To ensure equitable development

Print edition : July 20, 2002

THE head of an International Monetary Fund (IMF) delegation that went to Argentina - which is facing a severe debt crisis - was some time back cornered outside his hotel room by a television crew. They handed him a set of large, plastic Halloween-season vampire teeth. "We found these lodged in President Duhalde's neck," one of them told him, "and wanted to return them to you." In Argentina, such views on the IMF and the World Bank are common. They sharply contrast with those expressed in the media and in policy circles in Washington.

It is in such a context that this year's United Nations Conference on Trade and Development (UNCTAD) report on Least Developed Countries (LDC) has questioned the actions of the World Bank and the IMF in 49 least developed nations. But the criticism of World Bank policies has come in the United Nations'characteristically sugar-coated manner. While the report tries to promote the dictum of more aid to the LDCs, it continues to emphasise on good governance, thereby leaving it to the donors to decide what is to be set apart for the LDCs.

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Argentina is not on the World Bank's list of LDCs. According to UNCTAD, more than half of the African continent can be included in this list. The criteria for being classified as a least developed country are low national income, weak human assets, high economic vulnerability and a population that does not exceed 75 million.

The 285-page report titled "Escaping the Poverty Trap" addresses two questions. First, whether globalisation has benefited the poorest of the developing countries, and second, in what way the policies of the World Bank and the IMF have affected these countries.

Such questions are not new in terms of the subjects that they plan to analyse. There are as many views on how African economies stand to benefit hugely from forces of globalisation as there are against. The view that the IMF and the World Bank have been convenient scapegoats for LDC government leaders still reluctant to accept responsibility for their policy failures is also common. There is also a sizeable majority which maintains that governments should not be fooled by the double standards employed by the IMF and the World Bank. Academicians and policy-makers who hold such views criticise the Bank's policies, focussing on its lending programmes, which are accompanied by an extended list of trade liberalisation policy conditionalities. Particularly under criticism have been the double standards of the World Bank in demanding "good governance" - broadly interpreted as market liberalisation with emphasis on the free trade doctrine - something that countries such as the United States do not practise. An area of particular concern is agriculture, which is one of the most heavily protected areas in international trade. Almost no developed country would have sustainable growth in agriculture without the aid of government subsidies. The U.S. heavily subsidises its agriculture. But because it is also a large producer and exporter of grain, it has an interest in lowering other countries' tariff barriers against agricultural practices.

Showing receptivity to this critique, the UNCTAD report says that it is time for the IMF and the World Bank to stop peddling their discredited policies. Poor countries should be allowed to abandon the economic adjustment programmes that they were forced by the IMF and the World Bank to adopt in the 1990s. It adds that the adoption of the right policies could reduce widespread poverty in the least developed countries by two-thirds over the next 15 years. These policies should be spearheaded by national governments, which should not only formulate them but also see to it that they are implemented. Instead of the World Bank or the IMF introducing such policies, the national stakeholders and civil society should be involved actively. The report emphasises that there is a need to shift from the slogan of "trade and no aid" to that of "aid and trade."

But the report is a let-down in that it reiterates the "aid only if good governance" dictum. It says that donor countries, which are also the main creditors of indebted poor countries, should focus on those countries that have good poverty reduction policies and good systems of governance to formulate policies. Ignoring the ground reality that often the donor countries cater to their own interests while handing aid, the report urges them to "selectively focus" on recipient nations which can match the "conditionality" of good governance in forwarding aid. It further states: "Policy conditionalities - that is, making aid and debt relief conditional on the implementation of particular policy measures - do not disappear with selectivity."

The report extensively goes into the question of the impact of globalisation on LDCs. It rejects the claim that globalisation is good for the poor and argues that international trade and the global economic system are part of the problem, not the solution. "The current form of globalisation is tightening rather than loosening the international poverty trap," the report states. As markets become more entwined, the world economy is becoming increasingly polarised and the least developed countries are being left behind. Shut out of the more lucrative markets by Western trade barriers, they are forced to depend on cash crops for survival. But the prices of their main export goods have crashed over the last two decades. Living standards in the LDCs are lower now than in the last 30 years.

THE report admits that the LDCs are being kept away from the positive effects of globalisation while being exposed to its negative aspects. It points out how closer integration of international trade and production through the penetration of large transnationals and distribution companies in the agricultural supply structures have affected adversely the developing and developed countries. It states that various asymmetries in the international system, together with global financial instability, make it difficult for the more advanced developing countries to deepen industrialisation and move up the technological ladder and thus make space for the LDCs.

As a result, by 2015, the report estimates that 307 million people, of which more than 100 million will be from the world's poorest countries, will be dragged below the basic subsistence level of a dollar a day. The report says that mere calls for poor countries to open their markets will not help them escape the poverty trap. It states: "Contrary to conventional wisdom, persistent poverty in poor countries is not due to insufficient trade liberalisation. The problem for the least developed countries is not the level of integration with the world economy but rather the form of integration. For many LDCs external trade and finance relationships are an integral part of the poverty trap".

"Widespread poverty leads to low savings, leads to low investment, leads to low productivity and low income." The number of people living in extreme poverty in the least developed countries is greater than previously thought. None of the 49 LDCs is on track to meet the poverty reduction target. The good news for Asia is that extreme poverty has been declining over the past 25 years. But it is Africa where 65 per cent of the people live on less than a dollar a day.

While previous studies relied on surveys and questionnaires that estimated household income and population samples, this report relies on per capita national data. The report says that surveys fail to enable any meaningful international comparisons of changes in poverty level. It says that estimates consistent with national accounts are based on economic data compiled by almost every country on the annual national level of private consumption. The method of calculating poverty is the same as that used in household surveys, but these estimates also take into account the average private consumption per capita. Estimates consistent with the national accounts are highly correlated with certain non-monetary indicators of poverty against the household survey-based estimates and are more readily comparable among countries, the report states.

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