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TWN Info Service on Finance and Development (Nov17/04)
16 November 2017
Third World Network


IGE on FfD focuses on resource mobilisation
Published in SUNS #8573 dated 13 November 2017


Geneva, 10 Nov (Kanaga Raja) - The first session of the Intergovernmental Group of Experts (IGE) on Financing for Development at the UN Conference on Trade and Development (UNCTAD) has focussed on the challenges faced by developing countries and international community with regard to mobilising domestic public resources, as well as on international development cooperation.

According to an UNCTAD Secretariat Note prepared for the session, the discussion topics and guiding questions for this first session are:

(1) Domestic public resources: What can be done to enhance the mobilisation of domestic public resources for development in developing countries?

(2) International development cooperation: How can international development cooperation maximise its contribution to achieving the Sustainable Development Goals?

The opening plenary was held on 8 November with statements by the Deputy Secretary-General of UNCTAD, the Director of the UNCTAD Division on Globalisation and Development Strategies, as well as by the various regional groupings.

ADOPTION OF THE AGENDA

At the opening plenary, under the second item of the adoption of the agenda and organisation of work, the Chair of this IGE, Mr Jaime Miranda, Deputy Minister of Foreign Affairs of El Salvador, asked if there was agreement on the organisation of work as he had earlier indicated, at which point two delegations requested the floor, namely the JUSCANZ group of countries and the European Union.

The United States, on behalf of the JUSCANZ group (comprising Australia, Canada, Iceland, Israel, Japan, Liechtenstein, New Zealand, Norway, Switzerland, and the United States) said that the JUSCANZ group of countries looked forward to the next three days (the IGE is taking place from 8-10 November) and hoped that experts in the room will have fruitful and productive exchanges.

In principle, the group said, expert meetings such as this one should require little involvement from Geneva-based regional groups, and it therefore regretted having to delay the start of this meeting.

The JUSCANZ expressed its concern with the IGE's agenda and programme, and said the terms of reference for this IGE was carefully negotiated over many months and agreed by all member states at the 5 April meeting of the Trade and Development Board (TDB).

"It was our hope, and I think the expectation of all member states, that the secretariat would organise this IGE consistent with the terms of reference that we established."

Indeed, paragraph 3 of the provisional agenda states that the IGE will "be held in accordance with the terms of reference," the US said, adding that a quick review of the full programme reveals that this meeting's topics are not consistent with the terms of reference.

"It is not our intention to politicise this meeting, but as member states, the JUSCANZ countries, and indeed all member states, have a duty to make sure that the secretariat faithfully follows member states' guidance."

With this in mind and without impeding the experts' ability to discuss issues they deem important, the JUSCANZ said, it expects the draft policy recommendations from the IGE will reflect experts' suggestions in line with UNCTAD's mandate - as the terms of reference require.

"In this regard, the JUSCANZ countries reserve judgement on, and potential endorsement of, the policy recommendations developed over the next three days until they are brought before the Trade and Development Board or other governing bodies."

The European Union appreciated the convening of this IGE on financing for development as a result of the establishment of this group by the Nairobi Maafikiano mandate (adopted last July at the UNCTAD-14 conference).

The IGE, the EU said, should indeed be a forum for the exchange and discussion of experts of all member states.

Echoing the views of the JUSCANZ group, the EU underlined that it expects the IGE to remain within the mandate set up by all the UNCTAD membership in the Maafikiano and the terms of reference of this group, put UNCTAD expertise and comparative advantages to the best use and not to duplicate ongoing work in the UN system.

On the policy focus, the EU reiterated that it expects a balanced, nuanced and frank discussion of the various issues at stake drawn from the Addis Ababa Action Agenda (AAAA) to chapters on domestic resource mobilisation and international development cooperation.

The EU said that it was surprised to find out after it had received the final programme of this meeting quite late that the decision on topics was rather selective in its understanding as well.

Some of the issues set out in the respective chapters of the AAAA are referred to while some others such as the fight against corruption in para 25 of the AAAA or national control mechanisms in para 30 (of the AAAA), or the role of gender in para 53 (of the AAAA) have not received any attention.

"We look forward to have these issues covered at a later stage," it said.

The EU also said that it is its understanding that this meeting will produce expert-driven recommendations for the TDB's consideration which are produced as the programme outlines at each session respectively.

Tanzania, on behalf of the G77 and China, intervened to thank the secretariat for preparing this meeting, saying that it is one of the most important issues for the Group.

It reminded the partners that UNCTAD's specific strength lies in its role as the UN focal point for the integrated treatment of trade and development and its inter-related issues. This includes finance, investment, technology and sustainable development.

The G77 and China pointed out that the terms of reference which were negotiated carefully were very broad.

"And I would like to inform partners that I don't think it would be right to micro-manage the secretariat when they prepare their background documents."

"When you say finance, when you talk of illicit flows, when you talk of ODA, these are all broad issues and background document will definitely touch maybe on issues that partners will not appreciate or will not be comfortable with them, but it's very difficult. I can imagine how challenging it is to touch on the issue of illicit flows without touching on these sensitive issues," said Tanzania.

It pointed out that this is the first session of the IGE and that it believes there will be three more sessions before the UNCTAD-15 conference.

So all other issues which were part of the terms of reference will be addressed sequentially. This is the first session and this is the first issue that the secretariat thought would be of importance to us, it said.

"I urge our partners that we work closely and we have the team spirit so that we can reach a successful outcome at the end of this meeting," said the G77 and China.

In the absence of any objections, the agenda was then adopted by the Chair of the session.

OPENING STATEMENTS AT IGE PLENARY

This was followed by some introductory remarks by Ms Isabelle Durant, Deputy Secretary-General of UNCTAD, as well as opening remarks by Richard Kozul-Wright, Director of the UNCTAD Division on Globalisation and Development Strategies, who provided a broader context to the discussions taking place during the session from an UNCTAD perspective.

In her statement, Deputy Secretary-General Durant noted that at UNCTAD 14 (held in July last year in Nairobi, Kenya), Member States agreed on a vision for UNCTAD to implement the Addis Ababa and 2030 Agendas.

Together with Agenda 2030, the Financing for Development (FfD) process is a core part of the UN development pillar, she said.

The FfD Agenda encompasses many issues of core concern for developing countries, in partnership with advanced economies, and this was reaffirmed at Addis Ababa in 2015, but has its roots in the 2002 Monterrey Consensus and the 2008 Doha Declaration.

"Indeed, these financing questions date back to the founding of UNCTAD itself, and have been a core concern of our Member States for more than 50 years."

According to Ms Durant, from UNCTAD's perspective, the first session of this expert group could not be more timely.

"We face considerable challenges in establishing a multilateral approach to delivering effective development finance, necessary to underwrite the implementation the Sustainable Development Goals."

The global macroeconomic environment remains unfavourable to any efforts to scale up development finance.

And, although the global economic outlook is more optimistic since the start of 2017, questions remain about the longer-term sustainability of this growth.

Indeed, many observers argue, including here at UNCTAD, that the structural problems laid bare by the Global Financial Crisis of 2007-08, remain unresolved. Developing countries face multiple challenges in this climate, including a net outflow of capital and low commodity prices.

Moreover, Ms Durant said, their recent integration into volatile financial markets - with an associated higher risk exposure - means these external shocks threaten the sustainability of these countries' recent borrowing, and thus their ability to mobilise domestic resources for long-term development goals.

Indeed, improving developing countries' external debt sustainability and preventing financial crises is a core concern of the Addis Ababa Action Agenda. At the same time, multilateralism is under more strain than at any point in the post-War period.

In this context, she said, it is all the more important that the Addis Ababa Action Agenda orients development finance towards sustainable and inclusive development objectives.

It recognizes the need for an ambitious and holistic approach to development finance, "beyond business as usual".

To leave "business as usual" behind, the Addis Ababa Action Agenda underlines the need to improve the quality and availability of data, as well as methodological approaches on specific issues, such as: illicit financial flows; and data on blended financing instruments in relation to ODA (official development assistance), said Ms Durant.

"The urgency of combatting illicit financial flows, for example, was recently underlined by the publication of the Paradise Papers," she noted.

"We cannot tackle this issue of domestic resource mobilization properly without addressing the systemic factors that allow illicit financial flows to continue. Overall, it is clear that developing countries and donors, individually or in smaller groups, will not be able to meet the enormous financing requirements implied by the 2030 Agenda."

"To mobilize resources on this scale, we will need a strong multilateral system. This IGE is ideally placed to embed UNCTAD's intergovernmental machinery in the financing for development process in the United Nations system, thereby strengthening multilateral links and cooperation within the UN system, on issues of development finance," she said.

She added that given UNCTAD's unique role in the UN development system, as a Member State conference dedicated to development issues, the IGE also presents an excellent opportunity to strengthen the voice of developing countries in this process.

In his opening remarks, Richard Kozul-Wright said that the Monterrey Consensus was a punchy document of less than 20 pages with a 2 page introduction that "demanded" a new partnership between developed and developing countries to deliver on agreed development goals.

The AAAA is over 60 pages, whose introduction alone runs to 10 pages and is more or less content to operate within, what it calls, a revitalized global framework.

"It would, given the current troubles facing multilateralism, be easy to offer a skeptical interpretation of this etymological evolution but that would be unfair," he said.

There are strong grounds to assume that this reflects a recognition of the seriousness of the inter-related challenges facing the international community and a heightened ambition to tackle them.

As 2015 unfolded, it became increasingly clear that a series of discussions, negotiations and choices at the multilateral level would have lasting implications not only for the policy agenda of developing countries, but for the future of the international system as a whole.

Negotiating processes on sovereign debt restructuring, quota reform at the IMF, the Sustainable Development Goals (SDGs), financing for development (FfD) and curbing rising global temperatures, all, in one way or another, acknowledged that the growth model of the previous three decades was unstable, unsustainable and unfair.

"Moreover, and unlike the FFD text adopted in Doha at the end of 2008, there was no avoiding the consequences of the most damaging economic crisis in 80 years on the financing challenge."

Recognising, at least implicitly, that the current growth model is broken, the international community continues to search for a new path, which would lead to more stable, sustainable and inclusive outcomes. This suggests -- as recognised in the AAAA -- the need to go beyond business as usual towards a holistic and transformative approach to rebalancing existing economic and social structures, which can only be accomplished if adequate and reliable financing is available to undertake the required investments, in both the public and private sectors.

Preliminary estimates of the additional financing needs of developing countries over the next decade or so vary, but there is broad agreement that the figure, whether in the hundreds of billions or trillions of dollars per year until 2030, greatly exceeds the current financing options available to most of them, Kozul-Wright noted.

However, the challenge facing the international community goes beyond the scaling up of resources. The pro- cyclical and speculative biases of financial markets, the instability of unregulated capital flows and the financialization of corporate governance have created an economic environment which is systemically unequal, fragile and prone to damaging boom-bust cycles.

"Talk of an enabling international environment which ignores these features will not get us very far in getting finance back to the business of supporting long-term productive investment, all the more so as [a] stable monetary and financial system is a prerequisite for making trade, technology and TNCs work for inclusive growth and development."

Behind this discussion, of course, is the frail legacy of the Bretton Woods Conference. The principle objectives of that initiative were to get war-torn economies back on their feet and design a post-war international economic order that would prevent the recurrence of the opportunistic actions and damaging contagion that had led to the breakdown of international trade and finance in the 1930s and its destructive aftermath.

Building on the generosity of the Marshall Plan and with considerable debt forgiveness, the institutional rules and arrangements established at Bretton Woods helped to combine global macroeconomic stability with sufficient space for national governments to manage a period of unprecedented growth of output and international trade, often described as a "golden age".

These arrangements eventually buckled under a series of distributional pressures and economic shocks in the 1970s, giving way from the early 1980s to hyper-globalization.

This was, and is, characterized by an extensive deregulation of markets -- particularly financial and currency markets -- in both advanced and developing countries, the steady attrition of the public realm, and the extension of the profit motive to all walks of economic life and beyond.

Hyper-globalization has also been accompanied by a radical break in the governance of the post-war international framework, whereby bodies once designed to foster sovereignty are now recast to curtail it while inter-governmental negotiations have been weakened, or side-lined, by more informal cross-border governance arrangements built around selective membership, corporate networks and public-private partnerships.

Under these developments, said Kozul-Wright, the co-dependence between finance and the real economy and between the state and the market, which characterized the successful growth models that emerged after WWII, has given way to one in which unchecked financial markets and mounting financial leverage drive the real economy.

This shift has led to a change of investment behaviour, which has become tied to asset and credit cycles, and, at the firm level, to the channelling of profits towards short-term financial investments. Under these pressures, the mushrooming of mostly short-term cross-border capital flows over the past two decades has done little to help return capital formation worldwide to the levels of the 1970s, let alone those envisaged in the 2030 Development Agenda.

For many developing countries, the international trade and finance system that has evolved since the breakdown of the Bretton-Woods system has not only broken with previous policy flexibilities, it has also failed to provide sufficient financial resources to build productive capacities in support of their long-term growth and structural transformation goals.

Furthermore, it has heightened the magnitude of external shocks, including from policy shifts in the developed world.

Kozul-Wright thanked the media for releasing the Paradise Papers in a timely fashion for this meeting: illicit capital flows and tax avoidance and evasion are a massive threat to meeting the SDGs, and not only in developing countries.

The financial arrangements giving rise to weak demand, rising debt levels and unruly capital flows are now weighing heavily on growth prospects in the advanced economies.

With governments seeking to adjust to the debt overhang through austerity measures, the threat from deflationary pressures has so far been contained thanks to unprecedented monetary action but without generating inclusive recoveries; and there is growing concern that an entire decade, or longer, may be lost to secular stagnation.

At the same time, the highly favourable external environment for developing countries that emerged after the dot com crisis has clearly shifted.

Reversals of capital flows, a precipitous drop in commodity prices, unfavourable movements in exchange rates are taking place against a backdrop of insufficient global demand that has halted the growth of international trade and dampened growth prospects, with a number of emerging economies having already experienced recession.

"The idea that these economies had decoupled from developments in the advanced economies was never a persuasive thesis. It should now be clear that policy makers everywhere must operate in an interdependent and unbalanced global economy, and if storm clouds gather we will sink or swim together."

Kozul-Wright pointed out that this does not, however, mean returning to the earlier Bretton Woods system, even if this were possible.

The post-war global deal was never completed in areas of particular interest to developing countries, and the flexibilities allowed to countries were often established on an ad hoc basis rather than as a formal part of the rules themselves.

Developing countries have consistently called not only for greater and more predictable multilateral resources to support their development efforts, but for more flexibility to tailor policies to local needs and conditions, and for greater coherence and coordination across the overlapping international trade, financial and production systems.

"Building these aims into the multilateral architecture was, and remains, an essential motivation behind the FFD initiative."

Reform is not only in the interest of developing countries. The financial crisis has made it clear that the advanced countries also need policy space to manage changing circumstances, and that they can no longer guarantee a stable global economy or deal with new and inter-related threats to future prosperity by themselves.

Moreover, if they are to avoid damaging deflationary adjustments, return to robust growth, and ensure that the international trading system remains open, they also have a direct interest in strengthening international coordination and support, and in an inclusive manner.

It is therefore imperative for international measures to be designed in such a way that they complement or strengthen state capacities to deliver on national objectives and meet the needs of their constituencies, said Kozul-Wright.

If reforms to the existing multilateral architecture are to be credible and effective, they must provide for much greater collective influence from developing countries and embody a much stronger sense of cooperation among all countries.

This will require a willingness to examine rebalancing challenges from a more integrated perspective. It will also require careful examination of the structure of representation in the existing multilateral trade and financial institutions and their decision-making practices.

This is where UNCTAD has tried to make a difference over the years. Already in the Final Act that founded UNCTAD back in 1964 and established its mandate, the challenge of financing development was identified as the basis for continuing reviews and action (para 48) with specific reference made to the terms and conditions of aid, external debt problems, increasing the flow of financial resources to developing countries, compensatory finance and supplementary financial measures, said Kozul-Wright.

"All these issues have been part of UNCTAD's work since then and new issues within this mandate have been addressed as the financing challenge has evolved with UNCTAD often being ahead of the curve."

The Chair of the IGE then made a presentation on behalf of his country El Salvador, and this was followed by statements by the G77 and China, the Arab Group and the African Group.

In its statement, Tanzania, on behalf of the G77 and China, said the establishment of the intergovernmental group of experts was one of the most important outcomes of UNCTAD-XIV which better places the organization in the context of the 2030 Agenda and the Financing for Development process, as well as helps to revitalize the intergovernmental machinery.

In this context, it believes that the IGE is a way to strengthen the links between Geneva and New York and "we expect it to become a regular input that UNCTAD can present to the ECOSOC forum on financing for development follow-up."

UNCTAD's specific strength lies in its role as the UN focal point for the integrated treatment of trade and development and inter-related issues in finance, investment, technology, investment and sustainable development, and in its long-standing experience in promoting such an integrated perspective on development issues, including development finance.

"We believe that this IGE is a unique opportunity to bring this expertise and perspective to bear on the many challenges developing countries and the international community face in mobilising national, international, public and private resources to promote developmental transformation effectively, fairly and inclusively, in particular in the context of a difficult global economic environment and deficient global economic governance structures," said the G77 and China.

Illicit financial flows are complex matters that requires cooperation among different agencies at the domestic level and among different actors at international level, it said, adding that it would also like to highlight and support UNCTAD's work with UNODC (UN Office on Drugs and Crime) and other organisations to develop the methodology to produce a transparent, comprehensive and reliable estimate of illicit financial flows.

"With regards to taxation in general, we note that modernized, improved and progressive tax and collection systems are key to mobilize domestic resources. We also note that substantial improvements in developing countries might need to take into account spillover effects between national taxation systems and the global reach of the activities of some economic actors, such as multinational enterprises."

With regards to official development assistance (ODA), Tanzania urged donors to fulfill their respective ODA commitments, including the commitment by many developed countries to achieve the target of 0.7 per cent of ODA/GNI and 0.15 to 0.20 per cent of ODA/GNI to LDCs.

With regards to development banks, said Tanzania, their role in the promotion of sustainable development should be emphasized. They are able to operate in credit market segments in which commercial banks are not fully engaged, thus overcoming market failures.

They also play a key role in providing countercyclical lending. This is particularly important to supporting macroeconomic stability in developing countries, which are more exposed to pro-cyclical exogenous shocks, dynamics and vulnerabilities, it said.

Furthermore, increases in the capital base of multilateral development banks should be considered as a way to improve their important contribution to financing and implementing sustainable development, said the G77 and China.

Egypt, on behalf of the Arab Group, said that holding this IGE session is the first step towards implementing the agreement reached by member states at UNCTAD-14.

This consensus was embodied in the Maafikiano document adopted at the conference, and which came up with a vision for the work of UNCTAD and a road map for its action over the next four years.

The IGE meeting today (8 November), in the Arab Group's view, embodies a basic tool for UNCTAD to realise its development mandate through its intergovernmental bodies. These mechanisms are multilateral frameworks that allow experts from various development fields to share opinions and ideas and present valuable studies that allow UNCTAD and member states to be enriched with technical advice that will contribute to planning and adopting strategies for inclusive national development.

The Arab Group said it is convinced that the mandate of this group of experts is particularly important in the current stage where UNCTAD is to play a pivotal role in implementing the major developmental instruments.

This watershed period requires that UNCTAD itself mobilises its financial, technical and human resources in order to look into the ways and means to have the necessary resources to implement these development instruments especially in a concrete manner in various countries, said the Arab Group.

This cannot be done without a consultative forum that brings together the best development specialists so that they contribute with their ideas and visions to have the optimal resources and means and most effective methods to mobilise resources for development, it added.

It also welcomed the programme of this expert group. Indeed, it is varied and covers the most important aspects on financing for development, including illicit financial flows channelled abroad illegally from developing countries, ways of reforming domestic tax systems, international cooperation in fiscal policies, ways and means to develop ODA and blended financing.

It is the Arab Group's belief that these issues need to be addressed equally and holistically if we are to address the question of financing for development in a way that is comprehensive and objective covering all resources and in a manner that aims at mobilising all these resources without exception to devote them for a single noble objective and that is inclusive national development.

Sudan, on behalf of the African Group comprising 54 countries, associated itself with the statement of Tanzania on behalf of the G77 and China.

It said that it is pleased that the IGE on financing for development is commencing its first meeting according to the mandate given by the Nairobi Maafikiano.

The African Group was of the view that this meeting should focus on challenges facing developing countries and the international community with regard to the mobilisation of international public finance for sustainable development and international development cooperation.

The African Group believes that the expert meeting should examine ways of ensuring the transparency of new frameworks and clear and separate accounting of long-term costs and benefits of different types of financial flows and financing instruments for sustainable development, as well as their true development impacts.

Moreover, said the African Group, the meeting should address the AAAA with a view to developing policy recommendations and how best to enhance the mobilisation of domestic public resources in developing countries and to maximise the contribution of international development cooperation to sustainable development, transformation and to the achievement of the SDGs.

 


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