Beyond Bretton Woods

Gordon Brown's tour of the Gulf, seeking money to bolster IMF funds, suggests his plans for a Bretton Woods II conference are less ambitious than the occasion requires.

Brown says he's confident that the Saudis will assist with bolstering the IMF coffers – allowing it to lend to more cash-strapped economies like Iceland, Hungary, Pakistan and Ukraine. Good news for the IMF, which has suffered dry years as emerging lenders sprung up in the developing world and potential recipients shun the fund, justly frightened and indignant by the economic policies that will be foisted on them as a result of borrowing.

But resuscitation of the fund – and the wider Bretton Woods system – is decidedly not good for a more stable and equitable world. When joined other world leaders in calling for a Bretton Woods II conference, many hoped that this might signal fundamental reform of the "Washington Consensus" ideology which lies behind the international financial institutions and which has landed us in the current mess. The fear is now that what Brown and others mean by such reform is simply acknowledging the new global balance of power by allowing a handful of new countries "into the club".

Last week over 700 organisations from around the world signed a statement calling for fundamental reform of the Bretton Woods institutions (notably IMF and World Bank). This must include reform of tax, lending, banking and trade systems – and a total re-think of the role of the state in the economy. The actions of western governments' intervening to prop up their own economies is alone surely proof of the bankruptcy of these policies.

But in order to achieve this, it is essential to include those who have suffered most and had least say in the economic system up to now: poorer developing countries and representatives of citizens groups, social movements and trade unions.

The G20 meeting in Washington DC on November 15 has been posited as the first step on the path to reform. Unfortunately, most countries in the world won't be there. As such the conference can only be a first step towards what is needed, but it would be worthwhile nonetheless if it helps western leaders see what a critical condition the economic system is in.

It isn't a matter of resuscitation, the Bretton Woods institutions as currently constituted must be consigned to history and a new economic system be created on a very different sort of power dynamic.

This article first appeared on Comment is Free.

Markets should not rule us

Gordon Brown’s conversion to financial regulation this weekend is certainly better late than never. He has joined a wide range of statesmen who, despite their role in maintaining “hands off” global finance, have come to see the error of their ways.

In May the great and the good of European social democracy, led by Jacques Delors and Jacques Santer, both former Presidents of the European Commission, declared in a letter that “Financial markets can not govern us!”.

In fact much of the world has been governed by financial markets for decades, and the severe poverty which still exists in so many developing (and indeed developed) counties can in no small measure be laid at the door of all-powerful financial globalisation. Indeed the freeing up of the financial sector – to be as reckless as it chooses – has been the real essence of the globalisation project over nearly 30 years.

Real progress towards solving the world’s problems, poverty or climate change most prominently, would mean that the vast bailouts and injections of money that have been announced in recent days were not merely another form of ‘socialism for the rich’, but used to fundamentally reform global financial architecture.

A little discussed conference taking place in Doha in late November is a perfect opportunity for Brown to show his new-found credentials. The UN’s second Financing for Development conference will discuss the principles that should underlie aid, debt relief and funding for climate change. While campaigners currently fear the conference may represent a step backwards from the first conference held in Monterrey in 2002, it does have the potential to show the ‘have-nots’ of the world that global leaders are serious.

The starting point is the fact that financial globalisation allows massive transfers of money from developing to developed countries, with unprecedented ease. What in times past would have required guns boats and armies can now be achieved with a few clicks of a mouse.

To give a few examples, $160 billion is lost to the developing world every year through tax evasion, based on the fact that most trade takes place within global corporations and those corporations now have the ability to move that money around the world with few restrictions or questions asked. $250 billion is lost because $11.5 trillion of global assets are currently held in tax havens, like the UK, one of the centres of financial globalisation.

The global money markets turn over a mind-blowing $3.2 trillion every day – much of which is so-called ‘hot money’, speculative capital which moves very rapidly in and out of countries and currencies, causing immense damage. Indeed currency speculation played a large role in the South East Asian crash in 1997. Another $1.6 billion a day is transferred from poor to rich countries in debt ‘repayments’, based largely on loans recklessly thrust on newly independent countries in the 1960s and 70s by financial institutions which promptly raised interest rates to extortionate levels.

Needless to say these gigantic sums dwarf aid budgets.

Solutions to run-away finance are out there. A Currency Transaction Tax could be introduced to reduce volatility on the money markets or a restriction placed on the selling of developing country debt on secondary markets which would prevent ‘vulture funds’ profiting from the misery of developing countries.

It would be possible to prevent ‘capital flight’ removing the ability of countries to effectively tax corporate and individual activities within their jurisdiction through better policing and control of financial flows, allowing the international community to effectively shut down tax havens. A fair, transparent and participative mechanism could be introduced to work-out debt disputes and reduce the dependence of developing countries on financial markets and unelected, unaccountable organisations like the Paris Club.

These would be just the first reforms that would be necessary to put finance back in its box, return sovereignty to nations, and ensure a more equitable future for everyone.

The financial crisis does not mean that these solutions will be adopted, but there is an opening. Unfortunately many in the world of finance will push for business as usual as soon they have offloaded their problems onto the suddenly-so-necessary state. But there is now an opportunity. Last Thursday the Financial Services Authority temporarily banned some short-selling. Despite a few howls from the unruly children unable to take their medicine, the financial system has not collapsed, as would have been predicted in earlier times. So it has been proved that it is possible to intervene to stop unhelpful types of speculation. Much more unorthodoxy will also be proved in coming months.

What happens next is up to us. Public intervention is busy changing private debt into public debt. The price the public demands for this service should be clear – to re-take control of a financial sector which has caused so much misery for so long.

This article was first published on New Statesman online.

The black hole of debt

In recent weeks, Haiti has been gripped by violent protest yet again. And yet again the inhabitants of this impoverished country are suffering the most brutal consequences of the fallout of the global economic crisis. This time it is the rise in global food prices, which has sparked riots in Port au Prince, Haiti's capital, where UN peacekeepers used rubber bullets and tear gas against protesters attempting to storm the presidential palace. Days later the prime minister was fired.

It is therefore particularly appropriate that on Tuesday this week -the anniversary of the death of Haiti's dictator, Francois "Papa Doc" Duvalier - hundreds of debt campaigners fasted for Haiti's debt to be cancelled. Haiti's fate has been tied up with the issue of international debt more than any other country. Despite the fact that it's debt is illegitimate by any standards and despite Haiti's sorry position as the poorest country in the western hemisphere, it still owes $1.3bn. Every year debt repayments flow from Haiti to multilateral banks, just as its resources once enriched the French empire.

Haiti became the world's first republic to outlaw slavery, after the slave population led a struggle for independence which they won in 1804. However, in 1825, in return for recognition, the new state promised to pay its former French overlords compensation amounting to $21bn in today's money. It did not finish paying this debt until 1947. Calls for restitution have been consistently rejected by French governments.

Some 40% of Haiti's current debt was run up by the Duvalier dictators - better known as Papa Doc and Baby Doc - who between 1957 and 1986 stole parts of these loans for themselves, and used the rest to repress the population. When the Americans flew Baby Doc out of Haiti in 1986, he is estimated to have taken $90m with him. The Duvaliers were anti-communist and all too happy to follow the economic policies prescribed by the west, so their misdemeanours were overlooked.

In the 1980s and 90s, like all indebted countries, Haiti had to follow structural adjustment policies designed by the World Bank and International Monetary Fund (IMF) - including cuts in government expenditure on health and education, privatisation and the removal of import controls. Indigenous Haitian industries were wiped out as American imports flooded into the country.

In 1995 the IMF forced Haiti to slash its rice tariff from 35% to 3%. According to Oxfam, this resulted in an increase in imports of more than 150% between 1994 and 2003, the vast majority from the US. Certainly this meant lower prices for Haitian consumers, but it also devastated Haitian rice farmers. Traditional rice-farming areas of Haiti now have some of the highest concentrations of malnutrition and a country that was self-sufficient in rice is now dependent on foreign imports, at the mercy of global market prices.

Today, 80% of Haiti's population live in poverty as defined by the World Bank (under $2 a day). Average life expectancy is just 52 years. Half of all Haitian adults cannot read or write. Yet Haiti failed to qualify for debt relief under the heavily indebted poor country initiative (HIPC), established in 1996 to make the debts of the most severely indebted poor countries more sustainable - surely the clearest proof of the arbitrary nature of the HIPC scheme.

Haiti was finally allowed to start the HIPC process in October 2006. It has to jump through numerous hoops before its debt is cancelled - significantly, more of the same economic medicine responsible for Haiti's food dependency. On average it has taken poor countries three years to complete these programmes - by which time the country will have paid hundreds of millions of dollars in debt service. And even then not much more than half of Haiti's debt will be cancelled. While some Haitians are reportedly eating dirt to quell their hunger, their government is forced to send almost $1m each week in debt service to wealthy banks supposedly established to fight poverty.

Haiti is not alone. Throughout April and May, Jubilee Debt Campaign supporters are fasting for 36 countries left behind by the debt cancellation process. Egypt, the Philippines and Pakistan have also experienced disturbances over sharp price rises made more severe by the fact that they are still sending huge sums of money in debt repayments back to the multilateral banks.

Ten years on from the 70,000-strong protest outside the Birmingham G8, which did so much to put debt on the international agenda, it remains a pernicious tool of injustice, taking a real and deadly toll on the lives of millions of the poorest people in the world. We cannot hope to permanently solve the food crisis or the political turbulence which continues to haunt countries like Haiti until debt is wiped out, unconditionally, once and for all.

This article was first published on Comment is Free.

The war on terror comes to Africa

Since early January 2007, US planes have pounded Somali villages, inflicting serious ‘collateral damage’ in their search for three ‘al-Qaeda operatives’. Hundreds of people have been killed, although the exact number is difficult to ascertain, with close to zero verification of facts on the ground. As the war in Afghanistan still rages, recent history repeats itself in the Horn of Africa.

Statements from the Bush administration last year should have given ample clues as to what was to come in Somalia. Ethiopia, whose attack on Somalia was based on regional considerations, was defended by the US state department, which cited ‘genuine security concerns’. Ethiopia and Somalia have been unhappy neighbours for many decades. But the nod that George W Bush gave to Ethiopia’s action is the clearest sign yet that the region is high on the US agenda in its allconsuming ‘war on terror’.

Ethiopia was well aware of the role it was playing. Referring to the Somali Islamic Courts, the group which has until recently been de facto ruling Somalia, as a ‘terrorist group’, Ethiopian prime minister Meles Zanawi told the Washington Post: ‘It does surprise me that intelligent people in the 21st century could claim that if you respond to the terrorists with force, you spawn terrorism, but if you appease them, you somehow tame them.’ George W Bush couldn’t have put it better himself. But the history of the Horn of Africa shows that this is a dangerous game to play.

Cold war

Throughout the cold war, Ethiopia and Somalia were used as proxies, receiving billions of dollars worth of weapons while famines and wars raged. US support for Haile Selassie, emperor of Ethiopia from the second world war until 1974, ensured US access to the important spy base at Kagnew, while next door the Soviet Union backed Siad Barre’s ‘Marxist’ regime in Somalia.

On the back of US aid, Ethiopia developed one of the largest armies in Africa, which it used to devastate Eritrean society. As Haile Selassie’s policies became increasingly unpopular (100,000 peasants died in a famine, in response to which one of his ministers said, ‘If we could save the peasants only by confessing our failure to the world, it is better that they die’), he was overthrown by the army, with Mengistu eventually taking control of the ruling military committee, known as the Derg.

Ultimately, Mengistu preferred a relationship with the Soviets. Seeing Ethiopia as a more important prize than Somalia, the Soviet Union outbid the US, sending $9 billion in military hardware before Mengistu was ousted in 1991. Soviet aid allowed Mengistu to unleash terror on political opponents, as well as many ordinary civilians, and increase the war drive against Eritrea.

To add to the murky politics, Mengistu also received a little help from Israel, who bribed him to allow the deportation of Ethiopian Jews, whom it needed to bolster the Jewish population of Israel. Shortly after the deal, Israeli-made cluster bombs started falling on Eritrean towns. Across the border, the US supported Somalia. As early as 1977, the US promised to find allies who would be able to supply Somalia the military assistance that it would need to attack Ethiopia’s Ogaden region. Saudi Arabia, Iran, Egypt and Pakistan rushed in with the required aid.

In 1980, the US signed an arms deal that allowed it access to Somali bases. Under Reagan, the US supplied more than $680million to Siad Barre, at least $195 million of which was intended for military use (dramatically higher when related aid is counted), despite congressional obstacles. The US claimed its relationship had a moderating impact on Somalia. Human Rights Watch disagreed, claiming that 50,000 of Barre’s own civilians were killed and half a million displaced in the late 1980s.

For the US and the Soviet Union, local suffering counted for no more than the proclaimed ideology of their proxy dictators. The important thing was the global edge that arming such countries could bring to their overall game.

Humanitarian intervention? As the cold war wound down, and Siad Barre was ousted from power, the US initiated a ‘humanitarian intervention’ to clean up the mess left in Somalia, which included a raging famine and rampant warlordism – although no mention was made of the role played by US support in creating this situation. The result of the 1992-1993 UN-backed ‘Operation Restore Hope’ was disastrous. It is estimated that between 6,000 and 10,000 Somalis died before President Clinton terminated the operation, in response to the killing of 18 US soldiers in the infamous ‘Black Hawk down’ incident. But few questioned the purity of Bush senior’s motives.

Stephen Shalom was a notable exception. Writing in the early 1990s, Shalom detailed how the US military establishment was desperately searching for a post-cold war justification for its budget and the central position the military played in policy-making. The ‘war on drugs’ was used in Latin America, ‘sovereignty’ in Kuwait and ‘humanitarian intervention’ in Somalia.

These justifications served for the time being, but ultimately the attack on the World Trade Centre on 11 September 2001 solved the problem. The war on terror had begun.

The war on terror

Like the cold war, the war on terror is an all-encompassing analysis of world affairs that ignores local reality in order to project US power.

The US administration has stated that the Union of Islamic Courts is ‘controlled by Al-Qaeda cell individuals’. This has supposedly justified US funding of the very warlords that threw its troops out of Somalia a decade earlier in Operation Restore Hope. In January 2006, an International Crisis Group expert reported that between $100,000 and $150,000 was being funneled by the US to the warlords in Kenya every month, effectively breaching the UN embargo on arms to Somalia. The money was sent through a Pentagon force that has been based in Djibouti since shortly after 11 September 2001.

The real tragedy is that Somalia, as with so many other places, is far more complex than the US or its Ethiopian ally would like to admit. Since 1991 there has been no stable government.

In 2004 Kenya, worried by the impact that a politicised brand of Islam in Somalia would have on its own Muslim minority, helped get agreement from various warlords to establish a transitional federal government (TFG). The TFG, itself made up of some very unsavoury characters, initially ‘ran’ Somalia from Kenya, and until very recently controlled almost none of the country. Nonetheless it has received international backing, as an attempt to unite the warring factions.

The Islamic Courts did not have international recognition, but did control most of Somalia. Verdicts on the Islamic Courts differ markedly. Many praise the stability that it brought after so many years of chaos and violence, in large part as a result of the extremely hard line that it takes on internal law and order. However, the International Crisis Group wrote in 2005 that ‘Islamist extremism has failed to take a broader hold in Somalia because of Somali resistance – not foreign counter-terrorism efforts.’

It was in this context that Ethiopia secretly stationed at least 8,000 troops in Somalia from the TFG capital in Baidoa. In October 2006, the Islamic Courts issued a threat to Ethiopia to leave Somalia, and Ethiopia, with US backing, decided it was time to invade properly, conducting air raids and entering the capital Mogadishu, as the Islamic Courts withdrew.

Ethiopia appears to have won, for now, with the warlords in the TFG installed as Somalia’s de facto, as well as de jure, government. Ethiopia claims 1,000-2,000 people have been killed with 4,000-5,000 wounded – while tens of thousands risk being displaced. Martial law has been declared to attempt to rein in the chaos that has returned to the streets of Mogadishu. The TFG is unstable, unpopular and broke, while the Islamic Courts are likely to re-start an insurgency.

Even more worrying is what this means for the future of the region, where the war on terror is now firmly implanted. Eritrea supports the Islamic Courts while Kenya supports the TFG; both are religiously mixed countries. Religious and ethnic divisions in Sudan are well known.

The situation has worrying similarities with Afghanistan – a quick victory for a foreigninstalled warlord government, triumphing over an Islamic group that threatens an insurgency, all as part of a simplistic world analysis based on the requirements of US power rather than the regional realities. Traditionally ignored by activists, it is time for the left to shine some light on this part of the world, which has already suffered massively for the strategic interests of the west.

This article was first published in Red Pepper.