The
immediate post-War concern with international inequality
and the inadequacy of growth in the poorer regions
was assuaged by the belief that foreign aid from the
developed to the developing countries can serve as
an important instrument for development. That expectation
was, however, belied quite soon, as developing countries
realised that aid came tied to conditions which militated
against policies seen as more appropriate for economic
growth and improved distribution. In the developed
world, on the other hand, the failure of aid to deliver
on national and global goals, and an increasing concern
with domestic problems, resulted in the "aid
fatigue" to which has been attributed the failure
of most donors to realise internationally agreed targets
on the quantum of aid flows.
There are many who would argue that, with the accumulation
of large volumes of liquidity in the private financial
system of developed countries by the 1980s, "aid
fatigue" was used as a means of pushing private
financial flows to developing countries. Only a small
share of aid was in the form of grants or concessional
credit. This was used to support the argument that
developing countries would do better to borrow from
the private banking system, which would better monitor
such flows. And when the debt crisis established that
such private flows could be excessive and poorly monitored,
a case was made for developing countries to liberalise
their financial and productive sectors and rely increasingly
on "non-debt-creating flows" like portfolio
and direct investment. Unfortunately, the experience
since then has been that a large part of such flows
was highly volatile and, barring a few exceptions,
even adverse from the point of view of the balance
of payments.
The objectives underlying the case for capital flows
made by the developed and developing countries are
different; but unfortunately donor and developed-country
concerns dominate and influence the magnitude and
nature of capital flows. The long process that culminated
in the International Conference on Financing for Development
that ended in Monterrey on March 22, 2002 has only
strengthened this realisation. Little was actually
achieved in the Conference, which had as its focus
the objective of halving world poverty by 2015, which
was one of the developmental goals set by the UN Millennium
Summit held in New York in 2000.
The Zedillo Report
Prior to the Monterrey Summit, the UN Secretary General
appointed a panel headed by Ernest Zedillo, former
Mexican President, to submit a background report.
It was to recommend strategies to mobilise resources
for accelerated growth in developing and transition
economies, so as to fulfil the poverty and development
commitments of the UN Millennium Declaration.
http://www.un.org/esa/ffd/a55-1000.pdf
The report submitted by the panel, however, proved
contentious. It swam with the tide and saw private
sector participation as the panacea for the ills that
plague the developing world even while conceding that
markets have failed and will fail to provide education,
health and nutrition benefits for all, or to ensure
adequate spending in the rural sector and for basic
social programmes. It also partly bypassed the historical
origins of the resource crisis in developing countries,
while stressing the fact that the main responsibility
for improving living standards of a country's citizens
rests with its own policy makers. Such policies were
also seen to influence the access to resources from
abroad. The evidence did not show that FDI has always
been low in poor countries, with many poor countries
recording high ratios of FDI inflows relative to GDP.
This reveals that FDI has not been as dependent on
economic performance as one may often think it to
be. Often a country performing poorly on the economic
front has enjoyed a higher FDI-GDP ratio, simply for
blindly following the conditionalities laid down by
the donors.
Many issues were insufficiently emphasised, such as
the fact that the nature of FDI inflows often result
in a net outflow of foreign exchange in the medium-term.
Many of the policies the Zedillo Report recommended
would actually militate against more investment and
growth. Besides, such policies would not necessarily
make countries more attractive to foreign capital.
The report states that "the bulk of the saving
available for a country's investment will always come
from domestic sources, whether that country is large
or small, rich or poor." However, with the stress
laid on financial and trade liberalisation, governments’
abilities to mobilise resources domestically are bound
to be crippled.
The Report blames developing countries for deliberately
standing "outside the process of making bargains
about trade" and expecting "to benefit from
concessions without making concessions in return."
And it claims that active participation in the bargaining
process in the Uruguay Round of the multilateral trade
negotiations helped the developing world notch up
some significant gains. This viciously flawed argument
glosses over the fact that it is the unequal trade
practices of the developed countries that forced developing
countries to seek concessions. Even while acknowledging
the prevalence of protectionism in the developed world,
the report blames the victims for the ills that plague
them. The report states that the willingness to trade
is crucial to long-term poverty reduction. It misses
the points that developing countries are always the
weaker of the negotiating rivals, and all that many
developing countries are asking for is easing of the
protectionism that is so rampant in developed countries.
Further, while the Zedillo Report charted out the
course that developing countries had to follow in
order to make them "attractive" to foreign
capital, its appeal to the developed world remained
a mere wish-list. The report urged the North to eliminate
export subsidies, give market access to commodities
from developing countries, and deliver on the old
pledge to devote 0.7 percent of their GNP for international
development assistance.
The Zedillo Report departed from the earlier Brandt
Commission type of global Keynesianism. The main recommendations
of the Brandt report were transfer of recourses, industrialisation,
disarmament and improvement of agricultural production
in poorer countries. The Brandt Commission argued
that aid to the third world needs to be a major concern
for the developed world, and that aid to the poorer
countries not only helps the receivers, but the developed
world as well. While the Brandt Commission also saw
the necessity for an expansion of trade between 'North'
and 'South', it took note of the self-interest aspects
of aid that generates export demand. It acknowledged
that aid to poorer countries has often led to additional
demand for goods from the donors. But the Zedillo
Report, though accepting the existence of such tendencies,
claims that there are increasing signs that such export
promotion by developed countries in the name of providing
aid is on the decline.
At Monterrey
After more than one year of negotiations and deliberations
in the Preparatory Committee set up within the framework
of the U.N. General Assembly to prepare the ground
for the 2002 International Conference on Financing
for Development in Monterrey, Mexico, the "Monterrey
Consensus" was tabled. The "Consensus"
is largely based on the lowest common denominator,
namely on what was acceptable to the most reluctant
negotiating partners from the North. Being rather
thin on specific commitments and targets, it does
not meet either the development needs, or the expectations
of the developing countries. With the Zedillo report
reflecting the features of the dominant thinking on
the subject, it was to be expected that what emerged
from Monterrey, the so-called "Monterrey Consensus",
would be a far cry from what is needed to meet the
targets of the Millennium Summit. The Consensus is
long on intentions, but hardly includes quantifiable
goals or deadlines. It focuses more on the issue of
how much aid rich countries should provide poor countries,
that too if the aid seekers exhibit "good governance",
"solid" economic policies and legal structures
needed to encourage free trade, etc. Issues like debt
relief, historically-generated structural constraints
on development and global policies in areas like health
and education are hardly addressed.
http://www.globalpolicy.org/socecon/ffd/conference/2002/0328fpa.htm
The Monterrey Conference witnessed a shift in emphasis
from aid to private capital flows. It stated that
aid has often failed to yield as much value for money
as it should. The Conference asked developing countries
to create "a suitable investment climate"
to attract FDI. However, if one has to go by past
experience, what investors want in the name of attractiveness
is total freedom from control by governments in countries
they would invest in. While foreign aid also came
with lots of strings attached, FDI under "attractive"
conditions will not necessarily lead to any real improvement.
In fact the FDI flow may not have any real impact
if FDI is targeted towards taking over of an existing
domestic industry, as is often the case, and not towards
the creation of additional production capacity. In
such cases, the economy witnesses reduction in employment
opportunities, and not an increase, as the FDI-aided
restructuring is geared towards use of labour-saving
techniques. Neither is generation of additional demand
so obvious. Most of the employees who are paid hefty
salaries tend to repatriate their income to their
countries of origin, and even employees who are recruited
in the country where the production facility is located
tend to spend their money on goods of foreign origin.
Even in the export sector, FDI may have a negative
foreign exchange effect unless higher productivity
of capital offsets the other increased foreign exchange
costs.
Reliance on FDI also imposes severe constraints on
domestic government policy because of the fear of
withdrawal. The host country has to give too many
concessions to prevent the foreign investors from
leaving its shores. Besides rapidly growing stocks
of FDI inflow is usually followed by similar growth
of profits which are mostly repatriated, forming part
of the foreign exchange outflow. Also FDI often fuels
higher imports, which also entail higher foreign exchange
outflow. In all such cases, none of which is improbable,
FDI may actually lead to deterioration of the balance
of payments position of the host country. As David
Woodward has stated in his book, "The next crisis?
Direct and equity investment in developing countries",
such a development is not a source of celebration,
but of an accident waiting to happen.
The Monterrey Consensus did urge countries in the
North to earmark 0.7 percent of their GNP for international
development assistance. However, this target was adopted
by the UN General Assembly three decades ago. The
fact that 30 years later the same target has been
reiterated speaks volumes about the level of commitment
in the North to the fight for eradication of global
poverty.
Only five nations donate 0.7 percent or more of their
GNP to development schemes and all of them are in
Europe. These include Denmark, the Netherlands, Sweden,
Norway and Luxemburg. The EU has nevertheless pledged
to raise its Official Development Assistance (ODA)
from the present level of 0.33 percent of GDP to 0.39
percent by 2006. By contrast, the US currently spends
only 0.1 percent of its GDP as ODA. And all that it
has announced at the Conference is a many-strings-attached
US $ 10 billion increase in aid spread over three
years starting from 2004. Even then, there is no assurance
that this increased spending by the US will continue
beyond 2006.
http://www.twnside.org.sg/title/twe277e.htm
http://www.kepa.fi/uutiset?2323
The Prime Ministers of the five European nations that
spend the mandated 0.7 percent or more of their GNP
have, in an appeal to other industrialised countries,
asked them to get more serious about eliminating poverty.
They emphasised the need for a coalition against poverty
as strong as the one against terrorism. While welcoming
the decision to increase ODA by the US and the EU,
the five Prime Ministers said the hikes are too meagre
to be noteworthy.
http://www.iht.com/articles/51895.html
The President of the United States turned a deaf ear
to Kofi Annan'srequest to contribute generously for
the creation of an additional US $ 50 billion fund
to fulfil the objectives of the Millennium Summit.
The French President Jacques Chirac criticised Bush
for spending huge amounts on fighting terrorism while
not showing any willingness to fight global poverty.
To Bush, "freedom, law and opportunity are the
conditions of development".
http://english.pravda.ru/usa/2002/03/26/27171.html
Others would point to the importance of food, education
and drinking water. Deteriorating terms of trade keep
countries in the South in a perpetual position of
economic disadvantage. Opening up of economies and
competition among developing countries for a share
of the market in the developed world contribute to
a further decline in the terms of trade of developing
countries, and adding to their debt burden. The Monterrey
Conference did not take any initiative to address
these issues. On the contrary, as a press statement
made by the Jubilee South states, the consensus document
speaks of "sustainable debt financing" ignoring
the fact that debt has always been used as an instrument
of domination and exploitation of the South.
http://www.jubileesouth.org/news/EpEyVkZkyZjaqQJLuY.shtml
Environmental and women'sgroups have also been critical
of the outcome of the Monterrey Conference. The New
York-based Women'sEnvironment and Development Organisation
(WEDO) has accused the Conference of not incorporating
the concerns raised by the women members while drafting
the Consensus document which has been "drawn
up within the traditionally male preserve of finance".
http://www.womensenews.org/article.cfm/dyn/aid/858/context/archive
Prior to the start of the Conference, the environmental
group, Greenpeace, had raised concerns over the fact
that the lack of political will, and the resulting
lack of resources, would prevent environmental issues
and sustainable development from being discussed seriously
at Monterrey. Greenpeace called upon the industrialised
countries to accept an eight-point charter drafted
by the organisation, something Greenpeace believed
"would contribute to putting the world back on
the right track".
http://www.greenpeace.org/earthsummit/docs/mont.pdf
Needless to say, not a single concern of Greenpeace
found its way into the Consensus document. As pointed
out by the World Council of Churches, the document
is uncritical of the neo-liberal economic model and
as such "holds out no real hope for eliminating
or even reducing poverty, but rather continues to
exacerbate it".
The application of a tax on international financial
transactions, akin to the "Tobin tax", aimed
at throwing sand into the wheels of speculative finance
as well as raising funds for development assistance,
was another initiative that did not stir lead to much
comment at the UN-sponsored conference in Monterrey.
Summits on world poverty tend to take place in a rarefied
atmosphere detached from the realities of impoverishment
that the meetings seek to address. And, as usual,
the priority concerns of the developing world remained
largely unacknowledged at Monterrey. It has been clearly
demonstrated, for example, that public investment
in health is effective in reducing poverty and promoting
economic growth. But no commitment was made by the
developed world on increasing spending to aid poor
countries in their battle against deaths from diseases
that have long been eradicated in the rich countries.
As the statement made by 'Africa Action' on the Monterrey
Conference and the ‘Bush Administration Proposal
for Increased Aid to Poor Countries’ aptly mentions,
while it is correct to demand that resources are used
effectively to achieve their intended purposes, the
monitoring mechanisms should be independent rather
than unilaterally imposed by donors.
http://www.holycrossjustice.org/africaactionstatement.htm
That presumes, however, that rich countries look at
resource flows to the developing world as an obligation
and moral responsibility warranted by history, and
not as an optional commitment.
The real problem faced by developing countries is
not just the paucity of ODA, but also the way in which
ODA, whenever available, tries to force the imperialist
agenda of the donors on the recipients.It would be
better if donor countries, and other organisations
such as the IMF and the World Bank and the World Trade
Organisation, could simply leave the developing countries
alone instead of offering them some more crumbs from
the rich nations table while forcing them into unequal
economic relationships.
http://www.macroscan.com/cur/cur.htm
June 20, 2002.
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