U.N. General Assembly President Miguel d’Escoto recently kicked off a summit on the global financial crisis by blaming capitalism for the poverty, hunger and economic problems devastating the developing world.
“It is neither humane nor responsible to build a Noah’s Ark only to save the existing economic system, leaving the vast majority of humanity to their fate and to suffer the negative effects of a system imposed by an irresponsible but powerful minority,” charged d’Escoto, a Nicaraguan diplomat and former Sandinista whose colorful term as General Assembly president ends next month.
Inside the United Nations, attacks leveled at the United States and “the West” are nothing new. But this time d’Escoto seemed all the more confident the criticism would hit home thanks to the role that U.S. economic policy and Wall Street have played in creating the economic crisis and the impact it is having on poor countries that had little — if anything — to do with the mess.
Some of the gripes are legitimate. It’s likely the recession will mean less aid flows out of industrialized nations — reducing it when poor nations need it the most — and more people are pushed into poverty. The United Nations predicts that more than a billion people will go hungry every day by the end of the year, warning that the economic slide could reverse a 20-year decline in world poverty. Likewise, the International Monetary Fund and World Bank have said the economic crisis could become a “human and development calamity,” while a recent report on the U.N. Millennium Development Goals said that in 2009, “an estimated 55 [million] to 90 million more people will be living in extreme poverty than anticipated before the crisis.”
So, for several days in late June at the so-called U.N. Conference on the World Financial and Economic Crisis and its Impact on Development, d’Escoto and representatives from developing nations dubbed the “G-192” pounded home this message from the iconic marble podium at the U.N. headquarters in New York — demanding, among other things, that the IMF and World Bank be reformed to better serve the developing world.
But if the empty blue seats inside the assembly hall were indicative of global concern, the message fell on deaf ears. The high-level gathering itself had to be postponed by several weeks because delegates “needed more time to negotiate the draft outcome document to be adopted at the gathering,” according to a statement issued by d’Escoto, the summit’s organizer.
And despite being billed as a summit of world leaders, few actually showed up. Western heads of state, some concerned the event would be a photo opt for leftist leaders to bash their countries, skipped the show. So, too, did Latin America’s political heavyweights, including Presidents Hugo Chávez of Venezuela, Evo Morales of Bolivia, and Daniel Ortega of Nicaragua. Rafael Correa, the president of Ecuador, was the biggest draw.
The biggest accomplishment: a toothless and broadly worded “outcome document” that, among other things, called for reforming the IMF and the World Bank — proposals U.S. representatives opposed — and increased aid to developing countries.
D’Escoto called the document “historic” and the “first step in a long process of putting the world on a new path toward solidarity, stability and sustainability.” But he also acknowledged that his vision for the future was “undoubtedly a utopia, but a necessary one.”
“A utopia is, by definition, unattainable,” the former priest said. “But it is like the stars: They are unreachable, but what would the night sky be without stars? It would be nothing but darkness and we would be disoriented and lost. A utopia likewise lends direction and purpose to our lives and struggles.”
Poor countries have been waiting on such a utopia to pan out for quite some time. But history and the recent U.N., G-20 and G-8 meetings — not to mention the global economic meltdown — suggest the odds might be against that dream ever coming to fruition.
Fool Me Once… For decades, developing nations have been waiting on their rich counterparts to deliver more assistance. Many aid agencies point to 1970 when the U.N. General Assembly passed a resolution pledging to commit .07 percent of rich countries’ gross domestic product to official development assistance by the “middle of the decade.”
That target has been reaffirmed over the years, but today assistance still lags far behind. In 2008, the only countries to exceed the 0.7 percent target were Denmark, Luxembourg, the Netherlands, Norway and Sweden.
For those advocating the delivery of additional aid and resources to poor nations, the G-20’s decision this spring to pledge class=”import-text”>2009August.Developing Nations Plead.txt trillion to the IMF for loans and other assistance to help cushion the world from the economic crisis was a promising development.
More attention was paid to the G-8 meeting last month in L’Aquila, Italy, where the Group of Eight industrialized nations — Britain, Canada, France, Germany, Italy, Japan, Russia and the United States — pledged to deliver a total of billion over three years for a “food security initiative” to develop agriculture in poor countries and to help fight hunger and spiking food prices. (Following the summit, President Barack Obama traveled to Ghana, where he discussed a billion, six-year global health initiative while pressing Africans to fight corruption and boost democracy.)
Under the G-8 initiative, farmers would receive seeds, fertilizers and the infrastructure needed to increase food production. This is a shift from previous efforts that were based on shipping food to starving nations rather than helping them produce their own. It also echoes a larger drive in the humanitarian community to transition from emergency assistance that focuses on consumption to reconstruction aid that promotes investment and employment.
Still, the proposal was met with skepticism and questions about how much of the promised money was new or recycled from previous pledges.
“As previous G-8 meetings have perfected the art of re-packaging old unmet commitments into new announcements, this pledge will require careful scrutiny,” said Anita Sharma, North American coordinator for the U.N. Millennium Campaign, a group advocating for new resources for developing nations. “We have heard promises before to eliminate trade-distorting agricultural subsidies. But promises do not feed starving people or save the economies of developing countries from collapse. What is needed now is delivery on these commitments and penalties for countries which violate them.”
Delivery though seems to be the difficult part. Another unfulfilled promise was made at the G-8 meeting at Gleneagles four years ago to give billion in development aid by 2010, with half going to Africa. That effort has fallen at least billion short. And although it was briefly addressed at this most recent G-8 gathering, any breakthrough on the stalled Doha round of talks — launched in 2001 to address trade issues such as agricultural subsidies — appears dead in the water.
Perhaps as a result of the broken pledges, developing countries were more leery this time around and spurned the G-8’s recent climate change proposal to cut greenhouse gas emissions, insisting that developed countries take the lead in the effort while offering more financial incentives for emerging economies if they are to sacrifice their growth.
Asked whether developing nations are serious about lending a hand, Sharma said she believes the problems of poor nations are so multi-faceted and the consequences of inaction are so “dire” that world leaders “don’t have the luxury anymore of saying one thing and doing another.”
“When world leaders break a promise, it is a sin — but when governments break a promise to the poorest people on the planet, it is nothing short of a crime,” she argued. “Given that leaders of rich countries have found trillion to bail out financial institutions over the past year — nearly 10 times more money than they have given in aid over the past 49 years — we know that finding financial resources is possible if the political will is there.”
The Price of Inaction According to a U.N. breakdown, there are 642 million people suffering from hunger in Asia and the Pacific; 265 million in sub-Saharan African; 53 million in Latin America and the Caribbean; 42 million in the Near East and North Africa; and 15 million in developed countries. (The world body’s 2009 hunger report, “The State of Food Insecurity in the World,” will be unveiled in October.)
Yet Homi Kharas, a former chief economist for the East Asia and Pacific region at the World Bank, points out that not all developing nations are struggling. Countries such as India, China and Vietnam are doing well, he said, and continue to see strong increases in per-capita income and poverty reduction.
Many of these developing powers have been seeking a greater say on the world stage — such as the BRIC countries of Brazil, Russia, India and China — challenging Western dominance of economic decision-making.
But for countries that still heavily rely on Western support, their criticisms carry far less weight, and their situation “is far more dire,” said Kharas, a senior fellow at the Brookings Institution.
“Across sub-Saharan Africa, Eastern Europe and Latin America, per-capita growth has ground to a halt. Many developing countries have been whipsawed by volatile commodity prices. Low-income countries have not been able to get resources to undertake countercyclical fiscal policy. If they run large deficits financed by money creation, they risk inflation and a collapsing currency, like Zimbabwe. So their fiscal deficit is limited to whatever they can get in aid.”
This could become a problem because experts predict most countries will receive less aid this year.
“The hardest hit countries are those in Eastern Europe, which relied heavily on capital flows from Western banks which have now dried up,” Kharas explained. “Also badly hit are countries in Asia, which have seen manufacturing exports drop precipitously, and some countries in Central America and Central Asia which have been badly hit by declining remittances.”
Asked whether reforming the IMF and World Bank is part of the answer, Kharas suggested it might be a smart start because neither of the institutions is “fully trusted” by developing countries to “play their role in a transparent and fair fashion.”
For that reason, many developing countries chose to build up large foreign reserves to “protect themselves against global shocks rather than relying on the IMF to come to their help if needed,” Kharas said. “So resources that could have been used to make further development progress were instead held in reserves — a waste when one considers the need for development funding.”
Emerging countries also chose to borrow from “commercial markets rather than from the World Bank because they believed that unnecessary conditions were being imposed on them by the bank,” Kharas added. “Now they see that reliance on private credit markets also has costs. If ‘governance’ of these institutions was improved, meaning changes in operations that would give developing countries a greater voice and sense that their interests were being looked after by the [international financial institutions], more resources would be available for development.”
But the issue is far from clear-cut. The distrust in the World Bank and IMF is countered by the fact that world leaders have reason to worry about funneling aid to weak or fragile nations marred by corruption and inefficiency — where the money often gets pocketed by the elite instead of the poor. It’s a point Obama recently made in Ghana, where he stressed that “Africa’s future is up to Africans.” (Also see “Aiding and Abetting? Economists Say Assistance Only Makes Africa Worse” in the May 2009 issue of The Washington Diplomat.)
Also complicating the picture is the U.S. government assistance apparatus — a labyrinth of overlapping agencies doling out aid.
“The new U.S. administration faces significant challenges in making U.S. development assistance more effective,” Kharas said. “Too many agencies are involved in giving out U.S. money, so there is no coherence in country programs. The choice of countries to whom the U.S. gives money changes quickly according to short-term political imperatives, rather than longer-term development considerations. That should change.
“When new priorities emerge, like Iraq and Afghanistan, the funding should not be taken from existing aid programs for other countries, as is currently the case. And modalities of U.S. assistance — like food aid and technical assistance — are often ineffective. The money could be better spent on directly funding projects in developing countries,” Kharas said, though he added that, “Recent steps in announcing more aid for agriculture and a commitment for scientific research on African agriculture are good steps towards rationalizing U.S. foreign assistance.”
Still, when money is tight at home, asking leaders to give more to help other countries seems counterintuitive — though some experts point out that in an interconnected world, assistance can serve everyone’s interests, leading to cooperation on universal issues such as climate change or free trade.
They also cite failed states such as Afghanistan in the 1990s as an example that assistance is a small price to pay to keep a problem from costing much more down the line.
“Those tempted to see quick savings in slashing foreign assistance, building barriers to the flow of imports from developing countries, cutting peacekeeping missions or reducing support for international development and financial institutions should think twice,” warned Donald Steinberg, of the International Crisis Group, earlier this year. “It is a case of ‘pay me now, or pay me later.’”
Moreover, as U.N. Secretary-General Ban Ki-moon pointed out in a recent New York Times op-ed, the costs are not as high when considering the larger picture. “Surely, if the world can mobilize more than trillion to keep the financial sector afloat, it can find more than billion to keep commitments to Africa,” he wrote. “Challenges are linked. Our solutions must be, too.”
About the Author
Seth McLaughlin is a contributing writer for The Washington Diplomat.