[stop-imf] Walden Bello on Decommissioning the IMF

[Robert Weissman]

Both of the following essays merit attention, the second focuses on the
IMF.

Robert Weissman
Essential Information			|   Internet:	rob@essential.org


FOCUS ON TRADE, 
Number 43, January 2000  

Focus-on-Trade is a regular electronic bulletin providing updates and 
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****************************************************

IN THIS ISSUE: Post Seattle, there has been a lot of talk about how 
to reform the WTO. In this issue, Walden Bello argues that in the case 
of both the IMF and the WTO, NGOs must be aware of the pitfalls 
of the refom agenda.

Why Reform of the WTO is the Wrong Agenda
by Walden Bello

Jurassic Fund: Should Developing Countries Push to Decommission 
the IMF?
by Walden Bello

*****************************************************

Why Reform of the WTO is the Wrong Agenda
By Walden Bello*

In the wake of the collapse of the Seattle Ministerial, there has 
emerged the opinion that reform of the WTO is now the program that 
NGOs, governments, and citizens must embrace. The collapse of the 
WTO Ministerial is said to provide a unique window of opportunity 
for a reform agenda. 	 

Cited by some as a positive sign is United States Trade 
Representative Charlene Barshefsky's comment, immediately after the 
collapse of the Seattle Ministerial, that "the WTO has outgrown the 
processes appropriate to an earlier time." An increasing and necessary 
view, generally shared among the members, was that we needed a 
process which had a greater degree of internal transparency and 
inclusion to accommodate a larger and more diverse membership." (1) 
	 

Also seen as an encouraging gesture is UK Secretary of State for Trade and
Industry Stephen Byers' recent statement to Commonwealth Trade Ministers
in New Delhi that the "WTO will not be able to continue in its present fo
rm. There has to be fundamental and radical change in order for it to meet
the needs and aspirations of all 134 of its members." (2)

These are, in our view, damage control statements and provide little
indication of the seriousness about reform of the two governments that
were, pre-Seattle, the stoutest defenders of the inequalities built into
the stru cture, dynamics, and objectives of the WTO. It is unfortunate
that they are now being cited to convince developing countries and NGOs to
take up an agenda of reform that could lead precisely to the strengthening
of an org anization that is very fundamentally flawed.

What civil society, North and South, should instead be doing at this point
is radically cutting down the power of the institution and reducing it to
simply another institution in a pluralistic world trading system with mu
ltiple systems of governance.

Is the WTO Necessary?
	 
This is the fundamental question on which the question of reform hinges.  
World trade did not need the WTO to expand 17-fold between 1948 and 1997,
from $124 billion to $10,772 billion. (3) This expansion took place under
 the flexible GATT trade regime.  The WTO's founding in 1995 did not
respond to a collapse or crisis of world trade such as happened in the
1930's. It was not necessary for global peace, since no world war or
trade-relate d war had taken place during that period. In the seven major
inter-state wars that took place in that period-the Korean War of 1950-53,
the Vietnam War of 1945-75, the Suez Crisis of 1956, the 1967 Arab-Israeli
War, the 1 973 Arab-Israeli War, the 1982 Falklands War, and the Gulf War
of 1990-trade conflict did not figure even remotely as a cause.  GATT was,
in fact, functioning reasonably well as a framework for liberalizing world
trade. Its dispute-settlement system was flexible and with its recognition
of the "special and differential status" of developing countr ies, it
provided the space in a global economy for Third World countries to use
trade policy for development and industrialization.

Why was the WTO established following the Uruguay Round of 1986-94?

Of the major trading powers, Japan was very ambivalent, concerned as it
was to protect its agriculture as well as its particular system of
industrial production that, through formal and informal mechanisms, gave
its local
 producers primary right to exploit the domestic market. The EU, well on
the way of becoming a self-sufficient trading bloc, was likewise
ambivalent, knowing that its highly subsidized system in agriculture would
come und er attack. Though demanding greater access to their manufactured
and agricultural products in the Northern economies, the developing
countries did not see this as being accomplished through a comprehensive
agreement enfor ced by a powerful trade bureaucracy but through discrete
negotiations and agreements in the model of the Integrated Program for
Commodities (IPCs) and Commodity Stabilization Fund agreed upon under the
aegis of UNCTAD in the late seventies.

The founding of the WTO served primarily the interest of the United
States. Just as it was the US which blocked the founding of the
International Trade Organization (ITO) in 1948, when it felt that this
would not serve it s position of overwhelming economic dominance in the
post-war world, so it was the US that became the dominant lobbyist for the
comprehensive Uruguay Round and the founding of the WTO in late eighties
and early nineties, when it felt that more competitive global conditions
had created a situation where its corporate interests now demanded an
opposite stance.  Just as it was the US's threat in the 1950's to leave
GATT if it was not allowed to maintain protective mechanisms for milk and
other agricultural products that led to agricultural trade's exemption
from GATT rules, so wa s it US pressure that brought agriculture into the
GATT-WTO system in 1995. And the reason for Washington's change of mind
was articulated quite candidly by then US Agriculture Secretary John Block
at the start of the Uru guay Round negotiations in 1986: "[The] idea that
developing countries should feed themselves is an anachronism from a
bygone era. They could better ensure their food security by relying on US
agricultural products, which
 are available, in most cases at much lower cost."(4) Washington, of
course, did not just have developing country markets in mind, but also
Japan, South Korea, and the European Union.

It was the US that mainly pushed to bring services under WTO coverage,
with its assessment that the in the new burgeoning area of international
services, and particularly in financial services, its corporations had a
lead
 that needed to be preserved. It was also the US that pushed to expand WTO
jurisdiction to the so-called "Trade-Related Investment Measures" (TRIMs)
and "Trade-Related Intellectual Property Rights (TRIPs)." The first soug
ht to eliminate barriers to the system of internal cross-border trade of
product components among TNC (transnational corporations) subsidiaries
that had been imposed by developing countries in order to develop their
indus tries; the second to consolidate the US advantage in the
cutting-edge knowledge-intensive industries. And it was the US that forced
the creation of the WTO's formidable dispute-resolution and enforcement
mechanism after being frustrated with what US trade officials considered
weak GATT efforts to enforce rulings favourabl e to the US. As
Washington's academic point man on trade, C. Fred Bergsten, head of the
Institute of International Economics, told the US Senate, the strong WTO
dispute settlement mechanism serves US interests because "we
 can now use the full weight of the international machinery to go after
those trade barriers, reduce them, get them eliminated."(5)

In sum, it has been Washington's changing perception of the needs of its
economic interest groups that have shaped and reshaped the international
trading regime. It was not global necessity that gave birth to the WTO in
1 995. It was the US's assessment that the interests of its corporations
were no longer served by a loose and flexible GATT but needed an
all-powerful and wide-ranging WTO.  From the free-market paradigm that
underpins it, to the rules and regulations set forth in the different
agreements that make up the Uruguay Round, to its system of
decision-making and accountability, the WTO is a blueprint for the global
hegemony of Corporate America.  It seeks to institutionalize the
accumulated advantages of US corporations.

Is the WTO necessary?  Yes, to the United States. But not to the rest of
the world. The necessity of the WTO is one of the biggest lies of our
time, and its acceptance is due to the same propaganda principle practised
by Joseph Goebbels: if you repeat a lie often enough, it will be taken as
truth.

Can the WTO Serve the Interests of the Developing Countries?  But what
about the developing countries? Is the WTO a necessary structure--one
that, whatever its flaws, brings more benefits than costs, and would
therefore merit efforts at reform?

When the Uruguay Round was being negotiated, there was considerable lack
of enthusiasm for the process by the developing countries. After all,
these countries had formed the backbone of UNCTAD, which, with its system
of o ne-country/one-vote and majority voting, they felt was an
international arena more congenial to their interests. They entered the
Uruguay Round greatly resenting the large trading powers' policy of
weakening and marginali zing UNCTAD in the late seventies and early
eighties.

Largely passive spectators, with a great number not even represented
during the negotiations owing to resource constraints, the developing
countries were dragged into unenthusiastic endorsement of the Marrakesh
Accord of 1994 that sealed the Uruguay Round and established the WTO.
True, there were a few developing countries in the Cairns Group, a group
of developed and developing agro-exporting countries, that took an active
role in pushin g the WTO in the hope that this would improve market access
to their agricultural products in the North, but they were a small
minority.

To try to sell the WTO to the South, US propagandists evoked the fear that
staying out of the WTO would result in a country's isolation from world
trade ("like North Korea") and stoked the promise that a "rules-based syst
em" of world trade would protect the weak countries from unilateral acts
by the big trading powers.  With their economies dominated by the IMF and
the World Bank, with the structural adjustment programs pushed by these
agencies having as a central element radical trade liberalization, much
weaker as a bloc owing to the d ebt crisis compared to the 1970's, the
height of the "New International Economic Order," most developing country
delegations felt they had no choice but to sign on the dotted line.

Over the next few years, however, these countries realized that they had
signed away their right to employ a variety of critical trade measures for
development purposes.

In contrast to the loose GATT framework, which had allowed some space for
development initiatives, the comprehensive and tightened Uruguay Round was
fundamentally anti-development in its thrust. This is evident in the fol
lowing:

Loss of Trade Policy as Development Tool

In signing on to GATT, Third World countries were committed to banning all
quantitative restrictions on imports, reduce tariffs on many industrial
imports, and promise not to raise tariffs on all other imports. In so doin
g, they have effectively given up the use of trade policy to pursue
industrialization objectives. The way that the NICs, or "newly
industrializing countries," made it to industrial status, via the policy
of import substit ution, is now effectively removed as a route to
industrialization.

The anti-industrialization thrust of the GATT-WTO Accord is made even more
manifest in the Agreement on Trade-Related Investment Measures (TRIMs) and
the Agreement on Trade-Related Intellectual Property Rights (TRIPs). In
 their drive to industrialize, NICs like South Korea and Malaysia made use
of many innovative mechanisms such as trade-balancing requirements that
tied the value of a foreign investor's imports of raw materials and compon
ents to the value of his or her exports of the finished commodity, or
"local content" regulations which mandated that a certain percentage of
the components that went into the making of a product was sourced locally.

These rules indeed restricted the maneuvering space of foreign investors,
but they were successfully employed by the NICs to marry foreign
investment to national industrialization. They enabled the NICs to raise
income fr om capital-intensive exports, develop support industries, bring
in technology, while still protecting local entrepreneurs' preferential
access to the domestic market. In Malaysia, for instance, the strategic
use of local content policy enabled the Malaysians to build a "national
car," in cooperation with Mitsubishi, that has now achieved about 80 per
cent local content and controls 70 per cent of the Malaysian market.
Thanks to the TRIMs accord, these mechanisms used are now illegal.

The Restriction of Technological Diffusion Like the TRIMs agreement, the
TRIPs regime is seen as effectively opposed to the industrialization and
development efforts of Third World countries. This becomes clear from a
survey of the economic history not only of the NICs but of al most all
late-industrializing countries. A key factor in their industrial take-off
was their relatively easy access to cutting-edge technology: The US
industrialized, to a great extent by using but paying very little for
British manufacturing innovations, as did the Germans. Japan
industrialized by liberally borrowing US technological innovations, but
barely compensating the Americans for this. And the Koreans industrialized
by copying qu ite liberally and with little payment US and Japanese
product and process technologies.

But what is "technological diffusion" from the perspective of the late
industrializer is "piracy" from that of the industrial leader. The TRIPs
regime takes the side of the latter and makes the process of
industrializatio n by imitation much more difficult from hereon. It
represents what UNCTAD describes as "a premature strengthening of the
intellectual property system...that favours monopolistically controlled
innovation over broad-based diffusion."(6)

The TRIPs regime provides a generalized minimum patent protection of 20
years; increases the duration of the protection for semi-conductors or
computer chips; institutes draconian border regulations against products
judge d to be violating intellectual property rights; and places the
burden of proof on the presumed violator of process patents.

The TRIPs accord is a victory for the US high-tech industry, which has
long been lobbying for stronger controls over the diffusion of
innovations. Innovation in the knowledge-intensive high-tech sector-in
electronic softw are and hardware, biotechnology, lasers,
opto-electronics, liquid crystal technology, to name a few-has become the
central determinant of economic power in our time. And when any company in
the NICs and Third World wishes
 to innovate, say in chip design, software programming, or computer
assembly, it necessarily has to integrate several patented designs and
processes, most of them from US electronic hardware and software giants
like Micro soft, Intel, and Texas Instruments. (7) As the Koreans have
bitterly learned, exorbitant multiple royalty payments to what has been
called the American "high tech mafia" keeps one's profit margins very low
while reducing incentives for local innovation.


The likely outcome is for a Southern manufacturer simply to pay royalties
for a technology rather than to innovate, thus perpetuating the
technological dependence on Northern firms. Thus, TRIPs enables the
technological l eader, in this case the United States, to greatly
influence the pace of technological and industrial development in rival
industrialized countries, the NICs, and the Third World.


The Watering Down of the "Special and Differential Treatment" Principle

The central principle of UNCTAD (United Nations Conference on Trade and
Development)-an organization disempowered by the establishment of the
WTO--is that owing to the critical nexus between trade and development,
develop ing countries must not be subjected to the same expectations,
rules, and regulations that govern trade among the developed countries.
Owing to historical and structural considerations, developing countries
need special co nsideration and special assistance in levelling the
playing field for them to be able to participate equitably in world trade.
This would include both the use of protective tariffs for development
purposes and preferentia l access of developing country exports to
developed country markets.

While GATT was not centrally concerned with development, it did recognize
the "special and differential status" of the developing countries.  
Perhaps the strongest statement of this was in the Tokyo Round Declaration
in 1 973, which recognized "the importance of the application of
differential measures in developing countries in ways which will provide
special and more favourable treatment for them in areas of negotiation
where this is fea sible."(8)

Different sections of the evolving GATT code allowed countries to
renegotiate tariff bindings in order to promote the establishment of
certain industries; allowed developing countries to use tariffs for
economic developme nt and fiscal purposes; allowed them to use
quantitative restrictions to promote infant industries; and conceded the
principle of non-reciprocity by developing countries in trade negotiation.
(9) The 1979 Framework Agreem ent known at the Enabling Clause also
provided a permanent legal basis for General System of Preferences (GSP)
schemes that would provide preferential access to developing country
exports. (10)

A significant shift occurred in the Uruguay Round. GSP schemes were not
bound, meaning tariffs could be raised against developing country until
they equalled the bound rates applied to imports for all sources. Indeed,
dur ing the negotiations, the threat to remove GSP was used as "a form of
bilateral pressure on developing countries."(11) SDT was turned from a
focus on a special right to protect and special rights of market access to
"one of responding to special adjustment difficulties in developing
countries stemming from the implementation of WTO decisions."(12) Measures
meant to address the structural inequality of the trading system gave way
to measur es, such as a lower rate of tariff reduction or a longer time
frame for implementing decisions, which regarded the problem of developing
countries as simply that of catching up in an essentially even playing
field.

STD has been watered down in the WTO, and this is not surprising for the
neoliberal agenda that underpins the WTO philosophy differs from the
Keynesian assumptions of GATT: that there are no special rights, no
special pro tections needed for development. The only route to development
is one that involves radical trade (and investment) liberalization.

Fate of the Special Measures for Developing Countries Perhaps the best
indicators of the marginal consideration given to developing countries in
the WTO is the fate of the measures that were supposed to respond to the
spe cial conditions of developing countries.  There were three key
agreements which promoters of the WTO claimed were specifically designed
to meet the needs of the South:

* The Special Ministerial Agreement approved in Marrakesh in April 1994,
which decreed that special compensatory measures would be taken to
counteract the negative effects of trade liberalization on the net
food-importing
 developing countries;

* The Agreement on Textiles and Clothing, which mandated that the system
of quotas on developing country exports of textiles and garments to the
North would be dismantled over ten years;

* The Agreement on Agriculture, which, while "imperfect," nevertheless was
said to promise greater market access to developing country agricultural
products and begin the process of bringing down the high levels of state
support and subsidization of EU and US agriculture, which was resulting in
the dumping of massive quantities of grain on Third World markets.

What happened to these measures?
	 
The Special Ministerial Decision taken at Marrakesh to provide assistance
to "Net Food Importing Countries" to offset the reduction of subsidies
that would make food imports more expensive for the "Net Food Importing
Coun tries" has never been implemented. Though world crude prices more
than doubled in 1995/96, the World Bank and the IMF scotched an idea of
any offsetting aid by arguing that "the price increase was not due to the
Agreement
 on Agriculture, and besides there was never any agreement anyway on who
would be responsible for providing the assistance."(13)

The Agreement on Textiles and Clothing committed the developed countries
to bring under WTO discipline all textile and garment imports over four
stages, ending on January 1, 2005. A key feature was supposed to be the
lift ing of quotas on imports restricted under the Multifiber Agreement
(MFA) and similar schemes which had been used to contain penetration of
developed country markets by cheap clothing and textile imports from the
Third Wor ld. Developed countries retained, however, the right to choose
which product lines to liberalize when, so that they first brought mainly
unrestricted products into the WTO discipline and postponed dealing with
restricted products till much later.

Thus, in the first phase, all restricted products continued to be under
quota, as only items where imports were not considering threatening-like
felt hats or yarn of carded fine animal hair--were included in the
developed
 countries' notifications. Indeed, the notifications for the coverage of
products for liberalization on January 1, 1998 showed that "even at the
second stage of implementation only a very small proportion" of restricted
p roducts would see their quotas lifted. (14)

Given this trend, John Whalley notes that "the belief is now widely held
in the developing world that in 2004, while the MFA may disappear, it may
well be replaced by a series of other trade instruments, possibly substant
ial increases in anti-dumping duties." (15)

When it comes to the Agreement on Agriculture, which was sold to
developing countries during the Uruguay Round as a major step toward
providing market access to developing country imports and bringing down
the high levels
 of domestic support for first world farming interests that results in
dumping of commodities in third world markets, little gains in market
access after five years into developed country markets have been
accompanied by even higher levels of overall subsidization-through
ingenious combinations of export subsidies, export credits, market
support, and various kinds of direct income payments.


The figures speak for themselves: the level of overall subsidization of
agriculture in the OECD countries rose from $182 billion in 1995 when the
WTO was born to $280 billion in 1997 to $362 billion in 1998!  Instead of
t he beginning of a New Deal, the AOA, in the words of a former Philippine
Secretary of Trade, "has perpetuated the unevenness of a playing field
which the multilateral trading system has been trying to correct.
Moreover, t his has placed the burden of adjustment on developing
countries relative to countries who can afford to maintain high levels of
domestic support and export subsidies."(16)

The collapse of the agricultural negotiations in Seattle is the best
example of how extremely difficult it is to reform the AOA. The European
Union opposed till the bitter end language in an agreement that would
commit it
 to "significant reduction" of its subsidies. But the US was not
blameless. It resolutely opposed any effort to cut back on its forms of
subsidies such as export credits, direct income for farmers, and
"emergency" farm ai d, as well as any mention of its practice of dumping
products in developing country markets.


Oligarchic Decision-Making as a Central, Defining Process

Is the system of WTO decision-making reformable?  While far more flexible
than the WTO, the GATT was, of course, far from perfect, and one of the
bad traits that the WTO took over from it was the system of
decision-making .  GATT functioned through a process called "consensus."
Now consensus responded to the same problem that faced the IMF and the
World Bank's developed country members: how to assure control at a time
that the numbers gave
 the edge to the new countries of the South. In the Fund and the Bank, the
system of decision-making evolved had the weight of a country's vote
determined by the size of its capital subscriptions, which gave the US and
th e other rich countries effective control of the two organizations.

In the GATT, a one-country one-vote system was initially tried, but the
big trading powers saw this as inimical to their interests. Thus, the last
time a vote was taken in GATT was in 1959. (17) The system that finally em
erged was described by US economist Bergsten as one that "does not work by
voting. It works by a consensus arrangement which, to tell the truth, is
managed by four- the Quads: the United States, Japan, European Union, and
 Canada."(18) He continued: "Those countries have to agree if any major
steps are going to be made, that is true. But no votes. (19)  Indeed, so
undemocratic is the WTO that decisions are arrived at informally, via
caucuses convoked in the corridors of the ministerials by the big trading
powers. The formal plenary sessions, which in democracies are the central
arena for decision- making, are reserved for speeches. The key agreements
to come out of the first and second ministerials of the WTO-the decision
to liberalize information technology trade taken at the first mini sterial
in Singapore in 1996 and the agreement to liberalize trade in electronic
commerce arrived at in Geneva in 1998-were all decided in informal
backroom sessions and simply presented to the full assembly as faits acco
mpli. Consensus simply functioned to render non-transparent a process
where smaller, weaker countries were pressured, browbeaten, or bullied to
conform to the "consensus" forged among major trading powers.

With surprising frankness, at a press conference in Seattle, US Trade
Representative Charlene Barshefsky, who played the pivotal role in all
three ministerials, described the dynamics and consequences of this system
of de cision-making:

"The process, including even at Singapore as recently as three years ago,
was a rather exclusionary one. All meetings were held between 20 and 30
keycountries... And that meant 100 countries, 100, were never in the
room.. .[T]his led to an extraordinarily bad feeling that they were left
our of the process and that the results even at Singapore had been
dictated to them by the 25 or 30 privileged countries who were in the
room."(20)

Then, after registering her frustration at the WTO delegates' failing to
arrive at consensus via supposedly broader "working groups" set up for the
Seattle ministerial, Barshefsky warned delegates: "...[I] have made very
clear and I reiterated to all ministers today that, if we are unable to
achieve that goal, I fully reserve the right to also use a more exclusive
process to achieve a final outcome. There is no question about either my
ri ght as the chair to do it or my intention as the chair to do
it...."(21)

And she was serious about ramming through a declaration at the expense of
non-representativeness, with India, one of the key developing country
members of the WTO, being "routinely excluded from private talks organized
by
 the United States in last ditch efforts to come up with a face-saving
deal."(22)

In damage-containment mode after the collapse of the Seattle Ministerial,
Barshefsky, WTO Director General Mike Moore, and other rich country
representatives have spoken about the need for WTO "reform." But none have
decl ared any intention of pushing for a one-county/one-vote majority
decision-making system or a voting system weighted by population size,
which would be the only fair and legitimate methods in a democratic
international org anization. The fact is, such mechanisms will never be
adopted, for this would put the developing countries in a preponderant
role in terms of decision-making.

Should One Try to Reform a Jurassic Institution?
	 
Reform is a viable strategy when the system is question is fundamentally
fair but has simply been corrupted such as the case with some democracies.  
It is not a viable strategy when a system is so fundamentally unequal in
 purposes, principles, and processes as the WTO. The WTO systematically
protects and the trade and economic advantages of the rich countries,
particularly the United States. It is based on a paradigm or philosophy
that de nigrates the right to take activist measures to achieve
development on the part of less developed countries, thus leading to a
radical dilution of their right to "special and differential treatment."
The WTO raises inequa lity into a principle of decision-making.

The WTO is often promoted as a "rules-based" trading framework that
protects the weaker and poorer countries from unilateral actions by the
stronger states.  The opposite is true: the WTO, like many other
multilateral int ernational agreements, is meant to instututionalize and
legtimize inequality. Its main purpose is to reduce the tremendous
policing costs to the stronger powers that would be involved in
disciplining many small countries in a more fluid, less structured
international system.

It is not surprising that both the WTO and the IMF are currently mired in
a severe crisis of legitimacy. For both are highly centralized, highly
unaccountable, highly non-transparent global institutions that seek to
subju gate, control, or harness vast swathes of global economic, social,
political, and environmental processes to the needs and interests of a
global minority of states, elites, and TNCs.

The dynamics of such institutions clash with the burgeoning democratic
aspirations of peoples, countries, and communities in both the North and
the South. The centralizing dynamics of these institutions clash with the
eff orts of communities and nations to regain control of their fate and
achieve a modicum of security by deconcentrating and decentralizing
economic and political power. In other words, these are Jurassic
institutions in an a ge of participatory political and economic democracy.


Building a More Pluralistic System of International Trade Governance

If there is one thing that is clear, it is that developing country
governments and international civil society must not allow their energies
to be hijacked into reforming these institutions.  This will only amount
to admi nistering a facelift to fundamentally flawed institutions.  
Indeed, today's need is not another centralized global institution,
reformed or unreformed, but the deconcentration and decentralization of
institutional power a nd the creation of a pluralistic system of
institutions and organizations interacting with one another amidst broadly
defined and flexible agreements and understandings.

It was under such a more pluralistic global system, where hegemonic power
was still far form institutionalized in a set of all encompassing and
powerful multilateral organizations that the Latin American countries and
man y Asian countries were able to achieve a modicum of industrial
development in the period from 1950-70. It was under a more pluralistic
world system, under a GATT that was limited in its power, flexible, and
more sympathet ic to the special status of developing countries, that the
East and Southeast Asian countries were able to become newly
industrializing countries through activist state trade and industrial
policies that departed signific antly from the free-market biases
enshrined in the WTO.

The alternative to a powerful WTO is not a Hobbesian state of nature. It
is always the powerful that have stoked this fear. The reality of
international economic relations in a world marked by a multiplicity of
internatio nal and regional institutions that check one another is a far
cry from the propaganda image of a "nasty" and "brutish" world. Of course,
the threat of unilateral action by the powerful is ever present in such a
system, bu t it is one that even the powerful hesitate to take for fear of
its consequences on their legitimacy as well as the reaction it would
provoke in the form of opposing coalitions.

In other words, what developing countries and international civil society
should aim at is not to reform the WTO but, through a combination of
passive and active measures, to radically reduce its power and to make it
simp ly another international institution coexisting with and being
checked by other international organizations, agreements, and regional
groupings. These would include such diverse actors and institutions as
UNCTAD, multilat eral 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, an d the strategies of their choice.


*Walden Bello, PhD, is executive director of Focus on the Global South and
professor of sociology and public administration at the University of the
Philippines. He attended all three WTO ministerials as an NGO delegate.  
He is the author of several works on the WTO including Iron Cage: The WTO,
the Bretton Woods Institutions, and the Third World (Bangkok: Focus on the
Global South, 1999).

1. Press briefing, Seattle, 2 December 1999.  2. Quoted in "Deadline Set
for WTO Reforms," Guardian News Service, Jan. 10, 2000.  3. Figures from
World Trade Organization, Annual Report 1998: International Trade
Statistics (Geneva: WTO, 1998), p. 12.  4. Quoted in "Cakes and Caviar:
The Dunkel Draft and Third World Agriculture," Ecologist, Vol. 23, No. 6
(Nov-Dec. 1993), p. 220.  5. C. Fred Bergsten, Director, Institute for
International Economics, Testimony before US Senate, Washington, DC, Oct.
13, 1994.  6. UNCTAD, Trade and Development Report 1991 (New York: United
Nations, 1991), p. 191.  7. See discussion of this in Walden Bello and
Stephanie Rosenfeld, Dragons in Distress: Asia's Miracle Economies in
Crisis (San Francisco: Institute for Food and Development Policy, 1990),
p. 161.  8. Quoted in John Whalley, "Special and Differential Treatment in
the Millennium Round," CSGR Working Paper, No. 30/99 (May 1999), p 3.  9.
Ibid., p. 4.  10. Ibid., p. 7.  11. Ibid., p. 10.  12. Ibid., p. 14.  13.
"More Power to the World Trade Organization?", Panos Briefing, Nov. 1999,
p. 14.  14. South Center, The Multilateral Trade Agenda and the South
(Geneva: South Center, 1998), p. 32.  15. John Whalley, Building Poor
Countries' Trading Capacity CSGR Working Paper Series (Warwick: CSGR,
March 1999)  16. Secretary of Trade Cesar Bautista, Address to 2nd WTO
Ministerial, Geneva, May 18, 1998.  17. C. Fred Bergsten, Director,
Institute for International Economics, Testimony before the US Senate,
Washington, DC, Oct. 13, 1994.  18. Ibid.  19. Ibid.  20. Press briefing,
Seattle, Washington, Dec. 2, 1999 21. Ibid.  22. "Deadline Set for WTO
Reforms," Guardian News Service, 10 January 2000

*************************************************

Jurassic Fund: Should Developing Countries Push to Decommission the IMF?
by Walden Bello*

(This is an expanded version of the author's column in the Far Eastern
Economic Review on Dec. 6, 1999.)
 
When the International Monetary Fund, in a surprise announcement at the
World Bank-IMF annual meeting at the end of September 1999, announced that
henceforth it would put "poverty reduction" at the center of its approach
toward developing countries, there was widespread speculation among
Washington watchers that Michel Camdessus's days as Managing Director were
numbered.
 	
Indeed, Camdessus resigned in mid-November 1999, shortly after Larry
Summers, the new US Secretary of the Treasury and one of Camdessus biggest
backers, told the US Congress that henceforth, the US would support a "new
fr amework for providing international assistance to [developing]
countries-one that moves beyond a closed IMF-centered process that has too
often focused on narrow macroeconomic objectives at the expense of broader
human de velopment." (1)
	
The Frenchman's 13-year reign had been identified with a paradigm of
development that he fervently believed in: structural adjustment.  In the
two decades since 1980, structural adjustment programs (SAPs) were imposed
joi ntly by the World Bank and the IMF on close to 90 developing
countries, from Guyana to Ghana.  Despite important differences among the
various economies, SAPs had the same basic elements: long term
"structural" reforms to
 deregulate the economy, liberalize trade and investment, and privatize
state enterprises, coupled with short-term stabilization measures like
cutbacks in government expenditures, high interest rates, and currency
devalua tion.  SAPs multiplied during the Third World debt crisis of the
early 1980s, and an important reason was strong pressure from the Bank and
IMF on governments to restructure their economies along lines designed to
yield the fina ncial resources to pay off their massive debts to the
international commercial banks.  But the objective of SAPs went beyond
debt repayment or the attainment of short-term macroeconomic stability.  
The Bank and the Fund s ought nothing less than the dismantling of
protectionism and other policies of state-assisted capitalism that IMF and
World Bank theorists judged to be the main obstacles to sustained growth
and development.

When the socialist economies of Eastern Europe and Russia collapsed in the
early 1990's, structural adjustment was also extended to that part of the
world, and in a manner that was even more radical than in the South-a pr
ocess that Harvard's Jeffrey Sachs, then one of its vocal proponents,
appropriately labelled "shock therapy."  IMF technocrats went to these
countries with even more dogmatic confidence in their one true model than
the Ma rxist bureaucrats they supplanted had in theirs.  By the early
1990's, shock therapy and structural adjustment had become cornerstones of
what economist John Williamson called "the Washington Consensus" on the
desired mac roeconomic framework that would create a truly global economy
fuelled by market forces.

Retreat
	
Two decades after the first structural adjustment loan, the Bank has
formally abandoned structural adjustment, replacing it with the
"Comprehensive Development Framework."  The new paradigm, according to a
statement of th e Group of Seven Finance Ministers and Central Bank
Governors, (2) has the following elements: * "increased and more effective
fiscal expenditures for poverty reduction with better targeting of
budgetary resources, especially on social priorities in basic education
and health; * "enhanced transparency, including monitoring and quality
control over fiscal expenditures; * "stronger country ownership of the
reform and poverty reduction process and programs, involving public
participation; * "stronger monitorable performance indicators for
follow-through on poverty reduction; and * "ensuring macroeconomic
stability and sustainability, and reducing barriers to access by the poor
to the benefits of growth."

What brought about the 180 degree turn?
	
Failure.  Spectacular failure that could no longer be denied at the pain
of totally losing institutional credibility.
	
The World Bank-or rather James Wolfensohn, President Bill Clinton's
nominee to head the Bank in 1993--was the first to recognize that
something was amiss.  Coming from outside orthodox development circles,
Wolfensohn sens ed what most World Bank officials did not want to
acknowledge:  that with over a 100 countries under adjustment for over a
decade, it was strange that the Bank and the Fund found it hard to point
to even a handful of succ ess stories.  In most cases, as Rudiger
Dornbusch of the Massachusetts Institute of Technology put it, structural
adjustment caused economies to "fall into a hole," (3) wherein low
investment, reduced social spending, red uced consumption, and low output
interacted to create a vicious cycle of decline and stagnation, rather an
a virtuous circle of growth, rising employment, and rising investment, as
originally envisaged by World Bank-IMF t heory.
	
With much resistance from the Bank's entrenched bureaucracy, Wolfensohn
moved to slowly distance the Bank from hard-line adjustment policies and
even got some of his staff to (grudgingly) work with civil society groups
to
 assess SAPs in the so-called "Structural Adjustment Review Initiative"
(SAPRI).  For the most part, however, the change of attitude did not
translate to changes at the operational level owing to the strong
internalizatio n of the structural adjustment approach among Bank
operatives.
	
While self-doubt began to engulf the Bank, the IMF, in contrast, plowed
confidently on, and the lack of evidence of success was interpreted to
mean simply that a government lacked political will to push adjustment.  
Throu gh the establishment of the Extended Structural Adjustment Facility
(ESAF), the Fund sought to fund countries over a longer period in order to
more fully institutionalize the desired free-market reforms and make them
perm anent.

The Philippine Case
	

The Philippines', together with Turkey and Costa Rica, was one of the
guinea pigs of structural adjustment.  Its experience under adjustment was
representative of the Third World experience.  Between 1980 and 1999, the
Ph ilippines became the recipient of nine structural adjustment loans from
the World Bank, and participated in three standby programs, two extended
fund programs, and one precautionary standby arrangement with the IMF. (4)
T he country, in short, was in continuous adjustment for nearly 20 years,
its macroeconomic policies being micromanaged by the Bretton Woods twins.
	
The first phase of adjustment, which focused on trade liberalization, saw
quantitative restrictions removed on more than 900 items, while the
nominal average tariff protection was brought down from 43 per cent in
1981 to 28 per cent in 1985.  But the program failed to factor in the
onset of a global recession, so that instead of rising, exports fell,
while imports coming in to take advantage of the liberalized regime
severely eroded the h ome industries.  As the late economist Charles
Lindsay noted, "Whatever the merits of the SAL, its timing was
deplorable." (5) Instead of allowing the government to set in motion
countercyclical mechanisms to arrest the d ecline of private sector
activity, the structural adjustment framework intensified the crisis with
its policy of high interest rates and tight government budgets.  Not
surprisingly, the GNP shrank precipitously two years in a row,
contributing to the political crisis that resulted in the ouster of
Ferdinand Marcos in February 1986.
	
Under Corazon Aquino the second phase of adjustment saw economic recovery
subordinated to the repayment of the foreign debt of the country's $26
billion foreign debt.  This was achieved via fiscal austerity and more
inten sified export of natural resources and export-oriented production.  
A financial hemorrhage ensued, with the net transfer of financial
resources coming to a negative $1.3 billion a year on average between 1986
and 1981, ac cording to the Freedom from Debt Coalition.(6)

To service the debt, the Aquino administration was forced to borrow
heavily from domestic financial sources, forcing it to channel much of its
budgetary expenditures from development and social spending to meeting
both do mestic and foreign debt obligations.  By 1987, some 50 per cent of
the budget was going to service the national debt.(7)
	
Not surprisingly, this "model debtor" via structural adjustment
institutionalized stagnation, with the country registering zero average
GNP growth between 1983 and 1993.  Stagnation led to a worsening of social
conditions , with families living under the poverty line coming to 46.5
per cent of all families in 1991 and the share of the national income
going to the lowest 20 per cent of families dropping from 5.2 per cent in
1985 to 4.7 in 1 991.(8) The Philippines also provided one of the best
documented studies of the correlation between environmental destruction
and structural adjustment, with a World Resources Institute study
concluding that adjustment "c reated so unemployment that migration
patterns changed drastically.  The large migration flows to Manila
declined, and most migrants could only turn to open access forests,
watersheds, and artisanal fisheries.  Thus the m ajor environmental effect
of the economic crisis was overexploitation of these vulnerable
resources."(9)
	
When the Ramos administration took over in 1992, the focus of adjustment
shifted back to accelerated privatization, deregulation, and
liberalization of trade, investment, and finance.  Petron and several
government enterp rises and services passed to the private sector; a
substantially free trade regime was targeted for 2004, when tariff rates
would be reduced to a uniform five per cent or less for all products; and
nationality restriction s on foreign investment were relaxed considerably.  
Capital account liberalization, an IMF prescription, resulted in massive
inflows of speculative capital into the financial and real estate sector,
triggering an artifici al boom in Manila.  But the liberalized capital
account also became the wide highway through which billions of dollars
exited in 1997 and 1998, at the onset of the Asian financial crisis,
bringing the GDP growth rate to b elow zero in 1998. (10)
	
Adjusted and readjusted for nearly 20 years, Manila simply could not climb
out of a deepening hole.

Crisis of Legitimacy
	
It was the Asian financial crisis that finally forced the IMF to confront
reality.  In 1997-98 the Fund moved with grand assurance into Thailand,
Indonesia, and Korea, with its classic formula of short-term fiscal and mo
netary policy cum structural reform in the direction of liberalization,
deregulation, and privatization.  This was the price exacted from their
governments for IMF financial rescue packages that would allow them to
repay the massive debt incurred by their private sectors.  But the result
was to turn a conjunctural crisis into a deep recession, as government's
capacity to counteract the drop in private sector activity, was destroyed
by bud getary and monetary repression. (11) If some recovery is now
discernible in a few economies, this is widely recognized as coming in
spite of rather than because of the IMF.
	
For a world that had long been resentful of the Fund's arrogance, this was
the last straw.  In 1998-99, criticism of the IMF rose to a crescendo and
went beyond its stubborn adherence to structural adjustment and its serv
ing as a bailout mechanism for international finance capital to encompass
accusations of its being non-transparent and non-accountable.  Its
vulnerable position was exposed during the recent debate in the US
Congress over
 a G-7 initiative to provide debt relief to 40 poor countries.  
Legislators depicted the IMF as the agency that caused the debt crisis of
the poor countries in the first place, and some called for its abolition
within thr ee years.  Said Rep. Maxine Walters:  "Do we have to have the
IMF involved at all?  Because, as we have painfully discovered, the way
the IMF works causes children to starve." (12)
	
In the face of such criticism from legislators in the IMF's most powerful
member, US Treasury Secretary Larry Summers claimed that the IMF-centered
process would be replaced by "a new, more open and inclusive process that
 would involve multiple international organizations and give national
policymakers and civil society groups a more central role." (13).

But is this for Real?
	
So structural adjustment is dead, and the Bretton Woods institutions have
seen the light.  But wait, isn't there something too easy about all this?
	
The fact is, in the case of the IMF, as well as that of the World Bank and
the Asian Development Bank (ADB), jettisoning the paradigm of structural
adjustment has left them adrift, in the view of many critics, with just t
he rhetoric and broad goals of reducing poverty, but without an innovative
macroeconomic approach.  Wolfensohn and his ex-chief economist Joseph
Stiglitz talk about "bringing together" the "macroeconomic" and "social"
asp ects of development, but Bank officials cannot point to a larger
strategy beyond increasing lending to health, population, nutrition,
education, and social protection to 25 per cent of the Bank's total
lending.  The ADB i s even more of a newcomer in the anti-poverty
approach, and its strategy paper issued this year is long on laudable
goals but even ADB insiders agree, breaks no new ground in terms of
macroeconomic innovation.  Most at se a are IMF economists, some of whom
openly admitted to NGO representatives at the September IMF-World Bank
meeting that so far the new approach was limited to relabeling the
Extended Structural Adjustment Fund (ESAF) the " Poverty Reduction
Facility, and that they were looking to the World Bank to provide
leadership. (14)
	
It is not surprising that, in these circumstances, the old framework would
reassert itself, with, for example, the IMF telling the Thai government,
already its most obedient pupil, to cut its fiscal deficit despite a very
 fragile recovery; the Fund's pushing Indonesia to open its retail trade
to foreign investors, despite the consequences in terms of higher
unemployment; and technocrats of the ADB making energy loans and Miyazawa
funding contingent on the Philippine government's accelerating the
IMF-promoted privatization of the National Power Corporation, despite the
fact that consumers are likely to end up paying more to the seven private
monopolies tha t will succeed the state enterprise.
 	
"It's the old approach of deregulation, privatization, and liberalization
but with safety nets" is the not inappropriate description of one Filipino
labor leader much consulted by the multilateral institutions. (15)
	
Then, there is the issue of accountability.  One cannot just walk away
from the scene of the crime without admitting wrongdoing.  The Bank and
the Fund have been responsible for tremendous economic and social damage
wroug ht on Third World economies for over two decades.  Shouldn't they be
held to account for that?  Should not Camdessus and the whole top
leadership of the IMF, including his deputy Stanley Fischer and
Asia-Pacific division chief Hubert Neiss, who blindly embraced adjustment
to the end, take responsibility for their massive blunders?  Despite their
announced resignations, both Camdessus and Neiss are unrepentant when it
comes to their polici es.
	
Many of the Fund's long-time critics have a darker view of things.  To
them, Camdessus served as a sacrificial lamb to blunt real efforts at
reform at a time that the Fund "desperately needs" credibility and
legitimacy, a s the Financial Times put it. (16) This fear is
well-grounded, for in his most recent statements, Larry Summers, the
pivotal figure when it comes to the future of the IMF, appears to have
forgotten about the need for a pa radigm shift.  When speaking about the
elements of a "new" IMF strategy, Summers says that the "approach looks to
the IMF to continue to certify that a country's macro-economic policies
are satisfactory before debt is rel ieved of new concessional lending is
advanced." (17) is this what is meant by "moving away from an IMF-centered
process that has too often focused on narrow macroeconomic objectives at
the expense of broader human develop ment"? (18)
	
Bearing in mind that trade liberalization was one of the most
controversial dimensions of the old structural adjustment approach, even
more revealing is Summers' view that the new IMF must have as one of its
priorities "s trong support for market opening and trade
liberalization."(19) Trade liberalization, Summers continues, "is often a
key component of IMF arrangements.  In the course of negotiations, the IMF
has sought continued complian ce with existing trade obligations and
further commitments to market opening measures as part of a strategy for
spurring growth.

For example: As part of its IMF program, Indonesia has abolished import
monopolies for soybeans and wheat; agreed to phase out all non-tariff
barriers affecting imports; dissolved all cartels for plywood, cement and
paper ; removed restrictions on foreign investment in the wholesale and
resale trades; and allowed foreign banks to buy domestic ones.  Zambia's
1999 program with the IMF commits the government to reducing the weighted
average tariff on foreign goods to 10 per cent, and to cutting the maximum
tariff from 25 per cent to 20 per cent by 2001.  In July, the import ban
on wheat flour was eliminated." (20)
	
Calling this a "new approach" is, let us face it, stretching the truth.

Radical Reform or Decommissioning?
	
Now what would a real process of transformation look like?  It would be
something that would include more than the open selection process for the
new managing director-one that would open the recruitment process to
non-Eu ropeans -endorsed by Jeffrey Sachs. (21) For the problem lies in
the very structure and culture of the institution: a lack of
accountability except to the US Treasury Department; a belief in
non-transparency as a conditio n for effectiveness; and a deeply ingrained
elitism that renders the bureaucracy incapable of learning from outsiders.
	
If this is the heart of the matter, then surgery must be more radical.  I
would propose the following measures:

* First, so embedded is the old adjustment framework in current programs
that a clean break with the past can only take place not just with a
renaming but with the immediate dismantling of all structural adjustment
progra ms in the Third World and the ex-socialist world and the IMF
adjustment programs imposed on Indonesia, Thailand, and Korea following
the Asian financial crisis.

* Second, immediate reduction of the IMF professional staff from over 1000
to 200, and major cuts in both capital expenditures and operational
expenses of the agency.  Most of the Fund's economists are today employed
in m icromanaging adjustment programs and would definitely cease to be
necessary if, as the G-7 Finance Ministers and Central Bank governors
suggest, developing countries be given more authority in formulating and
implementing
 their poverty reduction programs; and if, as Jeffrey Sachs advises, the
Fund's main work is limited to monitoring world capital markets and the
world's monetary system. (22)

* Third and most important is the creation of a Global Commission on the
Future of the IMF to decide if the Fund is to be reformed along the lines
suggested by Sachs and others or, to borrow a phrase applied to ageing nuc
lear plants, it is to be decommissioned, which this author favours.  Half
of the members of such a body should come from civil society organizations
since it is these groups that were instrumental in bringing to light the
 destructive impact of adjustment programs and are now engaged in many of
the most innovative experiments in grassroots social development.  Energy
from below and decentralized operations are the trademarks of so many su
ccessful organizations that the top-down centralized IMF looks positively
Jurassic.

With its credibility and legitimacy in tatters, the Fund is in severe
crisis.  Unless international civil society intervenes, and intervenes
forcefully now, the powers that be will wait for the storm to blow over
while ta lking, as Larry Summers does, about reform.  Radical reform or
decommissioning?  That is the question of the hour around which we must
frame our strategies for intervention.


*Dr. Walden Bello is professor of sociology and public administration at
the University of the Philippines and executive director of Focus on the
Global South, a program of research, analysis, and advocacy of the
Chulalon gkorn University Social Research Institute based in Bangkok.  He
is the author or co-author of 10 books and numerous articles on Asian
economic and political issues, including A Siamese Tragedy: Development
and Disintegra tion in Modern Thailand (London: Zed, 1998), Dark Victory:
the US, Structural Adjustment, and Global Poverty (San Francisco: Food
First, 1994), and Dragons in Distress: Asia's Miracle Economies in Crisis
(London: Penguin,
 1991).


1. Op-ed piece in Washington Post, reproduced in Today (Manila), Nov 15,
1999. 2. Communiqu?, Sept. 25, 1999. 3. Rudiger Dornbusch, quoted in
Jacques Polak, "The Changing Nature of IMF Conditionality," Essays in
International Finance, Princeton University, No. 184 (Sept. 1991), p. 47.
4. Data from Freedom from Debt Coalition (Philippines). 5. Charles
Lindsey, "the Political Economy of Economic Policy Reform in the
Philippines: Continuity and Restoration," in Andrew MacIntyre and Kanishka
Jayasuriya, eds., The Dynamics of Economic Policy Reform in Southeast Asia
and the Southwest Pacific (Singapore: Oxford University Press, 1992). 6.
Freedom from Debt Coalition, "Revisiting Philippine Debt," Paper presented
at the National Debt Conference, Innotech, Commonwealth Avenue, Oct. 9-10,
1997. 7. Freedom from Debt Coalition, Primer on Philippine Debt (Quezon
City: FDC, 1997). 8. Leonor Briones and Jenina Joy Chavez-Malaluan, "New
Social and Political Challenges within the Framework of the Structural
Adjustment Process in Southeast Asia (with Focus on the Philippines):
Effects on New Population
 Trends and Quality of Life," Paper prepared for the Population and
Quality of Life Independent Commission, Manila, May 1994, unpublished. 9.
Wifredo Cruz and Robert Repetto, The Envrionmental Effects of
Stabilization and Structural Adjustment (Washington, DC: World Resources
Institute, 1992), p. 48. 10. See Walden Bello, Addicted to Capital: the
Ten-Year High and Present-Day Withdrawal Trauma of Southeast Asia's
Economies (Bangkok: Focus on the Global South, 1997). 11. See Nicola
Bullard, Walden Bello, and Kamal Malhotra, Taming the Tigers: The IMF and
the Asian Crisis (Bangkok: Focus on the Global South, 1998). 12. Quoted in
AP, reproduced in Business World, Nov.  15, 1999. 13. Op-ed, Washington
Post, reproduced in Today, Nov. 15, 1999. 14. Personal communication, Ted
Van Hees of Eurodad, New York, Nov. 1, 1999. 15. Comment of Luis Corral,
political affairs director of TUCP, Nov. 6, 1999. 16. "The IMF's New
Leader," Financial Times, Nov. 18, 1999, p. 16. 17. Treasury Secretary
Larry Summers, "the Right Kind of IMF for a Stable Global Financial
System," Remarks to the London School of Business, London, England, Dec.
14, 1999. 18. Op-ed piece in Washington Post, reproduced in Today, Nov.
15, 1999. 19. Treasury Secretary Larry Summers, Testimony before the US
Senate Committee on Foreign Relations, Washington, DC, Nov. 5, 1999. 20.
Ibid. 21. Jeffrey Sachs, "Time to End the Backroom Poker Game,"  
Financial Times, Nov. 15, 1999. 22. Ibid.

Focus on the Global South (FOCUS) c/o CUSRI, Chulalongkorn University
Bangkok 10330 THAILAND Tel: 662 218 7363/7364/7365 Fax: 662 255 9976
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