At the close of the Spring Meetings of the Bretton Wood institutions, there was no sign of the “fair shot” that they want to give the world. Instead, Kristalina Georgieva’s “fair shot” rolls out more of the same prescriptions – more debt, more austerity, less of governments and more of the private sector.
New financing of $107 billion is offered to 85 countries, but it is heavily conditioned on fiscal consolidation. Austerity measures such as budget cuts and diminishing social protection to cuts in public sector wages, freeze hires of health and social workers and promoting privatization – count among the very reasons behind the dire state of public health systems in developing countries today, unable to deal with the pandemic.
The IMF and the Bank call the G20 Debt Service Suspension Initiative (DSSI) and the Common Framework “a good start”, but stop short of saying towards what end. Perhaps because they bring to mind failed debt relief schemes of the past, that do not cancel debt but only defer payments. Of the 73 eligible countries, only over 40 have accessed the funds; they face the cascading and accumulated impacts of the COVID-triggered multiple crises when the temporary suspension ends in December 2021 and debts eventually fall due next year.
Then, there is the IMF's Catastrophe Containment and Relief Trust (CCRT) for 29 of the Fund’s poorest members which, like the DSSI, temporarily suspends debt service payments. The irony is that several of these countries are not even that heavily indebted to the IMF. We recall the HIPC (Heavily Indebted Poor Countries) initiative that ran along the same vein, and failed. Many of the countries with unpayable debt overhangs today were HIPC countries. The same warped logic operates more than two decades hence, that the answer to a debt crisis is to incur more borrowings for current debt service payments.
Again, the demand for debt cancellation for all countries in need, which include most of middle-income countries (MICs), continues to be sidelined. From the WB’s own report, MICs are home to millions of those pulled deeper into extreme poverty by the multiple crises around COVID, or over four-fifths of the estimated global total of up to around 94 million. MICs or so-called emerging markets also saw massive capital outflows upwards of $83 billion in the early days of the pandemic, the largest recorded thus far.
Similarly responding to crises with more loans, the WB opened a $14 billion fast-track lending facility to support national public health systems, disease containment, diagnosis, etc. But just how much of this fund will work towards directly strengthening public health systems appears to have already been determined by the bulk share of the International Finance Corporation, the Bank's private sector financing arm. It is trailed, among others, by a record of dubious Public-Private Partnerships in health, of bank-rolling health and climate-threatening coal projects.
No mention was made of compelling private creditors’ involvement in debt relief efforts, limited and short-term as they may be, even as the World Bank itself underlines their participation as “critical”. As of 2019, private creditor debts already reached as high as 38% and 51% of the long-term external debts of Sri Lanka and Indonesia, respectively. Many other Asian countries are in similar circumstances. But private lenders have continued to decline calls for them to join in the effort. Were such impunity allowed to prevail, public financial resources will only be siphoned into bailing them out, rather than for survival and development.
Discredited many times before, from the height of structural adjustment in the 80s to the financial crises of more recent years, the IMF and the World Bank have often needed to refurbish their image and regain the relevance of their roles from time to time. But just when an unprecedented moment of crises and opportunity arises, they fail to board the train again, confirming anew the vain hope in their capacity for higher ambition.
Corporate tax abuse and other illicit financial flows (IFF) are taking a toll on people’s health and depriving millions of essential services. The urgent need to address IFF as a systemic problem was underscored recently in the report of the FACTI Panel or the United Nations High-Level Panel on International Financial Accountability, Transparency and Integrity for Achieving the 2030 Agenda.
“Illicit financial flows represent a double theft: an expropriation of funds that also robs billions of a better future. Taking action to recover hidden outflows could reduce inequalities everywhere, improving peoples’ well-being, as well as socioeconomic and health outcomes. It could give developing countries the ability to provide their citizens basic social services, such as adequate water, sanitation, electricity, healthcare, and housing,” says the FACTI Report, Financial Integrity for Sustainable Development published in February 2021.
The FACTI Report notes that “IFFs — from tax abuse, cross-border corruption, and transnational financial crime — drain resources from sustainable development. They worsen inequalities, fuel instability, undermine governance, and damage public trust. Ultimately, they contribute to States not being able to fulfil their human rights obligations."
It is estimated that the global loss to governments from profit-shifting by multinational enterprises may come to (US)$650 billion a year. “As much as 10 per cent of the world’s GDP might be held in offshore financial assets. An estimated $7 trillion of the world’s private wealth is funneled through secrecy jurisdictions and haven countries. Taking into account just one sub-type of illicit financial flows – corporate profit-shifting, or the shopping around for tax-free jurisdictions by multinational corporations – such practices cost countries where these profits are actually made on the order of $500 to $650 billion a year, according to some estimates.”
The FACTI Report estimates that recovering the annual estimated loss to tax evasion would allow Bangladesh to expand its social safety net for the elderly, from 4 million people of those above the age of 60 to 13 million elderly, while increasing the size of the cash transfer to $58 a month (from the current $6).
In India, recovering tax avoidance losses could cover the hospital treatments for 55 million low-income patients annually.
In Thailand, the $1.1 billion estimate lost to corporate profit shifting annually would have been able to augment its social welfare program, providing its 12 million recipients an additional $100 a year.
“Illicit financial flows are a systemic problem that requires a systemic solution,” states the FACTI Report. The FACTI Panel was convened in March 2020 by the 74th President of the United Nations General Assembly and the 75th President of the Economic and Social Council.
“There must be greater fairness, especially in tax cooperation and in the recovery of stolen assets of States. All taxpayers should pay their fair share, including a minimum global corporate income tax rate on profits. Fair and impartial mechanisms should be ensured to adjudicate disputes. A multilateral mediation mechanism can help resolve difficulties in asset recovery and return. The global financial system must be reformed, redesigned and revitalized so that it conforms to four values – accountability, legitimacy, transparency, and fairness,” recommends the FACTI Report.
In the course of formulating its findings and recommendations the FACTI conducted a series of consultations across the world which drew participation from policymakers and government officials, representatives of international agencies, academics, the private sector and civil society.
Earlier, the report The State of Tax Justice 2020, released by the civil society group Tax Justice Network, analyzed data on how much tax revenues are lost to international corporate tax abuse and private tax evasion. “The world is losing over US$427 billion in tax a year to international tax abuse. Of the $427 billion, nearly $245 billion is lost to multinational corporations shifting profit into tax havens in order to underreport how much profit they actually made in the countries where they do business and consequently pay less tax than they should. The remaining $182 billion is lost to wealthy individuals hiding undeclared assets and incomes offshore, beyond the reach of the law,” according the State of Tax Justice 2020. (https://www.taxjustice.net/reports/the-state-of-tax-justice-2020/)
A finding that stood out, with the world grappling with the Covid19 pandemic, was the proportion of moneys lost to tax havens vis a vis health spending. Globally the equivalent of nearly 34 million nurses’ annual salaries is lost to tax havens each year. On average, the losses come to nearly 8.4 per cent and nearly 52.4 per cent of the health budgets of higher income countries and lower income countries, respectively. Asia was found to have lost over $73.3 to multinational tax abuse and private tax evasion every year. The tax lost is equivalent to 6.48 percent of the region’s combined health spending or paying the yearly salaries of 11,371,221 nurses.
The Asian Peoples’ Movement on Debt and Development joins civil society calls for systemic reforms in the international financial architecture. APMDD, through its membership in the Financial Transparency Coalition, organized the 2019 Asian Conference on Illicit Financial Flows. The conference communiqué, “Stopping Robbers and Pirates”, states in part that “the abusive tax practices of corporations and the generous tax incentives they enjoy greatly drains our economies of foregone revenues which could and should have been used to finance development. “
Among the ways forward identified in the Asian Conference was to advocate and work for reforms in the international financial architecture, particularly setting up an inclusive UN inter-governmental tax commission and an international tax convention, which together ensures effective international tax cooperation and transparency.
Philippines (30 March 2021) -- “The multiple crisis has indeed imbued a much greater urgency to address the debt problem that so many countries have been grappling with for decades. It is a problem that past debt relief measures have failed to solve and present measures are also failing… The debt problem must be understood more broadly, deeply and sharply”.
APMDD Coordinator Lidy Nacpil delivered the intervention at a UN High Level Event on International Debt Architecture and Liquidity held March 29 that aimed to address debt vulnerability as an issue of “sustainability” or capacity to pay.
Nacpil stressed however, that the debt problem is "more than just a problem of liquidity and insolvency". She noted that the “tiny relief that is the temporary suspension of bilateral debt payments for too few countries” will not solve a systemic and structural problem.