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Walden Bello - 1999
Walden Bello is a member of the House of Representatives of the Republic of the Philippines and president of the Freedom from Debt Coalition. A retired professor of sociology at the University of the Philippines, he is currently a senior analyst at the Bangkok-based analysis and advocacy institute Focus on the Global South. He is the author of 15 books, the most recent of which is The Food Wars.
Rethinking Asia: What Sank Asia? (January 1999)
Like the question "Who lost China?" in the United States during the 1950s, the issue of who or what was responsible for the Asian financial crisis will long be a matter of intense debate.
Lack of transparency and other elements of the brew known as "crony capitalism" is the answer from the IMF and the US Treasury. But if we are to believe US Treasury Undersecretary Larry Summers's homilies on how government-business collusion allegedly suffocates dynamism by discouraging market forces, it would be hard to understand why South Korea or Japan was able to take off in the first place. Closer to the mark are those who argue that speculative investors, particularly hedge funds, triggered the collapse. The swing in the flow of foreign capital into the region by $100 billion between 1996 and 1997 was devastating for financial systems that were still in an early stage of development. Transparency had little to do with the volatile movements of capital. As Summers's boss, US Treasury Secretary Robert Rubin, now admits: "So often we found [investors] had engaged in relatively little analysis and relatively little weighing of the risks". What this explanation misses, though, is that these speculative forces and banks operated in a hothouse atmosphere with other critical actors. A key player was the business press. Business publications and wire services proliferated in the region beginning in the mid-1980s. These news agents became critical interpreters of the news in Asia to investors all over the world and served as a vital supplement to the electronic linkages that made real-time transactions possible among the key stock exchanges of Singapore, Hong Kong, Tokyo, Osaka, New York, London and Frankfurt. For the most part, these media highlighted the boom, glorified the high growth rates, and reported uncritically on so-called success stories. Many of these publications, in turn, developed an unwholesome reliance on the investment adviser or strategist-an "expert" connected with the research arms of banks, investment houses and other financial institutions. Interestingly enough, many of these people were expatriates, some refugees from the late-1980s stockmarket collapses in New York and London. Some were Generation X or pre-Gen X types too young to have participated in the junk- bond frenzy in Wall Street in the Reagan years but who soon discovered similar highs in the East. Their advice on going underweight or overweight in certain countries, taking short or long positions in dollars or moving into equities and out of bonds and vice versa was dispensed to readers by reporters as gospel truth. This isn't to say that all of them gave uniformly optimistic advice. It did mean, however, that they couldn't afford to paint too pessimistic a picture of any country in the region, since their bread and butter came from bringing global capital into Asia. But to lay the blame only on the business press and investment advisers for the creation of an atmosphere of inflated expectations wouldn't be fair. Indeed, it was economists and political scientists in the West who were primarily responsible for the idea of the "Asian miracle". There was a remarkable consensus between the Left and the Right in academe that Asian growth was exceptional-though for diametrically opposite reasons. The Right, obsessed with Hong Kong and Singapore, insisted that it was because of free markets; the Left, enamoured of South Korea and Taiwan, because of the role of the interventionist state. In the early 1990s, the World Bank stepped in to serve as arbiter between Left and Right interpretations and found merit on both sides of the argument. What is particularly significant is that the bank declared that the Asian tigers had the economic fundamentals right and were thus geared to enter a period of even greater prosperity. Its 1993 book The East Asian Miracle became a kind of bible, not only in the academic world but in financial and corporate circles, and the rush into Asia of speculative capital in the next few years must have been at least partly tied to its thesis of Asian exceptionalism. In short, a global network of investors, journalists, investment analysts and academics was locked into a psychology of boom, where growth rates, expectations, analysis, advice and reporting interacted in a mutually reinforcing inflationary fashion. What has crashed in the last few months has not only been Asia's economies but the Asian miracle establishment. Lessons for the future? Above all, be sceptical-for example, of those who dispense "false dawn" advice based on rises in stockmarket indices or the strengthening of regional currencies. And beware of those giving advice based on superficial notions, such as investing in Asian stocks and bonds on the strength of a "regional recovery"; those talking about formulating new development models; and those making projections of Asia's future that don't consider the coming fury of social and political strife of the next few years. Governments Begin to Stake out Positions as New Negotiations on Agriculture Approach (January 1999)
During his State of the Union address on January 20, President Bill Clinton announced his support for new negotiations in the World Trade Organisation (WTO) beginning in late 1999. But whether Clinton meant "comprehensive negotiations", as proposed by the European Union and Japan, or a more limited round, is still unclear.
The answer to this question will have major implications for the upcoming review and negotiations on agriculture and services - the two areas for which new negotiations were mandated by the Marrakesh Accord. According to observers in Geneva, one of the reasons that the EU and Japan staked out a position in favour of comprehensive negotiations that would cover areas other than agriculture and services is that this would increase the possibilities for horsetrading: they could trade liberalisation in some areas, such as lower industrial tariffs, in exchange for limited concessions in agriculture, or vice versa. EU-Japan-South Korea: A Common Front? With the mandated review of the Agreement on Agriculture due to begin later this year (see below Aileen Kwa?s position paper for developing countries on the AOA) the EU, Japan, and South Korea have apparently staked out a common initial negotiating position against further liberalization. While a number of countries have started a process called the "Analysis and Information Exchange" (see also below for summaries of AIE papers) in preparation for the negotiations, these three economies are not actively participating, their position being that there is no need to conduct this preparatory exercise prior to the formal start of new negotiations. The three have also advocated bringing in new considerations in the negotiations, including biodiversity, food security, "regional landscape", "cultural heritage", and rural development. In order words, agriculture is "multifunctional": it performs more than just productive functions for society, and these are just as vital as the economic one. Free traders scoff at the idea of multifunctionality, seeing it as but another fancy defence against liberalisation. The US-Cairns Group Alliance While a de facto, if not working, alliance exists among the EU, Japan, and South Korea, there appears to be developing an active alliance between the United and the Cairns Group, which is made up of 15 developed and developing agro-exporting countries. The key points of unity appear to be around the elimination of export subsidies and the so-called "Blue Box" of the Agreement on Agriculture, the key section of which is the provision of income support to farmers in return for their withdrawing land from cultivation. This measure, which is intended to keep prices up, is seen both by the US and the Cairns Group as benefiting mainly European farmers now that the US no longer engages in this form of subsidisation. The US, however, continues to maintain other mechanisms of subsidisation: direct payments for farmers, though these are no longer tied to price levels but are a flat rate, and export credits extended to importers to buy US grain. However, the Cairns Group does not appear to be challenging the US strongly on its maintenance of these mechanisms. The agenda of the Cairns Group is to increase market access, do away with export subsidies, and decrease production subsidies. The Group sees the EU as the main obstacle in the negotiations, according to one observer, who feared that the new negotiations will be "hostage" to the outcome of the current revision of the Common Agricultural Policy (CAP) that the EU is currently undertaking ("CAP 2000"). Within the Cairns Group there are differing nuances-though not differences-in approach. Among the developing country members, Argentina is apparently the most hardline in terms of the global liberalization agenda, with little sensitivity to the "special and differential status" concerns of many of the poor, especially the net food importing countries. Argentina has teamed up with the US to call for time limits for completing steps within the negotiation process; indeed, it has even gone beyond the US to demand that the negotiations should conclude by December 31, 2002, instead of the end of 2003, which is the stand of most of the rest of the Cairns countries. ASEAN: Is It a Bloc? As for the ASEAN (Association of Southeast Asian Nations) bloc within the Cairns Group, one observer said that Thailand is singlemindedly concerned with more trade liberalisation, and categorised it along with Argentina as among the countries that "negotiated and benefits from the Agriculture Agreement along with the US and EU". Indonesia, however, is displaying hesitations. While one of its representatives repeated the government?s official commitment to further liberalisation, he nevertheless asserted that owing to the country?s current crisis, it had to take measures to subsidise certain commodities, such as fertiliser and rice, and to keep the distribution of rice under the control of the government monopoly, Bulog. Such measures were allegedly "temporary". There was also an interesting contradiction between the official?s claim that government policy is to achieve "self sufficiency in food products" while opening up to increasing food imports. The ambivalent government position appears to reflect the fact that, as the price of its financial support, the International Monetary Fund (IMF) is pressuring Indonesia to radically liberalise its trade beyond its current WTO commitments, and this is creating a lot of social dislocation and unrest. Owing to these difficulties, some analysts claim that Indonesia is the "weak link in ASEAN" when it comes to further trade liberalization. The Less Developed Countries: Will They Make a Difference This Time? The less developed countries-aside from those that are members of the Cairns Group-are largely apprehensive about further liberalisation. Most countries from sub-Saharan Africa have not yet submitted their notifications under the Uruguay Round, so they are concerned that a new round of negotiations is beginning while they are still faced with so many problems of implementation related to the last round. Some countries, invoking the "special and differential status" of developing countries that is supposed to be a principle of the WTO, question the prohibition on less developed countries to introduce domestic and export subsidies beyond a 10 per cent de minimis level, especially since they did not have such measures before the Uruguay Round. Invoking the same principle, some governments demand that preferential treatment in market access be given to exports from net food importing countries to allow them to gain foreign exchange to meet the higher cost of food imports. Some also demand, under the same principle, that SPS (sanitary and phytosanitary) standards be relaxed with respect to the exports of less developed countries owing to great difficulties in adjustment. Food security has become the rubric around which many concerns have been raised - among them, that further liberalisation will threaten access of net food importing countries to cheap subsidised food from the big agricultural exporters that they need badly; and that less developed countries with scarce foreign exchange should be allowed greater flexibility to subsidise their farmers to maintain food production and thus guarantee food security for the whole population. India and to some extent South Africa have come to the forefront to try to articulate these apprehensions of the vast majority of developing countries from the South. The non-Cairns Group developing countries were not key players during the Uruguay Round, partly because of the domination of the process by the agricultural trading powers, partly owing to their own lack of cohesion and unity. Whether they can play a bigger role this time depends on the dynamics of the struggle between the US-Cairns Group alliance and the EU-Japan-South Korea grouping. "It?s going to be trench warfare", says a WTO Agricultural and Commodities Division insider. If the conflict does polarise, then the role of the developing countries could become more significant, either in breaking the deadlock toward further liberalization or holding the line against it. Architectural Blueprints, Development Models and Political Strategies (23 March 1999)
Today, the world media are awash with talk about reform of the global financial architecture. However, the published reports focus mainly on discussions taking place within the Group of Seven or the larger Group of 22, particularly on the debate between the finance authorities of the United States and those of Europe and Japan. Sometimes, there are some reports that come out on proposals from the United Nations Conference on Trade and Development (UNCTAD) or from some government in the South. But little weight is attached to the latter by media commentators, even when substantively these views merit consideration.
Of course, if one is a Jeffrey Sachs or a Paul Krugman, of course, one?s views are given some currency. If you are not a neoclassical economist, forget it. And if you come from the world of NGO?s, your views don?t count at all. This is, of course, interesting because when it comes to global trade, US Trade Representative Charlene Barshefsky, and WTO Director General Renato Ruggiero are talking about consulting civil society and about actively and democratically involving all of us in the globalization process. But when it comes to the world of high finance, these are matters of allegedly great complexity that are best left to the experts and the managers of the world economy like Alan Greenspan, Robert Rubin, and Larry Summers, whom Time has anointed as ?The Committee to Save the World". Or to the much-broader Group of 22 countries handpicked by the US, whose three reports released in October 1998 have been anointed as "the international community?s definitive statement on reforming the international architecture?" (1) Why Are We Here? The overriding purpose of this conference is to get the rest of us to crash this exclusive party talking about the financial order of the world. We need to do this for several reasons. First, because those who are actively debating this issue are, for the most part, still arguing within a paradigm of neoliberal economics that has been central to generating this crisis. Second, because devising a global financial order is not simply a matter of technical economics but one that must be informed by values, and the main values and priorities of those who are managing this process are different from those of you and me. Third, because this process is, first and foremost, a question of power, and unless we do out best to gatecrash this gathering, what will emerge will simply be a global architecture that will benefit a very small global elite and continue to marginalise the vast majority of the world?s peoples. Considerations on Finance Capital Before discussing strategies being proposed for global financial reform, let me advance some propositions. First of all, I think we need to put to rest once and for all the idea that the Asian crisis is not a product of "crony capitalism". What brought about the crash of 1997 was not crony capitalism but "casino capitalism". Even at the height of the Asian financial collapse in September of that year, Stanley Fischer, the American deputy managing director of the IMF, was blaming the crisis on the fact that "markets are not always right. Sometimes inflows are excessive, and sometimes they may be sustained too long. Markets tend to act fast, sometimes excessively".(2) And even the Economist, one of the premier organs of market fundamentalism, had to admit that "the economic pain being imposed [by global capital markets] on the ex-tigers is out of all proportion to the policy errors of their governments".(3) The Fund and the US Treasury, of course, continue to uphold the rightness of their obsession with "reforming" domestic economic and financial arrangements, but the credibility of this approach is eroded daily by the spectacular fashion that IMF straitjackets are suffocating economies in Thailand, Malaysia, and Indonesia. Second, finance has been the cutting edge of the globalization process. The integration of commodity markets via free trade and that of production systems via TNC subsidiarization have proceeded apace, but both processes have been outstripped by the integration of global capital markets under the aegis of London and Wall Street. Third, finance, which was liberated from the confines of the Keynesian state by the Thatcherite and Reaganite ideological revolution, has steadily gained "ascendancy over industry" and other sectors of the economy, to borrow the prescient characterisation of the 1991 UNCTAD Trade and Development Report.(4) This pre-eminence of the financial sector is related to the crisis of dwindling growth or deflation that deflation which has increasingly overtaken the real sectors of the global economy. This crisis has its roots in overcapacity or under-consumption, which today marks global industries from automobile to energy to capital goods.(5) Diminishing, if not vanishing, returns in industry has led to capital being shifted from the real economy to squeezing "value" out of already created value in the financial sector. The result is essentially a game of "global arbitrage", where capital moves from one capital market to another, seeking to turn profits from the exploitation of the imperfections of globalised markets by taking advantage of interest-rate differentials, targeting gaps between nominal currency values and "real" currency values, and short-selling in stocks, that is, borrowing shares to artificially inflate share values then selling. Not surprisingly, volatility, being central to global finance, has become as well the driving force of the global capitalist system as a whole. Third, since differences in exchange rates, interest rates, and stock prices are much less among the more integrated Northern markets, movements of capital have been much more volatile between the capital markets of the North than the so-called "Big Emerging Markets" of the South and Asia. Thus while crises are endemic to the finance-driven global capitalist system, the crises of the last few years have been concentrated in the emerging markets.(6) Since late 1994, we have had Mexican financial crisis, the "Tequila Effect" of this crisis in Latin America, the Asian crash, the Russian collapse, the unravelling of the Brazilian real, and the spinoff of the Brazilian crisis on the rest of Latin America. Fourth, despite the global financial system's proneness to crises, finance capital operates, as Robert Kroszner describes it, "in a realm close to anarchy". (7) That deregulation at the national level has not been replaced by reregulation at the international level is because finance capital has accumulated tremendous political power over the last two decades. While finance capital was liberated from the straitjacket of the Keynesian economy by the Republican administrations of Ronald Reagan and George Bush, it has been under the Democratic administration of Bill Clinton that financial interests became paramount in the foreign economic policy of the US government. Represented in the inner sanctum of Washington by Treasury Secretary Robert Rubin, a former arbitrage artist, and Federal Reserve Chairman Alan Greenspan, a former Street consultant, the so-called Wall Street-Treasury Complex stands foursquare against any serious financial regulation. The power of this lobby stems partly from the strength of the interests it represents, but even more from its ideology of market freedom, which it markets as applying not only to trade in goods but also to the mobility of capital. Fifth, the crisis of the developing countries of the South is not simply one of exposure to unregulated financial flows-one can easily be fixed with capital controls at both the global and national level. The financial deregulation of their economies that has proven so devastating is simply the latest phase of a development model that they have internalised over the last two decades under the aegis of IMF-World Bank structural adjustment programs-one that makes foreign markets and foreign capital the twin engines of development. In other words, the Mexican Crisis on 1995, the Asian Collapse of 1997, and the Latin American unravelling of 1999 were events waiting to happen to economies where liberalization of trade and investment had become equated development, and where import substitution, trade policy, and industrial policy had been vilified as anti-development. The Three Schools of Global Financial Reform There are now a thousand and one proposals for world financial reform, ranging from proposals for preemptive crisis mechanisms to reform of the International Monetary Fund to establishment of a "World Financial Authority".(8) Rather than take them up one by one in technical fashion, let me instead go into the heart of the matter, power and interests, and group the most important proposals into three different strategies. I will call the first the "It?s the wiring, not the architecture" approach. The second might be termed the "Back to Bretton Woods" school. And we might christen the third strategy as the "Change the development model" strategy". It's the Wiring, not the Architecture (9) One might say that this is basically the US position-though it is shared to some degree by many of the G7 members, with probably the notable exception of Japan. This school assigns primacy to "reforming" the financial sectors of the crisis economies along the lines of more transparency, tougher bankruptcy laws to eliminate moral hazard, prudential regulation using the "Core Principles" drafted by the Basle Committee on Banking Supervision, and greater inflow of foreign capital not only to recapitalize shattered banks but also to "stabilise" the local financial system by making foreign interests integral to it. When it comes to the supply-side actors in the North, this perspective is to leave them to voluntarily comply with the Basle Principles, though government intervention might be needed periodically to catch freefalling casinoplayers whose collapse might bring down the whole global financial structure, as was the case last year when the US Federal Reserve had to organise a rescue of the hedge fund Long Term Capital Management after the latter was unravelled by Russia?s financial crisis. the Russian crisis unravelled the hedge fund Long Term Capital Management. (10) The farthest the Group of Seven has gone in terms of dealing with the controversial hedge fund question was to issue a declaration in October 1998 commenting on the need to examine "the implications arising from the operations of leveraged international financial organizations including hedge funds and offshore institutions" and "to encourage off-shore centers to comply with internationally agreed standards". (11) Finally, when it comes to the existing multilateral structure, this view supports the expansion of the powers of the IMF, proposing not only greater funding but also new credit lines, such as the "precautionary credit line" that would be made available to countries that are about to be subjected to speculative attack. Access to these funds would, however, be dependent on a country?s track record in terms of observing good macroeconomic fundamentals, as defined traditionally by the Fund. While much has been made of the conflict between the US and the other members of the G7 countries in the world press, in fact, the articulated differences appear to be marginal. France and Germany (at least before the resignation of Oskar Lafontaine), with some support from Japan, have proposed the establishment of "target zones" that would reduce the fluctuations among the yen, dollar, and euro. There are no virtually no suggestions from the European Union on controlling capital flows on the supply side. Japan has made additional proposals on the IMF, but these are variants of the position of either the US government or some US think-tanks: more IMF monitoring of hedge funds, getting the IMF to push private creditors and investors to participate in a rescue program instead of bailing them out, and providing a "certified" line of credit to countries that follow good economic policies which are under speculative attack, something similar to Clinton?s precautionary credit line.(12) Back to the Bretton Woods System The second school of thought would put tougher controls at the global level, in the form the Tobin Tax or variants of it.(13) The Tobin tax is transactions tax on capital inflows and outflows at all key points of the world economy that would "throw sand in the wheels" of global capital movements. Controls at the international level may be supplemented by national-level controls on capital inflows or outflows. A model of such a measure is the Chilean inflow measure that requires portfolio investors to deposit up to 30 per cent in an interest-free account at the Central Bank for a year, which has been said to be successful in discouraging massive capital portfolio inflows. For some people, there is an ill-concealed admiration for Prime Minister Mohamad Mahathir?s tough set of outflow measures, which included the fixing of the exchange rate, the withdrawal of the local currency from international circulation, and a one-year lock-in period for capital already in the country.(14) In addition to controls at the national and international level, regional controls are also seen by proponents of this view as desirable and feasible. The Asian Monetary Fund is regarded as an attractive, workable proposal that must be revived. The AMF was proposed by Japan at the height of the Asian financial crisis to serve as a pool of the foreign exchange reserves of the reserve-rich Asian countries that would repel speculative attacks on Asian currencies. It was, not surprisingly, vetoed by Washington. The thrust of these international, national, and regional controls is partly to prevent destabilising waves of capital entry and exit and to move investment inflow from short-term portfolio investment and short-term loans to long-term direct investment and long-term loans. For some, capital controls are not simply stabilising measures but are, like tariffs and quotas, strategic tools that may justifiably be employed to influence a country?s degree and mode of integration into the global economy. In other words, capital and trade controls are legitimate instruments for the pursuit of trade and industrial policies aimed at national industrial development. When it comes to the World Bank, the IMF, and the WTO, the thrust of this school is to reform these institutions along the lines of greater accountability, less doctrinal push for free trade and capital account liberalization, and greater voting power for developing countries. Like the G7, advocates of this approach view the IMF as a mechanism to infuse greater liquidity into economies in crisis, but unlike the G7, they would have the Fund do this without the tight conditionalities that now accompany its emergency lending. Some people in this school accompany their proposals to reform the Bank and the Fund with a recommendation to establish a "World Financial Authority", whose main task, in one formulation, would be to develop and impose regulations on global capital flows and serve as "a forum within which the rules of international financial cooperation are developed and implemented?by effective coordination of the activities of national monetary authorities".(15) In other words, the Fund, World Bank, and WTO continue to be seen as central institutions of a world regulatory regime, but they must be made to move away from imposing one common model of trade and investment on all countries. Instead, they must provide a framework for more discriminate global integration, that would allow greater trade and investment flows but also allow some space for national differences in the organisation of capitalism. In the vision of Dani Rodrik, the current chief economic adviser to the G-22, a grouping of developing countries. the ideal multilateral system appears to be substantially a throwback to the original Bretton Woods system devised by Keynes that reigned from 1945 to the mid-seventies, where "rules left enough space for national development efforts to proceed along successful but divergent paths".(16) In other words, a "regime of peaceful coexistence among national capitalisms".(17) Not surprisingly, this perspective has resonated well with economists and technocrats from developing countries, the devastated Asian economies, and the UN system-which is said to the refuge of Keynesians who fled the neoliberal revolution at the World Bank and academic institutions. Change the Development Model Those that we classify as belonging to this school regard the IMF and WTO, in particular, as Jurassic institutions that would be impossible to reform both owing to both their deep neoliberal indoctrination and the hegemonic influence within them of the United States. The world would be better off without them since they serve merely to order the global system in favour of the North. The same scepticism marks their view on the possibility of imposing global capital controls or prudential regulations on hedge funds and other big casino players, again because of the strength of neoliberal ideology and financial interests. National capital controls are seen as much more promising, and the experiences of China and India in avoiding the financial crisis, of Chile in regulating capital flows, and Malaysia in stabilising its economy have convinced proponents of this view that this is the way to go. Like the "global Keynesians", this school would also see regional arrangements such as the Asian Monetary Fund as feasible and workable. Where the proponents of this view differ from the global Keynesians is that their advocacy of capital controls is accompanied by more fundamental and thorough critique of the process of globalization that goes beyond its blasting away legitimate differences among national capitalisms. Buffering an economy from the volatility of speculative capital is an important rationale for capital controls, but even more critical is the consideration that such measures would be a sine qua non for a fundamental reorientation of an economy toward a more inner-directed pattern of growth that would entail, in many ways, a reversal, though limited of the globalisation process. The main problem, from this viewpoint, is not the volatility of speculative capital, but the problem lies in the way that the export sector and foreign capital have been institutionalised as the engines of these economies. The problem is the indiscriminate integration into the global economy and the over-reliance on foreign investment, whether direct investment or portfolio investment, for development. Thus while the current crisis is wreaking havoc on peoples? lives throughout the South, it also gives us the best opportunity in years to fundamentally revise our model and strategy of development. Changing the Development Model What are some of the priorities of this alternative model of development? What makes it different not only from the neoliberal model but also from the national capitalisms stoutly defended by Dani Rodrik? Comprehensive, integrated formulations are few and far between in our region today, but the following ideas, proposals, or visions are being actively discussed throughout East Asia today: While foreign investment of the right kind is important, growth must be financed principally from domestic savings and investment. This means good, progressive taxation systems. One of the key reasons for the reliance on foreign credit and foreign investment was the elites of East Asia did not want to tax themselves to produce the needed investment capital to pursue their fast-track development strategies. Even in the depths of today?s crisis, conspicuous consumption continues to mark the behaviour of Asia?s elites, who also send so much of their wealth abroad to safe havens in Geneva, Tokyo, or New York. Regressive taxation systems are the norm in the region, where income taxpayers are but a handful and indirect taxes that cut into the resources of lower-income groups are the principal source of government expenditures. While export markets are important, they are too volatile to serve as reliable engines of growth. Development must be reoriented around the domestic market as the principal locomotive of growth. Together with the pitfalls of excessive reliance on foreign capital, the lessons of the crisis include the tremendous dependence of the region?s economies on export markets. This has led to extreme vulnerability to the vagaries of the global market and sparked the current self-defeating race to "export one?s way out of the crisis" through competitive devaluation of the currency. This move is but the latest and most desperate manifestation of the panacea of export-oriented development. Making the domestic market the engine of development, to use a distinctly unfashionable but unavoidable term, brings up the linkage between sustained growth and equity, for a "Keynesian" strategy of enlarging the local market to stimulate growth means increasing effective demand or bringing more consumers (hopefully discriminating ones, that is) into the market via a comprehensive program of asset and income distribution, including land reform. There is in this, of course, the unfinished social justice agenda of the progressive movement in Asia-an agenda that has been marginalised by the regnant ideology of growth during the "miracle years". Vast numbers of people remain marginalised because of grinding poverty, particularly in the countryside. Land and asset reform would simultaneously bring them into the market, empower them economically and politically, and create the conditions for social and political stability. Achieving economic sustainability based on a dynamic domestic market can no longer be divorced from issues of equity. Regionalism can become an invaluable adjunct to such a process of domestic market-driven growth, but only if both processes are guided not by a perspective of neo-liberal integration that will only serve to swamp the region?s industries and agriculture by so-called "more efficient" third party producers, but by a vision of regional import-substitution and protected market-integration that gives the region?s producers the first opportunity to serving the region's consumers. While there are other elements in the alternative development thinking taking place in the region, one universal theme is "sustainable development". The centrality of ecological sustainability is said to be one of the hard lessons of the crisis. For the model of foreign-capital fuelled high-speed growth for foreign markets is leaving behind little that is of positive value. In the case of Thailand, at least, it is hard to dispute this contention. As many of you visiting this once lovely city can testify, 12 years of fast-track capitalism is leaving behind few traces except industrial plant that will be antiquated in a few years, hundreds of unoccupied high-rises, a horrendous traffic problem that is only slightly mitigated by the repossession of thousands of late-model cars from bankrupt owners, a rapid rundown of the country?s natural capital and an environment that has been irreversibly, if not mortally, impaired, to the detriment of future generations. In place of 8-10 per cent growth rates, many environmentalists are now talking of rates of three to four per cent or even lower. This links the social agenda with the environmental agenda, for one reason for the push for high growth rates was so that the elites could corner a significant part of the growth while still allowing some growth to trickle down to the lower classes for the sake of social peace. The alternative-redistribution of social wealth-is clearly less acceptable to the ruling groups, but it is the key to a pattern of development that will eventually combine economic growth, political stability, and ecological sustainability. These and similar ideas are already being discussed actively throughout the region. What is still unclear, though, is how these elements will hang together. The new political economy may be embedded in religious or secular discourse and language. And its coherence is likely to rest less on considerations of narrow efficiency than on a stated ethical priority given to community solidarity and security. Moreover, the new economic order is unlikely to be imposed from above in Keynesian technocratic style, but is likely to be forged in social and political struggles. This fire down below is likely to upset the best laid plans of the tiny elite that are trying to salvage an increasingly unstable free-market order by tinkering at the margins of the global financial order and calling it reform. References
The WTO's Big Losers (24 June 1999)
For many Asians, the stalemated candidacy of Thai Deputy Prime Minister Supachai Panitchpakdi for the post of director-general of the World Trade Organisation is yet another sign of the unwillingness of the United States and other traditional trading powers to seriously accomodate the interests of East Asia in the international trading system.
There is good historical basis for this view. One major reason the loose General Agreement on Tariffs and Trade was transformed into the powerful World Trade Organisation during the Uruguay Round of global trade talks was to contain the Asian economic challenge and prevent the diffusion of what was regarded as the mercantilist Asian development model. Many Asians also regard the Gatt-WTO Agreement on Agriculture as a mechanism for dumping US grain surpluses in the region. The agreement will be the focus of global trade negotiations during the next few years. Whether or not a Millennium Round of comprehensive, multisectoral negotiations is launched, the 1994 Marrakesh Accord mandated the opening of new negotiations on agriculture at the end of this year. On the eve of those talks, the countries of East Asia are divided on whether to support further liberalisation of agricultural markets. Northeast Asia, particularly Japan and South Korea, are opposed to mere liberalisation, fearing it would mean the extinction of their small rice farmers. Indeed, it is said that Japan is supporting the European Union's call for a new round of comprehensive negotiations to give it flexibility in defending agriculture. Southeast Asian countries find themselves on the other side of the fence. They are part of the Cairns Group, an informal bloc of big and medium-sized developed and developing agricultural exporters. The Cairns Group supports the broader and faster liberalisation of agricultural markets via increased market access, an end to export subisidies and a decrease in production subsidies in the North. Interestingly, Southeast Asian governments find themselves on the same side as the US, which has joined with the Cairns Group to push for market opening in Japan and South Korea and an end to direct income subsidies for EU farmers. In a classic instance of double standards, the US Department of Agriculture has stoutly defended forms of direct income subsidies for American farmers, but the Cairns Group seems unwilling to challenge Washington. The position of Southeast Asian governments, however, serves mainly organised lobbies of cash-crop exporters and processors such as Malaysian palm.oil plantations, Philippine coconut-oil exporters and Bangkok-based Thai rice middlemen. The vast majority of unorganised small farmers in these countries are harmed by this position. The pro quo of more open markets for products such as palm oil and coconut oil in the North is even greater liberalisation of the rice and corn industries in Asia. Some agricultural experts warn the governments of the Association of Southeast Asian Nations are allowing themselves to be dragged by hardline Cairns Group countries such as New Zealand and Argentina into positions that will ultimately bring great harm to their small producers. Rice farmers in Malaysia and rice and corn farmers in the Philippines already bear the brunt of the damaging effects of the Uruguay Round. Thai farmers are hardly benefiting; it's the Bangkok-based middlemen that are profiting from increased Thai rice exports. Further liberalisation that serves mainly the interests of the American agricultural-product dumping lobby and a small elite of Asian agro-exporters will drive the region's small farmers over the edge. That's why it's important for Asean governments, small farmers and consumer groups to closely study the anti-liberalisation arguments of the Japanese and South Korean governments. They say small-farm agriculture in Asia, though it may seem inefficient in terms of unit cost, actually produces net gains because agriculture is multifunctional: It provides biodiversity, guarantees food security, promotes rural social development, is part of a nation's cultural heritage and enhances the regional landscape. Agriculture is more than just an area of production. It is, for millions in both Northeast and Southeast Asia, as a way of life. The greatest threat to small-farm communities in Asia and throughout the world is further WTO-decreed liberalisation of agricultural markets. Free marketeers say greater openness will bring greater efficiency, though they fail to show how this squares with the fact that the main beneficiaries will be subsidised US and European farm interests. The likely outcome of such openness is the bankruptcy of small farmers and their transmogrification into marginalised masses pouring into Asia's big cities. Like Asia as a whole in the WTO process, Asia's small farmers have been big losers in the global trade-liberalisation game. It's time to stop the bleeding. Asia, Asian Farmers and the WTO (July 1999)
The opposition of the US to the bid of Deputy Prime Minister Supachai Panitchpakdi to become director general of the World Trade Organization to succeed Renato Ruggiero hardly came as a surprise to many Asians. Thailand and Japan, Supachai's strongest backers, have long been the key targets in Asia of US trade policy. Indeed, the Thai's stalemated candidacy is seen as yet another sign of the unwillingness of the US and other traditional trading powers to seriously accommodate the interests of East Asia in the international trading system.
There is a good historical basis for this apprehension. For if one looks at why the loose General Agreement on Tariffs and Trade (GATT) was transformed into the powerful World Trade Organization (WTO) during the Uruguay Round of 1986-94, a major part of the explanation was containing the Asian economic challenge and preventing the diffusion of what was regarded as the state-interventionist and mercantilist Asian development model. The banning of quotas and so-called Trade-related Investment Measures (TRIMs) such as local content requirements was aimed at radically restricting the use of trade policy as a means of industrialization by countries such as Korea and Malaysia, which had already used it successfully in products such as cars, petrochemicals, and pharmaceuticals. Similarly, the draconian Trade Related Intellectual Property Rights (TRIPs) regime was intended to prolong monopoly rights for US high-tech industries and eliminate "industrialization via imitation" that is, development based on a loose regime of technological diffusion. Again, it was the East Asian economies, which based their rapid drive to industrial status as much on ingenious computer assembly operations as on textiles and garments, that had excelled at this strategy. US trade negotiators did not hide the fact that the WTO's Agreement on Services was aimed at opening up what was seen as potentially massive markets for financial services, like retail banking and insurance, in the prosperous Asian economies (pre-crisis, that is). As for the Agreement on Agriculture, a major consideration for its coming into being was US agribusiness' search for markets on which to dump subsidized US grain and meat products. The emerging middle class markets of the Pacific Rim were critical in the plans of the US Department of Agriculture, which sought to increase East Asia's share of US agricultural exports from 40 per cent in the mid-1990s to 60 per cent by the year 2000. After years of frustrating bilateral negotiations with Asian countries on opening up their markets, the GATT-WTO Agriculture Agreement, with its banning of agricultural quotas and imposition of "minimum access" volumes for foreign grain and meat imports was a tremendous victory for the US farm lobby. Agriculture will most likely be the focus of global trade negotiations over the next few years. For whether or not agreement will be forged on launching a "Millenium Round" of comprehensive, multi-sectoral negotiations, the Marrakesh Accord that established GATT-WTO in 1994 mandated the opening of new negotiations in agriculture at the end of 1999. On the eve of the agricultural negotiations, the countries of East Asia are divided on whether or not to move to support further liberalization of agricultural markets. Northeast Asia, particularly Japan and South Korea, are opposed to more liberalization, for that would mean the extinction of their small rice farmers. Indeed, it is said that Japan's rationale in supporting the European Union's position for a new round of comprehensive negotiations is to give it flexibility in defending agriculture: a comprehensive, multi-sectoral round would enable it to trade concessions in, say, industrial tariffs in exchange for yielding few or no concessions in agriculture. The Southeast Asian countries, on the other hand, find themselves on the other side of the fence. They are part of the "Cairns Group", an informal bloc of big and medium-sized developed and developing country agricultural exporters that includes, among others, Argentina and New Zealand. The Cairns Group position is broader and faster liberalization of agricultural markets via increased market access, an end to export subsidies, and a decrease in production subsidies in the North. Interestingly, the Southeast Asian governments find themselves on the same side as the United States, which has formed a de facto alliance with the Cairns Group to put the pressure for market opening in Japan and South Korea and the ending of direct income subsidies for European Union farmers. In a classic instance of double standards, the US Department of Agriculture has stoutly defended its own forms of direct income subsidies for its farmers, but the Cairns Group countries seem unwilling to challenge Washington. On closer look, however, the Southeast Asian governments' position in favor of more liberalization of agricultural markets in the North serves mainly the interests of organized lobbies of cash crop exporters and processors, like Malaysian palm oil plantations, Philippine coconut oil exporters, and Bangkok-based Thai rice middlemen. The vast majority of unorganized small farmers in these countries, who do not have political clout, are harmed by this position, for the quid pro quo of greater market openings for products like palm oil and coconut oil in the North is even greater liberalization of sectors like rice and corn in Asia, where small farmers are concentrated. The ASEAN governments, warn some agricultural experts, are allowing themselves to be dragged by hardline Cairns Group countries such as New Zealand and Argentina to positions that will ultimately bring great harm to their small producers. As it is now, rice farmers in Malaysia and rice and corn farmers in the Philippines are already bearing the brunt of the displacement effects of the Uruguay Round. Thai farmers are hardly benefiting, since it is the Bangkok-based middlemen that are reaping the gains from increased Thai rice exports. Even before the Marrakesh Accord, an OECD study had noted that Indonesian agriculture would be one of the losers in the Uruguay Round. To follow the Uruguay Round with another round of agricultural liberalization that serves mainly the interests of the US agricultural dumping lobby and a small elite of Asian agro-exporters will drive the region's small farmers over the edge. This is why it is important for ASEAN governments, small farmers, and consumer groups to study closely the arguments being advanced by the Japan and South Korean governments-under pressure from their small farmers- to oppose another round of liberalization: that small farm agriculture in Asia, though it may seem inefficient in terms of unit cost, actually produces net gains because agriculture is "multifunctional": that is, it protects biodiversity, guarantees food security against the volatility of world trade, promotes rural social development, is part of the national cultural heritage, and enhances the regional landscape. Agriculture is more than just a sector of production. It is, for millions in both Northeast and Southeast Asia, a way of life. The greatest threat to smallholder communities in Asia and throughout the world is even more WTO-decreed liberalization of agricultural markets. Free marketeers say that this will bring about more efficiency, though they fail to show how this squares with the fact that the main beneficiaries will be subsidized US and European farm interests. In any event, the likely outcome is the bankruptcy of small farmers and their transmogrification into marginalised masses pouring into Asia's big cities. Like Asia as a whole in the WTO process, Asia's small farmers have been big losers in the global trade liberalization game. It is time to stop the bleeding. Deconstructing Harry: What the New Man at Treasury Has in Store for Asia (26 July 1999)
Larry Summers, the new US Secretary of the Treasury, first crashed into my consciousness in 1991, when, as chief economist of the World Bank, he penned the notorious internal World Bank memo justifying toxic waste exports to the Third World on the grounds that they were underpolluted. Just between you and me, he asked close colleagues, shouldn't the World Bank be encouraging more migrations of the dirty industries to the LDCs [less developed countries]?
The reason for this, he argued, was that toxic substances such as carcinogens will have a greater impact in a country where people will survive to get prostrate cancer than in a country where under-five mortality is 200 per thousand. So long as there exist wage disparities between rich and poor countries, continued the memo, the economic logic behind dumping a load of toxic waste in the lowest wage country is impeccable and we should face up to that. Grating is how even the Economist, a Summers fan, described the leaked document. Summers made an even bigger splash in 1995, when, as Robert Rubin's undersecretary, he emerged as the brains behind and manager of the Clinton administration's massive $20 billion rescue package for Mexico in early 1995. The commitment of IMF and US money bailed out hundreds of US investment funds and banks, and the lesson that many of the world's high rollers drew from the episode was that countries in which massive amounts of speculative capital were committed would not be allowed to fail. Reassured, many of the same players moved from Mexico to play the overheating Asian casino, and the term moral hazard entered the popular vocabulary. Which brings us to Summers and Asia. What really is Summers' record on Asia? One might begin by pointing out that Summers was the World Bank's chief economist when the most important Bank research he oversaw was written and produced: the now famous East Asian Economic Miracle. In accounting for the miracle, the Bank identified as a key factor the fact that in each HPAE [high performing Asian economy], a technocratic elite insulated to a degree from excessive political pressure supervised macroeconomic management. It went on to say that the insulation mechanisms ranged from legislation, such as balanced budget laws in Indonesia, Singapore, and Thailand, to custom and practice in Japan and Korea. All protected essentially conservative macroeconomic policies by limiting the scope for politicians and interest groups to derail those policies. With the outbreak of the Asian financial crisis, Summers, scarcely batting an eyelash, made a 180 degree turn and attributed the developing disaster to crony capitalism, or a typical Asian brew of government intervention, monopoly control, and financial shenanigans. But even as Summers and his boss embraced the crony capitalist explanation, many close observers of the Asian scene were unconvinced and some, in fact, pointed to their policies as central to the crisis. As a remarkable New York Times expose that appeared earlier this year revealed, the Rubin-Summers team's too dogmatic insistence on free capital flows was identified by their own colleagues as a major factor that touched off the financial implosion. In the case of Korea, for instance, a key Treasury memo on June 20, 1996 sought to use accession to the OECD as a way of prying open Korean markets in part to win business for American banks and brokerages.Nowhere in the strategy memo's three pages is there a hint that South Korea should improve its bank regulation or legal institutions. Once the crisis got going in earnest in mid-1997, Summers again played a decisive non-constructive role, this time by preventing what could have turned out to be a quick stabilization mechanism: the Asian Monetary Fund (AMF). Capitalized to the tune of $100 billion, the AMF was conceived as a multipurpose, low-conditionality, quick-disbursing fund that would have provided Asian economies with reserves to defend their currencies against speculative attack. Backed by Japan and practically all East Asian governments, the Fund was nevertheless vetoed by Summers on the grounds that the AMF would weaken the ability of the IMF to extract "reforms" from the troubled Asian economies. Moreover, as analyst Eric Altbach has noted, Summers and Treasury saw the AMF as more than just a bad idea; they interpreted it as a threat to America's influence in Asia coming from Tokyo. As the continuing speculative attacks forced Asia's currencies down, Summers and Treasury pushed Thailand, Korea, and Indonesia into the straitjackets of orthodox IMF stabilization programs, with their stress on high interest rates and fiscal cutbacks. Not surprisingly, this had the effect of turning a downturn into a deflationary spiral from which the Asian economies still have to recover. Conservative monetary and fiscal policies of the emerging economies combined with radical free-market reform have constituted the principal thrust of Treasury's Asia policy since then. Yet so evident has been the central role of speculative capital in activating the virus of financial instability that spread to Russia and Brazil that even Summers and Rubin have had to speak about the need for a "new global financial architecture". That was all rhetoric, however, and Treasury's strategy in the G7 has been to dilute or kill efforts to control hedge funds and other speculative institutions and install the equivalent of speed bumps on the flows of speculative capital. The recent G7 program for global financial stability issued at Cologne in June was quintessentially Summerian in its stress on the usual litany of more transparency, better monitoring, and reliance on voluntary risk management by the private sector. The lack of teeth in a proposal for global reform is both disappointing and alarming, especially in light of Summers' admission in a Time interview that Global capital markets pose the same kinds of problems that jet planes do. They are faster, more comfortable, and they get you where you are going better. But the crashes are much more spectacular. This exercise in deconstructing Larry inevitably leads to the question: With such a record of environmental insensitivity, analytical errors, and macroeconomic missteps, how did Summers qualify to be Secretary of the Treasury? Part of the answer lies in the Rubin-Summers team's unsurpassed skills in manipulating the media. The selling of Summers as whiz kid, top economist of his generation, and natural heir to Robert Rubin has been going on for several years now. It reached its climax in 1998, at the height of the Asian crisis, when, on the TV evening news, Summers would play Sundance Kid to Rubin's Butch Cassidy. The spreading global financial crisis often appeared to be simply a backdrop for the performance of a mutual admiration club, with tough questions serving as the cue for the boss to compliment theyoung Summers as the real strategist behind the US economic team and yield the stage to him. But, aside from superior media management, there is one area where Summers has indeed been successful, and this is in promoting US economic interests. The grand buyout of depreciated Asian assets by US financial and industrial corporations now in progress from Bangkok to Seoul owes itself to Summers and Rubin's taking advantage of the crisis to pursue the strategic goal of opening up Asia to US corporate interests. Summers' vision for the post-crisis Asian economic order may be gleaned from his comments in a speech he gave to the Council of the Americas on May 3, 1999. In the Same smooth way that his predecessor equated the common good with the US interest, Summers said: Today, fully 50 per cent of the banking sector, 70 per cent of private banks, in Argentina are foreign controlled, up from 30 per cent in 1994. The result is a deeper, more efficient financial market, and external investors with a greater stake in staying put. Asia was, of course, as much on Larry's mind as Argentina. Yes, Larry Summers may be a Neanderthal when it comes to the environment and he may have an unenviable record as global economic manager. But you have to grant that he does a pretty good job at pushing the interests of American banks and corporations on the benighted and the recalcitrant. And that, after all, is what makes somebody a good Secretary of the Treasury. Power, Timidity, and Irresponsibility in Global Finance (August 1999)
Asia's stock markets are soaring again. To some, that portends real economic recovery. To others, it is an ominous sign that the Electronic Herd, as New York Times columnist Thomas Friedman calls it, is back in its Asian grazing grounds, happily snapping up promising stocks and high-interest bonds now, but ready to move out tomorrow, perhaps in another furious stampede triggered by God knows what.
The herd, in fact, began moving in Manila the day after President Joseph Estrada's State of the Nation address on July 26, as the foreign funds that had been pouring into the country over the last few months reversed course, forcing the Philippine stock market index to drop 113 points to its three month low. Was the Philippine chief executive looking more besotted than usual, some asked? One would have expected that two years after the outbreak of the Asian financial crisis, there would be institutions in place that would prevent a repeat of the massive and rapid exit of $100 billion that triggered the collapse of the region's economies. After all, even the new US Treasury chief, Larry Summers, who holds the view that crony capitalism is theMain reason for Asia's troubles, now admits that a strong case can be made that excessive capital inflows may have contributed importantly to the recent problems in emerging markets. A quick look around shows, however, that Chile has lifted its controls on foreign capital inflows, while Malaysia has withdrawn the controversial restrictions on foreign capital outflows that it imposed last year. These moves certainly do not stem from the fact that national-level mechanisms have been rendered superfluous by the erection of serious capital controls at the international level. For all its brave talk about creating a new global financial architecture, the G7 at its summit in Cologne in mid-June gave birth to a mouse-to a program that put the emphasis on voluntary disclosure of financial information by hedge funds and other financial mechanisms and voluntary risk management by the private sector. Cologne also produced another ironic result - a stronger International Monetary Fund to exact economic reforms from emerging economies, but without the organizational reforms in terms of greater transparency, greater accountability, greater consultation, and a more self critical approach to its programs that the Fund's many critics have long demanded. The Cologne program bears the stamp of the Summers and his predecessor Robert Rubin. Alternative proposals within the G7, such as target zones to reduce fluctuations among the euro, dollar, and yen, practically vanished when the controversial Keynesian Oskar Lafontaine resigned as Germany's Finance Minister in March. The remaining potential counterweight to US domination of the financial agenda is Japan, but it has refused to play the role of Washington's fiscalizer. Indeed, Japan has proven to be a very big disappointment to many people and governments in Asia. The first big letdown occurred a few months into the crisis. In what was then seen by practically all Asian countries as an innovative response to the currency crisis, Tokyo proposed the establishment of the Asian Monetary Fund (AMF), which would have been capitalized to the tune of $100 billion from the reserves of Japan, China, Taiwan, and Hongkong. The AMF was conceived as a multipurpose, low-conditionality, quick-disbursing facility from which governments whose currencies were under attack could have drawn cold cash to counter the speculators. But the US Treasury and the Fund opposed the idea on grounds that it would weaken the ability of the IMF to extract reforms. Moreover, as analyst Eric Altbach has noted, Summers and the Treasury saw the AMF as more than just a bad idea; they interepreted it as a threat to America's influence in Asia. Japan backed down, the opportunity to stabilize the situation early on with an inter-governmental united front backed by hard reserves passed, and key Asian economies plunged into spiral accelerated by Washington-backed contractionary IMF programs. Since then, Japan has largely danced to the American tune. No concrete proposals have come from Tokyo on global capital controls, though Finance Minister Kiichi Miyazawa and other Finance Ministry officials have rhetorically targeted hedge funds on occasion. Tokyo has also made critical noises about the IMF but it has not followed these up with actual proposals for institutional reform. The vaunted Miyazawa Plan has, in fact, elicited US approval, largely because it provides aid that is conditioned on advancing Washington's agenda for Asia-that is, rapid liberalization, deregulation, and privatization. In the Philippines, for instance, Miyazawa money has been made contingent on Manila's implementing two things: the privatization of the National Power Corporation, which has been a longstanding demand of the World Bank and the IMF; and the opening up of retail trade to foreign participation, of which the American Chamber of Commerce has been a prime advocate. It is not that Japan lacks the clout to stand up for an alternative paradigm of global financial stabilization. For when it comes to issues that bear on its domestic economy, Japan has not hesitated to take decisions that Washington protested but could do nothing about, like Tokyo's refusal to open up its forestry and fisheries sector and its move to restrict the short-selling of stocks. What Japan has studiously avoided is filling a leadership role for Asian interests. Unchallenged by Europe and Japan, the US has dominated the global financial agenda. This agenda has been fairly consistent. The reason that Washington has felt uncomfortable about attaching urgency to controlling global flows of speculative capital is that, as a New York Times series earlier this year revealed, Treasury's push for rapid, indiscriminate liberalization of the capital accounts of the Asian economies was a central cause of the crisis. And as the crisis developed, Washington's agenda, as former Federal Reserve Governor Lawrence Lindsey has pointed out, has been to take advantage of the situation to push its longstanding bilateral agenda of opening up trade and financial markets. Now it is true that today, Larry Summers talks about properly paced liberalization, but it remains the case that capital account and trade liberalization in the emerging markets continues to be the central thrust of its program for global financial reform. Washington's main antidote against global financial instability is not international measures to throw sand in the wheels of speculative capital but more liberalization at the national level. Summers revealed the logic behind this approach in his comments on Argentina in a recent speech: Today, fully 50 per cent of the banking sector, 70 per cent of private banks, in Argentina are foreign-controlled, up from 30 per cent in 1994. The result is a deeper, more efficient market, and external investors with a greater stake in staying put. To put it in the curious algebra of the US Treasury, financial liberalization equals financial stability equals the global interest. In sum, five years after the Mexican financial crisis and two years after outbreak of the Asian financial crisis, Washington's single-minded pursuit of its financial agenda and European and Japanese timidity have ensured that the world remains without a serious system of defense against the periodic stampedes of the Electronic Herd. This is irresponsibility of the highest order. Yellow and Black (16 August 1999)
So here we are, again, serving as cannon fodder for two traditions, two political groupings, as they battle for the political direction of our country.
On one side, we have the Saint and Sin, who have draped themselves with the mantle of the country's entrenched elite democratic political tradition. On the other, an immensely popular populist whose liberal credentials are under question, whose authoritarian propensities are, in the view of many, increasingly showing. Democracy is the ideology of the Philippine elite, but it is the liberal democracy articulated by the seventeenth century Englishman, John Locke, which was made flesh in the American Republic, then replicated after the colonial conquest in the Philippine republican system by our valiant ilustrados. Liberal democracy in the Philippines was a faithful reproduction of the American blueprint-that is, the marriage of the method of political succession by majority vote to the complex of rights and freedoms that were won in the centuries-long battle against absolutism in Europe and colonialism in the New World. Liberal Democracy and the Elite Alone of all the elites of Southeast Asia, the Philippine elite, as Ben Anderson pointed out somewhere, took to liberal democracy as a system of governance. And they were able to do this, first, because Uncle Sam was there to act as referee and socialize them into the rules of the game over a 40-year period; and second, because it provided a framework within which they could fight for power and alternate in office without having to plunge the country periodically into destabilizing and bloody succession struggles. But an equally important reason for its adoption by the elite was although it was politically and legally progressive, with its concept of the equality of all citizens under the law, liberal democracy was, in fact, socially conservative. After all, defense of private property was the centerpiece of the Lockean social contract. And the system of elections was embedded in a social structure that rested on vast differences in wealth, influence, and status. Certainly, the choice of the individual voter was the centerpiece of liberal democratic practice, but it was choice that was conditioned and oiled at every level of the body politic by the realities of money. Thus the paradox of Philippine liberal democracy: Honest-to-goodness free elections in which millions now periodically participate are the lifeblood of the system; and yet, after over 80 years of being in place (minus, that is, the 14 year Marcos interregnum), the distribution of assets and wealth in this country is one of the worst in Asia-indeed, far worse than in many semi-democracies or non-democracies. The Populist Challenge It is the socially conservative outcomes of liberal democracy that have served to trigger periodic bouts of mass disenchantment with it. It is in such periods that the system becomes vulnerable to those that personify another tradition, the populist tradition. In the 1950's, Ramon Magsaysay, with his direct charismatic appeal to the masa, bypassed the oligarchy's screening process - though this would have been impossible without the help of the CIA and its cash. But Magsaysay, tutored by the curious hybrid of hardboiled American realpolitik and Jeffersonian idealism that was Edward Lansdale, posed his challenge within the parameters of the system. That cannot be said of later populists. Some of these people emerged from the dynamics of Philippine democracy itself. For when it was transplanted to this country, liberal democracy brought with it the institutions of early 20th century mass politics in the US that responded to the need to integrate the vast masses of European immigrants into the American body politic. Chicago-style machine politics was built on the exchange of jobs and social security for the long-term personal loyalty of the voter to the boss. The result was not only long-term supremacy of one political party at the local level but also, in many cases, dynastic rule by the boss and his heirs. When machine politics was transplanted into the Philippines, it was easily absorbed into the patron-client culture of the traditional regional and local elites. But machine politics also became an avenue of political and social mobility for the lesser elites and the middle classes. Indeed, in many parts of the country, machine politics translated, as in Mayor Daley's Chicago, into virtual dictatorship periodically legitimized by votes that were mobilized, bought, or coerced by the superior organizational resources of new elites that owed their position to mastery of mass electoral politics. As Al McCoy observed, a strong undercurrent of the evolving system was the tension that developed between what he called the patrician elite families whose power was based more on traditional wealth and privilege like the Aquinos and the Osmenas, and the provincial elites whose power lay more in their ability to master the electoral machinery. The former was more inclined to respect the rules of the game that protected their wealth and traditional privileges, the latter to modify the rules so they could translate political advantage into wealth and status. The masses became the object of this struggle, and populist rhetoric became a staple of ambitious regional bosses like Ferdinand Marcos who sought to change the rules of the game by decrying the meager accomplishments of liberal democray in the way of social reform. Under a consummate Machiavellian like Marcos, populism was transformed into a syncretic rhetoric and ideology that promised to soak the rich by breaking the democratic deadlock that was said to prevent reform; create a constitutional authoritarian order that would assure peace and order for the middle classes while securing the material advancement of the poor; and bring about prosperity for all in exchange for their giving up the unruly political liberties of Lockean democracy. Marcos, it must be noted, was popular in the first years of martial law. But Marcos eventually lost support when it became clear that he was really an ersatz populist whose project did not go beyond that of concentrating the relatively dispersed political power of the different elite factions in his faction and tranferring ownership of their vast holdings to his family and cronies. Riding on the back mainly of the disenchanted middle class and deftly guided by Washington, the traditional elites tht had been disenfranchised by Marcos managed the anti-authoritarian movement that swelled after the Aquino assassination and brought back the Lockean system that was so congenial to their interests, enshrining this once and for all, they hoped, in the 1987 Constitution. But memories are short, and massive poverty, helplessness, and the sense of having no future while the globalized Philippine rich romp around in their usual brazen, vulgar, and insensitive ways have again made people receptive to the siren song of populism. Erap's Populism This is, of course, what accounts for the tremendous popularity of Joseph Estrada, who is the populist par excellence. Erap is, in many ways, both the antithesis and the offspring of Philippine liberal democracy. Of all the presidents, he owes his position least to class and money, though he has been patronized by the rich and is himself reported to be of no mean wealth. While he is no stranger to the world of machine politics, he does not really owe his position to the kingmakers like Danding Cojuango. He owes it to his unsurpassed ability to translate into political power the star power that he accumulated in that most democratic of modern insitutions, the entertainment media, which deal in rags-to-riches stories, justice-wins-out-in-the-end tales, and other escapist devices that cushion the harsh real lives of the poor and the deprived. The traditional elites may rail at the stupid masses, but they have failed to prevent the people's confusing their role as movie audience and as citizens and projecting into Estrada their hopes and their dreams - a reaction that is only too human and one that is incomprehensible only to the insensitive rich. In typical populist fashion and much like the Louis Bonaparte of Marx's 18th Brumaire, Estrada has assembled around him a motley crew of Marcos era buddies, anti-Marcos people, men and women of the left, and arrivistes with interesting reputations. Where the legitimate world ends and the other world begins is not exactly clear when it comes to his retinue. His style of rule, as many have pointed out, is to get people to get along or makisama, whatever may be their ideological propensities, which means that in practice reform turns to mush and the genuine social reformists in the gang are either emasculated or corrupted. Erap is a democrat, in the sense that he knows he has the numbers to push through what he wants, without the need for guns. But he has never been known to be a partisan of liberal freedoms. Certainly, to many of those prominently associated with him, liberal freedoms are simply fine words and constitutions are pieces of paper that can be rewritten to suit ambitions and dreams of permanent domination. To a large part of the masses that back him, Estrada can do no wrong, and if he wants to amend the constitution, the burden of proof is laid on those who oppose him. Relics In contrast, Cory is today a relic to many, somebody who is remembered in an ambivalent fashion - as one who, yes, played a key role in bringing back democracy but also one who chose to sacrifice land reform to save her family's estate, Hacienda Luisita; as the president who, by making repayment of the foreign debt the country's top economic priority, gave us zero average GDP growth during her reign. Even more than Cory, Cardinal Sin is seen by many as an anachronism, a figure who comes across today not so much as a democratic symbol but as the resentful patriarch of the conservative faction of a beleaguered dominant religion who acts as if the war against condoms is more important than the war against poverty. It says volumes that the two have chosen Makati, the homeground of the rich and the privileged, as the site of the anti-charter change rally, instead of more proletarian quarters at the Luneta or Liwasang Bonfacio. If the country is where it is today, if the threat of authoritarianism and anti-liberalism has become again pronounced, the liberal elite regimes of Cory Aquino and Fidel Ramos must bear a great part of the blame. Between them, they had 12 years to transform the landscape of Philippine democracy, by decisively using their office to push through the profound social and economic reforms that people wanted. Instead, Aquino put class interest and foreign banks ahead of the national interest, and Ramos promoted the panacea of globalization as the answer to all our woes. Nothing is more dangerous to democracy than a frustrated citizenry, and while revolution may not be in the air, class resentments are clearly on the rise. Even the Philippine middle class, mistakenly enshrined in EDSA mythology as the stable base of democracy, is today on the move in an illiberal direction. Protest within a Protest One is tempted to say, a plague on both your houses. But while we may have little respect for their narrow class politics, one must acknowledge that the main threat to the interest of the citizenry today does not stem from the yellows but from the renewed ambitions of the blacks, from the prospect of a creeping return of authoritarian populism. Thus we have no choice but to rally alongside the yellows on August 20-not because we mystify liberal freedoms like they do, but because these freedoms are indispensable to completing and deepening the democratic revolution that they have stalemated. We will rally, but without much enthusiasm for our partners in yellow, who mouth liberty and freedom of the press, but who really have no answers for the massive problems and frustrations of those they regard, with their enormous class arrogance, as the vast unwashed masses. The Grand Challenge But our protest in defense of liberal freedoms will be meaningless unless we also resolve that this will be the last time that we will allow themselves to be used as cannon fodder for the two feuding political traditions of the Philippine elite. If the nation today can only choose between elite democracy and drunken lumpen-populism, we have partly ourselves to blame. For the marriage of liberal freedoms to an agenda of redistribution of economic power and wealth, nationally directed development, and democratic cultural revolution, where people are respected for what they are, not for what they own, is the great unconsummated but utterly necessary political project of out time. So urgent a task yet something that we have so far failed to innovatively address, derailed as many of us have been either by the paternalistic Christian Democracy of the Ateneo Jesuit crowd or by the scarlet utopia of the UP intelligentsia. Some have called this frustrated project social democracy, others popular democracy. But whatever the label, it is a venture that desperately needs to be undertaken, or our people will forever be pawns in the struggle between feuding yellows and blacks, between the failed elite politics of the Aquinos and Ramoses and the ersatz pro-people politics of the Estradas and the Zamoras. From APEC to Ashes (September 1999)
It has been ten years since the creation of the Asia Pacific Economic Cooperation (APEC). What started out as a lofty dream of encouraging unity and interdependence among Asia Pacific countries is now at the crossroads. It appears to be headed nowhere with no clear vision of what it intends to achieve. A lot of tags have been attached to it, from being a flailing horse to being nothing but four adjectives in search of a noun. Without a doubt the organization is facing a stalemate. And what we are all eagerly awaiting is the next step. Will the horse forge on ahead in a do-or-die stance? Will the king scurry about and retreat in every move? Who can predict that? Who is bold enough to even make the suggestion?
Now that ten years have passed since the inception of APEC, analysts have found it a worthwhile pastime to critically examine what APEC has been able to accomplish so far. Has APEC been able to deliver on its promises? Do the benefits derivable from APEC far outweigh the costs? The Three Pillars of APEC APEC started out with three main objectives - to promote trade and investment liberalization, to facilitate business and to foster economic and technical cooperation. Furthermore, according to the APEC Declaration, the ultimate objective of our individual and collective endeavors is to enrich the lives and improve the standards of living of all our citizens on a sustainable basis. The Beginning Initially the idea behind APEC, as conceived by the former Japanese Chief of the Ministry of Trade and Industry, was for it to serve as a venue for consultative interaction among the Pacific Rim countries discussing economic issues. With membership reaching far and wide, APEC was hit with the issue on diversity. To accommodate its growing membership, two cardinal rules were then enshrined in the APEC ideal - agreements being non-binding and any action taken under APEC ought to be undertaken voluntarily. It is a wonder how APEC can expect itself to be a truly consultative body that fosters cooperation and equality. Even its membership triggers apprehension. What would the US, the most powerful country in the world, do in an organization with Vietnam, a poor country known for its communist inclinations? How do we reconcile differences and balance needs and interests of a country like China, with its multi-million population, with that of Brunei, an oil-rich country with a meager head count of about 500,000 to account for? The issue on diversity Undoubtedly, diversity plays a major role in APEC. The question is how does APEC deal with and handle this diversity? Common knowledge dictates that with diversity come different realities, different needs, different perspectives, different goals, and various methods of attaining these goals. For an organization with such a diverse set of membership, it will forever be a wonder how it can establish and work on a shared goal and a common vision. The APEC goal reached in Seattle speaks of deepening our spirit of community based on our shared vision of achieving stability, security and prosperity for our peoples. The nagging question is this: if each member country has a personal agenda backed with cultural, social, political, and economic interests that ultimately serve personal preservation, how could there be a space for a shared vision towards global prosperity and unity? APEC aims at interdependence among member countries. In the pursuit of economic prosperity and in the opening up of markets, APEC encourages cooperation among its members. But how could there be absolute cooperation among countries that are first and foremost competitors in the economic front? Competition is as real as the sun's rising in the east. And though cooperation seems to be the supposed driving force of APEC, competition and self-preservation lurk in every member countries' interests. Each member country usually goes by the mantra of trade liberalization in the pursuit of penetrating foreign markets while at the same time protecting the domestic market in the best way it could. What this means then is each nation hopes to penetrate foreign markets while also keeping their domestic markets relatively un-exploited by foreigners. So in the end what we have is real competition masquerading beneath a cloak of cooperation. The issues of non-binding contracts and voluntary actions To expound on an earlier statement, another consequence of APEC's diversity in terms of membership is the incorporation of two cardinal rules in the APEC system - that of agreements being non-binding and that any action undertaken in the name of APEC ought to be done voluntarily. These two provisions clearly present a setback to a seemingly powerful organization. With no teeth to keep countries in check, agreements in summits oftentimes remain just that - signed agreements or commitments with no strict implementation. Non-compliance is not a ground for an imposition of any sanction. Unlike therefore the General Agreement on Tariffs and Trade (GATT, or what is now known as World Trade Organization - WTO), which has a dispute settlement body and which has binding contracts among members, APEC merely has commitments which heads of state sign into without the real threat of an urgent compliance. What rocked APEC The first few years of APEC saw encouraging advances. However, in 1994, during the Bogor Declaration, the once-smooth sailing trajectory of APEC has been rudely interrupted at the wings by the incorporation of trade liberalization in APEC's vision. Succumbing to US pressures and insistence, APEC countries were prevailed upon to join the free trade bandwagon. The move however proved costly as this signaled the start of the political cleavage building up within APEC. Free trade split APEC into two. There is the US agenda, along with other developed countries, which sought to transform APEC into a trading bloc and open Asian domestic markets. Then there is the Japanese ideal of keeping APEC the way it was initially designed to be - a mere consultative arena focusing on economic issues. Undoubtedly, both sides were primarily protecting national interests. The US saw APEC as a venue for trade liberalization and as an excellent supplement to the goals set at the GATT-WTO, another US-backed organization espousing free trade. To understand US's interests with APEC, it is necessary to understand the call of the time back then. The incorporation of free trade into the APEC agenda was primarily an American offensive in the brewing trade wars. The early 1990s saw a fast rising European Union and the continued dominance of Japan in the East Asian markets. US was falling behind Japan and it needed a supplementary course of action to back up its programs in the General Agreement on Tariffs and Trade, or what is now known as the World Trade Organization. The 1990s was also a time of boom for East Asian nations and the region was attracting a lot of attention and investments. US wanted a crack at the booming market. For a long time, US was looking for ways to pry open the domestic markets of Korea, China, and Japan among other Asian nations. In APEC it saw the vehicle it needed to get a chance to penetrate the Asian markets. And so US went into APEC with the interest of using it as a free trade bloc to lobby for borderless trade. Implicitly, what the US wanted was a venue where they can dump their agricultural surpluses to. They also wanted to neutralize a bit Japan's stronghold and dominance over East Asia. Japan, on the other hand, was happy with APEC the way it was - as a mere consultative framework where economic issues can be discussed and as a provider of technical support. Japan, although it was at the time enjoying sweeping successes across Asia in terms of economic supremacy, was highly protective of its domestic market. It therefore found the move to turn APEC into a free trade bloc with the vision of adopting borderless trade by the year 2020 an unwelcome development. From just these two perspectives, we clearly see that APEC is indeed faced with a dilemma. Structural problems pose great threats as they do but no other problem poses en even greater challenge than a conceptual dilemma. Apparently, it is not even clear to member countries what APEC essentially is, what it represents, and what it ultimately wants to achieve. What good will an organization serve when its very essence is in shambles? What semblance of strength will it show when even from within there is no agreement as to what it stands for? Being hit with a conceptual dilemma, it is no wonder that APEC is seen as a flailing horse void of any notion of where it is headed. As if it is not enough for APEC to suffer from its structural problems, it even has to worry about resolving the conflict in how it is to be perceived. Nothing can move on to achieve something before it has first a clear picture of what it essentially is. Only in knowing what you are, what you stand for, what you intend to achieve will you be able to draw up a plan on how to reach destinations. Nothing is ever achieved until you know for sure why there is a need to exist in the first place. So then APEC, which from the onset was besieged with an 'identity crisis', has to search for that missing and quite elusive noun for which it stands for, something to give it the essence it was in need of. As earlier stated, diversity could work both as a virtue and a vice. Diversity at the price of consensus of course is not beneficial to the organization. What's more a diverse set logically has with it diverse interests. The more interests to be pooled together, the more dangerous this becomes. Once diversity influences members to go ahead and pursue personal/ national interests first and foremost, then the illusion of a true cooperation within the organization crumbles. Furthermore, more interests translate into many needs that require attention. Given the limitations of any organization, priority projects or needs would of course have to be dealt with first. And therein lay another problem. Whose needs get to be responded to first? Which needs get priority? To this end, a sub-issue arises. If APEC's objective is to be able to offer better times ahead economically, then it has as beneficiaries the growing masses. It is therefore whatever serves the masses's interests that ought to get top priority in the need fulfillment. That has to be the case always. To review then the past ten years, we wonder at what instance was the need of the masses responded to first. The journey down memory lane however makes it clear that primarily, APEC responds to US interests and thus becomes incompatible with the APEC ideal or vision. If this goes on, then APEC fails to fulfill a promise - it is unresponsive to the masses's needs. It fails to deliver on its objective and thus it becomes a meaningless organization. APEC's credibility as of late has also been challenged and put to the test what with three fundamental issues that rock APEC's boat. First is the shortsightedness of APEC countries. Popular knowledge dictates that summit outcomes are heavily influenced by which country gets to host it for the year. It is therefore the host country's ploy to use the event to pursue national interest. It then becomes a battleground literally when hosts welcome guests and feed the latter the agenda best responsive to the needs of the host. Hosts could therefore stall decision on other key issues once it sets as priority some other issue. To this end we realize how crucial the EVSL project was. Able to divert attention away from it and to stall decision on its implementation was a big blow to trade project of APEC. Had it been passed APEC would have enjoyed fresh votes of confidence from all sectors. As it is a failure in pushing forth the EVSL project, outsiders were left to thinking that APEC is all talk and no work. Credibility and ability problems therefore rise. For the longest time, APEC has been besieged with the issue on its being able to talk the walk but not walk the talk. Second is the problem posed by politicizing APEC. As US Vice President Al Gore turned APEC into a political exercise by using the event as an arena for a Mohamad Mahathir bashing, people start getting disillusioned with APEC as it appears to be US's political platform for non-economic objectives. Split primarily on the issue of a conceptual analysis, with US seeing APEC as a free trade arena and Japan regarding it merely as a venue for consultation on economic matters, numerous other cleavages have split the organization. People then feel that APEC is an arena for squabbling countries, a venue for releasing ire and tension against other member countries. With several cleavages cutting through the organization, consensus appears to be an elusive dream. Third problem deals a lot with expectations. During the 1997 Asian financial crisis, people felt that APEC was not able to play an active role in trying to quell the crisis. With the entire Asian region being badly hit by the crisis that had its roots in the spiraling of the Thai baht, everyone was expecting the APEC to do something remarkable or at the very least to offer assistance to members who needed all the help they can have at the time. Unable to put fears to rest during the crisis, APEC was then hit with the critique that it merely stood there and watched as the region went through tough times. Of course APEC countered that it does not have within its mandate financial crisis management. The thing that sticks to the people however is the fact that APEC failed to play the role of a crisis fireman and thus it failed to take on the mask of a human face. Who is APEC for? Looking into the deeper structure, we see that a point of confusion in APEC lies in identifying whom APEC is for. When it boldly claims that it aims to enrich the lives and improve the stocks of all of its citizens, whom would these citizens pertain to? Does the declaration mean that APEC promises to each and every citizen of its member-countries better standards of living at the turn of the century? If rightly so then APEC ought to work towards goals that indeed respond to the needs of its constituency. Looking at ten years of APEC The problem with APEC is that it masqueraded behind a messianic purpose. It went in with a bang, a big splash. Promising better times ahead through trade liberalization, people tended to expect a lot from it. APEC, with its broad-based membership and lofty goals mystified the masses who pinned all their hopes on APEC and the fruits of labor it promised to deliver at the turn of the century. But ten years into it, we realize that APEC is all hype. It promised too much and delivered too little. What's more it even has the gall to assert that the problem lies in our grand expectations. It has been reiterated that with lowered expectations, the public may become more generous in its judgment, allowing smaller advancements to be valued as worthwhile accomplishments. APEC does not only face the reality that it has failed to deliver in its promises. It also has been unsuccessful in responding to the objectives it set. With no clear fruits of labor and a questionable adherence to its very objectives, APEC is rendered meaningless these days. We were all awestruck with what APEC was promising. We believed the promise. We got excited and set our expectations high. We were ready to wager so much with the promise that better times lay ahead and benefits are forthcoming. Then we wake up ten years after. We find ourselves not far from where we were. We count the costs and we wonder why we waged so much only to get the most minimum of dividends in return. What has APEC done for us? Ten years is a long time to wait for initial fruits of our APEC labor. We have paid a large sum to get into this game. Ten years is enough to take a look back and re-examine where it has taken us. Ten years of APEC and we must see for ourselves if our bold steps towards free trade liberalization has paid off handsomely. After ten years, have the benefits outweighed the costs? The final analysis makes us realize that APEC is indeed besieged with problems it cannot just dismiss. APEC, as an organization, has to seriously consider its options. In a stalemated situation, APEC has to decide whether it would forge on ahead in a last ditch effort to try and reclaim lost glory or it would quietly and humbly fold into the night. When free trade came into the picture in the 1994 APEC summit in Bogor, it brought with it lofty promises and goals achievable by the turn of the century. It harped on greater economic prosperity, wealth to nations and alleviation of global poverty. All these of course come as whipped creams to the main pie - a creation of a truly cooperative global village where interdependence and unity play key principles. APEC tried to masquerade behind a messianic purpose and it promised economic prosperity as well as better standards of living. Ten years hence, we look for signs of initial benefits, initial fruits of our labor. What has APEC accomplished so far? Painful to admit but true, APEC undoubtedly has made little steps in the pursuit of its goals but these little steps are however not enough to satisfy the people. We have all paid dearly to let APEC take center stage in Asia for the last ten years. Specifically, the Philippines shelled out about 370 million pesos to host APEC summit in 1996. Taxpayers' money was used to fund the highly publicized event. Therefore each and every little Filipino who has been diligent in tax payments helped stage APEC in Subic. The promise was a few millions would not hurt to gamble on the APEC betting table. Spending millions for preparation and the main event would pay off handsomely in the form of greater foreign investments and the channeling of aid our way. But to this day, we cannot point to one great benefit APEC has done for us. Even more startling is the realization that the most people would not even know what APEC is and what it has done to alleviate their plight. It is about time therefore that we ask how high a price we have to pay for an APEC education? How long before we can see concrete benefits? To what bounds are we willing to sacrifice just so we wait in animated suspension for the day we can finally cash in on APEC's promised benefits? APEC has ceased to stand for something already. Once it was a mere venue for consultative discussions but it took a leap forwards and dabbled in trade liberalization. But the dip proved costly because with it the essence of APEC began to cloud and the essence faded away. The road down trade liberalization caused major rifts within the organization. Dissenting opinions surfaced with Mohamad Mahathir being one of the bravest souls to voice apprehensions. The concept of a standardized timetable was questioned. And the idea of a level playing field was explicitly debated upon. Mahathir's position is not to debunk liberalization's benefits en masse. His point merely was to allow countries to decide for themselves when, how, and at what rate they plan to liberalize. He was merely pointing out that no one country can impose a timeframe for strict implementation regarding trade liberalization schedules. Like the Chinese virtue of the Tao, Mahathir believed in the concept of the gains of doing something in its own time. Absolute timetables cannot be imposed, as there is a relative difference among countries on how liberalization could work best for them. Countries must hold the key and decide for themselves when the right time for them to liberalize is. The US, through GATT-WTO and now through APEC, must not impose schedules and timetables absolutely for all member countries as there is no uniform scenario and reality among them. Liberalization ought to take place in the specific country's own time, own pace, and own strategy. Leaving liberalization to a country's own timeframe simply comes from the fact that there is no level playing field in the global market. Though countries chose to be a part of APEC at the same time doesn't mean they can liberalize and open up markets at the same time. No two countries come into APEC on equal footing. Countries do not start the race at the same point and at the same time. What others often forget to factor in to this level playing field concept are the cultural factors and the social-political subconscious of the countries involved. Furthermore, the concept of a level playing field has been debunked because countries have different realities that operate on different needs, different goals, different visions, etc. Furthermore, it has to be stressed that liberalization ought not to be doctrinaire. Countries have to be flexible when it comes to liberalizing their trade policies. To this end, it becomes apparent that the priority must always be on development. Liberalization ought to be used flexibly in the sense that when countries feel it will serve their best interests, then go on with it. If liberalization poses some threats and doubts, then state-assisted protectionism to a certain degree may be implemented so long as this is seen as the better road to development. We must always take on liberalization with a pragmatic eye. Go with it if it seems to work for the best interests, abandon it if it does not. To this end, it becomes apparent that the priority must always be on development. It is important to note that liberalization ought not to be seen as an end in itself. Always, it must be examined if it leads to development. Therefore, development is the key. The challenge And so the analysis reaches a crossroad. The tough question to pose is this: what is in store for APEC? How does it resolve its conceptual framework dilemma? Clearly, it has not been as efficient as it wanted to be in terms of delivering goods to the Pacific Rim countries. It has strayed from the founding principles for which it has been established. Conflicts are brewing over political issues that technically should not have been there in the first place. Credibility has been tarnished because of the dilly-dallying in decisions regarding trade liberalization agenda and the pursuit of economic prosperity. Ability to turn vision into action has been challenged since APEC stood at the sidelines when Asia was going through a laborious financial crisis. APEC has been taunted as good with words and promises but short on mission and action. The question on whether APEC indeed serves the best interest of the most number of people over a sustainable scheme has been brought out in the open. Faced with all these challenges, questions, and problems, what seems to be the best alternative for APEC? Once more we ask, facing a stalemate, does it charge on the battlefront again in a last ditch effort to reclaim glory? Or would it be best if APEC just hung the gloves and retire when there is still little face to show? Clearly, APEC cannot go on and masquerade behind the same cloaks of cooperation, solidarity and behind the veiled promise of economic prosperity at the turn of the new century. To go on as if nothing halted its meteoric upshot as it took on free trade liberalization would be stupid. APEC has to admit that glory has been lost. Time has been wasted. Money and effort has been flushed down the drain. Some say what APEC needs is a new face. They see APEC's future as being not a major player in the free trade game anymore but rather it will play a subdued role in negotiating trade deals under the auspices of the WTO. They see APEC as channeling its efforts to what it was able to do best - in the promotion of standardization, facilitation of information flow and in harmonizing regulatory regimes. APEC will cease to be in the exact center of everyone's attention and scrutiny. It will play in the sidelines where it thrived all these years and contribute what little it can. This is what some analysts propose. Some take on this suggestion with gusto as it clearly offers APEC a saving face on its way out of the center stage. Basically, the move will bring back APEC to what it once was - a consultative body designed to engender interdependence among APEC countries. However, we cannot but be skeptical with this proposed face-lift. It appears to be an empty promise again in the making. Faced with numerous challenges and problems, APEC has nowhere to go and appears to serve no purpose anymore. At best, it can be regarded as a good excuse for technocrats to use taxpayers' money to subsidize tourist junkets that mask as exercises in economic diplomacy. It therefore seems that there is logic in the notion that it would be for the best interest of the most number to abolish APEC. At some point someone has to take a bold step and dissociate himself from the crowd. Someone must be brave enough like that little girl in the tale of the emperor's new clothes. There has to be a gutsy person who will step aside from the drunken masses and assert without fear that it is about time we abolish APEC. Let me be that little girl for you today. A better vision In the end, what we clearly see is a need to re-think the global economic institutions, the IMF, WB, WTO, and more. Obviously, the old-world order and the free trade bandwagon did not respond to the people's needs and failed to deliver the goods. What we probably need is a new-world order, something that would inspire countries to interact with one another cooperatively and equitably. It is therefore the duty of civil society and those in the NGO world to help make this new vision a reality. It is our responsibility to take a more active role in policy making and in the drive towards development. It is all our duty to see to it that the state and the business sector do not monopolize decisions once more. We need to make our voices heard. We must learn from the story of APEC. The drive towards real cooperative and equitable development needs the whole of society to take part in it. It needs all of us. Starting point of all achievement is desire. Weak desire, weak resource. Small amount of fire, small amount of heat. So let us in this September hall start a small flame that will enlighten everyone's mind to lead us all to the better road. References
NGOs Take on WTO in the Battle of Seattle (22 November 1999)
Make sure to bring your raincoat, Anuradha Mittal of Food First, the famous food security advocacy institute based in the US, warned me on the phone. It's pouring in Seattle.
But it is not Seattle's famous non-stop rain that will make the Third Ministerial meeting of the World Trade Organization (WTO) memorable. It is the social climate. When delegates from the more than 130 member-countries of the World Trade Organization (WTO) arrive in Seattle a week from now, they will find a city in turmoil. Seattle Harbor, one of the prime entry points for goods from Asia into the United States, will be closed down by American longshoremen. Many of the city's skyscrapers will be sporting huge banners denouncing the WTO put up by daring mountaineers who have trained especially for the occasion. And the streets will be filled with what is now conservativelyestimated to be over 50,000 protesters from all over the world, many of them prepared to be arrested for acts of civil disobedience. In contrast to the angry mood in the streets, government officials and business circles hosting the event are nervous and demoralized. One of Seattle's two corporate giants, Bill Gates' Microsoft, has justsuffered a crushing legal defeat for engaging in monopolistic behaviour and could face, some say, a government-decreed dismemberment. The other, Boeing, is under suspicion for faulty engineering that might have caused the spectacular crash of EgyptAir Flight 990 on 31 October, which took 217 lives. Strategic Blunder This was not the way the century was supposed to end, in the view of US officials and businessmen who had pushed for this jewel of a city in the US Pacific Northwest as the site of the Third WTO Ministerial Meeting. Seattle was supposed to mark the triumph of free trade and free markets at the end of the Second Millennium. Surely, choosing Seattle must rate as one of the Clinton administration's strategic blunders, says Sarah Anderson of Washington's Institute for Policy Studies (IPS). They overlooked the fact that the city has both a strong labour movement and a strong environmental movement. The 'outside-agitator' theory will not work in this case. It is Seattle's citizens who have themselves taken the lead in organizing against WTO and free trade. Seattle's anti-WTO groups are, in fact, part of a global network of civil society organizations that have mushroomed over the last few years in opposition to free trade. Ironically, it was the triumph of the Uruguay Round of the General Agreement on Tariffs and Trade (GATT) that established the World Trade Organization (WTO) in 1994 that propelled the massive wave of civil society opposition that now threatens to stalemate future moves in the direction of global trade liberalization. Made up of farmers, environmentalists, workers, academics, consumers, and social activists, these non-governmental and people's organizations did not necessarily see eye-to-eye on key social issues. They were, however, united in one thing: the fear of the WTO's guiding philosophy and program of 'free trade über alles' (as consumer activist Ralph Nader described it) that they saw as the cutting edge of the drive of transnational corporations to recast global economic and political rules to remove barriers to the flow of capital and goods in search of greater profits. And here they were joined by many developing country governments. A key event in global civil society's march to Seattle was the defeat of the corporate-driven effort to get the OECD - the club of rich countries - to adopt the Multilateral Agreement on Investment (MAI) in 1998 by a global campaign mobilized via email and the Internet led by groups and individuals such as Third World Network, International Agriculture and Trade Policy Institute (IATP), International Forum on Globalization (IFG), and the formidable Susan George. Another decisive event was the US Congress's refusal a year earlier to grant President Bill Clinton 'fast-track authority' in negotiating another trade agreement. This meant that to be ratified, future agreements would be scrutinized line by line, a process which could lead to the gutting of treaties negotiated by the executive. This event was a product of a rare de facto coalition of progressive NGOs, like IPS and Nader's Public Citizen, labour unions, and conservative and right-wing groups wary of 'multilateral entanglements'. Caught Napping
If the anti-free trade groups were the ones who were disorganized in 1994, it is the pro-free trade lobby that has been caught napping in the months leading up to Seattle. They paid little attention to polls that showed that all over the world, protectionist feelings were on the rise, attesting to the fact that the anti-free trade (or 'pro-fair trade') forces were winning the debate.
The partisans of free trade have finally awakened to the prospect that Seattle might turn out to be a massive public relations debacle for globalization. The half-hearted efforts to convince NGOs that free trade will result in Jeremy Bentham's paradise marked by 'the greatest good for the greatest number' is giving way to a harsher approach. In the pages of the Financial Times, Wall Street Journal, Foreign Affairs, International Herald Tribune, Washington Post and other influential establishment newspapers and periodicals, it is now open season on civil society. NGOs are called 'irrational', 'ignorant', 'emotional', 'Luddites', to name but a few cute epithets heaped on us. Counterattack Typical is the verbal pyrotechnics of Martin Wolf, the influential columnist of the Financial Times: At the very least, he argues, the substantive claims of those most strongly opposed to trade liberalization must be challenged. Yet it is quite as important to confront their political legitimacy as purported representatives of civil society as a whole. Civil society, says Wolf, is simply a label for all those activities, relationships, and organizations that fall outside the purview of the state. This amorphous mass cannot be represented by anyone. Those who claim to do so are impostors... Then the call to action: The fate of the MAI is a warning. Policy-makers need to prepare their ground far better than this. They also need to recognize the changed political context in which they operate. The enemies of the liberal international economy have found new ways of organizing. Both need to be resisted. What is at stake is far too important to go by default. Queried on well-argued criticisms raised by civil society groups, Mike Moore, the WTO's new director general, has resorted to uncivil words: It does irritate us that someone who never sells a product, never gets a vote and doesn't actually do anything can come out and attack you. Panic These are not reasonable voices. These are the words of people in panic. Selling the WTO has become the most difficult public relations job of our time. For the problem is very basic: while seemingly compelling in theory, there is very little empirical evidence that radically liberalized regimes in trade, finance, and investment actually bring about net benefits globally. Instead what people have actually seen over the last few decades of accelerated global liberalization are greater and sharper inequalities among regions, countries, and classes, plus tremendous environmental damage wrought by the corporate engines of free trade and free markets. What we have seen is the multiplication of unconscionable realities such as the fact that three of the WTO's corporate hosts in Seattle, Bill Gates and his two top lieutenants at Microsoft, make more than the combined income of some 45 developing countries. You can't sell that, except to the minuscule global elite that actually benefits from corporate-driven globalization. Is the Structural Adjustment Approach Really and Trully Dead? (8 November 1999)
Structural adjustment is the paradigm of development that the World Bank and the International Monetary Fund have prescribed for countries in the South since 1980, when the Philippines joined Turkey and Costa Rica as the guinea pigs of what was described as a new kind of loan program that was designed to support not just one project but an enterprise to restructure the whole economy. Over the next two decades, structural adjustment programs (SAPs) were extended to close to 90 Third World countries, from Guyana to Ghana. Despite important differences among the various economies, SAPs had the same basic elements: long-term "structural" reforms to deregulate the economy, liberalize trade and investment, and privatize state enterprises, coupled with short-term stabilization measures like cutbacks in government expenditures, high interest rates, and currency devaluation.
Universal model SAPs multiplied during the Third World debt crisis of the early 1980s, and an important reason was strong pressure from the Bank and IMF on countries to adopt policies that would facilitate the repayment of their debts to the big international commercial banks. But the objective of SAPs went beyond debt repayment or the attainment of short-term macroeconomic stability. The Bank and the Fund sought nothing less than the dismantling of protectionism and other policies of state-assisted capitalism that IMF and World Bank theorists judged to be the main obstacles to sustained growth and development. When the socialist economies of Eastern Europe and Russia collapsed in the early 1990s, structural adjustment was also extended to that part of the world, and in a manner that was even more radical than in the South - a process that Harvard's Jeffrey Sachs, then one of its vocal proponents, appropriately labelled as "shock therapy." IMF technocrats went to these countries with even more dogmatic confidence in their one true model than the Marxist bureaucrats they supplanted had in theirs. By the early 1990s, shock therapy and structural adjustment had become cornerstones of what economist John Williamson called "the Washington Consensus" on the desired macroeconomic framework that would create a truly global economy fueled by market forces. Retreat Two decades after the first structural adjustment loan, the Bank formally abandoned structural adjustment, replacing it with the "Comprehensive Development Framework." And, in a move that surprised many of his organization's legions of critics, Michel Camdessus, the managing director of the IMF, declared at the World Bank-IMF annual meeting in Washington in late September that henceforth, the Fund would put "poverty reduction" at the center of its programs, meaning it was also turning its back on structural adjustment.
The new paradigm, according to a statement of the Group of Seven finance ministers and central bank governors dated Sept. 25, 1989, has the following elements:
What brought about the 180 degree turn? Failure. Spectacular failure that could no longer be denied at the pain of totally losing institutional credibility. The World Bank - or rather James Wolfensohn, President Bill Clinton's nominee to head the Bank in 1993 - was the first to recognize that something was amiss. Coming from outside orthodox development circles, Wolfensohn sensed what most World Bank officials did not want to acknowledge: that with over 100 countries under adjustment for over a decade, it was strange that the Bank and the Fund found it hard to point to even a handful of success stories. In most cases, as Rudiger Dornbusch of the Massachusetts Institute of Technology put it, structural adjustment caused economies to "fall into a hole," wherein low investment, reduced social spending, reduced consumption, and low output interacted to create a vicious cycle of decline and stagnation, rather than a virtuous circle of growth, rising employment, and rising investment, as originally envisaged by World Bank-IMF theory. With much resistance from the Bank's entrenched bureaucracy, Wolfensohn moved to slowly distance the Bank from hard-line adjustment policies and even got some of his staff to (grudgingly) work with civil society groups to assess SAPs in the so-called "Structural Adjustment Review Initiative (SAPRI)." For the most part, however, the change of attitude did not translate into changes at the operational level owing to the strong internationalization of the structural adjustment approach among Bank operatives. While self doubt began to engulf the Bank, the IMF, in contrast, plowed confidently on, and the lack of evidence of success was interpreted to mean simply that a government lacked political will to push adjustment. Through the establishment of the Extended Structural Adjustment Facility (ESAF), the Fund sought to finance countries over a longer period in order to more fully institutionalize the desired free-market reforms and make them permanent. The Philippine Case The Philippines' experience under adjustment was representative of the Third World experience. Between 1980 and 1999, the Philippines became the recipient of nine structural adjustment loans from the World Bank, and participated in three stand-by programs, two extended fund programs, and one precautionary stand-by arrangement with the IMF. The country, in short, was in continuous adjustment for nearly 20 years, its macroeconomic policies being micro-managed by the Bretton Woods twins. The first phase of adjustment, which focused on trade liberalization, saw quantitative restrictions removed on more than 900 items, while the nominal average tariff protection was brought down to 28% in 1985 from 43% in 1981. But the program failed to factor in the onset of a global recession, so that instead of rising, exports fell, while imports coming in to take advantage of the liberalized regime severely eroded the home industries. As the late economist Charles Lindsay noted, "Whatever the merits of the SAL, its timing was deplorable." Instead of allowing the government to set in motion counter-cyclical mechanisms to arrest the decline of private sector activity, the structural adjustment framework intensified the crisis with its policy of high interest rates and tight government budgets. Not surprisingly, the GNP shrank precipitously two years in a row, contributing to the political crisis that resulted in the ouster of Ferdinand Marcos in February 1986. Under Corazon Aquino, the second phase of adjustment saw economic recovery subordinated to the repayment of the foreign debt of the country's $26 billion foreign debt. This was achieved via fiscal austerity and more intensified export of natural resources and export-oriented production. A financial hemorrhage ensued, with the net transfer of financial resources coming to a negative $1.3 billion a year on average between 1986 and 1981, according to the Freedom from Debt Coalition. To service the debt, the Aquino administration was forced to borrow heavily from domestic financial sources, forcing it to channel much of its budgetary expenditures from development and social spending to meeting both domestic and foreign debt obligations. By 1987, some 50% of the budget was going to service the national debt. Not surprisingly, this "model debtor" via structural adjustment institutionalized stagnation, with the country registering zero average GNP growth between 1983 and 1993. Stagnation led to a worsening of social conditions, with families living under the poverty line coming to 46.5% of all families in 1991 and the share of the national income going to the lowest 20% of families dropping to 4.7% in 1991 from 5.2% in 1985. The Philippines also provided one of the best documented studies of the correlation between environmental destruction and structural adjustment, with a World Resources Institute study concluding that adjustment "created so much unemployment that migration patterns changed drastically. The large migration flows to Manila declined, and most migrants could only turn to open access forests, watersheds, and artisanal fisheries. Thus the major environmental effect of the economic crisis was overexploitation of these vulnerable resources." When the Ramos administration took over in 1992, the focus of adjustment shifted back to accelerated privatization, deregulation, and liberalization of trade, investment and finance. Petron and several government enterprises and services passed to the private sector; a substantially free-trade regime was targetted for 2004, when tariff rates would be reduced to a uniform 5% or less for all products; and nationality restrictions on foreign investment were relaxed considerably. Capital account liberalization, an IMF prescription, resulted in massive inflows of speculative capital into the financial and real estate sector, triggering an artificial boom in Manila. But the liberalized capital account also became the wide highway through which billions of dollars exited in 1997 and 1998, at the onset of the Asian financial crisis, bringing the GDP growth rate to below zero in 1998. Adjusted and readjusted for nearly 20 years, Manila simply could not climb out of a deepening hole. Crisis of legitimacy It was the Asian financial crisis that finally forced the IMF to confront reality. In 1997-98, the Fund moved with grand assurance into Thailand, Indonesia and Korea, with its classic formula of short-term fiscal and monetary policy cum structural reform in the direction of liberalization, deregulation and privatization. This was the price exacted from their governments for IMF financial rescue packages that would allow them to repay the massive debt incurred by their private sectors. But the result was to turn a conjunctural crisis into a deep recession, as government's capacity to counteract the drop in private sector activity, was destroyed by budgetary and monetary repression. If some recovery is now discernible in a few economies, this is widely recognized as coming in spite of rather than because of the IMF. For a world that had long been resentful of the Fund's arrogance, this was the last straw. In 1998-99, criticism of the IMF rose to a crescendo and went beyond its stubborn adherence to structural adjustment and its serving as a bailout mechanism for international finance capital to encompass accusations of its being non-transparent and non-accountable. Its vulnerable position was exposed during the recent debate in the US Congress over a G7 initiative to provide debt relief to 40 poor countries. Legislators depicted the IMF as the agency that caused the debt crisis of the poor countries in the first place, and some called for its abolition within three years. Said California Rep. Maxine Walters: "Do we have to have the IMF involved at all? Because, as we have painfully discovered, the way the IMF works causes children to starve." In the face of such criticism from legislators in the IMF's most powerful member, US Treasury Secretary Larry Summers, formerly a doctrinaire supporter of adjustment, had no choice but to throw the institution to the wolves - rhetorically that is. From hereon, he said, the US would support "a new framework for providing international assistance to these countries - one that moves beyond a closed IMF-centered process that has too often focused on narrow macroeconomic objectives at the expense of broader human development." In its place, he claimed, "would be a new, more open and inclusive process that would involve multiple international organizations and give national policymakers and civil society groups a more central role." Thus, it was its finding itself abandoned and isolated, not a change of heart, that accounted for Michel Camdessus' remarkable disavowal of the structural adjustment approach at the IMF-World Bank meeting in late September and his declaration of the IMF's adherence to the new poverty-reduction approach proposed by its sister institution. But is this for real? So structural adjustment is dead, and the Bretton Woods institutions have seen the light. But wait, isn't there something too easy about all this? For one, between intention and implementation lie a million li, as the Chinese put it. In the depth of the Asian financial crisis, for instance, World Bank anti-poverty programs amounted to nothing more than "social safety nets" to mitigate the worst effects of IMF macroeconomic policies. Today, the dead hand of the engineer on the accelerator continues to manifest itself in IMF teams that shuttle into the country to see if our technocrats are being faithful to macroeconomic targets, World Bank teams pushing "socially sensitive" programs to privatize local water utilities, rural electric cooperatives, and social security, and technocrats of the Asian Development Bank (which has also rhetorically adopted poverty reduction) making energy loans and Miyazawa funding contingent on the administration's accelerating the privatization of the National Power Corp. and the liberalization of retail trade. Are these implementation obstacles? Or is this a case of a new and improved Dracula, with a new pair of fangs that glisten and hypnotize its intended victims? Leaning toward the latter interpretation is a frustrated Louie Corral, head of the Political Affairs Department of the Trade Union Congress of the Philippines (TUCP), who has met with World Bank and ADB teams, who says, "They're really just talking about safety nets to soften the impact of the old approach of deregulation, privatization, and liberalization." Then, there is the issue of accountability. One cannot just walk away from the scene of the crime, saying I was wrong and let's move on. The Bank and the Fund have been responsible for tremendous economic and social damage wrought on Third World economies for over two decades. Shouldn't they be held to account for that? Should not Camdessus and the top leadership of the IMF, who blindly embraced adjustment to the end, take responsibility for their mistaken policies? When it comes to governments, admission of strategic failures is usually accompanied by the resignation of key officials and, in some countries, like Japan, by suicide in some cases. Any discussion of the future role of the two institutions must also take into account the fact that tremendous resources were wasted on 6,000 highly paid World Bank personnel and 1,000 IMF staffers for them to produce and pigheadedly stick to a wrong and destructive strategy, in spite of urgent warnings from civil society groups over the years that structural adjustment simply wasn't working and was creating misery by the truckloads instead. For the latter, the problem goes beyond the strategy. It goes to the nature and structure of the two institutions itself: Secrecy, non-accountability and an incapacity to learn appears to be inherent to the two institutions, James Wolfensohn and his NGO liaison John Clark's reformist energies notwithstanding. Necessary measures This is why a number of civil society groups which have been monitoring the Fund and the Bank for years have come out with several proposals in the aftermath of the structural adjustment debacle - measures that must be taken before the world accepts any new role for both the Fund and the Bank in the management of the world economy. At a minimum, Michel Camdessus should resign as managing director, along with Stanley Fischer, his deputy, and other top officials responsible for the failed strategy. This would not be fair, however, without a call for the resignation of Larry Summers as well, since as secretary and undersecretary of the US Treasury Department, he provided the intellectual and political muscle behind the IMF and its programs for the last seven years. Resignation, it must be noted, is not a harsh option, considering that some groups have called for a Nuremberg-style trial for economic crimes against humanity.
In addition, the following measures must be taken before one can say a real reform process is underway:
And to our timid technocrats who report to their Fund monitors every quarter: The ancient regime is dead. You can now talk back and dictate the terms. Or is it true what they say - that you cling on to the skirts of Mother IMF and refuse to exit because over the years you have become more IMF than the IMF? And indeed this might be Fund's ultimate revenge. As in a sci-fi movie, the alien retreats from the scene but the people don't realize that now they have to deal with far more difficult foes: its Filipino clones are in place. Why Reform of the WTO is the Wrong Agenda (December 1999)
In the wake of the collapse of the Seattle Ministerial, there has emerged the opinion that reform of the WTO is now the program that NGOs, governments, and citizens must embrace. The collapse of the WTO Ministerial is said to provide a unique window of opportunity for a reform agenda.
Cited by some as a positive sign is United States Trade Representative Charlene Barshefsky's comment, immediately after the collapse of the Seattle Ministerial, that the WTO has outgrown the processes appropriate to an earlier time. An increasing and necessary view, generally shared among the members, was that we needed a process which had a greater degree of internal transparency and inclusion to accommodate a larger and more diverse membership'. (1) Also seen as an encouraging gesture is UK Secretary of State for Trade and Industry Stephen Byers' recent statement to Commonwealth Trade Ministers in New Delhi that the WTO will not be able to continue in its present form. There has to be fundamental and radical change in order for it to meet the needs and aspirations of all 134 of its members. (2) These are, in our view, damage control statements and provide little indication of the seriousness about reform of the two governments that were, pre-Seattle, the stoutest defenders of the inequalities built into the structure, dynamics, and objectives of the WTO. It is unfortunate that they are now being cited to convince developing countries and NGOs to take up an agenda of reform that could lead precisely to the strengthening of an organization that is very fundamentally flawed. What civil society, North and South, should instead be doing at this point is radically cutting down the power of the institution and reducing it to simply another institution in a pluralistic world trading system with multiple systems of governance. Does World Trade Need the World Trade Organization? This is the fundamental question on which the question of reform hinges. World trade did not need the WTO to expand 17-fold between 1948 and 1997, from $124 billion to $10,772 billion. (3) This expansion took place under the flexible GATT trade regime. The WTO's founding in 1995 did not respond to a collapse or crisis of world trade such as happened in the 1930's. It was not necessary for global peace, since no world war or trade-related war had taken place during that period. In the seven major inter-state wars that took place in that period-the Korean War of 1950-53, the Vietnam War of 1945-75, the Suez Crisis of 1956, the 1967 Arab-Israeli War, the 1973 Arab-Israeli War, the 1982 Falklands War, and the Gulf War of 1990-trade conflict did not figure even remotely as a cause. GATT was, in fact, functioning reasonably well as a framework for liberalizing world trade. Its dispute-settlement system was flexible and with its recognition of the 'special and differential status' of developing countries, it provided the space in a global economy for Third World countries to use trade policy for development and industrialization. Why was the WTO established following the Uruguay Round of 1986-94? Of the major trading powers, Japan was very ambivalent, concerned as it was to protect its agriculture as well as its particular system of industrial production that, through formal and informal mechanisms, gave its local producers primary right to exploit the domestic market. The EU, well on the way of becoming a self-sufficient trading bloc, was likewise ambivalent, knowing that its highly subsidized system in agriculture would come under attack. Though demanding greater access to their manufactured and agricultural products in the Northern economies, the developing countries did not see this as being accomplished through a comprehensive agreement enforced by a powerful trade bureaucracy but through discrete negotiations and agreements in the model of the Integrated Program for Commodities (IPCs) and Commodity Stabilization Fund agreed upon under the aegis of UNCTAD in the late seventies. The founding of the WTO served primarily the interest of the United States. Just as it was the US which blocked the founding of the International Trade Organization (ITO) in 1948, when it felt that this would not serve its position of overwhelming economic dominance in the post-war world, so it was the US that became the dominant lobbyist for the comprehensive Uruguay Round and the founding of the WTO in late eighties and early nineties, when it felt that more competitive global conditions had created a situation where its corporate interests now demanded an opposite stance. Just as it was the US's threat in the 1950's to leave GATT if it was not allowed to maintain protective mechanisms for milk and other agricultural products that led to agricultural trade's exemption from GATT rules, so was it US pressure that brought agriculture into the GATT-WTO system in 1995. And the reason for Washington's change of mind was articulated quite candidly by then US Agriculture Secretary John Block at the start of the Uruguay Round negotiations in 1986: [The] idea that developing countries should feed themselves is an anachronism from a bygone era. They could better ensure their food security by relying on US agricultural products, which are available, in most cases at much lower cost. (4) Washington, of course, did not just have developing country markets in mind, but also Japan, South Korea, and the European Union. It was the US that mainly pushed to bring services under WTO coverage, with its assessment that the in the new burgeoning area of international services, and particularly in financial services, its corporations had a lead that needed to be preserved. It was also the US that pushed to expand WTO jurisdiction to the so-called 'Trade-Related Investment Measures' (TRIMs) and 'Trade-Related Intellectual Property Rights' (TRIPs) The first sought to eliminate barriers to the system of internal cross-border trade of product components among TNC (transnational corporations) subsidiaries that had been imposed by developing countries in order to develop their industries; the second to consolidate the US advantage in the cutting-edge knowledge-intensive industries. And it was the US that forced the creation of the WTO's formidable dispute-resolution and enforcement mechanism after being frustrated with what US trade officials considered weak GATT efforts to enforce rulings favorable to the US. As Washington's academic point man on trade, C. Fred Bergsten, head of the Institute of International Economics, told the US Senate, the strong WTO dispute settlement mechanism serves US interests because we can now use the full weight of the international machinery to go after those trade barriers, reduce them, get them eliminated. (5) In sum, it has been Washington's changing perception of the needs of its economic interest-groups that have shaped and reshaped the international trading regime. It was not global necessity that gave birth to the WTO in 1995. It was the US's assessment that the interests of its corporations were no longer served by a loose and flexible GATT but needed an all-powerful and wide-ranging WTO. From the free-market paradigm that underpins it, to the rules and regulations set forth in the different agreements that make up the Uruguay Round, to its system of decision-making and accountability, the WTO is a blueprint for the global hegemony of Corporate America. It seeks to institutionalize the accumulated advantages of US corporations. Is the WTO necessary? Yes, to the United States. But not to the rest of the world. The necessity of the WTO is one of the biggest lies of our time, and its acceptance is due to the same propaganda principle practised by Joseph Goebbels: if you repeat a lie often enough, it will be taken as truth. Can the WTO Serve the Interests of the Developing Countries? But what about the developing countries? Is the WTO a necessary structure - one that, whatever its flaws, brings more benefits than costs, and would therefore merit efforts at reform? When the Uruguay Round was being negotiated, there was considerable lack of enthusiasm for the process by the developing countries. After all, these countries had formed the backbone of UNCTAD, which, with its system of one-country/one-vote and majority voting, they felt was an international arena more congenial to their interests. They entered the Uruguay Round greatly resenting the large trading powers' policy of weakening and marginalizing UNCTAD in the late seventies and early eighties.Largely passive spectators, with a great number not even represented during the negotiations owing to resource constraints, the developing countries were dragged into unenthusiastic endorsement of the Marrakesh Accord of 1994 that sealed the Uruguay Round and established the WTO. True, there were somedeveloping countries, most of them in the Cairns Group of developed and developing country agro-exporters, that actively promoted the WTO in the hope that they would gain greater market access to their exports, but they were a small minority. To try to sell the WTO to the South, US propagandists evoked the fear that staying out of the WTO would result in a country's isolation from world trade ('like North Korea') and stoked the promise that a 'rules-based system' of world trade would protect the weak countries from unilateral acts by the big trading powers. With their economies dominated by the IMF and the World Bank, with the structural adjustment programs pushed by these agencies having as a central element radical trade liberalization, much weaker as a bloc owing to the debt crisis compared to the 1970's, the height of the 'New International Economic Order', most developing country delegations felt they had no choice but to sign on the dotted line. Over the next few years, however, these countries realized that they had signed away their right to employ a variety of critical trade measures for development purposes. In contrast to the loose GATT framework, which had allowed some space for development initiatives, the comprehensive and tightened Uruguay Round was fundamentally anti-development in its thrust. This is evident in the following: Loss of Trade Policy as Development Tool In signing on to GATT, Third World countries were committed to banning all quantitative restrictions on imports, reduce tariffs on many industrial imports, and promise not to raise tariffs on all other imports. In so doing, they have effectively given up the use of trade policy to pursue industrialization objectives. The way that the NICs, or 'newly industrializing countries', made it to industrial status, via the policy of import substitution, is now effectively removed as a route to industrialization. The anti-industrialization thrust of the GATT-WTO Accord is made even more manifest in the Agreement on Trade-Related Investment Measures (TRIMs) and the Agreement on Trade-Related Intellectual Property Rights (TRIPs). In their drive to industrialize, NICs like South Korea and Malaysia made use of many innovative mechanisms such as trade-balancing requirements that tied the value of a foreign investor's imports of raw materials and components to the value of his or her exports of the finished commodity, or 'local content' regulations which mandated that a certain percentage of the components that went into the making of a product was sourced locally. These rules indeed restricted the maneuvering space of foreign investors, but they were successfully employed by the NICs to marry foreign investment to national industrialization. They enabled the NICs to raise income from capital-intensive exports, develop support industries, bring in technology, while still protecting local entrepreneurs' preferential access to the domestic market. In Malaysia, for instance, the strategic use of local content policy enabled the Malaysians to build a 'national car', in cooperation with Mitsubishi, that has now achieved about 80 per cent local content and controls 70 per cent of the Malaysian market. Thanks to the TRIMs accord, these mechanisms used are now illegal. The Restriction of Technological Diffusion Like the TRIMs agreement, the TRIPs regime is seen as effectively opposed to the industrialization and development efforts of Third World countries. This becomes clear from a survey of the economic history not only of the NICs but of almost all late-industrializing countries. A key factor in their industrial take-off was their relatively easy access to cutting-edge technology: The US industrialized, to a great extent by using but paying very little for British manufacturing innovations, as did the Germans. Japan industrialized by liberally borrowing US technological innovations, but barely compensating the Americans for this. And the Koreans industrialized by copying quite liberally and with little payment US and Japanese product and process technologies. But what is 'technological diffusion' from the perspective of the late industrializer is 'piracy' from that of the industrial leader. The TRIPs regime takes the side of the latter and makes the process of industrialization by imitation much more difficult from hereon. It represents what UNCTAD describes as 'a premature strengthening of the intellectual property system... that favors monopolistically controlled innovation over broad-based diffusion'. (6) The TRIPs regime provides a generalized minimum patent protection of 20 years; increases the duration of the protection for semi-conductors or computer chips; institutes draconian border regulations against products judged to be violating intellectual property rights; and places the burden of proof on the presumed violator of process patents. The TRIPs accord is a victory for the US high-tech industry, which has long been lobbying for stronger controls over the diffusion of innovations. Innovation in the knowledge-intensive high-tech sector - in electronic software and hardware, biotechnology, lasers, opto-electronics, liquid crystal technology, to name a few - has become the central determinant of economic power in our time. And when any company in the NICs and Third World wishes to innovate, say in chip design, software programming, or computer assembly, it necessarily has to integrate several patented designs and processes, most of them from US electronic hardware and software giants like Microsoft, Intel, and Texas Instruments. (7) As the Koreans have bitterly learned, exorbitant multiple royalty payments to what has been called the American 'high tech mafia' keeps one's profit margins very low while reducing incentives for local innovation. The likely outcome is for a Southern manufacturer simply to pay royalties for a technology rather than to innovate, thus perpetuating the technological dependence on Northern firms.Thus, TRIPs enables the technological leader, in this case the United States, to greatly influence the pace of technological and industrial development in rival industrialized countries, the NICs, and the Third World. Watering Down the 'Special and Differential Treatment' Principle The central principle of UNCTAD (United Nations Conference on Trade and Development) - an organization disempowered by the establishment of the WTO - is that owing to the critical nexus between trade and development, developing countries must not be subjected to the same expectations, rules, and regulations that govern trade among the developed countries. Owing to historical and structural considerations, developing countries need special consideration and special assistance in leveling the playing field for them to be able to participate equitably in world trade. This would include both the use of protective tariffs for development purposes and preferential access of developing country exports to developed country markets. While GATT was not centrally concerned with development, it did recognize the 'special and differential status' of the developing countries. Perhaps the strongest statement of this was in the Tokyo Round Declaration in 1973, which recognized the importance of the application of differential measures in developing countries in ways which will provide special and more favourable treatment for them in areas of negotiation where this is feasible. (8) Different sections of the evolving GATT code allowed countries to renegotiate tariff bindings in order to promote the establishment of certain industries; allowed developing countries to use tariffs for economic development and fiscal purposes; allowed them to use quantitative restrictions to promote infant industries; and conceded the principle of non-reciprocity by developing countries in trade negotiation. (9) The 1979 Framework Agreement known at the Enabling Clause also provided a permanent legal basis for General System of Preferences (GSP) schemes that would provide preferential access to developing country exports. (10) A significant shift occurred in the Uruguay Round. GSP schemes were not bound, meaning tariffs could be raised against developing country until they equaled the bound rates applied to imports for all sources. Indeed, during the negotiations, the threat to remove GSP was used as a form of bilateral pressure on developing countries. (11) SDT was turned from a focus on a special right to protect and special rights of market access to one of responding to special adjustment difficulties in developing countries stemming from the implementation of WTO decisions. (12) Measures meant to address the structural inequality of the trading system gave way to measures, such as a lower rate of tariff reduction or a longer time frame for implementing decisions, which regarded the problem of developing countries as simply that of catching up in an essentially even playing field. STD has been watered down in the WTO, and this is not surprising for the neoliberal agenda that underpins the WTO philosophy differs from the Keynesian assumptions of GATT: that there are no special rights, no special protections needed for development. The only route to development is one that involves radical trade (and investment) liberalization. Fate of the Special Measures for Developing Countries
Perhaps the best indicators of the marginal consideration given to developing countries in the WTO is the fate of the measures that were supposed to respond to the special conditions of developing countries. There were three key agreements which promoters of the WTO claimed were specifically designed to meet the needs of the South:
What happened to these measures? The Special Ministerial Decision taken at Marrakesh to provide assistance to 'Net Food Importing Countries' to offset the reduction of subsidies that would make food imports more expensive for the 'Net Food Importing Countries' has never been implemented. Though world crude prices more than doubled in 1995/96, the World Bank and the IMF scotched an idea of any offsetting aid by arguing that the price increase was not due to the Agreement on Agriculture, and besides there was never any agreement anyway on who would be responsible for providing the assistance. (13) The Agreement on Textiles and Clothing committed the developed countries to bring under WTO discipline all textile and garment imports over four stages, ending on January 1, 2005. A key feature was supposed to be the lifting of quotas on imports restricted under the Multifiber Agreement (MFA) and similar schemes which had been used to contain penetration of developed country markets by cheap clothing and textile imports from the Third World. Developed countries retained, however, the right to choose which product lines to liberalize when, so that they first brought mainly unrestricted products into the WTO discipline and postponed dealing with restricted products till much later. Thus, in the first phase, all restricted products continued to be under quota, as only items where imports were not considering threatening-like felt hats or yarn of carded fine animal hair - were included in the developed countries' notifications. Indeed, the notifications for the coverage of products for liberalization on January 1, 1998 showed that even at the second stage of implementation only a very small proportion" of restricted products would see their quotas lifted. (14) Given this trend, John Whalley notes that the belief is now widely held in the developing work that in 2004, while the MFA may disappear, it may well be replaced by a series of other trade instruments, possibly substantial increases in anti-dumping duties. (15) When it comes to the Agreement on Agriculture, which was sold to developing countries during the Uruguay Round as a major step toward providing market access to developing country imports and bringing down the high levels of domestic support for first world farming interests that results in dumping of commodities in third world markets, little gains in market access after five years into developed country markets have been accompanied by even higher levels of overall subsidization-through ingenious combinations of export subsidies, export credits, market support, and various kinds of direct income payments. The figures speak for themselves: the level of overall subsidization of agriculture in the OECD countries rose from $182 billion in 1995 when the WTO was born to $280 billion in 1997 to $362 billion in 1998! Instead of the beginning of a New Deal, the AOA, in the words of a former Philippine Secretary of Trade, has perpetuated the unevenness of a playing field which the multilateral trading system has been trying to correct. Moreover, this has placed the burden of adjustment on developing countries relative to countries who can afford to maintain high levels of domestic support and export subsidies. (16) The collapse of the agricultural negotiations in Seattle is the best example of how extremely difficult it is to reform the AOA. The European Union opposed till the bitter end language in an agreement that would commit it to 'significant reduction' of its subsidies. But the US was not blameless. It resolutely opposed any effort to cut back on its forms of subsidies such as export credits, direct income for farmers, and 'emergency' farm aid, as well as any mention of its practice of dumping products in developing country markets. Oligarchic Decision-Making as a Central, Defining Process Is the system of WTO decisionmaking reformable? While far more flexible than the WTO, the GATT was, of course, far from perfect, and one of the bad traits that the WTO took over from it was the system of decision-making. GATT functioned through a process called 'consensus'. Now consensus responded to the same problem that faced the IMF and the World Bank's developed country members: how to assure control at a time that the numbers gave the edge to the new countries of the South. In the Fund and the Bank, the system of decision-making evolved had the weight of a country's vote determined by the size of its capital subscriptions, which gave the US and the other rich countries effective control of the two organizations. In the GATT, a one-country one-vote system was initially tried, but the big trading powers saw this as inimical to their interests. Thus, the last time a vote was taken in GATT was in 1959. (17) The system that finally emerged was described by US economist Bergsten as one that does not work by voting. It works by a consensus arrangement which, to tell the truth, is managed by four - the Quads: the United States, Japan, European Union, and Canada.(18) He continued: Those countries have to agree if any major steps are going to be made, that is true. But no votes. (19) Indeed, so undemocratic is the WTO that decisions are arrived at informally, via caucuses convoked in the corridors of the ministerials by the big trading powers. The formal plenary sessions, which in democracies are the central arena for decision-making, are reserved for speeches. The key agreements to come out of the first and second ministerials of the WTO-the decision to liberalize information technology trade taken at the first ministerial in Singapore in 1996 and the agreement to liberalize trade in electronic commerce arrived at in Geneva in 1998-were all decided in informal backroom sessions and simply presented to the full assembly as faits accompli. Consensus simply functioned to render non-transparent a process where smaller, weaker countries were pressured, browbeaten, or bullied to conform to the 'consensus' forged among major trading powers. With surprising frankness, at a press conference in Seattle, US Trade Representative Charlene Barshefsky, who played the pivotal role in all three ministerials, described the dynamics and consequences of this system of decision-making: The process, including even at Singapore as recently as three years ago, was a rather exclusionary one. All meetings were held between 20 and 30 keycountries...And that meant 100 countries, 100, were never in the room... [T]his led to an extraordinarily bad feeling that they were left our of the process and that the results even at Singapore had been dictated to them by the 25 or 30 privileged countries who were in the room. (20) Then, after registering her frustration at the WTO delegates' failing to arrive at consensus via supposedly broader 'working groups' set up for the Seattle ministerial, Barshefsky warned delegates: ...[I] have made very clear and I reiterated to all ministers today that, if we are unable to achieve that goal, I fully reserve the right to also use a more exclusive process to achieve a final outcome. There is no question about either my right as the chair to do it or my intention as the chair to do it.... (21) And she was serious about ramming through a declaration at the expense of non-representativeness, with India, one of the key developing country members of the WTO, being routinely excluded from private talks organized by the United States in last ditch efforts to come up with a face-saving deal. (22) In damage-containment mode after the collapse of the Seattle Ministerial, Barshefsky, WTO Director General Mike Moore, and other rich country representatives have spoken about the need for WTO 'reform'. But none have declared any intention of pushing for a one-county/one-vote majority decision-making system or a voting system weighted by population size, which would be the only fair and legitimate methods in a democratic international organization. The fact is, such mechanisms will never be adopted, for this would put the developing countries in a preponderant role in terms of decision-making. Should One Try to Reform a Jurassic Institution? Reform is a viable strategy when the system is question is fundamentally fair but has simply been corrupted such as the case with some democracies. It is not a viable strategy when a system is so fundamentally unequal in purposes, principles, and processes as the WTO. The WTO systematically protects and the trade and economic advantages of the rich countries, particularly the United States. It is based on a paradigm or philosophy that denigrates the right to take actvist measures to achieve development on the part of less developed countries, thus leading to a radical dilution of their right to 'special and differntial treatment'. The WTO raises inequality into a principle of decisionmaking. The WTO is often promoted as a 'rules-based' trading framework that protects the weaker and poorer countries from unilateral actions by the stronger states. The opposite is true: the WTO, like many other multilateral international agreements, is meant to instututionalize and legtimize inequality. Its main purpose is to reduce the tremendous policing costs to the stronger powers that would be involved in disciplining many small countries in a more fluid, less structured international system. It is not surprising that both the WTO and the IMF are currently mired in a severe crisis of legitimacy. For both are highly centralized, highly unaccountable, highly non-transparent global institutions that seek to subjugate, control, or harness vast swathes of global economic, social, political, and environmental processes to the needs and interests of a global minority of states, elites, and TNCs. The dynamics of such institutions clash with the burgeoning democratic aspirations of peoples, countries, and communities in both the North and the South. The centralizing dynamics of these institutions clash with the efforts of communities and nations to regain control of their fate and achieve a modicum of security by deconcentrating and decentralizing economic and political power. In other words, these are Jurassic institutions in an age of participatory political and economic democracy. Building a More Pluralistic System of International Trade Governance If there is one thing that is clear, it is that developing country governments and international civil society must not allow their energies to be hijacked into reforming these institutions. This will only amount to administering a facelift to fundamentally flawed institutions. Indeed, today's need is not another centralized global institution, reformed or unreformed, but the deconcentration and decentralization of institutional power and the creation of a pluralistic system of institutions and organizations interacting with one another amidst broadly defined and flexible agreements and understandings. It was under such a more pluralistic global system, where hegemonic power was still far form institutionalized in a set of all encompassing and powerful multilateral organizations that the Latin American countries and many Asian countries were able to achieve a modicum of industrial development in the period from 1950-70. It was under a more pluralistic world system, under a GATT that was limited in its power, flexible, and more sympathetic to the special status of developing countries, that the East and Southeast Asian countries were able to become newly industrializing countries through activist state trade and industrial policies that departed significantly from the free-market biases enshrined in the WTO. The alternative to a powerful WTO is not a Hobbesian state of nature. It is always the powerful that have stoked this fear. The reality of international economic relations in a world marked by a multiplicity of international and regional institutions that check one another is a far cry from the propaganda image of a 'nasty' and 'brutish' world. Of course, the threat of unilateral action by the powerful is ever present in such a system, but it is one that even the powerful hesitate to take for fear of its consequences on their legitimacy as well as the reaction it would provoke in the form of opposing coalitions. In other words, what developing countries and international civil society should aim at is not to reform the WTO but, through a combination of passive and active measures, to radically reduce its power and to make it simply another international insitution coexisting with and being checked by other international organizations, agreements, and regional groupings. These would include such diverse actors and institutions as UNCTAD, multilateral environmental agreements, the International Labor Organization (ILO), evolving trde blocs such as Mercosur in Latin America, SAARC in South Asia, SADCC in Southern Africa, and ASEAN in Southeast Asia. It is in such a more fluid, less structured, more pluralistic world with multiple checks and balances that the nations and communities of the South will be able to carve out the space to develop based on their values, their rhythms, and the strategies of their choice. References
Jurassic Fund: Should Developing Countries Push to Decommission the IMF? (December 1999)
When the International Monetary Fund, in a surprise announcement at the World Bank-IMF annual meeting at the end of September 1999, announced that henceforth it would put 'poverty reduction' at the center of its approach toward developing countries, there was widespread speculation among Washington watchers that Michel Camdessus's days as Managing Director were numbered.
Indeed, Camdessus resigned in mid-November 1999, shortly after Larry Summers, the new US Secretary of the Treasury and one of Camdessus biggest backers, told the US Congress that henceforth, the US would support a new framework for providing international assistance to [developing] countries-one that moves beyond a closed IMF-centered process that has too often focused on narrow macroeconomic objectives at the expense of broader human development (1). The Frenchman's 13-year reign had been identified with a paradigm of development that he fervently believed in: structural adjustment. In the two decades since 1980, structural adjustment programs (SAPs) were imposed jointly by the World Bank and the IMF on close to 90 developing countries, from Guyana to Ghana. Despite important differences among the various economies, SAPs had the same basic elements: long term 'structural' reforms to deregulate the economy, liberalize trade and investment, and privatize state enterprises, coupled with short-term stabilization measures like cutbacks in government expenditures, high interest rates, and currency devaluation. SAPs multiplied during the Third World debt crisis of the early 1980s, and an important reason was strong pressure from the Bank and IMF on governments to restructure their economies along lines designed to yield the financial resources to pay off their massive debts to the international commercial banks. But the objective of SAPs went beyond debt repayment or the attainment of short-term macroeconomic stability. The Bank and the Fund sought nothing less than the dismantling of protectionism and other policies of state-assisted capitalism that IMF and World Bank theorists judged to be the main obstacles to sustained growth and development. When the socialist economies of Eastern Europe and Russia collapsed in the early 1990s, structural adjustment was also extended to that part of the world, and in a manner that was even more radical than in the South-a process that Harvard's Jeffrey Sachs, then one of its vocal proponents, appropriately labelled 'shock therapy'. IMF technocrats went to these countries with even more dogmatic confidence in their one true model than the Marxist bureaucrats they supplanted had in theirs. By the early 1990s, shock therapy and structural adjustment had become cornerstones of what economist John Williamson called 'the Washington Consensus' on the desired macroeconomic framework that would create a truly global economy fuelled by market forces. Retreat
Two decades after the first structural adjustment loan, the Bank has formally abandoned structural adjustment, replacing it with the 'Comprehensive Development Framework'. The new paradigm, according to a statement of the Group of Seven Finance Ministers and Central Bank Governors (2), has the following elements:
What brought about the 180 degree turn? Failure. Spectacular failure that could no longer be denied at the pain of totally losing institutional credibility. The World Bank - or rather James Wolfensohn, President Bill Clinton's nominee to head the Bank in 1993 - was the first to recognize that something was amiss. Coming from outside orthodox development circles, Wolfensohn sensed what most World Bank officials did not want to acknowledge: that with over a 100 countries under adjustment for over a decade, it was strange that the Bank and the Fund found it hard to point to even a handful of success stories. In most cases, as Rudiger Dornbusch of the Massachusetts Institute of Technology put it, structural adjustment caused economies to 'fall into a hole' (3), wherein low investment, reduced social spending, reduced consumption, and low output interacted to create a vicious cycle of decline and stagnation, rather an a virtuous circle of growth, rising employment, and rising investment, as originally envisaged by World Bank-IMF theory. With much resistance from the Bank's entrenched bureaucracy, Wolfensohn moved to slowly distance the Bank from hard-line adjustment policies and even got some of his staff to (grudgingly) work with civil society groups to assess SAPs in the so-called 'Structural Adjustment Review Initiative' (SAPRI). For the most part, however, the change of attitude did not translate to changes at the operational level owing to the strong internalization of the structural adjustment approach among Bank operatives. While self-doubt began to engulf the Bank, the IMF, in contrast, plowed confidently on, and the lack of evidence of success was interpreted to mean simply that a government lacked political will to push adjustment. Through the establishment of the Extended Structural Adjustment Facility (ESAF), the Fund sought to fund countries over a longer period in order to more fully institutionalize the desired free-market reforms and make them permanent. The Philippine Case The Philippines, together with Turkey and Costa Rica, was one of the guinea pigs of structural adjustment. Its experience under adjustment was representative of the Third World experience. Between 1980 and 1999, the Philippines became the recipient of nine structural adjustment loans from the World Bank, and participated in three standby programs, two extended fund programs, and one precautionary standby arrangement with the IMF (4). The country, in short, was in continuous adjustment for nearly 20 years, its macroeconomic policies being micromanaged by the Bretton Woods twins. The first phase of adjustment, which focused on trade liberalization, saw quantitative restrictions removed on more than 900 items, while the nominal average tariff protection was brought down from 43 per cent in 1981 to 28 per cent in 1985. But the program failed to factor in the onset of a global recession, so that instead of rising, exports fell, while imports coming in to take advantage of the liberalized regime severely eroded the home industries. As the late economist Charles Lindsay noted, 'Whatever the merits of the SAL, its timing was deplorable' (5). Instead of allowing the government to set in motion countercyclical mechanisms to arrest the decline of private sector activity, the structural adjustment framework intensified the crisis with its policy of high interest rates and tight government budgets. Not surprisingly, the GNP shrank precipitously two years in a row, contributing to the political crisis that resulted in the ouster of Ferdinand Marcos in February 1986. Under Corazon Aquino the second phase of adjustment saw economic recovery subordinated to the repayment of the foreign debt of the country's $26 billion foreign debt. This was achieved via fiscal austerity and more intensified export of natural resources and export-oriented production. A financial hemorrhage ensued, with the net transfer of financial resources coming to a negative $1.3 billion a year on average between 1986 and 1981, according to the Freedom from Debt Coalition (6). To service the debt, the Aquino administration was forced to borrow heavily from domestic financial sources, forcing it to channel much of its budgetary expenditures from development and social spending to meeting both domestic and foreign debt obligations. By 1987, some 50 per cent of the budget was going to service the national debt (7). Not surprisingly, this 'model debtor' via structural adjustment institutionalized stagnation, with the country registering zero average GNP growth between 1983 and 1993. Stagnation led to a worsening of social conditions, with families living under the poverty line coming to 46.5 per cent of all families in 1991 and the share of the national income going to the lowest 20 per cent of families dropping from 5.2 per cent in 1985 to 4.7 in 1991 (8). The Philippines also provided one of the best documented studies of the correlation between environmental destruction and structural adjustment, with a World Resources Institute study concluding that adjustment 'created so unemployment that migration patterns changed drastically. The large migration flows to Manila declined, and most migrants could only turn to open access forests, watersheds, and artisanal fisheries. Thus the major environmental effect of the economic crisis was overexploitation of these vulnerable resources' (9). When the Ramos administration took over in 1992, the focus of adjustment shifted back to accelerated privatization, deregulation, and liberalization of trade, investment, and finance. Petron and several government enterprises and services passed to the private sector; a substantially free trade regime was targeted for 2004, when tariff rates would be reduced to a uniform five per cent or less for all products; and nationality restrictions on foreign investment were relaxed considerably. Capital account liberalization, an IMF prescription, resulted in massive inflows of speculative capital into the financial and real estate sector, triggering an artificial boom in Manila. But the liberalized capital account also became the wide highway through which billions of dollars exited in 1997 and 1998, at the onset of the Asian financial crisis, bringing the GDP growth rate to below zero in 1998 (10). Adjusted and readjusted for nearly 20 years, Manila simply could not climb out of a deepening hole. Crisis of Legitimacy It was the Asian financial crisis that finally forced the IMF to confront reality. In 1997-98 the Fund moved with grand assurance into Thailand, Indonesia, and Korea, with its classic formula of short-term fiscal and monetary policy cum structural reform in the direction of liberalization, deregulation, and privatization. This was the price exacted from their governments for IMF financial rescue packages that would allow them to repay the massive debt incurred by their private sectors. But the result was to turn a conjunctural crisis into a deep recession, as government's capacity to counteract the drop in private sector activity, was destroyed by budgetary and monetary repression (11). If some recovery is now discernible in a few economies, this is widely recognized as coming in spite of rather than because of the IMF. For a world that had long been resentful of the Fund's arrogance, this was the last straw. In 1998-99, criticism of the IMF rose to a crescendo and went beyond its stubborn adherence to structural adjustment and its serving as a bailout mechanism for international finance capital to encompass accusations of its being non-transparent and non-accountable. Its vulnerable position was exposed during the recent debate in the US Congress over a G7 initiative to provide debt relief to 40 poor countries. Legislators depicted the IMF as the agency that caused the debt crisis of the poor countries in the first place, and some called for its abolition within three years. Said Rep. Maxine Walters: 'Do we have to have the IMF involved at all? Because, as we have painfully discovered, the way the IMF works causes children to starve' (12). In the face of such criticism from legislators in the IMF's most powerful member, US Treasury Secretary Larry Summers claimed that the IMF-centered process would be replaced by 'a new, more open and inclusive process that would involve multiple international organizations and give national policymakers and civil society groups a more central role' (13). But is this for Real? So structural adjustment is dead, and the Bretton Woods institutions have seen the light. But wait, isn't there something too easy about all this? The fact is, in the case of the IMF, as well as that of the World Bank and the Asian Development Bank (ADB), jettisoning the paradigm of structural adjustment has left them adrift, in the view of many critics, with just the rhetoric and broad goals of reducing poverty, but without an innovative macroeconomic approach. Wolfensohn and his ex-chief economist Joseph Stiglitz talk about 'bringing together' the 'macroeconomic' and 'social' aspects of development, but Bank officials cannot point to a larger strategy beyond increasing lending to health, population, nutrition, education, and social protection to 25 per cent of the Bank's total lending. The ADB is even more of a newcomer in the anti-poverty approach, and its strategy paper issued this year is long on laudable goals but even ADB insiders agree, breaks no new ground in terms of macroeconomic innovation. Most at sea are IMF economists, some of whom openly admitted to NGO representatives at the September IMF-World Bank meeting that so far the new approach was limited to relabeling the Extended Structural Adjustment Fund (ESAF) the 'Poverty Reduction Facility, and that they were looking to the World Bank to provide leadership (14). It is not surprising that, in these circumstances, the old framework would reassert itself, with, for example, the IMF telling the Thai government, already its most obedient pupil, to cut its fiscal deficit despite a very fragile recovery; the Fund's pushing Indonesia to open its retail trade to foreign investors, despite the consequences in terms of higher unemployment; and technocrats of the ADB making energy loans and Miyazawa funding contingent on the Philippine government's accelerating the IMF-promoted privatization of the National Power Corporation, despite the fact that consumers are likely to end up paying more to the seven private monopolies that will succeed the state enterprise. 'It's the old approach of deregulation, privatization, and liberalization but with safety nets' is the not inappropriate description of one Filipino labor leader much consulted by the multilateral institutions (15). Then, there is the issue of accountability. One cannot just walk away from the scene of the crime without admitting wrongdoing. The Bank and the Fund have been responsible for tremendous economic and social damage wrought on Third World economies for over two decades. Shouldn't they be held to account for that? Should not Camdessus and the whole top leadership of the IMF, including his deputy Stanley Fischer and Asia-Pacific division chief Hubert Neiss, who blindly embraced adjustment to the end, take responsibility for their massive blunders? Despite their announced resignations, both Camdessus and Neiss are unrepentant when it comes to their policies. Many of the Fund's long-time critics have a darker view of things. To them, Camdessus served as a sacrificial lamb to blunt real efforts at reform at a time that the Fund 'desperately needs' credibility and legitimacy, as the Financial Times put it (16). This fear is well-grounded, for in his most recent statements, Larry Summers, the pivotal figure when it comes to the future of the IMF, appears to have forgotten about the need for a paradigm shift. When speaking about the elements of a 'new' IMF strategy, Summers says that the 'approach looks to the IMF to continue to certify that a country's macro-economic policies are satisfactory before debt is relieved of new concessional lending is advanced' (17). Is this what is meant by 'moving away from an IMF-centered process that has too often focused on narrow macroeconomic objectives at the expense of broader human development'? (18). Bearing in mind that trade liberalization was one of the most controversial dimensions of the old structural adjustment approach, even more revealing is Summers' view that the new IMF must have as one of its priorities 'strong support for market opening and trade liberalization' (19). Trade liberalization, Summers continues, 'is often a key component of IMF arrangements. In the course of negotiations, the IMF has sought continued compliance with existing trade obligations and further commitments to market opening measures as part of a strategy for spurring growth. For example: As part of its IMF program, Indonesia has abolished import monopolies for soybeans and wheat; agreed to phase out all non-tariff barriers affecting imports; dissolved all cartels for plywood, cement and paper; removed restrictions on foreign investment in the wholesale and resale trades; and allowed foreign banks to buy domestic ones. Zambia's 1999 program with the IMF commits the government to reducing the weighted average tariff on foreign goods to 10 per cent, and to cutting the maximum tariff from 25 per cent to 20 per cent by 2001. In July, the import ban on wheat flour was eliminated' (20). Calling this a 'new approach' is, let us face it, stretching the truth. Radical Reform or Decommissioning? Now what would a real process of transformation look like? It would be something that would include more than the open selection process for the new managing director - one that would open the recruitment process to non-Europeans - endorsed by Jeffrey Sachs (21). For the problem lies in the very structure and culture of the institution: a lack of accountability except to the US Treasury Department; a belief in non-transparency as a condition for effectiveness; and a deeply ingrained elitism that renders the bureaucracy incapable of learning from outsiders.
If this is the heart of the matter, then surgery must be more radical. I would propose the following measures:
With its credibility and legitimacy in tatters, the Fund is in severe crisis. Unless international civil society intervenes, and intervenes forcefully now, the powers that be will wait for the storm to blow over while talking, as Larry Summers does, about reform. Radical reform or decommissioning? That is the question of the hour around which we must frame our strategies for intervention. References
Debacle in Seattle. A Blow-by-Blow Account (6 December 1999)
SEATTLE, 3 December: The Third Ministerial of the World Trade Organisation (WTO) ended in massive and total collapse shortly before midnight tonight as negotiators failed to agree on a common declaration and on a new round of negotiations. As the host of the meeting, the US suffered its worst diplomatic debacle since the Iran hostage crisis in 1979.
The talks fell victim to a combination of internal disagreements and tremendous and unrelenting protests by demonstrators on the outside. Protesters outside the Seattle county jail seeking release of some 400 of their comrades broke out into cheers at news of their total victory over the trade organisation. Grassroots democracy 1, corporate globalisation 0, declared a jubilant Lori Wallach, head of Ralph Nader's Citizens Trade Campaign. Internally, delegates had failed to bridge differences on the issues of agricultural liberalisation, trade in genetically modified organisms, trade and labour standards, and transparency in decision-making. At the press conference announcing failure of the talks, both US Trade Representative Charlene Barshefsky and WTO Director General Mike Moore admitted that the organisation's decision-making processes needed to be reviewed. Toward Apocalypse As the WTO Ministerial hurtled toward apocalypse earlier in the day, the frustrations of developing countries mounted over their marginalisation from the negotiations. Venting the anger of many delegations at an early morning press conference at the Madison Renaissance Hotel, Clement Rohee, the foreign affairs minister of Guyana, said, We see processes manipulated by a few countries behind closed doors. Frustrations were also rife in the streets. Marches and demonstrations had continued in the previous two days, the most notable being a spontaneous march of about over 1,000 people to a county jail holding several hundred protesters apprehended by police over the last three days. The dynamics outside and inside the ministerial meeting interacted in an interesting way. While few developing country delegations shared the priority placed on environmental and workers' rights by the thousands of demonstrators that had converged on this city, the show of anger on the streets emboldened many Third World country delegates to resist the non-transparent methods by which the US and European Union have traditionally tried to push their trade objectives. Transparency was the demand that linked many delegates inside and the protesters outside. Heavy-handedness Backfires As Friday, 3 December began, the US was headed for defeat on two key issues, largely due to heavy-handed diplomacy. Fierce opposition from developing countries apparently scuttled Washington's proposal to set up a Working Group to 'study' the link between trade and labour standards. President Bill Clinton is now seen as having contributed to this outcome, since it was his statement to a Seattle newspaper that the WTO should use trade sanctions to enforce labour rights that angered many developing country delegates. The Americans' push to set up a Working Group on trade on genetically modified products also backfired. EU Trade Minister Pascal Lamy's apparent caving in to US pressure on the first day of the negotiations triggered the ire of the environmental and trade ministers of several European countries, forcing the EU to take back its agreement with Washington. The opposition to the establishment of such a working party was widely shared, and the reason for it was underlined in a statement issued by a number of Filipino NGOs lobbying Asian governments in Seattle: "The WTO... is not the proper forum under which rules governing trade in biotechnology should be negotiated. Such rules should be deliberated upon and negotiated within the context of the negotiations for the Biosafety Protocol under the UN Convention on Biodiversity. The potential social, environmental and health risks that may arise from trade in GMOs are better addressed in environmental negotiations rather than in trade negotiations." Stalemate in Agriculture Much of the energy of Asian NGOs like the Southeast Asia Council on Food Security and Fair Trade was directed at influencing the text of the ministerial declaration on agriculture. Thus, they were able to closely follow the collapse of the negotiations in this sector. According to Philippine Agriculture Secretary Edgardo Angara, developing countries within the 'Cairns Group' of developed and developing agro-exporting countries came to Seattle with a strong stand on getting the ministerial to accept a strong language on the special and differential treatment of the agricultural policies of developing countries. The draft of the text on agriculture issued by the working committee on agriculture reflected this: it stated that S&D would no longer be embodied simply in schedules of concessions and commitments but, according to the latest draft ministerial text, in the rules and disciplines to be negotiated, so as to be more operationally effective and so as to enable developing countries, while undertaking commitments and providing concessions, to take account of their development needs, including food security and agricultural and rural development. On the other hand, EU intransigence forced representatives of other countries to retreat to softer wording on the section on agricultural subsidies and domestic support that was more favourable to its interests. Instead of calling for the 'elimination' of export subsidies and domestic support, the second day's draft called for 'substantial reductions.' A pet EU term, 'multifunctionality,' was expunged from the Seattle drafts. The term refers to the idea that international trade rules must take into consideration the fact that agriculture is not just an area of production but fulfils other important functions such as sustaining the environment, food security, culture, and the regional landscape. The term is widely regarded as justifying protectionism. Some observers said, however, that the essence of multifunctionality was retained in this draft, which called on the negotiations to take into account 'non-trade concerns' that include the need to protect the environment, food security, the economic viability and development of rural areas, and food safety, without prejudice to the Agreement on the Application of Sanitary and Phyto-sanitary measures. Filipino and Southeast Asian NGO delegates, however, evinced dissatisfaction over the various drafts. One criticism was that specific mention was not made of US practices that distort agricultural trade, notably the use of export credits and dumping. Another source of disappointment was the elimination from the latest draft of references to 'tariff peaks' and 'tariff escalation,' two methods by which the EU and US discriminate against products developing country agricultural exports. The biggest frustrations of the NGOs, however, stemmed from the failure of the text to make the objective of meeting food security central in global agricultural trade and the absence of any commitment to meeting the needs of the poor net food-importing countries. But even without the NGO concerns taken into consideration, the negotiations among the governments were not enough to bridge the differences in agriculture. And the talks in agriculture, in turn, reflected the frustrating dynamic of the doomed negotiations as a whole. Unravelling By late afternoon, these were going nowhere at the Convention Center, which was still surrounded by police and National Guardsmen. At that point, said Edcel Custodio, head of the Philippine government's trade delegation in Geneva, two blocs of countries, one from Africa and one from Latin America and the Caribbean, formally issued very strong statements indicating that, if the same level transparency persisted, they would withhold their a pproval from any proposed declaration, thus torpedoing any common statement, since the WTO is supposed to work by 'consensus.' By this time, the process of backroom negotiations known as 'green rooms' or 'super-green rooms, observed a member of the press, had gotten so many Third World delegates so angry that they were threatening to walk out. Catcalls and boos now greeted Ministerial Meeting Chairman Charlene Barshefsky's interventions, which came across more and more as high-handed. The EU and US' effort to rope some 18 to 20 selected countries to make a last ditch attempt to forge a declaration, with no obvious criteria for membership in such a body, was the last straw. By 9:30 p.m., in fact, it was becoming increasingly clear that there would be no declaration, said Philippine agriculture secretary Angara. By then, all sorts of rumours were circulating on face-saving formulas. In the end, the outcome of no declaration and no agreement on a new round was the worst possible for the US hosts. The Magic Combination There were many factors that contributed to the WTO collapse in Seattle, but it was the combination of the WTO's coming to Seattle with a ministerial draft that reflected so many differences, the deep rift between the EU and US on key issues, and the mutinous mood of developing country delegates amidst an unprecedented popular mobilisation and protest in the streets that unhinged the negotiations and, indeed, the WTO itself as an institution. With the collapse of the Seattle talks, governments will return to Geneva, where negotiations in agriculture, services, and implementation, which were mandated by the 1994 Marrakesh Accord, begin sometime in January. But with the lack of a consensus declaration specifying key issues to be negotiated and setting schedules for completion, even holding these limited negotiations will prove to be a Herculean task. |