[Ip-health] “Not on the agenda at Busan: Aid advocates need a whole new development model,” Action for Global Health blog

Riaz K Tayob riaz.tayob at gmail.com
Tue Apr 5 22:54:25 PDT 2011


*“Not on the agenda at Busan: Aid advocates need a whole new development 
model,” Action for Global Health blog**
*
DSW and Action for Global Health recently released a briefing 
<http://my.ibpinitiative.org/?7yn3mza1> on improving aid to Mozambique 
that provides recommendations to inform the discussions among aid donors 
at the 4th High Level Forum on Aid Effectiveness scheduled to occur in 
Busan, South Korea in November. While the briefing itself is actually 
very good, it also reflects an all too common short-term focus on the 
role on external aid, while neglecting to stand back and ask what is 
wrong with whole development model in the first place. Too many aid 
advocates too often neglect to ask broader questions about the whole 
system, such as why more developing countries are not building up their 
own domestic tax bases more successfully to be able to finance more of 
their own needs themselves, or what has gone so wrong with the 
development model being championed by the very aid donors with whom they 
regularly engage.

In fact, unless Mozambique implements a strategy to effectively move 
beyond its current function as largely a cotton and cashews plantation, 
it is not likely to ever generate enough of a tax base to finance its 
own health needs. Yet the need to address this problem seems lost on 
many in the health aid sector, as with aid advocates generally. In the 
classic sense of successful development in which countries shift from a 
reliance on primary agriculture and extractive industries and into 
manufacturing and services of higher value-added over time, it should be 
incumbent on aid advocates to ask why this is so often not happening 
<http://www.amazon.com/How-Rich-Countries-Poor-Stay/dp/0786718420> in 
Mozambique and other similar places.  The number of least-developed 
countries (LDCs) has doubled over the decades from 25 in 1971 to 49 in 
2011, with only three having managed to climb up into “developing 
country” status, and with just as few developing countries having 
graduated into the ranks of the rich industrialized country status. 
These disturbing trends ought to be setting off alarm bells in aid 
advocacy circles about the profound failure of the current development 
model, and yet so many advocates passively engage with donor governments 
who continue to support this model through the aid, trade and global 
finance systems.

Aid advocates ought to consider the approach taken by the 2008 WHO 
Commission on Social Determinants of Health 
<http://www.who.int/social_determinants/thecommission/finalreport/en/index.html>, 
which examined a much broader set of economic policies and called on 
health advocates to take a more comprehensive view of development issues 
as they impact on the ability of countries to develop and finance more 
of their own health budgets.  The report cited the many problems with 
the dominant free trade/free markets approach to development, and 
concluded that changing this will “require action at the international 
level – either discretionary changes by individual governments (in the 
case of increases in, or changes in the conditions attached to, donor 
support) or collective action mediated by international institutions.” 
Basically, the report was alerting health aid advocates that they have 
much more than just a health financing problem–they have a whole 
development model problem.

One example of the many ways in which the current development model 
blocks countries from developing can be seen in the IMF program for 
Mozambique <http://www.imf.org/external/np/loi/2010/moz/110810.pdf>. 
Even though the moderately high inflation in Mozambique is exogenous, 
coming from the outside due to increased fuel and food prices on global 
markets, the IMF’s program responds by raising interest rates as the 
main way of getting inflation down. This comes from a very conservative 
logic brought into ascendancy by Reagan and Thatcher 30 years ago, which 
is actually just a value judgment which believes it is better to have 
lower GDP, lower employment, lower tax revenues and lower spending than 
to have moderate inflation or fiscal deficits. When this logic was 
introduced, it had been widely understood as one very conservative 
option among an array of other viable policy options, but over time it 
has incorrectly come to be understood as the one and only “prudent” and 
“sound” option as taught by the best economics departments at the best 
universities for the last two or three generations and now goes 
unquestioned in many donor agencies. However, as Nobel laureate Joseph 
Stiglitz recently summarized at a major conference 
<http://www.imf.org/external/mmedia/view.aspx?vid=817354499001> at the 
IMF a few weeks ago, “The idea that low and stable inflation would lead 
to a stable real economy and to fast economic growth was never supported 
by economic theory or evidence and yet became a central tenet of central 
bank policy.”

Therefore, in typical fashion, the IMF loan for Mozambique approved last 
fall has had the Bank of Mozambique raise interest rates in order to get 
inflation down to very low levels. The real life consequences of this 
particular approach are that credit for domestic companies has become 
less affordable, resulting in less employment and production, less tax 
revenues generated, and less public expenditure available for health (or 
anything). Mozambique’s nascent manufacturing sector objected to the 
monetary policy. A January 19^th news report 
<http://allafrica.com/stories/201101190281.html> in the independent 
daily “O Pais”, titled, “Business Protests at Interest Rate Rise” cited 
the anger of the Confederation of Mozambican Business Associations 
(CTA), which called on the Bank of Mozambique to reverse the interest 
rate increases. According to the CTA, the hike in interest rates will 
reduce productive capacity, diminish Mozambican companies’ capacity to 
compete, and increase unemployment. Shortly thereafter, on March 4^th 
another news report <http://www.irinnews.org/report.aspx?reportid=19860> 
titled, “Mozambique: Unemployment to rise,” noted that in addition to 
the already high unemployment rate, “Thousands of workers in 
Mozambique’s cashew processing industry are facing unemployment with the 
sixth and last of the country’s major processing factories threatened 
with closure…because of a lack of [affordable] capital.” And so while 
domestic companies would like to expand production and employment and 
thereby generate more taxes that could be used for helping the 
government reduce its dependency on ODA, alas, the monetarists at the 
IMF had already made the value judgment for them, behind closed doors, 
that very low inflation shall be more of a priority. And with nary a 
peep from the aid advocates.

The story is similar with the IMF program’s fiscal policy. In order to 
support the goal of lowering inflation, Mozambique cut its budget 
deficit to 4.1 percent of GDP last year and is set again to reduce it 
further to 3.3 percent of GDP in 2011, and will do so by containing the 
banking system’s net credit to the Government, “resulting in a virtually 
zero recourse to domestic financing.” To translate, this means there 
will be very low budget ceilings in the sector budgets, and caps on the 
public sector wage bill for public employees at insufficiently low 
levels, including for health workers, requiring health NGOs to beg 
<http://allafrica.com/stories/201103101133.html> from aid donors to try 
to fill in the gap.

Perversely, it is these very same donors who reinforce this whole 
process by not being willing to give any aid to countries like 
Mozambique unless they first get the official blessing from the IMF that 
the country has satisfactorily adopted “sound” and “prudent” 
macroeconomic policies. Thus, it comes right back home to the aid donors 
and their development model, yet very few in the aid advocacy circles do 
anything about it. So as the aid advocates lobby the aid donors in one 
arena, the advocates’ own representatives to the IMF Executive Board 
push a conservative monetary policy within another arena that 
exacerbates the ability of the aid recipients to ever develop. The same 
goes for the arena of trade policy 
<http://triplecrisis.com/policy-space-at-the-wto/>, where the donor 
countries give aid with one hand while pushing for rapid and premature 
trade liberalization <http://ideas.repec.org/p/pra/mprapa/4371.html> in 
poor countries with the other, such as in the EU-ACP negotiations or the 
non-agricultural market access (NAMA) talks within the WTO negotiations.

Part of the problem is a narrow fixation on just getting donors to give 
as much aid as possible and get the resources to where they are needed 
quickly. It is understandable, but also totally insufficient for ever 
getting the bigger problems addressed. Part of the problem is also an 
epistemological one involving the problematic discourse about “poverty 
reduction” that has seemingly supplanted earlier understandings of 
development. It seems somehow short-term “poverty reduction 
<http://www.guardian.co.uk/global-development/poverty-matters/2011/jan/10/poverty-reduction-industrialisation>” 
has become a stand-in for actual long-term development. Today’s 
advocates have lost sight of what successful economic development is 
supposed to even look like, erroneously thinking that simply improving 
human development indicators is development. One wishes aid advocates 
would listen to the pleas of the Mozambican manufacturers, or coalitions 
of developing countries 
<http://www.un.org/esa/ffd/events/2010GAWGFC/Stmt_G77_23June2010.pdf> 
demanding the right to use industrial policies 
<http://www.wider.unu.edu/publications/working-papers/2010/en_GB/wp2010-106/_files/84251275913199632/default/wp2010-106-revised.pdf> 
such trade protection for their agricultural 
<http://asianfarmers.org/wp-content/uploads/2008/04/issue-paper-on-sp-and-ssm.pdf> 
and manufacturing <http://www.thedti.gov.za/downloads/nama.pdf> 
industries in order to successfully develop and to get off the aid 
bandwagon. These are voices that should be heard at Busan, but won’t be. 
What they need in practical terms conflicts too uncomfortably with the 
dominant free trade/free markets approach that has become so pervasive 
in the donor countries that it is ubiquitous, actively practiced by aid 
donors and passively ignored by aid advocates. But such passivity 
amounts to treading water in the constant short-term.

Last December, UNCTAD released its 2010 LDCs Report which, like the WHO 
report 
<http://www.who.int/social_determinants/thecommission/finalreport/en/index.html> 
of 2008, called for “a new international development architecture 
<http://www.ipsnews.net/news.asp?idnews=53680> for LDCs” and like the 
WHO report, it fell on deaf ears among aid advocates. The UNCTAD report 
rightly noted that under the current development model, “Dependence on 
commodities export increased while manufacturing sectors declined,” and 
that in order for countries to develop and benefit from trade 
liberalization, governments have to implement industrial policies. But, 
“In Africa, countries under structural adjustment programmes 
<http://www.guardian.co.uk/global-development/poverty-matters/2010/nov/24/washington-consensus> 
could not have industrial policies and therefore there was no 
preparation of industries for them to benefit from liberalisation.”

Ironically, the DSW/AfGH briefing is intended to influence the 
discussions among aid donors at the 4th High Level Forum on Aid 
Effectiveness in Busan. Doubtless, the attendees will be consumed by the 
intricacies of streamlining aid modalities, the role of NGOs in aid 
delivery, and commitments to improve monitoring and evaluation systems 
and accountability mechanisms. Meanwhile, the other high-level forum 
that won’t be happening on Development Effectiveness – in which we 
should all be asking how the current development model is going out 
there – will continue to go unmentioned unless and until aid advocates 
mobilize to do something about it.

/Rick Rowden is the author of //The Deadly Ideas of Neoliberalism/ 
<http://www.zedbooks.co.uk/book.asp?bookdetail=4333>/: How the IMF has 
undermined public health and the fight against AIDS (Zed Books, 2009). 
He is currently doing a PhD in economics at Jawaharlal Nehru University 
in New Delhi/

http://www.actionforglobalhealth.eu/blog/?p=946



  It's time for a new development model

Short-term poverty reduction has become a stand-in for actual long-term 
development. This has to change to enable poor countries to get off the 
aid bandwagon

Food price riots in Maputo, Mozambique, last year Riots erupted in 
Maputo, Mozambique, when the food prices rose substantially in 2010. The 
IMF's conservative monetarist policies mean the tax base is not large 
enough for the country to support its health system. Photograph: 
KeystoneUSA-ZUMA/Rex Features

Health aid <http://www.guardian.co.uk/global-development/aid> advocates 
are gearing up to lobby for more, and better, aid at the Fourth High 
Level Forum on Aid Effectiveness <http://www.undg.org/index.cfm?P=1412> 
in Busan, South Korea, in November. And like many others, health aid 
advocates seem to be missing the bigger picture. While it is vital to 
improve aid procedures to get more aid flowing for health, this is not 
the only important issue: continuously overlooked are problems with the 
whole development model.

The number of least developed countries 
<http://www.guardian.co.uk/global-development/poverty-matters/2011/mar/30/least-developed-countries-globalisation-challenge> 
(LDCs) has doubled over the past few decades, from 25 in 1971 to 48 in 
2011, with only three climbing into "developing country" status, and 
just as few developing countries graduating into the ranks of the rich 
industrialised nations. Such an abysmal track record ought to set off 
alarm bells in aid advocacy circles about the profound failure of the 
current development model. In the classic sense of successful 
development – in which countries reliant on primary agriculture and 
extractive industries shift into manufacturing and services over time – 
the record is even more disturbing as many states remain in 
"agricultural plantation mode". While some developing countries have 
increased their share of manufacturing as a percentage of GDP, the 
majority have not, and their tax bases remain too low to finance their 
own needs.

One group of health NGOs recently released a briefing on improving aid 
to Mozambique <http://www.actionforglobalhealth.eu/blog/?p=928>, which 
by itself was a fine report. Yet, typically, it neglected to examine how 
the current development model blocks Mozambique 
<http://www.guardian.co.uk/world/mozambique> from ever building a large 
enough tax base to finance its own health needs. The IMF 
<http://www.guardian.co.uk/business/imf> programme, for example, which 
is based on a conservative monetarist ideology introduced 30 years ago, 
and which goes unquestioned in some university departments and donor 
agencies today, calls on Mozambique to reduce inflation and fiscal 
deficits to super-low levels, even at the expense of higher production 
and employment by domestic firms or higher tax revenues for public 
expenditure. To achieve this, the IMF had the central bank raise 
interest rates, so commercial credit became unaffordable for domestic 
companies. The Confederation of Mozambican Business Associations called 
for a reversal of the interest rate increase 
<http://allafrica.com/stories/201101190281.html>, claiming it would 
reduce productive capacity, diminish Mozambican companies' capacity to 
compete, and increase unemployment. Shortly after, thousands of workers 
at one of Mozambique's last major cashew processing factories faced 
layoffs due to a lack of affordable capital.

In further support of the restrictive monetary policy, the IMF programme 
has Mozambique cutting its budget and limiting public sector wages for 
health workers <http://allafrica.com/stories/201103101133.html>, which 
is sure to keep the health aid advocates busy begging donors for yet 
more ODA.

So, as the aid advocates lobby the aid donors in one arena, the 
advocates' own representatives to the IMF executive board push a 
conservative monetary policy within another arena that exacerbates the 
ability of the aid recipients to develop. The same goes for the arena of 
trade policy, where the donor countries give aid with one hand 
<http://triplecrisis.com/policy-space-at-the-wto> while pushing for 
rapid and premature trade liberalisation in poor countries 
<http://ideas.repec.org/p/pra/mprapa/4371.html> with the other.

Part of the problem is an epistemological one involving the discourse 
about "poverty reduction" that has seemingly supplanted earlier 
understandings of development. It seems, somehow, short-term "poverty 
reduction" has become a stand-in for actual long-term development. One 
wishes aid advocates would listen to the pleas of the Mozambican 
manufacturers, or coalitions of developing countries demanding the right 
to use industrial policies 
<http://www.un.org/esa/ffd/events/2010GAWGFC/Stmt_G77_23June2010.pdf> 
such as trade protection for their agricultural and manufacturing 
industries to develop successfully and to get off the aid bandwagon. One 
good place to start would be for advocates to take a leaf from the 2008 
World Health Organisation Commission on Social Determinants of Health 
<http://www.who.int/social_determinants/thecommission/finalreport/en/index.html>, 
which called on health advocates to seek reforms on a much broader set 
of economic policies as they impact on the ability of countries to 
develop and finance their own health budgets.

Perhaps it's time aid advocates stand back and give an overdue rethink 
to the whole development model.




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