Sat, 02 Dec 2000

The tyranny of global economic development

This is the second of two articles on developing economies by Sidhesh Kaul, an observer of regional economic and political affairs based in Jakarta.

JAKARTA (JP): The Truman strategy in effect is a continuation of the colonial past with the domestic economies of the Third World providing a market for the North's goods and a cheap source of raw material and labor.

The implications of this strategy on the traditional patterns of domestic consumption and industry are disastrous. It is logical that if the economy is to provide a market for goods from the North then the domestic industry should not be in direct competition.

Discouragement comes in the form of pressure on governments to orientate their economies toward becoming export oriented and in the form of sage advice that promotes the deployment of taxation as an effective disincentive. Import substitution is frowned upon.

Indeed if one takes a look at those countries who have bowed to the dictates of a structural adjustment program (SAP) -- it becomes obvious that while commodity exports go up, the gross national product lags behind as a result of the contraction in the domestic economy.

Lending is the prime and more contemporary instrument of subjugation. A compliant government exchanges access to its markets and natural resources for money.

In order to pay the interest and principle on these loans, these governments perforce have to alter their traditional patterns of domestic industry to produce goods that can be sold in international markets (and not necessarily the domestic market), since the loans borrowed in the first instance have to be repaid in foreign exchange.

In most cases this is a difficult proposition since Third World governments do not honestly and productively deploy these monies in the first place -- some of it lines the pockets of the governing elite, whilst the bulk of it goes into developing and maintaining mechanisms promoting repressive regimes.

Then there is the smaller portion that goes into mammoth infrastructure projects with eternity as the time horizon for payback. Soon the debt becomes unpayable and it is time to borrow again, and so the wretched cycle moves on.

The net result of this vicious cycle is that the lending countries now enslave the country. This is where the SAPs come in handy for the lenders as they now set the ground for a virtual takeover of the economy.

Borrowing "soft" money from benevolent lenders as a sure fire way to economic stability, growth, reduction in income gaps and the alleviation of poverty is an extremely questionable assumption.

Aid has a proven track record of opening up economies and markets since most of these donations or soft loans are tied up to the purchase of goods from the donor countries (in precisely the same way as the colonies of yore) and this is typically forced down the throat of the borrowers.

Disobedience to this tenet is actively discouraged under the threat of surgically incising any future aid, a prospect that the borrower can ill afford now that the country is addicted on the periodic loan fix.

It has somehow escaped the benevolent lenders, as well their elitist agents, that the poor in any Third World country rely heavily for their survival on the local economy and that these vast borrowed sums effectively kills this very same domestic economy.

But this logic is likely to fall on deaf ears since poverty alleviation is an oft quoted noble concept and goal but the North has a more expedient and urgent issue. This is the expansion of the global economy at the cost of the local Third World economy.

The past decade or so has also seen an increase in the flow of private investment funds into Third World countries (split equally between long-term investments and speculative funds) to such an extent that it dwarfs the regular budgetary injections of the institutions that the Bretton Woods conference gave birth to.

This has partly been fueled by the enormous gap in the income earning opportunities for these funds between the regulated markets of the North and the investment rodeos of the South.

Thanks to the General Agreement on Tarrifs and Trade and the salutary and sobering effect that SAPs have on stubbornly inward looking economies, trans-national corporations (TNCs) now dot the Third World landscapes with impunity.

These TNCs bring with them capital and provide employment but they come in to a country on a "level playground basis" that includes, amongst others; access to sectors that were hitherto protected, abolishment of nontariff barriers (especially regulations that protect labor, health or the environment) and elimination of import quotas.

Once a TNC is established it becomes exceedingly difficult for an impoverished, debt-addicted government to pass regulations that crosses swords with these powerful institutions.

The TNCs are ruthless profiteers with the power to force governments to defend corporate interests even if it were at the cost of marginalizing the people.

There are many recent and unbelievable examples of the duplicity and hypocrisy associated with the loans and aid proffered by the benevolent North.

Most of the countries that have received "security" aid have had oppressive regimes -- Nicaragua, Argentina, El Salvador, Chile, Peru, Uruguay and Indonesia to name a few. These regimes, interestingly, were not fighting noble battles to protect their territorial integrity and defend their proud standing as independent nations.

Instead they used the aid to oppress their own people and impose an economic regimen that had left these countries impoverished at best.

Sometimes the planning of the North goes haywire when such countries do occasionally throw up patriots who are genuinely interested in improving the lot of their poor and hence pitch them headlong into direct conflict with the economic interests of the North; in such cases the benevolent lenders do not hesitate to use brute force or perhaps achieve the same results by engineering a coup.

The woes of the impoverished recipients show no signs of abating especially in those Third World economies that have weak and pliant governments, and where the common man is far removed from the mechanisms of governance.

Heavily indebted governments have to undergo a program to alleviate "debt addiction" and instead learn to leverage on their markets, resources and regional goodwill (as also the goodwill of other borrowers who are in a similar predicament), as a clinical measure toward restoring self-pride and true economic independence.

Every time the government borrows or receives "soft conditional" aid, the one question they need to put to themselves, before rejoicing in self-congratulatory euphoria, is: How is this new borrowing ultimately going to effect the common man?