Rethinking Bretton Woods | Thu, Mar 23, 2006
For more than two decades, governments and corporate interests in rich countries have relentlessly pushed a trade liberalization agenda on developing countries, using lending conditionalities and the influence of multilateral institutions to press their point.
And for just as long, developing countries and economic justice advocates have insisted that trade liberalization alone will actually worsen poverty because of the absence of transparency, accountability and participation in the negotiating process.
In order for the gains from trade to reach the world's poorest citizens, trade policy must be balanced with attention to social investment, compensatory measures, effective regulation and other instruments by which governments can work with the poor to address their needs.
Now comes a report from the World Bank's Independent Evaluation Group to confirm that trade liberalization has indeed failed to benefit the poor, in large measure because liberalization advocates did not "fully take the external environment into account sufficiently, and thus did not distinguish the impact of external trade policies and shocks on trade outcomes for different groups of developing countries," (pg. xv).
The report goes further to acknowledge that "Trade-related projects did not adequately attend to the poverty and distributional outcomes, including labor market dynamics, and this continues to be a major weakness in project design" (pg. xv).
The March 2006 report released by the World Bank's Independent Evaluation Group (IEG) revealed that over three decades the global lender has failed to do enough to protect those in poverty from the affects of increased trade liberalization.Â "The evaluation confirms that liberalizing trade alone is not enough to generate growth and fight poverty," said Vinod Thomas, IEG's Director-General. "The World Bank has done the right thing in promoting more open trade worldwide, but not necessarily done everything right to help generate the desired payoffs."
The report which covered the period 1987 to 2004 said that about eight percent of the World Bank's financial commitment, about $38 billion, went to 117 countries to help them become better integrated into the global economy. The evaluation was carried out by the Bank's Independent Evaluation Group (IEG), an autonomous body reporting directly to the Board of Executive Directors of the World Bank to assess the effectiveness of the Bank's development efforts.
The evaluation found that while average tariffs fell, coverage of non-tariff barriers diminished, foreign exchange shortages shrunk, and the exchange rate became a more viable instrument for macroeconomic and trade policy, its trade initiatives were less successful in generating a dynamic and sustained export growth path, especially in Africa.
Finding also that the Bank has also often promoted specific trade policies in countries without adequately assessing the potential impact they might have on affected communities, the IEG evaluation found little evidence that more recent trade-related operations are doing much better in identifying potential winners and losers of trade policies and of recommending specific adjustments. Between 1987 and 1995, 31 percent of trade adjustment loans included compensation or mitigation measures to cushion the social and economic effect of trade reform on the poor; since then 38 percent - a slight increase - of trade adjustment loans have done so.
The report recommends that the World Bank give greater attention to addressing poverty and distributional outcomes, and to cushioning shocks associated with trade policies.
One can only hope that the conclusions of this report will bolster the voices of those who have always insisted that international trade can only benefit the poor when judiciously managed in conjunction with the very social programs and strong regulatory environment that rich countries and international financial institutions have worked for 20 years to dismantle in the global south."