Violence against people and nature prompts barricades from Russian activists as 8bn euros motorway plans press on

July 19, CEE Bankwatch

Representatives from Russian non-governmental organisation Movement to Defend Khimki Forest have today erected blockades and plan to continue their defence of the protected Khimki Forest area on Moscow's northern outskirts against construction on one section [1] of the 8 billion euro Moscow-St. Petersburg motorway.

The action comes in response to Friday's attack on co-ordinator of the Khimki movement Evgenia Chirikova, who suffered minor injuries from an unknown assailant, and the commencement of illegal logging activities in the forest by French construction company Vinci.

Do we need another multilateral development bank controlled by Europe?

Reflections from Eurodad and Counter Balance to the Wise Persons Panel

With loans in 2008 outside the European Union (EU) of around EUR 6.1 billion, the European Investment Bank (EIB) is a leading financial powerhouse operating around the globe on behalf of the EU and its member states, the EIB’s shareholders.  In recent years the EIB’s lending activities have come under increasing attack from parliamentarians and civil society, both in the EU and the Global South, due to the bank's lack of sufficiently clear and binding social, environmental and development standards and procedures, and its continued failure to bring sustainable development to the regions in which it operates. 

In November 2008 the European Court of Justice made a historical decision recognising that the EIB must promote the objectives of the Community’s development cooperation policy in its operations in Asia, Latin America, pre-accession and neighbouring countries. The mandate for EIB lending to all non-EU countries, excluding ACP and accession countries, is currently being reviewed by a panel of ‘Wise Persons’. The mid-term review process, set in the last Council decision as a result of the different views of member states concerning the role of the EIB, is seen as crucial for shaping the future of the bank – outcomes are expected in June 2010. The outcomes of this review will have a direct impact on shaping the future EU financial architecture.  

Civil society organisations have engaged with the Wise Persons Panel in the past few months. On 28^th January Eurodad and Counter Balance sent a submission to the Panel, which is currently finalising its recommendations for the European Council and the Parliament.  The submission raises CSO concerns with the proposals that the EIB should fill in the development role that EU MS have failed to provide in the crisis context. The EIB was founded as an investment bank. It is difficult to implement a transformation of the institution into a development one, given the difficulty to change the culture of it, as the example of the IMF in the last ten years clearly shows us. 

Therefore, to force a transformation of some of EIB lending into proper development finance instruments by establishing operational links with the EU aid system (EDF, DCI and EuropeAid) may be too risky if done in a rush and without the appropriate guarantees that the EIB will live up to the standards of EU aid – rather than pushing down hard won progress on European aid effectiveness. 

In the short term, rigorous do-no-harm policies (including mere development aspects) have to be put in place in order to align EIB lending to cross-cutting EU development and human rights objectives which should guide overall EU external action according to improvements in the Lisbon Treaty and minimise negative development impacts on the ground.  

However, the EU does not need to establish its own development bank. There is no need to yet add another Multilateral Development Bank to the existing global and regional ones and when much work still has to be done to reform and improve their effectiveness. Instead, resources generated by the EIB - which could be blended with grants - should be transferred to other existing European mechanisms or other IFIs.  

Key links: Find more resources on EIB and the review of its external mandate at http://www.counterbalance-eib.org  

Download the full submission

New NGO road map points the way to a more transparent EIB

November 9th., by CEE Bankwatch and Client Earth

In parallel to a second round of consultations on the European Investment Bank’s Transparency Policy, Bankwatch together with the NGO Client Earth announced today the publication of a model transparency policy for the EIB that would set the bank on much more assured ground towards becoming an open and inclusive institution.

Letter to EC regarding a request for EIB emergency funding by European airlines

Download: Letter to EC regarding a request for EIB emergency funding by European airlines (PDF)

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The IMF is hurting poor countries

Mark Weisbrot. May 13, 2009. 

The IMF's conditions on financial aid to poor countries are unnecessary. It can afford to be more generous.

IMF Shouldn’t Get Money Without Reform

April 24, 2009,  New York Times and International Herald Tribune

The International Monetary Fund turns 65 this year. Until the current economic crisis, it had reduced its workload drastically to a near-retirement level. Its total loan portfolio plummeted by 92 percent in four years. But like many senior citizens who have been hit by the world recession, the Fund has kept working past retirement age – and is now expanding its responsibilities.

The IMF has a track record, which seems to have been almost completely ignored in discussions of a proposed $750 billion increase in its resources. Nearly twelve years ago a financial crisis hit Thailand, South Korea, Indonesia, the Philippines and Malaysia. The word “contagion” became part of the financial reporting lexicon as the crisis spread to Russia, Brazil, Argentina and other countries.

   
The IMF’s response to that crisis was roundly criticized by economists at the time. Jeffrey Sachs, then at the Harvard Institute for International Development, called the IMF “the Typhoid Mary of emerging markets, spreading recessions in country after country.” Nobel Laureate economist Joseph Stiglitz, also criticized the Fund for its mishandling of the Asian crisis, and went on to write systematic critiques of a number of IMF policies.

In the Asian crisis, the Fund failed to provide desperately needed foreign exchange when it was most needed. It then imposed policies that worsened the downturn. It did the same in Argentina, and lent tens of billions of dollars to prop up an unsustainable exchange rate, which inevitably collapsed along with a record sovereign debt default.

After that experience, many middle-income countries piled up reserves so that they would never have to depend on the Fund again.

No one at the IMF was held accountable for the mistakes that caused so much unnecessary unemployment, lost output, and poverty. Nor were any major reforms of the institution introduced. The Fund has 185 member countries, but a handful of rich countries – mostly the U.S., Europe, and Japan – have a solid majority and the U.S. Treasury is the Fund’s principal overseer.

The IMF claims that it has changed, but a look at nine “standby arrangements” – its basic short-term loan agreement -- that it has negotiated since September of last year reveals a number of the same mistakes that it made in the last crisis. All of them provide for spending cuts, despite the IMF’s avowed commitment to a worldwide fiscal stimulus.   

El Salvador has signed an agreement with the IMF that prevents it from using expansionary fiscal policy – as the United States is now doing – to counter a downturn. Since El Salvador has the U.S. dollar as its currency, fiscal policy – increased spending or lower taxes – is practically the only tool it has to fight a recession that is practically inevitable as the U.S. economy continues to shrink. El Salvador gets 18 percent of GDP in the form of remittances from the U.S., and exports about 9.6 percent of GDP there.

Pakistan has agreed to significant spending cuts, as well as raising interest rates, despite negative demand shocks to the economy. Ukraine has also had to battle with the Fund over public spending cuts, despite the fact that GDP is falling by 9 percent this year and the country has a low public debt.

These and other examples indicate that in spite of the depth of the world recession, the Fund is too willing to sacrifice employment, and increase poverty, in pursuit of other goals. A country can always reduce a trade deficit by shrinking its economy, since that causes households and businesses to import less. The main purpose of IMF lending in the current crisis should be to enable low- and middle-income countries to do more of what the rich countries are doing: adopt stimulus packages that counter the downturn.

Most countries can do this, if they do not run into balance of payments problems. China, for example, has nearly $2 trillion in international reserves, and can therefore pursue a large fiscal stimulus. If the IMF were willing to help, more countries could follow suit.

Governments should not commit more money to the IMF without requiring that institution revisit its recently negotiated agreements, and adopt serious reforms that will require accountability and changes in policy.  

See article on original website
En español

IMF Voting Shares: No Plans for Significant Changes

This issue brief examines voting shares of members of the International Monetary Fund (IMF), including voting shares prior to changes agreed in 2006, the voting shares after the 2006 changes were implemented, and proposed reforms of the voting shares currently under consideration. It finds that there has been insignificant change in the voting shares, and that there is little reason to believe that significant reforms will be implemented in the near future. Instead, countries that have traditionally held a disproportionately large share of votes at the IMF, such as the U.S. and European countries, will continue to do so, while low - and middle-income countries can expect no significant increase in their representation at the Fund.

IMF's Economic Growth Projections for Latin America and Caribbean Appear Questionable

CEPR Co-Director Challenges IMF to Bet $10,000 on its Projections

For Immediate Release: April 28, 2009
Contact: Dan Beeton, 202-239-1460

WASHINGTON, D.C. - Some of the IMF’s economic growth projections for Latin America and Caribbean countries through 2014 appear questionable, according to a new issue brief from the Center for Economic and Policy Research. The issue brief, "Troubled Assets: The IMF's Latest Projections for Economic Growth in the Western Hemisphere" by economist David Rosnick, finds that for some countries – most notably Venezuela and Argentina – the IMF’s projections inexplicably portend a prolonged negative impact of the current world recession, even as countries harder-hit by the downturn, such as Mexico, recover. In other cases, such as Haiti, the IMF projects a surprisingly big growth spurt.

"Of course the IMF is upset with Venezuela and Argentina because of these governments' criticisms of the Fund. But that's no reason to publish implausible economic forecasts for these economies,” said CEPR Co-Director and economist, Mark Weisbrot.

Venezuela grew at an average of 7.1 percent per year from 2002-08, but the IMF projects it to lose 0.1 percent per year through 2014. Along with Argentina and Panama, Venezuela has been one of the fastest growing economies in the Western Hemisphere over the last six years, yet it is the only country in the region that the IMF anticipates will not recover by 2014. This projection appears highly improbable, especially compared to the IMF’s projections for Mexico. Although it is much more heavily dependent on trade with the U.S. than Venezuela is, the IMF projects that Mexico will grow 2.9 percent per year over the next six years, after shrinking by 3.7 percent in 2009.

"The forecast for Venezuela is the least believable of all. If anyone at the IMF wants to put some money on this, I am happy to put up $10,000 on the bet that Venezuela will have an increase in real GDP over the next six years," Weisbrot said.

Haiti, at 0.9 percent per year, experienced the slowest growth of any country in the region since 2002. Yet the IMF is projecting Haiti to grow an average of 2.8 percent per year for the next six years, placing it squarely in the middle of the region.

The IMF has a track record of enormous errors in its economic growth forecasts for both Venezuela and Argentina. These countries have criticized the IMF in recent years and have also experienced very rapid growth over the last six years, contrary to IMF forecasts.

New Paper Finds IMF Lending Still Requires Harmful and Inappropriate Economic Conditions

For Immediate Release: April 21, 2009
Contact: Dan Beeton, 202-239-1460

WASHINGTON, D.C. - The Center for Economic and Policy Research (CEPR) released a new paper today that finds that the International Monetary Fund (IMF) is still prescribing inappropriate policies that could unnecessarily worsen economic downturns in a number of countries. The paper, "Empowering the IMF: Should Reform be a Requirement for Increasing the Fund's Resources?" examines conditions tied to the IMF's new lending to El Salvador, Pakistan, Ukraine and other countries and finds the IMF is requiring macroeconomic conditions that can unnecessarily exacerbate the effects of the global economic recession on these countries.

"New funding should not be provided to the IMF unless the institution is subject to important reforms that will prevent the Fund from continuing and repeating the serious errors that they made in the last major crises of the 1990s," said Mark Weisbrot, co-Director of CEPR and lead author of the paper.

Among the harmful conditions cited in the paper are agreements that unnecessarily tighten fiscal and monetary policy in countries facing declining output and negative external economic shocks. The IMF has at the same time advocated the passage of economic stimulus packages and expansionary monetary policy in developed economies such as the U.S., Europe, and Japan.

"The main purpose of the IMF's lending and the increased resources for the Fund right now is supposed to be to help low-and middle-income countries do what the high-income countries are doing - stimulate their economies," said Weisbrot. "It defeats the purpose to require them to do the opposite."

The authors also find that Fund-supported policies may have contributed to the vulnerability of countries in the current crisis, as it did in the run-up to the Asian crisis a decade ago.

The paper concludes that governments allocating new resources to the IMF should first ensure that there is sufficient reform of IMF governance and past IMF practices, and that accountability mechanisms are put in place at the Fund.

It’s the Global Economy (Stupid) – or Is It?

April 8,  2009,  The Guardian Unlimited

"This is the day that the world came together, to fight back against the global recession. Not with words but a plan for global recovery and for reform and with a clear timetable,” said U.K. Prime Minister Gordon Brown at the end of the G-20 Summit last week.

This was somewhat exaggerated. There was no plan for global recovery or even a commitment to increased fiscal stimulus. It remains to be seen what kinds of reforms will actually materialize.

But recovery and reform will not necessarily hinge on what the G20 agrees to do. Roll back to the last major economic crisis – that which began in Asia in 1997 and spread to Russia, Brazil, Argentina, and other countries. In September 1998 Fed Chair Alan Greenspan warned that "it is just not credible that the United States can remain an oasis of prosperity unaffected by a world that is experiencing greatly increased stress." But the U.S. economy kept booming right through the crisis, as a result of consumption driven by the stock market bubble. This continued until the bubble burst, pushing the U.S. economy into recession in 2001.

It should not be surprising that the United States economy has the potential to grow even while many other economies are contracting. Eighty-seven percent of what is produced in the United States is consumed here. To be sure, the other thirteen percent can make a difference – but U.S. recessions are not brought on by falling exports. It is not comparable to the 47 percent of GDP that Germany exported last year, or even the 28 percent for Mexico.

Of course the current world recession is much worse and more widespread than the crisis of the late 1990s. The high-income countries that comprise the majority of the world economy, including the U.S., European Union, and Japan are mostly in recession. There are some big imbalances, built up over many years, that are adjusting at a pace that is not easy to predict – including the U.S. savings rate, which had fallen to zero by 2007. And there are major weaknesses in much of the world’s financial system.

Nonetheless the United States is capable of recovering on its own, with a sufficient domestic economic stimulus and a sensible resolution of the major insolvencies in the financial system – regardless of what other governments do. The U.S. recovery will in turn help the rest of the world. The fact that the dollar is the key reserve currency of the world gives the U.S. even more leeway. There are loud complaints from conservatives about our recession-induced free-spending ways, but investors world-wide are willing to lend the U.S. government money at the historically low (both real and nominal) rate of 2.9 percent on ten year Treasury bonds. This is not the sign of an impending fiscal crisis.

It is good that the G-20 leaders are at least talking about increased international co-operation in order to deal with the world recession, and there are some areas – e.g. regulation of the financial sector or preventing illegal international capital flows and international tax avoidance – where increased international co-operation can be especially helpful. But even in these areas, many of the most important reforms can be implemented by individual governments.

The global nature of the “global economy” has been grossly exaggerated, as have been its implications. The world today is still much more a collection of national economies, and national governments – especially in the larger economies – have the potential to choose most of their economic policies much as they did thirty or forty years ago. The government of China, for example, has for decades controlled capital flows into and out of the country, regulated foreign investment in accordance with national development needs and plans, fixed its exchange rate, and owned most of the banking system. In this way it was able to take advantage of “globalization” – both international trade and foreign direct investment -- to achieve the fastest economic growth in world history.

The contemporary idea of the “global economy” is based on a misapplied analogy to the historical development of national economies. For example, the United States economy was much less stable, with more frequent and much longer recessions, before the creation of regulatory institutions, including most importantly the Federal Reserve (1913) and the New Deal reforms of the 1930s. (The current crisis, which has occurred after decades of deregulatory reforms, appears to be the exception that proves the rule).

Thus, it is reasoned, we now live in a “global economy,” and this too must be regulated to iron out some of the irrationalities and instabilities inherent in a market economy.

Of course there is some truth to this argument. The idea of a world reserve currency to replace the dollar, for example, most recently floated by China, is a potential reform that could improve world macroeconomic stability.

But the concept of the “global economy” is very often an exaggerated one, generating confusion and negative political consequences. Reforms that are both necessary and feasible at the national level, such as appropriate exchange rate, fiscal, and monetary policies (especially in normal times), or capital controls, are rejected as incompatible with the “global economy.” At the same time, reformers often mistakenly look to supra-national institutions that are mainly deregulatory, unaccountable, and regressive – the International Monetary Funs (IMF), World Bank, and World Trade Organization are prime examples – to resolve the problems that these institutions have themselves helped to create. Finance Ministers (or Treasury Secretaries) that are beholden to powerful interests at home are even less accountable to the public when making decisions in these bodies that are another step removed from the electorate of member countries. If they won’t do the right thing at home, they are far less likely to do it at the IMF or the World Bank. For the present, at least, reform at the national or perhaps regional level is a much better bet.

Indeed, “globalization” under inappropriate rules and policies has contributed significantly to the current crisis. Even the European Union, a project that compares favorably to the “race-to-the-bottom” economic integration of the NAFTA variety, is currently hampering the Eurozone’s recovery. The restrictions on budget deficits and the ultra-conservative central bank set up by the Maastricht treaty are making it more difficult for Europe to counteract this recession.

Efforts to redraw the rules for global commerce in a more equitable and rational manner – such as those of the UN commission headed by Joseph Stiglitz – are a vital part of creating a better future for the generations to come. But the world cannot wait for the time when the governments of the rich countries are willing to cede decision-making power to institutions – such as the United Nations -- that they cannot completely dominate. Nor does it have to wait.

 
See article on original website

G-20 Should Think Twice About Increasing IMF Funding Without Reforms

March 25, 2009, The Guardian Unlimited The G-20 summit meeting in London on April 2nd will have a lot on its plate and will certainly fall short of expectations. [The G-20 expands the G-8 countries of Canada -- France, Germany, Italy, Japan, Russia, the United Kingdom, and the United States, to include Argentina, Australia, Brazil, China, India, Indonesia, Mexico, Saudi Arabia, South Africa, South Korea, Turkey and the European Union].  There is a world recession, the worst for more than 60 years, and the immediate problem of how to get out of it through fiscal and monetary stimulus, as well as possible coordinated action to fix the global financial system. Then there is regulatory reform. And sadly, last on the agenda is aid for the poorest countries – who through the drying up of credit, shrinking exports, and falling commodity prices – pay the biggest price in human terms for a disaster caused mainly by the richest people in the richest countries.   The G-20 will also have to make some decisions about the International Monetary Fund (IMF): how much money will they get and what will be their role in the coming months and years? The Obama Administration has proposed an additional $100 billion, in the hope that this will raise $500 billion of new funding. The European Union has committed a similar amount (75 billion Euros).   This could be a mistake, unless the IMF is required to eliminate the harmful conditions that it often attaches to its lending.  About ten years ago, in the last major international economic crisis – which began in Asia – the U.S. led a large funding increase for the IMF, and the results were disastrous. The Fund worsened the crisis in Asia, mostly by attaching harmful economic and structural conditions to its lending to the countries hardest hit by the crisis, including Indonesia, Thailand, South Korea, and the Philippines. The IMF did at least as badly in Russia and other countries, and especially Argentina, in the same period.   These countries learned their lesson and piled up reserves so as to never go back to the IMF again. The Fund, without taking responsibility or firing anyone (much like some American corporations recently) claims to have learned some lessons and also to have changed its policies. But there are too many disturbing signs that it has not.    For example, in at least nine agreements that the Fund has negotiated since September 2008, including Eastern European countries, El Salvador, and Pakistan – contain some elements of contractionary policies. These include fiscal (budget) tightening, interest rate increases, wage freezes for public employees, and other measures that will reduce aggregate demand or prevent economic stimulus programs in the current downturn.   The IMF has long had a double standard when it comes to dealing with economic downturns. For the rich countries, it can be quite Keynesian: it is currently recommending a global fiscal stimulus of 2 percent of GDP. But for the developing countries that are actually forced to follow the Fund’s advice, there is often a different story: they “cannot afford” these expansionary policies during a recession.   This attitude can defeat the purpose of loaning money to developing countries in a downturn, which is to enable them to pursue expansionary policies. The main reason they “cannot afford” to do what the U.S. or other rich countries do during this recession – e.g run large budget deficits – is that they may run out of foreign exchange reserves (mostly dollars). In other words, if they grow at a normal pace while other economies shrink, their imports will grow faster than their exports, and their trade balance will worsen. The purpose of external support is to allow that to happen, rather than shrinking the economy to improve the trade balance.   In some sense it is not really fair to blame the IMF for its failed policies, since the Fund has a boss: the U.S. Treasury Department. Although it has 185 member countries, Washington pretty much calls the shots. This arrangement was established with the creation of the Fund in 1944, when Europe was in ruins and much of the developing world was still colonized. China now has the world’s second-largest economy and 1.3 billion people, but only 3.7 percent of the IMF’s voting shares – and that is after a decade long struggle to reform voting shares, and China getting one of the largest increase in voting shares among developing countries in last year’s “reforms.” Europe, Japan, and the other rich countries could outvote the U.S., but prefer not to rock the boat for fear that any challenge to Washington’s control over this institution (and the World Bank) might result in developing countries gaining a voice.   There was understandably discontent in the U.S. when the Obama administration appointed people who had a large responsibility for the current economic mess to top positions. The IMF has the same problem, but much worse. The Obama appointees will be pressured to resign if they fail, and the Democrats have to worry about re-election. There is no comparable accountability at the IMF.   What hope, then, for reform? For immediate reforms, there is the pressure from organized civil society that successfully forced some $88 billion of poor country debt cancellation over the past decade. Coalitions such as the UK’s 138-organization “Put People First” are pressuring the IMF and World Bank to refrain from inflicting harmful conditions on poor countries, and to cancel more debt; and for the rich countries to live up to their aid commitments. In the U.S., the religious-based Jubilee USA and allied groups are lobbying Congress to authorize the IMF to sell some of its tens of billions of dollars worth of gold reserves; and use the money for debt cancellation for poor countries.   More ambitious proposals for longer-term reform come from the UN Commission headed by Nobel laureate economist Joseph Stiglitz. This commission is proposing a Global Economic Council, an expanded global reserve system, and other institutional arrangements  – including steady aid to poor countries – that would not be subject to the veto of rich countries as are the IMF and World Bank currently. This week the government of China announced its support for a new global reserve currency to replace the dollar.   In the mean time, the most important reforms will take place at the national and regional level, bypassing the G-7 and the nominally expanded G-20. China has in recent months extended multi-billion dollar currency swaps to South Korea, Hong Kong, Indonesia, Malaysia and Belarus, after refusing the rich country’s pleas for more money for the IMF in the absence of governance reform. The ASEAN + 3 countries (ten Association of South-East Asian Nations plus China, Japan, and South Korea) are moving toward a $120 billion Asian Monetary Fund. And South America’s Bank of the South is expected to be launched in May with $10 billion in start-up capital from Argentina, Brazil, Venezuela, Bolivia, Ecuador, Paraguay, and Uruguay.   If the developing countries are willing to show the G-7 that they can walk away from any agreements that can harm them, while creating alternatives on the ground at the national and regional level, the governments of the rich countries may eventually see the need for serious international financial reforms.  See article on original website En español Mark Weisbrot is co-director of the Center for Economic and Policy Research, in Washington, D.C. He received his Ph.D. in economics from the University of Michigan. He is co-author, with Dean Baker, of Social Security: The Phony Crisis (University of Chicago Press, 2000), and has written numerous research papers on economic policy. He is also president of Just Foreign Policy.   

G-20: Welcome to the Multi-Polar World

April 1, 2009, The Guardian Unlimited  The run-up to the G-20 meeting has been interesting and colorful. President Lula Da Silva of Brazil declared that "this crisis was caused by the irrational behavior of white people with blue eyes, who before the crisis appeared to know everything and now demonstrate that they know nothing." His full remarks made it clear that he was not promoting biological race theories but calling attention to the injustice that the vast majority of the world, who happen to be both poor and non-white, should suffer for the greed and stupidity of a few.  China also let loose with an uncharacteristic broadside against the United States, basically saying that we (the Chinese) have gotten our act together and are mobilizing massive resources internally to counter the downturn; now how about you clowns who made this mess step up to the plate, before we take more losses on your stinking treasury bonds?  It was worded somewhat less rudely, but still a stunning departure from the “hide brilliance, cherish obscurity” motto that has guided Chinese foreign policy.   This is what happens when you change the composition of the Ad Hoc Committee to Run the World (the G-7), and the media spotlight wanders over to some of those previously excluded. The change was meant to be symbolic, but even symbolic changes can shift the debate, as new actors find themselves in the middle of an international forum where they can try to show some leadership.   Welcome to the multi-polar world. It’s not here yet but the direction is clear. President Obama will discover this week that as much as he is loved and respected around the world, he can’t reverse the declining influence of Washington that his predecessor clumsily accelerated.   U.S. leadership is taking an immediate hit because it was at the forefront in creating the current world recession. It’s hard to believe that Nicolas Sarkozy won the presidency of France barely two years ago by promising to make French capitalism more like the American brand.  The idea that the “American model” was superior in economic terms has been promoted for years by the European press even though the statistical evidence has always been weak or non-existent (e.g. France has a productivity level about the same as the United States). But from now on these ideas will be a much harder sell.   Still, the debate surrounding the G-20 meeting is missing quite a bit on the economic issues. The problem of asset bubbles did not even make it into the G-20’s draft communiqué. Yet the housing bubble in the United States was the primary cause of its deep recession, and contributed enormously to the financial crisis – including through the over-leveraging of financial institutions and the toxic assets and derivatives that they spread around the world. This is also the second recession in six years in the U.S. -- which comprises a quarter of the world’s economy -- that was caused by the bursting of an asset bubble (the 2001 recession was caused by the bursting of the stock market bubble). Housing bubbles in Spain, the U.K., Ireland, and other countries also contributed to their severe recessions this time around. How to prevent asset bubbles from reaching dangerous proportions – which is actually much easier than the other forms of regulation being discussed – should be a major item on the agenda.   But it is the economic issues of the developing world that are most obscured and/or neglected. For most developing countries, the current economic crisis is a more acute form of what they have experienced for most of the last three decades – commonly known outside the United States as the era of neoliberalism. Since 1980, there has been a sharp slowdown in economic growth in the vast majority of low- and middle-income countries. As would be expected during a long period of reduced economic growth, there was also reduced progress in the areas of life expectancy, infant and child mortality, and other social indicators. This slowdown in economic growth, and its accompanying negative effects, is not attributable to “diminishing returns” – in other words, it is far beyond what would be expected from the natural course of individual countries facing reduced growth potential at a higher stage of development.   A likely explanation for this massive economic failure is that it had something to do with the neoliberal economic policy reforms that were introduced since the 1980s: the abandonment of development strategies, the introduction of much more restrictive monetary and fiscal policies, an indiscriminate opening to international trade and capital flows, and of course the de-regulation and excesses of the financial sector – including its excessive political influence – that the world is now forced to recognize as harmful.  It is noteworthy that China, which has had the fastest growing economy in world history over the last 30 years, has mostly avoided these neoliberal reforms, even as it moved away from central planning and began a period of export-led growth.   A serious discussion of what has caused this long-term development failure is long overdue, but still not forthcoming. On the contrary, the draft G-20 communiqué reaffirms the importance of completing the current Doha round of the World Trade Organization (WTO), a set of rules that is so tilted against developing countries that it would not stand a chance of being approved by the legislatures of many WTO member countries today. Ironically, the WTO’s Financial Services Agreement seeks to establish rules that would make it more difficult for countries to undertake the financial regulations that this crisis has so painfully demonstrated are needed. There is no talk of reforming the WTO – only moving “forward.”  The same is true for the IMF, which just a decade ago was Washington’s main avenue of influence in developing countries. The collapse of the IMF’s creditors’ cartel in middle-income countries, in which many governments could not get credit from other sources without first agreeing to IMF conditions, was one of the most important changes in the international financial system since the breakdown of the Bretton Woods system in 1973. The U.S. Treasury department, with help from Europe and Japan, seeks to revive their lost power in a time of crisis by tripling the IMF’s resources to $750 billion and making the Fund the arbiter of conditionality for loans to countries hard hit by the crisis.   But regardless of how much money is added to the IMF coffers, the clock will not be so easily rolled back. Nor will the G-20 move us forward to a new financial architecture, as some had hoped. It took a Great Depression and a World War to get us the Bretton Woods agreement of 1944; fortunately we have not had either of these yet. And the leaders of the rich countries today are far more steeped in neoliberal ideology than the architects of Bretton Woods. In economics, as in the physical sciences during the Middle Ages, a significant amount of knowledge has been lost since the time of Keynes.   For now, at least, the most important economic reforms will take place more quietly and without the fanfare of the G-20. China’s decision this week to provide $10.2 billion dollars in a currency swap arrangement with Argentina is an unprecedented (in this hemisphere) and prime example. The creditors’ cartel that forced Argentina to accept disastrous conditions from the IMF a decade ago is no longer operative there. That is progress, and there will be much more in the coming years, as national governments seek alternatives to failed policies, and co-operate with each other outside the structure of unreformed neoliberal institutions.  See article on original website  Mark Weisbrot is co-director of the Center for Economic and Policy Research, in Washington, D.C. He received his Ph.D. in economics from the University of Michigan. He is co-author, with Dean Baker, of Social Security: The Phony Crisis (University of Chicago Press, 2000), and has written numerous research papers on economic policy. He is also president of Just Foreign Policy. 

The United States and the World: Where are We Headed?

The United States appears to be embarking on a transition on two major fronts: its own economy, both financial and real; and its relations with the rest of the world.  There is some relation between these two transitions. Some of these changes will depend on the outcome of the U.S. national election in November, and some will not. This paper will present a brief overview of current trends, with some attention given to U.S. foreign policy in Latin America, as well as other areas.

Who wants it? Who needs it? The Vlora coastal terminal, Albania

Development (EBRD). The terminal is to be located inside the industry park near a thermo-power plant which has already received lending support from the EBRD, European Investment Bank and the World Bank’s International Development Association.

It is evident that up to now the Vlora terminal has provoked strong local opposition. There is a lack of local and national monitoring to cope with this high risk terminal. It is likely that the terminal will cause serious damage to the local community including jeopardising the tourism industry, increasing the risks of oil spills not to mention its contribution to global climate change. The economic benefits being claimed for the project, such as increases in employment, are insignificant compared to the predictable loss of jobs in the tourism sector. Representatives of Albanian civil society, call upon the EBRD Board of Directors not to finance this project.

International Rivers' Statement on Nam Theun 2 Reservoir Flooding

The Nam Theun 2 Power Company, the Lao government and the World Bank announced that the Nam Theun 2 reservoir will begin filling this week with the sealing of the diversion tunnel. Dam gate closure to initiate full reservoir impoundment is planned for mid-June 2008. Shannon Lawrence, Lao Program Director for International Rivers, says: “By flooding the reservoir before addressing outstanding problems, Nam Theun 2 is once again prioritizing construction deadlines over social and environmental commitments. This two-track approach to such a risky project has left villagers unequipped to face the dam’s impacts.”

IF-EYE Issue #30

Bi-weekly publication of the Bank Information Center

In this issue:

1. IFI Updates

2. Civil Society Highlights

3. SPOTLIGHT: IMF Gold Sales: the U.S. Treasury agenda, Congressional leverage, and civil society advocacy

4. SPOTLIGHT: NGOs pull out of ADB’s Mekong safeguards consultations

5. SPOTLIGHT: 2008 World Bank/IMF Spring Meetings

6. Announcements and Resources

7. New at BIC: BIC welcomes Binta Ceesay as Executive Assistant!

8. Work at BIC: Job openings at BIC!

Nam Theun 2 Trip Report and Project Update, February 2008

International Rivers' February 2008 Nam Theun 2 report, based on a recent site visit by International Rivers’ staff, shows that shortcomings and delays in programs to compensate villagers and restore their incomes have not been addressed. Furthermore, it is unclear if resettlement infrastructure for more than 6,200 villagers on the Nakai Plateau will be completed on time for reservoir filling to begin in June 2008.

IF-EYE Issue #26

Bi-weekly publication of the Bank Information Center

In this issue:

1. IFI Updates

2. Civil Society Highlights

3. SPOTLIGHT: Seeing the forest for the carbon?

4. SPOTLIGHT: Malawi wins results and recognition for rebuffing World Bank prescriptions

5. Announcements and Resources

6. New at BIC: BIC welcomes Chad Dobson as its new Executive Director!

European Investment Bank: Promoting sustainable development, "where appropriate"

Raising the bar on big dams: making the case for dam policy reform at the European Investment Bank