United Nations starts pounding pavement on the road to Addis Ababa

Added 26/Nov/14
By Bodo Ellmers and Tove Ryding

As far as financial issues are concerned, the Third International Conference on Financing for Development (FfD) is shaping up to become 2015’s most important summit. If an ambitious global financing framework is not agreed in Addis Ababa next July, the success of the September summit on new Sustainable Development Goals and a post-2015 framework will also be in jeopardy. Even the climate summit in Paris at the end of 2015 risks being undermined. Before the actual FfD negotiations start in January, the UN conducted ‘a substantive informal session’ in New York from 10-13 November, which aimed to launch an open debate on the financing for development issues at stake in Addis. Eurodad was there to join the debate.

The issues at stake

The November session included debates about the new global context for FfD, how to promote the mobilisation of domestic resources, international public finance and private finance for development. Many were surprised that the UN’s financing for development office did not structure and name these debates along the lines of the six pillars of the Monterrey Consensus that were agreed at the FfD Conference in 2002, since Addis is a follow-up to the Monterrey conference, and the place where political deadlocks on implementation need to be overcome.

All sessions started with panel presentations consisting of external experts. Representatives of international financial institutions such as the International Monetary Fund (IMF) and the World Bank were given extensive speaking space while only a few government representatives made presentations. Eurodad gave a presentation in the private finance debate and worked closely with Latindadd and other groups to promote the recommendations of a joint civil society position paper.

Global context

The global context session gave the IMF the chance to applaud the fact that, since Monterrey, developing countries have seen higher growth, lower debt-to-GDP ratios (in the poorest countries due to debt relief) and higher tax-to-GDP ratios. The private sector, represented by McKinsey, praised the technological progress and the reallocation of economic activity from the west and north towards east and south. The delegates from developing countries and civil society organisations (CSOs) were less excited by the developments since 2002. Eurodad pointed at the damage done by the financial crisis and the rising levels of inequality in the majority of countries, as well as between countries. A lesson that should have been learnt is that future finance not only needs to be sufficient in quantity, but also responsible, sustainable and redistributive.

Future global economic governance must be fully inclusive rather than dominated by exclusive clubs such as the Organisation for Economic Co-operation and Development (OECD) or the G20. Benin, representing the Least-Developed Countries (LDCs), emphasised that globalisation has further marginalised the LDCs and a lack of finance has been the key reason behind LDCs’ failure to achieve the Millennium Development Goals. They demanded, among other things, that 50% of Overseas Development Assistance (ODA) should go to LDCs, as well as full debt cancellation and a “crisis mitigation and resilience building fund” to shield LDCs from future crises
Domestic public finance

The debate about domestic public finance had a strong focus on taxation, and included presentations from a developed country government (Finland) and a G20 developing country (Argentina). Alvin Mosioma, Director of Tax Justice Network Africa, presented the problems faced by poorer developing countries when it comes to taxation. He highlighted the so-called ‘race to the bottom’ that occurs when governments lower tax rates to attract foreign investments. He also pointed out the negative impacts on developing countries resulting from global tax standards that are being developed by OECD and G20, and that fail to take into account the interests of the poorest countries.

The call for halting the ‘race to the bottom’ was strongly supported by Guatemala and Benin, which spoke on behalf of the LDCs and underlined that: “Private sector agents, particularly those representing transnational corporations, should be discouraged and prevented from seeking deep or long-lasting tax concessions when investing in LDCs”. Furthermore, Benin underlined that: “Developed countries should take the lead since most of the [transnational corporations] are owned by their citizens”. Similarly, Tanzania called for developed countries to take on a bigger role in the fight against illicit financial flows.

Latindadd and Eurodad highlighted the need to establish a new intergovernmental body on tax matters under the auspices of the United Nations, in order to ensure that developing countries get a seat at the table and can represent their own interests when global tax standards are being negotiated. Eurodad also highlighted the importance of establishing a development-friendly debt resolution mechanism and cancelling unsustainable and illegitimate debts in order to free up money for development.

International public finance
The panel on international public finance gave Eric Solheim, Chair of the OECD Development Assistance Committee (DAC), the chance to present the current plans for ODA reform at the DAC. He argued against concerns that the fact these discussions are happening in a closed forum – namely the OECD – and repeatedly served to emphasise that only the UN has the global legitimacy to speak on behalf of the global community. The speaker from Development Initiatives flagged that ODA is the financial resource that is easiest to target on poverty eradication measures. Switzerland proposed an Action Plan for progressively increasing ODA to LDCs up to 2020, and said that Addis could provide a blueprint for different levels of concessionality in different contexts.

CSOs were most outspoken when it came to criticising developed countries’ failure to meet both their ODA quantity and quality targets. They suggested more binding rules in future, and underlined that the ODA reform should make sure that only genuine transfers can be reported as ODA. Also, the G77 made clear that, while some global commitments expire in 2015, the ODA commitments such as the 0.7% GNI as ODA target for rich countries do not, and that “the focus of the conference should be the international context, not the national one”.

Private finance

The range of opinions on this discussion was high, as the UN had appointed no fewer than 15 speakers who presented a wide range of issues including ‘financial inclusion’, microfinance, credit unions, remittances, pensions and other investment funds.

Australia flagged the need for differentiation, as different private actors and flows have different use and value for development finance. Eurodad’s Jesse Griffiths criticised the new private sector hype in the FfD and asked for caution as private investments cannot replace public investments in most areas, and more needs to be done to promote the latter. Where private finance makes sense, government regulation should promote the quality and not the quantity of private flows. This view was also shared by the Latindadd representatives in the room.

CSOs also flagged major concerns with the current trends towards promoting Public-Private Partnerships (PPPs). Eurodad’s presentation highlighted that PPPs are the most expensive of all options when it comes to financing infrastructure provision, and thus represent a drain on scarce public resources. As a result, CSOs stressed that PPPs should only be chosen if other less expensive and less risky financing options are not available. In addition, when designing projects, the development needs of people should be explicitly assessed and equity concerns should be addressed in terms of equitable and affordable access to infrastructure and services.

The road ahead

The FfD process will include another substantial informal session in December before the drafting of the outcome document kicks off in January. The first full draft negotiating text will be published in February 2015 and will form the basis of intense negotiations throughout the following months. Eurodad and partners will be following the negotiations closely and will be pushing hard to make Addis the breakthrough that is needed to ensure fundamental systemic changes to the global financial system and stable and adequate funding for development. Key inputs such as the CSO positioning paper and the LDC Group statement already indicate that stakeholders’ expectations are high.