A Bleak Future 50 Years after the New International Economic Non-order?

• Opinion by Anis Chowdhury (sydney)
• Wednesday, July 03, 2024
• Inter Press Service

Failed aid promise

The NIEO resolution reaffirmed the minimum target – originally defined in the strategy for the second Development Decade – of 1% of the gross national product (GNP) of each developed country to be transferred to developing countries, out of which 0.7% of GNP would be as official development assistance (ODA).

But, ODA steadily declined from around 51% of GNI in the early 1960s to around 32% during 2017-2021. Oxfam estimated that 50 years of broken promises meant a US$5.7 trillion aid shortfall by 2020. Only five countries met the ODA target of 0.7% of GNI: Denmark (0.70%), Germany (0.83%), Luxembourg (1.00%), Norway (0.86%) and Sweden (0.90%).

Unreformed international monetary system and financing of development

The NIEO resolution called for (i) full and effective participation of developing countries in all phases of decision-making at the International Monetary Fund (IMF) and the World Bank; (ii) adequate and orderly creation of additional liquidity through the additional allocation of special drawing rights (SDRs); and (iii) early establishment of a link between SDRs and additional development financing.

None has materialised. Despite repeated commitments, and notwithstanding some minor improvement between 2005 and 2015, the representation of developing countries in international financial institutions, regional development banks and standard-setting bodies, e.g., OECD’s international taxation, has remained largely unchanged. The governments of the largest developed countries continue to hold veto powers in the decision-making bodies of these institutions.

The unchanged mechanism for allocating SDRs in proportion to countries’ IMF quota shares meant that most of the latest SDRs allocation of (about US$650 billion) in 2021 went to advanced economies; developing countries received only about one third, the most vulnerable countries receiving much less. While both G7 and G20 called for a voluntary rechannelling of US$100 billion worth of unused SDRs, only a fraction has actually been rechannelled to developing countries.

Increased indebtedness

The NIEO resolution envisioned “appropriate urgent measures …to mitigate adverse consequences for … development … arising from the burden of external debt”. These included debt cancellations, moratorium, rescheduling or interest subsidisation, and reorientation of international financial institutions lending policies.

Failure to fulfil aid promises and reform the global financial architecture, including the IMF quota-based SDRs allocations, forced developing countries to borrow from commercial sources at exorbitantly high interest rates with shorter maturity terms and no mechanism for restructuring. This has exacerbated the debt crisis. Almost 40% of all developing countries (52 countries) suffer from severe debt problems and extremely expensive market-based financing.

Only after extensive lobbying by civil society organisations, did the IMF and the World Bank jointly take the Heavily Indebted Poor Countries Initiative in 1996, supplemented by the Multilateral Debt Relief Initiative in 2005. Despite the IMF’s debt service relief, and some limited G20 debt service suspension during the Covid-19 pandemic for low-income countries (LICs), the debt crisis worsened, with 60% LICs already at high risk of or in debt distress.

Rising food insecurity

The NIEO resolution called for the accumulation of buffer stocks of commodities in order to offset market fluctuations, combat inflationary tendencies, and ensure grain and food security.

Developing countries are far from attaining food security. Even before the Ukraine war, food insecurity around the world was rising. The Food and Agricultural Organization (FAO) estimated that in 2022 approximately 30% of the global population (2.4 billion people), did not have constant access to food. Among them, around 900 million people faced severe food insecurity, and an additional 122 million people have been pushed into hunger since 2019. World Bank projections show that by 2030, over 600 million people will still struggle to feed their families.

Meanwhile, Africa turned from a net-exporter to a net-importer of food since the adoption of NIEO resolution. While developing countries had an overall annual agricultural trade surplus of almost US$7 billion in the early 1960s, “since the beginning of the 1990s they have generally been net importers of agricultural products, with a deficit in 2001, for example, of US$11 billion.”

Deindustrialisation

The NIEO resolution called for “all efforts … by the international community” for “the industrialization of the developing countries”.

Except for a few countries in Asia, deindustrialisation has become the unfortunate fate for developing countries. For Africa, the GDP share of manufacturing declined from around 17% in 1990 to around 11% in 2019, and Africa remains the least industrialised region in the world. In most central Asian countries, manufacturing’s GDP shares declined from around 20% in the early 1990s to less than 10% in 2015. Large Latin American countries, e.g., Argentina, Brazil, Chile and Mexico also witnessed declines in manufacturing’s GDP shares.

The deindustrialisation has seen increasing specialisation in commodities, resource-based manufactures and low productivity services. Thus, majority of developing countries remain vulnerable to commodity price swings.

Even late-comer Asian developing countries, including China, face the risk of premature deindustrialisation. Some, e.g., Malaysia, the Philippines and Thailand, are already are in a ‘middle-income trap’.

Trade and technology barriers

The NIEO resolution asked for “improved access to markets in developed countries through the progressive removal of tariff and non-tariff barriers and of restrictive business practices”.

Yet, there has been a resurgence of protectionism in OECD countries since the late 1970s. The trade protectionism under different guises, such as health and sanitary standards, persisted even after the establishment of the World Trade Organization (WTO). The World Bank has warned, “protectionist measures are on the rise… detrimental policies have been outpacing trade-liberalizing policies”.

The NIEO resolution also emphasised that developing countries needed to be given “access on improved terms to modern technology and to adapt that technology, as appropriate… and … adapt commercial practices governing transfer of technology to the requirements of the developing countries”.

Still, strengthened intellectual property rights, reinforced in the WTO’s agreement on Trade-Related Intellectual Property Rights (TRIPs), have raised the costs of acquiring technology, reducing technology transfers, raising transnational corporations (TNCs)’ monopoly powers. Developed countries refused to relax TRIPs to allow developing countries’ access to Covid-19 vaccines, drugs and testing technologies.

Unabated power of transnational corporations

The NIEO resolution demanded “permanent sovereignty of States over natural resources”; and “regulation and control over the activities of transnational corporations… to prevent interference in the internal affairs of the countries … to eliminate restrictive business practices…to conform to the national development plans and objectives of developing countries, …to transfer …technology and management skills to developing countries on equitable and favourable terms; to regulate the repatriation of the profits … and to promote reinvestment of their profits in developing countries”.

The UN Commission on TNCs, a body created in 1974 for the purpose, struggled to agree on the draft code of conduct on TNCs, and in 1994 was replaced by a Commission of the Trade and Development Board of UNCTAD.

TNCs continue to influence and mould domestic and international politics to their interests. TNCs have governments at their beck and call – witness their consistent success at dodging tax payments. Stringent WTO’s TRIPS was adopted at the behest of TNCs, especially to protect monopoly profits of big transnational pharmaceutical companies.

TNCs exert political influence to liberalise trade and investment; obtain subsidies; reduce their tax burdens; dilute working conditions; relax environmental protection. As Dani Rodrik noted, the WTO is heavily influenced by major banks and TNCs. Through the World Economic Forum (WEF), the TNCs are now setting global economic agenda.

Diminished States

The NIEO resolution contained the Charter on Economic Rights and Duties of States. However, neo-liberalism promoted by US President Reagan and UK Prime Minister Thatcher sees State as a problem. Privatisation, liberalisation and deregulation have significantly eroded the State from its customary intervention in regulating economic growth and promoting redistribution. The erosion of the State as an institution is visible in underfunded social programmes, a smaller public sector, weakened regulatory structures, foregone infrastructure projects, public assets sales and continued privatisation.

Questionable legitimacy of global economic governance

The NIEO resolution demanded that the United Nations, in particular the Economic and Social Council, be entrusted with the responsibility of setting global economic agenda and coordinating it as the most inclusive organisation with legitimacy. Besides the TNC takeover of global economic agenda setting through WEF, non-inclusive informal country groupings, e.g., G7 and G20, with questionable legitimacy and formal bodies, e.g., OECD and Bank for International Settlements, are acting as norm-setters. Thus, developing countries remain unpresented and disadvantaged.

Opportunity lost

The NIEO resolution was initiated in the wake of the collapse of the post-World War II Bretton Woods System in 1971, aimed at supporting development aspirations of developing and newly decolonised countries. However, the developed world failed to see that more orderly world growth and prosperity of developing countries would have benefited them too.

Instead, they engaged in protected negotiations dragging on for about two years. The resolution was adopted by a divisive majority vote (123 for, 50 against and 1 abstention) amidst fierce opposition from developed countries.

The United States took the position that “it cannot and does not accept any implication that the world is now embarked on the establishment of something called the New International Economic Order”. The NIEO effectively went into oblivion after President Reagan declared in 1981, “We should not seek to create new institutions”.

Thus, the developed world ensured NIEO’s failure while the global economy continues to struggle under a “non-system”. The world economy has also become more crisis prone; we had the Latin American debt crisis in the 1980s, the 1997-98 Asian financial crisis, the 1998 Russian financial crisis, the 2000 Turkish lira crisis and the 2002 Argentine crisis within a short span of two decades. And the global financial and economic crisis showed, a crisis originating in one corner of the globe can quickly engulf the whole world.

Yet, we still do not have a global financial governance mechanism to deal with such crises fairly. What is most disappointing may not be the failure of the NIEO as such, but the hope that it inspired.

A bleak future?

Initiated by Progressive International, delegates from over 25 countries of the Global South assembled in Havana on 27 January 2023 to declare their intent to build a NIEO fit for the 21st century, countering the TNCs’ global economic agenda setting behind the WEF. The signatories of NIEO-Mark II seek to rebuild the collective power of emerging and developing countries for fundamentally transforming the international system, and for alternative ways to respond to global crises.

NIEO-Mark II is essentially, a call for shared and differentiated responsibilities for equitable development. Developed countries acknowledge the principle of ‘common but differentiated responsibilities’, formalised at the 1992 Rio Earth Summit. But they have failed to meet their financing commitments and reneged on various targets to address global warming.

Amidst ongoing global challenges, including the climate emergency geopolitical conflicts, public health crisis, global food insecurity, outstripping the response capacity of the UN, the UN Secretary-General has called for a Summit of the Future – Our Common Agenda to be held on 22-23 September 2024.

The Summit of the Future is expected to find multilateral solutions for better tomorrow; resulting in an inter-governmentally agreed “Pact for the Future” to tackle emerging threats and opportunities.

What is the chance that the nations would agree to the “Pact for the Future”? To what extent the Pact will accommodate NIEO-Mark II?

The world now is more divided than it was in the 1970s when NIEO-Mark I was first proposed. Yet, plagued by ideological conflicts, NIEO-Mark I failed, making the world more crisis prone. One can only hope that the rising ideological and geo-political tensions do not lead to a bleak future.

Anis Chowdhury, Emeritus Professor, Western Sydney University (Australia). Served as a senior official at the UN Department of Economic Social Affairs (UN-DESA, New York) and UN Economic and Social Commission for Asia and the Pacific (UN-ESCAP, Bangkok) between 2008-2016.

IPS UN Bureau

Follow @IPSNewsUNBureau
Follow IPS News UN Bureau on Instagram

© Inter Press Service (2024) — All Rights ReservedOriginal source: Inter Press Service