NGLS Roundup, no. 65, January 2001
FINANCING FOR DEVELOPMENT HEARINGS WITH CIVIL SOCIETY
Curbing the volatility in the financial system; democratizing the decision-making processes of the international financial institutions (IFIs); dealing comprehensively with the debt situation; and augmenting the role of the United Nations in economic matters were some of the policy priorities put forward by civil society representatives invited to participate in UN-sponsored hearings from 6-7 November 2000 in New York.
The hearings, requested by the Preparatory Committee (PrepCom) of the Financing for Development event (FfD, see Go Between 81), consisted of four panels that addressed mobilizing domestic resources; mobilizing international resources; international cooperation including official development assistance (ODA) and debt; and systemic issues.
Academics, labour representatives and individuals from broad-based networks, coalitions and local organizations were among the panellists. One issue emphasized strongly by speakers—of both the North and South--was taxation. Recommendations included implementing a currency transaction tax (CTT) to curb financial volatility and raise revenue for social development; transforming domestic fiscal machineries to capture lost revenue for development; and minimizing tax avoidance on the part of multinational corporations.
A number of presenters also highlighted the need for a cross-cutting gender analysis of economic and financial issues. They argued that the gender aspects of trade, access to capital, structural adjustment conditionalities and decision making needed to be addressed systematically.
On the issue of debt, panellists offered a variety of views calling for outright repudiation of debts to forming debtors' coalitions to maximizing the benefits from the Highly Indebted Poor Countries (HIPC) debt initiatives.
Each of the sessions was followed by an interactive dialogue moderated by one of the two FfD Co-Chairs, Ambassadors J rgen B jer of Denmark and Asda Jayanama of Thailand. The sessions proved lively with numerous governments challenging recommendations of civil society representatives, as well as thanking them for contributions that they themselves are often not in a position to make.
The presentations of civil society as well as the dialogue sessions are summarized below.
SESSION ONE: MOBILIZING DOMESTIC FINANCIAL RES0URCES
Mobilizing Domestic Financial Resources for Development
National Instruments to Raise Revenue and Stem Speculative Capital
Bart Bode, representing International Cooperation for Development and Solidarity (CIDSE) of Belgium, proposed a domestic currency transaction tax. The proposal would move beyond the original ideas expounded by James Tobin in 1972 and be based on a dual taxation system. It would: establish a minimum tax at a very low level (0.01%-0.02%) to provide constant income and facilitate the transparent monitoring of currency flows during normal market development; and establish a "ramped-up" tax (50%-100%) applied as a "circuit breaker" during a financial crisis.
Mr. Bode stressed that the new CTT should be a domestic instrument. As such, the introduction of a CTT would not require an international institution with the power to levy, collect and distribute global taxes. He cited the examples of Chile and Malaysia in this regard.
Other arguments for the CTT proposed by CIDSE included: its role as a tool for "prudential regulation;" the protection it would offer small economies against speculative attacks on their national currencies, allowing them to free up "immobile" national bank reserves for investment in domestic social development; and its ethical impact as a tax on capital in countering the Western practice of taxing labour disproportionately. Lastly, since money markets are concentrated in a few industrialized countries the latter would receive substantial extra revenue, which could be allocated for their own domestic purposes and to reinvigorate ODA.
National Systems Supportive of Social Equity and People's Welfare
Fernanda Carvalho of the Brazilian Institute of Social and Economic Analysis (IBASE) outlined four key expectations of the FfD process. Firstly, it should assist national and international financing systems to become actively supportive of social equity and people's welfare. Secondly, the process should encourage transparency. It should bring issues of financial policy and decision making that are usually the opaque province of finance ministers, bankers and the international financial institutions into the open, engaging those parties to respond to the interests of wider social groups. Thirdly, it should stimulate exchanges of experience in applying different fiscal policy measures for meeting people's needs. Finally, the process should recognize the diversity of developing countries by focusing on different regional experiences.
In making these points, the IBASE representative suggested that:
-- it is vital to distinguish between countries that have access to private capital and those that do not, as the distinction between domestic and international resource mobilization may now be obsolete for some; and
-- the state must have a defined role that is not in opposition to market-generated growth but helps to correct distortions created by markets in order to achieve patterns of quality growth compatible with social values.
Creating Clear Standards and Effective Administration for Taxation
Julian Disney of the International Council on Social Welfare (ICSW) explained that his organization had developed an Anti-Poverty Pact, incorporating the seven international development targets to be achieved by 2015 and initial resource commitments for implementation by 2005. These commitments reflected the need for a mix of domestic and international resources, as well as public and private. Mr. Disney emphasized that most of the commitments could not be achieved without international cooperation to adopt significant national tax reform.
Certain basic deficiencies in tax administration, he noted, compounded by the effects of globalization stand in the way of mobilizing significant levels of domestic resources. The main weaknesses include: lack of information, resources and political will to administer taxes effectively; promotion of excessive financial and property speculation; encouragement of capital flight; excessive reduction of corporate tax obligations; evasion of tax liabilities by multinationals; increased reliance on inequitable taxes; excessive bank and secrecy provisions; tax privileges that promote unfair trade; and inequitable action to reduce harmful tax competition.
The ICSW package of proposals to address these challenges includes:
-- stronger international obligations to provide information to and between tax authorities;
-- improved international technical and financial assistance for developing country tax authorities;
-- stronger international taxation standards;
-- international adoption of refundable withholding taxes on cross-border payments;
-- international coordination of taxes on multinational companies;
-- a currency transaction tax;
-- removal of tax exemptions on e-commerce;
-- development of an International Code of Corporate Conduct relating to tax compliance; and
-- establishment of an International Tax Forum under UN auspices.
Mobilizing the Full Productive and Investment Potential of African Women
The Third World Network Africa (TWN-Africa) representative, Zo Randriamaro, said liberalization had combined with the peculiar characteristics of African economies to put women working in strategic economic areas, notably agriculture and the food sector, under even greater financial pressure. In Africa subsistence and commercial activities largely involve small and micro-enterprises, many of which are organized by women and sustained by women's labour. These enterprises normally face acute financing gaps for two reasons: firstly because financial instruments such as credit, insurance and banking are skewed in favour of import-export trade and cash crop sectors; and secondly because weak, open African economies that are excessively vulnerable to external factors experience disproportionate outflows of resources. TWN-Africa pointed out that a major consequence of these macro-factors was that women, far from benefiting from market-led financial sector reform, have found themselves trapped in a "micro-finance ghetto." In order to correct this, TWN-Africa said that:
-- governments should work with aid partners to revive and broaden mainstream public financing and credit;
-- governments should take on a more active policy role and re-engage with the national economy; and
-- governments should devise innovative and supportive institutional frameworks for closing financing gaps in under-served strategic sectors and for mobilizing the full productive and investment potential of African women.
Social Inclusion and Participatory Processes in Development Planning
Roberto Rubio, representing the International Foundation for Development (FUNDE) and the Structural Adjustment Participatory Review Network (SAPRIN) in Latin America, explained that El Salvador developed its national development plan using institutional innovation and social inclusion to transform budgetary processes into quality national investments consistent with human development goals, preservation of ecosystems and basic needs of the poor and excluded. The methodology emphasized broad participation by all political groups and by all social segments. The plan took a differentiated approach to various regions of the country and was able to finalize priorities and financing requirements on the basis of a genuine national consensus around the needs of different segments of society.
Sources of funding were tackled through a series of changes that included:
-- increasing the general tax rate;
-- redressing imbalances between direct and indirect taxes through a new tax pact;
-- reforming the private banking system;
-- reorganizing the social security system to reflect workers' interests;
-- emphasizing local counterpart funds for development schemes; and
-- adopting measures to stimulate savings and the reinvestment of business profits in long-term growth.
Progressive Tax Reform Agendas at the National Level
Filomeno Santa Ana, representing Action for Economic Reforms (AER) of the Philippines, emphasized that global rules are an essential support for effective national tax programmes. It was a basic principle that governments should find the bulk of development financing from their own resources through equitable, buoyant and efficient tax systems, he said. But external pressure to lower tax and tariff rates, which Mr. Santa Ana labelled "fiscal degradation," made national revenue generation very difficult. Wide differences in national tax systems were encouraging the transfer of resources away from countries with progressive tax structures toward tax havens and countries using low taxes as incentives. Global rules needed to achieve coordination and harmonization include:
-- addressing tax evasion problems at the international level;
-- preventing "locational" competition from becoming a race to the bottom; and
-- helping countries exercise flexibility and autonomy under the homogenizing effects of globalization.
Mr. Santa Ana outlined several necessary features of a progressive national tax system
addressing direct and indirect taxes and loopholes leading to tax evasion. He suggested that the private sector should be encouraged to participate in financing development in areas where profit and social benefit coincide. He cautioned, however, that governments should not rely on privatization simply to raise revenues; privatization should proceed on the basis of its specific merits.
* * * * *
In a dialogue session following the presentations, the representative of Japan remarked that a number of recommendations had been put forward in the area of taxation. He noted that such recommendations seemed to be contrary to the global trend of deregulation that addressed the shortcomings of government. The CTT, to the contrary, would put greater financial authority in the hands of bureaucrats. He questioned the administrative feasibility of the tax and asked what prospects existed for universal implementation.
In response, Mr. Bode observed that markets were larger than governments and therefore their failure warranted at least as much public attention as the shortcomings of governments. A currency transaction tax, he said, would represent some form of re-regulation, but governments needed to be re-empowered following a period of relinquishing too much control over national instruments. The representative from CIDSE recognized that universal implementation posed a real challenge and would require some form of international cooperation.
The representative of France said she was struck by Ms. Randriamaro's observation that micro-credit schemes in some cases lead to the "ghettoization" of women. She acknowledged that a gender analysis was vital for sound development policy and asked how an effective intermediary function could be developed in order for finance at the global level to reach the productive sectors in local communities. Ms. Randriamaro reiterated that micro-loans represented a safety net rather than a development strategy. She explained that instead of attempting to recoup the risk and transaction costs of loans entirely through high interest rates that penalize women--sometimes in excess of 20%--the costs of micro-finance could be shared differently. For example governments could reinstate effective intermediary financing institutions, and community savings schemes could be employed.
SESSION TWO: MOBILIZING INTERNATIONAL RESOURCES
Mobilizing International Resources for Development: Foreign Direct Investment (FDI) and Other Private Flows; and Trade
Resources for Sustainable Livelihoods
Tariq Banuri, of the Stockholm Environment Institute and the Regional and International Networking Group (RING) working for sustainable development, spoke on the theme of providing micro-credit for sustainable livelihoods. He noted that the problems of developing countries should be properly analyzed in the context of a growing economic dualism, whereby the livelihood sector and corporate economy have diverged and become increasingly unconnected. The solution to poverty eradication should be to revitalize the livelihood sector where most of the poor are located. However, in practice resources are being drained from it and are flowing to the corporate sector. The existing resources around the world that are available for development are quite large--especially with relation to the magnitude of poverty that exists. It is more essential, he said, to strengthen the access of the poor to these resources and to improve the utilization of the resources by both governments and civil society organizations (CSOs).
Mr. Banuri's recommendations included:
-- strengthen the abilities of the poor to demand and utilize existing resources;
-- employ micro-credit and other tools that aim to enhance the capacities of the poor;
-- facilitate socially responsible investment and entrepreneurship; and
-- strengthen training and education programmes for the poor.
Reducing Volatility and Global Financial Turmoil
Speaking on behalf of the Italian NGO Mani Tese, Marina Ponti dealt with the theme of capital controls to reduce volatility and global financial turmoil. The perceived virtues of globalization are far from being realized, she said, partly due to the threat of volatile
short-term capital flows. Therefore, her recommendations included:
-- FfD should provide a "seal of approval" for countries to adopt capital controls during financial crisis;
-- standards should be set for FDI, as developing countries require long-term investments;
-- policy makers should pursue a CTT that could serve to reduce volatility of external capital flows, restore policy sovereignty in favour of the state, and raise revenue for development (these revenues should not replace ODA); and
-- involving ministers of foreign affairs, finance and trade in the high-level event.
Utilizing Domestic Savings for Development in Africa
Yash Tandon of the International South Group Network (ISGN) addressed the issue of the quality of African integration in the global system. The main source of financing for development in Africa must come from domestic savings since aid, foreign direct investment and exports are less important, said Mr. Tandon. A false impression that a savings gap exists in Africa has been created by the high rate of debt servicing in the region, which channels savings out of the continent. Instead of looking for outside funds to develop Africa, it is more important to find ways of stopping the seepage of funds from Africa.
According to Mr. Tandon, it is a myth to suggest that Africa must be more fully integrated with the global economy, as the "quality" of integration is more important than the extent of it. In this light he said that Africa:
-- should not further open up its economies;
-- should better utilize its domestic savings as the primary source of growth;
-- should implement structural change, not in terms required by the Bretton Woods Institutions, but with relevance to its existing relationships with the global economy (i.e. terms of trade disadvantages); and
-- must disown its debts.
Reconfiguring the Trade and Financial Systems in the Light of Gender
Mariama Williams, representing the International Gender and Trade Network, the Center of Concern, and Development Alternatives with Women for a New Era (DAWN), spoke about maximizing the benefits and minimizing the costs of foreign direct investment by offering a gender perspective on this issue. She said the assumption that trade liberalization and foreign direct investment will eliminate poverty and that foreign direct investment is not volatile, and is inherently beneficial to recipient economies, runs counter to actual experience.
Ms. Williams suggested it is necessary to have a comprehensive assessment and reconfiguration of the trade and financial systems. There is a need to highlight the inter-relationships between gender, trade and foreign direct investment and, more broadly, between economic growth and gender, and between poverty and gender. When implementing trade or financial liberalization, gender and the general dimension of sustainable development should be taken into account.
She recommended that:
-- policy makers need to consider gender as a core issue, as women are the basis of cheap labour and hence are a key component of economic expansion;
-- the policy-making autonomy of governments needs to be restored;
-- the rights of foreign investors needs to be limited;
-- external debt needs to be cancelled;
-- a poverty eradication fund for developing countries be established;
-- the principle of differential treatment with regard to trade and investment rules needs to be promoted; and
-- supervisory mechanisms to oversee movements in capital are needed.
* * * * *
The presentations offered a range of views on the debt issue, from benefits of the HIPC initiatives to their outright failure and the subsequent need for debt repudiation. In the interactive session that followed, the representative from Kenya asked whether or not debt repudiation would have negative consequences for developing countries, especially those in Africa that already have difficulty attracting foreign investment. Mr. Tandon responded by saying that countries choosing to repudiate their debts could be vulnerable to sanctions. He suggested, however, that this possibility could be lessened if a large number of countries repudiated their debts at the same time. Mr. Banuri suggested that countries needed to proceed with caution on this proposal because it could encourage fiscal irresponsibility by governments.
The representative from Pakistan acknowledged innovative proposals put forward by the CSOs, but suggested that most of the ideas would not be able to achieve a consensus among governments at the United Nations. In response to the idea that the current Bretton Woods Institutions should be delegitimized, he questioned what basis would exist to legitimize those organizations formed to replace them. "We need to be creative within the existing structures," he suggested. Mr. Banuri followed by noting that these institutions could still play a role in the international system, but they should have nothing to do with poverty reduction or social objectives. The World Bank needed to narrow its focus to financing large-scale infrastructure projects, and the International Monetary Fund (IMF) should be limited to the maintenance of global financial stability, he said.
In reaction to the suggestion that domestic resources in Africa should be the principle engine for the continent's development, the representative from Japan cited his country's positive experience utilizing loans from the Bretton Woods Institutions. He questioned why this did not hold for Africa as well. The view of a number of panellists as well as audience members was that Japan did not offer a model to Africa and that it was erroneous to compare the two cases, especially as global conditions today are very different from the post-war period in which Japan operated.
SESSION THREE: INCREASING INTERNATIONAL FINANCIAL COOPERATION
Increasing International Financial Cooperation for Development Through, inter alia, ODA and Debt
Minimizing Aid Dependency and Exposure
Speaking on behalf of the Integrated Social Development Centre (ISODEC) of Ghana, Rudolf Amenga-Etego said that the far-reaching goals of "development cooperation" of the 1940s have been reduced to the much narrower discourse of aid effectiveness. He said the arena of "development cooperation" is now characterized by asymmetrical power relations between "giver" and "receiver."
In order to minimize aid dependency and exposure of the "receiver," Mr. Amenga-Etego made several recommendations.
-- Finance investment in local production largely from locally-generated savings and credit.
-- Develop fair and efficient taxation.
-- Use creative methods for local credit generation which are also empowering.
-- Create incentives for reinvestment of profit and for discouraging luxury imports.
-- Effectively manage foreign exchange earned or acquired through debt.
-- Employ anti-corruption measures to minimize leakage.
-- Mobilize civic consciousness to force transparency and accountability of governments and corporations and to provide oversight and influence over the budget process;
-- Free macro-economic policy making from neo-liberal orthodoxy in order to design policy alternatives that enhance domestic resource mobilization.
-- Adopt industrial strategies that provide support and incentives for maintaining and building key strategic industries.
An alternative framework for collaborative action should replace the concept of partnership with that of solidarity, the ISODEC representative said. This would produce more progressive and more transparent relationships among people and create less ambiguity about power relations. This could be centred on a rights-based framework to re-imagine the roles of governments, citizens' groups, private sector actors and intergovernmental institutions such as the World Trade Organization (WTO), IMF and World Bank.
The Case of Uganda's Debt Burden
The representative of the Uganda Debt Network, Vince Edoku, said that while Uganda had successfully and consistently implemented free market reforms and structural adjustment programmes, its debt has been an obstacle in translating steady economic growth into improved living standards for the majority of people. Unfavourable borrowing terms and a lack of debt servicing policy exacerbated Uganda's debt burden, which is deeply rooted in the economic and political mismanagement of the country up to the beginning of the 1990s.
In 1998, Uganda became the first beneficiary of the HIPC initiative after having reached the completion point, and it became the first country to receive debt relief under the enhanced HIPC initiative in 1999. Currently Uganda is channelling resources saved as a result of the HIPC initiatives to poverty eradication programmes, as outlined in Uganda's poverty reduction strategy paper (PRSP) approved by the World Bank and IMF Boards in May 2000.
Mr. Edoku's recommendations include the following.
-- Avoid policies and public actions that could lead Uganda into another debt crisis.
-- Improve governance and strengthen accountability in the use of public resources for poverty eradication programmes and minimize diversion to other uses (i.e. corruption).
-- CSOs, in concert with other accountability and supervisory agencies, should monitor programme inputs, outputs and outcomes.
-- Improve donor coordination, partnerships and assistance. Assistance strategies should support the already developed country strategy to eradicate poverty.
-- Promote and diversify exports to minimize instability of export earnings particularly in the agricultural sector, as this is only way to avoid recurrence of debt crisis.
-- Consider other debt reduction strategies, such as debt for development swaps.
Tax Competition and Tax Havens
The representative from Oxfam-UK, Jenny Kimmis, suggested that the international community should adopt a more global approach to the issue of offshore finance. A range of policy options were recommended that could help countries stem tax avoidance, address money laundering and corruption, and foster a more stable economic environment.
-- A multilateral agreement to share information on tax matters would help countries, especially poorer ones, to stem tax evasion and illicit activities. It is essential that such agreements involve as many countries as possible.
-- The international community should support the proposal for an International Convention to facilitate the recovery and repatriation of funds illegally appropriated from national treasuries of poor countries.
-- The international community could agree to allow states to tax transnational corporations (TNCs) on a global unitary basis, with appropriate mechanisms to allocate tax revenue internationally. Under this approach, governments would require TNCs to calculate the accounts of their local subsidiary as a proportion of the unified accounts of the group as a whole. This would eliminate the internal transactions among related subsidiaries of TNCs, making it far easier to ensure that all profit is taxable somewhere.
-- A global tax authority could be established with the prime objective of ensuring that
national tax systems do not have negative global implications. This authority could initially focus on information gathering and act as a forum for discussion on international issues related to tax policy, use peer pressure to bring tax free-riders into line, and develop best practices and codes of conduct on tax-related issues.
The Case for a Global Development Partnership Agreement
Jens Martens of the World Economy, Ecology and Development Association (WEED) of Germany suggested that a "contract social" could lay down the rights and obligations of states to guarantee a reliable and sufficient flow of resources to poorer countries. FfD should take a clear decision to start an official negotiation process toward formulation of a new development agreement, the Global Development Partnership Agreement.
A new binding development agreement should contain as a core element new modalities to guarantee a predictable and sufficient transfer of resources in line with clearly defined development indicators. One approach could be a new global safety net--a progressive income tax on the gross national product (GNP) of rich countries, the proceeds of which would be allocated to poorer countries in line with a fixed formula. The UN should undertake further analysis on the feasibility of an inter-country income transfer or a "state financing offset" on the global level, he said.
The scale of the official resources transferred to countries in the South needs to be made dependent upon the real financing needs of the "recipient countries," not simply the target of 0.7% of GNP of "donor countries." The UN should further analyze and agree upon new need-based targets for ODA, according to Mr. Martens.
Loan-based development assistance exacerbates the debt situation of recipient countries, and in the long run will increase the transfer of resources from the poor to the rich countries. Governments and multilateral development institutions should commit themselves to provide ODA increasingly in the form of non-repayable grants, said Mr. Martens, and the UN should be commissioned to undertake further studies on the economic and social implications of loan-based ODA.
In a genuinely multilateral and participatory system of global development finance, the UN and not the World Bank or the Development Assistance Committee of the Organisation for Economic Co-operation and Development (OECD) has to be the main body for decision making and policy coordination. FfD should be the first step to revitalize the mandate of the UN in the field of "hard" economic issues. The UN should be the undisputed lead agency in a new "division of labour" among the UN, World Bank and IMF in the system of global development finance, he said.
UN to Play Key Role in Resolving the Debt Cancellation Issue
Lidy Nacpil of the Freedom from Debt Coalition (FDC) in the Philippines and Jubilee South debt cancellation network suggested that debt cancellation is needed by all countries of the South and not just the highly indebted poorest countries. She recommended that the UN take decisive role in challenging and changing the framework and instruments used in defining indebtedness and debt sustainability and in formulating alternative frameworks, concepts and instruments. It should also direct appropriate agencies to work with civil society groups and grassroots organizations for this purpose, she said.
Stressing that debt cancellation should not be premised on compliance with economic policies and programmes that have proven to have disastrous consequences for the economies of the South, Ms. Nacpil called for the UN to play the following roles.
-- Call for the de-linking of debt cancellation from economic conditionalities imposed by, prescribed by or identified with the IMF and the World Bank.
-- Monitor and ensure compliance of Member States and IFIs with existing human rights norms and mechanisms.
-- Form a global commission (with more than 50% membership representing civil society) to critically review the work of the IMF, the World Bank and other financial institutions to determine whether they should continue to exist--and if so, to redefine the role they should play and if not to examine ways to de-commission them.
The debt problem involves the fundamental issue of legitimacy and illegitimacy of debt. Illegitimate debts are those that do not serve the interests of a people and that are hostile and detrimental to their interests and welfare as laid out in international law, the "doctrine of odious debt." In order to address the illegitimacy of some debts, Ms. Nacpil said that the UN should make a decisive statement on the right of countries to non-payment of odious and illegitimate debts. It should call for an immediate international investigation and inquiry of past and present illegitimate debts. And it should establish mechanisms that will promote broad and critical interpretation and enforcement of an international law on odious and illegitimate debts.
In order to address the vicious cycle of indebtedness once and for all, Ms. Nacpil suggested that Southern governments form debtors' coalitions and repudiate debts, and the UN should initiate a study on debt that could lead to democratization of the economic and political structures of society.
A Fair and Open Process of Arbitration to Solve the Debt Problem
Kunibert Raffer of the University of Vienna said the important questions concerning the debt problem are: Who decides how much of the debt can be repaid? How much protection should the poor get? and, What investments are necessary to keep the country going? To date, creditors alone have been answering these questions with dire consequences for debtors, he suggested. These decisions must not be made by either interested party but must be reached in an open and fair process of arbitration, chaired by a neutral institution.
Basic insolvency procedures can help solve the conflict between the right of bona fide creditors to interest and repayments, and the right that everyone has to not fulfill contracts that lead to inhumane distress, endanger one's life or health, or violate human dignity.
Internationally, a neutral arbitration panel would have to replace national courts, Mr. Raffer said. Each side would nominate an equal number of arbitrators, who in turn elect one more member; these panels would be dissolved after their job is done. NGOs, trade unions, employers' associations, grassroots organizations, or international organizations such as the United Nations Children's Fund (UNICEF) could represent the population.
Mr. Raffer said that the basis for an arbitration process should be United States "Chapter Nine," which applies to municipalities rather than Chapter 11 which applies to the insolvency of firms only. This would give greater scope for the specific issues of sovereign borrowers. The UN should play an important role by serving as the organization where a sovereign debtor can file its request for arbitration, fairly balancing the interests of creditors and the debtor, organizing the nomination of arbitrators by the two parties, and possibly providing secretariat services for the arbitrators. Mr. Raffer added that the protection of a minimum standard of life should be part of any international plan. And a transparently managed fund, monitored by an international board consisting of members from the debtor and from creditor countries and financed by the debtor in domestic currency, would guarantee that money exempt is used for the poor and for expenditures necessary for economic recovery of the sovereign debtor.
* * * * *
In a lively dialogue following the third session, a number of governments as well as CSOs from the audience raised questions concerning the illegitimacy of certain debts and proposals to deal with the overall debt situation. The representative of Pakistan mentioned that US Chapter 11 and arbitration initiatives with respect to bankruptcy had been on the table for some time, but creditor countries had long been silent on the issue. In response, the Netherlands representative said that his country's approach to unsustainable debt was cancellation. Citing the example of the International Court of Justice, he noted that in some cases governments did accept an arbitration process, but that this was not always the case due to certain limitations and concerns over sovereignty. In a related question on debt, the representative from the Netherlands asked what course of action could be taken to ensure that debts would not recur and what were reasonable expectations of debtor countries.
Mr. Raffer, addressing the issue of international arbitration, noted that it was significant because it would change the way creditors lent money by forcing them to look closely at how funds were being spent before actually lending. Mr. Amenga-Etego, addressing the question of expectations of debtor countries, suggested that governments needed to be transparent and accountable to their own people and put into place laws that would punish corruption and recover stolen funds. A question from the audience raised the issue of whether or not debt forgiveness was akin to the institutionalization of crimes, trafficking and corruption. Ronald Bryn of the International Association Against Drug Trafficking asked whether, as a result of debt forgiveness, people were being robbed twice. Ms. Nacpil added that in many cases creditors were aware that they were lending to corrupt governments. She asked why people should be paying the price for these mistakes. The real double crime, she said, occurs when people are robbed by corrupt officials and then are forced to repay the debts.
At the prompting of Co-Chairman Jayanama, the representative of the IMF addressed criticisms related to what were described as the Fund's harsh conditionalities, its intrusive economic policies and its forays into the development field. The representative reminded the audience that the IMF was first and foremost a government-led institution and that the same governments that are creditors and debtors also make up the governing body of the IMF. "Rather than pick on innocent officials," he said, "if you do not agree with the policies of these governments, you should take it up with them."
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Eight point statement: CSOs Seek Commitments on Financing for Development
-- [CSOs] advocate that the Financing for Development High-Level Event be
held as a world conference in a host country;
-- Encourage all UN agencies (including UNDP, UNIFEM, UNICEF, ILO)
and the World Bank to support national meetings and dialogues around FfD
with a concerted outreach to civil society;
-- Provide resources for the participation of NGO representatives from the
South in the entire process, including the regional meetings, meetings of the
preparatory committees (PrepComs) and the final event, in particular, women,
women's CSOs and indigenous peoples;
-- National linkage of Finance, Trade, Foreign, Social, Environmental, Labour
and Development Ministries in the preparatory process and the final event on
Financing for Development;
-- An increased profile of the Financing for Development High-Level Event
by the UN and Member States with concerted media outreach to civil society;
-- UN support of regional NGO preparatory events modelled on the World
Conference Against Racism, Racial Discrimination, Xenophobia and Related
Intolerance;
-- Sponsorship of a multi-stakeholder dialogue (based on the Commission on
Sustainable Development model) including business, labour, civil society and
governments; and
-- Financial commitment by Member States to the Financing for Development
process to ensure broad participation toward a successful outcome.
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SESSION
FOUR: ADDRESSING SYSTEMIC ISSUES
Addressing Systemic Issues--Enhancing the Coherency and Consistency of the International Monetary, Financial and Trading Systems in Support of Development
Mobilizing Financial Resources for Women and Girls
Financing for development ultimately meant mobilizing financial resources for women and girls, said Jocelyn Dow of the Women's Environment and Development Organization (WEDO). It was less a matter of quantity of resources than of their fair distribution. The
neo-liberal model that was at the core of the current global monetary, financial and trading systems as well as the institutions that shaped them and set the development agenda did not work for women and girls. This needed to be addressed by transforming institutions and governments; transforming their policies; targeting more money for women and girls; and taking control of these funds.
Ms. Dow suggested that procedures were needed to allow for more transparent NGO
participation in the crafting and evaluation of policies of multilateral institutions, including the UN. With respect to transforming policies, she put forward the following recommendations:
-- debt cancellation for Africa across-the-board;
-- elimination of adjustment conditionalities from the HIPC initiative and strengthening of efforts by UN agencies to reform the definition and measures of development;
-- incorporating gender and environmental concerns;
-- reaching the ODA target of 0.7% of GNP; and
-- setting a target of 50% of funds allocated to projects directly to benefit women and girls.
The representative of the Sierra Leone Congress of Labour, on behalf of the International
Confederation of Free Trade Unions (ICFTU) and ICFTU African Regional Organization
identified two main goals for the FfD process: creation of the appropriate institutional and policy environment for social development, and the effective harnessing of resources for development.
Growth with Jobs and a Decent Livelihood for All
Kandeh Yillah, Secretary-General of the Sierra Leone Labour Congress, said that effective intergovernmental cooperation was essential and should be enhanced by a strengthened coordinating role of the Economic and Social Council (ECOSOC), bringing together the UN specialized agencies with the Bretton Woods Institutions and WTO.
Financing for Development could not come at a more opportune time, Mr. Yillah said, as workers are increasingly being left out of the unprecedented prosperity in the global economy and are unable to gain from the liberalization of capital and trade.
In order to harness resources for development, which would support growth with jobs and decent livelihoods for all, Mr. Yillah recommended:
-- a tax on international currency transactions;
-- regulation of hedge funds and off-shore financial arrangements;
-- burden-sharing by commercial banks during debt crises, including standstill arrangements;
-- deeper and broader debt relief under a vastly improved HIPC initiative; and
-- a timetable for donors to reach the United Nations recommended ODA target of 0.7% of GNP.
With respect to trade, Mr. Yillah suggested greater market access for developing country products; inclusion of social policy considerations in the world trading system; and measures to ensure that globalization does not lead to negative outcomes in the areas of development and equity, including fundamental workers' rights.
Rethinking Financial Liberalization
The Third World Network's representative, T. Rajamoorthy, focused on the issue of financial liberalization. Recalling the damage that such policy--strongly advocated by the IMF—had caused to the countries hit by the Asian crisis, he put forward two sets of proposals.
First, avoid further financial liberalization by, among other things:
-- ending the pursuit by IMF to amend its Articles of Agreement one and eight to enable it to push developing countries to open up their capital accounts and markets;
-- end any attempt by the OECD to revive the proposed Multilateral Agreement on Investment, which would give unfettered freedom of mobility to all types of capital flows, and to similar proposals under the aegis of WTO; and
-- review the financial services agreement in WTO to take into account the lessons learned from the negative effects of financial liberalization resulting from the latest round of financial crisis.
Second, establish needed international policies, including:
-- effective crisis management measures such as debt standstill arrangements, debt workouts and an international version of Chapter 11 of the US Bankruptcy Code, aimed at fair burden-sharing;
-- a framework for the introduction of capital controls;
-- regulation of institutions in the countries that are the source of mobile financial funds,
aimed at preventing them from creating excessive volatility;
-- international regulation of hedge funds and other highly leveraged institutions, off-shore centers, currency markets and derivatives;
-- consideration of a more stable currency system (including a return to fixed exchange rates or currency bands;
-- giving developing countries a fair say in the policies of international institutions like the IMF; and
-- a change in IMF-World Bank policies.
In the absence of implementation of the above measures, unilateral actions in the area of financial and trade controls would be warranted in developing countries, said Mr. Rajamoorthy.
A New Convergence for a New Development Agenda
Doug Hellinger of the Development Group for Alternative Policies (DGAP) and SAPRIN rejected the possibility of enhancing an international system that, in his view, had not been supportive of development in the past. He said that instead a "new convergence" around a set of principles set by civil society was needed. This could translate into a development agenda featuring strong domestic productive sectors, food self-sufficiency, national economic integration, rising and equitable family incomes, savings and purchasing power, and a reduced dependence on external assistance and borrowing.
A "new convergence would require concrete collaboration among and between various UN agencies, civil society movements and organizations, principled and emboldened governments and ministries in the countries of the South and the North as well as the assistance of economists with links to local realities. It would also need convergence around a different set of values and principles, including respect for diversity, equity, self-reliance, self-determination, environmental sustainability, democratic decision making, transparency and accountability. The nature of global decision making would have to change. And UN agencies such as the United Nations Development Programme (UNDP), United Nations Conference on Trade and Development (UNCTAD), International Labour Organization (ILO) and UNICEF would need to launch a parallel process to PRSPs that looks specifically at the poverty effects of economic policies and structural adjustment in particular.
A New International Monetary System
Humberto Campodonico, representing the Centre for the Study and Promotion of Development (DESCO) in Peru, denounced what he described as the absence since 1971 of an international monetary system and its negative consequences on developing countries, as well as the IMF's inability to fulfill its surveillance mandate. In view of the surge in international capital flows, control and regulation of offshore centers were urgently required. Mr. Campodonico added his voice to the criticisms of structural adjustment programmes based on the "Washington Consensus" and suggested four issues for discussion at the FfD event:
-- global implications of exchange rate movements of major currencies on other countries;
-- unequal distribution of voting power in the global financial system;
-- governance of IMF, where a few countries have undue influence on the decision-making process; and
-- insufficient transparency and accountability in capital markets and institutions of developed countries.
Strengthening the International Financial Architecture
Alfred Pfaller, representing the Friedrich-Ebert-Stiftung foundation, stressed the need to strengthen the international financial architecture to reduce the likelihood and severity of new financial crises. Mr. Pfaller said new measures currently being developed within the framework of the Financial Stability Forum aimed at enhancing transparency in global financial markets remain insufficient. They include improving prudential regulation of international financial transactions, strengthening financial institutions in emerging market economies, and reducing "moral hazard" for reckless investors.
Further-reaching proposals that have been advanced focus on an encompassing regulation of capital flows, reduction of flows and stabilization of currencies. However these are not likely to be implemented in the near future since they represent a more radical overhaul of the international financial architecture.
In the absence of a new financial architecture, available policy options should be considered. They include individual countries enacting capital controls on their own and modifying them in accordance with the development of cross-border capital flows; and accepting a certain amount of--static--inefficiency as the "trade off" for a sustained rapid pace of capital accumulation and perhaps greater prosperity.
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The representative of Kenya opened the dialogue by thanking speakers from civil society for what were described as stimulating, exciting, useful and educational presentations. He asked for feedback on possible positive mechanisms containing modalities and patterns that could be deployed to make the UN a focal point for economic and financial justice. He said this was particularly vital for those countries not benefiting from the expansion of globalization. Mr. Hellinger of DGAP and SAPRIN said that for over 20 years people have been passing the blame. "Southern governments say the IMF made them do it," he noted, "the IMF says its Board made them do it, and bureaucrats say their bosses made them do it." The UN could help change the system, he said, if the leaders of agencies took personal responsibility to raise their voices against policies that hurt the poor, women, people of colour and working people. These individuals included Mark Malloch Brown of UNDP, Juan Somavia of ILO, Carol Bellamy of UNICEF, and Rubens Ricupero of UNCTAD.
The delegate from Egypt thanked the CSOs for their extensive assessment of systemic issues and noted how much of it involved severe criticism of the IFIs. In light of the criticism, he questioned whether or not the changes civil society were calling for could be achieved in an open form of debate with the UN, World Bank, IMF and WTO within a process of incremental change. "Things cannot go on as before," he said, "even the World Bank and IMF acknowledge that, although to what extent we do not know." He concluded that it was better to build on what existed rather than tearing it down and starting from scratch. "The transition may not be smooth," he cautioned, "but it will be more constructive and objective and the only feasible way forward."
Civil Society Begins to Organize
As a complement to the official hearings, CSOs planned a series of events and meetings to begin their own organizing for the FfD process and to develop relationships with governments, agencies and members of the Secretariat involved in FfD.
In meetings with CSOs, representatives of the ILO, UNDP, UNICEF and the United Nations Fund for Women (UNIFEM) described involvement of their agencies in the Financing for Development process and explored further activities. CSOs proposed collaborative initiatives with the agencies and suggested that these include national level activities.
CSOs also organized meetings with the Financing for Development Secretariat and met with members of the Inter-Secretariat Working Group, which helped prepare the report of the Secretary-General. CSOs expressed concern that despite growing support among CSOs and parliaments around the world for taxing currency speculation, such a measure would not be reflected in the report of the Secretary-General. As a result, CSOs drafted a statement urging the Executive Coordinator of the FfD Secretariat, Oscar de Rojas, to ensure that the report would "recognize currency transaction taxes as a potential means to control short-term financial flows, generate domestic resources for development and funds for equitable redistribution to developing countries."
In a de-briefing session with CSOs after the hearings, the Co-Chairs of FfD assured CSOs that their inputs to the hearings would be integrated into the intergovernmental process. Ambassador Jayanama said that while FfD is first and foremost a government-led process with governments deciding the issues, there was middle-ground for CSOs to make contributions. Mr. Bojer encouraged CSOs to get active in their local communities and national contexts. "The best way to be heard is to have something to say," he said. At the end of the meeting, CSOs presented the Co-Chairs with an eight-point statement entitled CSOs Seek Commitments on FfD, which reflects some NGO expectations for the preparatory process (see box).
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Final Event Rescheduled
The Preparatory Committee of Financing for Development, meeting on 27
November 2000, decided to reschedule the final high-level international
intergovernmental event until the first quarter of 2002. This change was partly
the result of having to create more time for a developing country government to
come forward and offer to host the high-level event. In the absence of an offer
from a developing country, the event will most likely be held in New York at the
level of a special session of the General Assembly rather than a world
conference. The PrepCom extended its invitation to interested countries to
consider hosting or consider confirming existing offers to host the event.
As a result of the change in schedule, the PrepCom will hold an additional
meeting from 14-25 January 2002 in New York. The second and third meetings
of the PrepCom are still scheduled in New York for 12-23 February 2001 and 30
April to 11 May 2001.
At the February 2001 meeting, the PrepCom's agenda included the report of the
Secretary General, which contains numerous proposals in line with the FfD
agenda, the reports from the Civil Society Hearings and Private Sector Hearings,
as well as reports prepared as a result of the Regional Consultations.
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Contact
Harris Gleckman
Office of the Director
Development Policy Analysis Division
Department of Economic and Social Affairs
Room DC2-2162
United Nations
New York NY 10017, United States
telephone +1-212/963 4690
fax +1-212/963 1061
e-mail <gleckman@un.org>
website (www.un.org/esa/analysis/ffd).
This edition of NGLS Roundup was prepared by the United Nations Non-Governmental Liaison Service (NGLS). The NGLS Roundup is produced for NGOs and others interested in the institutions, policies and activities of the UN system and is not an official record.