flying albatross International Conference on Financing for Development, Monterrey, Mexico 18-22 March 2002 United Nations
FfD Home Site Map Contact Us
 
theme menu

Mobilizing Domestic Financial Resources
for Development

FfD-Agenda

United Nations, A/ AC. 257/ L. 2, June 2000

"Mobilizing domestic financial resources for development

1. Enabling domestic environments: governance issues; sound macroeconomic policies, including fiscal and private savings policies; special needs of Africa, the least developed countries, small island developing States, landlocked and transit developing countries and other developing countries as well as countries with economies in transition with special difficulties in attracting financing for development.

2. Strengthening public finances: development and enforcement of effective and equitable tax systems; enhanced allocation of public expenditures for infrastructure and social development; capacity-building and technical assistance.

3. Strengthening the domestic financial sector: institutional issues; supervision; harmonization of codes and standards; innovative instruments; access to microcredit; capacity-building and technical assistance."

 

Full Text of Agenda                                                                                               Back to FfD-Themes


First Working Paper of the Facilitator

United Nations, A/AC.254/24, March 2001

 

"Heading I: Mobilizing domestic financial resources for development

Each country has primary responsibility for its economic development. The mobilization of domestic resources is the foundation for self-sustaining development. An enabling domestic environment is vital not only in mobilizing domestic resources, but also in attracting and effectively using international investment and assistance.

National efforts to mobilize domestic financial resources should consolidate enabling domestic environments geared to promote growth with equity, through good governance, effective domestic institutions, rule of law, and sound macroeconomic, structural and social development policies that are gender and environment sensitive.

Based on common international understandings that respect diversity and specific country circumstances, these national efforts should be supported by an enabling international environment, including good international financial and trade governance and adequate external resources mobilization.

In the pursuit of good governance at the national and international levels, an immediate priority is to fight corruption:

How to enhance international cooperation to fight corruption, eliminate money laundering and illegal transactions and repatriate illegally transferred funds? How could an international legal instrument against corruption under the aegis of the United Nations be effective to fight corruption?

Public finance is not only central to domestic resource mobilization, but also an area where action by governments can lead to early and effective results:

How can multilateral and bilateral development agencies support national efforts to formulate medium-term fiscal frameworks that promote financial stability while providing a measure of predictability for public spending programmes?

How can international cooperation support national efforts to put in place an efficient and equitable tax system?

How can the international community support national efforts to tap civil society and private sector resources to contribute to the provision of infrastructure and social services, so that public resources can be concentrated in other areas where there can be no substitute for government activity?

Fostering a dynamic private sector is another crucial part of an enabling environment:

How best to foster private sector development, particularly the development of a functioning financial sector to encourage private savings and productive investments?

An important challenge is to widen access to sources of finance so that all segments of the population can participate in development. Finance for SMEs and microcredit, both at urban and rural areas, can play a key role in this regard considering its critical impact on employment and income distribution:

How can the international community support national efforts to foster the development of more inclusive financial services and ensure access by all, notably women and the poor? How to capitalize on the recent innovations in financial instrumentality to develop microfinance and other financial products for small borrowers? Within the context of the UN's partnerships with business, is it possible to deepen financial innovation to better serve the financial needs of the poor? How to benefit from the experience of postal savings?

A basic priority is to put on track a comprehensive capacity-building and technical assistance effort to support generating an increasing stream of domestic financial resources and efficiently channeling them to development goals.

How best to strengthen technical assistance efforts for national capacity-building in the critical areas of public finance and the financial-sector development, including capacity-building for enhanced participation in the formulation and implementation of codes and standards as well as for financial sector reforms needed to facilitate investment flows?"

 

Full Text of Working Paper                                                                                            Back to FfD-Themes


Report of the Secretary-General
to the Preparatory Committee for the
High-Level International Intergovernmental Event
On Financing For Development

 

United Nations, A/AC.257/12, January 2001

"The high-level event should underline that national macroeconomic policies should aim at a medium-term framework that balances the key objectives of sustained economic growth, employment growth and poverty reduction, taking into account the need to ensure low inflation and that fiscal and current account balances are sustainable. In determining the macroeconomic policy package, national economic authorities should pay special attention to the time horizon of implementation and to consistency among the various objectives and instruments.(...)

The international community should agree that special care be taken with respect to the opening of the capital account in developing countries and countries with economies in transition, recognizing the need for national policy autonomy, which in some circumstances may call for countries to apply disincentives or controls on short-term capital in times of surges in capital flows. However, capital controls cannot be used as a substitute for sound and appropriate macroeconomic policies.(...)

The international community should create and promote an international economic environment supportive of sound macroeconomic policy and domestic resource mobilization in developing countries and countries with economies in transition. The large industrial countries should endeavour to formulate and implement policies that are supportive of robust international global growth and consistent with a stable international economic environment, making special efforts to minimize abrupt shifts in interest rates, in the supply of capital in international financial markets and in the exchange rates of reserve currencies(...)

While traditional macroeconomic instruments remain crucial, Member States should agree that supplemental instruments need to be developed to deal with the fluctuations in fiscal balances and foreign-exchange reserves and the greater risk of instability that have been accentuated by the increasing speed of globalization. These instruments could include fiscal stabilization funds, which neutralize fortuitous increases in revenues or foreign-exchange earnings, for use later, and more stringent supervision and regulation of the international exposure of the industrial and financial sector.(...)

Developing and transition economy countries should give high priority to strengthening macroeconomic institutions, especially central banks and finance ministries, and to enhancing or creating supervisory bodies. This will involve capacity-building - e.g., through training programmes for public officials - and requires enhanced technical cooperation, particularly for the least developed countries. Emphasis in all countries should be placed on strengthening institutional arrangements that bring the main elements of macroeconomic policy into the public domain so that the full consequences of those policies, including their social dimensions, can be discussed in a way that helps achieve a balance between economic and social priorities and enhances the acceptance - and facilitates the implementation - of the chosen macroeconomic policies.(...)

Member States should accelerate implementation of their commitment, reiterated at the twenty-fourth special session of the General Assembly, to effective, participatory, transparent and accountable governance and institutions responsive to the people and their needs, and to intensify reforms geared to strengthening legal and regulatory frameworks, social, economic and institutional infrastructure, equal access to and control over resources for women and men, the enforcement of contracts and domestic laws regarding private property, and financial sector reform.(...)

Member States should strengthen measures to fight corruption at the national and international levels, including through enhanced international cooperation. In this regard, they should call for expeditious completion of preparatory work for the elaboration of an international legal instrument against corruption under the aegis of the United Nations - independent of the United Nations convention against transnational organized crime - and for the convening of a conference for the negotiation of the corresponding legal instrument by the earliest possible date.(...)

The international community should support on a long-term basis the national efforts of developing countries, particularly the countries of Africa, the least developed countries, small island developing States and landlocked and transit developing countries, as well as countries with economies in transition, to develop effective governance systems, in particular by providing increased resources for technical assistance for institution building.(...)

Countries should consider the formulation of a medium-term fiscal framework to provide a measure of predictability for public spending programmes and to set out clear goals for the mobilization of tax and non-tax revenues and the profile of public assets and liabilities, including contingent liabilities. International institutions should be ready to assist countries in developing such a framework, and all donor partners should take it into account in providing assistance to those countries.(...)

Countries should strive to develop progressive taxation systems and should endeavour to ensure that the process of adopting taxes is equitable and participatory through, inter alia, the following policies and measures:

- Taking measures to ensure that the incidence of taxation falls justly on different income classes and different categories of income, such as wages, profits and rents;

- Extending the tax base to cover incomes from activities that are not currently taxed;

- Expanding indirect taxes and making them more equitable by targeting the growing modern service sector and socially and environmentally undesirable activities.(...)

All countries should strive to simplify tax laws, to improve the efficiency and effectiveness of tax administration and to enhance enforcement through the strengthening of institutional, technical and technological capacities, including the development of a transparent, accountable and corruption-free system. Developed countries and international institutions should provide increasing support, especially in terms of resources for technical assistance in capacity-building, to developing and transition economy countries undertaking these changes.(...)

Developing countries and countries with economies in transition should undertake appropriate administrative and legislative measures to combat tax evasion and prevent tax avoidance. International institutions should provide assistance for this purpose, particularly to facilitate south-south cooperation.Developing countries and countries with economies in transition should undertake appropriate administrative and legislative measures to combat tax evasion and prevent tax avoidance. International institutions should provide assistance for this purpose, particularly to facilitate South-South cooperation.(...)

National, regional and local authorities should establish transparent budget procedures and facilitate the participation of civil society in the review of public expenditures with a view to enhancing the efficient and equitable provision of health, education, social security and infrastructure services, and safety nets. Such transparent procedures and review should also help Governments to protect essential maintenance and developmental expenditures in times of adjustment, to enhance the cost-effectiveness of public programmes and correct those that are mistargeted, and to evaluate their impact on the poor, particularly women, and on the environment.(...) National authorities, supported by the international community, should explore possibilities for tapping civil society and private-sector resources, both managerial and financial, to contribute to the provision of infrastructure and social services in a way that promotes service quality, expands access to the poorest, in particular to women, and at the same time maximizes the levels of public resources allocated to the provision of other non-commercial services, including safety nets, that are required to establish more just and equitable societies.(...)

All countries should support the development of well functioning financial markets by:

- Establishing a transparent and efficient overall legal framework and administration, complemented by effective regulatory and supervisory institutions in order to, inter alia, reduce excessive risk-taking and "moral hazard";

- Building an effective insolvency regime that properly and equitably balances the rights and obligations of debtors and creditors;

- Fostering good corporate governance, accounting, and auditing practices in private and public entities;

- Fostering a competitive environment to facilitate efficiency and innovation in financial services, including the consideration, where appropriate, of in-country operation of foreign financial institutions.(...)

All countries should aim to develop a diverse financial system, consistent with legal and cultural traditions and the capacity for adequate regulation, that responds to the multifaceted needs for financial services, in particular to promote household savings and facilitate long-term investment. Such a system includes markets for public and private bonds and equities; such institutions as pension funds, life-insurance companies, mutual funds, postal savings and mortgage providers; and development banks and non-bank financial institutions. Groups of countries with small economies and lack of financial depth should consider modalities to foster regional markets for financial services.(...)

All countries should facilitate access to finance by small and medium-sized enterprises through the provision of credit - particularly microcredit - and appropriate guarantee schemes, as well as through the introduction of segments of stock markets which are adapted to the needs of small and medium-sized enterprises and where more flexible rules apply. The emphasis should be on transparency of enterprises, on innovative, market-based financing mechanisms and on modalities appropriate to small enterprises, such as venture capital, leasing companies and insurance products.(...)

Countries should develop a rural credit plan that provides farmers, fisher folk and other small rural producers with equitable access to long- and short-term credit, crop (weather) insurance and other financial services. The development of a legal framework and promotional measures that facilitate credit cooperatives can play an important role in this regard.(...)

All countries should facilitate access to financial services for the poor and vulnerable by fostering a wide range of financial intermediaries which target small savers and small borrowers, microenterprises, including microfinance institutions, cooperatives, credit unions and postal savings. To this end, countries should strive to remove institutional and regulatory obstacles, such as restrictions on cost recovery, lack of secure transaction laws and weak property registries. Countries should also seek to improve women’s access to mainstream sources of financing, including by strengthening their rights to pledge collateral. Governments and donors should provide resources and explore venues to reach people living in poverty, including through international public-private partnership funds to encourage research and applications on innovative financial tools.(...)

Countries should further assess the underpinnings of well functioning financial markets - which should also help to reduce the vulnerability of the international and domestic financial systems to crisis and contagion - through self-assessments or externally assisted assessments, as embodied, for example, in the multi-agency "financial sector assessment programmes" and "reports on the observance of standards and codes". In many countries, such guidelines can be of great assistance in determining the priorities of financial reforms and the appropriate sequencing of reform and economic liberalization measures.(...)

Bilateral and multilateral financing and development agencies and institutions should be urged to continue to support, on a long-term basis and with increased resources for technical assistance, the national efforts of developing countries and countries with economies in transition in capacity-building for their efforts related to strengthening the financial sector.(...)

National authorities should support a comprehensive approach towards the development of sustainable social protection systems by designing such systems in a manner that facilitates risk management at the individual and family levels, particularly for women; increasing the allocation of national resources for social protection; supporting, to the extent possible, the principle of universal coverage; evaluating systems both in terms of their effectiveness as support mechanisms and also of their impact on productivity, job creation and competitiveness; developing institutional mechanisms for improved coherence in social protection expenditures at the national and local levels; developing modalities and mobilizing resources to extend social protection to those working in the informal economy and those performing unpaid work - who are disproportionately likely to be women; and having social safety nets in place to extend special protection for the poor and vulnerable in times of economic crisis.(...)

National authorities should explore the development of pension funds, where appropriate to domestic circumstances, as a mechanism to improve income security and as an integral part of a national pension system. The design of the specific programme should aim to ensure its sustainability and attain its primary objective of the reliable provision of income, while giving appropriate consideration to fostering its potential impact on savings mobilization and the development of the financial sector through effective, transparent and adaptable regulation and accountable administration. The sharing of experience in this area should be supported by technical assistance resources from the international community."

 

Full Text of Report                                                                                                        Back to FfD-Themes


Joint Statement of the Co-Chairmen
at the Conclusion of the First Part of the
Third Session of the Preparatory Committee

United Nations, 8 May 2001

 

"Mobilization of domestic resources for development

There was broad agreement among participants on almost all the issues raised.4/ The starting point is that each country has primary responsibility for its economic development. Some of the principles emphasized in the discussion were ownership, participation, transparency, accountability and access. For a supportive and conducive environment, the following were highlighted:

Interlinkages of domestic resource mobilization with an enabling environment, both domestic and international, including trade, finance, commodity prices and official development assistance and capacity building; The role of the private sector in domestic resource mobilization; The role of civil society organizations in providing financial services to low-income groups and the poor.

The discussion helped to sharpen the focus on the issues and highlighted promising areas of agreement.

 

Towards policy priorities

Critical issues in the mobilization of domestic resources were identified: good governance, a sound macroeconomic framework, formulation of a medium-term fiscal framework, development of an efficient and equitable tax system, development of a well-functioning financial system, financial innovations to widen access of finance and involvement of civil society and the private sector in the provision of infrastructure, social services and ensuring access to financing for those groups usually excluded from the formal financial sector.

Developing a focused and effective capacity building and technical assistance effort to support the critical areas in the mobilization of domestic resources, drawing on opportunities for cooperation among all countries, from the North and the South, within and across regional groupings of countries. In this regard, there were certain additional considerations:

The importance to their effectiveness of prioritization and ownership of programmes by developing countries in consultation with bilateral and multilateral donors, an example of which is the initiative of the Economic Commission for Africa, "A Compact for Africa’s Recovery."5/ Drawing on lessons learned from existing programmes, including provision by the UN of replicable models of programmes and work of other international and bilateral organizations.

Determining the international support needed for special groups of developing countries in their efforts to mobilize domestic resources for development. Implications for this issue of the outcome of the forthcoming UN Conference on least developed countries in Brussels, 14-20 May 2001, can be an input to the International Conference.

Developing the complementary role that the private sector and civil society can play with the public sector and in the provision of infrastructure and social services, as well as in developing financial innovations to widen access to financing for all segments of society. Additional considerations in this regard included:

Exploring how public resources can be used to leverage private resources. Drawing on lessons learned from various groups, e.g. work on microfinance by the 27 agencies that constitute the Consultative Group to Assist the Poorest (CGAP). Possible private sector involvement in a roundtable on the issue of innovations in financing as a side event at the International Conference.

Enhancing national and international efforts to combat corruption of all origins, and organize international cooperation in this area under the auspices of the United Nations, taking into account national experiences and ongoing international and regional efforts to avoid duplication.

Coordination of the various existing mechanisms for international support to developing countries in their formulation and implementation of strategies for domestic resource mobilization to attain their development goals (including, national development plans and strategies, Poverty Reduction Strategy Papers, Comprehensive Development Frameworks, United Nations Development Assistance Frameworks, and Common Country Assessments)."

 

Full Text of Statement                                                                                                    Back to FfD-Themes


High-Level Panel on
Financing for Development -
Recommendations & Technical Report

United Nations, A/55/1000, 26 June 2001

 

" Recommendations:

Mobilizing resources for development

Unlike many previous undertakings, the Millennium Declaration also highlighted the task of mobilizing the financial resources needed—to achieve the International Development Goals and, more generally, to finance the development process of developing countries. The upcoming Conference on Financing for Development, to be held in March 2002, will be a key event in agreeing a strategy for better resource mobilization.

Financing for development provides the mandate entrusted to this Panel by the UN Secretary-General. Drawing on our collective practical experience, our task was to recommend steps that can be taken to augment the flow of resources to the developing world. In what follows, and in the accompanying technical report, we look at ways to ensure that developing countries receive the financial resources they need. What policies must they adopt? What kind of help from the industrialized world will be most useful to them? Does the world have the right international institutions? And if so, how to ensure they play their proper role?

Policies in developing countries

The primary responsibility for achieving growth and equitable development lies with the developing countries themselves. This responsibility includes creating the conditions that make it possible to secure the needed financial resources for investment. It is the actions of domestic policymakers that largely determine the state of governance, macroeconomic and microeconomic policies, the public finances, the condition of the financial system, and other basic elements of a country’s economic environment.

We emphasize here that achieving such a positive environment is not simply a matter of political will. Though beyond the purview of this Panel, capacity building and institutional development are an absolutely essential complement to finance in the effort to improve living standards among the poor. Many developing countries, usually the poorest ones, still lack institutions capable of implementing the necessary actions, and will need to focus major national efforts on capacity building. In this task, more and better assistance from the international community is needed; indeed, experience shows that imposing tough policy conditionality on poor countries without assisting them to build their domestic capacity is a recipe for frustration and unsatisfactory results.

Governance

First and foremost, a country needs to have good governance that commands the consent of the governed, and effective and impartial rule of law—including relentless combat of corruption, competent and socially legitimate protection of property rights, and well designed, well enforced regulations (appropriate to the specific country’s stage of development) to protect workers’ rights and the environment.

Macroeconomic policy

The generation of domestic resources to save and invest productively is the essential foundation of sustained development. A very low domestic savings rate is one of the main structural weaknesses to be overcome in most developing countries. But there will not be enough domestic savings, nor enough high quality national investment, without macroeconomic discipline. Economic policy must be designed to make inflation and the current account balance consistent with sustained growth. For countries with high inflation, this implies that monetary policy should aim to reduce inflation over time, and once it has reached a low level, to hold it there. Monetary policy also needs to be consistent with the chosen exchange rate regime, which must give reasonable assurance that the country will avoid an unsustainably large current account deficit.

Fiscal policy and social spending

Fiscal discipline, too, is required at all times, so as to keep deficit financing small enough to avoid causing inflation, to avoid excessive accumulation of public debt, and to ensure that government borrowing does not crowd out the private sector from domestic credit markets. Almost everywhere the most potent way to empower the poor to integrate themselves into the market economy, and hence to contribute to and benefit from growth, is to make public investments in broadly accessible education, health, and nutrition, in other basic social programs, and in the rural sector, where large proportions of the poor typically live. These programs need to have the first call on government resources—they should not be treated as marginal programs whose budgets can be slashed when times are difficult.

Financing an adequate level of social public expenditure while limiting budget deficits calls for substantial tax revenues. Most countries of the developing world must undertake significant tax reforms if they are to raise the additional revenue that they need. These reforms should generally aim to broaden the tax base and to encourage domestic savings. In designing tax reforms, care is needed to protect the consumption levels of the poor.

Financial system

A diverse, well-functioning, competitive financial system is crucially important both for mobilizing savings and for investing them productively. Every country needs a financial system that promotes savings and provides credit efficiently to small, medium, and large firms as well as to micro-enterprises—including those owned by the poor and by women. Again, in most developing countries, such a system is missing. Its development requires a modern framework that progressively incorporates accepted international standards for capitalization, accounting, auditing, regulation, and supervision, as well as arrangements for corporate governance and bankruptcy that are adapted to the local culture while meeting global standards. Building financial systems that will meet these specifications is difficult. The international community needs to help developing countries in this task.

Pension reform

A country’s pension system has a dual role: as a social safety net for the elderly and as a source of savings that can be used for productive investment. How the government approaches the provision of old age security can have a significant impact on the national savings rate. The type of pension scheme with the greatest impact on savings is probably a defined-contribution scheme in which participants accumulate rights to the assets that they contribute, and thus regard their capitalized contributions as a part of their personal wealth. To have the greatest social impact, a defined contribution scheme should be complemented by a tax-financed scheme, to provide for a minimum pension that has a progressive redistributional impact and safeguards the poor. The feasibility of this approach is likely to vary among countries, however, depending in part on the solvency of the existing system and in part on the weight the society places on social cohesion.

Technical Report

1- Domestic Resource Mobilisation

The main responsibility for securing growth and equity, and hence for achieving rapid poverty reduction and human development as called for by the International Development Goals, lies with countries’ policymakers. It is their actions that primarily determine the state of governance, the choice of macroeconomic and microeconomic policies, the health of public finances, the parameters of the financial system, and other fundamental elements of the economic environment. There cannot be growth without investment of sufficient amount and quality. The domestic economy is virtually always the dominant source of savings for investment, and the domestic policy environment is a decisive determinant of the desire to invest. Furthermore, the equally crucial question of the efficiency with which resources are invested is determined overwhelmingly by national decisions and the domestic policy environment. That is why it is right to start a discussion of how to provide the financial resources to achieve the 2015 targets by looking at domestic policy issues in developing countries.

Perhaps the most basic of those issues concerns governance, including the rule of law. Countries need to be able to govern themselves efficiently and fairly, and in a way that commands the consent of the governed, if they are to have a chance at development. The cancer of corruption should be vigorously combated as an impediment to growth and an offence against the poor.

Experience has also made it abundantly clear that one cannot expect savers to keep their savings within the country, or investors to risk their wealth in socially productive investments there, in the absence of macroeconomic discipline. Inflation and the current account deficit need to be consistent with sustained growth. This implies a monetary policy that aims to reduce high inflation over time, and to keep low inflation low. Monetary policy also needs to be consistent with the chosen exchange rate regime, which must give reasonable assurance that unsustainably large current account deficits will be avoided. And one certainly cannot have macroeconomic discipline without fiscal discipline.

As Amartya Sen argues[6] , a market economy provides both a means for enlarging personal freedom and the most effective known way of furthering economic growth. But a market economy requires a secure institutional infrastructure in order to function effectively. This involves adherence to the rule of law, administered impartially by the courts; a coherent system of corporate, contract, and bankruptcy law; legally established property rights that recognise socially acceptable traditional practices and therefore command social legitimacy; and well-designed regulations appropriate to a country’s stage of development. This includes regulations that promote worker and product safety, set environmental standards, and, in the event of monopoly, establish reasonable prices.

What markets do not automatically provide, however, is a fair chance for everyone to participate in them and exploit their potential to the full. To give the disadvantaged a chance, action may be needed to secure legal recognition of traditional property rights,[7] gender equity, and, in some countries, land reform. But just about everywhere, the most potent instrument for empowering the poor—including women--to integrate themselves into the market economy is public spending on education, health, nutrition, the rural sector, and other basic social programmes. It is these that enable the poor to contribute to—and thus benefit from—economic growth. These programmes, plus infrastructure investment, need to be the first call on government resources—not the marginal spending that is slashed when times are difficult.

Financing an adequate level of public expenditure, including a social safety net, while limiting budget deficits implies raising substantial revenue from taxation. Tax revenue (supplemented in lower-income countries by foreign aid) needs to be sufficient to permit spending to be financed without either imposing the inflation tax, which falls disproportionately on the poor, or curtailing investment by the private sector. Many developing countries will have to undertake tax reform in order to raise tax revenue to the levels required. A value added tax has been found useful in many countries, because it spreads the burden of taxation over a broad tax base, although care may be needed to prevent an unfair share of the burden falling on the poor.

Experience has shown that even the most admirable tax structure on paper is of little value if it is administered incompetently or corruptly. This points both to the need to simplify the tax system wherever possible and to the importance of building a transparent, accountable, and corruption-free tax administration. Section 5 of this Report urges that the international community create an International Tax Organisation that would help countries achieve these objectives, as well as reduce the scope for tax avoidance and evasion on income sources that have a transnational element. That would broaden the tax base and thus permit lower marginal tax rates, helping to limit disincentive effects while making taxation more progressive.

The financial system has been called the brain and nervous system of an economy. It provides opportunities for households to save, determines how savings are channelled to productive enterprises, and monitors the use made by enterprises of those savings. A diverse, well-functioning, competitive financial system is thus of crucial importance both in mobilising savings and in securing their productive investment. A truly diverse financial system is one that provides credit to microenterprises as well as larger firms; that encompasses a vigorous capital market as well as widely accessible banks; that allows firms to raise both equity and debt finance; that offers a range of institutional savings mechanisms; and that provides both credit and savings opportunities to women, the informal sector, and the poor. A well-functioning system needs to be based on a modern legal framework incorporating international accounting and auditing standards, as well as corporate governance and bankruptcy arrangements that are adapted to the local culture but meet global standards. Banks must be competitive, efficient, properly capitalised, and well regulated and supervised. Countries must aspire to reach the standards and abide by the codes on financial regulation that various international fora have developed. Of course, building institutions that will meet these specifications is difficult and will take time; it will also require assistance by the international community.

Public policy can have an important impact on the level of saving through arrangements made for the provision of pensions. Many developing countries still lack a reasonably comprehensive system for roviding adequate income to their retirees. This may not be a priority issue in the very poorest countries, where retirees are not the only group in society whose incomes are typically lacking. But it is fast becoming a serious social issue even in countries with quite low incomes, as the extended family system erodes and life expectancy increases. Moreover, it is a problem whose solution can have a significant impact on the mobilisation of savings.

If a pension system is to add to national saving, it must be a funded rather than a pay-as-you-go system, and the transition to the funded system must not be financed by borrowing. (A funded system is one in which contributions of today’s workers are set aside for their own retirement; in a pay-as-you-go system those contributions are transferred to today’s retirees.) The result will be a higher national saving rate, as the present generation of workers is obliged to save to build up the assets that will pay their future pensions, while still paying taxes to fund the pensions of those already retired when the scheme is introduced. A defined-contribution scheme, in which a participant accumulates rights to the assets that he or she contributes, is probably the most efficient way of raising saving, since people regard their capitalised contributions as a part of their personal wealth. Such a scheme can be organised and managed by the state itself, or the task can be turned over to private pension funds regulated by the state, with mandatory contributions. A programme of either type should be complemented by a tax-financed scheme with a progressive redistributional impact so as to ensure a minimum pension. The importance of a funded, defined-contribution element and a tax-financed element assuring a minimum pension is likely to vary from one country to another, depending in part on the solvency of the existing system and in part on the weight the society places on social cohesion.

Admittedly, the agenda just laid out is an ambitious one, particularly for low-income countries that have been ravaged by war or civil conflict. It is not intended to imply that all countries should adopt the same set of policies: differing circumstances will certainly require different policies. The intent has been to identify those propositions that are widely valid, and to make the point that neither economic nor human development is likely to get very far, whatever the international environment, in countries that fail to address this agenda. If the world is to achieve the 2015 International Development Goals, the first indispensable step is for all developing countries to make sure their fundamentals are being addressed along the lines sketched out here. But doing this is not simply a matter of political will. Many developing countries lack institutions capable of implementing much of this agenda. These countries will need to focus major national efforts on capacity building: developing a competent and corruption-free public service, nurturing a strong civic society and a vibrant and independent press, and promoting a strong indigenous private sector. Technical assistance as currently organised is not providing the help that it ought to be doing. The international community needs to think hard about how it can best assist developing countries build the robust, sustainable, strategic and innovative institutions capable of responding with flexibility to a fast changing domestic and external environment that will be needed to achieve the International Development Goals."

Full Text of Report                                                                                                         Back to FfD-Themes


Draft Outcome Prepared by the Facilitator

United Nations, 09/17/01

 

" Mobilizing domestic financial resources for development

7. Domestic resources provide the foundation for self-sustaining development. In our common pursuit of growth and equity, a critical challenge is to ensure the necessary internal conditions for mobilizing enough domestic savings to sustain adequate levels of productive and human development investments. This enabling domestic environment is vital not only in mobilizing domestic resources, but also in attracting and effectively using international investment and assistance.

8. To this end, we shall:

Strengthen our efforts to consolidate good governance and the rule of law, including by intensifying our combat of corruption and by enhancing policy and regulatory frameworks that foster a dynamic and well-functioning business sector while promoting equitable income distribution, empowering women and protecting workers’ rights and the environment. Pursue sound macroeconomic policies geared to the sustainable achievement of high rates of economic growth and employment, price stability, and balanced external accounts. Promote fiscal discipline, medium-term fiscal frameworks, equitable and efficient tax systems, and prudent public sector debt management, Ensure sustainable investments in education, health, nutrition, and social security programs, which take special care of children and are gender sensitive and fully inclusive of the rural sector and all disadvantaged communities. Strengthen the domestic financial sector. In this regard, we attach priority to the following:

1.Progressive implementation of multilaterally agreed financial standards, duly adapted to the local institutional traditions and stage of development;

2.Development of capital markets and financial instruments to promote savings and provide long-term credit efficiently to all;

3.Microcredit and credit for small and medium-size enterprises, including support of efforts to bring the informal sector into the formal economy;

4.Financial instruments that reduce the transfer costs of migrant workers’ remittances and encourage their investment in projects of high development impact; 5.Pension schemes that maximize their dual role as a social protection for the elderly and as a source of savings.

 

9. To provide the necessary support to these efforts, we shall search collectively for ways to:

Promote policy dialogue and coordination among peers at the sub-regional and regional levels on macroeconomic and development policies. Strengthen technical assistance for capacity building, including in the areas of public finance and administration, gender budget analysis, financial sector development, and debt management, as well as in information and telecommunications infrastructure and management. Address the special needs of vulnerable and marginalized countries and social groups, particularly countries in Africa, the least developed countries, small island developing states (SIDs), and landlocked and transit developing countries.

10. We shall also negotiate expeditiously, under the aegis of the United Nations, a comprehensive Convention against Corruption, including cooperation to eliminate money laundering and illegal transactions as well as to repatriate illegally transferred funds."

Full Text of Draft                                                                                                          Back to FfD-Themes

 

 

Revised Draft Outcome Prepared by the Facilitator

United Nations,12/06/01

 

"II. LEADING ACTIONS

Mobilizing domestic financial resources for development

7. In our common pursuit of growth, poverty eradication, and sustainable development, a critical challenge is to ensure the necessary internal conditions for mobilizing enough domestic savings to sustain adequate levels of investment in productive and human capacity. A crucial task is to enhance the appropriateness, coherence, and consistency of macroeconomic and structural policies. An enabling domestic environment is vital for mobilizing domestic resources, reducing capital flight, and attracting and making good use of international investment and assistance.

8. Improved domestic governance. Good governance is essential for sustainable development. Sound national policies and solid institutions are the basis for sustained economic growth, employment creation, and poverty reduction. Freedom, peace and security, respect for human rights and the rule of law, market-oriented policies, and an overall commitment to just societies, are also preconditions.

9. We will consolidate appropriate policy and regulatory frameworks to encourage private and local initiative and foster a dynamic and well-functioning business sector, while improving income distribution, empowering women, and protecting labor rights and the environment. We recognize that the specific mix between market-oriented policies and state intervention will vary from country to country, according to specific circumstances.

10. Fighting corruption is a priority. Taking into account existing instruments, we will negotiate a United Nations comprehensive convention against corruption, including stronger cooperation to eliminate money laundering, terror financing, and other illegal activities—as well as to repatriate transferred funds of illicit origin.

11. Sound macroeconomic policies. We recognize the need to pursue sound macroeconomic policies geared to high rates of economic growth, full employment, poverty eradication, price stability, and sustainable fiscal and external balances. Governments should attach priority to avoiding inflationary distortions and abrupt economic fluctuations that negatively affect income distribution and resource allocation. Along with prudent fiscal and monetary policies, an appropriate exchange rate regime is required.

12. Securing fiscal sustainability. An effective, efficient, and accountable system for mobilizing public resources and managing their use by governments is essential. We recognize the need to secure fiscal sustainability through medium-term fiscal frameworks, based upon equitable and efficient tax systems and improvements in public spending that do not crowd out productive private investment but rather support it. We also recognize the potential of international tax cooperation to enhance the scope of national fiscal efforts.

13. Social security and safety nets. Investments in basic economic infrastructure and social services including education, health, nutrition, and social security programs—which take special care of children and are gender sensitive and fully inclusive of the rural sector and all disadvantaged communities—are vital to enabling people to better adapt to and benefit from changing economic conditions and opportunities and to contribute to economic activity. Recent economic crises have also stressed the importance of effective social safety nets.

14. Financial sector strengthening. We recognize the need to strengthen the domestic financial sector, encouraging the orderly development of capital markets through institutional arrangements that channel savings and foster productive investments, including equity markets.

15. This requires a strong central bank and a solid system of financial intermediation, supported by a transparent regulatory framework and effective supervision mechanisms. It also requires the progressive, voluntary implementation of internationally agreed financial standards.

16. Microfinance and credit for small and medium-size enterprises, including in the rural sector, as well as savings institutions such as postal savings, are important to enhance the social impact of the financial sector. Well managed development banks can be an effective instrument to guarantee access to finance to these enterprises, as well as an adequate supply of long-term credit and the promotion of financial innovations aimed at deepening domestic financial development. We must aim to develop pension schemes that maximize their dual role as social protection and as a source of savings. It is also important to reduce the transfer costs of migrant workers’ remittances and explore modalities to encourage their investment in projects of high development impact. Wherever feasible, the informal sector must be incorporated into the formal economy.

17. Capacity building. We commit ourselves to strengthening technical assistance to reinforce national efforts in capacity building in areas such as: public finance and public administration, gender budget analysis, financial regulation and supervision, early warning and crisis prevention, and debt management. In the process, we shall particularly address the special needs of Africa, the least developed countries, small island developing countries, and landlocked developing countries."

Full Text of Draft                                                                                                          Back to FfD-Themes

 

Draft outcome of the International Conference on Financing for Development
-Monterrey Consensus

 

Mobilizing domestic financial resources for development

10. In our common pursuit of growth, poverty eradication and sustainable development, a critical challenge is to ensure the necessary internal conditions for mobilizing domestic savings, both public and private, sustaining adequate levels of productive investment and increasing human capacity. A crucial task is to enhance the efficacy, coherence and consistency of macroeconomic policies. An enabling domestic environment is vital for mobilizing domestic resources, increasing productivity, reducing capital flight, encouraging the private sector, and attracting and making effective use of international investment and assistance. Efforts to create such an environment should be supported by the international community.

11. Good governance is essential for sustainable development. Sound economic policies, solid democratic institutions responsive to the needs of the people and improved infrastructure are the basis for sustained economic growth, poverty eradication and employment creation. Freedom, peace and security, domestic stability, respect for human rights, including the right to development, and the rule of law, gender equality, market-oriented policies, and an overall commitment to just and democratic societies are also essential and mutually reinforcing.

12. We will pursue appropriate policy and regulatory frameworks at our respective national levels and in a manner consistent with national laws to encourage public and private initiatives, including at the local level, and foster a dynamic and well functioning business sector, while improving income growth and distribution, raising productivity, empowering women and protecting labour rights and the environment. We recognize that the appropriate role of government in market- oriented economies will vary from country to country.

13. Fighting corruption at all levels is a priority. Corruption is a serious barrier to effective resource mobilization and allocation, and diverts resources away from activities that are vital for poverty eradication and economic and sustainable development.

14. We recognize the need to pursue sound macroeconomic policies aimed at sustaining high rates of economic growth, full employment, poverty eradication, price stability and sustainable fiscal and external balances to ensure that the benefits of growth reach all people, especially the poor. Governments should attach priority to avoiding inflationary distortions and abrupt economic fluctuations that negatively affect income distribution and resource allocation. Along with prudent fiscal and monetary policies, an appropriate exchange rate regime is required.

15. An effective, efficient, transparent and accountable system for mobilizing public resources and managing their use by Governments is essential. We recognize the need to secure fiscal sustainability, along with equitable and efficient tax systems and administration, as well as improvements in public spending that do not crowd out productive private investment. We also recognize the contribution that medium-term fiscal frameworks can make in that respect.

16. Investments in basic economic and social infrastructure, social services and social protection, including education, health, nutrition, shelter and social security programmes, which take special care of children and older persons and are gender sensitive and fully inclusive of the rural sector and all disadvantaged communities, are vital for enabling people, especially people living in poverty, to better adapt to and benefit from changing economic conditions and opportunities. Active labour market policies, including worker training, can help to increase employment and improve working conditions. The coverage and scope of social protection needs to be further strengthened. Economic crises also underscore the importance of effective social safety nets.

17. We recognize the need to strengthen and develop the domestic financial sector, by encouraging the orderly development of capital markets through sound banking systems and other institutional arrangements aimed at addressing development financing needs, including the insurance sector and debt and equity markets, that encourage and channel savings and foster productive investments. That requires a sound system of financial intermediation, transparent regulatory frameworks and effective supervisory mechanisms, supported by a solid central bank. Guarantee schemes and business development services should be developed for easing the access of small and medium-sized enterprises to local financing.

18. Microfinance and credit for micro-, small and medium-sized enterprises, including in rural areas, particularly for women, as well as national savings schemes, are important for enhancing the social and economic impact of the financial sector. Development banks, commercial and other financial institutions, whether independently or in cooperation, can be effective instruments for facilitating access to finance, including equity financing, for such enterprises, as well as an adequate supply of medium-and long-term credit. In addition, the promotion of private-sector financial innovations and public-private partnerships can also deepen domestic financial markets and further develop the domestic financial sector. The prime objective of pension schemes is social protection, but when those schemes are funded they can also be a source of savings. Bearing in mind economic and social considerations, efforts should be made to incorporate the informal sector into the formal economy, wherever feasible. It is also important to reduce the transfer costs of migrant workers’ remittances and create opportunities for development-oriented investments, including housing.

19. It is critical to reinforce national efforts in capacity-building in developing countries and countries with economies in transition in such areas as institutional infrastructure, human resource development, public finance, mortgage finance, financial regulation and supervision, basic education in particular, public administration, social and gender budget policies, early warning and crisis prevention, and debt management. In that regard, particular attention is required to address the special needs of Africa, the least developed countries, small island developing States and landlocked developing countries. We reaffirm our commitment to the Programme of Action for the Least Developed Countries for the Decade 2001-2010,   adopted by the Third United Nations Conference on the Least Developed Countries, held in Brussels from 14 to 20 May 2001, and the Global Programme of Action for the Sustainable Development of Small Island Developing States. International support for those efforts, including technical assistance and through United Nations operational activities for development, is indispensable. We encourage South-South cooperation, including through triangular cooperation, to facilitate exchange of views on successful strategies, practices and experience and replication of projects.

 

Full Text of Draft                                                                                                          Back to FfD-Themes

 


Please provide corrections and additions to
Gleckman@un.org

 

Financing for Development Coordinating Secretariat
2 United Nations Plaza (Room DC2-2386)
New York, N.Y. 10017
Telephone: 212-963-2587, Fax: 212-963-0443

website : http://www.un.org/esa/analysis/ffd
email : ffd@un.org