[stop-imf] Khor: Debt, development, financial controls

[robert.weissman@essentialinformation.org]

Statement by Martin Khor, Director of the Third World Network, at the
concluding plenary session of the Special High Level ECOSOC Meeting with
the Bretton Woods institutions and the WTO, at the Ecosoc Chamber, United
Nations, New York, 26 April 2004.





Two years ago, when the Monterrey FFD Conference was held, there was
considerable momentum generated in which governments pledged to work
within a coherent policy framework led by the UN to address critical
finance and development issues.  The CSOs too had hopes that the FFD
process would help to tackle the problems.



Two years later, we find that this political momentum has dissipated.  And
that the problems of finance and development have remained or worsened.
The debt crisis continues for many countries, and more countries are on
the brink of financial crisis, aid is still inadequate, capital flows
remain unregulated, there are large currency fluctuations and other forms
of financial stability, an impasse in multilateral trade relations, the
continuing crisis in commodities, and a huge net transfer of resources
from South to North.



The need to strengthen the FFD process


The theme of this year1s session meeting is coherence, coordination and
cooperation.  But in the title there is a fourth C, which is context, the
context of the Monterrey Consensus and of finance and development.  This
fourth C is the most vital, because context is key.  Coherance,
coordination and cooperation are only the means.  We must cohere,
cooperate and coordinate in line with certain principles and policies,
which form the context. If we cohere and coordinate according to the wrong
lines and context, it would be worse than not having coherence at all.



There is also a fifth C, and that is capacity.  The capacity of the FFD
follow up process and mechanism to meet the challenge.  We know the
seriousness of the problems.  But in comparison the follow up capacity is
extremely light and weak. We only have, annually, this one-day event.  It
is even only called a meeting.  No doubt the name of the meeting has been
embellished with the terms 3special2 and 3high level2, but that does not
hide the fact that this is only a one-day event, lacking a firm
institutional framework.  There is also the biannual FFD dialogue, which
is an expanded version of this meeting.  And besides these few days of
discussion, there is hardly any other official events, except for a few
hearings.   In contrast, the UN has a Commission on Sustainable
Development for environment and development issues, and a Commission on
Social Development for social issues.  Surely the set of issues contained
in finance and development deserve at least a Commission within which the
discussions can take place and actions can be followed up.



Similarly, the secretariat servicing the FFD, however high the quality of
its work,  is too weak and has inadequate resources, given the enormity of
the problems.



The present mandate is grossly insufficient and thus cannot effectively
affect the outcomes that are needed.  This weak framework must be
supplemented or expanded:



1.  This spring one-day meeting should be expanded to two or three days to
enable more serious dialogue and the dialogue should include the planning
of actions.



2.  Task forces (that include NGO representatives) should be established
to discuss and propose actions on various issues, such as debt, financial
flows, trade and finance.  They can meet in between the annual meetings
and biannual dialogues.



3.  The intergovernmental process should be strengthened.  A Commission on
Financing for Development should be established.  There should be a bureau
of government representatives to coordinate affairs in between the annual
meetings.



4.  The UN secretariat or parts of the secretariat handling FFD matters
should be strengthened.  It should regularly produce more detailed and
high-quality papers and reports on the range of FFD issues that can inform
on the latest situation and provide suggestions and guidance.  It should
organize forums, task forces and meetings on the various key issues.



5.  The role of NGOs should be strengthened in the process and in the
expanded mechanisms.





The FFD is still an orphan child in search of parents.  It needs the
father of an effective intergovernmental process and the mother of a
strong secretariat that can nurture it, and the NGOs can be the brothers
and sisters that help develop the child.  The problems are so serious, we
need not only to keep them alive, but to keep them burning bright in order
to make any progress.



The NGOs feel that the governments and the UN system must redouble and
retriple the efforts to reach an outcome of development, empowering
people, reducing inequality, bringing about sustainable development that
delivers health, food, jobs and a clean environment.



Development requires that there be enough financial resources, financial
stability, and the channeling of financial resources to productive
investments in appropriate economic and social activities with clean
environment processes, and that that fulfill human needs in the context of
sustainable growth and development.



Where do we stand today on financing for development?  The situation is
very disappointing.  The following is a summary of a few of the key
issues.



Comprehensive treatment of external debt


On the issue of external debt, there has been very little progress.  The
situation is still unresolved for most developing countries that have a
debt problem.  A comprehensive and systematic solution should now be found
for all groups of countries.  As the representative from the IMF reported
just now from the discussions in one of the roundtables, having a debt
overhang is very detrimental to a country1s growth and ability to meet the
Millennium Development Goals, as excessive debt prevents the use of
resources for useful activities (such as education, health and basic
infrastructure) and impedes investment.



Thus a comprehensive approach is now required.    For low income
countries, the HIPC initiative has not succeeded, and it is time that
there be debt cancellation for all low-income countries, including those
that are not now categorized as HIPC.  For middle income countries facing
a debt servicing problem, the problem must also be resolved, otherwise it
is possible some of them will slip into the category of low-income.  For
these countries, there should be debt relief or partial debt cancellation.
 For countries facing the danger or possibility of debt default, they
should have resourse to a systematic and fair debt workout mechanism in an
international framework agreed to by all.  In the absence of this
framework, countries may have to initiate their own debt workout
solutions, and they should not be blamed when they seek such unilateral
solutions.   The concept of debt
sustainability has to be revised, keeping in mind that a country has to
ensure there is sufficient finances to meet the needs of its citizens.




Reconsider loan conditionality


The unpopular and largely discredited structural adjustment policies
underwent a metamorphosis into the PRSP process, with the popular terms
poverty reduction, participation and country ownership added on.  However
the core economic content has remained the same.  Thus the same problems
as were in the structural adjustment programme remain in the PRSP.  At the
least, there should be a reconsideration of the macroeconomic, trade and
financial liberalization aspects of these loan conditionalities.



n     The macroeconomic core policies have been pro-cyclical and
contractionary, contributing to stagnation or recession. They should be
reconsidered and in their place there should be counter-cyclical
pro-growth recovery policies.

n     The conditions for financial liberalization (free inward and outward
movement of capital flows) should be reconsidered in view of the recent
evidence of harm that capital mobility can cause and has caused to many
countries.

n     The conditions for rapid trade liberalization, especially import
liberalization, have to be changed, in view of the damage to the domestic
industrial and farm sectors casued by imports of cheap products resulting
from excessively rapid tariff reduction.




Reform of the international financial system

The framework for international finance is in disarray with the rise of
instability and volatility in capital flows, in currency rates, and with
financial crises afflicting more countries.  But the international
community has been dragging its feet in re-building a system that leads to
financial stability.


The following are urgently needed:



n     An international system of regulation of capital flows, at least to
prevent speculative activities that generate volatility and financial
crises.

n     An international framework that enables individual developing
countries to regulate inflows and outflows of various types of funds
(including credit, portfolio investment and foreign direct investment).

n     A system that stabilizes exchange rates among the currencies that
are used for interanational transactions, as well as the currencies of the
developing countries.

n     A reform of the roles and governance systems of the Bretton Woods
institutions.




Trade and finance


As we know, trade flows have a major effect on financial resources.  The
current impasse at the WTO is an opportunity to re-balance the
multilateral trade system and re-orient it to the needs of developing
countries.   The following are some of the measures required:



n     Revise the WTO1s agriculture rules so as to prevent the dumping of
subsidized products at artificially cheap prices.  This 3dumping2 practice
is contributing to import surges in many developing countries, with effect
on rural livelihoods and also on the trade balance.   Northern
agricultural subsidies should be eliminated and phased out as soon as
possible. Developing countries should be permitted to protect their small
farmers on grounds of food security and rural ovelihoods.  The worst
scenario, which quite possibly mat materialse, would be for Northern
protection to continue, while developing countries have vto reduce their
tariffs further under WTO rules or loan conditionality.

n     On industrial products, developing countries must be allowed the
flexibility to choose the pace and rate of their liberalization.  In
previous Rounds, developing countries by and large had such flexibility.
However, many developing countrues have suffered deindustrialisation, with
closure of local industries, due mainly to loan conditionality of the
Bretton Woods institutions.  In the WTO, there are several proposals for a
non-linear formula which if accepted would drastically reduce the
industrial tariffs of developing countries and threaten the viability of
their local industries. Another result is increased imports and wider
trade deficits, affecting financial resources.

n     The so-called Singapore issues of investment, competition,
transparency in government procurement and trade facilitation, should be
dropped from the WTO agenda.  Most developing countries are against having
WTO agreements on these issues as they would severely constrain their
development policy space. These issues are so controversial that they have
impeded progress in other areas.   Since there was an offer by the main
proponent of these issues to drop three of these issues in the Cancun
Ministerial meeting, and they are no longer demandeurs of these issues, it
would now be timely to drop these issues altogether and thus pave the way
for more goodwill for negotiating the other WTO issues such as
agriculture.

n     On patenting of drugs, the developing countries should now establish
national policies and laws to enable measures such as compulsory licensing
so that morfe affordable medicines can be supplied to patients.

n     The commodities crisis continues to afflict a large number of
developing countries.  A comprehensive international approach should be
taken, including the revival of cooperation among producer and consumer
countries to facilitate realigning of supply to demand, and stabilization
of prices at levels that can meet the needs of developing countries.




Participatory Governance


The imbalances in global governance in trade and finance have contributed
to the lack of benefits and the problems facing developing countries in
the area of financing for development.   A democratization of the Bretton
Woods institutions and the WTO is required, for develop0ing countries to
participate more equitably in decisions that affect them. The current
method of selecting the IMF managing director, the position of which is
seen as the prerogative of European countries, is only a topical example
of the inequities of the global systems of economic decision-making.




Conclusions


The finance situation in the world and in developing countries has not
improved since Monterrey and in some areas it has deteriorated.  The FFD
process must be revitalized, on the basis of fundamental rethinking.
Coherance and cooperation in policy should be based on this rethinking.



We need to switch from the one size fits all policy conditionality of the
Bretton Woods institutions, and tailor policies to fit the needs of each
country.



We need to move away from the 3level playing field2 assumptions of the
WTO, and instead build the development dimension into the heart of the
rules and operating principles of the system.



We need to switch from the concept of 3mainstreaming trade and financial
liberalization in development2 to the more appropriate concept of
3mainstreaming development needs into trade and finance policies and
systems.2



We need to move from a piecemeal and unsatisfactory approach to debt, and
have a comprehensive treatment of the problem, and to build a new
international financial architecture that regulates capital flows and end
the series of financial crises.



We need to reverse the net outflow of financial resources from the
developing countries, and to tackle the factors that lead to this drain so
that resources flow to the developing countries instead.



And finally we need to bridge the democratic deficit in the global
institutions.  The quotas in the Bretton Woods institutions are long
outdated, lack fairness and legitimacy.  The WTO decision-making system
should be modernized, and make the transition to a truly multilateral and
democratic organization where developing countries are allowed to fully
participate.  More space must be given to civil society so that its voices
can be heard.



The NGOs have in recent years played an increasingly important role in FFD
related issues. For example, the Jubilee campaign succeeded in increasing
public awareness and mobilizing public opinion on the need for settling
the debt problem.   The NGOs are committed to continuing and increasing
our work in the FFD issues and arena.  We hope the governments and the UN
system will be up to the challenge too.