TWN Info Service on Finance and Development (Nov14/01)
11 November 2014
Third World Network

Dear friends and colleagues,

On 17 October, the first intergovernmental discussion on the third Financing for Development conference to be held in Addis Ababa in July 2015 took place at the United Nations headquarters in New York.

The statements from member states and groupings of countries reveal a tough landscape of differing priority issues between developed and developing countries.  Below is a report by Bhumika Muchhala.

The next 2 discussions will be held on 10-13 November and 9-11 December.

With best wishes,
Third World Network

North and South priorities reveal traditional clash in the first Financing for Development discussion

By Bhumika Muchhala, Third World Network
(11 November 2014)

The first intergovernmental discussion on the third Financing for Development conference to be held in Addis Ababa in July 2015 reveals a tough landscape of differing priority issues between developed and developing countries

The process for the International Conference on Financing for Development (FfD) commenced in the New York headquarters of the United Nations on 17 October 2014.  

The third FfD conference, which will be held in Addis Ababa, Ethiopia, from 13 to 16 July 2015, will gather high-level political representatives, including heads of states and government, ministers of finance, foreign affairs and development cooperation, as well as all relevant institutional stakeholders, non-governmental organizations and business sector entities.

The Conference will result in an intergovernmental negotiated and agreed outcome, which is to constitute an important contribution in the post-2015 development agenda, as well as a critical support to the implementation of the post-2015 development agenda.

The scope of the Conference is set out in General Assembly resolutions 68/204 and 68/279, and will focus on:

(1) Assessing the progress made in the implementation of the Monterrey Consensus (2002) and the Doha Declaration (2008) and identifying obstacles and constraints encountered in the achievement of the goals and objectives agreed therein, as well as actions and initiatives to overcome these constraints;

(2) Addressing new and emerging issues, including in the context of the recent multilateral efforts to promote international development cooperation, taking into account: the current evolving development cooperation landscape; the interrelationship of all sources of development finance; the synergies between financing objectives across the three dimensions of sustainable development; the need to support the United Nations development agenda beyond 2015; and

(3) Reinvigorating and strengthening the financing for development follow-up process.

The preparations for the Conference, under the auspices of the President of the 69th session of the General Assembly of the UN (UNGA), includes substantive informal sessions on all relevant thematic areas, and informal interactive hearings with civil society and the business sector, as well as drafting sessions of the outcome document in January, April and June 2015.

The two co-facilitators for the FfD process, appointed on 8 October by the UNGA President, are Ambassador George Talbot of Guyana and Ambassador Geir Pedersen of Norway.  They are tasked to lead open, inclusive and transparent consultations on all issues related to the Conference and its preparatory process.  The UN Secretary-General designated Wu Hongbo, Under-Secretary-General for Economic and Social Affairs, as the Secretary-General for the Conference. 

The Financing for Development Office (FfDO) provides substantive support to the preparation and organization of the Conference, and works closely with all relevant stakeholders, within the UN system and beyond.

In his role as conference co-facilitator, Ambassador Talbot of Guyana opened the 17 October informal session stating that the international community is now on the road to Addis.  He affirmed that the substantive basis for the conference is the Monterrey Consensus of 2002 and the Doha Declaration on Financing for Development of 2008, adding that the two co-facilitatorsaim to seek consensus among all UN member states on this basis as well as an account of the changes that have occurred since 2008.

Ambassador Talbot said the Sustainable Development Goals, and the question of sustainability, has become more central in the FfD approach.  With this shift, the scale of ambition has expanded and the demands in terms of financing, resource mobilization and the means by which to address the FfD agenda have also expanded.  

Discussions on substantive topics will occur in November and December 2014.  Beginning in January 2015, member states shall embark on the home stretch toward Addis.  The outcome will be agreed upon no later than June 2015, with a goal of arriving in Addis with a working outcome document that will be implemented by political leaders.

Ambassador Talbot said that the fullest possible inclusion by member states and other stakeholders is expected.  Nobody has a monopoly of ideas.  All member states, global institutions, civil society, private sector, and beyond are expected to play a meaningful part.

The Permanent Representative of Ethiopia to the UN said that Ethiopia is proud to host the conference.  However, all member states must demonstrate strong political will, especially given the current global political and economic environment.  Member states must also assure concrete means of implementation to ensure the success of the post-2015 (development) summit (in September 2015).  Ethiopia seeks an outcome that is “Monterrey plus,” meaning that the commitments already made in 2002 and so forth can only be the starting point.  Domestic resource mobilization is helpful, but developing countries need enormous support.  The global community must mobilise more resources.

Wu Hongbo, Secretary-General of the FfD conference, said that financing is critical to sustainable development.  A successful FfD conference is a significant milestone for the post-2015 development agenda and summit.  The FfD conference will review the Monterrey Consensus and Doha, addressing new challenges and reinvigorate the FfD follow-up process.  Success requires renewed commitments and innovative policies for means of implementation.  Financing needs are indeed large, however, obtaining the financial resources is feasible even while it is challenging.  The UN and the international development community must have strong political will to meet expectations.  The full engagement of member states is necessary, as well as institutional stakeholders, civil society organisations, the business community and other relevant actors.

Geopolitical contours of the first FfD session

The first informal substantive session of the FfD session on 17 October revealed key fault lines on the identification of substantive priorities and actions for the Conference between various country groupings, many of which reflect the geo-political norms within UN member state discussions and negotiations. 

Bothdeveloped and developing countries affirmed that existing financing for development processes and outcomes must serve as the basis for the Addis Conference, namely that of the Monterrey Consensus outcome document of 2002 and the Doha 2008 outcome document.  The G77 group of developing countries stressed that the Monterrey Consensus provided a comprehensive framework of financing instruments as well as systemic issues, including aid, trade, debt and investment, all of which should be considered as the basis of the FfD work programme.  This should also contribute to the content of domestic and international resource mobilization and the effective use of these resources for the implementation of the post-2015 development agenda.

Priority issues for developing countries

However, differences revealed themselves as developing countries called for the integration of the Sustainable Development Goals (SDGs) outcome document produced by the Open Working Group on SDGs in order to update and adjust the Monterrey and Doha frameworks, as well as to ensure a forward-looking and relevant tool for financing both the post-2015 development agenda and the SDGs.  Brazil specifically called for the SDG report to be the main basis for mainstreaming sustainable development into the post-2015 development agenda.  India urged that the balanced emphasis on all three dimensions (economic, social, environmental) of the SDGs be maintained, and that caution should be exercised over an excessive emphasis on the environmental pillar and on climate finance in the context of the FfD conference.  The G77 and Kenya also supported the above.

Brazil also warned that the universality of the SDGs must not be used as a pretext to ignore the common but differentiated responsibilities (CBDR) of developed and developing countries and their respective capabilities, in particular with respect to adequate levels of official development assistance commitment and financing.  Indeed, the third FfD conference in Addis Ababa should take guidance from Paragraph 247 of the Rio+20 outcome document, which underscores that SDGs are “(…) universally applicable to all countries, while taking into account different national realities, capacities and levels of development and respecting national policies and priorities.”

St. Lucia, on behalf of the Caribbean island developing countries also stressed that FfD must take note of Rio, so that coherence is assured while duplication is avoided.

The G77 emphasized that the Addis conference should not only review the progress of FfD, but also reinvigorate the FFD follow-up by identifying obstacles and committing to actions to overcome these obstacles.  Malawi, on behalf of the African Group, supported this point of the G77 and added that the Addis conference must address new and emerging issues for developing countries, and in particular the specific needs of African developing countries.  The outcome document of the Addis conference should have a section on Africa’s development needs.

Benin, on behalf of the Least Developed Countries (LDC) group, said that while the recommendations of the Intergovernmental Committee of Experts on Sustainable Development Financing (CESDF, another Rio+20 follow-up action) propose baskets of policy options for countries to choose from and identifies various sources of finance, they do not articulate how to navigate the commitment of resources.  This endeavor, of committing to (and not just identifying) specific mechanisms to obtain secure resources in a predictable manner, is an important missing link that the Addis conference needs to fill in.

Developing countries as a whole alerted to the key role that official development assistance (ODA) still plays in fulfilling the Millennium Development Goals (MDGs) and the post-2015 development agenda.  The African Group and Colombia in particular highlighted the essential element of technology cooperation, such as making technology available on preferential terms, alongside ODA.

The G77 also asserted their core position that the FfD outcome document should support the implementation of the post-2015 development agenda, bearing in mind that the credibility of the latter will be commensurate to its means of implementation (MOI), which encompasses finance, technology, institutional capacity building and trade.

Benin, on behalf of the LDC Group, said that their group has been repeatedly emphasizing that MOI will be the lynchpin and lifeblood of the post-2015 development agenda.  In order to ensure a predictable, time-bound, robust framework based on mutual accountability in both the FfD conference as well as the post-2015 summit next year, securing meaningful action-oriented MOI is indispensable.  Furthermore, bottlenecks for LDC in development financing, including concessional and non-concessional financing, should be addressed by the Addis FfD conference in order to achieve structural transformation.

India further stressed the significance of MOI, saying that the credibility of both the FfD-Addis and Post-2015 processes will be commensurate to its MOI, for without means of implementation where the key principle of additionality is applied (that of new money for new financing requirements over and above ODA), the goals set by member states will remain mere policy prescriptions.  Limiting them to such is certainly not the ambition member states have established when calling for a transformative agenda.

This, according to India, entails that the outcome of the 3rd FfD Conference must be a very ambitious and meaningful one.  It underscored that the FfD conference is a crucial pillar of the entire post-2015 development agenda process, in that the success of the FfD conference in Addis will in many ways determine the success of the post-2015 summit that will be held in September 2015.

Various developing countries, including the G77, stressed that the upcoming FfD conference in Addis must address the global partnership for development, which is the enabling international environment for development, as well as international systemic issues such as the international financial system, the flow of international capital, sovereign debt issues, international trade, international tax cooperation, governance reform and so on.

St. Lucia, on behalf of the Caribbean island nations, said that due consideration is needed on international tax cooperation, financing SDGs and reform of international financial institutions, while special attention should be paid to the UN General Assembly negotiations on a multilateral legal framework for sovereign debt.  Meanwhile, the topics of south-south cooperation and remittances need to be addressed with sensitivity.  

Indonesia also emphasized that reform of the global financial architecture must address debt sustainability, including debt restructuring, trade and investment and financial inclusion.

Kenya asserted that the global partnership for development should be more vibrant and engaged in order to ensure that FfD is made comprehensive to international systemic issues such as debt.  It added that in a context where revenue adequacy continues to elude many developing countries, which then face limited options and require external support, an enabling international environment for development that will make predictable, consistent and adequate resource mobilization possible is indispensable.  

Kenya also stated that the scenario for global growth is unlikely to change unless the renewal of sub-Saharan Africa is prioritized.  The region requires as much as $100 billion per year for the next ten years.  Currently, the continent is only able to achieve half this amount.  The ability to attract both foreign and domestic investments is critical, as is the state’s ability and capacity to mobilize domestic resources through fiscal policies.  As the FfD and post-2015 summits approach, it is paramount that FFD addresses the structural elements that are a prerequisite to achieving these, stressing that FFD remains the key pillar of MOI.  

Chile said that the third FfD conference is not simply a review conference.  It must go further and address various emerging trends, including innovative financing mechanisms and a reassertion of outstanding commitments that remain unfulfilled.  

Colombia said that the conference must consider international systemic issues and have synergy with various other ongoing conferences and discussions.

India underscored that the overall objective of FfD as well as the post-2015 development agenda should be that of the eradication of poverty, not necessarily or only sustainable development.  The eradication of poverty is of undeniable priority in a world where1.3 billion people live on less than $1.25 a day.  Furthermore, India pointed out that several of the developmental challenges that were encapsulated under the MDGs have in fact become worse.  The recent public health crisis in Africa is a testimony to how developing countries remain less than capable in coping with such events. 

Developing countries on the whole reiterated a core stance across all multilateral discussion on international development cooperation, that of South-South aid and cooperation being complementary to, not substitutes of, North-South aid and cooperation.  Meanwhile, the real criterion for aid is additionality (that of new funds for new needs, such as climate and sustainable development, rather than traditional aid becoming fungible, where the same pool of financing has to be used for multiple needs, or re-directed from one to the other).

India highlighted that the substitute for North-South aid is not South-South aid; it is economic growth and development towards the goal of developing countries being able to autonomously generate the resources they need. 

Indonesia asserted that international cooperation between developed and developing countries must be advanced by the Addis FfD conference in ways that support the development agenda, which includes for example the area of financial policy coordination.

China stressed that financing for development needs to be differentiated from financing for sustainable development, as the former is economic and social development globally but the latter is a follow-up to the Rio+20 conference which differs in terms of mandate and process.  Financing for sustainable development, as outlined in the ICESDF report, should thus be focused on sustainable development, and should not apply to the broader scope of financing for development in the upcoming Addis conference.

The importance of aneffective accountability framework in the UN’s partnerships with the private sector was highlighted by Brazil and supported by several developing countries including India and Kenya.  Brazil stressed that without a framework of accountability to UN member states of actions taken in partnership with the private sector, member states cannot seriously conceive of the UN scaling-up its partnerships with private entities in financing for sustainable development.  Such a framework does not currently exist, and this must be addressed by the Addis FfD conference.

Kenya stated that while they support practical innovative financing mechanisms, including the importance of public finance, the issue of private finance is more complex.  Many of the multinational companies (MNCs) located in developing countries have as their main objective that of reaping returns on their investments, not that of development.

The assertion that climate change should not be singled out or presented as an overriding objective in FfD discussions was put forth by Brazil, and supported by India.  References to climate change in the Co-facilitators proposed roadmap could lead one to believe as such, Brazil said, adding that the third FfD conference is not an exercise in mobilizing resources for financing climate change activities, which has its own track under the UN Framework Convention on Climate Change (UNFCCC).

Brazil also pointed out that trade is a fundamental chapter in the six chapters of the Monterrey Consensus, but has not been given adequate time in the informal sessions.   It cannot be regarded as a subcomponent of the international enabling environment. 

In order to remain mindful of the changes and continuities of the development and financing landscape (as mentioned in the Co-facilitators proposal), Brazil said there should be an “entry point” in the preparatory process for a discussion on the 2008-2009 economic and financial crises and its aftermath.  A renewed commitment to financing for sustainable development is undeniably affected by the crisis, its lingering impacts and the responses of affected countries to it, especially amongst traditional donors of the North.  The roadmap should make room for this key discussion in the informal sessions.  In fact, a placeholder already exists in paragraphs 1-9 under the first section of the Monterrey Consensus entitled “Confronting the challenges of financing for development: a global response.”

Brazil and Chile both raised the importance of having a clear UN-led institutional follow-up mechanism for monitoring the outcome and commitments of the Addis FfD.  The two countries reminded member states that FfD is the only major UN conference still devoid of a follow-up mechanism.

Chile said that the highest possiblerepresentation from the Bretton Woods Institutions (World Bank and International Monetary Fund) and the World Trade Organization is necessary in Addis.  If both Washington and Geneva commit their presence, that will create positive synergies for Ministries of Finance to attend.  Chile added that UN regional commission meetings that will be held in March and April of 2015 will contribute substantively to the FfD process.  The FfD roadmap should thus reflect the importance of different inputs and reports that have been drawn up across various platforms.

The above depicts some of the contours of developing country priorities and issues of concern for the upcoming FfD and post-2015 negotiations and processes, both of which will culminate in 2015.  These issues will likely shift over the course of the next several months; however, some of these themes will also likely solidify into red lines, or minimum requirements, in the ensuing intergovernmental negotiations.

Priority issues for developed countries

The European Union (EU) representative, who spoke on behalf of the EU and candidate countries such as Ukraine and Moldova, agreed with the general consensus in the room that an ambitious post-2015 development agenda requires a comprehensive financing agenda under the FfD process; and that this implies that the UN must not only address the follow-up of the Monterrey Consensus and the Doha outcome, but must also address new issues.  The United States, Canada, Australia and Japan also agreed with this overall stance. 

Given that EU countries are the largest ODA donors to developing countries, the EU stressed the catalytic and indispensable role of ODA, adding that ODA and development effectiveness, in terms of the effective use of resources, should be included as a systemic issue in FfD. 

However, the role of domestic resource mobilization (DRM) was also emphasized by pointing out that aggregate gains of DRM already exceeds ODA by a multiple of 20.  The EU stated its commitment on DRM and tax issues to support developing countries.  Canada also expressed a willingness to work towards strengthening tax systems, with a recognition of the role that domestic public finance plays in development financing.

The EU was the only developed country group to mention MOI, saying that it is difficult to separate financial and non-financial MOI and that efforts to include both are welcomed.

Multi-stakeholder partnershipswas a theme highlighted by the EU, the US, Canada and Australia.  The EU stated that a strengthened global partnership includes broad-based multi-stakeholder partnerships, including with the private sector.  The US welcomed a strong emphasis on partnerships and suggested that it should be a theme woven through each of the FfD discussion sessions.  Canada and Australia emphasized the emergence of new and innovative financial instruments, resources-based financial instruments, philanthropic organizations and emerging donors (such as middle-income developing countries).

Developed countries on the whole asserted that such new actors and instruments have introduced profound changes to the development finance architecture, and will play an important role in mobilizing the necessary financial resources in the context of the third FfD conference.

The key role of private finance and blended finance in development financing was highlighted by the US, Canada and Australia.  The US said that these themes should be given more emphasis in the work plan for Addis given the scale of opportunities in private finance, and because it is catalytic, offers guarantees, and has impacts on the investment climate. 

Australia and Canada in particular underscored that the outcome document of Addis must go beyond the scope of the Monterrey Consensus and Doha and build on the ICESDF report to recognize more sophisticated financing instruments and roles that move beyond the donor-recipient model to recognize what really works, which includes for example, domestic resource mobilization, local capital markets, blended finance as well as private investors and philanthropists.

The ICESDF report is viewed by several countries as leaning too heavily on private sector financing, blended finance and partnerships without an adequate accountability mechanism and governance measures within which member states in the UN can have a meaningful role.

Data was highlighted by the US, Japan as well as the EU, all of whom said that data and transparency need greater prominence in the FfD discussions, and at least half-a-day of a session in the FfD discussions in November and December.  The US stressed that data has the most transformative potential, and can empower communities, citizens and governments across all levels.  It thus deserves stand-alone attention for its ability to enable collective action and spur innovation.

While the debate over data is much more complex, one positive outcome of an emphasis on data and transparency measures, which was not explicitly mentioned by developed countries, is that of the transparency and accountability of data and reporting from corporate actors, in particular multinational corporations with subsidiaries in developing countries.

Japan said that it does not see a good reason or rationale to have a separate section for environmental and climate finance under the heading of international public finance.

Such a position directly contradicts the principle of additionality being demanded by developing countries, which is also a legal commitment of developed countries under the three “Rio Conventions” on climate change, biodiversity and desertification. This means that new obligations such as environmental and climate considerations must be matched with new financial resources, rather than be extracted from traditional ODA or other development financing resources that are being allocated to development needs outside of environment and climate.

A preliminary reading of developed country positions illustrates that multi-stakeholder partnerships, private sector financing, blended finance and data measures are key priorities going forward, without due mention of accountability and governance measures, much less a strengthened and meaningful global partnership for development that addresses structural and systemic development policy issues.  

Where developing countries place an imperative on the means of implementation and the integration of the report of the Open Working Group report on SDGs into the FfD discussions, developed countries prioritize the ICESDF report on sustainable development financing.  

The European Union as a group, as well as its individual member states, present the most scope for positions on some development-oriented domestic resource mobilization and tax policy issues on the road to the third FfD conference in Addis. Meanwhile, the US, Japan, Canada and Australia have strong positions favoring innovative financing measures, the role of emerging donors, philanthropic organisations and foundations and partnerships where the private sector has a dominant role. 

Upcoming FfD sessions on the mobilization and effective use of resources

The next session for FfD discussions takes place from 10-13 November at the UN headquarters in New York.  

The areas of discussion will include:

  1. The global context, which includes financing needs and major trends in financing across the three dimensions of sustainable development;
  2. Domestic public finance, which includes raising domestic public resources through taxation, sustainable debt financing, international cooperation for debt resolution, domestic public finance and fighting illicit flows, for example;
  3. International public finance, which includes increasing international public finance, such as aid commitments, climate finance and environmental financing, South-South and triangular cooperation and innovative mechanisms of financing; and,
  4. Private finance both domestic and international, and blended finance, which includes inclusive finance, SME financing, long-term investment, international capital flows, sustainable finance, local capital market development, public-private partnerships and remittances and private development assistance.

From 9-11 December, the following discussion will take place in the UN headquarters in New York:

  1. Enabling and conducive policy environment, which includes international monetary and financial system and financial market stability, balancing access to credit with stability in regulatory regimes, international tax cooperation, debt crisis prevention and resolution and key policy reforms to implement individual SDGs;
  2. Trade, technology and capacity building, which includes trade reforms and facilitation, trade and investment regimes for sustainable development, fostering science, technology and innovation for sustainable development and capacity building; and,
  3. Governance, which includes enabling and conducive national governance, capacity development, transparent and accountable institutions, as well as enabling and conducive international governance, including economic governance and the use of data.