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Comments on UN Financing for Development: Systemic Issues by Maria Teresa D. Pascual, Freedom from Debt Coalition

This section deals with global economic governance, and with the institutions that set and enforce global rules of economic behavior. It also proposes the formation of new institutions to fill existing vacuums in global governance. The recommendations flow out of the following premise: “Global interdependence needs global governance.” While this premise carries a simple, clear and ostensibly sensible message, it misses out on many realities of global “interdependence”. For this reason, the recommendations of the UN Financing for Development paper with regard to systemic issues are limited and are not expected to do much to address global economic governance. The reality of global “interdependence” is that a few states dominate political power, while economic power is shared by these same states with a few individuals and corporations who are increasingly less accountable even to their own states. The following data best illustrate this. Country or corporation Indonesia General Motors Turkey Denmark Ford South Africa Toyota Exxon Royal Dutch/Shell Norway Poland Portugal IBM Malaysia Venezuela Pakistan Unilever Nestle Sony Egypt Nigeria

Total GDP or corporate sales, 1994 174.6 168.8 149.8 146.1 137.1 123.3 111.1 110.0 109.8 109.6 92.8 91.6 72.0 68.5 59.0 57.1 49.7 47.8 47.6 43.9 30.4

Country or corporation Top five corporations Least developed countries South Asia Sub-Saharan Africa

Total GDP or corporate sales, 1994 871.4 76.5 451.3 246.8

Amounts in billion US dollars.

Sources: Fortune Magazine, 1996; World Bank 1995; and UNRISD 1995. As cited in UNDP Human Development Report 1997, Table 4.1, p. 92.

 As the table above shows, the combined sales in 1994 of the top five global corporations are

more than ten times the total gross domestic product that same year of the least developed countries.

Furthermore, global “interdependence” in today’s world means global disparity.  According to the Human Development Report 1997, the net wealth of the 10 richest

billionaires in the world is $133 billion. This amount is more than 1.5 times the total national income of all the least developed countries.  Each US farmer receives in subsidies roughly 100 times the income of a Filipino corn farmer. While the UN Financing for Development paper laments that global decision making is increasingly concentrated in a few countries, it does not recognize the role played by such global institutions as


the WTO, WB and IMF in reinforcing this pattern. Voting structures, decision making processes, lending policies—not to mention conditionalities and the structural adjustment policies they actively promote—all serve to strengthen the hand of the developed countries to the detriment of the less developed majority. These global processes are replicated within nations between elite minorities and the majority who are poor, further alienating the latter. What is most ironic is that as communications become more globalized, and as messages and information move more quickly across borders, the voices of the poor, of those most harmed by globalization, are increasingly silent. It is thus important to distinguish between the notion of governance in a global structure where domination and disparity reign, from that in a context of interdependence where relations are more equitable and just. In the case of the former, mechanisms for disempowering the dominant state- and non-state actors, and empowering the dominated—most especially the people, but including their states—become essential requisites of any global process towards international peace and prosperity. For the UN to overlook this reality is to turn global interdependence into a euphemism for global domination. Governance implies rules, but in a system where the dominant rule over the dominated, the laws and regulations tend to favor the strong and further weaken the disempowered. Standards and procedures can be manipulated to serve the interests of the few who already wield control, rendering it impractical if not costly for the poorer countries to abide by these rules and standards. Institutional Prerequisites vs Development Priorities To make matters worse, implementing these rules and standards can be very costly for the developing county. A case in point is the WTO. According to Michael Finger 1, developing countries will each have to spend $150 million in order to meet their obligations under the WTO agreements on sanitary and phytosanitary (SPS) measures, customs valuation and intellectual property rights (TRIPs). Such obligations require investment in buildings, equipment, training and the like. The amount involved—$150 million—would be equivalent to “a full year’s development budget” for many of the least developed countries. In contrast, the WTO’s budget to assist all member countries in meeting their obligations is a mere one million Swiss francs. This $150 million expense, Finger argues, would constitute “a bad investment” for most developing countries. In the first place, he observes that there is “little awareness of development problems and little appreciation for the capacities of least developed countries to carry out the functions that SPS, customs valuation, intellectual property, etc. regulations address.” For another, he argues that spending on such development concerns as basic education for women and girls “would have much more attractive rate-of-return numbers” than spending to meet WTO obligations. The agreements themselves, he adds, carry obligations that are “industrial country practice, [in other words]—the advanced countries saying to the others, ‘DO IT MY WAY!’” Dani Rodrick concurs with this view. He likewise questions the wisdom of poor countries having to open their economies to the world economy, when very basic development needs have to be addressed, and when integration into the global economy demands heavy institutional prerequisites that are costly. 2 Rodrick argues as follows: “…[I]nvesting in these prerequisites as the first order of business for development not only closes off alternative development paths, it also crowds out possibly more urgent priorities by 1J

Michael Finger, Statement made at the Workshop on “Developing Countries and the New Round of Multilateral Trade Negotiations,” Harvard University, 5-6 November 1999 ( Trade_Workshop/Proceedings.htm). 2Dani Rodrick, “Can Integration into the World Economy Substitute for a Development Strategy,” Harvard University, May 2000. Prepared for the World Bank’s Annual Bank Conference on Development Economics, Paris, 26-28 June 2000.


diverting human resources, administrative capabilities, and political capital away from other tasks. That would not be bad news if the payoffs to international economic integration were significant—if openness were indeed the key to growth. Alas, the evidence we have is that the link between a country’s trade barriers and its rate of economic growth is weak at best…. There is simply no credible evidence that should lead us to place a very high probability on the likelihood that a sustained, significant growth boost will follow from the lowering of barriers to trade and investment… Policymakers have to evaluate globalization in terms of developmental needs, not vice versa.” 3 Rodrick also cites the Asian financial crisis of 1997 as having triggered a wave of institutional reforms in the countries affected by the crisis, to improve among others, banking regulation, fiscal transparency, monetary and financial policy, corporate governance and structure, accounting standards, data dissemination and the like. Again, the costs of such reforms when weighed against other development priorities must be staggering. What are the development priorities Rodrick is referring to? These are education, public health, social protection and safety nets. In the Philippines, land reform, urban housing, and infrastructure for transportation and communications are developmental priorities that all too often get swept aside by the demands of globalization. The Philippine experience with the privatization of the Metro Manila water district is yet another example of costly procedures that have become a recurring theme in global governance. When it signed the concession agreement with each of the two concessionaires for the west and east zones of the Metro Manila water district, the government waived its sovereignty over price setting. Even the regulatory office created by the concession agreement (in other words, it has no independent existence) has no final say over water tariffs. In the end, should a concessionaire disagree with the decision of the regulators over its petition for a price adjustment, a panel of three decides what tariff should be imposed on consumers. One of the three represents the private concessionaire that filed the dispute notice, another represents the (residual) government water agency, and a third, who chairs the panel, is selected by an international chamber of commerce. The latter, usually a foreigner, is flown into the Philippines for a few days, billeted at a five star hotel, where hearings are conducted wherein the public is generally not encouraged to attend. At the end of the exercise the three panelists who constitute the Dispute Arbitration Panel are collectively richer by one million US dollars, paid for equally by the government and the private concessionaire, who then turn around and recover these costs from the consumer. Needless to say this arrangement was conceived by the International Finance Corporation, the investment arm of the World Bank. Capitulation by the UN? Is the UN giving up on itself and on its own institutions? Its recommendations on the three institutions of global finance—WTO, WB, IMF—almost appear to be a surrender on the part of the UN to these enforcers and reinforcers of the present unjust global economic order. With regard to the WTO, the UN paper on Financing for Development stresses the need to reinforce the WTO in order to address its inadequate funding and staffing; its selective and exclusionary nature of decision making; and its limited capacity to provide technical assistance to developing member countries. Regrettably there is no mention of the UN Conference on Trade and Development (UNCTAD), or no attempt to re-assert the primacy of UNCTAD’s role in global trade and finance. Walden Bello believes that UNCTAD has a bigger role to play in the global economy.


emphasis added.


“What UNCTAD should be doing, in the aftermath of Seattle, is challenging the role of the WTO as the ultimate arbiter of trade and development issues. UNCTAD should instead be putting forward an arrangement where trade, development, and environment issues must be formulated and interpreted by a wider body of global organizations, including UNCTAD, ILO, the implementing bodies of multilateral environmental agreements, and regional economic blocs, interacting as equals to clarify, define, and implement international economic policies.” (Walden Bello, “UNCTAD: Time to Lead, Time to Challenge the WTO,” in Why Reform of the WTO is the Wrong Agenda, Bangkok: Focus on the Global South, February 2000) With regard to the World Bank and the IMF, the paper does highlight the “unrealistic” conditions attached to the loans of both these institutions. But the paper also seeks a bigger role for the World Bank and the IMF, again disregarding another UN institution, the UN Development Programme (UNDP). Rather than assert the latter’s role in global development affairs, the UN paper on financing for development is awkwardly silent. IMF Conditionality but no Reparations The paper concedes the need for IMF and World Bank conditionality, but criticizes the IMF conditionality as being too broad in scope. IMF staff are seen to be too arrogant and insensitive to political realities. Moreover the IMF tends to apply a “one-size-fits-all approach to policies”, resulting in a narrow and inflexible program that does not help the borrowing member-country. Such type of behavior finds its roots in the voting structure of both the World Bank and the IMF, where the countries that have poured the most money into these Bretton Woods institutions have the largest say. Having noted all of this, the UN paper then acknowledges that both the IMF and the World Bank are making efforts to “prune back conditionality”, and welcomes such efforts. Again here the UN seems to gloss over the present fragility of the global financial architecture, over which the IMF and the World Bank exert much influence. Over the past 25 years, for example, there have been financial crises in 100 countries.4 How these institutions have contributed to these crises with the policies they have imposed on developing countries, must be closely reviewed. Joseph Stiglitz, former chief economist of the World Bank, himself admits that imposing conditionality was not an effective way of changing policies. “Good policies cannot be bought, at least in a sustainable way.” Stiglitz further admits that at times, conditionality “undermined democratic processes.” 5 The former chief economist not only criticizes the myopic vision of the neoliberal Washington consensus model, he also criticizes the IMF for kowtowing to the self-serving demands of the US Treasury. The following quotations from various speeches of Stiglitz illustrate his points. “It is now clear that the emphasis on privatization, liberalization, and macroeconomic stability that dominated thinking about developing economies, neither represented nor fully captured the essentials of a market economy, nor provided a recipe for growth and stability, let alone for the broader goals of democratic, sustainable, and equitable development.” “The IMF likes to go about its business without outsiders asking too many questions. In theory, the Fund supports democratic institutions in the nations it assists. In practice, it undermines the democratic process by imposing policies.” 4Jim

Lobe, “Stiglitz Calls for More Open Debate, Less Conditionality,” Inter Press Service, December 1999. ( 5Ibid.


“All the IMF did was make East Asia’s recessions deeper, longer, and harder. Indeed, Thailand, which followed the IMF’s prescriptions the most closely, has performed worse than Malaysia and South Korea, which followed more independent courses.” “Since the end of the cold war, tremendous power has flowed to the people entrusted to bring the gospel of the market to the far corners of the globe. These economists, bureaucrats, and officials act in the name of the United States and the other advanced industrial countries, and yet they speak a language that few average citizens understand and that few policymakers bother to translate. Economic policy is today perhaps the most important part of America’s interaction with the rest of the world. And yet the culture of international economic policy in the world’s most powerful democracy is not democratic.” One other thing the UN paper fails to demand is the accountability of the IMF and the World Bank for their failed policies in countries like the Philippines, for their support of the Marcos dictatorship and corrupt regimes, for the harm their policies have done especially to the poor in our countries. It is not enough for these institutions to now claim they are working to reduce poverty throughout the world. They must also acknowledge where they have gone wrong and accept they are also to blame for the continuing poverty in the Philippines and the rest of the world. Democratizing Global Relations Walden Bello cautions developing country governments and people’s movements against allowing “their energies to be hijacked into reforming these institutions”—tantamount to a facelift without correcting fundamental flaws in the global structure. Instead, Bello envisions “the deconcentration and decentralization of institutional power and the creation of a pluralistic system of institutions and organizations interacting with one another amidst broadly defined and flexible agreements and understandings.” In this context, Bello urges governments and citizens to work towards “radically reducing” the power of institutions such as the WTO, the World Bank and the IMF, rendering them one among many international and regional organizations. “These would include such diverse actors and institutions as UNCTAD, multilateral environmental agreements, the International Labor Organization (ILO), evolving trade blocs such as Mercosur in Latin America, SAARC in South Asia, SADCC in Southern Africa, and ASEAN in Southeast Asia. It is in such a more fluid, less structured, more pluralistic world with multiple checks and balances that the nations and communities of the South will be able to carve out the space to develop based on their values, their rhythms, and the strategies of their choice.” (Walden Bello, “Why Reform of the WTO is the Wrong Agenda,” Bangkok: Focus on the Global South, February 2000) The recommendations of the UN paper on Financing for Development in relation to what it calls “systemic” issues, are made with little if any recognition of the emerging global movement against the very institutions the UN paper would like to reform. “Shut down the WTO, the World Bank and the IMF” has been the rallying cry in many of the protests that accompany these global meetings. Starting with the WTO meeting in Seattle in December 1999, the protests moved to Bangkok in February for the UNCTAD assembly, then Washington in April 2000 for the spring meetings of the World Bank and IMF, onward to Melbourne in September 2000 for the conference of the World Economic Forum. This year the protests have escalated, the security tightened, and lives have been lost, most recently in Genoa where the G8 was meeting. The following quotations from a newspaper article succinctly describe what the protesters are seeking. “The many protests that have led up to Genoa were based on the recognition that no national power is in control of the present global order. Consequently protests must be directed at international and supranational organizations, such as the G-8, the World Trade Organization, 5

the World Bank and the International Monetary Fund. The movements are not anti-American, as they often appear, but aimed at a different, larger power structure. xxx “The protests themselves have become global movements and one of their clearest objectives is for the democratization of globalizing processes. It should not be called an antiglobalization movement. It is pro-globalization, or rather an alternative globalization movement—one that seeks to eliminate inequalities between rich and poor and between the powerful and the powerless, and to expand the possibilities of self-determination. xxx “If we understand one thing from the multitude of voices in Genoa this weekend, it should be that a different and better future is possible. When one recognizes the tremendous power of the international and supranational forces that support our present form of globalization, one could conclude that resistance is futile. xxx “We see seeds of that future already in the sea of faces that stretches from the streets of Seattle to those of Genoa. One of the most remarkable characteristics of these movements is their diversity: trade unionists together with ecologists together with priests and communists. We are beginning to see emerge a multitude that is not defined by any single identity, but can discover commonality in its multiplicity.” (Michael Hardt and Antonio Negri, “What the Protesters in Genoa Want,” New York Times, 20 July 2001 ( opinion/20HARDT.html))


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