Developing countries are right to be cynical (October 2005)

Rethinking Bretton Woods | Sat, Oct 29, 2005

By Aldo Caliari
In a letter to the editor appeared on the October 12 issue of the Financial Times lAdo Caliari says, “Poor-country concerns about the "aid for trade" plan are warranted ("Poorest WTO countries attack 'aid for trade' plan", October 12)”

Published: Oct 24, 2005

From Mr Aldo Caliari.

Sir, Poor-country concerns about the "aid for trade" plan are warranted ("Poorest WTO countries attack 'aid for trade' plan", October 12).

The first pillar of the "aid for trade" package entails scaling up the Integrated Framework, an existing technical assistance initiative launched in 1997. Two independent evaluations pointed to many problems in design and implementation.

More disturbing, the problems raised by the most recent evaluation closely mirror those raised by the previous one. Instead of temporarily halting its operations to rethink what went wrong, the "aid for trade" proposal would expand it, maybe tinkering with it at the edges.

Another pillar of the package concerns an increased role for the International Monetary Fund in diagnosing losses developing countries might suffer from accepting rules emerging from the trade round. Those familiar with the Fund's tendency to be overly optimistic about growth and debt sustainability projections in the past know there are good reasons why poor countries should think twice before giving the Fund a role as arbiter in determining the size of trade losses warranting compensation.

It will be difficult to ensure that aid committed under this package does not come at the expense of aid committed for other purposes. Unless financial commitments are additional to existing aid promises, they hardly constitute a concession and should not be traded as such.

As far as the IMF is concerned, the consistent trend is towards shrinking facilities rather than enlarging them. The "aid for trade" package contains little additional to the Trade Integration Mechanism which, in turn, did not represent any funding or facility additional to those in place.

While financial commitments (at least the way they are proposed) cannot be enforced, the obligations developing countries are asked to undertake in exchange, once adopted, cannot be signed away.

In light of all this, it should not come as a surprise if developing countries have learned to reject developed-country attempts to patch up with aid promises gaps that can only be addressed by trade reforms.

Aldo Caliari, Director, Rethinking Bretton Woods Project, Center of Concern, Washington, DC 20017, USA