Lagarde's chance to put IMF on side of 'fairness'
By Hossein Askari
On May 11 and 12, International Monetary Fund managing director Christine Lagarde is to participate in what the IMF has billed as a "high-level regional conference in Amman organized by the IMF, the government of Jordan, and the Arab Fund for Economic and Social Development - Building the Future: Jobs, Growth, and Fairness in the Arab World". The goal of the conference is to "discuss policies that can generate jobs, especially for the young, and lead to better growth and equity in the region".
I would like to pose a simple challenge to the IMF managing director. "Ms Lagarde, you have a golden opportunity to raise the
issue of fairness and equity in a forthright manner. If you do, you and the institution that you represent will gain the respect not only of Arabs, but of all Middle Easterners and of billions of disenfranchised people around the world. If you don't, you will simply confirm the irrelevance of the Fund in addressing the critical issues of the day."
First, a brief background. The IMF (like its sister institution the World Bank) has shied away from political, religious and social issues that might offend rulers, governments, and large segments of societies. This is quite understandable for an institution that is owned and directed by governments, especially powerful governments that support the status quo around the world. Unfortunately, this has meant that the Fund has sidestepped critical issues of freedom that most observers believe are the essential scaffolding of human, social and economic development.
This is not all. The Fund has also largely avoided the issue of fairness and equity in its policy prescriptions. The IMF and the World Bank have touted economic growth as the panacea for almost everything, including the issue of fairness and equity. It is as if growth, by magic, will address equity and fairness no matter what the circumstances of the country.
In this regard, the Fund has been especially remiss when it comes to most of the Muslim countries of the Middle East and North Africa. The oil exporting countries of this region, a majority of the countries represented, have not needed IMF funding and a number of these countries are important client states of the Fund's most important members, thus IMF policy advice has been at best muted.
In the West, inequality of income and wealth has received much attention as a sign of growing unfairness and inequity, but the issue of fairness and equity is much more critical for the oil (and natural gas) exporting countries of the Middle East and North Africa. It is a problem that the IMF and the World Bank must confront head on.
Oil and gas resources in these countries belong equally to every citizen of this and all future generations. As such, oil and gas resources must be managed to afford every citizen of all generations, be he or she ruler or peasant, an equal benefit. Let me explain.
Depletable resources, such as oil and natural gas, are an important part of a country's stock of wealth. Once depleted, they cannot contribute to economic output. In all the oil/gas exporting countries of the Middle and North Africa, depletable resources are acknowledged, directly in the constitution or indirectly in reference to Islamic teachings, to be the birthright of all humans of all generations; on this there is little or no debate.
Thus they must be managed in a way to afford the same benefit to every citizen of every generation. This is the first and foremost principal of economic fairness and equity in these countries. If Ms Lagarde is to be true to her billing, she must emphatically stress this principal.
Thus, in the name of fairness and equity, rulers and their cronies must receive the same benefit as disadvantaged members of society. To drive the point home, Ms Lagarde should spell this out so that there is no doubt. If most wealth is derived from oil and gas, then rulers and their supporters should be living much the same as the peasant.
The second important principal to uphold fairness is that these resources must be managed in a way to afford equal benefits to all generations. The only way this can be done is to place oil and gas revenues into a transparently managed internationally diversified fund that issues an annual check of real purchasing power to each citizen. While some of these countries have funds, they are not transparent or transparently managed, their goals and principals of management are vague, and nowhere are their ownership and beneficiaries spelled out.
The third principal of fairness and equity in these countries must be equal opportunities for citizens to develop and improve their lives. This means freedom and equal access to a good education, healthcare and the minimum necessities of life.
To give these three principals their lifeblood, all countries in this region must be encouraged to adopt effective institutions, something they all desperately need, especially the rule of law. With these three principals and effective institutions, economic growth and jobs will be forthcoming.
If Ms Lagarade emphatically spells out these three principles and the need for institutional reforms, then she could be acknowledged as a courageous leader of an institution that has something important to offer all countries. If not, 20-30 years from now a number of these countries may find themselves with expenditures exceeding oil and gas revenues, underdeveloped societies and economies, a few super rich from unfair access to oil and gas revenues and vast majorities with little to show from oil depletion, and political and social instability. The time to address fairness and equity is now.
Hossein Askari is Professor of International Business and International Affairs at the George Washington University.
(Copyright 2014 Asia Times Online (Holdings) Ltd. All rights reserved. Please contact us about sales, syndication and republishing.)