Earth to G-20: 'The Developing World is too Big to Fail'
Recently, Neil Watkins took some time to answer a few questions from Sojourners assistant editor Elizabeth Palmberg about the upcoming G-20 meeting, the global economic crisis, and helping the poor. Here's part one of that interview.
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Palmberg: Both the former Bush administration and the Obama administration agreed that, in the face of the recession, it's essential for the government to use deficit spending to stimulate the U.S. economy -- the only question is how big the stimulus should be. I would expect that people in poorer countries are hurting even more from the recession than the U.S. is. When the wealthy G-20 nations meet in London on April 2, what can they do to help, and why is it so important?
Watkins: Well, for starters, the G-20 need to put the plight of the world's poor on their agenda at all. Aside from U.K. Prime Minister Gordon Brown's call for a Global New Deal, there's been very little talk from G-20 governments about the need to help the poorest countries respond to the crisis. The focus so far has been on the global banking crisis, but this can't be the exclusive focus of the summit. The World Bank is now projecting that 53 million more people will be pushed into poverty this year due to the crisis, on top of the 120 million that were made poor by the food crisis that ravaged the global South last year. Especially since the current crisis was caused by policy failures in the U.S., we have an obligation to help respond. We've heard a lot about how the big banks are too big to fail. I liked the way Kevin Gallagher put it in the title of his column in the Guardian last week: The developing world is too big to fail.
Palmberg: In recent years, it seems like every country that could possibly get away from IMF loans did so, because they come with all kinds of extreme strings attached for a country's economic options -- conditions which are the exact opposite of the economic stimulus which the U.S. is using right now at home. After these conditions were key factors in the Asian financial crisis in the late 90s and the Argentine meltdown in '02, the IMF loan portfolio dropped like a stone, 90 percent from 2004 to 2008; only the very poorest countries were stuck. Are there any more credible institutions which the G-20 could use, instead of the IMF, to disseminate aid?
Watkins: Right now, to the extent that G-20 leaders are thinking about the impact of the crisis on poor countries, they're thinking about putting the IMF in charge of the response. But putting the IMF in charge of responding to the crisis in poor countries would be like putting Herbert Hoover in charge of the global economy during the Great Depression. If you look at the loans the IMF has been pushing in response to the crisis, they've been requiring precisely the opposite approach to the stimulus policies we've been pushing here in the U.S. According to the Bretton Woods Project, in its December 2008 loan to Latvia, for example, the IMF required an immediate 15 percent reduction in government employees' wages, a cut in government spending equivalent to 4.5 percent of GDP, a pension freeze, and a value-added tax increase.
The G-20 should look more to regional initiatives like these when crafting a response to the current crisis; there's the Bank of the South in Latin America and Asian countries are talking about pooling their resources to respond to the crisis. For the poorest countries, the less IMF the better