Policy Innovations Digital Magazine (2006-2016): Briefings: Shaping the Change

Evan O'Neil talks with Manuel "Butch" Montes of the UN's Financing for Development Office about well-being, trade, and social change in the Asian economies. Dr. Montes's comments are made in a personal capacity and do not necessarily reflect the organizations he has worked for or his current position.

Butch, welcome back to New York. Until recently you were working in Sri Lanka for the Asia Pacific Trade and Investment Initiative. What was your mission there?

In Sri Lanka, I was coordinating a team of six professionals and we were assisting countries in the region in recasting their trade and investment policies to ensure that these contributed to employment absorption and poverty reduction (which falls under the rubric of human development at the UNDP). Asia Pacific is a vast region with an even wider range of economic issues. These included WTO accession issues in Samoa and Iran, building export competitiveness in Laos, Nepal, and Mongolia, and responding to the high cost of HIV/AIDS medicines in Thailand.

What's being done to build developing-country capacity in trade negotiations and level the playing field?

One of the three legs of the program in Sri Lanka was to help regional governments understand the trade issues under negotiation at the WTO, within their regional agreements, and in bilateral negotiations where relevant. We also helped countries identify consultants to assist them in their negotiations. Within their bureaucracies, smaller and less developed countries are not able to staff specialists for all the topics in trade negotiations. Some of these agreements include more than 500 pages on defining product rules of origin alone.

Several years ago you edited a volume on poverty, income distribution, and well-being in Asia as the economies were in transition. What were some of your indicators then and what trends are we seeing today?

While the transition to a market economy in the former Soviet Union inflicted terrible social dislocation, Asian transitions are generally considered successful. Our research, which included countries like China, Vietnam, Mongolia, and Uzbekistan, suggests that these countries were having significant difficulty preventing the same kind of dislocations even though their overall economies were growing.

Aside from the usual income poverty indicators, we were interested in capability indicators such as life expectancy, demographic indicators such as rates of marriage, divorce, and fertility, social stratification indicators, and human ecology indicators such as the incidence of crime. We analyzed these indicators in relation to the restructuring of the welfare systems of these countries, at a time when attention to such issues had become unavoidable.

The point was that economic growth does not guarantee an improvement in human well-being and that other policies are required. These indicators have begun to improve in transition countries. What is more encouraging is that government authorities and so-called technocrats now consider these issues a legitimate topic of economic policy. In the case of China, the government has specifically called for increased attention to social programs as part of economic development policies, something it had pioneered in earlier.

How is the region recovering from the December 2004 tsunami?

The loss of life and the social dislocation from the tsunami will have long-term effects. The rebuilding effort is taking time, but it also represents an opportunity to undertake new investments and upgrade infrastructure. There are social issues that need to be faced—most particularly the access to property of poorer people who did not have titles to the land on which their houses stood. These issues cannot be divorced from the environmental rehabilitation and protection concerns in the affected areas.

You're now at the UN Financing for Development Office. Are any innovations in this field bearing fruit?

Much progress has been achieved since the Monterrey Financing for Development Conference in 2002 at which countries pledged new international development partnership on six issues: mobilization of domestic resources in finance and employment, foreign direct investment, trade, aid, debt, and systemic issues.

Developing countries have improved their macroeconomic management. The drop in aid levels, which started after the demise of the Soviet Union, has been reversed. However, there are still quite a few important commitments from Monterrey that have not been fulfilled. Many low- and middle-income countries still do not have domestically generated development plans and strategies with which donors can align their programs. There is still no international mechanism for restructuring debt that sovereign countries owe to the private sector.

There is still quite a way to go in achieving a rules-based and equitable international trading system, which currently requires many developing countries to undertake policies that more developed countries do not themselves follow, such as restricting agricultural subsidies. The restructuring of the voting weights in the IMF and the World Bank has not been achieved and is a topic of current contention.

Where is development finance heading? Has the rise of social entrepreneurship and microfinance affected your approach?

The General Assembly has called a conference to review progress and identify obstacles on the Monterrey process to be held in Doha at the end of 2008. The process is entirely in the hands of the member countries of the UN. In the secretariat, where I work now, we are prepared to provide technical clarifications and to document the agreed outcomes.

Microfinance is one of the fastest-growing policy areas of financing for development and our office is involved in monitoring and assisting in the preparation of materials that governments can use in promoting this approach. It is important to recognize that without overall economic growth and stable employment, microfinance will be unable to make a dent in poverty and could in fact leave people deeper in debt. Most borrowers are women who have taken out loans for small-scale activities. Their outputs cannot be sold within a poorly performing economy.

How are the Millennium Development Goals progressing?

The most significant achievement of the MDG approach is the attention it has drawn to specific poverty-related targets. There are significant shortfalls, particularly in the case of sub-Saharan Africa, and unless we see a big push the goals will not be achieved by 2015 in the places that would benefit most.

Many of these goals can be achieved only if developing countries grow at a faster and steadier rate than they have been since the 1980s. When accompanied by increased domestic political participation, national economic growth has been the most natural way that these indicators have been achieved historically. International programs and specific interventions can only do so much.

The Monterrey consensus assigned to developing countries the primary responsibility for their own development. This is why it is terribly important that countries have their own capacity to design and implement a wide range of policies to promote growth and restructuring. International rules need to guarantee that developing countries have all the tools to do so.

Your work has spanned academia, think tanks, foundations, and intergovernmental organizations. What has this breadth taught you about social change?

This is a difficult question, for which there are no easy answers. Change is always happening, so it is not as if individual heroic actions are needed (though this also helps now and then). Careful analysis is always important to understand what the factors sustaining the current situation are and how they cannot be sustained.

For example, we know the global imbalance in which approximately $800 billion per year flows from poor countries to rich countries cannot be sustained much longer. So what happens next? To maintain the system, the reserve currency country has to run a deficit (the so-called Triffin paradox), but the current levels are unsustainable—this is similar to the situation in the early 1970s but the underlying conditions are different now.

During the debt crisis of the 1980s, where I had the opportunity to help set up in my own country the first debt-campaign NGO anywhere in the world, we knew that there was no way the scheduled payments could ever happen. All you needed was a little simulation in the software that was then called Lotus 1-2-3 or on a blackboard with the cooperation of the audience to demonstrate it to people. In effect, all parties to the debt crisis, including the creditors, had a vast shared interest in resolving it well; but what happened is that the creditors using superior strength decided they would try to get as much money as they could before it all unraveled.

Much of what passes for analysis then and these days, unfortunately, consists mostly of box ticking. It's more complicated than that. If one takes the view that change is happening anyway, the difficult question is that of trying to figure out how to shape the kind of change one would like to see.

Because it is too hard to predict when change will actually be observable, I think it's better to act as if it will take a long time for change to happen and to concentrate on building readiness, openness, and capabilities. Most changes in recent memory have occurred through the building of coalitions, of which the most powerful ones are of the unexpected and the broadest type, such as Mao accepting a visit by Nixon. Building coalitions takes time and luck and requires the kind of personality not in great supply in social-change motivated organizations—diplomacy, tolerance, forgiving. This is why it's not an easy process.

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