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TWN Info Service on Finance and Development (Oct07/07)

26 October 2007


MONTERREY
PROCESS SUFFERS FROM IMPLEMENTATION DEFICITS, SAYS G77

The United Nations Financing for Development (FFD) agenda suffers from a serious implementation deficit and current global developments in international financial markets have highlighted challenges that the Monterrey Consensus has been unable to adequately address, developing countries told the UN General Assembly yesterday.

Speaking on behalf of the Group of 77 developing countries and China, Pakistan Minister for Economic Affairs Ms. Hina Rabbani Khar said experience with the implementation of commitments under the Monterrey Consensus on FFD coupled with recent financial market turbulence calls for a redoubling of efforts to arrest and reverse the disturbing trends through “a genuine global partnership for development”.

Below is a report on the G77 statement. It was published in the SUNS #6351, Thursday, 25 October 2007.

This article is reproduced here with the permission of the SUNS.  Reproduction or recirculation requires permission of SUNS (sunstwn@bluewin.ch).

With best wishes
Martin Khor
TWN


Monterrey
Process Suffers From Implementation Deficits, Says G77
By Celine Tan, New York, 24 October 2007

The United Nations Financing for Development (FFD) agenda suffers from a serious implementation deficit and current global developments in international financial markets have highlighted challenges that the Monterrey Consensus has been unable to adequately address, developing countries told the UN General Assembly yesterday.

Speaking on behalf of the Group of 77 developing countries and China, Pakistan Minister for Economic Affairs Ms. Hina Rabbani Khar said experience with the implementation of commitments under the Monterrey Consensus on FFD coupled with recent financial market turbulence calls for a redoubling of efforts to arrest and reverse the disturbing trends through “a genuine global partnership for development”.

Further, she said that “the unresolved challenges that we confront today in financing the development goals are likely to become more complex and difficult in future, particularly in the context of the special financing and resource requirements to enable the developing countries to meet the challenges of climate change”.

The minister was speaking at the opening session of the UN High-Level Dialogue on Financing for Development, held every two years here since the signing of the Monterrey Consensus by UN member states in 2002.

She said that the Monterrey Consensus “has not come far enough towards conceiving a new system of financial governance that would serve to redress the imbalances and inequities of the past, nor the challenges of the present and the future”.

She called on UN member states to conduct a “serious and meaningful review of the implementation of Monterrey” and for “endeavours to delineate a clear roadmap for future actions based on lessons learnt and the current and emerging realities” over the course of the High-Level Dialogue.

The minister outlined an overview of the current global situation as perceived by the G77 and China, including the continuing impoverishment and indebtedness of many developing countries caught “in the vicious cycle of poverty; lacking productive capacity and supply-side constraints, dependent often on a single commodity; vulnerable to external economic turbulence and unattractive for commercially driven investment”.

Many countries, the G77 and China felt, are far from achieving the Millennium Development Goals, due to the burden of external debt, declining official development assistance (ODA), continuing impasse in multilateral trade negotiations, growing trade deficits and outflow of resources from developing countries as a result of capital flight and other financial transfers.

The developing countries stressed that “the global financial system continues to revolve in ways, and in directions, over which neither international institutions nor most member states have much influence or control” and that this was a serious issue which needed to be addressed by the international community.

“The developing countries certainly have little ability to influence financial trends, despite the fact that these trends have significant implications for their growth and development, not least due to the volatility of the situation,” said Khar. “Perversely, in part to guard against this volatility, developing countries have accumulated large reserves which are transferred back to the deficit country”, contributing to “the net outflows of finance from developing countries to the developed countries” while actual resource flows for development was declining.

Khar added that developing countries feared that a global economic slowdown, or         even a recession may happen in the wake of recent financial market turbulence, situation which had been anticipated by some UN analysis as a consequence of persistent global trade and financial imbalances in recent years.

The G77 and China stressed that while current attempts to reform the International Monetary Fund (IMF), notably in changes in the distribution of voting rights, address certain aspects of these new challenges, they are insufficient to “resolve the fundamental problems of instability and unavailability of liquidity for those who really need it to generate growth and sustain development”.

“The world needs to develop a strategic consensus on the comprehensive reform of the international financial and monetary system that encourages rapid, balanced and sustained growth and development in a globalized world economy,” said Khar, including liquidity creation, increase in ODA, more encompassing initiatives to resolve external debt problems of developing countries, and initiatives to attract more foreign direct investment (FDI) to developing countries.

At the same time, the G77 and China stressed on the urgent need “to undertake measures to mitigate the impact of excessive volatility of short-term capital flows and to improve transparency of capital flows”, including the creation by the international financial institutions (IFIs) of “suitable financial facilities and resources to respond to financial crises and arrest their contagion effect on vulnerable developing countries”.

Consequently, the countries called for the international monetary system to be structured to provide policy space for developing countries to enable them to design and implement counter-cyclical policies to ensure sustained economic growth.

Furthermore, they expressed concern over their increasing vulnerability to the actions and policies originating in developed countries over which they have little or no control, especially the development of innovative and complex financial products, and called for “stronger regulatory mechanisms and greater transparency in the management of such new products and innovative instruments and over the recent impact they have had on global financial markets, including in the developing countries”.

On the issue of ODA, the G77 and China felt that as concessional financing remains “an essential input” for countries' realisation of the MDGs and other national development goals, there needs to be a “strong push” for enhanced ODA flows, including the imperative to meet ODA targets of 0.7% of GNP for developed countries and the securing of additional resources through innovative financing.

They said that the newly created Development Cooperation Forum (DCF) of the UN Economic and Social Council (ECOSOC) which brings together donor and recipient countries and civil society should become the primary vehicle to strengthen aid effectiveness and aid accountability, including examination of the transaction costs of aid disbursement and utilisation of resources in recipient countries. Such development cooperation should be responsive to the needs of developing countries and pursued in a coordinated and coherent manner at the national, regional and global levels.

In calling for more urgent and bolder debt relief initiatives to meet resource gaps in indebted countries, the G77 and China reiterated their position that debt sustainability is critical to the debate. This sustainability, the countries argued, should be linked to countries' capacity to achieve national development goals and be cognisant of country circumstances. Debt sustainability assessments in this regard should be applied on a case-by-case basis, considered in the face of possible external shocks and applied “in a flexible manner and not premised on the use of subjective governance indicators”.

(This is in reference to the incorporation of the controversial Country Policy and Institutional Assessment (CPIA) indicator developed by the World Bank and used in the debt sustainability framework (DSF) of the Bank and Fund to calculate countries' ability to absorb new debt and determines their access to concessional financing.)

The G77 and China also expressed their support for a comprehensive reform of the international financial architecture “including enhancement in the voting powers of developing countries” at the IFIs “within a specific time frame”. They added that the reform must also address the objectives for which the IMF was created, that are to ensure financial stability and access to liquidity for countries who need it.

“The G77 and China will continue to press for such a fundamental reform of the international financial system and its governance architecture in all relevant forums,” said Khar.

Finally, on the issue of trade, the developing countries called upon the developed countries “to demonstrate the flexibility and political will to break the current impasse of the Doha Round of trade negotiations and to work towards early resumption and timely completion of the Doha Round of trade negotiations, with the fullest realization of the development dimensions of the Doha Work Programme”.

The countries also called for a focus at the High-Level Dialogue on formulating a framework to ensure the optimum outcome at the FFD review conference to be held in Qatar towards the second half of 2008.

No date has been set for this conference and there is also no agreement yet as to whether it will be a full negotiated outcome document or an informal review of the status of implementation of the Monterrey agreement.

 


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