In Defence of Merdeka (Independence)

Martin Khor

Independence has been achieved, yet has to be constantly defended, continuously renewed and expanded as the process of de-colonisation is on-going and new threats arise.

This week marks the beginning of our 58th year of Independence [in Malaysia]. Much has been done to entrench sovereignty and independence on our land. But much more needs to be done.

Colonialism did a comprehensive uprooting of traditional systems and replanted them with new ways, methods and systems to produce a chaotic and confusing amalgam of people, social patterns and economic modes. We are still shaking off the vestiges of that colonialism, whose shadows still fall large. We are still in the process of building independent policies, structures and systems. This is so in post-colonial developing countries in general. As the leaders of the Group of 77 and China stated in their summit held in Bolivia recently, the process of de-colonisation is incomplete and on-going, even decades af­ter the winning of Independence.

That is a good reminder. In particular, the structures and levers of the global economy are still under the domination of the rich developed countries. The former colonial masters may have let go of formal control of the colonies but they made sure to set up a system in which they could continue to control the important components of world finance, trade and economy.

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The Logic of Neoliberal Anti-Populism

C.P. Chandrasekhar

Advocates of neoliberalism not only dress themselves as market fundamentalists but also present themselves as anti-populist. They don’t dither when it comes to condemning any sign of the government using tax revenues to provide transfers or subsidies to the poor or undertake expenditures that are expressly meant to favour the poor, in the form of livelihood protection, poverty alleviation or free and universal provision of basic health and educational facilities. The justification for this is two-fold: that expenditure to support growth must be favoured over spending to directly improve welfare; and, that fiscal prudence must be privileged over all else when deciding the use of the exchequer’s resources. So if spending has to be tailored to correspond to revenues, expenditure on “populist” measures must be limited or abjured.

There is a twist in the arithmetic underlying such reasoning. It assumes that the difference between tax and non-tax revenues, on the one hand, and total expenditures, on the other, can be reduced only by reducing expenditures and not by increasing revenues. That is obviously not true. Comparisons of the share of GDP appropriated as taxes by the Centre alone or by the Centre and states in India with the corresponding figures in similarly placed or even poorer economies points to the substantial untapped revenue potential in the country. While this has been occasionally recognised in the budget speeches of Indian finance ministers, few are willing to impose significantly higher taxes on those with much-higher-than-average incomes or those appropriating a disproportionate share of the surpluses over necessary consumption in the system.

The unwillingness or “inability” of the State to tax the rich reveals that it is not a neutral agency standing above all classes. It is partisan and represents the interests of a few.

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Human Rights, the Global Economy, and the Arab World, Part 4

Ali Kadri

This is the fourth of a five-part series by regular Triple Crisis contributor Ali Kadri, Senior Research Fellow at the Middle East Institute, National University of Singapore, and author of Arab Development Denied: Dynamics of Accumulation by Wars of Encroachment (Anthem Press).

The series is based on an interview he granted to the Center for the Study of Human Rights at the London School of Economics (LSE). The full interview is available here.

Is “Arab socialism” viable? And if so, is it desirable?

One must critically analyse “Arab socialism” within its historical context. In times of immediate post-independence autonomy (the 1960s to the late 1970s), state dirigisme, high public investment rates, and more egalitarian redistribution characterised all Arab states. A particular set of Arab states followed the path of “Arab socialism”—they nationalised industry and finance and implemented agrarian reform as in Egypt, Iraq, Algeria, Libya, and Syria—which resulted in significant welfare gains. However, half-hearted Arab socialist egalitarian processes, initiated from the top down, excluded the working class from participating actively in defending their gains, deepened labour-process regimentation, suppressed autonomous labour representation, and exacted differential gains accrued to the state bourgeoisie via wage system exploitation.

On the opposite side of Arab socialism, in the monarchic Arab states—the Gulf, Morocco and Jordan—regime stability was ordained by the extension of U.S.-tailored security arrangements and the not-so-hidden fact that the monarchs practically owned national resources and managed redistribution solely for the purpose of stabilisation in relation to the U.S.’s anti-Soviet positioning. In Arab socialist states, which sided with the USSR, a colonially-weakened national bourgeoisie that was short on financing and cornered into commercial practices, could not deliver in terms of development. Moreover, its tainted reputation as a colonial subsidiary had not provided it with the necessary ideological support to govern. Single-party Arab socialist regimes rose to power and supplanted the rise of bourgeois democratic governments. The Arab socialist state, through populist appeal and the capacity to generate its own finance, acted as a surrogate industrial bourgeoisie in handling capital’s production and appropriation measures. The state rose as the principal owner of the means of production and appropriator/distributor of the social product. The private sector shrank but still absorbed a significant chunk of the labour force in artisanal and petty farming undertakings. State ownership existed side-by-side with a constrained private sector. In hindsight, it was inevitable that private sector expansion would recommence when the state bourgeois class required more economic space to grow and the political climate ripened for ‘free market’ policies and openness—as happened since the early 1980s, or more conclusively, in the early 1990s as the Soviet Union fell.

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Human Rights, the Global Economy, and the Arab World, Part 2

Ali Kadri

This is the second part of a five-part series by regular Triple Crisis contributor Ali Kadri, Senior Research Fellow at the Middle East Institute, National University of Singapore, and author of Arab Development Denied: Dynamics of Accumulation by Wars of Encroachment (Anthem Press).

The series is based on an interview he granted to the Center for the Study of Human Rights at the London School of Economics (LSE). The full interview is available here.

Part 2: How would you define neoliberalism? What effect has it had on the Arab world?

The neoliberal policy package depends primarily on the creation of an enabling environment for the private sector, freeing the goods and capital markets and implementing “good governance.” The story goes: If price distortions are removed, capital-gains taxes that inhibit the wealthy from investing are removed, labour laws that make the market “rigid” (enabling labour stability on the job instead of being precarious) are removed, and financial regulations that impede the flows of capital are removed—at some immense pain to the working class in the short term—then after a period of welfare retrenchment, the market spurs into action delivering much needed capital stock, rising productivity, and rising wages in the long term. One ought to note in passing that despite the dismal record of this “trickle-down” story, it remains central to mainstream policies. When these conditions prevail, the neoliberal “theory” says, development prevails. However, this is not much of a theory.

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The Indian General Elections

Jayati Ghosh

Midway through the largest and most complex electoral process in the world, it is clear that this is a watershed general election for India—though perhaps not quite in the way that is generally perceived.

It would be a mistake to perceive this election along the lines of a U.S. Presidential election, despite the best efforts of the media and the opposition Bharatiya Janata Party (BJP) to convert it into that. It is a vote for a Parliament based on a first-past-the-post system in which several regional parties have key roles in their own states. The major “national” candidates—such as Narendra Modi of the BJP, Rahul Gandhi of the Congress Party, and Arvind Kejriwal of the Aam Aadmi Party (the new kid on the block, born out of the anti-corruption campaign) are not voted for nationally; rather, they are significant to the extent they can inspire voters to vote for their party across the country.

No party will get a clear majority, i.e., 272 seats out of 542. And many other factors intervene in each state and region. Several regional parties are likely to get around 20-30 seats each, which means that post-election alliances (however fragile) are inevitable if a government is to be formed. The main question right now is whether the BJP and its allies in the National Democratic Alliance (NDA) will get enough seats to make some other parties support them. Three women leaders will be important in the post-poll calculus: J. Jayalalitha (Chief Minister of Tamil Nadu), Mamata Banerjee (Chief Minister of West Bengal) and Mayawati (former Chief Minister of Uttar Pradesh).

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The Era of Financialization, Part 2

This is the second part of a four-part interview with Costas Lapavitsas, author of Financialised Capitalism: Expansion and Crisis (Maia Ediciones, 2009) and Profiting Without Producing: How Finance Exploits Us All (Verso, 2014). This part turns toward international aspects, including the contrasts between financialization in high-income and developing countries and the relationships between financialization and both neoliberalism and globalization. (See the first part here.)

Costas Lapavitsas, Guest Blogger

Part 2

Dollars & Sense: You’ve anticipated our question about whether financialization is exclusive to high-income capitalist countries or is also happening in developing countries. How is it different in developing countries?

CL: Financialization in developing countries is a recent phenomenon, which has begun to emerge in the last 15 years in full earnest. We see a number of middle-income countries that are financializing, and we have to look at it carefully to understand it. One thing that is immediately obvious is that, in mature countries, financialization has been accompanied by weak or indifferent performance of the real economy. Rates of growth have been weak, crises have been frequent, unemployment has been above historical trends. We see a problematic state of real accumulation in mature countries. But when we look at developing countries, it is possible to see countries with phenomenal financialization, where growth has been reasonably strong. Brazil has been financializing during the last ten years, and yet its growth rate has been significant. Turkey has been financializing and yet its growth rate has been significant, and so on. So financialization in developing countries is not the same as in mature countries, because typically in the last ten years, it’s been accompanied by significant rates of growth.

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Conditionally yours – IMF's tough love gets worse

Jesse Griffiths, Guest Blogger

Jesse Griffiths is Director of the European Network on Debt and Development (Eurodad). The Eurodad report “Conditionally Yours: An Analysis of the Policy Conditions on IMF Loans,” co-authored by Griffiths and Konstantinos Todoulos, was released today.

Ukraine is the latest country faced by a debt crisis to be forced into the arms of the International Monetary Fund (IMF). The reality of the situation was pithily expressed by the Ukrainian Prime Minister, Arseniy Yatseniuk, who recently said he “will meet all IMF conditions… for a simple reason… we don’t have any other options.”

The European Network on Debt and Development (Eurodad) has, over the past decade, produced several reports criticising the excessive and often harmful conditions that the IMF attaches to its loans. The IMF claims to have seen the light and limited its conditions to critical reforms agreed by recipient governments. We decided to put that claim to the test in our latest report, published on Wednesday (April 2), and examined all the policy conditions attached to 23 of the IMF’s most recent loans. What we found was truly shocking. The IMF is going backwards—increasing the number of policy conditions per loan, and remaining heavily engaged in highly sensitive and political policy areas.

Here’s what we found:

  • The number of policy conditions per loan has risen in recent years, despite IMF efforts to ‘streamline’ their conditionality. Eurodad counted an average of 19.5 conditions per programme: a sharp increase compared to the average of 13.7 structural conditions per programme we found in 2005-07.
  • Almost all the countries were repeat borrowers from the IMF, suggesting that the IMF is propping up governments with unsustainable debt levels, not lending for temporary balance of payments problems—its true mandate.
  • Widespread and increasing use of controversial conditions in politically sensitive economic policy areas, particularly tax and spending, including increases in value added tax (VAT) and other taxes, freezes or reductions in public sector wages, and cutbacks in welfare programmes including pensions. Other sensitive topics include requirements to reduce trade union rights, restructure and privatise public enterprises, and reduce minimum wage levels.

Recent studies on related topics by the Center for Economic Policy Research (CEPR) and Development Finance International (DFI) have found similar findings.

What is to be done? Trying to cajole the IMF to improve itself is not what’s needed. Instead, we advocate for the IMF to go back to basics and fulfill the role that’s really required. It should focus on its true mandate as a lender of last resort to countries that are facing temporary balance of payments crises. Such countries need rapid support to shore up their public finances, not lengthy programmes that require major policy changes. Why not extend the example of the IMF’s new but little used Flexible Credit Line to all IMF facilities—requiring no conditionality other than the repayment of the loans on the terms agreed?

If countries are genuinely facing protracted and serious debt problems, then IMF lending only makes the situation worse. Instead, let’s prioritise developing fair and transparent debt work-out procedures to assess and cancel unpayable and illegitimate debt. However, the IMF should not be the venue for such debt work-out mechanisms: as a major creditor, they would face an impossible conflict of interest. Of course, this revamped role for the IMF is only possible if it addresses its crisis of legitimacy, and radically overhauls its governance structure to give developing countries a fair voice and vote, and to improve transparency and accountability.

Partners we work with who live under the grim cloud of an IMF programme learn to hate the institution. A conditionality-free IMF with a democractic makeover could be an institution the world could learn to love.

Triple Crisis welcomes your comments. Please share your thoughts below.

Conditionally yours – IMF’s tough love gets worse

Jesse Griffiths, Guest Blogger

Jesse Griffiths is Director of the European Network on Debt and Development (Eurodad). The Eurodad report “Conditionally Yours: An Analysis of the Policy Conditions on IMF Loans,” co-authored by Griffiths and Konstantinos Todoulos, was released today.

Ukraine is the latest country faced by a debt crisis to be forced into the arms of the International Monetary Fund (IMF). The reality of the situation was pithily expressed by the Ukrainian Prime Minister, Arseniy Yatseniuk, who recently said he “will meet all IMF conditions… for a simple reason… we don’t have any other options.”

The European Network on Debt and Development (Eurodad) has, over the past decade, produced several reports criticising the excessive and often harmful conditions that the IMF attaches to its loans. The IMF claims to have seen the light and limited its conditions to critical reforms agreed by recipient governments. We decided to put that claim to the test in our latest report, published on Wednesday (April 2), and examined all the policy conditions attached to 23 of the IMF’s most recent loans. What we found was truly shocking. The IMF is going backwards—increasing the number of policy conditions per loan, and remaining heavily engaged in highly sensitive and political policy areas.

Here’s what we found:

  • The number of policy conditions per loan has risen in recent years, despite IMF efforts to ‘streamline’ their conditionality. Eurodad counted an average of 19.5 conditions per programme: a sharp increase compared to the average of 13.7 structural conditions per programme we found in 2005-07.
  • Almost all the countries were repeat borrowers from the IMF, suggesting that the IMF is propping up governments with unsustainable debt levels, not lending for temporary balance of payments problems—its true mandate.
  • Widespread and increasing use of controversial conditions in politically sensitive economic policy areas, particularly tax and spending, including increases in value added tax (VAT) and other taxes, freezes or reductions in public sector wages, and cutbacks in welfare programmes including pensions. Other sensitive topics include requirements to reduce trade union rights, restructure and privatise public enterprises, and reduce minimum wage levels.

Recent studies on related topics by the Center for Economic Policy Research (CEPR) and Development Finance International (DFI) have found similar findings.

What is to be done? Trying to cajole the IMF to improve itself is not what’s needed. Instead, we advocate for the IMF to go back to basics and fulfill the role that’s really required. It should focus on its true mandate as a lender of last resort to countries that are facing temporary balance of payments crises. Such countries need rapid support to shore up their public finances, not lengthy programmes that require major policy changes. Why not extend the example of the IMF’s new but little used Flexible Credit Line to all IMF facilities—requiring no conditionality other than the repayment of the loans on the terms agreed?

If countries are genuinely facing protracted and serious debt problems, then IMF lending only makes the situation worse. Instead, let’s prioritise developing fair and transparent debt work-out procedures to assess and cancel unpayable and illegitimate debt. However, the IMF should not be the venue for such debt work-out mechanisms: as a major creditor, they would face an impossible conflict of interest. Of course, this revamped role for the IMF is only possible if it addresses its crisis of legitimacy, and radically overhauls its governance structure to give developing countries a fair voice and vote, and to improve transparency and accountability.

Partners we work with who live under the grim cloud of an IMF programme learn to hate the institution. A conditionality-free IMF with a democractic makeover could be an institution the world could learn to love.

Triple Crisis welcomes your comments. Please share your thoughts below.

Investor Treaties in Trouble

Martin Khor

The tide is turning against investment treaties that allow foreign investors to take up cases against host governments and claim compensation of up to billions of dollars.

Indonesia has given notice it will terminate its bilateral investment treaty (BIT) with the Netherlands, according to a statement issued by the Dutch embassy in Jakarta last week.

“The Indonesian Government has also mentioned it intends to terminate all of its 67 bilateral investment treaties,” according to the statement.

It has not been confirmed by Indonesia. But if this is correct, Indonesia joins South Africa, which last year announced it is ending all its BITS.

Several other countries are also reviewing their investment treaties.

This is prompted by increasing numbers of cases being brought against governments by foreign companies who claim that changes in government policies or contracts affect their future profits.

Many countries have been asked to pay large compensations to companies under the treaties.

The biggest claim was against Ecuador, which has to compensate an American oil company US$2.3bil (RM7.6bil) for cancelling a contract.

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Undoing the Damage in Chile

Jayati Ghosh

Cross-posted from International Development Economics Associates (IDEAs) (networkideas.org). This article was originally published in the Frontline, January 24, 2014.

It was no surprise to anyone in Chile or outside when Michelle Bachelet romped home convincingly in a landslide victory in the run-off for the Presidential election in December. Indeed, the only surprise was that while she took 62 per cent of the vote, the voting rate itself fell to only 44 per cent of the electorate.

Bachelet, the pediatrician mother of four who was also among the students persecuted by the military dictatorship in the 1970s, has already served as President once. She completed her first term with an incredible 84 per cent popularity rating, which must be a record for any democratically elected leader after four years in office. But the current Chilean Constitution does not allow consecutive terms as President, so she could not contest again. In the interim, between 2011 and 2013, she was the first Secretary General of the newly founded international organization UN Women, but resigned from that position earlier this year to run for President again.

This time around she campaigned on the basis of a more explicitly progressive and transformative agenda, leading a coalition (Nueva Mayoría or New Majority) that includes a wide spectrum of political orientation, from the Christian Democratic Party in the centre to Bachelet’s own socialist-leaning Concertacion to the Communist Party and an array of even more radical student leaders on the left. The very emergence of this coalition and its electoral success suggests that Chile has is finally shaking off some of the torpor induced by the acceptance of neoliberal economic policies by both centre-right and centre-left parties over the past decades.

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