Statement to the Development Committee by Mr. Jose Antonio Ocampo Under Secretary-General for Economic and Social Affairs Washington D.C., 17 April 2005

In his Report to the General Assembly in preparation for the 2005 review of implementation of the Millennium Declaration the Secretary General noted that the global partnership between industrialized and developing countries expressed in the Monterrey Consensus reached at the International Conference of Financing for Development in Monterrey, Mexico provides the groundwork for success in achieving the commitments of the Millennium Declaration, and in particular the eighth Millennium Development Goal.

In the historic Consensus that was produced at Monterrey each developing country accepted primary responsibility for its own development —strengthening governance, combating corruption and putting in place the policies and investments to drive economic growth and maximize domestic resources available to fund national development strategies. Developed countries, on their part, undertook that developing countries which adopted transparent, credible and properly crafted development strategies would receive the full support they need, in the form of increased development assistance, a more development-oriented trade system and wider and deeper debt relief. The major institutional stakeholders joined that Consensus and agreed to improve the coherence, coordination and cooperation in the formulation of their activities and in the implementation of international development policies.

However, in the words of the Secretary General “All of this has been promised but not delivered.” This assessment is borne out by the fact that most reports on the progress made over the last five years towards meeting the MDGs, such as the Millennium Project Report and the Global Monitoring Report suggest that the goal or reducing poverty by half will be met, but largely due to the rapid growth in incomes in the most populous developing countries. But this will still leave a substantial share of the world’s poor below the target levels, many of them in Sub-Saharan Africa. What is most disturbing about progress in this region relative to others is not that the decline in the share of the population living in poverty will not meet the Millennium target, but that the actual number of persons with incomes below $1 per day is expected to increase by almost 10 per cent. This disturbing possibility should not distract attention from the existence of substantial numbers living below target levels in middle income developing countries. And even in the countries that have already surpassed the income targets, the goals pertaining to overall human development in health and education, as well as those related to environmental sustainability, are far from being achieved.

Nonetheless these same reports suggest that if bold decisions are taken now, more rapid progress is possible. The meeting of the Joint Ministerial Committee of the Boards of Governors of the Bank and the Fund on the Transfer of Real Resources to Developing Countries represents an occasion for such bold decisions in preparation for the High Level Review of the Millennium Declaration in September.

Official development assistance

The initial estimates of the Zedillo Report on Financing for Development that a doubling of aid from 2001 levels would be required to achieve the MDGs have been given support by further studies on both the financing needs and the ability of developing countries to absorb increased aid. In particular, the Global Monitoring Report notes that Sub-Saharan African countries are those where progress has been slowest and where a doubling of aid proposed in the Zedillo Report is most pressing.

It is thus encouraging to note that official aid flows have once again started to increase since the Monterrey Conference. Denmark, Luxembourg, Netherlands, Norway and Sweden already meet or exceed the 0.7 per cent target of their national incomes dedicated to official assistance, while a number of other European countries, including Belgium, Finland, France and Ireland, have set precise target dates for meeting the target, and Spain and the United Kingdom have indicated their intention to do so by 2012 and 2013 respectively. In 2003 flows of ODA as a share of developed country GNI reached 0.25 per cent, up from 0.23 in 2002. Preliminary figures for 2004 indicate that ODA remained at 0.25 per cent or developed country GNI. The Secretary-General has recently urged developed countries that have not already done so to establish fixed timetables that would involve significant increases no later than 2006 and doubling the current ratio to reach 0.5 per cent by 2009 in order to achieve the 0.7 per cent target of gross national income for official development assistance by 2015.

However, the annual rates of increase in aid flows corrected for inflation and exchange rate changes of around 4.5 per cent recorded in 2003 and 2004 tend to mask disturbing trends in the composition of aid. An increasing proportion of DAC reported official assistance is comprised of emergency relief, debt relief and technical assistance, rather than additional financial resources available for support of expenditures to achieve the MDGs. Thus, when corrected for emergency assistance and debt relief, the positive rate of increase in real development assistance to all developing countries in 2003 becomes negative and the preliminary figures for 2004 are barely positive. However, optimism can be drawn from the fact that those countries most in need of increased assistance the figures are encouraging. After declining in 2001 and 2002, in 2003 aid to Least Developed Countries, adjusted for these factors, increased by over 25 per cent; for HIPCs the figure was over 15 per cent.

The difficulty in interpreting the support for MDGs from aggregate aid figures indicates the difficulty in monitoring progress in achieving the financing requirements for the MDGs. But, there are even greater difficulties in monitoring country progress in achieving MDGs. The UN has been at the center of efforts to promote international comparability of statistics through the standardization of statistical methods, classifications and definitions used by national statistical agencies as well as providing assistance to Member States to improve the capacity of their national statistical services through advisory services and training of statistical personnel. Thus a major contribution to achieving the implementation of the MDGs will be through improving recipient country statistics. This will also help provide clear evidence of the positive impact of donor aid.

It is evident that the MDGs do not exhaust the full import of the Millennium Declaration, nor do they exhaust the measures that will be necessary to achieve the development potential of all countries. The MDGs exist to provide objective measures of the minimum conditions that need to be met to allow a sustained growth process. Without the basic minimum incomes needed for subsistence and health and education, it is impossible to focus on activities that will increase incomes and wealth and provide a sustained development process. Thus, many have argued in favor of large increases in current aid levels through a process of front loading. More, and more effective, aid today could lead to a reduction in future aid requirements. It is for this reason that the Secretary General has called on the international community to act in 2005 to launch an International Finance Facility, originally proposed by the United Kingdom, and in the longer term, to consider the development of other innovative sources of finance for development to supplement the Facility.

The Doha Development Round

It is often noted that the increased resources that could be made available to developing countries by more open trade dwarf those of official sources. According to available preliminary estimates, the liberalization of trade in agriculture, manufactures and services of interest to developing countries could generate directly and indirectly additional gains of over $300 billion. Even a modest liberalization in temporary movement of workers from developing countries to developed countries under Mode 4 of the GATS Agreement would have a strong effect. It is for this reason that the Secretary General has also urged WTO members to complete the Doha round of multilateral trade negotiations in a way that fulfils its development promise no later than 2006. To cut through the difficulties involved in multilateral negotiations in the WTO the Secretary General has called on Member States to provide duty-free and quota-free market access for all exports from the least developed countries as a good faith indication of their commitment to a timely, development oriented conclusion to the current negotiations.

However, the ability to access these gains will depend on actions in developing countries to build supply capacities and trade-supporting infrastructure that will also require financing and careful sequencing over a sustained period of time. These gains can thus not be seen as a substitute for the call for a rapid increase in official assistance.

Also, while most of the attention have been given to the benefits to developing countries from more open trade in agricultural products where developed countries have the highest subsidies, developing countries can also benefit from the third round of negotiations under the Global System of Trade Preferences for Developing Countries announced at the UNCTAD XI Conference in Sao Paulo in June 2004.

Another area of importance in financing the MDGs is the stability of earnings from trade. This can be achieved by means of improving the stability of commodity export prices and by diversification of exports. Most developing countries have managed increases in the share of manufacturing exports in their total exports. However, in Africa the increase has been minimal and, as a result, the continent’s share of world merchandise exports fell by over half to only 2.5 per cent in 2000 in value terms. Not only do most African countries depend on two or three primary commodities for the bulk of their external earnings, Africa has fallen behind other developing regions of the world in exports of non-fuel primary commodities. Since many African countries depend on import and export taxes, fiscal earnings as well as their ability to finance social expenditures are highly vulnerable to changes in the value of commodity export earnings. Direct and indirect measures to reduce dependence on commodity exports and to reduce the impact of commodity price instability are thus crucial if Africa is to meet the Millennium Development Goals.

Liberalization of Mode 4 movements of labor services would add to the rapid growth workers’ remittances over the past decades. In the absence of any formal measures of liberalization, the recent increases in remittances supports estimates of their potential size and has created the expectation that they may represent an untapped potential for development. According to estimates by the World Bank, remittances increased from $72 billion in 2001 to $93 billion in 2003. However, remittances are private flows and available evidence suggests that the prime use of remittances is to finance private consumption expenditures. Further, they are concentrated in a relatively small number of countries such as India, Mexico, the Philippines and Turkey. Receipts for sub-Saharan Africa receipts were only of the order of $1 billion, so that the impact of these flows for the poorest countries ability to meet the MDGs is likely to be modest. Nonetheless, even if most remittances fund private consumption, they may still make a valuable contribution towards satisfying basic needs and relieving poverty. Recent work has tended to stress the developmental dimension of remittance flows, highlighting its role in developing human capital through education and, to a lesser extent, physical investment in farms or housing.

National development strategies

The Millennium Declaration and the recent Report of the Secretary General both stress the important of enhancing people’s capacities. The Secretary General has proposed that by 2006 the poorest countries adopt and implement a national development strategy bold enough to meet the Millennium Development Goals targets for 2015. Strategies should be built on practical scaling up of public investments, capacity-building, domestic resource mobilization and, where needed, official development assistance. Countries that already have poverty reduction strategy papers —nationally owned and developed three-year spending frameworks agreed with the World Bank and other international development partners— should align them with a 10-year framework of policies and investments consistent with achievement of the Millennium Development Goals. In middle-income countries and others where the goals are already within reach, Governments should adopt a “Millennium Development Goals-plus” strategy, with more ambitious targets.

In this context it is important to remember that rapid economic growth and high and sustained levels of employment facilitate poverty reduction and are critical to attaining poverty eradication objectives. A national development strategy, in which the main country objectives –such as attaining potential economic growth with high levels of employment and explicit policies to address sectoral imbalances in the composition of domestic production and exports—are explicit, is an important tool to mobilize domestic actors as well as to enhance international economic cooperation and mobilize private resources from abroad. The formulation of a national development strategy assists in setting priorities and the appropriate sequencing of Government actions.

It is partly the task of the Government to create conditions for those impulses to widen and produce sustained economic expansion. An important aspect of government national development strategies is to assist sustained productivity increases (e.g. through quality infrastructure, education and training, and technological research and development) in areas that have proved promising. These policies are key to generating high quality employment. In successful countries, export promotion as part of the national development strategy has also played a key role in rapid development. When, despite an improved macroeconomic environment and progress towards more open policies, growth impulses remain weak or lethargic, the national development strategy and productive sector policies assume particular importance.

The Monterrey Consensus also stresses that domestic efforts can only succeed if supported by an enabling international environment for growth and development. Developed countries and multilateral financial institutions can act to ensure the coherence and consistency of the international monetary, financial and trading systems through strong coordination of macroeconomic policies among the leading industrial countries so as to achieve greater global stability and reduced exchange rate volatility. It is also important for international financial institutions, including the International Monetary Fund, to have a suitable array of financial facilities and resources to respond in a timely and appropriate way to help prevent financial crisis. Regarding medium to long-term financial flows, the Monterrey Consensus recognized that multilateral and regional development banks play a vital role in financing for development and should contribute to providing an adequate supply of finance to countries that are challenged by poverty, follow sound economic policies and may lack access to capital markets. They should also mitigate the impact of the excessive volatility of financial markets.

As the Secretary General has mentioned, agreement on the goals to be achieved was reached at the Millennium Summit and the methods to achieve them was reached in Monterrey, but there are significant lags in implementation. He has made formal proposals to advance this process at the Millennium Declaration review in September. He welcomes additional and alternative proposals, but most of all he will welcome bold decisions to adopt a series of proposals that will allow the international community to meet its Millennium commitments.