Development Discourse: Inequitable global financial system under scrutiny

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Development Discourse: Inequitable global financial system under scrutiny
Amos Safo is a Development and Communications Management Specialist, and a Social Justice Advocate.

The COVID 19 pandemic and the social, political and economic issues that came with it have sparked fresh debates on the inequities in the allocation of global financial resources. A global social justice campaigner, Prof. Jeffery Sachs of the Columbia University, has pointed that out inequity in international finance is rooted in the unfair world economic order – where the playing ground is not level and all the rules mostly favour the G7 and G20 countries.

During a recent forum on post-COVID-19 global economic recovery, Prof. Sachs stated in a video titled ‘Gambia Eye that the common worry across the world has been why African countries are not making progress economically and are being governed poorly.  According to him, what many critics of Africa have failed to recognise is that the continent has been on the receiving end of an unfair world economic and political order characterised by an inequitable international finance system.

Prof. Sachs therefore advocated a new economic and social system based on the principles of sovereignty outlined in the 1948 UN Declaration of Human Rights.  The key themes of the 1948 Declaration are dignity and justice for every human being built around right to development, right to a peaceful and thriving environment, right to promote and uphold people’s culture, the right to social protection, and the right to participate in political, social and economic decisions which affect the future of countries and their people.

Agenda G21

In the view of Prof. Sachs, the current global system is a negation of the principles underlying the UN Declaration. He pointed out that for justice to prevail, the G20 should be reconstituted to become G21 – with Africa becoming the 21st member of the G20. “Adding the Africa Union (AU) to the G20 brings 1.4 billion people to the table to negotiate for their economic and financial rights. That will change the discussion on international finance,” Prof. Sachs told the forum. He added that the world needs a radical change in the distribution of development finance and revealed that the club of rich countries were allowed to borrow US$17billion at zero interest rates in the name of COVID-19, while poor countries either have none or are compelled to borrow at high interest rates. “They borrow at 10 percent coupon rate or have no access to borrowing at all,” he stressed.

Printing of money

Prof. Sachs further disclosed that apart from borrowing at zero interest rates, some rich countries even have the luxury of printing money to support their economies. According to him, the U.S.A.  released US$7trillion in emergency support into its economy, while countries like Ghana are battling with the devastating effects of COVID-19 amid declining revenue.  This is a clear case of injustice and inequity, which the World Bank and IMF should begin to address.

The COVID-19 recovery effort has put the Ghana government under pressure, as some Ghanaians are complaining about economic difficulties and lack of money in the economy. In my view, much as people have the right to express their views, I think those complaining about economic hardships amid low productivity are being unrealistic considering the global effect of COVID on all economies.

I live close to a family whose two daughters are currently benefitting from Free SHS, yet husband and wife see nothing good happening in the economy. What they have forgotten is that they would have had to cough up thousands of cedis to keep their two daughters in school; or at worst, denied the girls secondary education. What I discern is that such people do not value the education of their children.

While some Ghanaians are impatient for the economy to rebound through increased productivity, one of few options left for government is to print money to finance public expenditure or distribute to people. This is what’s called ‘unproductive money’ – money people earn for doing nothing and normally do not make any productive use of such money. This type of money makes no contribution to boosting the economy and creates no jobs.

Unfortunately, this style of economic management characterised Ghana’s past, when money was doled out to party foot-soldiers through dubious contracts. Without doubt, printing money has economic implications. In theory, printing money increases money supply – which consequently leads to inflation. The economy-wide impact may be less favourable if the increase in money supply is not wisely used or invested. Basic economics clearly demonstrate that the increase of money supply causes inflation and reduces the purchasing power of very poor and vulnerable people.

The reason for this is that in the event of demand for goods exceeding supply, it may cause prices for goods and services to spiral out of control. If this is what Ghanaians want, I will encourage the government to print money and distribute to all households and let’s see the outcome for livelihoods and the economy at large. Money-printing is not new in Ghana. In 1992, 177 billion cedis was printed for the election in our rush to transition into democracy. After the election, prices of goods and services jumped out of control and brought the economy to its knees.  Those who benefitted from the printed money were the first to complain about economic hardships.

Comparatively, the UK and the USA, Germany, France etc. can afford to print money because they produce more of what they consume, while exporting more to earn additional income. How about our economy? Until recently when the trade balance improved a bit, Ghana has been a net importer of many things we consume while exporting purely raw materials since 1957. This is the state of our economy, so Ghanaians should stop pretending that Ghana is an island in a world plagued by COVID-19.

A stronger UN

Prof. Sachs reiterated the longstanding demand for the United Nations to become the core and central institution of the world: perhaps upholding multilateralism over unilateralism. “That is the only way we can have a civilised world,” he advised. According to him, the UN is currently currently lacking the financial capacity to play a dominant role in the world. He disclosed that, for instance, while the whole UN budget is a mere US$3billion a year, that of the New York City is US$100billion.

Similarly, he explained that the 2,775 billionaires in the world have a combined net wealth of US$13.1trillion, and by his estimation each of them needs just one billion dollars to live a comfortable life till death. In that case, they have more than US$13billion they don’t need, while about five billion people in the world wallow in poverty.  Prof. Sachs encouraged the 2,775 billionaires in the world to go and live in space – leaving their money behind for the world’s poor.

Debt burden and the decline of ODA

During the 74th Session of the UN General Assembly held in October 2019, delegates and economic analysts identified wealth inequality, imbalanced international financing as factors hindering sustainable development. In addition to that, the reduced official development assistance (ODA) by developed countries continues to hamper the progress of developing countries toward implementing the 2030 Agenda for Sustainable Development, speakers told the Second Assembly.

On all levels, the African Group cites the importance of funding and financing; and is concerned about a decrease in official development assistance (ODA). Omer Mohamed Ahmed Siddig of Sudan argued that since financing is a vital prerequisite for the 2030 Agenda, ODA should be ramped-up and debt burdens lifted so countries can implement the sustainable development agenda. He insisted that developed countries must honour their ODA commitments, while developing states should forge greater solidarity and deepen South‑South cooperation.  He also stressed that states must oppose all forms of protectionism and unilateralism, working instead toward a multilateral framework and heeding the developing world’s interests.

The representative of Sierra Leone noted that ODA remains a key source of international financing for least developed countries, and described the decline of ODA over the years as “alarming”.  He urged development partners to fulfil their ODA commitments to least developed countries of 0.15 to 0.20 per cent of gross national income.  He also stressed the need to further support aid for trade; financing for development; technology transfer; capacity‑building and addressing climate change vulnerabilities. Zambia’s representative urged the Committee to address illicit financial flows, a serious component to eradicating poverty and achieving the Goals.

A critique of IMF/World Bank

Global financial institutions were created to address the increasingly complex relationships among countries and people of the world. These institutions have been expected to perform the task of giving countries the opportunity to chart alternative development paths, consistent with their visions and aspirations. However, despite stated intentions to improve and reorganise their working methodology, the IMF and World Bank have faced serious accusations of unfair policies for developing countries.

NGOs have increasingly accused the Bretton Woods Institutions of operating solely in the interests of the West. The United States, for instance, has been cited as being very influential over the IMF and World Bank because it has the largest proportion of decision-making votes. In formal voting on changing the IMF Statute, the governing structure of the World Bank or use of resources for special needs, the USA has veto power.

Even when voting on questions which demand a simple majority, the USA has the greatest influence. Critics say the IMF only provides funds if poor countries are engaged in policies which lead to a narrowing of space for economic activity. Thus, the current demand is for the World Bank and IMF to provide liquidity – in the form of interest free loans or low interest loans – to poor countries that are confronted with economic decline and are not capable of stimulating aggregate demands with their own resources. These countries are mostly poor African countries, including Ghana.

The justification for this demand was based on the notion that the IMF and World Bank have not helped in the impartial development of all countries, as well as ensuring equal distribution of the global cake. Currently, there are many economists who believe that global economics and economic politics have created many problems in countries all over the world, especially developing countries. This is the injustice Prof. Jeffrey Sachs, Prof. Joseph Stiglitz and others have been fighting against.  At least, the COVID-19 pandemic should have provided a platform for the global financial and health systems to become equitable in the distribution of financial and health resources. Sadly, even the distribution of vaccines has deepened the inequity, as the world’s superpowers are hording vaccines rather than making them available to all.

Reference

Đonlagić, D. & Kožarić, A. 2010.  Justification of criticism of the international financial institutions. Economic Analysis, Volume LV, No. 186

United Nations. 2019. Wealth Inequality, Insufficient International Financing Hindering Sustainable Development

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