United Nations Non Governmental Liaison Service |
NGLS Roundup, No. 38, July 1999 DEMOCRATIZING
GLOBAL FINANCE: CIVIL
SOCIETY PERSPECTIVES ON PEOPLE CENTRED
ECONOMICS INTRODUCTION The devastating social and economic impact of the global financial crisis
triggered in East Asia in mid 1997 has led a growing number of civil
society actors, UN bodies and governments to explore strategies to regain
control over global finance, which many describe as a cause of increasing
systemic instability and social regress. Proposals range from modest
reforms regarding prudential regulation and transparency rules at the
national level, to bolder attempts at redesigning a new “international
financial architecture” of similar historical significance as the
creation of the Bretton Woods institutions in 1944. Others emphasize the
need to reorient national economies toward more inner directed
patterns of growth through demand boosting national redistribution
measures and more discriminate use of foreign investment and trade policy. Many debates in this area have focused on critiquing the neoliberal
rationale for unfettered financial liberalization as part of the
conventional policy package ascribed to the so called “Washington
consensus,” which has been thrown into question in the aftermath of the
East Asian crisis. The United Nations Conference on Trade and Development
(UNCTAD) which since 1990, has been consistently warning against the
inherently destabilizing effects of liberalized global finance, attributed
much of the causes of the East Asian crisis in its Trade and
Development Report, 1998 to a “colossal market failure” of
high risk speculative ventures by international creditors made
possible by imprudent financial liberalization “based on the notion of
the infallibility of markets.” In a report issued in January 1999, the
Task Force of the UN Executive Committee on Economic and Social Affairs
also warns against across the board capital account
liberalization, stressing that the recent crisis has demonstrated the
“enormous discrepancy” between rapid globalization of finance and the
lack of proper regulatory frameworks at national and international levels
(See Go Between 73). World Bank Senior Vice President and Chief Economist Joseph Stiglitz has
also become one of the most visible critics of the Washington consensus.
He reproaches this consensus for its ideologically informed
“narrow economistic focus,” its failure to understand the role of
regulatory institutions for markets to work, its neglect of broader
development goals such as education and health, and the need to formulate
policies on the basis of democratic consensus building processes at
the national level (see NGLS Roundup, December 1998 January
1999). A Loss of Democratic Sovereignty? A prime focus of a growing number of NGO and civil society campaigning
and advocacy coalitions is indeed to address the perceived loss of
democratic control over national governments’ economic and social
policies. These are said to be increasingly subject to the
“discipline” of financial and corporate interests and, under
conditions of widespread indebtedness, to the austerity measures
accompanying rescue loans made available through international financial
institutions (IFIs), which are not accountable to the populations whose
livelihoods and life prospects are seen to be jeopardized as a result of
these policies. These calls to “democratize global finance” and promote alternative
economic paradigms, based on securing and promoting people’s economic
and social human rights, led some 300 NGOs, activist groups, trade unions,
academics and parliamentarians from 40 countries to participate in a
seminal international conference on Economic Sovereignty in a
Globalizing World: Creating People Centered Economics for the 21st
Century. Held on 23 26 March in Bangkok (Thailand), the meeting
was hosted by the Thai based international NGO Focus on the Global
South, with the support of Development Alternatives for Women in a New Era
(DAWN) and the Structural Adjustment Program Review Initiative Network
(SAPRIN).
The discussions reflected the extraordinary diversity of participants and
high quality of their contributions. They combined historical perspectives
and analyses of processes leading up to the current crisis with practical
policy recommendations and NGO campaigning strategies at national,
regional and global levels. The thrust of the strategic discussions
focused on the need to “create spaces” for more autonomous
decision making by governments at various levels, in a manner that
would be democratically informed by human rights principles,
sustainability and social development objectives. The guiding principles
for such a “people centered” reform agenda could be captured in
three “subordinations” proposed by Kamal Malhotra from Focus on the
Global South, in his introductory speech to the conference: ·
subordination of macro and other economic policy making
goals to human development and social policy goals; ·
subordination of global level governance mechanisms to those at the
local, national and regional ones, following the principles of
subsidiarity; and ·
subordination of the financial “bubble” economy to the real
productive economy. In the final plenary session on strategies and campaigns, Miloon Kothari
from the International NGO Committee on Human Rights in Trade and
Investment suggested that the existing international human rights and
environmental regimes adopted at the United Nations provides the most
coherent political and legal framework to mobilize citizen groups
transnationally around a radical review of existing policies and
practices, and to pressure governments to adopt an alternative
people centred agenda. This issue of NGLS Roundup reviews the discussions and main
proposals made during the conference. HISTORICAL PERSPECTIVES
Transnational Causes of Financial Crises Throughout the sessions, many speakers took time to present the current
crisis in historical perspective. John Dillon, from the Canadian
Ecumenical Coalition for Economic Justice said financial crises have been
a recurring pattern for nearly two centuries, preceded each time by
“manias of foreign lending” that occurred over the years
1808 10, 1823 25, 1856 61, 1885 90, 1910 13
and 1924 28 that all ended in market crashes (see also Box 1).
However, the frequency of financial crises has increased since the Bretton
Woods system of fixed exchange rates broke down in the early 1970s. Citing
Joseph Stiglitz, he said since 1975 there have been banking and currency
crises in nearly 100 countries. Mr Dillon added that, according to 1998
World Bank report, Global Economic Prospects for Developing Countries,
the 1994 95 crisis in Mexico and the 1997 crisis in Asian countries
were largely due to large inflows of foreign capital and not primarily the
result of macro economic mismanagement by the countries concerned.
The same argument was made about the more recent collapse of the Brazilian
Real in early 1999. Such an analysis of the primary causes of financial crises contrasts
sharply with the prevailing view among many G 7 nations and
executive boards of IFIs, which until very recently, have unequivocally
identified the causes solely in terms of the failure of national
governments to get the basic “fundamentals” right (for example,
through measures such as tight monetary policy, fiscal austerity,
financial liberalization, business deregulation and privatization,
incentives to foreign investors, open trade and investment regimes and
“flexible” labour markets). According to Walden Bello from Focus on the Global South, more emphasis
on identifying the “supply side” causes of crises relating to
transborder capital movements would also do much to explain the origins of
the debt crisis. Just as “irresponsible” Asian banks and companies are
now scapegoated for the East Asian crisis, Mr Bello argued, so were
“profligate” developing country governments put entirely to blame when
the debt crisis broke out in 1982. “Yet then as now,” he said, “the
capital flow to the South was more supply driven than
demand driven. The hundreds of billions of dollars deposited in
international commercial banks by OPEC [Organisation of Petroleum
Exporting] countries in the 1970s was a massive amount seeking profitable
investment, and the rationale for this movement of capital was provided by
Citibank Chairman Walter Wriston, who formulated the famous principle of
sovereign lending: that ‘countries don’t go bankrupt’.” According
to Mr Bello, the ensuing structural adjustment programmes (SAPs) of the
International Monetary Fund (IMF) and the World Bank that “were supposed
to discipline profligate governments paradoxically made the developing
countries even more open to capital inflows from the Northern financial
centres that had brought about the crash in the first place”—by
including the lifting of foreign exchange controls and promoting capital
account liberalization as part of the conditional policy package. The Ascendancy of Finance Many speakers at the conference referred to UNCTAD’s analyses on the
dangers of the ascendancy of finance over the real economy. The
organization’s Trade and Development Report, 1998, states that
“modern financial markets are organized less to create wealth and
employment than to extract rent by buying and selling second hand
assets, and the ‘discipline’ these markets exert on
policy makers reinforces the advantages of existing
wealth holders.” This ascendancy has been associated with
technological changes and the wave of liberalization policies in the
1980s. It exhibited several important traits, according to a framework
paper prepared by Focus on the Global South. ·
As commercial banks pulled back from international lending after their
overexposure in debt ridden developing countries, other major
financial players emerged as key conduits for cross border capital
flows, including investment banks (such as Goldman Sachs and Merill
Lynch), mutual funds, pension funds and hedge funds. ·
The role of banks and conventional lending for the raising of funds was
eclipsed by “securitization,” or the transfer of capital via the sale
of stocks or bonds. By 1993, securities accounted for US$521.7 billion of
international lending, compared to US$136.7 billion in bank loans. ·
There was an explosion of both old and new activities and instruments
such as arbitrage and derivatives. Arbitrage takes advantage of foreign
exchange or interest rate differentials to turn a profit, while
trading in derivatives refers to buying and selling the risk of an
underlying asset without trading the asset itself. Derivatives have been
described as very esoteric instruments, which are difficult to understand,
monitor or control. They include such instruments as futures, forward
contracts, swaps and options. By the mid 1990s, the daily volume of transactions in foreign
exchange markets has been estimated at over US$1.2 trillion, only a tiny
fraction of which is said to “trickle down” in the real economy.
According to the framework paper, one dimension of the ascendancy of
finance over the real economy is the increasing role of financial
operators with access to large amounts of finance capital working with
large stockholders in skewing the behaviour of corporations away from
long term growth, significant research and development spending and
limited returns on shares, and towards short term profitability and
rising dividends. According to some speakers, the ascendancy of finance may be related to a
crisis of dwindling growth in the real economy, or “deflation.” This
crisis is characterized by overcapacity (or underconsumption), which today
marks global industries from automobiles to energy to capital goods.
According to one speaker, in 1999 the expected global “output gap”
(which measures the difference between actual output and output at full
capacity) is expected to be at its worst since the Great Depression of the
1930s. As Mr Bello put it, diminishing returns in key industries have led
to capital being shifted from the real economy to “squeezing ‘value’
out of already created value in the financial sector. The result is
essentially a game of global arbitrage, where capital moves from one
financial market to another, seeking to turn a profit from the
exploitation of the imperfections of globalized markets via arbitrage
between interest rate differentials, targetting gaps between nominal
currency value and ‘real’ currency values, or short selling in
stocks, that is, borrowing shares to artificially inflate share values
then selling. Not surprisingly [given the ascendancy of finance],” Mr
Bello added, “volatility, being central to global finance, has become as
well the driving force of the global capitalist system as a whole.” The Rise of Neoliberalism Many speakers said the intellectual legitimacy of financial
liberalization is rooted in neoliberal doctrines that have characterized
mainstream economic thinking and policy practice since the 1980s—often
referred to as the “Washington consensus.” According to
French based author and campaigner Susan George,
socially minded intellectuals and activists have underestimated the
power of ideas in changing mainstream beliefs. “Starting from a tiny
embryo at the University of Chicago with the philosopher economist
Friedrich von Hayek and his students like Milton Friedman at its nucleus,
the neoliberals and their funders have created a huge international
network of foundations, institutes, research centers, publications,
scholars, writers and public relations hacks to develop, package and push
their ideas and doctrine relentlessly...They have spent hundreds of
millions of dollars, but the result has been worth every penny to them
because they have made neoliberalism seem as if it were the natural and
normal condition of humankind.” Ms George said the central value of neoliberalism is
competition—between individuals, firms, nations, regions—as the most
efficient means to allocate resources, whether physical, natural, human or
financial. An immediate consequence of applying such principles
single handedly and above all others, she argued, is a
legitimization of increasing inequalities. Citing figures from UNCTAD’s Trade
and Development Report, 1997, on rising inequalities within and
between nations associated with globalization over the past 20 years, she
said there is nothing mysterious about this trend toward greater
inequality. “Policies are specifically designed to give the already rich
more disposable income, particularly through tax cuts and by pushing down
wages. The theory and ideological justification for such measures,” she
added, “is that higher incomes for the rich and higher profits will lead
to more investment, better allocation of resources and therefore more jobs
and welfare for everyone. In reality, as was perfectly predictable, moving
money up the economic ladder has led to stock market bubbles, untold paper
wealth for the few, and the kind of financial crises [that motivated the
organization of this conference]. If income is redistributed towards the
bottom 80 percent of society, it will be used for consumption and
consequently benefit employment. If wealth is redistributed towards the
top, where people already have most of the things they need, it will go
not into the local or national economy but to international
stockmarkets.” A “POST WASHINGTON CONSENSUS”? The scale of the social catastrophe, magnitude and contagion effects of
the East Asian crisis, together with the way it was managed by the
international community through IMF bailout operations and recessionary
measures, have led to an unprecedented “backlash” against the
prevailing policy prescriptions and approaches typifying the Washington
consensus. However, speakers emphasized that such a backlash is taking
many strands, with sometimes contradictory or even diametrically opposed
objectives, and are part of a wider political backlash against economic
globalization. Some of these currents include “reactionary” forces in various parts
of the world, particularly visible in the United States and parts of
Europe, whose xenophobic and isolationist agenda has little in common with
the human rights, peace, development and environmental agendas of what
some participants described as the emerging “new social movements.”
These are characterized by transnational grassroots coalitions of
solidarity, collective campaigning, research and advocacy, whose impact on
global change was particularly visible in the international public
mobilization against negotiations at the Organisation for Economic
Co operation and Development (OECD) on a Multilateral Agreement on
Investment (MAI), which many had described as “a declaration of
corporate rule” (see NGLS Roundup, December 1998 January
1999). Patrick Bond from Wits University, Johannesburg (South Africa) said there
exist occasional tactical alliances between “neo isolationist”
and “left populist movements,” as in the campaign to defeat the
United States administration’s “fast track” trade negotiating
authority. However, the two must not be confused. The reactionary agenda,
he said, could easily lead to “protective tariffs kicking off a downward
spiral of trade degeneration reminiscent of the early 1930s.” In
contrast, according to Mr Bond, the goals of the new social movements are
typically to promote the “globalization of people” and halt or at
least radically modify the globalization of capital. “In this regard,”
Mr Bond added, “what many such movements are saying is a striking echo
of [English economist and British negotiator at the 1944 Bretton Woods
conference] John Maynard Keynes’ position (in a 1933 Yale Review
article): ‘I sympathize with those who would minimize, rather than
with those who would maximize, economic entanglement among nations. Ideas,
knowledge, science, hospitality, travel—these are the things which
should of their nature be international. But let goods be homespun
whenever it is reasonably and conveniently possible and, above all, let
finance be primarily national.’ Add political solidarity to his list
of what should be globalized,” Mr Bond concluded, “and Keynes would
fit nicely into this current.” In between the still by far politically dominant Washington
consensus proponents and the new social movements, participants identified
a wide spectrum of reform currents, including: free trade advocates
that oppose short term capital liberalization; the
“post Washington consensus” agenda proposed by Joseph Stiglitz;
proposals emanating from UNCTAD and the Task Force of the UN Committee on
Economic and Social Affairs. Some of these would serve “to salvage the
overall message of the Washington consensus” as Robin Broad from the
Washington DC based American University argued, while others would
coincide with, or at least not contradict, people centered agendas. According to Ms Broad, “the growing strength of citizen opposition does
not yet translate into the ability to create a new overall consensus. Too
much of the elite still clings to the precepts of the old consensus. And
yet in some key areas the cracks have brought about debate that will
inexorably mark the end of the consensus.” What we may be witnessing,
she said, is a “healthy and
vibrant era of no overall consensus” that would give much more room for
pluralistic debate and space to explore alternatives. At the same time, many participants argued that the Washington consensus
was forged within inter governmental fora and institutions that are
based on economic and political power rather than democratic principles.
Alternative international consensus agreements, many of which are legally
binding, have already been reached within the United Nations system,
particularly in the areas of human rights (civil, political, economic,
social and cultural) and the environment. Thus, many argued, part of the
challenge is to ensure that economic policy setting fora and
institutions conform with, and indeed support the implementation of,
existing UN treaties, insofar as these are consistent with
people centred sustainable development. PEOPLE CENTRED ECONOMIC REFORM PROPOSALS Within this spirit of pluralistic debate, considerable time at the
conference was devoted to discussing a range of reform proposals that
could form the basis for an alternative people centred agenda at
national, regional and global levels. Given the highly
inter dependent character of national economies, combined with the
fact that currently many international trade and investment rules supplant
national decision making prerogatives, national level
proposals could not be discussed in isolation from the international
context, and vice versa. However, the principle of subsidiarity
outlined by Kamal Malhotra in his introductory remarks gave some direction
as to what actions should be left to local, national and (occasionally)
regional democratic processes (implying a “subordination” of
global level governance mechanisms to local, national and regional
ones), and those that can only be adequately implemented at the global
level. Reform of the Bretton Woods Institutions Participants discussed at length various calls for a “new international
financial architecture,” which some world leaders, such as British Prime
Minister Tony Blair, said should amount to a “New Bretton Woods for the
New Millennium” (see also Box 2). However, they said that judging from
the “watered down” G 7 communiqué adopted in 1998, the
need for bold reform was still not shared by all G 7 nations,
particularly not by the United States. “It’s the Wiring, not the Architecture?” Walden Bello suggested that the United States position (and to a lesser
degree that of many other G 7 countries) could be captured in a
school of thought which he called “It’s the Wiring, not the
Architecture” school. This school assigns primacy to reforming the
financial sectors of the crisis economies along the lines of more
transparency, tougher bankruptcy laws, prudential regulation using the
core principles drafted by the Basel Committee on Banking Supervision, and
greater inflow of foreign capital not only to recapitalize shattered banks
but also with the expectation of stabilizing the local financial system by
making foreign interests integral to it. According to Mr Bello, “when it comes to the supply side actors
in the North [private financial actors], this perspective would leave them
to voluntarily comply with the Basel Principles, though government
intervention might be needed periodically to catch freefalling casino
players whose collapse might bring down the whole global financial
architecture, as was the case last year when the US Federal Reserve
organized a rescue of the hedge fund Long Term Capital Management after
the latter was unravelled by Russia’s financial crisis...When it comes
to the existing multilateral structure, this view supports the expansion
of the powers of the IMF, proposing not only greater funding but also new
credit lines such as the ‘precautionary credit line’ that would be
made available to countries that are about to be subjected to speculative
attack. Access to these funds would, however, be dependent on a
country’s track record in terms of observing good macroeconomic
fundamentals, as traditionally stipulated by the Fund.” (Since the Bangkok conference, the IMF Interim Committee has endorsed the
IMF Executive Board’s establishment of high interest bearing
Contingent Credit Lines which the 10 May IMF Survey described as
serving “for member countries with strong economic policies as a
precautionary line of defense readily available against future balance of
payments problems that might arise from international financial
contagion.”)
The Original Bretton Woods According to Kamal Malhotra, if it is accepted that economic policy
should primarily exist to serve medium and long term human and
social policy goals, “then it should follow that regional and global
financial institutions such as the IMF, World Bank, the Asian Development
Bank and the World Trade Organization (WTO) should be more accountable to
human and social policy...They should play subordinate roles to regional
and global multilateral institutions that are primarily concerned with
human and social policy issues, such as the United Nations Development
Programme (UNDP) and some of the specialized agencies of the United
Nations.” Mr Malhotra said he acknowledged that this is far from
today’s reality and that “such a major global governance change will
neither be credible or feasible without substantial progressive reform of
the entire UN system.” However, he insisted on the necessity of such a
“shift in the balance of power back to what was originally intended when
the United Nations was created in San Francisco in 1945, meaning that the
Bretton Woods institutions were merely meant to be specialized arms of the
UN and accountable to it in the same way as [other specialized UN
agencies]....The centre of gravity of global economic multilateral
governance needs to be shifted away from the current relatively
non democratic and narrow finance and economics centred
institutions...to relatively more democratic and social and human
development centered institutions such as those of the non Bretton
Woods United Nations system.” In the view of many participants and speakers, the current “deep
neoliberal indoctrination” of the Bretton Woods institutions, combined
with the strength of financial interests and the “hegemonic influence
within them of the United States,” as Mr Bello argued, make them
virtually impossible to reform. The same skepticism marked their view on
the possibility of controlling and regulating the operations of hedge
funds and other giant financial conglomerates. Efforts should rather focus
on national and regional measures to reduce exposure to international
speculators (see below). Others said they believed that civil society
pressure could bring meaningful changes to the IMF, in the same way that
the World Bank’s exposure to NGO criticisms has helped begin to shift
the Bank’s development paradigm away from neoliberal economics. A
spokesperson of the IMF told the final plenary that the Fund’s senior
management was taking steps to open up the institution to the views and
concerns of NGOs. Irrespective of these differences in political appreciation, most
participants tended to agree on the following campaigning objectives: ·
To halt current reform efforts in the Fund, as well as in other fora, to
include capital account liberalization in its Articles of Agreement, which
would remove the flexibility needed for national governments to introduce
capital controls (see Box 3) as preventative measures against speculative
attacks. (This point was echoed both in UNCTAD’s Trade and
Development Report, 1998 and in the January 1999 report of the Task
Force of the UN Executive Committee on Economic and Social Affairs. The
report states that some developed countries have insistently pursued
across the board capital account liberalization in a number of
fora, including the OECD, WTO and the Fund, although such measures are
“contrary to their own historical experiences, which featured long
periods of capital controls and only very gradual liberalization of their
capital account in recent decades.”) ·
To “uncreep” the mission of the IMF back to its original mandate of
financing short term balance of payment problems without the right
to impose long term structural reforms on sovereign nations. Such
reforms should be undertaken through national democratic processes (see
below). ·
To support the creation of democratically managed and
socially oriented regional monetary funds to counter the power of
what participants described as a de facto G 7 controlled IMF. ·
To resist any intergovernmental attempt to “resurrect” possible
variants of an OECD type MAI, be it at regional level (for example,
through a proposed transatlantic economic partnership), or global level
(for example, through a “millennium round” of negotiations on “new
issues” at the WTO). If an international agreement on investment were to
be developed, it would have to be based on the principle of ensuring that
transnational corporations abide by core human rights, labour and
environmental standards, and ensuring the right of sovereign governments
to selectively use “quality” foreign direct investment for the
purposes of promoting sustainable development.
A World Financial Authority? For the same reasons discussed above, participants were split as to the
viability and desirability of a new “World Financial Authority” (WFA).
It was proposed that such an institution (also
democratically established and accountable to the United Nations)
would be given executive powers and mandatory sanctions (comparable to
those of the WTO) to regulate and oversee both private financial
conglomerates such as hedge funds and global financial institutions such
as the IMF. Its main objectives and tasks would include: ·
ensuring that the operations of global financial markets remain
consistent with and promote growth, redistribution and employment in the
real economy; ·
minimizing systemic risk arising from the operations of securities and
futures markets (for example, by preventing hedge funds from using
borrowed money for speculative purposes, thus avoiding their highly risky
and potentially destabilizing leveraged operations); ·
monitoring and regulating the activities of international banks, currency
traders and fund managers; ·
ensuring transparency and accountability on the part of IFIs; ·
assisting national governments in improving regulatory and control
functions over their national financial systems (for example, through the
imposition of capital and/or reserve requirements on all major financial
institutions); ·
ensuring that the capital controls implemented in one country are not
subverted by neighbouring countries pursuing contrary (for example,
financial liberalization) policies to attract finance capital; and ·
providing a forum in which the rules of international financial
cooperation are developed and implemented. The main objections to the creation of a WFA, assuming the political will
exists to establish such body, were the excessive concentration of powers
it would entail given the perceived current geopolitical and economic
context outlined above. Other proposals relating to the international financial architecture that
many participants believed were more desirable and/or feasible in the
shorter term are discussed below. Unconditional Debt Cancellation by 2000 A number of participants at the meeting are part of the
fast growing international NGO Jubilee 2000 campaign, which is
calling for debt cancellation by the year 2000. This was defined in a
consensus text adopted at the first Jubilee 2000 international conference
in Rome on 17 November 1998 to include: ·
unpayable debt, which is debt that cannot be serviced without placing a
burden on impoverished people; ·
debt that in real terms has already been paid; ·
debt for improperly designed policies and projects; ·
odious debt and debt incurred by repressive regimes. The consensus text also says: “Creditor governments, international
financial institutions and commercial banks, which are chiefly responsible
for the debt crisis, should not set the conditions for debt cancellation.
Civil society in the South must play a significant and influential role in
a transparent and participatory process which will define and then monitor
the use of resources released by debt [cancellation] for the benefit of
the impoverished.” This position was echoed in many discussions throughout the conference
and was expressed by an unequivocal “rejection” of the G 7
endorsed Highly Indebted Poor Countries (HIPC) Initiative of the World
Bank and the IMF. HIPC was regarded not only as too slow and too
restrictive, but based on unacceptable “Washington
consensus type” economic reform conditionalities, which
participants argued have consistently perpetuated and worsened the
problem, “as the World Bank [via the recent pronouncements of Joseph
Stiglitz] has itself, paradoxically, already recognized.” Standstill and Orderly Debt Workout Regarding the more recent generation of debt crises resulting from sudden
and massive short term capital outflows, many participants argued in
favour of a proposal in UNCTAD’s Trade and Development Report, 1998
for an international standstill and orderly debt workout mechanism,
derived from provisions contained in the US Bankruptcy Code. Such a mechanism would enable a nation facing a currency attack to impose
a unilateral standstill on debt servicing to ward off predatory investors
and give the country the breathing space needed to design a debt
reorganization plan before a liquidity crisis turns into a solvency
crisis. The standstill decision would then be submitted for approval to an
independent panel rather than the IMF to avoid a conflict of interest with
the Fund’s shareholders. Such a mechanism would avoid “inciting a
panic” and be similar to provisions in the WTO allowing countries to
take emergency measures. The debt standstill would be combined with
“debtor in possession” financing so the debtor country can
replenish its reserves and get working capital. Such funds for emergency
operations would be much less than the scale of recent IMF bail out
operations, which UNCTAD argues have usually come only after the collapse
of the currency and are designed to meet the demands of creditors and
prevent default. Moreover, in practice these measures protect creditors
from bearing the costs of their speculative mistakes and, together with
highly recessionary loan conditionalities designed to “restore investor
confidence,” shift the entire burden onto debtor country citizens,
most devastatingly on the poor, that played no role in causing the crisis.
As UNCTAD Deputy Secretary General Carlos Fortin argued in one of
the plenaries, “the poor do not benefit from finance led growth,
but they pay the price when things go bad.” According to John Dillon, such an alternative mechanism should amount to
an “international insolvency tribunal” established through a treaty
ratified by the United Nations. Its aims would include ensuring that
“creditors bear their fair share of the losses that result from
financial crises they themselves provoke through reckless lending
[‘bailing in’ rather than ‘bailing out’ measures].” Another goal
would be to allow debtor countries to access necessary credits at
reasonable interest rates in order to pursue social and economic
development. A third goal is to “to enable firms to remain in production
instead of being squeezed into bankruptcy or becoming targets for takeover
by transnational corporations” at highly discounted prices. Several commentators said the desirability of an international bankruptcy
code approach would depend heavily on the adjucators’ de facto
independence from the interests of creditors. Otherwise, such a mechanism
could result in “even more creditor control and more negative
conditionalities,” according to Yash Tandon from the
Zimbabwe based International South Network. Equitable International Taxation Systems Numerous speakers, including representatives of the French based
NGO Association for the Taxation of Transactions to Aid Citizens (ATTAC),
discussed the prospects and feasibility of international taxation systems
such as a “Tobin type” tax on foreign exchange trading. A
combination of equitable international taxation systems would serve
several mutually reinforcing objectives: ·
raise much needed funds for social development in a context of
dwindling overseas development assistance; ·
contribute to reducing short term speculative capital flows and
financial instability (the original idea of US economist James Tobin who
first proposed a small international tax on foreign currency transactions
in the late 1970s); ·
help reverse the increasing regressive character of national taxation
systems (partly resulting from financial liberalization), whereby the
“exit option” enjoyed by highly mobile capital acts as a powerful
disincentive to tax large financial players on an equitable basis. Some estimates suggest that a Tobin tax applied at a 0.2% rate (proposals
usually vary between 0.1% 0.5%) would raise annual global revenues
of between US$150 billion US$300 billion. This was compared with
UNDP’s estimated US$40 billion cost of eradicating poverty, and the
estimated US$125 billion annual international costs of implementing the
Agenda 21 programme of action adopted at the 1992 UN Conference on
Environment and Development. Bruno Jetin from ATTAC said that although many arguments against a
Tobin type tax relate to the technical difficulties of its
implementation, ATTAC’s position is that the primary obstacles are
political. By way of comparison, he said the creation of a single European
currency was technically much more complicated than would be the
implementation of a Tobin tax, but the political will has been sufficient
to make it a reality. He further argued that the application of a Tobin
tax does not require that a majority of nations adopt it at once.
Tobin type taxes could initially be developed within regional
arrangements—not only in the European Union, which is ATTAC’s
short term campaigning objective, but others such as the Common
Market of the South (MERCOSUR) or the Association of South East
Asian Nations (ASEAN). ATTAC has also suggested that the threat of capital
fleeing to offshore centres could be offset by international punitive
taxes on capital flows to and from these centres. In relation to the
objective of reducing financial volatility, Mr Jetin emphasized that the
Tobin tax would have to be complemented with other measures, such as
capital controls, particularly during moments of speculative currency
attacks. Rodney Schmidt, from the North South Institute in Canada, said that
many Tobin tax objections relate to the difficulties of monitoring the
highly decentralized and mobile nature of foreign exchange trading. These
could be overcome, he argued, by using the increasingly centralized
financial infrastructure developed by central banks for the interbank or
wholesale market for foreign exchange to reduce and eliminate settlement
risk. Settling a foreign exchange transaction requires at least two
payments, one for each of the currencies traded. Settlement risk is
eliminated when these two payments are matched, traced to the original
trade and made simultaneously. According to Mr Schmidt, the technology and
institutions now in place to support this make it possible for tax
authorities to identify and tax gross foreign exchange payments, whichever
financial instrument is used to define the trade, wherever the parties to
the trade are located and wherever the ensuing payments are made. He said
that relatively simple derivative instruments such as forward contracts
would be easy to tax. As for the more complicated derivative instruments
that may begin to be developed on the foreign exchange market, the Tobin
tax could be applied to the price of the derivative that has to be
specified in the electronic contract needed to make the trade possible. Some participants expressed concern about the possible ramifications of
the decision taken at last year’s WTO ministerial conference to freeze
possible efforts to impose customs duties on electronic transmissions (see
Go Between 69). If such a decision became a permanent ban on taxation
of all forms of electronic commerce, it would exclude a potentially
significant source of government revenue, and could be interpreted to
exclude taxation of foreign exchange trading, which is primarily performed
electronically. In addition to Tobin type taxes, there were proposals made to levy
taxes on transnational corporation sales on a pro rata basis, and to
develop international taxation agreements to create a “level playing
field” enabling national governments to impose progressive taxes on
corporations and financial conglomerates without facing capital flight. National Growth Strategies Through Equity For many participants, national level strategies were the most
important elements for promoting people centred development and
“economic sovereignty in a globalizing world.” Seen in this light, the
above proposals at the international level were viewed as most
fundamentally aimed at regaining greater political and economic space at
the national level to pursue alternative development paths that would
primarily rely on, and serve to nurture, domestic resources and
capabilities. A recurring theme was to build upon development paradigms that go beyond
narrow economic growth indicators, such as UNDP’s concept of sustainable
human development. According to Kamal Malhotra, if economic policy is to
be people centred, that is, supporting sustainable human and social
development goals, “then the objective should not be economic growth per
se, or even growth with equity, but growth THROUGH equity.” In other
words, national strategies would focus on enlarging local markets and
stimulating domestic growth through comprehensive programmes of income and
asset redistribution policies that would increase the “effective
demand” (or real purchasing power) of the lesser off majority of
the population. In line with Keynesian principles, equity considerations
are not treated as a “trade off” against efficiency, or an
“add on” compensatory measure, but as a central element to make
sustainable economic growth both possible and socially cohesive. Walden Bello called this “the unfinished social justice agenda of the
progressive movements of Asia.” Vast numbers of people remain
marginalized because of grinding poverty, he said, particularly in the
countryside. “Land and asset reform would simultaneously bring them into
the market, empower them economically and politically, and create
conditions for social and political stability.” Such reforms would be
accompanied by the development of social security programmes that would be
much more comprehensive in scope than what was regarded as the critically
under resourced “safety net” programmes now promoted by
international agencies such as the World Bank. Under such a development model, monetary policy and institutions would be
geared to respond to the needs of ordinary households and small and
medium sized enterprises (reversing the widespread “credit
crunch” that small firms are currently facing), rather than to the
interests of short term foreign investors. Combined with
redistributive measures to boost the purchasing power of the poor,
investment capital would primarily be sought by promoting domestic savings
and local entrepreneurship. Capital controls would not merely be used as a “buffer” against the
volatility of short term speculative capital, but as a positive tool
to selectively promote “quality” long term foreign investment
(foreign investment that, for instance, promotes job creation, skills and
environmentally sound technology transfer, and stimulates domestic
economic activity). This contrasts sharply with the current perception of foreign direct
investment (FDI), together with export led growth, as “the main
engine of development.” According to Mr Malhotra, “In a world where
two thirds of FDI comprises mergers and acquisitions, their
potential or real contribution to increasing the production of useful
goods and services in the real economy, genuinely adding to sustainable
production capacity, increasing employment and creating new productive and
useful assets is clearly limited...[G]iven the liberal and competitive
foreign investment regimes of most developing countries (for example, tax
holidays, full repatriation of profit), the impact of FDI on the balance
of payments situations of countries, especially over the long term, is
frequently negative.” In addition, export markets would be seen as important but too volatile
to serve as reliable engines of growth. In parallel to the above measures
designed to expand domestic markets, some speakers suggested strategies of
regional import substitution and protected regional
market integration that would give the region’s producers the
first opportunity to serve the region’s consumers. These alternative models of economic growth were held by a number of
participants to be not only people centred but given the appropriate
regulatory framework, environmentally sustainable as well. If
environmental constraints impose “limits to growth,” then the same
level of social well being could be achieved at much lower growth
rates than say the 8 10% growth rates pursued during Asia’s
“miracle years.” According to Walden Bello, one reason for the push
for high growth rates in Asia “was so that the elites could corner
significant part of the growth while still allowing some growth to trickle
down to the lower classes for the sake of social peace. The
alternative—redistribution of social wealth—is clearly less acceptable
to the ruling groups, but it is the key to a pattern of development that
will eventually combine economic growth, political stability and
ecological sustainability.”
CIVIL SOCIETY, HUMAN RIGHTS AND ECONOMIC GOVERNANCE Economic and political democracy were presented as indissociable by a
number of speakers at the conference. The neoliberal project of
“depoliticizing” the economy by rolling back the powers of the state,
according to Manfred Bienefeld, simply “shifts the politics away from
democratic debate.” Nicola Bullard from Focus on the Global South argued
that it is not globalization that has undermined the state and democracy,
but the willingness of states to abrogate their powers by signing
transnational treaties and adopting policies that undermine the ability of
citizens to hold governments accountable on economic and social policy. The conference discussions made it clear that proposed policy tools such
as capital controls are not absolute ends in themselves but only parts
(however indispensable) of a much wider people centered development
agenda. One participant cited the recent application of capital controls
in an Asian country that did successfully stabilize the domestic financial
system, but was allegedly part of a package focused on servicing the
interests of the leadership’s close entourage. It was commented that
“the policy flexibility such measures give to a government is only as
good as the goals for which this flexibility is used.” In his concluding
remarks, Walden Bello argued that the ultimate coherence of the “new
political economy” will rest less on narrow efficiency considerations
than on stated ethical priorities given to community solidarity and
security. These priorities, he said, are unlikely to be imposed from above
“in Keynesian technocratic style,” but through civil society struggles
around the world. It was suggested that government and civil society roles and
responsibilities should be framed within a common understanding and
pursuit of the realization of all human rights for all members of society.
This would provide the most coherent existing ethical, political and legal
basis for civil society groups to pursue what one participant described as
the apparent conflicting objectives of effectively challenging the
“authoritarian” roles and tendencies of governments, while
simultaneously attempting to identify and strengthen the enabling and
activist role of the state in the pursuit of social objectives. In practical terms, a representative of the India based NGO
Developing Initiatives for Social and Human Action (DISHA) said people’s
participation in budget analysis is a powerful tool to identify and
counter discriminatory practices of the state, based on facts and figures
rather than mere allegation of human rights abuse. He said DISHA picks
pro poor and anti poor actions by government expressed in
terms of financial allocations and raises these in public and in the
parliament. The combination of a strong popular base, along with the
information base, he said, has proven an effective way to start changing
the nature and quality of parliamentary debates on these issues. Similar arguments were made for countering inequities in the way public
revenue is raised (see Box 4). Accountability to UN Human Rights and Environmental Treaties Another suggested mobilizing strategy, which was already effectively used
in the international NGO campaign against the MAI, is based on the fact
that most governments that have created and manage international finance
and trade institutions have also signed and ratified legally binding
UN agreements in the field of human rights and environment. Consequently,
they have a legal duty to ensure that the policies and rules they agree in
the area of trade and finance do not contradict these UN treaties. Miloon
Kothari said that following from this, international economic institutions
do not have the right to violate, or force governments to violate, the
principle of “non retrogression” of state parties to the
International Covenant on Economic, Social and Cultural Rights. He said
the principle of non retrogression means that state parties have a
duty not to take measures that would cause a reversal of existing social
achievements. On the contrary, they must continuously demonstrate
“proactive steps towards the progressive realization of economic, social
and cultural rights” (see also Box 5).
In the case of the type of financial liberalization pursued in recent
years, there were sufficient warnings of the high social and economic
risks such policies were creating, including those sounded by UNCTAD in
its 1990 Trade and Development Report. It was thus suggested that
the “precautionary principle” pioneered in environmental law could
equally apply to economic, social and cultural rights. The precautionary
principle implies that if “scientific proof” cannot be entirely
ascertained before a potential hazard actually occurs —by which time it
is too late to prevent disaster—governments must avoid deliberately
applying policies that sufficient analysis and study suggest could cause
dramatic regression of existing social and economic achievements. It was
argued that similar approaches could be developed and applied to testing
the human rights consistency of trade, investment and other
macro economic policies and rules. CONCLUSION AND FOLLOW UP
Participants felt this international conference broke new ground in
providing a coherent and comprehensive civil society platform for
people centred economic reform agendas. While differences of opinion
on what is feasible or desirable was reflective of the richness and
diversity of participants’ inputs, the meeting did shed considerable
light on the major political economic challenges and opportunities facing
the international community at the turn of the century. Participants agreed they would carry forward the analyses, proposals and
campaigning positions emanating from the conference into their respective
networks, and into various complementary events and processes in the
coming months, including: ·
the series of international civil society events before and during the
18 20 June 1999 G 8 annual meeting, including the Jubilee 2000
Global Week of Action on Debt and the Alternative Economic Summit in
Cologne (Germany), on 16 19 June 1999; ·
the build up to the annual World Bank/IMF meeting in October 1999; ·
the lead up to the third WTO ministerial conference to be held in
Seattle (United States) from 30 November 3 December 1999 (see also
NGLS Roundup, No. 39); ·
preparations for, and planned civil society activities during, UNCTAD’s
tenth quadrennial conference (UNCTAD X) to be held in Bangkok on
12 20 February 2000; and ·
preparations for the UN five year reviews of the Social Summit and
the Beijing Fourth World Conference on Women in mid 2000, as well as
the late 2000 UN Millennium Assembly and Millennium NGO Forum. In the concluding session on strategies and campaigns, several speakers
stressed that, although international networking and participation in
international events were crucial (for example, for campaign coordination
purposes), the most critical political work must be carried out at the
national level. It was emphasized that the political strength of the
global civil society campaign against the MAI rested primarily on the
active mobilization of grassroots citizen coalitions and the parliamentary
debates that these generated at the national level. Indeed, a key element to democratizing economic governance is to
“democratize” people’s knowledge and understanding of complex economic
and financial mechanisms and processes, and to “demystify” the political
choices available to their elected representatives. This conference on
“creating people centred economics for the 21st century” was seen
as a major contribution toward that goal. CONTACT: Nicola Bullard Senior Associate Focus on the Global South CUSRI, Wisit Prachuabmoh Building Chulalongkorn University Phyathai Road Bangkok, 10330, Thailand telephone +66 2/218 7363 or 218 7364 fax +66 2/255 9976 e mail <N.Bullard@focusweb.org> The conference papers are available on the Focus on the Global South
website (focusweb.org). ___ This edition of NGLS Roundup was prepared by the United Nations
Non Governmental Liaison Service (NGLS). The NGLS Roundup is produced
for NGOs and others interested in the institutions, policies and activities
of the UN system and is not an official record. For more information or
additional copies write to: NGLS, Palais des Nations, CH 1211 Geneva
10, Switzerland, fax +41 22/917 0049, e mail
<ngls@unctad.org> or NGLS, United Nations, Room FF 346, New York
NY 10017, United States, fax +1 212/963 8712, e mail
<ngls@undp.org>. The text of NGLS Roundup and other NGLS publications
are also available online (website ngls.tad.ch).
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