Tag: Financial Crisis

Middle-Income Country Trap? — Global Issues

  • Opinion by Jomo Kwame Sundaram (kuala lumpur, malaysia)
  • Inter Press Service

KUALA LUMPUR, Malaysia, Nov 22 (IPS) – In recent decades, failure to sustain economic progress has been blamed on a supposed middle-income country (MIC) trap. Such blaming obscures as much as it supposedly explains.

The ‘middle-income trap’ fable began as a World Bank story about why upper MICs in Latin America failed to become high-income countries (HICs) after pursuing policies required or prescribed by the Bretton Woods institutions.

Bretton Woods’ Frankenstein
The 1944 Bretton Woods rules-based international monetary system ended in August 1971 when President Richard Nixon unilaterally repudiated US obligations. This happened after the US Treasury had borrowed heavily from the rest of the world from the 1960s.

Jomo Kwame SundaramThe US government’s ‘exorbitant privilege’ of ‘spending well beyond its means’ has continued despite the resulting international monetary ‘non-system’. Continuing acceptance of the US dollar, or ‘greenback’, as the virtual world currency has enabled its Treasury to borrow internationally at low cost.

This has enabled the US to maintain massive trade and current account deficits, and a military presence in much of the world, despite its huge, but still growing fiscal and trade deficits. The US exorbitant privilege seems to have been sustained by its ‘soft power’ and unassailable military superiority.

Facing ‘stagflation’ – economic stagnation with inflation – US Fed chair Paul Volcker raised interest rates sharply from 1980. This soon killed US inflation, but also Roosevelt’s ‘New Deal’ legacy from the 1930s.

With inflation high, real interest rates seemed low despite high nominal interest rates in the developing world. With growth high in the global South in the 1970s, borrowing to sustain investments, even from abroad, remained attractive.

But US interest rate hikes soon triggered fiscal and sovereign debt crises in many countries: Poland in 1981 was followed by various Latin American, African and other developing economies.

Washington Consensus
Facing rising interest rates, many governments could no longer service accumulated debt, let alone borrow to invest more. Instead, they had to pursue contractionary monetary and fiscal policies domestically, causing economic stagnation.

With Margaret Thatcher and Ronald Reagan demanding such macroeconomic policies, the Washington-based Bretton Woods institutions soon prescribed them, ending the post-Second World War Keynesian ‘Golden Age’.

The International Monetary Fund (IMF) demanded contractionary stabilisation policies to qualify for short-term credit facilities. World Bank structural adjustment programmes (SAPs) typically required economic liberalisation and privatisation for longer-term financing.

The Bank also advocated more export-orientation and foreign investment. When paid by Japan’s government, the Bank celebrated its post-war industrial boom as a ‘miracle’, a new model for emulation. But this soon ended with its demise due to the US-demanded overvalued yen and its ill-advised financial ‘Big Bang’.

Latin American conundrum
Latin American and other vulnerable economies lost over a decade from the 1980s while African economies lost a quarter century. Low-interest official Japanese credit initially mainly went to Southeast Asia, while South Asia took on less foreign debt.

Stabilisation and SAP conditionalities undermined Latin America’s modest industrialisation, which also prevented the region from recovering strongly until the new century. But their economies had not been sufficiently liberalised for ‘neoliberals’ despite turning more to foreign trade and investment from the 1980s.

Prosperous economies became more protectionist, especially after the 2008 global financial crisis. But developing countries were told to open up even more despite shrinking export markets.

But with globalisation over, even East Asia can no longer rely on export growth. Also, it is difficult to turn away from export-oriented production, especially as earlier trade deal commitments cannot be unilaterally repudiated.

In many prosperous economies, workers captured some of their productivity gains. But the oft-heard claim that productivity increases lag behind wage rises usually serves employers. In most ‘labour-surplus’ developing countries, wages remain low.

As in South America early this century, progressive redistribution has often accelerated, rather than subverted growth. Common claims that such redistribution is bad for growth must be critically reconsidered. After all, progressive redistribution sustained growth in post-war Europe.

Breaking out of the trap
The ‘middle-income trap’ argument claims MICs cannot sustain rapid economic progress. Supposed reasons vary with policy and ideological biases, as ostensible structural, cultural, political, behavioural or governance causes typically reflect such prejudices.

Recent narratives have proclaimed the need to ‘graduate’ from secondary to tertiary economic activities. Modern services growth is supposedly needed to sustain progress to become HICs.

Another popular argument has been that progressive redistribution has subverted growth. But it is now uncontroversial that progressive redistribution was crucial for sustaining growth in post-war Europe.

Discretionary state powers have undoubtedly been abused for political patronage and self-aggrandisement. Clientelism plagues many societies, undermining needed state interventions. But we should not throw the baby out with the bathwater.

History suggests the best way to overcome the ‘middle income trap’ would be to implement appropriate investment and technology policies. Selective policies are needed to promote growth, not only of manufacturing, but also of high-end services, as well as safe, nutritious and affordable food supplies.

But all this is not going to happen spontaneously. Reforms need to be deliberately elaborated and sequenced through various interventions as part of well-designed, coherent and sustained initiatives.

IPS UN Bureau


Follow IPS News UN Bureau on Instagram

© Inter Press Service (2023) — All Rights ReservedOriginal source: Inter Press Service



Check out our Latest News and Follow us at Facebook

Original Source

Argentines Get Used to the Fact that Inflation Can Always Get Worse — Global Issues

José Lonardi stands in his tiny candy and beverage shop in downtown Buenos Aires. Customers, he says, have lost all reference points for the price of products in Argentina and so nothing surprises them anymore. CREDIT: Daniel Gutman / IPS
  • by Daniel Gutman (buenos aires)
  • Inter Press Service

BUENOS AIRES, Nov 16 (IPS) – People in Argentina have become accustomed to the fact that nothing costs the same today as it did the week before and they take price hikes in stride with resignation, says Mariano Cohen. “Almost nobody gets angry or complains anymore. They just don’t buy something if they can’t afford it,” he explains in his disposable goods store in Villa Crespo, one of Buenos Aires’ most commercial neighborhoods.

Mariano sells plastic cups, plates and bowls, cardboard packaging rolls and aluminum containers. He serves bars, restaurants and the public. He has a large sales room, about 80 square meters, and a mezzanine of the same size, which he uses as a warehouse and is a great asset for a merchant who sells non-perishable products.

The business owner tells IPS that he buys and stocks as much merchandise as he can, to anticipate price hikes.

“If I don’t have more, it’s because there’s no more coming in or because they don’t want to sell me large quantities. The other day a supplier suspended a very important delivery from one minute to the next and gave me back the money I had already paid him,” he comments, with the same gesture of resignation that, he says, his customers make when faced with the prices in his store.

The economy of this South American country, with a long history of imbalances and inflation, has entered a spiral of permanent price increases that has already squelched the capacity for amazement of its 46 million inhabitants.

In Argentina, the absurd has been normal for some time: here you can buy a pair of shoes in six installments without interest, with financing subsidized by the government or even by private banks, but to buy a house you must pay in cash, because mortgages are almost non-existent. Today, price rises are so common that people are surprised the few times that a price is the same from one week to the next.

In 2021, there was concern when inflation climbed to 50 percent per year, partly attributed to the impact of the COVID-19 pandemic, which forced an increase in currency issuance to meet social assistance needs. However, people soon became nostalgic for this figure: in 2022 the index climbed to 95 percent, the highest since 1991.

Even so, the economy of this nation – where more than 40 percent of the population is poor and practically no private sector employment has been created for the last 12 years – seems to be determined to prove that it can always get worse.

This year inflation climbed again, to an accumulative 103 percent in the first nine months alone, reaching 138 percent in the interannual index (from September 2022 to September 2023), according to official data. Projections indicate that 2023 will end with an increase in consumer prices of around 150 percent.

An employee uses a machine to count banknotes in a store in Patagonia in southern Argentina. The constant increase in prices has meant that many products must be paid for with dozens of bills of the devalued Argentine peso and has forced stores to buy counting machines to save time. CREDIT: Daniel Gutman / IPS

Emerging and drowning again

“I feel that the day I get paid my salary is the best day of the month, but also the worst,” Ariel Machado tells IPS, laughing bitterly.

“I’m happy when I get paid, but when I set aside the money for fixed expenses and calculate how much I’ll have left, I feel like I’m drowning again,” says Ariel, who has a son and is separated from his wife, and who is employed by a well-known public relations agency in Buenos Aires and also sells selected wines over the Internet to supplement his income.

A typical member of the strong middle class of Buenos Aires, used to going on vacation to the beaches of Brazil and dining in restaurants a couple of times a week, Ariel says that those things are now just memories and that today he sometimes feels like he’s spinning “on a wheel of unhappiness, because of the amount of things I want to do and can’t.”

He tries to forget about it, but doesn’t succeed. “Worrying about money consumes a lot of energy. Three years ago I couldn’t save either, but this didn’t happen to me. Now there are days when even having a cup of coffee outside the office seems like a wasteful luxury,” he says.

By his own admission, Ariel is not even remotely among the most vulnerable segments of the population, who spend practically all their income on food, prices of which have been rising more than average.

Latin America’s third largest economy is immersed in a process of stagnation and deterioration that began in 2012 and caused the governing parties to lose the last two presidential elections, in 2015 and 2019.

On Sunday Nov. 19, the next president will be chosen in a runoff election in which the ruling party’s centrist candidate Sergio Massa will compete against the far-right opposition candidate Javier Milei.

Only the extravagant proposals of Milei, who calls for the free carrying of arms and the creation of a market for the sale of organs, in addition to immediate dollarization and the elimination of the local peso from the Central Bank, have made Massa, who since 2022 is the Minister of Economy, competitive.

Elections always generate even more instability in the economy and situations that are difficult for visitors to understand.

Those who can afford to do so stock up on items in anticipation of what will happen to prices and consumption after the elections.

Thus, September, the month prior to the first round of elections, showed a strong increase in consumption in supermarkets (eight percent above the previous month, according to private sector data), comparable only to March 2020, when the pandemic confinement began.

In any case, the impact of inflation on the poorest is especially visible in the outskirts of the capital. Greater Buenos Aires is home to 15.5 million people, or one third of Argentina’s population, where more and more people sleep on the streets or wander around in search of something to eat.

The poor suffer from a decline that is measured not only in terms of income but also with respect to access to basic services and to environmental conditions.

A paper published in October by the Argentine Catholic University’s (UCA) well-respected Observatory of Social Debt found that since 2018 a process of reduction of the inequality gap began in Greater Buenos Aires, but due to the worsening living conditions of the middle class rather than to improvements in households in the most impoverished neighborhoods.

Members of these vulnerable sectors of Buenos Aires told IPS that the escalation of inflation is more a problem of the middle class people living in the city, who have to lower their standard of living and who are becoming poorer, while in their case “we were and are so bad off that a jump in inflation of 100 to 150 percent does not change anything for us.”

In addition, part of the poorest population of Buenos Aires and its outlying areas receives social assistance from the central or city governments, or from non-governmental organizations.

A supermarket in Buenos Aires displays a sign from the “Fair Prices” program, which consists of an agreement between the Argentine government and companies to curb the prices of basic products. People frequently complain that the products are often not available, due to the reluctance of the companies to comply with this commitment. CREDIT: Daniel Gutman / IPS

No reference point

José Lonardi owns a tiny shop selling candy, beverages and cigarettes on Paraguay Street, a few blocks from the Obelisk, an icon of downtown Buenos Aires. The prices of the merchandise, he tells IPS, increase almost every week, sometimes by three to five percent, and sometimes by 20 to 30 percent.

“Two or three years ago, customers still complained when prices went up, because they had some point of reference. Today, inflation has picked up so fast that nobody knows how much things are worth and nobody says anything anymore,” he remarks.

Against this backdrop, contradictory advice is rampant. The value of pesos is melting like ice cream under the sun and people want to get rid of them. On afternoon TV programs, a steady parade of economists advise people to buy large quantities of toilet paper to beat inflation.

Many people, however, do not pay attention to them: in different neighborhoods of Buenos Aires restaurants are always full, even on weekdays. “In the Argentine economy nobody knows what might happen next week. So pesos are burning holes in people’s pockets, and people, as long as they have them, spend them,” says José.

© Inter Press Service (2023) — All Rights ReservedOriginal source: Inter Press Service

Check out our Latest News and Follow us at Facebook

Original Source

Unpalatable Choices in Election Plagued with Uncertainty — Global Issues

Credit: Tomás Cuesta/Getty Images
  • Opinion by Ines M Pousadela (montevideo, uruguay)
  • Inter Press Service

MONTEVIDEO, Uruguay, Nov 03 (IPS) – For many of Argentina’s voters the choice in the 19 November presidential runoff is between the lesser of two evils: Sergio Massa, economy minister of a government that’s presiding over a once-in-a-generation economic meltdown with a whopping 140-per cent inflation rate, or Javier Milei, a far-right libertarian who admires Donald Trump, wants to shut down the Central Bank and wields a chainsaw in public as a symbol of his willingness to slash the state. Many will rue that it ever came to this.

A peculiar outsider

A post-modern media celebrity, Milei’s performance style is a perfect fit for social media. He’s easily angered, reacts violently and insults copiously. He’s unapologetically sexist and mocks identity politics.

Milei bangs the drum for ‘anarcho-capitalism’, an ultra-individualistic ideology in which the market has absolute pre-eminence: earlier this year, he described the sale of human organs as ‘just another market’.

To expand his appeal beyond this extreme economic niche he forged an alliance with the culturally conservative right. His running mate, Victoria Villarruel, represents the backlash against abortion – legalised after decades of civil society campaigning in 2020 – and sexual diversity and gender equality policies, along with reappraisal of the murderous military dictatorship that ruled Argentina between 1976 and 1983.

In the run-up to primary elections in August, the two mainstream coalitions – the centre-left incumbent Union for the Homeland (UP) and the centre-right opposition Together for Change (JxC) – displayed a notable lack of leadership and indulged in internal squabbles that showed very little empathy for people’s daily struggles. All they had to offer in the face of widespread concerns about inflation and insecurity were the candidacies of the current minister of the economy and a former minister of security. They made it easy for Milei to hold them responsible for decades of corruption, ineffectiveness and failure.

In Milei’s discourse, the hardworking, productive majority is being bled dry by taxation to maintain the privileges of a parasitic and corrupt political ‘caste’. His proposal is deceptively simple: shrink the state to a minimum to destroy the caste that lives off it, clearing their way for individual progress.

Milei gained traction among young voters, particularly young men, via TikTok. He found fertile ground among a generation that no longer expect to be better off than their parents. While many of his followers concede that his ideas may be a little crazy, they appear to be willing to take the risk of embracing the unknown on the basis that the really crazy plan would be to allow those long in control to retain their power and expect things to turn out differently. Milei has capitalised on the despair, hopelessness and accumulated anger so many rightfully feel.

Surprise after surprise

The first surprise came on 13 August, when Milei won the most votes of any candidate in the primaries.

Milei only entered politics in 2021, when the 17 per cent vote he amassed in the capital, Buenos Aires, sent him and two other libertarians to the National Congress. In the 2023 primaries he went much further, winning 30 per cent of the vote. He placed ahead of JxC, whose two candidates received a joint 28 per cent, and UP, the current incarnation of the Peronist Party, which took 27 per cent. The bulk of the UP vote, 21 per cent, went to Massa. That Peronism, once the dominant force, came third was a historic first.

The second surprise came on 22 October. Following the primaries, all talk was of Milei winning the presidency. He trumpeted his intent to win the first round outright. Measured against these expectations, his second place looks like an underperformance. But the fact that a candidate who wasn’t on the radar before the primaries has made the runoff shows how quickly the political landscape can shift.

In the October vote Milei took almost the exact share he’d received in the primaries. Massa finished above him with almost 37 per cent, displacing JxC, which lost four points on its second-place performance in the primaries.

The fact that the economy minister was able to distance himself from the government he’s part of – one often described as the worst in 40 years – to come first was viewed as a notable victory, even though his share was just about the lowest Peronism has ever received.

One explanation for Massa’s improved performance was turnout, which increased by eight points to almost 78 per cent – still low for a country with compulsory voting, but enough to make a difference. Much of the increase could be credited to the political machinery that mobilised voters on election day, aided by the minister-candidate pulling as many levers as he could to improve his chances. This included putting lots of instant cash into voters’ pockets, including through tax breaks benefiting targeted groups of workers and consumers.

An unpalatable decision

There’s still much uncertainty ahead. Economic failure is Milei’s best propaganda, so much will depend on how the economy behaves over the next couple of weeks. Milei and the destruction he represents can’t be written off.

Neither those currently in power nor those in the mainstream opposition recognise the obvious: Milei is their fault. They’ve held power for the best part of the past 40 years without effectively tackling any of the issues that concern people the most.

Many voters now feel they face an unpalatable choice between a corrupt and failing government and a dangerous disruptor. They fear that if they choose to keep Milei out, their votes may be misinterpreted as a show of active support for a continuity they also reject. What’s at stake here is more than one election. If Milei is kept at bay, the political dynamics leading to the current economic dysfunction will still need to be addressed – or the far-right threat to democracy won’t end with Milei.

Inés M. Pousadela is CIVICUS Senior Research Specialist, co-director and writer for CIVICUS Lens and co-author of the State of Civil Society Report.

© Inter Press Service (2023) — All Rights ReservedOriginal source: Inter Press Service

Check out our Latest News and Follow us at Facebook

Original Source

Migration Puts the Brakes on Venezuela’s Vehicles — Global Issues

On residential streets of Caracas with little traffic it is possible to see cars that have been abandoned by their owners for years. They probably migrated from Venezuela or cannot afford to repair and sell their vehicles. CREDIT: Humberto Márquez / IPS
  • by Humberto Marquez (caracas)
  • Inter Press Service

CARACAS, Oct 23 (IPS) – Diego has just enrolled to study journalism at a university in the Venezuelan capital and, with 2,000 dollars that his family members managed to gather, has bought his first car, a small 2007 Ford that can take him to class from his home in the neighboring Caribbean port city of La Guaira.

Tomás, an experienced physiotherapist who sold Diego the car, is leaving for Spain where a job awaits him without delay, “so I’m quickly selling off things that will give me money to settle there, such as furniture, household goods and appliances, but for now I sold only one of my two cars,” he told IPS.

“This Ford Fiesta was my first car, I loved it very much, but it doesn’t make sense for me to hold on to two vehicles. I’m keeping a 2011 pickup truck that is in good condition, just in case I don’t do well and I have to return,” added the professional who, like other sources who spoke to IPS, asked not to disclose his last name “for safety reasons.”

The migration of almost eight million Venezuelans in the last 10 years, and the general impoverishment of the population, have led to the deterioration of what was once a shiny fleet of vehicles, with one out of every four vehicles left standing now due to lack of maintenance and leaving much of the rest aging and on the way to the junkyards.

In the basements of parking lots, and in the streets of towns and cities, thousands and thousands of vehicles are permanently parked under layers of dust and oblivion, because their owners have left or because they do not have the money to buy spare parts and pay the costs of repairs.

Along the streets of any Venezuelan city can be seen old rundown vehicles with no sign that the necessary repairs will be made. The impoverishment of the population is at the root of this decline. CREDIT: RrSs

Aging vehicle fleet

Omar Bautista, president of the Chamber of Venezuelan Automotive Manufacturers, told IPS that “the vehicle fleet in Venezuela – a country that now has 28 million inhabitants – is about 4.1 million vehicles, with an average age of 22 years, and 25 percent of them are out of service.”

“The loss of purchasing power of the owners has caused most of them to delay the maintenance of their vehicles and the replacement of the spare parts that suffer wear and tear, such as tires, brakes, shock absorbers and oil,” Bautista said.

Moreover, in contrast to the immense oil wealth in its subsoil, gasoline in Venezuela is scarce and, after more than half a century being the cheapest in the world, it is now sold at half a dollar per liter, a cost difficult to afford for most owners of private vehicles or public transportation.

The country needs some 300,000 barrels of fuel per day and for several years it has had less than 160,000 barrels, according to oil economist Rafael Quiroz, who added that interruptions in the work of Venezuela’s refineries are frequent.

There is almost no residential building that does not have at least one vehicle in storage waiting for its owners to return from abroad. They are part of the 1.5 million vehicles that are permanently parked in the country. CREDIT: Humberto Márquez / IPS

Not enough money

The minimum wage in Venezuela is four dollars a month. Most workers receive up to 50 dollars in non-wage compensation for food, and the average income according to consulting firms is around 130 dollars a month.

Luisa Hernández, a retired teacher, earns a little more giving private English classes, but “the situation at home is very difficult. I can’t afford to pay for the repair of my Toyota Corolla, but a mechanic friend agreed to do the work, and I can pay him in installments,” she told IPS.

Mechanics have their finger on the pulse of the situation. “People leave and the cars often sit idle for years, and then the owners end up selling them, from abroad. Quite a few of those I have gone to pick up and have fixed them, to sell them,” Daniel, who runs a garage in the capital’s middle-class east side, told IPS.

He said that “many people do not sell their cars before leaving the country, thinking that they’re just going abroad to ‘see how it goes’. But they stay there and then decide to sell their vehicle before it further deteriorates and depreciates.”

Another mechanic, Eduardo González, told IPS that “There are people who go away and leave their cars in storage and from abroad they contact us so that from time to time we can check them and do some maintenance. Or they entrust their vehicle to a relative. There are people who travel and come back, but most of them end up selling.”

This situation “has favored buyers, who can get cars at a low price. But the problems come later, because that very used car will require spare parts and maintenance, and that is expensive and often the parts are difficult to get,” added González.

The same difficulty is also a concern for owners of cabs, buses and private vans that transport passengers, as well as cargo trucks.

“At least half of the truck fleet in the region is affected by the shortage and scarcity of spare parts,” said Jonathan Durrelle, president of the Chamber of Cargo Transportation of Carabobo, an industrial state in the center of the country.

Large and small buses for passenger transport in Venezuelan cities, including Caracas, as well as cargo vehicles, also suffer from the lack of sufficient revenue, as well as spare parts, to keep them in proper working condition. CREDIT: Humberto Márquez / IPS

Industries have closed down

Elías Besis, from the Chamber of Spare Parts Importers, attributed this to the closure of companies that “years ago manufactured 62 percent of the spare parts needed in the country, and now that production has plunged to two percent.”

Thousands of manufacturing companies closed down in Venezuela during the eight years (2013-2020) in which the country was in deep recession, suffering a loss of four-fifths of its GDP according to economic consulting firms.

Financial and banking activity has also declined, as has the vehicle loan portfolio, which peaked at 2.3 billion dollars in 2008 and plummeted to just 227,000 dollars by late 2022, according to economist Manuel Sutherland.

Vehicle assembly plants, of which there were a dozen until recently, also closed their doors. In addition to selling to hundreds of dealerships, they used to export vehicles to the Andean and Caribbean markets.

Their production peaks were recorded in 1978, with 182,000 new vehicles – Venezuela then had 14 million inhabitants and 2.5 million vehicles – and in 2007, when 172,000 cars were assembled.

In 2022 only 75 vehicles – trucks and buses – were assembled, and in the first six months of this year just 22.

Newer vans and cars drive through middle and upper class neighborhoods, but are part of the “bubble,” the small segment of the population less impacted by the deep economic crisis that Venezuela has suffered over the last decade. CREDIT: Motorpasión

Farewell to the bonanza

The result of this scenario is the aging and non-renewal of the vehicles circulating on Venezuela’s roads.

The new ones, Daniel pointed out, “are SUVs, crossovers and off-road vehicles that cost a lot of money and can only be bought by those who live in the bubble,” the term popularly used to refer to the segment of high-level officials and businesspersons whose finances are still booming in the midst of the crisis.

In addition, in view of the almost total closure of automotive plants, individuals are opting to import new vehicles directly from the United States, favored by the elimination of tariffs for the importation of most models.

For that reason, said Bautista, “there is no shortage of new vehicles, what there is is a shortage of consumers with the necessary purchasing power and conditions to buy new vehicles.”

These consumers were part of the hard-hit middle class – nine out of 10 families in that socioeconomic category had fallen below the middle class by 2020 according to the consulting firm Anova – and they no longer buy new or newer cars because they have swelled the legion of migrants, selling or leaving behind their main assets.

Since the days of the oil boom (1950-1980), Venezuelans developed a sort of sentimental relationship with their vehicles, associating them with comfort and enjoyment that favored cheap gasoline and a network of paved roads that made it easier to travel to places of recreation.

In middle class and even lower middle class families, it was quite common to change cars every two years and to give one to their children when they turned 18. They were helped by credit facilities, and were encouraged to buy cars in cities where public transportation has always fallen short.

They have had to say goodbye to their easy past on wheels, like migrants have said farewell to their country and homeland. Or at least “see you later”.

© Inter Press Service (2023) — All Rights ReservedOriginal source: Inter Press Service

Check out our Latest News and Follow us at Facebook

Original Source

Political Volatility under Cost-of-Living Crisis — Global Issues

Credit: Fiona Goodall/Getty Images
  • Opinion by Andrew Firmin (london)
  • Inter Press Service

LONDON, Oct 20 (IPS) – It’s a rapid reversal for New Zealand’s Labour Party, in power for six years. At the last election in 2020 it won an outright majority, the first party to do so under the current voting system. But three years on, it’s finished a distant second in the election held on 14 October. The result speaks to a broader pattern seen amid economic strife in many countries – of intense political volatility and the rejection of incumbents.

Jacindamania fades

Former Labour leader Jacinda Ardern captured the public imagination when she took the helm of her party in August 2017. Labour had been floundering but went on to gain seats at the election the following month, unexpectedly forming a coalition government.

Aged 37, Ardern was her country’s youngest-ever prime minister by some margin, and the world’s youngest female government leader. Many saw her as a breath of fresh air, offering an approachable and empathetic brand of politics. Ardern enjoyed an international profile unprecedented for a New Zealand prime minister.

The 2020 election saw Ardern and her party rewarded for what was widely seen as an effective pandemic response, credited with saving around 20,000 lives. The opportunity seemed on to pursue an ambitious agenda. The government could point to progress in decriminalising abortion, tightening gun control laws and introducing stronger workplace rights. But many saw the government as having an overcrowded legislative agenda, failing to make headway on headline policies such as child poverty, while voters increasingly became preoccupied with high inflation.

Ardern announced her resignation in January 2023. Her popularity and that of her party had declined amid the soaring cost of living, which some blamed on long pandemic lockdowns.

Ardern had been the target of a bombardment of online abuse, much of it vilely misogynist in nature. Last year New Zealand police reported that threats against Ardern had almost tripled over two years, as anti-vaccine disinformation and conspiracy theories accumulated extremist adherents. In 2022, anti-vaccine protesters camped for weeks outside parliament. The protests, which ended in violence, were a magnet for far-right extremists. Levels of vitriol previously unseen in New Zealand were again present during the election campaign, in which women and M?ori candidates in particular were subjected to intimidation and instances of violence.

Ardern’s replacement as prime minister, Chris Hipkins, promised to focus on bread-and-butter issues. He cut many progressive policies and pitched squarely for the centre. But his strategy failed. Labour was the only major party to shed votes. It lost support to the centre-right National Party – New Zealand’s other party of government – along with the right-wing Act and the nationalist and populist NZ First. But it also shed more progressive voters, with the Green party and Te P?ti M?ori, which advocates for Indigenous rights, picking up support.

Fractious coalition ahead

Quite what government will form isn’t yet clear. Results are provisional and won’t be finalised until 3 November, with over half a million ‘special votes’ still to be counted – many from New Zealanders living overseas. Due to the death of a candidate a by-election will also be held.

The National party has 50 seats in the 121-seat single-chamber parliament; the workings of the electoral system mean parliament will expand to 122 seats once all votes are counted. This total means it’s clear the National party will head a coalition government, with Christopher Luxon as prime minister. But a National-Act alliance might not be enough to command a majority. NZ First may need to be part of the coalition too.

NZ First is the creation of maverick opportunist Winston Peters. Over the course of a long career, Peters has pulled off the trick of positioning as anti-establishment while working with both main parties in coalition governments, including Ardern’s first administration, and serving as deputy prime minister twice. This time he was able to capitalise on anti-government sentiment developed under the pandemic, including by opposing vaccine mandates.

Among his campaign targets were M?ori rights, with Peters – himself M?ori – pledging to withdraw support for the United Nations Declaration on the Rights of Indigenous Peoples. Another focus was trans rights, tapping into the same currents of manufactured outrage seen in Europe and North America, with a law proposed to restrict access to toilets for transgender people.

The numbers may mean that the National party finds it easier to govern with Peters than without, even though the three parties disagree on key policies, including on the economy and housing. It could be a rocky road ahead.

Advances reversed?

For New Zealand’s civil society, the question could now become how best to defend gains made and keep on the agenda vital issues such as climate change. The climate crisis was barely mentioned during the campaign even though the country is experiencing extreme weather along with the rest of Oceania. Hipkins scrapped a series of transport reforms intended to cut greenhouse gas emissions. Act, certain to be part of government, wants to get rid of New Zealand’s Climate Change Commission and Zero Carbon Act, which mandates an emissions reduction plan and cap.

The last government’s experiments in ‘co-governance’ – essentially collaborative management, mostly of environmental resources, between government and M?ori representatives, based in New Zealand’s foundational Treaty of Waitangi – seem sure to end. All parties likely to be involved in the new government attacked these moves with a flurry of hyperbolic claims. Act and NZ First characterise efforts to challenge the exclusion of M?ori people as privileging them over other population groups. The danger is that those strongly opposed to M?ori rights will feel emboldened, signalling increasing division and polarisation ahead.

New Zealand offers a lesson on the political consequences of the impacts of the pandemic and the cost-of-living crisis intensified by Russia’s war on Ukraine. In just three years, overwhelming political support evaporated. Progress may be temporary and subject to rapid reversal. Civil society must be able to switch strategies just as quickly, from advocating for more to defending gains already made.

Andrew Firmin is CIVICUS Editor-in-Chief, co-director and writer for CIVICUS Lens and co-author of the State of Civil Society Report.

© Inter Press Service (2023) — All Rights ReservedOriginal source: Inter Press Service

Check out our Latest News and Follow us at Facebook

Original Source

Seniors Thriving Through Plastic Waste in Zimbabwe — Global Issues

Tabeth Gowere (76) makes extra cash from weaving plastic waste. A group of seniors started weaving plastic out of a need to improve the environment and make some extra cash. Credit: Jeffrey Moyo/IPS
  • by Jeffrey Moyo (harare)
  • Inter Press Service

HARARE, Oct 20 (IPS) – They do not have a pension nor financial support from families or relatives, but they have themselves. Now they have become collectors of plastic waste, which they turn into products as they battle for survival – earning money from the growing plastic pollution in Zimbabwe.

Such are the lives of the country’s senior citizens, like 76-year-old Tabeth Gowere and 81-year-old Elizabeth Makufa, both hailing from Harare’s Glenora high-density suburb, where they become famous as plastic waste collectors.

Gowere and Makufa, thanks to plastic waste, now care for themselves financially despite their old age, so they said.

“At first, we saw plastic waste just being flown around by the wind, and we started to pick these, cleaning the environment, burning it, but later realized we could make something out of these plastics and earn money.  So, using plastic waste, we started weaving different things, including mats to decorate sofas. Many people were impressed by our work, and they started placing orders for the plastic products we were making,” Gowere told IPS.

Makufa, like Gowere, has also seen gold in the dumped plastic waste.

“We say this is waste, but from it, we find something that is helping us to sustain us in life. I make 30 US dollars daily at times from selling the products I make from plastic waste, which means at least I get something to survive,” Makufa told IPS.

The young are learning from the lessons from the senior plastic waste entrepreneurs – like 40-year-old Michelle Gowere.

“Weaving things using plastics is a skill I learned from my mother-in-law, Mrs Gowere. We spend time together daily, and because of this, I ended up learning the skill from her; this is helping me to, at least, help my children with food to carry in their lunch boxes when they go to school,” Michelle told IPS.

To Michelle’s mother-in-law and many others, the environment has been the secondary beneficiary of the geriatrics’ initiative collecting plastic waste.

“You would see that in our area, waste collectors from the council rarely come to empty the refuse bins. So, as we use plastic waste to make our products, we are making our environment clean,” Michelle told IPS.

Zimbabwe Environmental Management Agency (EMA) about 1.65 million tonnes of waste are produced annually in Zimbabwe, with plastic making up 18 percent of that.

However, Makufa says it was not the love of money that swayed them into getting into plastic waste but improving the environment.

“It was not because we lacked money that we turned to collecting plastic waste, but we copied some people who were doing it, and we started doing the same. We thought of removing plastic waste from our environment, and we told ourselves if we could take those plastics and weave them together, we could have impressive products that we could sell and earn some money,” Makufa told IPS.

As the group of elderly people are making a difference in collectively fighting plastic waste, the local authorities welcome their contribution but add that it is everybody’s responsibility to care for the environment.

“The job of caring for the environment is not a responsibility of the council alone. In fact, it is the duty of everyone to make sure where they live there is cleanliness. As a council, we thank people who are beginning to realize that there is money in plastic waste. It’s not every waste that should be dumped; there is what we call recycling, and some people make money from it, but the duty to take care of our surroundings is not a prerogative of the council, but ordinary people as well,” Innocent Ruwende, Harare City Council spokesperson, told IPS.

Priscilla Gavi, director of Help Age Zimbabwe, a non-governmental organization mandated to take care of the elderly’s needs, says the elderly, too, are critical in the fight against plastic waste.

“Old age does not make someone incapable of supporting their families and taking care of themselves. It doesn’t stop the aged from working for their country. In fact, old age gives people opportunities to use skills gained during their prime ages, and they, for instance, make use of plastics, producing different things for sale from plastic waste as they also rid the environment of the plastic waste,” Gavi told IPS.

Yet for many like Makufa, collecting plastic waste has also turned out to be therapeutic in addition to being an economic venture.

“These things that we make with our own hands using plastic waste help us to rest from mental stress owing to problems we have these days that strain us psychologically. So, this helps us to be always occupied and refrain from overthinking about things we don’t have control over,” said Makufa.

According to the Environmental Management Agency (EMA), an estimated 1.65 million tonnes of waste are produced annually in Zimbabwe, with plastic making up to 18 percent of that.

Gowere and Makufa and other elderly recyclers and plastic entrepreneurs have drawn the admiration of organizations like EMA.

“This is a commendable initiative that is promoting upcycling of waste and upscaling recycling as a business. This reduces the amount of waste that ends up in landfills and the environment. Plastic waste takes hundreds of years to decompose, and it releases harmful toxins into the environment when burned,” Amkela Sidange, spokesperson for EMA, told IPS.

IPS UN Bureau Report


Follow IPS News UN Bureau on Instagram

© Inter Press Service (2023) — All Rights ReservedOriginal source: Inter Press Service



Check out our Latest News and Follow us at Facebook

Original Source

Faced with Crushing Debts, Worlds Poorest Nations to Slash Public Spending by Over 229 Billion Dollars — Global Issues

  • by Thalif Deen (united nations)
  • Inter Press Service

UNITED NATIONS, Oct 09 (IPS) – The World Bank and the International Monetary Fund (IMF) are returning to Africa, for the first time in decades, with the “same old failed message”.

“Cut your spending, sack public service workers, and pay your debts– despite the huge human costs” says Oxfam International’s interim Executive Director Amitabh Behar, following the release of new Oxfam report.

“They must show they can genuinely change to reverse the tide of widening inequality within and between countries,” he said.

The two Washington-based international financial institutions (IFIs) are holding their annual meetings October 9-15, this time in Marrakesh, Morocco, in north Africa.

In a new analysis released October 9, Oxfam says more than half (57 percent) of the world’s poorest countries, home to 2.4 billion people, are having to cut public spending by a combined $229 billion over the next five years.

On current terms, low- and lower-middle income countries will be forced to pay nearly half a billion dollars every day in interest and debt repayments between now and 2029. Entire countries are facing bankruptcy, with the poorest countries now spending four times more repaying debts to rich creditors than on healthcare.

“The World Bank says we are likely seeing the biggest increase in global inequality and poverty since World War 2, yet the Bank has no clear goal to reduce inequality.,” Behar said.

For its part, the IMF claims to mitigate the worst effects of its austerity-driven loan programs through ‘social spending floors’ that ring-fence government spending on public services.

Credit: Glasgow Actions Team

However, Oxfam’s analysis of 27 loan programs negotiated with low- and middle-income countries since 2020 found that these floors are a smokescreen for more austerity: for every $1 the IMF encouraged governments to spend on public services, it has told them to cut six times more than that through austerity measures.

“The IMF is forcing poorer countries into a starvation diet of spending cuts, driving up inequality and suffering,” said Behar.

Anuradha Mittal, Executive Director of the Oakland Institute, told IPS Oxfam’s report demonstrates the urgent need for governments in the Global South to prioritize raising taxes on the wealthiest to ensure the financing of healthy economies, the provision of basic essential services to the population, and decisive action on climate.

“Instead, the World Bank and the IMF are orchestrating yet once again an ill-driven race to the bottom that favors wealth accumulation while punishing the poor and most vulnerable and making economies less and less sustainable,” she said.

Looking at the debt and climate crisis, the only sensible move is for coordinated global action to tax wealth and financial flows, Mittal declared

Meanwhile, the Glasgow Actions Team (GAT) formed around the UN Climate Conference in 2021 in Glasgow, said it is committed to pushing the world’s climate champions to go farther, calling out the blockers, and exposing the deniers.

“It’s all eyes on (the new World Bank President) Ajay Banga and Marrakesh,” said Andrew Nazdin, Director of the Glasgow Actions Team.

“We applaud President Banga’s words on transforming the Bank into a powerful force for good. Now’s his chance for those words to become actions, which start with phasing out fossil fuel funding and issuing debt relief.”

“As a Tunisian activist from the Global South, at the forefront of those affected by the policies of financial funds and the least responsible for climate change, I am here to express my anger at what is happening and protest to achieve justice,” said Raouf Ben Mohamed of Debt for Climate.

Meanwhile, going into these annual meetings, Oxfam said, two big issues are at the forefront: the debt crisis and the urgent need to generate more resources for sustainable development, climate adaptation and tackling poverty in low- and middle-income countries.

However, the solutions being discussed by the World Bank, IMF and their biggest shareholders are only going to turn the vicious circle into a vortex.

“Rather than cancelling unpayable debts, rich countries want to use the Annual Meetings to fiddle with the Bank’s balance sheet to squeeze out money for yet more loans,” said Behar.

“In the next room, poorer countries are still being told to slash spending on public services and social programs critical to fighting poverty, reducing inequality, and realizing the rights of women and girls. Their answer to the debt crisis is more austerity, and their answer to the financing gulf is more loans. True win-wins, like fairly taxing the rich, are being left on the table.” He pointed out.

While people living in poverty bear the brunt of public spending cuts and the cost-of-living crisis, the wealthy are thriving. In the Middle East and North Africa, where the annual meetings are taking place:

  • The richest 0.05 percent saw their wealth surge by 75 percent from $1.7 trillion in 2019 to nearly $3 trillion by the end of 2022. The region’s 23 billionaires have accumulated more wealth in the last three years than in the entire decade that preceded them.
  • A five percent wealth tax on fortunes over $5 million would allow Egypt to double its spending on healthcare, Jordan to double its education budget and Lebanon to increase its spending on both healthcare and education seven times over. Morocco alone could raise $1.22 billion at a time it is facing an $11.7 billion repair bill from the recent devastating earthquake there.

“Austerity is an ideological fiction that has wrought incalculable damage,” said Behar.

“Who will deliver babies and save lives later when nurses and doctors in public hospitals lose their jobs now? “

“The IMF and the World Bank must enable governments to pursue economic policies that redistribute income and invest in public goods to dramatically reduce the chasm between the rich and the rest.”

Footnote:

In 2021, low- and middle-income countries spent 27.5 percent of their budgets on debt service, which was twice their education spending, four times health spending and nearly 12 times social protection spending.

Link to Oxfam’s report “The MENA Gap: Prosperity for the Rich, Austerity for the Rest” and methodology note.

In July, more than 230 economists and inequality leaders, including Joseph Stiglitz, Jayati Ghosh, Thomas Piketty and four former World Bank Chief Economists, wrote to new World Bank President Ajay Banga, to adopt new goals and indicators to redouble efforts to address rising inequality.

IPS UN Bureau Report


Follow IPS News UN Bureau on Instagram

© Inter Press Service (2023) — All Rights ReservedOriginal source: Inter Press Service



Check out our Latest News and Follow us at Facebook

Original Source

Debt-Pushing as Financial Inclusion — Global Issues

  • Opinion by Jomo Kwame Sundaram (kuala lumpur, malaysia)
  • Inter Press Service

KUALA LUMPUR, Malaysia, Oct 04 (IPS) – Ajay Banga was anointed World Bank president for promoting financial inclusion. Thanks to its success and interest rate hikes, more poor people are drowning in debt as consumer prices rise.

Meritocratic leadership?

Since the International Monetary Fund (IMF) and World Bank were set up by the United Nations Conference at Bretton Woods in 1944, the US president’s nominee has been automatically appointed Bank president. By convention then, the Bank president is a US citizen, while the IMF head is European.

Jomo Kwame Sundaram

The official IMF historian noted US authorities believed “the Bank would have to be headed by a US citizen in order to win the confidence of the banking community, and that it would be impracticable to appoint US citizens to head both the Bank and the Fund.”

Banga went to the World Bank in Washington, DC from the business world. He had spent his entire career in transnational corporations, moving from Nestlé in India to Citigroup’s microfinance division, and then Mastercard. In 2020, he became chair of the International Chamber of Commerce, founded in 1919.

For over a decade, he was chief executive officer (CEO) of Mastercard, which he denies is a credit card company. He gave shareholders a cumulative total return of 1,581% – almost five times the S&P500 market average! By 2020, it was the 21st most valuable corporation in the world, having risen from 256th when he took over.

Like most US appointees to head the Bank, Banga had no experience or earlier interest in development finance. Now, he is obliged to pursue US interests and agendas. He has already announced he will rely on the private sector for funds and ideas.

South African laboratory

Long the world’s most unequal society, South Africa (SA) became a laboratory for financial experimentation from the 1990s, from commercial microcredit to mass collateralization of welfare payments.

Leading microcredit authority Milford Bateman has shown how the SA microcredit business enriched a small white elite while economically dividing and undermining poor urban and rural black communities.

In the 1990s, male senior managers of SA financial institutions abused ‘seniority’ for their own private short-term financial gains to defraud customers, shareholders, governments and the general public.

Usurious debt promotionBateman, Patrick Bond, Lena Lavinas and Erin Torkelson have shown how Banga’s SA ‘financial inclusion’ initiative involved ‘predatory financing’. As CEO, he mobilized MasterCard to promote and profit from it.

Over a decade ago, Banga pioneered a major ‘fintech’ (financial technology) partnership with Net1, a data services firm in SA. Later, in 2016, the World Bank Group’s International Finance Corporation (IFC) bought 22%, its single largest share.

The IFC bought into Net1 to extend ‘tested’ financial services to the poor. Although Net1 was already known to be very problematic, the IFC was keen to promote private fintech platforms regardless of their consequences for the poor.

Of SA’s 60 million people, over 40% receive small monthly grants for unemployment relief, child support, retirement pensions and disability. With Mastercard’s ‘cashless’ electronic payment services appreciated for convenience and efficiency, Banga admitted, “If these guys use their card, I’m going to make money”.

Once card expenses exceed grant income, Net1 charges ‘service fees’, including a usurious 5% monthly interest rate! By 2015-17, it was earning more from financial inclusion than from distributing government grants. Thus, Net1’s shadow banking system remained unregulated.

Net1 lost its contract after bad publicity about its actual impact on the SA poor. Later, it was found to be sabotaging the state-owned post office (PO) asked to take over. Long under-funded and struggling to manage, the SAPO may soon lose the contract to another private fintech provider.

Welfare payments as debt collateral

While its digital payment services delivered monthly payments to all welfare recipients, these transfer streams effectively guaranteed credit extended. Thus, despite usurious credit terms, it faced little risk of default.

This de-risking strategy turned government welfare benefit payment commitments into debt collateral. Thus, regular cash transfers monetizing poverty relief and mitigating deprivation also served to service usurious debt.

Despite dubious evidence, World Bank staff claimed billions would escape poverty through greater access to digitalized microfinance services – small loans, savings opportunities, money transfer payments and technology, debit orders, etc. – run by ‘profit-seeking’ fintech platforms.

Much better access to such services had been enabled over a decade earlier by endorsing and celebrating microfinance and increasingly widespread credit/debit card access. But even ex-cheerleaders now agree microfinance has not reduced poverty.

Previously celebrated early fintech platforms have become quite problematic, and are now widely seen as exploitive of users. Even the Paypal CEO admits financial inclusion is essentially a buzzword for incorporating more into the financial system.

Innovation for exploitation

Two ostensible development programmes – cash transfers and financial inclusion – were very profitably integrated by Banga in SA. The public-private partnership between the government cash transfer programme and the private fintech payment-cum-credit services has become a usurious techno-financial monopoly.

Cash transfers and other services are increasingly delivered using financial inclusion technologies. With such technologies disbursing cash transfers, government-funded poverty relief programmes have been used to expand such credit facilities.

This link has enabled offering credit to cash transferees. As Erin Torkelson has shown, the Net1’s involvement in the SA cash transfer programme enabled a financial monopoly based on proprietary technology.

Government-funded cash transfers have thus provide security for more borrowing by the poor, virtually eliminating risk for the creditor. As all risk is borne by the borrowers, technologies bundling cash transfer payments with easy credit facilities ensure they cannot default.

Such bundling ensured the poor could not default, while encouraging recipients to borrow. By making the monthly government grants serve as collateral for credit, the programmes have ensured nearly risk-free profit for usurious creditors while deepening the indebtedness of the poor.

IPS UN Bureau


Follow IPS News UN Bureau on Instagram

© Inter Press Service (2023) — All Rights ReservedOriginal source: Inter Press Service



Check out our Latest News and Follow us at Facebook

Original Source

We Must Act to Bridge the Gap Between Words and Deeds — Global Issues

  • Opinion by Patricia Scotland (london)
  • Inter Press Service

LONDON, Sep 18 (IPS) – The author is Commonwealth Secretary-GeneralIn today’s increasingly interconnected world, marked by grave economic, environmental, and security crises that transcend global boundaries, it’s abundantly clear that our interdependence is an undeniable reality.

Rt Hon Patricia ScotlandThese challenges loom large as countries from across the world gather at the United Nations General Assembly in New York. Our world is under pressure, and people are looking to its leaders for action.

Since world leaders last gathered in New York, we have seen a litany of natural disasters continue to devastate our world. Flooding, wildfires, storms and droughts have hit countries across the Commonwealth and the world. From Rwanda to India, the USA to New Zealand the whole world is feeling the impact of climate change.

If you listen to individuals from all walks of life, you can hear the fear and the desperation in their conversations, the anxiety that though we all recognise the problem, leaders are not taking the action we all need to tackle the challenges we face.

Our history serves as a poignant reminder that our choices boil down to two paths: cooperation, where we harness our collective humanity or to suffer in isolation.

The capacity to unite behind the moral force of our principles enshrined in our Commonwealth Charter, and the power of our practical purpose, is the foundation and beauty of the modern Commonwealth.

Our independent member states, stretched across five continents and home to one-third of humanity embody a remarkable blend of ingenuity and determination. This fusion of qualities not only propelled India to land a spacecraft on the moon but also instilled in us the shared resolve to stand united in confronting the challenges of climate change, instability, and economic adversity.

On the margins of the General Assembly, the citizens of the Commonwealth can be assured that our Foreign Affairs Ministers, and our Environment Ministers, will meet to further deepen their commitment to action on the threats to resilience and sustainability in our member states, and the wider world. Moreover, in a recent milestone, youth ministers, education stakeholders, and young leaders from across the Commonwealth convened in London just last week. Together, they forged agreements on policies and initiatives designed to bolster and empower our youth. At the core of these discussions were our young leaders, whose energy, passion and innovation we will need to take us forward.

United in purpose, we remain steadfast in our commitment to advancing pioneering initiatives, exemplified by the Commonwealth Climate Finance Access Hub, an endeavour that has successfully mobilized over $250 million in crucial support for the countries most in need. Simultaneously, intensifying calls for reform in global development finance to equip the most vulnerable nations with the resources they need to tackle the long-term impacts of environmental breakdown.

When we gather this week in New York, we seek to bridge the gap between rhetoric and implementation, deepening the alliances which transcend borders and self-interest, and advance the vital work to build a resilient and sustainable future for all.

We will set the stage for the next Commonwealth Heads of Government Meeting (CHOGM) which is to be held in Samoa in October 2024.

The road to CHOGM 2024 starts in New York and winds its way through the great capitals of our Commonwealth Family before culminating in Apia. And while we can never underplay the scale of the challenges we face, the fact that the Commonwealth nations sit together as partners with an equal voice and an equal stake in a shared mission means that we approach them – like India’s space mission – with the mindset of what is possible.

Our ministers will gather to reaffirm our dedication to resilience, sustainability, and equitable development. We are never just observers; we are active participants, ready to tackle the urgent issues of our time. We will act to bridge the gap between words and deeds, working together to build a better future.

In October next year when our Heads of Government meet in Samoa, we know that our strength will be in our unity. Progress is always difficult, and the challenges we face sometimes seem insurmountable, but we know that through the Commonwealth, and our unwavering commitment to unity and collective action, we shall prevail.

IPS UN Bureau


Follow IPS News UN Bureau on Instagram

© Inter Press Service (2023) — All Rights ReservedOriginal source: Inter Press Service



Check out our Latest News and Follow us at Facebook

Original Source

UN Financing Appeal Last Hope for SDGs and Climate? — Global Issues

  • Opinion by Jomo Kwame Sundaram (kuala lumpur, malaysia)
  • Inter Press Service

KUALA LUMPUR, Malaysia, Aug 30 (IPS) – The United Nations Secretary-General’s Dialogue on Financing for Development on 20 September may well be the world’s last chance to save the Sustainable Development Goals (SDGs) and curb global warming in time.

The UN and international finance
Many features of the international financial system – including multilateral arrangements developed over many decades – have been overtaken by new developments, sometimes resulting in multidimensional crises.

Jomo Kwame SundaramThe month-long 1944 Bretton Woods gathering was convened as a UN conference to create conditions conducive to post-war recovery and post-colonial development. But the systemic concerns of John Maynard Keynes and others from developing countries were largely ignored.

The International Monetary Fund (IMF) was set up for post-war growth and stability following the pre-war ‘gold standard’ crisis. The International Bank for Reconstruction and Development – later, World Bank – would help with financing.

The Bretton Woods agreement set the gold price in US dollars, effectively making the greenback the world’s reserve currency. Thus, the US Federal Reserve Bank (Fed) has long financed Treasury bonds with newly minted dollars.

The French economy minister saw this giving the US an ‘exorbitant privilege’. As Europeans increasingly demanded gold for dollars abroad, President Richard Nixon unilaterally abandoned US Bretton Woods obligations in August 1971.

It thus repudiated its promise to deliver gold for the greenback upon demand by other central banks. Although the dollar has not been the world’s official reserve currency since, widespread acceptance has effectively extended the exorbitant privilege indefinitely.

UN potential?
The inadequate institutions and processes in place over the last half century have exacerbated risks. Meanwhile, financial crises inadvertently highlight previously obscure gaps, weaknesses and vulnerabilities.

Proposals to reform economic governance should start with better efforts to address these problems. This should involve progressive reform of the UN system, including the IMF and World Bank.

The UN is well suited to lead because of its record with difficult reforms due to its more inclusive and responsive governance. Securing legitimacy requires all parties to feel they have stakes in the broader reform agenda.

Despite poor regulation, many believe new financial markets and instruments have ushered in a new golden era. Threats posed by international macro-financial imbalances are seen as far less dangerous than those due to budgetary deficits. Worse, false purported solutions to such dangers have exacerbated complacency.

Financing development
Major financing for development (FfD) innovations have long been initiated by the UN. Special drawing rights (SDRs), ‘0.7 per cent of national income’ for official development assistance (ODA) and debt relief were all conceived in the UN around half a century ago.

The financialization of recent decades has undermined the mobilization and deployment of adequate financial resources to accelerate sustainable development and address global warming.

During the 1990s, the UN warned against new threats to economic stability. Some were due to volatile private capital flows and speculation, encouraged by deregulated financial markets, enabled by the IMF despite its Articles of Agreement.

By contrast, the UN has insisted on ensuring policy space for more effective development strategies by Member States. It has also urged macroeconomic policies to support long-term growth, technological progress and economic diversification.

The UN Secretariat has also promoted orderly sovereign debt relief. But Member States have long complained IFIs were shirking their mandates to provide financial stability and adequate long-term development finance.

UN pro-active on finance again?
The first UN FfD conference was held in Monterrey, Mexico, in 1992. It sought to ensure adequate development finance on reasonable terms after the 1980s’ debt crises, exacerbated by conditionalities imposed with emergency IFI credit.

Structural adjustment programmes ensured ‘lost decades’ for Sub-Saharan Africa and Latin America. The current situation may be even more dire. Government debt today is greater than ever, but also more diverse, and on much more commercial terms. This situation is even less conducive to debt restructuring, let alone relief.

For decades, the UN’s FfD Office has tried, largely in vain, to mobilize domestic and international resources for development and climate finance. But progress has been modest and grossly inadequate at best.

The SDGs were cursed at birth in September 2015 by rich nations blocking developing country efforts to improve international tax cooperation at the last FfD summit at Addis Ababa just months before.

The rich countries’ Organization for Economic Cooperation and Development (OECD) has since imposed its will on international corporate taxation. The OECD process largely consigned developing countries to observer status, offering paltry shares to reward compliance.

The UN has also highlighted links between financialization and food as well as energy crises, stressing justice and sustainability concerns. It has urged greater sensitivity to avoid, or at least alleviate ‘downside risks’ for the vulnerable.

Get real to progress
International tax cooperation has been blocked for decades by the rich nations’ OECD. The UN system, including the IMF, urgently needs a strong mandate to seek common solutions to increase tax revenue for all.

While private finance is needed for the SDGs, it is also part of the problem when not well regulated. Meanwhile, most developing countries still lack access to liquidity during financial crises except on onerous IMF terms.

Also, with the reversals of trade liberalization in recent decades, especially with new Cold War sanctions, UN resolutions need to be realistic in order to be broadly accepted and feasible.

The last decade has seen huge setbacks to progress on the SDGs, climate action and needed financing. Developing countries have received only a third of the IMF’s 2021 $650 billion SDR allocation.

Over the decades, ODA flows have declined as a share of commitments, with the loan-grant ratio falling, favouring financial globalization, particularly since the first Cold War ended.

This has constrained developing countries’ ability to respond to crises and meet long-term development financing and fast-growing climate adaptation requirements. Curbing illicit financial flows can also improve financing for needed ‘public goods’.

As most rich nations show little sign of meeting their ODA and climate finance obligations, annual issue of SDRs, within limits set by the US Congress, can quickly boost international liquidity ‘painlessly’.

IPS UN Bureau


Follow IPS News UN Bureau on Instagram

© Inter Press Service (2023) — All Rights ReservedOriginal source: Inter Press Service



Check out our Latest News and Follow us at Facebook

Original Source

Exit mobile version