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Millennium Development Goals need sound SMEs = More Jobs = Less Poverty

Guest post by: Norbert Knoll von Dornhoff

Article Overview: Due to the global economic crisis more than 60 million more people, among them millions of small- and micro entrepreneurs, primarily in the less developed countries will be in poverty in this year 2010.Many of the achievements in recent years made to facilitate business of SMEs in the world, to reduce poverty in less privileged economies have seriously been jeopardised by shrinking demand for SMEs export products, increasing prices for energy and food, falling commodity prices, significant reductions in foreign investment and a general liquidity shortage. The strong interdependence among the worlds' economies made this a literally global economic crisis and human tragedy.

Millennium Development Goals need sound SMEs = More Jobs = Less Poverty

SMEs Crises Prevention and Development

Leading economists, e.g Prof. Jeffrey Sachs, economic adviser to the UN General Secretary, predict that SMEs cannot rely alone on Governments help and financial support in times of crises. Faced with huge budget deficits and public anger, almost all counties in the world, including the US and the Countries of the European Union will have to impose a financial transaction levy soon, based on the proposal of the Nobel Price laureate James Tobin. The revenue generating potential of a levy is tremendous. A tiny levy rate of 0.005% would generate proxy. US30 billion per year, of which a substantial amount could be allocated to promote international economic development and prevent Micro- Small and Medium Enterprises from bankruptcy in times of financial crises. A pilot CTL pilot project initiated by WUSME World Union of SMEs shall now prove the feasibility of a unilateral Currency Transaction Levy on a voluntary basis between Governments and local Banks.

Micro Finance and Agribusiness

Micro financing has proven a critical tool in the fight for survival of SMEs in times of a crisis and for further development. Access to a range of micro finance services, savings, loans, and money transfers- enables poor families to invest in enterprise and in better nutrition, improved living conditions, and the health and education of their children. Further a commitment to focus on Micro- and Small agribusiness, the existing approaches being followed by structural transformation, technological upgrading and economic diversification of economies. Agribusiness is the key determinant of overall economic growth and poverty reduction in most developing Countries.

The accelerated development of agribusiness will benefit a large majority, paricularly of the population in most countries of Sub-Saharan Africa, and it will enhance the well-being of both producers and consumers, generate employment, income and food security and contribute to solve the problem of increasing immigration and emigration of the local population. Access to Micro-financing for SMEs in the agribusiness will have priority for WUSME's Action Plan.

The Currency Transaction Levy: An innovative source for crises prevention and economic development

The Currency Transaction Levy is increasingly recognised as one of the most feasible and just ways to help bridge the massive funding gap required to pay for the Millennium Development Goals. A tiny levy of 0.005% on the 4 most traded currencies has the potential to raise US$30 billion in revenue without damaging the market. The modern movement for a CTL for development has its roots in the work of Nobel Laureate James Tobin, and below is a brief history of the proposal's evolution. The Tobin Tax, as it came to be known, was first proposed by James Tobin in 1973 as a 1% charge on all foreign exchange (FX) transactions to ensure currency trading was linked to cross-border trade in goods and services. His aim was to ‘throw sand in the wheels’ of the global FX market by disproportionately taxing short-term, high turnover currency trading. He argued that this would reduce speculation and lower market volatility, raising hopes that a Tobin Tax could mitigate the increasingly frequent and hugely damaging currency crises. Renewed interest in the idea followed the South East Asian crisis at the end of the 1990s. At that time Paul Bernd Spahn’s research refined the proposal into a ‘two-tier’ tax. Under normal market conditions, a minimal (perhaps zero) ‘transaction charge’ would apply to all currency transactions. However, this charge would increase as the exchange rate moved further outside a predetermined range. In these circumstances, an increasingly higher rate of tax would act as a severe disincentive to currency speculators. In effect, the Spahn proposal would short-circuit speculative attacks.

The third, and most modern form of the CTL, however, is quite explicit in its objective to raise revenue in a predictable and stable manner. This approach is embodied in the work of Rodney Schmidt (2001), where a tiny levy of 0.005% would be applied to every transaction of a given currency. The rate is too small to significantly alter market behaviour yet it has the potential to raise in excess of US$30 billion a year if applied to the world’s 4 most traded currencies. Schmidt has demonstrated that, contrary to critic’s assertions, it is entirely possible for countries to unilaterally impose a levy on their own currency’s transactions.

10 years ago technical limitations may have hindered its implementation. Three key advancements means this is no longer the case. Firstly, the introduction of Real Time Gross Settlement (RTGS) eliminates settlement risk by ensuring the act of buying and selling takes place simultaneously, in ‘real time’. Secondly, the Continuous Linked Settlement (CLS) Bank was launched in 2004 in order to centralize the location of wholesale foreign exchange transactions. Thirdly, transactions now universally use SWIFT as their messaging system. This has stabilized, centralised and standardised trading allowing a CTL to be applied automatically every time a trade takes place, making collection inexpensive and unavoidable.

These technical advancements combined with the fact that countries can implement the levy unilaterally and do not require global agreement have definitively answered any historic uncertainty over the proposal’s feasibility. It is now a question of political will.

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Article Tags: crisis, currency, development, finance, goals, levy, micro, millennium, prevention, sme, transaction, union, WUSME



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