The heartiest dishes at the UN Conference on Financing for Development, the high-level get-together held in Monterrey, Mexico this past March, were those served at the many lunches and dinners for the 50 or so heads of state—including George W. Bush, Vicente Fox and, for a while, Fidel Castro—and the thousands of officials in attendance. The menu of financial achievements, by contrast, was worthy of an austerity diet.
The core document issued by the so-called “Monterrey consensus” contained few concrete proposals for using new resources to promote development. Both the European Union and the U.S. government declared that they would promote a miniscule increase in traditional development aid. But the official document does not call for seeking new ways of financing development, even though there is no scarcity of ideas out there.
There is, for example, the proposal by financier George Soros to create an international credit insurance corporation—essentially a global version of the Federal Deposit Insurance Corporation—that would charge a small fee on all international bank transfers and use the proceeds to bail out countries in financial crisis. Then there are the suggestions of former World Bank chief economist Joseph Stiglitz to make more active use of the enormous monetary reserves accumulated by most Third World countries. Even more to the point is Nobel laureate James Tobin’s call for a small tax on all global transactions in order to make short-term speculation more costly. A growing number of economic studies have concluded that the “Tobin tax”—which has enormous popular and international support—could be introduced in financial markets without provoking a crisis.
But it’s also important to keep in mind that the very manner in which the economic and ethical issues have been cast in the recent official discussions is wrongheaded. The wealthy countries arrived in Monterrey touting their readiness to offer a few more crumbs of aid to poor countries with the ostensible goal of mitigating the enormous poverty in the world as if they were participating in a charity drive to dispel protests. What the leaders of the most advanced countries don’t want to recognize is that their own economic development over the last 20 years has partially depended on financing from low-income countries and, above all, middle-income countries such as Mexico.
A recent book on globalization by Mexican academics John Saxe Fernández and Oscar Núñez documents the enormous transfer of economic surplus from Latin America to the wealthy countries during the last 25 years through debt service, one-way monetary transfers, capital flight and profits remitted from direct foreign investment. While the precise amount of money that has left Latin America can be debated, it remains crystal clear that rich countries owe as much to less developed countries as vice versa. In this sense, we shouldn’t be talking about offering handouts but of coming up with more equitable forms of development. The Monterrey proposals do not seek to adjust this immense imbalance at the global level.
Mexico during the last 20 years is a prime example of the transfer of resources from the Third World to more advanced nations. Since 1982, the Mexican government has made close to $300 billion in payments on its foreign public debt, which began as no more than $100 billion in loans. Without doubt, these debt payments have resulted in a net transfer of resources that has helped underwrite the economic growth of the richest countries. If we tack on the more than $150 billion that Mexican individuals and companies invest in the United States and Europe, we see that more money leaves Mexico than comes into the country.
The case of Mexico is not unique. To take another example, many oil-producing countries—which are classified internationally as middle-income—annually invest immense sums of money in the international financial markets. These investments are not usually considered development aid to rich countries, but that is precisely what they are. The financial markets in London, New York, Paris, Frankfurt, Zurich and Tokyo benefit the most, being closely linked to the many off-shore tax havens that attract an enormous amount of money from the wealthy of the First and Third Worlds. If we don’t insist on keeping track of these deposits, most discussions of financial reform like those at Monterrey make little sense. The first step in future proposals to reform the international financial system’s architecture must be the shining of a flashlight on these global financial flows, both legal and illegal and in all directions. If we don’t have the will to discuss the need for this transparency in public forums, we can look forward to more discussions of little meaningful content whose goal is essentially to maintain the status quo at the global level.
ABOUT THE AUTHOR
Carlos Marichal is professor of economic history at the Colegio de México in Mexico City. He is the author of A Century of Debt Crises in Latin America (Princeton, 1992) and has been a frequent contributor to NACLA. Translated from Spanish by Deidre McFayden.