Bank to use PRSPs to push liberalisation, investment rules?

by Abid Aslam

Washington, 23 Apr 2001 (IPS) - - The World Bank will intensify its efforts to open borrowing countries to foreign investors by using trade as a lever, according to an internal document to be discussed by development and planning ministers next week.

‘Leveraging Trade for Development: The World Bank’s Role’ is to be taken up by the Bank’s policy-making Development Committee on 30 April. Ministers are expected to endorse the document, which laments that protectionism among rich countries “imposes costs on developing countries that exceed aid flows”.

However, since the Bank has no role in setting the trade policies of its more powerful shareholders, the document trains its sights on poorer nations, where it says it will exploit “overlap of the new trade activities with ongoing sectoral reform programmes”.

In practical terms, this means adding the arrow of trade to the quiver of arguments used to persuade borrowing countries to toe the Bank’s line when drawing up national economic plans.

[And under the new poverty reduction strategy program formats, the developing countries concerned would not only have to toe the line, but ‘proclaim’ publicly their ownership. The ownership of the PRSPs has been seen as no more than another conditionality.]

“The Bank will have to weave country activities to promote trade integration into the whole cloth of the Bank’s country assistance strategy,” the paper states.

“For low-income countries, trade policy is progressively intended to be a central part of the Poverty Reduction Strategy, jointly assessed by Bank and [International Monetary] Fund staff.”

Ostensibly, the Bank is concerned with harnessing trade to generate “pro-poor growth”.

The 26-page paper, however, provides only three passing references to what this might entail It states, “a next priority of the Bank is to identify the effects of reforms on the poor, design targeted compensatory programmes where possible, and help countries build in pro-poor growth programmes through advice.”

Although the document contains such scant and vague references to the need to compensate the poor when they are harmed by liberalisation, it argues at length for the virtues of trade as an engine of economic growth.

As such, the Bank appears to have three aims. First, it wants to show that its policy loans, which finance structural adjustment, can improve borrowers’ trade performance.

This comes as the Bank seeks to reverse a decline in lending by expanding policy loans.

Among the reasons for this, says Njoki Njoroge Njehu, director of the activist network Fifty Years is Enough, is that policy loans seldom are subject to the scrutiny and protests visited upon traditional projects, such as dams or mines, which tend to have easily- anticipated harmful effects on the poor and the environment.

Second, the Bank wants to strengthen its hand in shaping national policy-making in low-income countries.

The latest push for liberalisation forms part of “the rebirth, or second coming, of structural adjustment lending,” says Nancy Alexander, a veteran Bank watcher and director of the non-governmental Globalization Challenge Initiative.  Structural adjustment loans are cheaper for the Bank to make and administer than ae project loans, she adds.

Third, the Bank wants to shore up the World Trade Organisation (WTO) against dissent from some developing countries. The document acknowledges this dissent, which mainly comes from borrowing countries that want problems inherited from the Uruguay Round of trade talks fixed before turning to new proposals.

Nevertheless, the paper expects that a new round of comprehensive trade negotiations will be launched in November, at the WTO ministerial conference in Qatar.

By committing the Bank to help countries join the global trading system, the document also appears designed to win support for the WTO among planning and development ministers next week, and thereby to isolate those developing country trade ministries that are sceptical of the existing multilateral agenda and institutions.

The Bank manoeuvre follows similar attempts at the WTO. Last year, the trade body bypassed African missions at its headquarters in Geneva and sponsored a meeting in Gabon of regional trade ministers in an unsuccessful bid to win their agreement to launch a new trade round in Qatar.

Now, Egypt and South Africa reportedly are trying to mobilise support for a new round, and again developing countries’ trade representatives complain they’ve been kept in the dark.

[This is not the first time either that the Bank management, and the Development Committee are sought to be used to push the WTO leadership’s agenda - when developing country members are resisting it.

[Before Punta del Este, and during the post-1982 work-programme, when India and Brazil were resisting ‘services’ and other new issues, the then GATT Director-General, Mr. Arthur Dunkel, having failed to persuade his membership to move towards new negotiations, set up a group of high level expert consultants, who came up with a recommendation for a new round, with services too.

[But Mr.Dunkel found it difficult even to bring the report before the Contracting Parties, and took it to the Development Committee where (with the support of the World Bank management) he sought to introduce it and get the endorsement of the Finance Ministers. But Dunkel was challenged by the then Indian Finance Minister, Mr. V.P.Singh, who also happened at that time to hold the Commerce Portfolio.

[In some unprecedented scenes at the Development Committee, Mr. Singh asked a question as to whether the report had been presented to the GATT Contracting Parties and what their views were. Mr.Dunkel confessed it had not been considered by the CPs, whereupon Singh objected to the report being brought before World Bank Development Committee, and the Committee being asked to endorse it without the CPs first considering it.

[Nevertheless, the communique of the Development Committee (drawn up, as usual, in advance, for rubber stamping by the ministers) contained a passage endorsing the idea of a new round. Thereupon, the Indian Minister objected, withheld his consensus, and asked for a vote, whereupon the then chairman of the Development committee, said this was unheard of at the World Bank, the communique had the support of an overwhelming majority, and attempted to declare it carried. But Mr. Singh persisted and said there was always a first time, and even if the communique had a majority (given the votes of the major shareholders), the dissent of the Indian Governor should be noted. The Committee meeting was recessed, and a small group chaired by the IMF Managing Director and the Chinese Governor were asked to mediate the dispute, and the communique was modified by a compromise.]

The World Bank paper concedes that “the traditional WTO approach of developing common rules may not be appropriate in several areas” where implementation is costly and capacity weak. Although it does not elaborate, these areas might include sanitary and phytosanitary rules, which have blocked poor nations’ shrimp exports to Europe. However, the Bank is adamant that investors’ rights are not up for negotiation.

The WTO’s approach, it asserts, “remains as valid as ever in areas such as the principles of non-discrimination and national treatment”, meaning that governments must not show any preference for domestic investors. This is necessary, the Bank argues, because trade is growing fastest not between countries but among the scattered subsidiaries of multinational corporations.

“If restrictions on foreign ownership are not lifted concomitantly with trade reform, one source of potential investment in exports is closed off,” it says.

Promoting investment, it adds, will involve adherence to its policy prescriptions. These include “regulations that achieve public purposes with minimal distortions in incentives.” That is jargon for privatisation and re-regulation of public goods and services, including pension funds and domestic savings that, in the Bank’s view, could be put to productive use.

The Bank also wants to ensure that regional trade blocs ease the way for broader multilateral integration. Earlier this month, it approved 110 million dollars in soft loans for a regional trade project involving the Common Market for Southern and Eastern Africa.

The effort is designed in part to pre-empt the kind of political maelstrom into which the Bank was sucked in the 1990s, when it railed against Latin America’s Southern Cone common market, or MERCOSUR, for distorting international trade and investment flows by erecting barriers against non-members.

MERCOSUR members defended it as nurturing domestic industries and jobs, and lashed back at the Bank for seeking to undermine it at the behest of the US government.

Seen from Washington, where the Bank is headquartered less than a minute’s walk from the US Trade Representative’s office, MERCOSUR remains a spoiler at the WTO and in hemisphere-wide free trade talks.

According to one Bank trade specialist, the institution learned that the best way to “avoid future MERCOSURs is to steer regional integration processes from early on.”

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