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International support for聽the聽least developed countries: moving聽out of the mainstream

November 15, 2021November 18, 2021 Dan1 Comment

Next January the next United Nations Programme of Action for least developed countries (LDCs) will launch in Doha. It will set the framework for the next 10 years of international support for the world鈥檚 46 officially poorest and most structurally disadvantaged countries, home to around a billion people.

LDCs are low-income countries confronting severe structural impediments to sustainable development. Membership of the category is based on : income per capita, human assets and economic and environmental vulnerability.

for LDCs currently falls under three categories: trade, aid and a range of ad hoc measures broadly aimed at help with taking part in the international system, such as lower contributions to the UN budget and support for travel to international meetings like the annual UN General Assembly.

Support is largely based on the premise that LDCs are artificially or temporarily excluded from global commerce. Preferential market access, temporary development assistance and help with participating in multilateral processes are intended to tackle this defect, in turn helping the LDCs 鈥榗atch up鈥�.

Dating to 1971, the category is the only one recognised in UN and multilateral legal texts. There is no official 鈥榙eveloping country鈥� or 鈥榤iddle income鈥� category with associated support measures. Low income countries are not specifically targeted, and the small and vulnerable states are only recognised as a working group at the World Trade Organisation. They are not acknowledged in the legal texts.

Although donors don鈥檛 meet aid pledges and support doesn鈥檛 go far enough, official targets are possible because the LDC group is officially recognised in the UN system and has legal bearing. An example of such a target is the commitment by developed countries to deliver 0.15-0.20% of gross national income (GNI) in development assistance to LDCs. The European Union offers duty-free, quota-free market access to LDC exports under its Everything But Arms (EBA) trade scheme for LDCs.

The theory behind support for LDCs is implicitly based on the mainstream economics view that LDCs lag behind because they aren鈥檛 exposed enough to correct market prices and conditions. The removal of so-called distortions like overseas tariff and non-tariff barriers, alongside temporary development assistance and help taking part in the global system, is supposed to free up these economies to play a fuller role in the international economy. Economic growth will drive development and reduce poverty.

The evidence shows that for most LDCs this theory never worked. Until the pandemic the economies of some LDCs were performing well. Up to 12 could leave the category in coming years. A few, like Bangladesh, Cambodia and Myanmar, were able to take advantage of lower tariffs for their garment exports. These three countries account for 87% of imports to the EU under EBA.

But half were supposed to meet the criteria by 2020, according to international targets. 12 graduations falls well short. The six that have left since the formation of the category in 1971 have not all done so because of better international market access or special support measures. Commodity exports, tourism or improved health and education are mostly responsible.

The remaining LDCs aren鈥檛 catching up.聽The gap is widening.聽The pandemic聽聽group.聽Gross domestic product (GDP)聽shrank 1.3% on average聽in 2020, with the economies of 37 contracting during the year聽and extreme poverty in the group rising by a staggering 84聽million. But even before聽Covid, average real聽GDP per capita聽for the group聽had long diverged聽from聽other developing countries聽and the聽rest of the聽world.聽聽

The聽frailties聽of聽diaspora bonds聽

November 4, 2021November 3, 2021 Aleksandr V. GevorkyanLeave a comment

The interest in聽diaspora bonds聽is sustained by the theoretical potential聽聽in聽poor economies by raising funds from聽expatriate communities, often labor migrants, living abroad.聽At the start of the COVID-19 pandemic in 2020,聽as聽developing nations聽faced聽sudden reversals聽in聽capital flows, diaspora bonds聽聽to聽counter聽the international capital markets鈥櫬爒olatility.聽A year later, the聽聽by the international institutional investors may prompt聽renewed calls for tapping into diaspora. But聽is the alternative scheme so easily deployable?聽

Diaspora bonds are sovereign debt securities issued by countries appealing to the altruistic motives of their cultural and national diasporas across the world. Historically, there have been several attempts to leverage the diaspora premium, with Israel and India running the most effective .

The聽Geopolitics of聽Financialisation聽and Development: Interview with Ilias Alami

October 19, 2021October 13, 2021 Ilias ALAMI3 Comments

This聽interview聽was originally聽published in German in the special issue on聽financialisation聽and development policies of the journal聽Peripherie, September 2021, No. 162/163. Frauke Banse and Anil Shah聽(both based at Kassel University)聽spoke with political聽economist聽Ilias Alami聽(Maastricht聽University)聽about聽some of his recent work聽on the relationship between geopolitics, financial flows for development and emerging forms of聽鈥榮tate capitalism,鈥櫬燼s well as related new imperialist formations. The聽interview was conducted via email in May 2021.聽聽

The interview covers a聽series聽of聽International Political Economy聽topics.聽Ilias聽first locates the emergence of the聽Wall Street Consensus in the long and turbulent histories of the relation between finance and development聽as well as in聽secular聽capitalist transformations. He then聽outlines聽some of the conceptual tools he鈥檚 developed聽in his work聽in order to make sense of the聽contemporary聽interconnections聽of money and finance聽and the reproduction of聽imperialism and race/coloniality.聽Next,聽he situates these interconnections within broader scholarly debates about聽financialisation聽and聽highlights聽the similarities and differences between ongoing sovereign debt crises in the global South and the so-called 1980s 鈥楾hird World debt crisis.鈥� Finally,聽Ilias聽discusses the聽recent聽emergence of new forms of聽鈥榮tate capitalism鈥櫬燼nd their聽complex relation聽to the extension聽and deepening聽of market-based finance.聽

Internal and external constraints: economic development without currency crisis

July 8, 2021June 12, 2021 basiloberholzerLeave a comment

Simply speaking, development macroeconomics can be summarized as the challenge of improving productivity and production capacity in poor countries. This involves the conditions that need to be fulfilled for a development process to start as well as the policy framework and instruments that support it. Heterodox approaches consider the state鈥檚 role in steering productivity growth as essential (Cardim de Carvalho, 1997). Markets may be able to exploit price signals and adjust resource allocation correspondingly. However, they guarantee neither sufficient profitability of key sectors nor the demand for the goods produced. Both the profit rate and effective demand are conditions for investment to take place (Oberholzer, 2020). It is thus up to the government to make public investment in priority sectors and to apply instruments such as taxes and subsidies in ways that simultaneously allow for economies of scale, higher productivity large-scale employment and demand. This is what is generally referred to as industrial policy (see for example Chang, 2006; Oqubay, 2018).

But this is not everything. Policymakers have to pursue such a development strategy in face of an (often permanent) shortage of foreign currency. While domestic currency can be generated via the domestic banking system including public development banks, the availability of foreign currency is limited unless a country is able to increase exports or restrict imports. Since larger export capacity and a higher degree of import substitution are long-term goals, the current account is determined by domestic and foreign economic growth. This insight has come to be known as the balance-of-payments-constrained model or Thirlwall鈥檚 law, respectively (Thirlwall, 1979, 2013): it is reasonable to assume that demand for a country鈥檚 exports grows in income in the rest of the world while imports increase with domestic economic growth because a part of increasing incomes is reliably spent on imported goods. Therefore, stability in the balance of payments requires that imports do not grow faster than foreign exchange earnings via exports allow. A limit to the growth of imports implies a limit to the country鈥檚 economic growth, hence the balance-of-payments-constrained growth rate.

If the Washington Consensus was really over, what would that look like for development strategy?

June 24, 2021June 6, 2021 RRowden3 Comments

If it still looks like a duck, swims like a duck, and quacks like a duck – then it probably still is a

Recent years have witnessed a notable re-embrace of the state鈥檚 role in the economy, leading to declare that the set of free market economic policy reforms widely known as the Washington Consensus has .

First popularized by U.S. President Ronald Reagan and U.K. Prime Minister Margaret Thatcher in the 1980s, the Washington Consensus policies offered a set of policy guidelines for developing countries, many of which were struggling with high debt and high inflation at the time. These free market reforms included trade and financial liberalization, privatization, deregulation, the removal of capital controls, fiscal austerity (cutting public spending) in order to achieve strict targets for maintaining low inflation and low fiscal deficits, the adoption of independent central banks, and deregulating restrictions on foreign investment, among others. Broadly speaking, the policies sought to roll back the role of the state in the economy and unshackle the animal spirits of the free market. In the 1980s, adopting the policies became binding conditions for developing countries to receive debt relief and new lending by the International Monetary Fund (IMF) and World Bank, in the 1990s, the policies served as the basis for World Trade Organization (WTO) membership rules 鈥� and ever since then, the policies have become a cornerstone of the curricula in economics departments at universities across the world.

Neoliberalism and global development before and after the Washington Consensus: Agricultural credit at the World Bank

June 17, 2021May 17, 2021 Nick BernardsLeave a comment

We鈥檝e witnessed a revival of debates about the Washington Consensus and the future of neoliberalism in recent months. Recent increases in public spending have led to conclude, or , that decades of neoliberal consensus have been shattered. Much of this debate is misguided, rooted in a mistaken dichotomy between 鈥榮tates鈥� and 鈥榤arkets鈥�, and a corresponding conception of neoliberalism as primarily involving a reduction in the role of the former. Efforts to rehabilitate the Washington Consensus, meanwhile, rely on flimsy and heavily ideological counterfactuals.

In this post, I want to take up another angle on this question, asking: what is 鈥榯he market鈥� in practice? In particular, I take a closer look at the emergence of the idea that 鈥榠nterest rates should be market-determined鈥�. This was a core tenet of the 鈥榃ashington Consensus鈥� in John Williamson鈥檚 . It was also, historically, a key argument of neoliberal economists. From the early 1970s, several influential pieces (e.g. McKinnon 1973; Shaw 1973) urged the deregulation of interest rates, arguing that while usury caps were intended to assist small farmers, they wound up forcing banks to concentrate on relatively low-risk loans to government or large-scale industry.

In practice, though, the relatively simple proposition that 鈥榠nterest rates should be left to the market鈥� invited a whole range of difficult questions and political challenges.

In a recent article in tracing the history of World Bank agricultural credit programmes (Bernards 2021), I show how neoliberal approaches to development have never really involved 鈥榮hrinking the state鈥� and unleashing markets so much as fraught and failure-prone efforts to figure out who and what should be governed by, and how to construct, markets.

National Fiscal Redistribution as 鈥淚nternational鈥� Development Assistance

June 7, 2021May 3, 2021 Abel B.S. Gaiya2 Comments

The histories of international development and foreign aid often focus on aid between independent nations. Williams鈥� (2013: 234) history of international development aid only begins from the British Colonial Development Act of 1929. Markovits, Strange and Tingley鈥檚 (2019) history of foreign aid focuses on aid between 鈥渘ations鈥� or empires. Helleiner (2014), for instance, traces the origins of multilateral development finance proposals to China鈥檚 Sun Yat-sen in 1919.

There is, however, a major problem with these histories. Their starting points reveal a methodological nationalist approach. The history of states and societies since the modern era, is however more complex. The early modern era is well known for the spate of state consolidations and national formations. It may be argued that intra-national transfers within modernizing nations may represent important forms of regional development assistance that have been left out of the consideration of the history of development assistance.

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