From: Lindseyrobinson@aol.com
Sent: Friday, January 16, 2004 4:19 AM
To: amadei@colorado.edu
Subject: Could I publish my clips on your website?



Lindsey Robinson
Engineers Without Borders
303-442-2460


How The Poverty Trap Works: A UN Internal Audit
UNCTAD’s PRSPs (Poverty Reduction Strategy Papers)

Poverty equals unproductively. The growing quagmire of poverty and disease is embedded in the corruption of trickle down economics, unfair trade practices,  inequitable foreign direct investment, lending mistakes, an abuse of trade credits, and the frustration that most aid goes to wealthy monarchs than to impoverished citizens. This spirals into the problem of the "aid-and-debt trap" and a moral hazard, where rich countries and multinational sweetheart deals, tax and interest rate breaks don’t pay fair value for the commodities exploited abroad, or the fair value of labor and environment sustainability abroad.

External debt burdens for LDCs (Lesser Developed Countries) have grown way past their ability to pay themselves off-often because the rates are too high and compounded, and the fair value of resources and labor are mis-priced; all while creating further pollution, diseases, higher infant mortality rates, depletion of natural resources, currency devaluation, and eventually the foreign ownership of state industries like banks, real estate, manufacturing, natural resources, and human capital. UNTAD says, "the $1-a-day international poverty line, has doubled over the past 30 years." When most LCD’s are living on less than $1 a day, they have little energy, resources or incentives to save and invest, start businesses, or overthrow a corrupt government. Their world is one of perpetual helplessness.

It sounds contradictory to say LDCs economies "grew faster in the 1990s than in the 1980s, according to the report… where LDCs real GDP per capita grew at only 0.9% during 1990-1998 - only 0.4%, if Bangladesh is excluded. This does not compare favorably with other developing countries, whose per capita growth rate was 3.6% a year over the same period, or with other low-income countries that registered 5.4% growth (largely attributable to substantial growth in China and India)." When debt and inflation (or debt defaults, devaluation or a currency collapse) are in double digits or in the hundreds of percentile, growth calculations are contradictory double talk. Exceptions like rumors that China owns half America’s stock market  skew numbers of cross ownership, price valuation, current account balances, currency reserves, debt and trade balances, or the strength of one country’s currency (like America’s two Beijing policy and numerous off shore tax havens).

"The picture is mixed. In 15 LDCs, including seven in Asia, GDP per capita growth exceeded 2% a year during 1990-1998. But there are 22 LDCs which were stagnant or in economic regress. In 11 of these, all of which experienced serious armed conflicts and internal instability during the 1990s, the real GDP per capita has been declining by more than 3% annually." Transfer pricing or military incursions have often been described as another transaction fee. "Two thirds of the 48 countries designated by the United Nations as the least developed in the world lost ground to other developing and low-income countries in the 1990s," according to the UNCTAD Report.

High population growth rates, environmental degradation and increasing poverty are mutually reinforcing in many LDCs. "The percentage of people living on less than $1 a day has soared in these countries from 61% in 1981-1983 to 82% in 1997-1999, owing partly to the squandering of rich resources and armed conflict over control of resource and revenues." When most resources are spent on dictators and their military control of natural resources, manufacturing and repression, only 15 cents per person per day is spent on private capital formation, public investment in infrastructure and the running of vital public services, including health, education, administration and law and order."

Moreover, most of these LDCs are at the beginnings of industrialization (lesser skilled products) like textiles, mining and agriculture, where most are solely dependent on agriculture and mining to survive, with little technology or subsidies to increase productivity. According to UNCTAD’s report, "state capacities are weak where extreme poverty is pervasive, and political conflict and instability associated with the struggle for survival can further worsen the situation. This is particularly acute in mineral-exporting LDCs…. While access to foreign savings, markets and technology, as well as international migration, could theoretically help the LDCs break out of the poverty trap. Within the non-oil commodity-exporting LDCs, the trap is actually being reinforced, and not broken, by (unfavorable) international trade and finance relationships."

Where US$900 meets the GDP per capital threshold for exceeding LDC status, discounting recent economic shocks, "and assuming the growth rate of 1990-1998 continues, only four LDCs - Bhutan, Lao People’s Democratic Republic, Lesotho and Sudan," will break out of the LDC trap.  Another eight countries would meet this criterion only in the next 50 years." Considering the earth’s population is expected to double within the next 20 years, we must remember,  "poverty is particularly severe in the African LDCs, which account for 34 of the 49 countries in this (LDC) group. Where the share of the population living on less than $1 a day rose from 56% in the second half of the 1970s to 65% in the second half of the 1990s, in the second half of the 1990s, almost nine out of 10 people in African LDCs were living on less than $2 a day. Their average consumption was just 86 cents a day, as compared with $41 a day in the United States."

"In 2000, only four of the 27 LDC non-oil commodity exporters (Bhutan, Eritrea, Solomon Islands and Uganda) did not have an unsustainable external debt, according to the criteria of the enhanced HIPC (Highly Indebted Poor Countries) Initiative."

According to the Report, "at the national level, low income leads to low savings; low savings lead to low investment; and low investment leads to low productivity and low income." This has become a spiral reflecting the inequitable structure of global commodity markets, higher marketing margins between producers and consumers (where LDC farmers are gouged by middlemen because they don’t have accurate, timely market information) that reinforce the cycle of economic stagnation, pervasive poverty,  and greater commodity price instability."

There’s been a breakdown in the theory of comparative advantage, where LDCs eventually are able to afford to consume the products they produce (like Ford’s assembly line) creating a middle class. "The inability of more advanced developing countries to move up the technological ladder and move out of simpler products exported by poorer countries is contributing to the saturation (and regression of prices) of commodity markets and increasing the vulnerability of those LDCs that have sought to escape the poverty trap by diversification out of commodities." This is compounded by unfair "tariff rebates on imported inputs, tax exemptions, preferential credits for exporters, export credit insurance, (a disparity in) market information provisions (like price instability, risk management compensatory schemes) and (foreign) subsidized infrastructures (i.e. agriculture, manufacturing, banking, real estate cross ownership, stock market/futures and bond penetration), which should be (reconfigured) integrated into PRSPs (Poverty Reduction Strategy Papers).

"The link between commodity dependence and extreme poverty indicates that there are two key gaps in the current international approach to poverty reduction in the poorest countries." Sustainable development and fair play requires,  "breaking the link between commodity price behavior and persistent indebtedness, for example, by making debt repayment schedules contingent on world commodity prices (i.e. factoring in sustainability, child labor, or landmines); and increasing the economic relevance of price risk management instruments in LDCs through innovative institutions and organizations."

Compounding the problem, many third world citizens in Africa and worldwide who suffer from AIDS can hardly work the farms who are owned by foreign multinationals or wealthy government dictators. The stories of slave labor for coco beans to textiles, farmers and miners is pervasive. The problems continue for impoverished city dwellers who’ve left their country villages hoping for a better life. Many end up in crime, prostitution and  the drug trade living in shanty towns because their economy (whether in Hong Kong, Indonesia, Thailand, Rio De Janeiro, Argentina…) has collapsed and the wealthy elite have taken their money out of the country-capital flight. It is said Mexico’s President Salinas stole half of Mexico’s stock market after leaving his presidency. The same has occurred in Middle Eastern countries for instance, when Iraq invaded Kuwait and the monarchs got themselves and their money out-leaving the rest of the country to fend for itself. Disparities in Saudi Arabia and Iraq,  Sudan, Cambodia, North Korea, Somalia and Rwanda mimic the repercussions of  foreign military basis, puppet regimes and the fallout of a single economy based on military advancement.  The most obvious example is the collapse of the Soviet Union after the falling of the Berlin Wall in 1989.

Likewise, devaluation (like Mexico’s Tequila effect), Russia’s debt default, the Asian contagion or Argentina’s recent default destroy the value of ordinary citizens savings, while raising the interest rates of micro loans producing a growing underclass that further perpetuates indentured servitude. This creates more crime and corruption as the poor look for new means of income (kid napping, drug trafficking…) , and increases immigration to more prosperous countries. It also causes civil unrest, revolutions and greater militant action by governments who feel they must clamp down on such uprisings.

The problem is that elite government officials, multinationals and international bankers do not see their own enlightened self interests. Only a  zero-sum gain. Organizations like the World Bank or the IMF who issue global bonds don’t seem interested in turning the paradigm upside down. Machiavelli’s "The Prince" discussed creating a republic that could take care of itself. His angst, "the ends justify the means," proves this is a farce.  The growing wealth gap among LDCs and super cities across the world live in this dilemma where the rich create gated communities locking themselves in from their impoverished surroundings whether in Johannesburg, or La Jolla, California (where Mexico is 30 minutes away). Fear of the growing disparity between rich and poor, the realities that economies within nation states and between regional borders have been irrevocable enmeshed. Indeed, globalization has past the point of return.  

Where impoverished countries have no clean water, no electricity, no property or intellectual property rights, and no ability to participate in the market place, the physical disease of AIDS and cholera is as much an extension of their psychological suffering. The current world drama economy of stagnation and recession can no longer drain LDCs resources and labor to prop up the first world’s own failing economies through further colonialization, price transfer, special subsidies and exploitation of resources and cheapest labor.

According to UNCTAD’s Least Developed Countries 2000 Report, globalization and the liberalization of markets (privatizing state industries, forcing states to open up to foreign direct investment and multinational ownership of banks, real estate and chaebols, for instance), perpetuates the inequitable rules of previous debt-aid, debt-equity swap practices, and sustainable project finance. Anymore, international banking transaction fees (like interest rate swaps, cross subsidies, pricing transfer) have become more important and profitable for the very few, than creating new products and services for the countries they conduct business with. And like many bonds or project financing, convertible debt instruments, government bond issues or international lenders change the rules of their contracts before completion (through calling in contracts, a change in interest rates, currency devaluation, capital flight, asymmetric shocks). Consequently, poor countries get stuck in the downward spiral of stagnation, inflation, economic regression and the eternal debt trap.

Wed in an "aid-and-debt trap,"  according to the UNCTAD Report, "almost two-thirds of the least developed countries (LDCs) have an external debt burden which is unsustainable according to international criteria….in which high debt levels impede effective aid, and ineffective aid prevents a solution to the debt problem"…  (requiring) multilateral and bilateral aid agencies (i.e.World Bank and the IMF) to overhaul their aid and trade policies.  

The "moral hazard continues,"  where instead of letting these inefficient or inequitable countries fail like bad businesses (to be replaced by suitable financial  infrastructures), international lenders continue to bail them out. Consequently, "official creditors are insulated from the full effect of their lending mistakes." Likewise, honorable aid agencies are suffering from, "substantial frustration and aid fatigue.

Official Development Assistance (ODA) from OECD-DAC countries to LDCs is estimated to have been US$12.1 billion in 1998, is down by US$4.5 billion since 1995. In real per capita terms, net ODA to LDCs has dropped by 45% since 1990 and is now back to the levels of the early 1970s." It appears international lending by the World Bank or the IMF is mostly going to the top.  "Private capital inflows, however, increased in 29 out of 45 countries in the 1990s, but aid to LDCs has dropped by at least 30% since 1990. Today LDCs benefit from only 4% of long-term capital flows to developing countries, and in the 1990s they attracted only 1.4% of the foreign direct investment (FDI) going to the developing countries as a whole."

Do these organizations have a hidden agenda? The UNCTAD’s report reveals IMF data hyping their trade liberalization policies. "Trade liberalization has also advanced further in the LDCs than in other developing countries. Of 43 LDCs for which data are available, 37% had average import tariff rates of below 20%, (many multinationals today pay as little as 2% in taxes) coupled with no or minor non-tariff barriers, and 60% had average tariff rates below 20%, coupled with only moderate non-tariff barriers."  The Report goes on to say, "trade liberalization was complemented by financial sector reforms. Of 45 LDCs for which data are available on the late 1990s, 27 adopted a free regime, guaranteeing capital transfers." This moral hazard has given inefficient and corrupt policies a license to continue their behavior.

The saga continues. "Nine others maintained a relatively free regime with moderate controls (few trade tariffs or domestic protection). Two thirds of the 48 countries designated by the United Nations as the least developed in the world lost ground to other developing and low-income countries in the 1990s, (further colonialization and exploitation of resources, capital, and labor from poorer LDCs). Draining the poorest countries once again to prop up recessionary economies across first world nations like America, across Europe, and Japan, multinationals and bankers continue to look for the cheapest labor, environmental standards, and access to foreign and domestic consumer markets. "Furthermore, both LDCs and their official creditor-donors are reinforce the "aid-and-debt trap" in which high debt levels impede effective aid, and ineffective aid prevents a solution to the debt problem."

Where most of the world lives on less than $2 a day, and where the life expectancy is shorter than at the turn of the century (which was 40 years), poverty is accompanied by disease, illiteracy, lack of electricity, high infant mortality rates and polluted waters. Impoverished communities/countries are, "caught in a downward spiral in which economic regression, social stress and violent conflict mutually reinforce each other."

Compounding the injury, "Official Development Assistance (ODA) to the LDCs has dropped by 45% in real per capita terms since 1990," where private capital flows have been inadequate to offset the decline. Consequently, "total capital flows per capita into LDCs have fallen by 30% since 1990. This, combined with the "unsustainable" external debt of two-thirds of the LDCs," exponentiates the downward spiral. A breakdown in aid coordination, asymmetric (external) economic shocks, government corruption and financial uncertainty continue to further destabilize market liberalization goals, foreign aid, improved free trade and  the opportunity for more favorable labor rights. Unfortunately, "the aid system (of tied loans or debt-equity swaps for example) has eroded state capacity, undermining the possibility of genuine national ownership," the advancement of individual property and intellectual property ownership, or a participation in the market place.

Keeping LDCs poor and ignorant perpetuates colonialism and the wealth gap. "Only eight LDCs are on target to reach the United Nations’ goal of universal primary education by 2015, and only four are expected to reduce infant mortality by two thirds. (Only) Another eight countries would meet this criterion only in the next 50 years. A vicious cycle, the LDC 2000 Report predicts that an increasing number of the 22 LDCs where real GDP per capita either declined or was stagnant during the period 1990-1998. But even for those LDCs which are growing, there is an ever-present danger that external shocks, natural disasters and the negative spillover effects from neighboring LDCs…. will continue disrupting economic activity and throw these LDCs off their fragile growth trajectories."

Although there has been some pockets of technology transfer, financial aid or medical assistance to fight LDC disease, which has increased prosperity for some least developed countries over the past 20 years, "on average the gap between LDCs and other developing countries has grown apace. Only eight LDCs are on target to reach the United Nations goal of universal primary education by 2015, and only four are expected to reduce infant mortality by two thirds," according to the Report. "Asian LDCs have been doing better. Between the second half of the 1970s and the second half of the 1990s, the share of people living on less than $1 a day fell from 36% to 23% in 1995-1999. Their average daily consumption rose from 85 cents to 90 cents a day. In the second half of the 1990s, two thirds of the population of Asian LDCs were living on less than $2 a day. Their average consumption was $1.42 a day."

The UNCTAD Report hits the nail on the head. "LDCs are suffering from a drop in commodity prices whose breadth and depth has not been seen since the early 1980s. Equally consequential, they are being squeezed by the threefold increase in oil prices (as well as debt default, capital flight, devaluation, currency crisis, a break down in tariffs, unfair debt-equity swaps, price transferring) cumulating predominantly over the past 50 years of industrialization. The full effects of this are still working themselves out. But there will inevitably be more major economic shocks," UNCTAD predicts.

Associated with murky and hidden multinational export growth, along with large external shocks due to commodity price instability, there has been a "build-up of unsustainable external debt in the non-oil commodity exporters…recent changes in the structure of global commodity markets are reinforcing the cycle of economic stagnation and pervasive poverty."  Scamming increases margins between producers and consumers compounding commodity price instability. Taking away the "technological ladder where LDCs can move out of simpler products exported is contributing to the saturation of commodity markets and increasing the vulnerability of those LDCs that have sought to escape the poverty trap by diversification out of commodities."

Risk management has moved away from promoting stability to increasing risk to the highest degree exemplified through, "tariff rebates on imported inputs, tax exemptions, preferential credits for exporters, export credit insurance, preferred market information provisions and subsidized infrastructures, which should be integrated into PRSPs (Poverty Reduction Strategy Papers). Multinationals and central banks should instead promote and reward savings and investment, increased productivity growth, quality improvement, and innovation."

"The type of export in which LDCs specialize makes a big difference in their economic success and patterns of poverty… Commodity-dependent LDCs thus generally have a low-productivity, low-value-added and weakly competitive commodity sector," and are less able to, "mitigate the consequences of excessive price instability, revamp compensatory financing schemes to deal with price shocks, or break the link between commodity price behavior and persistent indebtedness, for example, by making debt repayment schedules contingent on world commodity prices; and increasing the economic relevance of price risk management instruments," according to UNTAD. Others promote regulating sustainability into stock market listings, price valuations, and futures contracts. Why not factor sustainability into interest rate swaps, currency reserve requirements, special drawing rights?

"Persistent poverty in poor countries is not due to insufficient trade liberalization or lack of trade integration…poverty is, rather, related to the form of trade integration, and in particular to the type of export specialization.  Eighteen of the 49 LDCs, comprising 42% of the LDC population, have diversified away from primary commodities and were exporting primarily manufactured goods and/or services by the end of the 1990s; 31 others continue to specialize in primary commodities, with oil the major export of Angola, Equatorial Guinea, Yemen and (since 1999) Sudan." These LDCs seem trapped even when they diversify, improve productivity and innovate.

So what can be done? UNTAD’s Heavily Indebted Poor Countries (HIPC) Initiative advances several initiatives: reconfigure preferential agreements, remove supply-side constraints, promote diversification, implement Bretton Woods institutions that support poverty reduction strategies, thus building capacity and identifying appropriate divisions of labor," to name a few. Organizations like Buck Minster Fuller’s GENI (Global Energy Networking Institute) implement fundamental technology transfers like electric generators providing electricity, internet and cellular connectivity (with the help of Aerofon), promoting cleaner environments, higher literacy rates, lower infant mortality and the opportunity towards self sufficiency.

Un-sustainability compounds poverty, crime, economic instability and social unrest at home,  exclusion from abroad, and a collapse of the principle of America’s Bill of Rights being the blueprint of globalization. Gorden Moore, who coined Moore’s Law, where technology is doubling every 18 months (and 6 months in some areas of technology) for the next 20 years, argues you don’t stop once you get rich. Like Plato who promoted that oligarchs who should take paternal care of their citizens, organizations like the UN, World Bank, IMF, and WTO should have it in their enlightened self interest to promote sustainability, equitable distribution and a "quality of life" for a global civil society.
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