The Indian daily The Hindu on 28 January 2008

Making one’s own model

28 January 2008

South Asian countries led by India should consider creating a ‘Bank of South Asia’ to finance development projects in the region and provide an alternative to the economic model forced upon many countries by the World Bank World Bank
The World Bank was founded as part of the new international monetary system set up at Bretton Woods in 1944. Its capital is provided by member states’ contributions and loans on the international money markets. It financed public and private projects in Third World and East European countries.

It consists of several closely associated institutions, among which :

1. The International Bank for Reconstruction and Development (IBRD, 189 members in 2017), which provides loans in productive sectors such as farming or energy ;

2. The International Development Association (IDA, 159 members in 1997), which provides less advanced countries with long-term loans (35-40 years) at very low interest (1%) ;

3. The International Finance Corporation (IFC), which provides both loan and equity finance for business ventures in developing countries.

As Third World Debt gets worse, the World Bank (along with the IMF) tends to adopt a macro-economic perspective. For instance, it enforces adjustment policies that are intended to balance heavily indebted countries’ payments. The World Bank advises those countries that have to undergo the IMF’s therapy on such matters as how to reduce budget deficits, round up savings, enduce foreign investors to settle within their borders, or free prices and exchange rates.

and the International Monetary Fund IMF
International Monetary Fund
Along with the World Bank, the IMF was founded on the day the Bretton Woods Agreements were signed. Its first mission was to support the new system of standard exchange rates.

When the Bretton Wood fixed rates system came to an end in 1971, the main function of the IMF became that of being both policeman and fireman for global capital: it acts as policeman when it enforces its Structural Adjustment Policies and as fireman when it steps in to help out governments in risk of defaulting on debt repayments.

As for the World Bank, a weighted voting system operates: depending on the amount paid as contribution by each member state. 85% of the votes is required to modify the IMF Charter (which means that the USA with 17,68% % of the votes has a de facto veto on any change).

The institution is dominated by five countries: the United States (16,74%), Japan (6,23%), Germany (5,81%), France (4,29%) and the UK (4,29%).
The other 183 member countries are divided into groups led by one country. The most important one (6,57% of the votes) is led by Belgium. The least important group of countries (1,55% of the votes) is led by Gabon and brings together African countries.
, political scientist and president of the Belgium-based Committee for the Abolition of Third World Debt Eric Toussaint said.

He was talking to The Hindu on the sidelines of a seminar on the ‘Impact of globalisation on the rural poor’ organised recently at Shantigram, an NGO based at Chapath, Vizhinjam.

India should take the lead from countries such as Brazil, Venezuela, Argentina, Bolivia, Ecuador, Uruguay and Paraguay that have come together to set up a ‘Bank of the South’ so that they can have models of economic development suitable for themselves. These countries are now considering depositing a part of their foreign exchange reserves in such a Bank, which in turn will finance development in these countries.

With its 1,000 million-plus ‘market’ of people, India does not need loans from the World Bank. Neither does the country need to be so integrated to a world market that a problem with mortgage Mortgage A loan made against property collateral. There are two sorts of mortgages:
1) the most common form where the property that the loan is used to purchase is used as the collateral;
2) a broader use of property to guarantee any loan: it is sufficient that the borrower possesses and engages the property as collateral.
rates in the US should cause the Sensex in Mumbai to crash. India is often presented as an economic miracle. But this is really not the case. Large numbers of people in the country live below the poverty line. There are many employed people who do not get minimum wages, Dr. Toussaint pointed out.

The ‘development’ effected in some sectors is showcased as signs of development. In the call centre industry, for instance, the very existence of a call centre is dependent on decisions taken outside the country. “The decision to close down a call centre may be taken in New York, London or Paris,” Dr. Toussaint explained. Moreover, he argued, if people in another country — say Taiwan — learn better English, India will lose its call centres to that country. The present situation has come about because India abandoned the model of development, the model of self-sustenance, put forward by Mahatma Gandhi.

In order to be able to resist the neo-liberal policies of the “Washington Consensus,” developing countries should prioritise their budgetary spending. Countries such as Ecuador and Venezuela, which have now hiked public funding in the education sector, are concentrating on creating jobs in emerging sectors and are focussing on achieving food sovereignty, said Dr. Toussaint, who is an adviser to the governments of these and other Latin American countries. India should take a leaf out of this book and strengthen their health system, bolster the public education network and work towards food sovereignty. The government should invest massively in generating industrial projects. A large-scale housing scheme for the homeless itself would trigger massive employment, he pointed out.

Governments should also support farmers to continue with food production. In India farmers are selling their land to real estate developers because it is very lucrative and agriculture is not. Governments have to convince farmers to remain in the business of food production.

A fellow of the International Institute of Research and Education, Amsterdam, Dr. Toussaint believes that rich Indians should spend their time and energy trying to create jobs inside the country. “I come from Belgium and in my city there are iron and steel companies. Most of them are today owned by Lakshmi Mittal. I have nothing against Mittal, but he is not creating jobs in India,” he said.

The government of Kerala has taken loans from the World Bank for water supply projects. It would have been much better if the loan had come from the ‘Bank of South Asia.’ “That way you would not have to implement the World Bank’s economic policies,” he added.

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