“Follow-up to and implementation of the Monterrey Consensus and Doha Declaration on Financing for Development” Introducing the Report of the Secretary-General, A/67/274
Ms. Shamshad Akhtar Assistant Secretary-General for Economic and Development of DESA, Secretary General’s Special Advisor of Economic and Finance
22 October 2012, New York
I have the honour to introduce the annual report of the Secretary-General on the “Follow-up to and implementation of the Monterrey Consensus and Doha Declaration on Financing for Development” (A/67/339), submitted in pursuance of General Assembly resolution 66/191.
The report provides an overview of recent developments related to the six thematic areas, namely: (1) mobilizing domestic resources for development; (2) mobilizing international resources for development: foreign direct investment and other private flows; (3) international trade as an engine for development; (4) increasing international financial and technical cooperation for development; (5) external debt; and (6) addressing systemic issues: enhancing the coherence and consistency of the international monetary, financial and trading systems in support of development. The report further offers an update on the intergovernmental follow-up process to financing for development in the section on “Staying engaged”.
The key messages of report on domestic resource mobilization are:
(i) Fragile global economic recovery may have adverse implications formobilizing domestic financial resources for development. Global growth slowed down markedly in 2011 and is likely to remain below potential in most regions in 2012 and along with the high unemployment has implications for tax revenues in both developed and developing countries. The positive news is that developing countries are progressing towards modernized, equitable, effective and progressive tax systems. This will allow fiscal space as tax revenues increase, and reduce inequalities, while decreasing vulnerabilities to future crises.
(ii) Developing countries continue to improve domestic environments for private sector activities, promote greater diversification of domestic banking sectors and implement financial inclusive policies to enhance access to a wider range of financial services for poor and vulnerable groups through micro, small and medium-sized enterprises.
(iii) The international community must continue to take concrete measures against illicit capital flows from developing countries. The 2011 update of the United Nations Model Double Taxation Convention between Developed and Developing Countries, which includes provisions aimed at curtailing cross-border tax evasion and capital flight, if implemented, will be make a difference.
With regard to mobilizing international resources for development, private capital flows to developing countries have exhibited signs of volatility and their prospects are mixed. On the one hand, stronger economic fundamentals in emerging economies, combined with continuing economic problems in many advanced economies, should serve to attract investors. On the other hand, signs of an economic slowdown in some of the leading emerging economies, combined with renewed concerns about the global economy, could lead to a sharp increase in risk aversion in international financial markets, giving rise to large outflows of private capital. In addition, the increase in money supply in developed countries, especially in the United States and the eurozone, owing to quantitative easing in recent years, has generated spill over effects on developing countries in terms of highly volatile capital inflows.
Trends in the foreign direct investment (FDI) –a major component of private capital flows to developing countries – are a cause of concerns as its composition is changing from equity to debt and financial investments. This has potential to induce volatility and portfolio flows can be reversed more quickly in an uncertain economic and financial climate. In light of this, it is important for countries to have the scope to employ measures to effectively manage volatile short-term capital flows. The policy instruments that may be employed by countries to manage volatile cross-border capital flows include prudential and macro-prudential measures as well as capital account regulations, including capital controls. Such capital-account management has recently gained acceptance as a prudent policy measure by the international community. The IMF, which recommended against the use of capital controls in the 1990s, has since acknowledged that such measures can help reduce the volatility associated with international flows under certain conditions. Indeed, over the past year, a number of countries, including Brazil, Indonesia, Peru, Thailand and the Republic of Korea, introduced capital account regulatory measures to manage volatile short-term capital flows.
International trade has also witnessed volatility since the onset of the global crisis. The decrease in global demand translated into a slowdown of trade growth in 2011, with global trade expanding by 6.6 per cent down from 13.1 per cent in 2010. Continued slow global growth, uncertainties associated with the European sovereign debt crisis, as well as volatile commodity prices, imply the possibility of further deceleration in trade growth for 2012. In addition, despite the pledge from the G20 members to restrain from new protectionist measures until 2014 and to roll back measures taken, only 18 per cent of all the measures introduced since the beginning of the crisis have been removed. A successful conclusion to the WTO Doha Round of multilateral trade negotiations with an ambitious, balanced and development-oriented outcome would help to restrain these protectionist trends and ensure a faster recovery of the global economy.
The report further notes several issues that are not part of the Doha Agenda, but that are deemed important for a more balanced and effective multilateral trading system, such as the governance of global supply chains, commodity price volatility and trade-related aspects of climate change. Aid for Trade is one of the instruments that should be boosted to help countries improve trade infrastructure, diversify export capacity and support an increase in the technological contents of exports from developing countries.
The report provides latest information on the financial and technical cooperation for development. The net official development assistance (ODA) by countries that are members of the OECD Development Assistance Committee (OECD/DAC) provided $133.5 billion of net official development assistance (ODA) in 2011, representing 0.31 per cent of their combined gross national income. This marks a decrease of 2.7 per cent compared with 2010 and was the first fall in global ODA as a percentage of GNI since 1997, if one excludes the years of exceptional debt relief. In addition, only nine donors have thus far reached the target of 0.15 per cent, even though donors renewed their commitment to provide at least 0.15 to 0.20 per cent of their gross national income as aid to the least developed countries in the Istanbul Programme of Action for the Least Developed Countries in May 2011.
Moreover, progress on the implementation of the Paris Declaration on Aid Effectiveness, as reinforced in the Accra Agenda for Action, has been slow, with only 1 of 13 targets (coordinated technical cooperation) met. Therefore, the report calls for the implementation of the 2011 Busan Partnership for Effective Development Cooperation and the OECD Development Assistance Committee’s own recommendations on good pledging practices. Shortfalls in traditional ODA and the need for additional and more predictable financing has led to a search for new funding sources – not as a substitute for aid, but as a complement to it. A number of innovative initiatives have been launched during the past decade, most of which have been used to fund global health and climate programmes. It is estimated that such mechanisms have intermediated between $37 billion to $60 billion for development assistance in the period 2002-2011. However, many of these initiatives involve more effective use of aid rather than additional resource mobilization, so that these initiatives have not yielded significant additional funding on top of traditional development assistance. There are, however, other innovative mechanisms with larger fundraising potential available, including international taxes on financial transactions and on carbon emissions. These options are technically feasible and economically sensible. Realizing their potential will, however, require international agreement and political will. In addition, resources raised through new mechanisms should be aligned to recipient countries’ development strategies and priorities.
At present, sovereign debt vulnerability has become a global phenomenon, threatening global recovery with Europe. The current external debt situation in emerging market and developing countries does not portend a systemic problem, as was the case in earlier episodes of debt distress, default and contagion. Although the debt ratios of developing countries do not reveal a generalized problem, vulnerabilities remain in some developing regions, notably the Caribbean. The challenges related to the current debt crisis situation in Europe illustrate the need for a timely reform of the architecture for debt restructuring. In this regard, legally binding standstills could give the domestic and international official sector breathing space to find a solution. Standstills could be included in bond contracts to set out the contractual terms for non-payment of interest and suspension of payments. Another option would be a statutory approach with a possible amendment of the IMF Articles of Agreement.
In addressing systemic issues, the international community has continued its efforts to reform the international monetary and financial system and architecture. In the area of economic policy coordination, G20 leaders, at their summit in Los Cabos, Mexico, in June 2012, adopted the Los Cabos Growth and Jobs Action Plan. However, it is argued that more comprehensive and decisive international cooperation is necessary to tackle pressing financial and economic challenges. With regard to financial regulation, the focus has been on implementing the Basel III framework, strengthening the regulation of large financial institutions and expanding the regulatory perimeter to the shadow banking system and certain financial innovations. However, developing countries have expressed concerns of a potential negative impact of Basel III on trade finance availability. As for multilateral surveillance by the IMF, the priority has been to attach increased importance to cross-border and cross-sectoral linkages and spill over effects. In terms of steps taken to strengthen the global financial safety net, a number of countries committed to provide additional resources to the IMF for crisis prevention and resolution. Currently, these commitments amount to $461 billion. Efforts to further strengthen crisis lending facilities should focus on enhancing the different layers of the financial safety net, strengthening the cooperation of the IMF with regional arrangements and key central banks, and increasing coordination among the various mechanisms. Furthermore, the report stresses the need for further progress in enhancing the governance structures of the BWIs and increasing the voting power of emerging market and developing countries, through the IMF quota and governance reforms and quota formula review.
The closing section on “Staying engaged” refers to several important events, held during the reporting period as part of the financing for development follow-up process, including the fifth High-level Dialogue of the General Assembly on Financing for Development (New York, 7-8 December 2011) and the Special high-level meeting of ECOSOC with the BWIs, WTO and UNCTAD (New York, 12-13 March 2012). Another major event was the High-level thematic debate on the “State of the world economy and finance in 2012” (New York, 17-18 May 2012), jointly convened by the President of the General Assembly and the Secretary-General. The 2012 substantive session of the Economic and Social Council, under agenda item 6 (a) “Follow-up to the International Conference on Financing for Development”, featured a panel discussion on the topic “Innovative mechanisms of financing for development” (New York, 12 July 2012). In its resolution 2012/31, the Council adopted further measures aimed at strengthening the financing for development follow-up process. In particular, the Council recalled paragraphs 255, 256 and 257 of the outcome document of the United Nations Conference on Sustainable Development and, in this regard, stressed the need to reinforce coherence and coordination and avoid duplication of efforts with regard to the financing for development follow-up process. Furthermore, the Council recalled the earlier decisions of the General Assembly to review the modalities of the financing for development follow-up process and to consider the need to hold a follow-up financing for development conference by 2013.