The Economist is--rightfully--disgusted at how the industrial countries behaved at this past week's IMF-World Bank meetings in Washington:
Economist.com: ...For most countries in the developing world, though, there is one thing even more important than hard cash: access to the markets of the rich countries. At every opportunity, the IMF, the World Bank and the poor countries themselves stress the need for the industrial economies to demonstrate their commitment to free trade by opening up markets and ending domestic subsidies, in particular to farmers. The commitment was there again in the communiqués. But time and again, industrial countries dodge the issue in practice. One frustrated African finance minister said in Washington that he accepted that while rich countries could afford to they would subsidise their farmers. Let them, he said, but then pleaded that if they must provide such subsidies, they should at least do so in the form of revenue to farmers and not push down the price of agricultural goods. For now, his plea has fallen on deaf ears...
One of the very nice things about the Rubin-Summers Treasury in the 1990s was its recognition that "market access" had to be a two-way street, and that--contrary to what Secretaries of Commerce and Special Trade Representatives tend to say--Americans benefit as much or more from the reduction to barriers to imports into America as they do from the reduction to barriers hobbling America's exports.
The Economist's judgment of what went on--namely, nothing--at this year's meetings seems fair.
Hoping for more
From The Economist Global Agenda
Finance ministers from more than 180 countries have been in Washington for the annual meetings of the International Monetary Fund and the World Bank. Many from poor countries and emerging markets will return home disappointed
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CHICAGO is nearly 1,000 miles from Washington. So Chicago policemen on duty on the streets of the American capital are an unusual sight. But they were there at the weekend as demonstrators gathered for yet another protest to mark this year’s annual meetings of the International Monetary Fund (IMF) and the World Bank. Despite the security, the protests were largely tame affairs. And whether the discussions achieved much, especially for emerging markets and poor nations, is debatable.
The annual meetings are seen as useful, partly because they act as a deadline for the behind-the-scenes policy work that goes on year-round. They also provide ministers and senior officials with an opportunity to meet face-to-face and exchange views on the problems they confront: in spite of the unusual number of summits that have taken place during 2002—in Monterrey in March and Johannesburg last month—such exchanges between rich and poor countries are relatively rare.
But there was little evidence in Washington of a meeting of minds. Despite the positive tone of the communiqués issued after the various meetings, not much progress was made on some of the most pressing issues, several of which were, in effect, ducked. Take Argentina, for instance. There is no shortage of people ready to point out the severity of the crisis it faces. The scale of Argentina’s economic collapse is unprecedented in modern times, except for countries involved in war or in transition from communist rule, as the IMF’s chief economist, Kenneth Rogoff pointed out. By the end of this year, the IMF reckons the Argentine economy will have contracted by 20%.
Yet no visible progress was made in breaking the impasse between Argentina and the IMF, which has meant that, after more than nine months, no rescue package for the beleaguered economy is in place. Indeed, few observers now seriously expect any substantive progress before the presidential elections currently scheduled for March 2003.
The IMF’s critics, who are not confined to the anti-globalisation protesters who failed to breach the police cordon in Washington, have been quick to blame the Fund for setting impossible conditions for a settlement with Argentina. Some also accuse it of recklessly encouraging the Argentines to stick with misguided policies when a new $8 billion loan was agreed with the government in Buenos Aires in August last year, just months before the economic crisis which brought down the government and led to the largest debt default in history.
Yet there is no shortage of those willing to defend the Fund. They point to the intransigence of the current Argentine government and to the previous failures of the country’s political leaders to curb their fiscal imprudence during the 1990s. They also note that although it is the IMF that attracts most of the blame, it has the clear backing of its principal shareholders, the big industrial countries who once again urged Argentina to come up with a suitable package of reforms.
Work is now in hand which should make emerging-market defaults more manageable in the future, by a system of bankruptcy proceedings which would enable a debtor to negotiate with its creditors and restructure its debts once a majority of them agree. This would, in effect, prevent a small minority of creditors from holding everyone else to ransom. The IMF is now due to present a detailed proposal to finance ministers next April.
The new Sovereign Debt Restructuring Mechanism (SDRM) will not help Argentina, though. Nor will it help Brazil, which is also facing considerable financial instability partly because of uncertainty about the forthcoming presidential elections there. It will also come too late to help Uruguay, now on the brink of default simply because of the fall-out from Argentina.
There is another group of countries for whom the SDRM has little meaning—the world’s poorest and most heavily indebted countries. For them, the Washington meetings delivered less than they might have hoped. In particular, the rich countries have, as yet, failed to come up with enough money to make up the shortfall in the debt relief fund. Currently, the fund is around $1 billion short. The G7 finance ministers said on September 27th that they would stick to their commitment to “bear our share of the shortfall”, and called on other creditors to join them in announcing their contribution. But these were weasel words. Some reports from the G7 meeting suggest that firm commitments made so far amount to less than half what is needed.
For most countries in the developing world, though, there is one thing even more important than hard cash: access to the markets of the rich countries. At every opportunity, the IMF, the World Bank and the poor countries themselves stress the need for the industrial economies to demonstrate their commitment to free trade by opening up markets and ending domestic subsidies, in particular to farmers.
The commitment was there again in the communiqués. But time and again, industrial countries dodge the issue in practice. One frustrated African finance minister said in Washington that he accepted that while rich countries could afford to they would subsidise their farmers. Let them, he said, but then pleaded that if they must provide such subsidies, they should at least do so in the form of revenue to farmers and not push down the price of agricultural goods. For now, his plea has fallen on deaf ears.
Posted by DeLong at September 30, 2002 02:31 PM | Trackback