DESA News Vol. 11, No. 3 March 2007

Features

Brazilian Reals Joining forces for middle-income countries

International cooperation with intermediate economies is needed to prevent them from descending the ladder of development

The health of middle-income countries is to the international system what a strong middle class is to any society, the foundation upon which social achievements can be sustained. And as is the case with societies in general, economic advancement of the middle-income group is an essential ingredient of broader regional stability. Yet the high volatility of economic growth among middle-income countries has resulted in frequent growth collapses, which in turn have generated serious pressures on democratic governance. Given that forty percent of the world’s people surviving on less than two dollars a day live in middle-income nations, there is a sense in some corners of a wolf always at the door.

An Intergovernmental Conference on Development Cooperation with Middle-income Countries will take place in Madrid from 1 to 2 March to address these concerns, and explore ways of engaging the international community more fully in the welfare of MICs. All countries have a vested interest in ensuring that middle-income nations are able to consolidate the gains they have made, and continue to move forward on the UN development agenda.

The Conference has been organized by the Government of Spain in collaboration with DESA, and is expected to bring together ministers and other representatives of donor and middle-income countries, along with officials of international organizations including international financial institutions. Conference delegates will examine the role of the various stakeholders in development policy, identify the most significant needs of middle-income countries, and recommend areas where additional international support would be most effective.

The event will revolve around four working sessions with discussions on the need for financial stability and trade inclusion of MICs, on social cohesion, on democratic governance, and on international cooperation with the middle-income group of developing nations. Opening remarks will be made by the Spanish Minister of Foreign Affairs and Cooperation, Miguel Ángel Moratinos, and by Under-Secretary-General for Economic and Social Affairs, José Antonio Ocampo, followed by the Managing Director of the International Monetary Fund, Rodrigo Rato, and Supachai Panichpakdi, Secretary-General of UNCTAD.

Hubs of regional development

Over the last five years, following the Millennium Declaration in 2000 and the Monterrey Conference on Financing for Development in 2002, a new consensus has emerged on the need to fight extreme poverty. This has taken the form of pledges to increased debt relief and development aid for the least developed countries in sub-Saharan Africa and elsewhere, where levels of extreme poverty and deprivation are staggering. Clearly, Africa is a priority, and for good reason. Yet aid provided to the poorest countries need not divert attention from the MICs which stand to benefit from other forms of development cooperation.

According to a study on development cooperation with MICs, prepared under the direction of Spanish scholar José Antonio Alonso together with DESA, development cooperation with MICs should “support their progress and that of their regional setting, and bring more stable governance to the international system.” The continuing progress of the group of middle-income economies is pivotal to the dynamism of the international system. In much of the developing world, a small number of MICs – among them China, Brazil, Egypt, Indonesia, Mexico and South Africa – account for between one third and one half of the regional population and gross national product. Consequently, the health of one of these “development hubs”, whether strong or weak, has an important influence on the advancement of the region as a whole.

The need to anchor development

MICs are a heterogeneous group. Although there is no widely accepted definition, MICs are generally understood to comprise some 80 states with per capita income in 2005 ranging from $900 to about $10,000. The list includes both large and small countries, some of continental size and some islands. Some are rich in natural resources such as oil and gas. Some export primary commodities while others export manufactures and services. But all are constantly subject to market vicissitudes that can derail or reverse achievements. The high volatility of economic growth in a number of MICs is a clear impediment to development, according to the report. Most of these countries are vulnerable to external shocks such as the sudden and abrupt decline in the value of exports, rapid escalation of international interest rates, and reversal of private flows. Income inequality within middle-income countries also tends to be much higher than it is in high-income countries, indeed even higher than in low-income countries accounting for high rates of poverty that are often out of line with national development in the aggregate.

During the period 1978-2003, only one country successfully climbed from the low-income to the middle-income rung of economic development, while as many as twenty-five countries moved in the opposite direction, from the middle-income to the low-income group. While ten countries managed to shift from the middle-income to high-income rung, the trend over the last twenty-five years has clearly been downward making a rather compelling case for enhanced international cooperation in support of MICs.

The Monterrey consensus of 2002 held that each developing country should accept political responsibility for its own development, for example by devising and implementing poverty reduction measures that are consistent with its own national development goals and priorities. This is not always easy. Nonetheless, the international community can provide incentives that help keep poverty eradication at the top of the domestic agenda. One such mechanism would be an easing of the financial criteria for determining aid eligibility. Countries that progress economically should not be penalized by sharp cut-off lines between groups of aid beneficiaries that can discourage national initiative. Many MICs are also plagued by acute levels of debt, yet are not eligible for debt relief under the Heavily Indebted Poor Countries Initiative. Reduction or restructuring of the external debt of middle-income countries is another incentive that could be offered to promote national poverty eradication efforts.

The development cooperation system, as the report recommends, should work with countries at all levels of development, not only those on the lower rungs of the development ladder, adjusting and modifying the intensity of aid to the meet specific needs at each stage.

Aid effectiveness and ownership

The role of donors and international organizations in cooperation with MICs are expected to be the subject of remarks by high representatives of MICs, among them Cape Verde’s Foreign Minister, Victor Manuel Barbosa, and Enrique Iglesias, Secretary General of the Iberoamerican General Secretariat. Francisco E. Laínez, Foreign Minister of El Salvador will act as the chairman of a panel on this topic. Ways of increasing financial resources available to MICs will be considered, as will encouraging “a more flexible use of those resources, with less conditionality,” points out Cristian Ossa, an adviser in the Financing for Development Office of DESA and member of the team helping to organize the conference. As spelled out in the Paris Declaration on Aid Effectiveness of March 2005, the effectiveness of aid depends crucially on giving the recipient country ownership of development strategies.

Although the recipient country should lead decisions on the use of aid, fostering domestic ownership may be at odds with conditionality, which has often constrained the policy choices of developing countries. The strong commitment to national policy space made by Member-States at the 2005 World Summit recognized the need to change course.

South-South cooperation gains foothold

Conference delegates will also discuss how to improve technical assistance to MICs. “Official financial assistance is not as important to most MICs in the upper-income stratum as technical assistance,” says Mr. Ossa. “This can be provided in numerous areas, ranging from health programmes for developing vaccines to the development of plants resilient to tropical soils and frequent droughts, and so on” A good portion of foreign assistance to this group of countries is provided in the form of advisory services such as support to the design of economic policies, strengthening of institutions, and the sharing of experiences, but direct technical assistance can still be given a boost.

Technical cooperation is, on the other hand, gaining foothold via South-South cooperation, which bolsters a sense of ownership thanks to its horizontal structure. A remarkable initiative in this area is the India-Brazil-South Africa Dialogue Forum, a mechanism for political consultation and coordination and strengthening cooperation in specific economic areas, as well as for encouraging economic relations among these three countries. China, a leading proponent of South-South cooperation, had trained some 7,000 African workers in a variety of jobs and programmes by the end of 2003, while India has spent over $2 billion in wide-ranging programs under the India Development Initiative.

Often South-South development cooperation has been expressed in the macroeconomic realm through dialogue on economic policies and provision of liquidity in times of crises, in financing for development through Multilateral Development Banks owned by developing countries, and initiatives for the creation of regional bond markets.

Preventing financial shocks

The conference will address the vital need for financial stability in MICs. “In the financial crises that hit Asia and Latin America in the 1980s and late 1990s most of the emerging markets affected were MICs,” points out Mr. Ossa. “For these countries, such crises implied a major setback which translated into increased poverty and lower standards of living.” In fact, the increase in poverty that occurs at times of crisis is greater and speedier than reduction in poverty during period of growth. The experience of Thailand, one of the countries hit hardest by the 1997 Asian financial crisis, will be represented at the conference by Chalongphob Sussangkarn, president of the Thailand Development Research Institute, who will speak following a presentation on financial stability by Spanish Secretary of State for Economy, David Vergara. Volodymyr Makukha, Ukraine’s Minister for Economy, is expected to complete the panel.

During the Asian crisis, the sharp growth of volatile cross-border capital flows rendered the IMF’s traditional methods of crisis prevention and resolution much less effective. According to the World Economic Situation and Prospects 2007, the Fund should therefore broaden its crisis-prevention toolkit to foster closer engagement with emerging market members. In other words, the international community should join forces to “provide financial support that is predictable, flexible and substantial.”

The risks from abrupt capital movements and contagion from crises, as Under-Secretary General Ocampo has often indicated, can be reduced “not only by consolidating good macroeconomic management, but also securing adequate space for counter-cyclical macroeconomic policies.” The development of deep domestic financial markets in local currencies is also one of the surest ways for MICs to achieve greater autonomy in economic policy.

Bolstering infrastructure investments

In addition to the instability engendered by abrupt capital movements, only a limited number of MICs have wide access to international capital markets, mostly in emerging markets. As Under-Secretary General Ocampo emphasizes, improving MICs’ stable access to multilateral financing and, especially, to private financing is more important to many countries in this group than direct official development assistance, which is likely to continue to be limited. Perhaps also “even more important than ODA are development-friendly rules in the areas of finance, trade and technology;” that is, the conditions and rules under which countries integrate into the world economy.

The Madrid meeting will deal with the current rules and conditions governing the global economy through a panel on commercial insertion and competitive advantages of MICs that includes Jorge Enrique Triana, Foreign Minister of Argentina, and UNCTAD’s Secretary-General Panichpakdi. Algeria’s Foreign Minister, Mohammed Bedjaoui, will act as chairman.

The World Economic Situation and Prospects 2007 tells us that in 2006 China and India raised their exports in global trade by about 20 percent in real terms, resulting in improvement in domestic economic conditions and stronger interregional linkages. Nevertheless, most developing countries remain vulnerable to a slowdown in the major developed economies and to volatility of international commodity and financial markets. Heavy dependence on primary commodities exports renders exports revenues in MICs unstable.

The best way to accelerate development of MICs is to support to their efforts to develop technology and research capacities. To this end, infrastructure investments are of the essence, and domestic constraints that hinder technology and research should be removed. It is here where official bilateral and multilateral resources can play a decisive role. “Infrastructure is very costly and only pays off in the long-term,” explains Mr. Ossa, “but moving into more competitive and productive areas by investing in infrastructure is vital to the long-term growth of MICs.”

Improvement of institutional quality, a priority

None of these targets can be achieved without building credible public institutions equipped with skilled personnel able to deliver. In the words of Under Secretary-General Ocampo, “MICs should make improving institutional quality a priority.” The conference’s last session on social cohesion and democratic governance will explore ways in which international cooperation can deepen MICs’s institutional development. Leire Pajín, Spanish Secretary of State for International Cooperation, and François Bourguignon, Chief Economist and Senior Vice-President for Development Economics at the World Bank will discuss this issue, along with Joao Cravinho, Portugal’s Secretary of state for Foreign Affairs and Cooperation.

International cooperation with MICs can materialize, according to the study, through assistance in the design of robust tax systems that improve the link between economic growth and social equity. At the same time, strong social safety nets must be built to anticipate and cushion the effects of macroeconomic shocks in the most vulnerable sectors.

Cooperation has also a role to play in the improvement of statistics, of human resource training, and in the strengthening of tax management institutions. Helping countries learn from the experiences of developed countries and other MICs, and encouraging the empowerment of social groups who can exert pressure to make institutions more inclusive and accountable can also be valuable.

MICs can make a difference in the provision of regional and global public goods such as peacebuilding, prevention of contagious diseases, financial stability and environmental sustainability. Here is a case is made for backing the efforts of these countries to enhance their representation in international economic decision-making. The issue was at the core of the Monterrey Consensus on Financing for Development, but since then only the IMF has taken any serious steps to expand the influence of MICs. Having the voices of MICs heard in worldwide forums, where far-reaching decisions with a global impact are made, continues to be a challenge.

For full access to the study on development cooperation with middle-Income countries and other documentation for the conference, please visit http://www.un.org/esa/ffd/ffdmission.htm

The DESA publication ’Financing for Development: Building on Monterrey’ provides a comprehensive view of the 2002 International Conference on Financing for Development, including speeches, proposals, reports and resolutions. It can be downloaded free of charge from http://www.un.org/esa/ffd/ffdmission.htm



Global Statistical System: The Way Forward Global statistical system: the way forward

Building statistical capacity and broadening the scope of statistics remain the main challenges

The Statistical Commission has created the language for statisticians worldwide to communicate. If anniversaries are a good opportunity to take stock of accomplishments made and challenges ahead, the sixtieth anniversary of the Statistical Commission reminds us that the body of statistical standards it has built throughout six decades allows for talking about a global statistical system in the first place. The poor ability in some developing countries to produce reliable data to monitor the internationally agreed development goals is, nonetheless, a symptom that statistical capacity building remains a major challenge for the global statistical system.

The Statistical Commission has succeeded in guiding national and international official statistics that have contributed greatly to the understanding of national and global trends. It has developed a global statistical system that is built upon the foundation of the national statistics offices and is supported by regional and international statistical offices. As the Chairperson of the Statistical Commission, Gilberto Calvillo, has graphically described it, “The Commission effectively functions as the executive board of the global statistical system.”

The Commission certainly oversees the work of over twenty expert and interagency coordination bodies in virtually all statistical fields. In light of the technical recommendations of these groups, the Commission has adopted myriad international statistical standards and methods, which have opened the way to a full-fledged exchange and comparison of data on a global scale.

Standardization and dissemination of international statistics: the early years

When the Statistical Commission first met in 1946, uniformity of definitions and classifications was a pressing and urgent need. In its early years, the Commission set international standard classifications for merchandise trade, industries and commodities, and endorsed recommendations and guidelines for national population and housing censuses, household sample surveys and national accounts. The international System of National Accounts is arguably the best-known of internationally agreed statistical standards. It is made up of integrated concepts, classifications, definitions and tabulations relating to national income, production and consumption, for example gross and net national income and production.

Among the most complete and comprehensive data sources in international statistics is the Demographic Yearbook, a compilation of population statistics from national population and housing censuses. The first Demographic Yearbook, for 1949, responded to the eagerness by countries, in the wake of the Second World War, to have updated, reliable and detailed statistics of their populations, including the populations of colonies and territories. The Commission led the way in calling for large-scale technical assistance to the newly-independent States to help build independent national statistical offices and their work programmes.

In addition, since the 1950s, the Commission has established standards and guidelines for income distribution vital statistics, social indicators, energy, and environment statistics that have opened the scope of the global statistical system.

Fostering statistical capacities in countries

The Statistical Commission began to embrace development statistics at the beginning of the 1970s following a request by the Economic and Social Council in resolution 1566 (L) for “special regard to reviewing and appraising economic and social progress,” within the frame of the implementation of the Second United Nations Development Decade. After repeated calls for better statistics from global conferences on global development issues starting on 1972, the Commission has become the international focal point for developing and standardizing statistics and indicators for monitoring internationally agreed development goals.

Over the last years, the Statistical Commission has supported the Economic and Social Council’s work on integrated and coordinated follow-up to major UN summits and conferences, for example by reviewing proposed conference indicators for technical soundness. Development indicators constitute an area in which the Statistical Commission plays a lead role in relation to the work of the ECOSOC system, noting in particular concerns about the ability of countries to produce Millennium Development Goal measures.

Last year ECOSOC responded to those concerns adopting a resolution that called attention to the need to strengthen the statistical capacity of countries at all levels. The resolution also gave the Statistics Division of DESA a strong mandate to improve the global MDG database, particularly with regard to its coverage and its presentation of data and metadata.

The Commission’s analysis of the availability of key indicators in each country paints a gloomy picture: a number of countries still lack sufficient capacity to fulfil even basic national and international data demands, and even less to produce such data to high quality standards.

As the Under-Secretary General for Economic and Social Affairs, Jose Antonio Ocampo, highlighted on 26 February during the high-level forum on the Statistical Commission and the way forward for the global statistical system, statistical capacity building remains “a major challenge…Unless a significant effort and investment is made soon to strengthen national statistical capacity, especially in developing countries, reliable data to monitor development, including the UN development goals, will simply not exist for many countries and for years to come.”

Joining forces among the members of the global statistical system is a good way to enhance the statistical capacity of countries, according to the chairperson of the Statistical Commission, Mr. Calvillo. In a recent meeting of the members of the bureaux of the Council and its functional commissions, Mr. Calvillo proposed increasing coordination among national statistics offices, regional and international agencies. In this way, the financial and technical support of multilateral agencies and donor countries could be received or implemented in accordance with national needs which would ultimately expand the technical capacity of national statistical offices.

A unified UN system

Cooperation among UN system agencies, especially in the area of data compilation and dissemination, remains a challenge. As Under-Secretary General Ocampo indicated during the forum on the global statistical system, improvement would “reduce the country response burden, make the international data flow more efficient and, most importantly, would reduce the danger of data inconsistencies,” both between national and international data and among different international sources. He applauded the work of the Inter-agency Expert Group on the MDG Indicators, headed by the Statistics Division, while calling for more concerted action.

The foundations of the global statistical system laid down by the Statistical Commission have proven to be resilient amidst the rapid changes brought about by globalization. National accounts and international merchandise trade statistics are basically well established around the world. However as Paul Cheung, Director of the UN Statistics Division, recognizes, globalization poses additional challenges for statisticians such as expanded coverage and greater detail on the rapidly growing service economy. No less important are the need to develop tools to measure the relationship between economic development and the environment, and track changes in an increasingly borderless global economy. Global times require global data, and an effective international statistical system to lead the way.

For more information: http://unstats.un.org/unsd/statcom/stacom_archive/statcom_events.htm

For full access to the text of the ECOSOC resolution 2006/6 on Strengthening statistical capacity , please visit: http://unstats.un.org/unsd/statcom/commission_past_meetings.htm


Inaugural meeting of the 2007 Economic and Social Council Confronting climate change: avoiding the unmanageable, managing the unavoidable

Timothy E. Wirth, President of the United Nations Foundation and former United States senator, hosts a press conference on 27 February to introduce a report of the Scientific Expert Group on Climate Change and Sustainable Development, prepared for the 15th session of the Commission on Sustainable Development. According to scientific leaders, the world is sixty percent of the way to the point where the danger of intolerable and unmanageable impacts of climate change on human well-being rise rapidly.

http://webcast.un.org/ramgen/pressconference/pc070227.rm