Select Committee on International Development Appendices to the Minutes of Evidence


Memorandum submitted by the World Development Movement (WDM)

  The World Development Movement (WDM) welcomes this International Development Committee inquiry. WDM is an independent research and advocacy organisation with 8,000 members, 20,000 supporters and 100 local groups across the UK, operating as a democratic membership organisation. WDM's aim is to ensure that the policies of governments, international agencies and companies towards developing countries promote fairness, opportunities for the poor and respect for the rights of vulnerable and disadvantaged people.

  WDM undertakes research, maintains close contact with the government and Parliamentarians, and educates members of the public on the importance of changing policies in the UK, EU and multilateral institutions on financing for development. Since its establishment in 1970, WDM has campaigned for more finance for development, more effective use of funding, and policies that will achieve greater benefits for the poor.

    —  On aid, WDM has campaigned for larger aid budgets, an end to the commercialisation of aid, and an end to the harsh economic conditions attached to bilateral and multilateral aid. WDM successfully challenged the government in the High Court over the Pergau dam.

    —  Since the early 1980s, WDM has campaigned for an opportunity for the poorest countries to escape the trap of poverty and indebtedness. WDM was a founder member of Jubilee 2000 and currently a Board member of the Jubilee Debt Coalition.

    —  On trade, WDM has campaigned for phase out of EU's restrictions on the import of textiles and garments from the poorest countries, access to the EU for commodity exports and a fairer deal for developing countries at the Ministerial Conferences in Seattle and Doha.

    —  On investment, WDM has opposed to the Multilateral Agreement on investment (MAI) and proposed investment rules that would aim to create a stronger link between foreign investment and poverty reduction.

How successful has the UN FfD conference been?

  1.  It is important to clearly identify the standard of success that should be applied. There have been admirable statements from world leaders, including the US President and the British Prime Minister, about the need for a far reaching set of initiatives to redress increasing global inequalities. The Zedillo report, prepared by former Mexican President Ernesto Zedillo, provided the launching pad for the UN FfD negotiations. In addition to the much publicised call for a doubling of development assistance, the report called for new initiatives to make trade fairer, improve the terms and scope of debt cancellation and consideration of new financing mechanisms. This report provides the first benchmark for the outcomes of FfD. It emphasises the need to depart from incremental change and aim for a fundamental improvement in the flow of finance to promote development.

  2.  A second, and even more important benchmark is established by the need to change past policies that have failed the poor, especially the dominant policies of the past two decades. Much of the world is facing a massive development crisis and millions of people are falling even further behind—most notably sub-Saharan Africa. Economic growth and poverty reduction has stagnated in much of the developing world, especially when compared to the more rapid progress in the mid twentieth Century. The main exceptions have been those countries (such as East Asian economies and China) that have integrated into the global economy on their own terms, at their own pace, rather than under the mandate of the IMF and World Bank. The vitally important Millennium Development Goals will not be achieved without making policies of the rich nations fair to the poor, and without changes in the conditions forced on the developing world.

  3.  The third benchmark is the degree to which Monterrey has contributed to a change in the governance structures that have resulted in unfair policies towards the poor. This includes issues such as the governance of the major economic institutions, such as the World Bank, IMF and World Trade Organisation (WTO), the balance of power between these economic institutions and the UN system, and the engagement of civil society to ensure that there is proper accountability for policies that determine the amount and type of development finance, and the promotion of stronger scrutiny over these institutions.

  4.  When measured against these benchmarks, FfD has failed. As this submission details, there has been:

    —  A failure to meet the challenges set by the Zedillo report—little progress on levels of development assistance, no new commitments of trade reforms, no further commitments on debt cancellation and no new mechanisms to improve the flow of funding to the developing world.

    —  Monterrey embodies an approach that could be characterised as "business as usual", blaming the poor for their poverty. The emphasis is on economic reforms to be undertaken by the developing countries, without any acknowledgement that these reforms have not been working.

    —  The FfD process clearly asserts the primacy of the international economic institutions over the UN system. For example, the Zedillo report identified the trade policies of the industrialised countries as a barrier to development, and proposed reforms as a means to generate development finance. However, in successive drafts, the mention of these policies were dropped and replaced with wording that is strictly in accordance with the declaration of trade ministers from the WTO Ministerial Conference in Doha in October 2001.

What progress has been made in moving towards the UN agreed aid target?

  5.  Aid budgets still fall far short of the 30 year old UN target of 0.7 per cent of national income. The World Bank's submission to the FfD process, authored by William Shaw, calculated that ODA has dropped by 20 per cent since 1990. The new aid promised by the US and the EU in Monterrey will not be sufficient to return aid to the level of 1990, when measured in real terms. This translates as a significant decline as a proportion of national income. The bulk of this cut has been in aid to the very poorest countries, in particular to sub-Saharan Africa.

  6.  A handful of donors have reached the target of 0.7 per cent GNP—Denmark, Sweden, Norway, Luxembourg and The Netherlands. Recently, Ireland and Portugal have set timetables for meeting the target within the next five years. Other countries, including the UK, have failed to set a timetable to reach this target. The response from the US and Japan in particular has been pitiful.

  7.  Contrary to the much-hyped rhetoric in Monterrey, the increases in aid cannot be described as sufficient to fund a war on poverty or the much-hyped new Marshall Plan. On current trends for inflation and GNP growth, aid from the USA will rise from 0.11 per cent to 0.13 per cent by 2006. By comparison the post WWII Marshall Plan accounted for 1.2 per cent of the US GNP. The amount of new aid is miniscule compared to the massive increase in US defence spending of $48 billion.

  8.  The immediate challenge is to ensure that the promises of more aid, inadequate though they may be, are actually delivered. To actually deliver what is promised. Time and time again promises are made and headlines gained only for the delivery to fall far short. The Global AIDS fund was supposed to be $10 billion per year but will actually barely touch £2 billion. The EU promised Ecu 3 billion at the Earth Summit in 1992, and then member states slashed their aid budgets.

  9.  The problem of insufficient aid is exacerbated by the misuse of aid. The US has used the pretext of aid ineffectiveness to justify its low level of funding. Yet it is the US government and a number of other OECD governments whose practices have been largely responsible for bringing aid into disrepute. The British government has taken a strong position on untying UK aid, but the FfD failed to agree on untying by all OECD donor governments. Aid is also misued through other forms of conditions that relate to commercial and political aims. For example, only 17 per cent of US aid goes to the Least Developed Countries, and middle income countries such as Egypt are amongst the top recipients of US aid. OECD governments all too often impose conditions that provide aid for countries that pursue policies that accord with their political or commercial interests.

How desirable are proposals for novel forms of taxes?

  10.  The Zedillo report called for exploration of different forms of taxes, notably a currency transactions tax (such as a "Tobin tax") and a tax of consumption of fossil fuels. Others have proposed taxes on airline fuels (currently exempted), diversion of wasteful and environmentally unsound subsidies (such as those under the Common Agriculture Policy), and an issue of Special Drawing Rights. These proposals deserve far greater attention than they received in the FfD process. The British government has been sceptical of such taxes, but has not put forward concrete proposals that would facilitate doubling of aid (as called for by the Chancellor), and the achievement of the UN target for aid. It is clear that there is insufficient political will for the allocation of sufficient funds through the ongoing budgetary process (including by the UK government). Other mechanisms, particularly those that have a dual purpose (such as stabilising currency fluctuations or reducing unsustainable practices) are required. The real block is not the infeasibility of the existing proposals, but the lack of political will and leadership to act.

  11.  There is another form of funding that has received insufficient attention in the FfD process. OECD Export Credit Agencies support over $400 billion of finance to developing countries annually, dwarfing aid flows and exceeding all foreign direct investment to the developing world. Much of it funds arms exports (almost half of UK guarantees under ECGD in 2000), socially and environmentally damaging infrastructure (such as the Three Gorges Dam in China and the Ilisu dam in Turkey), and power generation through nuclear and fossil fuel. There is little public policy purpose in taxpayers' funds being used to guarantee such damaging projects, primarily in middle income countries. FfD failed to recognise the potential of this source of funding as a means to create finance for development. To do so would require fundamental change in the aims of Export Credit Agencies and deep reforms to institute full transparency and accountability.

To what extent will conditions related to good governance and the rule of law assist developing countries generate sufficient finance for development?

  12.  Aid donors must take responsibility for the effective use of their aid funding, and the overriding criteria should be its contribution to achieving the Millennium Development Goals. The conditions relating to aid should firstly be applied to the donors themselves, if they are not to be guilty of gross hypocrisy. For example, some of the largest development loans provided by the World Bank and IMF were extended to Presidents Mobutu, Marcos and Suharto, none of them accountable to their citizens. In each case there was ample evidence that the funds would be misused and siphoned off for personal gain. In another example, OECD governments have complained about the level of corruption in the developing world, but then failed to enact strong legislation and proper enforcement on OECD-based companies, to prevent them from engaging in offering bribes. The UK government was criticised by the OECD for dragging its feet on introducing new legislation. The example of Enron shows that there is still little done to ensure that curbs of corporate corruption are enforced. Therefore, aid reform needs to start with a closer examination of the practices of the donors and the conditions they apply.

  13.  Good governance is undoubtedly important, particularly to avoid the various forms of corruption that have benefited the elites of the rich world and poor world alike. It should be evident from the experience of OECD governments and the developing world that that good governance cannot be dictated from the outside. It can never be assured by governments or organisations based in Washington DC, London or Brussels, no matter how lengthy or intrusive the conditions. The only effective means of preventing corruption are to make governments accountable through independent media and a strong civil society. This has not been adequately reflected in the FfD text and the speeches in Monterrey. Rather, there has been continued emphasis on imposed conditionality.

  14.  A priority is to ensure that key economic decisions are opened up to public debate in the donor and recipient countries. This requires far greater disclosure, for example, of the conditions that donors are demanding. Conditions attached to many IMF loans are still treated as confidential, thereby allowing both the IMF and recipient governments to escape accountability. Consultation on Poverty Reduction Strategy Papers is a step forward, but as shown in WDM's research, public participation has been peripheral to the core of policy-making, which remains dominated by the IMF and World Bank. [2]

  15.  In his speech at Monterrey, President Bush described the reforms that the US wished to impose as "economic freedoms" (used seven times in a speech of 12 minutes). He did not clarify what these freedoms are that the US government will insist that developing countries undertake, but all too often in the past the freedom of governments to pursue pro-poor policies has been prohibited, and economic freedoms extended to foreign companies.

  16.  While President Bush and others attempt to justify aid conditions by referring to good governance, the most significant forms of conditionality cannot be justified on those grounds—some forms of conditionality may even create even greater opportunities for corruption. In the past, conditions have typically included:

    —  Privatisation programmes, including public services.

    —  Trade and investment liberalisation.

    —  Labour market reforms, including increasing labour "flexibility".

    —  Financial sector liberalisation and tight monetary policy.

    —  Fiscal policy, including user fees and public expenditure cuts.

  17.  The impacts of these policies on African countries have been highlighted in a report from UNCTAD, [3]which notes that structural adjustment policies, trade liberalisation and capital account opening have been the most significant policy forces shaping the continent's economic landscape over the past two decades. During this period, the per capita income in Africa fell by 10 per cent. The poorest people were hit the hardest, their incomes falling at an average of 2 per cent per year. Far from, as is commonly claimed, the policies of globalisation creating wealth, they appear to have destroyed it in Africa. And these policies have not helped the poor; it appears as if they have resulted in even deeper poverty.

  18.  There is a similar story from other regions. For example, average per capita growth in Latin America and the Caribbean fell from 75 per cent during the 1960-1980 perod to only 6 per cent in the 1980-1998 period. [4]The analysis of IMF data undertaken by the Center for Economic and Policy Research showed that more than three quarters of developing countries saw their per capita growth rate fall significantly in the last two decades compared to the previous two decades. The few developing countries that experienced rapid growth during the past two decades were dominated by economies that followed policies other than the neo-liberal economics advocated by the British government and international institutions:

    —  China's increase in growth and poverty reduction started in the late 1970s, a decade before trade liberalisation policies were adopted. China remains one of the most highly regulated economies in the world, without a convertible currency, with state controlled banking system and little foreign ownership of shares.

    —  India's increases in growth started in the early 1980s and trade liberalisation only started in earnest in the 1991-1993 period. [5]

    —-  The most rapid growth East Asian "tiger economies occurred within a framework of interventionist government policies, including trade barriers, conditions on foreign investment and targeted subsidies.

  19.  The importance of these findings should not be under-estimated. OECD governments and international financial institutions lobbied hard to ensure that the FfD Declaration vigorously promotes policies to be adopted by developing countries that, from the evidence, have not delivered economic growth, poverty reduction or sustainable development. The adoption of these policies has been driven by the assumption that extreme forms of liberalisation will be beneficial to developing countries, even those without a competitive base of industries that can compete internationally. As has been pointed out by the International Development Committee with regard to international trade policy, [6]research and assessment is vital to ensure that policy is based on evidence. The challenge of mobilising finance for development cannot be met by a continuation of the failed conditionality of the past, or its extension into new aspects of democratic decision-making. Instead, donors have a responsibility to help strengthen policy making in developing countries, in order to develop indigenous strategies for mobilising finance for development, and strengthen the institutions of civil society to ensure that governments are accountable for doing so.


  20.  With some justification, commentators from the developing world have labelled the Finance for Development outcome as actually Financing for Corporations. [7]At its core, the Monterrey "Consensus" entrenches a development model that is based on ideology, not on evidence. A re-orientation of the policies embodied in this declaration are needed for finance to truly benefit the world's poor:

    —  The rich nations need to meet the agreed UN target for aid, or at least set a timetable for doing so, recognising that global interdependence is not only embodied in the events of 11 September, but also in the tragedy of starvation and under-development that afflicts much of the developing world.

    —  The rich nations need to undertake the reforms that would generate far more finance than aid increases. Such reforms should not require concessions from developing countries, as is the case in current negotiations on the WTO's Doha Agenda, [8]but should be adopted unilaterally before the completion of negotiations. As Tony Blair stated eloquently: "It really is hypocrisy for us, the wealthy countries, to talk of our concern to alleviate poverty of the developing world, whilst we block access to their markets''. [9]

    —  Policies to tackle corruption need to be instituted in all countries, with an emphasis on public disclosure. Parliamentary scrutiny and strengthening the institutions of civil society to hold governments accountable.

    —  The extreme forms of economic conditionality, applied to aid and finance flows in the past should be dropped. Developing countries need to be able to determine their own development path, with sufficient government powers to promote pro-poor, sustainable forms of development.

  The next opportunities for the British government to demonstrate real leadership on these isues are in the ongoing WTO negotiations and at the World Summit on Sustainable development

World Development Movement

April 2002

2   "Policies to Rollback the State and Privatise", WDM, April 2001. Back

3   UNCTAD 2001 Economic Development in Africa: Performance, Prospects and Policy Issues, Geneva. Back

4   Weisbrot M., Naiman R., and Kim J. 2001 The Emperor has no growth: Declining Economic Growth Rates in the Era of Globalisation. Center for Economic and Policy Research, Washington DC, USA. Back

5   Rodrik D. Comments on "Trade Growth and Poverty" by Dolar and Kraay. Harvard University, Cambridge, USA. Back

6   After Seattle, Report by the International Development Select Committee, December 2000. Back

7   Frontline, Volume 19, Issue 7, April 2002, The Hindu Newspaper, India. Back

8   See "A Development Agenda without Development: Analysis of the Final Declaration of the Fourth Ministerial Conference of the WTO in Doha" WDM, December 2001. Back

9   Speech at Royal Institute for International Affairs (Chatham House), 6 March, 2001. Back

previous page contents next page

House of Commons home page Parliament home page House of Lords home page search page enquiries index

© Parliamentary copyright 2002
Prepared 24 July 2002