| FINANCING FOR DEVELOPMENT DIALOGUE AT UN
HIGHLIGHTS SOUTH'S FINANCIAL WOES
US$200 billion transferred by poor to rich countries in 2002
TWN Report by Martin Khor, New York, 31 October 2003 A year and a half after the UN's International Conference on Financing for Development at Monterrey (18-22 March 2002), the financing situation of developing countries appear to be worse. Instead of developing countries receiving more external financial resources, the reverse has hapened: there was a net transfer of funds from developing countries to developed countries amounting to almost $200 billion in 2002. This came out here clearly at the UN convened "high level dialogue" to review the implementation of the commitments made by governments at Monterrey. The "high level dialogue" was conducted over three days in a mixture of formats: - 'informal hearings' for civil society and business representatives to set out their views to governments;
- eight Roundtables involving Ministers, experts, international organizations, NGOs and business;
- an official Plenary or opening session starring the UN secretary general and the heads of the IMF, World Bank, UNCTAD, UNDP, the UN General Assembly, ECOSOC, and the deputy director-general of WTO; and
- a whole-day 'interactive dialogue' involving governments and other parties.
There was a reasonable number of Finance Ministers of developing countries present (mainly from Africa), and quite a few Ministers of Development from the developed countries. The heads of the IMF and World Bank stayed only for their opening plenary session. The discussions went through a whole jumble of issues, but a few clear themes came through. One of the things that came through prominently was that despite Monterrey, the financing situation has worsened for developing countries. This is symbolized by the most talked-about figures at the Dialogue: the rise in net transfer of financial resources out of developing countries to almost US$200 billion in 2002. Instead or receiving funds, the poor countries are now transferring enormous amounts to the rich countries. The UN Secretary General's report to the Dialogue shows that in 1994-1997 the developing countries were receiving US$30 billion a year on average. But in 1998-2000 this had reversed, and they were transferring out $111 billion annually in net terms. Then the situation further worsened, dramatically. In 2001, the net outward transfer was $155 billion, and it rose further to $193 billion in 2002. Though there were a few bright spots (such as a reversal of the trend of ODA decline), these were more than offset by lack of progress on the debt situation, by declining commodity prices, the fall in FDI and most significantly the failure of Cancun and of the WTO to deliver on its development promises. Neither was there progress in global financial system reform nor in developing countries' participation in decision-making in the Bretton Woods institutions and WTO. Most of these issues - especially the net transfer of funds from developing countries - featured prominently at the Dialogue's highlight, the opening plenary of the High Level Dialogue on Financing for Development in the General Assembly hall on Thursday. More of the blunt comments came at the interactive dialogue that followed. At the opening, UN Secretary-General Kofi Annan called for the reversal of the negative balance sheet and fix the system so that all countries and people, especially the poorest, can benefit. While ODA had increased to $57 billion in 2002, the modest gains had been dramatically offset by the largest-ever net resource transfer - some $200 billion - from the developing world, he said. Even taking all subtlety and nuance into account, the overall result defies common sense, he said, adding that funds should be moving from developed countries to developing countries, but those numbers revealed the opposite was occurring. Funds that could be promoting investment and growth in developing countries, or building schools and hospitals, or supporting other steps towards the Millennium Development Goals, are instead being transferred abroad, he added. The implementation of the Monterrey commitments showed a mixed report card. While ODA had increased, it was still far short of what was required to meet the Millennium Goals. In the trade area, subsidies and tariffs were stifling poor countries' ability to compete fairly. FDI in the developing world was down. Too many developing countries continued to carry too much debt, making it clear that perhaps the Heavily Indebted Poor Countries (HIPC) Debt Initiative had been over-optimistic and that perhaps there is need for an international framework for debt restructuring. Annan referred to recommendations in his Report for the Dialogue: Steps should be taken to get more out of the annual spring meeting between ECOSOC, the WTO and the Bretton Woods institutions. That meeting needed better, more focused preparation if it was to fulfil the special role given to it by the Monterrey Consensus as a guardian of coherence, coordination and cooperation. The UN General Assembly President Julian Robert Hunte (the Foreign Minister of Saint Lucia) said the Monterrey Consensus reflected the critical decisions taken to address the challenges of financing for development. It brought together all stakeholders to address key cross-sectoral issues of trade, finance and development. The Dialogue should be a frank discussion of challenges to the implementation of the Monterrey commitments and agreements. One must ask whether the UN system was positioned adequately to impact the development-funding process. Had sufficient steps been taken to improve coherence and efficiency among donor agencies? What should be ECOSOC's role in tracking progress made and proposing further steps to implement the Monterrey Consensus? He said the assessment report on implementation of the Monterrey Consensus showed mixed results. On the positive side were a 4.8 per cent increase in ODA after Monterrey. Some donor States had reached the United Nations ODA goal of 0.7 per cent of GNP and had committed to reaching 1 per cent during 2005-2006. Others had set time frames to reach 0.7 per cent. There were also nascent and encouraging signs regarding resolution of the debt crisis, like proposals for a comprehensive, statutory approach to restructuring governments' external debt and the use of collective action clauses. For their part, many developing countries were working to create enabling environments at the national level by strengthening economic governance and enhancing democratic participation. On the other hand, he noted, net private financial flows to many developing countries had declined or become negative. There had been little change with respect to challenges, such as market access, special and differential treatment, debt, the deteriorating situation of commodity-dependent countries, agricultural subsidies and the lack of participation of developing countries in the decision-making of international financial institutions. World Bank President James Wolfensohn said it was really no secret that much remained to be done if the aims of Monterrey were to be met. The industrialized countries must lead the way by living up to past commitments. But with the failure of the WTO talks in Cancun, recent Doha Round, lagging development assistance and abiding inequities in the international trade system, it was clear that more cooperation, dialogue and action were needed. It was noted this was the first time a World Bank President had addressed the Assembly on any subject. But the financing for development partnership made coordination between the two bodies critical. The Bank was concerned with the imbalances, such as that $800 billion had been spent for defence budgets while only $56 billion went to development assistance. Horst Kohler, IMF Managing Director, said that the global economic outlook was improving, with improved prospects in advanced economies. But risks remained, especially the excessive dependence of the world economy on US growth and the resulting global current account imbalances. He believed resolving those imbalances in an orderly manner should be the primary objective of international economic policy. That required a cooperative approach involving all major countries and regions. The IMF, he continued, would continue to play its role in implementing the
Monterrey Consensus. In its work with low-income countries, the Fund was concentrating on a framework for sound macroeconomic policies and institutions. It had reduced the scope of its conditionality by focusing it on those areas that were central to achieving key macroeconomic objectives. The IMF's effectiveness as a cooperative institution depended on all members having an appropriate voice and representation, he said. With that objective, the Fund had recently taken several steps to bolster the capacity of Executive Directors' offices of developing and transition countries, aimed at enhancing their effective participation in policy formulation and decision-making. UNCTAD Secretary-General Rubens Ricupero called for ECOSOC to be given the role of being the forum to discuss policy coherence that could produce a global growth environment conducive to attaining developing countries' domestic policy objectives. This could be a building block of the new international architecture. He said Monterrey was a holistic approach to the problems of financing development, but did not provide a blueprint for development. It was not a point of arrival, but a point of departure for an ongoing process. The challenge is to combine and sequence the various aspects of the Consensus in a way that allowed progress in its implementation and to identify those areas in which the Consensus needed to be extended and amplified. The impetus for such a conference originated in the negative net transfers of real resources by many Latin American countries in the aftermath of the 1980s debt crisis - the lost decade of development. The net financial flows in recent past are still from the developing to the developed world. This year would be the seventh year of negative net flows of financial resources from developing to developed countries, thereby suggesting the world may be in another "lost decade." Unfortunately, some countries, such as Argentina and Bolivia, that were early in implementing the measures that were eventually included in the Consensus were now experiencing living standards far below those of the lost decade and found themselves excluded from external financing possibilities. FDI flows remained positive but they had declined substantially, despite thefact that developing countries had taken steps to increase their capabilities to attract and absorb increased FDI flows. The growth in global trade had also fallen more or less in step with the decline in capital flows. This affected prices the poor countries' commodities. It is indispensable to resume the WTO negotiations from the point they were interrupted in Cancun, to deliver in time and at the right level of ambition, the development promises of the Doha declaration, Ricupero said. He stressed the need for better economic policy coordination among major developed countries to eliminate major macroeconomic imbalances that are a major cause of volatility in exchange rates and capital flows. As part of the Monterrey Consensus, we need to develop policies consistent with both domestic and global stability. He also noted that the monitoring of the consistency of national policies with respect to employment growth was a mandate to be given to ECOSOC under the Havana Charter. "But the Charter was never implemented and the Article IV surveillance in the IMF Articles of Agreement has tended to concentrate on the appropriateness of national policies for domestic stability rather than on their compatibility with global growth," he said. "Given the greater participatory and universal character of the UN process, this is an area in which ECOSOC, with the support of the FfD office, could provide an appropriate forum to discuss increased policy coherence that could produce a global growth environment conducive to attaining domestic policy objectives set for developing countries." This could be a useful building block of the new international architecture, in the context of the reflections about profound reforms called for by the UN Secretary General. UNDP Administrator Mark Malloch Brown said today's world was more unequal and more insecure than ever. In a world of 6 billion people, 1 billion owned 80 per cent of global wealth, while another 1 billion struggled to survive on less than one dollar per day. Poverty on that scale was no longer inevitable. The world possessed the means to achieve the Millennium Goals but what was too often missing was the political will. Monterrey had struck a global partnership in which sustained political and economic reform, more private investment and better governance in developing countries would be matched by direct support from the developed world in the form of trade, aid and investment. However, although the decade-long decline in ODA had been reversed after
Monterrey, as ODA rose to $57 billion in 2002 with OECD projections showing an additional commitment of $16 billion by 2006, the total of commitments made at Monterrey would still fall far short of the $100 billion in ODA needed annually to achieve the Goals. The key to the Monterrey commitments had been the agreement on the importance of country ownership in development strategies, he continued. The UN system, under the coordination of the UN Development Group, had worked to implement the Consensus, including through follow-up of the commitments to streamline donor procedures and practices based on the principle of full country ownership made at the Rome High-level Forum on Harmonization in February 2003. The success or failure of Monterrey basically depended on a larger vision of global partnership. The Goals were part of the global commitment. No matter how successful the reform efforts of developing countries, the first seven Goals could not be achieved if donor commitment to Goal 8 on development assistance, investment and trade, was not met. The failure at Cancun to agree on the policies needed to create a pro-poor, legitimate global economic strategy thus constituted a step back in implementing Monterrey. All must now commit to renewing the spirit of partnership. Francisco Thompson-Flores, Deputy Director-General of the WTO said the 2001 Doha Development Agenda was a framework to empower developing countries to achieve development. While trade could be an engine for growth, developing countries faced too many obstacles in the present international trading system. The Doha negotiations could
bring benefits well beyond those in other areas. But the Cancun setback and the
ultimate failure to reach agreement on the Singapore issues meant that WTO members
had to take collective responsibility for the outcome of that Round. Cancun had proved to be a disappointment, but it was not a collapse. The WTO was
already exploring ways to move forward; the first step being to identify the areas of
greatest difficulty at Cancun and to get people discussing them again. He said the WTO had witnessed at Cancun the emergence of new groupings of States,
united in advancing their common interests. One must ensure that the increasing
activism of developing countries, which added greatly to the complexity of the
negotiation rounds, was adequately recognized and reflected. Comprehensiveness of
participation and substance must be the goal.
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