Rethinking Bretton Woods | Fri, Jul 22, 2005
This week the 2005 Summit of the Group of 8 leaders of industrialized countries took place in Gleneagles, Scotland. The Summit stood high among the frantic series of high-level meetings, reports and other advocacy moments that, because of their focus on development issues and on Africa, held promise for a 2005 in which important decisions would improve the living conditions of thousands. However, clouded by despicable terrorist attacks in London that threatened to derail the agenda of the meeting "“and at some point the meeting itself "“the Summit failed to meet expectations.
Expectations that the debt deal agreed at the June Summit of Finance Ministers would be somehow enlarged were dampened. The calls of the Commission for Africa for a debt compact including 100 percent debt forgiveness to the continent went unheeded, as well as a statement by African Heads of State in the same direction. As Jubilee USA pointed out, the debt cancellation is hardly the announced 100 percent touted by both the UK and US governments in the media during the preceding months, but rather a 10 percent of the amount more than 60 countries need in order to meet the Millennium Development Goals. The Summit only re-announced the agreement Nigeria, a country not included in the June deal, reached with the Paris Club for a debt reduction of 60 percent.
Alongside the insufficiency of the debt write-off, more recent news underscored their fragility. Reports showed that oil price rises alone are likely to more than offset the $ 1 billion-a-year gains brought by debt forgiveness to the beneficiary countries. The findings brought to attention, again, the need for a dramatic change in paradigm of debt relief schemes that integrates trade dynamics to which the economies of indebted countries are exposed.
While the deal includes debts owed to the IMF, the provisions regarding financing of this portion are very weak. At a recent meeting of the Board of Directors of the IMF, it was decided the institution will maintain the status quo provisions for debt relief until its policies can be adapted to the requirements of the June deal. It is unclear how long it will take for the IMF to do this. Should Fund available resources be insufficient to meet debt relief obligations, the deal stipulates that financing is supposed to come from donors and contributions that "oil-producing states" will make "to a new trust fund to support poor countries facing commodity price and other exogenous shock." Since these oil-producing states are not part of the decision, it is unclear what value the decision carries for them. and whether this part of the deal will be followed through. Neither did the G8 Summit address the issue of harmful conditionalities that are likely to be attached to the debt relief, especially for countries that have not yet reached the end point of the Heavily Indebted Poor Countries Initiative (HIPC). The issue was strongly raised by almost all debt campaigners as another weakness of the June deal. At an upcoming review of its policies on conditionality, though, most Directors of the Bank seem ready to reject a proposal by the UK to eliminate economic policy conditionalities.
In another headline-boosting gesture, the Heads of the State committed to doubling aid to Africa by 2010. They also committed to ramp up overall aid levels to all developing countries to 50 billion a year by the same date. Several countries even set a timetable for reaching the GDP 0.7 target. One of the statements even offers a detailed table with commitments "“that makes more conspicuous the US, Canada and Japan's failure to commit to such a target. Notwithstanding all the good things that a recommitment to the 0.7 target means, lot of loopholes still remain in the way ODA is reported which make it very difficult to monitor achievement of the target. For instance, the last report of Annual OECD DAC report showed clearly that large debt relief to Iraq and write-off of Export Credit Agencies debt (that, being commercial loans gone bad should not be counted as aid) is likely to inflate such figures in the coming years. In the absence to clear commitments to innovative sources of financing, it is uncertain whether tight budget deficit targets in the European Union countries will allow these to make their deadlines. In the case of the US, the experience with the Millennium Challenge Account, a program launched with much fanfare more than 3 years ago, highlights the differences between what the President promises and what the Congress might let him deliver.
The G8 Summit also issued the standard call for a successful conclusion to the Hong Kong Ministerial. While, according to the statement, both G8 leaders and "their emerging economy partners" agreed to inject momentum into the so-called Doha Development Agenda, more bitter news were coming from Geneva. After a meeting of Heads of Delegation it became clear that a paper with areas of "approximation" in preparation for Hong Kong will not be issued at the end of this month, as expected. Instead of that, only reports on status of negotiations can be expected.
In a very predictable twist, however, the leaders also called for "aid for trade" and requested international financial institutions to submit proposals for the Annual Meetings on additional assistance for countries to develop "capacity to trade." Promise of financing by developed countries has been traditionally a bargaining chip for developed countries to use in deadlock situations like the current one. It is also typically a powerful media and public relations devise that might mislead uninformed observers into believing actual concessions are being made by the richer countries to address development issues raised in trade negotiations.
Developing countries would be well-advised to heed lessons of experience and make sure they do not trade binding and costly obligations against "soft-language" promises of financial assistance. Offers of aid for trade have also to be assessed by what they are and not by what they look like. The evaluation of the Integrated Framework for Trade-Related Technical Assistance by a World Bank independent office showed most beneficiaries continue to see the initiative as geared to provide financing of a much larger scale than what donors actually envisioned from day one. Likewise, for all IMF officials boast of the contribution of the IMF Trade Integration Mechanism (launched last year), close analysis reveals it is no more than a repackaging of existing loans. Problems of speed, access and concessionality present in other facilities are largely shunned by its design.
There is something good to say about this G8 Summit and it is that poverty, though not history, at least became a story. The level of media and public attention attracted by the impact of international economic policies on poverty and living conditions in the developing world is a welcome development. Civil society organizations also showed an increased capacity to analyze and track down governments' commitments, and call their bluffs and misrepresentations. After all this G8 Summit is only one more hallmark in the context of the long-term struggle for more just and fair structures in the aid, debt and trade system that place the development of people at their center. It is on this sustained struggle, not on what a few industrial country leaders say, that hopes to make poverty history should be placed.