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