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