Global Finance and Development

David Hudson

• Publisher: Routledge
• Year: 2014
• Print ISBN: 9780415436359
• eBook ISBN: 9781134612789
• Topic: Business
• Subtopic: Finance
• Index: Business

The question of money, how to provide it, and how to acquire it where needed is axiomatic to development. The realities of global poverty and the inequalities between the 'haves' and the 'have-nots' are clear and well documented, and the gaps between world's richest and the world's poorest are ever-increasing. But, even though funding development is assumed to be key, the relationship between finance and development is contested and complex.

This book explores the variety of relationships between finance and development, offering a broad and critical understanding of these connections and perspectives. It breaks finance down into its various aspects, with separate chapters on aid, debt, equity, microfinance and remittances. Throughout the text, finance is presented as a double-edged sword: while it is a vital tool towards poverty reduction, helping to fund development, more critical approaches remind us of the ways in which finance can hinder development. It contains a range of case studies throughout to illustrate finance in practice, including, UK aid to India, debt in Zambia, Apple's investment in China, microfinance in Mexico, government bond issues in Chile, and financial crisis in East Asia. The text develops and explores a number of themes throughout, such as the relationship between public and private sources of finance and debates about direct funding versus the allocation of credit through commercial financial markets. The book also explores finance and development interactions at various levels, from the global structure of finance through to local and everyday practices.

Global Finance and Development offers a critical understanding of the nature of finance and development. This book encourages the reader to see financial processes as embedded within the broader structure of social relationships. Finance is defined and demonstrated to be money and credit, but also, crucially, the social relationships and institutions that enable the creation and distribution of credit and the consequences thereof. This valuable text is essential reading for all those concerned with poverty, inequality and development.

1 Introduction

DOI: 10.4324/9780203381250-1

Learning outcomes

At the end of this chapter you should:

• Appreciate the importance attached to external development financing, especially in relation to meeting international development targets.
• Understand the logic of the financial system in mobilising capital for investment.
• Know the international context that development finance operates in, in terms of poverty, inequality and welfare indicators.
• Understand that there are different ways of viewing the relationship between finance and development: finance as a resource for development and as a social structure within which development happens.
• Develop your own position on what ‘finance’ is, understanding that it is an essentially contested concept.

Key concepts

Financing for development (FfD), political economy of finance (PEF), Millennium Development Goals (MDGs), vision, development, global finance, power

Introduction

The realities of global poverty and the inequalities between the ‘haves’ and the ‘have-nots’ are clear and well documented. The gaps between the world’s richest countries and the poorest have grown larger, despite the sustained growth of a sub-group of large industrialising countries such as China, Brazil and India. And inequalities between individuals, across countries, have grown larger. The richest 5 per cent of people receive one-third of total global income, the same amount as the poorest 80 per cent (Milanovic 2005). While the average American’s income doubled between 1963–2000, over that same period there were 180 million Africans living in countries that ended up being poorer by the end of that period than they were nearly 40 years earlier.

Nevertheless, good change is also in evidence. For example, Charles Kenny (2011) has been at pains to point out that things are getting better and global development can succeed; so much so that he calls for a ‘realistic optimism’. He argues that almost every other indicator of quality of life (i.e., apart from income) points towards rapid and universal improvements in life chances. Plus, health, education and civil rights observance have all improved even in countries that have witnessed per capita income declines over the past 30 years.

The latest poverty figures from the World Bank report that in 2008 there were 801 million people living below $1 a day, which is 14 per cent of the developing world’s population. The dollar a day metric is the target enshrined in the first Millennium Development Goal (MDG). The aim is ‘to halve, between 1990 and 2015, the proportion of people whose income is less than $1 a day’ (MDG1) (see Table 1.1 for a full list of the eight MDGs and accompanying targets). In March 2012, the World Bank announced that the goal had been met as the proportion of people in the developing world living on less than a dollar a day has fallen from 31 per cent in 1990 (and 42 per cent in 1981) (Chen and Ravallion 2012). Yet, despite this apparent success, critics point out that the MDG target is a very meagre measure of poverty (see Box 2.2). Moreover, much of this success can be explained by economic growth in China, but much less so elsewhere.

Table 1.1 The Millennium Development Goals (MDGS)

Goals and targets (from the Millennium Declaration)	Indicators for monitoring progress
Goal 1: Eradicate extreme poverty and hunger
Target 1.A: Halve, between 1990 and 2015, the proportion of people whose income is less than one dollar a day	1.1 Proportion of population below $1 (PPP) per day1.2 Poverty gap ratio1.3 Share of poorest quintile in national consumption
Target 1.B: Achieve full and productive employment and decent work for all, including women and young people	1.4 Growth rate of GDP per person employed1.5 Employment-to-population ratio1.6 Proportion of employed people living below $1 (PPP) per day1.7 Proportion of own-account and contributing family workers in total employment
Target 1.C: Halve, between 1990 and 2015, the proportion of people who suffer from hunger	1.8 Prevalence of underweight children under five years of age1.9 Proportion of population below minimum level of dietary energy consumption
Goal 2: Achieve universal primary education
Target 2.A: Ensure that, by 2015, children everywhere, boys and girls alike, will be able to complete a full course of primary schooling	2.1 Net enrolment ratio in primary education2.2 Proportion of pupils starting Grade 1 who reach last grade of primary2.3 Literacy rate of 15–24-year-olds, women and men
Goal 3: Promote gender equality and empower women
Target 3.A: Eliminate gender disparity in primary and secondary education, preferably by 2005, and in all levels of education no later than 2015	3.1 Ratios of girls to boys in primary, secondary and tertiary education3.2 Share of women in wage employment in the non-agricultural sector3.3 Proportion of seats held by women in national parliament
Goal 4: Reduce child mortality
Target 4.A: Reduce by two-thirds, between 1990 and 2015, the under-5 mortality rate	4.1 Under-5 mortality rate4.2 Infant mortality rate4.3 Proportion of 1-year-old children immunised against measles
Goal 5: Improve maternal health
Target 5.A: Reduce by three-quarters, between 1990 and 2015, the maternal mortality ratio	5.1 Maternal mortality ratio5.2 Proportion of births attended by skilled health personnel
Target 5.B: Achieve, by 2015, universal access to reproductive health	5.3 Contraceptive prevalence rate5.4 Adolescent birth rate5.5 Antenatal care coverage (at least one visit and at least four visits)5.6 Unmet need for family planning
Goal 6: Combat HIV/AIDS, malaria and other diseases
Target 6.A: Have halted by 2015 and begun to reverse the spread of HIV/AIDS	6.1 HIV prevalence among population aged 15–24 years6.2 Condom use at last high-risk sex6.3 Proportion of population aged 15–24 years with comprehensive correct knowledge of HIV/AIDS6.4 Ratio of school attendance of orphans to school attendance of non-orphans aged 10–14 years
Target 6.B: Achieve, by 2010, universal access to treatment for HIV/AIDS for all those who need it	6.5 Proportion of population with advanced HIV infection with access to antiretroviral drugs
Target 6.C: Have halted by 2015 and begun to reverse the incidence of malaria and other major diseases	6.6 Incidence and death rates associated with malaria6.7 Proportion of children under 5 sleeping under insecticide-treated bednets6.8 Proportion of children under 5 with fever who are treated with appropriate anti-malarial drugs6.9 Incidence, prevalence and death rates associated with tuberculosis6.10 Proportion of tuberculosis cases detected and cured under directly observed treatment short course
Goal 7: Ensure environmental sustainability
Target 7.A: Integrate the principles of sustainable development into country policies and programmes and reverse the loss of environmental resources	7.1 Proportion of land area covered by forest
Target 7.B: Reduce biodiversity loss, achieving, by 2010, a significant reduction in the rate of loss	7.2 CO2 emissions, total, per capita and per $1 GDP (PPP)7.3 Consumption of ozone-depleting substances7.4 Proportion of fish stocks within safe biological limits7.5 Proportion of total water resources used7.6 Proportion of terrestrial and marine areas protected7.7 Proportion of species threatened with extinction
Target 7.C: Halve, by 2015, the proportion of people without sustainable access to safe drinking water and basic sanitation	7.8 Proportion of population using an improved drinking water source7.9 Proportion of population using an improved sanitation facility
Target 7.D: By 2020, to have achieved a significant improvement in the lives of at least 100 million slum dwellers	7.10 Proportion of urban population living in slums
Goal 8: Develop a global partnership for development
Target 8.A: Develop further an open, rule-based, predictable, non-discriminatory trading and financial systemIncludes a commitment to good governance, development and poverty reduction – both nationally and internationallyTarget 8.B: Address the special needs of the least developed countriesIncludes: tariff and quota free access for the least developed countries’ exports; enhanced programme of debt relief for heavily indebted poor countries (HIPCs) and cancellation of official bilateral debt; and more generous ODA for countries committed to poverty reduction	Some of the indicators listed below are monitored separately for the least-developed countries, Africa, landlocked developing countries and small island developing states.ODA8.1 Net ODA, total and to the least developed countries, as percentage of OECD/DAC donors’ gross national income8.2 Proportion of total bilateral, sector-allocable ODA of OECD/DAC donors to basic social services (basic education, primary health care, nutrition, safe water and sanitation)8.3 Proportion of bilateral official development assistance of OECD/DAC donors that is untied8.4 ODA received in landlocked developing countries as a proportion of their gross national incomes
Target 8.C: Address the special needs of landlocked developing countries and small island developing States (through the Programme of Action for the Sustainable Development of Small Island Developing States and the outcome of the twenty-second special session of the General Assembly)Target 8.D: Deal comprehensively with the debt problems of developing countries through national and international measures in order to make debt sustainable in the long term	8.5 ODA received in small island developing States as a proportion of their gross national incomesMarket access8.6 Proportion of total developed country imports (by value and excluding arms) from developing countries and least developed countries, admitted free of duty8.7 Average tariffs imposed by developed countries on agricultural products and textiles and clothing from developing countries8.8 Agricultural support estimate for OECD countries as a percentage of their gross domestic product8.9 Proportion of ODA provided to help build trade capacityDebt sustainability8.10 Total number of countries that have reached their HIPC decision points and number that have reached their HIPC completion points (cumulative)8.11 Debt relief committed under HIPC and MDRI Initiatives8.12 Debt service as a percentage of exports of goods and services
Target 8.E: In cooperation with pharmaceutical companies, provide access to affordable essential drugs in developing countries	8.13 Proportion of population with access to affordable essential drugs on a sustainable basis
Target 8.F: In cooperation with the private sector, make available the benefits of new technologies, especially information and communications	8.14 Fixed telephone lines per 100 inhabitants8.15 Mobile cellular subscriptions per 100 inhabitants8.16 Internet users per 100 inhabitants

The Millennium Development Goals and targets come from the Millennium Declaration, signed by 189 countries, including 147 heads of State and Government, in September 2000 (http://www.un.org/millennium/declaration/ares552e.htm) and from further agreement by member states at the 2005 World Summit (Resolution adopted by the General Assembly – A/RES/60/1, http://www.un.org/Docs/journal/asp/ws.asp?m=A/RES/60/1). The goals and targets are interrelated and should be seen as a whole. They represent a partnership between the developed countries and the developing countries ‘to create an environment – at the national and global levels alike – which is conducive to development and the elimination of poverty’. Source: Official list of MDG indicators, effective 15 January 2008. Online. Available: http://mdgs.un.org/unsd/mdg/Host.aspx?Content=Indicators/OfficialList.htm (accessed 21 December 2009).

In addition, economic growth and even reductions in income poverty do not necessari...

Table of contents

• Cover Page
• Half Title Page
• Series
• Title Page
• Copyright Page
• Contents
• Tables
• Figures
• Boxes
• Abbreviation
• Acknowledgements
• 1 Introduction
• 2 Global finance and development
• 3 Theories of finance and development
• 4 The international monetary and financial system
• 5 Development aid
• 6 Debt financing: bank lending and bond markets
• 7 Equity finance: foreign direct investment and portfolio equity
• 8 Remittances
• 9 Microfinance
• 10 Conclusions: the political economy of global finance and development
• Bibliography
• Index