Global Trends by
Monday 3 November
developing countries’ financial woes
Blurb: Last week,
the United Nations convened a Dialogue to review the financing situation
of developing countries as a follow up to the Finance for Development
Summit of 2002. The findings were somber. Funds are moving out from
developing countries, and their debt and trade conditions have not improved.
Only a change in political will can improve matters.
In March 2002, the United Nations
convened an International Conference on Financing for Development. Held
in Monterrey (Mexico), it was attended by many government leaders, including
US President George Bush.
There were high hopes then,
for the Summit, and its “Monterrey Consensus” committed rich countries
to facilitate more funds to flow to developing nations, which in turn
agreed to use resources more efficiently to help the poor.
But a year and a half later,
the results of Monterrey are disappointing, even “alarming”, as one delegate
put it. Instead of funds moving from rich to poor countries, they are
going the other direction.
It turns out that almost US$200
billion was transferred in 2002 from developing countries in net terms,
double the amount from a few years ago.
This perverse situation – the
poor helping to fund the rich – was highlighted last week at the United
Nations in a “high level dialogue” on Financing for Development to review
the implementation of commitments made by governments at the Monterrey
There were several Finance
Ministers of developing countries present and quite a few Ministers of
Development from the developed countries. The heads of the IMF and World
Bank and the deputy chief of the WTO also came for the opening session,
besides the UN Secretary General and UN agency chiefs.
The discussions went through
a whole jumble of issues, but one theme came through clearly: 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
Then the situation further
worsened, dramatically. In 2001, the net outward transfer was $155 billion,
and it rose further to $193 billion in 2002.
Other key themes that emerged
in the Dialogue:
** There was a bright spot
in that the decline in official aid was reversed, though the levels are
still far too low.
** The external debt situation
remains critical, with the initiative to help the poorest countries proving
inadequate and no solutions were yet found for middle income countries.
** Developing countries are
still waiting for gains from the promised development aspects of the WTO’s
Doha programme, the Cancun talks collapse was a setback, and negotiations
should re-start soon. Many delegates called for Northern agriculture subsidies
to be quickly removed.
** There has been no progress
towards a new international financial architecture.
** Monterrey called for increased
participation of developing countries in decision-making at international
organizations like the international financial institutions and the WTO,
but there has been little progress on this.
** Monterrey was not an arrival
point but only a point of departure and the work of implementation that
has barely started has to be given an impetus.
** The Financing for Development
(FFD) follow-up process and institutions are very weak and they need to
be strengthened if any serious follow up work on implementation is to
** The key problem, identified
by many, is the lack of political will by the developed countries. There
was no agreement on how that can be strengthened.
On developing countries’ lack
of participation in decision-making, the structures and practices of the
WTO, IMF and World Bank, came in for criticism.
At the opening session, UN
Secretary-General Kofi Annan called for the reversal of the negative balance
sheet and fix the economic system so that all countries and people, especially
the poorest, can benefit.
While foreign aid 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. This defies common sense, he said,
adding that funds should be moving from developed to developing countries,
but those numbers revealed the opposite was occurring.
Funds that could be promoting
investment in developing countries, or building schools and hospitals,
are instead being transferred abroad, he added.
The results of Monterrey revealed
a mixed report card. While aid had risen, it was still far short. In
the trade area, subsidies and tariffs were stifling poor countries’ ability
to compete fairly. Foreign investment in the developing world was down.
Too many developing countries continued to carry too much debt, making
it clear that existing measures are inadequate and that an international
framework for debt restructuring is needed.
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 again, with the
the WTO talks in Cancun, lagging development aid and abiding inequities
in the international trade system, it was clear that more cooperation,
dialogue and action were needed.
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 the global economic outlook was improving. But risks remained,
especially the excessive dependence of the world economy on US growth.He
believed resolving current account imbalances in an orderly manner should
be the main aim of international economic policy. That required a cooperative
approach involving all major countries and regions.
UN Conference on Trade and
Development (UNCTAD) Secretary-General Rubens Ricupero said 2003 was the
seventh year of negative net flows of financial resources from developing
to developed countries, thereby suggesting the world may be in another
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. The UN Economic and Social
Council (Ecosoc) ECOSOC, should be a forum to discuss increased policy
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. What was too often missing was the political will.
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.
Deputy Director-General of the WTO said while trade could be an engine
for growth, developing countries faced too many obstacles in the present
international trading system. The Cancun setback 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.
Later, at an “interactive session”
in which governments, civil society groups and business groups spoke up,
it was pointed out by many that there was a very weak follow-up mechanism
to carry forward the work from the Monterrey conference. It presently
comprises only a one-day annual dialogue between UN members and the secretariat
heads of the IMF, World Bank and IMF; and a three-day FFD Dialogue every
As Roberto Bissio of Social
Watch, representing the NGOs, put it to the delegates: “The spirit of
Monterrey that we all praise, needs to find a body to live in. Otherwise
it will remain a ghost.”
The General Assembly President,
Julian Hunte, Foreign Minister of St. Lucia, referred to the “burning
question” of how to reccharge trade negotiations after Cancun. He criticized
the undemocratic nature of how the Cancun Ministerial meeting was run.
Indian Minister of State for
External Affairs Vinod Khanna said there was little progress in implementing
the agreement to enhance participation of developing countries and giving
them a greater voice in decision-making in decision-making processes of
international trade, financial and monetary institutions. It was extremely
important to address this very early as the trading and financial systems
do not always take developing countries’ interests into account
He asked the Secretary General
to provide an assessment report on why, despite the Monterrey commitments,
the net transfer of resources to developing countries not only continue
to be negative but is getting aggravated to an alarming extent..
Brazil said developing countries
could gain US$400 billion in 2015 should agricultural trade by liberalized,
and thus subsidies should be reduced. South-South trade including through
the GSTP scheme was very important. He stressed the importance of policy
coherence and the central role of the UN and Ecosoc.
China called for a monitoring
and assessment mechanism to be set up in the UN. There should also be
a Financing for Development committee.
Pakistan said the many good
ideas should be fleshed out otherwise there would only be a repitition
of “lip service.” Kenya asked for removal of agriculture subsidies.
At present it was better to be a cow in Europe, enjoying $2 subsidy a
day, than a person in a developing country where many live on below $1
a day.. He also questioned what steps were taken by the IMF and World
Bank to increase developing countries’ participation in decision-making.
Italy on behalf of the European
Union deeply regretted the Cancun failure. The EU believed WTO negotiations
must resume as soon as parties are ready.
Norway’s Development Minister
gave an account of how Norway had increased aid and cancelled all debt
by the poorest countries. . She stressed the need for political will
if implementation is to progress. She proposed an effective review and
monitoring mechanism to address the shortcomings of developed countries.
The US stressed the importance
of domestic resources for development. Cancun was a missed opportunity
especially for developing countries. The US was willing to make deep
tariff and subsidy cuts, but developing countries must also remove their
John Foster of the North-South
Institute of Canada said with the Cancun collapse it was urgent that the
assumptions and procedures of the trade system be reviewed. Moreover
the international financial institutions must cease their pressure to
impose inappropriate liberalisation and privatization measures onto developing
countries. The WTO needed to change its habits and end its manipulative
and opaque processes.
Roberto Bissio, of the NGO
Social Watch, said the role of the UN has been reduced in the last two
decades by a political decision of the rich countries. The IMF, World
bank and WTO have encroached in areas not in their original mandate.
The WTO should do trade, the
IMF should do finance properly and the World Bank should support well
designed projects; these institutions should not stary into other roles.
And the UN should be strengthened
He added: “Following the Monterrey
recommendations, we need to change the voting powers in the Bretton Woods
institutions, ensure more representation of developing countries in their
boards and regular accountability towards the UN General Assembly. The
WTO has to be brought into the UN family.
“There is a gap in global governance
related to debt. The world needs a UN led mechanism to ensure fair and
balanced burden sharing.
“ECOSOC needs to be strengthened.
A permanent ECOSOC executive committee needs to be set up.In summary,
the spirit of Monterrey that we all praise, needs to find a body to live
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