The Australian Government participates in a system of global governance which at the current time is failing to fairly and effectively coordinate the international economy. Critical civil society and movements like the international Jubilee network see themselves as existing to redress these imbalances.
Years of evidence from communities and governments in less-developed countries demonstrate that international financial institutions (IFIs) such as the International Monetary Fund, the World Bank Group and Asian Development Bank, have been severely implicated in debt crises, and have regularly worsened and sometimes even helped to create the very problems they purport to solve. This sort of analysis is not just found in the publications of radical NGOs; rather these are the critiques made by some of the top development scholars including Joseph Stiglitz (Columbia University, Nobel Prize winner in economics), Ngaire Woods (Oxford University) and Ha-Joon Chang (Cambridge University).
Despite this, developed country governments, including Australia, still preferentially finance these institutions and mandate them to fulfill ‘development objectives’ on their behalf. Roughly 20% of Australia's overseas development assistance (‘aid’) budget goes to the World Bank Group and Asian Development Bank, as well as contribution to and membership of the IMF.
When we look at Africa, the debt crisis for the poorest countries worsened throughout the 1980s and 1990s. Sub-Saharan African debt levels doubled between 1985 and the early 1990s while debt levels of the poorest (HIPC) countries in 1999 were four times their 1980 level. By prioritising repayments over meeting basic needs, the advice of the international financial institutions helped prolong the debt crisis and caused enormous suffering. A rigid definition of debt sustainability was to blame, as were fluctuating and often falling commodity prices.
Most significant in the case of sub-Saharan Africa were the harmful effects of the World Bank-supported Structural Adjustment Programs and IMF conditionalities. These Structural Adjustment Programs resulted in a number of problems stemming from an obsession with reducing budget deficits, which in turn, reduced the resources available for governments to invest in local development. The push to privatise government-owned services had long-term negative effects, including the creation of artificial monopolies and more expensive basic services such as water and electricity. Slashing public spending to reduce budget deficits caused unemployment to increase, hurt the economy and led to many personal hardships. Premature financial and exchange-rate liberalisation—before there was stabilisation in the economy—had negative monetary effects. And enforced trade liberalisation before the infrastructure and industries could adapt to world competition demolished many local industries. Apart from hitting the poor worst of all, these policies entrenched patrimonial politics in Africa and centralised power in the hands of those who already had more than enough of it.
In sub-Saharan Africa, scholars have laid the following charges concerning the failures of World Bank and IMF-imposed Structural Adjustment: it ‘did not seem to work’, had ‘no impact on investment flows’, had ‘pronounced adverse impacts on the poor’ or paid little attention to them, was ‘deeply damaging, incurring perverse effects and hindering the prospects of development outcomes’, and ‘ignored or wished away political realities’. Similar critiques have been made about World Bank and IMF policies in Latin America and many poorer Asian countries. These were often bigger economies with more complex debt profiles. But the central point is this: the African crisis worsened through the 1980s and 1990s and the Bretton Woods Institutions were contributors to it.
As with the earlier debt crises, the IMF had a large role in making various nations vulnerable to financial crisis by forcing the premature opening up of economies to foreign capital. The countries concerned did not have systems in place to contend with the sudden influx of capital. This left them vulnerable to sudden flight when factors in the global economy turned against them. In East Asia, the IMF was also pivotal in urging Asian economies like Malaysia, Thailand, South Korea and Indonesia to relinquish their capital controls to allow foreign investment. World Bank and IMF policy conditionalities associated with access to new loans/ debt relief have been thoroughly criticised for the damage they have caused in less-developed countries, along with the impact on democracy. Indebted governments are forced into making policy choices which they are told are good for them, even though they may not agree. In either case, debtors have little agency or power and are obliged to do what they are told to attain the assistance that they require.
The IMF role in encouraging the abandonment of capital controls and the widespread adoption of a model of economic growth based on foreign investment was perhaps most explicit in Argentina. Argentina was the IMF’s poster child in Latin America because it had followed its economic prescriptions to the letter. The IMF advised Argentina to peg its exchange rate to the US dollar and open up its capital markets, causing a huge influx of overseas capital into the economy. Together, these two policies made Argentina vulnerable to any slight change in the global economy. When the US dollar rose, Argentine exports became less competitive, the economy tanked, foreign investors fled, and Argentina was left with a huge debt headache.
Governments have a duty of care to provide education, healthcare, water, sanitation and other basic social services to its citizens. Taxation is a primary means of generating essential revenue. For this reason the tax payments companies make to the government budget are of more importance than the direct services that may be provided to communities. Without the capacity to generate domestic revenue, less-developed countries will continue to be dependent on foreign loans and investment, whilst foreign companies profit from bleeding the countries dry of their natural resources.
The potential for governments to generate public revenue through transparent and equitable tax laws, and to distribute this revenue through a participatory and transparent budget process, is of paramount importance. Equally Australian companies must comply with the tax regimes of other countries in which they have commercial interests and provide disaggregated reporting of tax and other payments to developing countries governments on an annual basis. This would be a truer measure of their dedication to corporate responsibility.
Tax dodging by multinational companies costs less-developed countries over a hundred billion dollars every year—more than the entire global aid budget—at a time when the global crisis is prompting severe cuts in states’ budgets around the world and millions of children are denied a basic education.
The G20 leaders could introduce measures to end the tax haven secrecy that allows companies to hide their profits and avoid paying taxes in developing countries. These measures include requiring companies to report on the profits made and taxes paid in every country in which they operate and automatic exchange of information between different tax jurisdictions. This would help developing countries collect the taxes they are owed.
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