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Eurodad analysis of the Doha UN Financing for Development Outcome Document

Added 11 Dec 2008

Eurodad has done an assessment of the contents of the United Nations Financing for Development Outcome document. Eurodad staff and members participated actively in discussions with decision-makers across Europe and at the EU level.

 

Aid

On aid volumes, the Doha Outcome Document (DOD) only managed to restate the long-standing commitment of Northern countries to reach the 0.7% of GNP for ODA (paragraph 42), which had already been mentioned at the Monterrey Consensus. Six years later the implementation gap is growing as Northern countries fail to meet their aid commitments, the DOD only managed a passing mention of declining ODA levels in 2006 and 2007. The mention of multi annual aid timetables – the only way to put pressure on donors to step up their aid levels and reach the promised targets – was only agreed at the very end of the conference. Some developing countries were concerned that mentioning timetables accepted that outstanding aid which should had already been delivered would not be immediately available. However, the final blockers were the US and Japan which refused to mention the need for “multi annual timetables” and only accepted the weaker language of “rolling indicative timetables” (paragraph 43). 

 

On aid effectiveness, even though debates have substantially advanced since 2002, and two high-level meetings have taken place on this issue in Paris (2005) and Accra (2008), the Doha document goes no further. It merely welcomes these developments, and briefly mentions the main principles enshrined in the aid effectiveness declarations, such as “ownership, alignment, harmonization and managing for results.” CSOs had hoped that some of the issues that were not agreed in Accra could be agreed in Doha, as this forum could be expected to be more progressive than the OECD rich governments club which convenes the other aid discussions. These include stronger language on the need to stop policy conditionality or fully untie aid. However the most that Doha delivered was a general mention to the “growing need for more systematic and universal ways to follow quantity, quality and effectiveness of aid flows…(such as the UN) Development Cooperation Forum.” However, no specific roles for the UN DCF were agreed.

 

Debt

The debt section is probably one of the most disappointing in the DOD. There is no mention to legitimacy of debt claims, although this language appeared in some drafts negotiated in New York and before getting to Doha. This is a great disappointment to civil society and few progressive governments, such as the Norwegian, which had been pushing for the issue of illegitimacy to be included in the outcome document.

 

Likewise, the reference to remove economic policy conditions from debt cancellation was dropped in the final version of the DOD.

 

There is some acknowledgement on the need “to ensure that debt resolution is a joint responsibility of all debtors and creditors, …(and that solutions need to be) transparent and agreeable to all” (paragraph 61). But this is quite far from what CSOs were hoping for.

It is unfortunate that the last paragraph of the debt section is a clear step backwards from the Monterrey Consensus, which referred to the need to consider setting up an “international debt workout mechanism” (paragraph 60 of the Monterrey Consensus).

Debt NGOs strongly lobbied to keep what seemed to be a reasonably good language on debt work-out mechanisms in the first version of the draft DOD: "to consider inter alia, a sovereign debt workout mechanism, enhancing the transparency and accountability of procedures of existing mechanisms, and the possibility of crafting more permanent mediation or arbitration mechanisms." But again, this language was dropped in the final document and substituted by "we will consider ways to explore enhanced approaches of sovereign debt restructuring mechanisms based on existing framework and principles, with broad creditors' and debtors' participation and ensuring comparable burden-sharing among creditors, with and important role for the Bretton Woods institutions." (paragraph 67). The final document changes the wording of “debt workout mechanism” for “debt restructuring mechanism”, which is narrower and limits consideration of debt write-off or cancellation. Worse it excludes any mention of mediation or arbitration, and gives a central role to the Bretton Woods institutions, which CSOs have long criticised for having failed to properly address the debt problems of Southern countries in a meaningful and balanced way. The DOD gives little hope that debt restructuring and resolution will take into account the human development needs of these countries rather than macroeconomic policies. In the current economic and financial crunch there are likely to be many more countries facing major debt distress in the coming years.

 

Capital flight, illicit flows and taxation

Taxation is the issue where some progress has been made with regards to the Monterrey Consensus, although the final language agreed in the DOD is much weaker than what CSOs and even some governments had been advocating for.

 

The overall framing of illicit flows is problematic. CSO and researcher estimates show only one third of all illicit flows are related to corruption and proceeds from criminal activities and the remaining two thirds are related to tax avoidance and evasion by multinational corporations operating in developing countries, paragraph 20 of the DOD which refers to capital flight and illicit financial flows is heavily linked to money-laundering, stolen assets, capital flows that have criminal intent and corruption. There is no mention in that paragraph of illicit flows related to commercial activities.

 

It is positive that the need to “effectively combat tax evasion” is mentioned (paragraph 16). But no straightforward connection with the notion of illicit financial flows is made explicit. Also, in the same paragraph, there is encouragement to make “tax systems more pro-poor”. Unfortunately, until the very last minute (1st of December), the sentence read “more progressive and pro-poor”, but the reference to “progressive” tax systems had to be sacrificed in the last minute negotiations to get the US on board.

 

CSOs had also strongly pushed to strengthen the institutional architecture within the UN system to deal with international cooperation on tax matters. The purpose of this demand was to shift these debates from the OECD, currently in charge of these issues, to the UN – which is not only more inclusive and universal, but also more prone to give the type of technical assistance that developing countries need on these issues. The DOD finally managed to keep the language on the need to strengthen the UN tax committee: "In this regard, we acknowledge the need to further promote international cooperation in tax matters, and request the ECOSOC to examine the strengthening of institutional arrangements, including the UN Committee of Experts on International Cooperation in Tax Matters" (paragraph 16). Unfortunately, the term “strengthening” is weaker than “upgrading” the tax committee to an intergovernmental body with balanced representation from all UN member states, which is what CSOs and several governments were aiming for.

 

It is also positive, and innovative in international agreements, that an explicit link is made to Foreign Direct Investment and taxation. The fact that tax related concerns are raised in connection to FDI is very important for the tax justice agenda. The final wording on this issue, in paragraph 25 in the section on Foreign Direct Investment, reads: "It is important that bilateral investment treaties, as well as tax treaties and other tax measures to facilitate foreign investments, take into account regional and multilateral cooperation, including at the regional level...It is important to promote good tax practices and avoid inappropriate ones." Again, it is unfortunate that at the very last minute stronger language was sacrificed under pressure from the US. Until a very late hour, the draft referred to the need to "avoid detrimental tax practices", which is stronger than the final mention to “inappropriate” tax practices.

 

The need to combat tax havens is absent in the DOD. Although civil society had strongly campaigned for this issue to be included, and the EU governments finally had included the need to “combat tax havens” in their joint position for Doha, it was not picked up in the final document. Some progressive European officials fought until the very last moments of the conference to include the mention in the outcome document. Unfortunately, this issue was also a casualty of the EU’s own internal divergence, as the UK, Ireland and Luxembourg strongly opposed it. 

 

Systemic issues: enhancing the coherence of the international monetary, financial and trading systems in support of development

The main problem faced in this section, as in the one on debt, is the continued emphasis on the central role of the Bretton Woods Institutions (BWI) in the international financial architecture and the global economic governance.

 

Despite acknowledgement in the DOD on the need to provide “greater transparency and strengthening the voice and participation of developing countries in international decision-making and norm-setting” (paragraph 68), and that “the Bretton Woods institutions need to be further reformed”, the document reaffirms that the BWI “must continue … to help developing countries to deal with the adverse effects of exogenous shocks”. This approach shows complacency with the current status quo and fails to acknowledge the BWI’s failure to provide adequate advice to developing countries on their economic policies. Evidence of this complacency is shown by the document’s uncritical recognition of the recent “governance reforms that the international financial institutions have undertaking, including the recent agreement regarding the quota review and voice reforms at the IMF and related steps in the World Bank”. CSOs have strongly criticized these reforms for being extremely small and insufficient to address the legitimacy and democratic deficits of these institutions.

 

The most contentious issue of this section, if not of the whole negotiating process, was that of the need to convene a conference under the UN umbrella to address the effects of the financial crisis on developing countries (paragraph 79). Northern countries, and particularly the US, were opposed to convene such conference as it is their view that these issues are already being addressed in the cozier framework of the G20. For developing countries, though, this was a red line in their negotiating strategy. A developing country negotiator even said, at the beginning of the conference “we would be happy to have just a blank page with paragraph 79 as the outcome of the conference”. At that time, that draft under discussion still mentioned the need to convene such conference under the UN auspices and within the year 2009.

 

After heated discussions, this paragraph was one of the few that led to a deadlock in the evening of 1st of December. In light of the impending drama, CSOs had advised the “G192” (all UN member states) to vote and isolate the G1 (the US) blocking the negotiations, and particularly the issue of the UN conference: “We reaffirm our support for a new United Nations Conference on global finance and monetary system.” To unlock this impasse, ministers had to be called into the negotiations room to reach a political agreement. This was probably the climax of the conference, where the EU could no longer play an ambiguous role and had to take a clear stance between the two parties (the US on the one hand and the developing countries on the other). The night and the paragraph was probably saved by the strong statements made in this session by Trevor Manual (Finance Minister of South Africa) which said that failure to agree on this point would be shameful, and the strategic but strong interventions by the development ministers from Germany and the Netherlands, which finally managed to craft a compromise with the US and seal a deal before midnight.

The final wording agreed reads: "Welcoming the ongoing international discussions on global economic governance structures...(this debate) should review the international financial and monetary architecture and global economic governance structures in order to ensure a more effective and coordinated management of global issues. Such a debate should associate the UN, the WB, IMF and the WTO, should involve regional financial institutions and other relevant bodies and should take place in the context of the current initiative aimed at improving the inclusiveness, legitimacy and effectiveness of the global economic governance structures. Greater cooperation among the UN, the BWI and the WTO is needed...” (paragraph 78). And, "the UN will hold a conference at the highest level on the world financial and economic crisis and its impact on development. The conference will be organised by the President of the General Assembly and the modalities will be defined by March 2009 the latest."
 
It is positive that the conference is finally mentioned, and that it should take place under the UN auspices. Obviously, language could and should have been stronger, mentioning that the conference actually had to take place in 2009 (instead of only deciding modalities by March 2009). However, this is a great win of the developing countries in this conference, as it was at all times threatened and unclear that the US would give in on this point.