Summary, Overview & Development Report 3.5

Financing for Development: September 2001

By Emmanuel.K.Bensah, ICDA Secretariat

Three issues very much related to the UN Financing for Development Conference formed part of the principal foci of September’s Impact List. Of these, the most dominant themes were those on aid and the pertinence of the Tobin Tax, especially in the wake of the then very fresh September 11 attacks.

The first issue to make significant progress for FfDevelopment was that of the International Currency Tax, better known under the moniker of Tobin Tax.

The first article, entitled "French PM Speaks Out For Speculation Tax", was written by Corporate Watch UK. The title could have said it all, except that there was evidently a more serious undertone to the issue – and that was of perceptions, and serious arguments advanced by three British broadsheet papers on this issue.

The article argued how Jospin’s support of the tax had caused "a small storm" on what is considered a "tax on international financial speculation." (WTOIL 7 September). The Tobin Tax’s prime objective would be to "see a small levy of 0.25—1% on all international currency transactions, its aim being to reduce the profitability and therefore the level of currency speculation, stabilising financial markets and reducing ‘runs’ on vulnerable currencies." In English, that would simply mean that there would be a tax placed on those private individuals (read: George Soros, for example), who wield considerable wealth to such a degree that they can take gamble with currencies on the stock market, and subsequently, in countries, too.

Corporate Watch’s reading of the debate was based primarily on three UK broadsheets – the "Financial Times", "The Independent", and "The Guardian" newspapers. It argues that these three papers all ran editorials ("leaders" as is known in the UK) on this very issue, and maintains that "all made reasonable points that the tax would be extremely difficult, if not impossible, to enforce and that Jospin’s gesture appears to be little more than ‘cynical electioneering’". Plausible argument, but at least there is no denying that he has helped made the issue subject of public debate, rather than simply confining the issue to the desk of the French minister of Finance’s desk.

Then again, if 11 July 1789 that saw the Finance Minister Necker resign, ultimately precipitating the crisis in France, is anything to go by, maybe such matters are best channelled through other avenues than politicians who hold the power of the state’s purse.

We learn what the "Independent" paper thinks about the issue: "utopian silliness", continuing that Jospin’s "pandering to anti-globalisation ideology and thinking lends it a dangerous legitimacy which might eventually inflict real damage on the present free trade consensus."

The Guardian’s Notebook commentator, conversely, approaches the idea from a flippant position, "when they claim speculators ‘are an exceptionally useful lot, working day-in, day-out, risking their own wealth to supply a thing called ‘liquidity’."

Still staying with the issue of the Tobin Tax, a different article, co-incidentally published in the "Financial Times" on the same day as the 9/11 attacks, approaches the issue in a more prosaic manner. Written by Hugh Williamson, the article, entitled "Kohler Says IMF May Look Again At Tobin Tax", echoed its eponymous title. (WTOIL 14 September)

IMF’s managing director, Kohler, acknowledged on September 10 "recent calls by political leaders in Germany and France for more detailed discussions on how better to control international capital markets."

Certainly something to blow your average IMF/WB-phobe away.

Nonetheless, Kohler, the article maintains, expressed his reluctance, saying he was "very sceptical" about the Tobin Tax’s introduction. Williamson defines the tax as "a central demand of the burgeoning anti-globalisation movement". Some may argue that this simply is not true, for the arguments inherent in the so-called anti-globalisation movement transcend by far issues such as the Tobin Tax. The latter is merely a component of many initiatives that can regulate the market, which has for far too long, been the preserve of the rich. It’s specious, frankly, to argue that the calling by Civil Society/NGO activists alike, of this tax, remains the "central" demand.

That said, it’s good to know that Williamson at least provides some background to the Tobin Tax, which till now, was absent. He argues that it was originally proposed by James Tobin, the Nobel prize-winning US economist, whose idea was predicated on the proposition that the tax "would add a levy to speculative international capital movements."

According to the author, both Germany and France are to spearhead the debate. Both countries are to "set up a high-level working group to examine better ways of avoiding negative side-effects – especially for developing countries – of speculative capital movements, including via the introduction of the tax."

However, Kohler lends weight to the newspaper commentators above (or should that be the other way round?) when he argues that a recent IMF study suggested that "such a tax would be very difficult to implement." Nonetheless, he has called for "greater clarity from those proposing the tax, on whether it was intended to reduce speculation by ‘throwing sand in the wheels’ of the international financial system or whether the key aim was to raise revenues to be used for poverty reduction in developing countries."

Williamson continues that NGOs in Berlin "welcomed his openness to reconsider the Tobin tax idea…but they stressed that such political gestures towards the need for more debate would not deflect demands for concrete action from industrialised countries on international capital flows and other issues."

Also, the author highlighted that German trade unions and NGOs would launch a campaign "calling on the German government to support the introduction of the tax." (WTOIL 14 September)

Chance would be a fine thing. If it weren’t for the fact that both Germany’s Schroeder and France’s Jospin are facing elections very soon, one could be inclined to appreciate their ostensible sincerity. Then again, who’s to blame NGOs and CS (Civil Society) actors if they speculate – no pun intended – that it is, as indicated earlier, merely "cynical electioneering"?

Aiding without Abetting

Two articles broached the very nettlesome issue of aid. The first, which featured in WTOIL 7 September, was written by ActionAid’s contact in Brussels, Louise Hilditch.

Tied aid, she argues, is "the practice of granting development assistance on condition that the beneficiary country uses the money to but goods and services in the country granting that aid."

Hilditch argued how tied aid simply does not work for development. She describes it as "gross inefficiency and waste", and worst of all, it has the tendency to "skew development projects towards commercial considerations." She outlines two other reasons why tied aid adversely affects developing countries.

The first is that "it can exclude the apparent beneficiaries – whose participation and support is essential for the eventual success of a development project – from the decision-making process for which aid is granted. Secondly, it prioritises "capital-intensive over smaller, more poverty focused projects." (WTOIL 7 September)

We read, also, how in April 2001, the UK government made a landmark decision to untie their aid. Hilditch argues that "this represents an important step towards ensuring that British development assistance achieves it full potential." The British government’s move, she maintains, has set a precedent as "it sends a strong signal to others to reconsider their tied aid practices, and adds much-needed momentum to efforts to reach international agreement to end untying." Hilditch argues categorically that "tied aid is an outdated, inefficient and protectionist practice and its end is long overdue."

Perhaps one new development coming from the article is that despite the fact that this discussion of untied aid has been going on in the OECD since 1963, on 25 April 2001, "the High Level Meeting of the DAC endorsed a recommendation on untying aid to the Least Developed Countries."

One only hopes other aid donors will follow suit.

Thankfully, Japan may just be one of them, as evidenced by the article that featured in WTOIL 28 September regarding Japan and it’s Overseas Development Assistance (ODA).

The article, entitled, "Interim Report of The Second Consultative Committee on ODA Reform", was produced by Japan’s Ministry of Foreign Affairs.

It sought to address some pressing questions, such as why reform the ODA at all, what it means for Japan, assessment on the importance of country assistance program, exploring ways of better improving the ODA implementation system, plus how to co-ordinate efforts towards international collaboration.

For Japan, the crux of the debate on ODA lies in a more humanist approach towards development assistance. They write: "The motivation to extend a helping hand to the poor and the vulnerable is deeply rooted in the hearts of the people of Japan. Japanese people of diverse values have interacted with people from developing countries in various ways and have wanted to help solve their problems."

The report argues for more public interest in ODA: "in order to promote public participation in ODA, the facts and achievements of ODA need to be publicized as much as possible, and the transparency of ODA must be further pursued including through conducting evaluation and monitoring." It suggests that the current ODA management is too laden with red tape, and needs considerable improvement if it is to be efficient: "it is necessary to overcome bureaucracy-led ODA and to develop new ODA in which the vigor and wisdom of the Japanese people are exhibited."

In what may be an unprecedented move, the Japanese MFA also explains how there should be more of an inclusion of NGOs into the debate on ODA: "the roles of NGOs should be clearly taken into account and coordination with NGOs should be sought for in order to implement ODA that reaches the grass-root level in developing countries." It continues that NGOs should simultaneously "make further efforts to strengthen their capacities and organisations."

The report also calls for young people to be more involved in development assistance programmes, explaining that "the young, with high motivation and strong enthusiasm to work for development in developing countries should be encouraged to participate in ODA, and a serious study should be made for preparing and broadening the base from which the required human resources are supplied."

Finally, the report exhorts the Japanese government that following ODA "is not something to be extended when affordable and stopped in times of economic difficulty." More significantly, Japan believes that since it is a country that is "not involved in the building of an international order by force, ODA is the most important means of international contribution."

The report was produced only one month before the September 11 attacks.

Only a few weeks away from the UN Financing for Development Conference, perhaps there are some countries, which shall remain nameless, that can take note of Japan’s ostensible magnanimity.

©E.K.Bensah, 2002