TWN Info Service on Finance and Development (Dec11/01)
14 December 2011
Third World Network

Aid debate in UN dialogue on financing for development

New York, 14 December (Bhumika Muchhala) -- On 7 - 8 December, the United Nations General Assembly held the fifth high-level dialogue on Financing for Development where developing countries urged ODA fulfillment and global development cooperation, while developed countries highlighted the role of domestic resource mobilization and of new donors such as big developing countries.

The UN Member States shared a sentiment of “getting back to the basics of development,” and reaffirmed mutual responsibilities and obligations of their governments to fulfill commitments on development financing agreed to in the Monterrey Consensus of 2002 (widely hailed by many delegates as the preeminent reference point for international development cooperation) and its follow-up, the Doha Declaration of 2008.

However, there were also underlying differences. Many developing countries, such as Bangladesh and Guinea, highlighted the failure of developed countries to meet their ODA commitments, while also falling short in ensuring more democracy and inclusivity in global financial governance. While reaffirming its intent to meet its aid commitments in 2015 the European Union bluntly stated that “aid is never enough” and that developing countries “cannot depend on ODA” and and should rely on state budgets. The EU, the United States and other developed countries also called on "big developing countries" to provide aid. In contrast member of parliament of Bangladesh, Fazle Hossain Badshah, said it was high time donors sat down with developing countries and agreed on mechanisms to fulfill their ODA commitments. He said that rather than directing “sarcasm” at poorer countries, the international community should ensure their full participation in global decision-making processes, with least developed countries given special consideration.

Argentina, on behalf of the Group of 77 and China, warned that the globalization process has curtailed national ownership, sovereignty and mobility. The 2010 Summit on MDGs and the Istanbul Program of Action for LDCs both reaffirmed that ODA commitments need to be ramped up by 2015, which necessitates a firm commitment to allocate 0.7% GDP toward international cooperation. We would like to underline that almost all developing countries have mentioned this repeatedly.

The G77 and China stresses the importance of holding discussions on sovereign debt restructuring, that takes into regard revisions to the debt sustainability framework. The role of credit rating agencies in sovereign debt ratings is crucial to examine.

Market access continues to be a major obstacle for LDCs in trade, and “trade-financing, special and differential treatment, the use of barriers and standards, are just a few topics in a very long list.” All countries must resist protectionist measures. The G77 and China reiterated the central role played by the United Nations as a focal point in creating sustainable development, and reaffirmed coordination with the BWIs in order to address the persistent gaps and failures in the international financial architecture.

The Africa Group, represented by the United Republic of Tanzania, aligned themselves with the G77 and China statement and emphasized that trade, remittances, aid, and trade are severely impacted by the ongoing recession and crisis of 2008-9. The MDGs are not on target. “Africa has upheld growth, in part due to the commodity price spike. However, it must be emphasized that most of the gains in African development are due to South-South cooperation.”

The crisis is not a legitimate reason for developed countries to not live up to its commitments in aid and innovative financing flows. Some African countries do benefit from debt relief, and this needs to be deepened and accelerated. Many nations desire to trade themselves out of poverty, however, the global trade regime remains problematic. African nations, who hold a mere 3.1% of aggregate global trade flows, remain deeply marginalized in world trade. The Doha round has been stuck since 2008, focusing on procedural rather than substantive issues. Monterrey Consensus was abut a turning point, a global compact for shared commitments, but developed countries have yet to live up to the original goals.

The Least Developed Countries group, represented by Nepal, also aligned themselves with the statement of the G77 and China. Despite the Monterrey Consensus, LDCs account for only 0.33% of global trade, with only half their exports enjoying duty‑free, quota‑free market access. As such, LDCs call for the implementation of the WTO Hong Kong Ministerial’s declaration on duty-free, quota-free provisions, a prevention of the dilution of multilateralism in the Doha Round, and for greater product coverage and simplified rules of origin. The LDCs reminded the audience that two-thirds of aid for trade reached only 10 LDC states. Trade‑related technical assistance and capacity‑building is urgently needed in line with the Istanbul Programme of Action.

The “huge gap” between ODA commitment and delivery is reflected in the fact that 13 recipient countries faced aid contractions and LDCs retain a high debt burden, despite the Heavily Indebted Poor Countries (HIPC) and Multilateral Debt Relief initiatives. Debt servicing takes up large chunks of LDC resources. Full cancellation of their debts and HIPC renewal would help improve debt sustainability.

Developed countries needed to incentivize their domestic companies to invest in diversified and productive sectors to enhance the development impact of FDI which remain low and concentrated in extractive industries. Both remittances and innovative sources of financing could have positive impacts as well, however, substantive and comprehensive reform of the international financial system and architecture is needed to improve LDC voices in decision‑making and norm‑setting in the Bretton Woods institutions. As such, LDCs should be recognized as a special category based on the UN vulnerability index.

The Group of 15 Developing Countries for South‑South and North‑South Cooperation and Consultation, represented by Sri Lanka, stated that transparent restructuring of the international financial architecture is a clear need. This includes even-handed IMF surveillance of major financial centers and markets, enhanced IMF voting power through a new quota system that recognizes the importance of developing countries in the world economy, and a more democratic and innovative framework within the BWIs.

While LDCs are facing a severe tightening of international financial resources, debt relief and moratorium programs should not be accompanied by disproportionate conditionality.

The Group of 15 stressed the importance of holding a review conference in 2013 on the Monterrey Consensus. “Current difficulties coupled with austerity measures and retrenchment policies in developed countries are a threat to development. We urge all developed countries to meet the promised commitments made in international agreements,” they stated.

South-South cooperation is emerging as an important instrument of development cooperation, and the Group of 15 functions as a viable forum to promote South-South cooperation. Sri Lanka is committed to pursuing South-South, North-South and triangular cooperation.

China said the “wonderful blueprint” envisaged by the Monterrey consensus had yet to be translated into reality, therefore the international community should focus its efforts in four key areas. First, concerted efforts must be made to create strong, balanced global economic growth to promote development, particularly as the world economy faced severe risks and the market is marked by volatility. Countries should strengthen macroeconomic policy coordination. Developed countries in particular should adopt responsible fiscal and monetary policies, properly address their respective debt problems, ensure safe and stable market investments and refrain from trade protectionism. Developing countries should promote growth by mobilizing domestic resources for their own development.

Second, developed countries should not use the financial crisis as an excuse to shirk their development assistance responsibilities. International financial institutions should bolster efforts to mobilize financing for development.

Third, countries should reject trade and investment protectionism and vigorously push the Doha negotiations forward in order to create an equitable, rational and non‑discriminatory global trade system. China called for more rational, transparent pricing and regulation mechanisms for bulk commodities, and for greater supervision of and an end to speculation in order to guarantee global energy and food security.

Fourth, China asserted the need to clarify the relationship between innovative financing and ODA, and for simpler application procedures for such financing. For China, development is a top priority, and initiatives to spur development in developing countries are pursued through South‑South cooperation. For example, to help African countries cope with this year’s serious drought and food crisis, China donated 533.2 million RMB (about USD 84 million) in emergency food aid to affected countries. At the recently held G20 Summit in Cannes, China’s President announced zero‑tariff treatment to 97% of exports from LDCs that had diplomatic relations with China.

The Association of Southeast Asian Nations (ASEAN), represented by Indonesia, aligned with the G77 and China, and said development was a primary responsibility of each nation. However, an enabling international environment was critical, and that is particularly true for ASEAN, where international trade is an important financial source and where accumulation and mobilization of domestic resources to finance development remained limited.

While it was initially thought that the world could emerge stronger from the 2008-9 crisis, it is now clear that the same systemic problems of the global economy remain unresolved and the world faces the threat of yet another global crisis due to the financial turmoil in the eurozone. A lot of hope is pinned on international cooperation for development and, therefore, it was imperative to go back and honour the spirit and principles of the Monterrey Consensus. As such, Indonesia underlined concrete steps to strengthen the six pillars of the Monterrey Consensus. These include: (i) international financial and economic regulation, monitoring and supervision, (ii) financial governance reform, (iii) ODA commitments, which need to be fulfilled, and (iv) a strengthened international trade regime.

The Caribbean Community (CARICOM), represented by Jamaica, said that it was imperative to engage in frank discussions on development cooperation, and the strong links between development financing commitments by traditional donors and MDG Goal 8, the global partnership for development. A key development challenge for CARICOM states is their burdensome debt to GDP ratio, which for many of them stands at over 100%. It is imperative, CARICOM stressed, that developing countries adopt new and innovative approaches. As such, while South-South and triangular cooperation are important, they are a complement to, and not a substitute for, traditional ODA.

Minister for International Cooperation of Guinea, Koutoub M. Sano, said that insufficient and unpredictable ODA, combined with other negative impacts of the series of global crises on least developed countries (48% of which are in Africa), meant that the continent might not achieve the Millennium Development Goals by 2015. It was crucial, therefore, to identify regular and sustainable sources of financing for the continent. In that context, he drew the Assembly’s attention to three of his Government’s proposals aimed to increase financing to Africa: (i) holding a conference on development financing, (ii) increasing South-South and triangular cooperation, and (iii) adopting an Africa-wide declaration on transparency in financial governance.

Egypt said that the current discussion in the UN was the main forum in which to revive development financing commitments, particularly in view of the huge financial and economic challenges facing the global economy. The crisis challenge represents a real test of the solidity of the international community’s commitments to the cause of strengthening the global partnership for development and to support development country needs, which is necessary for MDG achievement by 2015.

Egypt has suffered the burden of mitigating the repercussions of the world financial and economic crisis, as well as the food and energy crisis, which resulted in huge challenges, as Egypt is among the net food‑importing developing countries. Despite the current decline in economic activity, Egypt believes that the current steps in the transition towards democracy and strengthening transparency and good governance will greatly improve the domestic economic and investment climate.

For its part, Egypt will continue to participate actively in all international efforts and initiatives aimed at strengthening the international development agenda including the Rio+20 Summit in June 2012, and the follow‑up to the Conference of the World Financial and Economic Crisis and its Impact on Development.

Capturing the mood of many speakers, Chile’s representative said that what had been a “transcendental agreement” in Monterrey, a “commitment to a true partnership to urgently address development, trade and debt issues,” has languished, as very little action had been taken to promote equitable growth and create sustainable conditions, both environmentally and economically.

After 10 years, no dynamic really exists for shared work on development financing between the UN and other international groupings, such as the G-20. “We need to get back to basics,” he declared, urging decisive action to close such fundamental gaps and deficiencies in the system of global governance. In that regard, General Assembly resolution 65/94, on the role of the United Nations in global governance, could provide a road map for the purposes of those discussions, where financing for development would be a key pillar.

The European Union stated that “aid is never enough” and that developing countries “cannot depend on ODA.” While expressing support for use of a financial transactions tax to support development, the EU stressed that developing countries’ state budgets remain the most important source of their development finance, and as such each country has “primary responsibility for their own development.”

The EU also called on the "emerging market economies" and "big developing countries", as the “new big players in the global economy who must play their part in aid disbursement.”

The EU said it accounts for 65 per cent of aid increases since 2004, and accounts for half of global aid, and despite currently falling short of the 0.7% of gross national product (GNP), it reaffirmed its commitment to meet the targets by 2015. The recently agreed Busan Partnership was welcomed for creating an agreed framework for aid and development effectiveness which embraced the roles of emerging economies, civil society and other development actors, alongside traditional donors.

(The Busan Partnership emerged from the 4th High Level Forum on Aid Effectiveness held on 29 November to 1 December in Busan, Republic of Korea, following intense debate on whether developing countries providing South-South aid should be subject to similar standards as OECD countries, with the fundamental question of whether South-South cooperation should be "collapsed" into the North-South aid commitments of developed countries.)

It further said that stronger national tax systems, policy and governance frameworks to create a domestic environment that mobilizes development is very important. An open trade and investment policy remains one of the most effective tools for promoting economic recovery, the EU said, calling on WTO members to advance the multilateral trade negotiations agenda at the Eighth Ministerial Conference (of the WTO) in Geneva.

Spain took a very distinct view from the European Union and said that despite the impacts of the economic crisis on the ability of traditional donors to meet financing commitments, the developed countries should be very aware of the fact that ODA levels comprise very low percentages of donor budgets, and as such remain critical to reducing poverty and making headway in development.

Financing for development is the fulcrum of development, Spain stated. In the effort to seek new forms of financing, Spain has been working very closely with the pilot group on innovative financing. A financial transactions tax of 0.005% would be able to generate between $24-25 billion per year in revenue, and we support this. Such a tax would also target derivatives trading in carbon emissions. Such a sum would be able to garner enough funds to complete Africa’s MDGs, which is estimated at a cost of $72 billion per year. More headway also needs to be made in the illicit trafficking of capital and tax evasion.

The United States concurred with the European Union in saying that ODA from governments and multilateral organizations are no longer the primary driver of economic growth. In the 1960s, ODA accounted for 70% of capital flows to developing countries, but today, because of private-sector growth and increased trade, domestic resources, remittances and capital flows, ODA only accounted for 13% of financial flows to developing countries. This shift, the US asserted, meant that old distinctions like “donor” and “recipient” are less relevant. The delegate quoted Secretary of State Hilary Clinton who said, “we need every provider of assistance at the table, emerging and traditional, public and private. And we need to make sure we get past the old divisions so we can deliver results for everyone.”

Sweden, on behalf of the Nordic countries, Denmark, Finland, Iceland, Norway and Sweden, said that the Monterrey Consensus was being carried out by Nordic countries through three key elements. First, mutual accountability is encouraged by driving member states to intensify efforts to live up to the 0.7% of GNI target for ODA, which is still a critical source of financing for development.

The Nordic countries welcomed the principles underpinning the Busan Partnership for Effective Development and Cooperation. Transparent processes, outcome‑oriented programming, results‑based management and effective monitoring are key elements highlighted in Busan. Additionally, innovative mechanisms for financing could make a positive contribution in assisting developing countries to mobilize additional resources for development and combating climate change.

Second, mobilization of domestic resources implies that each country has the primary responsibility for its own development. Provision of public goods, redistribution of wealth, and government accountability requires fair, effective and efficient tax systems. The UN, for its part, could assist developing countries in broadening their tax base and developing policies to eradicate poverty through a more equitable and responsible allocation of resources.

Third, combating illegal capital outflows from developing countries could free up significant resources, and UN bodies could have a role to play in that arena as well. Sweden stressed that the UN and the BWIs have complementary mandates, and that civil society and the private sector should play a stronger role in global development.

Deputy Secretary-General of the UN Asha-Rose Migiro,in her opening statement at the General Assembly dialogue stated that even as economic contraction and belt-tightening squeezes aid budgets, developed countries must meet their commitments of official development assistance (ODA). Noting the “fragile and uneven” recovery from the economic and financial crisis, rising unemployment and persistent poverty, she said that developing countries needed additional help to recover.

“Aid is not charity, but instead a smart investment in the global economy,” she continued, calling for innovative new ways to strengthen traditional aid, including more investments in public services, environmental and social protection, as well as a more equitable taxation system. Today’s dialogue, for its part, could enhance the global partnership that was at the heart of efforts to support the world and its people, she said.

Acting President of the General Assembly, Gary Francis Quinlan (Australia), speaking on behalf of Assembly President, Nassir Abdulaziz Al-Nasser (Qatar) at the opening, said the dialogue was taking place at a time of heightened concern, as political divides were hampering action to tackle Europe’s sovereign debt crisis, weaknesses in the global financial sector and volatile food and energy prices. Given that environment, it was critical that developing countries undertook measures to address poverty, expand productive employment opportunities and finance such measures on a sustained basis.

When senior government officials and diplomats took the floor, they pledged commitment to the priority areas of the Monterrey Consensus, which include: (i) mobilizing domestic and international financial resources for development, (ii) bolstering global trade as an engine for development, (iii) increasing international financial and technical cooperation and (iv) tackling external debt and systemic issues through the international monetary, financial and trading systems.

The President of the Economic and Social Council (ECOSOC), Ambassador Lazarous Kapambwe of Zambia, said that achieving the MDGs remains the primary objective, and success rests strongly on a vibrant and functioning global partnership for development, in which ECOSOC has a central role to play in promoting the global partnership for development. A major challenge in achieving long‑term growth in least developed countries is funneling investments from public and private sources into the productive capacities and in the creation of decent jobs.

South‑South cooperation should be an important element of the international development strategy, including infrastructure and industrial projects. In the area of trade, it was necessary to intensify efforts to achieve the development‑oriented outcome of the Doha round of multilateral trade negotiations, to eliminate agricultural subsidies in developed countries, to further strengthen aid for trade and to avoid “green protectionism” (a contentious area of debate in the Rio+20 talks in the UN, relating to the ‘green economy’ discussion).

The high level segment was followed by three roundtable discussions: (i) The reform of the international monetary and financial system and its implications for development; (ii) The impact of the world financial and economic crisis on FDI and other private flows, external debt and international trade; and (iii) The role of financial and technical development cooperation, including innovative sources of development finance, in leveraging the mobilization of domestic and international financial resources for development.+