NYU-A#6-

Jeffrey Garofalo

October 27, 2000

International Organizations

Background

In his famous Four Points of Life speech, President Harry S. Truman called on the United States and the "advanced nations" to "help the developing peoples of the world, through their own efforts, to produce more food, more clothing, more material for housing, and more mechanical power to lighten their burdens". A principle tenet of Truman's Fair Deal for the worlds poor was that development programs would reflect the needs and conditions of those served, rather than serving the interests of the money lenders and the rich and powerful. Truman stated "Guarantees to the investor must be balanced by guarantees for the interest of the people whose resources and labor go into these developments". Tragically, since Truman's time, international efforts to eradicate poverty have not maintained this balance, but have often been dictated by the financial community and by prevailing laissez faire orthodoxy. Rather than pursuing strategies to benefit the worlds poor, international efforts have too often proven inimical to those in need. Today, a new international financial architecture must be constructed. Progressive reforms must include, in order of priority, a dismantling of the current conditions for financial assistance, a commitment to stabilizing commodity prices and a pledge by the developed world to aid in the diversification of the economies of the developing world.

Reform of Financial Assistance

At present, as a precondition for receiving financial assistance, developing countries are required to make "structural adjustments" to their economic and social institutions. "Structural adjustments" include measures to lower wages, to reduce public spending on infrastructure and education, to devalue the local currency and to eliminate all tarrifs protecting local industry. These programs are designed, in great part, as a means to generate a surplus of exports over expenditures in order to repay the debt service owed to the financial community. Rather than building sustainable growth in the developing world, structural adjustment programs have had the effect of producing economic contractions and a corresponding reduction in purchasing power. According to Walden Bello at Cal Berkeley, structural adjustment programs are largely responsible for conditions like those experienced in Chile, which during the 1980's, saw unemployment soar to 30 percent with GNP plummeting 15 percent.

Structual adjustment programs are antithetical to Keynesian economics and are inconsistent with the "American economic model". Rather than taking countercyclical measures to increase aggregate demand during periods of hardship, these programs curtail public spending when public spending is needed most. Further, by blindly opening up internal markets to international trade, local manufactures are driven out of business. In the new financial architecture, we must protect local manufactures. During the Nineteenth Century, a principle component of Alexander Hamilton's economic program for the young republic was the protective tariff; we protected local manufactures thereby reducing imports of high valued manufactured goods. Further, Hamilton believed that in order to facilitate development, the federal government must be committed to the building of roads, bridges and canals to promote commerce. In the new financial architecture, grants will be provided for investments made in infrastructure and education . Loans will also be provided at lower rates and with longer maturities. Loans will be provided without strings attached.

Stabilization of Commodities Prices

The new international financial architecture must redress the current terms of trade imbalance. The economies of the developing world are today dependant upon the sale of commodities such as cocoa, sugar, palm oil, rubber and tea that are subject to severe price fluctuations. Often, the prices of such commodities are significantly below the costs of the manufactured goods imported by the developing world. The result is a capital imbalance, with much needed monies flowing out of the developing world. We must explore ways, as President Kennedy tried for Latin America, to maintain commodity price levels commensurate with profitability. This may require either price supports for growers to restrict output or for the development of an international trading organization that will buy and sell commodities on the international exchanges.

Diversification of the Economy

The new international financial architecture must explore ways to construct more diversified economic systems for the developing states. The international community must provide technical assistance and grants for the promotion of manufactures, power plants and light industry so as to reduce the dependance of the local economy on the sale of the principle "cash crops". Efforts must also be directed towards the production of goods and services for local consumption, thereby reducing imports of goods that could be manufactured at home. The success story of this development plan is Malaysia, where economic growth was achieved through natural resource exports like rubber and timber combined with light manufacturing and textiles.

Conclusion

The international financial system must redirect its focus from paying off its creditors to helping the worlds poor. Towards that end, investments must be made in infrastructure and education. Commodity prices must be stabilized and economies diversified.