This weekend the finance ministers of the G20 – the world’s most powerful nations -will meet in London. While the rich world’s green shootists apparently feel that the worst of the economic crisis is behind us, the poorest countries are being hammered, with those living on the margins of the global economy paying the highest price for the bankers’ folly. Here are 3 easy ways the finance ministers can raise $280bn (the cost of two AIG bailouts) to help ease the pain.
Hold on a minute – ask the rich countries to stump up lots more money for aid in the middle of a recession? Are you crazy? Actually, if there’s one thing the last year’s barrage of bailouts, rescues, stimuli and quantitative easing has shown it is that when they need to, governments can pluck huge amounts of cash out of thin air (and be out of office before the fiscal hangover kicks in).
This year alone, as a result of the economic crisis, between 50-100 million more people worldwide will be trapped in poverty, scraping by on less than US$1.25 a day. Read that again, $1.25 a day. This means millions more families forced to make impossible choices between buying life saving medicines, or the cost of sending their girls to school, or finding food for the next week.
The G20 in April this year promised to provide US$240 billion for developing countries to help them deal with the impact of the economic crisis and as part of this, US$50 billion to the world’s poorest countries. It showed the leadership the world needed in the face of this economic maelstrom. But those were largely loans, not grants, (so they’ll add to developing country debts) and since then it has become clear that even that amount is not enough. A second set of bold actions is required from the G20 when its leaders meet in Pittsburgh later this month.
How much are we talking about? The World Bank predicts overall that developing countries will need between $352 billion and $635 billion in 2009 just to stand still; much more is needed beyond this to actually enable these countries to develop and fight other crises such as HIV/AIDS, rising food prices and climate chaos.
But with three steps, the G20 can generate US$280 billion of new financing for the world’s poorest countries, at minimal cost to themselves; in fact they stand to benefit significantly should they do so.
1. Implement a Currency Transaction Tax (CTT, also known as a Tobin Tax) of at least 0.005% on international currency transactions. At that rate, such a tax could generate a minimum of $33 billion per year if applied to the four major international reserve currencies (US Dollar, Yen, Euro and British Pound). If more currencies were included, this figure could increase to as much as $50bn. A slightly higher rate could also provide more resources for government spending in rich countries facing cuts in services.
2. Transfer half of rich countries’ new allocations of Special Drawing Rights to the poorest countries. SDRs are a form of IMF quasi currency distributed to member countries, which can be exchanged for hard currency. The April G20 agreed to create $285 billion dollars worth of SDRs, but $177 billion of that will go to its richest members. Why not agree to transfer half of that, US$89 billion, straight to the poorest countries?
3. Deal with tax havens. Put in place a multilateral agreement for the automatic exchange of full tax information and require country-by-country reporting of subsidiaries, sales and profits by multinational corporations, to help developing countries recoup lost tax revenue. This could result in a further US$160 billion for poor countries, and at the same time would enable rich countries to recover their lost tax revenues.
$280bn. A lot of money, no? Yes and no. In fact, it is roughly double what was forked out to rescue the insurance giant AIG, or the cost of two years of US operations in Iraq. It’s all about priorities.
This post is based on ‘Money for Nothing‘, a new Oxfam briefing ahead of the G20 Finance Ministers’ meeting in London