DELEGATES IN SECOND COMMITTEE STRESS NEED FOR DEVELOPED NATIONS TO HONOUR MONTERREY CONFERENCE COMMITMENTS ON DEVELOPMENT ASSISTANCE

13 October 2004
GA/EF/3079

DELEGATES IN SECOND COMMITTEE STRESS NEED FOR DEVELOPED NATIONS TO HONOUR MONTERREY CONFERENCE COMMITMENTS ON DEVELOPMENT ASSISTANCE

13/10/2004
Press Release
GA/EF/3079

Fifty-Ninth General Assembly

Second Committee

10th & 11th Meetings (AM & PM)


delegates in second committee stress need for developed nations to honour

 

monterrey conference commitments on development assistance


New, Innovative Sources of Financing

No Substitute for Aid, Investment, Trade, Speakers Say


The developed world must urgently honour commitments to provide official development assistance (ODA) and foreign direct investment (FDI), as well as to facilitate fairer international trade in order to finance development needs, rather than looking to innovative sources of financing like global lotteries and emigrant remittances, speakers said today as the Second Committee (Economic and Financial) took up the question of follow-up to the International Conference on Financing for Development.


Speaking on behalf of the “Group of 77” developing countries and China, Qatar’s delegate noted that ODA had fallen far short of the internationally agreed target of 0.7 per cent of gross domestic product.  International trade still failed to finance development needs and debt relief was an ongoing concern.  While innovative sources of financing were encouraging ways of boosting development, they should complement, rather than replace, traditional financing such as ODA and trade.


Underscoring the need for immediate action by developed countries to increase development assistance, China’s representative said the international community must realize that ODA was neither a handout nor an act of mercy, but a vital way to alter the unequal division of global benefits.  The international community must also change radically the inequitable world monetary and trading systems, creating an international economic system that was more amenable to sustainable growth.


Introducing the Secretary-General’s report on follow-up to and implementation of the outcome of the International Conference on Financing for Development (Monterrey, Mexico, 2002), José Antonio Ocampo, Under-Secretary-General for Economic and Social Affairs, said that attracting FDI to developing countries had remained a major challenge.  Investment flows had remained highly concentrated in the larger emerging market economies, with the 10 largest recipient countries accounting for three fourths of total flows.


As for development aid, he continued, ODA would rise to $77 billion per year in 2006, a 32 per cent increase from pre-Monterrey levels, but was still insufficient to meet the Millennium Development Goals.  The task should be to draw up strategies to ensure predictable flows of resources over the long term.  Meanwhile, discussions on new and innovative sources of international development finance were increasing and many believed that intergovernmental debate on alternative funding should take place as soon as possible.


Explaining the various modes of those alternatives, an official of the United Nations University introduced a note by the Secretary-General on innovative sources of financing for development, saying they included a global environmental tax; a currency transactions tax; a new round of special drawing rights; the United Kingdom’s proposed International Finance Facility; private donations for development; remittances from emigrants; a global lottery; and a global premium bond.


He added that, while such financing could reap substantial sums, it carried the risk of “crowding out” existing flows of finance to developing countries.  Signing up for special drawing rights or the International Financial Facility, for instance, could reduce donor countries’ commitment to ODA.  In addition, some of the measures carried a “double dividend”.  Environmental taxes, for example, could reduce global warming, as well as raise money for development, although they could also result in increased costs for developing countries.


Addressing the plight of the least developed countries, Anwarul Chowdhury, Under-Secretary-General and High Representative of the Secretary-General for the Least Developed Countries, Landlocked Developing Countries and SmallIslandDevelopingStates, underscored their alarming debt burdens, disappointing FDI flows, the vital importance of emigrant remittances and the hurdles they faced in expanding and diversifying their exports.  Alternative sources of development financing could only be meaningful when the acute needs and special circumstances of least developed countries were fully considered.


Also today, the Committee held a panel discussion on emigrant remittances as a source of financing for development.  Panellist Dilip Ratha, Senior Economist at the World Bank’s DEC-Development Prospects Group, cited remittance figures for 2004, noting that Mexico was already reporting a 25 per cent increase in remittances to $16 billion; the Philippines, an estimated $8 billion; and India, $16 billion, which put the global figure at $100 billion.  In several countries, remittances were the largest single source of foreign exchange, topping tea exports in Tajikistan and amounting to more than 30 per cent of gross domestic product in Tonga.


Fernando Jimenez-Ontiveros of the Multilateral Investment Fund/Inter-American Development Bank, added that official remittance records were often inaccurate due to faulty record-keeping.  Remittance flows came to about $150 billion, which helped greatly to reinforce purchasing power among some 150-200 million people worldwide.  However, remittances could, in no way, be a form of official development aid, as some governments viewed them.  They were private transfers between families, which neither governments nor intergovernmental organization could claim.


Responding to a question during the ensuing discussion, Mr. Ratha stressed the need to simplify the opening of bank accounts and to lower bank costs to make it easier for emigrants to submit remittances, perhaps by encouraging smaller banks and microfinance institutions to get involved.  Regarding money-laundering and informal remittance transfers, Nikos Passas, Professor of Criminal Justice, NortheasternUniversity, said it was important not to label formal transfers as legal and informal transfers as illegal.


Also speaking today were the representatives of India, Pakistan, Norway, Bangladesh, Cuba and Switzerland.


Officials of the Financing for Development Office in the Department of Economic and Social Affairs and the International Organization on Migration also made statements.


Panellists during the afternoon discussion also included the Deputy Director of the Centre for International Policy Studies in Rome and the chief of the Development Issues Division in the International Monetary Fund’s Policy Development and Review Department.


The Second Committee will meet again at 3 p.m. tomorrow, Thursday, 14 October, to continue its debate on follow-up to and implementation of the outcome of the International Conference on Financing for Development.  It is also expected to begin considering its agenda item on implementation of the outcome of the United Nations Conference on Human Settlements (Habitat II) and of the twenty-fifth special session of the General Assembly.


Background


The Second Committee (Economic and Financial) met today to consider the follow-up to and implementation of the outcome of the International Conference on Financing for Development.


Before the Committee was a report of the Secretary-General on follow-up to and implementation of the outcome of the International Conference on Financing for Development (document A/59/270), which reviews initiatives and commitments carried out by governments and major institutional and non-institutional stakeholders to implement the Monterrey Consensus.


The report states that implementation of the Monterrey Consensus -- a compact among Member States to ensure consistent development financing -- has been uneven and lacking in development coordination.  At a minimum, official development assistance (ODA) must double 2001 levels in order for developing countries to attain the Millennium Development Goals by 2015.  They would then need more financing to reach debt sustainability and attain the growth required for a permanent increase in per-capita income.


Most developing countries have taken important steps to prepare for increased growth financing, the report observes, and many developed nations have increased ODA and set dates to achieve the target aid figure of 0.7 per cent of gross national income.  But net financial flows have only increased slightly due to declining private financial flows for foreign direct investment (FDI) and negative portfolio flows.


In addition to ODA and other financing, continued multilateral efforts are needed to ensure that the development dimension of the Doha work programme is fully achieved, the report says.  Action is also needed to further enhance coherence and consistency in the international monetary, financial and trading systems to complement national development efforts.


The Committee also had before it a note of the Secretary-General on innovative sources of financing for development (document A/59/272), which looks at new sources to finance the Millennium Goals.  They include global environmental taxes; the Tobin tax (on currency transactions); special drawing rights; the United Kingdom International Finance Facility proposal, which would significantly increase annual ODA; private donations; a global lottery and global premium bond; and increased remittances by emigrants.  The two global taxes and the Facility could yield sufficient revenue by 2015, and special drawing rights could contribute significantly to the total, but these means would need to be combined with such other measures as the global lottery or global premium bond, supported by increased remittances from emigrants and private donations.  However, there is a risk of “crowding out” or one form of funding replacing another with, for example, governments agreeing to a global tax and then feeling less pressure to increase ODA.


Other reports before the Committee included a summary by the President of the Economic and Social Council of the special high-level meeting of the Council with the Bretton Woods institutions and the World Trade Organization (New York, 26 April 2004); a summary of the informal hearing of civil society on financing for development (New York, 22 March 2004); and a summary of informal hearings of the business sector on financing for development (New York, 24 March 2004) (documents A/59/92/-E/2004/73 and Adds.1 and 2, respectively).


Introduction of Reports


JOSE ANTONIO OCAMPO, Under-Secretary-General for Economic and Social Affairs, introduced the report on follow-up to and implementation of the outcome of the International Conference on Financing for Development, saying that many countries had continued to make progress in improving macroeconomic policy management, but most had remained vulnerable to shocks from the global economy.  Efforts were under way in many developing countries to strengthen the financial regulatory and supervisory framework and promote greater disclosure.  Similarly, many developing countries were attempting to expand and improve access for small- and medium-sized enterprises, microenterprises, the poor, women and rural populations to the financial system.


Attracting and efficiently using FDI in developing countries had remained a major challenge, he continued.  The FDI flows had remained highly concentrated in the larger emerging market economies, with the 10 largest recipient countries accounting for three fourths of total flows.  A growing number of developing countries had become more aware of the importance of a favourable domestic investment environment, and efforts had continued to strengthen the collection and dissemination of information for both foreign and local investors.


Turning to international trade, he highlighted recent decisions that had moved the Doha agenda forward, including the commitment to eliminate agricultural export subsidies and deadlines that had been set to operationalize relevant aspects of the Doha Programme, such as special and differential treatment.  A continued international focus on commodities, especially the instability in world commodity prices and difficulties faced by commodity-dependent developing countries, was vitally important.


Regarding development aid, he noted that ODA was set to increase to $77 billion per year in 2006, a 32 per cent increase from pre-Monterrey levels, but still insufficient to meet the Millennium Development Goals.  The task should be to draw up strategies to ensure predictable flows of resources over the long term.  Discussions on new and innovative sources of international development finance had increased and many believed that intergovernmental debate of proposals arising out of those talks should take place as soon as possible.


As for external debt, he noted that many low- and middle-income countries were experiencing increasing difficulty in meeting debt commitments, as the ratio of total debt to gross national income continued to worsen in Latin America and the Caribbean, as well as in North Africa and the Middle East.  Restructuring debt owed to private creditors was an important aspect of debt resolution, and recent financial crises had renewed interest in proposals to facilitate the restructuring of sovereign bond debt.  The introduction of collective action clauses and the development of a voluntary code of conduct by private creditors and sovereign debtors were the major ongoing initiatives in that area.


Finally, he said, multilateral surveillance of national economic and financial policies, particularly by the International Monetary Fund (IMF), was the chief global tool for promoting coherence in macroeconomic policies and financial stability.  Surveillance must not only help identify imbalances and vulnerabilities, but must also signal potential problems to policy makers and markets and prompt early action.  But the focus of surveillance was increasingly on system stability as a whole and there was a need to significantly strengthen surveillance of the major industrial countries and their impact on global capital markets.


OSCAR ROJAS, Director of the Financing for Development Office in the Department of Economic and Social Affairs, recalled that the General Assembly had held, in October 2003 the first High-level Dialogue on Financing for Development.  The overall theme for April’s annual meeting between the Economic and Social Council and the Bretton Woods institutions had been coherence, coordination and cooperation.  The Economic and Social Council had adopted a resolution highlighting the need for early decisions to focus future high-level meetings on the Monterrey Consensus, and it was hoped that they would reach agreement on ways to further consolidate follow-up mechanisms.  The Department had organized a series of multistakeholder consultations and would present their outcomes to the spring 2005 Financing for Development Dialogue.


The Department of Economic and Social Affairs had also teamed with the World Economic Forum to improve the private investment climate and development assistance, he said.  It had also been working with a new group, New Rules for Global Finance Coalition, on international finance and economic cooperation matters.  The Department had organized briefings for country delegations on follow-up to Monterrey, as well as several informal discussions, briefings and special events.  They included a briefing in Brazil last June on innovative approaches to financing for development and a July seminar in New York on regional financial arrangements.


TONY ADDISON, Deputy Director of the United Nations University’s World Institute for Development Economics Research, introduced the report on innovative sources of financing for development.  It looked at seven additional ways to finance development, including a global environmental tax (on fuel, for example); a currency transactions tax; a new round of special drawing rights; the United Kingdom’s proposal for an International Finance Facility to ensure an accelerated flow of aid to meet the Millennium Development Goals; increased private donations for development; increased remittances from emigrants; a global lottery; and a global premium bond.


He noted that modest rates of global taxes, such as the environmental tax, could realize substantial sums to be put towards the Millennium Development Goals, as could the United Kingdom’s proposal for an International Financial Facility.  Special drawing rights, the global lottery, increased remittances from immigrants, and private donations could also raise considerable sums.  However, such means of financing carried the risk of “crowding out” existing flows of finance to developing countries, as countries signing up for them could reduce their ODA commitment.  Likewise, private individuals buying global lottery tickets may feel less compelled to pay global taxes.


Some of the measures carried what economists called a double dividend, he added.  For example, environmental taxes could perform the double task of reducing global warming, as well as raising money for development.  Certain costs were also linked to the proposals; for instance, part of the burden of the environmental tax could fall on developing countries in the form of increased fuel costs.


Questions and Answers


Responding to a question on the absorptive capacity of developing countries to receive additional financing on a fast scale in the next five years, Mr. OCAMPO said World Bank reports had indicated that such capacity did exist and that he expected that fact to be emphasized in the Millennium Project’s forthcoming report.  Regarding coherence in follow-up to the Monterrey Consensus, there had been more cooperation and collaboration on financing for development at the Secretariat level than at the intergovernmental level.


Mr. ROJAS said, regarding coherence, that the situation had, in fact, deteriorated.  The World Trade Organization (WTO) had appointed a committee on trade and development to interface in meetings at United Nations Headquarters on the financing for development process.  However, things had since begun to slow down at the intergovernmental level and no representatives had been sent to New York this year.  The WTO delegates needed to send the message to Geneva of the need to rekindle contact and cooperation.


Regarding concerns that current ODA levels were insufficient to achieve the Millennium Development Goals, Mr. OCAMPO said there must be a major increase in ODA soon.  That urgent need should be central to discussions during next year’s financing for development follow-up.  In terms of the feasibility of using remittances from migrants in the development process, remittances would complement, not substitute, ODA, which must continue to increase.  Remittances were important primarily for the families receiving them and using them for consumption.  They were used to support projects in migrants’ countries of origin and many countries with large migrant populations were encouraging that trend.  The United States, for example, supported the remittance programmes of Mexicans living within its borders.  The message of the Secretary-General’s report was that innovative financing mechanisms in general must meet the criteria for additionality.


In terms of the role of philanthropy in the development process, Mr. ADDISON encouraged the creation of incentives to use philanthropic resources to advance development goals.  In the Nordic countries, for example, a luxury tax was used to fund socio-economic growth.  As for the merits of an environmental tax and whether it would, in fact, yield double dividends, environmental duties had played an important role in national fiscal policies to alleviate environmental problems, but their contribution to financing for development was relatively low.


ANWARUL CHOWDHURY, Under-Secretary-General and High Representative of the Secretary-General for the Least Developed Countries, Landlocked Developing Countries and Small Island Developing States, said financing for development was a daunting task for the least developed countries, pointing to their alarming debts, disappointing FDI flows, the vital importance they attached to emigrant remittances for foreign exchange and the hurdles they faced in expanding and diversifying their exports.  Alternative sources of development financing, such as those outlined in the Secretary-General’s report, could only be meaningful when the acute needs and special circumstances of least developed countries were fully considered.  Their abysmal poverty -– the real yardstick of any progress towards attaining the Millennium Development Goals -– tested the credibility of international development cooperation.


The IMF’s Compensatory Financing Facility, which had not been used since 1999, could provide a buffer for short-term export revenue shortfalls resulting from external shocks in least developed countries, he continued, if the facility was made available on a concessionary basis.  Enhancing the participation of developing countries in the decision-making of the Bretton Woods institutions was also essential for achieving development goals.  Least developed countries, in particular, relied heavily on those institutions and regional banks for financing, as well as for macroeconomic and structural policy setting and it was high time they were recognized as a special category that must be heard.


While least developed countries had made some progress in creating development-oriented policy environments with sound macroeconomic frameworks and good governance, he said, the international community had been less responsive in increasing ODA and FDI, forgiving debt, and removing such trade-distorting measures as subsidies.  All development partners must immediately boost their support for least developed countries, if the Millennium Development Goals and the Brussels Programme of Action targets were to be met.


Statements


SULTAN AL-MAHMOUD (Qatar), speaking on behalf of the “Group of 77” developing countries and China, said FDI flows were still unevenly distributed and stressed the need for source country measures to address that problem.  Official development assistance fell far short of the internationally agreed 0.7 per cent target, seriously impeding global efforts to achieve the Millennium Development Goals.  International trade had yet to generate sufficient resources to finance development needs and the August agreement of the WTO General Council must be speedily and effectively worked out to make that happen.  Debt relief and sustainability was also an urgent concern and improved schemes were needed to alleviate the debt burdens of low-income countries, particularly least developed countries.


Efforts to devise innovative sources of financing to close existing financial gaps between the developed and developing worlds were encouraging, he continued.  Proposals in that regard complemented other development financing efforts, including ODA and trade.  However, the effective mobilization of both traditional and innovative financing was lacking.  Effective debt relief, full market access for developing countries’ products and the removal of trade barriers were yet to be achieved.


ZHANG YISHAN (China), stressing that developed countries must speedily honour their commitments to increase assistance, said the international community must realize that ODA was not a handout or act of mercy, but a vital way to alter the unequal distribution of global benefits.  At the same time, multilateral development agencies should further strengthen their role in transferring resources, making poverty eradication and developing-country productivity their prime goal.


He added that the international community must change the inequitable world financial monetary and trading systems, and create an international economic system that was amenable to sustainable growth in developing countries.  It was also crucial to increase the participation of developing countries in the decision-making processes of multilateral economic and financial institutions.


Developed countries, he emphasized, should actively steer private financial flows to developing countries, open up their markets, increase the transnational flow of labour and transfer of technologies, expand special drawing rights, and relieve debt.  International financial and trading institutions should closely cooperate and coordinate their actions, as well as improve policy coherence in international development cooperation.


NILOTPAL BASU (India) welcomed forthcoming studies by the multilateral financial institutions, the United Nations University-World Institute for Development Economics Research (UNU-WIDER) and the technical group formed to follow up the World Leaders’ Summit on Action against Hunger and Poverty to create innovative financial sources and mechanisms.  The technical group, recognizing the need to increase aid by at least $50 billion through 2015 in order to finance attainment of the Millennium Development Goals, had studied various proposals on instruments that were relatively easy to implement, such as voluntary donation schemes and those requiring broader agreement.  Such resources should complement, not substitute, current ODA flows.


The notion of a double dividend did not mean that no cost was involved, he said, stressing that new financing mechanisms and sources should not increase developing countries’ burdens, nor jeopardize existing resource flow levels or the need for greater representation of developing nations in the decision-making of international financial institutions.  The latter had used structural adjustments to deflate and devalue developing countries’ commodities.  At the least, they should eliminate huge agricultural subsidies in developed countries.


A tax on currency and other speculative transactions was also necessary to stabilize equity and financial markets in developing countries and to finance development, he said.  Moreover, the agreement on special drawing rights, which produced similar and non-inflationary benefits, must be implemented.  The international community must help developing countries to address globalization’s challenges, particularly the contraction in autonomous policy space in dealing with them.


SARDAR MUHAMMAD SAWAR (Pakistan) said it was vital that an intergovernmental institutional follow-up mechanism be put in place to track progress on objectives laid down in the Monterrey Consensus.  The existing follow-up mechanism –- the annual spring meeting and biennial High-level Dialogue -– were inadequate to further develop that crucial process.


He said a rule-based, non-discriminatory and equitable multilateral trading system played a vital role in stimulating economic growth, development and employment, especially in developing countries, where trade was the most importance source of development financing.  Pakistan welcomed the new WTO framework agreement and hoped that the resumed Doha process would effectively and expeditiously address the long-standing needs and concerns of developing countries.


Accommodating developing-country concerns and easing their integration into the global economy should be seen neither as a zero-sum game nor an act of charity, he stressed.  In fact, developed countries had as much to gain from the process as developing countries.  A recent study estimated that 70 per cent of recent United States export growth had been due to expanding demand in emerging markets. It was high time the international community realized the latent potential of developing economies in creating a global win-win situation for all.


JOHAN LØVALD (Norway) said several points in the Secretary-General’s report on the follow-up to Monterrey needed immediate attention.  They included the modest progress in many developing countries in improving transparency, implementing the rule of law, fighting corruption and improving government accountability.  Also of concern was the fact that, while many developing countries had improved governance factors, domestic and foreign investment had not followed.  Many developing countries’ capacity to conduct counter-cyclical monetary and fiscal policies was still limited, while unemployment and underemployment remained high despite improved economic performance.


Private investment remained the most important source of long-term financing for development, he said.  Official development assistance (ODA) must double and additional financing was needed to enable developing countries to achieve debt sustainability and ensure full implementation of the development agenda.  Norway was taking those challenges very seriously and its ODA would reach 0.95 per cent of gross domestic product next year.  Norway had launched the Debt Relief for Development plan of action, with emphasis on assisting countries emerging from war and conflict.  Moreover, it would refrain from claiming interest and repayments from post-conflict countries.


NDIORO NDIAYE, Deputy Director-General of the International Organization for Migration (IOM), said emigrant remittances could be a crucial source of foreign exchange, enabling a country to acquire vital imports or pay off external debts.  However, the development community should consider how best to enhance the development impact of remittances as a complement, rather than a substitute, to commitments made at the Monterrey Conference.  It was vital to underline a core principle of remittance management that interventions in remittance management should in no way harm migrant transfers that were, in fact, private funds.


She said an improved knowledge base was needed to formulate effective remittance-management strategies that would enhance development.  Better understanding was needed of the micro and macroeconomic impact of remittances, and the relationship between migration trends and policies and remittance flows.  The IOM was carrying out policy-oriented research to help governments define comprehensive remittance-management policies that would support official remittance flows and enhanced remittance use.  Initiatives were also needed to improve remittance services to migrants and reduce the cost of remitting.  The IOM was working with the World Bank to coordinate international efforts to improve the quality of data collection and reporting on migration and remittances.


Panel Discussion


MARCO ZUPI, Deputy Director of the Centre for International Policy Studies, in Rome, said the total of official remittances from Italy was very low because it reflected only money sent through banks and excluded funds transmitted through post offices and informal channels.  Half of the total amount wired through the formal banking sector was sent to developing countries.  Geographical patterns of remittance flows were very important, and senders’ choice of remittance methods also had much to do with their country of origin.  For example, sub-Saharan African migrants in Italy preferred to use money-transfer services like Western Union, whereas those in Tunisia and Morocco tended to use the informal market.


He said that recent statistics from the Italy division of Western Union showed that, while immigrant income was 26 billion euros, only 16 per cent of that was sent back home, while the lion’s share remained in Italy.  And, while cost reduction in remittance transfers was very important in advancing the development agenda, focusing solely on encouraging the use of formal channels was not enough.  Nor would competition for remittance business necessarily make a significant reduction in the costs of remittance transfers.  Remittance transactions involved many actors, among them local governments, banks and money transfer agencies.  Partnerships were needed to promote the use of remittances for local development and civil society in Rome and Milan had initiated some programmes in that regard.  More were needed at the multilateral level.  Local authorities and credit unions had limited capacity for development cooperation, but there was a need to promote comprehensive bank packages to mobilize remittance flows, perhaps by linking them to other bank services.


DILIP RATHA, Senior Economist of the World Bank’s DEC-Development Prospects Group, said the issue of remittances was a hot topic in the financial world.  The 2003 total remittance figure of $93 billion already appeared small.  Mexico was reporting a 25 per cent increase in remittances to $16 billion in 2004, the Philippines’ total was an estimated $8 billion and India’s was $16 billion, putting the global official figure at $100 billion.  In several countries, remittances were the largest single source of foreign exchange, topping tea exports in Tajikistan and amounting to more than 30 per cent of gross domestic product in Tonga.  Remittances flowed more to smaller countries because they exported more labour.


Those countries also tended to be stable and counter-cyclical, he said, citing 1995, when capital flows to Mexico fell and remittances actually increased.  They were often considered pro-poor and could help pay debt.  Countries like Brazil had securitized remittance flows, which they used to prevent balance-of-payments crises.  Remittances were used first for consumption and then for financing education, health, housing or construction, which was a good thing in countries where underemployment was high.


Remittance costs had been falling, but they continued to be too high, he continued, noting that the average remittance transaction fee was 13 per cent.  The poor ended up paying that bill.  Costs should not increase in proportion to amounts sent.  The introduction of competition would help in harmonizing regulations.  Remittances should not be treated as bank deposits and money-transfer agencies should not be required to have a full banking licence, making it impossible for people without bank accounts to use formal channels.


FERNANDO JIMENEZ-ONTIVEROS, Chief of the Programming and Priorities Unit at the Multilateral Investment Fund/Inter-American Development Bank, said that official records of remittances were often inaccurate due to faulty record-keeping.  Remittance flows came to about $150 billion, which greatly helped to reinforce purchasing power among some 150-200 million people worldwide.  However, remittances were not to be viewed as a form of official development aid, as some governments tended to see them.  They were an important source of development finance, but could not replace aid.


Emigrants themselves were aware of the hard work that went into earning remittance money, and one must also remember that they were private transfers between families, he said.  Neither governments nor intergovernmental organization could lay claim to those funds.  There was also the tendency to regard remittances as the result of some form of illicit activity, or to see them as laundered funds.  A balance must be struck between the necessity of knowing the origin of the funds and the high cost of remittance transfers.


NIKOS PASSAS, Professor of Criminal Justice, NortheasternUniversity, noted that remittances could fall into honest or criminal categories, adding that it was necessary to examine the network that had generated them.  There were two major priorities -– the concern about dirty money, and legitimate economic activity.  On the other hand, concerns arose about the freedom of capital flows, and immigrants being allowed to open legitimate bank accounts.


Regulations and banking transparency were needed to pinpoint operators and trace funds, especially if they related to terrorist activity, he said.  That must be balanced by the need to lower costs and increase access to legitimate channels for emigrant remittances.  The remittance market was much more broadly recognized now, new technologies and partnerships had emerged and costs had gone down.  Transaction costs were still high, however, and banking infrastructures were not available in many parts of world.  Also, bureaucracies were often difficult to wade through.


ANDREW BERG, Chief of the Development Issues Division in the IMF’s Policy Development and Review Department, said remittances differed from private capital flows since they were transfers and not capital investments.  Remittances were more stable than investment flows and were counter-cyclical.  They buffered consumption and foreign reserves during difficult times.  They were pro-poor, largely supporting consumption or investment in health, housing or education.


There were not many obvious examples of remittance-led growth, he said, noting the importance of strengthening regulatory frameworks and lowering the cost of remittances.  The IMF was working with the World Bank and the private remittance sector to identify best practices in environmental regulatory frameworks.  The Fund had studied the United States, the United Kingdom and the United Arab Emirates in that regard.  It had also visited Zambia, Senegal and other countries to assess remittance-related problems.  Regarding the merits of fighting money-laundering and reporting remittances, there was also a risk of driving the money-transfer business underground.  Setting up more formal transfer mechanisms could promote efforts to fight money-laundering.  The IMF was trying to organize cross-country data on remittances to improve quality.


Questions and Answers


Responding to a question on how to channel remittances for productive use, Mr. RATHA said it was important to bear in mind that remittances were personal flows.  What needed fixing was the investment climate.  Many people sent and received remittances in cash, but that did not generate as much “bang for the buck”.  It would be good to get people to send money between accounts.  However, it must be made easier for people to open bank accounts, including by lowering bank costs.  Many banks did not want to open small accounts because they yielded few profits.  It was necessary to encourage smaller banks and microfinance institutions to get involved.  Remittances could foster microfinance through their use as collateral on car, housing and consumer loans.


As for how remittances could help pay debt, he said the current debt-to- export ration was 500 per cent.  The use of remittances could reduce that rate to 400 per cent.  Regarding the balancing of anti-money-laundering policies and remittance policies, people needed easier access to banking and lower rates so that they were not driven underground.  Remittances should not be relied upon to do development work as that was the job of aid.


In response to a question on the merits of an international tax on remittances, Mr. BERG said such a tax, such as 0.1 per cent, would have little impact.


To a question about how to combat money laundering and informal remittance transfers, Mr. PASSOS said it was important to move away from labelling formal transfers as legal and informal transfers as illegal.  Consensus-building was required and that involved addressing people’s concerns about things like transparency and cost.


Continuation of Plenary Statements


ZAHIR UDDIN SWAPON (Bangladesh) said that a debt sustainability framework should not be pursued for very low-income or poor countries.  Creditors must review current lending policies to increase finance concessions and the volume of grants for developing countries.  The Heavily Indebted Poor Countries (HIPC) Debt Initiative Debt Initiative should be modified and external debt thresholds further reduced in order to extend HIPC to other countries.  While international trade growth prospects were a promising 7 per cent for 2004, a large number of developing countries, particularly least developed countries, remained marginalized.  The international community should improve access for developing nations to trade financing, protect countries that may fall into crisis due to trade liberalization or commodity price volatility and address their concerns about balance of payments.


Next year’s liberalization of the textile trade was of critical concern to developing countries, he continued, stressing the need to appropriately address, through adjustment support, the risk of market disruptions in the period immediately following the agreement’s inception.  The July package hammered out by the WTO had laid the foundation for future negotiations in some key areas of the Doha work programme, and there was a need to turn them into tangible results.


NADIESKA NAVARRO (Cuba) said developing countries were still waiting for a definitive response to long-standing and pressing demands, which hinged largely on decisions that developed countries must take, since they were mainly responsible for the current system.  The failure to foster economic growth and employment in the developing world was not due to indiscriminate privatization or unbridled trade liberalization, but inadequate implementation of institutional reforms and developing-country weakness.  The private sector, especially small- and medium-sized enterprises, should play an important role in financing for development.  However, their role should not be exaggerated to the point of ignoring responsibilities that should be shouldered at the national and international levels.


The United Nations should develop a multilateral mechanism to solve conflicts between debtors and creditors, bringing together all interested parties, including financial institutions, she said.  In addition, the international community must recognize that alternative sources of financing could not replace the international commitments that had been made.  Financing for development could not become a further example of investment business, but must remain true to the spirit of international cooperation in which it had first been conceived.


OLIVIER CHAVE (Switzerland) said that, in order to attain the Millennium Development Goals by 2015, concerted efforts were needed by a multitude of actors at the national, regional and global levels.  Progress on different fronts varied significantly from country to country, as well as from one topic to another.  It was very important to address the great diversity of circumstances facing developing countries with the necessary differentiation and to provide external support over a sufficient period of time.


He said that last year, net private capital flows appeared to have grown by more than $70 billion.  However, FDI had mainly benefited larger emerging market economies so far, although a growing number of countries had recently adapted their legislation on foreign investments and many had entered into new bilateral investment agreements.  Switzerland had been supporting the collection and dissemination of information for the benefit of both foreign and local investors.  It had also been reviewing the role that the public sector could play in providing financial instruments to mitigate risks and assessing the leverage that multilateral institutions could exert in mobilizing private capital.  Switzerland had also provided financial, technical and training assistance to strengthen legal and institutional frameworks for investment.


A successful conclusion to the Doha Round would be of crucial importance to the poorer countries, he said.  The extension of the “sunset clause” in the HIPC Debt Initiative would allow countries remaining with debt overhangs to become eligible for assistance.  Despite all the potential that trade, foreign investment and debt alleviation offered, however, not all countries would be able to benefit rapidly from those “growth engines” and ODA would remain an indispensable source of finance to attain the Millennium Development Goals by 2015.


* *** *

For information media. Not an official record.