APPENDIX 3
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.
SUMMARY
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
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