Source: Politics<\/p>\n
President Joe Biden heads to India this week with a rare task for U.S. leaders \u2014 courting the developing world.<\/p>\n
Biden\u2019s trip to the G-20 meetings in New Delhi marks the most concerted effort by the United States in decades to win the favor of so-called developing nations \u2014 more than 70 countries, concentrated in the Southern Hemisphere, with high debt burdens and poverty levels.<\/p>\n
Those nations, long neglected by Washington, are critical to Biden\u2019s economic agenda. He\u2019ll need to increase trade with many of them \u2014 from Bolivia to Indonesia and the Democratic Republic of the Congo \u2014 to secure the raw materials and components needed for his domestic manufacturing renaissance. And he will need their buy-in for his campaign to rewrite the rules of the global economy to encourage fair trade between democracies, and penalize China\u2019s state-led industries.<\/p>\n
Biden\u2019s plan is to buy them off. The administration says the U.S. and other Western nations \u2014 not to mention their financial institutions \u2014 need to boost their financing of infrastructure projects in the developing world. That, they hope, will provide a down payment to keep those nations from floating further toward Beijing\u2019s orbit, even in the absence of traditional trade negotiations that Biden has eschewed since taking office.<\/p>\n
The administration \u201cis seeking to enhance its value proposition\u201d to developing nations, national security adviser Jake Sullivan told reporters during an August preview of the G-20 trip, \u201cbroadly through investments in the kinds of things that these countries are looking for,\u201d like roads, ports and clean energy infrastructure.<\/p>\n
That investment-first strategy marks a dramatic shift from decades of U.S. economic policy that largely focused on removing tariffs and other trade barriers in hopes that private U.S. companies would rush in and industrialize poorer nations. That was the broad thinking behind the establishment of the World Trade Organization at the turn of the century, but administration officials say that agenda has now run its course.<\/p>\n
\u201cWe don’t see tariffs as being at the core of trade policy. We don’t see trade policy as being at the core of international economic policy,\u201d deputy national security advisor for International Economic Affairs Mike Pyle said at a late June appearance at the Carnegie Endowment. \u201cJust as the agenda with other industrial economies begins with investment, so too the agenda for the developing world begins with investment.\u201d<\/p>\n
It\u2019s a playbook Beijing has already pursued for more than a decade. China has pumped a trillion dollars into infrastructure and development projects in over 130 nations around the world in its Belt and Road Initiative \u2014 building not just ports and bridges, but goodwill among many nations.<\/p>\n
\u201cWe start at a significant deficit\u201d compared to China, said former Biden NSC international economics lead Peter Harrell. \u201cThe U.S. government for many years has not really had a sustained focus\u201d on developing nations.<\/p>\n
That situation has national security officials terrified that many world nations will side with Beijing in everyday trade and in times of crisis \u2014 like any future conflict in the Taiwan Strait. The refusal of many developing countries to take Ukraine\u2019s side after Russia\u2019s invasion has only heightened those fears.<\/p>\n
\u201cSeeing that lack of support for Ukraine and lack of opposition to Russia in [developing nations] has really crystallized in the administration’s minds on the need to be out there quite aggressively, working to build relationships,\u201d said Harrell, who served on the NSC during the start of Russia\u2019s war, before stepping down last fall.<\/p>\n
The administration says it has a plan. At the G-20, Biden will lay out its intention to offer hundreds of billions of dollars to the developing world by reforming the World Bank, the International Monetary Fund, and attracting private money for infrastructure projects. The hope is that by leveraging a comparatively small U.S. investment \u2014 $3 billion that Biden requested from Congress last month \u2014 the U.S. can rebrand those institutions into viable alternatives to China\u2019s \u201ccoercive\u201d lending through the Belt and Road Initiative.<\/p>\n
\u201cTogether, our IMF and World Bank proposals will generate nearly $50 billion in lending for middle income and poor countries from the United States alone,\u201d Sullivan said. \u201cAnd because our expectation is that our allies and partners will also contribute, we see these proposals ultimately leveraging over $200 billion.\u201d<\/p>\n
But economists and diplomats from developing nations surveyed by POLITICO expressed deep skepticism about U.S. intentions. Many critics point out that Western funding \u2014 even after Biden\u2019s boost \u2014 won\u2019t come near the trillions of dollars that developing nations need to deal with climate change. And while many world governments publicly praise the new Biden agenda, there is still simmering antipathy for the World Bank and IMF in many key trading partners, after those institutions forced austerity on many developing countries in decades past.<\/p>\n
\u201cIMF and World Bank packages are not seen very positively\u201d in many developing nations, said a Southeast Asian economic official, granted anonymity to speak frankly about Biden\u2019s plans. \u201cIt all comes with very heavy commitments that would tie our hands as to how we manage our [foreign direct investment], monetary policy, and taxes.\u201d<\/p>\n
And even when they welcome Biden\u2019s agenda, many developing world leaders emphasize that they want a bigger role in the new economy than just supplying raw materials and being recipients of Western aid. They complain that Biden\u2019s new take on development still views them as recipients of Western capital and technology, rather than helping them build their own domestic capabilities.<\/p>\n
\u201cI will say that for many of the Southeast Asian states, we do not just want to export raw material. We would like to strengthen our manufacturing sector,\u201d Malaysia\u2019s deputy trade minister, Liew Chin Tong, told POLITICO this June at a trade meeting in Detroit.<\/a> \u201cWe are pleased to enter into discussions about supply chains, but we do not want to be just seen as an exporter of raw material.\u201d<\/p>\n Biden\u2019s new trade and development initiatives seek to replace a half-century of what scholars call neoliberal economic policies \u2014 austerity, lowering trade barriers and free movement of capital across borders.<\/p>\n Those were the values that animated countless U.S. trade agreements from the days of Nixon to Obama \u2014 deals that largely focused on lowering tariffs and trade barriers in both the U.S. and abroad. The idea was to reduce costs for American consumers by incentivizing cheaper manufacturing elsewhere.<\/p>\n Western-led developmental institutions took a similar position. For decades, aid and loans from the World Bank and International Monetary Fund were contingent on receiving nations making market-friendly reforms. That could include demands to cut spending on social services or privatize state-owned companies. Such conditions were framed as necessary reforms to ensure economic growth and repayment of loans, but caught many nations in a debt spiral. Unable to generate enough growth to repay the loans, they soon had to apply for more emergency financing, which in turn came with more conditions.<\/p>\n That critique, once the purview of lefty academics and anti-globalization protests, is now at heart of the Biden administration\u2019s economic policy.<\/p>\n \u201cThe story from the \u201880s and \u201890s was that there was a real view and a trend in the World Bank in the IMF to focus on things like privatization, on things like fiscal austerity-type measures, even at the cost of social programs,\u201d said a senior White House economic official, granted anonymity to discuss policy plans. \u201cIt was a real challenge to these institutions because you were getting to the point where countries didn’t want to borrow from the institutions because of those types of conditions.<\/p>\n The ill will generated by Western trade policies and development institutions is a key reason why China has been able to be so successful in its Belt and Road Initiative. While many Chinese loans came with higher interest and some opaque terms for borrowers, many nations preferred them to the major reforms demanded by Western nations.<\/p>\n \u201cStrategic competition with China is the lens through which this administration sees everything, for good or bad,\u201d said Matt Duss, the former foreign policy adviser to Sen. Bernie Sanders<\/a> (I-Vt.), now at the Center for International Policy. \u201cThey recognize that part of the reason that China has been so effective at making inroads and building relationships with a lot of countries in the Global South is because it has offered an alternative to what is seen as a pretty onerous set of conditions from the IMF and World Bank.\u201d<\/p>\n Now, with the Belt and Road Initiative spanning over 130 nations, even American lawmakers who supported neoliberal policies for decades are wondering if those conditions have backfired.<\/p>\n \u201cIf China\u2019s offer is we\u2019re not demanding reforms, just saying here is some money, here\u2019s an investment, and our offer is [that] once we help you improve all these aspects of yourself we\u2019re open to interaction \u2026 we will fall farther and farther behind,\u201d Virginia Sen. Tim Kaine<\/a>, the Democrats\u2019 vice presidential candidate in 2016, said during a heated hearing of the Senate Foreign Relations Committee<\/a> in July.<\/p>\n The neoliberal policies also had consequences stateside, hollowing manufacturing centers in the U.S., leading to deprivation and populist backlash, while making U.S. supply chains vulnerable to the disruptions of the Covid pandemic and Russia\u2019s war. Biden\u2019s team has been adamant that they want to reverse that dynamic, with figures from Sullivan to trade chief Katherine Tai declaring an end to the \u201cWashington Consensus\u201d<\/a> on free trade and development, and their intent to develop a \u201cnew economic world order.\u201d<\/p>\n Instead of prioritizing free-market reforms in developing nations, Biden\u2019s team is now more interested in them partnering with Western governments and financial institutions on projects that will address climate change and create new supply chains outside of China \u2014 or both. The old conditions of neoliberalism \u2014 privatization and austerity \u2014 are giving way to new conditions under Biden\u2019s new economic order \u2014 namely, climate action, pandemic resilience and a turn away from Chinese-style autocracy.<\/p>\n \u201cWe’ve had a real turn,\u201d said the senior White House official. \u201cI think the way that the IMF approaches those programs and the way the World Bank approaches those programs are really different from the way that they were in the \u201890s.\u201d<\/p>\n Biden\u2019s plan to alter neoliberal development practices can be summed up in one term: de-risking.<\/p>\n In U.S. media, \u201cde-risking\u201d is most often used to describe Biden\u2019s push to move supply chains out of China \u2014 thereby reducing the risk of disruptions during a conflict or crisis.<\/p>\n But the term has a broader implication when it comes to development and industrial policy. Here, de-risking means reducing the risks that investments in the developing world pose to private Western financial institutions. While building a road or bridge in a developing nation may present too much risk to get Western banks interested on their own, some outside funding \u2014 either from a government, a multilateral development bank, or both \u2014 could make the investment look less risky, and prompt them to open their purse strings.<\/p>\n The approach involves \u201cproviding some public sector money to bring down the cost and risk of private-sector lending,\u201d said the White House official. \u201cSo that’s definitely an element of our strategy, but it’s not the only element.\u201d<\/p>\n De-risking originated as a concept in international development, said Romanian economist Daniela Gabor, a professor at the University of the West of England-Bristol who has written widely on the subject. But it has recently been embraced by Western leaders like Biden and French President Emmanuel Macron, who have framed it as the engine of revitalized industrial policy.<\/p>\n Taken broadly, de-risking is the basic logic behind Biden\u2019s Inflation Reduction Act<\/a>. By offering generous tax credits for clean energy products \u2014 and additional incentives for paying higher wages, using U.S.-made parts, and putting projects in disadvantaged communities \u2014 the law seeks to bribe private banks into spending trillions of dollars on clean energy projects.<\/p>\n As Gabor and fellow economist Ndongo Samba Sylla put it<\/a>, de-risking is the \u201cidea that national governments should play an active role in mobilizing private capital, particularly that of investors in the Global North, toward green projects.\u201d<\/p>\n Some aspects of de-risking \u2014 like public-private partnerships \u2014 have always characterized Western development aid. But Biden\u2019s team sees a more deliberate role for the state in directing that capital toward its preferred goals \u2014 namely, climate adaptation, pandemic prevention and other aspects of the U.N.\u2019s Sustainable Development Goals.<\/p>\n To do that, Biden hopes to overhaul the multilateral development institutions like the World Bank. As the bank\u2019s largest shareholder, the U.S. has an outsized influence in the organization, though it also includes input from Europe and China \u2014 which is the third-largest shareholder of the bank.<\/p>\n Reforming multilateral development banks \u201cis really going to be a core part of what we\u2019re talking about at the G-20, a part of our value proposition,\u201d said the senior White House official, \u201cand the aim is to end up making the banks better and bigger and able to more effectively deliver results.\u201d<\/p>\n A major component of Biden\u2019s reform project took shape earlier this year, when the U.S. pushed through a new president for the World Bank \u2014 former Mastercard CEO Ajay Banga. He is seen as more amenable to Biden\u2019s agenda \u2014 particularly climate action \u2014 than former Bank President David Malpass, a Trump appointee who had questioned climate science publicly.<\/p>\n \u201cWe helped lead a leadership change at the World Bank and installed a new president, Ajay Banga, who is very committed to [Biden\u2019s] agenda and dedicated to restoring the key institutions when it comes to delivering to countries around the world,\u201d said the senior White House official.<\/p>\n Through de-risking private investment \u2014 and using public funds at the World Bank \u2014 the administration hopes to unlock hundreds of billions of dollars in development financing with only a comparably small contribution from U.S. taxpayers. As part of that push, the World Bank has begun to leverage its balance sheet more to multiply the impact of contributions. That, along with private investments and inputs from other nations, could help make up some of the ground lost to China\u2019s Belt and Road Initiative.<\/p>\n The administration insists its agenda for the developing world involves more than just de-risking. Officials point out that many of their plans for the World Bank, IMF and other institutions will involve more traditional forms of developmental aid.<\/p>\n \u201cThere’s quite a lot we’re doing in this space \u2014 including a lot of the president’s proposal that we’ve requested appropriations from Congress for \u2014 that is not just about private-sector mobilization,\u201d said the White House official. \u201cIn fact, we\u2019re getting great leverage in mobilizing $25 billion from the World Bank and $21 billion from the IMF that is mostly going to be support for government and public sector projects, not necessarily private sector, and direct lending to countries. That needs to be an important component alongside the private infrastructure pieces we\u2019re focused on.\u201d<\/p>\n Biden\u2019s push to re-engage the developing world faces a number of pitfalls \u2014 from questions of its scale to its sincerity.<\/p>\n Some say the plans simply aren\u2019t ambitious enough. At the signing of the Paris Climate Accords in 2015, industrialized economies pledged $100 billion in annual aid to developing nations for clean energy and to prepare nations for the impacts of climate change. Even if all of Biden\u2019s agenda goes according to plan, the annual contributions won\u2019t reach that level. African Development Bank President Akinwumi Ayodeji Adesina highlighted the discrepancy this week at the African Climate Summit in Kenya, saying \u201cdeveloped economies must meet their commitment to provide $100 billion annually in climate finance.\u201d<\/p>\n \u201cBiden is putting in a supplemental request for more funding, and that’s got to be praised,\u201d said Nabil Ahmed, the global economics head at the humanitarian nonprofit Oxfam. \u201cBut overall, it’s still falling way short of what’s needed to \u2026 meet the mission of the Bank.\u201d<\/p>\n The administration says they have to start somewhere. The administration\u2019s efforts \u2014 $3 billion that Biden requested from Congress, along with new authorization for IMF lending \u2014 are a \u201cdown payment\u201d on efforts to come, the NSC\u2019s Pyle said. In addition, the administration has pledged a new push to provide debt relief to governments<\/a> that are struggling to pay creditors after the Covid pandemic. And it has thrown its weight behind efforts to increase the developing world\u2019s say at the IMF by adding a new chair to its board of directors.<\/p>\n Even if the funds do materialize, there\u2019s doubt about whether the Biden de-risking agenda can really help other nations industrialize. The agenda broadly does not include plans to transfer green energy technologies to developing nations, said Gabor, and would still leave them as consumers of Western financing and tech, rather than developing their own.<\/p>\n \u201cThere are countries in Africa, for example, that know China gives them technology transfers to support local green industrial development, where the U.S. hasn’t done this on a systematic scale,\u201d said Gabor.<\/p>\n That is the broad concern from officials like Malaysia\u2019s trade minister and others, who told the administration at the beginning of the summer that they, too, want to develop domestic industries.<\/p>\n \u201cWe want production to be done in the Philippines,\u201d said Alfredo Pascual, the Philippines\u2019 secretary of trade and industry, who told POLITICO at meetings of the Indo-Pacific Economic Framework in June that he wants to produce and export finished products, not just raw materials for Western factories to use.<\/p>\n That message has been echoed around the world in recent months.<\/p>\n African nations \u201care already key players in the extraction of these minerals, but much of the higher-value smelting, mining, recycling and even the production of motor vehicles happens elsewhere,\u201d Kenyan President William Ruto said as he opened the African Climate Summit this week in Nairobi. \u201cWhat we are today selling for $11 billion could be $7 trillion if we engage in the right trajectory.\u201d<\/p>\n Others look askance at Biden asking for $3 billion to kickstart his development agenda after spending tens of billions of dollars to help Ukraine \u2014 even before the rebuilding of the country begins. That kind of largesse wasn\u2019t offered to developing nations to help with the pandemic, they say, or to meet any other number of pressing needs.<\/p>\n Developed countries \u201ccould mobilize the trillions needed to respond when they wanted to,\u201d said Ahmed, \u201cso you really do see a lack of coherence.\u201d<\/p>\n Many critics also worry that Biden\u2019s new development initiatives won\u2019t look much different from the past. Even as they acknowledge the failure of austerity policies linked to previous World Bank and IMF programs, the administration stresses that new projects will still have many stipulations for receiving nations on topics like anti-corruption, transparency and other governance issues.<\/p>\nThe past: free trade as development<\/h4>\n
Biden\u2019s plan: De-risking development<\/h4>\n
A world of critics<\/h4>\n