Northern spider

The Global South is once again losing ground as the Global North curtails any discussion on reforming the international financial architecture.

ON April 20, a few days before the opening of the 13th United Nations Conference on Trade and Development (UNCTAD) at Doha, Qatar, its Secretary-General Dr Supachai Panitchpakdi drew a picture of the relationship between finance and development. Finance should not be the master of development, he said. Whether it be a slave of development is something else, but finance should serve development. Inside this small gesture (to invert the relationship of finance and development) lies an enormous controversy.

From the negotiating bloc that represents the Global North (Group B) has come a major push back against the idea that UNCTAD or any other global agency should or could regulate finance. In the negotiations towards a consensus document for UNCTAD XIII, the North has put up as many obstacles as possible. Its seasoned negotiators have fought to remove all reference to the financial crisis from the document and to insist that UNCTAD deal only with its core mandate. They expanded the draft text from 24,000 words to 30,000 words with issues having to do with the World Bank's favourite idea, good governance. Each paragraph had to be minutely scrutinised by the North's negotiators, slowing down the process.

On March 19, the Swiss Ambassador to UNCTAD, Luzius Wasescha, pointed out that at the rate of progress (three hours a paragraph) it would take 487.5 negotiation days to get through the draft. This was the strategy of what he called creating chaos. The United States' statement on March 19 was as cutting: The [UNCTAD] Secretariat should not pursue issues outside UNCTAD's mandate such as the reform of global financial systems. Not only does this particular issue stray far beyond UNCTAD's mandate and its expertise, it also faces strong opposition by many members namely, the U.S.

The North's position rankled former staff members of UNCTAD, who released a statement on April 10 entitled Silencing the message or the messenger.or both? The signatories once held senior UNCTAD posts, including that of Secretary-General (Rubens Ricupero). When I arrived at UNCTAD in 1995, Ricupero told Inter Press Service (IPS) news agency, there was already a conspiracy afoot by the usual suspects', the rich countries not to change the mandate as they want to now, but to simply suppress the organisation that they have never accepted since its inception. Three days later, the negotiating bloc of the South (the G77 + China) released a strong statement. Pisnau Chanvitan, the Thai head of the bloc, noted that the North had regressed to behaviour perhaps more appropriate to the founding days of UNCTAD, when countries of the North felt they could dictate and marginalise developing countries from informed decision-making.

The North's behaviour, Chanvitan noted, seems to indicate a desire for the dawn of a new neocolonialism.

It's birth and paralysis

The Geneva-based UNCTAD was formed in 1964 through the efforts of the newly created Non-Aligned Movement (NAM). Confident new states no longer wanted to be second-class citizens to the Atlantic world (the U.S. and Europe), which dominated international economic institutions such as the International Monetary Fund (IMF), the World Bank and the General Agreement on Trade and Tariffs (GATT). Unable to make space for themselves in these venues, the new states of Africa, Asia and Latin America pushed for the creation of UNCTAD. It was always a feisty organisation, advocating the interests of what would later be called the Global South against the Global North.

The 77 countries of the South formed the Group of 77 to work within the U.N. institutions, including UNCTAD and the General Assembly. They were the pressure group of the South. Now G77 consists of 131 member-countries. UNCTAD was both a forum for negotiation between the South and the North and a research unit with a sophistication that was as yet not possible in the ministries of the individual states. The high point of UNCTAD was in 1973 when the General Assembly voted in a resolution for a New International Economic Order (NIEO).

In order to counter the NIEO, the states of the Global North formed the G7 in 1974. It was set up to undermine the power of the South. The debt crisis of the 1980s sapped the South of its power and left it vulnerable to the agenda of the North. Sustained attacks on UNCTAD by the Atlantic powers since the 1980s have pushed it into a corner and made it largely irrelevant as the Atlantic world took its business into fora such as the World Trade Organisation, or WTO (1994), where it was able to rule the day.

After a contentious election that pitted New Zealand's Mike Moore against Thailand's Supachai Panitchpakdi, the WTO hierarchy decided to split the third term of the WTO head between the two. Moore ran the WTO between 1999 and 2002, following from an Italian and before him an Irish Director-General. After Moore came Supachai, who was Director-General from 2002 to 2005. During Supachai's tenure at the WTO, the Doha Development Round floundered at a Cancun meeting in 2003.

Agricultural subsidies in the North scuttled the discussion (the U.S. had a $180 billion Farm Bill to subsidise U.S. agro-business, and the Europeans refused to reform their Common Agricultural Policy). The recalcitrance of the North, as one person put it, made a mockery of the idea that the Doha round was to be a development round. The U.S. refused to budge on cotton subsidies, which condemned Africa's Cotton Four (Benin, Burkino Faso, Chad and Mali) to an acute economic crisis. We are used to hardship, disease and famine, said a member of the Cotton Four. Now the WTO is against us as well. Supachai's attempt at consensus failed. It would mark the rest of his tenure at the WTO.

By the time Supachai moved from the WTO to UNCTAD in 2005, the Doha Development Round had been on life support, and multilateral negotiations, including on the crucial issue of climate change, had been set aside in favour of a North-driven agenda. The Bush administration had an adverse attitude to multilateralism, having brushed aside the Kyoto Treaty on climate change and the Rome Statute on the International Criminal Court. An aggressive use of the U.N. Security Council on Iraq had embittered the relationship between the South and the North.

Under Supachai, UNCTAD held its 12th conference at Accra, Ghana, in 2008. Little was expected of this conference, and indeed not much was delivered. The most substantive initiative was UNCTAD's entry into the climate debate. Paragraph 100 of the Accra Accord indicated that UNCTAD should consider climate change in its work on development-related trade and investment policies.

Buried in the Accra Accord was an indication of the philosophical difference between the South and the North on state policy and development. The North preferred the market as the conductor of social affairs, while UNCTAD indicated that developing countries should pursue development strategies that are compatible with their specific conditions within the framework of an enabling State. This enabling State was to deploy its administrative and political means for the task of economic development, efficiently focussing human and financial resources.

The opportunity of the Financial Crisis

The financial crisis struck after UNCTAD XII. As the delegates left Accra and went off to digest their compromises, the toxic banking sector reared its head. UNCTAD had warned about toxic finance for about a generation, but few listened to its Cassandra-like persistence. In 2009, the North made at least two important concessions to the South in exchange for Indian and Chinese financial contributions to the IMF and other multilateral agencies: first, that the G8 would be wound up in favour of the G20 and, second, that the international financial architecture would be reformed. As confidence returned to the North, however, it has reneged on both these promises.

UNCTAD's 2011 report produced a carefully argued analysis of the power and influence of finance capital. In Chapter 5, on commodity markets, it argues that the commodity boom cannot be explained by rising demand from the BRICS (Brazil, Russia, India, China and South Africa) states. Instead, the culprit can be found among the index investors, the speculators whose commodity trades are motivated by factors totally unrelated to commodity price fundamentals. What explains the rise in commodity prices, including food and oil, is the greater presence of financial investors, who consider commodity futures as an alternative to financial assets in their portfolio management decisions. While these market participants have no interest in the physical commodity, and do not trade on the basis of fundamental supply and demand relationships, they may hold individually or as a group very large positions in commodity markets, and can thereby exert considerable influence on the functioning of these markets. There could be no development agenda without a serious consideration of financial reform.

The North, meanwhile, not only pushed to curtail any discussion on financial matters in UNCTAD XIII but also wanted to do so in the upcoming G20 meeting (Los Cabos, Mexico) and Rio + 20 summit (Rio de Janeiro, Brazil) in mid-June. These were to be restricted to the platforms firmly controlled by the North. Therefore, in the leaked draft agenda for the G20 meeting, the North wants to create a super body to oversee global trade. This body will be controlled by the WTO and the OECD (or the Organisation for Economic Cooperation and Development, the North Atlantic's forum to push market solutions to social problems). The South will have no effective role.

According to Supachai, UNCTAD XIII is to insert itself into this conversation. A day before the conference opened, he had indicated that some economists claimed that there could be no reform of a financial architecture because no such scaffolding existed. We have to invent this kind of financial architecture, he pointed out.

Such an approach is now backed by the G77 and the BRICS states. Whether the countries of the Global South will resolutely hold the line on financial reform is to be seen. Not far from Supachai was Louise Bourgeois' 30-foot-tall bronze sculpture of a spider. The North has spun its web. In the shadow of the spider, the South deliberates. There are already indications that once again the South will be willing to concede to the North.

The next issue will carry an analysis of the UNCTAD XIII conference held in Doha from April 21 to 26.