Statement by Mr. José Antonio Ocampo, Under-Secretary-General for Economic and Social Affairs to the ECOSOC panel on Comprehensive Review of Trends and Perspectives in Funding for Development Cooperation
Geneva, 11 July 2006

I have the honour to open this debate on Comprehensive review of trends and perspectives in funding for development cooperation, mandated by the General Assembly in its resolution 59/250.

The timing of this review is particularly significant. It takes place as efforts are underway to establish ECOSOC’s biennial Development Cooperation Forum (DCF), called for by the 2005 World Summit. On the first day of the high-level segment, the Council organized an informal ministerial roundtable that provided an opportunity for ministers and high-level government representatives, as well as other key development actors, to engage in an interactive dialogue on the objectives and expectations for the first meeting of the proposed Forum.

Let me summarize some of the major trends highlighted in the Note of the Secretary-General before you. Although the review of funding goes well beyond the flows of official development assistance (ODA), these flows are the most important for the poorest countries of world. I will thus give special attention to this issue.

In 2005, world leaders committed to deliver more and better aid, debt cancellation, reduced conditionality and more coherent policies in support of development. The scaling-up of development assistance has therefore focused on both quality and quantity of ODA. A few European countries already meet the UN target of 0.7, and all the old fifteen members of the European Union committed to reach that target by 2015. Other industrial countries have also made commitments, although to levels below the UN target.

As a result of the rising trend in ODA that has taken place since Monterrey, ODA in 2005 reached US$106.5 billion, representing 0.33 per cent of the GNI of industrial countries, up from 0.26 per cent in 2004. This is a very welcome development. Yet much of the increase has resulted from agreements on debt relief in the Paris Club for Iraq and Nigeria and from the response to the Tsunami disaster in Asia. Consequently, the amount of aid that is directed to finance nationally-defined development objectives has increased to a much smaller extent, and in some cases remains below the levels reached in the early 1990s. Beyond this, debt cancellation and emergency relief, by their very nature, are based on decisions that are not necessarily going to be repeated in subsequent years.

We have also seen recent efforts and initiatives to enhance the quality of aid and increase its impact. In this regard, the Paris Declaration on Aid Effectiveness is a landmark. It has created a new spirit of international cooperation that will make it easier to continue to raise aid levels and make aid more effective. The Declaration provides a well-defined road map for increasing effectiveness by enhancing partnership commitments, aligning donor support to partner countries’ development strategies, harmonizing donor actions, managing and implementing aid and development resources in general with a focus on development results, and improving mutual accountability for development results.

As we underscored in last year’s World Economic and Social Survey, an important implication of the principles of aid effectiveness is that aid should be increasingly channelled through the budgets of recipient countries—particularly to enable the full application of the principles of ownership and alignment. This means, in turn, that the proportion of aid channelled through the budgets of recipient countries should be strictly monitored and, in our view, should become a specific target of international assistance.

Funding of UN development cooperation has benefited from the rising trend in ODA since Monterrey. It has hovered over the last five years around 13 to 14 per cent of all ODA, a higher proportion than that achieved in the early 1990s. Nonetheless, the present modality of funding for the UN operational activities weakens its capacity to operate effectively. For example, increasingly, major donors’ financial contributions to UN operational activities are mostly on the non-core side; meanwhile, the system has witnessed only slow growth in its core resources, and assessed contributions have been locked at historically low levels. These trends may reduce the capacity of the UN system to deliver more effectively its support to the development of programme countries.

Multilateral ODA channelled through institutions outside the UN system has increased more than funding to UN agencies. In this area, global funds have become a favoured mechanism of development cooperation. Pledges for IDA have increased from US$23 billion in 2002-2005 to US$33 billion in 2005-2008. The European Development Fund and the Global Fund to Fight AIDS, Tuberculosis and Malaria have increased at even faster rates. Other funds, however, have not benefited from this trend, particularly the Global Environmental Facility. Many of the new global funds can be best described as issue-based private-public partnerships. Because they operate independently of any international organization, they have contributed to even more fragmentation of the system for international cooperation.

Some of these initiatives have been the result of discussions and actions in the field of innovative sources of financing. In recent years, we have had several opportunities to discuss innovative ways to increase funding for development cooperation. In the past, such discussions were confined to academic exercises in which alternative schemes were examined. The greatest novelty in recent years is that some of these mechanisms have gained political support and are being gradually introduced at the policy and operational levels: from the pilot initiative of a solidarity levy on air tickets, launched by France and supported by 14 other countries to fund an International Drug Purchase Facility, to the International Finance Facility, being implemented through a pilot-project on Immunization. We see many more initiatives in this field, including advance market commitments for vaccines, the Humanitarian Lottery proposed by the World Food Program, and credit card gifts. The last belong to the category of private grants, which have shown a steady increase and reached in recent years over US$10 billion, equivalent to 0.04 per cent of the GNI of industrial countries.

Another positive trend relates to the new dynamism of South-South cooperation. We do not yet have comprehensive data on this, and the South-South cooperation that we see remains dispersed and fragmented. But we do know that, in this area, countries such as Brazil, China, India, the Republic of Korea, South Africa and several Arab nations are already important actors. South-South cooperation goes beyond aid flows and technical assistance, and encompasses many mechanisms of trade integration, investment and technological cooperation. In some areas, such as regional financial cooperation, new initiatives have emerged, such as the Chiang Mai and Asian Bond Market Initiatives. And other successful experiences have been in place for decades in Latin America and the Caribbean, the Arab and Islamic worlds and Sub-Saharan Africa. Nonetheless, as recognized by the Second South Summit held in Doha last year, much more could be done on this promising front.

Let me, Mr. Chairman, point out three final and interrelated trends. The first has been the recovery of private capital flows to developing countries since 2002, though largely bypassing poor countries. This trend may be subject to changes, however, reflecting the turmoil that world financial markets have experienced over the past two months. Access to private capital markets has reduced, in turn, the need for financing from multilateral development banks (MDBs). There has thus been a net negative transfer of resources from multilateral development banks to developing countries in recent years. Although this may reflect the counter-cyclical character of financing from MDBs, particularly to middle-income countries, it also points up the need to innovate in this area of development financing and, particularly, to reduce the transaction costs of dealing with MDBs, as developing countries have repeatedly called for through the Group of 24. Lastly, and despite the boom of private financing, developing countries have continued to transfer large amounts of resources to the industrial world. These transfers, which have been increasing constantly since the Asian crisis, reached US$483 billion in 2005.

Mr. Chairman:

This is the backdrop for your meeting here today, as set out in the Note prepared by the Secretariat to facilitate this discussion. You also have before you the statistical documentation prepared for this ECOSOC segment as a further factual basis. I look forward to your important debate—and to its results.