(...continued from page 1)
Those working on a post-2015 framework for development should take their lead from the United Nations Conference on Trade and Development (UNCTAD), which for years has warned about the flaws in the dominant development model promoted by the IMF, World Bank, the G20 and commercial advocates of free trade and investment agreements based on rapid and premature trade, FDI and finance liberalization. As an alternative, UNCTAD has called for an overhaul of the global financial system to benefit developing countries, for rethinking the dominant export-led growth model for developing countries, and it has urged the poorest countries to prioritize domestic economic growth over exports. In a major break with the Washington Consensus model of laissez faire that has sought to weaken the role of the state, it has called for developing countries to use a strong ???developmental state??? which can effectively pursue an industrial policy to build up domestically-owned manufacturing and service sectors over time. It has called for a range of alternative fiscal, monetary and financial policies targeted at better scaling up long-term public investment and employment.
For example, UNCTAD was the first to call for an internationally-coordinated sovereign debt cancellation initiative, even when it was still taboo. It was the first to argue for orderly workout mechanisms for sovereign debt, more than a decade before this issue found a place on the IMF's agenda (though those mechanisms have still not been established). But since the sovereign debt crisis erupted in Europe, CSOs and advocacy networks and UN agencies such as UNCTAD have been reasserting the need for the establishment a Fair and Transparent Sovereign Debt Work-Out Procedure also known as the ???Raffer Proposal' which has been endorsed and propagated by many noteworthy economists, NGOs, and the Jubilee Movement as a concrete way to solve the problems of economic and financial instability associated with sovereign debt crises.
UNCTAD has been ahead of the curve in its warnings about how global finance was getting too politically powerful and was no longer merely providing useful services to the real economy, but had turned into a dangerous and destabilizing global casino. UNCTAD forecast financial crises in Mexico in 1994 and 1995, warned of the 1997 East Asian crisis and the 2001 Argentinean crisis, and has consistently sounded the alarm of the dangers of excessive deregulation of financial markets and stressed the perils of rapid, nonreciprocal trade liberalization by developing countries.
Today more than ever, UNCTAD's overt call for moving away from the current finance-driven model of globalization is at odds with the policy advice of the IMF and World Bank, and with the proliferation of regional and bilateral investment treaties (BITs) and free trade agreements (FTAs) being negotiated between industrialized and developing countries. Instead of continuing to neglect these problems, those currently crafting a post-2015 development framework should heed these warnings and support efforts by advocates to reform key parts of the international financial architecture and the need to better manage international capital flows - indeed, UNCTAD's longstanding call for the use of capital controls is today being vociferously called for by the BRICS countries (Brazil, Russia, India, China and South Africa). In fact, even the IMF has changed its long-standing opposition to the use of capital controls and now concedes its earlier blind support for capital account liberalization was wrong. Despite the flaws and limitations of the IMF???s new position, it is still remarkable that they are finally acknowledging there is indeed a role for the state in the regulation of capital flows. One hopes those designing the post-2015 agenda are listening.
Unfortunately, many of the biggest donor governments and lending agencies which are seeking to influence the shape of the post-2015 development agenda also remain politically committed to promoting financial liberalization and are at odds with this new acceptability for capital controls. Many of these governments are still pushing aggressively for explicit prohibitions on such capital controls within the rules of the General Agreement on Trade in Services (GATS) talks at the WTO and in many regional and bilateral free trade agreements (FTAs) and bilateral investment treaties (BITs). Under current and proposed agreements, rules stipulate that governments may not be allowed to adequately re-regulate their financial sectors to ensure stability, may not be able to implement capital controls, or use adequate levels of trade protection for their nascent manufacturing industries, thus blocking their capacity for economic development. Any post-2015 framework can address these problems by taking steps to ensure that countries are given the policy space to adequately regulate their financial sectors, and to renegotiate many of the current FTAs and BITs in this regard.
On the issue of foreign direct investment (FDI), those championing the free market approach to development have long expressed a blind faith that any types of FDI are good for development and state regulations on such investments are unnecessary. Unfortunately, many developing country leaders who were eager for FDI believed them, and the MDGs agenda was silent on the question. But it is by now clear that while some types of FDI can indeed be beneficial for development, other types of investments can destroy the environment, violate the human rights of local people and wipe out domestic businesses when there is a lack of effective regulation. Addressing this issue in September 2012, UNCTAD released its Investment Policy Framework for Sustainable Development (IPFSD), a document that intends to serve as a comprehensive point of reference for policymakers formulating national and international investment policies on how developing countries can use FDI most constructively. To compliment this advice, advocacy networks such as the European Network on Debt and Development (Eurodad) have proposed contractual changes to foreign aid loan and private foreign investment contracts, such as the ???Charter on Responsible Financing???. Again, those drafting a post-2015 agenda must take note and ensure such proposals are integrated into the next global development framework.
Previous page ...................................................................................... Continues on page 3...
The views expressed in this article are those of the author and do not necessarily reflect the institutional position of CESR