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Financing for Development - Where is the UN heading?

Added 31 Oct 2013

The United Nations' Sixth High-Level Dialogue on Financing for Development (FfD) that took place in New York in early October shows a deep rift between developing and developed countries. This dialogue was mandated to look at the FfD Agenda's status of implementation and the tasks ahead.  While the EU thinks it contributed at least its fair share, developing countries pointed to the major failures in implementation of aid, debt or trade commitments. The future of the FfD process remains unclear. 

Slow Implementation

For the EU – the only rich countries that bothered to issue a statement at the meeting - the state of financing for development 11 years after the first UN World Conference, held in Monterrey, on the subject seems just fine. The EU's representative in New York said  that ‘good progress has been made’. He highlighted that the EU provided more than EUR 45 billion annually in ODA over the past ten years, more than half of the OECD Development Assistance Committee's total, and that the EU accounted for 71% of debt relief for developing countries from 2001 to 2011. Obviously, the EU ambassador chose a 'the glass is half full' approach to reporting results.

Eleven years on, in reality the glass is half empty and, most worryingly, emptying further. It fell to the speakers of the developing country coalition, the G77, and civil society organisations to clarify that things do not work that well. The G77 highlighted what DAC statistics confirm: that ODA has fallen for two consecutive years already, and additional promises to deliver $100 billion per year in climate finance by 2020 are way off track. The CSO watchdog group EU AidWatch had just calculated that EU ODA reached only 0.39% of EU GNI - roughly half the UN target of 0.7% - and that the funding gap for 2015 is estimated to reach EUR 36 billion. Even worse, when AidWatch removed elements of inflated aid - including spending in donor countries on refugee and student costs – the figure drops to 0.35% of EU GNI.

Moreover, the costs for debt relief that the EU had to co-fund were paid for by the aid budget – meaning the EU double-counted its commitment – promising debt relief and increased aid, but in reality paying for one with the other. In addition, debt relief processes were very slow, run by the creditor-dominated World Bank and IMF, and required developing countries to comply with many controversial policy conditionalities.

Systemic reform – on the back burner?

The Monterrey consensus – signed up to by UN member states – said it would ‘welcome consideration by all relevant stakeholders of an international debt workout mechanism, in the appropriate forums, that will engage debtors and creditors to come together to restructure unsustainable debts in a timely and efficient manner.’ However, this issue had only been followed up by multistakeholder dialogues and expert groups, but not by an intergovernmental process that could decide to establish such a mechanism. The G77 renewed its calls to push this issue forward, calling for an ‘effective, equitable, durable, independent and development-friendly debt restructuring and international debt resolution mechanism.’ The consequences of the absence of such a mechanism – plain for all to see in debt crisis hit countries such as Greece – are slowly forcing this issue back to the top of the international agenda, with the UN starting a process to design such a mechanism, and the IMF reviving its interest in the issue.

Civil society groups also pointed out that what is really needed are ways of improving all financing so it truly contributes to sustainable development and helps prevent debt and finance crises, by introducing responsible financing standards, such as those contained in Eurodad’s Responsible Finance Charter.

Weak participation

On a more positive note for the EU, they did speak out at the dialogue, which most of their rich countries' partners - who have their implementation deficits too - did not. The USA remained silent (which may or may not have been due to the 'shutdown'), so did Japan and Canada, and all that Australia had to say was that trade liberalisation will be the key thing they will make the centerpiece of their chairing of the G20 in 2014.

The multistakeholder approach of the FfD process includes the Bretton-Woods Institutions, so the Managing Directors of IMF and World Bank were supposed to show up at the HLD but were conspicuous by their absence. This saved them from listening to Nicaragua's representative’s criticism that the Bretton Woods Institutions are functioning against the ‘principles and objectives for which they were founded’ and calling ‘for their major reform to allow the participation of all its members, on equal terms, regardless of their economic weight.’

Lack of clarity about the future direction

The weak participation at this high-level dialogue - not a single minister was visible – showed that developing countries are right to fear that 'financing for development' - traditionally one of the key priorities for the United Nations’ agenda - could be subordinated to other work streams, such as those on sustainability and on post-2015 development goals. They therefore called on the UN to finalise the modalities for the next FfD World Conference, which was due in 2013, and make sure that it takes place before the big UN Development Summit scheduled for 2015 - so that the FfD Conference can influence the adoption of the post-2015 targets, and not the other way around.

Many speakers called for a ‘Monterrey plus’ which would have to include new emerging issues after the financial crisis. However, the confusion in high level UN processes has led to some of the important ways of working for FfD processes, which guarantee CSO and other stakeholder participation, to be threatened, as noted by the September letter of CSO Center of Concern. The EU also called for a single framework under the UN for all issues related to financing.

While this High-Level Dialogue was certainly not a success story in terms of high-level policy and decision-making, the UN does not have to hide from the competition either. The Bretton Woods Institutions' Annual Meetings that same week were a non-event that did not lead to any results worth mentioning. And the outcome of the G20 summit earlier this year was unimpressive with regards to the high expectations that were set out in this process a few years ago. That shows that while we are in difficult times for multilateralism, there are no viable alternatives to the UN – and a renewed focus on the FfD process with a leaders-level global summit before 2015 could be just the impetus needed to get real movement on these critical issues.