Global Trends by Martin Khor

Monday 22 May 2006

Battle of wills on “policy space”

Do developing countries have the right to the “policy space” to determine their own economic and social strategies?  This question is testing the political wills of developed and developing countries.  Last week a United Nations meeting collapsed after strong disagreement on this issue.


A battle in diplomatic circles on whether developing countries have the right to “policy space” to formulate their own development strategies is coming to a head.

On one side are the developing countries, under the umbrella of the Group of 77.  They argue that they must have the right to choose the economic and social policies that are suitable for their national conditions and goals.

In the past two decades, this right has been whittled away by at least three factors: the conditions that the International Monetary Fund and World Bank attach to their loans;  the rules of the World Trade Organisation; and the dictates of the global financial markets.

Many developing countries have been pressurized by the rich nations to accept orthodox free-market policies such as sudden liberalization of imports, unrestricted flow of capital and wholesale privatisation (often to foreigners).

These countries’ policies stopped being made by their own leaders or parliaments, but were dictated by bureaucrats from the IMF or World Bank, or else their national laws and policies had to be changed to fit the WTO’s rules.

For most developing countries, the policies did not work.  The East Asian countries had their own bitter taste of the IMF medicine during the 1997-1999 financial crisis, and have vowed “never again” would they get into a situation of having to borrow from it.

Many African and Latin American countries are however still in the IMF’s grip.  And the developing countries are finding that many of the WTO’s rules (for example on intellectual property or services) are constraining their ability to promote their own industries.

They have spoken in international fora to get the developed countries to recognize their need for “policy space”, or the freedom to choose between different policy options, so that each country can formulate the mix of policies that best suit it.

This implies that the international agencies have to relax their policy conditions or change their rules to enable developing countries to adopt pro-development policies.

However, this movement for policy space has been resisted by the developed countries, particularly the United States.  They fear it may loosen their grip over the international organizations that they use to continue their global economic domination.

In 2004, the developing countries won the first battle when they succeeded in getting the ministerial meeting of UNCTAD (UN Conference on Trade and Development) held at Sao Paulo to adopt a resolution that included a recognition of the importance of policy space for developing countries.  And this was endorsed by the UN World Summit in New York in September 2005.

But the US has never been happy with this.  A week ago, it tried to reverse the decision on policy space by objecting to having any reference to the term in the conclusions of an important UNCTAD meeting in Geneva that is reviewing its future work and mandate.

The G77, which speaks for over 130 developing countries, strongly advocated that policy space be a central principle to guide all of UNCTAD’s activities. 

But the US said it always had doubts about the “policy space” concept and it now insisted the term should not appear in the document that will guide UNCTAD’s future work.

What was to have been a simple meeting turned into a battle of political wills over the future direction of the United Nations’ economic and social role.

The G77, to its credit, refused to give in for doing so would be to condemn UNCTAD and the UN system to irrelevancy, or so the group felt. 

On the other hand, the US would not budge.  Earlier in New York, its delegation had also stated that in future UNCTAD should not focus on policy research but should focus on technical aid to the poorest countries.

Near midnight on 11 May the UNCTAD review meeting collapsed, without any agreed draft on UNCTAD’s work for the next two years.  

This has plunged the UN agency into a crisis, since it has to come up with a workplan by September.   If the deadlock continues, it could become easier prey to those who want to close it down in the framework of the UN reform process.

The G77 want UNCTAD to be saved, for it is an organization the developing countries created more than 40 years ago.  But they want it to be a useful agency, and not a toothless animal.

What is happening at UNCTAD is an example of the current battles at the UN as a whole as the Western countries try to use the banner of “reform” to further erode the once powerful influence of the UN system on economic and social affairs.  Whether the developing countries can fight back successfully remains to be seen.