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TWN Info Service on Finance and Development (Apr07/02)

30 April 2007


UN SG CALLS FOR MORE VOICE FOR SOUTH IN INTERNATIONAL ECONOMIC GOVERNANCE

The United Nations Secretary-General Ban Ki-moon, in his first major speech on development, has joined the recent chorus of calls for developing countries to be given a greater voice in international economic decision-making, reflecting commitments made by state parties to the Monterrey Consensus on Financing for Development in 2002 and the changing state of the world economy today.

Speaking at to the Special High-Level Meeting of ECOSOC with the Bretton Woods Institutions (BWIs), the World Trade Organisation (WTO) and the United Nations Conference on Trade and Development (UNCTAD) on 16 April, Ban also criticised the manner in which the international economic system has failed developing countries in terms of aid, trade and restrictive rules on intellectual property rights.

The SG’s calls were reiterated by developing countries during the meeting. A statement by the G77 and China delivered by Pakistan’s Amb Munir Akram expressed support for ‘a comprehensive reform package of the international financial architecture, including enhancement in the voting powers of developing countries in a time-bound manner.’

Below is an article summarising the main points of the meeting. It was published in the SUNS #6234 Thursday 19 April 2007.

With best wishes
Martin Khor
TWN

UN SG Calls for More Voice for South in International Economic Governance

By Celine Tan

The United Nations Secretary-General Ban Ki-moon, in his first major speech on development, has joined the recent chorus of calls for developing countries to be given a greater voice in international economic decision-making, reflecting commitments made by state parties to the Monterrey Consensus on Financing for Development in 2002 and the changing state of the world economy today.

In a statement to the Special High-Level Meeting of ECOSOC with the Bretton Woods Institutions (BWIs), the World Trade Organisation (WTO) and the United Nations Conference on Trade and Development (UNCTAD), Mr Ban contended that while developing countries constituted 79% of the world’s population and 45% of global output measured in purchasing power parities, ‘their significance is poorly reflected in forums where crucial decisions about their economic and social future are taken’.

In an implicit reference to the current crisis of legitimacy surrounding the World Bank and the International Monetary Fund (IMF), the secretary-general said that some international institutions were created 60 years ago under vastly different circumstances and the strengthening of their credibility, legitimacy and effectiveness needs to be grounded in deeper engagement in the reform of their governance structures to reflect today’s economic realities.

This, he argued, ‘means increasing the weight of several developing countries, which have grown substantially in recent decades’ as well as ‘giving adequate voice to smaller economies where many of the world’s poor live.’

Ban’s calls were reiterated by developing countries during the plenary sessions of the high-level meeting as well as during a special roundtable discussion on the issue. A statement by the G77 and China delivered by Pakistan’s Amb Munir Akram expressed support for ‘a comprehensive reform package of the international financial architecture, including enhancement in the voting powers of developing countries in a time-bound manner.’

The G77 and China also called for reform efforts to reflect the objectives for which the IMF was created, that is, ‘to ensure financial stability’ and ‘to ensure access to (short-term) financing for those countries who actually need it.’ The G77 and China, Akram said, will ‘continue to press for such a fundamental reform of the international financial system and its governance architecture, in all relevant forums.’

The UN secretary-general and developing countries also highlighted the fragmented and politicised nature of official development assistance (ODA) and the lack of developing country input into the policies and operational mechanisms of aid and aid allocation, leading to its ineffectiveness.

Ban said that ‘recipient countries have little influence’ over the process of providing  ODA and ‘all too often, aid is driven more by politics than need.’

The aid system, he said, ‘has become unnecessarily complicated, fragmented and poorly coordinated’ and although there has been an increase in ODA in the last decade, much of this growth ‘has stemmed largely from increased debt relief rather than fresh funding’ which is urgently needed for developing countries ‘to overcome the financing gap and achieve the Millennium Development Goals.’

Ban was also concerned that ODA fell by more than 5% in 2006.

‘The question of developing country participation,’ is relevant here too, as while ‘the interests and views of donor countries are well represented in the multilateral financial institutions, there has been no effective permanent forum reflecting the interests of recipient countries.’ The secretary-general hoped that the launch of the Development Cooperation Forum at ECOSOC later this year would ‘help improve oversight of development assistance’. He encouraged the BWIs and the WTO ‘to be active participants in this new initiative.’

The G77 and China, in their statement, criticised the way the ODA is offered and delivered in developing countries, arguing that for the most part, bilateral and multilateral aid ‘is not responsive to national policies and plans, since it is mostly earmarked to donor determined sectors and projects.’ The developing countries also contended that ‘such development financing is often accompanied by conditionalities, is tied to procurement from the donor country and often expended largely on expensive consultants and experts from UN agencies or donor organizations.’

On the issue of domestic governance, Ban highlighted the need for ‘good governance at all levels’ to ensure that development resources are mobilised and used effectively to achieve the objectives of the Monterrey Consensus – with ‘participation, transparency and accountability’ serving as ‘crucial components’ of this process. However, the secretary-general stressed that governance reforms must be country-driven with experience. ‘Donor-driven initiatives, especially when externally imposed, can weaken the legitimacy of domestic efforts, and may be counter-productive.’

In an implicit reference to the current focus on anti-corruption at the World Bank, Ban argued that while corruption reflects ‘a failure of governance,’ the fight against corruption should not be made ‘synonymous with governance,’ but addressed as part of comprehensive governance reforms, including grounding in internationally agreed norms, notably the UN Convention Against Corruption which, Ban noted, industrialised countries have been slower to ratify than developing countries.

Calling for a multilateral trading system that is responsive to the developmental needs of developing countries and welcoming the recent resumption of the Doha Round of negotiations at the WTO, Ban stressed that its ‘development promise’ should not be compromised.

He said that developing countries, especially the least developed among them, need better market access, as well as more help to improve their production and trading capacity. There is a need to eliminate all export and trade-distorting agricultural subsidies of industrialized countries.

‘And the rules for intellectual property rights need to be reformed, so as to strengthen technological progress and to ensure that the poor have better access to new technologies and products,’ Ban stressed.

The G77 and China also criticised the ‘insufficient focus on the development of international trade’ in international trade negotiations, including the issue of developed country subsidies, fears of de-industrialisation in developing countries as a result of severe industrial tariff cuts and the constraints on national development and access to  technology placed by aspects of the current IPR regime and other technology control regimes. The G77 and China called for a review of the regime by the World Intellectual Property Organisation (WIPO), the WTO and UNCTAD.

The G77 and China said that while developing countries had ‘demonstrated a sincere commitment’ towards implementing internationally agreed development commitments, including commitments ‘to devise national development strategies, improve governance and create a macro-economic climate conducive for growth, trade and investment,’ there have not been corresponding commitments from developed countries to assist in their development efforts.

‘Unfortunately, our development partners have not demonstrated a similar alacrity in implementing their part of the commitments whether in development assistance and financing, trade, technology transfer or other areas of cooperation,’ Akram said.

In its intervention, the United States criticised the G77 and China’s assessment of the international economic architecture, calling their remarks ‘provocative’. The US accused the developing countries of trying to run the international institutions down.

The US representative Terence Miller said that in spite of their remarks to the contrary, developing countries had yet to demonstrate implementation of the agreed international development commitments, including the implementation of sound economic policies. On the complaint that development assistance was not responsive to developing country needs, Miller said that if that was the case, the US could re-evaluate the provision of such financing to see if such assistance was still needed.

Criticising the developing countries’ assessment of the current international financial system which forced the developing countries to accumulate large foreign exchange reserves as a means of self-insurance in the absence of comprehensive international mechanisms to address financial volatility, Miller said that such reserves were accumulated through trade and purchases by developed countries and that if the developing countries did not approve of such reserve accumulation, ‘we can stop these purchases.’

Miller also criticised the G77 and China’s position on the IPR regime, saying that the WTO’s TRIPS agreement provided much needed research and development (R&D) for development, including research for tackling issues such as climate change.

In a response to Miller’s outburst, Akram said that the statement of the G77 and China was a factual reflection of ‘how we see the current situation’ and was not meant to be ‘deliberately provocative,’ unlike the remarks of the US representative. Akram also clarified that the developing countries never said that they had fulfilled the implementation of their internationally agreed development commitments but that they were committed to achieving them and to say so otherwise was a ‘wrong interpretation,’ adding that he hoped that it was not a ‘deliberately wrong interpretation.’

Akram said that the G77 and China were ‘not talking in the air’ when highlighting systemic issues with the international trade and financial architecture but that they were speaking the truth and standing up for their rights. They were not trying to dismiss the need for aid but rather to emphasise the problems associated with the current aid regime and to call for ODA to be made more effective and responsive to developmental needs for countries who need it.

The G77 chair also countered the US remarks on reserve accumulation by reiterating that reserve accumulation was an indication of global financial volatility. He argued that if the international financial architecture could assure financial stability, there would be no need for reserve accumulation by developing countries and such reserves could be used for consumption and investment in development purposes rather than being ‘ploughed back into treasury bonds in other countries.’

Akram also dismissed US charges that TRIPS protects R&D, arguing that R&D existed before TRIPS and instead, TRIPS has limited, rather than encouraged, such research in developing countries. Akram’s riposte was applauded by delegations and observers present at the meeting.

 


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