NGLS Roundup 83, November 2001

 FINANCING FOR DEVELOPMENT, THIRD RESUMED SESSION OF PREPCOM

 The Preparatory Committee for the International Conference on Financing for Development (FFD) held its third resumed session from 15-19 October 2001 at UN headquarters in New York to discuss the draft outcome document of the Facilitator, Mauricio Escanero (Mexico). The Facilitator’s draft was the first attempt at an outcome document for the FFD (see Go Between 86, 84 and NGLS Roundup 78, 71, 65). It followed the structure of the agenda set by the Preparatory Committee (PrepCom) to include mobilizing domestic financial resources; mobilizing international private resources for development; trade; international financial cooperation; sustainable debt financing; and addressing systemic issues. However, the Facilitator’s text articulated all of these issues within the broader framework of “Towards a Fully Inclusive and Equitable Globalization,” and included a section on follow-up mechanisms.

REACTIONS TO THE FIRST DRAFT

In the first round of reactions to the draft outcome, Ambassador Bagher Asadi (Iran), on behalf of the Group of 77 (G-77) and China, stressed that the group had always indicated that the outcome should comprise a set of principles or objectives and action-oriented time-bound initiatives, as well as a follow-up mechanism to ensure implementation, monitoring and review of the final outcome of the FFD. He said that while the group believed the document was a good basis for the beginning of negotiations, it could be improved through further deliberations.

Speaking on behalf of the European Union (EU), Ambassador Jean de Ruyt (Belgium) indicated that while the draft was “in substance unbalanced and incomplete,” it was an acceptable starting point for discussion. Ambassador de Ruyt said that the EU hoped the next draft would be written in very close collaboration with the multi-stakeholder secretariat and reflect the innovative nature of the FFD process, which counts the World Bank, International Monetary Fund (IMF) and the World Trade Organization (WTO) as major institutional stakeholders. The EU said that the most basic message of the text needed to be on poverty reduction and the achievement of the development goals set at the Millennium Summit and at major UN conferences.

In his statement Terry Miller, Director, Office of Economic and Development Affairs, Department of State (United States), expressed concern over the Facilitator’s text and urged others to ask whether or not it was an outline of a “product we want.” He went on to say that while no one knows exactly how to make development happen, three fundamentals to sustainable development must exist: peace; freedom and rule of law; and a commitment to capitalism. Mr. Miller said that “those countries that make these commitments have a chance to develop while those that do not possess no chance at all.”

Counsellor Jacqui DeLacy (Australia) expressed her delegation’s disappointment over the draft outcome document saying that it exhibited “neither a balanced recognition of the respective roles that need to be played by developing and developed countries nor a practical awareness of what is achievable.” According to Ms. DeLacy, the initiatives compiled in the text were inappropriate, impractical and ineffective and put a disproportionate responsibility on the donor community without paying sufficient attention to the importance of national policies and the responsibility of national authorities. She said her delegation did not consider the draft suitable for future negotiations. She stressed that the role of the international community was in the areas of trade liberalization, effective aid assistance, and facilitating capital inflows to supplement national policies.

The representative of Canada, Jim Crowe described the FFD process as just one approach to many of today’s challenges. He suggested that there was no possibility of substantive agreement on a number of issues, particularly the creation of new bodies and institutions, therefore ways should be explored on how to better use existing structures and enhance their policy and programme coherence. He proposed five areas of focus for the FFD process: developing specific proposals around the coherence of the UN, World Bank and IMF; enhancing the proposals on domestic responsibility; ensuring national ownership over development; reaching the Millennium Development Goals; and using international resources, such as official development assistance (ODA), as a catalyst to attract other resources.

Speaking on behalf of the Rio Group, Ambassador Juan Gabriel Valdes (Chile) said that the FFD Conference offered a unique opportunity, from the perspective of financing, to define a new global alliance to support development. He specified that such an alliance should provide for: adequate mobilization of increased levels of internal resources; greater and more stable international financial flows; a comprehensive approach to systemic questions, including greater and more effective participation by developing countries in decision making on international economic issues; and an approach that promotes the construction of a new international financial architecture, among other things.

At the end of the first round of statements on the draft, newly elected PrepCom Co-chair Shamshad Ahmad (Pakistan) said it was clear that two perspectives were emerging. The developed countries expected the developing countries to make every effort to bring about economic reforms, improve governance and the rule of law, and invest in the social sector and poverty eradication programmes. Developing countries, on the other hand, expected the developed world to make the global trading system more equitable, provide market access to the products of developing countries, reach the targets for ODA, reduce the debt burden and assist developing countries in capacity building and technology transfer. Being aware of the divergent points of view and expecting differences of opinion to emerge, Ambassador Ahmad opened the debate on the Leading Actions section of the draft with the words, “Let the roller-coaster begin.”

MOBILIZING DOMESTIC FINANCIAL RESOURCES FOR DEVELOPMENT

All developing countries that spoke on this issue acknowledged that the primary responsibility for development lies within their own countries. However, they also suggested that the international community needed to create an environment that was sufficiently supportive of these efforts. This reflects the Facilitator’s draft text that states, “Our point of departure is the recognition that each country has primary responsibility for its own economic and social development. Yet domestic policies are not enough….”

Some proposals offered in this section include strengthening the domestic financial sector through implementation of multilaterally agreed financial standards, development of capital markets and financial instruments to promote savings, and the establishment of pension schemes that maximize their dual role as a social protection for the elderly and as a source of savings. The draft text also calls for the expeditious negotiation, under the UN, of a comprehensive convention against corruption.

The EU said it welcomed the notion that each country has “primary responsibility for its own economic and social development,” however, it wanted to see national responsibilities laid out within the context of transparency, rule of law, and respect for human rights. It also cautioned against a circular discussion on the relative importance of the domestic and international enabling environments. The EU said the issues of good governance needed to be mainstreamed throughout the text as they were crucial to attract foreign private investment, and to procure ODA and debt relief.

The G-77/China acknowledged the importance of domestic responsibility in development, but stressed how it is connected with the external environment.

Despite overall objections to the paper, the US went through this section line by line and rejected much of its content while saying the bulk of initiatives should be found under this heading, “mobilizing domestic resources,” and should not include a role for the government in income distribution nor interference with market mechanisms. The US representative referred to the Facilitator’s text and said that internationally agreed standards should be applied to all, with no exceptions for developing countries.

MOBILIZING INTERNATIONAL PRIVATE RESOURCES FOR DEVELOPMENT

Proposals under this agenda item in the Facilitator’s draft focus on attracting foreign direct investment (FDI) to a greater number of developing countries, increasing the necessary technical assistance for developing countries and ensuring the development pay-off of private sector investment.

The G-77/China stressed the need to broaden the number of developing countries that are recipients of FDI and ensure that they were able to maximize the development impact of these investments. The representative said that his group preferred to drop the reference to socially and environmentally responsible investment and to good corporate citizenship. Several developing countries, including Brazil, Pakistan and Guatemala, referred to the issue of the development impact of FDI and said that the quality of investments as well as the quantity had to be considered.

The EU favoured retaining a pro-poor framework for this section with specific reference to rights in the workplace. The EU representative said that while the group felt ODA could be used to attract FDI, bringing investment into a country was still the main responsibility of that country. The EU also expressed interest in inserting a reference to the Organization for Economic Cooperation and Development (OECD) guidelines for multinational corporations and to the UN Global Compact, which encourages multinational corporations to embrace nine core values in the areas of human rights, labour standards and environment practice.

Switzerland pointed out that ODA could be used as a leverage to complement other financial flows and suggested that more public-private partnerships were essential to increase appropriate technology transfers to developing countries.

INCREASING INT’L FINANCIAL COOPERATION FOR DEVELOPMENT

The Facilitator’s draft categorizes suggestions for increasing international financial cooperation for development under four areas: revitalizing ODA; enhancing financing for global public goods (GPGs); strengthening multilateral development banking; and innovative sources of multilateral development financing. Specific proposals include doubling ODA levels, launching a global campaign for the Millennium Development Goals, avoiding tied aid, giving developing countries greater influence over the design of technical assistance programmes, ensuring that financing for GPGs is additional to ODA, and examining the desirability and feasibility of carbon taxes and currency transaction taxes (CTT).

The G-77/China said it was necessary to establish time lines for the doubling of ODA, as called for in the Facilitator’s text, in order to reach the Millennium Development Goals. The representative said there should also be binding commitments for countries to reach the 0.7% of gross national product (GNP) by 2005. The group rejected the suggestion that UNDP act as an interlocutor for the OECD Development Assistance Committee (DAC) and aid recipient countries. The group also called for the elimination of tied aid and the increased use of grants, and said that it was in favour of examining further innovative sources of financing. 

The EU called for more emphasis to be placed on partnerships that involved shared responsibility and for increasing participation by civil society and the private sector. On ODA, the EU said the policy of untying aid would play a key role in improving its effectiveness, including the implementation of the Agreements reached in the OECD-DAC. It also stressed that the poverty reduction strategy papers (PRSPs) should become the prime vehicle for ownership and coordination of international aid. The EU said it was in favour of giving further consideration to the concept of GPGs, but noted that a more precise definition and an estimate of the levels and types of funding required were needed. The representative said that the EU is also prepared to explore innovative sources of funding.

Japan said that it would prefer not having a timetable for achieving ODA targets. On untying aid, it said such discussions should be left to the OECD-DAC. The Japanese representative raised concerns about the common pool approach to ODA, saying that it doesn’t provide sufficient visibility to the public of what its government is doing with their money, which he said was important to maintain public support for ODA.

With regard to ODA targets, the US said that they were arbitrary and did not correspond to the needs of developing countries, as targets should. The representative also rejected the common pool approach to ODA. He said that the PrepCom should not take up the issue of innovative sources of financing because there was no possibility of any consensus on new taxes.

SUSTAINABLE DEBT FINANCING

This section makes few new proposals but calls for further steps to enhance the current highly indebted poor countries (HIPC) initiative. In this regard, the text suggests that the IMF and World Bank should assess a country’s debt sustainability in terms of its capacity to raise the finance needed to achieve the multilaterally agreed development goals, and that industrialized countries should provide resources that are strictly additional to already existing ODA commitments. The text also calls for special measures for low-income countries, Small Island Developing States (SIDS) and land-locked developing countries in the face of natural catastrophes, and severe terms-of-trade and capital account shocks.

The EU stressed that developing country debt was only one issue in a wider set of issues related to economic management. The EU representative said that the scope available under the enhanced HIPC initiative should be fully utilized before entertaining the idea of moving on to a new phase. The representative did say that there should be allowances made for some countries affected by unforeseen factors beyond their control, but under no circumstances should this involve an automatic entitlement for HIPC countries.

The G-77/China registered its disappointment that this section did not, in its view, get enough attention by the Facilitator, as it felt it could be an important source of finance for many developing countries, especially those with fragile economies or those facing crises. The representative said his group called for immediate debt relief for the poorest countries and said that a moratorium or even cancellation was necessary in some circumstances. He said there was need to further enhance the current HIPC initiative and examine the possibilities of debt swaps, an arbitration mechanism, and US-style bankruptcy codes.

INTERNATIONAL TRADE AS AN ENGINE FOR GROWTH & DEVELOPMENT

In this section of the Facilitators’ draft there is an assertion that the international trade regime is far from fully liberalized and, as such, curtails the opportunities of developing countries to reach developed markets. The text points to a number of problem areas including subsidies in developed countries, stabilizing primary commodity export revenues of developing countries, addressing labour and environmental concerns in the appropriate fora, implementation of the Uruguay Round, and revisiting the issue of trade-related intellectual property rights (TRIPs) so as to take into account the health imperatives of developing countries.

The G-77/China reflected the concern of its members over the importance of trade as an engine for growth, particularly for the least developed countries (LDCs). The group focused on a number of issues including the elimination of trade barriers and the use of subsidies in industrialized countries, saying that they limited the ability of developing countries to be fully engaged in the international trading system. The group supported the recommendation in the Facilitator’s draft that called for environmental and labour concerns to be properly addressed, but to be done so as separate goals from trade through the appropriate institutions and fora.

 The US cautioned against discussing issues that belonged in the WTO and IMF such as TRIPs and agriculture policy. The US representative warned that the PrepCom should not get into the issues of the new trade round and signaled his delegation’s opposition to reopening the issue of TRIPs, as is suggested in the Facilitator’s draft.

The EU began its remarks by saying that the launching of a new trade round at the WTO Ministerial Meeting in Doha would provide an important boost for the FFD process. The representative went on to say that while the EU recognizes the contribution of trade to economic growth, it does not believe trade can automatically bring growth and development without an adequate income distribution policy. He said that trade policy should be designed to maximize its development impact and that trade liberalization should work in synergy with other policy instruments. According to the EU, the outcome text should not only focus on liberalizing specific sectors in developed countries, but should also consider broader liberalization that would provide more opportunities for export diversification of developing countries. The EU also stressed that the call for a full elimination of agriculture subsidies does not take into account development and food security dimensions and could have negative effects on net-food importing developing countries.

The IMF supported the establishment of a new trade round in the WTO, saying that it should focus on market access for and increasing exports of developing countries, particularly for the LDCs in the area of textiles, agriculture and clothing. The representative referred to the proposal in the Facilitator’s draft calling for the establishment of appropriate multilateral commodity risk management mechanisms, and said that such a responsibility went beyond the mandate of the IMF.

India cautioned against the establishment of new trade barriers just as countries were fighting to have old ones dismantled. The representative said the areas of trade having the greatest impact for developing countries were textiles and clothing, and that these needed to be fully integrated into the WTO. He also stressed that the TRIPs agreement had to be modified so that developing countries could protect and benefit from sources of traditional knowledge.

ADDRESSING SYSTEMIC ISSUES

The Facilitator’s text makes proposals for addressing systemic issues under three areas: reforming the international financial architecture; improving global governance; and strengthening the role of the United Nations. According to delegates from developed countries, this agenda item received the most comprehensive coverage by the Facilitator. 

Proposals include broadening and strengthening the representation and participation of developing countries in all global economic decision making; establishing a world economic body at the highest political level under the aegis of the UN; developing clear ex-ante rules for equitable distribution of the costs of adjusting to financial crises between the public and private sectors and among debtors, creditors, and investors; and establishing a follow-up mechanism for FFD starting in 2005.

The G-77/China focused its concerns in several areas. First, the representative said the distribution of the costs of financial crises needed to be addressed, and suggested that the text should not narrow down the options open to dealing with them to debt standstills and voluntary mediation and arbitration. Second, he noted that in the area of global economic governance the UN could play a key role in improving coherence. Third, ad hoc groupings such as the Group of 7 (G-7) and Group of 20 (G-20) should be the source of input to larger multilateral decision-making processes and not a replacement for them. Fourth, there should be greater coordination on tax matters but the group did not support naming a new institution (international tax organization—ITO) at this point. Fifth, the group was open to conducting consultations on the role of the UN and a possible new body in international economic governance. Sixth, the G-77/China said that it did want some type of follow-up mechanism for FFD, but was not specific about what type it wanted.

According to its representative, the EU is not in principle in favour of establishing new institutional structures but would rather see existing institutions play a stronger and more effective role “in recognition of political aspects of major development issues.” The EU said that it preferred to see the FFD follow-up as part of the regular proceedings of the Economic and Social Council (ECOSOC), and indicated that FFD was not the appropriate forum to decide on changes to the international financial architecture.

The representative of Barbados, speaking on behalf of the Caribbean Community (CARICOM), stressed the urgency to develop mechanisms that could deal with crises such as those felt by the Caribbean tourist sector in the wake of 11 September terrorist attacks. She cautioned against the establishment of an ITO that, in her view, would lack a development agenda. She suggested that current coordination on taxation does not adequately take into account service-based economies such as hers, and any discussion on such coordination needed greater participation from all countries.

The representative of Malaysia expressed general agreement with this section of the Facilitator’s draft, saying all elements should be retained for the next draft. She called for greater transparency in the activities of large capital funds, said that international codes and standards should be adopted voluntarily, and stressed the need for developing countries to be better integrated into international economic decision making.

The IMF representative said that despite the different mandates of the international institutions, there still needed to be dialogue on governance issues. He raised the issue of representation in decision making at the Fund and suggested that the quota system should be able to reflect the current economic reality. He expressed doubts on the proposal for the IMF to issue special drawing rights (SDRs), saying it might not be feasible.

The Russian Federation representative said that establishing an “apex body” was not within the goals or the mandate of the FFD. He also cautioned against having a premature follow-up in 2005.

THE OUTCOME DOCUMENT AND NEXT STEPS

One of the disagreements that continued throughout the PrepCom was over the nature of the outcome of the FFD Conference. While the EU and some others remain flexible, the US, for example, argued for a one-page political declaration to be the primary outcome document. The US representative suggested that rather than a negotiated plan of action, FFD should produce a compendium of ideas along the lines of the Secretary-General’s report and the Zedillo Panel. This would be like a “menu” from which individual countries would choose initiatives and ideas. On the last day of the PrepCom,  it was agreed that the Facilitator would continue his work and be asked to produce a next draft to be circulated by the end of November 2001 for the January PrepCom.

FORMAT OF THE CONFERENCE

The format of the conference takes innovative steps in order to reflect the collaboration engendered in FFD among the UN, World Bank, IMF and WTO, as well as amongst various ministries in national governments. The FFD Conference will be divided into three segments—a high-level officials segment, a ministerial segment and a summit segment. Civil society and business will participate in the roundtables scheduled for the ministerial and summit segments and address the plenary sessions of the conference. The themes of the summit roundtables will be The International Conference for Financing for Development: Looking Ahead. Civil society forums as well as business forums being planned for Monterrey are being invited to transmit their reports to the FFD Conference plenary. Government participation in the roundtables will be allocated by geographical criteria: Africa (14); Asia (14); Eastern Europe (6); Latin America and Caribbean (9); Western European and other States (8).

According to the decision adopted by the PrepCom, organizers of civil society forum/fora are invited, in consultation with the co-chairs of the Bureau and the FFD Secretariat, to select roundtable representatives among accredited civil society participants, and communicate their names by 20 February 2002. The Steering Committee for the NGO Forum in Monterrey suggested that it would be willing to cooperate with issue caucuses to help identify appropriate participants for the roundtables.

PREPARATIONS FOR THE NGO FORUM

The Steering Committee for the NGO Forum in Monterrey (see Go Between 86) held a number of discussions with the larger NGO FFD caucus and the UN Secretariat to discuss their plans for Monterrey. A large part of the discussion revolved around the nature of the Forum itself, which will permit diverse opinions and points of view to be expressed. The NGO Forum will have a thematic structure drawn from the agenda of the official Conference, including intersections with other themes such as gender, environment, labour, and economic and social rights.

A main focus of the briefings held with the other NGOs was to establish an international support committee (ISC). Its functions, as established by the NGO FFD caucus, are: to provide support in seeking funding; to provide information outreach about the NGO Forum in the different regions and among those monitoring the different agenda items; and to support the work of the Mexico NGO Forum Steering Committee. The ISC will be comprised of ten members representing organizations outside of Mexico, and two members from the Mexican NGO Forum Organizing Committee.

 CONTACT

Federica Pietracci, Financing for Development Secretariat, UN/DESA, 2 UN Plaza, New York NY 10017, USA, telephone +1-212/963 8497, fax +1-212/963 0443, e-mail <pietracci@un.org>, website (www.un.org/ffd).

NGO Forum

Laura Frade, Women’s Eyes on the Multilaterals, A.C. Calle Chapultepec No. 257, Creel, Chihuahua, Mexico, telephone +52-145/60134, e-mail <alcadeco@infosel.net.mx>.

Areli Sandoval, Social Watch Mexico, c/o Equip Pueblo, Francisco Field Jurado No. 51, Col. Independencia, Mexico, telephone +52-5/390015, e-mail <pueblodip@laneta.apc.org>.

See also website (www.una.dk/ffd/index.html).

 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.