By Humphrey Mulemba, Program Officer – Trade Policy & Capacity Building, Jesuit Centre for Theological Reflection in Zambia
Anxiety about the future of the international economy is increasing with the Group of twenty (G20) meeting scheduled for this week. The finance ministers and central bankers of the twenty most industrialised economies in the world from France, Germany, Canada, United Kingdom, Japan, United States of America and Italy will meet including major emerging economies of the world namely India, Brazil, China, Russia, South Africa and other countries. The desire to recover quickly from the recession has seen a ripple effect throughout the international economy. Developed countries like the US and those of Europe have reacted against the failure of the market system by providing bail out packages and providing financial stimulus packages for the private sector. Developed countries have also embarked on a wave of protectionism such as the buy America strategy in the US, dairy export subsidies by the EU and a protectionist auto industry recovery plan in France.
In recent months the world has witnessed international events unfold that have rocked the foundation of the free market system. The role of the state has come into review by most countries and unease about the prospect of aid flows to developing countries increases. Although EU has maintained the responsibility to meet their aid commitments, according to CONCORD, two countries have already backtracked on these commitments— Italy has cut its aid budget by 50%, and Ireland by 10%, with further threats coming from Latvia (-100%) and possibly the Netherlands.
Yet, European leaders expected to meet at the G-20 are talking more about addressing the financial loop hole created by tax havens, increasing the financial regulation of hedge funds and creating reforms to combat banking executives’ bonuses. This is clearly a costly diversion away for the real pressing issues to resolve the ills of the wider international economy especially for developing countries.
5 Points on trade
1. Trade reforms should not be pushed forward at the expense of development as the past has shown the disastrous effects that this has had on developing countries that are currently faced with high levels of poverty. By 2010 The World Bank estimates 90 million more people could be living in extreme poverty.
2. The current state of the international economy clearly illustrates that simply making a choice between opening or closing markets does not guarantee sustainable development.
3. A broader spectrum of elements need to be taken into account such as the strength of institutions, the quality of policy instruments to regulate, and the capacity to be able to benefit from market access. The type of Economic Partnership Agreements that the EU is advocating for overlooks these finer details that are essential for development.
4. The majority of developing countries are engulfed in the brutal cycle of selling low value products and buying products of high value. Trade measures should be adopted to address this imbalance especially in the case for developing countries where there is a heavy reliance on revenue incomes from these low value products which are normally raw materials. Zambia’s foreign earnings from copper and cobalt amount to 80.8% which lessens the economic dependence of governments on other taxable sectors.
5. Developing countries are the worst hit by developed countries’ protectionist policies. Protectionism creates a barrier to their capacity to develop industries that will compete in the international market fairly. With developed countries having more resources and capacity to provide private sector support through subsidies and the like developing countries are often playing catch up in the development and diversification of their economies. Therefore, countries in the developed world should begin taking serious measures to dismantle harmful subsidy programmes especially in the Agriculture sectors in order to enhance the prospects of genuine fair trade. IMF staff note that notwithstanding commitments made by G-20 countries not to resort to protectionist actions, signs are emerging that several countries have raised tariffs and non-tariff barriers to imports and provided subsidies to their export sector. Going forward, if such actions gain greater momentum, economic prospects and recovery from the crisis would be undermined.
5 Points on aid
1. There is a low level of commitment to using aid as a tool to achieve development. This is because the emphasis is on aid effectiveness which focuses on accountability between donors and governments and not development effectiveness. In Mary Robinson’s address to the making mutual accountability real roundtable at the High-Level Forum on Aid Effectiveness, Accra, 2-4 September 2008, she highlights that stakeholders need to go further on their commitment made in Paris and Accra in making aid more effective.
2. The amount committed by donors should be both predictable and equal to the amount disbursed so as to ensure that development efforts planned for can be implemented in a given year or period by developing countries.
3. Aid should not be conditional to liberal reforms as this inevitably reduces the amount of policy space that is important for developing countries to employ for important development programmes. In the African Monitor paper submitted for input to the G20, Structural Adjustment Policies (SAPs) were cited as a crisis that began way back in the 1980’s and early 1990’s under where hemorrhaging jobs and rolling back direct government intervention in service delivery attributed to intensifying poverty.
4. International Monetary Fund (IMF) must be reformed to adequately respond to the prevailing socio-economic situation where the voice of developing countries comes to the fore and play a role on how aid recovery programmes are created.
5. There is a great emphasis that the level of accountability is greater between the donors and recipient governments but not to the citizens of the aid recipient country. The participation of people is a key element in extending accountability to the citizenry which will also complement efforts to transparency on the allocation and distribution of resources. These are views raised by various press statements released by CS during the High-Level Forum on Aid Effectiveness. Accra, 2-4 September 2008
5 Points on reforms
1. There is an important need to ensure that the G-20 paves the way for a shift in economic orthodoxy from the traditonnal marekt system to a balanced market responsive system to prevailing socio-economic conditions. The African Monitor notes that even as poor countries go out with a begging bowl, an estimated USD690 billion in illicit outflows leaves developing countries for the developed. All this has been made possible through the aggressive enforcement of an ideologically driven economic paradigm that minimizes the role of government, institutes asymmetrical global governance and critically weakens regulation of financial institutions. It
2. The G-20 should be the platform to initiate the march towards sustainable development. Sustainable Development which must be achieved by maximising the benefit of integral environmental, social, economic and human development for present generations while minimising the cost of integral environmental, social, economic and human development for future generations.
3. Until the path of recovery through economic growth aims to address the social recession. G-20 will need to realise that the core problem of the ability to assist achieving sustainable development is as a result of economic growth failing to address the social recession that has persisted throughout. Poverty has been a companion of economic growth with the market system.
4. The development of national policies and incentives need to be complementary to the international systems. Therefore, internaional policies need to be narrowed down to address the social recession, aim to stimulate local production, aim to stimulate the use of local resources and increase employment levels. African Monitor advise that measures to mitigate the crisis must include those designed to cushion the most vulnerable
5. The gap between policy intentions and practice is a pertinent factor that should not be overlooked in the current economic climate. Therefore, there is need to identify and neutralise the factors that cause this divergence between what a policy intends and the poor implementation or impact of a given policy.
5 Golden points
1. Developing countries are more vulnerable and susceptible to changes in fluctuations of commodities that significantly affect their revenue intake for public investment. Countries which are mono-resource reliant have little or no control of what happens in the speculative financial markets where prices are set. New measures need to be adopted for the developing countries that are experiencing the impact of fluctuations in price changes of commodities that they are reliant on.
2. The World Trade Organisation (WTO), IMF and World Bank need to be in sync with each other to ensure that there is predictability and harmony in the process of development by. With the G-20 giving a stronger voice through the IMF, measures should be adopted to ensure that the role that the World Bank and WTO play in the international economic system is not periphery in addressing the World Economic crisis.
3. The global economic crisis is a pressing situation for developing countries as they are in a desperate position with fast eroding reserves as experienced by Zambia, falling commodity prices as Ghana with cocoa and challenging socio-economic issues such as poverty and job losses across most developing countries. Therefore, responsible lending and responsible borrowing is a pertinent issue for the international lending institutions as this is a time when developing countries could all too easily fall into a debt trap as was experienced prior to the Highly Indebted Poor Countries (HIPC) completion point.
4. Collective action is greater than the sum of individual and isolated actions taken by government, tertiary institutions, civil society and business. In a world of increasing complexity, uncertainty and change, passive actions and even more passive thinking cannot substantially impact on the future and so it becomes necessary for continuous interaction between stakeholders. The result of this will be to create an environment of confidence and responsible social and economic action for a sustainable tomorrow.
5. As Kissinger noted in The world in 2009, Economist there is going to be the likely onset of a new world order. The G-20 should keep in mind that we should not redesign the international system by choosing the best economic model; but rather redesign the international system by choosing the economic model most likely to work best and guarantee equity.
As JCTR we expect the G-20 to respond to the different issues raised through the twenty points. This is with regard to the prevailing challenges that developing countries are facing. Therefore, there will be a post G-20 write up to evaluate the outcome based on the twenty points raised.
Humphrey Mulemba is Program Officer, Trade Policy and Capacity Building Debt, Aid and Trade Programme, Jesuit Centre for Theological Reflection.