal, NAF’s Middle East task force director, agreed that states “are engaging the IMF bilaterally without consulting the affected populations.”

With the recent uprisings, she told IPS in an interview from Jordan, “people feel that their voices are more valuable, that they have more agency, and that there’s much more at stake in terms of policy, and they want to be heard.

“So the idea is that the pressure should be on the global community that is pushing these austerity measures without considering the actual context or impact on low-income people,” she said.

While the mass demonstrations, violence, and political upheavals across the Arab world continue to capture the headlines, relatively little attention has been paid to the underlying economic problems that many analysts believe lie at the root of the continuing regional turbulence.

The Washington-based IMF, which is dominated by the wealthy Western nations, has long been involved in the Middle East/North Africa (MENA) region, particularly in the five low- and middle-income countries that are the subject of the report.

The lender of last resort for failing economies, it provides short-term loans that are subject to recipient governments’ compliance with conditions designed to reduce, if not eliminate their fiscal deficits.

Over much of its history, it acquired a controversial reputation for pushing severe austerity on governments as part of “structural adjustment” programmes which hit the poor and most vulnerable sectors of society the hardest, often as a result of cuts to food and fuel subsidies, as well as social services, including health and education.

The IMF said it was unable to comment before deadline.

Cuts in subsidies have been particularly controversial because of their immediate impact on the population. In 1977, for example, a cut in bread subsidies in Egypt provoked widespread unrest, as did Jordan’s attempts cut subsidies in 1989 and again in 1996. When the IMF sent a mission to Egypt in April last year, it was greeted with protests by civil-society groups, labour unions, and political parties anticipating that the agency would demand similar cuts as a condition for much-needed loans.

In much of the region, food and fuel subsidies make up a large percentage of government spending; in 2012, for example, they accounted for 10 percent of the Egyptian budget.

As the report itself notes, the Fund – as well as its development sister agency, the World Bank — has become increasingly sensitive to these criticisms and sought to persuade governments with which it negotiates the loan conditions to mitigate the impact on the poor by reducing subsidies more gradually and, with the Bank’s help,  strengthening social-safety nets for the most vulnerable.

But the report, which was based on interviews with more than a dozen prominent civil-society activists from the five countries, as well as analyses of IMF staff reports and other IMF documents, argues that these efforts are sometimes based on faulty assumptions.

“Theoretically, the IMF proposes the expansion of social safety nets as a way to offset the negative impact of subsidy removal on the poor,” it said. “In practice, however, social protection schemes are underdeveloped and often nonexistent in Arab countries, and are thus incapable of cushioning the poor against rising prices. In many instances, corruption and the absence of transparency mechanisms further complicate the task of distribution social welfare benefits.”

“Subsidy reform should only occur upon the establishment of sustainable and comprehensive social protection schemes, and can only proceed with broad support from a variety of stakeholders,” according to the report.

“Our analysis highlights the need for the IMF and the G8 countries to adapt their advice to the changing political and socio-economic conditions in the Arab region,” said NAF’s Abdulla Zaid, one of four the report’s co-authors. “The Fund’s one-size-fits-all advice prioritising fiscal austerity measures over social and economic rights fails to account for the harmful impact subsidy removal would have on low and middle-income individuals, and thus, stability.”

The Group of 20 (G20) industrialised and emerging economies on Sunday formally expressed frustration with the ongoing inability of the United States to approve a major reform package that would see governance at the International Monetary Fund (IMF) shift more towards developing countries.

The reforms were approved by the IMF in 2010 and have since been ratified by more than three-quarters of the fund’s member governments. Yet while the administration of President Barack Obama has been a key proponent of the reforms, the U.S. Congress has thus far been unwilling to approve the changes."The BRICS are wondering why they put up their money when nothing is happening." -- Jo Marie Griesgraber

Because the United States, with around 17 percent of voting rights (or “quota” shares) has an effective veto within the IMF, the reforms cannot go forward without the U.S. vote. The process has now missed a January deadline, while a second deadline for a subsequent round of changes is looming.

“Given that the U.S. is a big part of the G20, it is no small victory that emerging market and developing countries were able to get IMF reform so formally prioritised,” Kevin P. Gallagher, co-director of the Global Economic Governance Initiative at Boston University, told IPS. “Such pressure is basically the US administration and the rest of the world against the U.S. Congress.”

On Sunday, the G20, which has been a key organiser of the international financial response in recent years, strongly criticised the deadlocked reforms process. It also offered a new deadline for U.S. action.

“We deeply regret that the IMF quota and governance reforms agreed to in 2010 have not yet become effective,” the G20 stated in a communiqué on Sunday, following a ministerial meeting in Australia, which is hosting the grouping this year.

IMF chief Christine Lagarde. The quota changes would significantly increase the currently underweighted influence of fast-rising economies such as Brazil, China, India and Turkey. Credit: World Economic Forum/cc by 2.0

“Our highest priority remains ratifying the 2010 reforms, and we urge the US to do so before our next meeting in April. In April, we will take stock of progress towards meeting this priority.”

IMF Managing Director Christine Lagarde echoed this concern, saying Sunday that the fund “share[s] this view and urge[s] rapid progress on implementation.” The Washington-based institution is considered the world’s “lender of last resort”.

The quota changes would significantly increase the currently underweighted influence of fast-rising economies such as Brazil, China, India and Turkey. It would do so largely by decreasing the cumulative share of European members, considered outsized in terms of gross domestic product.

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. Given the problems in the eurozone, the European countries have also been prime beneficiaries of IMF support in recent years.

Under the quota reforms, the so-called BRICS countries – middle-income countries including Brazil, India and China – would see their vote shares expand the most significantly. The 2010 reforms would shift around nine percent of these shares towards developing countries, while also doubling the size of the fund’s overall lending capacity.

“The Europeans love it – they’re gloating. They have excessive power, are significantly overrepresented, and they love that [the United States] is not moving the reforms process forward,” Jo Marie Griesgraber, the executive director of the New Rules for Global Finance Coalition, a Washington-based international network, told IPS.

“On the other hand, the BRICS are wondering why they put up their money when nothing is happening. They’re most unhappy. In the long term, the BRICS countries could say this doesn’t work for them and move more seriously away from the IMF.”

On Sunday, a top Indian finance official warned that the failure to move forward on quota reform was threatening to undermine both IMF and G20 legitimacy.

“This is perhaps the first visible failure of G20. This has reduced the credibility of G20,” India’s economic affairs secretary, Arvind Mayaram, said in Sydney, calling implementation of the 2010 reforms “vital for the credibility, legitimacy and effectiveness of the IMF”.

Alternative institutions

Although an esoteric topic, the IMF governance reforms have received widespread approval from important constituencies in the United States, including major business and financial lobby groups as well as a long list of Republican luminaries.

In fact, President Obama bears some blame for the current situation, having decided in 2012 for political reasons not to request approval from the U.S. Congress. Yet since then, his administration has tried to do so repeatedly.

Each time, however, the Republican-controlled House of Representatives has rebuffed these requests, though apparently less for ideological than for political reasons. The last such attempt took place last month, when Republicans agreed to include the IMF reforms proposal in a major appropriations bill – but only if the Democrats would agree to stop the U.S. Treasury from imposing proposed restrictions on political “dark money”.

President Obama reportedly refused the trade, and there are few legislative options left for moving related legislation through Congress in coming months, particularly as national elections loom at the end of the year. (On Sunday, U.S. Treasury Secretary Jacob Lew told the G20 his office “will continue to work with Congress to pass legislation as soon as possible to secure the 2010 reforms, which are vital to our economic and national security interests.”)

Some observers say that such a situation should only strengthen an ongoing process under which developing countries are building multilateral structures outside the IMF.

“Upcoming Congressional elections may lead to further entrenchment by the U.S. on this issue. Thus it is imperative that the developing world continue to build alternative institutions such as the BRICS bank and the BRICS exchange reserve pool,” BostonUniversity’s Gallagher says.

“Just as important is for these bodies to have more equitable and transparent processes, so they can be held up as models against the arcane structures in the international financial institutions.”

The BRICS countries announced their intention to create a new multilateral development bank last year. Yet since then, progress has reportedly been slow, particularly as ongoing economic roiling is being felt particularly strongly in emerging economies.

“There is good talk about these projects, but most countries remain very reluctant to walk away from the [IMF]. Nonetheless, we are already seeing a gradual erosion in the use of the institution,” New Rules’s Griesgraber says.

“From our perspective, we need to get through this current reform process so we can move on to the larger governance issues that need to be addressed at the fund. Let’s equalise the power, introduce greater transparency around the board, and ensure that likely consequences for poor people are assessed before the IMF acts.”

People washing clothes on the shore of the Niger River in Mali’s capital, Bamako. Mali’s recent conflict destroyed the economy and created pressure on households. But the economy is slowly improving. Credit: Marc-André Boisvert/IPS

By Marc-Andre Boisvert
BAMAKO, Feb 6 2014 (IPS)

Under the harsh Sunday afternoon sun, Daouda Dicko washes his client’s clothes on the shore of the Niger River, which runs through Mali’s capital, Bamako. “I started doing this to survive two years ago. Now, I am used to it and I don’t mind the extra money it brings,” Dicko, who also works as a gardener, tells IPS.

Dicko struggled to feed his family during Mali’s political crisis in March 2012 when Tuareg rebels and then Islamists took control of the country’s north, which comprises almost two-thirds of this West African nation. But military intervention from France liberated the north in January 2013 and led to elections here in July that year. “The economy is not in shambles. It is dead.” -- member of parliament Aicha Belco Maiga

The conflict destroyed Mali’s economy and created pressure on households. But the country’s economy is slowly showing signs of improvement.

Binetou Diarra arranges plump tomatoes on her wooden stall in the Quartier du Fleuve, a market in Bamako.

“Prices increased a lot a year ago. But now they are back to almost normal,” 37-year-old Diarra, who is wearing a T-shirt from last year’s presidential campaign, tells IPS.

Cooking oil, which had risen to a high of 1,200 CFA (2.47 dollars) in September 2012, has now come down to 850 CFA (1.75 dollars). But in Bamako, it is not only in consumers’ pockets where one can find visible signs of economic recovery.

Hotels, which were all closed between 2012 to 2013, have now reopened. However, they are no longer filled with the 250,000 tourists whom, according to the Mali Tourism Office, would flock to the country back in 2009.

The Hotel de l’Amitié, one of the tallest buildings in the capital, has now become the seat of the United Nations mission here. Other hotels are filled with staff from NGOs and from other missions to help get Mali back on track. Restaurants and business are also busy with the return of expatriates.

Fatoumata Coulibaly and her friends have stalls close to several expatriate neighbourhoods. And the return of the expats has had a direct effect in their wallets. “There is more money coming in. It is not easy to survive, but we are positive. We know the worst is behind. Inshallah,” Coulibaly tells IPS.

Heading Towards Growth

In January, Christine Lagarde, managing director of the International Monetary Fund, said that Mali’s GDP growth will increase by 6.6 percent in 2014, which is a higher growth than the 5.7 percent predicted  a couple of months earlier.

Lagarde told the press in Mali that the country now has to move from an economic crisis to recovery. “We now have to strengthen economic fundamentals to increase growth, job creation and to decrease poverty.”

But it will be a challenge.

When sanctions were imposed here after the 2012 coup, the country lost the 30 percent of its 3.5-billion-dollar budget that was foreign-aid dependent.

The government’s centralised offices in the Cité Administrative, a Sahelian-inspired complex on the Niger River’s shore, became a phantom district for over a year because of the money shortage.

“We have been totally paralysed during the crisis. I received my salary, but it was late. And we had no budget to pursue operations. But now things are back to normal. We are paid and we have the tools to work,” Fofana Daouda, a civil servant from the ministry of family, tells IPS.

The North Remains in Economic Crisis

But while the country’s capital is experiencing a slow recovery, Mali’s north still lacks economic opportunities and many are still living in extreme poverty, says Dedeou Traore, a member of parliament for the northern region of Niafunke.

“The economy is bad,” Traore tells IPS. Northerners, whose livelihoods were largely dependent on subsistence agriculture, have lost everything.

“In Niafunké, the Prefect is back, but the Justice and other state institutions [have not returned]. People feel that they are abandoned,” Traore says.

In May 2013, international donors offered almost 3.5 billion dollars to reconstruct Mali. But this week donors are meeting in Brussels as only half of the funds have been received.

Meanwhile, Oxfam International has called for better governance and the better distribution of state resources, in a report released on Feb. 5.

The report denounces “the combined impact of weak decentralisation, corruption, and a lack of transparency regarding budget allocation and the distribution of aid has led to a widely-held belief that the country’s citizens are not receiving their fair share from the government.”

“The situation in northern Mali remains fragile. Donors must not forget that more than 800,000 people need immediate food assistance due to the impact of conflict, weak harvests, and poor rains.  Mali needs a comprehensive response to the many challenges it faces,” says Mohamed L. Coulibaly, country director for Oxfam International in Mali.

Aicha Belco Maiga is a member of President Ibrahim Boubacar Keita’s Rally for Mali party, which has the majority seats in parliament. She represents the region of Tessalit, one of the most remote and arid places in Mali near the Algerian border.

“In Tessalit, all economic activities have stopped. The town is empty. People who stayed had to sell their belongings for food. There is nothing to eat. There is no functioning administration. It is so bad that you see more Algerian dinars being exchanged than CFA Francs [Mali’s currency],” she tells IPS.

“This population needs our help. The economy is not in shambles. It is dead.”

Many children in Nepal, part of the LDCs since 1971, continue to die from curable diseases. Credit: Naresh Newar/IPS

By Samuel Oakford
UNITED NATIONS, Nov 25 2013 (IPS)

The world’s poorest countries are rethinking economic policies that – even during periods of breakneck growth – have failed to provide quality employment capable of matching a demographic boom.

The disparity between growth and jobs is no starker than in the 49 Least Developed Countries (LDCs), which, according to a recent U.N. Conference on Trade and Development (UNCTAD) report, will need to create 16 million positions every year if they are to keep up with new entrants into their rapidly expanding workforces.Commodity prices, which the IMF expects to steadily drop in coming years, have dictated hiring – and firing.

For decades, despite criticism from the U.N. and elsewhere, LDC governments were urged by multilateral lenders to cut public spending, curb inflation and end trade tariffs that protected domestic industries.

But today’s ubiquitous “jobless growth” has countries looking in the opposite direction.

“These countries have gone through radical policy reforms,” said Mussie Delelegn, officer-in-charge at UNCTAD’s New York Office. “In the 1980s many of them implemented structural adjustment programmes. The assumption that growth would automatically translate into employment and poverty reduction has not been seen.”

Though the percentage of people living in extreme poverty (less than 1.25 dollars per day) has declined in LDCs, their numbers have increased due to population growth.

While the economies of LDCs expanded yearly by over 7.5 percent in the decade before the 2008 financial crisis, employment growth per annum stood at just 2.9 percent between 2000-2012, barely ahead of the population growth rate of 2.3 percent.

Unemployment numbers, which have remained steady at roughly 5.5 percent, can’t be used in the ways they are in developed countries. The vast majority of employment is tenuous and offers little in the way of security – in 2010 over 80 percent of jobs in LDCs were considered “vulnerable.”

In 2011, the Istanbul Programme of Action concluded that to eradicate poverty and achieve inclusive growth, LDCs would have to grow by at least seven percent annually between 2011-2020. But the U.N. estimates most LDCs will miss that target by one to two percent in the next several years.

If high growth couldn’t buoy the job market during boom years, a period of slower increases will require specifically catered policies to spur employment.

Monetary policy “should be less fixated on attaining an inflation rate in the low single digits than on targeting full employment of productive resources,” wrote Dr. Muhkisa Kituyi, secretary-general of UNCTAD, in an introduction to the report.

“Given the relatively weak private sector in many LDCs, it is more likely and realistic that in the short to medium term, the investment push required to kick-start the growth process will originate in the public sector.”

To pay for increased outlays, governments should raise taxes on high-income companies and individuals, introduce value added taxes (VAT) on luxury consumption and “refrain from tariff cuts until alternative sources of revenue are put in place.”

Under these guidelines, the game of attracting investment would no longer be a race to the bottom.

The Big and Small

Employment in LDCs tends to be concentrated at two extremes: either in informal small and micro enterprises or in huge capital-intensive export industries.

At one end are businesses consisting of no more than a family or even one young person. At the other, commodity prices, which the International Monetary Fund expects to steadily drop in coming years, have dictated hiring – and firing.

Missing are the medium-sized enterprises that provide stable jobs in much of the developed world.

Experts agree that building that sector will rely in large part on domesticating value-added industries for primary exports – processing iron instead of simply shipping off ore, for example.

A 2011 law in India – a developing country but not an LDC – aimed to accomplish this by setting a 30-percent export tax on iron ore. By incentivising domestic refining, the price of steel in the country fell, benefiting other local industries.

In Chile, despite its reputation as a free-market paradise, the government has maintained a strong hand in copper production, ensuring jobs in processing and preserving sovereign ownership.

But in LDCs, value added in the manufacturing sector remained flat at 10 percent between 2001 and 2011.

“Countries were unaware of the value of their exports and value added,” Delelegn told IPS. “Information asymmetries indicate the playing field is not equal – the companies have the information.”

But as LDCs gain knowledge and confidence at the bargaining table they are pushing for better terms.

Botswana is one of only three countries to have graduated – in 1994 – from LDC status. Early on, it decided to pass laws that created floors for local employment and domestic enterprise in the diamond industry.

“Botswana increased the employment intensity of the diamond sector, which assisted them to capture more of the value gained locally – they were cutting, polishing, processing,” said Yao Graham, coordinator of the Third World Network, which helps facilitate Africa Mining Vision, a Pan-African mining framework that several countries have already adopted.

“For the past 20-30 years, African governments have… prioritised getting a share of the revenue of mining, through the exclusion of everything else,” Graham told IPS. “The World Bank famously summarised it in its Strategy for African Mining for 1992 when it said that African governments should not be interested in employment or control of the minerals.”

“I think the mining boom of the past decade underlined very clearly, actually, that this was a very flawed strategy.”

Disappointing local employment has given other African countries the green light to renegotiate revenue-sharing with companies and implement tax schemes that retain jobs and capital.

Ghana is looking to incorporate policies similar to Botswana’s into its domestic gold industry, which last year topped five billion dollars.

And in Namibia, the government has set up a national mining company, hoping to replicate Chile’s CODELCO and not the bloated state-run enterprises of post-independence Africa.

Varying models

The problem is more complicated in textile-exporting countries like Bangladesh, where policy recommendations centre on more nebulous “technical advancement.”

If Chile is a model for mineral exporters, garment producers look to Taiwan, South Korea and Singapore, all of which began by manufacturing textiles before graduating to more complicated consumer goods and electronics.

But countries worry they may have already missed the boat and it remains to be seen if low wages in LDCs can make up for a lack of expertise.

Ensuring sustainable, value-additive employment would help LDCs become less reliant on foreign aid, which can fluctuate with the global economy.

Studies have shown Official Direct Assistant (ODA) is “five times more volatile than GDP and three times as volatile as exports” and tends to potentiate upturns and recessions.

“Any instability will disrupt aid flows and flows of remittances from migrant workers,” said Delegn.

Countries are beginning to understand that the one-size-fits-all recommendations of the past simply don’t hold water anymore.

“During the Asian financial crisis, the only country that mitigated the negative impact of the crisis was Malaysia, which had put in place policies and strategies that effectively controlled free flow of capital,” said Delegn.

The mea culpas are slow in coming.

In 2011, the IMF quietly admitted in a paper that capital controls had their place.

But for LDCs, a more powerful realisation may be that they don’t need an IMF admission at all.

After Hurricane Sandy struck Jamaica a year ago, critics say the country's recovery was hampered by the IMF budget. Credit: European Commission/cc by 2.0

By Samuel Oakford
UNITED NATIONS, Nov 18 2013 (IPS)

On May 23, shortly after wrapping up negotiations on the International Monetary Fund’s (IMF) 958- million-dollar loan – its second in three years – to keep Jamaica out of default, the fund’s mission chief in the country, Jan Kees Martijn, set out to visit Croydon, a former plantation settlement in the mountainous northwest of the island.

Also in Croydon that day was Verene Shepherd, professor of social history at the University of the West Indies and chair of the national reparations commission."There’s been a lot of talk about the new IMF... but what they are still pushing is from 15 years ago.” -- Jake Johnston

Shepherd was recording her weekly radio show, “Talking History” – she was marking the anniversary of the hanging of Samuel Sharpe, leader of the slave rebellion of 1831-32 – when she ran into Martijn being led through town by the local chamber of commerce.

The phlegmatic Dutch technocrat listened as Shepherd discussed the brutal history and economic legacy of slavery, one difficult to compute in dollars and cents (though Shepherd has, at 7.5 trillion dollars), but something that many in the region feel should at least footnote every budget shortfall and each emergency loan taken.

“I tried to tell him that you are looking at the end result of colonisation,” Shepherd told IPS. “It’s easy to say ‘you’re independent now, stop complaining’ but it’s very hard to distance what is happening now from the past.”

Though Shepherd was aware that in October Jamaica would be one of 14 Caribbean countries to sue Britain, France and the Netherlands for slavery reparations, she wished Martijn well, and the IMF team continued on to their heritage tour.

A towering crisis

Since 1990, there have been 37 debt restructurings in the Caribbean, a problem critics say international bodies like the IMF are woefully unprepared to tackle.

Barbados, Belize, Jamaica, Antigua and Barbuda, Grenada, St. Kitts and Nevis, and St. Lucia all have public debt higher than 80 percent of GDP; in Jamaica the figure is 143.3 percent.

Already this year, bondholders in Belize took 10-20 percent cuts, and in St. Kitts and Nevis, investors have seen 50-percent “haircuts” on their principal.

In a February report, the IMF found that the “main challenges for Caribbean small states looking ahead include low growth, high debt and reducing vulnerabilities from natural disaster.”

Yet even after issuing a mea culpa of sorts for pushing austerity in Europe following the 2008 financial crisis, the IMF turned around and insisted those very policies – ones that led to contractions and unemployment – were the only way out of the Caribbean’s fiscal mess.

“There’s been a split in their policies for rich countries and for developing countries,” said Jake Johnston, research associate at the Centre for Economic Policy Research (CEPR). “There’s been a lot of talk about the new IMF and in some cases they have been more lenient, but when you are talking about developing countries what they are still pushing is from 15 years ago.”

Despite successive loans from the IMF, Jamaica still spends around half its budget on interest payments, crippling the country’s ability to provide social services and prepare for natural disasters.

After Hurricane Sandy struck Jamaica one year ago, “they couldn’t repair or prepare for the next one because they were constrained by the IMF budget,” Johnston told IPS.

The IMF said it was unable to comment for this story because a team was currently in the country.

However, holding back spending can lead to a dangerous feedback loop: experts predict that for every dollar a country forgoes today on climate change mitigation, it will spend six or seven on disaster response in a few years’ time.

Media portrayals of the crisis tend to rely on sources in the IMF and investment community and adopt the same terse, tough-love language they favour that serves to distance themselves from people on the ground. Depictions often treat extreme weather and zero-growth economies as if in a vacuum, without interrogating their climactic or historical causes.

A history too quickly forgotten

Caribbean economies were ushered into independence underdeveloped and limited by colonial regimes that favoured primary exports over industrialization.

Countries came to rely heavily on preferential trade agreements that the EU offered former colonies.

The 1973 oil price shock forced many to take out dollar-denominated loans to pay for energy.

When interest rates in the U.S. shot up, payments on those loans ballooned and countries in the region had no choice but to accept the structural adjustment that accompanied IMF and World Bank bailouts, a position they’ve been in ever since.

To make matters worse, the U.S. successfully sued to end the EU concessions, effectively shuttering banana growers unable to compete with huge U.S.-owned plantations in Central America.

Before, “all the produce was sold and that was money in the pockets of people throughout the island, even in the smallest villages,” Father Sean Doggett, a catholic priest in Grenada, told IPS. “That came to a very sudden stop around 1998.”

Countries turned to tourism, but the recovery from the global financial crisis has been slow and uneven – in Grenada, unemployment doubled between 2008 and 2012.

Doggett and other members of the Grenadian Conference of Churches (COC) sat down with the IMF and the Grenadian government in October, proposing the creation of a “conference of creditors” to negotiate the terms of a two-thirds debt reduction and called on the IMF to attach greater importance to poverty reduction and unemployment.

In 2013, Grenada’s debt payments will amount to over 250 percent of what it spends on education and health.

“There is no way that Grenada can pay off its debt as it stands,” Doggett told IPS.  “We need to get out of this cycle of indebtedness and get on a development path that is more sustainable.”

“Having debt hanging around the neck of people forever and ever is contrary to the biblical concept of Jubilee, of debt forgiveness… this is as much an issue of justice and the building of a better society,” he said.

Though Grenada may one day serve as a model for more inclusive debt forgiveness in poorer countries, Johnston insists an international mechanism to settle sovereign debt disputes is needed.

“Companies go bankrupt, cities go bankrupt but when countries cannot pay their debt they end up being punished for it. It’s clear there is a need internationally and especially for the Caribbean that they have a mechanism to work these things out.”

At the Commonwealth Heads of Government Meeting in Colombo last weekend, countries discussed exploring a debt swap plan that would pay off the principal of heavily indebted countries with money already pledged by wealthier countries to combat climate change.

“In return for having their debt paid, countries would agree to set aside the principal amount into a trust fund to finance climate change mitigation” over 10 to 15 years, Travis Mitchell, economic advisor at the Secretariat, told IPS.

But for Shepherd, all of this misses the point.

“When we are talking to the international community, it’s always what you can do for us,” said Shepherd. “You need to own up to the exploitation and underdevelopment.”

For countries that are responsible for a miniscule portion of greenhouse gas emissions yet suffer the most from climate change, taking the money wouldn’t address the economic and moral offences that saddled them with debt in the first place.

Any payment, Shepherd says, should come as redress, not as a form of charity that lets the developed world clear its conscience.

“When you frame it in the post-2015 agenda and look at the (U.N.) Millennium Development Goals, you realise those aren’t realised without a change of attitude, otherwise you’ll be here talking about the same thing 50 years hence.”

As the International Monetary Fund shares initial proposals for Grenada’s debt restructuring during the Washington DC meetings this week, the Caribbean island could gain a reputation for more than nutmeg, calypso, beaches and the 2012 gold medal sprinter Kirani James.

Because Grenada is listening to the nation’s religious leaders, it may become famous for a debt resolution deal that includes the participation of its citizens, protects the most vulnerable from austerity programmes and keeps current employment on the island intact.The religious leaders, themselves long astute in Sunday School lessons on human dignity, became experts in the concepts and terminology that economists and lawyers utilise when negotiating debt restructuring.

Part of what could make possible protecting jobs and the island’s social safety net is curbing corporate and professional tax avoidance in Grenada.

The most interesting part of what propelled this debt deal is that the churches of this tiny island have staked a place at the negotiating table. On this island nation of 100,000 people, where most people on the street are debating any debt deal, religious institutions have taught or served a significant portion of the island’s government leaders.

As in so many parts of the world, often religious groups are the primary social service providers and in the case of Grenada they’ve earned the people’s respect.

Before Grenada defaulted on some of its debt this past March, the Conference of Churches in Grenada had called for a biblical Jubilee or national debt cancellation. The island’s various religious bodies didn’t stop there, and they strategically inserted themselves in the government and IMF discussions.

In fact, from almost every pulpit across Spice Isle last week, pastors and ministers asked for the faithful to pray for their national religious leaders who would meet for two days of discussions with the government, its parliamentary leadership, and an observer from the IMF. The Churches invited their own international partners and experts to support them in their discussions on Grenada’s debt deal.

The religious leaders, themselves long astute in Sunday School lessons on human dignity, became experts in the concepts and terminology that economists and lawyers utilise when negotiating debt restructuring. The meeting was opened by the head of the Conference of Churches in Grenada where participants heard what may be the first prayer on poverty that included the word “debt restructuring.”

For a place that is perhaps wrongly faulted for a Mayberry carefree attitude, one stands in awe when you see how savvy the religious leaders are. They know any reforms they move forward that protect people in Grenada could mean better IMF deals for millions of other poor people around the world who are always the most affected when a country restructures its debt.

In their discussions, the Conference of Churches set and discussed their expectations with their government and the IMF to judge the success of both the actual debt restructuring and transparency in the process. Here they are:

– The IMF should publicly recommend an upfront debt stock reduction of at least two-thirds in line with suggestions made in recent IMF staff papers and other analyses

– The Grenadian government should continue its spirit of openness. When the government of Grenada receives IMF proposals for debt restructuring it should share those documents with the broadest possible public constituencies for discussion and to seek national consensus before Grenada signs

– Grenada should seek an impartial financial assessment in addition to the IMF assessment

– Any deal should be comprehensive and include all external creditors to prevent holdout creditors from exploiting Grenada’s economic recovery or targeting public services for collection

– There must be accountable and transparent processes for the citizens of Grenada to monitor future lending and borrowing of their government

– Current employment and social protections for the poor and vulnerable should be maintained in any IMF supported agreement

Since the global financial crisis moved more than 70 million people, mostly women and children, into extreme poverty, it does not seem like the IMF has learned its lessons on austerity promotion. Perhaps, the tiny Grenada IMF Sunday School will shift how future debt restructurings take place and whether or not there are necessary protections for the poor in place.

If you ever find yourself on Grenada’s world renowned Grand Anse Beach on a Sunday, consider wandering into Sunday School at Blessed Sacrament Catholic Church; you’ll walk away with an unforgettable lesson in international economics.

Eric LeCompte is the Executive Director of Jubilee USA Network and serves on UN expert working groups that focus on debt restructuring and financial reforms. He recently returned from Grenada where he supported the Conference of Churches in Grenada during their recent debt restructuring negotiations.

World Bank President Jim Kim has formally put forward a major new proposal to refocus both the bank’s priorities and how it pursues those aims.

World Bank President Jim Kim. Credit: NBruschi/cc by 3.0

The new strategy, which would reorganise and harmonise the World Bank’s sprawling global operations, offers the first major realignment of the Washington-based development lender in nearly two decades. It also embodies the most significant move yet by Kim, who took over the top job in July 2012, to put his mark on the bank’s operations.

The strategy will be formally discussed by the bank’s Development Committee, made up of 25 foreign and development ministers, on Saturday. Joint annual meetings of the World Bank and International Monetary Fund (IMF) are taking place here in Washington this week.

“This strategy says a lot of the right things, particularly suggesting that the World Bank Group is going to operate as one to a greater extent than it does now,” Brett House, a senior fellow at the Centre for International Governance Innovation (CIGI), told IPS. “That makes a lot of sense, as the bank has increasingly become a Balkanised, siloed network of organisations.”

With six institutions under the umbrella of the World Bank Group, each with largely autonomous country operations, aligning strategies has always been extremely difficult. Further, recent years have seen a strengthening impression that the institution, which lends around 30 billion dollars every year, is spreading itself too thin.

“The strategy talks a lot about being country-led, more carefully curated, and more strategic. That’s important because what you’ve seen in past country engagements is incredible sprawl in terms of the number of objectives and issues that individual World Bank country teams have taken on,” House notes.

“So we can welcome the strategy’s expressed desire to become more parsimonious, engaging in a smaller number of strategic projects in each country.”

On Monday, the bank’s lead finance official announced a proposed budget trim of four hundred million dollars, to take place over the next three years. If approved later this week, that would constitute an eight percent cut in the institution’s five-billion-dollar annual operating budget, and World Bank employees are reportedly bracing for layoffs.

Nine percent by 2020

The strategy finalises two central aims for a redefined World Bank, first introduced by Jim Kim earlier this year: reducing extreme poverty (those living on less than 1.25 dollars a day) to less than three percent by 2030, and nurturing income growth among the poorest 40 percent in each country.

On Wednesday, Kim announced an additional interim goal, reducing global poverty levels to nine percent by 2020. That would mean lifting an additional 510 million people out of poverty by the end of the decade, something the bank says is possible only if developing countries maintain strong growth rates in coming years.

“Ending extreme poverty is achievable in less than a generation’s time,” Kim said Wednesday. “But we need strong growth, committed political leaders, and a growing social movement that keeps pushing all of us to focus like a laser beam on the result all of us want.”

In order to achieve such a goal, the bank will be retooling the model by which it engages with countries as well as focusing less on lending and more on technical expertise and “knowledge services”. It will also be directing its energies and tightened budgets toward “transformational” projects, a reference that has some critics worried about a renewed focus on large-scale infrastructure.

This new set of goals will also lead to a targeting of remaining pockets of poverty in middle-income countries, though some sees this as a misplaced priority.

“The strategy raises the need to clarify the bank’s role in emerging middle-income countries that have access to international capital markets, but it doesn’t follow through,” CIGI’s House says. “It misses the opportunity to focus the bank’s financial resources on the world’s lowest-income countries, and restrict its engagement in middle-income countries to technical assistance and advice.”

Details to follow

While the scope and potential of the new strategy proposal has received generally positive initial responses from development scholars and civil society practitioners, much depends on the technical details of how these reforms would be implemented.

First off, the changes are widely expected to be met with some level of resistance within the institution (Kim told the media earlier this week he has received “mixed” reactions). More to the point, the 40-page strategy as it currently stands offers a soaring outline and rationale for broad reforms but little in the way of detail on operationalisation.

“Many of the change elements underpinning the Strategy will be rolled out in the coming months, but some may not be fully implemented for 1-2 years,” the paper states, noting that a “forthcoming Implementation Paper will describe the needed changes in structures, systems, and business processes, as well as the timetable and actions for carrying them out.”

For the moment, that lack of detail has led some civil society voices to offer only cautious support.

“We’ll be looking for what this reorganisation does to staffing and budgeting for social and environmental sustainability,” Mark Rentschler, director of campaigns at the Bank Information Center (BIC), a watchdog group, told IPS.

“There are conflicting signals in what you read in strategy. On the one hand, it says that [social and environmental] safeguards are valuable, including for clients, but at the same time it says the bank needs to get projects out more quickly and not be too bureaucratic.”

Those two aims don’t necessarily go together, Rentschler warns. He expresses concern that the strategy offers few details yet on how exactly this new efficiency will be attained.

“At the heart of the safeguards is this idea of public consultation. But ensuring, say, that documents are made available and that the public is given adequate opportunity to understand them – that builds in time,” he says.

“It bears noting that this strategy was developed without much consultation with civil society. So on the one hand we’ll be looking to make sure the safeguards aren’t mere afterthoughts. On the other, we certainly hope that whatever gets approved will lead to more consultation on how this strategy and reorganisation gets implemented.”

Ho Chi Minh Stock Exchange, Ho Chi Mihn City, Vietnam. Credit: creative commons

By Samuel Oakford
UNITED NATIONS, Sep 18 2013 (IPS)

The concerns of developing countries about credit rating agencies (CRAs) risk going unheard as regulatory bodies around the world tackle questions raised after the 2008 financial crisis.

The Financial Stability Board (FSB) and the Basel III global accords, formed in the wake of the crisis, have each called on governments to reduce their regulatory reliance on ratings.

At the recent G20 conference in Moscow, world leaders called for similar limitations.

During the market collapse, ratings often proved inaccurate and are perceived by many as negatively contributing to the cascading series of events of the past five years.

But while wealthier countries are quick to recognise a need for redefining their use in markets like mortgage-backed securities, the “issues and concerns of many emerging and developing countries preceded the crisis period”, according to Merli Baroudi, director and chief credit officer of finance and credit risk at the World Bank, speaking before a U.N. General Assembly forum on CRAs.

Concerns are mounting that once more, the specific condition of poorer countries will be ignored.

Necessary debt

Countries, advanced and developing, rely on debt financing through the bond market to foster growth. Sovereign credit ratings are used by investors to predict the likelihood that a country will default on its obligation to pay them an agreed upon yield. The higher the perceived risk, the higher the yield.

Ratings are composed of publicly available economic data coupled with subjective opinions on a country’s political situation. There is a near consensus that ratings in some form are necessary for developing countries to attract international capital. Questions remain, however, about the dependence on the three dominant CRAs – Fitch, Moody’s and Standard and Poor’s – all of whom profit handsomely from the process.

A problem in the wiring

For years, global and national regulations, as well as internal firm policies dictated that many investors could only hold sovereign bonds and other assets that were deemed “investment” grade by the CRAs.

“When downgrades occur, especially near the investment-grade threshold, forced sales are often triggered,” said John Kiff, senior financial expert at the International Monetary Fund (IMF), told IPS.

This can send assets “off a cliff” and yield premiums, the difference between yields a bond pays and the yield of a stable asset such as U.S. Treasuries, soaring, he said. This makes borrowing more expensive for countries.

The problem, according to Kiff, is “the way that ratings are hard-wired into the financial system. For example, they are baked into regulations, and they mechanistically drive investment and collateral eligibility standards.”

Due to international capital standards inscribed in previous versions of the Basel accords, the lower a bond is rated, the less a bank can leverage it and hence the likelier they are to unload positions in the event of a downgrade.

Under proposed regulation, investors would be better protected and markets kept from the wild, rating-induced fluctuations of the past, but what of the sovereign issuers themselves?

Sovereign risks

According to the World Bank, 56 developing countries remain unrated by any of the big three CRAs. The list includes nations like Haiti, Cote d’Ivoire, Mali and Syria, all of which are unable to access international capital markets. This can increase reliance on donors to fill gaps. In some cases, the cost of a acquiring a rating – which developed countries do not have to pay – is simply too high.

For many, at fault is the “issuer pay” model that could theoretically allow issuers to shop around for the best rating and which was abused by firms securitising mortgages during the crisis. In the developing world, however, the problem can be the opposite. For a poor country, an unsolicited rating is unwanted at best and extortionist at worst.

But the CRA model is unlikely to change and is a “necessary evil” for developing countries looking to access capital markets, Aldo Caliari, director of the Rethinking Breton Woods Project at the Centre of Concern, told IPS.

The lack of fundamental change in the rating process leaves the developing world in limbo. But the choice is not always clear for countries. “Being rated is not necessarily benign,” says Caliari.

The standards imposed by CRAs can favour austerity and punish countries that increase social spending, without regard to growth. That ratings are meant to predict a very narrow occurrence, sovereign defaults, is part of the problem, according to Caliari.  Many incorrectly assume that ratings reflect the overall health of an economy.

“The fact that you have a balanced budget doesn’t necessarily mean you have a well-run economy,” he noted.

Developing realities

Poorer countries often find CRA methodologies “advanced country-centric”, said Baroudi. They may question “the application of some of the metrics used by the major agencies” and find it “difficult to get their own point of view across.”

To make matters worse, investors considering emerging markets find “the information available may not be that great and they may quite heavily rely on the ratings.”

Even if a country isn’t issuing debt itself, a rating often acts as a benchmark for bonds issued by firms in the country.  This bias incentivises developing countries to adhere strictly to rules dictated by CRAs, says Caliari.

Steps taken to achieve a certain rating can have a “counterproductive effect” on the long-term prospects of the economy. The same is not true for wealthier countries which enjoy positive subjective analysis of their political climates but which often carry some of the highest debt loads. The paradox frustrates many leaders in developing countries.

Lessons learned

Emerging markets began to be rated by CRAs in the 1980s and 90s, a period that overlapped with the rise of market-based antidotes to the economic ills of the developing world. The mutually influential mix was not always fortuitous for borrowers.

In Latin America during the 1990s, when many countries in the region adopted the free market principles pushed by the “Washington Consensus”, growth rates slowed to half of what they were in the 1960s and 70s, a period when Latin American economies were actively managed and considered by many in the developed world to be profligate.

Before the 2008 financial crisis, CRAs’ most damning failures occurred during the Mexican Economic Crisis of 1994 and the East Asian Financial Crisis of 1997-98. In both cases, CRAs didn’t issue downgrades until the crises were well underway. In fact, their lagging ratings worsened the situation when they caused forced selling of assets and currency.

Despite evidence of their damaging effect from economists like Nobel Prize winner Joseph Stieglitz, “consensus” policies are still considered positive steps towards achieving higher ratings.

For developing countries facing the gauntlet of a rating process, history serves as a reminder that their voices are not always the loudest in decision rooms.

“If there is a difference of views, country authorities may find it difficult to get their own point of view across,” says Baroudi. “What do a country’s authorities do when they genuinely do not understand or believe the rating?”

A recent U.S. court ruling over a fight between Argentina and its creditors on Wall Street will increase global poverty by making it easier for “vulture funds” to seize the assets of indebted nations, according to anti-debt campaigners who are urging the U.S. government to overturn the decision.

In 2001, Argentina suffered an extreme economic crisis that led it to default on nearly 100 billion dollars in debt. Since then the country has settled with 93 percent of its creditors on a plan to pay back about a third of what was originally owed.

The seven percent who are holding out, however, insist that Argentina must pay the full value of its defaulted bonds, despite the fact that many of those now holding those bonds never paid the full value themselves, having purchased the debt in the immediate wake of the 2001 crisis for a fraction of what they are now demanding.

The International Monetary Fund (IMF) has argued that a victory for Argentina’s holdout bondholders would undermine efforts to renegotiate debt held by other nations while also risking another major debt default in Argentina, which could have major consequences for global financial markets."[The case against Argentina] will set a precedent that will just have huge repercussions in terms of global poverty."
-- Eric LeCompte

In a Jul. 23 statement, the IMF said it was “deeply concerned about the broad systemic implications” of the case. The administration of U.S. President Barack Obama has similarly argued that how Argentina handles its debt is a matter of national sovereignty. However, the administration cancelled an IMF plan to side with Argentina in the U.S. legal system, maintaining that such support was premature.

That excuse may no longer hold. On Aug. 23, the U.S. Court of Appeals for the Second Circuit  – the last step before the Supreme Court – upheld an earlier decision that Argentina must pay its bondholders in full, to the tune of 1.3 billion dollars, rejecting claims of negative impacts on global financial markets as “speculative” and “hyperbolic”.

“We believe that the interest – one widely shared in the financial community – in maintaining New York’s status as one of the foremost commercial centres is advanced by requiring debtors, including foreign debtors, to pay their debts,” the court ruled.

The government of Argentina has appealed the case to the Supreme Court. Its creditors, meanwhile, have spent millions of dollars on a lobbying and public relations campaign aimed at increasing the political cost to the Obama administration of siding with Argentina before the high court.

Paul Singer – the billionaire CEO of Elliot Management and a major Republican donor whose subsidiary NML Capital is the lead plaintiff in the legal fight against Argentina – has singlehandedly spent millions of dollars funding right-wing think tanks, pundits and politicians who have painted Buenos Aires as an increasingly lawless ally of Iran, as previously reported by IPS.

The campaign has included position papers and letters from Singer-supported members of Congress suggesting Argentina may even be helping the Islamic Republic develop nuclear weapons.

A victory for Singer and Argentina’s other creditors could make Singer hundreds of millions of dollars. It could also have devastating consequences for the world’s poor.

Increasing profits and poverty

The hedge funds pursuing legal action against Argentina “are profiting off the backs of the poorest people in the world,” Eric LeCompte, executive director of Jubilee USA, told IPS. Wealthy by global standards, those suing Argentina also hold the debt of the some of the world’s poorest nations – and the case against Argentina is crucial to their long-term business strategy.

“Essentially, it will set a precedent that will just have huge repercussions in terms of global poverty,” LeCompte said. Representing a coalition that includes organised labour and hundreds of religious groups and anti-debt campaigners, LeCompte said his group is urging the Obama administration to maintain its support for Argentina in the U.S. legal system while also pursuing a legislative solution in Congress.

If the hedge funds prevail, “poor countries will have less access to credit, and it will be much more difficult to restructure debt,” LeCompte said. If Argentine bondholders successfully hold out for the full value of their bonds, that could encourage the holders of other defaulted debt to do the same, miring indebted nations in poverty.

Even if a nation in default has already renegotiated its debt payments with the vast majority of its creditors, as has Argentina, all it takes is one firm to hold a nation hostage. Instead of funding domestic priorities such as education and health care, developing countries and others facing economic distress could be stuck paying off foreign creditors for a generation or more. The cost of credit for these countries will rise as financial institutions balk at the increased risk of lending.

This has happened before. In countries such as Zambia and the Democratic Republic of Congo, U.S. hedge funds used courts around the world to seize assets of poor nations they claimed owed them money. They are planning to do the same elsewhere.

“These vulture funds have been buying up distressed debt across Eastern Europe, in Greece, in developing countries, waiting for the precedent of this case being set,” said LeCompte. He hoped the Obama administration would not be cowed by the public relations campaign against Argentina and would continue to stand up for the right of sovereign nations to renegotiate their debt, before the Supreme Court and elsewhere.

“If the Supreme Court doesn’t take the case or takes the case and rules against Argentina,” said LeCompte, “we would hope the Obama administration would take executive action to protect the international financial system from this reckless behaviour.”

Flooding in Trinidad's capital of Port of Spain in May 2013 left residents little choice but to wade through the deluge. Credit: Peter Richards/IPS

By Jewel Fraser
PORT OF SPAIN, Trinidad, Aug 19 2013 (IPS)

The Caribbean is in danger of becoming “a region of serial defaulters” with respect to international debt obligations, according to one expert, and this may partly be due to its economies suffering frequent shocks from natural disasters.

Caribbean nations are among the world’s most vulnerable to natural disasters, with the region being struck by 187 such disasters in the past 60 years.

According to an International Monetary Fund study entitled “Caribbean Small States: Challenges of High Debt and Low Growth” and published in February, “The effects of natural disasters on [the region’s] growth and debt are also significant,” and “many Caribbean economies face high and rising debt to GDP ratios that jeopardize prospects for medium-term debt sustainability and growth.”

Commenting on the region’s restructuring of loans after some countries had defaulted on bond payments, a Bloomberg news report quoted an expert in international finance from American University who claimed Caribbean governments find it easier to default on bond payments than to reduce their spending.

Over the past three years, a number of Caribbean countries have restructured bond payments, making this period one of the highest for defaults on loan agreements by Caribbean governments. The Bloomberg report cited Grenada, Jamaica and Belize as three of the Caribbean countries restructuring debt obligations.

However, Michael Hendrickson, an economic affairs officer with the Economic Commission for Latin America and the Caribbean (ECLAC), emphasised the pressures brought by natural disasters on these countries’ economies over the past decade.

“In Grenada, GDP contracted largely due to the fallout from Hurricane Ivan, the growth rate declined from 9.5 percent in 2003 (before Ivan) to -0.7 percent in 2004 (year of Ivan) then recovered strongly in 2005, with growth of 13.3 percent, no doubt related to strong reconstruction, i.e. investment, but declined again in 2006, after the investment had run its course.

“Jamaica also felt the impact of Ivan and its growth rate slowed from 3.7 percent in 2003 to 1.3 percent in 2004 [the year Ivan struck the island]. This reflected the impact on productive sectors such as agriculture, mining and tourism.

“Moreover, the impacts lingered into 2005, when the economy grew by only 0.9 percent. In Belize, growth slowed to 1.1 percent in 2007 from 5.1 percent in 2006, partly as a result of the impact of Hurricane Dean, owing to damage to agriculture and productive infrastructure,” he told IPS.

Regional governments’ tendency to fund social and economic development through borrowing rather than through establishing an appropriate framework for sustainable economic development has also contributed to the high debt to GDP ratio.

Some Caribbean countries “have debt levels that can be considered unsustainable”, Hendrickson said. “Moreover, debt service payments, namely, interest and principal repayments, absorbed a full 29 percent of government revenue in 2011.

“We are still collating numbers for 2012. This reduces the ability of governments to finance public investment and social protection programmes.”

The 2013 IMF study noted that “part of the build-up can be traced to the cost of natural disasters, successive years of fiscal deficit, public enterprise borrowing and off-balance-sheet spending, including for financial sector bailouts.”

An IMF working paper entitled “Macroeconomic Implications of Natural Disasters in the Caribbean” observes that following natural disasters in the Eastern Caribbean region, “the tendency appears to have been a marked increase in expenditure and a small reduction in total revenue (including grants) despite an increase in inflows of official assistance and aid.”

The working paper said this “is not surprising, as governments and households would be expected to borrow in response to temporary shocks.”

Since natural disasters affect two of the largest economic sectors in the region, tourism and agriculture, the impact on countries’ economic growth is considerable.

According to ECLAC’s “The Economics of Climate Change in the Caribbean Summary Report,” it is estimated that natural disasters due to climate change will likely cost countries in the subregion up to five percent of annual GDP between 2011 and 2050.

It is also estimated that GDP in the region has declined by about one percent annually over the past several years because of natural disasters.

However, because of their middle income status, the majority of the region is unable to benefit from international debt relief, says the 2013 IMF study on Caribbean debt. The study also noted that “only a few Caribbean countries still qualify for concessional borrowing at the World Bank.”

“Given the exceptionally high costs of natural disasters, small states in the Caribbean should be seen as frontline candidates for support from climate-change funding,” the IMF report stated.

The president of the Caribbean Development Bank (CDB), Dr. Warren Smith, also stated a case for increased insurance coverage to help offset the impact of natural disasters due to climate change, at a recent meeting of the CDB’s governors.

He made specific reference to the region’s need to make greater use of the Caribbean Catastrophe Risk Insurance Facility (CCRIF), an organisation set up to insure Caribbean countries against natural disasters.

Dr. Simon Young, who heads Caribbean Risk Managers Ltd., which supervises most of the technical aspects of CCRIF, said 16 countries in the region have policies with CCRIF.

“Those policies cover hurricane and earthquake and the total amount of risk that is covered amounts to just over 600 million” for all 16 countries, he told IPS.

Dr. Young conceded, “It is not adequate, but the adequacy of the coverage is a function of the countries’ ability to pay premiums that would be needed to buy adequate coverage. CCRIF provides premiums at less than half of what the commercial market would require.”

Yet, many countries find it difficult to pay for coverage even at those preferential rates. As a result, the insurance coverage has provided only “a very small amount” of compensation to islands hit by natural disasters in recent years.

Dr. Young added that insurance coverage should not be seen as a “silver bullet” for disaster risk reduction.

“Caribbean countries need to look for cost efficient ways to manage disaster risk reduction,” he said, and CCRIF provides just one tool for doing so.

By Supachai Panitchpakdi
GENEVA, Jul 9 2013 (IPS)

Almost five years have passed since the global financial crisis, and the world economy is still reeling from its consequences. The main reason for this is the continued stagnation in developed countries, which is adversely affecting economic dynamism in other regions.

Supachai Panitchpakdi, secretary-general of the United Nations Conference on Trade and Development (UNCTAD)

Indeed, growth in the advanced economies is likely to slow down from 1.2 percent in 2012 to only 0.8 percent in 2013. If developed countries remain unable to revive their economies, there is a risk that this mediocre pace of growth may yet turn into a global recession.

At this juncture, we therefore face a dual challenge: first, we must urgently take measures to restore stable and sustained growth in the world economy, so as to truly overcome the crisis. Second, and perhaps even more importantly, we must ensure that such a devastating financial crisis cannot recur. This will require making significant reforms to global economic governance, far beyond what has been achieved so far.

Slow growth in the advanced economies and thus in the world economy is partly the natural consequence of a credit crunch and sharply reduced demand in the aftermath of a crisis. However, in many countries, these effects are being exacerbated by severe austerity policies.

Despite years of unprecedented monetary expansions in the United States, Europe and, more recently, Japan, banking credit provided to the private sector has stagnated, or even decreased. The problem is not the supply of money, but aggregate demand.

Desperately needed are measures to support demand. And yet, austerity policies are contracting demand by raising taxes and reducing expenditure, just when such expenditure would be most required. In this way, several countries that have adopted austerity policies have now been pushed into a double-dip recession.

In addition, since these austerity programmes hamper growth – and, consequently, public revenues – they do not achieve their target of fiscal consolidation either.

It is therefore time to reassess the merits of the current policy approach.

The second key challenge is to prevent a recurrence of the crisis. The financial meltdown at the heart of the financial system has reminded us of a lesson we should already have learnt after the Asian Financial crisis (1997-1998), namely that deregulated financial markets do not allocate resources efficiently and are prone to herd-behaviour and crises.

Nevertheless, after the initial flurry of measures to bail out banks and companies in need of liquidity, enthusiasm to address the wider systemic origins of the crisis quickly faded.

At the national level, there have been efforts to strengthen regulation of the financial sector in the U.S. But at the global level, reforms have been limited to a slight revision of the Basel Capital Adequacy accord, as well as a number of measures to address tax havens. It is not clear whether these measures could have prevented the financial crisis, had they been in place in 2007. And yet, even these minor steps are beginning to be rolled back.

More importantly, the reforms have not addressed the more fundamental problems of our global financial architecture. The current system based on deregulated capital markets and floating exchange rates has not prevented prolonged misalignments of exchange rates, or the build-up of large current account imbalances. It has also failed to avert the disorderly expansion of short-term capital movements, which are a major factor of economic instability.

In order to address these issues, much bolder reforms will be required. The United Nations Conference on Trade and Development (UNCTAD) has long argued that international monetary and financial relations should be governed by rules similar to those currently governing the use of trade policy measures in the World Trade Organisation (World Trade Organisation).

In a world where tariffs and international trade are increasingly governed by a set of rules to prevent “beggar-thy-neighbour” policies and foster trade liberalisation, it is incomprehensible that similar rules do not exist for the global financial system. And this is despite the fact that even small realignments of exchange rates can wipe out any gains from trade liberalisation, or that exchange rate crises have repeatedly shown themselves to have devastating effects.

A multilateral system of rules could ensure that exchange rates better reflect long-run fundamentals, and credibly prevent the build-up of imbalances.

Similarly, there is a need to rein in the large volumes of speculative capital flows. Such unregulated capital flows generate a risk not only in the recipient country, but also in the source economy, where the solvency of banks may be undermined by their exposure to asset bubbles in foreign countries.

Financial supervision should therefore be applied at both ends of capital movements. Already, the International Monetary Fund (IMF) has recently changed its position on the use of capital controls under certain circumstances. However, a multilateral arrangement (such as the “Tobin tax”) would probably be more effective.

It is clear that truly preventing future financial crisis will require an overhaul of the current system tantamount to a new Bretton Woods. Any such system must, of course, give greater voice to developing nations than they have so far enjoyed in the international financial institutions.

(END/COPYRIGHT IPS)

Excerpt:

"Indignados" in Málaga, Spain, protest cuts in health and education. Credit: Inés Benítez/IPS

By Roberto Savio
ROME, Jul 8 2013 (IPS)

At the last summit of European heads of state held in Brussels at the end of June, the main theme was youth unemployment, which has now reached 23 percent of European youth (although it stands at 41 percent in Spain).

Last year, the International Labour Organisation issued a dramatic report on Global Employment Trends for Youth 2012 in which it spoke of a “lost generation”.

According to projections, the generation currently seeking to enter the market place will retire with a pension of just 480 euros – if it actually succeeds in entering the market – because of temporary jobs without social contributions.

After long discussions, Europe’s leaders decided to allocate six billion dollars to fight youth unemployment. After much shorter discussions, they decided to allocate up to 60 billion dollars to support Europe’s banks. This, on top of the striking subsidies already received: the European Central Bank alone has given 1,000 billion dollars to the banks at nominal cost.

All the efforts to create a European banking system under a central regulator are now on hold until the German elections in September. As a member of the German delegation at the June summit is reported to have said: ”We know well what we are supposed to do, to calm financial markets. But we are not elected by financial markets, we are elected by German citizens.” (IHT, Jun. 28, 2013).

And of course, no effort has been made to explain to Germany’s citizens why it is in their interest to show economic solidarity with the most fragile countries of Europe. Democracy, as it is understood today, is based on leaders who follow popular feelings, not on leaders who feel it their duty to push their electors towards a world of vision and challenges.

The summit was also obliged to accept the blackmail of British Prime Minister David Cameron: either you maintain the subsidies that then Prime Minister Margaret Thatcher obtained in 1973, when you insisted that we join Europe (which makes Britain a net recipient of European money), or we will block the European budget.

This is because the anti-Europe electorate in Britain is growing and Cameron could not afford to appear weak. But Cameron was one of the strongest proponents of the subsidy for the banks, and no wonder: the financial system now accounts for 10 percent of Britain’s gross domestic product (GDP).

It is a very curious situation, in which Europe has not only spent several hundred billion dollars on its banks, it has even invited the International Monetary Fund (whose controlling member is the U.S.) to join the European institutions and manage the European crisis.

And, in an unprecedented sign of independence from the U.S., Europe has rejected American calls for reducing austerity and starting policies of growth as Washington and Tokyo have been doing, so far with proven success.

Nevertheless, what is common to the three most powerful players in the West (U.S., Europe and Japan) has been their inability – and unwillingness – to place banks under control and react to their string of crimes.

Central bankers from the entire world join in the Bank for International Settlements (BIS) based in Basel. Now its Basel Committee on Banking Supervision has come up with a proposal that would tighten the relationship between the capital of the banks and the volume of financial operations they can afford. The proposal establishes that banks must maintain high-quality capital, like stock or retained earnings, equal to seven percent of their loans and assets, and that the biggest banks may be required to hold more than nine percent.

This is not exactly a revolutionary proposal, and has been criticised as insufficient by many analysts and regulators. This is confirmed by the fact that the U.S. Federal Reserve estimates that between 90 and 95 percent of banks with assets of less than 10 billion dollars already respect such parameters. Well, even this bland proposal has been received with a howl of protest from many banks, claiming that they would have great difficulty in raising capital.

Under the old capitalist economy, no enterprise would run without capital adequate to its need. Today we have a new branch of the economy, which wants to play without capital, and expects the state to bail it out if anything goes wrong. So, let us just look briefly at how many times things went wrong without anybody ever going to jail:

On Apr. 28, 2002, the U.S. Securities and Exchange Commission (SEC), won a lawsuit ordering 10 banks to pay 1.4 billion dollars in compensation and fines because of fraudulent activities. One year later, the SEC discovered that 13 out of 15 financial institutions randomly investigated were guilty of fraud. In 2010, Goldman Sachs agreed to a fine of 550 million dollars to avoid a trial for fraud.

In July last year, the U.S. Senate presented a 335-page report on the British bank HSBC. Over the years it helped drug dealers and criminals recycle illicit money. The fine was 1.9 billion dollars.

In November 2012, SAC Capital was fined 600 million dollars, and in the same month the second leading British bank, Standard Chartered, was fined 667 million dollars.

In February this year, Barclays Bank announced that it had set aside 1.165 billion euros to face fines for “illicit transactions”.

And in March this year, Citigroup accepted a fine of 730 million dollars for “selling investments based on junk to unsuspecting clients”.

We all know that the crisis in which we find ourselves (which, for the optimists, will end in 2020 and for the pessimists in 2025) originated in the U.S., caused by the 10 largest banks’ decision to sell derivatives based on junk and certified by the Standard & Poor’s and Moody’s rating agencies. U.S. taxpayers “donated” 750,000 million dollars to the banks, while the British did the same for HSBC, Royal Bank of Scotland, Barclays Bank and Northern Rock.

While this financial disaster was happening, the ‘Big Five’ (Goldman Sachs, Merrill Lynch, Morgan Stanley, Lehman Brothers and Bearn Sterns) paid their executives three billion dollars between 2003 and 2007, And, in 2008, they received 20 billion dollars in bonuses while their banks were losing 42 billion dollars.

All of this was certified by Standard & Poor’s and Moody’s, which control 75 percent of the world market. Now Standard & Poor’s has been requested to pay 500 million dollars.

But what about the millions of people who have lost their jobs? The millions of young people who see no future in their lives? It’s the old story: if you steal bread, you go to jail, but if you steal millions, nothing will happen to you … and if you steal millions in a bank, even less reason to worry.

Meanwhile, back at the summit table, the priority for survival is to allocate taxpayers’ money to banks, even if all talk is about youth unemployment.

(END/COPYRIGHT IPS)

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