Focus on jobs, liquidity and free farm trade
 
Philip Bowring
Wednesday, March 20, 2002
HONG KONG The United Nations conference on financing for development threatens a torrent of words followed by scant action. The draft of the Monterrey consensus runs to 72 numbered paragraphs of good intentions phrased to include the agendas of almost every nation and interest group but sufficiently vague to be offensive to none. It is unlikely that rich nations will do any better than in the past in meeting their commitments to increase aid. So the focus of these meetings should be on policy issues which will spur economic and social development.
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Top of the list should be: Priority to employment generation in the development agendas of national governments and multilateral agencies.
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Recent years have seen excessive emphasis on financial flows, which have often led to unnecessarily capital-intensive development and overcapacity in manufacturing, while employment has lagged far behind GDP growth. China is a prime example.
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Employment creation programs in Indonesia and Thailand introduced in response to the Asian crisis were successful in both reducing poverty and restoring macroeconomic stability. Countries with scant ability to increase exports or attract foreign investment have a particular need for such a focus.
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A larger role in policy formulation should be given to the International Labor Organization, in which the private business sector is represented. The ILO now has an energetic director-general in Juan Somavia, and although it has no money to lend, it comes without the baggage of resentment that the World Bank and the IMF carry, however unfairly.
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The ILO has a better appreciation than most agencies of the role of small enterprises and the informal economy as the most effective generators of employment, especially in capital-short countries. Its commitment to labor rights is important in disarming some critics of globalization and keeping labor issues out of the World Trade Organization.
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A push for a new IMF issue of special drawing rights.
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This would provide enhanced international liquidity and a transfer of resources to the developing world. Although global liquidity as measured by foreign exchange reserves has been increasing quite rapidly due to the U.S. trade deficit, the beneficiaries have been other developed economies and a handful, almost all East Asian, of trade-oriented developing countries. Most poorer countries cannot begin to involve themselves more closely with the global economy unless they have a stronger reserve base.
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Asian and Latin American currency crises have caused many countries to want to build up their reserves to provide currency stability rather than investing in development.
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A development-oriented SDR issue would partly counterbalance distortions created by capital markets - in the past three years more money has flowed out of the developing world to finance consumption by the rich than has flowed in to generate higher living standards for the poor.
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A just published IMF report on global financial stability paints a worrying picture of escalation of debt and credit risk in the developed world, especially the United States. The counterpart is the starving of credit to the developing world.
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Such is the world run by investment bankers and derivatives traders. A counterweight is urgently needed.
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Recognition that agriculture is the most important sector to be addressed in reducing poverty in most of the developing world - China, which is still 65 percent rural, included. Raising farm productivity is the key not only to improving rural living standards but also to building the basis of urbanization. The distortions of national policies such as pricing to benefit urban workers, and overinvestment in "prestige" car plants or skyscrapers, need to be acknowledged.
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But the biggest distortion of all to rural people almost everywhere in the developing world remains the agricultural subsidies of the developed world, and the export subsidies of the European Union in particular. The knock-on impact on farm prices in villages almost everywhere in Asia and Latin America, including those with low levels of farm trade, is immense, and seldom understood. It rightly makes victim countries dubious of globalization, and deters nations such as India from liberalizing their own agricultural sectors. Farm trade reform is vastly more important for the global economy than any amount of official development assistance.
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International Herald Tribune
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