Summary, Overview and Development Report 1.5
Financing for Development : July 2001
By Hannes Huhtaniemi/ ICDA Secretariat
July’s Financing for Development (FfD) WTOILs tried to shed light on the various dimensions the subject features in. How to finance development is a highly crosscutting question, to which adequate proposals must incorporate the wisdom of sustainability and trade in development, as well as the more direct financial instances of debt management, investment mobilisation and foreign aid. In other words, the upcoming FfD conference in March 2002 in Mexico can little afford to neglect any domain of development. Ranging from safeguarding communities to learning the intricacies of macroeconomics, from protecting property rights to embracing the wider opportunities presented by globalisation, viable and sustainable patterns of financing social, economic and human development depend on solid understanding of the various aspects of capital formation, market psychology and economic innovation. It is a long-overdue conference, one which can nonetheless benefit from the years of accumulated knowledge of how to link all these together.
The preparations for the conference itself have roughly divided the subject matter into six areas. First, there is the matter of how best to mobilise domestic resources, including how to create an overall favourable environment for the raising of capital through existing assets backed by strong public finances, legal and tax systems. Second, the conference intends to focus on mobilising international resources for the benefit of developing countries, including private flows and official development assistance (ODA). Third comes the question of how to improve market access for developing country products, if necessary through special and differential (S&D) arrangements. Fourth, the conference will explore new innovative ways of FfD. Fifth, if will seek to propose solutions for the crippling debt conditions of many countries. And finally, in terms of creating enabling global regimes for FfD, attention will be placed on so-called "systemic" issues relating to the international trading and financial architectures, with the possibility of reinvigorating the role of the UN in the process. Emphasis rests with the necessity of considering these topics together and in a mutually supportive way.
In WTOIL 6 July, there appeared an article on a UN FfD panel report which briefly touched on some of these very questions.
"The panel report says that primary responsibility for securing economic growth and equity lies with national governments, and urges developing countries to undertake balanced fiscal policies, macroeconomic discipline, fair and effective governance, secure tax bases, support for human capital and the installation or strengthening of pension plans. While welcoming current mechanisms to reduce the debt burden of the poorest countries, the panel warns that debt relief by itself is not sufficient to move countries forward. The report urges a renewed push toward the target of devoting 0.7 per cent of donor country gross national product (GNP) to official development assistance, and advocates various mechanisms to target resources more effectively towards the poorest sectors of the population."
HIGH-LEVEL PANEL ON DEVELOPMENT FINANCING...
Date: June 28, 2001
By: United Nations (New York)
Indicating the World Bank policy line on debt management, we then pasted this the following week. It lays out the economic arguments advanced by developed countries in their reluctance to grant comprehensive debt relief.
"Commenting on the Heavily Indebted Poor Countries (HIPC) initiative, Wolfensohn expressed satisfaction with the progress thus far. (…) HIPC has also reduced debt service requirements from around 7% of GDP to 2%, freeing about $1.7 billion per year that can be utilized for social programs in these countries. (…) While the World Bank calculates it has reserves on paper which could go toward more debt forgiveness, the dilemma is that donor countries rely on these repayments to replenish IDA so that the Bank can continue to lend to poor countries in the future. (…) "The other important point is that debt forgiveness alone is not the key to sustainability, in terms of poverty alleviation programs or economic stability," said Wolfensohn. "As you move forward, what you must have is the host of programs that go with it.""
VIEWS FROM THE INTERNATIONAL FINANCIAL INSTITUTIONS
Date: April 27, 2001
By: Bretton Woods Committee Annual Meeting 2001
Concerning other changes initiated in the international financial institutions with respect to their lending programs and the conditions they attach to these – especially the poverty reduction strategy papers – much criticism centred on the deplorable similarity between the new programs, and the old, discredited lending facilities. This, from WTOIL 13 July:
"A statement from thirty-nine organisations and regional networks from fifteen African countries agreed at a meeting in Kampala, Uganda, in May that PRSPs were simply window-dressing to improve the IMF and World Bank’s declining legitimacy. The content of PRSPs continues to put corporate rights before social, human and environmental rights. Rather than enable local people to decide their content, PRSPs meant more IMF and World Bank control "not only over financial and economic policies but over every aspect and detail of all our national policies and programmes", said the statement. In particular, the participants noted that the macroeconomic programme was still not open for discussion, and that "anti-poverty programmes are expected to be consistent with the neo-liberal paradigm including privatisation, deregulation, budgetary constraints and trade and financial liberalisation. Yet these ignore the role of international/global factors and forces in creating economic crises and poverty.""
PRSPs JUST PR, SAY CIVIL SOCIETY GROUPS
Date: N/A - Topics section
By: Please see above
Regarding the G8 Genoa summit’s conclusions on recognising and resolving problems relating to FfD, we posted up the World Development Movement’s reactions in WTOIL 27 July.
"It is good news that the G8 recognised their responsibility and the need for decisive action, but shameful that they did not deliver any. Despite the world economic slowdown, the recent financial crises and the gap between rich and poor, the G8’s approach remains the same. The G8 continue to believe that extending neo-liberalism and tweaking the current system, offer the best way forward
The G8 suggested that the debt relief initiative is progressing well – all that needs to happen is to continue along this path. The G8 leaders referred to progress, but WDM believes that this has been too slow. Of the $100billion of debt stock cancellation offered at the Cologne G8 Summit in 1999, only $2.6 billion has been cancelled in the last two years. Analysis by the World Bank shows that the HIPC Initiative does not deliver a lasting exit from unsustainable debt. Even after receiving debt relief sixteen countries still have to spend larger amounts on debt service than on health and education. WDM is also concerned that the liberalisation and privatisation policies demanded in exchange for debt relief are a continuation of the structural adjustment policies that hurt, rather than helped, the poor in the past.
The G8’s collective aid to the developing world is declining. The G8 said nothing about extra funding to reverse the decline in their aid, nor about time scales for rich countries to reach the UN target of 0.7% GNP devoted to aid. WDM welcomes the untying of aid, but again regrets that the G8 set no timetable for implementation."
WDM’S RESPONSE TO THE G8 GENOA SUMMIT COMMUNIQUE - extracts
From: World Development Movement—http://www.wdm.org.uk
Date: 27 July 2001
By: Alison Marshall
We also ran a few articles on capital flows, always a seasonable topic.
"It is clear developing countries should not view international capital markets as ever-increasing, predictable, or reliable sources of long-term financing for development. Moreover, capital-account liberalization can have an adverse impact on financing for development by facilitating capital outflows and capital flight, and undermining domestic financial stability." (From WTOIL 20 July)
FINANCING INTERNATIONAL DEVELOPMENT
Date: Oct. 28, 1999
By: The North-South Institute; Roy Culpeper
"In the face of some 1.2 billion people living in abject poverty on less than $1 a day, international organizations (mainly IMF, World Bank and WTO) and government leaders continue to focus on economic growth as the most effective way to reduce poverty. With official development assistance (ODA) in 2000 still below 1995 levels (last year, the average donor country provided only 0.24 percent of its gross national product in foreign aid), trade and financial liberalization - both domestic financial and capital account liberalization (CAL) - are touted as the "inevitable"(IMF economic counselor Michael Mussa) prerequisite for developing countries to partake in the open world economic system and to achieve poverty alleviation through economic growth."
"…the discussion centered on the question whether CAL supports or restrains other policies aimed specifically at reducing poverty (f. ex. by prohibiting developing country governments from using pro-poor spending)…"
"the shortfall of government revenues created by CAL needs to be accounted for, especially since financial liberalization, according to several UNDP studies, has failed to deliver on the promise of contributing to higher economic growth rates, which could have contributed to increased government revenues. On the contrary, because CAL demands strict market discipline with an inherent deflationary bias, governments in effect have to slow down growth, so that potential growth benefits of CAL can only be realised in the short-term."
"…CAL in the short-run constitutes a source of wage inequality (with the wages of skilled labor, which compliments capital, rising faster than those of unskilled labor, thus widening the income gap). Therefore, attention has to be given to the question of how to broaden access to capital in order to reach a "complementarity between human and physical capital."
"(Is it the case that) capital account liberalisation is to some extent unavoidable if countries have liberalised trade accounts, since with liberalised trade accounts money can be easily transferred abroad? Therefore, maybe the appropriate discussion about the connection between CAL and poverty has to centre more on the question of how far and how fast capital accounts should be liberalised as well as the question of how to ensure that countries benefit equally and evenly."
"Krishna Srinivasan from the IMF suggested that the possible loss of government revenue after implementing CAL would be offset by efficiency gains… He commented that tax holidays had little impact on foreign direct investments (FDI) and that the IMF did not support them… ODA as well as private capital flows are pro-cyclical, confounding the dilemma for developing countries in need of foreign capital. ... While the private capital flows to developing countries have increased, most of the money goes to only a few countries and within those countries mostly to financial institutions with a "frightening maturity structure" of less than one year of most bank flows."
"Tim Kessler from the Initiative for Policy Dialogue pointed out that capital flows will only benefit the poor if they go to the disadvantaged in the form of direct loans. This is particularly important since pro-poor sectors of a national economy, for example agriculture usually don’t attract foreign investment. However, schemes to direct credit are often hampered by the International Financial Institutions (IFIs) and private foreign capital"
CAPITAL ACCOUNT LIBERALIZATION & POVERTY
Date: April 24th,, 2001
By: Liane Schalatek, Heinrich Böll Foundation Washington
(From WTOILs July 13 and 20)
And thus, returning to our original contention, that FfD is a formidable and multifaceted issue, we take up the challenge in rendering it a little more in months to come.