Posted by: bklunk | October 15, 2006

Trade and Poverty

rnarriaga raises a great question: why is it so hard to find sustainable markets and attractive opportunities for investment in Africa. The political scientist in me says this: no effective governance, no legal, social, political, and physical infrastructure for sustainability. Debt may play a roll here. What would a correlation between the level of unsustainable indebtedness and quality of governance look like?

New Road – Trade for Poverty Relief



I believe tonight will be a good night to recap some of the information
compiled thusfar, as well as start down a new avenue of research –
poverty relief through free trade.

So far we have investigated the IMF and World Bank’s HIPC initiatives
and proposed debt cancellation policies. We have also discussed
criticisms of these points. A quick summary goes like this:

While the IMF and World Bank have LOANED billions of dollars in aid, it
is highly debatable whether this has helped or harmed Africa. The main
controversy lies within the fact that indebted countries are forced to
spend a higher percentage of their GDP on debt repayment than on social
services. This has led to a call for 100% debt cancellation, which
would effectively turn the loans into grants. Of course any financial
institution is going loath the suggestion and either fight vehemently
against the cancellation, or seek others to repay the debt. In reality,
the IMF has done both, stating on their website,
“a number of creditor governments have recently signaled their
intention to provide additional debt reduction… total cancellation
would seriously jeopardize the overall flow of financial support for
the poorest countries”.

While lives have definitely been saved due to the contributions of the
IMF and World Bank, they have for the most part failed to create
sustainable markets within Africa. Here is where we are going to exit
this line of research and turn down a new road, one that leaves Africa
and takes us through India, over China, and around to South America.
The countries in these regions are still within the Global South, but
have shown much more progress in terms of reducing poverty levels and
creating sustainable markets. The goal of our journey down this
highway will be to analyze the remote and proximate causes of the
relative gains within these countries.

A quick overview of the upcoming research is as follows:

As mentioned by Professor Klunk in lecture this week, multi-national
corporations (MNC’s) have invested more money into Asia, East Asia, and
South America than in Africa. This is a possible remote cause.

India and China have recently opened up their countries to free trade.
This is both proximate and remote, as each country was influenced by
outside factors before signing on with the World Trade Organization

South America has a history of socialist movements and a tendency to
nationalize their resources. This is a proximate cause – and a very
interesting one. I believe we will start here, but not tonight.

Finally, we will move away from the IMF and World Bank, and begin
looking into the WTO and Doha as systemic actors within the Global
South’s rise from poverty. Bill and Melinda Gates may come across our
paths on this road as individual actors with significant influence, if
so, we will analyze their motivations and examine the results of their actions.

So a departure has been made from the HIPC’s, and now we focus on the
next rung up on the ladder of economic progress, how high will we climb
and still remain in the Global South?

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  1. I think one of the reasons that the effort in poverty reduction is not working in Africa is that the continent is still very much divided by people groups, i.e. tribes. There isn’t a sense of nationalism to the state, it’s a loyalty to the tribe. In addition to this, during the colonial period, there wasn’t an effort to build the infrastructure needed for long term development. Colonial powers developed based mainly on a scale to extract the resources that were available. In doing so, the land was stripped by the colonial states of what would have been valuable resources within the context of the global market. To what account do the IMF and World Bank take this history into consideration when making the loans to these African nations? Creating larger debts for these nations who don’t have the sense of nationalism nor, in many cases, the resources to bring them out of that debt isn’t the answer. It’s just creating another round in the cycle.

  2. I very much agree with the statement Rachael gave. It is very difficult for any type of proactive effort to work in a continent/within countries that are so divided. Without the full, or near full, cooperation by the people, many efforts will go unrealized and will probably also fall short in terms of doing much good. I also think that we must keep in mind that many African nations, at least some of the so-called leaders, do not necessarily want international assistance. They may see this as an intrustion into their country and a chance for the sovreignty of their nation to become obsolete.

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