A WORLD VISION JOURNAL OF HUMAN DEVELOPMENT

First Quarter, 2002

In thisthis issueissue...... World Bank President James D.Wolfensohn Rt. Hon. Gordon Brown MP,MP, Chancellor of the Exchequer, UK OECD DAC Chairman Jean-Claude Faure EC Director for Development Koos Richelle IMFIMF DeputyDeputy DirectorDirector forfor PDRPDR MasoodMasood AhmedAhmed plus articles from... New Economics Foundation Bretton Woods Project Finance Focus on the Global South North South Institute for development ...and...and moremore It takes money

FINANCING for development is undoubtedly one of the most impor- First Quarter, 2002 tant, if not the most important, issue facing the global movement today. Finance for development Without resolving the scandal of inadequate financing, we cannot Financing for development–a time for action 1 address the health, educational and World Bank President James D.Wolfensohn suggests five areas in which economic issues that face the poor, results from the March FfD conference could assist developing countries to nor can we hope to create a more reduce poverty and strengthen their economies. stable world. Conferences on child trafficking, say, or HIV/AIDS may grab FfD and children 3 media headlines, but such issues all The Rt. Hon. Gordon Brown MP, Exchequer, UK, says ‘ensuring a require the world to solve the mat- better future for the world’s children means putting their needs at the ter of financing for development. centre of financial decision making and economic planning.’ We’ve prepared this edition with the March 2002 Financing for Development finance, policy coherence, governance 5 Development Conference in OECD’s Development Assistance Committee Chairman Jean-Claude Monterrey, Mexico, in mind, and have Faure emphasises the importance of good governance and the invited an array of leading thinkers inclusion of the poor as full partners in development financing. on global economic issues to con- tribute, in an attempt to provide Sustainable development can work in Mongolia 7 insight and fodder for discussion. FfD–what role for NGOs? 8 In our lead article,World Bank President James D.Wolfensohn sug- The IMF’s evolving role in poor countries 9 gests five areas in which results from Go with the flow? 11 the Monterrey conference could assist developing countries to reduce From hands-free to hands-off conditionality 12 poverty and strengthen their economies.The Rt. Hon. Gordon Where’s the development? 15 Brown MP,Chancellor of the Huge debts are choking Indonesia 16 Exchequer, UK, reminds us of the important role FfD can have in allevi- Donors in the dock–rethinking ODA effectiveness 17 ating the suffering of the world’s chil- Innovation and resistance–civil society and FfD 18 dren. Brown recently launched a proposal for a US$50 billion global development investment fund that Global Future is published quarterly by Correspondence should be marks one of the most creative and World Vision to encourage debate and discus- addressed to: sion on development issues. interesting ideas to emerge from an Global Future OECD state for some years. World Vision Contributors from OECD, the Publisher Dean R. Hirsch 800 W. Chestnut Ave. Editor Randy Miller Monrovia, California 91016-3198 European Community, the IMF, the USA New Economics Foundation, the Contributing correspondents: Kelly Currah, Telephone (1) 626-303-8811 Bretton Woods Project, Focus on Melanie Gow, Brett Parris, Matt Scott, Don Brandt, FAX (1) 626-301-7786 the Global South, the North South Heather MacLeod, Joe Muwonge,Alan Whaites. e-mail: [email protected] Institute, and voices from the poor, All opinions expressed in Global Future OR: themselves, round out what we hope are those of the authors. will be a useful springboard for dis- World Vision Articles may be freely reproduced, with acknowl- cussion leading up to the conference 6 Chemin de la Tourelle ■ edgement, except where other copyright is indicat- 1209 Geneva, Switzerland in March. ed.Annual subscription in USA: US$15, but sent ISSN 0742-1524 free of charge to NGOs in the South. — Randy Miller

COVER PHOTO: REUTERSÐTHE EURO, THE NEW CURRENCY FOR 12 OF THE 15 EU STATES, HIT THE STREETS 1 JANUARY 2000. There are five areas where we Financing for development: believe that concrete results from the FfD Conference could have a signifi- a time for action cant impact on the ability of develop- ing countries to reduce poverty and James D.Wolfensohn expand their economies: 1. Increased levels of Official Development Assistance (ODA). Low- THE MILLENNIUM Declaration ment (FfD) process, leading to the and middle-income countries need a endorsed in September 2000 by more March 2002 international conference major increase in aid from rich coun- than 150 heads of governments at the in Mexico, provides a unique opportu- United Nations is a landmark effort to nity to galvanise international action ensure that the opportunities and and focus on the means required to We at the World Bank benefits presented by globalisation are reach the Millennium Goals. An believe international shared by the peoples of all countries. important feature of this co-operation to fight The Declaration gave new political process–which the Bank fully sup- impetus to pursuit of the goal of halv- ports–is the recognition that the poverty is more critical ing extreme poverty and hunger means are not only financial. While than ever. around the globe by the year 2015, mobilising public and private capital is and to the other goals promoting edu- a necessary part of the solution, it tries in order to reach the goal of cation for all, health, and a sustain- halving extreme poverty by the REUTERS able environment–now known as year 2015. Our analysis suggests the Millennium Development that up to a doubling of current aid Goals– which have emerged from levels may be needed, from just the series of United Nations con- under US$60 billion to US$120 bil- ferences in the 1990s. As the lion per year. But these additional Declaration affirms, the World resources must be focused on the Bank is an important partner with neediest countries, which have the United Nations in this effort. demonstrated that they will use Economic consequences these new resources wisely and address human development In the wake of the tragic events needs. Expe-rience shows that, in of September 11, we at the World countries without sound policies Bank believe that international co- or good governance, external assis- operation to fight poverty is more tance has a limited effect on reduc- critical than ever. Our analysis ing poverty. In countries imple- shows that economic growth will World Bank President James D.Wolfensohn responds to questions from reporters in Sydney menting sound policies and pursu- suffer world-wide in 2001 and in August as Australian Foreign Affairs Minister ing good governance, however, 2002, condemning as many as 10 Alexander Downer looks on. external assistance can have a high million more people to live in pay-off. poverty next year, and hampering the must be complemented by adopting fight against childhood diseases and good public policies, building greater Overall development malnutrition. We estimate that an capacity, expanding opportunities for 2. Establishing a hospitable environ- additional 20,000-40,000 children world trade, and empowering the ment for private sector development. under 5 years old could die from the poor to participate in development. A dynamic private sector–including economic consequences of the The Bank has been a full partici- small and medium enterprises–in September 11 attack as poverty wors- pant in the intensive intergovernmen- poor countries is essential for creat- ens.The worst hit area will be in sub- tal consultations over the course of ing jobs and contributing to a coun- Saharan Africa, where, in addition to the last year and a half to prepare for try’s overall development. Foreign the possible increases in poverty of 2- the FfD Conference. As the process investors, who can also help fuel a 3 million people as a result of lower moves to the final stages, we hope country’s growth, will not be attracted growth and incomes, a further 2 mil- that the constructive spirit that has to enter developing country markets lion people may be condemned to liv- prevailed in the discussions will con- unless there is already a good policy ing below US$1 a day, due to the tinue and will lead to identifying those and regulatory environment in place effects of falling commodity prices. areas where the conference can offer and domestic investors are active at The UN Financing for Develop- the basis for concrete progress.

Global Future — First Quarter, 2002 1 home, instead of engaging in capital 5. Financing for Global Public Goods. and effective legal system, judiciary flight overseas. In addition to meeting the develop- and police to protect people’s rights, 3. Integrating developing countries ment needs of a specific country,many root out corruption and ensure public into the world trading system. of today’s development challenges safety; schools to educate the next Increased access to global markets require collective action across generation of workers and leaders; offers the best promise for developing national borders. These include pre- hospitals and clinics to ensure public countries to lift their people out of venting and treating communicable health; and modern technology and poverty. We must help developing diseases, maintaining financial stability, roads to connect people to knowl- countries build their capacity to pro- sharing of knowledge, and protecting edge and to new markets. Helping duce quality goods, and to engage in a the environmental commons. Since developing countries meet these new round of multilateral trade nego- both poor and rich countries alike needs is the focus of the World Bank’s tiations that will open fairly the doors stand to benefit, there is a compelling programs. case for additional financing to meet Developing countries these needs–such as the newly creat- Slow progress are adversely affected ed Global AIDS and Health Fund.We Clearly, the Millennium Goals pro- need to keep up public pressure for vide a formidable challenge and by the numerous trade contributions to this fund. responsibility for all of us. Progress barriers imposed by rich For many countries, debt relief is since 1990 has been too slow to nations. also an important part of the solution. achieve most of the goals, and, in some Under the Heavily Indebted Poor cases, we are losing the fight. For Countries (HIPC) Initiative, the World of rich country markets to developing Bank, the International Monetary The World Bank is country exports. Developing coun- Fund and member governments committed to work in tries are adversely affected by the already are providing debt relief to 23 numerous trade barriers imposed by countries, amounting to a total of partnership with the full rich nations, such as subsidies to agri- US$34 billion as of early November range of public and culture that amount to an estimated 2001, with another three countries in private organisations. US$1 billion per day–or more than six early 2002.As a result, poor countries times all development assistance. The have more resources available for relaxation of trade barriers by rich spending on health care, education instance, in 14 countries, there were countries will significantly reduce the and other social services. We are increases in child mortality between amounts of aid required to reach the proud of this initiative, and more 1990 and 1999. This is simply unac- Millennium Goals. countries are scheduled for decisions ceptable. Political will and stepped-up on debt relief in the coming months. efforts are required if there is to be a Co-ordinated efforts But debt relief cannot be seen in iso- real chance of meeting these goals. 4, Reducing the administrative bur- lation, or be given at the expense of The World Bank is committed to dens of aid. It is not enough to further aid or trade. It is hypocritical work in partnership with the full increase the amount of assistance we to give debt relief with one hand and range of public and private organisa- give; it is equally important that these then deny poor countries promised tions–including civil society organisa- resources be used more efficiently. aid or the ability to export their way tions like World Vision–in this fight Different donor agencies, such as the out of poverty with the other. We against poverty. The challenges are Bank and the United Nations–as well must provide all low-income coun- daunting, but we can win this fight if as rich country governments–must tries–not just those that are highly we work together. Together, we can co-ordinate their efforts to help. Many indebted–with the levels and forms of and must build a wider public con- developing countries have limited assistance that best suit their needs. stituency–especially in the rich coun- public sector capacity to deal with Underlying all of this is the need to tries–and urge governments to take multiple donors, each with its own help developing countries build their necessary actions in promoting aid, agenda and requirements for how to capacities–the institutions, skills, trade and capacity building to help the use their aid. Harmonising the opera- knowledge and infrastructure–to pro- poor lift themselves out of poverty. tional policies, procedures and prac- mote economic growth and empower We have agreed on the goals. Now, tices of different donor agencies will the poor to participate in develop- with the Financing for Development allow recipient countries to better ment.This includes establishing strong Conference, it is time for action. ■ manage their aid programs to meet financial institutions to provide access their peoples’ needs. to credit; promote and protect peo- James D.Wolfensohn is President of the World ple’s savings and investments; a fair Bank.

2 First Quarter, 2002 — Global Future development at severe risk. Diseases FfD and children like malaria and tuberculosis kill mil- lions of children each year; in South Rt. Hon. Gordon Brown MP Africa, Botswana and Zimbabwe, half of all 15-year-olds are expected to die of AIDS. Where developing countries have adopted strategies to tackle these EVERY DAY this year, 30,000 chil- ments from all. We must all be ready problems, they have yielded positive dren will lose the fight they are wag- to reshape our policies, adjust our results. And there is more that they ing for life. Seven million children will expenditure, and refashion our priori- can do to reduce disease and despair. perish before reaching their first ties so that the actions of each of us Yet there is also a natural limit birthday, and over ten million will die make possible the attainment of the imposed by their ailing economies. So before the age of 5. Of those children goals set by all of us. it is vital that developed countries winning their fight for survival, 113 In particular, there are two areas take action, and take action together. million have no access to primary education, 60% of them girls. Millions Global poverty is an Unique partnership more do not complete the five years affront to our basic In the UK and elsewhere, new tax of schooling needed to develop the incentives have been created to accel- basic literacy and math skills that belief in the equal erate research on diseases like would last them a lifetime. worth and inherent HIV/AIDS,TB and malaria. In addition, This is the face of global poverty potential of all people. the UK is leading in the development today. It is an affront to our basic –with the United Nations, other gov- belief in the equal worth and inherent ernments, international agencies and potential of every human life. It is a on which action is imperative: health foundations–of a unique partnership: a challenge to the values at the core of and education. Global Health Fund to mobilise our character. A child’s health should not be resources for the prevention, manage- Ensuring a better future for the determined by a family’s–or a coun- ment and care of HIV/AIDS, TB and world’s children means not only try’s–wealth.We well know the human malaria. The UK is contributing putting the needs of the young and and economic costs of poor health US$200 million to the fund, and glob- the poor at the centre of social policy, and infectious disease in developing ally the total of commitments already but also at the centre of financial deci- countries. In the developing world, exceeds US$1.8 billion. sion-making, economic planning and 150 million children are underweight, But it is essential that pharmaceu- international diplomatic action. with their mental health and physical tical companies join us, responding to Our starting point for action is the United Nations development goal to halve the proportion of people living

in poverty by 2015, including: RANDY MILLER 1. Reducing by two-thirds infant and child mortality rates; 2. Ensuring that all children complete five years of good quality basic educa- tion; and 3. Closing the gender gap between boys and girls at all levels of educa- tion. International concensus But simply setting targets is not enough. Too often, the world has set development goals and failed to meet them. That is why we must build an international consensus amongst gov- ernments, NGOs, multilateral institu- tions and the business sector and demand new and concrete commit- ‘A child’s health should not be determined by a family’s–or a country’s–wealth.’

Global Future — First Quarter, 2002 3 for progress on development. We must now identify the concrete steps

RANDY MILLER necessary to finance the achievement of our development goals, recognising that this will require a coherent approach involving a number of ele- ments: * Faster, wider and deeper debt relief so that money paid by the poorest countries for debt today can be money spent on education and health tomorrow; * Increased and untied aid commit- ments; * Growth through trade, as one of the best means of lifting people up; * Increased flows of FDI and improve- ‘We know education–especially girls’ education–is a precondition of personal and national ments in the environment for private progress. It is the best anti-poverty strategy, the best economic development programme.’ capital, especially in low-income coun- tries; the challenge we face by developing Commonwealth. * Community-driven poverty reduc- and delivering affordable treatments But no aid budget, and no one tion strategies at the heart of eco- for the world’s poor. Quite simply, we nation, can achieve enough on its own. nomic policy in developing countries; cannot save lives and raise hopes The cost of meeting our targets is not * Increased domestic saving, invest- without their commitment. huge–recent studies estimate that the ment and entrepreneurship in devel- We know that education–and additional cost of achieving universal oping counties; improving the access especially girls’ education–is a precon- primary education could be in the of the poor–particularly women–to dition of both personal and national region of US$10 billion a year–and the land, property and credit markets; and progress. It is the very best anti- effect of these additional resources * A stronger voice for developing poverty strategy, the best economic would be dramatic. Developed coun- countries in the international system, development programme. by sustained capacity building on an Progress is being made. In the past We know that educa- institution-by-institution basis. decade, primary enrolments have tion is the best anti- increased at twice the rate of the Much-needed progress 1980s. But the challenge remains poverty strategy; the It is critical that the UN Financing great. Almost half of all African chil- best economic develop- for Development conference to be dren and one-quarter of those in ment programme. held in Monterrey, Mexico, in March Southeast Asia are being denied a 2002, achieves a successful out- basic education. Public expenditure come–and makes much needed per pupil in the 19 least developed tries must work together to mobilise progress in mobilising the resources countries is less than US$40, com- additional resources to fill the funding that are essential to meeting our pared with US$200 per pupil in devel- gap that amounts to less than one- shared development goals. oping countries, and US$5,300 in quarter of one percent of the OECD It is a vital test of our progress more advanced economies. So again it countries’ combined GDP. Similarly, that a mother in sub-Saharan Africa is vital that developed countries take developing countries must reprioritise will give birth without transmitting action together. their own budgets to meet part of the HIV to her child, and will herself live funding gap and ensure long-term sus- long enough to nurture the child; that Universal primary education tainability. We must recognise the a child in South Asia will have suste- Action must begin with aid. Since scale of the challenge we face and, nance and shelter; and that a young 1997, the UK has increased its com- working together, respond on an man or woman will gain the tools and mitments on education by US$850 equal scale. skills and education it will take not million. And this year–in Her Majesty The Millennium Summit in only to live, but to thrive, in the 21st the Queen’s jubilee year–we will cre- September 2000 brought together century. ■ ate a fund to speed the introduction more world leaders than ever before, of universal primary education in the and sought to find common ground Rt. Hon. Gordon Brown MP is Chancellor of the Exchequer, UK.

4 First Quarter, 2002 — Global Future identify the multiple dimensions of Development finance, policy aid, encompassing issues of effective- ness and governance as well as ques- coherence and governance tions of aid volume and allocation. The Third United Nations Jean-Claude Faure Conference on Least Developed Countries, held in Brussels last May, has already provided an opportunity THE UN CONFERENCE on emergence of the common and more to deal with development aid issues, Financing for Development, to be held collective management of globalisa- taking account of the general evolu- in Monterrey, Mexico, in March 2002, tion. Poverty reduction, sustainable tions mentioned above. A special will provide the international commu- development, the effects of globalisa- forum on financing for growth was nity a valuable opportunity to revisit tion–all these elements must be fully chaired by Evelyn Herfkens, Minister the issue of development financing. In integrated in the general movement of of Development Co-operation of the particular, it will present an occasion international relations at the econom- Netherlands, and Donald Kaberuka, to promote an overall coherent ic level, but also the political level. Minister of Finance of Rwanda. The approach where each of the following Ownership of policies is a two- key message emerging from this dis- elements will play an important role: way street–with commitment by both cussion was the need to build part- domestic resources; better distrib- developed and partner countries as an nerships based on mutual accountabil- uted and guided expansion of private essential element for their success. ity in the context of PRSPs: external flows for development in Such commitment and ownership is * developing countries must be partner countries, including the poor- the foundation of political will and the accountable for their policies, gover- est of them; and a renewed role for consent of citizens. nance and development management; development assistance, linked to * donor countries must be account- increased efficiency and adequate vol- Preparing for Monterrey able, individually and collectively, for ume.Along with coherence, good gov- Against this background, the the efficiency of their aid practices, ernance–both domestically and at the Monterrey conference will be an and for timely follow-through on global level, and in the private sector opportunity for all participants to commitments; as well as the public sector–emerges reach a dynamic consensus on the * PRSPs that meet the accepted stan- as a necessary and unifying condition objectives to be attained–at the level dards should be adequately financed for the success of each of these ele- of the principles involved and the by donors. ments of development financing. actions required to mobilise, in a sus- There is now strengthened con- tainable way, the financial resources Mutual accountability needed in order to meet the viction that good and efficient gover- The new African-generated initia- Millennium Development Goals. This nance fosters economic development, tive for a New Partnership for Africa’s is indeed why the OECD and the social and political cohesion, and the Development (NEPAD) takes the DAC have joined in the preparatory protection of the environment, to the concept of mutual accountability as a work currently underway. extent that it respects full participa- starting point for the relationship with Preliminary orientations that can tion by all individuals. This conviction donors, and proposes arrangements be gauged from consultation among is gaining ground at the same time as for moving from concept to reality, via bilateral donors indicate their interest development and poverty reduction an ‘ODA Forum’, for interacting with in a coherent, systemic and integrated policies are becoming comprehensive. the DAC. approach to development finance–to On the volume of aid, new calls for Governance principles clarify the relationships between pub- a doubling of ODA have emerged in The governance principles called lic and private financing; external and the Monterrey process. On the supply upon to direct, in an increasingly wide- international resources; financial sys- side, this would mark a dramatic ranging way, interactions between tems and formal and informal inter- change from the declining aid effort of states, markets and civil society, are mediaries; and sound resource man- the past ten years. But it would not be embodied in formulations, institutions agement and capacity building in part- inconceivable in the form of an incre- and practices that are, of course, ner countries. mental return over the next ten years proper to each type of actor. But they Regarding ODA, the Millennium to the ODA/GNI ratio of the 1980s. share common foundations: legitima- Development Goals and the new The more fundamental issues are how cy, the rule of law, transparency, comprehensive development frame- to ensure public support and the accountability, foresight and adaptabil- works, such as the Poverty Reduction effective absorption of a major ity–in a word, participation.These are Strategy Papers (PRSPs), should con- increase in aid flows. indeed the vital ingredients for the stitute a common basis from which to

Global Future — First Quarter, 2002 5 But policy coherence, governance without relief, and the risk of reducing underscores the need for a global and mutual accountability must evolve other forms of ODA and other finan- approach, bringing different policy further across a wide range of public cial transfer. The amounts of debt areas into a comprehensive effort. policies to do with development relief must be sufficient for debt sus- This is a necessary prerequisite of aid finance.The decade of the 1990s wit- tainability, for investment in economic effectiveness and political relevance nessed a major increase in the flows growth, and for adequate social and at the level of multilateral institutions of international capital to developing other expenditures of importance for and bilateral donors, as well as part- countries, in which private capital reducing poverty. Creditors must con- ner countries. The outcome of the became much more significant in total sider the risks and responsibilities recent WTO meeting in Doha was than ODA. Factors accounting for this involved in making loans to poor highly positive in this respect, with phenomenon include deregulation, countries, and must share the conse- development and poverty reduction regional integration, and advanced quent costs of failed credits. placed at the heart of the agenda set information technology. Although this * Export finance policies and practices out in the Ministerial Declaration has provided much needed capital, –including guarantees–have an impact (which has been referred to as the mostly for the larger and more devel- on debt, sustainable development and Doha Development Agenda). In this oped of the developing countries, it poverty reduction. OECD ministers context, a striking feature of the has also led to an increased volatility have mandated the Export Credit Declaration is the emphasis on capac- of flows, to debt crises and to wider Group (ECG) to strengthen measures ity development as the gateway for financial crises. Among the areas of to ensure that export credits are con- developing countries to become full policy coherence involved are the fol- sistent with international agreements participants and beneficiaries in the lowing: on sustainable development, and–in global trading system. the case of HIPCs–are not used for But following through on Doha, Adequate representation unproductive purposes. Further, the and in other areas of global public pol- * Financial sector reform is important, ECG has recommended measures icy, will require focused analysis and both nationally and internationally, for both to deter bribery in the credits clear priorities on the part of individ- enhancing incentives for efficient themselves and to deny such credits ual governments and the international investment and economic growth and where the relevant export contracts community. The DAC has prepared a to minimise the risk of financial crises. involve bribery.1 Checklist on Policy Coherence for Orderly sequencing of reforms is cru- * Foreign direct investment (FDI) in Poverty Reduction, which helps gov- cial and should include a prudential developing countries has grown ernments verify that their co-ordina- regulation of the banking sector, insti- extremely rapidly in recent years. It tion systems work in this direction tutional capacity-building and better has mainly benefited a few emerging (included in the DAC Poverty co-ordination between exchange rate market economies in East Asia and Reduction Guidelines, www.oecd. policy, monetary policy, and controls Latin America.2 Low-income countries org/dac). The OECD as a whole or taxes on capital flows. A related lack the policy and institutional envi- adopted policy coherence for devel- issue of concern is that developing ronments, infrastructure, economic opment as a major objective at its countries should adequately be repre- dynamism and market size of better- Ministerial Meeting in April 2001 (see sented in international forums dis- off nations, which are needed to www.communique–para 41). ■ cussing reforms in financial architec- attract FDI. Much of what they do ture. receive is channelled into extractive 1. See ECG Action Statement (December * Portfolio investment provides valuable industries with limited or even nega- 2000) with reference to the OECD financial capital, mainly to middle- tive impacts on political and social sta- Convention on Combating Bribery of income developing countries with fair bility, and on poverty. Any negotiating Foreign Public Officials in International to good credit ratings. But short-term process toward an international Business Transactions. capital movements are a major cause agreement on investment rules, which 2. Twenty-three such countries account of volatility, which, in recent financial could secure enhanced access to for 90% of FDI. Of these, China and Brazil crises around the world, has increased development finance, needs to include alone accounted for half of FDI flows to poverty. developing countries as full-fledged developing countries in 1998, and ten mid- * Debt relief for HIPCs (Heavily partners. dle-income countries for 70%. Indebted Poor Countries) is interna- tionally recognised as necessary if Beyond development finance Jean-Claude Faure is Chairman of the poverty is to be reduced.To be effec- The multidimensional character of Development Assistance Committee for tive it has to be additional, considering the fight against poverty, the closely OECD (Organisation for Economic Co-opera- tion and Development). both the extent to which the debt related objectives and actions in this could and would have been serviced area and their necessary synergy

6 First Quarter, 2002 — Global Future environmental protection, proper Sustainable development management and use of its resources, and restoration of natural resources, can work in Mongolia which are in keeping with the objec- tives of the MAP 21 Programme. In R.Amarjargal fact, the MAP 21 Programme is being used as a primary model for shaping several government policies and pro- FOR CENTURIES, Mongolians It is essential that such a pro- grammes on development and the have respected the sacred relationship gramme be managed properly. For environment. between humans and nature. They this, the National Council for Social issues–particularly poverty developed a nomadic lifestyle and cul- Sustainable Development (NCSD), alleviation–are integral to the MAP 21 ture particularly suited to living in har- representing the government, NGOs Programme. Since 2000, we have been mony with the earth. This is largely and the private sector,was established using our experience and why Mongolians have been quick to under the leadership of the prime lessons–gained in implementing embrace the concept of sustainable minister. poverty alleviation programs since development in recent years. 1996–in executing programmes on A unified national strategy reflect- Decision-making at any level raising household living standards ing general trends of sustainable The NCSD opened its branches, The implementation of this devel- development began taking shape soon known as economic, social and envi- opment strategy has raised new after Mongolia’s transition to democ- ronmental councils, in each aimag demands for educational, cultural and racy and a market-oriented economy. (region), headed by governors who scientific organisations. Therefore, it In 1998, Mongolia’s government report to the National Council. This has been important to include sustain- adopted the Mongolian Action organisational structure allows the able development issues in the cur- Programme 21 (MAP 21) on sustain- issue of sustainable development to rent education system. In Mongolia, a able development. This programme be reflected and focused on decision- national program for general ecologi- offers a unified strategy of develop- making at any level of executive gov- cal education was formulated in 1997. ment that provides economic growth, ernance. Today, ecology lessons are being social equality and sustainable devel- While the formulation and imple- taught in secondary schools, and con- opment, as well as a rational and prop- mentation of the MAP 21 Programme crete measures are in place for creat- er use of natural resources. Its princi- has helped consolidate national ing ecological awareness among citi- pal objectives are: potential and upgrade the knowledge zens. * Mobilise all necessary resources to and skills of citizens and officials in alleviate poverty within the next 10- various sectors, it has encountered National strategy 15 years. some difficulties. For instance, a mech- The concept of sustainable devel- * Combat environmental degradation anism for monitoring programme opment, with a focus on environmen- and unfavourable changes, including implementation does not exist. tal issues at its nucleus, is being desertification and the destruction of Moreover, central and local govern- increasingly enriched with human, forests and water resources. ment officials have insufficient experi- social and economic issues, as well as * Manage the country’s development ence in planning and co-ordinating the concepts of governance capacity, tech- so that it is capable of withstanding issue of sustainable development. nology, traditions and cultural dimen- and adapting to global climatic For young democratic countries, it sions. It is providing excellent oppor- changes. is important that sustainable develop- tunities for developing countries to * Form an economic, educational, cul- ment have the necessary political sup- formulate a national strategy for tural, informational and social welfare port. I should emphasise here that development. In this field, it is impor- structure with the potential to guar- Mongolia’s main political parties have tant to disseminate and share gained antee human development and living taken an active part in the formulation achievements and accumulated expe- standards. of the MAP 21 Programme, and are riences with each other. ■ * Collaborate with regional states and supporting its implementation. Additionally, considerable effort the world community to establish a R.Amarjargal is Chairman of the Amarjargal reliable system of prevention against has gone into providing the proper Foundation, and is former Prime Minister of environmental degradation and natur- legal support for this programme. Mongolia. al disasters. Mongolia joined seven international * Ensure that growth and prosperity conventions in the environmental of Mongolia’s regional zones are in line sphere.And the Mongolian Parliament with its sustainable development. has enacted more than 20 laws on

Global Future — First Quarter, 2002 7 But that is exactly one of the Financing for development: problems. There is an abundance of good what role for NGOs? ideas and intentions. However, we have to focus on priorities and deliv- Koos Richelle ery and implementation. As far as the priorities go, we have an easy job: why not take the seven THE CONFERENCE on Financing tions between the Commission and targets of the Millennium Summit to for Development, which will take the NGO community. The new part- which the international community place in Monterrey, Mexico, on 18-22 nership agreement between the ACP already agreed? If we do this, the March, represents an historic oppor- (Arab, Caribbean and Pacific Group problem of delivery becomes the cen- tunity to find innovative ways to states) countries and the EU, which tral issue. Staff of the World Bank and address development concerns was signed in June 2000 in Cotonou, the IMF have calculated that it takes through the perspective of finance. recognises civil society as an impor- about US$54 billion extra each year The conference aims at structuring a tant partner.The aim is that civil soci- to reach those seven targets. That new global consensus on poverty would imply a doubling of present eradication, mobilising financial I firmly believe that the ODA (Official Development Assis- resources for development, and meet- contribution of civil tance) levels, or call for an economic ing the goals of the Millennium growth of 7% a year in all the devel- Declaration and other major United society organisations is oping countries, or other innovative Nations conferences of the past a key for the success of measures. One thing is certain: finan- decade. the FfD conference. cial solidarity toward developing One of the key elements of the countries must be increased, and the FfD conference is the involvement of mobilisation of all possible kinds of a wide range of players, not only the ety actors in the ACP countries be resources must be taken into consid- United Nations, World Bank, involved not only in the implementa- eration. International Monetary Fund, and tion of programmes and projects, but World Trade Organisation, but also a also be consulted in the policy dia- An engine for development large number of non-state organisa- logue. With the aim to support non- Trade, as an engine for develop- tions and private sector actors. Such a state actors’ activities, the Commis- ment, is crucial in any development holistic approach emphasises the fact sion also provides them with signifi- strategy.And, since the EU is the main that the ‘state versus market’ dichoto- cant funding. trading partner for most developing my must be abandoned and that many As far as the role of non-state countries, it has a substantial input to different kinds of players are to be actors in the FfD conference is con- realise. The FfD process is important involved in the international effort to cerned, I firmly believe that the con- because it brings together the trade, eradicate poverty. tribution of civil society organisations finance and development communi- is a key for the success of the FfD Stimulating debate ties. Market access is important, but Conference itself. Since the early there is a need to complement trade The European Commission, for its phases of the FfD process, it was preferences by accompanying mea- part, has been committed to the clearly stated that any co-operation sures that help developing countries involvement of civil society in all the effort must be based on the principles make full use of the opportunities of discussions of the FfD conference. In of partnership, ownership, and partici- trade, including measures addressing the past few years, the dialogue pation so that all relevant stakehold- supply-side constraints, competitive- between EU institutions and NGOs ers, both public and private, could par- ness, regional integration, and invest- has been at the centre of a quite stim- ticipate in the discussion and norm- ment promotion. ulating debate, which included the setting at the global level. As for the issue of debt relief, I publication of a Commission discus- In November 2000, a set of public share with the NGO community the sion paper: ‘The Commission and hearings was held in New York. And, view that debt is without doubt a Non-Governmental Organisations: on that occasion, several NGOs pro- major impediment to development. Building a Stronger Relationship’, in vided a series of proposals on those That is why the EU has supported 2000. The need to involve non-state issues that they wanted to see adopt- since the beginning the ‘Highly actors in the EU development policy ed by the conference. The ideas are Indebted Poor Countries’ (HIPC) ini- has always been an important ele- not all new. On the contrary, we grew tiative. Indeed, the Community is by ment, and different alternatives were quite familiar with a lot of them over far the most important contributor to considered to strengthen the interac- the years.

8 First Quarter, 2002 — Global Future the Trust Fund supporting the initia- tive. The main challenge for the near The IMF’s evolving role future will be to see that the enhanced HIPC initiative is actually in poor countries financed and fully implemented, and that the implementation is flexible Masood Ahmed enough to take into account special difficulties that may arise because of THINK OF THE International exogenous circumstances. What worked, what did not Monetary Fund, and one often thinks In late 1999, the IMF–in partner- of economic fire-fighters, responding Real development will ship with the World Bank–introduced quickly to financial crises in volatile a new approach to doing just that.We never be realised in a capital markets around the globe.This have laboured over the past two years sustainable way if it is certainly is one important aspect of to make it fully operational, not always the IMF’s work. But the IMF is a glob- not embedded in good with complete success. We are now al institution with 183 members, near- taking a close look at how we have governance. ly half of whom have average incomes done, inviting public contributions to of less than US$1,000 per year.These help us better understand what Another crucial issue in the FfD countries are far from the rapid pulse worked and what did not, and to see Conference is the notion of global of international capital movements; how the approach can be made to public goods. In the past, non-state indeed, many are struggling just to work better.To that end, the IMF and actors have been very active in the create a simple banking system. The World Bank are, for four days in provision of global public goods. It is IMF has an obligation to assist its January 2002, bringing together in necessary that state, non-state, poorer members as well as the larger Washington officials from poor coun- transnational, and international actors countries whose troubles make head- tries, administrators from donor agen- work together to find a balance lines. cies, and representatives from civil between private goods and public In the 15 years that the IMF has society groups from both North and goods. Therefore, one of the main been lending substantial amounts to South to learn from each other. objectives of this conference could poor countries at the concessional The new approach to assistance become the establishment of a ‘GPGs interest rate of 0.5%, it has become for poor countries had a number of Agenda’, which will allow the address- clear that, with limited resources for novel features. First of all, it was ing of global goods concerns on the these countries with overwhelming specifically targeted at reducing the basis of a common definition. problems, IMF and other donor assis- number of people living in poverty, tance needs to be carefully targeted at notably the 300m Africans struggling Good governance countries’ most critical needs. to live on less than US$1 per day.This Finally, I would like to highlight another aspect. However much extra financing and trade may be needed, real development will never be RANDY MILLER realised in a sustainable way if it is not embedded in good governance. The Goteborg summit of the EU has launched the idea of a ‘global deal’, to be realised in the World Summit for Sustainable Development, to be held in Johannesburg in 2002. The FfD Conference should be seen as an important milestone on the road to that ‘deal’. ■

Koos Richelle is the European Commission’s Director General for Development.

Global Future — First Quarter, 2002 9 RANDY MILLER address. For example: —Have the participatory processes established by national governments met their objectives? The PRSP approach has been a learning process for countries, too. For some of them, public consultation is outside their traditions.Teething problems in open- ing up the policy process are perfect- ly understandable, and both we and country officials can learn from them. —Have the expectations for the PRSP been set too high? Perhaps so, consid- ering some poor countries’ ability to implement such an ambitious under- taking in a limited timeframe.What is the need for increased technical assis- tance? —Will the new approach really lead the donor community to do business differently? There is understandable scepticism, including about the Fund. But the Fund is committed to ensur- focus was meant to ensure that the swiftly and in consultation with just a ing that national governments drive efforts of all parties are channelled in few key officials, the new, more partic- this process. That’s why we are con- a consistent way to where it matters ipatory approach is much more time- ducting a separate review of our lend- most. consuming.The expectation has been, ing instrument for poor countries–the Second, it was designed to build a Poverty Reduction and Growth national consensus on how best to The PRSP process has Facility–to ensure that it is fully sup- tackle the problems of poverty in been a major departure portive of the PRS process on the each country. Low-income countries ground. applying for debt relief or new loans for the way the IMF at highly subsidised rates need to works in these A learning institution develop their own Poverty Reduction countries. The IMF is a learning institution, Strategies Papers (PRSP), based on and in our work with the poorest broad consultation within each soci- countries we need to share that learn- ety–including the poor themselves–to however, that the PRS approach will ing with the countries putting togeth- ensure that the problems were under- help both to improve the quality of er their PRSPs.The shocking events of stood and the remedies, as far as pos- the programmes supported by the recent months have highlighted the sible, were agreed upon. Fund, and increase support for them importance of international co-opera- within the countries themselves. tion. Even more starkly, they have con- New concept of partnership How has this worked out in prac- firmed the proposition that there can Third, the new approach em- tice? not be a good future for the rich if braced a new concept of partnership During the upcoming conference, there is not a good future for the between countries and development the IMF and the World Bank will be poor.The IMF is committed to the co- agencies. The Poverty Reduction gathering the views of those who have operation needed to make the Strategy Papers were meant to form participated in the formulation of the prospect of a good future for the the basis for a co-ordinated approach PRSPs. Nevertheless, certain themes world’s poor a reality. ■ by external donors, and to give coun- already have emerged from a string of tries a way to channel donors’ willing- earlier consultations around the Masood Ahmed is Deputy Director, Policy ness to help where it is most needed. world over the past few months. Development and Review Department, for the The PRSP process has been a When the executive boards of the International Monetary Fund. major departure for the way the IMF Fund and the Bank finally convene in works in these countries. Whereas March to consider formal changes to IMF-supported programs in countries the PRSP process, there are a number in crisis must often be put in place of key questions they will need to

10 First Quarter, 2002 — Global Future import machinery or medicines; Go with the flow? * Efforts to keep inflation low, to give greater market confidence, means Angela Wood that pro-poor spending is cut to ensure budgets balance. The IMF and Bank view capital account liberalisation as an inevitable, one-way process, but it need not be AMONGST THE VARIOUS meth- tect themselves and recover.There is so. Nor is it the case that countries ods of financing to be discussed at the evidence from Mexico to suggest that must fully liberalise. Some private United Nations Financing for inequality has increased even though flows are likely to be useful for devel- Development Conference next income levels returned to previous opment purposes.The problem is that March, the role of private sector levels after the crisis. the Bank and Fund do not know finance will be a key and contentious Despite the obvious risks, the IMF which ones; they have not monitored issue. The World Bank and and World Bank–and their G7 mas- different flows to understand their International Monetary Fund (IMF) ters–promote capital account liberali- impacts through the economy to the are keen to promote private capital sation in the belief that it helps household level. for development purposes.They argue encourage foreign private capital to that since aid is in long-term decline, flow into developing countries, by Better ways needed there is no alternative but to encour- soothing investors’ fears that they Financial liberalisation is often age greater private sector flows as a might not be able to take their profits viewed as a retreat by government. substitute. out of a country quickly. More private Granted, previous methods of impos- Indeed, from the end of the 1980s, inflows, it is argued, leads to more ing controls on capital flows have, in there has been a major growth of for- investment and therefore growth. some cases, led to corruption or dis- eign direct investment and portfolio Growth is a vital ingredient for reduc- torted markets. But this does not investment, which by the late 1990s ing poverty.Therefore, capital account mean that the objective of controlling represented the majority of flows liberalisation helps reduce poverty, flows to protect against external (including aid) to developing countries goes the reasoning, albeit indirectly. shocks, encourage economic stability, (although only a select few of middle- However, while theory might pre- or direct capital to needy areas was income countries receive much of dict this, reality suggests that, even in wrong. It does suggest that better these).The IMF and World Bank have good times, capital account liberalisa- ways need to be found.The issue now helped to facilitate this growth tion is not a significant factor for is not to abandon control but find bet- through their structural adjustment enticing new investment flows (and, ter ways of doing so. Without appro- programmes, which have included lib- indeed, much foreign money that has priate institutions and mechanisms, eralisation of foreign exchange and come in has been invested in mergers private sector finance is unlikely to financial systems, privatisation of and acquisitions of domestic compa- target pro-poor sectors or businesses state-owned enterprises, the develop- nies, not necessarily new invest- (such as small- and medium-term ment of stock exchanges and their ments). Despite no guarantee of enterprises).The G7 governments are opening up to foreign investors, liber- growth, the potential for instability encouraging the IMF to help countries alisation of foreign investment caused by free- flowing private capital liberalise their financial markets and regimes, and capital account liberalisa- means that governments must pay capital accounts. They also should be tion. more attention to ensuring ‘market encouraging it to advise on appropri- Bretton Woods Project is particu- confidence’ and building up protection ate, market-friendly mechanisms for larly concerned about capital account against crisis.This has several potential allocating credit to ‘pro-poor’ sectors, liberalisation (removal of restrictions impacts harmful to the poor: develop market-sensitive mechanisms on cross-border financial flows) * It takes government attention away to limit the speed of flows or to build because capital that is quick to flow in from domestic matters, and policy is better national systems for monitor- and out makes a country vulnerable directed toward satisfying the whims ing flows. ■ to economic instability and crisis. of (mostly) foreign investors who are Witness the crises in Mexico in 1994- concerned with earning maximum Angela Wood is Economic Policy Officer for Bretton 5, Southeast Asia in 1997-8, Brazil profit, not achieving pro-poor devel- Woods Project, an organisation that monitors the 1998-9, and now Argentina.The poor opment; World Bank and IMF in collaboration with NGOs are likely to benefit less from in-flow- * More foreign currency resources and researchers. For further discussion of the impacts of capital account liberalisation on the ing capital than the rich, but suffer (known as reserves) are set aside for poor, see ‘Go with the Flows? Capital Account more in a crisis when capital surges dealing with crises rather than being Liberalisation and Poverty’, www.brettonwoodspro- out because they are less able to pro- used productively, for example, to ject.org/topic/financial/index.html.

Global Future — First Quarter, 2002 11 the total4 (although, frankly, I doubt it). From hands-free But, regardless of the response, the actual quality of advice offered by the to hands-off conditionality Fund is likely to be the same. In essence, the Fund has a bad Alan Whaites track record as a policy-maker for contexts in which poverty is a prima- ry concern and, sadly, the changes to THE IMF (International Monetary caused the level of conditions applied conditionality are about quantity, not Fund) has seemed a little absorbed by the IMF to spring into overdrive, quality. There is no evidence that the recently with the issue of `condition- with the instructions often based IMF has decided to abandon ideology ality’–those strings attached to the more on neo-liberal ideology than in favour of best practice, nor that lending it provides to states in des- proven economic best practice. As they are willing to embrace more suc- perate need of its finance. Gaining Mike Edwards has remarked: `It’s one cessful models of development. finance for development (and keeping thing to have unwelcome house a government solvent) often hinges guests, but another for them to take Stark differences decisively on these instructions–and a over the housekeeping and insist that The need to be open to different 1 government’s willingness to fall into they know best.’ models was underlined recently in a line. report published by World Vision Subject to strings Will the hands-free called ‘Precarious States’, which com- pared the conditions set by the IMF in In September 2000, a new initia- conditionality put the 1980s and 1990s with the policies tive was launched through the IMF forward by the IMF pursued by successful developing Managing Director’s ‘Interim Guid- actually work any better states. The differences are stark, and ance Note on Streamlining Structural the Newly Industrialised Countries of Conditionality’. The premise was that for the poor? Asia would have struggled to develop the extent to which conditions should the IMF’s way. Even those states that apply to the fine detail of national pol- Now the effects of those condi- have been good pupils of IMF ortho- icy at the level of government min- tions have been around long enough doxy have struggled to do as well in istries should be reduced–while eco- to enable serious analysis, and, sure poverty alleviation as states pursuing nomic policy would still be subject to enough, the IMF papers on condition- an alternative approach.5 strings just as before (if not more). ality follow hard on the heels of So, perhaps it is time for the IMF In effect, the IMF wanted to intro- Structural Adjustment reviews that to look not at hands-free conditional- duce a new form of hands-free condi- underline failures in the past.The draft ity but, instead, at a hands-off tionality in which it would determine reports of the World Bank’s approach. Hands-off conditionality those parts of national policy that Adjustment Lending Retrospective, as does not mean no strings at all; the provide the platform for all others well as the joint Bank/NGO Structural provider of the funds has a right to (fiscal, financial, exchange-rate policy, Adjustment Participatory Review expect that they will be properly etc.), while allowing the borrowing Initiative, do not make cheering read- state to work out the localised impli- ing, and they only add to the weight of cations for itself. Within a year, the existing and disturbing research.2 Perhaps it is time for IMF was trying to gauge the effect so Put simply, the conditionality of the IMF to look not at far, though a series of papers, particu- the 1980s and 1990s was neither par- hands-free conditional- larly ‘Streamlining Structural Condi- ticularly effective at achieving the tionality: Review of Initial Experience’, objectives that had been set (such as ity, but instead at a from July 2001. economic growth) nor was it of any hands-off approach. benefit to the poor. On the contrary, Arrival of the debt crisis 3 it caused avoidable harm. used. But instead of having young Why this absorption with condi- Will the hands-free conditionality Harvard graduates trying to second- tionality on the part of the IMF? Well, put forward by the IMF actually work guess what might work in often unfa- its decision to pay attention to the any better for the poor? Well, some miliar contexts, it would mean a way it gives instructions is under- governments may thank the Fund for switch to targets for governments standable, given the growing weight of the fact that in several cases the actu- themselves to achieve. Letting the evidence accumulating on the efficacy al numbers of conditions have homeowners try their hand with the of those instructions in the past. The increased, with those in the fiscal housekeeping might prove to be effec- arrival of the debt crisis in the 1980s arena rising from one-third to half of

12 First Quarter, 2002 — Global Future tive (as it has in numerous states less alternative has done little for the 3 See Collier and Gunning op cit, or beholden to the IMF). poor. ■ Galupa Garuda, The Distributional Effects Hands-off conditionality means of IMF Programs: A Cross-Country Anal- using a target-based approach, with 1 Mike Edwards, Future Positive, Earthscan, ysis, World Development, Vol. 28, No 6. lenders and borrowers establishing a London 1999 p. 117. 4 IMF Streamlining Structural Condition- small group of targets to aim for over 2 A selection of examples might include ality: Review of Initial Experience, para- a three-to-five year timeframe (in Radha Sinha, Economic Reform in graph 13. both economic and social policy). Developing Countries, World Development 5 See Rosemary McGee and Andy Targets, rather than policy prescrip- Vol. 23, No. 4, or Paul Collier and Jan Norton: ‘Participation in poverty reduc- tion, would allow states the flexibility Willem Gunning, The IMF’s role in struc- tion strategies’, IDS Working Paper No to graduate reforms and adapt to sud- tural adjustment, June 1999, or Paul 109, p. 25 in relation to Uganda and den shocks and political change. Mosley, Turan Subaset and John Weeks, Vietnam. Assessing Adjustment in Africa, World Hands-off conditionality Development Vol. 23, No. 9 or Oxfam’s briefing paper: The IMF: wrong diagnosis, need not be a license wrong medicine. for borrowers to take the money and then ditch the targets. Concentrate on the children

Hands-off conditionality need not to make the country better be a license for borrowers to take the money and then ditch the targets, nor Nigel Marsh for corrupt politicians to squander resources once freed from superviso- ry scrutiny. (Indeed, there is little evi- IT IS RAINING, and the already to raise her voice to explain where dence that existing approaches have crowded brick building continues to the abused community finds strength been effective in these regards). fill with still more people trying to to fight back to prosperity, and where stay dry. Above the cries of children she believes foreign investment would A chance of success receiving their immunisations, the help them most.Thanks to the energy The key to success is the most happy hubbub of a Congolese throng and passion she has for the subject, it’s elusive attribute of all in development asserts itself. not difficult for her to be heard above policy: consistency. If borrowers and This is the Grand Nord of North the din. lenders abide by the principle that Kivu, Eastern Democratic Republic of Health and education states that achieve their targets are the Congo. A major war is raging in rewarded, while those that do not this region, with scores of armed ‘International donors should not lose access to further funds (with suit- groups vying for influence. But you always be so complicated,’ she says in able provision for exceptional factors wouldn’t be able to tell that today. beyond a government’s control), then This may be the world’s largest the process has a chance of success. developmental emergency, where NIGEL MARSH Amid the hype surrounding the poverty, disease and malnutrition kill move toward hands-free conditionali- hundreds of thousands of people a ty, the IMF has talked much about year. Many of those bustling around focusing on its real areas of expertise. this humid room have been displaced But past evidence shows that develop- from distant parts of the country by ment is not one of these. Rather than violence. And yet the atmosphere streamlining the flow of bad advice, here is curiously optimistic. Women maybe now is the time to allow states discuss the best way to kill crop pests; to learn from best practice and be mothers comfort their newly vacci- free to choose the model they wish to nated babies; and everyone jostles pursue. Taking the hands-off option is around the collectively owned sewing always the difficult option–losing con- machine to hear their leader speak. trol is never easy–but sometimes it is She is Kavo Siphora, president of best for all. Certainly, in the past, the the vibrant Women’s Development Co-operative of Mavivi village. She has Kavo Siphora

Global Future — First Quarter, 2002 13 Hence, its occasional role as a stand- in vaccination clinic, where staff from

NIGEL MARSH the nearest hospital at Oicha–many of whom have not been paid for years–use European Union and World Health Organisation medicines to protect children from major child- hood diseases. Importantly, in a land where mal- nutrition is rife, those who do have a little extra food bring it along so por- ridge can be made for the children. ‘We were teaching the children, but we realised that they were sick and hungry and not able to concen- trate,’ says Kavo. ‘First you must eat, then learn.’ Grand Nord Beni health center buildings, where children are brought for immunisations. Everything can be taken French.‘They need to concentrate on munity learning centres for women, International influence to end a investing in things that will provide a like this one we built,’ she says, waving conflict is as important as internation- better life for our children–such as a hand vigorously around the building. al finance, she adds, warming to her health and education. It is our children ‘Rather than spend money on big theme.‘It isn’t just money that a com- who will then go on and make a bet- national schemes, it is better to sup- munity like ours needs. It’s no good ter Congo. port women with small business pro- sending us money or buying things, ‘Donors should invest in trustwor- jects. Fathers don’t care for the chil- while leaving us victims in a war. thy groups, such as churches and dren, but women’s associations make Everything can be taken from us again. women’s associations like ours–peo- ‘The war in Congo has totally ple who are really in the community. If Donors should invest in destabilised our community,’ she money is given to our government trustworthy groups, explains. ‘We have several times had and leaders, we are not sure it will to run from our homes and leave our ever get through to us.’ such as churches and fields behind for a season. Now we Kavo’s group has earned the right women’s associations even harvest our crops too early to speak about development through like ours. because we are worried that we will sheer hard work and tenacity in its have to run again and lose everything. ten-year history.A little help has been All this means we have a shortage of secured from NGOs here and there, sure that children are being cared for.’ food, and, of course, the first thing is but most of the progress has come That’s how the Mavivi women’s that people need to eat. without outside money or help, association started, in fact–as a ‘If we had the World Bank here, thanks to the drive of women like kindergarten for the children of the the United Nations, anyone who Kavo. village, for whom there was no school, wanted to help us, we would say:“We while their mothers tried to grow and want peace so we can grow our food, Even when leaders ignore us harvest enough food from their gar- and we want development for our She listens patiently to an explana- dens to feed them. Now the women children.” tion of why donors tend not to want also come together for lectures in ‘But even without peace, we can to put money in places where vio- crop management and marketing, to work for our future.War is something lence and political instability increase press palm oil, or make clothes to sell. that we have had to learn to live with; the risks of wasted investment, then But their children are still cared for in we know that we have to keep going, asks simply,‘Don’t people still have to a communal kindergarten. to try and change things for ourselves. eat, even if their leaders decide they The group has flourished into an Only God knows when peace will must fight? We have shown how to adult learning centre–25 women are come–perhaps when women can create a better life for our families and learning French and mathematics attend the peace dialogues and be lis- children, even when leaders ignore us today, for instance. The building, and tened to by the men.’ ■ or make war around us. what it represents, has become a ‘Let the world help us build com- focus for the whole community. Nigel Marsh is Communications Manager for World Vision’s East Africa region.

14 First Quarter, 2002 — Global Future The boss’s adage,‘last on, first off’, Where’s the development? to decide who goes first when the jobs start disappearing, is also true for Nicola Bullard developing countries.They are the last to benefit from ‘globalisation’, and they will be the first to feel the back- lash when the global recession kicks in. SO FAR, discussions about financing the instability and insecurity of many for development have concentrated countries in the South became a mat- Serious toll on the ‘financing’ end of the seesaw, ter of great concern to the West.The The US recession, which started and taken the ‘development’ end for (simplistic) argument that ‘poverty is around mid-year, then accelerated granted. But, for many people in the the breeding ground for terrorism’ sharply after September 11, will have a South, the most important question is made the United States realise that serious social and economic toll in the not where the money will come from, poverty was not someone else’s prob- United States, bringing rising unem- but what sort of development is being lem, but could–at least in their view– ployment and declining profits. promoted. pose a direct security threat.The logic The answer to this question is all may be faulty–how many of the 2 bil- too clear. lion people living on less than US$1 a The evidence is in–the The United Nations’ financing for day are terrorists? Yet, the effect may neo-liberal economic development discourse is rooted be that global inequality could development model has firmly in the neo-liberal paradigm that become a serious foreign policy con- assumes that development is the same cern, which in turn could lead to seri- failed to deliver growth as growth, and that growth is the ous commitments to action.This logic or create jobs. must be pushed further, but it also The cascade of financial must be pushed in the right direction. Elsewhere, falling prices, closing mar- crises in the late 1990s There are 20 years of accumulated kets, the shift of finance to safer evidence that structural adjustment havens, and a general slow-down in showed the risks of programmes and trade and financial global demand will hit most develop- heavy dependence on liberalisation have widened the gap ing economies hard, especially those external finances. between the rich and the poor, that that are dependent on exports and wealth–in the form of natural external financing for their ‘develop- resources, debt repayments and sheer ment.’ result of trade and financial liberalisa- human effort–is being siphoned from The evidence is in–the neo-liberal tion. Indeed, trade is seen as having the South to the North, and that inte- economic development model has such transformational powers that at gration into the global economy failed to deliver growth, and it has one preparatory committee meeting, brings with it tremendous danger and failed to create jobs. Instead, it has the WTO representative in atten- uncertainty. created dependence, vulnerability and dance was forced to dampen the gath- The cascade of financial crises in inequality. It is high time to re-open ering expectations, saying that trade is the late 1990s showed the risks of the debate about development. The only one dimension of development. heavy dependence on external Financing for Development Summit in finances, and the tremendous power Dismal failure March will give us an opportunity to of capital to turn around the fortunes start proposing other models of Given the dismal failure of the of a country almost overnight. It also development that move away from neo-liberal ‘development’ model to showed the vulnerability of predomi- dependence on external financing and generate growth and jobs–let alone nantly export-oriented economies to external markets, and toward eco- development–it is extraordinary that fluctuations in global prices and nomic models that put domestic mar- this vital part of the equation should demand.And the never-ending cycle of kets, domestic capacities, domestic be passed over so lightly. However,the debt is evidence not of profligacy, but resources and, most important, peo- re-casting of geo-politics since of the inability of countries to get ple, at the very centre. ■ September 11–and the looming global their heads above the parapet when recession–gives us the political imper- they are constantly bombarded with Nicola Bullard is Deputy Director of Focus on the ative to reconsider some of the declining terms of trade, weak curren- Global South, an international non-governmental assumptions underpinning financing cies, and few means to protect their policy analysis and advocacy organisation based in for development. domestic producers from aggressive Bangkok,Thailand. After the attacks of September 11, competition.

Global Future — First Quarter, 2002 15 Megawati had to swallow a bitter pill Huge debts are choking when she tried to explore debt reduc- tion from the Japanese government Indonesia during her visit in September. Japan bluntly turned down her requests. Hendro Swito Loan reductions Nathan Setiabudi, chairman of the SWEAT SOAKED his shirt as Yakub It is not surprising, therefore, that Indonesian Council of Churches, said peddled his becak–a three-wheel rick- around 100 million people–half of the in October that the new government shaw–through the crowded, narrow population–still live in abject poverty. of Indonesia deserves getting substan- lanes of Surabaya, Indonesia’s second- Economic collapse during the last four tial reductions on its huge outstanding largest city.A scorching sun beat down years delivered a further blow, ren- loans inherited from Suharto’s era. on him as, at last, he dropped off his dering unemployed or under- ‘When Suharto succeeded two customers and collected his fare: employed more than 30 million peo- Sukarno in the late 1960s, he secured 3,000 rupiah–about US30 cents. ple out of the 95 million work-force. loan reductions from donor countries ‘On average, I earn around 15,000 ‘Poor people here suffer from because some of the loans incurred by rupiah (US$1.50) per day,’ said the 30- the Sukarno government were being year-old husband and father. This It is not surprising that used to protect Sukarno’s legacy,’ means he earns some 450,000 rupiah around 100 million Setiabudi said, adding that similar cri- a month, or 5,500,000 rupiah (about people–half the teria could be applied to loans US$550) a year. His annual income is incurred during Suharto’s administra- less than the average per capita population–still live tion. income of Indonesia, estimated at in abject poverty. Mr. Mas’udi also emphasised that US$690 in 2001. Islam did not allow interest-bearing Hypothetically, if Yakub’s situation loans. ‘If we sincerely want to help a is representative of most of the 210 double misfortune,’ Christian intellec- poor person, it is a sin to charge inter- million inhabitants of Indonesia, and if tual Robert P.Borrong remarked in an est over our loan.’ Therefore, he sug- everyone in the country received the October seminar in Jakarta on debt- gested the government ask donor same earnings (US$550 a year), and all servicing problems. ‘They are like countries to abolish the interest pay- the earnings were collected into one those who fall from a ladder, then get ment obligation. account, some US$115 billion would struck by the ladder when it falls.’ ‘The government also has to take be available after one year of work. ‘When government officials actions to retrieve funds looted by all approach creditors, they sell the suf- Staggering debt the corruptors–from the bureaucrats fering of the poor as the reason for to the business circle–to repay the With this money, Indonesia still requesting financial support.Yet, once loans,’ said Mas’udi, who is a vice would not be able to fully repay the the loans are secured, it is the elite chairman of Indonesia’s largest Muslim staggering US$140 billion it owes in circle and the donors themselves who organisation, Nahdlatul Ulama. public and private debts. Of course, if really reap the benefits,’ Mr Borrong Robert Borrong also noted it is all the people’s earnings were used to said. high time for donor countries to be repay these debts, all the people like Muslim intellectual Masdar F. more sincere, and even to repent if Yakub would perish long before they Mas’udi said most projects funded they have been adopting new colonial- could complete their year of work. with foreign loans were obligated to ism practices over poor nations, as Foreign debts are choking use consultants and materials from such an inhumane policy has impacted Indonesia, a resource-rich country the respective countries. ‘All the the lives of millions of poor people. once known as one of Asia’s emerging prices were marked up.The loans also Meanwhile, Yakub keeps pedaling economies. Most of the debts were carried burdensome interests. The his becak. He doesn’t spend much incurred during the 32-year reign of loans actually did not help us. In the time worrying about Indonesia’s huge former President Suharto. Some long run, they even brought about foreign debt. His main concern is observers believe that around 30% of unbearable burdens.’ keeping his family alive. ■ the money loaned during this period President Megawati Sukarnoputri, ended up in the bank accounts of cor- who succeeded President Hendro Suwito is Communications Manager of rupt bureaucrats and businessmen– Abdurrahman Wahid last July, empha- World Vision Indonesia. both in the country and abroad–with sised that a loan is a loan, and should only a fraction of the loan funds actu- therefore be paid. It should not be ally benefitting the poor. regarded as ‘financial assistance.’

16 First Quarter, 2002 — Global Future a fraction of Foreign Direct Donors in the dock– Investment has ever reached the poorest states. Most is spent by rich rethinking ODA effectiveness country firms buying up other firms in equally rich markets. A total of 3% of Kelly Currah FDI is spent in Africa,with most of the resources that flow to the South being devoted instead to investment OVERSEAS Development Assis- billion of extra resources for the in a few countries in Asia and Latin tance is back on the agenda. While South. America. Even these sums often pale rich donor countries traditionally The most vulnerable of the World into insignificance when compared have set conditions and standards on Bank/IMF’s new projects is their flag- with the FDI that flows between the poorer countries seeking debt relief, ship initiative for reducing poverty, the richest states, with single-investment pressure is now increasing for donors Poverty Reduction Strategy Papers. deals measured in the hundreds of bil- themselves to clean up their act when These strategies are intended to pro- lions of dollars (figures in recent years it comes to ODA. This new clamour vide countries with comprehensive have been skewed by a rash of such for a rethinking of attitudes to ODA plans to raise living standards that deals, e.g.: the BP purchase of Amoco, has not come from major bilateral would be co-ordinated among all or Vodafone’s decision to buy donors, nor from NGOs, but instead, lenders and donors. The programme Mannesman). from two different sources. interventions needed will require new The realisation that FDI will not The first of these was most funding, only some of which could save the developing world led recently voiced by World Bank REUTERS the World Bank to undertake President James Wolfensohn, research on ODA, led by after the September 11th economist David Dollar. attacks, when he called on rich Dollar’s work has sparked a donors to put more into vociferous academic debate ODA to help poorer coun- that has helped re-energise tries overcome the conse- the issue of ODA. Dollar was quences of a global recession. initially seen as pessimistic This reflected Wolfensohn’s about aid, pointing to its failure earlier and highly controver- to achieve stated objectives. sial chastising of industrialised But closer scrutiny of his data nations for not thinking seri- actually showed that aid policy ously about the need for ade- (rather than aid, per se) is the quate investment in develop- culprit. In effect, Dollar ment. He was joined by his showed that aid could be an counterpart at the IMF, when, extremely effective tool in during the 2000 annual meet- poverty alleviation, but that ings of the World Bank and the politicised priorities of IMF in Prague, the newly installed IMF Managing Director Horst Koehler donors were leading to misapplication Horst Koehler called for a substantial and misuse that undermined potential increase in the level of ODA from rich realistically come from concessionary benefits. Bilateral donors, who had states. World Bank sources, such as IDA.The long accused others of misusing devel- resources gap will need to be filled by opment funding, stood squarely in the New urgency ODA.Yet, if the new aid funds are not dock. The reason for the new urgency in forthcoming, the whole PRSP experi- the calls of the major multi-lateral ment may quickly be discredited, lead- Improvements elsewhere lenders is a worried recognition on ing to heightened criticism of the Dollar’s work sparked academics their part that many of their own ini- Bank and Fund. such as Oliver Morrissey to produce tiatives will succeed only if there is an The second source of impetus of research of their own. Morrissey ‘enabling environment’.The two ingre- the rising profile of ODA has come showed that a critically important fac- dients they have identified as critical from the less pragmatic halls of acad- tor in the impact of aid was simply its to such an environment are budgetary emia, where recent studies have cast consistency–if aid flowed regularly, the support (ODA) and the liberalisation doubt on traditional arguments that stability it provided could spark dra- of Northern markets.The latter alone aid is ineffective and less useful than matic improvements elsewhere in a would release an estimated US$150 commercial investment. In reality, only

Global Future — First Quarter, 2002 17 country’s economic life. However, fig- ures show that ODA is declining as a Innovation and resistance– percentage of GDP for most develop- ing countries. In 1996, the OECD Civil society and FfD countries gave 0.3% of the GNP as ODA. In 1999 it had slumped to 0.24% John W. Foster of GNP. The heightened debate on the THE UNITED NATIONS Con- and the Bretton Woods Institutions. effectiveness of aid and its central role ference on Financing for Development The Preparatory Committee has in new initiatives has also fuelled a rash will have, as agreed at its Preparatory included hearings for business and for of new calls for reform of the ODA Committee meeting in October, an civil society organisations in its system. In particular, the suggestion innovative and relatively participatory process. Taking place in the fall of from academia that donor govern- format. But will the substance of its 2000, these gatherings at the United ments squander aid has led to new discussions and its result break any Nations in New York provided an proposals to take ODA out of direct new ground, set any new concrete ini- opportunity for a variety of expert donor control.Although, politically, it is tiatives in motion? testimony, questioning and debate, accepted that donors are unlikely to The conference invites heads of resulting in an extensive menu of pos- state and ministers of finance and sible reforms and initiatives recently If the new aid funds economy, development and other key published as: Financing for Develop- are not forthcoming, portfolios for the week of March 18 in ment: Proposals from Business and the whole PRSP process Monterrey, Mexico. A three-day civil Civil Society (ed. by Barry Herman, society forum planned by a coalition Frederica Pietracci & Krishna Sharma, may quickly be of Mexican NGOs will precede the UNU Press, Tokyo and New York, discredited. event. 2001). An important initiative cede control of an area of their own The conference will The conference is designed as a expenditure, the new proposals are comprehensive examination of the have a participatory intended to create a moral pressure challenges of development financing. toward better practice. Amongst the process never before Its purview includes the mobilisation most provocative of these has come attempted in the of domestic and international private from the ex-World Bank economist resources, trade, aid, combating debt United Nations. and editor of the World Development and systemic and governance issues. Report on Poverty, Ravi Kanbur, who Financing for Development (FfD) The UN Secretary-General man- proposed a new international aid sys- represents an important initiative on dated a high-level panel on FfD, head- tem that included a central dispensing the part of the United Nations in sev- ed by Mexican ex-President Zedillo, body, similar to the original 1940s idea eral aspects. and including former US Treasury put forth by economist John Maynard * It is a process of involvement not Secretary Bob Rubin, former EU pres- Keynes. only of key UN elements and agen- ident Jacques Delors, and former It is doubtful whether these pro- cies, but also of the World Bank, the OXFAM-GB head David Bryer. The posals will be taken up by forums like International Monetary Fund and the panel’s report, issued in June 2001, the upcoming Financing for World Trade Organisation. supported campaigning for the UN’s Development Conference. However, * There has been a committed effort Millennium Goals, and highlighted pro- the pressure on donors to address to bring about staff collaboration posals for global taxes (on carbon and their policies on ODA will increase. among these multilateral bodies in the currency transactions), strengthening When the two main ways to promote preparatory process the ILO’s enforcement capacity and growth in developing countries–trade * Representatives of the Bank, Fund moving toward a global Economic and budgetary support–are both in and WTO have been encouraged Security Council within the United the political hands of donor countries, more fully than ever before in the Nations. sustainable development continues to debates and conversations preparato- The conference will have a partic- be beyond the reach of poorer coun- ry to the conference. ipatory process never before attempt- tries. ■ This builds on and broadens the ed in the United Nations, with a series more tentative regular high-level of roundtables among heads of state Kelly Currah is a writer and independent econom- ics consultant. meetings between ECOSOC (United and among ministers. In each case, Nations Economic and Social Council) both business and civil society repre-

18 First Quarter, 2002 — Global Future sentatives are invited to participate, hagen progress, presented in the lead- dence, but should not expect either opening up some 84 seats in total for up to the Geneva five-year review of help or positive results.As for institu- each. the World Summit on Social tional or systemic change, there is no The developments in preparatory Development, recognised these chal- perceived need for either. The Bank, and conference process and the lenges. It was an unusual moment of Fund,WTO and business are function- efforts to build collaboration among self-criticism among governments at a ing as they should–no change in man- multilateral institutions should not be high level. date or behaviour or goal (simple discounted. Inter-institutional collabo- Hopes for a major effort to secure profit in the case of business), is ration at the multilateral level means increased financing for development required. As for economic policy, pressure at the national level to bring and to create a new architecture for developing countries and the poor departments of finance, trade, foreign global, social and economic gover- should partake in the usual reforms affairs and development co-operation nance were raised. Thus came civil summed up as ‘openness’: trade liber- or economy into greater co-ordina- alisation, financial liberalisation, doses tion. The holding of significant eco- As for economic policy, of deflation and warm welcomes for nomic discussions at the United foreign investors. A number of other Nations has brought a number of developing countries countries including Australia and national finance officials accustomed should partake in the Canada were perceived to tailor their to the halls of the Bank or annual usual reforms summed positions to the US cloth. meetings of the Fund in Washington into a new and unfamiliar context: the up as ‘openness.’ Hopes for significant change United Nations. These innovations Given the further threat to eco- have, potentially, much more potent society engagement with the nomic growth resulting from the crisis effect than mere changes in travel itin- Financing for Development prepara- of September 11, the specific crises in eraries. tions. Argentina and elsewhere, and the cur- However, the Financing for The signals, as presented in the rent mood of global insecurity, hopes Development Conference has a much preparatory process, are hardly for significant changes in position are stiffer challenge. The focus on financ- encouraging.The Group of 77 has put faint, if long overdue. ing and on economic governance forward a fairly familiar list: access and One of the hopeful signs at the emerged in good part from the world participation in macro-economic gov- October 2001 Preparatory Commit- conferences of the 1990s.Whether at ernance, more place and weight at the tee was the appearance of the High Beijing, Istanbul, Rio, Vienna, Cairo or Bank and the Fund; debt relief and Commissioner for Human Rights, Copenhagen, agendas for increased cancellation; the currency transactions Mary Robinson, and her call to place global equity, environmental sustain- tax; market access; differential treat- the FfD agenda in the context of ability, basic needs, human rights and ment in trade and investment, etc.The human rights. The UN Special gender justice came up against the civil society organisations have called, Rapporteur on the Right to Housing, hard facts of economic injustice, in many cases, for a transformation of Miloon Kothari, tabled a paper chal- polarisation, the evident down-sides the goals of global institutions toward lenging the conference to deal with of ‘globalisation’, and the enduring poverty eradication, sustainability and domestic equity and internal reform facts of mass poverty and environ- inclusion, along with a long list of gov- to assure that the poor actually bene- mental destruction. ernance and sectoral reforms. The fit from its deliberations. The ‘facilitator’ of the conference, Mexican Ecumenical Team observing the Huge gaps diplomat Mauricio Escanero, prepared PrepCom called for ‘a fundamental Many civil society participants in a draft result of the conference that change of heart’, moving beyond trade the thematic conferences, as well as was very moderate and balanced in and markets, to development alterna- high-level panels on global gover- tone, but which included at least ten- tives that build interdependence and nance, recognised that the organisa- tative steps toward reform of global sustainable and just communities. tion of the world’s economic gover- economic governance. A diverse and inventive assembly nance had huge gaps, recognised by The response of the more power- of NGOs and CSOs are following the some, and destructive effects, felt by ful has been stark. US spokesperson Financing for Development process. many. At the same time, debt had Terry Miller called for a simple recipe More, including groups who usually become a major crisis, foreign invest- of peace, freedom and capitalism, and focus on the Bretton Woods ment was unevenly placed and regu- a one-page conference declaration Institutions or the WTO, NAFTA and lated poorly, if at all. Aid flows were that would embody the triad. For APEC, will join. There is no lack of being reduced.The assessment of the those who want to try anything else, ideas or proposals for reform and Secretary-General on post-Copen- they are welcome to their indepen- transformation. However, our efforts

Global Future — First Quarter, 2002 19 remain dispersed and often ignored in substance, if not in the UN process. The future of microfinance– To gain significant change probably entails much more coherent and one way, or many ways? forceful work at home in the United States and other countries of the rich Christopher Shore and the powerful. It means mobilisa- tion for change and for global citizen- JUST AS THEOLOGIANS and ship that will be felt in parliaments, help smooth shocks to the individual students of religion debate whether congresses and among executives. In household and prevent lurches back there is one way to heaven, donors the process of financing for develop- to extreme poverty. and microfinance practitioners are ment, it will probably require not only However, at this moment when now debating whether there is one persistence, but also an evaluation of microfinance is enjoying its greatest best method of both practising and methods and approaches used in triumphs so far–and when it appears supporting microfinance. other battles.The example of the envi- poised for explosive growth–microfi- There is no question that microfi- nance is clearly reaching another It will require not only nance as a development tool has crossroad. A quiet but important persistence, but also an come into its own.This is due largely debate is echoing in the conference to innovations in the late 1970s and rooms and hallways where microfi- evaluation of methods early 1980s in places like Latin nance is being discussed. and approaches used America, Bangladesh and Indonesia. What many readers may not be in other battles. Eliminating the requirement for collat- aware of is the rising chorus of con- eral, and delivering credit in a finan- cern over the inappropriate homog- cially sustainable way that eliminates ronmental movement is relevant: enisation of microfinance approaches the need for ongoing operational sub- advancing and defending fundamental that are occurring under the guise of sidy, microfinance has grown to the principles like the precautionary prin- ‘best practices’. While nearly all point that it is clearly becoming its ciple, demanding and defending open microfinance practitioners welcome own industry. and transparent negotiations regarding and support moving to ever-better levels of performance and impact in global, social and economic gover- Fuelling economic growth nance, and developing a higher level of the lives of the poor, it is by no means Millions of the poor are being organisational co-ordination, applica- clear that there is any single best helped to improve their economic lot tion of expertise, and consistent fol- approach to microfinance. Moreover, in life. On every continent, loans are low-through than has as yet been some activities of bilateral and multi- fuelling economic growth among the exhibited by the NGOs following the lateral donors actually appear to be poor. Savings and insurance products preparatory process. stifling the innovation needed to serve for the poor are growing quickly to The Monterrey conference will the needs of the poor. not be the end of the debate, only a beginning. The essential task is to ensure that a process for continuing RANDY MILLER the debate, and that pressure–involv- ing a wider and deeper participation by all parties, particularly civil society organisations–emerges.There are gov- ernments clearly opposed even to this modest objective. That is where the change of heart must first be sought, and must be achieved. ■

John W. Foster is Principal Researcher, Civil Society, at the North-South Institute, Ottawa, Canada. For further information, see www.un.org/esa/ffd.

20 First Quarter, 2002 — Global Future To understand why this is impor- * commercial banking and its various flourished. Establishing both good- tant, several issues must be raised. iterations versus social enterprise sized microfinance institutions and First, microfinance is not a panacea. It NGOs and savings-and-credit co- proving that microfinance could flour- will not and cannot solve all develop- operatives. ish in Bolivia set up the necessary ment needs. Economic empowerment The reality remains that this sup- conditions that allowed for commer- is critical for sustainable transforma- port is not because of solid evidence cialisation. Pushing the commercialisa- tional development. However, without as to the superiority of the approach, tion of microfinance too early in its integration with other aspects of but because of articulate ideology. country-specific life cycle is an inap- development, microfinance cannot Commercialised microfinance does propriate development activity for carry the development day alone. well in urban areas, but less well in bilateral and multilateral donors. Nevertheless, those who have seen its rural areas, or where savings mobilisa- revolutionary potential have often tion is a more important need. In Pushing back the agenda been the ones pushing for it to fill the Bolivia, for example, of the 311 munic- We are also seeing major donors vast needs for effective economic pro- recommend that governments move gramming that benefits the poor. Without integration quickly to regulate microfinance with- out ensuring that the necessary Industry standards with other aspects of framework is in place that welcomes With donor funds limited and development, micro- microfinance and properly includes it. falling, the question of which approach finance cannot carry As we can see in a host of Latin to follow is critical.To date, almost no American experiments, many central microfinance programme has been the day alone. bank regulators are not familiar with, able to start without some form of comfortable with, interested in, or donor subsidy. Because of the desper- ipalities, 227 have absolutely no micro- equipped for properly supervising ate needs of the poor–and the proven finance or banking outlets. Moreover, microfinance institutions. Some regu- potential of microfinance to deliver in Bolivia, the so-called cutting edges lators have pushed back the agenda economic possibilities for the poor–a are financial services for the rural for providing financial services for the number of major donors have sought poor and savings mobilisation, which poor in their rush to regulation. The to accelerate the process of spreading are the very domain of social enter- results are, unfortunately, telling, and microfinance by creating industry prise NGOs engaging in rural village can actually lead to a decrease in cap- standards or best practices, as well as banking or of credit unions or credit ital available to the poor. encouraging governments to adopt and savings co-operatives. Just because it is easier to fit a the mutually reinforcing pattern of At the same time, donors are standard model or a commercial commercialisation of microfinance pushing both microfinance practition- model into the development paradigm and increased regulation. While most ers and host governments toward of large bilateral or multilateral practitioners and theorists welcome commercialisation of microfinance donors does not make it the best the interest of expanding microfi- and ever-tighter regulation and central approach for the poor. nance, the devil is in the details, and bank oversight. On these issues, the In short, both donors and practi- the risk is to standardise an approach great risk is that we copy the process- tioners need to avoid the siren call of that is not truly best practice, and es that have occurred in places like only one way ahead for microfinance. with a policy and regulatory frame- Bolivia without regard for the very Innovation and experimentation work that risks institutionalising a necessary preconditions in each coun- always lead to breakthroughs in drift away from the poor. try. approach and product.A more plural- With regard to donor-supported Bolivia’s microfinance experiment istic, inclusive vision is necessary for approaches, the main concerns are shows that microfinance moved from all who practice and support microfi- about the emerging narrow emphasis NGOs to commercial organisations. nance–a vision that recognises that a on: Does this mean that we should push range of approaches may be the best * Micro-enterprise loans versus the all microfinance to commercialisation? way forward for different people and household use of credit; That is likely moving too quickly. different circumstances. ■ * better-off segments of the urban and Commercialisation did not occur in a peri-urban poor, or even the non- vacuum, but as a result effective gov- Christopher Shore is Director of World Vision poor, versus the very poor and rural ernment macro-economic and finan- International’s Microfinance Development Group. communities; cial sector policies, including control * individual lending or solidarity-group of inflation, liberalisation of interest lending versus larger-group lending rates, and effective superintendency. and savings services; and The result was that microfinance

Global Future — First Quarter, 2002 21 eralisation of trade and finance. Standing at the crossroads Despite the fact that it is precisely these trends that have overseen the Andrew Simms growing global gap. So it is that Argentina’s economy is wrecked by following the IMF’s advice of tight monetary control and pushing exports at a time of chronically low WE STAND at a crossroads today in Free trade, sound money and commodity prices–just as the United deciding how to finance development. export-led development strategies Kingdom follows a policy of cheap One path leads toward greater human are still at the heart of the policy money and public spending to stimu- and environmental vulnerability. The packages promoted by the IMF and late the economy. other leads toward greater security World Bank, in return for access to Since the 1960s, every attempt by for all. But which path is which? credit and debt relief. Incurable prob- developing countries to engage with A big world power and its institu- lems with depressed commodity the global economy on terms that tions preaches the values of free trade prices, beggar-thy neighbour South- would help them develop–such as and sound money, then tries to ignore South competition, environmental managing investment, regulating for- the human consequences. stress, and the reluctance of rich eign multinationals, and stabilising It’s a criticism that any official at countries to assist or open their mar- commodity prices–has been resisted the International Monetary Fund, kets to any significant products, are and opposed. World Bank or a rich country official generally dismissed. But the fragility of aid agency will find all too familiar in such a model, and the reluctance of The dominant power the run-up to the United Nations’ policy makers to see its damage, is What is the lesson we should Financing for Development confer- also nothing new. learn from history? Globalisation in ence in March. But this is a description According to Davis, under the the 19th century was on the terms of of an earlier phase of globalisation as British in India, ‘Between 1875 and the dominant power: Britain. The described by historian Mike Davis–a 1900–years that included the worst British claimed that they had rescued phase largely controlled by the British famines in Indian history–annual grain India from ‘Timeless hunger.’ It’s is the Empire’s economic superpower in exports increased from 3 million to sort of rescue that they could have the19th century. 10 million tonnes, an amount equiva- done without. The structural adjust- lent to the annual nutrition of 25 mil- Which path? ment of India by the British Raj, and its lion people.’ It is a scene reminiscent knock-on effect in China, wrecked Increasingly, as we stand at that of Sudan and Ethiopia in the 1970s indigenous coping strategies. Thirty- crossroads arguing over which path to and 80s, for example, who continued one serious famines happened in 120 take, people are looking to the past exporting food, following export-led years of British rule of India. Only 17 for guidance on where to go next. models, in the midst of famine. It is famines were recorded in the previ- Joseph Stiglitz, former chief econo- also a warning as poor countries gear ous 2000 years. Africa’s indigenous mist at the World Bank, and recently their agricultural systems today industry suffered, too. Nigeria’s textile awarded the Nobel Prize for econom- toward supplying rich country con- industry was destroyed, just as India’s, ics, was quoted in a British national sumers at the expense of their own according to Kwesi Owuso, of the newspaper saying, ‘Countries find food security. Jubilee Plus campaign. themselves in situations where they Now we have the international are having policies imposed on them. Root of human vulnerability human development targets to pay It is not unlike the19th century opium Commentators as diverse as for. In choosing a strategy to mobilise wars when countries were told to World Bank President James finance for development, the IMF–and open up their markets, and this threat Wolfensohn, former head of the IMF all the other key institutions who was backed up by military force. Now Michel Camdessus, and European maintain a stranglehold on the frame- it is an all or nothing deal. Either you Union Commissioner Chris Patten, all work for development–must learn do it the Washington consensus way cite poverty and the growing gaps from history. If they don’t, they will be or we will exclude you.’ between rich and poor as being at the doomed to repeat it. ■ China, the victim of the opium root of human vulnerability and the wars then, is now important and self- breakdown of global social order. Andrew Simms is Chief Economist for the New confident enough to set its own terms Yet rich country policymakers Economics Foundation. for integration into global markets. It remain deaf to the voices of Southern is doing so gradually and very careful- countries, and dogmatically hooked ly. Once bitten, perhaps, twice shy. on the endless, creeping economic lib-

22 First Quarter, 2002 — Global Future Clearly, the appropriate role of Debating globalisation and corporations is a divisive issue, and one of the fundamental issues under- finance for development lying this division is conflicting under- standings of wealth creation. Two Brett Parris extremes are false: First, there is the assumption that wealth comes only through the FOR THOSE AFFLICTED with globalisation protestors don’t have to exploitation of others–so if you’re the ability to see shades of grey, the be able to articulate a clear,alternative rich, it’s only because you made some- globalisation ‘debates’ can be enor- vision for their protests to be legiti- one else poor. This zero-sum labour mously frustrating and perplexing. mate. Pointing to the problems and theory of value assumes that those Entrenched interests on both sides injustices in the current system is an providing the capital (the ‘capitalists’) slug it out with tired slogans and end- important service. and the ideas–and who assume much less papers, speeches, meetings and The legitimate challenges the pro- of the risk–provide nothing. This is marches. testors raise should not be disingenu- much too simplistic. New wealth–real Here, I want to discuss some pos- ously side-stepped simply because wealth–arises from a complex mix of sible ways of strengthening the quality they may not understand the technical ideas, capital, labour, land, entrepre- of the debates on globalisation and neurship, risk-taking, natural re- how some of these injustices can be The genetic fallacy is sources, technology and tastes. addressed. the logical mistake of Second, from the ‘all tax is theft’ 1. Avoid the genetic fallacy dismissing an argument lunatics, we have the view that wealth is created purely though my hard In philosophy, the genetic fallacy is simply because of where work, my entrepreneurship and the the logical mistake of dismissing an it comes from. smart use of my private property.They argument simply because of where it forget, of course, the embedded social comes from, rather than considering it nature of institutions, infrastructure on its own merits. Try: ‘Well what nuances. The stories and experiences and specialisation, and the gifts of would you expect from the IMF?’, or of grass-roots activists can reflect health, intelligence, and opportunity, alternatively:‘Here they go again–they important local realities in a way that which make wealth-creation possible. wouldn’t know a cointegrating vector aggregate statistics and cross-country Neither extreme serves us well. if it hit them in the face, and they pre- regressions simply can not. Let’s have a more serious debate sume to question us!’ about how wealth is created.Without I fear a lot of the debate is con- 2. Articulate your theory of it, our calls for greater redistribution ducted in this manner. Some in the wealth creation will be dismissed with vapid rhetoric global institutions don’t listen to the One of the striking features of the about the need to ‘grow the pie not protestors because they think all anti-globalisation movement is its divide the pie’–and business’s pleas for they’re offering is a clamorous mess of strong anti-corporate streak. This is understanding will be drowned out poorly articulated arguments. Some of hardly surprising. The three biggest with slogans and megaphones. the protestors won’t listen to anyone corporations have revenues exceed- But let’s also be sure to look care- in a suit who’s ‘sold out’ to the demon ing the GDP of sub-Saharan Africa. fully at where wealth and jobs are capitalism. Both sides suffer as a Their power is growing and national being created most. Is it really in the result. laws often are weak. Some corpora- few thousand biggest corporations, Of course, we must be guarded tions also misuse their power terribly, who have been laying off staff at an and check our information. But in an with abuses ranging from the violation astonishing rate since the economic age of information overload, the of local labour, tax and environmental downturn began? Or is it in the mil- temptation to listen only to those laws, to spending millions manipulating lions of small businesses, farms and views that agree with ours is very the public with slick PR campaigns. corner stores that wield little power great indeed.The issues are complex– Even so, surely there are also in national capitals, but which are in maybe we can learn some things from some benefits from the globalisation fact the backbones of our economies? our opponents too. of business as well? The growing den- Technocrats have a particular sity of knowledge networks? The 3.Ask to see their cost- responsibility here. Nobel-prize win- greatly reduced real costs, and benefit analysis ning economist Amartya Sen made an increased variety of basic goods for As any economist worth her salt important point in a speech in millions of people? The spread of knows, the important question to ask Melbourne when he said that the anti- technology and technical expertise?

Global Future — First Quarter, 2002 23 of any project or policy is not just its not a dollar is worth the same to a cost-benefit analysis, Little and accounting price, but its opportunity millionaire as to a poor farmer. Oh, Mirrlees, described its shameful cost. What does it cost us in real they’ve assumed all people value an neglect by the Bank as a ‘shattering terms to use resources in this way, extra dollar equally? How interesting. indictment.’ Since shadow prices are foregoing another possible use? Ask about how they evaluated the nothing less than the marginal effects Likewise, the important prices to con- externalities. Are they using shadow on social welfare of any quantity sider in a cost-benefit framework are prices that incorporate social, envi- change, their use is fundamental to not just market prices, but what are ronmental and opportunity costs, or informed economic decision making. termed ‘shadow prices.’ Shadow are they simply using market prices? They are the true opportunity costs prices attempt to capture these Ask if their model is static or dynam- of resource use: ‘Shadow prices and opportunity costs, and ‘externali- ic.And, about that government budget cost-benefit analysis are inseparable. ties’–the good and bad things that deficit they’re criticising–have they Sometimes actual prices coincide with market prices just don’t capture, like adjusted for inflation? For asset sales? their shadow values, as if on the equa- the real costs of pollution or forest For the stage of the economic cycle? tor in the midday sun. Only then is destruction. Often, of course, you Are they classing primary health and financial analysis also cost-benefit can’t put a real figure on some of education spending as current expen- analysis.’ these things, but it’s important to diture (bad) or an investment in describe and articulate them in detail human capital and therefore a capital Leaders of vision and weigh their significance as best we expense (good)? The pitiful neglect of the craft of can. The questions are endless, but the cost-benefit analysis is one of the dirty basic message is the same: Don’t little secrets of governments and the Ask about the assumptions believe everything you hear. But international financial institutions. If So, when economists try to snow then–from my first point–don’t dis- policy-makers took it remotely seri- you with policy recommendations miss everything either, just because it ously, we would get some very differ- based on particular models or simple comes from an economist.When they ent recommendations emanating from accounting frameworks, ask them do their jobs well, they’re often right. the halls of power. For one thing, our about the assumptions. Get them to Unfortunately, many are not doing leaders would recognise the stagger- articulate them.Ask to see their cost- their jobs well.Twelve years ago, at the ing opportunity cost and waste of benefit analysis.Ask how they decided World Bank’s 1990 Annual Bank leaving a couple of billion people to on that particular discount rate, and Conference on Development languish in poverty.They would recog- how they determined the distribu- Economics, two of the founders of nise the folly of toying with the tional weights to decide whether or world’s climate.And they would shake their heads in wonder at the sheer mind-numbing economic stupidity of The Precarious States: cutting aid budgets, under-funding Approaching Debt and research in tropical agriculture and Storm: Government HIV/AIDS Service Provisions medicine, and gutting reconciliation in Asia to the Poor and peace-building programmes. Don Brandt Alan Whaites, editor Where are our leaders of vision? Most people I speak with are immensely frustrated with the quality $6.95 X-020 45pages 2001 $6.95 X-004 79pages 2001 of political debate–the endless pan- “Asia now accounts for about half the In many poor countries, debt payments alone dering to our basest instincts. ‘More number of new HIV infections each exceed the funding of health and education year... Asia’s overall fortunate position as programmes combined.World Vision tax cuts? Sure, why not–as long as you a “nascent” region may have lulled many attempts to elevate the debate on debt, con- still fix up those schools and hospitals countries into complacency. Now is the ditionality and state capacity to a globally like you promised.’ Perhaps it’s a func- time to confine the disease through pre- applicable level with these case studies from tion of writing in Australia during elec- ventative programmes that target high- Ecuador.Whaites examines the chain effect of risk populations. Depending on the the way that debt repayments force govern- tion campaign, but my American and country, these tend to be injecting drug ments to cut the level of service provisions British friends tell me much the same users, mobile groups and commercial (resources to government, health and educa- thing. sex workers. ” tion) they provide to the poor. Where are the political leaders new! who can articulate a vision for a bet- ter world? If you find one, be sure to tell me. I am surrounded by poll-dri- 1-626-301-7720 1-800-777-7752 in the US [email protected] ven media-chasers. ■

24 Fourth Quarter, 2002 — Global Future Like breathing out and breathing in

David Beckmann

MANY CHRISTIANS are gener- vulnerable among them is deeply structure, education and debt relief. ous to churches and charities that embedded in the prophets like Isaiah, Now it is especially important to help people in need. Year after year, who said: focus on Africa, where hunger and these organisations work tirelessly to ‘How terrible it will be for those poverty are on the increase and AIDS assist hungry and poor people around who make unfair laws, and those who is rampant. In coming years, we hope the world. write laws that make life hard for peo- that the United States and other G-8 But as people of faith, Christians ple.They are not fair to the poor, and countries will form greater partner- must also be a voice for justice. We they rob my people of their rights. ship with African nations to strength- are called by God to speak for those They allow people to steal from wid- en anti-poverty efforts. who are marginalised in an unjust ows and to take from orphans what Acting together, Christians can be world.And we must urge our govern- really belongs to them.’ (10:1-2) a powerful voice on behalf of our hun- ments to employ sound public policies gry and poor brothers and sisters to benefit hungry and poor people. The participation of around the world. One of the most The gospels depict Jesus repeated- effective ways to work for justice is to ly reaching out to those at the bottom caring individuals draws contact our elected leaders. The par- of the social pyramid–poor people, the attention of the ticipation of caring individuals draws women, Samaritans, lepers, children, governments in power, the attention of the governments in prostitutes and tax collectors. Jesus power and calls them to change. criticised and disobeyed laws when and calls for change. Helping hungry people is to they got in the way of helping people. Christian faith as breathing out is to He healed people on the Sabbath, for Government is one of the institu- breathing in. As people of faith, God example, even though all work was tions created by God–part of God’s challenges Christians to seek justice prohibited on the Sabbath. Religion providence–for the welfare of people. and work for a world without hunger and government were intermixed, so Especially in democracies, nations and want, calling our governments to Jesus was challenging the law of the with governments ‘of the people’, do the same. Together, let us heed land. The threat Jesus posed to both Christians have a special privilege and God’s call! ■ religious and political authorities led responsibility to use the power of cit- to his crucifixion. izenship to promote public justice and Rev. David Beckmann is President of Bread for the God requires both charity and jus- reduce hunger and poverty. World and a Lutheran pastor. For more informa- tion on Bread for the World, please visit tice, and justice can often be achieved Working together, the nations of www.bread.org. only through the mechanism of gov- the world could cut hunger in the ernment.The view that nations, as well world in half in two decades through as individuals, will be judged by the targeted development aid that way they treat the weakest and most includes agriculture, health care, infra-

WORLD VISION is a Vision works with each partner World Vision recognises that Christian relief and development community to ensure that children poverty is not inevitable. Our partnership which serves more than are able to enjoy improved nutrition, Mission Statement calls us to 70 million people in nearly 100 health and education. Where challenge those unjust structures, countries. World Vision seeks to children live in especially difficult which constrain the poor in a world follow Christ’s example by working circumstances, surviving on the of false priorities, gross inequalities with the poor and oppressed in the streets, suffering in exploitative and distorted values. World Vision pursuit of justice and human trans- labour, or exposed to the abuse and desires that all people are able to formation. trauma of conflict,World Vision reach their God-given potential, and Children are often most vulnera- works to restore hope and to bring thus works for a world which no ble to the effects of poverty. World justice. longer tolerates poverty. ■ ❖ Africa Regional Office P.O. Box 50816 Nairobi Kenya

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