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Of IMF’s Debt Trap and Chinese Debt Peonage

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With the mandate of fostering global monetary corporations, securing financial stability, facilitating international trade, promoting high employment and sustainable growth, and reducing poverty around the world, IMF formally came into existence in 1945 at Bretton Wood conference. Ever since its inception, the fund has been under severe criticism by economic luminaries, celebrated academicians, and the enlightened political scientists belonging to different parts of world exclusively to the third world countries.

For many observers, the problems of the fund are congenital; Bretton Wood produced a deformed infant and a little has been done through the years to overcome such deformities. The assertion is often made the fund was created by and for industrial countries with no concern for the developing countries. Much of the criticism on fund revolves around the conditions attached to its lending facility.

According to well-versed economists, when the fund prescribes austerity to the recipient country, the health budgets are cut down, children are forced to leave schools and the workers are thrown out of work. Education and health sectors suffer the worst consequences of IMF’s prescribed austerity drive. IMF with utter disregard to domestic affairs of the host country prescribes its own recipe to cure the ills of borrowing economy.

It dispatches a team to assess the economy of the host country, measure its performance, and to recommend corrective measures and remedial actions; of what Joseph Stieglitz– a former World Bank chief economist famously scorned as second-rate economists from first-rate universities–says, “They are well-meaning people and I am sure they want to help. But their visits are painful reminders of riots in Bolivia, Indonesia, and strikes in Nigeria…”

Another renowned economist Jeffery Sachs argues that the IMF’S “usual prescription is budgetary belt-tightening to the countries who are too poor to buy such belts”. Furthermore, it reminds me the prophetic words of Harry White former assistant to Secretary of the U.S treasury who once said “I don’t think the fund should butt into every country’s business and say “we don’t like this or that”.

Moreover, for the developing country like Pakistan, the IMF prescriptions are force-fed and according to one economist, we have to swallow the IMF prescribed medicine because we have no other choice. He adds that some of the recommendations of the fund are like a doctor stemming the bleeding of your arm by stopping your heart. Thus, such prescription incompatible with the domestic market of the borrowing country does not bear any fruit. It rather redoubles the difficulties for the host country to cope with its socio-economic challenges.

In addition, there is also a widespread perception in developing countries that by giving its own program, the fund entraps the borrowing country and thereby penetrates deep into its economic system. The fund’s undue intervention in the country’s internal economic dispensation results in economic chaos and uncertainty. The policymakers are therefore unable to craft economic programs in accordance with requirements of the home economy. Consequently, the country is forced to surrender its economic independence and financial sovereignty.

Another allegation leveled against the IMF is that it is a tool of U.S foreign policy that furthers its strategic and economic interests.
Being the only nation with an outright veto helps Washington sway decisions to its benefits. The U.S, therefore, exploits the fund to lure the borrowing country into a debt trap and thereby makes it as its lackey. Such entrapment helps U.S advance her imperialist agenda and meet her global interests. This can be plainly grasped in our relations with the fund, whose pockets are generous to us when we serve the interests of the U.S as it happened after 9/11 and penny-pinching otherwise.

The undue clout of Washington on IMF has raised many questions on its credibility.  Rightly did Lord Keynes describe the views of America on the future of IMF. He wrote in 1944, before Bretton Wood Conference. “In their eyes, the fund should have wide discretionary and policing powers and should exercise something of the same measure of the grandmotherly influence and control over the central banks of the member countries, that these central banks, in turn, are accustomed to exercise control over the other banks of their own countries”… this is how the game to control the economy of the borrowing country is played by U.S in cahoots with IMF.

It seems that China too is following the footprints of IMF. It is employing the same tactics to create its global hegemony as that of the U.S. by using its heavy influence on IMF. It has been keenly observed by political cognoscenti and leading defense analysts that China is colonizing smaller countries by lending them massive amounts of money that they can never repay. The country is accused of leveraging massive loans it holds over small states worldwide to snatch their assets and increase its military footprints.

Developing countries from Pakistan to Djibouti, the Maldives to Fiji all owe huge amounts to China. There are examples of many defaulters being pressured into surrendering control of their assets or allowing military basis on their land. This move of China is being dubbed by its detractors as “debt-trap diplomacy” or debt colonialism- offering enticing loans to countries unable to repay and then demanding concessions when they default. Sri Lanka provided a prime example of last year.

Owing more than $1 billion in debts to China, Sri Lanka was forced to hand over Hambantota port to the companies owned by the Chinese government on a 99 years lease. And Djibouti, home to US military base in Africa, also looks likely to cede control of a port terminal to a Beijing-linked firm. Apart, America is eager to stop the Doraleh container terminal falling into Chinese hands, particularly because it sits next to China’s only overseas military base.

While commenting on the Chinese debt- trap diplomacy, Rex Tillerson said” Bejing encouraged “dependency using opaque contracts, predatory loan practices, and corrupt deals that mire nations in debt and undercut their sovereignty”.

Additionally, China’s debt empire has also been rearing its head in the Pacific, prompting fears the country intends to leverage the debt to expand its military footprint into south pacific. Beijing’s creation of man-made islands in the disputed South China Sea for use as military bases suggests the concern may be warranted.

Another case worth mentioning here is of Tonga. It also carries some big debts and is struggling hard for the repayment. Tonga’s Prime Minister, Akilisi Pohvia voiced his concerns saying that Beijing was planning to seize assets from his country. Inter alia, a report from the Center for Global Development offers some insight into spreading China debt. It depicts that the infrastructure project loans to the likes of Magnolia, Montenegro, and Laos have resulted in millions or even billions in debts, which often account for huge percentages of countries’ GDPs.

Many of these projects are linked to the belt and road initiative- a bold project to create trade routes through the swathes of Eurasia, with China at the center. Mahathir Mohammad, the Malaysian Prime Minister while talking to press expressed his reservations about Chinese investment in the following words” We welcome foreign direct investment from anywhere certainly from China. But when it involves giving contracts to China, borrowing huge sums of money from China- and Chinese contractors prefer to use their own workers from China, use everything imported from China even payment is made in China. So we gain nothing at all”.

Therefore, Pakistan in dealing with both IMF and China must remain cautious so that it might neither fall prey to Chinese debt peonage nor to IMF’s debt trap. It may not be possible in case of IMF because a beggar cannot be a chooser while in case of engagement with China, we need to maintain caution and outline our own rules of engagement based on monitoring, evaluating, and allowing discussions to weigh the pros and cons of each and every development project.

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Economy

Mosul’s recovery moves towards a circular economy

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Five years since the end of the ISIL(so-called Islamic State in Iraq and the Levant) conflict in 2017, the International Organization for Migration (IOM) in Iraq and the UN Environment Programme (UNEP), with funding from the Government of Japan, has established a debris recycling centre in Mosul. After its initial use, the centre has now been handed over to Mosul Municipality for its continued, sustainable operation.

“On behalf of the Iraqi Government, the Ministry of Environment expresses its gratitude to the Government of Japan for generously supporting this important project and to UNEP and IOM for enabling the sustainable management of the huge quantities of conflict debris and restabilization of the liberated areas in an environmentally sustainable manner,” said Iraq’s Minister for Environment, Dr. Jasim Abdulazeez Humadi.

The handover of the Mosul debris recycling centre marks a significant step in the sustainable management of the huge volumes of debris — an estimated 55 million tonnes — created by the ISIL conflict. It also opens the way for the recycling of routine construction and demolition waste, contributing to ‘building back better’ and an increased circularity in Iraq’s development.

UNEP West Asia Regional Director, Sami Dimassi, emphasized that “by reducing waste, stimulating innovation and creating employment, debris recycling also creates an important business opportunity.” Indeed, construction companies in Mosul have expressed interest in purchasing the recycled aggregate, thereby underscoring the longer-term sustainability of debris recycling.

“This project supports recovery and livelihoods by drawing on principles of a circular economy, wherein waste and land pollution is limited through production processes that reuse and repurpose materials for as long as possible,” explained IOM Iraq Chief of Mission, Giorgi Gigauri. “Collaboration and sustainability are key priorities in IOM’s work toward durable solutions to displacement, and we are pleased to have partnered with UNEP and the Government of Japan so that this is represented not only in the function of the plant itself, but also in its functioning, by supporting local authorities to be prepared to effectively operate the plant moving forward.”

On 28 July 2022, Mosul Municipality hosted an event to officially hand over the debris recycling centre, attended by senior government officials and academia, as well as representatives from IOM, UNEP and the United Nations Assistance Mission for Iraq (UNAMI).

Masamoto Kenichi, Charge d’Affaires, Embassy of Japan to Iraq stated: “We are glad to know that the project funded by the government and people of Japan has contributed to cleanup of debris and reconstruction of Mosul. We would like to commend UNEP, IOM and the city of Mosul for their tremendous efforts of turning the legacy of ISIL’s devastation into building blocks of reconstruction”.

Through the rubble recycling project, nearly 25,000 tonnes of debris have been recovered and sorted, of which around half was crushed into recycled aggregate. Material testing of the recycled aggregate endorsed by the National Center for Structural Tests of the Ministry of Planning confirms its compliance with the Iraqi State Commission for Roads and Bridges design standards for road foundational layers and its suitability for several low strength end-use applications such as concrete blocks and kerbstones.

The project created 240 much-needed jobs through cash-for-work schemes targeting vulnerable persons, including 40 women.

Building on this experience, IOM has set up two other debris recycling operations in Sinjar and Hamdaniya in Ninewa Governorate, and a third in Hawija in Kirkuk Governorate, where a pilot phase using a mobile crusher was implemented in al-Buwaiter Village in 2021. In addition, two other conflict-affected governorates — namely Salah al-Din and Anbar — have  also shown a high-level of interest in replicating and scaling up debris recycling in their own regions. 

UNEP has been supporting Iraq in cleaning up the huge volumes of debris created by the ISIL conflict since June 2017. Initially, this included carrying out technical assessments and planning workshops with UN-Habitat, and subsequently designing and implementing debris recycling pilot projects to support returns in Mosul, Kirkuk and other conflict-affected areas in cooperation with IOM.

UNEP

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Economy

Digital Futures: Driving Systemic Change for Women

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Authors: Erin Watson-Lynn and Tengfei Wang*

As digital technology continues to unlock new financial opportunities for people across Asia and the Pacific, it is critical that women are central to strategies aimed at harnessing the digital financial future. Women are generally poorer than men – their work is less formal, they receive lower pay, and their money is less likely to be banked. Even when controlling for class, rural residency, age, income, and education level, women are overrepresented among the world’s poorest people in developing countries. Successfully harnessing digital technology can play a key role in creating new opportunities for women to utilise formal financial products and services in ways that empower them. 

Accelerating women’s access to the formal economy through digital innovations in finance increases their opportunity to generate an income and builds resilience to economic shocks. The recently issued ESCAP guidebook titled, Harnessing Digital Technology for Financial Inclusion in the Asia Pacific, highlights the fact that mechanisms to bring women into the digital economy are different from those for other groups, and that tailored policy responses are important for women to fully realise their potential in the Asia-Pacific region.

Overwhelmingly, the evidence tells us that how women utilise their finances can have a beneficial impact on the broader community. When women have bank accounts, they are more likely to save money, buy healthier foods for their family, and invest in education. For women who receive Government-to-Person (G2P) payments, there is significant improvement in their lives across a range of social and economic outcomes. Access to safe, secure, and affordable digital financial services thus has the potential to significantly improve the lives of women.

Despite the enormous opportunity, there are numerous constraints which affect women’s access to financial services. This includes the gender gap in mobile phone ownership across Asia and the Pacific, lower levels of education (including lower levels of basic numeracy and literacy), and lower levels of financial literacy. This complex web of constraints means that country and provincial level diagnostics are required and demands agile and flexible policy responses that meet the unique needs of women across the region.

Already, across Asia and the Pacific, governments are implementing innovative policy solutions to capture the opportunities that come with digital finance, while trying to manage the constraints women often face. The policy guidebook provides a framework to examine the role of governments as market facilitators, market participants and market regulators. Through this framework, specific policy innovations drawn from examples across the region are identified which other governments can adapt and implement in their local markets.  

A good example of how strategies can be implemented at either the central government or local government levels can be found in Pakistan. While central government leadership is important, embedding tailored interventions into locally appropriate strategies plays a crucial role for implementation and effectiveness. The localisation of broader strategies needs to include women in their development and ongoing evaluation. In the Khyber Pakhtunkhwa province, 50,000 beneficiary committees comprising local women at the district level regularly provide feedback into the government’s G2P payment system. The feedback from these committees led to a biometric system linked to the national ID card that has enabled the government to identify women who weren’t receiving their payments, or if payments were fraudulently obtained by others.

In Cambodia and the Philippines, governments have implemented new and innovative solutions to support remittance payments through public-private-partnerships and policies that enable access to non-traditional banks. In Cambodia, Wing Money has specialised programs for women, who are overwhelmingly the beneficiaries of remittance payments. Creating an enabling environment for a business such as Wing Money to develop and thrive with these low-cost solutions is an example of a positive market intervention. In the Philippines, adjusting banking policies to enable access to non-traditional banking enables women, especially those with micro-enterprises in rural areas, to access digital products.

While facilitating participation in the market can yield benefits for women, so can regulating in a way that drives systemic change. For example, in Lao People’s Democratic Republic and India, different mechanisms for targets are used to improve access to digital financial products. In Lao People’s Democratic Republic, the central government through its national strategy, introduced a target of a 9 per cent increase in women’s access to financial services by 2025. In India, their targets are set within the bureaucracy to incentivise policy makers to implement the Digital India strategy and promotions and job security are rewarded based on performance.

These examples of innovative policy solutions are only foundational. The options for governments and policy makers at the nexus of market facilitation, participation and regulation demands creativity and agility. Underpinning this is the need for a baseline of country and regional level diagnostics to capture the diverse needs of women – those who are set to benefit the most of from harnessing the future of digital financial inclusion.

*Tengfei Wang, Economic Affairs Officer

This article is the second of a two-part series based on the findings of the United Nations Economic and Social Commission for Asia and the Pacific (ESCAP) Policy Guidebook: Harnessing Digital Technology for Financial Inclusion in Asia and the Pacific, and is jointly prepared by ESCAP and the Griffith Asia Institute.source: UNESCAP

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Empowering women-led small businesses in Nepal to go digital

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People walk down a street of shops in Kathmandu, Nepal. (file) photo World Bank/Peter Kapuscinski

Authors: Louise Anne Sophie Lavaud and Mitch Hsieh*
Throughout the years, Laxmi Shrestha and her husband saw the opportunities that opening an online shop could bring to her family business.

“Looking at the trend of TikTok and other sites, we thought selling online could help us but we weren’t technically sound,” said Laxmi, the owner ofLaxmi Hastakala Store, in Banepa, Nepal, and part of a family of artisans.

As she learned about selling online, she picked up on how to market her shop digitally and, according to Laxmi: “It has surely given our business a push we always wanted. Recently we started selling our products online and we also receive payments online.”

Laxmi Hastakala Store is among the 1,800 women-led micro, small and medium enterprises (MSMEs) in Nepal being trained on digital and financial literacy by Sparrow Pay – one of the winners of the Women Fintech MSME Innovation Fund launched in 2019 by the United Nations Economic and Social Commission for Asia and the Pacific (ESCAP) and the United Nations Capital Development Fund (UNCDF).

Sparrow Pay has created a local digital marketplace where women-led MSMEs can offer products and services to its existing 800,000+ digital payment service users. Additionally, Sparrow Pay is supporting these women entrepreneurs in adopting digital payments and creating a payment history to support access to additional financial services.

MSMEs are a vital source of employment and a significant contributor to a country’s GDP. However, more than 45 per cent of MSMEs in Asia and the Pacific are constrained from accessing finance and other support for their businesses. Socio-cultural norms mean women-led enterprises have to overcome gender-specific barriers to access institutional credit and other financial services.

ESCAP and UNCDF aim to encourage easy access to digital finance for MSMEs in Asia and the Pacific, break the financial barriers surrounding women-led enterprises and support entrepreneur-centric growth and inclusiveness throughout the region. Initiatives by the 10 winning fintech companies are currently supporting more than 9,000 women-led MSMEs in Bangladesh, Cambodia, Fiji, Myanmar, Nepal, Samoa and Viet Nam.

Just like Laxmi, these women business owners plan on successfully growing their companies in the digital area.

The Women Fintech MSME Innovation Fund is part of a regional programme “Catalyzing Women’s Entrepreneurship: Creating a Gender-Responsive Entrepreneurial Ecosystem,” which seeks to support the growth of women entrepreneurs in Asia and the Pacific by enabling a policy environment for such business owners, providing them with access to finance and expanding the use of ICT for entrepreneurship.

*Mitch Hsieh Chief, Communications and Knowledge Management Section

UNESCAP

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