Category: International Organizations

G20 must end 鈥渙utsourcing鈥� of multilateralism

黑料社区1 Comment

By Charles Abugre and C.P. Chandrasekhar

In multiple ways multilateralism, or the coming together of the international community to further global good, is under challenge today. 鈥楥onflicts鈥�, not least among them the genocide in Gaza, are an obvious challenge. But there is in the economic sphere a silent subversion of multilateralism underway that also needs to be stalled and reversed. This is the view that the 鈥渇inancing for development challenge鈥� is so huge and the share of the private sector in the holding and disposal of the world鈥檚 financial surpluses so large, that it is only private initiative that can successfully implement the programmes needed to realise the SDGs and address damaging climate change.

The corollary of that position is that the role of governments is no more to try and move surpluses from private to public hands (through new forms of international tax cooperation, for example) but to use the available public resources as means to unlock private investments and expenditures. The call is to go beyond the recognition that the tasks of realising the SDGs, ensuring the needed carbon transition, and building resilience the world over, are primarily governmental or 鈥榩ublic鈥� responsibilities, and that cooperation among governments (or multilateralism) is the best means to implement those tasks. Pragmatism demands, it is argued, that these tasks and therefore multilateralism, or the conjoint responsibilities of global governments, must be 鈥渙utsourced鈥�.

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A Multilateral International Monetary System

plbds2 Comments


By Paulo L. dos Santos and

鈥淥ne of the chief contributions to peace that the Bretton Woods program offers is that it will free the small and even the middle-sized nations from the danger of economic aggression by more powerful neighbours. The lesser nation will no longer be obliged to look to a single powerful country for monetary support or capital for development, and have to make dangerous political and economic concessions in the process. Political independence in the past has often proved to be sham when economic independence did not go with it.鈥� 鈥擧enry Morgenthou Jr (1945)

The world economy has a Dollar problem. Reliance on the currency of a single country as the world鈥檚 chief way to organise trade, carry out financial settlements, and store value creates a series of inequitable economic imbalances and policy tensions鈥攂oth within the US and across the global economy. It bestows disproportionate economic and political power on the US government and financial institutions; exposes world trade and finance to聽聽originating in the Dollar zone; imposes huge costs on the world鈥檚 small and even middle-sized nations; and fuels聽聽in the US financial sector, bolstering its influence in that country鈥檚 political economy.

A Historical Problem

This problem is not new. In fact, the inability to develop an equitable and genuinely multilateral international monetary system is one of capitalism鈥檚 most striking institutional failures, going back to the early days of the industrial revolution. The gold standard of that time and its successors have always  some economies at the expense of others, and created  favouring the interests of creditors and capital, at the expense of debtors and wage earners. 

Only once in the history of capitalism did policy-makers from leading capitalist powers even consider the possibility of building a genuinely multilateral, equitable system: during the  on the post-World-War-II economic order. But despite the aspirations and statements of participants like John M Keynes and then-US Treasury Secretary Henry Morgenthou Jr, the Bretton Woods conference led to the creation of , under which foreign central banks could present dollars to the Federal Reserve for exchange into gold. 

That system effectively charged US authorities with the supply of the world鈥檚 ultimate international reserves. In this task they were constrained only by the willingness of central banks in other states to hold Dollars instead of gold. As French Finance Minister Giscard d鈥橢staing put it in the 1960s, this arrangement defined an  for the US economy, which enjoyed a lot of space for effectively issuing Dollars to acquire goods and assets overseas.

By the late 1960s, it became clear that the US economy  under the Bretton Woods system. Its steady  in international trade, fiscal pressures from its protracted, losing war in Vietnam, and increases in social spending in response to domestic political turmoil, led to growing trade deficits, mass outflows of Dollars, and concerns that US authorities would not be able to meet foreign demand for convertibility of greenbacks into gold. In response, the US unilaterally abandoned its commitment to convertibility in 1971.

Coming amidst a series of successful national liberation and anti-colonial struggles across the world, the US鈥檚 inability to sustain the Bretton Woods system fed hopes that a new, equitable international monetary order could be constructed. The 1974聽聽for a New International Economic Order explicitly pointed to the need for a new monetary system centered on the 鈥減romotion of the development of the developing countries and the adequate flow of real resources to them鈥� as means to dismantle 鈥渢he remaining vestiges of colonial domination鈥� and removing the obstacles in the way of international convergence in measures of economic development and living standards.

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Whose Polycrisis?

Farwa Sial10 Comments

鈥榠f God the Father had created things by naming them, Elstir recreated them by removing their names, or by giving them another name鈥�.

Marcel Proust (II, 566)

An emerging consensus originated in the US has declared 2022 as the year of the , with a view to marking the beginning of an era of turbulence and unrest in the global economy.  Under this conceptualisation, recent events including the Covid-19 pandemic, climate change catastrophes, the Russian invasion of Ukraine and the rise in energy and food prices are generally postulated as separate crises, which can have an effect on each other but nevertheless have separate origins.  This centrifugal analysis of events predicates on the decline of the uni-polar world order, as well as acknowledging the emergent structural weaknesses in the traditional western powers; all of which can be loosely interpreted as occurring in a period during which power is dispersing and perhaps as a consequence of this dispersion, the current drivers of crisis have multiplied, leading to a multitude of crises, in contrast to preceding historical instances.

In spite of the current use of the term, the origins of the Polycrisis date further and can be more contextualised. However, there is no doubt that it has now become an important neologism for conventional western media and policy institutes, especially adopted by Bretton Woods Institutions, as well as other leading investors.

Civil society has also used this term as a neat summary, however, theirs is a critical response and is not interchangeable with how powerful International Financial Institutions (IFIs), policy think-tanks and investors use the term.  In this sense, the instrumentalisation of this neologism, seems to have more value than its meaning, with the discernible possibility that any perceived political mileage of the Polycrisis, is a complete transformation away from its intellectual roots. Nonetheless, as an artefact, the intellectual roots and the political role of the Polycrisis merits an integrated analysis beyond its instrumentalisation. 

A remarkable feature of liberal thought is the tendency towards identification of social phenomena through the selective elevation of their key distinguishing features, which are abstract enough to form 鈥榮ystems鈥� and neutral enough to subsume the inherent contradictions of capitalist development. Pandemics, climate breakdown, wars and global deflationary pressures are not mere externalities of the capitalist system but intrinsic to its operations- long predicted by a diverse group of thinkers. That these events converge in time is a political outcome, subject to planetary limits, not abstract systemisation, as the Polycrisis seems to imply.  

Critical responses to the Polycrisis have pointed towards its disregard in accounting for the long and sustained crisis of the capitalist world order and a resort towards 鈥樷�� to conceptualise things as they appear to be,  rather than questioning what is occurring beneath mere appearances. Prima-facie accounts often seek to capture the zeitgeist in the endeavour to simplify things. However, there is a need to differentiate between simplification and reductionism. As a concept, the Polycrisis is simultaneously all-encompassing as well as abstract.

In an attempt to grasp both these aspects, this short blog starts with a focus on three messages of the Polycrisis: a) the qualitative nature of change, b) the drivers or causes of crises and c) the role of Bretton Woods Institutions in adopting the concept. In addition, the blog proposes an alternative way of understanding the contemporary crisis, which hinges on the decline of the western capitalist model, followed by some thoughts on multipolarity and geopolitics. 

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Financing Needs of Developing Countries in the wake of Covid-19: The Role of Special Drawing Rights

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Since the outbreak of the Coronavirus, developing countries have been exposed to massive withdrawals of capital flows. In this post, I unpack the financial challenges these countries are facing and consider what role the Special Drawing Rights (SDRs) of the IMF can play in easing the burden.聽

According to the calculations by the Institute for International Finance (IIF), investors withdrew almost $80 billion over recent weeks from emerging markets (Wheatley 2020). During periods of crisis, investors ‘fly to safety’ by selling risky assets and purchasing safe assets such as US Dollars and the US Treasury Securities. As international investors flee to dollars amidst the financial turmoil caused by the Coronavirus, there is an acute concern that low and middle-income countries will be short of dollars. Furthermore, the scale of the withdrawal suggests that these countries will face great difficulty in raising funds for their sovereign debt payments. Besides governments, firms based in developing countries are also expected to face difficulties in raising foreign currency-denominated debt in international capital markets. Meeting this growing demand requires a global lender of last resort that can provide dollars on request. Within the existing global financial order, the Fed and the IMF are two major organizations that are capable of meeting this demand.聽

The Fed can provide dollar liquidity through swap lines, which allows global central banks access to dollars in exchange for their own currency with the promise that the principal, as well as the interest, will be paid later. When engaging in a swap operation, the Fed provides dollars to the recipient central bank for an equivalent amount of their currency at a given market exchange rate. After a certain period, the two central banks resell to each other their respective currencies at the initial exchange rate. The recipient central bank provides the dollars to financial institutions in its jurisdictions at the same maturity and rate. This way, swap lines provide dollar liquidity to recipient countries鈥� central bank and financial institutions (Bahaj and Reis 2018).Read More »

Abolish Africa鈥檚 Sovereign Debtors鈥� Prisons Now

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By Ndongo Samba Sylla and Peter Doyle

This piece was written before the Coronavirus outbreak. It is a timely proposal of action. Given the high exposure of the developing world to the virus in contexts of medical and other logistical shortcomings, the damage to their productive capacity is likely to be much more severe than for the advanced world. 聽This fact is already reflected in particularly sharp virus-stirred capital outflows from these countries. 聽All this greatly increases their exposure to the present global structures for sovereign insolvency, and the urgent need for those structures to be radically reformed鈥攁s the authors propose with the Pre-Emptive Sovereign Insolvency Regime (PSIR).

In a radical call for reform of the IMF鈥檚 pro-creditor and anti-growth approach to indebted countries in Africa, Ndongo Sylla and Peter Doyle argue that the continent has a choice to make. Creditors, using the IMF, must be stopped from forcing devastating output losses by imposing high primary surpluses.

Within a decade, just to keep up with the flow of new entrants into its labour markets, sub-Saharan Africa needs to create 20 million new jobs every year. This is a huge challenge. But it is also a thrilling opportunity鈥攖o harness the energy and creativity of all of Africa鈥檚 young.

However, after it reviews these issues in Africa, the IMF鈥檚 immediate message鈥攍iterally in the same sentence鈥攊s to pivot to 鈥榖udget cuts to secure debt sustainability!鈥�

That is plain wrong. For Africa to meet its development objectives, the IMF must radically change its pro-creditor anti-growth approach to highly indebted/insolvent countries.Read More »

From the Washington Consensus to the Wall Street Consensus

RRowden4 Comments

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Photo:

A new report published by the Washington DC office of the Heinrich 叠枚濒濒 Foundation reviews the recent initiative being led by the G20 countries and their respective development finance institutions, including the major multilateral development banks, for the financialization of development lending that is based on the stepped-up use of securitization markets.

The report details how the initiative goes beyond the Washington Consensus reforms of the last few decades by calling on developing countries to adopt even farther-reaching degrees of financial liberalization on a new order of magnitude. In what Prof. Daniela Gabor of the University of West England, Bristol, 鈥�the Wall Street Consensus,鈥� such reforms would involve a wholesale reorganization of the financial sectors and the creation of new financial markets in developing countries in order to accommodate the investment practices of global institutional investors.

The new report, 鈥�鈥� describes the key elements of the new initiative 鈥� specifically how securitization markets work and how the effort is designed to greatly increase the amount financing available for projects in developing countries by attracting new streams of private investment from private capital markets. The paper introduces the basic logic underpinning the initiative: to leverage the MDBs鈥� current USD 150 billion in annual public development lending into literally USD trillions for new development finance. In fact, the World Bank had initially called the initiative 鈥淔rom Billions to Trillions,鈥� before finally calling it, 鈥淢aximizing Finance for Development.鈥�

While securitization can be useful for individual investors and borrowers under certain circumstances, the proposal to use securitization markets to finance international development projects in developing countries raises a set of major concerns. The report lists 7 important ways in which the G20-DFI initiative introduces a wide range of new risks to the financial systems in 诲别惫别濒辞辫颈苍驳听countries while undermining autonomous efforts at national economic development.

The key risks of securitization are:

  • The inherent risk because securitization relies on the use of the 鈥渟hadow banking鈥� system that is based on over-leveraged, high-risk investments that are largely unregulated and not backed by governments during financial crises;
  • The extensive use of public-private partnerships, despite the poor track record of PPPs, many of which have ended up costing taxpayers as much if not more than if the investments had been undertaken with traditional public financing;
  • The degree of proposed deregulation reforms in the domestic financial sector required of developing countries would undermine the ability of 鈥渄evelopmental states鈥� to regulate finance in favor of national economic development;
  • The degree of financial deregulation required would also undermine sovereignty by making the national economy increasingly dependent on short–term flows from global private capital markets and thereby undermine the sovereign power of governments and their autonomous control of the domestic economy;
  • The uncertainty relating to governance and accountability for the environmental, social and governance standards associated with development projects. Such accountability has been fixed to traditional forms of public MDB financing for development project loans, but as future ownership of assets is commercialized and financialized, fiduciary obligations to investors may override obligations to enforce ESG implementation;
  • The deepening of the domestic financial sectors in developing countries, as required by the initiative, can create vulnerability as the size of the financial sector grows relative to that of the real sector within economies; and
  • The privatization and commercialization of public services, including infrastructure services, as called for by the initiative, has faced a growing backlash as reflected by the global trend of remunicipalizations. The fact that the securitization initiative is being promoted in such a high profile way by the G20 and leading DFIs despite all of these risks reflects an intensified contest between those supporting the public interest and those supporting the private interest.

The report also documents the relatively minor degree of interest expressed so far by global financial markets in the initiative, suggesting it is not likely to galvanize the trillions of dollars claimed by its proponents.

It concludes by reviewing the arguments for the scaled up use of traditional public financing mechanisms and several of the important ways in which this can be done, including steps that could be taken by G20 countries, DFIs and governments.

Rick Rowden聽recently completed his PhD in Economic Studies and Planning from Jawaharlal Nehru University (JNU) in New Delhi.

 

Advocates of the SDGs have a monetarism problem

RRowden2 Comments

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UN Secretariat Headquarters, New York. .

More expansionary fiscal and monetary policies聽are needed to meet the Sustainable Development Goals

This month, the international community will gather at the United Nations in New York to review progress on the implementation of the 17 Sustainable Development Goals (SDGs) that are intended to reduce poverty, hunger and economic inequality and promote development, particularly in developing countries. But only one of the SDGs, #17, says anything about how to finance all the efforts. While SDG 17 calls for more international cooperation and foreign aid, it only suggests that developing countries strengthen domestic resource mobilization (DRM) by improving their tax collection and curtailing illicit financial flows, etc.

While important, this approach neglects much bigger problems with the prevailing set of macroeconomic policies that hamper the ability of developing countries to increase public investment, employment and scale-up the long-term investments in the underlying health and education infrastructure needed to achieve the SDGs. The policy framework used in many developing countries is characterized by an overly restrictive low-inflation target achieved by using high interest rates and backed up by strict inflation targeting regimes at independent central banks.Read More »

Rethinking the Failures of Mining Industrialisation in the African Periphery

Ben Radley1 Comment

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The remains of one of SOMINKI鈥檚 industrial gold mines (author photo).

The World Bank interpreted the failure of mineral extraction to drive structural transformation in the early decades of African Independence as due to badly managed state-owned enterprises (SOEs), excessive state intervention in the economy, and government corruption. To right these wrongs, since the 1980s, the Bank has loaned hundreds of millions of dollars to the governments of mineral-rich (and mostly low-income) African countries to privatise and liberalise their mining sectors. Spurred on by the most recent commodity super-cycle beginning in the late 1990s, foreign direct investment poured in, and for many low-income African countries today, 鈥渢he mining sector represents one of the most crucial sources of investment and income in their economies鈥� (Farole and Winkler 2014: 177). A major theoretical assumption underpinning this process has been a belief in the superior expertise and efficiency of experienced transnational corporations (TNCs) compared to corrupt and mismanaged SOEs. In this post, I unpack and question the validity of this assumption, by drawing on some of the findings from my doctoral thesis on mining reindustrialisation in South Kivu Province of the Democratic Republic of the Congo (DRC). 聽聽聽 Read More »