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DEVELOPMENT AND COOPERATION
ENTWICKLUNG UND ZUSAMMENARBEIT
International Journal
ISSN 2366-7257
Twitter! Monthly e-Paper March 2016
Refugees Arab region Urban air The fate of a woman Saudi-Egyptian Why Delhi‘s X + who spent most of relations are local government her life in camps changing restricts car use
International Christian Guy/Lineair financial institutions Title: Jim Yong Kim, World Bank president, and Christine Lagarde, IMF managing director in Lima last year. Photo: Caso Bizama/AP Photo/picture-alliance Focus: Editorial International financial Cooperation beats confrontation institutions Deepening uncertainty The economic outlook is dark in many world regions. Commodity prices have recently been falling, and the dollar is getting stronger. Dollar- The world economy is not in a good shape. Growth is low denominated debts are huge, and many borrowers may soon find it impossi- in advanced economies and falling in most emerging ble to service them. New financial crises look increasingly probable. markets. It is not obvious that old and new international financial institutions will rise to the challenges appropri- When things come to the worst, international financial institutions (IFIs) ately, warns Iwan J. Azis of Cornell University. Page 14 are the lenders of the last resort. The International Monetary Fund (IMF) and World Bank matter especially in this regard. Their track record is mixed Setting standards however. At the end of the 1990s, multilateral debt relief became necessary. The reason was that many developing countries were stuck in an endless The World Bank’s influence extends beyond its lending. downward spiral of debt, budget cuts and stagnation even though they It’s standards are of global relevance. Korinna Horta of had accepted “structural adjustment” as demanded by Fund and Bank in Urgewald, a German-based non-governmental organisa- exchange for emergency lending. tion, warns that the Bank is set to dilute its environmental and social standards. Page 17 Debt relief was successful, and many of the economies concerned began to develop promisingly again. In the currently worsening global scenario, however, that suc- “Pool and share knowledge” cess may not be sustained. In some cases, debt levels look dangerous again.
The IFI landscape is changing because of the Asian On the other hand, structural adjustment worked out quite well for some Infrastructure Investment Bank and other new established countries. India rebounded fast in the early 1990s, and the same is true of agencies. In interviews with D+C/E+Z, Hans-Joachim Turkey and Brazil after the turn of the millennium. Obviously, structural Fuchtel, ADB governor for Germany, and Bruno Wenn, adjustment can differ from country to country. the head of the German development finance institution DEG, have assessed what consequences the new scenario Observers say that the IMF and World Bank sometimes put the emphasis will have. Pages 20 and 22 more on reducing government spending and sometimes more on liberalis- ing markets. Some programmes were geared to jump-starting economies, but Major breakthrough others worsened matters. Some observes suspect differences were intentional as technocrats were willing to set punishing examples for leaders’ misbehav- In September 2015, the world community adopted the iour in small countries, but were eager to get big economies going again. The Sustainable Development Goals, and since October 2015, big ones, after all, have an impact on the health of the global system. Enforc- it also has a new international poverty line of $ 1.90 per ing penalties, however, must not be the IFIs’ job. No nation deserves to be person and day. The World Bank has played a crucial role, punished for the failure of its government to run the economy well. writes OECD expert Hildegard Lingnau. Page 24 When the next crisis strikes, however, the IMF, the World Bank and the long- Back to square one established regional development banks may no longer be the only IFIs that matter. In recent years, emerging-market governments have launched new Last year, the World Bank discontinued its status reports ones. The most prominent are the Asian Infrastructure Investment Bank and on the implementation of the Heavily Indebted Poor the New Development Bank. Both are headquartered in China, and both have Countries (HIPC) Initiative, stating that debt relief had been promoted as alternatives to the World Bank. Moreover, emerging mar- been concluded successfully. In the eyes of Jürgen Kaiser kets have also been working on currency-swap mechanisms in order to not of erlassjahr.de, a German civil-society network, debt have to rely on the IMF in times of need. relief must stay on the agenda. Page 27 The potential and effectiveness of new and established IFIs is likely to be The original mission tested soon. Both IFI categories can prove quite influential. In an era of very low interest rates, they should find it easy to raise additional funds on capital IMF doctrines have changed over the years, especially as markets, and there is scope for being given more government funds as well. some programmes failed. Fernando J. Cardim de Carvalho of the Federal University of Rio de Janeiro It is too early to tell whether the old and new IFIs will join forces in pursuit of assesses the Fund’s track record. Page 30 the global good, or whether they will engage in cut-throat competition, try- ing to hand out as many loans as possible with little concerns for social, envi- Debate on industrial policy ronmental and even fiscal sustainability. Both is possible, but only the former would make sense. Keeping the world The question whether governments should implement economy on track is a global public Hans Dembowski industrial policies to drive development is being good. Humankind needs world-wide is editor in chief of discussed again. Contributions to the debate are more cooperation to achieve the Sustainable D+C Development and Cooperation / nuanced today than in the 1990s, argues Michael Grimm Development Goals, and all IFIs must E+Z Entwicklung und Zusammenarbeit. of Passau University. Page 33 play their part. [email protected]
2 D+C e-Paper March 2016 In German in E+Z D+C March 2016 Entwicklung und Zusammenarbeit. Tribune Both language versions at www.DandC.eu
Monitor 4
Multilateral climate policy after Paris agreement / The private sector’s role in improving skills training in development countries and emerging markets / Non-violent and pluralistic traditions in Muslim thought / To reduce reasons of flight, global-development scholars recommend more emphasis on peace building and crisis
prevention / Nowadays: Zambian credit lifestyles / Imprint / AP Photo/picture-alliance Why everything depends on Aung San Suu Kyi in Myanmar Limited generosity
Focus: International financial institutions Saudi Arabia has been supporting Egypt’s economy with huge sums in recent years. Tensions are Iwan J. Azis: growing, however, since King Salman came to power. Worsening global economy is challenging multilateral lenders 14 Sebastian Sons of the German Council on Foreign Relations (DGAP) assesses matters. Page 37 Korinna Horta: World Bank must not dilute environmental and social standards 17 “My home, my life”
Interview with Hans-Joachim Fuchtel: Peter Okello, a journalist who grew up in Kakuma “Pool and share knowledge” 20 Refugee Camp in Kenya, conveys his mother’s life story. She had to flee from South Sudan because Interview with Bruno Wenn: militia members killed members of her family and Competition between new and old IFIs could become destructive 22 destroyed her village. Page 36
Hildegard Lingnau: The relevance of the new international poverty line 24 Debate Jürgen Kaiser: Once more, countries that benefited from debt relief are at risk of over-indebtedness 27
Fernando J. Cardim de Carvalho: A brief history of IMF doctrine 30
Michael Grimm: Economists debate merits of industrial policy 33
Tribune
Peter Owar Okello: The fate of a woman who spent most of her life in refugee camps 36 Castaneda/picture-alliance/dpa
Sebastian Sons: Saudi-Egyptian relations are tensioning 37 Opposing TPP Civil-society organisations vehemently oppose the Debate 40 Transpacific Partnership (TPP) in Chile, Peru and other Pacific countries. Activists are upset about Comments on Transpacific Partnership (TPP), pharma research in overblown intellectual property rights and other times of the Zika virus, Delhi’s air pollution and election recurring issues. Journalist Frederico Füllgraf shares their election problems in post-crisis countries view. Page 40
D+C e-Paper March 2016 3 Climate change Loss and damage gets a boost
Poor countries have chalked up a big 10,000 inhabitants fear they may one day the Independent University in Dhaka and victory at the Paris climate confer- have to flee to higher grounds. The same senior fellow at the International Institute ence (COP21) in December. Developed goes for many poor countries that are for Environment and Development in Lon- countries have finally acknowledged already suffering loss and damage from don. “When there is a lack of adaptation, some accountability for damages due extreme weather with little means to cope inevitably there is loss and damage. This to climate change. But much still – but also for Europe’s far north and the opens the door for liability.” needs to be done. US-state of Alaska. While loss and damage was already Least developed countries are often on the Places like the US, China and the EU, outlined at the COP19 in 2013 in the War- front lines of climate-related disasters, and which produce the lion’s share of green- saw International Mechanism for Loss and they are also the least equipped to deal house gases, feared that including loss Damage, in Paris the international com- with them. The hope is for new financing and damage as a separate issue in a treaty munity agreed for the first time to address mechanisms like risk insurance, but calcu- would make them liable for compensat- it in a global climate agreement. lating the potential cost is a difficult and ing poor nations under the principle of controversial task. ‘polluter pays’. Instead, they wanted this Dealing with loss and damage means Monitor to be part of mitigation and adaptation sharing data and technical expertise, but Nearly 200 coun- measures. These focus on curbing climate also financial support. Insurance will likely tries agreed in Paris that change through lower greenhouse-gas play a big role. Countries could contribute places like the fragile emissions and changing how people live premiums to an insurance fund that will Pacific islands of Tuvalu and work. compensate them for losses in the future. need ways to cope with so-called loss Huq cites a pilot scheme that has already and damage to property, livelihoods and “This means recognising loss and dam- been developed for weather index-based life. Just several metres above sea level, age as something different,” says Saleemul insurance in places like Africa, the Car- the tiny collection of atolls and reefs is no Huq, director of the International Centre ibbean and Bangladesh. Recognising the match for rising sea levels. Thus, Tuvalu’s for Climate Change and Development at threat to Alaska’s Inuit fishing villages, picture-allliance/dpa Many least developed countries are particularly threatened by the effects of climate change. Cyclone Pam left a trail of destruction when it ripped through the impoverished Pacific island state of Vanuatu in 2015.
4 D+C e-Paper March 2016 US President Barack Obama has pledged held by the Friedrich Ebert Foundation vation it sparks will boost competitive- 30 million dollars to a Climate Risk Insur- in Berlin. He cites a recent study asking ness, he says. “This will give a clear signal ance Initiative, Huq notes. developing countries what would moti- that CO2 pricing and fighting poverty can vate them to choose alternative forms be intertwined. It is simply not true that of energy. “The answer was perhaps sur- fighting poverty is a conflicting goal.” Adaption and prising, but when you think about it not mitigation very: we need access to technology, we But the complex discussion of C02 need financing, we need knowledge, and pricing is not relevant to many develop- While COP21 is a milestone for vulner- we need to alter the public perception in ing countries. “It doesn’t offer any answer able countries, the deal leaves much to a way that allows us to approach renew- – not a quick or convincing one – to the accomplish. Current climate finance for able energy, for example, in an innovative question of how to quickly overcome adaptation (actions to cope with fore- way.” energy poverty. Energy questions are in seeable threats) and mitigation (cutting most developing countries above all ques- greenhouse gases) is not fairly distributed, At the same time, developing coun- tions of access to energy – cheap and according to Huq. tries are quick to note that they haven’t clean,” argues Hirsch. “If I were sitting in been polluting the globe since the 1850s Bangladesh or Fiji, people would walk out “The demand on behalf of vulnerable like industrialised countries – and haven’t of this discussion, because these are not countries is that at least half of the money reaped the same economic wealth either. the urgent questions to them.” goes for adaptation,” says Huq. Right now, They also frequently point to the injustice however, 84 % of the 6 billion dollars in of being asked to forego cheap fossil fuels climate finance already delivered goes to while bearing the consequences of global large developing countries for mitigation. warming they didn’t cause. “It is underestimated Only 16 % is left for vulnerable countries to adapt to climate change. “This is unac- The least developed countries still con- what an excellent ceptable,” says Huq. tribute only a small fraction of the world’s carbon emissions. And Germany, for one, instrument CO2 pric- The Green Climate Fund (GCF), which still produces a lot of power using coal, ing is for investment will administer the 100 billion dollars even though it has increased the share a year in climate finance that countries of renewables to nearly 30 %. Despite the in clean water, in have pledged as of 2020, wants to set this government-mandated phase-out of fossil clean power, in sani- right, says Huq. fuels (Energiewende), the country exports coal technology as well as power produced tary installations.” But aside from governments, much by coal to other countries. of this money is expected to come from the private sector. Unfortunately, least Huq points out that emerging coun- developed countries may also be the least tries like Bangladesh and China are CO2 pricing attractive, Huq warns. Most private sector already embracing renewables technolo- money goes for mitigation in large devel- To discourage fossil fuel usage, experts gies and “everybody agrees that it would oping countries where there is money to say there should be a global market price be better if coal stayed in the ground.” be made from exports and investments for carbon emissions – so-called CO2 pric- in green technologies like wind and solar ing. If industry had to buy the rights to Looking ahead to the signing of the parks. But the least developed countries emit greenhouse gases in a global mar- Paris accords in April, UN Secretary-Gen- need financial means for adaptation: to ketplace, this would push the price of CO2 eral Ban Ki-moon said in February that respond to the effects of climate change high enough to encourage investment in goals are one thing, but “now we must with new agricultural crops or to resettle renewables. move from aspirations to action.” Simply people away from coastal areas. meeting pledges to cut emissions won’t “Ninety percent of all coal capacity is keep the planet from heating up by less Countries like Germany have pro- planned in ten countries: China, India, than 2 degrees Celsius as the signatories moted mitigation efforts such as switching Turkey, Vietnam, Indonesia, South Africa, hope, he warns. They must also boost from fossil fuels to renewable energies for Korea, Japan, Bangladesh and Taiwan,” their ambition over time. Severe storms, electricity production. But coal-rich, poor says Ottmar Edenhofer, professor at the droughts, floods and rising sea levels countries like Bangladesh often argue that Potsdam Institute for Climate Impact already cause people to lose their homes, it is cheaper and more practical for them Research. He argues that even if the cost property and lives, according to Ban. to stick to fossil fuels than to make the of renewables falls, this will not stem the investment in renewables. tide of fossil-fuelled power. The reasons “The Paris agreement is a major are heavy subsidies for oil, gas and coal achievement, which we worked very hard around the globe. to get, and we are very happy with the Change of perceptions result. It puts everybody on the right track, “It is underestimated what an excel- even if there is not sufficient ambition,”
“The German energy transition also began lent instrument CO2 pricing is for invest- built into the deal, says Huq. “But we 30 years ago,” said Thomas Hirsch, a cli- ment in clean water, in clean power, in will work towards achieving these goals.” mate and development expert, at an event sanitary installations,” because the inno- Ellen Thalman
D+C e-Paper March 2016 5 Private sector Better skilled employees
Lack of skilled labour is a huge chal- but they cannot assess the benefits, which According to the authors, it is crucial lenge for companies in emerging often only become apparent in the long for companies to proceed in a structural markets and developing countries. run. The EDFI report is an attempt to con- way. They need to draft detailed person- The Association of European Develop- vince them that there is a win-win situa- nel plans, adopt specific training courses ment Finance Institutions (EDFI) wants tion for enterprises and employees if com- and form dedicated training teams in each it to be tackled. panies address the skills gaps. department. Some companies have suc- cessfully implemented measures this way, EDFI has published a comprehensive The benefits for companies are: and the EDFI authors insist that others report with theoretical insights and vari- ■■ a better qualified, stronger motivated can do so too. ous examples of good practices. It was and more loyal workforce, co-authored by experts from the Boston ■■ increased labour productivity, One company described is the Hospi- Consulting Group and the DEG, an EDFI ■■ better product quality, tal Sirio Libanes (HSL), a private hospital member and KfW subsidiary, which sup- ■■ more innovation and operator in Brazil with headquarters in ports private-sector development. ■■ an improved reputation. São Paulo. Its reputation is excellent, so it has no difficulty in attracting qualified According to the EDFI publication, There are also lots of benefits for employ- doctors, but it used to struggle to recruit creating productive and sustainable jobs ees and even for society. People with and retain low- and medium-qualified staff is a major contribution to fighting poverty more skills find better jobs and earn more like nurses or catering and cleaning staff. and boosting development. One problem, money. They also have better career pros- however, is that companies often cannot pects. Strong private-sector companies, HSL has invested in systematically find people who have the expertise needed moreover, foster economic development assessing skills needs and providing in poor world regions. This “skills gap” and thus benefit the country and society training accordingly. It even runs gradu- means that people have either not been as a whole, as the authors highlight. ate courses and hosts distance learning trained at all or have been trained the platforms. In addition, the hospital has wrong way. invested in a multi-disciplinary qualifica- Good practices tion centre, in which new and existing staff A lot of countries do not provide their is trained to work effectively in teams. young people with the skills businesses The EDFI publication discusses hands- require, so private-sector companies on methods for assessing the costs and To address its relatively high attrition should train people themselves, EDFI benefits of skills training. It also provides rate among low-skilled staff, HSL initiated recommends. According to the report, recommendations for identifying and clos- a neighbourhood qualification project. It too many companies shy away from that ing skills gaps step-by-step. It can serve as trains people from the local area in cater- task. Managers fear the costs they know, a practitioner’s guide. ing, hygiene or other relevant skills. HSL’s education and research institute partly runs the programmes. For its respective efforts, HSL relied on loans from the DEG and other finance institutions.
According to the EDFI publication, the hospital’s approach is very successful. HSL has no problems to find qualified aux- iliary staff anymore and can fill most posi- tions internally. In the eyes of EDFI, a very positive aspect is that HSL contributes to the development of the local community. The “benefits clearly outweigh the costs” for HSL, the authors write. Sabine Balk
Links: DEG-Report: Bridging the skills gaps in developing countries. https://www.deginvest.de/DEG-Documents-in-English/ About-DEG/What-is-our-impact/Bridging-Skills-Gaps_DEG_2016. pdf “Let´s Work Partnership” to create more and better
HSL private sector jobs: The Hospital Sirio Libanes (HSL) in Brazil now successfully trains its own staff internally. http://www.letswork.org
6 D+C e-Paper March 2016 Islam Neglected heritage
In view of the threat of Islamist ter- Khan Abdul Gaffar rorism, Muslim intellectuals and Khan and Mahatma leaders who emphasise non-violence Gandhi. and democracy tend to be ignored internationally. They deserve atten- tion. Some Muslim traditions actually fit modernity quite well.
Abdul Ghaffar Khan was a Pashtun leader who joined the liberation movement in colonial India. To him, non-violence was a spiritual concept as well as a political strategy. He knew that imperial Britain found it easy to crush armed insurgents, but struggled to suppress peaceful protests effectively. At the same time, he was aware of violent traditions haunting Pashtun society. Ghaffar Khan said that violence breeds fear and hatred, whilst non-violence generates love and inspires people to be
brave. He was an ally of Mahatma Ghandi, Imagno/picture-alliance but studied the Koran as a devoted Muslim. Rohne and Yahya Wardak, the three men The book points out that the West Jawdat Sa’id is a contemporary Syrian mentioned above stand for strands of lacks credibility in Muslim cultures scholar who thinks along similar lines. The Muslim thinking that are largely unknown because of a long history of interventions more people engage in civil disobedience, in western countries – and all too often – from T. E. Lawrence in the early 20th cen- he argues, the harder it becomes for an neglected in Muslim ones. The four tury to the Iraq war at the start of the 21st. autocratic regime to repress them. As an authors recently published a book entitled British-Russian interference thwarted the example, he points out that Iran’s Shah was “Gewaltfreiheit, Politik und Toleranz im attempt to turn Iran into a constitutional toppled without the use of violence. At the Islam” (Non-violence, politics and toler- monarchy in 1907, and in 1953 the CIA same time, Sa’id insists that there can be ance in Islam). It raises interesting points, helped to topple Mohammad Mosaddegh, no single correct interpretation of the holy such as: an elected left-leaning prime minister. scriptures and that the faith and religious knowledge benefit from the pluralistic ■■ Islam has a long history of appreciating According to the recently published interaction of various schools of thought. Judaism and Christianity as monothe- book, western agencies cannot contribute istic religions that existed before Islam. much to the revival of Islam’s intellectual Jamal Al-Din Al-Afghani was born in In this perspective, Islam is the ultimate traditions. This is a task for Muslims. At Iran in the late 1830s. He felt that Mus- revealed truth, but Jews and Christians the same time, the authors argue that lim society needed the kind of freedom can be god-obeying believers by follow- Muslim migrants in western countries that was developing in Europe. He wanted ing the old and new testament without are best placed to promote such a revival to liberate the faith from despotism and adopting Islam. because they are not under authoritarian stressed that the Koran does not define ■■ The Koran emphasises a set of laws. rule and familiar with western freedoms. any specific form of government. Al-Din Historically, it fast spawned competing Al-Afghani hoped that a benign dictator law schools which engaged in sophisti- This book deserves a lot of atten- could educate the masses and introduce cated debate. Islam is thus more about tion. Unfortunately, it is not well edited. democracy. His approach was not non- the rule of law than any specific form of Too many sentences are convoluted and violent and he was willing to contemplate government. Moreover, Muslim juris- even garbled. The publisher should have the murder of tyrants. Near the end of his prudence initially developed in a way invested more effort in this publication life in 1897, he realised that his hope to that could incorporate innovation and in order to reach more readers – and sell empower an enlightened ruler had been social change. more books. Hans Dembowski misguided and that despotism can only be ended by an enlightened people who The authors argue that Islamic intellectual Reference: rejects authoritarianism. life has lost its dynamism in the past 500 Klussman, J., Murtaza, M. S., Rohne, H.-C., and Wardak, Y. years. One reason is that many Muslims (eds), 2016: Gewaltfreiheit, Politik und Toleranz im Islam In the eyes of Jörgen Klussmann, do not know Arabic well enough to under- (Non-violence, politics and tolerance in Islam – only available in Muhammad Sameer Murtaza, Holger-C. stand the Koran. German). Wiesbaden: Springer VS.
D+C e-Paper March 2016 7 Refugees Reducing causes of flight
The current refugee crisis is affect- ing Europe, but its causes are in other world regions. Experts at the German Institute for Development Policy (DIE) call for clever devel- opment policies to tackle the root causes of flight.
People often turn a blind eye to the fact that 86 % of the world’s 60 million refu- gees and internally displaced people are staying in developing countries and emerging markets. Experts from the Ger- man Development Institute (DIE) point out that none of the ten countries that have taken in the most refugees are mem- bers of the EU. Today, the top receiving countries are Turkey, Pakistan, Iran and Ethiopia. Lebanon is hit hardest, with Syr- ian refugees making up about one fifth of
4.5 million inhabitants. Hassan Amar/AP Photo/picture-alliance Refugee camp in Lebanon. The DIE scholars adhere to the Geneva Convention of Refugees which In this context, the DIE authors sup- fragile statehood was not a widespread clearly defines refugees as persons port demands raised by the UN Refugee phenomenon. forced to flee from war, violence, oppres- Agency (UNHCR). It wants the skills and sion, hunger and natural disasters. It is knowledge of teachers, doctors and engi- Regarding post-conflict countries, the important to note that people are not neers in the camps to be made use of. experts advise to stick to “multinational only fleeing from Syria and Iraq. Masses Moreover, refugees should be involved peacekeeping”. This approach bundles of people escape from Sudan, South in democratic camp management, while international efforts under multilateral Sudan, Afghanistan, Colombia or the local authorities deserve support for pro- leadership. It has proven successful in Sierra Democratic Republic of Congo (DRC), viding future prospects to both refugees Leone, Liberia and Lebanon. Other factors for example. However, Europeans tend and the local people. The DIE authors that promote a country’s stability include: to neglect the global perspective, as the consider it unacceptable that there is ■■ reducing youth unemployment, scholars point out. no funding for multi-year humanitarian ■■ promoting economic productivity, assistance. In their eyes, long-term fund- ■■ improving food security and ing is essential. ■■ adapting to climate change. Stability-zones The scholars insist on democratic values, Most refugees today have fled from armed Blind spots which they want to become a core element conflicts. According to the DIE team, of development policy once more. Western humanitarian assistance remains very The scholars warn that old crises are countries, they argue, have been sup- important. Both within home countries mostly forgotten whenever a new cri- porting authoritarian regimes in the Mid- and abroad, “stability-zones” are needed sis erupts. Syria and its neighbouring dle East and North Africa up to the point so people can get what they need for their countries currently get the most atten- when many of those regimes dropped into immediate survival there. tion, while conflict-ridden Yemen, Libya total chaos in 2011. Even today, donors and several sub-Saharan countries have still support autocratic regimes. If they According to the authors, however, become “blind spots” on the world map. continue to do so, they must at least temporary solutions tend to become per- According to the DIE team, well-designed demand democratic reforms, the DIE team manent settings. They demand that more development policies can prevent old con- states. The overall objectives are always to efforts be made in those cases, and they flicts from erupting anew. They suggest promote people’s wellbeing and facilitate bemoan the lack of mid-term strategies for that development policies should refocus their return home. Theresa Krinninger managing camps sustainably. Because of on conflict prevention and peacekeeping. the poor conditions prevalent in camps in They point out, for instance, that Germany Link: Lebanon and Jordan, many refugees are has scaled down its partner countries in DIE-paper (only available in German): said to be moving on to Europe. crisis prevention to only two as though http://www.die-gdi.de/uploads/media/AuS_14.2015.pdf
8 D+C e-Paper March 2016 Nowadays: Loans for living and luxury
In Zambia, micro-finance com- The MFIs have created new jobs panies have mushroomed. They and helped to provide more have names like MFinance, Bay- people with financial services. port or Blue Financial Services For various reasons, members of and hand out ever more loans. the middle-classes are borrow- Retail banking has emerged in ing money. They want to top up recent years too, with banks like low salaries, invest in children’s the Zambia National Commercial education and cover health-care zambia Bank, Barclays, Bank ABC and costs. Some want to buy luxury Standard Chartered Bank giving cars or host fancy wedding par- credit to middle-class people. ties to keep up appearances. Lusaka In the past, banks demanded Many public service workers collateral for loans such as title have taken personal loans to deeds for houses. Today, how- build houses. Others need ever, micro-finance institutions funding for backyard enter- (MFIs) and banks have relaxed prises such as rearing chickens. rules. For example, they only ask Victor Sakala, a teacher in the salaried workers to provide pay town of Ndola, says that many obliged to provide food and market prices are falling. In Zam- slips. According to Ndumo public service workers are education to all our depend- bia, inflation is a huge problem Hojane, who works for Citibank indebted because their salaries ants,” Sakala explains. and government debt is high. Zambia, MFIs have “bigger lend- are too low: “We live in Public utilities are eager to rake ing lists than commercial extended family systems, so Other issues compound such in revenues. In efforts to cover banks.” the cost of living is high. We are worries. For instance, all teach- costs, the state-run power com- ers are required to obtain new pany Zambia Electricity Supply degrees for school teaching Corporation (ZESCO) and water because the old diplomas and utility companies have installed In our column “Nowadays”, certificates are being phased prepaid metres in compounds D+C/E+Z correspondents out. “We pay for our education where police officers live. “In the write about daily life in ourselves, so we need money,” past we never used to pay for developing countries. Sakala complains. “Most of us electricity, and we will soon start turn to MFIs because banks can paying for water too,” one tie you to a loan for as long as six officer says. His purchasing Humphrey Nkonde years.” power will suffer accordingly. is a journalist, media researcher and The truth is that not only Zam- logistician resident in Ndola, Zambia. In 2015, Zambia’s currency Kwa- bia’s middle classes are strug- cha lost 51 % of its value against gling to get along – state agen- [email protected] the dollar. Copper is Zambia’s cies also find it hard to generate main export good, but world- sufficient revenues.
Imprint
D+C Development and Cooperation and academia at an international level. Executive director: Translators: two voucher copies are sent to the editor Vol. 43, 2016 D+C is the identical twin of E+Z Oliver Rohloff M. Bell, C. Davis unless copyright is explicitly indicated. D+C is published together with Entwicklung und Zusammenarbeit, This does not apply to the photographs the German edition E+Z the German edition. Address of the publisher Disclaimer according to § 5,2 Hessian published in D+C Development and Coop- Internet: http://www.DandC.eu and editorial office: Law on the Freedom and Rights of the eration and E+Z Entwicklung und Zusam ISSN 2366-7257 ENGAGEMENT GLOBAL gGmbH Frankenallee 71-81 Press: The shareholder of the company menarbeit. The editors request that no Service für Entwicklungsinitiativen D-60327 Frankfurt am Main, Germany is Frankfurter Societät GmbH. unsolicitated manuscripts be sent. How Published on assignment from: Tulpenfeld 7 ever, they do welcome proposals along 53113 Bonn This is also the legally relevant address Advertising and subscription service: with abstracts that serve to outline Tel. (02 28) 2 07 17-0, of all indicated as responsible or entitled Klaus Hofmann (responsible) submissions. Fax (02 28) 2 07 17-150 to represent them in this imprint. Phone: +49 (0) 69 75 01-48 27 D+C Development and Cooperation is http://www.engagement-global.de Fax: +49 (0) 69 75 01-45 02 Prices for print edition (incl. mailing charges): funded by Germany’s Federal Ministry Editorial team: [email protected] single issue: € 2.20 for Economic Cooperation and Advisory board: Dr. Hans Dembowski (chief), Sabine Balk, annual subscription, Germany: € 14.00 Development and commissioned by Thomas Loster, Prof. Dr. Katharina Katja Dombrowski, Sheila Mysorekar, Opinions expressed by authors indicated annual subscription, world: € 18.00 ENGAGEMENT GLOBAL. D+C does not Michaelowa, Prof. Dr. Dirk Messner, Eva-Maria Verfürth, Dagmar Wolf (assistant) in bylines do not necessarily reflect the serve as a governmental mouthpiece. Petra Pinzler, Hugh Williamson Phone: +49 (0) 69 75 01-43 66 views of ENGAGEMENT GLOBAL, the Printing: Our mission is to provide a credible Fax: +49 (0) 69 75 01-48 55 publisher or the editor and his team. Westdeutsche Verlags- und Druckerei GmbH forum of debate, involving govern- Publisher: [email protected] Individual articles may be reprinted Kurhessenstraße 4–6 ments, civil society, the private sector Frankfurter Societäts-Medien GmbH Graphic design/Layout: Jan W. Hofmann provided the source is mentioned and 64546 Mörfelden-Walldorf, Germany
D+C e-Paper March 2016 9 Myanmar “Suu Kyi must extend power”
Myanmar’s first freely elected par- tion under the military junta that refused This is a delicate act for Suu Kyi, who liament convened at the beginning to recognise her electoral victory in 1999. has been put in the position of negotiat- of February. High expectations for ing with her former captors, said experts everything from economic develop- Suu Kyi said last year that the NLD at a discussion at the Konrad Adenauer ment to solving ethnic conflict may victory puts her “above the president,” Foundation in Berlin in January. The be its first stumbling block. a statement seen by some as undemo- Union Solidarity and Development Party cratic. But Naing Ko Ko, democracy (USDP), which is linked to the junta, The elected officials took up their work on activist and PhD student at the Austral- holds 25 % of the seats in parliament and 1 February, after nearly half a century of ian National University, says she meant controls key government ministries deal- military rule. The party of Nobel laureate to challenge the constitution and set the ing with internal and border affairs and Aung San Suu Kyi, the National League stage for its reform. He notes that con- defence. for Democracy (NLD), won an overwhelm- stitutional restraints mean the NLD has ing majority in both houses of parliament a “lack of muscle”, and future reform lies People do not trust the military, which on 8 November. in the hands of Suu Kyi. committed brutal human-rights abuses when in power. Some find Suu Kyi’s will- “Because of this result, the expecta- But parliament cannot pass any ingness to cooperate with them dubious. tions of the people are extremely high,” changes to the constitution without the Nevertheless, many former political pris- says Sai Ye Kyaw Swar Myint, director of consent of the military. “The constitution oners want reconciliation because they do the People’s Alliance for Credible Elec- really puts the NLD in a cage. If they stick not want to jeopardise the reform process tions (PACE), a civil-society organisation. within that framework, they are going to and investment from abroad. The interna- “The question is how the NLD will manage face a dilemma sooner or later,” says Jas- tional community is looking to Suu Kyi to expectations. The change will not come min Lorch of the Hamburg-based GIGA tackle the problem of widespread poverty, overnight, but the people hope for that.” Institute for Asian Studies. economic development and environmen- tal issues – whether she is president or After a complicated reform and rec- High expectations for “the lady”, as her not. onciliation process, there has been much supporters call her, and pressure for consti- speculation about who will become the tutional reform could be risky, Lorch warns. The country is also plagued by violence country’s president in April, when the “I think if the lady manages to convince against the Muslim ethnic minority Roh- government takes office. Suu Kyi is barred some members of the political elite to go ingya. Anti-Muslim sentiment runs strong from that post by the constitution because for further changes, there can be fractions in the Buddhist country, and the Rohingya her children hold foreign passports. Suu within the military bloc, and there can be are subject to brutal persecution, stripped Kyi has powerful sway, after years of deten- some unrest within the military,” she says. of their citizenship and forced to live in camps. The outgoing government passed laws aimed at suppressing them, and Suu Kyi has said little to raise hopes that she will resolve these problems.
As part of efforts toward rapproche- ment, members of the Karen, Kachin and Rakhine ethnic minorities were awarded posts in the new parliament, as was a key figure in the USDP. On 3 February, the upper house elected a close ally of Suu Kyi as chairman. Mahn Win Khaing Than is a Karen and a grandson of a cabinet minis- ter assassinated with Suu Kyi’s father and national hero Aung San in 1947.
“She needs to extend her power. She needs to have a good relationship with the military and a good relationship with the ethnic people,” says PACE’s Sai Ye Kyaw Swar Myint. “She has the power, she has
kd the influence to lay the foundation –to In Myanmar many ethnic minorities remain discriminated against. Women from an ethnic minority in have a long-term democratic consolida- Yangon’s Shwedagon pagoda. tion.” Ellen Thalman
10 D+C e-Paper March 2016 Call for Papers and Inputs
Conference 2016
Regional integration for Africa’s economic transformation – Challenges and opportunities
University of Rwanda, College of Business and Economics, Kigali, Rwanda September 15-16, 2016
The Poverty Reduction, Equity, and Growth Network (PEGNet) is committed to promoting dialogue between researchers, practitioners and policy makers and provides a platform for sharing exemplary pieces of research with implications for policy design and implementation as well as launching productive collaborations. For the 2016 annual conference, we call for contributions of papers and projects as well as applications for the Best Practice Award 2016 by outstanding initiatives of co-operations between research and practice.
The submission deadline is April 29, 2016. Please email your submissions to [email protected] in a pdf or Word le and indicate ‘PEGNet Conference 2016’ in the subject heading. The deadline for full paper submission and additional material for the Best Practice Award is August 1, 2016.
For more information on the conference and the detailed call please refer to: www.pegnet.ifw-kiel.de
Media Partner: International financial institutions
Bangabandhu Bridge in northern Bangladesh was built with financing provided by the World Bank, the Asian Development Bank and other donor agencies. International Shahidul Alam/Majority World/Lineair financial institutions
Financing the building of bridges, power stations and other infrastructure is an essential component of the mandate of multilateral development banks. Interna- tional financial institutions (IFIs) play a crucial role in global development. Their influence is not only based on their lending; their expertise matters too. Moreover, they serve as forums for intergovernmental exchange. Currently, the dominance of the established IFIs is being challenged by new ones which have been launched and promoted by emerging-market governments. Whether the old and new agencies will cooperate closely or become fierce competitors remains to be seen. In view of looming financial crises in many commodity-exporting countries, the effectiveness of all IFIs is likely to be tested soon. Deepening uncertainty
Almost eight years after the 2008 global financial crisis began, the world economy remains lethargic. Growth is low in advanced economies (AE) and falling in most emerging markets (EM). It remains to be seen whether old and new international financial institutions (IFIs) rise to the challenges appropriately.
By Iwan J. Azis
For some time, EM had been driving global In pursuit of healthy and inclusive growth, the EM growth while AE slowed. Now the gap is narrow- are currently refocusing on building infrastructure. ing. It is even more worrying that growth is lower in The governments know they cannot rise to the chal- AE and EM than the long-term or “secular” trend we lenges on their own. This insight is an important rea- saw before the crisis. son for the recent proliferation of new international financial institutions (IFIs). For the EM, the quandary is multitude. The out- look for commodity exporters is gloomy. Demand is Another reason is EM’s frustration of only enjoy- weak, and prices are low. Manufacturing has slowed, ing disproportionately small influence in the long- especially in China. established IFIs. In this regard, the new institutions are meant to counterbalance the International Mon- At the same time, a strong dollar means that etary Fund (IMF), the World Bank and multilateral financing costs are rising. Stress is growing for all development banks such as the Asian Development public and private-sector institutions that have large Bank, the Inter-American Development Bank or the dollar-denominated borrowing. Today, companies in African Development Bank. EM owe creditors about $ 4 trillion, four times more than in 2008. In recent years, EM governments have been driving the establishment of new IFIs. One exam- The slowdown in China was expected and it is, ple is the Asian Infrastructure Investment Bank so far, in line with forecasts. However, the inter- (AIIB) with a focus on infrastructure. Another is the national repercussions look worse than expected. Chiang Mai Initiative Multilateralisation (CMIM),
Even countries that do little trade with China feel a currency-swap arrangement with a focus on picture-alliance/dpa the pinch. Market confidence in general seems to be short-term liquidity pressure for the ASEAN coun- hit. tries plus China, Japan and South Korea. The New Development Bank, which is owned by the BRICS For years, monetary policy was extremely loose (Brazil, Russia, India, China and South Africa), will in the AE and especially in the USA. The current deal with both short-term liquidity and infrastruc- problems are a result. Very low interest rates in AE ture. prompted capital flows to EM, where investors wanted to benefit from higher interest rates. The flows were huge and volatile. They made borrowing cheaper and Untested innovations expanded liquidity in EM. Both effects spurred cred- its as well as economic growth. At the same time, the In light of deepening risks and uncertainty, short-term exchange rates of EM currencies rose. liquidity pressure is now increasing. The CMIM and similar initiatives, however, are still untested. The pro- Now the central bank of the USA has begun to cess of establishing them was fraught with bickering increase interest rates again, and the economic out- over political, organisational and other power issues. look is worsening in China. As a consequence, capital It remains to be seen whether the new schemes will has begun to flow in the other direction. In EM, credit be up to the tasks. It may prove easier to provide loans is suddenly becoming more expensive while national for infrastructure. currencies are depreciating against the dollar. To some extent, the governments behind the new Financial safety nets are needed, and conven- institutions were probably too self-confident in recent tional macroeconomic policies are unlikely to prove years. They could have focused more on ensuring sufficient in this scenario. The capital flows are so the effectiveness of new currency-swap mechanisms. huge that problems cannot be solved at the national They may now have to make haste to achieve that levels. goal. Because of higher interest rates in the USA, capi-
14 D+C e-Paper March 2016 Don’t let it get this bad again: riots rocked Jakarta in the course of the Asian crisis in 1998. picture-alliance/dpa
tal is now flowing out from the EM. Therefore, they are tal outflows of almost $ 750 billion. Since 1988, the experiencing a destabilising jolt. EM had not experienced net outflows. The start of this year was the worst on record for financial markets. It is worth noting, however, that other AE are This is an anomaly and worrisome. not following the US example. A “great divergence” is emerging, with Japan and the EU loosening mon- None of this means that the EM will necessarily etary policy while the US is tightening it. The stage is be mired in recession. It might help if the US economy set for an epic tug-of-war between the central bank of picked up with strong dynamism. The easing of sanc- the USA on the one hand and the world’s other most tions on Iran can prove a boost as well. Moreover, important central banks in China, Japan and the EU individual countries may experience developments on the other hand. It is impossible to predict what the that do not match the global trend. All in all, however, results will be for the global economy. recession looks quite probable.
It is equally impossible to predict what impact the EM will feel. It is certain, however, that the EM are Overconfident establishment on their own in defending themselves against capital outflows and market volatility. In recent years, the AE The long-established IFIs do not express great wor- have displayed considerable monetary egoism and ries however. The IMF, for instance, argues that showed little concern for the impact of their policies markets are “overreacting” now. Its recent World on EM. Economic Outlook predicts that the growth rate for EM will be 4.5 % this year – higher than last year. In early 2016, the financial market scenario is It also expects the world economy to expand by nerve-racking. Last year alone, the EM faced net capi- 3.6 %.
D+C e-Paper March 2016 15 Beyond structural reforms
In times of crisis, the established international finan- cial institutions (IFIs) always emphasise the need for “structural reforms”. That stance is not totally wrong, but it is not correct either.
It is correct because labour markets must result in people finding jobs, governments cannot afford to permanently spend more than they generate in rev- enues, and shielding companies from competition makes them weak. However, the established IFI orthodoxy is often dogmatic and unrealistic. It neglects that reforms have to be politically viable and not merely fit economic textbook models.
For example, IFI economists are likely to focus on bal- ancing public budgets and neglect that slashing expenditure on education and infrastructure – the
basis for future success – is harmful, and especially so Allgöwer/Lineair in times of crisis. To work out, structural reforms have to be well considered, balanced and match local will make the crisis more painful and structural needs. reforms harder to implement.
Investments in One must also take into account that they take time. Let’s not forget that we live in an interconnected infrastructure provide Budget consolidation makes most sense once struc- world moreover. The deeper one country sinks into basis for future growth tural reforms have begun to deliver results and the crisis, the worse the outlook for other countries – Cambodian economy is recovering. Trying to balance it too early, becomes. (ija) construction site.
However, actual global growth was consistently Structural-adjustment programmes have often failed lower than predicted by the IMF in recent years. It (see box above). is likely that the Fund is over-optimistic once more. Some years back, the IMF commissioned a study, and One cause of the financial meltdown of 2008 was the conclusion was that the Fund’s forecasts “display that rating agencies had failed to assess financial a tendency for systematic overprediction” (Timmer- institutions and real-estate markets accurately, thus mann 2006). Whether these forecasts should be taken fostering a misleading sense of stability. Conflicts seriously is anybody’s guess. of interest contributed to their failure. After all, the agencies’ clients are the major players in financial The multilateral development banks (MDB) are markets. The agencies’ reputation has not recov- hardly better. One problem is that their models do ered. not take into account the growing interdependence Iwan J. Azis between national economies. Moreover, they rely on A similar fate may befall the IFIs if they fail to is an economics professor at their member countries’ assessments, which may be provide objective analysis and forecasts, especially as Cornell University in New York State biased. MDB predictions are thus often more wishful vulnerabilities are most evident now. Failure to pre- and the University of Indonesia. thinking than sober analysis. dict the full consequences of crises – unemployment, He is the lead author of “Managing poverty, inequality, environmental damage et cetera elevated risk”, a book published by The established IFIs, moreover, tend to use opaque – will make matters worse. the Asian Development Bank and language. Terms such as “uneven”, “moderating” or Springer in 2014 and is available “broadly proceeding” growth are ambiguous and can It is irritating, moreover, that the established IFIs online free of charge. prove misleading. have stayed silent on the growing monetary egotism [email protected] of AE for years. It is not hard to see why EM govern- E-book link: In principle, IFI forecasts are supposed to help ments wanted new IFIs. http://www.adb.org/sites/default/ policymakers to draft better policies and budget files/publication/150174/ plans. Neither over-optimism nor vague statements managing-elevated-risk.pdf serve this purpose. Accordingly, the policy advice the Reference: established IFIs give and country programmes they Timmermann, A., 2006: An Evaluation of the World Economic Outlook propose are sometimes irrelevant or even harmful. Forecasts. Washington: IMF Working Paper No.06/59
16 D+C e-Paper March 2016 Rolling back protection
The World Bank is working on new environmental and social standards. For many practical purposes, however, the latest draft looks weaker than the existing safe- guard system.
By Korinna Horta
The process of defining new standards began in The final draft of the new Environmental and 2012 and the stated goal was to modernise the Social Framework (ESF) is to be presented to the existing safeguards in line with the World Bank’s mission Board of Executive Directors in mid-2016. Two earlier of fighting extreme poverty and promoting shared pros- drafts were presented in 2014 and 2015. Several key perity. The World Bank launched a public consultation issues remain controversial. process, commendably reaching out to different constitu- encies in government, the private sector and civil society. Limited scope In practice, however, in many cases it only sched- uled meetings on short notice and a lack of translated A key problem is the limited scope of the new ESF. documents further hampered the participation of non- As the existing safeguard system does, it will only governmental organisations in important client coun- apply to investment projects. The snag is that tries. The overall context is one of increasing competi- such project-specific lending is a shrinking part tion for business and investment opportunities with of the Bank’s portfolio. Policy-based loans are the Asian Infrastructure Investment Bank and other becoming ever more important and already make newly-established development finance institutions up about one third to one half of World Bank lend- (see box, p. 18). In this context, its managers are likely ing. Governments get these loans not to carry out to see stringent environmental and social norms as specific projects but to implement more general Boat on the Niger river handicaps. policies. in Mali: dams on rivers can endanger the livelihoods of fishing communities. Matthias Graben/Lineair
D+C e-Paper March 2016 17 Such policies, however, often concern sensitive sec- Sadly, the Bank’s Inspection Panel does not seem tors such as mining, forests and agriculture. Accord- to be heard either. It wants the Bank to apply its stand- ingly, policy-based loans may have far-reaching social ards across the board based on potential environmen- and environmental consequences. Unless the ESF tal and social risks and not on the type of lending. applies to such lending, the Bank’s approach will be The new ESF must obviously apply to everything the incoherent and risks undermining sustainability goals. World Bank supports. Otherwise, controversial pro- jects can always be financed by policy-based lending. The Bank’s own Independent Evaluation Group (IEG, 2015) has argued that existing provisions have proved inadequate. In regard to policy-based lend- Room for improvement ing, it not only found that environmental and social risks were seriously underreported, but that there was The second draft of the ESF is better than the first one. no formal system to monitor impacts at all. So far, Nonetheless, many critical issues remain unresolved. however, this argument does not seem to have made a dent. Earlier IEG recommendations (2011) similarly The ESF will consist of an umbrella policy and have been neglected. 10 standards. They are meant to replace eight existing
Harmful competition
The World Bank’s standards are relevant is probably the Beijing-dominated Asian Vague and flexible standards would make far beyond its own lending, but its status Infrastructure Investment Bank (AIIB). it easier to do business. as international standard setter is In view of such competition, the World The AIIB is crucially relevant because Euro- now being chal- Bank is eager to take on greater risks and pean countries – unlike the USA and Japan lenged. New develop- get involved in large-scale infrastructure – have become members. Accordingly, it ment-finance institu- development. The overhaul of its environ- has credibility as a multilateral institution, tions have been set mental and social standards (see main which will help it to obtain a triple A credit up. The most notable article) must be considered in this context. rating. Protest in Hong Kong: China’s human-rights record is casting a long The AIIB too has produced its own draft shadow over how the for social and environmental standards. It AIIB might operate in uses all the trendy buzzwords like “partici- the future. pation”, “transparency” or “accountability”. However, the standards are defined in rather flexible terms and are not manda- tory requirements. Moreover, the favoured option seems to be to rely on a borrowing countries’ own systems, which tend to be inadequate. No policy on public access to information has been made public.
The AIIB hardly bothered with public con- sultations. There only was a short, English language-only call-in exercise. Civil-society organisations have reason to feel margin- alised, especially in view of China’s dismal human rights record.
It looks as if both the World Bank and the AIIB view social and environmental stand- ards as a burdensome add-on to be han- dled in the most flexible manner possible whilst competing to do as much business as possible. They would be doing human- ity a disservice. We need sustainable devel- opment, not unrestrained growth that
Kin Cheung/AP Photo/picture-alliance results in more harm than benefits. (kh)
18 D+C e-Paper March 2016 safeguards that deal with issues such as environmen- call for a stronger human-rights commitment is sup- tal assessment, involuntary resettlement and indig- ported by Germany and other European governments enous peoples. The current draft includes sensible as well as the US Congress. additions. First of all, it will have an improved labour standard. Trade unions, however, point out that the This issue is all the more relevant as the draft draft version does not even refer to international ESF allows client countries to opt for their own sys- norms spelled out in International Labour Organiza- tems instead of applying World Bank standards. The tion’s four Core Labour Standards. precondition is that both systems are deemed to be “materially consistent”. It remains unclear how such Another welcome improvement is that the consistency would be measured. The draft ESF, more- ESF now includes the principle of free prior and over, does not state what to do when governments do informed consent for indigenous peoples directly not obey their own laws, which, unfortunately, is all affected by projects. If a government, however, does too common. not recognise indigenous peoples on its territory, it would be able to obtain a waiver and brush aside Relying on client countries’ systems is supposed concerns. to boost national ownership and responsibility. Pri- oritising country standards over universal principles The current ESF draft recognises that people who does not make sense however, but that is precisely are displaced from land must be compensated even what is likely to happen in the context of World Bank if they have no formal title to that land. However, lending. After all, major client governments view it does not offer the same protection to people who human rights considerations as an intrusion into lose their livelihoods for other reasons. Consider, internal affairs. In their eyes, environmental and for instance, a fishing community whose fishing social standards are little more than impediments to grounds are destroyed by the downstream impacts fast growth. of a dam. Vinod Thomas (2015), who heads the Asian Devel- Today, existing safeguards do not allow the Bank opment Bank’s Evaluation Department and is a for- to finance projects that harm “critical habitats” in mer director of the IEG, has pointed out that very few forests and other ecosystems. These habitats are country systems meet World Bank standards. Reli- essential for the survival of endangered species and ance on country systems may put communities and migratory species. The proposed new biodiversity the environment at risk. Thomas refers to empirical standard would dilute this rule, by allowing the examples in countries like China and India. Bank to support projects if there is no viable alter- native site in the region and a few other conditions The World Bank’s self-declared mission is to fight are met. extreme poverty and promote shared prosperity. In order to do so, it needs a strong and mandatory ESF Existing rules on environmental impact assess- that applies to all of its lending. Neglecting environ- ments (EIAs) are similarly set to be diluted. The mental and social concerns for the sake of doing more existing safeguards require that EIA results must be business will prove counter-productive. It will worsen published in locally understood languages before the extreme poverty, deepen inequality and cause mas- Bank decides on granting a loan. Normally, the period sive environmental destruction. is 120 days. It gives civil society scope to raise objec- tions. The draft ESF, however, does not include this Links: requirement. Alston, P., 2015: Report to the UN General Assembly. August 4. http://www.un.org/en/ga/search/view_doc.asp?symbol=A/70/274 All summed up, the draft ESF is riddled with far IEG (Independent Evaluation Group), 2015: Managing environmental and too many loopholes and vague clauses. It is wrong to social risk in development program finance. Washington: World Bank. Korinna Horta demand, for example, that requirements only be met https://ieg.worldbankgroup.org/Data/reports/Managing_ES_Risks_in_DPF. is a senior adviser with when they are “financially and technically feasible”. Sept18.2015.pdf Urgewald, a civil-society IEG, 2011: Evaluative directions for the World Bank Group’s safeguard and organisation based in Germany. sustainability policies. Washington: World Bank. [email protected] “Human rights free zone” https://consultations.worldbank.org/Data/hub/files/consultation-template/ review-and-update-world-bank-safeguard-policies/en/related/636830pub00wb One must bear in mind that the implementation of 000box0361524b0public0.pdf existing standards has proved to be too weak. World Inspection Panel, 2015: Comments on the second draft of the proposed Bank lending has repeatedly been embroiled in the environmental and social framework. Washington: World Bank. violation of human rights. However, the draft ESF only http://ewebapps.worldbank.org/apps/ip/Style%20Library/Documents/ briefly refers to “sharing the aspirations” of the Univer- Inspection%20Panel%20Comments%20on%202nd%20Draft%20ESF%20-%20 sal Declaration of Human Rights. Accordingly, Philip 17%20June%202015.pdf Alston, the UN Special Rapporteur on extreme pov- Thomas, V., and de Ferranti, D., 2015: Time to bolster safeguards, not dilute erty and human rights has declared the World Bank to them. be a “human rights free zone” for most purposes. His http://blogs.ft.com/beyond-brics/author/vinodthomasanddaviddeferranti/
D+C e-Paper March 2016 19 “Pool and share knowledge”
The Asian Development Bank’s annual meeting will be held in Frankfurt in May. An important topic will be what new competition from the Asian Infrastructure Investment Bank means for the multilateral institute. Hans-Joachim Fuchtel, the ADB governor for Germany and parliamentary state secretary to the federal minis- ter for economic cooperation and development, says there is a lot to do for both banks in view of mass poverty.
Interview with Hans-Joachim Fuchtel
Several emerging markets are currently is most evident here. And it is also clear that carbon affected by economic downturn. What must emissions are especially high in Asia, though per- multilateral development banks do in this capita emissions are higher in Europe. context? For a long time, emerging markets were the engines The world is a bit like a global construction site, of the global economy. When they start to falter, the and we need intelligent financing schemes in order effects are felt all over the world, including in Ger- to find solutions. The people living on the coasts of many. The multilateral development banks can inter- Bangladesh know this perfectly well. It is not their vene to counteract this trend and, as they proved in fault that everything they have is being submerged the last financial crisis, they can protect emerging by the sea. All of us who have contributed to climate markets in particular from slumps. They can step in change have a responsibility here. when private-sector banks are refusing to grant new loans. In cooperation with the Asian Development Bank, Germany has launched an initiative for Asia’s fast Every crisis is also an opportunity. It cannot be that growing cities. We can ensure today that cities grow the economic boom in an emerging market like in a climate-friendly way tomorrow. That means China means that people in big cities are exposed good public transport, low-energy urban lighting, to serious air pollution every time they step outside earthquake safe buildings and so on. their front doors. We must therefore emphasise sus- tainable development, especially in the emerging We see the annual meeting of the Asian Develop- markets. The multilateral development banks have ment Bank in Frankfurt in May as an opportunity to the know-how and the capital to support them. put even more emphasis on sustainability. When the Bank advises national governments on economic In your eyes, what is the role of the ADB in par- policies, sustainability must top the agenda. That is ticular? Its members include huge emerging just as true for climate change as it is for global sup- markets like China, India and Indonesia, but ply chains. Unless living wages are paid at the very also many small developing countries. beginning of the supply chain, we cannot ensure The need for investments and reforms is obviously decent livelihoods for the people who make our huge, both in the big emerging markets and in the clothes. A garment worker in Bangladesh must have poorer Asian countries. Germany has therefore made enough to live on. sure that the Asian Development Bank will be able to increase its lending by about one third over the next How will the ADB relate to the AIIB which was ten years. launched by the emerging markets because they did not want to leave matters to the In the next four years the Bank will be doubling its established economic powers? investments in efforts to combat climate change. The need for infrastructure in developing countries If we want to stop climate change then we need to and emerging markets is enormous. Railways, roads, work with Asia. This is just as important for poorer schools and hospitals are required. Today, more than countries in Asia as it is for the emerging markets. 1.6 billion Asians still live on less than two dollars The relevance of the Sustainable Development Goals per day. So it is actually in our interest that the Asian
20 D+C e-Paper March 2016 “In cooperation with the Asian Development Bank, Germany has launched an initiative for Asia’s fast growing cities. We can ensure today that cities grow in a climate-friendly way tomorrow.” Metro passenger in Delhi. Lineair
Infrastructure Investment Bank is starting opera- agencies such as KfW Banking Group or GIZ either. tions. We have to ensure, however, that it observes The best example is the world’s biggest solar power environmental and social standards and, as a share- station, which was recently inaugurated in Morocco. Hans-Joachim holder, Germany’s Federal Government will do that. The World Bank, the African Development Bank, Fuchtel Germany and other donors have together initi- is the ADB governor for Fighting poverty, especially in the least-devel- ated Africa’s Energiewende, the transition to clean Germany and pParliamentary opment countries, is an important component energy. state secretary to the federal of the mission of multilateral development Minister for economic banks. What tasks should the regional develop- It obviously makes no sense to have everyone doing cooperation and development. ment banks take on, and what is the brief of everything, so we need an intelligent division of http://www.bmz.de the globally active institutions – and is this labour. The regional banks are closer to the source cooperation going well? for regional problems. Global institutions such as the World Bank are coop- erating ever more closely with the regional develop- On the other hand, many problems transcend ment banks. They are increasingly joining forces national borders, affecting more than one country or to deal with major infrastructure investments or continent. Climate change is a striking example. In financial crises, drafting joint strategies and stand- these cases, we need to pool and share knowledge – ards. In this context, we should not forget German and that is the global institutions’ strong point.
D+C e-Paper March 2016 21 “Sensible division of labour”
The number of international development banks is growing. Nonetheless, an ideo- logical clash of the established institutions with the new ones, which have been launched by emerging-market governments, is unlikely. That is what Bruno Wenn, chairman of the Management Board of the German development finance institution DEG, thinks. In an interview, he told Hans Dembowski the reasons.
Interview with Bruno Wenn
For poverty to be reduced, private businesses creating business environments that are conducive must generate jobs. In other words, they must to generating and implementing promising ideas. be successful enough to hire new staff. Can Bankable infrastructure projects are especially valu- international development finance institutions able. There currently are too few of them. contribute to making that happen? ■■ Yes, they can. First of all, they can contribute to Are the IFIs, the international finance institu- making sure that the kind of infrastructure that tions, up to their tasks of knowledge brokers? businesses need is built in developing countries Generally speaking, they are, yes, but unfortu- and emerging markets. Relevant issues include nately there is tendency of fragmentation. The water supply, electric power, transport, telecom- World Bank and the regional multilateral develop- munication et cetera. For good reason, financing ment banks should coordinate their efforts even such things has always been an important part of better. Some of their work overlaps, and it can be development banks’ mandate. quite surprising which agency is the decisive one. In Africa, for example, the World Bank tends to ■■ Moreover, they can help governments to foster have a stronger local presence than the African a healthy business environment in regard to Development Bank even though the latter has regulations and institutions. For example, every more regional expertise. country needs a well-functioning government- revenue system that taxes everyone reasonably, Giving advice to governments is the job of the so state agencies are able to act, for instance, in GIZ, the bilateral German development agency. regard to the infrastructure I just mentioned. Every Yes, and its experts contribute to improving the country similarly needs a judicial system that can business climate in many places, and so do our col- handle disputes in a fast and trustworthy manner. leagues at KfW development bank, another bilateral International institutions can – and must – provide institution. The DEG is involved too. We advise our competent advice in these matters. clients, after all. Bilateral efforts matter, and they must complement multilateral efforts. Multilateral And that is why the World Bank has been claim- programmes tend to be particularly influential, how- ing to be a “knowledge bank” for quite some ever, so coordination among multilateral agencies time. Loans are the typical tools a bank uses should be optimised. however. Can the World Bank really promote sensible regulation, strong institutions and There are several new development finance good governance by handing out loans? institutions which have been launched by Well, loans from international institutions really are emerging market governments. One example is not that important currently. These days, it is easy to the Asian Infrastructure Development Bank in get cheap money, so no project fails because of a lack Beijing, and its members include Germany and of funding. There is, however, a lack of bankable other European countries. Another example is projects. A bankable project must be well designed, the New Development Bank, which the govern- including in regard to human rights, environmental ments of the BRICS countries – Brazil, Russia, and social standards. Moreover, the risks need to be India, China and South Africa – have set up in clearly identified. Unless all this is the case, banks Shanghai. Yet another example is the Banco del will hesitate to grant loans. Accordingly, it is very Sur, which has been around for a bit longer. important that international agencies contribute to Must we now expect fragmentation to increase
22 D+C e-Paper March 2016 Workers at a Kenyan juice-producing
Rüdiger Nehmzow/KfW Bildarchiv company that has taken DEG loans.
because every bank has an obvious institu- Moreover, advanced nations’ concern for the envi- tional self-interest to raise its profile? ronment protection, social protection and good There is a certain probability of fragmentation governance is not some kind of luxury only the rich increasing, for instance, if individual banks try to can afford. Rather, these issues need to be dealt get hold of good investment projects in the hope of with for economies to be successful in the long run. disbursing their money and perhaps even compet- It plainly does not make sense to invest in environ- ing with other banks in terms of the conditions they mentally harmful production facilities, because if offer. That would be counter-productive. As I just you do, those facilities will no longer be accepted said, money really is not the core problem today. It in a few years. Trying to rely merely on the exploi- is more important to join forces in order to make tation of cheap labour is not a promising business individual countries’ business climate conducive to model either. Our partners in countries like China, the kind of sustainable and eco-friendly growth that India and Brazil understand these things quite well. allows nations to prosper. A division of labour would make sense. The more experienced partners could If the new development banks are not going to provide advice geared to making projects bankable, adopt very different policies from those of the and other institutions could then finance those pro- established banks, why were they set up at all? Bruno Wenn jects. Well, the industrialised nations have basically been chairs the Management Board telling emerging markets to assume more respon- of DEG – Deutsche But don’t the emerging-market governments sibility, but they did not give them necessary space Investitions- und Entwick- have a different ideology, for instance in for doing so in multilateral institutions. The US lungsgesellschaft, the regard to states intervening in markets? Congress, for example, refused to accept more voting subsidiary of KfW which Some observers expect the new IFIs to become rights for emerging markets in IMF governance for supports private-sector a fierce competition that will make life harder years (see article by Fernando Cardim de Carvalho development in developing for the established ones. on p. 30 ff.). Europe wasn’t exactly eager to renounce countries and emerging For two reasons, I don’t expect that to become influence and give emerging markets more say either. markets. a major problem. Just like the established develop- One result is that there now are new institutions http://www.deginvest.de ment banks, the new ones depend on capital mar- which are eager to do business. The aspirations kets for refinancing. To raise money, they will have are considerable. I was surprised to learn recently to adopt policies that capital-market investors find that the AIIB will not only be active in Asia, but has convincing. And that means they will ultimately not a mandate to become engaged in all its member be that different. countries. Peru has already applied for funding.
D+C e-Paper March 2016 23 Major breakthrough
In September 2015, the world community spelled out its new aspiration “to end poverty in all its forms everywhere” in the first of 17 Sustainable Development Goals (SDGs). Since October 2015, it also has a new international poverty line of $ 1.90 a day.
By Hildegard Lingnau
The SDG1 sets the target to eradicate extreme the core of this debate is how to compare the stand- poverty for all people everywhere by 2030. It ards of living of widely different peoples, consuming does not simply define a monetary poverty line; it also vastly different goods and services, all priced in differ- refers to other dimensions of poverty such as lack of ent currencies,” the authors state (Ferreira et al. 2015). access to land, social protection, technology, financial services and other resources. Current situation While the SDGs are celebrated as a major break- through in defining and measuring dimensions of The World Bank Global Monitoring Report (GMR) poverty, some critics say that the broad approach does 2015/16 assesses the current situation as follows: a disservice to the poorest of the poor. They argue that since 1990, the share of the world population liv- countries can cherry-pick from the SDG list whatever ing below the dollar-per-day poverty line has come they want instead of being forced to tackle the most down from nearly 40 % to nearly 10 % today. None- pressing poverty issues (Klasen 2015). theless, some 700 million people are still estimated to live below that line. That number is expected to The key indicator for measuring poverty, however, drop to between 340 and 480 million by 2030. The will continue to be the World Bank’s dollar-per-day- global share of extremely poor people would then be measure which allows to track poverty over time and between 4.2 and 5.7 % of the world population. The across regions. Based on new data, the World Bank World Bank, however, wants that share to fall below last year updated its former international poverty line three percent. of $ 1.25 per head and day to $ 1.90. The new sum is believed to reflect the purchasing power $ 1.25 had in In any case, the vast majority of extremely poor 2005 – which in turn was supposed to cover what one people (more than 85 %) will live in Sub-Saharan dollar bought in 1985 (see box below). Africa (Ferreira et al. 2015). Experts emphasise that these numbers are mere estimates. “Everything The World Bank researchers admit that definition beyond 2012 is essentially guesswork” (Sandefur and measurement remain “challenging endeavours”. 2015), as more recent and reliable data are not avail- Concepts, methods and data are subject to debate. “At able.
New poverty line better reflects reality
The World Bank regularly updates the poverty line is defined as the average of The current poverty line of $ 1.90 reflects international poverty line whenever the the national poverty lines of the 15 poor- the fact that the 2011 ICP price surveys International Comparison Program (ICP) est developing countries. revealed price levels in poor countries that makes new data on purchasing power were considerably lower – relative to those parities (PPPs) available. PPPs are sup- The latest ICP PPP index round took place in in the USA – than those used in 2005. If posed to be more accurate than exchange 2011 and provided the basis for the new prices in poor countries are lower, that rates. The reason is that the prices for $ 1.90 poverty line. Previous rounds took means that their currencies have become goods and services vary dramatically from place in 1985 (setting the poverty line at stronger in terms of purchasing power. country to country. The ICP is a partner- $ 1.01), 1993 ($ 1.08) and 2005 ($ 1.25). Accordingly, their poverty lines must be ship of international organisations. It col- Though there is some disagreement among raised in dollar terms. In 2011, $ 1.90 was lects and compares price data internation- scholars, the dominant view is that the new estimated to buy the same things as $ 1.25 ally to estimate PPPs. The international PPPs are a reasonable update of the old ones. did in 2005 in poor countries. (hl)
24 D+C e-Paper March 2016 kd
The World Bank, however, is not only interested agreement on how to measure the various forms of in monitoring and reducing extreme poverty. It also deprivation and aggregate such information. Health care is one of wants to monitor and expand what it calls “shared many dimensions of prosperity”, which is reflected in the growth of the per- Two other approaches to poverty monitoring poverty: medical service capita income of a country’s poorest 40 % (see D+C/ besides the shared prosperity approach of the World in a settlement near E+Z 2014/12, p. 450). Bank deserve to be mentioned: economists such as Phnom Penh, Cambodia. Martin Ravallion and Andy Sumner are in favour of Currently, there is no progress on shared prosper- using several poverty lines, whereas the Oxford Pov- ity, as incomes are actually declining for the bottom erty and Human Development Initiative (OPHI) has 40 % in half of all heavily indebted countries and one designed the Multidimensional Poverty Index which third of moderately indebted countries, according to was adapted by the Human Development Index. the World Bank. Moreover, the bottom 40 % of the population suffer deprivation in non-income dimen- sions of poverty as well. Multiple poverty lines
Ravallion (2015) states that two poverty lines are Three challenges needed. The first should reflect a specific level of mini- mal purchasing power across all countries, and the The Wold Bank GMR identifies three challenges: second should indicate a poverty line that matches the depth of remaining poverty, the unevenness in a given country’s average income. prosperity and persistent disparities in non-income dimensions of development. The authors make the Sumner similarly questions the usefulness of any following policy recommendations: single poverty line. In his eyes, such definitions are ■■ recognise that poverty is multi-dimensional, arbitrary. Indeed, changing the dollars-per-day pov- ■■ focus more directly and fully on the poorest among erty line by ten cents can mean that 100 million more the poor, – or fewer – people around the world are considered ■■ make steady growth of the incomes of the bottom extremely poor. Sumner is in favour of using several 40 % of the population happen, poverty lines, including one of ten dollars per day and ■■ address widespread inequality of opportunities, head (see Sumner: CGD blog 11.5.2015). ■■ implement human-development and social-protec- tion policies and Sumner’s approach would draw greater attention ■■ monitor the sustainability of development progress to the distribution of wealth. Poverty cannot be tack- in all three dimensions (with a special focus on envi- led with growth in itself; the benefits of growth must ronmental concerns). be redistributed. Sumner insists that philanthropy and welfare systems have some impact, but “a world The acceptance of the idea that poverty is multi- free of poverty and free of the risk of falling back into dimensional is growing. There is however much less poverty ($ 10 per day) would require a very radical
D+C e-Paper March 2016 25 A new commission
Kaushik Basu, the World Bank’s chief economist, has convened a commission of 24 high-profile econo- mists. They have been requested to answer the follow- ing questions by April 2016: ■■ What does it mean to hold the poverty line con- stant at the purchasing power of $ 1.25 in 2005 as reflected in the recent adjustment to$ 1.90 today even though prices and exchange rates keep chang- ing? ■■ Should the World Bank also consider measures such as four-dollar and ten-dollar-per-day poverty lines? ■■ Should it assess the depth of poverty below the line? ■■ Should it collect and collate data on dimensions of poverty beyond the money metric?
Overall, the outlook for measuring poverty has improved considerably. In SDG1, the world has finally
Baumgarten/picture-alliance acknowledged that poverty is multidimensional and needs to be measured in different ways. Much needed World Bank shift in the forms of contemporary capitalism” (Sum- progress is being made in defining and measuring headquarters in ner 2015: CGD blog 9.9.2015). poverty in its different dimensions. However, many Washington D.C. challenges in terms of methods and data availability remain in practice. Non-income measures Challenges for established donor governments are The Multidimensional Poverty Index (MPI) assesses that: 10 dimensions of poverty in more than 100 developing ■■ SDG1 applies to all nations, so they will have to countries. The latest version (MPI 2015+) reflects the assess poverty at the domestic level too, and different types and dimensions of poverty as agreed ■■ all policy communities are called on to tackle pov- in the SDGs, including poor sanitation, malnutrition, erty in all its dimensions. gender discrimination, quality of work and exposure to violence, for example. It matters that, when poor References: people describe their experience, they mostly refer to Ferreira, F. H. G., et al, 2015: A global count of the extreme poor in 2012. World these dimensions themselves. Bank: http://documents.worldbank.org/curated/en/2015/10/25114899/global-count- The MPI is most useful. Apart from providing extreme-poor-2012-data-issues-methodology-initial-results a headline measure of multidimensional poverty Klasen, S., 2015: SDG – Den Ärmsten der Welt einen Bärendienst erwiesen. KfW: within any population, the global MPI 2015+ reveals: https://www.kfw-entwicklungsbank.de/PDF/Download-Center/PDF-Dokumente- ■■ in which senses people are poor, Development-Research/2015-09-22-MF_Klasen_en.pdf Hildegard Lingnau ■■ where the poorest people live (by region and social Oxford Poverty and Human Development Initiative (OPHI): wrote this essay in her capacity group), as well as http://www.ophi.org.uk/ as senior counsellor at the ■■ the intensity of the deprivations. Ravallion, M., 2015: The World Bank’s new global poverty line. CGD blog OECD. She has since become 7.10.2015: the head of cooperation at the The more policy-relevant information on poverty is http://www.cgdev.org/blog/world-bank%E2%80%99s-new-global-poverty-line German Embassy in Kenya. This made available, the better-equipped policy makers Sandefur, J., 2015: Nobel prizes, poverty numbers and tales of mythical contribution reflects her become to reduce it. Where most people lack educa- creatures, CGD blog 15.10.2015. personal views. tion, for example, a poverty-reduction strategy must Sumner, A., 2015: An End to Global Poverty: Philanthropy, Welfare Capitalism, or [email protected] obviously be different from where most people lack Radically Different Global Economic Model?, CGD blog 9.9.2015: adequate housing. http://www.cgdev.org/blog/end-global-poverty-philanthropy-welfare-capital- ism-or-radically-different-global-economic-model A growing number of governments and interna- Sumner, A., 2015: When Does One Dime = 100 Million People?, CGD blog tional institutions are adopting multidimensional 11.5.2015: poverty measures. To foster South-South support for http://www.cgdev.org/blog/when-does-one-dime-100-million-people this approach, 40 of them have founded the Multidi- World Bank Global Monitoring Report 2015/2016: mensional Poverty Peer Network (MPPN). http://www.worldbank.org/en/publication/global-monitoring-report
26 D+C e-Paper March 2016 Back to square one
In 2015, the World Bank discontinued its status reports on the implementation of the Heavily Indebted Poor Countries (HIPC) Initiative. It stated that debt relief had been concluded within the framework of the initiative for all intents and purposes, and that had been successful. But was it really? It makes sense to look back.
By Jürgen Kaiser
Until 1996, poor and heavily indebted countries its to it themselves. To talk about “multilateral” debt could only obtain debt relief from bilateral credi- relief actually only makes sense because they did so tors, but not from multilateral creditors like the World to some extent. Bank, the IMF or the regional development banks. But since governments very rarely granted debt relief, It was considerable progress that the multilateral over 40 poor countries found themselves in a verita- agencies were told to cancel debt. But when drafting ble debt trap. Economic development became practi- the initiative, the IMF and World Bank undermined cally impossible. In some cases, the debt burden was their own goals by trying to keep multilateral contri- absurdly heavy. butions as small as possible: ■■ The debt-sustainability thresholds were set so high By that point, multilateral institutions had that only six countries were forgiven rather small become the most important creditors for many sums in the first three years. countries concerned. The reason was that they ■■ The World Bank and IMF could only request that helped poorer nations make their ongoing debt- private lenders participate in debt relief, but there service payments by issuing them new loans when was – and still is – no mechanism to exert pressure private and bilateral lenders were no longer willing on them. One result was the rise of vulture funds. to do so. Unlike bilateral debt, however, multilateral Their business model is to buy government debt at debt was officially considered ineligible for resched- low cost in imminent default and later sue for full uling. payment, including interest. ■■ The Bank and Fund retained a monopoly on deter- There was no international treaty or clause in mining debtor countries’ need for relief. In a con- the charters of multilateral institutions that pre- siderable number of cases they underestimated that vented them from relieving debt in cases of excessive need because they predicted absurdly high growth indebtedness. Nonetheless, the conventional wis- rates. dom was that these institutions had to be serviced so they would remain available as lenders of last In 1999, the G8 governments expanded the HIPC Ini- resort and could keep countries afloat even in times tiative at their summit in Cologne. The requirements of crisis. for relief were lowered, so more countries qualified. Today, the total number is 39. For three of them – Attitudes only began to change in the mid-1990s. Sudan, Somalia and Eritrea – actual relief has not Sweden and Switzerland organised a consultation happened and cannot be expected anytime soon. The with experts from the World Bank and the IMF in reasons are incomplete statehood and questionable 1995, and afterwards the staff of both institutions laid governance. the groundwork for what would become the HIPC Ini- tiative. The idea was to cancel all debts that exceeded To date, the total amount that has been written a debt-sustainability threshold which Bank and Fund off is roughly $ 120 billion. However, further reforms defined. In addition, all other creditors should also were necessary to reach that sum. At the G8 Summit cancel debt to varying degrees. Multilateral creditors in Gleneagles in 2005, the HIPC Initiative was sup- were meant to act last of all. Once the other creditors plemented by the Multilateral Debt Relief Initiative had issued their write-offs, they would reduce claims (MDRI). only to the extent needed to make debt levels sustain- able once more. HIPC had reduced debts to a maximum debt-to- export ratio of 150 % and a maximum debt service of The World Bank and the IMF were to be com- 15 % of export earnings. In contrast, the MDRI com- pensated for debt relief. Donor countries established pletely cancelled all remaining debt to the IMF and a trust fund for this purpose, and the multilateral IDA, the World Bank’s branch for the poorest nations. institutions contributed some of their operating prof- Moreover, the MDRI also granted relief on debt to
D+C e-Paper March 2016 27 Ghana is considered a debt relief success story, but it is once again at high risk of insolvency. Construction workers in Accra. Giling/Lineair
the African and Inter-American Development Banks What next? because of concessional lending. HIPC success is marred however. The international The MDRI finally relieved countries to the degree financial institutions and their powerful members they needed to get their economies going again. expected debt relief to allow countries to escape the Before 1996, the debt-to-GDP ratio exceeded 100 % in vicious circle of borrowing and over-indebtedness most countries concerned. Today, their average ratio once and for all. This expectation was unrealistic. is around 20 % – far below the average of all develop- The reason is that HIPC was designed to help over- ing and newly-industrialising countries. indebted countries to access the credit market again. And when a country takes out new loans, there is From 1999 on, a poverty reduction strategy was always a risk of over-indebtedness and ultimately made an important precondition for HIPC debt relief. default. Governments had to draft such a strategy in coopera- tion with civil society and show how the funds freed Based on significantly improved debt-sustain- up in debt relief would be used to fight poverty. These ability analyses, the IMF last year identified seven strategy papers supplemented, but did not replace of the 36 countries that got debt relief as once conventional structural-adjustment programmes. again being at “high risk” of over-indebtedness. It stated that the risk for 20 other countries was In some cases, the Poverty Reduction Strategy “moderate”. High risk means that the IMF con- Papers (PRSP) were not much more than a mean- siders insolvency likely within the next few years ingless compilation of politically-correct rhetoric. under its baseline scenario. “Moderate” risk means Malawi and Chad are examples. In other countries a country could become insolvent if one of the – Bolivia, for instance – they triggered substantial IMF’s standard crisis scenarios materialises. One social processes and ultimately led to a political para- such scenario is falling world-market prices for an digm shift. important export good.
28 D+C e-Paper March 2016 Despite qualifying for a debt write-off, the failed state of Eritrea is unlikely to get debt relief any time soon. Runkel/Lineair
What will happen in a new debt crisis is as unclear coordination within groups, as became evident when today as it was in 1996. The Paris Club of established HIPC was first implemented. The consequence was creditors only plays a marginal role for many poorer that peremptory debt relief measures were repeatedly countries today. Important new bilateral creditors like delayed, so they became much more expensive than China, Taiwan or Kuwait have not joined the Club, if restructuring had taken place in a timely manner. which is dominated by the established economic powers. Emerging-market governments appreciate In September 2014, developing and newly-indus- the political leeway that can be gained through stra- trialising countries took the initiative to address this tegic and discretionary debt-relief policies and do not situation in the UN context. They proposed creating show much interest in the “creditor solidarity” which a binding framework for managing sovereign debt cri- Jürgen Kaiser the Paris Club promotes. ses. However, the initiative was blocked by Germany coordinates erlassjahr.de, and a handful of other advanced countries. a German faith-based campaign Since the beginning of this decade, many formerly that focuses on debt issues. over-indebted countries have sold government bonds When asked what will happen if Ghana for [email protected] on international capital markets for the first time. Sen- instance once again becomes unable to make pay- egal, Côte d’Ivoire, Zambia, Mozambique, Tanzania and ments, ministries in Berlin answered that the CACs Ghana successfully did so. Ghana, however, is now con- will then make rescheduling possible. But bonds with sidered a high-risk country (see Clara Osei-Boateng and CACs only make up less than 20 % of long-term debts Kristina Rehbein in D+C/E+Z e-Paper 2015/12, p. 41). in Ghana and other countries on the brink of crisis. The bonds are not the greatest burden on the public Most of the bonds issued by HIPC government budgets and balance of payments. come with collective action clauses (CACs) that allow restructuring based on decisions made by the major- It is clear that HIPC debt relief is not supposed to ity of bondholders. However, coordination between happen again. We are back to square one, precisely creditor groups is normally a bigger problem than where we were before 1996.
D+C e-Paper March 2016 29 Back to original mission
IMF policies have changed over the years, and some programmes failed. Emerging markets deserve – and will soon get – more say.
By Fernando J. Cardim de Carvalho
At the end of 2015, the US Congress finally To avoid currency wars in the future, Bretton approved the reform of how countries count in Woods created a fixed exchange-rate system which IMF representation – after five long years of negotia- only allowed members to alter their exchange rates tions. China and other emerging markets will contrib- in line with fundamental economic change. The first ute more money to the IMF and get more votes accord- part of the IMF’s mission was thus to evaluate coun- ingly. European influence will be reduced. tries’ self-assessments and advise other members on whether or not an exchange-rate change was The reform was stuck in the US Senate’s Foreign justified. For this purpose, the Fund had to appear Relations Committee for a long time. President Barack impartial, so all countries were supposed to be rep- Obama was in favour of passing it, and so were some resented according to their relevance in the world Republican officials. The majority of conservative economy. Republicans in the US Congress, however, see the IMF as a socialist institution that bails out bankrupt gov- The IMF’s mission included a second part. It was ernments, many of which criticise the USA. Ironically, obvious that a country’s adjustment after a balance- many people in other world regions consider the IMF of-payment crisis would take time. Until the desired a tool of US hegemony. balance of exports and imports was reached, the Fund was supposed to help that country to finance indis- The current reform will raise China’s share of pensable imports. Accordingly, the IMF was assigned votes from 3.8 % to 6 %, making it the third most to provide short-term credit and became something powerful country after the USA and Japan. Washing- like an economics think tank with a bank division. ton will retain some veto powers however. The value Countries’ voting rights were designed to reflect their of each member’s quota is determined by a complex contribution to the Fund’s capital. system that reflects political power and economic influence. Bretton Woods also set up a bank to provide long- term credit for post-war reconstruction: the Interna- tional Bank for Reconstruction and Development, The IMF’s mission better known as the World Bank. Its mandate soon included support for developing countries, many of The IMF was launched at the Bretton Woods Con- which became independent after World War II. ference in 1944 when the end of World War II was in sight. All 44 countries that were part of the anti- fascist United Nations Alliance participated in the Structural adjustment conference. Its purpose was to design a new interna- tional monetary system for the post-war era because Initially, the IMF was basically expected to manage the pre-war gold standard had proved to be a driver of a payments system for trade among advanced econo- deflation and had contributed to the Great Depression mies. However, the fixed exchange-rates system col- of the 1930s. lapsed in the early 1970s, and the Fund began to focus on developing economies. Back then, the known alternative to the gold standard was letting national authorities manipulate These countries faced different challenges how- exchange rates. It was considered worse than the gold ever. Industrialised economies only needed IMF sup- standard because the Great Depression had worsened port for six to 12 months or so in order to adjust after as countries left the gold standard and kept devaluing balance-of-payments crises. Basically, they had to their exchange in the hope of exporting more and thus reduce fiscal deficits and raise interest rates to bring reducing domestic unemployment. aggregate demand in line.
30 D+C e-Paper March 2016 The problems of developing countries, however, tive leaders such as Margaret Thatcher and Ronald were harder to fix. According to the IMF leadership, Reagan in rich nations. they had to undergo structural reforms. The idea was to turn them from commodity-based economies with Structural adjustment was not expected to hap- large public sectors into vibrant industrial ones. The pen within a few months, so the IMF teamed up goals of structural adjustment were thus to reduce with the World Bank to design structural-adjust- the size of the state, deregulate the economy, privatise ment programmes for various countries. They then state-owned enterprises, liberalise labour markets et carefully supervised implementation and ignored cetera. It is certainly no coincidence that these goals dissenting views as to what would best promote were also high on the domestic agendas of conserva- development.
European discomfort
The IMF’s role in the Euro crisis is awkward debt sustainability. Before the last bail- involved the institution in inner-EU pol- in several ways: out for Greece last summer, IMF econo- icy-making, which should not be its mists stated that Greece needed debt business. No doubt, the euro crisis has ■■ The IMF is not acting independently, but relief, which the Fund’s European part- made them even more eager to get is part of a troika which also includes the ners were unwilling to grant. At the more say at the IMF than they were any- European Commission and the Euro- same time, European – and in particular way (see main article). pean Central Bank. The European part- German – policymakers want the IMF to ners’ approach is more restrictive and remain part of the Troika. The IMF’s Internationally, most economists – includ- less growth-oriented than current IMF position is that it is only contributing ing those at the IMF – philosophy is. technical expertise, but the Europeans agree that aggregate ■■ The economies of the worst-hit coun- want it to contribute funds as well. demand in the entire tries are still smaller than they were in Recently, IMF leaders have emphasised EU is too low, so the 2008, and the crisis has kept dragging that Greece needs pension reform to continent needs pub- on for years. Quite obviously, troika make debt sustainable, but even though lic investments, not Deeply involved in EU affairs: Christine policies have not had the intended officials now shy away from the issue, austerity to recover. In Lagarde, IMF results of reducing public debt, inspiring debt relief remains relevant – especially northern Europe, and managing director, with investor confidence and triggering fast as the case was made by IMF experts. especially in Germany, Euclid Tsakalotos, the recoveries. Living standards and social- ■■ Emerging-market members find it irri- this view is deeply Greek finance minister, protection standards have deteriorated tating that the IMF keeps using multilat- unpopular however. in Brussels in July dramatically for masses of people (as I eral money in support of comparatively In this debate, the US 2015. argued using the example of Portugal in prosperous European countries, espe- administration is D+C/E+Z 2015/03, p. 25 ff.). cially as debt sustainability is in doubt in siding with emerging markets. How the IMF ■■ The IMF may only lend financial support Greece. They think that Christine will decide on conditions for contributing to countries if programmes will achieve Lagarde, the French head of the IMF, has bail-out funds remains to be seen. (fcc) picture-alliance/dpa
D+C e-Paper March 2016 31 China’s clout in the IMF is growing. A bull representing financial power in Shanghai. Raupach/Lineair
This policy approach reached its peak in the Under their leadership, the Fund re-examined its past 1990s. By the end of the 1990s, however, it was obvi- policy recommendations and its rigid free-market ide- ous that structural adjustment had failed in many ology. It revised its views on many important issues countries. Instead of emerging stronger from crisis, such as the efficiency of capital controls and other many economies had only sunk deeper into public forms of macroeconomic intervention. debt. The Fund’s reputation suffered especially during the Asian crisis as many observers argued that it had In the second half of 2008, the investment bank made things worse. By the end of the decade, even the Lehman Brothers collapsed, and the global financial Fernando Cardim governments of the leading economic powers under- crisis began. In this scenario, the rethink going on de Carvalho stood that debt relief for highly indebted poor coun- at the IMF made even more sense. Evidently, the is a professor of economics at tries had become necessary. Fund was still needed. After Strauss-Kahn’s dis- the Universidade Federal do Rio gracing sex scandal in 2011, he was succeeded by de Janeiro. Christine Lagarde, but she largely stuck to his policy [email protected] New-found relevance approach.
After the turn of the millennium, the IMF did not The main mission of the IMF is once again under- make headlines for some years. Indeed, some argued stood to be the management of temporary crises in it had become irrelevant, and experts discussed shut- the short term and restarting economies. This mis- ting it down. sion makes sense. It is all the more awkward, there- fore, that the IMF has become deeply involved in the Instead, the IMF became strong and prestigious misery of the long lasting Euro crisis (see box, p. 31). again. Its comeback began with Dominique Strauss- What is happening in Europe looks more like struc- Kahn becoming its managing director in late 2007. tural adjustment than an implementation of recent He appointed Olivier Blanchard as chief economist. IMF reasoning.
32 D+C e-Paper March 2016 Debate on industrial policy
The question whether industrial policy should be used to actively drive develop- ment is once more the topic of intense debate. Interest in the matter was rekindled by two things: China’s spectacular, policy-driven growth on the one hand and concerns about Africa becoming deindustrialised on the other. Indeed, the African experience shows that markets alone do not bring about industrialisation. Current contributions to the debate are more nuanced than those of the 1990s.
By Michael Grimm
In 1993, the World Bank’s East Asian Miracle Africa, showing that, even at comparable income Report staked out a clear position: it attributed levels, the share of manufacturing in employment as East Asian success first and foremost to macroeco- well as GDP was much larger in East and Southeast nomic stability and healthy fundamental data. In other Asian countries. Rodrik sketches a typology of growth words, sound macroeconomic management, free trade in order to predict its pace. He notes that, even though and investments in infrastructure and education were “fundamentals” have been good in much of Africa, believed to be at the root of healthy development. The industrialisation remains weak. Accordingly, he fore- report acknowledged that many of the countries con- casts slow economic growth for the continent in the sidered had relied on targeted government action in future. terms of agricultural policies, aid for exports, subsi- dised credit and deliberate reallocation of resources. Rodrik discusses four policy options: (i) develop- Nonetheless, the authors stated that such government ment and promotion of the manufacturing industries, action had not been the main driver of success. (ii) agribusiness, (iii) specialisation in the services sector and (iv) commodities-based growth. Rodrik Alice Amsden (1994) and many other analysts assesses these options with a particular focus on strongly criticised the report’s conclusions and rec- the scope for job creation. From this perspective, he ommendations. Amsden objected in particular to the argues that option (i) is the most promising. A the World Bank’s claim to neatly distinguish fundamental same time he argues that shifts in global demand will factors from interventionist policies. She felt it would make it harder for Africa to find suitable export niches make more sense to find out how to build the kind of than it was for other regions in the past. strong institutions that had led to convincing results because they were able to implement industrial poli- Margaret McMillan sees Africa’s development cies in East Asia. much more optimistically (McMillan and Harttgen, 2014). She points out that the number of micro and The topic was then dropped. It seemed as if the small enterprises has risen fast and that they have World Bank’s point of view had prevailed. Experts only absorbed many workers from agriculture. Despite took the issue up again in the early 2000s. In a book their small size, these companies have higher produc- he co-edited (Arbache et al., 2008), John Page, one of tivity levels than farms. McMillan reads this as a sign the authors of the East Asian Miracle Report, showed of considerable progress towards industrialisation, that the industrial sectors of many African countries though it differs from the kind seen so far in East and had begun to shrink after a brief period of growth Southeast Asia. that had been driven by government investments and import substitution. Page’s data indicated that the A collection of essays edited by Adam Szirmai, share of manufacturing industries in most African Wim Naudé and Ludovico Alcorta (2013) provides an countries’ GDP was smaller in 2000 than it had been excellent overview of the possible pathways for indus- in 1985. This development contrasted with trends in trial policy. It draws on experiences gathered in East most Asian and Latin American countries. Asia, China, Indonesia, Latin America and Africa. In general, the contributors appreciate that industrial Dani Rodrik (2014) argues along similar lines. policy is useful, but they offer very differentiated per- He laments the slow progress of industrialisation in spectives. In a chapter on Africa that echoes his argu-
D+C e-Paper March 2016 33 China’s industrial policy was successful: a fibre glass factory in Ghuanzhou.
ment in the East Asian Miracle Report, John Page calls low-carbon industrial growth. Industrial policy is for measures to improve the business climate, invest- seen as a tool that can contribute to international ments in infrastructure and human capital as well climate goals. If it reduces the relevance of land- as more regional integration. In the same volume, hungry agriculture, for instance, it helps to stem Tilman Altenburg points out that industrial policy is deforestation. unlikely to deliver results in countries where politics and the economy are still primarily directed and con- Mario Cimoli, Giovanni Dosi and Joseph E. trolled by (corrupt) elites. Stiglitz (2009) published an earlier, interesting book on these matters. They consider industrial policy an The book contains three chapters that consider important instrument to promote economic develop- industrial policy in the context of climate change ment. However, they used a very broad definition of and sustainability. They are very much worth read- the term, which encompasses policies concerning ing and focus on challenges of international coordi- trade, research, technology and foreign direct invest- nation, informal recycling and measures to promote ments.
34 D+C e-Paper March 2016 conditions developed. The economy picked as model should not only be operating at the international technological frontier, but contributing to pushing it further outward. By following a successful example, developing countries should be able to grow much faster than the more advanced economies.
According to Lin, the continuous upgrading of industrial structures and the improvement of infra- structure require coordinated investment and the compensation of externalities. But he argues that the state must assume an active role as private compa- nies cannot do these things on their own. The book is clearly a reflection of Lin’s own experiences in China. Accordingly, he pays almost no attention at all to the problem of weak institutions.
According to Shanta Devarajan (2012), however, this is the crucial problem. Devarajan is the World Bank’s chief economist for the Middle East / North Africa region and argues that poor governance is at the root of market failures. So the best way to promote structural change is not industrial policy, but stemming government short- comings. In sum, it is not surprising that Lin’s approach is not supported by consensus within the World Bank. There is one likely exception: agreement seems to be widespread concerning Africa’s need for substantial public investments in infrastructure.
References: Amsden, A. A., 1994: Why isn’t the whole world experimenting with the East Asian model to develop? In: World Development, Vol. 22: 627–633. http://sites.utexas.edu/chinaecon/files/2015/06/Amsdem_Response-to-East- Asian-Miracle.pdf Arbache, J. S., Go, D. S. and Page, J., 2008: Africa at a turning point? Growth, aid, and external shocks. Washington: World Bank. http://documents.worldbank.org/curated/en/2008/01/9484180/africa-turning- point-growth-aid-external-shocks Cimoli, M., Dosi, G., and Stiglitz, J. E. (eds.), 2009: Industrial policy and development. The political economy of capabilities accumulation. Oxford: University Press. Devarajan, S., 2012: In defense of industrial policy. http://blogs.worldbank.org//africacan/in-defense-of-industrial-policy Lin, J. L., 2012: The new structural economics. A framework for rethinking development and policy. Washington: World Bank. https://openknowledge.worldbank.org/bitstream/handle/10986/2232/663930P
Pape/Lineair UB0EPI00nomics09780821389553.pdf?sequence=1 Michael Grimm McMillan, M., and Harttgen, K., 2014: What is driving the ‘African growth is a professor of development Within the World Bank, a clear case has yet to be miracle’? Tunis: African Development Bank. economics at the University of made in favour of industrial policy. But the instru- http://www.afdb.org/fileadmin/uploads/afdb/Documents/Publications/ Passau. ment is once again considered to be worthy of debate. Working_Paper_-_209_-_What_is_driving_the_African_Growth_Miracle.pdf [email protected] A wide range of opinions is found, from complete Rodrik, D., 2014: An African growth miracle? Princeton: Institute for Advanced rejection to enthusiastic support. Study. https://www.sss.ias.edu/files/pdfs/Rodrik/Research/An_African_growth_ A prominent proponent of industrial policy is Jus- miracle.pdf tin Yifu Lin (2012), who was the chief economist and Szirmai, A., Naudé, W., and Alcorta,. L. (eds.), 2013: Pathways to industrializa- senior vice president of the World Bank from 2008 tion in the twenty-first century. New challenges and emerging paradigms. to 2012. In his book, Lin recommends that emerging Oxford: University Press. economies focus on their comparative advantages. World Bank, 1993: The East Asian Miracle: economic growth and public policy. In choosing production technologies and products, Washington. industrial policy should look for guidance to how an http://documents.worldbank.org/curated/en/1993/09/698870/east-asian- advanced economy which started from similar initial miracle-economic-growth-public-policy-vol-1-2-main-report
D+C e-Paper March 2016 35 Forced displacement happy that day, then it was the vul- tures. I was very sad, and I hated the thought of living on earth for the rest “My home, my life” of my life. We walked for many weeks before crossing the border to Ethiopia.
Kakuma refugee camp in Kenya’s Turkana desert is currently In 1983, Mary Othow arrived in the Piny- housing more than 180,000 people. Most of its inhabitants come udo refugee camp in Ethiopia. She remem- bers life being very hard: from Somalia and South Sudan, and some of them have lived here My little brothers and sisters and for decades. Mary Othow is one of them. I were orphans now, and I was the only guardian left to take care of By Peter Owar Okello them. I did some small business in order to feed them. Soon I had some “I remember 30 years ago, back in remain inside – hidden and in com- children of my own. But my husband my village everything was well. All plete silence. The militias had already Okello Opiew, a veteran soldier of the members of my family were still alive,” burned the other houses of the com- early years of Sudan People Libera- Mary Othow recalls. The South Sudanese pound, only our house remained. tion Army/Sudan People Liberation woman is originally from Akobo County in Jonglei State in the country’s south-east. Mary Othow. She is one of the tens of thousands of refu- gees who have spent most of their lives in Kakuma.
Mary Othow arrived in Kakuma 25 years ago. She says: We are refugees, and we are so forever. We cannot go back home for many reasons: some of us have no place to go due to insecurity back home, others have no remaining relatives because they all died during the conflict. So we have neither hope nor reason for going back home. The refugee camp is our
home – forever. Okello Peter
Mary Othow first became My mother went out to them coura- Movement, was killed in my home- Tribune a refugee during Sudan’s geously. She sacrificed her life for us. land Akobo. On several occasions, civil war, which started The militias asked her whether there I tried to commit suicide. But every in 1983 and only ended were people hiding in the building, time I hung a rope around my neck, with the peace agree- but my mother insisted that there was some spirit talked to me, saying ‘if ment of 2005 that nobody. They didn’t believe her, so one you kill yourself, who will take care insured a popular vote on the independ- of them came inside to search, but we of your siblings and children?’ So I ence of South Sudan. Mary Othow gives were all hiding and kept silent. The had to live on in hardship, struggle a vivid account of the day her home was man left and told his leader that there and make sure my kids could survive destroyed: was no one. every day. Being a single mother is When I was about 15 years old, our After a terrible interrogation, they shot very hard. I couldn’t provide for all home village was brutally attacked my mother. Even when she was dead, the needs of the children. by Arab militias. It was early in the they humiliated her and brutally cut morning. The militias fired heavy guns her with knives and machetes. They A few years later, a relative told her that which sounded like thunder, guns threw her body on my aunt’s and my life might be better elsewhere. She didn’t which shook the ground and made cousin’s bodies who were killed earlier know where to go, but decided to leave trees fall. Dead bodies were all around that day. Ethiopia in search of a better place: me. For the first time in my life, I felt Several hours later, the guns’ sound We travelled for months and months great fear. stopped, and there was only silence. on the way to an unknown destina- My mother was killed on that very day. We came out of our hiding places. tion. In the early months of 1991, The militiamen came onto our com- Together with the other few remaining we arrived at Lokichokio, which is in pound, many of them. They shouted children of the village we decided to northern Kenya on the border with ‘come out! Come out! Or we will burn leave and find a place where we could South Sudan. People who called down your house!’ My mother got be safe. themselves UN, with the same sym- scared. She told us children that she We passed many corpses along the bols and logos on their clothes that would go out, and that we should way. If there was any living thing I had seen in Pinyudo, came to us,
36 D+C e-Paper March 2016 In Kakuma, life continued to be hard, Mary with good results. Now the boys have Othow soon found out. She had to rely on moved away from the camp. Although UN food for her children and herself. By at present they don’t have good jobs, then, she and her siblings were separated. they are educated. I know they will Most of my brothers and sisters were help themselves in future; at least they already killed those earlier days when will not be like me, their uneducated I was in my homeland. Few managed mother. My kids call Kakuma their to survive and come with me to Ethio- home because this is where they spent pia, but their whereabouts today, I do almost all of their childhood years. Kakuma not know. I ask myself whether they are still alive or dead. I always ask the The recent peace deal between the war- kenia newcomers to the camp if they know ring parties in South Sudan does not raise some of my relatives, but I never got Mary’s hopes for return. a positive answer. There are those who are fighting for In Kakuma, the UNHCR distributed money, position and power. Why are food and non-food items and covered they doing that? Our country is free other basic needs. They were so kind to now; I cannot understand why they open clinics, dispensaries and hospi- fight among themselves. Anyway, tals as well as schools for our children. I cannot go back to South Sudan any- My two boys got enrolled in primary more. Kakuma is my home and my offered us a place to stay and gave us school, studying hard. At times, my life. This is a good place because my food and water. elder son would miss school due to children got a better education here Later, we were relocated to a tempo- lack of food or because our house was than would have been possible in our rary place – I don’t know when, after damaged, since he was the only one village back in South Sudan; here they a few months or so; since I am not who could help to rebuild the house got medicine when they were sick. My an educated woman, I don’t know and raise some money for food. elder son even got married here, so exactly the months and years. Any- I am proud of my children. My three how do you call this place? There is way, one morning, I saw several con- children who are in different places are: only one word: home. voys with the UNHCR symbol lining Ojullu Okello, currently in the USA, up in a long queue. Our names were Peter Okello in Dadaab refugee camp Peter Owar Okello called out aloud; we entered the cars and my young daughter, Anyango is Mary Othow’s son. He is a journalist who one by one. We were brought to this Okello in Kakuma here with me. They currently lives in Dadaab, Kenya after having place, Kakuma refugee camp, which respect me as their mother and they returned from South Sudan in 2013. has been my home now for over two worked hard at school – they never decades. failed me. They passed their exams [email protected]
Middle East End of generosity
Saudi Arabia has stumped up billions to help Egypt’s economy in floor of the Red Sea. The costs will amount recent years. But bilateral relations seem to be cooling under the to $ 1.6 billion. Moreover, the Saudi con- struction giant Binladin Group is expected new Saudi King Salman. to build a $ 3 billion bridge between Egypt and Saudi Arabia. And in March 2015, By Sebastian Sons bilateral agreements were signed for investments amounting to $ 13 billion in “Egypt has become a second home Medina for the hajj pilgrimage and settled gas, coal and solar power plants. They will for us. We spend our holidays and do in Jeddah, the Saudi port on the Red Sea. generate 7,000 megawatts of electricity. our business there.” These words by That said, it remains to be seen whether a Saudi businessman show how close rela- Today, some 3,200 Saudi companies these megaprojects – some of which have tions between the two countries are. With operate in Egypt, and Saudi Arabia is been on the drawing board for years – will a population of nearly 100 million, Egypt Egypt’s most important trading partner in actually be realised or whether they are is the biggest sales market in the region. the Gulf. From 2009 to 2014, foreign direct just pie in the sky. Its location between Europe and sub- investment totalled $ 1.3 billion. Invest- Saharan Africa is geostrategically impor- ments worth billions is planned. For exam- Egypt matters more for the Saudi tant. At the end of the 19th century, Egyp- ple, a 20-kilometre-long power cable will economy than a country like Tunisia does. tian merchants travelled to Mecca and be laid between the two countries on the Small in comparison to Egypt and with
D+C e-Paper March 2016 37 hood’s anti-monarchical ideology was a threat to domestic stability.
In the 1950s and 1960s, members of Egypt’s Muslim Brotherhood fled to Saudi Arabia, seeking refuge from perse- cution by Egypt’s then President Gamal Abdel Nasser. They worked as teachers and political advisors. Their world view influenced sections of Saudi youth and ultimately inspired a movement of dissent in the 1990s. Known as the Sahwa (“Awak- ening”) movement, it demanded, among other things, a constitutional monarchy. Accordingly, the Muslim Brotherhood has long been perceived as an enemy by the House of Saud.
Mursi’s electoral victory rekindled old resentments. Fear of the Brotherhood became a defining factor of Saudi policy towards Egypt through to 2014.
Egypt’s big brother AP Photo/picture-alliance Egypt’s President Abdel Fattah al-Sisi (right) at a meeting with Mohammad bin Salman, Saudi deputy crown Consequently, the Saudi royal family wel- prince and defence minister. comed Mursi’s overthrow by the Egyptian military in July 2013. It launched a sweep- ing campaign in support of the military a population of just 12 million, Tunisia Profits rather than regime of Abdel Fattah al-Sisi, who later offers precious few business opportunities development became president. By spring 2015, around for Saudi companies. As one Saudi busi- $ 12 billion of subsidies flowed into the nessman said, the country is “too far away The “fat cats” in Egypt – the all-dominat- country, including at least $ 2 billion in and more a part of Europe”. In Saudi eyes, ing business elite – and the Saudi patri- central bank deposits, $ 2 billion in inter- the dominance of European companies, archs of the big families cooperate while est-free loans and around $ 3 billion in lots of red tape and the reluctance of Tuni- they compete with one another. Their development assistance. All that was sup- sian politicians to give preferential treat- give-and-take relationships are geared to plemented by free oil and gas supplies. ment to Saudi investors stand in the way lucrative returns, not long-term develop- of closer economic ties. Currently, only 39 ment. Accordingly, only a small fraction In addition, a further $ 20 to 30 bil- Saudi companies have a presence in Tuni- of those in need profit from Saudi invest- lion is thought to have flowed directly to sia, and they account for just 6,200 jobs. ment: construction focuses on luxury the military, although there is no corrobo- apartments and hotel complexes rather rating paper trail. The message was clear, In Egypt, on the other hand, the Saudi than mass-market homes. Not many jobs however: Saudi Arabia wanted to stabilise presence remains strong – whoever is in are created, and long-term structural the new regime at “whatever cost”, as one power. This was evident during the presi- reforms are hindered rather than helped Saudi policy advisor put it. “For the first dency of Mohammed Mursi from 2012 to by Saudi investors. After all, like their time in Saudi Arabia’s history, the king- 2013. He was not accepted by the Saudi Egyptian counterparts, they benefit from dom was acting like Egypt’s big brother.” royal family. Even so, bilateral trade and the existing system. The aim was to banish the Muslim Brother- investment flows stayed at a constant hood from political life. What followed was high level. Mursi ordered 29 projects However, the former Saudi King a campaign of repression by al-Sisi against implemented by Saudi Arabian parties to Abdullah saw President Mursi, the Muslim Brotherhood members. Such action was be investigated for corruption, and that Brotherhood’s victorious election candi- flanked by measures to protect Saudi step triggered indignation on the Saudi date, as a threat to his own legitimacy. The investments in Egypt and improve the des- side. But Saudi businessmen are on such Brotherhood had won power in a demo- perate state of the Egyptian economy. good terms with Egyptian politicians cratic poll in 2012. Against the backdrop that legal hassles were swiftly resolved. of the “Arab spring”, he feared a fallout in Some in the business community “If I have a problem, I don’t need the Saudi society. Many young Saudi men and hoped that projects launched under al- support of the king. I have the Egyptian women welcomed the uprisings in Tunisia Sisi would receive more political support president’s mobile number and give him and Egypt, sympathising with the calls than under Mursi. And their hopes were a call,” a Saudi entrepreneur says. Opaque for democracy and freedom and, in some fulfilled: at the end of 2013, a Saudi Egyp- patronage networks work regardless of cases, even with the Muslim Brotherhood. tian business association was established who holds political power. From the Saudi viewpoint, the Brother- to promote deeper business relationships.
38 D+C e-Paper March 2016 which unleashed a storm of protest in Iran Moreover, in the Syrian crisis, al-Sisi is (see comment by Maysam Behravesh in getting closer to Syria’s President Bashar D+C/E+Z e-Paper 2016/01, p. 46). al-Assad, a declared enemy of Riyadh. Cairo To halt the advance of Iran and fight the As long as Saudi Arabia’s own security ISIS terrorists, the Saudi Kingdom needs Riyadh and economic interests are not threat- Turkey or Qatar, which it considers to ened, Egypt has become a less impor- be supporters of the Muslim Brother- egypt saudi arabia tant neighbour. Financial assistance has hood moreover. In order to win over the been discontinued under Salman. It was two governments concerned, the House announced in December that a govern- of Saud appears to want al-Sisi to scale mental Saudi fund will invest $ 8 billion down repression of the Muslim Brother- in Egypt, but direct financial assistance hood. will not resume. Salman needs billions for waging the war he started in Yemen, The two partners do not pull together plugging the 20 % budget deficit caused in Yemen either: Saudi Arabia demanded by the falling price of oil and fighting 30 % that Egypt put up troops to support the youth unemployment. Saudi bloggers like military operation; al-Sisi’s response was to criticise financial assistance to other reluctance. Under the new King Salman, however, countries on the grounds that the money the days of Saudi support appear to be is needed in Saudi Arabia itself. In September 2013, the late Saud al- over. Abdullah died in January 2015, and Faisal, Saudi Arabia’s foreign minister his successor faces new challenges: since Saudi development at the time, said: “Every beginning has Mursi’s overthrow in Egypt, the appeal of assistance an end. We cannot support Egypt for- the Muslim Brotherhood has diminished ever.” radically across the region. Instead, Sal- In recent decades, Saudi Arabia has been man now fears the growing influence of a generous donor of official development Link: archrival Iran. He sees his country sur- assistance (ODA) – and not only to Egypt. Sons, S., and Wiese, I.,: The Engagement of Arab Gulf States in rounded by Iranian Shiite vassals in Iraq, Between 1975 and 2005 alone, it handed Egypt and Tunisia since 2011. Yemen, Bahrain and Syria, and that has an out $ 90 billion to countries in Africa, https://dgap.org/en/think-tank/publications/dgapanalysis/ impact on relations with Egypt. the Arab world and Asia. In 2013, ODA engagement-arab-gulf-states-egypt-and-tunisia-2011. totalled $ 1.3 billion, making Saudi Ara- Under Abdullah, the fight against the bia the 20th largest donor in the world. Sebastian Sons Muslim Brotherhood was the foreign pol- A third of development assistance over is an associate fellow at the German Council on icy priority; now it is the “Iranoia”-driven the past ten years has gone to countries Foreign Relations (DGAP). He is currently desire to contain the Islamic Republic. Evi- like Pakistan, Sudan and Yemen. Whether preparing a PhD thesis on labour migration from dence of “Iranoia” was furnished in Janu- those payments can be kept up, however, Pakistan to Saudi Arabia at Humboldt University ary by the execution of the high-ranking seems doubtful given Saudi Arabia’s tight of Berlin. Shiite cleric Sheikh Nimr Baqir al-Nimr, budget. [email protected]
Traffic and billboards in Cairo: Saudi companies like investing in Egypt. Schwarzbach/argus/Lineair
D+C e-Paper March 2016 39 Comment Better without the TPP In Chile, Peru and other Pacific Rim countries, civil-society state agencies. Critics consider the judi- organisations are protesting against the implications of the cialisation of the world economy to be the worst aspect of TPP undermining the Trans-Pacific Partnership (TPP). In particular, critics oppose nation state and its legal system: transna- clauses concerning intellectual property rights and the judicial tional corporations would be allowed to self-determination of nations. sue the government before international tribunals of arbitration if they think that By Frederico Füllgraf a country’s economic policies hurt their interests as investors. On 4 February, the leaders of 12 their own governments accordingly. “This Pacific Rim countries – Australia, is a free trade agreement that govern- Alleen Brown has elaborated on the Brunei, Chile, Japan, Canada, Malaysia, ments negotiated without input from citi- website The Intercept that corporate lob- Mexico, New Zealand, Peru, Singapore, zens, indigenous peoples or parliament,” byists from companies like Caterpillar and the USA and Vietnam – signed the TPP argue representatives of Chile Mejor Sin Halliburton have had a bearing on TPP text. The controversial free-trade agree- TPP, an NGO. clauses. At the same time, members of the ment is an equivalent to the equally con- US Congress were only allowed to assess troversial Transatlantic Trade and Invest- Criticism is directed in particular one section at a time while under supervi- ment Partnership (TTIP), which is still against rules concerning the protection sion in the basement of the Capitol. Tak- being negotiated. of intellectual property, including patents. ing notes was strictly prohibited. The full The enforcement of pharma patents would text of TPP was only published after it was The TPP impacts 40 % of global gross make medications more expensive and signed by the governments. domestic product and touches the lives could undermine the performance of pub- of 11 % of the world’s population. Among lic health-care systems. In October 2015, In an open letter from 25 November other things, the USA, which has taken the two north American economists, Joseph 2015, Chilean legislators Giorgio Jackson, lead in the partnership, wants to eliminate E. Stiglitz, the Nobel laureate, and Adam Camila Vallejo and Gabriel Boric charged tariffs that are hindering its exports. S. Hersh, warned in a syndicated column that the agreement lacks any kind of par- of Switzerland’s Handelszeitung: “The liamentary legitimacy because “legisla- In various signatory states, repre- upshot is that pharmaceutical companies tors have only been allowed to approve or sentatives of civil society are speaking out would effectively be allowed to extend reject the project so far. Making changes against the introduction of binding, deeply – sometimes almost indefinitely – their has not been permitted.” controversial rules that will affect legisla- monopolies on patented medicines, keep tion concerning labour relations, environ- cheaper generics off the market and block On 29 January, experts, legislators and mental protection and intellectual prop- ‘biosimilar’ competitors from introducing representatives of civil society from Peru, erty. They also express frustration because new medicines for years.” Canada, the USA and Mexico met in Mex- the treaty was negotiated ico City to coordinate international oppo- Debate in secrecy. Chilean and Further points of contention include sition to the TPP in towns, on the streets, Peruvian non-govern- the application of copyright laws to the in the media and before the courts. The mental organisations internet and the regulation of sectors in time of secret negotiations is over. criticise the USA and which private-sector firms compete with Links: Around 1,500 people Brown, A., 2015: You can´t read the TPP, but these huge protest the TPP in Peru corporations can. The Intercept, 12.5.2015. in early February. https://theintercept.com/2015/05/12/cant-read-tpp-heres- huge-corporations-can Stiglitz, J.E., and Hersh, A.S., 2015: The Trans-Pacific Free-Trade Charade. http://www.project-syndicate.org/commentary/trans-pacific- partnership-charade-by-joseph-e--stiglitz-and-adam-s--hersh- 2015-10#rYExSk6FFJwqizuo.99
Frederico Füllgraf is a journalist based in Santiago de Chile.
Castaneda/picture-alliance/dpa [email protected]
40 D+C e-Paper March 2016 Comment Zika and pharma research Public interest in the Zika virus is huge. Brazil’s people are develop a vaccine for Schistosomiasis is worried, and the World Health Organization (WTO) is contemplating currently being run in Brazil. Experience gathered in its context may well prove use- emergency plans. What Zika means in terms of research, deserves ful for Zika research. attention too. By the way, Ebola research would not have By Christian Wagner-Ahlfs made much headway without public funding.
So far, there is neither an easy-to- Brazilian baby: Zika is handle diagnostic test nor a therapy. suspected to hamper the There is no vaccination. None of this is growth of unborn surprising. To date, Zika was not consid- babies’ brains. ered a problem.
Scenarios of this kind will keep recur- ring in the future. Nature holds in store a huge number of pathogens, many of which have not caused concern yet, but may do so any day. Zika has been known for a long time, but now there is the suspi- cion that it does not only cause harmless rashes and fever, but also leads to unborn babies becoming severely malformed. Dana/AP Photo/picture-alliance For issues like Zika, we need publicly funded research. Otherwise, it will be plan to tackle ailments that haunt poor In 2014, some $ 165 million were invested, of impossible to ensure that new medica- countries. One of its core component is which $ 114 million was public money, almost tions, vaccines and diagnostics are made providing incentives for researchers. The exclusively from the US budget. available fast, at low cost and all over the debate on how to develop affordable phar- world if need be. maceuticals and ensure universal access Finding alternatives to the patent- has since been making progress. To people driven pharma model is essential. We need Because of how it is transmitted, Zika in developing countries, these matters are a system that is not primarily geared to the mostly affects people in tropical regions and vitally important. interests of multinational corporations. It in particular those who live in poor settle- must serve the needs of global health care. ments. In some ways, it is similar to Ebola Product development partnerships Concepts designed to provide the highest and the so-called tropical neglected diseases, involving private-sector and public-sector possible prices and profits are destructive. which have been known for a long time and parties are underway to tackle some dis- Humankind needs affordable medicines, affect many people. Since they do not haunt eases. Funding tends to be provided by not exclusion. industrialised countries, however, commer- state institutions and charitable founda- cial researchers do not take interest. tions. Pilot projects are testing how to Public funding will be indispensable. It develop new treatments without relying would make sense to establish an interna- According to the WHO, the initiative on patents. The focus is on questions in tional fund in order to finance important to act must not be left to pharmaceutical which stock-market-listed corporations projects. Pathogens do not stop at borders corporations in cases like this. That indus- are not interested normally: – and health is something that concerns try’s business model is based on patent ■■ How does one delink product prices everyone. rights which allow companies to reclaim from massive research costs? research expenditure by exploiting tem- ■■ What kind of funding instruments are Link: porary monopolies. This model does not effective (pooled funding, prizes and The World Health Assembly’s strategy and action plan: work when a disease is neglected because others)? http://apps.who.int/gb/CEWG/pdf/A61_R21-en.pdf of lacking purchasing power. Insistence on ■■ How does one facilitate “open knowl- exclusive rights, moreover, would mean to edge”, allowing anyone interested free Christian Wagner-Ahlfs intentionally exclude people in need from and fast access to empirical data and works for BUKO Pharma-Kampagne, a German treatment. research results? civil-society organisation.
In 2008, the World Health Assembly The core issue is to do research in the published a strategy and a global action service of public health. A pilot project to [email protected]
D+C e-Paper March 2016 41 Comment No car is clean In January, the Delhi High Court ruled that India’s capital region areas, cars cause 60 to 90 % of the most may go ahead with a policy to reduce air pollution. In times of toxic PM pollution. severe pollution, cars with even numbers on their licence plates Since cars matter, the odd-even are to be used one day, and those with odd numbers the next day. scheme has made a difference. Taking half This rotation scheme makes sense. It cuts in half the number of the cars off the road meant that the pol- cars allowed on streets. lution spike was moderated in January. This is a big achievement. However, due to bad weather conditions – still air and high By Sunita Narain moisture – pollution levels increased in the first week of implementation nonethe- Delhi suffers terrible air pollution. major segments: trucks, two-wheelers and less. Without the scheme, it would have According to the World Health cars. In Delhi, buses and three-wheelers increased even more. Organization (WHO), all other major cities have already switched to comparatively on earth have better air. With figures for clean compressed natural gas. The long-term solution is to free particulate matter (PM) often exceeding Delhi and its vicinity of two-wheelers the WHO’s safety limit 10 times, Delhi’s air Trucks are bad news for pollution. They and cars permanently. We must invest is more than twice as bad as Beijing’s. The are old, mostly overloaded and rely on out- massively in public transport. Today, lungs of half of Delhi’s more than 4 million dated technology. My organisation, the only 10 to 15 % of the people in Delhi children are damaged. Data are bad for all Centre for Science and Environment, has and neighbouring areas drive cars. There Indian cities, and in some smaller towns, therefore proposed a tax on all trucks that is no way we can plan for the rest to do things are even worse than in Delhi. go into or through Delhi in a case before the so too. Odd-even should be our way of Supreme Court. The judges approved our life. Let’s share cars; take a bus or metro; Something must happen. The odd- idea in December, and thanks to the new cycle or walk. even scheme was implemented in Janu- tax, we now have 20 % fewer trucks in Delhi. ary for the first time. Lawyers immediately The Court also ruled that especially large P.S.: The Volkswagen scandal should filed court cases against it. They argued diesel cars must no longer be sold in Delhi. have taught everyone that diesel is not that the scheme led to enormous incon- Moreover, we asked for cleaner fuel and as clean as car makers want us to believe. venience and worse, daily pollution data technology to be introduced fast, and the The sad truth, moreover, is that even showed no impact on air quality. Cars, central government promised to introduce the powerful EU is currently relaxing its they said, were not responsible for pollu- the EU’s current emission standards (Euro norms, prioritising industry needs over tion, and some added that diesel cars are VI). This is another major step forward. the health of people in cities like London, clean. Diesel motors, however, are only Milan or Stuttgart. clean in the sense of needing compara- Private vehicles matter. Because of tively little fuel – but they emit far more sheer numbers, two-wheelers contribute Sunita Narain PM than gasoline motors. the bulk of vehicle emissions in Delhi. heads the non-governmental Centre for Science Only 10 to 15 % come from car tailpipes, and Environment in Delhi and edits its Let’s understand all the facts. The two but the contribution of cars rises when fortnightly magazine Down to Earth. major causes of air pollution in Delhi are you consider road congestion. Experts road dust and vehicles. The burning of have found out that, in certain congested [email protected] coal in power stations, industrial units and homes matters too, but not as much. Action must be taken against all sources of pollution of course, but traffic is of prime concern.
Controlling road dust will demand multipronged action to pave, green and water the sidewalks. But road dust genera- tion is also a function of vehicle traffic. The more we drive, the more dust is raised and recirculated. Worse, the coating of vehicle fumes makes the dust toxic.
Of all vehicles, are cars to blame? Yes, Congested traffic in
and let me explain why. There are three Photo/picture-alliance Topgyal/AP Delhi.
42 D+C e-Paper March 2016 Comment Building a democratic order To ensure a country is run democratically, holding elections is not much later – and most recently in February enough. Institutions matter too. If they are absent or weak, voting this year, an event marked by manipula- tions, intimidations and arbitrary arrests. cannot, in itself, result in government of the people, by the people and for the people. Unfortunately, this is typical of elec- tions in countries where a strongman By Hans Dembowski culture lives on. After civil war or dicta- torship, it might be better to hold elec- Ultimately, institutions are what peo- dictatorial powers and will want to stay in tions only once a country has found some ple expect. They must expect leaders power for the rest of his life. institutional stability under UN rule. The to observe and respect constitutional prin- Security Council might assign an inter- ciples. Actual experience matters. If Burundi is a striking example. It is on national administrator to run the country a country only has first-hand knowledge of the brink of civil war. Last year, it saw mass according to globally accepted standards violence, abuse and criminal action, peo- protests, a failed military coup and many and guided by the UN Sustainable Devel- ple will not insist on clean governance. incidents of violence because President opment Goals. However, expectations can change. Edu- Pierre Nkurunziza insisted on running for cation can make a difference, and so can re-election once more after having served Local people should be involved in such an administration, but there should The wrong role models: be no dominant national leader. The idea Yoweri Museveni of would be to start economic growth, create Uganda (with hat) and livelihoods and improve standards of life Pierre Nkurunziza of as well as to nurture the rule of law and Burundi in Bujumbura promote education. Collier argues that in July 2015. growing prosperity provides more legiti- macy than winner-takes-all elections do.
On such a basis, a new constitution could eventually be designed – and elec- tions would make sense. This approach deserves consideration. It might have helped the troubled Central African Republic start anew. Instead, it recently spent months grappling with a confusing and unconvincing election with no imme- diate benefit for devel- opment. Critics will say Debate that it is impossible to introduce a democratic order without elections.
Murigraneza/AP Photo/picture-alliance They have a point. We know from experience, however, that civil-society activism and the media. Expe- the two terms the constitution and the holding elections too early without the rience of safety and opportunities increas- Arusha peace agreement of 2000 limited necessary institutional underpinning ing in a climate of transparency and him to. Masses fled, but elections were is no reliable way to build a democratic accountability will help . held after various manipulations and post- order either. ponements. Nkurunziza is still in office, his Things are particularly difficult in credibility is tarnished, and peace has not Given time, human development and very poor and traumatised societies. Paul been restored. space for civil society, democratic change Collier of Oxford University pointed out is possible. In Asia, Africa and Latin Amer- years ago that elections often cause more Now Uganda’s President Yoweri ica, elections have led to peaceful changes problems than they solve in post-crisis Museveni is expected to broker a negoti- of government in recent times – consider countries. In his eyes, democracy promo- ated solution for Burundi, but he cannot Taiwan, Indonesia, Sri Lanka, Nigeria, tion must primarily be about defining raise the right kind of expectations. He Senegal, Chile or Argentina. This does and enforcing standards of governance. has been in power for three decades after not mean that governance is perfect there Holding elections too early, however, only toppling the previous government as rebel – but it does show that people’s expecta- means picking a leader who gets almost leader. Elections reaffirmed him in office tions can change for the better.
D+C e-Paper March 2016 43 X www.twitter.com/forumdc
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