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Info Service on Finance and Development (Apr22/01) Geneva, 19 Apr (D. Ravi Kanth) – The ongoing International Monetary Fund (IMF)-World Bank spring meetings (18-24 April) in Washington DC seem to have become a battleground for advancing new trade and finance narratives that may not benefit countries in the Global South. If anything, the Group of Seven (G-7) narrative may reinforce the “hegemonic” role of the United States in the global trade and financial order, according to media reports. In the face of the ongoing COVID-19 pandemic and Russia’s war against Ukraine, the powerful G-7 industrialized countries led by the United States appear determined to strengthen their hold on the two Bretton Woods multilateral organizations, i.e., the IMF and the World Bank (WB). Both these Bretton Woods institutions came into being following the Second World War. They are mandated to advance an ameliorative finance and developmental agenda. The national goals conceived at the time of the establishment of the IMF and the WB included “full employment, structural transformation, catch-up growth, social security and welfare, and policy autonomy,” say Prof Kevin P. Gallagher and Mr Richard Kozul-Wright in their book titled “The Case for a New Bretton Woods”, published early this year. They argue that it is part of the mandate of the IMF and the WB to provide “Global Public Goods” such as “stable monetary and exchange rate system; lender of last resort (when countries are trapped in balance-of-payment and liquidity crises); counter-cyclical and long-run finance; open trade during recessions; and international cooperation”. Yet, after more than seven decades, and at a time when developing and least-developed countries are facing a worsening debt crisis, as well as a food and fuel crisis due to the Russia-Ukraine war, the need of the hour is multilateral solidarity to tackle the grim crises (see SUNS #9542 dated 25 March 2022). Against this backdrop, in their book, Prof Gallagher and Mr Kozul-Wright have proposed reform of the Bretton Woods institutions. As part of the national goals, they suggested “full and decent employment; green structural transformation; stable growth; equality and justice; decarbonization; resilience; and policy autonomy.” On the “global public goods” side, they proposed “financial stability; relative global equality; counter-cyclical and long-term finance; lender of last resort and debt authority; balanced trade; stable global climate; and international cooperation.” Over the last several decades, the IMF-WB order “does not pass muster, in large part because the economic interests that dominate our globalized world have rigged the rules of the international economy in favor of the privileged few (both within and across countries), stifling democratic voice in the process, and draining trust from the institutions of international governance,” they argued. Last month, the United Nations Conference on Trade and Development (UNCTAD), in an update of its Trade and Development Report 2021, called for “reform of multilateral governance” that would bring about a “profound” change to ensure global economic resilience, on the one hand, and new policy mechanisms to respond to increasingly complex external shocks, on the other. The UNCTAD update made several policy recommendations, including: 1. Greater, more concessional and less conditional multilateral financial support for developing countries to enable them to withstand financial and economic shocks and increase investment to support economic growth; 2. Immediate debt relief for Ukraine along with renewed discussions on a multilateral mechanism that promotes the fair and orderly restructuring of developing country sovereign debt during periods of severe financial stress, as is the case in Sri Lanka now; 3. More use of Special Drawing Rights to supplement official reserves and to provide liquidity on a timely basis to avoid severe deflationary adjustments; 4. More effective and less ad hoc swap arrangements between central banks to support developing country currencies and address financial crises; and 5. Sector-specific policies including price controls and subsidies, to tackle the supply side and mark-up pressure on inflation. It remains to be seen, particularly after the US and the other G-7 members launched an economic and trade war against Russia that seem to be contributing to global inflation as well as a recession at large. Furthermore, attempts seem to be underway to create a more US-dominated financial and trade order, if the recent pronouncements by the US Treasury Secretary Ms Janet Yellen are any indication. THE TRADE FRONT Speaking at the Atlantic Council in Washington DC last week, Ms Yellen appeared to issue several threats to China and other countries that are refusing to join in the US sanctions against Russia. “China cannot expect the global community to respect its appeals to the principles of sovereignty and territorial integrity in the future if it does not respect these principles now when it counts,” she said. “The world’s attitude towards China and its willingness to embrace further economic integration may well be affected by China’s reaction to our call for resolute action on Russia,” she added. Although she said that the IMF-WB spring meetings will focus on how to support developing countries as they weather these economic impacts, she did not offer any concrete proposals/suggestions about the nature of such support to countries in the Global South. Her ideas on trade integration seem more alarming when it comes to the very survival of the multilateral trading system that was anchored on the Marrakesh Agreement. Ms Yellen said the US needs to “modernize the multilateral approach we have used to build trade integration.” “Our objective should be to achieve free but secure trade,” she argued, adding that “we cannot allow countries to use their market position in key raw materials, technologies, or products to have the power to disrupt our economy or exercise unwanted geopolitical leverage.” “FRIEND-SHORING” TRADE POLICY More ominously, in an attempt to strengthen the debilitating neo-liberal trade policies, Ms Yellen highlighted a new trade narrative based on “Favoring the “friend-shoring” of supply chains to a large number of trusted countries, so we can continue to securely extend market access, will lower the risks to our economy, as well as to our trusted trade partners.” She asked countries to “consider building a network of plurilateral trade arrangements to incorporate elements of the modern economy that are growing in economic importance, especially digital services.” Ms Yellen argued that, “We should harmonize our approaches to protecting the privacy of data. And a modernized trade system will also require the ability to effectively enforce trade policies and practices, both multilateral and bilateral.” According to Ms Rana Foroohar, a columnist for the Financial Times, the US Treasury Secretary’s comments (cited above) are not “America Alone or even America First.” “But it does acknowledge the existence of a political economy in which free trade can only really be free if countries are operating with shared values, and even playing field,” Ms Foroohar argued. Several other US commentators have echoed the view that the World Trade Organization must accommodate human rights, labor rights, and environmental rights as part of its rubric. Interestingly, for the first time, the US Export-Import Bank will begin offering financing for domestic manufacturing – a major change from its traditional role of supporting US export sales. The new “Make More in America” Initiative was approved unanimously on 18 April. Furthermore, the WTO director-general, Ms Ngozi Okonjo-Iweala, also came up with a new narrative on “re- globalization” last week that would involve the marginalized countries developing robust trading activities on their shores. She cited the examples of Bangladesh, Vietnam, and Ethiopia, which have specialized in multiplying their trading advantages (see SUNS #9555 dated 13 April 2022). Ms Okonjo-Iweala is also a strong supporter of the controversial and seemingly WTO-inconsistent plurilateral Joint Statement Initiatives (JSIs) on digital trade, investment facilitation, disciplines for MSMEs (micro, small, and medium enterprises), domestic regulation in services, and trade and gender. While she claimed that the WTO can be the center for promoting “multilateralism and multilateralization”, Ms Okonjo-Iweala has simultaneously praised the controversial JSIs. In conclusion, the G-7 countries led by the US, with the support of the WTO DG, seem ready to reform the WTO according to their new priorities. It remains to be seen whether the developing countries can stand-up to this new narrative and safeguard their multilateral development-oriented goals at the WTO.
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