African Economic Research Consortium and Gerry Helleiner Department of Economics, University of Toronto.doc

Revised8. African Development in the Context of New World Trade and Financial Regimes: The Role of the WTO and Its Relationship to the World Bank and the IMFbyIbrahim A. ElbadawiAfrican Economic Research ConsortiumandGerry HelleinerDepartment of Economics, University of TorontoThe authors are grateful for comments on an earlier draft to Benno Ndulu and participants in the workshop organized by the AERC collaborative project on "Africa and the New World Trading System", on April 2729, 1998, in Mombasa, Kenya. We would also like to acknowledge the research assistance of Rajal Upadhyaya.1.IntroductionThe quest continues for the deep, sustained and equitable growth that will permit sub-Saharan Africa (hereafter Africa) to address its grave poverty and other social and economic development problems. Both African governments and the international development community increasingly perceive the need for new development strategiesbroader than economic adjustmentin order to achieve such growth. At the same time, the rapid pace of globalization in international trade and finance, aided by tremendous progress in information technology, has started to affect Africa's macroeconomic and financial performance and policies. It is likely to have substantial impact on the course of Africa's development in the future. Globalization, all agree, presents Africa with both opportunities and risks.Some see globalization as inherently beneficial for Africaprovided that its governments open up their economies, substantially reduce transaction costs and develop mechanisms for increasing the credibility of their policy reforms. They then see a brighter African future through the attraction of substantial private capital and the export of manufactures (e.g., Collier, 1997). Some are less sanguine about the African prospect and foresee continuing "marginalization" and instability.Globalization and "deepening" international economic integration have brought increasing calls for improved institutions and modalities for global economic governance (e.g., Culpeper and Pestieau, 1996). In the wake of the Mexican and East Asian crises, these have been particularly forceful in the spheres of macroeconomic and financial management. In international trade and related issues, however, the inauguration in 1995 of a world-wide intergovernment organizationthe World Trade Organization (WTO)with a mandate to formalize, interpret and police earlier (General Agreement of Tarriff and Trade, GATT) and prospective rules, already marked, in the view of some, an important and positive "watershed in the international economic system" (Henderson, 1998: 107; quoting Jackson, 1995: 25).Others are more wary, both about the implications of globalization and about the potential role of international regimes. Ferrer (1997: 17885), for instance, in a Latin American context, has noted the many "myths" behind "the fundamentalist view of globalization", e.g., that it has no historical precedent, that national economic space has dissolved into a purely global order, that the only viable policies are those of market deregulation, and that economic development and equitable distribution will look after themselves. With or without globalization or the WTO or other institutions of global governance, he argues, national policies are still "decisive for economic development" (p. 181). The UN Conference on Trade and Development (UNCTAD) has noted that, "While full integration into the global economy should be the ultimate objective of each and every economy, liberalization and deregulation need to be carefully and appropriately managed, phased and tailored to the level of economic development and the capacity of existing institutions and industries" (Ricupero, 1997: 3; see also UNCTAD, 1997; UNDP, 1997, chapter 5; and, in an African context, Helleiner, 1999).Accession to the WTO certainly involves commitments on the part of national policy makersin a very wide (and evidently still expanding) range of policies. It can have "profound implications" for strategies and policies for industrialization and development in that "it presents both opportunities and constraints" (Soludo, 1997: 16). A recent UNCTAD (1996: 25) report observes thatIt is undeniable that the global economy is currently going through significant changes. The new trading regime under the WTO has reduced the scope for using some measures . trade-related subsidies, lax enforcement of intellectual property rights, and strategic conditions imposed on foreign investments, which were integral parts of the East Asian development strategy. Certainly the more generalized protection which provided a backdrop for targeted policies in East Asia is no longer possible, and many of the export promotion policies no longer appear permissible. It may also be true that the changes will reduce the scope for policy manoeuvre for the developing countries which wish to pursue a strategy involving vigorous infant industry protection and export subsidies. The International Monetary Fund and the World Bank have, of course, been around for much longer than the WTO. In the new global economy, both are searching for newand centralroles in their respective spheres. The IMF aspires to an increased and important role in global macroeconomic and financial management. The World Bank seeks global intellectual leadership in development policy and a continued important role in the provision of long-term development finance to justify it. These international financial institutions (IFIs), unlike the WTO, have already had profound effects on African development and development policies. These effects have been the result of their advice, their finance, their "signalling" role for others (particularly aid donors), andabove allthe conditionality attached to their lending and associated pressure for policy reform. While mindful of the potentially positive consequences of globalization for Africa, this paper posits that conscious policies are required to ensure that trade openness and increased private capital inflows lead to enhanced and sustained growth. Despite the pressures from external sources of essential finance and external policemen enforcing new global rules, African economic policy makers still have important options as they address the future of their countries' relationships with the world. They need not mindlessly submit to the forces of globalization by total abandonment of any role in the mediation of national links to the world economy. We begin with a review, in Section 2, of the recent evolution of the world's trade and financial regimes from a primarily African perspective. In Section 3, we offer our perspective on the role of external sector policiesof various kindsin African development. Section 4 provides a review of the African experience in the areas of trade and capital account policies in the context of the analytical framework of Section 3. This sets the stage for the analysis in Section 5, which explores the interactions between the WTO and the two Bretton Woods' institutions in the areas of trade and capital account policies, and draws potential implications for Africa's future development. This section attempts to set out some modalities for collaboration between the WTO, IMF and the World Bank that, in our view, could provide better multilateral institutional support for African development and calls attention to the real problems in achieving such useful cooperation/coordination between the three institutions. Section 6 concludes. 2.The new world trade and financial regimesThe ultimate impact of the new trade and financial regimes will depend, in large part, on the nature of the interactions among the existing multilateral institutionsespecially the WTO, the World Bank and the IMFand their capacities (as organizations) to fulfil their mandates. In a recent analysis of the linkages between and the relative competencies of the three institutions, Vines (1998) argues that the prospects for formal cooperation between the WTO and the other two multilateral institutions depend on three organizational characteristics: the objectives these institutions were created to achieve, their relative competencies, and the future challenges/agendas they have to address.The IMF, as an institution, has experienced a major evolution from an organization that administered the international monetary system according to specified rules (anchored around a fixed exchange rate regime) to an organization that provides short- to medium-term programme loans and policy advice to individualprimarily less developedcountries in a context of (policy-based) conditional lending. The IMF's considerable expertise and research capacity in macroeconomics give credibility to its policy advice and loan conditionality. Its lending generates the net income to finance the research and gives the institution its basic financial independence. According to Vines (1998: 65), the two core activities of policy advice and conditional lending in a relatively well-defined area comprise an "extraordinarily coherent package". The IMF's ability to bring these two features together may have made the IMF, in his view, "the most effective international organization in history". The role of the IMF in Africa, and in the poorest developing countries elsewhere, has also changed significantly over the years. Until the 1970s, the IMF was relatively inactive as a source of balance of payments finance for these countries. During the 1970s and up until the debt crisis of the early 1980s, the IMF provided it to scarcely anyone else. The IMF plunged significantly into Africa for the first time in the early 1980s. From then on, while the IMF significantly increased the concessionality of its lending to Africa it basically just "rolled it over" rather than expanding it any further. At present, the enhanced structural adjustment facility (ESAF) is the IMF's primary instrument for providing finance to the poorest countries. Today's ESAF is a highly concessional loan facility, offering longer-term finance than the IMF has traditionally provided, and using both a broader range of conditionality and more cooperation with the World Bank (which has typically been much more intrusive into domestic policies) than was ever the norm in the past. After years of emphasis on its purely monetary role and steadfast unwillingness to consider itself a development institution, the IMF now finds itself offering medium-term finance at highly concessional rates, and involving itself in the "structural" problems of development.Even now, the IMF often shows itself ambivalent about its new role and has difficulty explaining it. In his press conference after the 1996 annual meetings, for instance, the Managing Director stated: "What we are doing is not at all development financing. But what we are doing for developing countries is the job for which we were createdto provide our members with the necessary resources to face temporary payments crises or deeply-rooted structural problems our italics without resorting to measures destructive of national or international prosperity in the context of strong, solid, credible adjustment and reform programmes" (IMF Survey, 14 October 1996: 324.) Its trade liberalization objectives and experiences are analysed in a recent staff survey (IMF, 1998). Its primary orientation remains, however, both shorter-term and more geared to macroeconomic stabilization, particularly the reduction of inflation, than that of the World Bank. Moreover, in Africa, the IMF's principal role in the provision of finance has been indirectsignalling to aid donors (and Paris Club creditors), with much more finance to offer, that recipients can effectively use their assistance. The World Bank has a much wider and more challenging set of objectives than the IMF. Again Vines (1998: 6768) provides a succinct characterization: "the World Bank now owes its strength and distinctiveness to bringing together into one organization a number of activities. The core International Bank for Reconstruction and Development (IBRD) function bundles together lending, development research, and development assistanceall glued together by the Bank's ability to exercise conditionality. The International Development Association (IDA) function is similar except that the lending is 'concessional' and is effectively aid. The Bank is now best thought of as a multilateral organization that enables richer countries to assist with the development problems of the poorer countries without entering into direct bilateral political power relations with them; we might say that by doing this the Bank sustains what is an implicit 'global development policy' regime". The role of the World Bank in Africa has been well described in the monumental (and independent) new history of the Bank (Kapur, Lewis and Webb, 1997). "The scale and scope of the Bank's engagement in sub-Saharan Africa over the past twenty-five years has been substantially different from thatelsewhere" (Kapur et al., 1997: 684). "The period from 1980 onward witnessed economic decline in most of sub-Saharan Africa and unprecedented power being wielded by the Bretton Woods institutions" (ibid: 766). "By the mid-1980s, the Bank had established itself as the preeminent external actor in sub-Saharan Africa" (p. 751). Although the IMF retained its role as financial gatekeeper and senior partner in the preparation of "policy framework papers", it was "its dominance of the intellectual discourse that solidified the Bank's preeminent role. Other multilaterals, even the IMF, were simply not in the same league as the Bank in terms of the sheer volume of analysis on the continent" (p.764).By the mid 1990s, however, and not just in Africa, the World Bank's list of "programme priorities.had been stretched almost beyond recognition" (Kapur et al., 1997: 1215). It seemed to feel that "it was part of being the 'world's leading development promotion agency' to reach into one new field after another" (p. 1216). In Africa, the Bank was by now being led "into areas and issues where it had historically little competence or comparative advantage, a consequence of changing fashions and pressures from donor governments, Western NGOs and activist sections of its staff" (p. 800). Its management and owners, by this time, badly needed to develop their own "policy of self-restraint" (ibid.).Relations between the IMF and the World Bank have been governed, broadly, by an agreed division of labour between themas between the support of macroeconomic stabilization and the support of development. But, particularly in Africa, and as the range of conditions on IMF lending expanded, this division became increasingly blurred; differences ov