Making the world safe for TNCs

by Someshwar Singh

Geneva, Aug 9 -- Two decades of structural adjustment policies, mandated by the IMF and the World Bank for indebted countries, has seriously eroded the sovereignty of many developing nations, says a report to the UN Sub-Commission on the Promotion and Protection of Human Rights, now in session here.

The report (E/CN.4/1999/50), by an independent expert Mr. Fantu Cheru (United States), examines the effects of structural adjustment policies on the full enjoyment of human rights. Though mandated earlier, the present report was delayed as the previous independent expert who had been appointed, subsequently submitted his resignation.

"Many Third World governments have more and more become accountable to external creditors (the IMF and the World Bank in particular) than to their own citizens," notes the report by Cheru.

"Across the Third World, governments are being pressed from above by invisible forces of globalization and from below by social forces that are losing out in the process of economic restructuring."

According to the report, the development crisis evident in falling living standards, rising unemployment and mass poverty has, at its root, the $1.8 trillion owed by the Third World to Western banks, governments and multilateral institutions such as the IMF and the World Bank.

"While measurable in dollars, the crisis takes its toll on human beings with a brutality that is difficult to capture in words," the report says.

"The economic, social and cultural rights of millions of poor people across the Third World have been systematically undermined as a result of neo-liberal adjustment policies aimed at sustaining the servicing of this debt by destitute nations."

For the majority of people in the debtor countries, economic recession means increasingly inadequate diets, insufficient income to feed and educate children, and mounting susceptibility to disease.

Meanwhile, money is flowing from the South to the North: the estimated transfer of capital from the Third World to the developed countries was $189 billion in 1995 and at least $213 billion in 1996.

The regional distribution in 1996 was: $97 billion from Latin America; $24 billion from Africa, and $95 billion from Asia. These figures include both principal and interest payments.

Structural adjustment represents a "political project, a conscious strategy of social transformation at the global level, primarily to make the world safe for transnational corporations," says the report by the independent expert.

"In short, structural adjustment programmes (SAPs) serve as "a transmission belt" to facilitate the process of globalization, through liberalization, deregulation, and reducing the role of the State in national development."

With the collapse of communism in 1989 and the triumph of neo- liberalism, SAPs began to be applied with a vengeance across Eastern Europe despite their dismal record in other parts of the developing world.

Governments in the transition economies are regularly advised to embrace structural adjustment as the only development model that would transform their economies in the shortest time possible and help them harness the opportunities offered by the rapid globalization of the world economy.

But to get there, national governments are encouraged to "shift their development paradigm from development planning, with an active and commanding role for the State, to (a paradigm) of devaluation, deregulation, liberalization and privatization - in short, installing market fundamentals under the iron discipline of the trinity of the IMF, the World Bank and the World Trade Organization (WTO)."

In this regard, structural adjustment and global integration are mutually reinforcing, the report maintains.

The most crucial impact of globalization and liberalization (i.e. structural adjustment) has been on the role of the state in national development. As Robert Cox (1987) suggested, the State no longer primarily acts as a buffer against the world economy, but plays an integral role in globalization.

Surrounded by impersonal forces beyond their control, leaders have diminished scope to lead. The problems facing leaders are further compounded by the resentment and rebelliousness they provoke in the governed.

Many people have a sense of uncertainty, a feeling of futility and a worry that uncontrollable forces are taking charge. The recent crisis in East Asia and Mexico are excellent examples. The losers in global restructuring -primarily led to their position through participation in SAPs - try to reassert themselves through organized resistance.

In some countries, the immediate public response is withdrawal from the political process; in others, there is outrage and criticism. As antagonisms increase, energies and efforts are dissipated and leadership is at the risk of losing credibility.

The real challenge now, says the report, is how to channel this discontent towards a more constructive and transformative project that puts human dignity at centre stage in national and international policy discussions.

The report calls for a 'fundamental transformation of unjust economic and political structures both at national and global levels. "A realignment of economic structures is as much a realignment of power structures which, more often than not, will be resisted by powerful social and political groups within a given country or powerful forces in the global economy."

The expert report outlines recommendations with a view to pursing an alternate strategy.

Debt repayment is already straining the limits of political systems in many countries, as the desperation of the poor erupts in strikes, food riots, and demonstrations against the IMF. Enforcement of more economic "adjustments" is likely to lead to increased repression. In the words of former Argentine President Raul Alfonsin, increased debt payment can only be taken "out of the account of democracy."

At the beginning of 1996, the total foreign debt owed by developing countries was $1.8 trillion. The regional distribution of this debt was as follows: $656 billion for Latin America; $340 billion for Africa (of which $167 was owed by countries of sub- Saharan Africa); $857 billion for Asia.

While most of Latin America's debt is owed to commercial banks, most of the debt owed by African nations is to official donors and multilateral organizations.

Yet, by most conventional indicators, such as the ratio of debt to GNP, sub-Saharan Africa's debt was 123% of its GNP compared with 42.4% for Latin America and 28.2% for Asia. In terms of ratio of external debt to exports, the figures are striking: 202% for Latin America; 340% for sub-Saharan Africa; and 121% for Asia.

The right of citizens to participate fully in framing national development policy is severely curtailed, the report points out. This conflict between State and society undermines the possibilities of democratic consolidation in many countries - hence, the prospect for solidifying the protection of human rights.

Democratic treatment and accountability implies greater equity in sharing the burden of adjustment both at the local and international level. The costs of the $1.5 trillion Third World debt will be paid by someone.

They must, however, be lifted from the poorer majorities who have had the least role in creating the crisis. The burden must be shared more equitably among countries as well as social groups and the world's transnational bank lenders.

This requires an end to disguising the problem, to maintaining the fiction that the bulk of these loans are still "performing" in any meaningful way.

Human development is being sacrificed at the altar of free market reform and globalization, says the report.

It points out that an increasing number of voices within Africa, as well as many non-governmental groups and United Nations system organizations such as UNICEF and the ILO, have been warning that the living conditions of the poor are deteriorating to intolerable levels despite - and sometimes because of - these structural adjustment programmes.

Increasing malnutrition, falling school enrolment and rising unemployment threaten the social fabric of adjusting countries. As living standards erode, social unrest increases.

In many countries currently engulfed by war and internal conflict, adjustment-induced social unrest provides the initial impetus for ethnic, tribal, religious fundamentalist and nationalist frenzy which eventually led to armed conflict.

This reassessment of the nature of policy reforms is particularly striking because adjustment programmes are meant, according to their designers, to shift resources towards the poor. But while increases in food prices and cutbacks in government expenditures and employment have taken place as planned, overall economic growth - which was expected to counteract these developments - has not.

The negative consequences of "orthodox" adjustment policies are evident in many areas - increasing poverty and unemployment, fall in real wages, decrease in budgetary allocations to social services, high incidence of labour repression, widening income disparities, undermining of local production capacities, heavier debt burden, unsustainable use of natural resources and the growing rift between State and society.

According to the report, the experience of the last 20 years in Africa and Latin America shows that SAPs are not consistent with long-term development needs of developing countries. "The evidence challenges the assumption by the World Bank and the IMF that SAPs alleviate poverty and strengthen democracy."

Instead, SAPs have been guided by laissez-faire market principles that privilege efficiency, productivity and groups engaged in export and international trade at the expense of civil liberty and self-government.

Although the experience is similar across continents, a closer look at the experience of African countries is highly instructive, says the report. Between 1980 and 1990 alone, some 38 sub-Saharan countries initiated over 257 adjustment programmes. Most have had multiple programmes, with 14 countries implementing 10 or more.

"As we come to the end of the second decade of adjustment, the role of the State has been significantly curtailed, the dominance of the market forces set in place, and African economies are wide open to external penetration, due not only to adjustment programmes, but also to the continued pressure of globalization and market integration."

However, despite implementing harsh economic measures for about two decades, substantial economic turnaround has not occurred in any of the countries that submitted to them; living standards for majority of the Africans have declined and investment in the productive and social sectors of many countries have dwindled.

Retreat of the state in key areas of social services has left enormous gaps that have at times been filled by local survival initiatives, the report adds. Reform has been necessary to satisfy the demands of external creditors for servicing debt and not adequately internalized as a domestic requirement for pursuing human-centred growth and development.

In addition, economic adjustment and liberalization have been forced down the throats of African people against the background of depressed commodity prices, declining official development assistance, withdrawal of private lending, increased Northern protectionism against African products, and unsustainable levels of debt.

Most African countries have slid backwards into growing inequality, ecological degradation, de-industrialization and poverty. A United Nations advisory group reported that throughout Africa, health systems are collapsing for lack of medicines, schools have no books, and universities suffer from a debilitating lack of library and laboratory facilities.

Similarly, in Latin America, per capita income in 1990 was at virtually the same level as ten years earlier. Severe malnutrition stalks the countryside, paving the way for a repeat of the cholera epidemic which devastated Lima in the late 1980s.

Even the so-called African "success" stories, such as of Uganda and Ghana, the report affirms, are basically cases of economies being held afloat for demonstration purposes by continuing aid inflows. Needless to say, these incoming loans are piling up substantial interest obligations for the future.

"Adjustment in Africa has primarily been achieved by curtailing investment in people and by incurring more debt," the report points out.

The goal of "Health for all by the year 2000" agreed upon in the Alma Ata Declaration has been severely undermined by cutbacks in government health budgets as social and developmental objectives have been superseded by financial imperatives.

The failure of the IMF and World Bank to protect health, nutrition and education budgets from general fiscal retrenchment in the design of SAPs is a grave policy error, the report says.

Referring to an 'authoritative source', it points out that the drug trade in Peru, Colombia and Bolivia is closely related to the significant social erosion in those countries as a result of the debt crisis and the accompanying policy of structural adjustment.

Poverty, marginalization and widespread alienation remain the most significant and pervasive problems facing many indebted countries in the Third World and East European countries, the report maintains.

Almost 20 years of 'futile experiment with SAPs has eroded the social welfare of millions of poor people across the Third World and denied their economic, social and cultural rights.' (SUNS4495)

The above article first appeared in the South-North Development Monitor (SUNS).

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