TheJakartaPost
Please Update your browser
Your browser is out of date, and may not be compatible with our website. A list of the most popular web browsers can be found below.
Just click on the icons to get to the download page.
Development funding not just from WB, IMF
Last year, I was invited to a seminar in Buenos Aires with the goal to find alternative means of development funding for developing countries
Change Size
L
ast year, I was invited to a seminar in Buenos Aires with the goal to find alternative means of development funding for developing countries.
The formation of Banco del Sur (Bank of the South) in Latin America, according to all participants from Argentina, Brazil, Chile, Venezuela, Mexico and Peru, offered development assistance with conditionalities suited to countries in this region better than those set out by the World Bank and IMF. It helped them in solving the recent crisis.
When Asia plunged into crisis in 1998, Japan and a few other Asian countries suggested the creation of a funding organization, such as an Asian Monetary Fund. However, this proposal was never realized as it was rejected by the United States. This suggestion has been brought up once more in the current crisis. China, with the biggest monetary fund, may be expected to lead the way in the establishment of such an organization.
According to the World Bank, the spreading global economic crisis is set to trap up to 53 million more people in poverty in developing countries this year, on top of the 130-155 million driven into poverty in 2008 by soaring food and fuel prices. This will bring the total of those living on less than US$2 a day to more than 1.5 billion.
The World Bank also estimates that developing countries face a financing gap of between US$270 and $700 billion, depending on the severity of the economic and financial crisis and strength and timing of policy responses. Developing countries are likely to face higher spreads, and lower capital flows than over the past seven or eight years, leading to weaker investment and slower growth in future. Aside from money, the following issues are considered to be an integral part of development funding.
Eight years ago, in Monterrey, Mexico, world leaders reached an agreement regarding development funding. This agreement focused on issues regarding trade, development aid, investment, payment of overseas debt, mobilization of national resources and the reshaping of international monetary architecture.
Efforts to reduce overseas debt have not met the targets agreed on in Monterrey, where it was decided that 0.7 percent of rich countries’ GDPs would be allocated to aid poor countries. Moreover, the Millennium Declaration included an agreement to cancel the overseas debt of the poorest developing countries. For Indonesia, the duty of repaying internal and external debt through installments still holds the country’s funds hostage. In the country’s 2009 State Budget Plan (APBN), debt installments now account for 15 percent of Indonesia’s total budget.
For this reason it is necessary to find a comprehensive solution so that inherited debt will not be a burden for this generation or the next. There is a possibility of making a bilateral or multilateral request for a reduction from the creditors of overseas debt. As many past debts did not reach their targets, it is necessary for the government to take wise precautions regarding overseas debt, in particular in terms of sum obligation. This is especially important if these banks have now switched hands. At the very least, the steps taken should profit the country and reduce debt.
In order to achieve the MDGs, developing countries are advised to decrease their dependence on external funding by increasing internal resources.
In order to do this, fiscal reformation is needed, along with other instruments that can decrease the effects of the economic downturn. These instruments include an elective tax regime for transnational companies, ending corruption, avoiding capital flight and retrieving funds that have been stolen by corrupt officials and which have been deposited in other countries.
In terms of international trade, a change in the methods used to negotiate with the WTO is needed. Trade liberalization must occur faster and should meet development needs. At the same time, developed countries must be requested to stop all farm export subsidies. The European Union, for example, has promised to stop all farm export subsidies by the year 2013, as a result of negotiations with the WTO. This is a step that should be implemented immediately and that should be adopted by other developed countries.
The role of the IMF and its involvement in the formulation of trade policies must change. Meanwhile, the aid effectiveness agenda in OECD countries still uses the World Bank evaluations of the eligibility of organizations and a country’s policy. This requires faster liberalization as a measurement of good policy and good governance. It is assumed that this is responsible for ruining the markets and micro, small and medium enterprises (UMKM) in the countries receiving aid, including Indonesia.
The writer is the co-editor-in-chief of Journal SocDem Asia
