TWN Info Service on Finance and Development (Dec11/03)
16 December 2011
Third World Network

Dear friends and colleagues,

Below is a report of the informal dialogue at the UN during the fifth high-level Dialogue of the General Assembly on Financing for Development held on 7-8 December 2011. Panelists discussed gaps in meeting agreed development goals, expressing support for the UN’s role in economic governance and the need for systemic change to salvage global financial stability followed by statements by several Member States and civil society speakers.

With best wishes,
Third World Network

Financing for development discussions on development goals,

economic governance and global financial instability

New York, 15 December (Bhumika Muchhala) – The informal interactive dialogue at the fifth High-Level Dialogue of the General Assembly on Financing for Development (FFD) held on 7-8 December 2011 explored the links between the themes of FFD and agreed development goals, the upcoming Conference on Sustainable Development (Rio+20), and the role of the UN in global financial governance.

Panelists stressed the continuing importance of the Monterrey Consensus principles; underscored that the UN needs to be, and has the authority to be, involved in global economic governance; and highlighted the dilemma of austerity policies and the connection to human rights as well as the structural problems in global financial stability. Developing country representatives reiterated that South-South development cooperation is a complement to, and not a substitute for, North-South cooperation.

Chilean Ambassador, Eduardo Galvez, said that the Monterrey Consensus still “serves as the lynchpin” for development today, and that a critical problem in moving forward is the deficiencies in global financial governance. “The problem is sometimes that people don’t want to see the UN involved in discussions beyond humanitarian aid and development assistance. However, there is ample evidence that the UN does indeed have the authority to discuss financial and economic policy issues,” said Galvez.

Galvez said that the legitimacy of the UN involves both the framework for global economic governance as well as the UN’s ability to come up with international guidelines for sustainable development. The UN should work on a document that would yield an international basis for the post-2015 horizon, when consensus will be sought on what the UN should do on both the MDGs and sustainable development.

When it comes to the future of the MDGs, the most important thing is the clarity of the goals, a clarity which must be preserved, Galvez underscored. However, several aspects should be integrated into the future of the MDGs, such as the Monterrey Consensus, alternative measurements of development, and the notion of sustainable development, as economic, environmental and social issues should be seen as a whole. The Rio+20 Summit should stimulate a push in this direction direction.

Showing sad parallels with the climate crisis, the effects of the financial and economic crisis have been felt most intensely by those in no way responsible for it, said Roberto Bissio, coordinator of the non-governmental organization Social Watch. Bissio pointed to a chart from the annual Social Watch report to the audience, which demonstrated that while world trade had increased significantly over the last 40 years, world per capital income had increased much less, and world basic capabilities index had increased even less. Given the multiplication of global wealth, why has this happened, Bissio asked.

The (2011) OECD report on inequality, Divided We Stand: Why Inequality Keeps Rising, shows numerical evidence that rich countries are becoming more unequal. Developing countries growing the fastest are at the same time increasing their inequality the fastest as well. The ways in which massive transfers of resources from the poor to the rich occur imply that inequality cannot be sustained.

The financial paradox, Bissio said, is that some LDCs accumulate more money every year in their central bank reserves than what they receive as official development assistance (ODA). This amounts to the poorest of the world providing soft loans to the new “HIPCs, the Highly Indebted Powerful Countries.” Bissio asserted that “global financial stability is a global public good that is required to free developing countries from this financial servitude.”

Many middle-income developing countries are today buying IMF bonds, which are then recycled to European countries. Why are developing countries doing that? And how can all developing countries plug the leaks to that outflow of resources? The reason for this is simply that the international financial system is so unstable and predatory, that reserves are required to self-insure countries from competitive and speculative attacks. The primary deficit in the Monterrey Agenda is that of global financial stability, and this makes it impossible for countries to use their own resources for themselves.

Bissio said there was a worrying trend whereby even countries enjoying economic growth and budget surpluses were implementing austerity packages, with 70% of 128 countries studied by the United Nations Children’s Fund (UNICEF) either implementing or considering the implementation of austerity measures. One quarter of developing countries out of the 128 country sample were even cutting expenditures to pre-crisis levels, despite the fact that they faced no fiscal debt problems. “This is a horrible fashion that is being followed, maybe because that’s what Paris and other fashion centres are doing, and therefore we all follow the fashion and do it even if we don’t need it,” he said, describing the trend as “tragic.”

Referring to Social Watch’s annual report, Bissio said 66 countries had reported on the question of sustainability ahead of the “Rio+20” UN Conference on Sustainable Development in June 2012. When the question of sustainable development was put to people at the grassroots level, it did referred not only to environmental sustainability, but also to financial and political sustainability, “because the financial crisis was disrupting the social contract around the world.”

Such issues are being featured in the current High-level Dialogue on Financing for Development, he said, adding that a key advantage of the United Nations was its capacity to integrate the various aspects of sustainable development within a human rights framework, which was the cornerstone of the Organization and its image around the world.

The “austerity” epidemic can be substantially addressed from two angles. First, from a human rights standpoint that stresses the responsibilities of governments, under the United Nations Charter, to use all available resources to ensure the human rights of their populations, and equated the cutting of basic services with a violation of those human rights.

Second, the economics of austerity policies are poor, he said, warning that if countries kept lowering costs in competition with others, there would be a “race to the bottom, which ultimately submerges the entire world economy.” If the G20 was to formulate a plan to stop States from racing to the bottom, the United Nations needed to take the reins, he added.

The Basel Accord established laws for the banking industry. The problem is not so much the absence of institutions as it is a lack of enforcement and institutional regulatory capacity. Off-shore banking and fiscal havens mean that unregulated money is circulating in undocumented places, contributing to the race to the bottom.

But this does not mean there is no authority. This means that the democracy and legitimacy of decision-making is lacking. “That’s what sustainable development is all about – governance of ‘sustainability.’” With regard to governance, three urgent measures are needed in financial regulation governance: (i) the curbing of speculation through the establishment of position limits, (ii) increased transparency in the trade of derivatives and (iii) compulsory delivery or banning of certain types of trading. Furthermore, large firms should be broken up into smaller size firms.

The director of the Bureau of Development Policy for the UNDP, Olav Kjorven, reviewed MDG achievements and noted “remarkable progress in several areas, such as maternal health, HIV/AIDS and infant mortality.” Even in disaster-prone countries, the evidence showed that MDG achievement is possible. However, progress remains uneven across many countries due to the aggregate problems of various issues such as food security, youth unemployment, women’s empowerment.

Most critically, financing for development has been a shortcoming on many fronts. “For example, ODA lags far behind, and in fact, had donors met their aid commitments there would have been more than enough resources by now. Important advances in the area of health and environment.” Financial inclusion, which responds to the need of poor households, also needs to be supported and scaled up. Concrete examples include post-office banks, telephone and internet banking, which need to be combined with increased public financial management.

Although good progress has been made to combine debt resolution mechanisms such as HIPC and MDRI, many LDCs are excluded from these processes although the recent crises has exacerbated debt vulnerabilities. In this context, the current FFD is critical to scale up financing for the achievement of all previously enshrined goals.

The Busan Outcome Document, endorsed by both developed and developing countries, is important because it recognizes the plurality of development players, ranging from South, North, civil society, private sector, academics, and other stakeholders. The multitude of new development partners requires a consideration of sovereign bond markets, private capital flows, remittances, and other private sector flows. These ought to be combined with new international commitments to mobilize new resources.

Going forward, there is a need to expand, define and diversify safety nets, as well as proposals on international taxation, tax havens, illicit financing flows and financial stability. However, it will be a challenge to make sure that innovative financing makes a constructive contribution to development.

Several member states made contributions to the informal dialogue.

India said that it was “slightly disconcerting that when discussing FFD, the UN is too focused on the post-2015 development framework.” This is a premature step, as “we first need to bridge the current gap on MDGs and meet the commitments which have been previously agreed to.” As such, fulfillment of the MDG goals by the deadline of 20015 should be at the center of FFD.

India expressed support of the Busan outcome with a “clear understanding that South-South cooperation is different from North-South cooperation.” While there has been much dialogue on an improved model of development cooperation, India reminded its fellow delegates and officials to “keep in mind that developed countries still face many challenges ahead.”

China also made a distinction between North-South and South-South development cooperation, saying that “South-South cooperation is not a substitute for North-South cooperation, but rather a complement to it.” The nature, modalities, expectations and outcome of South-South cooperation is qualitatively different than that of North-North. China added that the key to ensure aid effectiveness is the fulfillment of adequate ODA development resources to developing countries.

Colombia also added its voice to the prevailing sentiment among developing countries that South-South cooperation is complementary, not a substitute, to North-South cooperation.

Venezuela agreed with other delegates who had, during the two-day FFD dialogue, said that although the Busan Agreement is significant, it is not an official UN document and thus, it cannot be viewed as part of the UN system. The systemic chapter of the proposal that developing countries brought to Monterrey in 2002 on the international financial system, that is, the issue of world economic governance, as Amb Galvez has rightly mentioned, should instead be at the center of our discussions.

“How can we then contribute to the follow-up of Doha and Monterrey?” asked Venezuela. “The issue of economic governance is very important, especially when it comes to reforming the global reserve system, which is a serious concern to my delegation.”

Mexico said that the Rio+20 Summit “is an opportunity to promote a more inclusive vision, and to integrate the environment as a cross-cutting key agenda, particularly because Rio involves arrangements for the vertical strengthening of each of the pillars.” The three Rio+20 pillars of environment, social, and economy reminds us that we should not lose sight of the whole, which is complex and which goes beyond purely monetary factors.

The United States said that the remarks of Roberto Bissio, of Social Watch, are particularly important. There is a relationship between economic growth and economic inequality, in that “we should never think that there is some sort of trickle-down.”

Furthermore, significant changes are occurring in the economic geography of debt, trade finance, and foreign direct investment (FDI). Today, 40% of world trade and 35% of outward FDI comes from developing countries. “Cooperation amongst developing countries can foster greater growth, poverty alleviation and development results.”

The European Union stated that the EU has continuously supported a wide range of development financing tools. Since 2003, the EU has presented an annual review of its financing to monitor and review the progress made. The goal now is to raise awareness through innovative financing mechanisms for development, such as a financial transactions tax. However, there is still a clear need to mobilize traditional ODA as well as new financing for development resources.

The NGO Committee on Financing for Development made an intervention on development principles and systemic financial issues. Even as the MDGs were being adopted, more than a decade ago, questions were raised as to how they would be financed. Just two years later, the Monterrey Consensus contained not only principles and agreements, but also a call for a detailed intergovernmental process, and to carry forward a discussion on FFD.

The FFD office was created in DESA to fulfill this responsibility. Given what has happened since 2002 it is now time to raise the FFD office to a substantive commission of the ECOSOC. This upgrade would strengthen the FFD mandate, provide a forum for the urgently needed and ongoing global financial crisis, and would contribute to greater coherence of global trade, financial and economic policies.

Goal 8 of the MDGs calls for real partnership. We call on member states to commit to three means that would be mutually beneficial to contribute to MDGs. First, an international debt resolution mechanism to address the destructive burden of debt repayment imposed on developing countries, which in many cases are illegitimate and odious. Any such mechanism needs to be fair, transparent and legitimate.

Second, the implementation of a financial transactions tax, which is widely supported at the present time. The revenues from this tax ought to be used for development, such as meeting the internationally agreed development goals, a universal social protection floor and addressing the financing needed for climate change.

Third, member states are called upon to allot 5% of their present military budget to development.

The Global Foundation for Democracy and Development, based in the Dominican Republic and New York, made a statement on the impacts of financial speculation on futures markets and global development. Food insecurity and price volatility, as a result of food and oil speculation, has become one of the key constraints to the MDGs. Food speculation has radically changed the science of economics. The price of commodities is no longer determined by supply and demand but by the perceptions and risks of financial speculators.

Financial speculation takes unfair advantage of economic, social, political and environmental conditions, so as to increase profit margins of institutional investment firms, who dictate market prices to a far greater degree than consumers and producers do. Markets no longer have a social value. They have become casinos where speculators spend money they do not have for commodities they have no use for. According to World Bank estimates, during 2010 and the first half of 2011, 70 million people plunged into poverty as a result of volatile and high food and oil prices. If effective measures are not put in place to address excessive speculation, this situation will keep getting worse.

The Global Foundation for Democracy and Development promotes a new consensus on commodity price stability, defined by the following criteria: (i) limits on the positions of investors, (ii) higher margins than the premiums required to underwrite futures contracts, (iii) limits on the volumes that financial investors can trade and (iv) banning financial speculation in food futures markets.

Barbara Adams, representing Social Watch, addressed the dilemma where on the one hand the international community seeks concrete measurable targets and on the other hand there is a significant narrowing of the approach to development from an integrated one to one that is fragmented and isolated. Most of the panelists articulated how important it is to strengthen the role of the UN system as we go forward. How do we do this with regard to development results, and not just effectiveness alone, and how do we measure progress toward those results? There is confusion around the Paris indicators. Are they in or are they out? National ownership and the use of country systems is another contentious area which CSOs feel is lacking in many cases.

Ambassador Galvez highlighted the way in which we are measuring progress. The international community relies too heavily on aggregate GDP, whose insufficiencies have been pointed out by many. My question would be what would need to happen in Rio 2012 and the Beyond 2015 process, in that what sort of new metrics are needed and how will they be translated into practical use beyond the academic interpretation?

John Langhorn, Representative of the UN’s Academic Council, focused his intervention on the problem of fiscal austerity, saying that “there is a tendency in some quarters to regard austerity as the signal of responsible macroeconomic policy, when in fact what’s responsible is to maximize growth and well-being.”

If we can learn one lesson from the Great Depression, he said, it should be that it is perverse to cut expenditure and wages at a time when the economy is either in recession or worse. What is responsible is to build up aggregate demand and output that would contribute directly to faster movement on development, which would include achieving the MDGs.+