[stop-imf] Naiman: Debt Cancellation, Not Corporate Trade Deals, Would Help the Poor

[Robert Weissman]

Sunday Journal, metropolitan Washington, DC
April 29, 2001

Debt Cancellation, Not Corporate Trade Deals,
Would Help the Poor

Robert Naiman, Center for Economic and Policy
Research, Washington

[This column may be reproduced electroically. It
may be reproduced in print media outside the
Washington, DC area after April 29.]


The verbal flubs of President Bush in Quebec City
were widely reported to the amusement of the
educated. He referred to the language of Mexico
(Spanish) as "Mexican" and called the Canadian
leader "amigo" (rather than using the French
 "ami.")

Attention to these "dumb" things that President
Bush said overlooked something truly dumb he said
which, unlike knowing the foreign word for
something, actually matters.

Bush, appealing for support for the "Free Trade
Area of the Americas," claimed that "free trade"
creates new jobs and income, "lifts the lives of
all our people," and addresses the needs of the
poor.

This may have escaped ridicule since many of the
educated folks who make fun of the President are
just as dumb as he is about "free trade."

Advocates of "free trade," when they are honest
and competent, admit that "free trade" is not
about job creation, as Federal Reserve Chairman
Alan Greenspan asserted in his recent testimony
before Congress. Unemployment is largely
determined by the economic policies of the Fed.
What "free trade" does is move people from one
area of employment to another. The relevant
question is who wins and who loses from these
shifts and whether the costs outweigh the benefits
for the majority of people.

A recent report from the Economic Policy Institute
estimates that the U.S. lost half a million
manufacturing jobs during the operation of the
North American Free Trade Agreement due to
increased trade deficits with Canada and Mexico.
Surveys indicate that when workers displaced by
trade liberalization do find new jobs, their wages
fall, with earnings declining by an average of
over 13%. "Free trade" may lift some, but
definitely not all. Poor workers in the U.S.,
having fewer skills, are the most likely to lose.

Economic theory predicts that national income will
rise as a result of trade liberalization. But the
predicted gains are so tiny as a share of our
economy that they probably can't be measured, and
the majority of people are likely to see their
incomes fall.

As for the poor in developing countries, their
leaders are told that to raise living standards
they must increase exports to the U.S. While
increased exports could support development, there
is no guarantee that they will. Without a reversal
of the policies to which these countries are
subjected by the International Monetary Fund and
the World Bank, increasing trade as a share of
their national economies will only lead to deeper
poverty.

To service their foreign debts, these countries
are pushed by the IMF and the World Bank to
increase exports to the U.S. and reduce imports,
because it's the difference that is available (at
most) to service debt. But Argentina's debt
service is seven times its exports to the United
States. Halving Argentina's debt service would
have the same effect as importing four times as
much from Argentina as we do today, while not
increasing exports. Halving Brazil's debt service
would have be tantamount to tripling imports from
Brazil, while not increasing exports.

When these countries export to service debt, money
generated is not going into to infrastructure
investment nor human welfare. Productive activity
is being diverted from producing goods and
services for people in these countries.

The debt burden is leverage for the IMF and the
World Bank: every debt negotiation brings new
conditions. This leverage has been used to
restructure national economies to produce for
export, lower living standards to attract foreign
investment, and reduce the role of government in
providing public services.

The World Bank has aggressively promoted water
privatization. This is ironic considering that the
United States, the dominant shareholder in the
Bank, provides 80% of its water publicly. Water
privatization in Bolivia caused an uprising there
when Bechtel hiked fees for access to water beyond
the reach of poor residents. The World Bank has
also aggressively promoted privatization in
education and health care. It has pressured
governments to impose user fees on access to
primary health care and education. This has led to
falling school enrollments in countries like
Nicaragua.

Canceling external debt and ending IMF-World Bank
economic mandates are far more likely to help the
majority of people in Latin America than would the
creation of an FTAA.