Initiative for Policy Dialogue and the South Centre Working Paper, March 2013

This paper: (i) examines the latest IMF government spending projections for 181 countries by comparing the four distinct periods of 2005-07 (pre-crisis), 2008-09 (crisis phase I: fiscal expansion), 2010-12 (crisis phase II: onset of fiscal contraction) and 2013-15 (crisis phase III: intensification of fiscal contraction); (ii) reviews 314 IMF country reports in 174 countries to identify the main adjustment measures considered in high-income and developing countries; (iv) discusses the threats of austerity to development goals and social progress; and (v) calls for urgent action by governments to adopt alternative and equitable policies for socio-economic recovery.

Informe sobre Políticas No. 1

Resumen

En el presente Informe sobre políticas de la serie T.R.A.D.E., producido por el Centro del Sur, se debate el concepto de ‘espacio normativo’ y la función que este desempeña en la promoción del desarrollo del Sur. El espacio normativo se funda en los principios de la igualdad soberana de los Estados, del derecho al desarrollo y del trato especial y diferenciado para los países en desarrollo. Los enfoques económicos fomentados por las instituciones de Bretton Woods y la OMC, enfoques únicos para todos los países, no han funcionado. Por lo tanto, en el presente informe se alega que el especio normativo es necesario para ofrecer a los países en desarrollo la libertad necesaria para elegir la mejor combinación posible de políticas, a fin de alcanzar un desarrollo económico sostenible y equitativo en función de sus condiciones únicas e individuales de índole social, política, económica y ambiental.

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Informe sobre Políticas No. 1

Resumen

En el presente Informe sobre políticas de la serie T.R.A.D.E., producido por el Centro del Sur, se debate el concepto de ‘espacio normativo’ y la función que este desempeña en la promoción del desarrollo del Sur. El espacio normativo se funda en los principios de la igualdad soberana de los Estados, del derecho al desarrollo y del trato especial y diferenciado para los países en desarrollo. Los enfoques económicos fomentados por las instituciones de Bretton Woods y la OMC, enfoques únicos para todos los países, no han funcionado. Por lo tanto, en el presente informe se alega que el especio normativo es necesario para ofrecer a los países en desarrollo la libertad necesaria para elegir la mejor combinación posible de políticas, a fin de alcanzar un desarrollo económico sostenible y equitativo en función de sus condiciones únicas e individuales de índole social, política, económica y ambiental.

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T.R.A.D.E. Working Papers 25

EXECUTIVE SUMMARY

With the increasing political and economic integration that accompanies globalisation, a growing number of international agreements now restrict the national ‘policy space’ of developed and developing countries alike. In order to assess the impact of international agreements on policy space, it is instructive to examine national policy space as a sub-space of the universe of policy options available to a country in an ideal world without policy constraints. From such an examination, this paper illustrates how domestic ‘endogenous’ constraints and international ‘exogenous’ constraints may significantly restrict a country’s access to national policy space for development. Sources of endogenous and exogenous constraints are reviewed, and ways that international environmental, social and economic agreements can both reduce and extend national policy space are outlined.

The paper demonstrates how developing countries’ national policy space is affected by agreements comprising the Multilateral Trading System (MTS) under the World Trade Organization (WTO). Focus is given to examining the narrowing range of policy options permissible under international trade and finance agreements, and the adverse effects this can have on countries in earlier stages of economic development. This contraction of policy space has recently been identified as a concern in international trade negotiations. In particular, agreements within the WTO contain provisions, and economic assistance arrangements of international financial institutions include conditionalities, that prohibit developing countries from implementing a range policy interventions designed to stimulate the growth, industrial development and diversification of their national economies. These effects are reviewed with the finding that the playing field resulting from international trade agreements that have ostensibly equivalent rules for all contracting parties, may provide a much smaller policy space for developing than developed countries because of differences in initial conditions and national policy implementation capacities. Efforts to establish a level playing field for international trade must recognise and address this disparity.

After assessing the scope of policy space accessible to developing countries, the paper suggests what can be done at national and international levels to ensure that available policy space is effectively utilised, and when existing space is insufficient to advance national development objectives, it examines ways to expand policy space in a manner that is consistent with developing countries’ existing WTO commitments. It is argued that special and differential treatment (S&DT) for developing countries under the MTS needs to be enhanced and made more actionable and effective in order to provide developing countries with essential national policy space for development. Finally, general areas where improved S&DT is needed, and should be pursued by developing countries in the ongoing Doha Round of WTO negotiations, are summarised.

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