Information Landmine

"The Americans keep telling us how successful their system is. Then they remind us not to stray too far from our hotel at night." - An un-named EU trade representative quoted during international trade talks in Denver, Colorado, 1997.

Wednesday, November 29, 2006

Loosening the grip of conditionality

To the pages of today's Financial Times, a.k.a. the somewhat less reactionary man's Wall Street Journal, where we read of the latest ruthlessly imperialist global machinations of The Yellow Peril. Bankers from the People's Republic of China, it seems, are undercutting the European Investment Bank (EIB) by loaning money to developing African states with fewer strings attached for the privilege. The emergent Asian superpower's clear aim is to increase its ever-rising influence in the region, and the European bankers, it would seem, are somewhat dismayed at this tactic towards achieving that goal. So what to make of it all?

Certainly, the Chinese are acting out of self-interest, as opposed to granting such loans merely as magnanimous and benevolent gestures of support for Africa's socio-economic development. Africa, after all, is a resource rich continent, with access to such resources the subject of ever-increasing competition between the industrialized and industrializing nations alike here in the big, bad 21st century. And anyone who remembers Tiananmen Square on June 4th 1989 knows just about as much as is really necessary to adjudge whether or not China can seriously be considered a conscientious, positive and proactive force for human advancement.

Instead, the Chinese are merely doing what is necessary to be the most competitive players in the big global economic chess game. But what's most remarkable about this whole episode is the laughably disingenuous argument put forth by the EIB and its supporters as to why these Chinese loans are such a bad, bad thing.

The EIB decry the potential death blow that the loans in question deal to the concept of conditionality - i.e., the strings that international lenders attach to loans before they are granted, in order that the countries taking the money behave in a certain way in exchange for the cash. These strings, they say, are used as a force for good.

Threatened, according to the EIB's president Philippe Maystadt, is the possibility of using international loans as a form of leverage in order to pressure the most backward and underdeveloped countries to increase and/or safeguard human rights, social justice and the promotion of sound governance. Now, thanks to the "unscrupulous" Chinese banks, most if not all of that leverage has evaporated.

The Chinese banks, like the Chinese government, are unlikely to give a damn for the promotion of human rights or social justice. Looking at the People's Republic's track record at home and in places like Tibet, that's to be expected, really. But if western banks and governments ever had such concerns for the people of the developing world, they've had an odd way of expressing it if their own actions and results are anything to go by.

In point of fact, as anyone who's read the works of Nobel prize-winning economist and ex-World Bank honcho Joseph Stiglitz knows, loans from western governments and financial institutions nearly always come with conditions that, taken as a whole, end up impoverishing rather than enriching the developing countries receiving them.

Conditions such as deregulating capital markets so that hot money can not just enter emerging countries but leave just as quickly as soon as times get tough.

Or that dictate huge cuts in public spending combined with mass privatizations that end up destroying the fragile middle classes whose emergence, history suggests, are a prerequisite for development.

Or that result in policies which leave the poor further in debt, more likely to be unemployed and with more to pay for basic necessities such as water, food and fuel.

And that, ultimately, result in further destabilization in places that were already pretty damn unstable to begin with.

Conditionality would be a great and laudable tool for progress and development if it really was consistently and overwhelmingly used to promote responsible government, human rights and social advancement. The reality, however, is that conditionality has instead mostly been used as a tool for promoting the kinds of neoliberal economic policies which promote the interests of Wall Street and City elites over those of everyone else in all countries in almost all circumstances.

The Chinese may be ruthless despots, but if they can help loosen the grip of western financial interests on developing countries, they may end up doing the world a good turn if only as an accidental byproduct of their quest for global expansion in the 21st century.


Blogger Uncle Petie said...

Competition in the provision of financial services to developing countries? You'd really think that this would be the kind of free market solution the EIB could get behind! ;)

30 November, 2006 18:38  
Blogger Steve said...

Those on the right are going nuts over the amoral behaviour of the Chinese in giving out loans to countries with, for example, suspect human rights records and shaky commitments to democracy without even trying to extract concessions in such areas in return. So far, there's nothing disagreeable about such objections. After all, what modern, rational and intelligent person doesn't (at least publicly) advocate liberty and democracy becoming universally applied and respected?

The problem is that, following as a direct result of the raft of other conditions that western banks and governments apply in exchange for granting their own loans, those very same right wingers who are most up in arms about this are often the very same people who carry out and/or defend the systematic looting by Western financial interests of the few real assets that such developing countries have. And they either don't see how (or, more to the point, don't care that) their own actions and attitudes are in any way morally suspect because of it.

The Chinese, to my mind, are at least more transparent about their intentions, even if they are based just as much on self-interest as those of their counterparts in the West.

02 December, 2006 14:28  
Blogger Uncle Petie said...

To be fair, I doubt China's that transparent about its intentions as far as the Chinese are concerned - I have no doubt all this stuff gets written up in Xinhua as a shining example of Chinese benevolence in much the same way that conditionalities get approved of in the FT (although a Chinese person might have good reason to be a little more circumspect about making his thoughts about the Xinhua article known on the web). It seems to me that the best you can hope for if you're a developing country is to be able to play the one off against the other - although we all know how well that worked out in the cold war.

03 December, 2006 14:19  
Anonymous Rob said...

Its a stunning article nicely written. Two comments in some cases such as Uganda (my country) conditionality (tied loans) has proved yielded some success, economic growth has been close two digits figures over the last 20 years, unemploymwnt is down, and Uganda is now a more attractive place to invest and visit than it was 20 years ago.

Without some conditionality government spending might have been more stifled by corruption, and poor investment decisions. Now while the WB, IMF and EIB etc are also very capable of blundering in their decision making, the loss of foreign resources will not hurt the recipient country as much as poorly invested domestic resources.

My second point is there should be more room for independent advisors for recipient countries within the transfer of loans to developing countries. Bostwana, Mozambique and Uganda have benefited from independent expertise over the last decade.

11 December, 2006 19:14  

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