Report to the GSEG on the High Level Dialogue (HLD) of the General Assembly on Financing for Development which took place from 23 to 24 May, 2010 at UN Headquarters in New York
Prepared by Jeroen Kwakkenbos, ITUC – United Nations Office
The HLD was organized into two plenary sessions on the first day, three simultaneous Round tables on the morning of the second day, and a plenary interactive session in the afternoon of the second day.
The first plenary session of the HLD was opened by H.E. Mr Ali Abdussalam Treki: President of the General Assembly, and received Statements from: H.E. Mr Ban Ki-Moon, Secretary General of the United Nations, Otavio Canuto, Vice-President and Head of Poverty Reduction and Economic Management of the World Bank, Rebeca Grynspan, Associate Administrator of UNDP, Petko Draganov: Deputy Secretary General of UNCTAD, and Shishir Priyardarshi, Director of the Development Division, WTO.
The plenary sessions focused on the current state of the world financial architecture, and its implications for development.
There was general consensus that the global financial institutions need to be reformed if they are to deal with the major issues of the 21st century. This is particularly true in regard to the millennium development goals. The financial crisis has seriously impeded the ability of developing nations to meet the targets put forward in the MDG’s. Of equal cause for concern is the fact that some developed nations have begun to renege on their ODA commitments. New and innovative sources of finance are needed to fill in the gaps caused by the crisis. It was noted that these new sources of finance should be used to complement existing ODA allocations, rather than replacing them. It was further stated that there is a sense of urgency behind this financing as developing nations require immediate help to cope with the severe and on-going effects of the financial crisis.
It was noted that the LDC’s bore the brunt of the financial crisis while having the least responsibility for bringing it about. They should be targeted to receive increased amounts of ODA in order to facilitate their achievement of the Millennium Development Goals. Without this increase it is not clear that they will be able to recover from the lingering effects of the crisis, even after more developed economies have recovered.
Many government representatives stated that developing nations required increased policy space in order to have ownership of their development goals and to effectively carry out counter-cyclical agendas. To further strengthen this ownership, all policy conditionalities attached to aid should be removed, so that developing countries can design their own platforms for development. This tailor-made approach to aid will help undo the damage caused by the blanket “one size fits all” approach prevalent before the crisis. Reciprocal to this there was also a call for better governance of the global economic system with increased access to decision-making for developing countries. The major world financial institutions need to be more representative in their staff and governing bodies of all their client nations, in order to ensure that the developing world’s interests are fairly represented, and not just those of donor states.
Several speakers emphasized the importance of the private sector in development, advocating for market liberalization, in addition to highlighting the necessity of leveraging existing financial flows to encourage investment, while prioritizing good governance.
High Level Dialogue on Financing for development
Round table 1: “The Reform of the International Monetary and Financial System and its Implications for Development.
To start off the discussions, presentations were received by the following Panelists: Mr. Jose Antonio Ocampo, Professor in the Professional Practice of International and Public Affairs,
The 1st round table of the High Level Dialogue focused on the inadequacy of the current international monetary and financial system to effectively deal with development issues. The institutions that were created to avert an international financial crisis found themselves unable to do so. To meet the demands of the modern world economy serious reforms will have to take place within these institutions.
There was a consensus among the speakers that there is a strong need for the coordination of financial and macroeconomic policy and reform. There was a sense that the world financial institutions had either become outdated in their approach or had changed their roles completely in recent years. Martin Khor illustrated this point by stating that banks needed to behave like banks, not like casinos or the facilitators of casinos.
It was stated by all the speakers that new and more rigorous forms of financial surveillance were needed to prevent future crises. It was further argued that this surveillance should not be limited to client states but to donors as well. There should also be more thought given to the effect of individual countries’ financial policies on the rest of the world. In this way each nation could be viewed under a globalized prism of intersecting economies rather than as existing in a vacuum. Global policy coordination was emphasized as being of paramount importance.
All aspects of governance were targeted for reform within the Bretton Woods institutions (BWI’s). It was argued that the BWI’s were not representative of their client nations and that significant changes should be made to the representativity of their Executive Directors, the composition of their staff, the process of management selection, and the diversity of their staff.
There was much discussion as to who should spearhead this reform, with the G20 being put forward by some as a possible candidate. Many of the speakers and participants noted, however, that the G20 was not a legitimate forum for global policy-formulation on development matters, as it is neither inclusive nor particularly democratic. More representative institutions, particularly the UN itself, could be more effective at engaging in this reform.
The question was raised as to what role the G20 should and would play in the future. Many of the participants who are members of the G20 made it clear that the G20 did not claim any legitimacy as a world forum and saw itself as a consultative body. Several participants posed the question that if this was the case, then why did the G20 choose to operate outside of the UN system. It became clear to all the participants that the UN and the G20 needed to operate as complementary vehicles of global governance rather than as competing entities. While the G20 was effective in its rapid response to dealing with some of the financial failings that fueled the crisis, it did not have the proper structure, legitimacy and expertise to deal with long term economic reform for sustainable development.
Several of the speakers noted that despite some reform being enacted within the IMF, there is still a long way to go. Lending should become more transparent and effective at targeting developing nations’ specific concerns and priorities. There should also be more collaboration between the IMF and regional financial institutions, to better coordinate development efforts. Bhumika Muchhala of Third World Network suggested that Special Drawing Rights (SDR’s) should play a much larger role in development. This point was vigorously agreed to by Mr. Jose Antonio Ocampo who stated that if it were left up to him, all of development would be financed by SDR’s and the IMF would be dismantled.
High Level Dialogue on Financing for development
Round table 2: “The impact of the current financial and economic crisis on foreign direct investment and other private flows, external debt and international trade.”
To start off the discussions, presentations were received by the following Panelists: Mr. Heiner Flassbeck, Director, Division on Globalization and Development Strategies, UNCTAD, Mr. Daniel Titelman, Director, Development Studies Division, UN-ECLAC.
The economic crisis had affected the financial solvency and sustainability of every country in the world. Despite the fact that everyone was touched by it, the rates of recovery have been remarkably uneven. The LDCs are at risk of losing all of the headway they made previous to the crisis in achieving the Millennium Development Goals. Middle income countries are finding themselves in positions of extreme indebtedness, and yet they lack access to the proper levels of concessional finance. Developed economies were the worst affected but the most capable of weathering the storm.
It was noted that one of the few positive aspects of the economic crisis is that it brought to light some bad practices that were occurring before the crisis. Many developing and emerging market economies lacked the proper regulatory bodies or financial tools to deal with financial practices such as the surge of short term and volatile flows with high interest rates and increasing levels of speculation. Representing civil society, Brother Steve O’Neil of the Marianists called for a formal international debt workout mechanism that would create a legal framework fairly placing the burden of irresponsible borrowing on both debtors and creditors. This would discourage the kind of financial practices that significantly increased the economic fragility of emerging market economies in face of the crisis, and provide a framework for addressing the severe debt burdens of developing countries through such mechanisms as debt cancellation, moratoria, and addressing odious and illegitimate debt.
It was noted by Mr. Titelman that some of the financial practices were not negative in and of themselves. Speculation if done right was not necessarily a bad thing. There was a consensus amongst both Panelists that the current global financial monitoring and regulatory systems were not working, and this had undoubtedly contributed to the emergence of the financial crisis. New tools need to be developed to effectively measure the strength of economies, particularly developing economies. These new tools could prevent the behavior of companies based on short-term gain with no real interest in the effect that their financial transactions are having on the countries they are doing business with. Early warning systems must be put in place to detect issues that could potentially lead to a crisis such as emerging asset bubbles. These systems should be backed up by a panel of internationally renowned independent experts who could monitor these issues as they appear.
It was also noted by the speakers that in the future it is important for developing countries to reach a balance between development and economic stability. Several measures to reduce market volatility were proposed, including a currency transaction tax. Furthermore, it was necessary to rethink the arrangements for development made pre-crisis, such as the
High Level Dialogue on Financing for development
Round table 3: The Role of Financial and Technical Development Cooperation, Including Innovative Sources of Development Finance, in Leveraging the Mobilization of Domestic and International Financial Resources for Development.
To start off the discussions, presentations were received by the following Panelists: HRH Princess Maxima of the Netherlands, Secretary-General’s Special Advocate for Inclusive Finance for Development; Dr. Philippe Douste-Blazy, Special Adviser to the Secretary-General on Innovative Financing for Development; Mr. Simon Scott, Head, Statistics and Monitoring Division, OECD.
Over the last 20 years the world’s development financial architecture has matured significantly. The old paradigm of North to South assistance has evolved into a complex arrangement of intersecting economies and agents. While the architecture has changed the institutions that maintain it have either not changed or have taken on roles which are counterintuitive to the way that this architecture is progressing. In order to reach the goals stipulated in the MDG’s, significant reform must take place within these institutions, and new and innovative methods of finance and financing must be introduced. Representing civil society, Philo Morris, of the Medical Mission Sisters, and on behalf of the GSEG, expanded upon this point stating that without radical changes the MDG’s cannot be achieved. New and innovative financing such as a currency transaction tax must be implemented if we are to undo the damage caused by the financial crisis. She went on further to note that the advantage of these new forms of taxation lie in that they have no national ownership and do not tie developing nation’s hands with policy conditionality.
There was a consensus among the speakers that development financing has become increasingly complex as the North-South relationships have changed. New partnerships between civil society and the private sector, as well as South/ South and triangular development cooperation, have changed the financial landscape around development. New and innovative methods of finance are complementing traditional methods. The financial crisis has served to highlight the need to promote these new approaches, particularly given the shortfalls in ODA commitments. Developing countries and grassroots organizations have to search for new approaches and methods of mobilizing financial resources. Representing civil society Addys Then Marte of Alianza and Civicus noted that in the South civil society organizations sometimes shared resources in order to accomplish their goals. Citing an example of triangular cooperation, Then Marte said that donor organizations had provided microfinancing to banking institutions in the
Several of the speakers argued that while there was much progress being made in terms of innovative financing, now is the time to really push the envelope. Mr. Douste-Blazy went so far as to state that the time is ripe for a financial transaction tax (FTT) for development. While FTT is viewed in some quarters as a controversial step, he noted that it has the support of many developed countries as well as various economic authorities. The response amongst the participants to an FTT was varied. While some member states were clearly in favor, others argued that it would be difficult to support new taxes in the current fiscal climate. For the most part the member states confessed that they needed to learn more about FTT before they could come to a firm decision. Representing civil society Peter Bakvis of the International Trade Union Confederation stated that FTT could be an innovative and successful solution to filling the gaps in ODA, supporting foreign debt-servicing of OECD countries, and curbing the excesses of volatile, speculative capital flows. He further went on to argue that regressive taxes as a whole should be opposed as they lead to decreased wages and increased inequality. Instead, the international trade union movement was advocating for progressive taxation schemes and innovative alternatives to financing, such as the FTT.
It was widely accepted that financial regulatory reform was a necessity if the world is to avert another crisis, and meet its development goals. Nevertheless it is also important to remain vigilant against the proliferation of financial mechanisms with questionable effectiveness. That said, financial organizations need, however, to start providing a wider range of financial products to developing nations if they are to be successful.
High Level Dialogue on Financing for Development
Informal Interactive Dialogue: “The Link between Financing for Development and Achieving the Millennium Development Goals: The Road to the 2010 High Level Event”
This final session of the HLD received presentations from: Mr. Zia Qureshi, Senior Adviser, Office of the Chief Economist, World Bank, and Mr. Jomo Kwame Sundaram, Assistant Secretary-General for Economic Development, UN-DESA.
The theme of the Informal Interactive Dialogue of the High Level Dialogue of Financing for Development seemed particularly relevant in the shadow of the world economic crisis. In the context of rising unemployment, diminishing incomes in developing countries, signs of increasing maternal and child mortality, the urgency of finding new and innovative ways to finance development becomes evident, if the world is to achieve the benchmarks put forward in the Millennium Development Goals (MDG’s).
There was widespread agreement among the speakers and the participants that serious action was needed by both the developing and the developed world if the MDG’s are to be achieved. The world economic crisis has significantly undermined the headway made in the years preceding it. It was stated that the international community needed to deliver on its ODA commitments as well as search for innovative sources of finance to supplement these commitments. It was also stated that the international community needs to fulfill the development promises made in the
It was made clear that Goal 8 of the MDG’s is crucial to alleviating the worst of the financial crisis. Only through developing a global partnership for development can the much needed comprehensive reforms of international institutions take place. In addition to developing a global partnership, there is also a clear need for good governance at all levels. Developing countries should continue to implement policies aimed at job creation, poverty reduction and sustainable economic growth. Internationally, the multilateral institutions need to ensure that any reform includes a more equitable, inclusive and development-oriented architecture. Kevin Dance, the chair of the NGO committee for Financing for Development, and speaking on behalf of the Committee and the GSEG, (Global Socio-Economy Group), further noted that any development should be based around the Decent Work agenda and be based, not just on economic reward, but also on justice, if the MDG’s are to be realized. He further went on to state that international development cooperation has been strangely lacking in the period following the crisis, and that more attention needs to be paid to MDG’s 1, 3 and 8 (poverty eradication, gender equality, and a global partnership for development.)
Overall the necessity to reform the BWI’s was a central theme throughout the dialogues as well as the importance of achieving Goal 8 of the millennium development goals. Innovative sources of finance for development should be sought out but should be complementary to, and not a substitute for existing ODA commitments.