Dec. 31, 2006

By Walden Bello

This report covers a) highlights of the Hong Kong meeting on international regulations in December 2005; and b) highlights of some key activities related to the concerns of the Hong Kong meeting that took place in 2006.

Hong Kong

The Workshop on International Regulations met in Hong Kong on Dec. 14 and 15, 2005. The meeting was a side event of the international civil society mobilizations on the occasion of the Sixth Ministerial Meeting of the World Trade Organization held in that city from Dec. 13 to 19. The theme of the conference was “Another Future: Alternatives to the World Trade Organization and Bretton Woods Institutions.” The closed sessions of the meeting took place at the Rosedale Hotel adjacent to Victoria Park. The two open sessions to which the public was invited took place at Victoria Park.

Sponsors of the meeting were Focus on the Global South, Pacific Asia Resource Center, Alliance for a Responsible, Plural, and Solidarity based World, and the 50 Years is Enough Network.

Participants in the closed sessions were:

Sarah Anderson, Megumi Sugihara, Nancy Alexander, David Hillman, Sameer Dossani, Ahmed Swapan Mahmud, Kavaljit Singh, Sony Kapoor, Arun Raste, Oscar Ugarteche, Oriol Alsina, Yoko Kitazawa, Reiko Inoue, Kevin Gallagher, Julie de los Reyes, Aileen Kwa, Shalmali Guttal, and Walden Bello. Most of the participants had taken part in a e-group discussion over a fifteen-month period prior to Hong Kong.

Key Points of Hong Kong Discussion

The two-day discussion in Hong Kong focused on the “Synthesis Paper” prepared by Walden Bello. The program was divided into discussions of the institutions covered in the e-group: the currency transactions tax, debt cancellation, the WTO, the International Monetary Fund, World Bank, transnational corporations, and the Asian Development Bank. The key points to emerge in the meeting were the following:

1. The Synthesis Paper did a good job of covering the main points of consensus and dissensus of the e-group, though there were concerns that needed to be addressed, among them more a thorough discussion of the currency transactions tax, discussion of some recent initiatives like the Chiang Mai Initiative for an Asian regional monetary mechanism, and too much focus on Asia and lack of coverage of Africa and recent events in Latin America.
   
2. There was consensus that the World Trade Organization performed no positive functions except to serve as a rule-setting agent to promote corporate interests, and that the strategic goal should be to phase it out. It was pointed out, however, that while the WTO continued to exist, developing countries should adopt a defensive strategy within it while focusing their work on positive trade initiatives outside the WTO. In terms of alternatives to the WTO, a number of issues were raised: alternatives should cover not just trade but other economic areas; they should promote not the export-oriented development model but one based on the domestic market; they should be based on regional cooperation and “South-South” cooperation; and they would need the participation in a positive fashion of key advanced developing countries like Brazil, India, and China. In this connection, the Bolivarian Alternative for the Americas (ALBA), one of whose components is income redistribution to build a strong regional market, deserved support.
   
3. There was consensus on the existence of a very deep crisis of legitimacy of the International Monetary Fund that made it very vulnerable to efforts to phase it out at this point. Discussion centered on regional alternatives to the IMF. It was pointed out that in Asia, there were initiatives like the Asian Monetary Fund and the ASEAN PlusThree arrangement that were in progress and were supported by key countries like Japan. There was some movement along these lines, with institutions like the Andean Finance Corporation, in Latin America as well. However, there were as yet no viable regional finance mechanisms in Africa.
   
4. On the World Bank, there was support for Robin Broad’s recommendation for a campaign to close the World Bank’s research and external affairs departments, which play a very critical ideological role in legitimizing neoliberal policies. In addition to these departments, two other World Bank windows, the International Finance Institution (IFC) and the Multilateral Investment Guarantee Agency (MIGA), were also recommended as targets for closure.
   
5. The discussion on TNCs was particularly rich. It was pointed out that an important task is dispelling many myths about TNCs. One myth is that they are transnational in their operations; in fact, most assets and sales of TNCs still take place in their country or region of origin. Another is that capital from TNCs is essential for development; in fact, there is no correlation between inflows of capital and gross capital formation. Participants expressed support for the idea that while international mechanisms to control TNCs should be explored, the brunt of regulatory efforts should take place at the national level. It was also suggested that small and medium enterprises should be promoted as alternatives to TNCs as agents of production.
   
6. On debt cancellation, there was agreement that 1) an International Board for
   Arbitration for Sovereign Debt should be set up along the lines proposed in the
   paper by Oscar Ugarteche; 2) that in any debt restructuring, social expenditures must be protected; 3) that corruption in loans must be dealt with via the establishment of an international court for economic crimes; and 4) that civil society organizations must be actively involved in the debt cancellation process.
   
7. It was proposed that the next phase of the E-Forum would be a discussion of a proposal for a comprehensive international financial, monetary, trade, and investment architecture. Oscar Ugarteche proposed that his Institute of Economic Research at the Universidad Autonoma de Mexico serve as the center of the electronic workshop.

Post-Hong Kong Activities

We include this section to show that the Workshop’s discussions and participants have had an impact beyond the Electronic Forum process.

Campaign on the IMF

Several important developments involving some of the participants in the Hong Kong workshop occurred in 2006.

On the occasion of the IMF-World Bank meetings in April 2006, a number of civil society organizations met in Washington to discuss strategies on the IMF and the World Bank. One result of the meeting was a decision to launch a campaign to phase out the IMF. It was decided that a) a campaign document would be drafted; b) that a conference to launch a campaign to “sink or shrink the IMF” would be held during the annual meeting of the two institutions in Singapore in September 2006; and c) that a bigger conference to phase out the Fund would be held sometime in 2007.

The campaign document entitled “The IMF: Sink it or Shrink it” was drawn up and collectively approved by the end of July. It was eventually signed by over 50 organizations worldwide. Part of the declaration read:

To achieve the strategic goal of disempowering the IMF, the Campaign should urge South country governments not to enter into new loan agreements with the Fund.
The Campaign should also urge governments to unilaterally repudiate debts claimed by the Fund.

We should ask countries on bogus or ineffective debt-relief schemes like HIPC, which are supervised by the IMF and the World Bank, to leave these programs altogether.

Similarly, the Campaign should ask governments on Poverty Reduction Strategy Programs (PRSPs) to dispense with the advisory and management services of the Fund and Bank and review the commitments they have made under these programs, if not abandon them unilaterally. Systematic exposure of the negative impact of Fund and Bank conditionalities on production, jobs, wages, income, gender equality, public health, public services, and the environment will be a critical task. The IMF's Poverty Reduction and Growth Facility seems especially vulnerable at this point, and a focused campaign to shut it down stands a chance of success, which could then build momentum for other initiatives.

Congressional or parliamentary oversight and budgetary provisions and practices should be used to call hearings and conduct audits on the IMF in the US, Europe, Japan, and South countries. Withdrawal of membership from the IMF might be an issue that can be floated to attract both official and civil society interest. Holding a forum on this issue in a lead country, for instance, Argentina, could trigger similar fora in other countries. This could be coupled with the holding of civil society referenda on continued membership in the IMF, such as the exemplary one conducted on Brazil's membership in the Free Trade of the Americas in 2002. Indeed, where the possibility of victory is present, we can push for parliaments to take a vote on whether or not to withdraw from the IMF.

A major conference on alternatives to the IMF on the issue of lender of last resort should be organized for 2007, with comprehensive research work undertaken this year in preparation for this event. As a curtain raiser for this conference, the Campaign will sponsor a day-long seminar on alternatives to the Fund in Singapore during the fall meeting of the IMF-World Bank in September of this year.

A central operational principle of the campaign is to provide different participating organizations with the opportunity to join the campaign at their "comfort level." Some governments and organizations, for instance, may not yet be prepared to endorse a call to withdraw from the IMF but may be willing to withdraw from a PRSP or call for the shutting down of the PRGF.

In his classic work, The Structure of Scientific Revolutions, Thomas Kuhn showed how paradigms evolve from frameworks that trigger a quantum leap in knowledge to hindrances to further advance in science. Similarly, the IMF transmogrified from a vital institution contributing to global growth and stability in the two decades following the Second World War to an 800-pound gorilla blocking the route to sustainable development for the billions of the world's poor in the last three decades. Had this obsolete institution been terminated during its 50th year in 1994,

・ - 22 million Indonesians and one million Thais would have been saved from falling under the poverty line owing to the capital account liberalization policies it had imposed on the East Asian countries;
・ - Argentina, the poster boy of IMF-style neoliberalism, would have been saved from the tragedy of having over half of its people unemployed and living in poverty;
・ - Thousands of people in Malawi would have been saved from the starvation and malnutrition that stemmed from the IMF's forcing Malawi to "commercialize" its food procurement and stabilization agency, a move that led to its bankruptcy.
・ - 100 million people in Russia and Eastern Europe would not have had a free fall into poverty courtesy of IMF shock therapy programs.

Global economic governance is important, but it is a system in which the Fund as it is currently configured no longer has any positive role to play. The Fund's assuming stabilizing functions in a volatile world of unregulated global finance has been consistently torpedoed by its strongest member, the United States, while its serving as a lender of last resort has been systematically undermined by the conditionalities it imposes on its borrowers, which have exacerbated poverty and inequality and institutionalized economic stagnation.

Disempowering the Fund will not lead to global financial and fiscal chaos, as Wall Street would have us believe. On the contrary, disempowering the Fund is a condition sine qua non for the creation of a truly just, rational and effective system of global financial governance. IMF conditionalities doom developing countries to crises and deeper poverty. IMF "rescue" programs do nothing except rescue the big creditors while saddling people with recessionary stabilization programs. The IMF, indeed, has no interest in curbing the power of the global speculators, and so long as it remains in a position of power, blocking genuine global financial reform at the behest of Wall Street, there will be more financial crises, more insecurity for people, and less accountability on the part of finance capital.

Like old nuclear reactors, the IMF is dangerous and, many argue, must be retired. The optimum solution to the problems posed by such Jurassic institutions is to decommission them. But if this is not yet possible at this point in the case of the Fund, then its power to do harm and its reach must be drastically curtailed.

The one-day conference to launch the campaign on Sept. 17 in Singapore was, however, disrupted when the Singapore government banned a number of representatives of civil society organizations from entering the country. Several of the banned activists had participated in the Hong Kong meeting on international regulation and were central organizers of the Singapore conference. Though truncated, the Singapore meeting at the Park Royal Hotel nevertheless took place, with some of the banned activists finally being allowed entry.

World Bank Crisis Deepens

In her paper for the E Group on the World Bank, Robin Broad called attention to the critical role played by the World Bank research and external relations department in propping up the neoliberal model through the biased handling of data to promote pro-liberalization and pro-globalization positions. She recommended the launching of a campaign to close down the two departments.

Broad’s longer piece on the subject appeared in the Review of International Political Economy (RIPE), the world’s leading journal on international political economy, in August 2006. Key figures in the Bank’s research department tried to discredit the piece, even going to the point of protesting to the advisory board of RIPE for publishing what it claimed to be “shoddy scholarship.” The RIPE editorial board, however, defended its decision to publish Broad’s piece and offered the World Bank analysts a chance to debate Broad in the pages of RIPE. They backed down.

A few weeks later, Broad and the RIPE editorial board were vindicated. According to the Financial Times in an article published on Dec. 21, 2006:

The World Bank’s use of questionable evidence to “proselytize”’ on behalf of its development policies has been sharply criticized by the first big external audit of the bank’s use of research.

A copy of the audit obtained by the FT found the bank often used research on globalization “without taking a balanced view of the evidence” and ignored unfavorable research.

The scathing critique is likely to heighten debate over the way in which the benefits of globalization have been spread.

The panel praised bank researchers’ “extremely visible work on globalization, on aid effectiveness, and on growth and poverty.”

But auditors also had “substantial criticism of the way that this research was used to proselytize on behalf of bank policy, often without taking view of the evidence, and without expressing appropriate skepticism.”

The documents conclude: “Internal research that was favorable to bank positions was given great prominence, and unfavorable research ignored.”

The probe examined World Bank research from 1999 to 2005 and was led by outside economists including Ken Rogoff, a former director at the International Monetary Fund, and Angus Deaton, a professor at Princeton.

The panel argued that the bank “has not done enough to compile comprehensive data on trade costs,” arguing that information on how industries, regions, firms, and households respond to changes in its barriers” was fundamental to analysis of trade reform.

Conclusion and Recommendation

The Workshop on International Regulation has been very valuable in terms of generating both proposals and directions for the international regulation of key institutions of global economic governance. As shown by the abovementioned activities on the IMF and the World Bank, the proposals generated by the Forum and the participants in the Forum have had an impact beyond the Forum. It is important to move to the next phase of deepening the discussion of alternatives. The proposal for a Workshop to come up with comprehensive international financial, monetary, trade, and investment architecture is a logical step in this direction.