Financing development or financing capital flight?

The big American and European banks cannot escape liability for the Argentinian crisis, says a well-known Argentinian journalist in this following piece, which is based on his intervention in New York during a debate between the UN system and NGOs which was part of the preparatory process towards the Financing for Development summit to be held in March in Monterrey, Mexico.

GIVEN the good news that for once finance ministers will have to listen up during this unique process of the Financing for Development conference, Iíll try to avoid repeating what is common knowledge.

I suppose we all agree on the goals. Letís talk about the particulars.

As a journalist I am supposed to delve into ways of communicating. But this is not a technical problem. Before talking about how to communicate the convening of a summit on financing we must discuss what to communicate. This is what journalism is really about. And there are some hard truths that must be said if we want to at least be heard.

Then,† Iíll go from general definitions to specific cases, because the reduction of poverty and the improvement of social conditions implies different things according to the history of each country and/or continent.

I can talk of mine, Argentina.

Up to the 1970s an acceptable degree of social integration prevailed in Argentina. This was, however, lost in a process that had both national and international components.

On the one hand, a brutal military dictatorship suppressed the rule of law. On the other hand, the foreign private debt skyrocketed and was assumed by the state. Its repayment was a heavy burden on the whole society.

The big American and European banks cannot escape responsibility. In many cases the debts were not even real but a mechanism for the unlawful flight of funds through back-to-back loans. If an Argentine firm deposits a million dollars in an American bank, this bank Ďlendsí it a million dollars in return. Some of them were even channels to launder money from political corruption associated with the privatisation process, as Mexicans and Argentinians are well aware of. I saw in the panel established to prepare for the Monterrey Financing for Development summit the president of one of these banks. Iím curious to know if this would lead to some kind of self-criticism.

A peculiar Argentine feature is that the ratio between public debt and deposits of Argentinians abroad is almost 1:1.

This means that instead of financing Argentinaís development, foreign debt financed capital flight.

Other countries never knew the benefits of economic growth, which our people lost. Such different stories ask for different answers.

The dictatorship ended in 1983 and the first elected president promised that democracy would mean employment, education and health for all. None of this really materialised and the present social indicators are the worst ever. The economy kept working the same way, as a pump expelling wealth.

Domestic savings in Argentina could be enough to ease the situation of the underprivileged - if only they would remain in the country.

One can say that Argentina has long been financing the development of the countries where this money is invested. Guess which ones.

The international financial institutions neither objected to this trend† nor made its reversal a condition for backing the Argentinian government programmes.

It wouldnít have been that difficult, given the national origin of the banks that funnelled this upside-down flow and the countries in which the funds were invested. The IMF and World Bank had both the means of knowing and the means of fixing the problem. But they never did it.

While in the IMF, Mr Camdessus (former managing director of the Fund) always used to say that the IMF asked for a balanced budget but the way to achieve this goal was up to each country, that the IMF does not ask governments to perform structural adjustment on the poorest sectors of society.

Iím still asking myself why the governments never took him seriously. In this aspect, at least.

In a word, Argentina has been an involuntary donor country. With almost half of its educated population having fallen below the poverty line in a country that exports food, the outcome is a crisis with economic as well as social, political and moral dimensions.

For an increasing number of people the state shows just the face of law enforcement institutions: a brutal police and a judiciary usually employed to penalise social protest. Some of you may be aware that Argentines took to the streets banging pans. The larger the demonstrations are, the more difficult it is to suppress them. Then some things should change. The ghosts of Seattle and Genoa are everything but immaterial, not to speak of Nine Eleven.

In a country such as Argentina employment creation, poverty reduction and respect for human rights cannot be dissociated from the expansion and strengthening of democracy. Social inequalities must not be dealt with on charitable grounds. They are not a matter of assistance but a matter of rights, which have to be enacted through institutional mechanisms. Our problem is not poverty, as in so many other countries, but distribution of income.

Before the present crisis the Argentine per capita income was $9,000 a year, enough to prevent a single family from falling below the poverty line.

Strenghtening democracy means guaranteeing universal access to an independent judiciary and due process of law for everybody, not only for big business.

Civil society and its organisations must have a say in this field.

The international financial institutions, global or regional, can be of help if they incorporate in their decision making and procedures the voices of civil society, which can tell them how things really are in their respective countries.†

This would improve the much-needed control over both international financial institutions and national state institutions and the setting of goals and conditions.

Conditionality is not necessarily a bad word. It depends on the conditions. Austerity is not a bad word either. It depends on who it is imposed on. The same can be said of taxes. To change the world, as weíve been told this morning, we must start changing the international financial institutions.

The IMF, World Bank, WTO, would be welcome if theyíd shift priorities and privilege and celebrate an alliance with the underprivileged. Of course this will require some political decisions by the most powerful governments in the world.

If they donít do that, all of this would be pure red tape, with no effect whatsoever on the lives of billions of people all over the world, and a new waste of time and of much-needed resources.

A columnist for the Argentinian daily newspaper Pagina12, Horacio Verbitsky is a journalist and researcher known in Latin America for his investigative journalism about the illegal repression during the military dictatorship and corruption during the last decade.