DESA News Vol. 12, No. 03 March 2008

Trends and analysis

Climate change, financial turmoil and development policy

World economists, environmental experts, and social scientists meet in New York in March to consider climate change, financial turmoil, development gains and what it all means for developing countries

The international response to climate change will be one the main issues up for discussion when the Committee for Development Policy convenes its tenth session in New York from 17 to 20 March. Other items on the agenda include the current financial turmoil and its implications for developing countries, and monitoring the progress of countries graduating from least developed status.

The Committee’s development experts will face the challenge of recommending an effective policy response to climate change by developing countries, bearing in mind that action to mitigate the impact of climate change and adapt to its effects must continue to support the development aspirations of all nations. Of particular concern are vulnerable developing countries most likely to suffer from adverse environmental conditions in the short-term. Strengthened cooperation at the global level will likely be required.

The widely-expected deceleration of the world economy is another major reason for concern for the Committee because of the economic shock it could have on developing nations and further delays in meeting development goals. Low income countries, whose recent economic performance has been boosted by higher commodity prices and increased external demand, will be particularly affected. These countries tend to lack currency reserves and other financial resources, making it difficult to introduce counter-cyclical policies that act as a cushion against an economic downturn.

Are the existing multilateral contingency financing mechanisms suitable for dealing with the current financial turmoil? Can they deliver what is needed at this stage, without imposing an undue burden in terms of cost or conditionality? What innovative approaches might one consider to strengthen multilateral financial instruments? These are some of the questions the Committee will consider.

Finally, the Committee will have before it a suggestion to establish an “early warning” procedure to detect signs of a possible deterioration in the progress of countries graduating from the list of least developed countries. The Economic and Social Council would be informed, with particular emphasis on situations where support of the international community has been abruptly interrupted. In preparation, a group of experts from the Committee met in January to review monitoring guidelines.

The Committee is a 24-member advisory body that draws on the expertise of top economists, environmental experts, and social scientists from around the world, and reports to the Economic and Social Council.

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New media, new entrepreneurs in emerging markets

The Global Alliance for ICT and Development is hosting an event on new media, new entrepreneurs and new ICT opportunities in emerging markets on 25 and 26 March in New York. The second in a series, the conference will give leaders in the information and communication technology industry a chance to discuss the use of technology to drive development, understanding what is in the mind of ICT entrepreneurs and how new media are shaping business economics in developing countries.

The first day will be occupied with a number of panel sessions, with the second day devoted to an investors’ forum showcasing emerging ICT investment opportunities in Africa, Latin America, the Caribbean, Middle East, Eastern Europe, Asia and the Pacific. Government officials, business leaders, academics, civil society representatives, and the media are expected to attend.

Participants will also have an opportunity to watch for the next “mega-venture” to champion doing business with the “base of the pyramid.” They will also hear about financing solutions from a range of well-known investment firms.

The first such event, entitled “United Nations meets Silicon Valley” saw ICT leaders meet in April 2007 on the question of public-private sector partnerships to bolster the use of technology in development with special attention on increasing broadband connectivity to Africa and expanding telecentres in developing countries, two of the Alliance’s flagship initiatives.

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Corporate philanthropy meets world poverty

The Economic and Social Council met with business leaders on New York on 25 February to explore links between corporate giving and international development goals

Economic and Social Council delegates met informally with business leaders on 25 February to reflect on the role of corporate philanthropy in advancing the Millennium Development Goals. Council members were offered a chance to learn more about the motives and interests behind private sector giving. Corporate executives, for their part, heard about opportunities for partnership to help governments meet international sustainable development objectives.

The event was organized around two panel discussions, one on “strategic philanthropy” moderated by Jeffrey Sachs, Special Adviser to the Secretary-General on the MDGs, and one on “leadership and partnership” moderated by Kathy Bushkin Calvin, Executive Vice-President and COO of the United Nations Foundation.

The subject of corporate support for development is especially relevant for the Council, which will hold its first Development Cooperation Forum in July. The Forum is intended to provide a broad perspective on development assistance by also addressing the contribution of donors who are not members of OECD’s Development Assistance Committee.

Corporate philanthropy, one of many types of philanthropy, is a relatively new phenomenon associated with the marketing arms of major corporations and is usually to promote positive brand values in the global market place. At the same time, it is clear that many of the goals of international corporate philanthropy are coalescing around the same UN values and activities as defined by the MDGs, including the eradication of extreme poverty in its many dimensions while promoting gender equality, education, and environmental sustainability.

Private philanthropy constitutes a significant and increasing share of overall development assistance. Contributions to international development from non-government entities in developed countries – including businesses and foundations – grew from $11.5 billion in 2005 to $14.6 billion in 2006 – while official development assistance allocated by OCED member countries fell by 4.5 per cent during that time to $104.5 billion in 2006.

Corporate giving aimed at fighting world poverty is thus taking its place among the growing component of development assistance that supplements aid from OECD member governments. In this context, it is clear that the impact of this source of assistance could be substantially greater if appropriate tools were found to give greater coherence to the work of the many diverse actors involved.

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Jeffrey Sachs, Special Adviser to the Secretary-General on the MDGs Jeffrey Sachs, Special Adviser to the Secretary-General on the MDGs, addressing the Economic and Social Council event on corporate philanthropy on 25 February.


Mixed reaction to economic news among ECOSOC delegates

There was no shortage of ideas on how to respond to the current economic downturn at an informal Council meeting on 6 February

What is the current state of the world economy and what should be done about it? This was the subject of an informal gathering of the Economic and Social Council on 6 February, attended by a number of well-known figures in economics. Among them were Nouriel Roubini, Professor of Economics at NewYork University, Rob Vos of DESA’s Development Policy and Analysis Division, and Jomo Kwame Sundaram, the UN Assistant-Secretary-General for Economic Development.

Addressing delegates, Mr. Roubini predicted that this United States recession will last four to six quarters, longer than previously anticipated, and that it will spread globally. Triggered by the burst of the housing bubble, the impending recession will be a direct corollary of several weaknesses and problems inherent in the United States financial system which cannot simply be rectified with an easing of monetary policy. The economy not only faces illiquidity but also an insolvency problem, has to deal with a glut in housing and consumer durables and a lack of transparency of its financial sector.

In addition to short term fiscal measures there is a need to think of ways to establish a more robust global financial system and better risk management in developing countries but also, as the current crisis demonstrates, in developed countries. Such medium-term measures could be spearheaded by the Group of 7 finance ministers, and the Financial Stability Forum.

Rob Vos, Director of DESA’s Development Policy and Analysis Division, concurred that 2008 might see a major slowdown of the world economy. He predicted that the indebtedness of the United States will increase and that net financial flows from developing to developed countries will continue, mainly due to the continued build up of foreign currency reserves in United States dollars by developing countries.

As the dollar devalues further, countries might be moving into other currencies to diversify their risks, which in turn would put additional downward pressure on the dollar. Vos suggested these vast foreign reserves should be used to stop the devaluation of the dollar. Europe and Japan, as well as developing countries with large current account surpluses could provide an economic stimulus to revive the United States economy.

To check the impending recession, Vos called for measures to improve the regulation of the financial system, concerted action to avoid the hard landing of the dollar and multilateral policy coordination involving all relevant stakeholders. For this, the IMF needs to make more progress in changing its governance structure and in strengthening its credibility as a guardian of the multilateral system of surveillance and as a mediator in a process of international policy coordination.

A multiplicity of views

Many delegates welcomed the panelists’ sobering, if not alarming, assessment of the current state of the world economy and noted that DESA had in last year’s report on the World Economic Situation and Prospects already warned of the downside risks to global growth behind current economic woes. Others, however, suggested that the panel’s projections were overly pessimistic. The current recession should be seen in a historical perspective and in the light of business cycles.

Opinions also differed over how to respond to current challenges facing the global economy. Some suggested that Council discussions should have a stronger take on this matter and called for the translation of DESA’s policy recommendations into policy actions. Others indicated that emphasis should be placed on what countries can do individually, with the IMF and Basel Committee on Banking Supervision having a stronger role to play than the UN. Others argued that a global common currency reserve was now more feasible than ever. Still others suggested that an investment-led recovery might be an alternative to further dollar depreciation.

The panelists concurred that the international reserve system needs to be reformed in the medium to long run and that there is a need to move away from predominantly dollar-denominated reserves. An investment-led recovery would on the other hand constitute as much of a zero-sum game as much as that further dollar devaluation would not be the solution to a benign adjustment of the global imbalances. These options are therefore not very attractive solutions.

Jomo Kwame Sundaram, Assistant Secretary General for Economic Development, stressed that the Council has a record of having responded effectively to several crises, inter alia, the Asian crisis. In several cases it has been proven that collective responses are more efficient than individual policy responses at country level. Mr. Jomo concluded that the world economy can benefit from the informal discussions taking place within the Council.

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