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Beyond the crisis: renewing finance, demanding economic justice

26 June 2009

Summary of International Conference organised by Eurodad and ODG, June 2009

120 participants from 45 countries gathered in Barcelona from 15-17 June for our conference on development finance at a time of crisis. Representatives of civil society movements, NGOs and think tanks from all regions of the world discussed the status of finance policies and debated messages and tactics to create change.

At the opening session Iolanda Fresnillo, of the Observatori del Deute en la Globalizacio and conference host said she hoped that the conference would debate alternative policies that participants could push for when they returned home. Miren Etxezarreta, an economics professor at the Universitat Autonoma de Barcelona argued that recurrent financial crises “should worry us, but not surprise us” as the current economic system was built on a finance capital that is constantly seeking new, risky, investment opportunities. The system of “credits built on credits” gave an impression of a period of enormous prosperity for many people in richer countries, but this was based on “fictitious capital” and concealed the fact that purchasing power was declining for many people. The “purely superficial” financial system reforms that are being introduced in Europe in response to the crisis will not prevent the emergence of a “much worse crisis” in a few years time.

Don Marut, director of the International Forum on Indonesian Development, pointed out that countries with tight capital controls (such as China and Vietnam) had suffered much less than countries such as South Korea and Indonesia which were vulnerable to sudden capital outflows. He said the crisis was likely to “deepen poverty” and deny people of the region the chance to benefit from their hard work. He raised concerns that infrastructure spending in the name of fiscal stimulus will not protect people from poverty and said that if aid does not help the people it should be considered sinful. He urged consideration of ways that Southern countries can increasingly decouple from Northern ones.

Felipe Silvestre Baessa, of the Mozambique Debt Group, said that from an African perspective the first question is “which crisis are you talking about?” The financial crisis comes on top of an ongoing poverty crisis and the food, fuel and climate difficulties that many African countries face. He pointed out that many African countries are not only aid dependent, they are also dependent on outside agencies to provide information about their economic situation. The government of Mozambique has so far provided little information on the impacts of the financial crisis, although recently it has begun to recognise that some impacts are clearly visible as with the job losses at Mozal, an aluminium company. The decline in remittances from Mozambicans in South Africa and elsewhere is causing problems. Baessa called for his government to take action to ensure that companies pay taxes and that banking services can be extended to the 90% of the population that currently lacks them, so that the savings rate can be increased. For aid dependent countries it is important to step up the work of observatories to monitor the effects of the crisis. At present African countries lack capacity to propose economic recovery plans.

Graciela Graciela Rodriguez of the Alianza Social Intercontinental, a Latin American platform of movements said she was concerned that we are seeing “fragmented solutions to a systemic crisis”. This fragmentation is seen among CSOs and movements as well as governments.  Among other problems that are not currently being addressed are the commodification of agriculture, the migration of workers and the impacts on women. She pointed out, however, that “geopolitics is changing”. But there are significant problems in the crisis response, such as Brazil providing more money to the IMF than it does to the Bank of the South. The Stiglitz Commission proposals represent “a good start” but the lack of engagement by civil society and governments around the UN summit on the financial crisis and development means that the real political action remains at the World Trade Organisation, in bilateral trade and investment talks, and with the G20 which now acts as the “G8 amplified”.

Introducing the rest of the conference on the second day Alex Wilks of Eurodad pointed out that the IMF is warning that one third of low-income countries face a debt crunch in the coming years caused by the economic downturn and that there is no official process to deal with this. If, as is likely, the crisis continues for some time, the public will increasingly be interested in bolder proposals both of policies and of institutions. Civil society groups can play a vital role in providing these messages, but need to claim this space and not let right-wing political forces do so. He called for NGOs to get out of their bubbles and link their international work with more vigorous work on fixing finance in their own societies. He said that defending aid and other development finance policies with the usual arguments would not be effective: new messages are needed. Also new alliances, bridging the gaps between organisations working on poverty within Europe and beyond. A cross-network process has already begun to unite diverse organisations working on social justice, environment, labour and related issues, and this will be energetically followed up by Eurodad and others.

Vinod Raina, representing Jubilee South Asia Pacific, gave a longer-term context to the current crisis. He said the notion of “developed” and “underdeveloped” countries is a recent historical construct. He pointed out that during British rule India’s per capita GDP did not increase at all. He urged participants to “use a different set of spectacles” to examine inter-country flows. Material outflows – natural resources which leave impoverished countries for the benefit of richer ones – are far more important even than financial outflows. Based on the ecological debt that has resulted Raina proposed the concept of Heavily Indebted Rich Countries. Assessing the political response to the crisis Raina said it was like telling a patient to take a painkiller to get over a serious illness. He urged actions on two tracks: dealing with the present situation and crafting a new one based on regulation and enforcement mechanisms sanctioned by parliaments. 

Demba Moussa Dembele, speaking for the Forum on African Alternatives (Senegal), called for an “end to market fundamentalism”. He said that the high officials of institutions such as the International Monetary Fund had not shown “the slightest doubt” when bringing cases full of proposals and models which have now turned out to be wrong. The crisis may have brought an “end of certainty, of the arrogance of the neoliberal project”. Looking ahead Dembele said that “when Africans speak with one voice many things are possible”.

Arnaud Zacharie, of Centre National de Cooperation au Developpement (Belgium) assessed the state of fiscal and monetary policies, which he called “self-destructive” at present. He condemned the G20 for not even mentioning the major imbalances between surplus and deficit countries that lay at the heart of the current crisis. He pointed out that China and other countries were currently receiving little yield for investing their reserves in US treasury paper. He said that until a solution is found to the problem of shareholders hoovering up an ever greater proportion of economic growth, and a proper social floor established (based on decent work principles) no real solutions will have been found. Responding to a question about the lessons the European Union could provide for regional integration elsewhere Zacharie commented that it has taken 40 years to advance to the present level of integration, and that regionalism should be taken stage by stage.

The G20, United Nations and other global fora

Throughout the conference the question of how the emergent G20 should be factored into civil society strategies was hotly debated. One session was dedicated to the issue of where global economic and financial policy decisions will and should be taken. No speaker could find positive words for the outcome of the G20 summits on the crisis so far. Some urged working more tactically with the G20 to see what can be gained. Don Marut (INFID) spoke for many when he said the “crisis should not be solved only by a small group of countries or by small elites of countries, not just by the G8 or G20”. Roberto Bissio of the Instituto Tercer Mundo suggested that civil society groups pay more attention to the meetings among the so-called BRIC group of countries (Brazil, Russia, India and China), that represent 40% of world population between them. Bissio and several others complained that CSO condemnation of the United Nations as less important than the World Bank, G8 etc can be self-fulfilling as we have not done enough work to persuade political leaders to attend this month’s UN summit. Mark Herkenrath of Alliance Sud (Switzerland) challenged conference participants to go into the street to find anyone who knows about the UN summit, and said that until CSOs take the message to ordinary people the UN will not fulfil its potential. At the same time many recognised that the UN negotiations are far more transparent and democratic than the G8.

World Bank and IMF transformation

On the World Bank, IMF and other International Financial Institutions there was a general concern that their power is being strengthened through additional funding allocations, and that Southern governments are not giving wholehearted support to building alternatives such as the Chiang Mai initiative or Bank of the South. The ‘perverse flows’ that lead to the crisis may be followed by further perverse flows as, for example, Brazil funds Eastern Europe via the IMF. Civil society groups will continue to highlight bad lending practices by the International Financial Institutions – ranging from economic policy conditionality to climate lending – building the case for the disempowering of these institutions and their replacement with others.

Debt moratorium as fiscal stimulus

Participants agreed that civil society should maintain its demand for cancellation and repudiation of all debts claimed by the North from the South, But the current crisis throws up opportunities to press tactically for a moratorium on debt payments. Indeed as more countries face balance of payments crises and no significant amount of new money is made available to Southern governments it is clear that limiting debt service outflows will have to be agreed. Organisations present at the conference united in their demand that “there must be cancellation of unsustainable and unjust debts, and the auditing of all debts to determine those that should be cancelled. In the immediate term there must be a freeze on all debt payments of developing countries in crisis without the build-up of interest”. At the same time the international community should institute immediate measures to prevent unjust and ineffective lending that could create a new wave of bad debts and should initiate a new debt arbitration mechanism, independent of creditors, part of the United Nations system, and available to either lender or borrower.

Measures on taxation and capital flight

Many participants made calls for further action on tax policies including to prevent ta evasion and multinational companies claiming tax holidays when they invest and to rebalance the incidence of tax between labour and capital. They noted, as in the conference background paper, that some governments are now becoming bolder about such measures than they were before the crisis – previously it was impossible for European political leaders such as Nicolas Sarkozy to talk of tax havens in the way they now do, and now there is a thirst for corporate regulation. Civil society advocates at the conference will continue pressing for automatic, multilateral transparency measures to tackle tax havens, with sanctions attached. They will also press for multinational companies to report their profits and losses disaggregated by country so that tax evasion can be identified. Participants also agreed on the need to mobilise domestic resources by the implementation of progressive tax systems and countering tax conditionalities applied by international financial institutions.

Effective aid at a time of crisis

Noted by several participants that while aid levels of some European countries are declining and targets appear hard to reach export credit agencies are getting budget boosts. Conference participants countered this with their proposals for responsible, sovereign and democratic financing, proposals that had been detailed at a South-North meeting the week before the Barcelona conference.  Other discussions on making aid more effective centred on introducing a genuine notion of democratic ownership – giving recipient countries the space to determine their own policies even if they receive significant amounts of aid – and on enhancing the current narrow aid effectiveness approach debated in the OECD to the wider development effectiveness approach, moving forward form the technicist view on how aid is delivered to the political question what it should achieve.

Download the background paper for the conference below (ENG, SP and FR versions):

Eurodad conference background paper : Kb

Documento introductivo de la conferencia de Eurodad : Kb

Document de base conference d'Eurodad : Kb