Submission to the SCFAIT regarding G8 agenda - May 14, 2002

Statement by the Halifax Initiative Coalition To the House of Commons Standing Committee on Foreign Affairs and International Trade (SCFAIT) Regarding the G-8 Agenda

May 14, 2002

We welcome the opportunity to comment on the key themes of the up-coming G8 Summit.

The Halifax Initiative is a coalition of NGOs representing a diverse and extensive Canadian constituency deeply concerned about the role of the G8 in the international financial system and its institutions. Some of our members made presentations individually to the Committee including, the Canadian Council of International Cooperation, the Canadian Labour Congress, Rights & Democracy, Social Justice Committee and the North-South Institute.

In March of 1995, our Coalition testified before this Committee to provide our comments on the 1995 G7 Summit. The Halifax G7 focused on the reform of the international financial institutions, namely the World Bank and the IMF. We would like to return to this theme in our brief as it is critical to both global economic growth and African development. Our remarks also focus on the reform of the Bretton Woods Institutions to urge Canada to take leadership to act on unfulfilled promises made at the G7 in 1995.

Global Economic Growth

We would like to frame our comments in this area by first noting that a focus on growth, as compared to wealth redistribution or poverty, contributes to the crisis of legitimacy facing the G7 and the international financial institutions in its control. G7 inerrant faithfulness to market-oriented solutions to growth, poverty reduction and sustainable development demonstrates a clear lack of interest to address inherent bias within the global economic system.

We believe that global economic growth, specifically in developing countries, is constrained by G7 support for particular economic policies, commonly referred to as the Washington Consensus. This Consensus requires countries, irrespective of their specificities to liberalize trade and investment and to privatize public and natural assets. There is little evidence to suggest that these policies lead to growth, and much to prove that they cause widening inequalities in income, wealth and standard of living within and among countries. Some examples are given in the next section of this brief. The report, "The Policy Roots of Economic Crisis and Poverty", based on results of the Joint World Bank, civil society participatory review of structural adjustment, is just one of many thorough and thoughtful studies that conclude that a significant shift away from the current policy paradigm is required for developing countries to grow. The G7 should call for an end to the IMF and World Bank imposition of condition to loans or debt relief, that require developing countries to liberalize trade and investment and privatize. Countries should be able to make these decisions through participatory, domestic processes, not through donor imposition. This call would be consistent with G7 statements in regards to support for developing country ownership of their development strategies.

G7 support for an international debt arbitration mechanism, independent of all creditors, including the IMF, would be welcome. However, it does not mitigate the widespread recognition of the need for the immediate cancellation of the debt of the poorest countries. An international debt arbitration mechanism must have the authority to assess and cancel illegitimate debts and not just write down unpayable debts as does the HIPC mechanism. Illegitimate debts include: debts that cannot be serviced without causing harm to people or communities, odious debts incurred to strengthen despotic regimes, debts contracted for fraudulent purposes, debts whose proceeds were stolen through corruption, debts that became unpayable as a result of creditor unilaterally raising interest rates.

A debt arbitration mechanism should be independent of IMF control as the Fund itself is a creditor and is subject to the political dictates of its largest shareholder, the U.S. While an arbitration tribunal might assist in an orderly debt work-out, it will not assist in the prevention of crisis.

Capital controls, including a currency transaction tax, are critical tools in the prevention of financial crisis. In 1999, the House of Commons passed a motion indicating support for a currency transaction tax. Canada, as host of the G7 should demonstrate leadership by including support for a currency transaction tax as part of it Action Plan to prevent financial crisis. In February 2002, a report commissioned by the German Federal Ministry for Economic Cooperation and Development on the feasibility of applying a currency transaction tax on the euro is further motive for G7 leadership for support for a CTT.

Africa

The New Partnership for Africa's Development is a starting point for G8 discussion on Africa, but it has not been a starting point for discussion in Africa. The absence of prior discussion and debate with African citizens raises issues of commitment to democratic participation, and is also reflected in the content and priorities established in the document.

NEPAD's primary audience is clearly not African citizens but rather Northern donors and institutions. It therefore repeats the approaches of Northern donors and institutions, approaches, as mentioned above, cannot be relied on to eradicate poverty, protect the environment or equitably distribute wealth.

As noted earlier in this brief, the narrow set of policy prescriptions dubbed the Washington Consensus, have failed to bring growth and have contributed to poverty and environmental degradation. Yet it is this same approach, liberalize and privatize, that remain intact in NEPAD. In South Africa, for example, privatization of electricity has resulted in costs rising as much as 400 per cent in Soweto. The Washington Post reported, "Materially, life has gotten worse since 1994, as the ANC has pursued a course of piecemeal privatization of state industries, whittling of import taxes and loosening of controls on foreign exchange. The policies have expanded opportunities for foreign investors but so far have deepened the poverty inherited from apartheid's segregationist policies"1 . Water privatization in South Africa has also not served the poor. A cholera epidemic killed 200 and infected 90,000 after water supply in South Africa was privatized, then made unavailable in poor rural communities.

The minimum wage in Ghana is 5,000 cedis - about US$3 - a day. Although this is not enough to sustain a family, most people in Accra, the capital, do not earn this much and many have no regular employment. The cost of a bucket of water, about 2 1/2 gallons, for those who do not have water piped to their homes and buy it from better-off neighbours, was around 400 cedis until April 2001, when water and electricity tariffs doubled, so a bucket now costs 800 cedis. (More than half the people in Ghana earn less than US$1 - 1740 cedis - a day.) In poorer neighbourhoods, untreated water from hand-dug wells costs 50 to 100 cedis. These shallow, hand-dug wells, some of them situated close to open drains, do not provide clean water.

Zambia was forced, as condition of debt relief to privatize its copper mine. The government was forced to cut price to facilitate sale to Anglo-American (valued at US$350 million, sold at US$90 million), absorb all outstanding debts, and to provide a 20-year environmental indemnity." 2

Reliance on foreign investment has also had questionable results in fighting poverty. Dr. Yash Tandon, in a paper commissioned by UNCTAD entitled "The Role of FDI in Africa's Human Development", concludes that FDI is essentially "predatory in nature" and that a priority must be placed on domestic savings. He goes on to argue that "FDI must be allowed in as and when required by national consensus between the Government, the local private sector, the workers and small farmers, and other organs of civil society. FDIs must operate under certain nationally determined conditions (for example, limited access to domestic savings), and they must conform to certain performance requirements (for example, effective transfer of technology, or managerial know-how)." http://attac.org/fra/list/doc/tandon.htm

he G8 to follow-through on promises made in 1995 to find a comprehensive solution to the debt crisis, plaguing Sub-Saharan Africa. As Minister Martin himself noted last month, HIPC is not working. The G8 must call on the IMF and the World Bank to cancel the debt of the poorest countries, using the institutions own resources.

The impact of this on the institutions could be mitigated by changes in multilateral arrangements for international cooperation that would be more transparent, democratic and pro-poor. These new initiatives could include the shutting down of the IMF's development facility and the creation of a World Solidarity Fund, which would have equal participation in management from donors and recipients. The World Solidarity Fund has been promoted by the G-77. This idea and other new initiatives for multilateral cooperation should be addressed by the G8.

Neither the Monterrey Consensus adopted at the recent UN Financing for Development conference, nor the New Partnership for African Development are the giant leap away from the Washington Consensus necessary to allow countries the range of policy options available to enable poverty eradication, equitable distribution of wealth and economic growth.

A giant leap and possible elements of a G8 Action Plan for Africa would include cancellation of the debt, the creation of democratic and transparent multilateral cooperation mechanisms, requiring high performance standards on trade financing and investment, the implementation of a currency transaction tax, and the de-linking of aid from all types of externally-imposed conditions, and pre-conditions to aid. It is this last aspect of the proposed action plan for the G8 that may prove to be most difficult for the G8, as donors, and the businesses they represent, have the most to lose by policies that reflect a strategic rather than full integration into the global economy.

This document is respectfully submitted by:

Pamela Foster, Coordinator on behalf of: Office of Social Affairs, Canadian Council of Catholic Bishops, Canadian Council for International Cooperation, Canadian Labour Congress, CUSO, Kairos: Canadian Ecumenical Justice Initiatives, MiningWatch Canada, North-South Institute, Oxfam Canada, RESULTS Canada, Rights & Democracy, Social Justice Committee, World Inter-Action Mondiale.

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1- Jeter, Jon. "For South Africa's Poor, a New Power Struggle". The Washington Post, November 6, 2001, A1 and A18. Back.

2- Woodroffe, Jessica and Karen Joyner. "Conditions impossible: the real reason for debt relief delays". World Development Movement Report Sept. 2000. Back.