Rethinking Bretton Woods | Tue, May 1, 2012
Under the theme “Development-centred globalization: Towards inclusive and sustainable growth and development,” the XIII Quadrennial conference of UNCTAD was held in Doha, Qatar, April 21-26. The article provides a report on the conference and highlights on issues of relevance to those working on trade-finance linkages.
Under the theme “Development-centred globalization: Towards inclusive and sustainable growth and development,” the XIII Quadrennial conference of UNCTAD was held in Doha, Qatar, April 21-26. UNCTAD conferences are held every four years and have the main function of adopting the general framework for UNCTAD’s work in the coming four-year period.
The conference theme certainly suited the new times. The previous work program had been agreed in Accra, Ghana, in 2008, right before the global financial and economic crisis struck revealing the fault-lines of a globalization process that had relied to an exaggerated extent on the financial sector. The crisis begun in a major financial center but its impacts were felt across the whole world, and in particularly in the poorest countries that least part had in triggering it. It was a mindset-changing event for anybody who cares about justice or the risk and reward correlation that the average person considers essential to a capitalist system.
Still, UNCTAD’s unique role in foreseeing the coming crisis before other more well-resourced institutions did, and raising points of interest for developing countries in the unfolding search for interpretations and solutions, seemed to be more a handicap than an asset in helping it get support from its Northern members in the negotiations.
One week before the conference, the G77/China, a negotiating block representing the more than 130 developing countries, issued a stern warning that negotiations were approaching a breaking point, and could lead to a decision by vote, not by consensus. A couple of days after that, in a telling sign of the times faced by multilateralism, the Summit of the Americas, convening leaders of all countries of the Americas, ended for the first time without a consensus declaration due to unbridgeable differences along North –South lines, that is, between US and Canada on one side, and all developing countries of the Americas on the other.
The difficulties in the process were reflected in the final statement of UNCTAD’s Secretary General, Mr Supachai Panitchpakdi, that “considering the distance that had to be closed in just five days, any agreed outcome was a formidable challenge.”
The strength of the Northern backlash is exemplified in a discussion that should have been a non-issue, and, yet, emerged as a major point of contention. Developed countries proposed to replace a reference that “reaffirmed” and stated the validity and relevance of the Accra Accord of 2008. They proposed to replace it with one that merely sought to “build upon” such Accord, potentially paving the way for questioning and revamping substantial areas of work on which UNCTAD had engaged since 2008 or even earlier.
Ultimately, governments agreed to a text that reads, in paragraph 17, “The outcomes of UNCTAD XIII reaffirm and build upon the Accra Accord which remains valid and relevant.” Further, each sub-section of the document stating UNCTAD’s specific tasks begins by saying “in accordance with paragraph 17,” further ensuring the continuity of the current work.
Another key issue of contention came in a paragraph giving UNCTAD a role to “contribute to the work of the United Nations in addressing the root causes and the impacts of the global economic and financial crisis.” The developed countries objected to the mention of “root causes.” The effect of this amendment would have been to confine UNCTAD to merely review and document impacts of the crisis in developing countries, without a mandate in assessing the global economy context that generated such impacts. The deletion proposal was odd given that UNCTAD’s quality analysis in foreseeing the financial crisis before other more typically financial organizations such as the IMF, did, was not even questioned (not even by proponents of the deletion). This led to some curious arguments to justify the proposal, such as one delegation that asserted that it was not good to have UNCTAD engaging in “intellectual competition” with the International Monetary Fund, and another saying that the IMF had now “caught up” with UNCTAD, making UNCTAD’s work on that area no longer necessary.
The finally agreed language gives UNCTAD a role in “continue … research and analysis on the prospects of, and impact on, developing countries in matters of trade and development, in light of the global economic and financial crisis,” thus enabling UNCTAD to continue the crucial analysis that it had been performing so far.
A declaration adopted by the civil society organizations participating of the conference, in discussing the need to rethink macroeconomic policies, urged “a renewed vision that sees the link between trade and financial resilience, and that promotes fiscal, monetary, investment and financial policies – at national, regional and global levels – that ensure that trade supports development.”
The final text acknowledges UNCTAD’s place as the focal point in the United Nations for the integrated treatment of trade and development, and interrelated issues in the areas of finance, technology and investment. Consistent with this, the work program it approved contains references that will, no doubt, be very useful in its task to help developing countries make the link between trade and finance in the current global economic juncture.
The document recognizes the commodities price boom’s potential for contributing to economic growth and poverty reduction, but acknowledges that “the volatility of commodity prices remains a challenge to commodity-importing and -exporting developing countries, many of which are LDCs.” It calls for support to “commodity-dependent developing countries in formulating sustainable and inclusive development strategies, including those that promote value addition and economic diversification.” (para. 17)
The need to reorient trade to a new focus on diversification and value added is mentioned in several other parts of the document. Paragraph 31 (e) says UNCTAD should “Devise approaches to stimulating economic diversification and promoting value added production, including through investment, with a view to providing equal economic opportunity for all...” Same paragraph, under section (i), calls for continued support to “commodity-dependent developing countries, particularly in Africa and LDCs, through policy reviews, dialogues and technical assistance in maximizing development benefits from commodity production and trade, including promotion of diversification and integration of natural resources policies into their national development strategies.” In 65 (g) it is stated that UNCTAD should “Provide analytical work and technical assistance to developing countries, particularly LDCs and countries with economies in transition in the areas of trade and economic diversification and structural transformation to enhance growth and development; including sectors … that generate more value addition.”
But references to diversification of the economy, not just trade, are also important, as not only a diversity of export products, but also a healthy balance between internal and external demand, should be seen as key elements of a financially resilient economy in the wake of the financial crisis.
The Doha outcome gives UNCTAD the task, for instance, of analyzing “regional and subregional integration efforts and their contribution to development, diversification of national economies and building up of infrastructures within and between developing countries.” (para. 41 (e) ). It also says it should “Assist the LDCs in assessing progress towards resource mobilization, economic diversification and competitiveness in support of their national development strategies.” (para. 41 (m))
In a paragraph on industrial policies, the text refers to the role of such policies in “establishing dynamic and sustainable development in many countries.” To have their full and intended effect, the adopted text reads, they need to be complemented with other policies that include “economic diversification, improving international competitiveness and realizing more sustainable and inclusive outcomes.” Exploring the macroeconomic policies necessary for successful industrialization is, without a doubt, an area where developing countries are in desperate demand for a rapid implementation of this mandate. (para. 60)
The pursuit of regional and intra-regional cooperation in finance and its relevance to better trade outcomes for developing countries is recognized, among others, in paragraph 37: “Regional integration, complemented by interregional cooperation, can help developing countries harness closer trade links in support of inclusive and sustainable growth and development.” It is also stated that “Regional integration, including regional trade agreements (RTAs), should bolster productive integration and support economic diversification, especially in the LDCs and LLDCs.”
The patterns of investment required to further trade and development are also addressed in the document which supports continued research and policy dialogue by UNCTAD on matters such as the impact of FDI and other private international capital flows, the interaction of FDI and domestic investment, the relationship between ODA and FDI, as well as the link between FDI and regional integration, all of that “to achieve inclusive growth and sustainable development.” Such broad mandate ensures UNCTAD can focus on issues that receive little attention by other international organizations, such as the forms of investment that best enable national capital accumulation as well as their equitable distribution.
Refreshingly at a time when rankings such as the Doing Business and the Investing Across Borders indicators of the World Bank make an unqualified assumption about the pertinence of attracting foreign investment, the same paragraph calls on UNCTAD to assist developing countries to improve their performance in attracting both “private” and “domestic” investment. Paragraph 58 offers further support to this approach by requiring that FDI be promoted in ways that “complement the development priorities of host countries.”
In the negotiations, developed countries had defended the oft-stated view that places the onus of attracting foreign investment on national level reforms of the investment climate. The final text in that paragraph also finds counterbalance to that notion by asserting that efforts to promote FDI “In order to contribute to development, … should be made by all stakeholders.”
“Once more we have a positive affirmation that thirteen brings luck,” said the representative of a major trading bloc speaking at the closing plenary. He may not have been aware that in many cultures, thirteen is considered an unlucky, not a lucky, number. But even those who believe this to be the case will likely agree superstitious expectations were proven unfounded this time in Doha.