Dear friends, thank you to Isabel and team for the comprehensive - and alarming - new ILO report. 

I’d like to highlight the “Himalayan counterexample” to the trend in fiscal consolidation. Nepal, despite very low per capita income (US$730) and complex political problemes, has featured a – modest – form of social services delivery and social protection for the past 20 years. In 1995, it introduced a universal pension for senior citizens. In 2008 and following years, after the end of 10 years of civil strife, the country launched a broader range of social policy provisions to address poverty and social exclusion. They include free medication, free schooling through secondary school, education grants for disadvantaged castes, and some – albeit minimalist – provisions to co-fund access to maternity health services. The country is currently discussing an upgraded social protection framework with references to the social protection floor initiative, using a rights-based, life cycle approach.

A child grant was introduced for all children under 5 in the country’s poorest region and throughout the country for the lowest-income families of the Dalit caste in 2009. This grant has had significant impact on birth registration and good results for child nutrition. Under the new framework, the child benefit stands a good chance to be gradually but progressively universalised over the next years. 

And at the same time, Nepal has succeeded in raising their revenue to GDP ratio to 20% - a much higher level than in most other low-income countries, enabling these progressive social policies to be funded primarily from the government budget. That means, in turn, that policies are firmly positioned in public policy discourse. Thanks to pressure from civil society and enlightened bureaucracies, and political competition among the factions of the elite, the social policy provisions are slowly, but steadily, improving over time.

For more information, see Yuba Raj Khatiwada and Gabriele Koehler, Nepal: social policy in a nascent welfare state. in: Gabriele Koehler and Deepta Chopra 2014, Development and Welfare Policy in South Asia. Routledge; and Amjad Rabi, Thakur Dhakal, Tomoo Okubo and Gabriele Koehler, 2015, Strategies and options for scaling up the child grant. UNICEF Nepal.

With best regards from 

Gabriele Köhler
UNRISD senior research associate
www.gabrielekoehler.net

Dear colleagues,

I am writing on my way back from Seoul, where ILO and AICESIS organized a High Level meeting of world Economic and Social Councils, the main institutions/fora for national social dialogue.

For this important meeting, we launched the report Social Protection Global Policy Trends 2010-2015

http://www.ilo.org/global/publications/working-papers/WCMS_319641/lang--en/index.htm

Six years after the global financial and economic crisis, the world continues to struggle with low growth, unemployment and rising inequalities. The ongoing recession has forcefully underlined the importance of social protection as an economic and social necessity. The report analyses social protection policies in 2010-2015, depicting two divergent trends, some countries are adjusting their welfare systems and others expanding them.

Divergent trends: Bold expansion of social protection in middle income countries:

On the one hand, countries like Argentina and South Africa have universal child benefits in recent years; others like Bolivia, Botswana, Brazil, China, Maldives, Namibia, Panama, South Africa, Swaziland and Timor-Leste have achieved universal or nearly universal coverage of pensions, to mention a few.  Social protection is used for social stability, human development and to promote domestic demand-led growth strategies, a powerful development lesson.

Fiscal consolidation continues to expand worldwide, despite social support needed

On the other hand, since 2010 many governments embarked on fiscal consolidation (or austerity policies) and premature contraction of expenditures, despite an urgent need of public support among vulnerable populations. In 2015, the scope of public expenditure adjustment is expected to intensify significantly. According to the latest IMF fiscal projections contained in the World Economic Outlook (October 2014 http://www.imf.org/external/pubs/ft/weo/2014/02/ ), 120 countries, of which 86 are developing, will be contracting expenditures in terms of GDP.  The scope of adjustments is expected to affect 131 countries in 2016.

Further, the update of our analysis shows that a fifth of countries are undergoing excessive fiscal contraction, defined as cutting public expenditures below pre-crisis levels. These include countries with significant development challenges, such as Eritrea, Sudan, Yemen, Sri Lanka, Ethiopia, Nigeria, Guinea-Bissau, Guatemala and Burundi, among others.

Adjustment measures include the elimination or reduction of food and fuel subsidies; cuts or caps on the wage bill, including for health and social care workers; more narrow targeting of social protection benefits; and reforms of pension and health care systems. Governments are also considering revenue-side measures, for example increasing consumption taxes such as value added tax (VAT) on basic products that are consumed by poor households.

The worldwide propensity toward fiscal consolidation can be expected to aggravate the employment crisis and inequality trends, Depressed household income levels are leading to lower domestic consumption and lower demand, slowing down recovery. In Europe, these measures have contributed to increases in poverty or social exclusion, now affecting 123 million or 24 per cent of the population of the European Union. The achievements of the European social model, which dramatically reduced poverty and promoted prosperity and social cohesion in the period following the Second World War, have been eroded by short-term adjustment reforms.

In developing countries, some of the proceeds of these adjustments, e.g. from the elimination of subsidies, have been used to design narrowly targeted safety nets, as a compensatory mechanism to the poorest. However, given the large number of vulnerable low-income households in developing countries, this targeted safety nets are insufficient, more efforts are necessary to meet the social protection needs of the population.

Importantly, countries like Iceland (Box 3 in the paper) or South Africa are undergoing fiscal adjustment but expanding social protection to protect populations.

In many countries, adjustment reforms have been taken behind closed doors, as technocratic solutions with limited or no consultation. This has often resulted in a lack of public ownership, civil unrest and adverse socio-economic impacts.  

It is critically important that ddecisions affecting people’s welfare are discussed in national social dialogue, and that alternative policy options for equitable socio-economic development are c considered by policy-makers.  This is why ILO and AICESIS organized the High-Level Meeting of world Economic and Social Councils.  In most countries, Economic and Social Councils are composed by trade unions, employers and civil society, they systematically discuss the social impacts of public policies and provide alternative proposals for the achievement of employment-generating growth and social justice.

The press has been picking our messages (a few below), but further dissemination is important - pls distribute through your networks.

UN News - Developing countries opting for social protection over fiscal consolidation – UN report

RTVE: La OIT denuncia que el ajuste fiscal aumentará el paro y la desigualdad en todo el mundo en 2015 - RTVE.es

RFI: La rigueur, une fausse piste selon l'OIT - Economie - RFI

Deutsche Welle: ILO lashes out at governments' austerity measures

Al Jazeera: UN labour arm denounces austerity measures

Thanking all the contributions to this report, with best regards,

Isabel Ortiz
Director Social Protection
International Labour Organization (ILO)
4 Route des Morillons
CH-1211 Geneva 22 Switzerland
Tel. +41.22.799.6226; ortizi@ilo.org
Visit www.social-protection.org  

In response to Sargon's statement, it is important to reiterate that the IMF by its own reckoning got the "multipliers" wrong in Greece. I find this a good reckoning of what went wrong macro-ecomically in the conditionality of the loan package. That said, important to remember that the troika bailed out Greece to the equivalent of its GDP. Of course, all this decends to the havoc in the Greek labour market. It will take years to overcome

Duncan Campbell
Research Department
International Labour Organization (ILO)
4 Route des Morillons
CH-1211 Geneva 22 Switzerland

Dear Isabel,

Thank you so much for sharing the IEO's consultation into its approach to evaluation the IMF's rule in the Euro area crisis.

Bretton Woods Project will be providing a response, and we will be happy to support any in civil society, academia or other policy making circles who wish to make their own contribution to the consultation for the 3-page Draft Issues Paper. Attached is a brief, initial analysis of BWP's concerns and likely focus of our submission, which may at a later date also include other civil society signatories.  

The IEO is in a position to challenge the official narratives about what was done, why it was done, and how it was done in the context of Greece, Ireland and Portugal's loan agreements, as well as the IMF's role in monitoring Spain's bank recapitalisation and its role influencing all euro area countries, directly and via its relationship with new Euro area structures when providing Technical Assistance. It is little known, but able to have a significant impact as occurred last year when it examined whether the IMF was even-handed in its treatment of different countries' macroeconomic policies. See here and here .

The IEO's 'Draft Issues Paper' consultation is a valuable opportunity to empower the IEO to ask difficult questions about the IMF's role in the euro crisis and reveal, in effect, the politicised nature of many decisions and their unacknowledged social and economic impacts. Though this is is not a chance for the Troika as a whole to be assessed, its effect can be assessed indirectly via this analysis of the IMF's role.

It is important to also to reaffirm the IEO's relevance and value in conducting such independent studies, in the teeth of what is likely to be considerable behind the scenes pressure to choose less controversial topics.

I would strongly encourage any interested groups or individuals to do submit, and would be happy to provide any support necessary to facilitate that.

Kind regards,

Sargon Nissan

__ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __

Sargon Nissan
IMF Programme Manager
The Bretton Woods Project

33-39 Bowling Green Lane, London UK EC1R 0BJ
Tel: +44 (0)20 3122 0644
skype: sargon.nissan
email: snissan@brettonwoodsproject.org

The Bretton Woods Project: Critical voices on the World Bank and IMF
www.brettonwoodsproject.org, Follow us on Twitter: @brettonwoodspr
The Bretton Woods Project is an ActionAid-hosted project, UK registered charity No. 274467

Dear Anis and Andrea,

To add to your interesting interchange:

I would much like to equate democracy with egalitarian land and agrarian reforms, but in Asia that has ironically not always been the case.

a) Land reforms are a much needed macro agenda: much needed to increase productivity and incomes for the peasantry, and to provide cheaper wage goods, inputs, and domestic purchasing power for industrialisation.

However they were carried out in South Korea (and if I mistake not Taiwan) by the US occupation forces under General Douglas McArthur, to reduce the political power of the land owning class. Their perhaps unintended result was to provide the above enabling macro conditions permitting both countries to embark on industrialisation.

b) Agrarian reforms are also a much needed macro agenda to raise productivity, through technical change in inputs, to raise agricultural  productivity, incomes, and an investible surplus for industry.

However In Korea this took place under colonial Japanese occupation earlier in the 20th century. Japanese need  for a breadbasket led them to introduce high yielding forms of Ponlai rice and other supporting inputs into Korea. This enabled Korea to have an earlier green revolution compared to South and South East Asia which awaited the introduction of HYVs in the 60s.

Irrigation reform took place in South Asia through the development of canals by the colonial British administration in the late 19th and early 20th centuries, raising productivity and incomes in the Panjab. This did not however translate into investible surpluses into industry, because the British were smultaneously dumping C and K goods in India to provide a market for their own industrial revolution in the competition for markets with continnetal Europe.

Hence the aptness of the adage, 'men' make history, but not always in ways they want to.

(Andrea good to catch up with you after ages)

Best
Moazam

Moazam Mahmood
Deputy Director Research
International Labour Organization (ILO)
4 Route des Morillons
CH-1211 Geneva 22 Switzerland

Dear Prof Cornia

Many thanks for sharing your very insightful thoughts. In fact, I am familiar with your work, especially at UN-WIDER where I spent sometime as a visiting fellow when I was teaching in Australia. I also was at UN-DESA (2008-2012) working with Jomo when you attended one or two EGMs.

Also thanks to our common friend Isabel for setting up this on-line platform.

Certainly the elections of centre-left governments in LA helped reduce inequality. But the inequality reducing impact of democracy perhaps cannot be generalised. This is reflected in the aberrations that you mentioned. In the early phase of their development, the Republic of Korea and Taiwan achieved remarkable rapid growth along with low inequality that defied so-called Kuznets' hypothesis. This, in fact characterised "East Asian miracle" and led to the debate on the choice between "two Ds" - discipline vs democracy, famously known as "Lee hypothesis" after the PM of Singapore.

Japan, too, achieved high growth with relatively low inequality (Gini); but Japan was not a totalitarian regime. Singapore achieved high growth, but had illiberal democracy. So, one can assemble cases of diverse experiences that associate with different political regimes.

However, one thing perhaps is common, as pointed out repeatedly in ESCAP's annual Economic and Social Surveys. That is the equalising impact of pro-peasant land reform and universalisation of education, health and housing. Korea, Taiwan and Japan - all implemented radical pro-peasant land reforms and universalised education and health; Singapore, too universalised education and health and perhaps its universalisation of housing achieved to some extent what land reforms did in Korea, Taiwan and Japan - Singapore does not have much land to redistribute.

In the case of many Asia-Pacific countries, these reforms were “largely thwarted by an array of vested interests” (Economic and Social Survey of Asia and the Pacific, 1978 p. 11). Unfortunately what we are seeing across the world is the power of money and wealth, especially in influencing the electoral process, described so eloquently by Chrystia Freeland in her 2012 book, "Plutocrats: The Rise of the New Global Super-Rich and the Fall of Everyone Else".

What the LA experiences perhaps reveal is the equalising impact of social transfers even in the presence of pro-peasant land reforms. But sustaining these programs can be at risk without pro-peasant land reforms - we have recently seen how close were the elections in Brazil and Venezuela. In both cases, the opposition campaigned on an agenda of reversing social transfers.

Finally, pro-peasant land reforms are just the beginning. There has to be a constant vigil against concentration of other forms of wealth and assets.

In the absence of such vigils, inequality is likely to re-emerge as we see in Korea, China and even in Viet Nam.

Warmest regards
Anis

Anisuzzaman Chowdhury, PhD
Director
Statistics Division
United Nations ESCAP
Rajdamnern Nok Avenue
Bangkok 10200, Thailand
Tel: (662) 288-1486; 
Fax:(662) 288-1082
Email: chowdhury4@un.org

Dear Anisuzzaman,

you correctly point to a long list of political-economy obstacles which have, for long, impeded the adoption of more egalitarian reforms which would have reduced income inequality, educational and health inequality and so on.

The region where traditionally these reforms were most disattended was Latin America which - together a few  Eastern/Southern African countries - detained the record of the highest inequality in the world. Inequality worsened further in the 1980s and 1990s in LA (and almost everywhere else), owing to the the sudden increase in in US interest rates in June 1981, the ensuing debt crisis and recession of the 1980s, and the negative distributional effects of 'premature/unfetterd liberalization and privatization' in developing and transitional economies. In WIDER we documented fairly accurately that in the 1980s and 1990s 73% of the countries with decent Gini data experienced a rise in inequality.

But things have started changing a bit since the beginning of the 2000s. The clearest case is Latin America (particulalrly South America), where btw 2002 and 2012 the average Gini coefficient of the distribution of disposable income per capita fell by almost 6 points, including during the turbulent years 2009-2013. In fact, inequality fell in 15 of the 18 countries of the region (Carribeans are not included).  The 2014 OUP volume I edited  - http://ukcatalogue.oup.com/product/9780198701804.do - (as well as other research on this topic) shows that such decline was driven to a good extent by 'progressive' policy changes in the field of macroeconomics, taxation, trade, labour market, public social expenditure (esp. in education), and social transfers. Yet, the most important point to drive home is that such changes (whose feasibility was facilitated till 2007 by a favourable global businnes cycle)  were made possible  by the election of 15 progressive (center-left regimes) following the disappointing results of neo-liberal policies in the region.  An essential condition for the L.A. success was thus the restauration of democracy in the region - after 2 decades of authoritarian regimes, and the election of progressive regimes. Without such changes, it's unlikely LA would have enjoyed a decline in inequality. I enclose reference to a paper which tells part of this story, (http://www.disei.unifi.it/upload/sub/pubblicazioni/repec/pdf/wp14_2014.pdf) though chap. 3 in the above volume provides a detailed and convincing explanation of the change in the 'politics of policies' 

The issue is therefore the nature and functioning of democracy in the different parts of the world, and the nature of (old and new) coalitions needed to support such regimes. As discussed in the above volume, political coalitions in L.A. have evolved importantly, and generally in an inclusive way, giving voice to ethnic groups (as in Peru, Bolivia and Ecuador), the organized poor (as in Argentina), and sections of the lower middle class once favorable to WC policies (as in Chile).

South East Asia. With Bruno Martorano, we did a paper for UNCTAD's TDB (http://unctad.org/en/PublicationsLibrary/osgdp20124_en.pdf) which looks - inter alia - at 4 countries part of the ESCAP region, i.e. S.Korea, Thailand, Philippines and Malaysia. There too, we found an improvement in Gini's (if smaller than in LA), which also on this case depended inter alia on the adoption of more progressive policies.

An analysis of SSA data - which is waht I am doing now - shows that inequality has declined in half of the 29 countries with acceptable data (mainly taken from WIDER's WIIDv3). We are now analyzing the possible causes of such phenomenon. It will be interesting to test if the gradual change in democratic institutions in the region made possible the adoption of more egalitarian policies, including social transfers which - as suggested by Isabel - are increasing in number and scope in many developing countries.

Finally, you may rightly object that inequality has risen during the last two decades in China and in South Asia where - at least in India - democracy is meant to work (less so in Bgds and Pakistan). This is an issue that needs to be explored, and to which I am unable to provide an answer ........ perhaps you and your colleagues can help us with this puzzle. 

Best regards,
Andrea 

Prof. Giovanni Andrea Cornia
Department of Economics and Management, D6-55
University of Florence
via delle Pandette 9, 50127 Firenze.
Tel: 0039 055 275 9599
Fax: 0039 055 275 9910
E-mail: giovanniandrea.cornia@unifi.it
http://www.dse.unifi.it/
http://www.dse.unifi.it/sviluppo/portale

Dear Isabel

Thanks for sharing the key messages of the World Economic Forum (WEF)’s 2014 report. However, I do not see any reason to rejoice: “at long last the business leaders are talking about inequality”. Many conservative think-tanks and international organisations are also on the band-wagon. In my judgement, this is nothing but agenda capture with a view to deflecting the attention from the underlying causes and solutions to them.

It’s ok to talk about inequality, but you talk about progressive taxation or against tax haven or tax competition, there will be scare-mongering – “you cannot tax the wealth creators”; your “doing business” ranking will suffer. You talk about raising minimum wages or improving labour standards, your “doing business” ranking will drop further. The rich and corporations are wealth creators; so by implications, the ordinary souls are wealth destroyers – slam them with consumption tax!

It’s ok to talk about inequality, but universal social protection or universalisation of education and health is a taboo. It’s fiscally irresponsible; but don't put building up high-tech arms and military establishment through the same fiscal sustainability.

Band aid solutions, such as philanthropy or so-called corporate social responsibility (CSR), favoured by the conservatives or the big business houses, are unlikely to be able to stop or slow down the rising inequality.

These are basically veils to cover up the big businesses’ unwillingness to discharge their fundamental CSR, i.e., paying tax. Philanthropy and CSR to hide their tax dodging through tax havens as well as obnoxious executive pays.

As I highlighted in my last posting, ESCAP’s 2013 Economic and Social Survey found the Gini coefficient negatively correlating with both tax-GDP ratio and public social expenditure spending. The year’s Survey advocated progressive taxation and proposed a “regional tax forum” under the auspices of UN-ESCAP to prevent tax competition and deal with profit shifting and base erosion. It also proposed “special tax courts” to deal expeditiously with tax frauds, a proposal made originally in the 1960 issue of the Survey.

UN-ESCAP has been consistent in its focus on inequality and recommendations to deal with the underlying causes. For example, the 1950 issue of the Survey noted (pp. 180-81), “[s]o long as the people are unable to share sufficiently the fruits of economic progress there is apt to be little incentive for them to exert their maximum effort… As the great majority of the population in the region is employed on the land and the bulk of the national income is derived from agricultural activities, any attempt to bring about a more equitable distribution of wealth would naturally start with agrarian structure and land tenure… Another development towards a more equitable distribution of wealth and income is in the fields of agrarian credit and interest. In most parts of the region, more than half of the farming population (sometimes as much as three-fourths or even more than nine-tenths) are heavily in debt and usurious rates of interest (ranging from around 20 to over 200 per cent per annum— usually 30 to 50 per cent) are charged by the money-lenders. Not only is a considerable share of the current income of the farming population given to the creditors in the form of interest, but failure to pay interest and principal has constituted a major cause for the increasing alienation of agricultural lands from the cultivators to the non-agriculturists”

While ESCAP had raised the critical role of credit and interest rates in addressing the issue of poverty and inequality more than half a century ago, it has only been since the 1990s that some aspects of the issue have attracted the attention of policymakers owing to the popularity of the microcredit movement. However, the question of exorbitantly high interest rates and perpetual debt trap still remains unresolved. As matter of fact, the problems have become more entrenched with financial sector deregulation since the 1980s as part of structural adjustment programmes which required States to stop subsidising rural and agricultural credit through specialised banks and institutions, while microfinance institutions continue to charge usurious interest rates.

Noting growing social discontent over rising inequality, the 1970 issue of the Survey observed, “[t]he major policy issue which confronts the developing ECAFE countries in the Second Development Decade is how to bring about a better blend between economic growth and social justice” (p.1).

In the 1979 Survey, the discussion was widened concerning inequality beyond income and wealth at the country level to cover many other dimensions, including inequalities between countries, especially developed and developing countries. “In the case of distributive equity, …some documents [national development plans] emphasize the reduction of disparities in the interpersonal distribution of income and wealth; others accent the reduction of international, interregional and rural-urban inequalities.

Still others stress the equitable distribution of land (by means of land reform) or food (by means of subsidies) or services, namely, health, education, water supply, transport and sanitation. The central focus of all discussions is that in the 1980s the world’s poor, the ‘target groups’, must be given a fair share of the growing stock of assets and the flow of goods and services” (p. 96).

So, back to the basic question, why haven’t the underlying causes of growing inequality in all dimensions been addressed for more than half a century? Why the world’s poor didn’t receive a fair share of the growing stock of assets and the flow of goods and services, especially since the onslaught of structural adjustment and globalisation?

Anisuzzaman Chowdhury, PhD
Director
Statistics Division
United Nations ESCAP
Rajdamnern Nok Avenue
Bangkok 10200, Thailand
Tel: (662) 288-1486; 
Fax:(662) 288-1082
Email: chowdhury4@un.org

Dear friends,

In case it escaped your attention, the World Economic Forum released its Outlook 2014 that identifies the following top priorities for global leaders to address: (1) inequality (2) jobless growth (3) lack of leadership… (full list in link), for the WEF Summit last weekend http://reports.weforum.org/outlook-global-agenda-2015

Also, if you have not yet read Oxfam's report/global campaign Even it up: Time to end extreme inequalities -- note that it calls for a universal social protection floor among its 9 global priority actions:

1. Make governments work for citizens and tackle extreme inequality

2. Promote women’s economic equality and women’s rights

3. Pay workers a living wage and close the gap with skyrocketing executive reward

4. Share the tax burden fairly to level the playing field

5. Close international tax loopholes and fill holes in tax governance

6. Achieve universal free public services by 2020

7. Change the global system for research and development (R&D) and pricing of medicines so everyone has access to appropriate and affordable medicines

8. Implement a universal social protection floor

9. Target development finance at reducing inequality and poverty, and strengthening the compact between citizens and their government

It may also be of interest Andrea Cornia's recent presentation/publication on Falling Inequality in Latin America, mostly by a mix of macroeconomic and social protection policies.

For those not familiar with the concept of social protection floor, here a recent brief http://www.social-protection.org/gimi/gess/RessourcePDF.action?ressource.ressourceId=48121
(more materials: http://www.social-protection.org)

and here a short but GREAT video on what it means in a country (Thailand, 2 minutes) 
https://www.youtube.com/watch?v=ZB40vKO5xSs&index=1&list=PLZEl1tot_G0CVNYQF0vAuYD7WNXCGTnSg

All the best,
Isabel Ortiz
Director Social Protection Department
International Labour Organization
4 Route des Morillons
CH-1211 Geneva 22 Switzerland
Tel. +41.22.799.6226 ortizi@ilo.org
Visit: http://www.social-protection.org/

Dear Friends and Colleagues,

This may be of interest to some of you on this lis The Financial Stability Board has launched a consultation on its most recent policy proposal for addressing Too-Big-To-Fail. As part of this proposal, the FSB has included a process for assessing impact of new rules on the “REAL” economy (pg 8). This is a very positive development, but I strongly encourage you and your colleagues to evaluate how this will be done and submit comments/recommendations. New Rules will be urging the FSB to assess the impact on non-FSB members countries – and not just its own members.
FSB Consultative document: http://www.financialstabilityboard.org/wp-content/uploads/TLAC-Condoc-6-Nov-2014-FINAL.pdf
Deadline for feedback: Feb 2, 2015
New Rules for Global Finance will be working on a briefing that can help clarify some of these issues, such as total loss absorbing capacity (TLAC). If you have any reports or suggestions that might help us clarify such issues, please share with us! Also, let us know  what questions you think need to be answered.

Many thanks,
Nathan

Nathan Coplin, Deputy Director
New Rules for Global Financ
2000 M Street NW, Suite 720
Washington, DC 20036
Tel.(810) 348 3165
Fax. (202) 280-1141
Email: ncoplin@new-rules.org
Website: www.new-rules.org

Colleagues,
In a week, Governments at the United Nations begin their preparatory meetings for the International Conference on Financing for Development (FfD) in Addis Ababa in July 2015. That conference is widely viewed as the last opportunity to agree to a package of proposals on financial, trade and global governance measures before the summit meeting in New York in September 2015 to ring down the curtain on the Millennium Development Goals and raise the curtain on new Sustainable Development Goals (SDGs). If there is nothing underlying pretty words in the outcome document of Addis, there will be no time to come to meaningful "means of implementation" for the SDGs two months later. That will condemn the global effort to devise SDGs over the past few years to empty rhetoric. Governments at the UN thus recognize that the Addis meeting must be a "success", but does anyone see the Governments of North and South coalescing around any interesting proposals? Well, they have about 3-5 months to find those proposals. Perhaps we can help move the discussion in a fruitful direction.

First, some background. The UN General Assembly created an Open Working Group which has produced a set of "sustainable development goals" (http://sustainabledevelopment.un.org/?menu=1300). They are being cheered by people in various corners of civil society, business, government and international institutions, if with restraint. Although the goals were agreed in a committee of the whole of the Assembly, there is some talk around the UN of reopening the 17 goals, 169 targets for attaining the goals (and probably some 600 indicators to measure progress toward the targets). Everyone would have preferred stronger language on one goal or another, and some would have preferred a shorter list that would be easier to communicate to the public at large. My guess is the goals will not be changed. However imperfect, there is apparently a set of goals that policymakers can get behind. However, the question is how far behind?

There is one exception. I do not believe anyone takes goal 17 ("means of implementation") seriously. Some of it's targets are simply not achievable, in particular, target 17.11 for doubling the share that least developed countries have in world trade by 2020 (it requires that their exports grow about 15 percentage points faster per year than world trade, which is way beyond the experience of such countries). Goal 17 is a mixed bag of longstanding unfulfilled international cooperation commitments which will remain unfulfilled (17.2: "implement fully their ODA commitments, including to provide 0.7% of GNI in ODA") and there are some generic promises (17.3: "mobilize additional financial resources for developing countries from multiple sources"). It is a wish list rather than a coherent package of action commitments.

However, the General Assembly also created the Intergovernmental Committee of Experts on Sustainable Development Financing (ICESDF) to work in parallel with the Open Working Group. The ICESDF has also finished its work and made its findings public (http://www.un.org/esa/ffd/documents/ICESDF.pdf). A lot of sound advice is given to governments on how to mobilize and direct domestic public and private resources into sustainable investment. The difficulty lies in the ensuing consideration of international public and private financing. Many problems are identified and some vague solutions offered but there is not a single specific proposal for how to go about solving the problems. It does not seem there was consensus on any concrete proposal among the governmental experts that held the 30 seats in the committee.

This is where the General Assembly's preparations for the Addis FfD conference comes into play. It provides the opportunity to the international community to agree to a concrete set of collective actions. As the Addis meeting is less than a year away, most of the actions will need to be in the form of commitments to develop concrete policies in specified forums. Thus, for example, whereas the ICESDF concluded its discussion of international cooperation on taxes by saying "a participatory and broad based dialogue on international cooperation in tax matters should be strengthened", one wants to know where, when should it start, who should come? The international community needs to crack that nut by the time of the FfD conference and officially endorse it there.

Eva Hanfstaengl and I have drafted a set of 10 policy areas that cry out for some joint global action that we have posted on the website of Social Justice in Global Development (see http://www.socdevjustice.org/). We want to propose, first of all, that our friends consider contributing their thoughts on how some more concrete initiatives might be formulated and proposed for an FfD action agenda with actions. I have drafted a first paper on ODA. We welcome comments on that and contributions on the other items as well, not to mention proposals for additional items or reasons to remove items from the list.

The next few months will be crucial if the UN is to play any substantive role in the broad set of policies on development whose scope and content was originally agreed in the Monterrey Consensus in 2002. Perhaps we can provide some useful inputs.

Barry Herman
Julien J Studley Graduate Program in International Affairs
Milano School of International Affairs, Management, and Urban Policy,
The New School
72 Fifth Avenue, Room 624
New York, NY 10011, USA
Email: hermanb@newschool.edu
Faculty web page

 

Dear colleagues,

The IMF’s Independent Evaluation Office (IEO) issued a report today on the IMF’s response to the financial and economic crisis and declared the Fund’s overall performance to be “mixed”. It  found that while the IMF had appropriately called for fiscal stimulus to counter the effects of the financial crisis in 2008, two years later its “call for fiscal consolidation proved to be premature”.

In numerous statements and communications to the IMF over the past four years, the ITUC and its Global Unions partners made exactly that point. For example, Global Unions began their statement to the October 2010 annual meetings of the IMF and World Bank as follows:

“Global Unions are deeply concerned that the recent shift by the international financial institutions away from support for stimulus policies toward advocacy of fiscal consolidation will endanger the fragile recovery and prolong current high jobless rates for years to come. Signs that economic growth is slowing in some regions of the world barely months after the recovery began raise the probability of a double-dip recession to which the policy shift will have contributed….  This statement calls on the IFIs to reject austerity programmes and to support job-focused stimulus measures and investments in quality public services to assist in the recovery.” (http://www.ituc-csi.org/statement-by-global-unions-to-the)

The IMF’s policy shift in favour of fiscal consolidation or austerity was developed in partnership with the European Central Bank and the European Commission in the so-called Troika, and endorsed by a G20 Summit that took place in Toronto in June 2010. Deficit-reduction measures were enforced through IMF loan conditions in several countries that were in the midst of recession.

The policies were relaxed slightly after 2012 when the IMF realized that the premature push for austerity had contributed to a renewed economic slowdown in Europe, but the IEO report states that the IMF should have foreseen these consequences. The report also raises questions about the Fund’s “role, accountabilities, and independence“ in its partnership with the European Troika and its relationship with the G20.

Two excerpts from the IEO report are copied below. The full 53-page report is available at:
http://www.ieo-imf.org/ieo/files/completedevaluations/Full%20Text%20of%20the%20Main%20Report.pdf

A good Reuters piece posted today about the report is here:
“IMF gave richer countries wrong austerity advice after crisis: watchdog”
http://www.reuters.com/article/2014/11/04/us-imf-crisis-idUSKBN0IO1NO20141104

Peter Bakvis
ITUC/Global Unions – Washington Office
888 16th Street NW
Washington, DC 20006
Tel: (202) 974-8120
E-mail: pbakvis@globalunions-us.org
____________________________________________

Excerpts from “IMF RESPONSE TO THE FINANCIAL AND ECONOMIC CRISIS: AN IEO ASSESSMENT”, 4 November 2014
http://www.ieo-imf.org/ieo/files/completedevaluations/Full%20Text%20of%20the%20Main%20Report.pdf

“The IMF’s overall record in post-crisis surveillance was mixed. Its calls for global fiscal stimulus in 2008–09 were timely and influential. However, by 2010 it had endorsed a shift to consolidation in some of the largest advanced economies, coupled with monetary expansion to stimulate demand if needed to maintain the recovery. The call for fiscal consolidation proved to be premature, as the recovery turned out to be modest in most advanced economies and short-lived in many European countries. The recommended policy mix was not appropriate, as monetary expansion is relatively ineffective in boosting private demand following a financial crisis…. Also, the IMF did not sufficiently tailor its advice to countries based on their individual circumstances and access to financing when recommending either expansion or consolidation.” (p  33)
“Over the past few years, the IMF has coordinated and partnered with other organizations in critical initiatives such as the G20 MAP, the newly-created FSB, and the Troika. These initiatives proved largely effective in addressing aspects of the crisis and also helped to enhance the traction of IMF analysis and advice. In some cases, however, they raised questions about the IMF’s role, accountabilities, and independence, as well as about how to ensure uniform treatment of all IMF members.”  (p 35-36)        

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West Africa's Financial Immune Deficiency

Health systems in Africa are ill-equipped to deal with Ebola. And that's partly the fault of IMF policies.

 

FOREIGN POLICY   October 30, 2014

 

By Rick Rowden

 

http://www.foreignpolicy.com/articles/2014/10/30/west_africas_financial_immune_deficiency_ebola_imf

 

In recent months, as the spreading Ebola emergency took center stage in Washington, the World Bank and International Monetary Fund (IMF) have pledged $530 million to help Guinea, Liberia, and Sierra Leone. And in October, at a special session with African leaders on Ebola during the IMF/World Bank annual meetings in Washington DC, IMF Managing Director Christine Lagarde said that in addition the aid, the IMF would depart from its notorious budget austerity, and actually allow the hard-hit west African nations to increase their budget deficits: “We don’t normally say this!” she emphasized. To which the Guinean president, Alpha Conde, responded, “I'm extremely pleased to hear the IMF Managing Director [say]… that we can increase our deficit, which is quite a change from the usual narrative.”

 

He was right. Indeed, if you really want to understand why several West African countries have been so ill-equipped to tackle the latest outbreak of the Ebola virus, then you also need to look at the “usual narrative” of IMF fiscal and monetary policy restraint. That’s because it is a major reason for the dilapidated public health systems that have proven to be such a vulnerability during the crisis.

 

Many experts note that the conspicuous unpreparedness of countries like Guinea, Liberia, and Sierra Leone is a direct consequence of years of insufficient public investment in the underlying public health infrastructure. “We know how to prevent diseases like this, if we can get the basic level of the healthcare systems up to speed,” said Columbia Business School Professor Amit Khandelwal. Critics point out that this lack of investment can be traced directly back to sparse spending on public goods dictated by IMF loan conditions and policy advice, which invariably entail adherence to its strict definition of “macroeconomic stability.”

 

Since the 1980s, when the doctrines of Thatcher and Reagan reigned supreme, the IMF’s monetarist approach has meant prioritizing price stability (low inflation) and fiscal restraint (low budget deficits) over other spending goals in developing countries. These policies had the effect of greatly limiting overall public spending each year. Because of this squeeze, most of the budget went to immediate needs and recurrent expenditures and little was left over for scaling up long-term public investment in infrastructure, including the underlying public health infrastructure. This led to a serious drop-off in public investment as a percentage of GDP seen across many developing countries that in many cases has been sustained until today.

 

So the harmful effects of IMF policies on health systems are not direct; it’s not as if the IMF comes in and directly tells a country to spend less on public health. Instead it’s a two-step process: first the IMF policy targets constrain overall national spending levels, and this then limits the spending available for long-term public investment, including for the health infrastructure. Consequently, chronic and sustained underinvestment in public health infrastructure has become the norm in many countries, year after year, over the last few decades.

 

Some critics have long claimed that the IMF’s policy targets are too tight, and other more expansionary policy options could allow for increased public investment. They charge that the IMF approach is unnecessarily restrictive, preventing developing countries from scaling up long-term public investment in public health systems. Such polices, they say, have led to dilapidated health infrastructure, inadequate numbers of health personnel, and demoralizing working conditions that have added to the “push factors” driving the migration of nurses from poor countries to rich ones. All this has undermined public health systems in developing countries, including the ones now trying to cope with Ebola.

 

Specifically at issue are two controversial IMF policies to keep inflation at or below 5–7 percent per year and budget deficits under 3 percent of GDP. Skeptics contend that such policies have unnecessarily undermined the ability of domestic industries to generate higher levels of productive capacity, employment, and GDP output -- and correspondingly reduced tax revenues as well. They call on the IMF to consider other more expansionary fiscal and monetary policy options that would enable governments to obtain higher levels of tax revenue for both recurrent expenditures, and crucially, for long-term public investment as a percentage of GDP. Most countries suppress inflation by raising interest rates, which makes credit less affordable and prevents the government from engaging in more affordable deficit financing or public investment. Higher interest rates also prevent the domestic private sector from expanding production and employment, which has negative long-term implications for revenues, national budgets and, consequently, health financing.

 

More technically, the IMF squeezes fiscal space in countries by tightening two screws: it sets binding targets called “performance criteria” in IMF loan agreements that either raise the floor on required net international reserves (NIR) of foreign exchange at central banks or lower the ceiling on net domestic assets (NDA) (including foreign aid). Quite often the Fund does both in ways that greatly restrict public spending and longer-term public investment. To enforce compliance with budget restrictions, the IMF sometimes sets specific limits on the amount of the budget that can be spent on public sector employees -- including, according to Doctors Without Borders, desperately needed public health personnel.

 

So while the IMF says it is just being “cautious” because it is worried about how damaging macroeconomic instability can be, this concern about IMF policies being too tight was pointed out by a 2001 US Government Accountability Office report on IMF loans, which warned: “Policies that are overly concerned with macroeconomic stability may turn out to be too austere, lowering economic growth from its optimal level and impeding progress on poverty reduction.” Indeed, the consequences of such policies have led to years of insufficient public investment in the underlying health infrastructure of the countries today facing the Ebola outbreak.  

 

For those interested in improving public investment in health infrastructure in developing countries, there’s no getting around the problems caused by the excessive restrictiveness of IMF policies. It would be one thing if the IMF had some hardcore base of academic research and evidence to justify its very tight fiscal and monetary targets, but, as critics point out, it doesn’t. As a result, the IMF’s ability to justify such budget restraint has long been challenged. This is important: if the IMF’s policies are unjustifiably restrictive and other viable options could better enable increased spending on long-term public investment, including on health systems, then that’s a real case for a policy change. And advocates for better health and education infrastructure in developing countries will have to mobilize to push for it.

 

On the inflation-reduction target, critics have claimed the IMF has little evidence to justify pushing inflation down to the 5-7 per cent level. On the question of how low inflation must really be, critics note that the peer-reviewed economics literature on the subject offers no firm consensus for the appropriate level of inflation for developing countries. While everyone agrees that high inflation is bad and must be brought down, others make the case that there is a time when allowing moderate levels of inflation can be appropriate for developing countries during their key developmental phases, and that therefore IMF policy should permit more moderate inflation.

 

This point has been made by organizations ranging from the Washington-based Center for Global Development to the Financial Services Committee of the U.S. House of Representatives. This issue was raised again in the 2008 high-level report of the Spence Commission on Growth and Development, which noted that some countries have grown for long periods “with persistent inflation of 15–30 percent.” Commission member Montek Singh Ahluwalia criticized the IMF and other international financial institutions, which, he said “have tended to see public investment as a short-term stabilization issue, and failed to grasp its long-term growth consequences. If low-income countries are stuck in a low-level equilibrium, then putting constraints on their infrastructure spending may ensure they never take off.”

 

Indeed, the health infrastructure in Guinea, Sierra Leone and Liberia has never taken off.

 

In spite of this situation, the IMF has pursued the same basic set of policies for years -- starting long before the recent financial crisis and continuing during and after it. While the IMF has tried to present data that show relative increases in public health spending in its program countries in recent years in an effort to claim that its policies actually support public health, this belies the much more serious long-term drop in public investment as a percentage of GDP seen across many developing countries since the 1980s. We won’t be able to solve the underfunding of public health infrastructure without new fiscal and monetary policies that reverse this trend.

 

None of this is to say that the IMF is solely responsible for the Ebola outbreak. Of course, the wars in Sierra Leone and Liberia, corruption, ineptitude, and a host of other specific political, cultural, and socioeconomic factors have all contributed to the current state of the public health systems in West Africa. But if the international community is serious about addressing chronic under-investment in the public health systems in these countries, it will also have to revise the obvious shortcomings of IMF fiscal and monetary policies.

 

Rick Rowden is the author of The Deadly Ideas of Neoliberalism: How the IMF has Undermined Public Health and the Fight against AIDS (Zed Books, 2009). He is currently a doctoral candidate in Economic Studies and Planning at Jawaharlal Nehru University, New Delhi.