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Tracking the records of development banks in the Middle East and North Africa: towards a new development paradigm for the region?

Launch debate and presentation of the report “The Great Middle East Beanfeast – How ‘Development’ Banks are Using Public-Private Partnerships to Carve Up the Arab Spring Countries”

Remember the Arab spring, the wave of popular revolts that hit several Arab countries in 2011. They initially resulted in the ousting of cruel dictators and brought about impressive political changes. Following these events, the European Union decided to change its approach to the region and to channel in more resources from international financial institutions (IFIs) such as the EIB, EBRD and the IMF.

The IFIs had longstanding relationships with the Arab countries. When a new wind started blowing they were willing to change their narrative but not necessarily their methods. The positive aura of change might have left most of the Arab countries but the IFIs have not. We think that the Arab spring is worth an evaluation of the EU’s engagement in the region, and tracking the records of development banks in the Middle East should be a key priority.

The IFIs’ role

Our latest report “the great Middle East beanfeast” is a first attempt in that regard. Anders Lustgarten, the author of the report, investigates the role of the development banks or IFIs (WB, EIB, EBRD, IMF) in Egypt and how they responded to the Arab Spring. The report reads as a fierce critique to the policies of liberalisation and privatisation promoted by those institutions in Egyptand in the MENA region (Middle East and North Africa). It also targets the use of Public Private Partnerships (PPPs) and what we call the “financialisation of development finance”.

These development banks betray the spirit of the Arab spring by the financial mechanisms they use, Lustgarten argues. While the slogan of the Arab spring was ‘bread, freedom and social justice’, the policies and financial mechanisms used by the development banks mainly bring about the opposite.

PPPs, one of the priorities of the European Investment Bank when it is active in the region for example, are a tool to shift public assets into private hands. The list of privatisations under the Mubarak regime is impressive. It has been much contested and successfully challenged in court. Extensive recourse to private equity and the use of financial intermediaries typically benefit a small elite and subject the economy increasingly to the whims of the financial market. The increasing role of the private sector decreases the ownership of civil society and undermines the ability of the state to redistribute wealth. In brief, these were not exactly the aspirations of the Tahrir demonstrators.

A different approach?

Moreover, the author shows how the EIB and the World Bank were deeply entangled with the pre-Arab spring dictatorships. The EIB has a significant track record of supporting the Mubarak regime for instance, lending nearly €4 billion to Egypt in the decade preceding the Arab Spring. In the whole MENA region, the EIB invested €15.5 billion in the same decade, twice as much as in any other region outside Europe.

So when those institutions now refer to “democratic development of the region”, it must be remembered that they loaned more under the old dictators’ regimes than to any other regime, and they used the same justifications to do so than as they use now. For instance, a 2004 joint financial package for the MENA region between the EIB, World Bank and EU Commission claimed that it “will be used to lend support to institutional and economic reform, human rights and democracy projects, the fight against poverty and education and training”.

Debate

On Monday we launched the report with a public debate (participants were Anders lustgarten (author), Abdesssalam Kleiche (researcher ATTAC France) Koen Bogaert (Ghent University, MENARG) and Raffaella Iodice (European Commission)) and it did exactly what it was intended to do: to spark discussion on the role of IFIs in the MENA region.

Quite provocatively Lustgarten uses the term ‘development mafia’ to describe the institutions involved in financing development in the region. “The term refers to the way they are organised: a small group seals the deals according to their interests and ideology. Democracy and public support are nowhere to be found. They are not acting as criminals as such although in some cases their way of operating may facilitate corruption”.

The panel with (from left to right) Abdessalam Kleiche, Koen Bogaert, Gie Goris, Anders Lustgarten, Raffaella Iodice

Koen Bogaert questioned the relevance of the “mafia” term, as he would rather speak of  unintentional “class politics” based on a neo-liberal and unconscious dogma. He favours looking at the longer term historical perspective. The Arab spring is the current summit of a succession of popular uprisings since the 1980’s. Following the liberal reforms which started out in the 1970’s imposed by the IMF and other development banks, redistribution of wealth has decreased consequently. Popular uprisings can be considered as a reaction against this trend. In that sense the Arab spring can be seen among other things as a popular outcry against the failing policies imposed by international financial institutions (link to video).

Abdessalam Kleiche (ATTAC France) agrees with that analysis and sees Egypt as a testing ground for neo-liberal policies promoted by the IFIs since the 1970′s. The current model is one where the state should disengage from health and education sector, leaving in addition entire economic spheres to free markets with local populations as the major victims. In this regard, he sees the current EIB and EBRD role in the region as the mere continuation of previous unsuccessful policies.

We do more than implementing neo-liberal reforms, counters Raffealla Iodice, head of unit on the MENA region in DG DEVCO (European Commission). Good governance and the fight against corruption are priorities for the European Commission. Moreover, if the IMF proposes to reform expensive fuel subsidies, it are the rich who get about 75% of the subsidy who are targeted, she argues.

Iodice recognised some of the concerns raised including the debt issue which is critical in many countries. A lot of it was accumulated under the previous regimes and could be regarded as illegitimate or ‘odious’. Nevertheless loans remain an important tool, preferably in combination with a grant element to keep them cheap. The European Commission expects a lot of these so-called blending mechanisms to address the investment needs in vital sectors such as water management for example.

Ideological shift

Many issues passed in review, in all of them the ideological bias of a predominant paradigm was reflected somehow. A paradigm which has proved its failures many times and which needs to be challenged. But if so imperfect, why does it remain so persistent, Gie Goris who moderated the debate asked the participants. Part of the answer could be ideological blindness, it’s something we are told to believe in, Lustgarten said. And we tend to focus on an overestimated part -GDP- while the rest of the picture stays out of sight. But also interests determine the direction of the institutions. Supporting EU companies active in the region or Europe’s energy needs are just two of the many interests which come into play when money is put on the table to finance ‘deep democracy’ as Catherine Ashton calls it.

How a shift could happen is a subject for another debate. A thorough investigation into the record of these development banks could be an important eye opener to start the debate with. Different Arab and European NGOs have been calling to freeze funding for the region until a thorough and independent investigation has taken place. Because if there is one thing the Arab spring hasn’t changed, it is the policies and projects of the development banks underpinning the same development model which led to the social and political unrest of 2011.

 

“The Great Middle East Beanfeast – How ‘Development’ Banks are Using Public-Private Partnerships to Carve Up the Arab Spring Countries”, was prepared by Anders Lustgarten (Bretton Woods Project) as a reflection of a fact finding mission to Egypt organised by Counter Balance and we believe it is an important contribution to the debate about the future of EIB operations in North Africa. It is available in English , French and Arabic.

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