Secretary-General Ban Ki-moon (left) poses for a photo with Uhuru Kenyatta (centre), President of the Republic of Kenya, and Mukhisa Kituyi, Secretary-General of the United Nations Conference on Trade and Development (UNCTAD), at the opening of the fourteenth UNCTAD session, taking place in Nairobi, 17-22 July 2016. Credit: UN Photo/Rick Bajornas

By an IPS Correspondent
UNITED NATIONS, Jul 29 2016 (IPS/G77)

The UN Conference on Trade and Development (UNCTAD) concluded its five-day meeting in Nairobi on a positive note—the launch of a new e-trade initiative and a multi-donor trust fund on trade and productive capacity.

The meeting, attended by more than 5,000 delegates from 149 countries, also launched the first UN statistical report on specific indicators on the 17 Sustainable Development Goals (SDGs) and a commitment for a roadmap on fisheries subsidies.

The negotiations ended in the early hours of July 22 after two marathon all-night sessions. The resulting Nairobi consensus, “the Maafikiano”, also sets UNCTAD’s work programme for the next four years.

Billed as UNCTAD 14, the conference was formally opened by UN Secretary-General Ban Ki-moon, in the presence of Kenya’s President Uhuru Kenyatta and the vice-President of Uganda, Edward Kiwanuka Ssekandi.

The meeting also launched the 2016 report on ‘Economic Development in Africa’, and highlighted issues around non-tariff measures, debt, and illicit financial flows, along with a fashion show focusing on the creative and commercial potential of Kenya’s fashion industry.

In his opening address, the Secretary-General warned about the “worrying signs that people around the world are increasingly unhappy with the state of the global economy.”

He said high inequality, stagnant incomes, lack of enough jobs – especially for youth — and too little cause for optimism stoke legitimate fears for the future for many in all regions.

“The global trade slowdown and a lack of productive investment have sharpened the deep divides between those who have benefited from globalization, and those who continue to feel left behind. “

And rather than working to change the economic model for the better, Ban said, many actual and would-be leaders are instead embracing protectionism and even xenophobia.

“The vision set out in the SDGs – for people, planet, prosperity and peace – will not succeed if shocks and stresses in our global economic and financial system are not properly addressed,” he noted.

Trade must provide prosperity in ways that work for people and planet and respond to the challenges of climate change, said Ban.

A Ministerial Declaration adopted by the 134 members of the Group of 77 and China on the occasion of UNCTAD addressed the “key issues that are of major concern to developing countries,” said Apichart Chinwanno, Permanent Secretary And Special Envoy Of The Minister Of Foreign Affairs of the Kingdom Of Thailand, speaking on Behalf of ‘The Group Of 77 and China In New York’.

“These (key issues) include the need to tackle subsidies and various forms of market access restrictions, tax evasion and tax avoidance, illicit capital flows, sovereign debt crisis as well as the need to uphold principles of equity, inclusiveness, common but differentiated responsibilities, special and differential treatment, and the right to development, just to name a few,” said Chinwanno at a Ministerial Meeting Of The Group Of 77 held on the occasion Of UNCTAD in Nairobi on July 17.

“International financial institutions, which are one of the main sources of financing for development of developing countries, need to be universal, rule-based, open, non-discriminatory and equitable,” added Chinwanno.

Chinwanno also noted that Official Development Assistance (ODA) remains at an average of just “0.29% of the aggregate donor Gross National Income in 2014, well below the commitment of 0.7%.”

According to an UNCTAD press release, this year’s conference, with the tagline “From decision to action”, had added significance because it was the first UNCTAD conference since the global community established the Sustainable Development Goals and mandated – via the Addis Ababa Action Agenda – with UNCTAD as one of five international organizations to mobilize financing for development.”

The other four organizations are the World Bank, the International Monetary Fund (IMF), the World Trade Organization (WTO), and the UN Development Programme (UNDP).

Martin Khor, Executive Director of the Geneva-based South Centre said an important aspect of today’s global economy is that the economic weight of the South has undeniably increased, with China and India accounting for a large share of this increase.

He said developing countries as a whole are more integrated into the world economy.  However, these changes have not yet constituted a full scale shift in the global landscape.

The development gap between the North and the South still exists, even exacerbated for some countries.  The task of bridging this gap is becoming more complex and difficult in today’s global economic environment, he cautioned.

Throughout the various major international negotiations that took place last year that resulted in the recently concluded international outcomes like the 2030 Agenda for Sustainable Development, the Addis Ababa Action Agenda on Financing for Development, and the UN Framework Convention on Climate Change’s Paris Agreement, the South continuously highlighted the need to close the development gap faster and in a more sustainable and equitable manner, he noted.

“None of these outcomes of the international community could have been achieved without the support and leadership of the Group of 77 and China,” said Khor.

“I’m delighted that our 194 member states have been able to reach this consensus, giving a central role to UNCTAD in delivering the sustainable development goals,” UNCTAD Secretary-General, Mukhisa Kituyi, said, just after the conclusion of the meeting.

“With this document, we can get on with the business of cutting edge analysis, building political consensus, and providing the necessary technical assistance that will make globalization and trade work for billions of people in the global south,” he said.

UNCTAD14 President, Amina Mohamed, said: “As the President of this conference, I cannot begin to tell you how I feel right now.”

“It’s a good day for Kenya, a good day for UNCTAD, and a big win for multilateralism,” she said.

G7-based companies and investors cheated Africa out of an estimated six billion dollars in a year through just one form of tax dodging, according to a new Oxfam report ‘Money talks: Africa at the G7’, released Jun. 2.

This is equivalent to three times the amount needed to plug the healthcare funding gap in the Ebola-affected countries of Sierra Leone, Liberia, Guinea and at-risk Guinea Bissau.

According to an Oxfam briefing paper release in April this year, an estimated 1.7 billion dollars is required to close the healthcare funding gap to improve dangerously inadequate health systems in these countries. This figure is based on raising spending to the recommendation of the World Health Organisation (WHO) that 86 dollars per capita is required to achieve the minimum package of essential services.“Multinational companies, many with headquarters in the United Kingdom and other G7 countries, are cheating African countries out of billions of dollars in vital tax revenues that could help vulnerable people get decent healthcare and send their children to school” – Nick Brye, Oxfam’s Head of U.K. Campaigns

The new Oxfam report comes as G7 leaders prepare to meet their African counterparts at the annual summit in Bavaria, Germany from Jun. 8 to 9. African leaders from Ethiopia (Prime Minister Hailemariam Desalegn), Liberia (President Ellen Johnson Sirleaf), Nigeria (President Muhammadu Buhari) and Senegal (President Macky Sall) are scheduled to join an outreach session on Jun. 8.

Oxfam is calling for the leaders of the G7 countries – Canada, France, Germany, Italy, Japan, United Kingdom and United States – to include action for ambitious tax reform in discussions about how the group can support economic growth and sustainable development on the continent.

In the United Kingdom, Oxfam is part of a coalition that has been calling on the recently elected new British government to show leadership by introducing a Tax Dodging Bill, which would make it harder for U.K. companies to avoid paying tax in the countries in which they operate – practices which currently cost some of the world’s poorest countries billions each year.

The coalition, which includes ActionAid and Christian Aid in addition to Oxfam, is currently running a Tax Dodging Bill campaign.

According to Oxfam, a well-crafted Tax Dodging Bill would also make it harder for big companies to avoid paying tax in the United Kingdom, and could bring in at least 3.6 billion pounds (5.4 billion dollars) a year to the U.K. Treasury, the equivalent of 600 pounds (910 dollars) for every household living below the poverty line.

“Multinational companies, many with headquarters in the United Kingdom and other G7 countries, are cheating African countries out of billions of dollars in vital tax revenues that could help vulnerable people get decent healthcare and send their children to school,” said Nick Brye, Oxfam’s Head of U.K. Campaigns.

“To fund the fight against poverty and to tackle worsening extreme inequality, we need action to ensure big companies pay their fair share, here and in the world’s poorest nations.”

Oxfam also notes that existing international efforts to tackle corporate tax dodging, such as the BEPS (Base Erosion and Profit Shifting) process, led by the Organisation for Economic Cooperation (OECD) for the G20 group of the world’s major economies, will leave gaping tax loopholes.

It warns that these loopholes can continue to be exploited by multinational companies across the developing world and that many African nations have been shut out of discussions on BEPS reform and will not benefit from them as a result.

Oxfam is also calling for British Chancellor of the Exchequer George Osbourne to attend July’s Financing for Development Conference in Ethiopia which will play host to heads of states and finance ministers from around the world.

The talks, which will focus on how the international community will fund development over the next two decades, are an opportunity for governments to work together to start shaping a more democratic and fairer global tax system.

In 2010, the last year for which data are available, Oxfam says that companies and investors based in G7 countries avoided paying tax on 20 billion dollars of income through a practice called trade mispricing – where a company artificially sets the prices for goods or services sold among its subsidiaries to avoid taxation.

With corporate tax rates in Africa averaging 28 percent, this equates to nearly six billion dollars in lost revenues. In addition, developing countries as a whole lose around 100 billion dollars a year through tax avoidance schemes involving tax havens, according to the U.N. Conference on Trade and Development (UNCTAD).

“Reforming global corporate tax rules so that African governments can claim the money owed to them is vital to tackle extreme poverty and inequality and boost economic growth, said Brye. “That’s why Oxfam has been calling for a U.K. Tax Dodging Bill that would ensure U.K. companies do their bit to help poor families at home and in developing countries.”

Edited by Phil Harris   

By Yilmaz Akyüz
GENEVA, Mar 30 2015 (IPS)

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

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

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

Yilmaz Akyuz

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Edited by Phil Harris   

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

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

Excerpt:

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

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

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

Manuel F. Montes

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

(Edited by Phil Harris)

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

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

Excerpt:

President Rafael Correa Delgado of Ecuador does not mince words when it comes to development. ”Neoliberal policies based on so-called competitiveness, efficiency and the labour flexibility framework have helped the empire of capital to prosper at the cost of human labour,” he told a crowded auditorium at the 15th Raul Prebitsch Lecture.

The Raul Prebitsch Lectures, which are named after the first Secretary-General of the U.N. Conference on Trade and Development (UNCTAD) when it was set up in 1964, allow prominent personalities to speak to a wide audience on burning trade and development topics.

This year, President Correa took the floor on Oct. 24 with a lecture on ‘Ecuador: Development as a Political Process’, which covered efforts by his country to build a model of equitable and sustainable development, “Neoliberal policies based on so-called competitiveness, efficiency and the labour flexibility framework have helped the empire of capital to prosper at the cost of human labour” – President Rafael Correa Delgado of Ecuador

Development, he told his audience, “is a political process and not a technical equation that can be solved with capital” and he offered a developmental paradigm that seeks to build on “people-oriented” socio-economic and cultural policies to improve the welfare of millions of poor people instead of catering to the “elites of the empire of capital”.

Proposing a “new regional financial architecture”, he said that “the time has come to pool our resources for establishing a bank and a reserve fund for South American countries to pursue people-oriented developmental policies in our region” and reverse the “elite-based”, “capital-dominated”, “neoliberal” economic order that has wrought havoc over the past three decades.

“We need to reverse the dollarisation of our economies and stop the transfer of our wealth to finance Treasury bills in the United States,” Correa said. “South American economies have transferred over 800 billion dollars to the United States for sustaining U.S. Treasury bills and this is unacceptable.”

According to Correa, people-centric policies in the fields of education, health and employment in Ecuador have improved the country’s Human Development Index (HDI) since 2007. The HDI is published annually by the U.N. Development Programme (UNDP) is a composite statistic of life expectancy, education and income indices used to rank countries into tiers of human development.

Ecuador’s HDI value for 2012 is 0.724 – in the high human development tier – positioning the country at 89 out of 187 countries and territories, according to UNDP’s Human Development Report (HDR) for 2013.

Explaining his country’s achievement, Correa said that public investments involving the creation of roads, bridges, power grids, telecommunications, water works, educational institutions, hospitals and judiciary have all helped the private sector to reap benefits from overall development.

“At a time when Hooverian depression policies based on austerity measures are continuing to impoverish people while the banks which created the world’s worst economic crisis in 2008 are reaping benefits because of the rule of capital,  Ecuador has successfully overcome many hurdles because of its people-oriented policies,”  he said.

Correa argued that by investing public funds in education, which is the “cornerstone of democracy”, particularly in higher education or the “Socrates of education”, including special education projects for indigenous and Afro-Ecuadorian people, it has been shown that society can put an end to capital-dominated policies.

“We need to change international power relations to overcome neocolonial dependency,” Correa told the diplomats present at the lecture.  “Globalisation is the quest for global consumers and it does not serve global citizens.”

The Ecuadorian president argued that developing countries have secured a raw deal from the current international trading system which has helped the industrialised nations to pursue imbalanced policies while selectively maintaining barriers.

He urged developing countries to implement autonomous industrialisation strategies, just as the United States had done over two centuries ago.

Developing countries, he said, must pursue ”protectionist policies as the United States had implemented under the leadership of Alexander Hamilton [U.S Secretary of the Treasury under first president George Washington] when it closed its economy to imports from the United Kingdom.”

Citing the research findings of Cambridge-based economist Ha-Joon Chang in his book ‘Bad Samaritans:  The Myth of Free Trade and the Secret History of Capitalism’, Correa said that protectionist policies are essential for the development of developing countries.

He stressed that developing countries, which are at a comparable of stage of economic development as the United States was in Hamilton’s time, must devise policies that would push their economies into the global economic order.

The strategy of “import-substitution-industrialisation [ISI]” and nascent industry development is needed for developing countries, he said. “However, the developing countries must ensure proper implementation of ISI strategies because governments had committed mistakes in the past while implementing these policies.”

“Free trade and unfettered trade,” continued Correa, is a “fallacy” based on the Washington Consensus and neoliberal economic policies. In fact, while the United States and other countries preach free trade, they have continued to impose barriers on exports from developing countries.

Turning to the global intellectual property rights regime, which he said is not helpful for the development of all countries, Correa said that these rights must serve the greater public good, suggesting that the current rules do not allow equitable development in the sharing of genetic resources, for example.

In this context, he said that governments must not allow faceless international arbitrators to issue rulings that would severely undermine their “sovereignty” in disputes launched by transnational corporations.

President Correa also called for the free movement of labour on a par with capital. “While capital can move without any controls and cause huge volatility and damage to the international economy, movement of labour is criminalised. This is unacceptable and it is absurd that the movement of labour is met with punitive measures while governments have to welcome capital without any barriers.”

He was also severe in his criticism of the financialisation of the global economy which cannot be subjected to the Tobin tax. “Nobel Laureate James Tobin had proposed a tax on financial transactions in 1981 to curb the volatile movement of currencies but it was never implemented because of the power of the financial industry,” he argued.

Concluding with a hint that his government’s social and economic policies are paving the way for the creation of a healthy society, Correa quipped: “The Pope is an Argentinian, God may be a Brazilian, but ‘Paradise’ is in Ecuador.”

(Edited by Phil Harris)

Anti-poverty campaigners are celebrating the Norwegian government’s release of an external audit of all outstanding public debts it is owed by developing countries, the first time any country has undertaken such a process.

The investigation, by the international financial services company Deloitte, was conducted on aid packages offered by the Norwegian government to developing countries since the 1970s. Auditors were tasked with studying whether the deals, mostly concessional trade agreements, complied with past and present national guidelines as well as with newly established international principles.“The Norwegians clearly wanted to put out a test case that could be taken seriously." -- Eric LeCompte of Jubilee USA

The audit marks the first concrete use of what are known as the Principles on Promoting Responsible Sovereign Lending and Borrowing, established by a United Nations working group in April 2012 and still in the process of being rolled out. The Norwegian government has been a key supporter of the process of creating the principles, under the auspices of the U.N. Conference on Trade and Development (UNCTAD).

“This is really about setting a good example – as the first lending country to conduct such an audit, this is a very important first step in concretising and testing these principles,” Eric LeCompte, executive director of the anti-debt campaigner Jubilee USA, told IPS.

“The Norwegians clearly wanted to put out a test case that could be taken seriously, really moving the principles forward for the first time. Perhaps most interesting, while Norway is one of the world’s better lenders, Deloitte found that several of its past loans would not meet current standards of responsible lending.”

Jubilee USA is now calling on other countries, particularly those of the Group of 20 (G20) nations, to follow Norway’s example, conducting transparent debt audits to allow the public and civil society to see how decades’ worth of loans have been made. Given the new data, multiple groups are also calling on Norway to cancel certain debts.

“We hope the Norwegian government will take the next step of this critical audit and cancel illegitimate debt such as the debts of Egypt and Indonesia,” Gina Ekholt, director of the Norwegian Coalition for Debt Cancellation, said in a statement.

The audit report was explicitly written to act as a roadmap for future such exercises, noting pointedly, “The audit process has been conducted in such a manner that it may serve as a model for future debt audits.”

Interestingly, the Deloitte auditors also offer extensive feedback on the UNCTAD principles. In particular, they encourage the principles to become more explicit, and offer advice on ways in which they can become more operational.

They also offer some pointed specifics, including urging greater support for debt restructuring for developing countries. Jubilee USA’s LeCompte says this emphasis is “critical for getting us to the next place”.

“Fundamental cause of poverty”

In explaining his government’s decision to undertake the audit, Norway’s international development minister, Heikki Eidsvoll Holmas, said, “We are doing this to make sure that we are living up to our responsibility as a lender to developing countries.”

He added: “[T]he debt burden is hampering development in some poor countries. These countries are having difficulty servicing old debt agreements made on unfavourable terms. We now want to address this.”

The investigation covered 34 debt agreements with seven developing countries, according to the Norwegian government. While most of these are two to three decades old, their principals still add up to nearly 170 million dollars – and, once interest payments are included, approach four times that amount.

“Unmanageable debt burdens are one of the fundamental causes of poverty in developing countries,” the Norwegian Ministry of Foreign Affairs said in a statement.

“While the international community gives 141 billion dollars in aid to developing countries annually, the developing countries pay back 464 billion dollars each year to their creditors. Many of the debt agreements were entered into when economic, political and social conditions were uncertain.”

Indeed, this issue goes to the heart of one of the central contradictions to plague international development aid over the past half-century.

In the 1980s, for instance, the foreign debts taken on by developing countries more than tripled, to almost 420 billion dollars. Yet during that same decade, gross national product for these countries expanded only marginally, from 0.9 trillion dollars to 1.3 trillion dollars.

A more recent move towards debt restructuring and some debt forgiving notwithstanding, many countries are continuing to labour under those same repayments today.

Wild West

Although UNCTAD was not able to comment for this story by deadline, a representative for the body did laud the Norwegian audit when it was announced a year ago.

“To apply the UNCTAD Principles in the Norwegian debt audit is a solid way of showing that the Norwegian government takes the Principles seriously and that they take their responsibility as a creditor seriously,” Jostein Hole Kobbeltvedt, a member of the UNCTAD expert group, stated.

The UNCTAD principles on responsible lending and borrowing specifically aim to bring clarity to the international development lending relationship, advocating both greater accountability and responsibility. Part of the goal is ensuring that lending countries know that their loans can be repaid while also ensuring that receiving countries are not surprised by hidden contract provisions.

“Historically, and certainly now, these principles have not been part of the regulation of the international financial system – it’s still kind of like the Wild West out there. These are pretty straightforward principles that advocate for relatively minor levels of regulation that we’re currently missing,” Jubilee USA’s LeCompte, who was part of the UNCTAD working group, says.

“They also advocate for transparency in loan contraction. In other words, if I am a citizen of Zimbabwe, I should know what loans my government is taking out in an open, sanctioned, accountable government process. The Norwegian audit represents the threat of a good example.”

To date, 13 countries, including the United States, have endorsed the UNCTAD principles, but only as voluntary guidelines. LeCompte says his office is currently pushing to reintroduce U.S. legislation that would further concretise the principles, potentially impacting not only on U.S. policy but also on the lending guidelines used by some of the largest multilateral development lenders.

“We need legislation to ensure more binding action on this and to move the Treasury to use its vote in the International Monetary Fund and the World Bank to put forward these practices there,” he says. “Although some multilateral financial institutions have gotten better, I don’t think a single institution can say they’re adhering to these principles yet.”

By Aileen Kwa
GENEVA, Aug 6 2013 (IPS)

The current discourse on Global Value Chains by key proponents and also the World Trade Organisation (WTO) secretariat is that developing countries should liberalise – in goods and services – and conclude a trade facilitation agreement.

Some have also suggested that any restrictions on exports should be eliminated (e.g. export taxes on raw materials). According to this discourse, these strategies would help developing countries more deeply integrate into global value chains as they can import more cheaply and thus export more competitively.

The picture on closer examination, however, is not so simple.

Global value chains are not a new concept. They have been a part of trade since colonisation when developing countries were the providers of the raw materials, sent to the developed countries for use in a variety of ways, including in their production of higher-end goods.

It is true that today, these value chains are expanding, simply because of the expansion of transnational corporations across the globe. Lead firms, mostly based in developed countries, and some developing countries, use suppliers from all over the world to carry out their various functions.

Developing countries, however, are differentially placed along global value chains. Some have a share in higher value added sections of the value chains, but most do not.

Not all players can equally gain from their participation in the value chains. It all depends on where a country is lined up in terms of technological capacities, the depth of their manufacturing capacities, how developed their services sectors are, the size of their enterprises, their managerial expertise and their ability to meet the standards of the international markets – to name only a few criteria.

Due to these and other limitations, developing countries could open up, and they could become more integrated, but the quality of their integration may not be of real benefit.

As Rashmi Banga notes in her paper “Measuring Value in Global Value Chains”, countries may be linked to the chains, but they may not be “gainfully” linked to them.

In today’s value chains the value is captured in the design and conceptual stage where having the technology is important, as well as in the final sales and marketing end. However, this is not where most developing countries are located.

Developing countries are generally located in the lower value manufacturing section of the value chain; and even then, this is true for some, not all, developing countries.

Mere liberalisation will not upgrade countries’ technological or services supply-side capacities. Nor will a trade facilitation agreement – expediting the entry of imports through a range of customs procedures (some of which are very costly and administratively intensive) – be a magic bullet in catapulting developing countries into competitiveness on the global scale.

In sum: there are no shortcuts.

In any case, the central question for developing countries is not about entering value chains at any cost. The real question for developing countries is how they can deepen their production capacities, so that they can garner a bigger share of the value added.

To do so, the path of industrial development, agriculture and services development must be undertaken. We need structural transformation in industry if we want our manufacturing capacities to move beyond being assembly lines, increased production capacities in a range of services sectors, and a more vibrant agricultural sector, especially in countries with large rural populations.

The agricultural sector cannot be overlooked or bypassed if a large section of the population is engaged here and depends on agriculture for employment. Just like jobs in manufacturing, people must be provided with fair prices and wages. This is critical to create domestic purchasing power, and to fuel domestic demand and thus the demand for the growth of local industries.

Failure to engage in structural transformation and deepening of production capacities could mean that countries get caught in supplying raw materials and being sites for low value added manufacturing tasks.

Very often, the domestic or regional markets offer better opportunities than global value chains for developing countries in terms of obtaining a larger share of the value added.

Trade policies must be used strategically to support industrial development of key sectors, and should be approached dynamically, changing over time as some industries mature and new ones develop. In that context, across-the-board liberalisation will not help.

In conclusion, the global value chains, as noted by South Africa’s ambassador to the WTO Faisal Ismail, do not provide a framework for helping developing countries develop beyond their current comparative advantages. UNCTADs latest analysis of the value added trade data also shows that more exports do not mean more value-added exports.

The global value chains discourse comes from the place of wanting to further ease the operations, movement and access of transnational corporations across global markets, with real dangers for developing countries’ firms and industries.

The priority for developing countries is building their production capacities. To this end, the flexible and dynamic use of trade policy instruments (tariffs, government regulations) that support industrialisation, agricultural and services development, complemented by fairer trade rules, are necessary.

Excerpt:

Israel's separation barrier as seen from Al Ram, once a thriving East Jerusalem community that now sits on the West Bank side of the barrier and has been severely economically affected. Credit: Jillian Kestler-D'Amours/IPS

By Jillian Kestler-D'Amours
OCCUPIED EAST JERUSALEM, May 26 2013 (IPS)

Thick locks hug the front gates of shuttered shops, now covered in graffiti and dust from lack of use. Only a handful of customers pass along the dimly lit road, sometimes stopping to check the ripeness of fruits and vegetables, or ordering meat in near-empty butcher shops.

“All the shops are closed. I’m the only one open. This used to be the best place,” said 64-year-old Mustafa Sunocret, selling vegetables out of a small storefront in the marketplace near his family’s home in the Muslim quarter of Jerusalem’s Old City.

Amidst the brightly coloured scarves, clothes and carpets, ceramic pottery and religious souvenirs filling the shops of Jerusalem’s historic Old City, Palestinian merchants are struggling to keep their businesses alive.

Faced with worsening health problems, Sunocret told IPS that he cannot work outside of the Old City, even as the cost of maintaining his shop, with high electricity, water and municipal tax bills to pay, weighs on him.

“I only have this shop,” he said. “There is no other work. I’m tired.”"It feels like they're coming again to occupy the city, with the soldiers and police."
-- Abed Ajloni

Abed Ajloni, the owner of an antiques shop in the Old City, owes the Jerusalem municipality 250,000 Israeli shekels (68,300 U.S. dollars) in taxes. He told IPS that almost every day, the city’s tax collectors come into the Old City, accompanied by Israeli police and soldiers, to pressure people there to pay.

“It feels like they’re coming again to occupy the city, with the soldiers and police,” Ajloni, who has owned the same shop for 35 years, told IPS. “But where can I go? What can I do? All my life I was in this place.”

He added, “Does Jerusalem belong to us, or to someone else? Who’s responsible for Jerusalem? Who?”

Illegal annexation

Israel occupied East Jerusalem, including the Old City, in 1967. In July 1980, it passed a law stating that “Jerusalem, complete and united, is the capital of Israel”. But Israel’s annexation of East Jerusalem and subsequent application of Israeli laws over the entire city remain unrecognised by the international community.

Under international law, East Jerusalem is considered occupied territory – along with the West Bank, Gaza Strip and Syrian Golan Heights – and Palestinian residents of the city are protected under the Fourth Geneva Convention.

Jerusalem has historically been the economic, political and cultural centre of life for the entire Palestinian population. But after decades languishing under destructive Israeli policies meant to isolate the city from the rest of the Occupied Territories and a lack of municipal services and investment, East Jerusalem has slipped into a state of poverty and neglect.

“After some 45 years of occupation, Arab Jerusalemites suffer from political and cultural schizophrenia, simultaneously connected with and isolated from their two hinterlands: Ramallah and the West Bank to their east, West Jerusalem and Israel to the west,” the International Crisis Group recently wrote.

Israeli restrictions on planning and building, home demolitions, lack of investment in education and jobs, construction of an eight-foot-high separation barrier between and around Palestinian neighbourhoods and the creation of a permit system to enter Jerusalem have all contributed to the city’s isolation.

Formal Palestinian political groups have also been banned from the city, and between 2001-2009, Israel closed an estimated 26 organisations, including the former Palestinian Liberation Organisation headquarters in Jerusalem, the Orient House and the Jerusalem Chamber of Commerce.

Extreme poverty

Israel’s policies have also led to higher prices for basic goods and services and forced many Palestinian business owners to close shop and move to Ramallah or other Palestinian neighbourhoods on the other side of the wall. Many Palestinian Jerusalemites also prefer to do their shopping in the West Bank, or in West Jerusalem, where prices are lower.

While Palestinians constitute 39 percent of the city’s population today, almost 80 percent of East Jerusalem residents, including 85 percent of children, live below the poverty line.

“How could you develop [an] economy if you don’t control your resources? How could you develop [an] economy if you don’t have any control of your borders?” said Zakaria Odeh, director of the Civic Coalition for Palestinian Rights in Jerusalem, of “this kind of fragmentation, checkpoints, closure”.

“Without freedom of movement of goods and human beings, how could you develop an economy?” he asked.

“You can’t talk about independent economy in Jerusalem or the West Bank or in all of Palestine without a political solution. We don’t have a Palestinian economy; we have economic activities. That’s all we have,” Odeh told IPS.

Israel’s separation barrier alone, according to a new report by the United Nations Conference on Trade and Development (UNCTD), has caused a direct loss of over one billion dollars to Palestinians in Jerusalem, and continues to incur 200 million dollars per year in lost opportunities.

Israel’s severing and control over the Jerusalem-Jericho road – the historical trade route that connected Jerusalem to the rest of the West Bank and Middle East – has also contributed to the city’s economic downturn.

Separation of Jerusalem from West Bank

Before the First Intifada (Arabic for “uprising”) began in the late 1980s, East Jerusalem contributed approximately 14 to 15 percent of the gross domestic product (GDP) in the Occupied Palestinian territories (OPT). By 2000, that number had dropped to less than eight percent; in 2010, the East Jerusalem economy, compared to the rest of the OPT, was estimated at only seven percent.

“Economic separation resulted in the contraction in the relative size of the East Jerusalem economy, its detachment from the remaining OPT and the gradual redirection of East Jerusalem employment towards the Israeli labour market,” the U.N. report found.

Decades ago, Israel adopted a policy to maintain a so-called “demographic balance” in Jerusalem and attempt to limit Palestinian residents of the city to 26.5 percent or less of the total population.

To maintain this composition, Israel built numerous Jewish-Israeli settlements inside and in a ring around Jerusalem and changed the municipal boundaries to encompass Jewish neighbourhoods while excluding Palestinian ones.

It is now estimated that 90,000 Palestinians holding Jerusalem residency rights live on the other side of the separation barrier and must cross through Israeli checkpoints in order to reach Jerusalem for school, medical treatment, work, and other services.

“Israel is using all kinds of tools to push the Palestinians to leave; sometimes they are visible, and sometimes invisible tools,” explained Ziad al-Hammouri, director of the Jerusalem Centre for Social and Economic Rights (JCSER).

Al-Hammouri told IPS that at least 25 percent of the 1,000 Palestinian shops in the Old City were closed in recent years as a result of high municipal taxes and a lack of customers. “Taxation is an invisible tool…as dangerous as revoking ID cards and demolishing houses,” he said. “Israel will use this as pressure and as a tool in the future to confiscate these shops and properties.”

Ban Ki-moon's UNCTAD pick will be routinely endorsed by the 193-member General Assembly, which has never rejected a nomination from a secretary-general. Credit: UN Photo/Mark Garten

By Thalif Deen
UNITED NATIONS, Mar 28 2013 (IPS)

– The Geneva-based U.N. Conference on Trade and Development (UNCTAD), described as a key forum for developing nations on issues relating to trade, investment and development, will have a new secretary-general come September.

As befits a longstanding tradition of geographical rotation, the next head should come from Africa.

At least four Africans, including a former trade minister from Zambia, are feverishly lobbying for the prestigious job.

But Secretary-General Ban Ki-moon, who is vested with the power to nominate the new UNCTAD chief, heads an opaque selection process where he refuses to even name a short-list of candidates, as with all other senior appointments in the world body.

Ban’s pick will be routinely endorsed by the 193-member General Assembly, which has never rejected a nomination from a secretary-general.

Sir Richard Jolly, a former deputy executive director of the U.N. children’s agency UNICEF, told IPS, “There is a need for some process of open hearing and interview of the best qualified potential candidates, prior to and as a step towards the decision by the secretary-general.”

He said possible ways this could be done were set out in a 1996 Dag Hammarskjold publication by two senior U.N. officials, Brian Urquhart and Erskine Childers, titled ” A World in Need of Leadership: Tomorrow’s United Nations- a Fresh Appraisal”.

“I would add that given the importance of choosing someone with the professional range and awareness of how asymmetries of political and economic power operate in trade and development, the interviewing group should include some distinguished economists with knowledge, experience and reputation in this area,” he added.

He singled out Joseph Stiglitz, professor at Columbia University and the 2001 Nobel Prize winner for Economics, and Jose Antonio Ocampo, former finance minister of Colombia and ex-U.N. under-secretary-general for economic and social affairs, as good examples of potential members of an interview panel.

As Urquhart and Childers explained, such a process of open hearings and interview, need not pre-empt the final decision by the secretary-general but it would help narrow the field to a small number of suitable and outstanding candidates and add transparency and objectivity to the whole process, said Sir Richard, currently honorary professor and research associate at the Institute of Development Studies at the University of Sussex in the UK.

Jan Pronk, a former three-term Dutch minister of development cooperation and a former UNCTAD assistant secretary-general, told IPS, “In my view, (and under) the present phase of globalisation and (economic) crisis, the new secretary-general of UNCTAD should be a person who will carry weight in discussions with leaders of other international organisations, which – contrary to the UNCTAD secretary-general – have decision-making powers.

“He/she should in particular be able to voice the concerns of weaker developing countries, rather than emerging economies,” said Pronk, currently professor of theory and practice of international development at the International Institute of Social Studies in The Hague, Netherlands.

The latter, much more than one or two decades ago, have already gained influence both in the Bretton Woods institutions – namely, the World Bank and the International Monetary Fund – and in the World Trade Organisation (WTO), he said.

Asked for his comments, U.N. spokesman Farhan Haq, told IPS, “We don’t comment on appointment processes, so I won’t do that this time, either.

“I haven’t heard about any change in this process from our normal one,” he added.

Both Sir Richard and Pronk are part of a group of nearly 150 academics, former senior U.N. officials, ranking diplomats and political decision-makers who are calling for “an intellectually outstanding personality as the new leader of UNCTAD” when the current head, Supachai Panitchpakdi of Thailand, completes his term of office in August.

In an open letter to Ban, the group says the selection is crucial, especially at this time of global economic uncertainty.

“We very strongly urge that the next Secretary-General of UNCTAD, in addition to all the necessary experience, knowledge and management abilities, should have in particular the capacity and courage for independent thought,” the letter says.

“It is this characteristic that has been the distinguishing factor among the eminent persons who have held the post over nearly 50 years of UNCTAD’s existence.

“We have an interest in the outcome of this matter,” the letter further states, “but no interest in a particular candidate.”

“We all fervently believe in the value to the international community, particularly developing countries, of ensuring a strong and credible UNCTAD that serves to focus inter-governmental debates on how the workings of the global economy affect developing countries.”

Yilmaz Akyuz, chief economist at the Geneva-based South Centre and former Director and Chief Economist at UNCTAD, regretted there is no transparency in U.N. appointments compared with the International Labour Organisation (ILO) or the WTO, where candidates are known publicly, interviewed and shortlisted.

He said no secretary-general has taken an UNCTAD candidate to the General Assembly without securing the support of 132-member Group of 77 developing countries (G77).

“And never more than one candidate. It is all agreed before it is taken to the General Assembly,” he told IPS.

“And if he cannot get agreement, the process is delayed. We were without a secretary-general in UNCTAD for more than a year after Ken Dadzie left in 1994,” he added.

A G77 source told IPS that Ban has so far not consulted the Group about a candidate or candidates for the UNCTAD job.

John Burley, a former UNCTAD director and coordinator of the open letter, told IPS there has been no official response to the collective letter.

“The letter has been posted on a number of websites and the reaction is positive,” he added.

He found it “incongruous” that the declared candidates for the post of WTO director general are invited to make presentations to an informal meeting of the WTO General Council, and thereafter hold a WTO-sponsored press conference, “whereas the U.N. hides the process.”

The last seven UNCTAD heads include: Raul Prebisch (Argentina), Manuel Perez-Guerrero (Venezuela), Gamani Corea (Sri Lanka), Alistair McIntyre (Grenada), Ken Dadzie (Ghana), Carlos Fortin (Chile) and Rubens Ricupero (Brazil).

By Martin Khor
GENEVA, Jan 29 2013 (IPS)

The issue of foreign debt has made a major comeback due to the crisis in Europe, in which many countries had to seek big bailouts to keep them from defaulting on their loan payments. Before this, debt crises have been associated with African and Latin American countries. In 1997-99, three East Asian countries also joined the indebted countries’ club.

Martin Khor

This year, European countries, notably Germany, insisted that private creditors share the burden of resolving the Greek crisis. They had to take a “haircut” of about half, meaning that they would be repaid only half the amount they were owed.

It is increasingly clear that bailouts – where new loans are given to indebted countries to enable them to keep paying their old loans in full – are not enough and may be counterproductive, when the countries are facing a problem of insolvency and not just a temporary lack of liquidity. The restructuring of some of Greece’s debt that was owed to private creditors is an example of what needs to be done.

However, the ad hoc restructuring undertaken in the Greek case is not enough. A more systematic framework needs to be made available to countries on the verge of debt default, with principles agreed to internationally. In the absence of this, unilateral debt restructuring will probably be messy, as when a country is forced by desperate circumstances to declare a default and propose its own debt restructuring, which may or may not succeed in getting its creditors to agree to the terms.

And even if a majority of creditors agree to take the “haircut” proposed, a minority may hold out against the restructuring and this may disrupt the whole exercise. The current court case taken by a “vulture fund” that is holding out against Argentina’s debt restructuring is a clear example.

Though the debt crisis now has Europe as its epicentre, many developing countries may soon also be facing the same predicament.

Due to the effects of the global economic slowdown, with export prices and earnings beginning to take a significant hit, many developing countries are becoming vulnerable to a debt crisis. An increasing number have dwindling foreign reserves that can only pay for less than three months of the value of their imports.

There are many weaknesses in the present situation of voluntary systems such as including an element of burden sharing in collective action clauses in loan agreements, or in unilateral workouts that countries seek.

These voluntary methods can be either inadequate or unpredictable in design and effect as they do not have the benefit of an internationally agreed system. There should thus be new efforts to find an international solution such as a statutory debt workout mechanism.

For the past three decades the United Nations Conference on Trade and Development (UNCTAD) has analysed the features of such an international sovereign debt workout system. The pioneering UNCTAD model is mainly based on the principles of the U.S. bankruptcy law. The elements of such a system are as follows.

First, a country facing debt difficulties can declare a temporary standstill on its external debt servicing. This gives some breathing space to formulate a proper debt servicing plan. The plan should cover all debt servicing, whether the difficulty is due to solvency problems, in which the debt has to be reduced, or liquidity problems, in which case the debt has to be rolled over.

Second, there is an automatic stay on litigation by creditors during the standstill. This is to avoid problems to both debtor country and its creditors. The stay on litigation is to prevent a situation where many creditors are scrambling for an exit or lining up to sue the country.

Third, an independent panel of legal and economic experts would be established to address the issues arising from the standstill, including assessing the countries’ debt situation. The independence of the panel is important, in that creditors should not be on the panel as they have a direct interest in the case.

Fourth, the country undertaking a temporary standstill would have to also undertake selective capital controls to prevent capital flight that can result from the standstill on debt payments.

Fifth, new loans should be provided to the debtor country, in a situation known as lending into arrears, in order that the country can continue to implement policies for economic and social development.

Sixth, the new loans contracted after the standstill should be given seniority status. This is to facilitate the emergence of new creditors and new loans.

Seventh is the debt restructuring exercise. The terms should be the result of negotiations between the debtor country and creditors. In the negotiations, the operationalising of the Collective Action Clauses (CACs), where they exist, could be a part of the exercise. Therefore there can be a combination of voluntary CACs and statutory debt workout. If creditors and the debtor country cannot reach agreement, then they can seek arbitration through an independent arbitration panel.

The United Nations is well placed to take the lead in this whole exercise of establishing a statutory debt workout mechanism. (END/COPYRIGHT IPS)

Excerpt:

The global economy weakened significantly towards the end of 2011 and further downward pressure emerged in the course of 2012. The growth rate of global output, which had already decelerated from 4.1 percent in 2010 to 2.7 percent in 2011, is expected to slow down even more in 2012 to around 2.3 per cent. Developed economies as a whole are likely to grow by only slightly more than one per cent in 2012, owing mainly to the recession currently gripping the European Union (EU).

Supachai Panichpakdi

This contrasts with a much stronger performance in developing and transition economies, where growth should remain relatively high, at around five and four percent respectively. However, even in these economies growth is losing steam, showing that they cannot avoid the impacts of economic troubles in the developed countries.

On top of already weak private demand, fiscal tightening has been adopted in several developed countries with a view to reducing public debt and restoring the confidence of financial markets. However, these policies have further weakened domestic demand and growth, which is detrimental to the goals of fiscal consolidation and improved confidence.

Some governments are trying to stimulate growth through increasing exports, and are working to improve their competitiveness by reducing nominal wages and other costs. For several European countries within the monetary union, this would be the way to achieve a real devaluation. The danger with this policy is that it will severely damage domestic demand before it can help to regain competitiveness, thus putting into question the adjustment process.

Developed economies should therefore change the focus of their policies from fiscal consolidation and internal devaluation to restoring growth, because this is the only way in which they can avoid a recurrence of a financial and fiscal crisis. Countries with larger fiscal space and current account surpluses should take the lead by expanding their domestic demand. This would be in line with their commitments at the last G-20 Summit, and contribute to a growth-friendly global rebalancing.

Most developing and transition economies have actually supported their growth by encouraging domestic demand and pursuing countercyclical policies, including the provision of fiscal stimulus and expansionary credit. They have also succeeded in preventing a significant rise in unemployment, and have enabled the continued growth of real wages. All this, together with public transfers in several countries, has promoted private consumption, and consequently, productive investment, even though this has not always been sufficient to avoid growth deceleration.

Indeed, the developing and transition economies are being affected by slow growth or economic contraction in the developed countries. This is reflected in stagnating export volumes to those markets and a declining trend in commodity prices since the second quarter of 2011.

Moreover, financial instability and excessive reliance on monetary policies in developed countries is affecting financial flows to emerging market economies and adding to the inherent volatility of commodity prices.

Therefore, the risk of a new major shock in global financial markets cannot be excluded, with a potentially large impact on international trade volumes, asset and commodity prices, risk spreads, capital flows and exchange rates, all of which would affect developing and transition economies.

Some governments are looking to implement structural reforms to overcome the crisis. The United Nations Conference on Trade and Development (UNCTAD) has always supported the need for structural reforms, since no development process can happen without changes in economic and social structures. However, today, structural reforms are often focused on attempts to introduce greater labour market flexibility.

Yet, such reforms would undermine the incentives for investment and innovation. Indeed, if less efficient firms can compensate for their lower profits by cutting wages, they are not forced to increase their productivity to survive and expand. Such reforms also threaten to further undermine domestic demand. In order to revitalise sustained growth, governments must take measures to reduce income inequality, by assuring the participation of all social groups in productivity gains stemming from economic and technological advancement.

Labor market reforms are not a way out of the crisis, because the crisis did not originate in the labor market. Additionally, structural policies cannot be a substitute for pro-growth macroeconomic polices. Structural reforms have to address the very roots of the present crisis, namely the fragility of the financial system and the trend towards increasing income inequality.

In contrast, the structural reforms being adopted by a number of developing countries have tended to create or reinforce social safety nets and to expand the role of public policies for supporting investment and structural change. Most of these measures are countercyclical, as they aim to safeguard employment and support economic activity in troubled times.

The renewed fragility of the world economy, and the growing downside risks, including for developing countries, have brought us to the brink of a second recession. The developing countries cannot bear the burden of supporting global growth alone. Urgent action is therefore needed to restore growth, particularly in the developed world, and to take measures to prevent a recurrence of the financial and economic crisis. (END/COPYRIGHT IPS)

Supachai Panitchpakdi is the secretary-general of the United Nations Conference on Trade and Development (UNCTAD).

Although it remains the fastest growing region, Asia is already experiencing an economic slowdown, with gross domestic product (GDP) expected to fall from 6.8 percent in 2011 to slightly below six percent in 2012. Several countries – including China, India and Turkey – have been adversely affected by weaker demand from developed countries.

Supachai Panitchpakdi

Given the headwinds from the international economy, some developing countries have since relaxed their monetary conditions and many of them have applied countercyclical measures that are helping to boost household incomes and to maintain a much needed shift from external to domestic demand, alongside the role of investment.

China, for example, has played a critical role in global rebalancing, being the chief engine of world growth since 2009 and having reduced its surplus markedly (from 10 percent of GDP in 2007 to two percent in 2012) as it shifted its economy towards domestic demand.

In China and other major economies in the region, however, internal rebalancing remains unfinished as private consumption should take on a greater role relative to investment. High wage growth will help to support this goal as well as helping to promote further external rebalancing.

High and volatile commodity prices also present a risk to the rebalancing process for the Asian region, because they can be a drag on growth. Rising oil prices, for example, act as an immediate dampener on aggregate spending in fuel-importing countries, contracting spending more or less immediately, whereas any spending expansion from fuel-exporting countries occurs only after a lag.

However the main risk continues to be concentrated in the developed economies, where the United Nations Conference on Trade and Development (UNCTAD) has long been concerned that premature and excessive fiscal austerity is choking recovery and growth unnecessarily. The developing economies in Asia have played a major role stoking the engine of growth since the crisis, but this could be derailed if there continues to be a decline in consumer demand from their traditional markets in the advanced economies, and the effects of a reduction in this demand would of course have further spill-over effects if it provoked a downturn in Asian household and investment demand.

The second aspect of the rebalancing has occurred after the crisis. Global trade rebalancing has been largely due to the decrease in China’s exports and the increase in its domestic demand. Trade imbalances for many other East and South-East Asian (ASEAN) countries have not altered significantly. In 2011, the trade surplus of ASEAN as a whole had recovered to its 2007 level and it is currently similar in size to that of China, at about 100 billion dollars.

The rebalancing of the last three years has been due to a number of factors: the worsening terms of trade, especially for China, the decrease in international demand for products collaboratively (vertically) produced by East Asian countries, and the increase in domestic demand in China.

In practice, while China’s trade surplus is largely related to its trade with high-income markets, that of other East Asia countries is largely owing to trade with China. Indeed, the trade surplus of ASEAN countries with China has been increasing in the recent years.

The implications of this rebalancing are largely related to Chinese imports from the region. In this regard, the increase in Chinese domestic demand and the weak international demand for Chinese manufactures are resulting in a shift in the composition of Chinese imports. In practice, China imports relatively fewer goods to fuel its export sectors, and more consumption goods to meet the increasing domestic demand.

In this context, regional partners serving the Chinese export industry (those with vertical supply chain links with China) are likely to continue to be negatively affected as long as demand for Chinese exports remains weak. On the other hand, regional firms serving the Chinese domestic markets are likely to show continuous growth. However, a caveat is that China’s demand for final goods is still largely met by domestic producers, and thus the increase in domestic demand may not have large external spillovers.

A reduction in international demand for Chinese exports may also accelerate the transformation of the Chinese manufacturing industry towards higher value-added goods. This clearly depends on the extent to which Chinese firms are able to upgrade along the value chain and to capture market share in these segments.

If (or when) this occurs, it may have repercussions for the vertical integration of production processes in the region. In practice, Chinese firms could turn from vertically integrated partners into competitors of firms in more advanced countries. On the other hand, the process of manufacturing upgrading may benefit less advanced economies in the region, which are presently competitors of Chinese firms.

Ultimately, what is most important is that regional markets remain open, so that rising domestic demand in each country is met not only by domestic enterprises but also by those operating in other countries of the region. (END/COPYRIGHT IPS))

* Supachai Panitchpakdi is the secretary-general of the United Nations Conference on Trade and Development (UNCTAD).