Will Wolfensohn fire his chief trade adviser?

The issue of trade and the need for a two-sided bargain (between developed and developing countries) "is the new hymnbook that we are singing now", said World Bank president James Wolfensohn.Washington, 29 Sep (TWN) - The issue of trade and the need for a two-sided bargain (between developed and developing countries) "is the new hymnbook that we are singing now", said World Bank president James Wolfensohn on 27 September during the "Capstone roundtable" that served as a public introduction to the secret sessions of the board of governors of the IMF and World Bank held during the weekend in Washington.

In a widely quoted press conference statement, Nicholas Stern, chief economist for the World Bank, said that "improving market access for developing countries is one of the most important steps that the rich countries can take in fighting global poverty. It's hypocrisy to encourage poor countries to open their markets while imposing protectionist measures that cater to powerful special interests in the rich countries."

Yet, during a discussion with NGOs, Uri Dadush, director of the recently created Bank's International Trade Department, insistently repeated that "liberalization is good for you, independently of what the others do".

On that basis, Uri Dadush vehemently defended the logic of the Bank demanding liberalization in trade and services from developing countries as part of its conditionalities, irrespective of whether the Bank 'preaching' to industrialized countries about undertaking 'unilateral liberalisation' and improving market access to developing countries are effective or not.

Roberto Bissio, coordinator of Social Watch and sole civil society voice in the "Capstone roundtable" argued that the Bank and IMF pressure for unilateral liberalization "is actually deteriorating the bargaining position of the developing countries when they go to the trade negotiations, and those are who are really setting the rules".

Wolfensohn immediately replied that "I think the answer to that is that in the past that was more true than it is today. I think that the issue of a one-size-fits-all and unilateral action may well have been true once, but I don't know who it is that spoke. Give me his or her name, and I'll get rid of them."

Before any name was actually produced, the World Bank president limited his threat of sanctions with a smile: "This is a democracy here, and I will certainly make sure they go and work for the Monetary Fund."

Elaborating on the idea of trade policies eventually becoming ground for international civil servants getting fired, Wolfensohn added: "I think we (referring to himself and Horst Koehler, head of the IMF, also present at the roundtable) have become very much advocates at this moment. It's not easy, and you say that the major shareholders are the rich countries, and it's perfectly true. I don't know how long we'll keep our jobs, but we are talking very much about the issue of trade, about the issue of a two-sided bargain, and maybe we've been slow in learning, but it is the hymnbook that we're singing from now."

There was some laughter in the audience over Wolfensohn's remarks, but it also made some (Bank staff) nervous, since it wouldn't be the first time somebody is fired in the Bank for not following the official party line.

The other panellists at the round-table were the Swedish Development Minister, Mr. Jan Karlsson, the South African Finance Minister, Mr. Trevor Manuel, the IMF Managing Director, Mr. Horst Koehler, the Chairman of Goldman Sachs International, Mr. Robert Hormats. The round table was moderated by Mr. Alan Murray (Washington Bureau chief) of the television network, CNBC.

Trade and the 'free trade' dogma and practice figured prominently in the debate, though the panellists in effect conceded that the North had not been practising the doctrines preached to the South and that it was time they should do so - with the blame sought to be shifted to the public in the North not being aware of or willing to change the policies of protection.

Apart from Mr. Wolfensohn's remarks about the "new hymnbook" on trade, towards the end of the panel discussions, when asked whether instead of the failed market-based approach, the IMF would adopt a human rights based approach as the best way to run fiscal affairs more efficiently in countries, Koehler insisted on the Fund's market approach and said: "the market-based economy is still the leading model.. what we need today is a policy to correct market failures. That is the issue."

It remains to be seen whether this is just some semantics or even more of a break with the Washington Consensus which his predecessor, on the last day in office, had repudiated at Bangkok UNCTAD-X, with the remark "What Washington Consensus, I never signed any."

The transcript of the proceedings at the panel showed that all the official participants on the panel were on the defensive. However, even when agreeing with civil society criticism (from Bissio and the audience), the rest of the panel, particularly Karlsson and Manuel sought to challenge the NGOs by talking about their own elected representative-capacity and asking whom NGOs represented. It may perhaps have been a legitimate question if a Swedish or South African NGO had challenged the views of their ministers as against the country-view. But since none at the meeting had claimed to be more representative, the point of the challenge was unclear excepting as a case of "politicians of the world unite against NGOs."

The moderator, Mr. Murray, set the ball rolling by referring to the sea-change over the last three years - the bursting of the technology bubble and an end to dotcom Initial Public Offering (IPOs), the September 11 events, the 'war on terrorism' in Afghanistan, and the corporate malfeasance in the USA, ranging from $17 billion of misstated earnings or $17,000 umbrella stands for CEOs - and said whether one agreed or not with the views of Robert Weissman (in a Washington Post column last week) that 'the era of market fundamentalism is over,' it was clear that the faith in free markets, open markets and capitalism has been tarnished. "And what reason is there to think - after Monterrey, Johannesburg and Doha - that the promise of development and the problems of the poor in the world will be better addressed in the next decade?"

Manuel spoke of the commitments at these conferences and that the key issue was 'financing'. Karlsson agreed with this but also spoke about developing multilateralism as the main challenge.

Mr. Bissio (who runs the Social Watch that has been monitoring implementation of commitments by governments of North and South since the Copenhagen Summit) said that while governments in the South were making an enormous effort, with more human rights respect than 15-20 years ago and more allocations of a country's own resources to social parts of the budget, the developed countries had not met their commitments.

The 25-year-old aid commitments (0.7 percent of GNP) had not been met, nor the promises to open up markets to the products of the poor or promise of creating opportunities. The development compact lacked the commitment of the richest countries which remains a commitment only on paper.

"And in that scenario," said Bissio, "the IMF and the World Bank are telling still the developing countries that they should unilaterally continue to privatize, open the markets, play according to the rules for a perfect world that the developed countries do not apply to themselves. The developed countries are being preached to, but the power of the Fund and the Bank on the developing countries is very, very big. The developed countries, owners of the Fund and the Bank, can get good advice but do not feel pressured ... to change their behaviour."

In their responses, both Koehler and Wolfensohn conceded that there were"double standards"(in the North) and the problem was of how to solve this.

Koehler said that market fundamentalism had never been implemented, but if it had been, for instance in industrialized countries, "we would have better markets." The reform advice to developing countries to "move to markets", should have been accompanied by advice to set up social safety institutions and tackle governance, corruption etc. There was however a need for a "better trade policy," he conceded.

Hormats agreed that there was a 'double standard' on trade - pressure on developing countries to undertake market reforms, while the industrialized world tended to reserve some sectors against import competition - agriculture being the most egregious example. However, it was not a case of convincing leaders to remove protection, but lack of sufficient awareness among large numbers of the population.

For his part, Wolfensohn without denying the analysis of Bissio, found some reason to be more optimistic, and said that the issue was not one of philosophy but of delivery on the commitments. "... people like Mr. Koehler, myself and others," he said, "will try and hold everyone accountable...we have been pretty active on the trade issue and on subsidies in the public for several years.."

Bissio said that while the IMF and the Bank had been very active, it was a "complicated game" since they worked on the assumption that unilateral liberalization was good for the countries - a view that the NGOs had heard from one of the Bank staffers at an earlier session.

But when the developing countries go to Geneva, they are told (at the WTO), that the talks are about their making 'further commitments' and what was unilaterally done before did not count. "How much more will you liberalise, how much more will you open?" is the question they are faced with.

The Fund-Bank policies was thus actually deteriorating the bargaining position of developing countries at the trade negotiations, and that was where the rules were being set.

Wolfensohn said that this was "in the past, more true then than today."

"The issue of one-size-fits-all and unilateral action may well have been true once... I don't know who it is (from the Bank) who spoke. Give me his or her name, and I will get rid of them...."

The Bank President added: "Horst (Koehler) and I, each in our own way, recognize that an uneasy, one-way bargain doesn't work, and I think we've become very much advocates at this moment. It is not easy ... but we are talking very much about the issue of trade, the issue of a two-sided bargain, and may be we've been slow in learning, but it is the hymnbook we're signing from now."

Manuel said that liberalization in the South was no longer the issue, but market access in the North was. It was not an issue any longer of philosophy but of implementation.

While agreeing that Europe's CAP must go, Karlsson was worried that it was now felt to be progressive to talk of trade restrictions. While some in Europe were trying to break up CAP, the US had introduced the farm law, and "our last ally (the US) is going away."

It was necessary for multilateralism to deliver, so that the North can "win the confidence of the South in the great challenge of the environment." He did not believe it was a problem of elections - this subsidising of dying industries. "We can win elections and do away with subsidies at the same time... the problem is if we're going to create confidence in the dialogue between the north and the south, we have to do things now... otherwise we cannot take up the challenge of the environment."

In some exchanges with the audience on the widening gap between what is said in Washington and what public thought in the developing countries like Brazil, Wolfensohn said that President Cardoso and Economy Minister Pedro Milan had done a very good job in stabilizing the country and bringing inflation down. "But the issues of equity and social justice are issues that the Brazilians will have to solve... the distribution of wealth and the way the country moves in terms of social equity, are decisions resting with the people. We cannot impose it."

Bissio said that while he could agree with Wolfensohn on this, "the reality is that the market or the market operators decided they did not like the candidate that the Brazilian people are likely to choose. And they artificially created, against all economic indicators, a major crisis in Brazil by the decision of a few private, uncontrolled and unaccountable credit rating agencies and big speculators."

On the World Bank's oil, mining and the gas sector lending, and Wolfensohn's promise at the Prague meeting that he would look into these; one of the NGOs complained that the outcome, the Extractive Industries Review was being very poorly implemented, while the Bank staff was continuing to discuss in countries the Bank's involvement in future lending. The NGO referred to the Romanian gold mine project in particular.

The Bank President said the delay over the Extractive Industries Review was in getting the agreement of civil society on how it should be set up. A totally independent Indonesian former minister (Mr. Emil Salim) was running the project, but he had taken on two jobs at the same time, and was involved as the UN Secretary-General's Special Representative for Johannesburg; as a result, his energies were diverted to that. Mr. Salim has now promised he would continue with the Bank review project.

As for the Romanian project, Wolfensohn promised to look into it. .