Picture: 123RF/MAKSYM YEMELYANOV
Picture: 123RF/MAKSYM YEMELYANOV

This year’s pandemic and its induced economic crisis will undoubtedly emerge as epochal. For global leadership the task is real and urgent. But this weekend’s 2020 G20 meeting will be remembered as unremarkable, at least from the developing world perspective.

Themed “Realising opportunities of the 21st century for all”, the G20 meeting portrays a world economy as in a state of balance, undergirded by resilient structures. Yet the recent international financial architecture developed and shaped by the World Bank, the International Monetary Fund (IMF), the Organisation for Economic Co-operation and Development (OECD) and the G20’s lead governments, is one with pillars that are not only fragile but hardly equally support all parts of the world for opportunities to be easily and fairly had by all nations.

The devastating macroeconomic effects of footloose speculative capital on poor nations, seen during the coronavirus crisis and numerous occasions before, is one such architectural design fragility that continually advantages rich nations against the poor. Instead of the 2007/2008 crisis being the provocation to reconstruct a skewed system, the rethinking of it led to the West’s consolidation of the same frozen configuration of power, privilege and bias.

The G20 summits since that crisis have presided over the creation, atop the derided Washington Consensus, of a fragile architecture entrenching a development approach that seeks to securely lock developing nations out of economic opportunities, not only in developed nation markets but even in their own domestic economies.

Initiatives that lock away opportunities by constraining policy space to prosecute development strategies include, among others, the G20’s infrastructure as an asset class, the World Bank’s maximising finance for development (MFD), the IMF/World Bank’s sovereign debt management guidelines, and the G20 compact with Africa.

Despite being aware of its deleterious effects on poor nations, this “new” development agenda was constructed with almost total abandon. Unsurprisingly, developing nations as well as scholars from both the global north and south received it with a deep sense of foreboding.

Monetary policy autonomy, historically used to regulate finance for developmental purposes is severely curtailed, simultaneously opening poor nations to the deleterious global financial cycles. SA is one such a nation

What was envisaged was “development” along the lines of the East Asian path, its central logic captured by former UK economic competitiveness minister and later adviser to the Korean G20 presidency, Baroness Shriti Vadera, when she said Korea “transformed from being a low-income country into a high-income country in just one generation” and that this “was achieved by not following the prescriptions of the international financial institutions”.

Prescriptions from the IMF, World Bank and similarly styled institutions are inconsistent with development as happened in Germany or East Asia. Yet it is these institutions’ prescriptions, supported by the main G20 nations, that continue to draw the contours of the economic development terrain for developing nations, except for China, which contemptuously ignored them all.

Indeed, the reframed G20 development agenda is about the same old transfer of real resources to the developing world, this time without emphasis on bilateral or multilateral flows but on private capital. The approach is still cast in the (post)-Washington Consensus logic but now presented in the sustainable development goals’ (SDG) language, using securitised capital markets as the theatre of operations.

In this scheme, the principal role of developing nations’ governments, through macroeconomic institutions of state, is reduced to de-risking portfolios of investable projects that can be packaged and traded as securities. Access to central banks is lost and, in turn, dependence on securitised debt markets, instead of bank-based, to raise finance for development is promoted. It is the full securitisation of development.

But the G20 and international financial institutions are well aware of the macroeconomic instabilities associated with this scheme.

First, the transfer of real resources to the developing nations has had the negative net flows (reverse flows) of both finance and resources to developed countries. The UN and Bretton Wood institutions had long recognised this problem, yet little had been done to undo it. Essentially, poor nations have been helping finance development of the West, as Brazil and Chile complained.

The reverse flows were found to be more the norm than the exception and are more severe during years that follow crises. Poor nations are thus left on a debt treadmill due to the short-term lending/speculative money flows at market or penal rates.

Secondly, behind the World Bank’s MFD and G20’s infrastructure as an asset class is a tangled web of policy initiatives designed to embed the financialisation of development. They entail prising open domestic capital markets of poor nations, ensuring that entry and exit of foreign private finance is without any let or hindrance. The guaranteeing of high returns by developing nations for the global north speculators, termed investors, is coded in infrastructure projects.

Other onerous policy reforms requested of developing nations are included in the “Guidelines for Public Debt Management” of the World Bank and the IMF, and the World Bank’s “Government Bond market Development Programme”.

Full or near-full implementation of these reforms by developing economies has the effect of completely circumscribing the policy space critically necessary to pursue development opportunities. Monetary policy autonomy, historically used to regulate finance for developmental purposes is severely curtailed, simultaneously opening poor nations to the deleterious global financial cycles. SA is one such a nation at the mercy of foreign flows of capital, and with it gyrations in the rand.

Set as pre-conditions for accessing this securitised market-based development, the pressure to deregulate is far deeper and wider than anything seen in the World Trade Organisation (WTO) rules. Yet it is market-based finance that precipitated the Lehman Brothers systemic event in the first place.

Meanwhile, the 2010 G20 Toronto summit declaration said: “We are committed to narrowing the development gap and must consider the impact of our policy actions on low-income countries.” Sadly, as a consequence of the G20 policy agenda, the gap is now wider and the impact calamitous.

To narrow the gap the G20 should stop undermining growth and development in developing nations. It should instead promote the building of domestic public banking systems to undertake all forms of investments. A return to developmental central banking should be re-introduced, while de-securitisation of financing activities encouraged.

Faced with epochal challenges, this summit is not one for the G20 leaders to discuss “realisation of opportunities”, as there are too few for developing nations, nor can it be about “reforming the debt architecture”, as the head of IMF recently stated.

The 2020 G20 summit should be about dismantling the iniquitous 40-year-old global financial architecture and the institutions behind it. Breaking the rungs of a kicked away development ladder cannot be the unilateral or collective legacy of this moment’s G20 leadership.

• Nkosi is executive director and research head at Firstsource Money and founding executive board member of London-based Monetary Reform International.

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