Financing for Development Priorities Today

By Jomo Kwame Sundaram

KUALA LUMPUR, Malaysia, Jan 7 2025 (IPS) - The forthcoming fourth United Nations Financing for Development conference must address developing countries’ major financial challenges. Recent setbacks to sustainable development and climate action make FfD4 all the more critical.

FfD4

The FfD4 conference, months away, will mainly be due to efforts led by the G77, the caucus of developing countries in the UN system. The G77 started with 77 UN member states and has since expanded to over 130.

The 1944 Bretton Woods conference outcome was primarily a compromise between the US and the UK. In 1971, when its Bretton Woods obligations threatened to undermine its privileges, President Richard Nixon refused to honour the US pledge to deliver an ounce of gold for US$35.

Over two decades later, President Bill Clinton promised a new international financial architecture. It rejected Professor Robert Triffin’s characterisation of international monetary arrangements after the early 1970s as an incoherent ‘non-system’.

Foreign aid

Several issues are emerging as G77 priorities for FfD4. In 1970, wealthy nations at the UN agreed to provide 0.7% of their national income annually as official development assistance (ODA).

This was much lower than the 2% initially proposed by the World Council of Churches and others. Only 0.3% has been delivered in recent years, or less than half the promise.

Most ODA conditions reflect the priorities of donors, not recipient countries. New aid definitions, conditions, and practices undermine ‘aid effectiveness’, reducing what developing nations receive.

Despite breaking its ODA promises, the new European Parliament voted overwhelmingly to contribute 0.25% of national income to Ukraine. By early December 2024, Europe had provided well over half the USD260 billion in aid to Ukraine!

Some European nations now insist that only mitigation qualifies as climate finance. Although most developing countries are tropical and struggling to cope with planetary heating, little assistance is available for adaptation.

Debt

More recently, developing countries’ new debt has been more commercial and conditional but less concessional. With the transition to the Sustainable Development Goals (SDGs) in 2015, the World Bank encouraged much more commercial borrowing with its new slogan, ‘from billions to trillions’.

Following the 2008 global financial crisis, Western countries adopted unconventional monetary policies, eschewing fiscal efforts. Quantitative easing enabled much more borrowing, which grew until 2022.

However, most Western governments did not borrow much. Some private interests borrowed heavily, often for unproductive purposes, with some using cheap funds to finance shareholder buyouts to get more wealth.

Meanwhile, many developing countries went on borrowing binges as creditors pushed debt in developing countries in various ways. Rapidly mounting government debt would soon become problematic.

From early 2022 until mid-2024, interest rates rose sharply, ostensibly to counter inflation. The US Fed and European Central Bank raised interest rates in concert, triggering massive capital outflows from developing countries with the poorest worst affected.

Taxation

The Global South has long wanted the UN to lead negotiations on international taxation arrangements to provide more financial resources for development. However, the Organization for Economic Cooperation and Development (OECD) rich nations’ club has long undermined developing countries’ interests.

The OECD achieved this by misleading finance ministries in developing countries. It bypassed foreign ministries that had long worked well together on contentious Global South issues. With the OECD making up new rules for the world, developing country finance ministries signed on to a biased tax proposal on which they were nominally consulted.

At the FfD3 conference in mid-2015, the OECD blocked Global South efforts to advance international tax cooperation. An independent international commission proposed a minimum international corporate income tax rate of 25%.

Treasury Secretary Janet Yellen counter-proposed a 21% rate, the US minimum rate. However, at the G7 meeting he was hosting, Boris Johnson pushed this down to 15% while adding exemptions, reducing likely revenue.

Instead of distributing revenue as with a corporate income tax on profits from production, the OECD proposed revenue sharing according to consumption spending, much like a sales tax.

Poor countries would receive little as their population can afford to spend much less, even if they produce much at low wages. Rather than progressively redistribute, OECD international corporate income tax revenue distribution would be regressive.

Dollar

The US dollar remains the world’s principal currency for international transactions. US Treasury bond sales enable this, subsidising the world’s largest economy. Trump recently threatened the BRICS and others considering de-dollarization.

The leading BRICS proponents of de-dollarisation, Brazil and South Africa, have failed to persuade the other BRICS to de-dollarize. Instead, China’s central bank has issued dollar-denominated bonds for Saudi Arabia.

Special Drawing Rights (SDRs) should be issued regularly to augment discretionary IMF financial resources. This can be done without Congressional approval, as happened after the 2008 global financial crisis and the COVID-19 outbreak.

Such resources can be committed to the SDGs and climate finance.

But this cannot happen without collective action by the Global South seriously mobilising behind pacifist, developmental non-alignment. Inclusive and sustainable development is impossible in a world at war.

Available online here: Financing for Development Priorities Today

New Geopolitics Worse for Global South

By Jomo Kwame Sundaram

KUALA LUMPUR, Malaysia, Dec 17 2024 (IPS) - The new geopolitics after the first Cold War undermines peace, sustainability, and human development. Hegemonic priorities continue to threaten humanity’s well-being and prospects for progress.

End of first Cold War

The end of the first Cold War has been interpreted in various ways, most commonly as a US triumph. Francis Fukuyama famously proclaimed the ‘end of history’ with the victory of capitalism and liberal democracy.

With the collapse of the Soviet Union and allied regimes, the US seemed unchallenged and unchallengeable in the new ‘unipolar’ world. The influential US journal Foreign Affairs termed ensuing US foreign policy ‘sovereigntist’.

But the new order also triggered fresh discontent. Caricaturing cultural differences, Samuel Huntington blamed a ‘clash of civilisations’. His contrived cultural categories serve a new ‘divide-and-rule’ strategy.

Today’s geopolitics often associates geographic and cultural differences with supposed ideological, systemic and other political divides. Such purported fault lines have also fed ‘identity politics’.

The new Cold War is hot and bloody in parts of the world, sometimes spreading quickly. As bellicosity is increasingly normalised, hostilities have grown dangerously.

Economic liberalisation, including globalisation, has been unevenly reversed since the turn of the century. Meanwhile, financialization has undermined the real economy, especially industry.

The G20 finance ministers, representing the world’s twenty largest economies, including several from the Global South, began meeting after the 1997 Asian financial crisis.

The G20 began meeting at the heads of government level following the 2008 global financial crisis, which was seen as a G7 failure. However, the G20’s relevance has declined again as the North reasserted G7 centrality with the new Cold War.

NATO rules

The ostensible raison d’être of the North Atlantic Treaty Organization (NATO) has gone with the end of the first Cold War and the Soviet Union.

The faces of Western powers have also changed. For example, the G5 grew to become the G7 in 1976. US infatuation with the post-Soviet Russia of Boris Yeltsin and Vladimir Putin even brought it into the G8 for some years!

Following the illegal US invasion of Iraq in 2003, the sovereigntist Wolfowitz doctrine of 2007 redefined its foreign policy priorities to strengthen NATO and start a new Cold War. NATO mobilisation of Europe – behind the US against

Russia – now supports Israel targeting China, Iran and others.

Violating the UN Charter, the 2022 Russian invasion of eastern Ukraine united and strengthened NATO and Europe behind the US. Despite earlier tensions across the north Atlantic, Europe rallied behind Biden against Russia despite its high costs.

International law has also not stopped NATO expansion east to the Russian border. The US unilaterally defines new international norms, often ignoring others, even allies. But Trump’s re-election has raised ‘centrist’ European apprehensions.

Developing countries were often forced to take sides in the first Cold War, ostensibly waged on political and ideological grounds. With mixed economies now ubiquitous, the new Cold War is certainly not over capitalism.

Instead, rivalrous capitalist variants shape the new geoeconomics as state variations underlie geopolitics. Authoritarianism, communist parties and other liberal dirty words are often invoked for effect.

New Europe

Despite her controversial track record during her first term as the European Commission (EC) president, Ursula von der Leyen is now more powerful and belligerent in her second term.

She quickly replaced Joseph Borrell, her previous EC Vice President and High Representative in charge of international relations. Borrell described Europe as a garden that the Global South, the surrounding jungle, wants to invade.

For Borrell, Europe cannot wait for the jungle to invade. Instead, it must pre-emptively attack the jungle to contain the threat. Since the first Cold War, NATO has made more, mainly illegal military interventions, increasingly outside Europe!

The US, UK, German, French and Australian navies are now in the South China Sea despite the 1973 ASEAN (Association of South-East Asian Nations) commitment to a ZOPFAN (zone of peace, freedom and neutrality) and no request from any government in the region.

Cold War nostalgia

The first Cold War also saw bloody wars involving alleged ‘proxies’ in southwestern Africa, Central America, and elsewhere. Yet, despite often severe Cold War hostilities, there were also rare instances of cooperation.

In 1979, the Soviet Union challenged the US to eradicate smallpox within a decade. US President Jimmy Carter accepted the challenge. In less than ten years, smallpox was eradicated worldwide, underscoring the benefits of cooperation.

Official development assistance (ODA) currently amounts to around 0.3% of rich countries’ national incomes. This is less than half the 0.7% promised by wealthy nations at the UN in 1970.

The end of the first Cold War led to ODA cuts. Levels now are below those after Thatcher and Reagan were in power in the 1980s. Trump’s views and famed ‘transactional approach’ to international relations are expected to cut aid further.

The economic case against the second Cold War is clear. Instead of devoting more to sustainable development, scarce resources go to military spending and related ‘strategic’ priorities.

Related IPS Articles:

• The Global South in the New Cold War

• South Suffering Due to Powerful Nations’ Policies

• IMF Urges Non-alignment in Second Cold War

• Imperialism, Globalisation and Its Discontents*

• North Ignores ‘Perfect Storm’ in Global South

• Aid for Power in New Cold War

• Weaponizing Free Trade Agreements

Available online here: New Geopolitics Worse for Global South

New Approaches Urgently Needed to Tackle Resurgent Social Crises

By Jomo Kwame Sundaram

KUALA LUMPUR, Malaysia, Dec 5 2024 (IPS) - Despite uneven economic recovery since the pandemic, poverty, inequality, and food insecurity continue to worsen, including in the Asia-Pacific region, which used to fare better than the rest of the Global South.

Food matters

These trends are not new but have been around for some time. Food security has deteriorated worldwide for a decade and will likely worsen.

Food security measures are more indicative of well-being than traditional poverty measures, which reflect cash incomes subject to inflation and spatial variations. After all, over half of the poor’s incomes worldwide are spent on food.

Due to global heating and rising sea levels, seawater is entering rice fields in Vietnam, Bangladesh, and other countries. Over ten Vietnamese provinces are affected, and less rice production will raise prices, worsening food insecurity.

There have been uneven and modest improvements in health indicators for the Asia-Pacific region, home to three-fifths of the world population. More is needed for preventive health instead of the typical focus on curative services.

In this connection, governments should realise that revenue-financed health systems are more equitable and efficient than either private or social insurance systems touted by all too many consultants.

Grim trends

Today’s macroeconomic situation differs from the Great Stagnation of the 1980s, which especially set back Latin America and Sub-Saharan Africa.

Unlike then, recent downturns have also hit many Asian economies. Recent ostensibly counter-inflationary measures have deepened stagnation in much of the world.

Geopolitics increasingly redirects trade and investments as economic measures are increasingly weaponised. The most vulnerable are most likely to suffer.

The Sri Lankan and Pakistani economies have been in crisis recently as others struggle to avoid similar fates. Debt distress demands attention, but international cooperation is crucial.

After two and a half years of unnecessarily raised interest rates, the US Federal Reserve recently started lowering them at the end of the Northern Hemisphere summer.

Why were those interest rates raised in the first place? Ostensibly due to inflation. But higher prices in recent years have been mainly due to supply-side disruptions, not ‘excessive’ demand.

Raising interest rates has not helped much, as demand-side contraction cannot address supply-side disruptions but only worsens macroeconomic stresses.

Exceptions

Higher interest rates have adversely affected the whole world, including Europe. But unlike other central banks, only the US Fed is committed to achieving full employment.

Such US exceptionalism is part of the problem. However, most economies worldwide have suffered from higher interest rates, which have deepened economic stagnation.

The US has maintained full employment through fiscal policy and has borrowed cheaply from the rest of the world due to its ‘exorbitant privilege’, which is denied to others.

However, Japan’s and China’s central banks have refused to follow the West in raising interest rates. Hence, the pain in economies following their lead has been less severe.

Many governments’ fiscal and debt problems have constrained social expenditures, typically the first victims of budget austerity measures.

Financialization

In recent decades, the Bretton Woods institutions have promoted financialization, often by invoking UN Sustainable Development Goals (SDGs) and climate financing slogans.

With the West’s ‘quantitative easing’ after the 2008 global financial crisis, slogans like ‘from billions to trillions’ encouraged more government borrowing on commercial terms.

Rising interest rates from early 2022 have hit developing countries, forcing macroeconomic authorities to increase debt servicing.

Many countries struggle to service debt worldwide by cutting social spending. This has hit nations facing debt crises and governments trying to avoid more debt distress.

New lessons

During the pandemic, some macroeconomic authorities resorted to policies previously eschewed. Two Southeast Asian nations turned to ‘monetary financing’ of pandemic spending: central banks lent directly to finance ministries, bypassing markets.

The International Monetary Fund also issued special drawing rights (SDRs). Such extraordinary measures are necessary to meet the SDGs and keep temperatures from rising over 1.5oC above pre-industrial levels.

The Banks of Canada and England former Governor Mark Carney, now UN Special Envoy for Climate Finance and Action, has warned that the 1.5oC threshold will likely be exceeded in under a decade.

The world cannot count on some miraculous future invention to reverse irreversible planetary heating processes and their many ramifications.

New realism

Pragmatism demands addressing realities faced. Many such problems are beyond the scope of the ministries responsible for social spending, policy and protection.

Due to ‘reshoring’ and digitalisation, new investment fads will not create enough jobs. New types of socially valuable employment are needed, with many touting the commercialisation of care work.

However, most of our society’s less well-off will be unable to afford commercial care work unless their incomes rise dramatically, which seems unlikely soon.

An ‘all-of-government’ approach remains relevant for developing countries to better cope with and reverse some of the worst social trends.

Trying to do better with the limited resources available for social spending will only be adequate if the ministries responsible for macroeconomic policy, finance, and other related matters cooperate much better than ever.

Improved all-of-government cooperation and coordination work much better with a ‘whole-of-society’ approach to better tackle the social challenges of our times.

Related IPS Articles:

• Western Finance Ruining Economies of the Rest

• PPPs Fiscal Hoax Is a Blank Financial Silver Bullet

• More Progressive Taxation Needed for Social Progress

• Social Protection Necessary to Quickly End Poverty, Hunger

• Transforming Society, Financialization Destroys Social Solidarity

  
  

Available online here: New Approaches Urgently Needed to Tackle Resurgent Social Crises