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Info Service on UN Sustainable Development (Sept20/07) New York, 18 Sep (Bhumika Muchhala) -- A unique virtual convention of Finance Ministers and high-level financial and economic policymakers on 8 September discussed the key macroeconomic challenges of sovereign debt, liquidity and financing to address the economic recession created by the current global pandemic. Facilitated by the Deputy Prime Minister and Minister of Finance of Canada (Chrystia Freeland) and the Minister of Finance and the Public Service of Jamaica (Nigel Clarke), the webcast discussion brought together international organizations, thought leaders and a small number of civil society organizations in an open dialogue to concur on concrete steps that can be taken by the international macro-policy community. An extensive menu of policy options to identify people-centered solutions to the global economic recession that disproportionately impact developing countries was presented to the Finance Ministers. The policy options were the culmination of the work of six discussion groups on six interconnected topics: external finance, remittances, jobs, and inclusive growth; recovering better for sustainability; global liquidity and financial stability; debt vulnerability; private sector creditors' engagement; and illicit financial flows. The event marked a milestone after months of work following a High-Level Meeting convened on 28 May by the United Nations Secretary-General and the Prime Ministers of Canada and Jamaica, which launched the Financing for Development in the Era of COVID-19 and Beyond Initiative. The objective of the 8 September meeting was to relay priority actions on debt, liquidity and public financing to Heads of State and Government in order to generate high-level political momentum towards the menu of options when they convene on 29 September. Support to extend debt suspension & create structural solutions The call to extend the Debt Service Suspension Initiative (DSSI) until at least end-2021 to provide support to the 73 poorest countries was voiced by France, Japan, Pakistan, Senegal, China, Rwanda, Ethiopia, the Netherlands, Saudi Arabia, Germany, Norway, and the IMF and World Bank. The need to widen the scope of participation for the DSSI was widely supported, with many representatives noting that Middle Income Countries, including many Small Island Developing States, do not currently meet DSSI eligibility criteria even while they are reeling from the worst economic impacts of the crisis. Germany underscored that the DSSI extension addresses liquidity but not solvency issues, and advocated for a case-by-case basis for countries that have solvency issues. In this key call to extend the DSSI, finance ministers concurred with the menu of options, which explicitly prioritizes the extension of DSSI until 2021, as well as debt cancellations and write-downs of bilateral and multilateral debt. In its written letter to the Finance Ministers, the Civil Society Financing for Development (FfD) Group, including the Women's Working Group on FfD, called for a permanent cancellation of external debt payments for up to four years to all developing countries in need without penalties. Many African countries, the IMF, China, the EU, France, Pakistan, Spain, the World Bank, and the US stressed the importance of private sector creditors to participate in debt relief initiatives in order to avoid mass debt defaults. Pakistan and China, among others, called for multilateral development banks to join this initiative. Pakistan underscored that participation in the DSSI should not affect a country's credit ratings. Meanwhile, the Economic Commission for Latin America and the Caribbean (ECLAC) went a step further and proposed the creation of an independent, public credit rating agency. The civil society letter highlighted that debt-distressed developing countries must be protected from lawsuits when ceasing debt payments at national and multilateral levels. The African Union, Senegal, Nigeria and the Gambia asserted that certain countries will need a complete debt cancellation. A structural solution to debt distress was proposed by Oxfam in the creation of a sovereign debt restructuring mechanism at the UN to support comprehensive, systematic and timely debt restructuring. The Civil Society FfD Group, including the Women's Working Group on FfD, proposed the establishment of a Sovereign Debt Workout Mechanism at the UN to support comprehensive, systematic, timely and fair restructuring of sovereign debt. They also recommended that debt relief initiatives should reduce developing country debts down to sustainable levels, where sustainability is defined by countries' long-term financing needs to pursue the SDGs, climate goals, and human rights and gender equality commitments. On 22 April, the UN Conference on Trade and Development (UNCTAD) had proposed an International Developing Country Debt Authority to prevent a protracted debt crisis. Such a body would establish the institutional and regulatory foundations for a more permanent international framework to guide sovereign debt restructurings. It could create an autonomous international organisation by way of an international treaty between concerned states. Essential to such an international agreement would be the establishment of an advisory body of experts with independence from both creditor or debtor interests. Liquidity, financing and special drawing rights Both developed and developing countries, including Ghana, Pakistan, China, Rwanda, Italy, Senegal, Nigeria, as well as ECLAC, called for a new issuance of Special Drawing Rights (SDRs) and the reallocation of the roughly US$176 billion unused Special Drawing Rights currently held by developed countries. The IMF reiterated that it is already expanding the use of existing SDRs and shifting them towards developing economies on concessional terms. The Finance Minister of Ghana highlighted the importance of SDRs for African countries that lack access to hard currency. Earlier this year, African finance ministries called for $100 billion of liquidity provision per annum in order to recover from the economic recession created by the pandemic. The menu of options delivered by the UN agencies include SDR issuance as well as the extension of swap lines created by developed country central banks. The Civil Society FfD Group, including the Women's Working Group on FfD, called for an urgent liquidity injection commensurate with the level of need among developing countries through a new allocation of SDRs, combined with a reallocation of unused ones. [The SDR is an international reserve asset based on a basket of five currencies - the US Dollar, the Euro, the Chinese renminbi, the Japanese yen and the British pound. It was created by the IMF in 1969 to supplement its member countries' official foreign reserves. SDRs would provide a low-cost and non-debt creating liquidity to developing countries to address urgent economic and health financing needs. [In the wake of the global financial crisis of 2008, the IMF issued $250 billion worth of new SDRs in 2009. The scale of the COVID-19 crisis calls for a significantly higher issuance; however, despite widespread political support for a new issuance, it has not yet materialized due to the absence of support from the US. [A new issuance of SDRs would have the effect of building up the level of foreign currency reserves in the central banks of developing countries. Such a boost to reserves is critical in a time of capital outflows, rising import costs due to depreciating currencies and mass disruption in global trade and financial flows. Besides financing stimulus needs, SDRs would also facilitate borrowing at lower interest rates and purchase needed imports.] Several countries and institutions called for the creation of new funds and facilities to provide targeted financing to vulnerable countries. Costa Rica proposed that the Fund Against COVID-19 Economics should provide financing to developing economies through concessional finance and investments from multilateral development banks. The Economic Commission for Africa recommended a Liquidity and Sustainability Facility that specifically reduces interest rates for developing countries. ECLAC called for a Caribbean Resilience Fund to link debt relief with economic and climate resilience, while the Maldives called for the creation of a Global Trust Fund to provide assistance to Tourist-Dependent States. The need to recapitalize local, national, and regional multilateral development banks was also echoed throughout the discussion, with the International Development Finance Corporation urging participants to attend and contribute to the Finance in Common Summit - the first ever global meeting of public development banks - to be held in Paris in November 2020. The menu of options produced by the six discussion groups proposed creating a liquidity and stability facility that would enlarge access to concessional loans and grants, and which could be partially funded by the sale of the IMF's gold reserves. The UN agencies emphasized that middle-income countries, and especially small island developing states, are experiencing severe liquidity shortages in the context of limited access to markets, declining public revenues and increasing debt distress. Another policy option entailed creating a global coordination and cooperation mechanism for joint trade and investment, promotion for crisis-relief, economic strategy for recovery and sustainable reconstruction, and mobilization of all sustainability-themed funds, including pension funds, sovereign wealth funds, private equity funds, and impact investment. UNCTAD, among others, stressed that public financing should be channelled more effectively to help support vulnerable groups. On the other hand, several developed countries supported channelling private finance in developing countries. Participants including ECLAC and Egypt called for greater use of diaspora investments to complement lost revenue from plunging remittances and for the reduction of remittance transaction costs. Highlighting the high rates of informality in developing and emerging economies, Egypt proposed providing cash transfers for emergency relief, implementing employment guarantee schemes, and reducing high taxes on formal work. Spain, Denmark, and the EU supported scaling up social protection and decent jobs, with some lending support to the ILO's 100% Decent Work Initiative. The International Trade Union Congress also called for the creation of a global protection fund for the most vulnerable to help build a new social contract. Several countries, including Bangladesh, China, and the Gambia, called on donor countries to achieve the 0.7% of GDP official development assistance (ODA) target committed to in the Financing for Development Addis Ababa Action Agenda. The Civil Society FfD Group called for reviewing the development outcomes of public-private partnerships (PPPs) and "private finance first" approach, while reaffirming the centrality of public policies and investments. The COVID-19 pandemic has provided a stark reminder of the importance of accessible and affordable public services, and the shortcomings of development models that prioritize private profit over public needs. Civil society rejected the World Bank Group's Maximising Finance for Development (MFD) approach that implies a problematic "private finance first" attitude to development finance and a rather unrealistic assumption that private finance will appear to fill the financing shortfalls. While donors and institutions promote a "Billions to Trillions" narrative and blended finance, whose development impact is yet to be proven, the reality is that they are not living up to their own commitments and are instead regressing. Civil society called on governments to declare a moratorium on funding, promoting or providing technical assessment for PPPs and the "private finance first" approaches until an independent review into their development outcomes is completed. They also called on donor countries to immediately reverse the decline in ODA by meeting and where possible exceeding the 0.7% target for ODA in the form of unconditional grants and technical support. Donors should ensure that development aid is not diverted but rather reinforces a humanitarian response to the crisis by ensuring that emergency responses are aligned with developing country priorities without conditionalities. Illicit financial flows The current moment poses deep contradictions where on the one hand there is sparse liquidity where it is urgently needed to address extreme poverty, the threat of famine and economic and health crises. On the other hand, the drain of financial resources out of developing countries continues unabated through illicit financial outflows, and particularly through corporate tax evasion and avoidance and the use of tax havens. At the same time, central bank credit extensions are creating a glut of liquidity in rich country financial market centers, and many large firms in the private sector are earning large profits while speculative trading allocates gains to elite investors. The finance ministers acknowledged that the current juncture requires a concerted effort to unlock the much needed resources that are funnelled away from public purses through illicit financial flows (IFFs). Several countries proposed a rapid transparency response mechanism to prioritize anti-corruption and anti-money laundering solutions. Elaborating upon UNDP's work on digitalization, several participants, including Nigeria, the Financial Action Task Force and Oxfam underscored the importance of using digital technologies to strengthen automatic exchanges of tax information, boost anti-money laundering systems and combat tax evasion and IFFs. Nigeria called upon destination countries of IFFs to fully participate in combatting them and returning stolen assets. Oxfam was the only actor to reinforce the central advocacy call of the Addis Ababa FfD conference that called upon the UN to organize a Global Tax Convention. Civil society underscored that it is now a critical time to establish a universal, intergovernmental process at the UN to comprehensively address tax havens, tax abuse by multinational corporations and other IFFs that obstruct redistribution and drain resources that are crucial to challenging inequalities, particularly gender inequality. Taxing income, wealth and trade should be seen to support the internationally agreed human rights frameworks, as without taxation we cannot mobilise the maximum available resources to fulfill economic and social rights. Tax abuse and tax avoidance also need to be considered under the extraterritorial obligations of states towards other states not to hamper the enjoyment of human rights via blocking financing through abusive tax laws, rules and allowing companies and wealthy individuals to abuse tax systems. The menu of options produced by the UN called for immediate and long-term responses to IFFs, including cooperation on recovery and return of assets, boosting beneficial ownership information collection and transparency and developing the political consensus to address systemic shortcomings related to IFFs. Role of UN in addressing COVID-19 induced economic recessions At the conclusion, the Minister of Finance of Jamaica proposed a Summit on economic recovery from COVID-19 in order to enhance political will and momentum toward translating into action the menu of options discussed at the meeting. Such a forum would ensure that the critical policy actions needed to avert deep and structural crises in the most vulnerable regions of the world are given clear mandates for implementation. It would also serve to reclaim the UN as the venue where discussion, debate and consensus building on global economic issues can be carried out through universal participation. International financial institutions may dominate global macro-policy decision-making; however, the governance bodies do not represent or recognize universal participation and equity in voice and influence. Civil society reiterated their call on UN Member States to mandate an "International Economic Reconstruction and Systemic Reform Summit under the auspices of the UN" to move towards a new global economic architecture that works for the people and planet. First made in April 2020, civil society underscored that the formal mandate for such a Summit should also provide for an appropriate intergovernmental preparatory process to ensure the adequate space for government to reflect on all options and inputs and agree on an outcome document that could provide a pathway for a new international economic consensus. They stressed that the intergovernmental negotiation process must be transparent and inclusive, allowing full and effective participation of civil society. The Jamaican Finance Minister also underscored that women have disproportionately borne the brunt of the effects of the COVID-19 crisis and urged stakeholders to incorporate a gendered element into response plans. Regrettably, the meeting lacked a substantive inclusion of gender in the economic discussion. The Canadian Finance Minister underscored that the pandemic is "not a leveler, but a revealer," which could become a magnifier for inequalities systemic in our system unless urgent steps are taken to counteract that possibility today. In conclusion, the UN Deputy Secretary-General expressed appreciation for the renewed sense of urgency to deliver a set of ambitious yet realistic policy options to Heads of State and Government on 29 September, and highlighted the need to consider bold proposals such as universal basic income and universal health care, which aim to lay the groundwork for a more resilient future where future shocks to the financial system will not have catastrophic roll-over effects on the real economy. +
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