As World Economy Slowly Rebounds, New International Development Architecture Needed to Build Momentum, Avoid Setbacks, Economic and Social Council Told
As World Economy Slowly Rebounds, New International Development Architecture Needed to Build Momentum, Avoid Setbacks, Economic and Social Council Told
|Department of Public Information • News and Media Division • New York|
Economic and Social Council
Special High-Level Meeting
5th & 6th Meetings (AM & PM)
As World Economy Slowly Rebounds, New International Development Architecture
Needed to Build Momentum, Avoid Setbacks, Economic and Social Council Told
Council Opens Two-Day Meeting with World Bank, IMF, Other Key Bodies
On Theme ‘Coherence, Coordination and Cooperation on Financing for Development’
In the aftermath of the global economic slump, a new era in development was dawning and a new international development architecture would make the difference in reversing setbacks and injecting needed momentum to the world economy’s fragile and uneven recovery, the Economic and Social Council heard today as it convened its annual special high-level meeting with the international financial institutions.
“We must respond to these challenges by charting a course of truly sustainable and equitable development,” Secretary-General Ban Ki-moon toldtop officials from the Bretton Woods Institutions, the World Trade Organization and the United Nations Conference on Trade and Development (UNCTAD) in his address to the two-day gathering.
In that context, he called for strengthening the global development partnership — particularly to achieve the Millennium Development Goals — stressing that it was about more than aid and included debt relief, access to essential medicines and technology, and an open trading system. More investment was also needed in job creation, food security, health, clean energy, infrastructure creation and climate adaptation. At the same time, the United Nations system must become more efficient, effective and representative.
The theme of the special high-level meeting — “Coherence, coordination and cooperation on Financing for Development” – similarly highlighted the need to retool the global partnership for development established at the 2002 International Conference on Financing for Development, held in Monterrey, Mexico, and its follow-up conference, held in Doha, Qatar, in 2008.
During two thematic debates on, respectively, financial support for the least developed countries and middle-income countries, the 54-member Council focused on strategies to address the specific challenges thwarting efforts in those two categories of countries to meet the Millennium Development Goals and other goals.
The interactive dialogues, which featured presentations by speakers from a number of United Nations specialized agencies and bodies, focused on innovative mechanisms, Aid for Trade and debt relief in the case of the least developed countries, and development cooperation, trade, capital flows, policy space and reserve systems for middle-income countries.
Kicking off the morning’s discussion on the least developed countries, Council President Lazarous Kapambwe said the recent economic crisis had exposed flaws in global economic governance and, as the world’s only universal forum, the United Nations must seek more engagement with other key economic players like the Group of 20. Further, all countries should meet the development financing commitments made in Monterrey and Doha, including those relating to aid, trade and external debt.
In contrast to the “too big to fail” syndrome that emerged as part of the reaction to the global economic crisis, the global approach to the least developed countries was characterized by a “too small to matter” mindset that assumed certain countries were so inconsequential they could be allowed to slip through the cracks in the world’s development architecture, said Charles Gore, Head of the Policy Analysis and Research Branch in UNCTAD’s Division for Least Developed Countries, Africa and Special Programmes.
That was the wrong tack to take towards a group of countries that, while often regarded as small and systemically irrelevant, would be home to 1 billion people by 2017, he said. A broad solution must instead seek to get the least developed countries on the development ladder in conjunction with efforts to move the middle-income countries farther up the same ladder. That holistic approach, encompassing trade, technology, commodities and climate change, would add up to a new international development architecture. To build out new architecture, innovative sources of finance must also be sought and aid effectiveness improved through an emphasis on country ownership.
During the afternoon session on middle-income countries, the discussion highlighted the growth challenges of those nations — including questions on whether domestic demand could be enough to generate growth — as well as their particular role in international cooperation for development. These countries were, according to one delegate, stuck in the “twilight zone” between developed and developing countries, with millions of their citizens mired in poverty.
Higher capital accumulation was important, if not essential, for industrial development, one panellist said. Synergies with activities on least developed countries were also noted during the spirited debate, while emphasis was given on better defining the scope of South-South cooperation to make it more effective for development. South-South cooperation could also be leveraged between middle-income countries to enhance regional trade and promote regional industrialization, several speakers said.
The afternoon session also included a briefing on the upcoming 2011 report of the Millennium Development Goals Gap Task Force from Robert Vos, Director of Development Policy and Analysis Division for the United Nations Department of Economic and Social Affairs. Detlef Kotte, Head of the Macroeconomic and Development Policies Branch for UNCTAD’s Division on Globalization and Development Strategies, provided an overview on lessons learned from the recent economic crisis for reform of the international financial system.
Luis Manuel Piantini Munnigh (Dominican Republic), President of the Trade and Development Board of UNCTAD, made an opening statement in the morning, while Shishir Priyadarshi, Director, Trade and Development Division, World Trade Organization, delivered remarks on “Support for Development Efforts of LDCs, including through Aid for Trade”, that meeting’s interactive debate.
The Economic and Social Council will reconvene at 10 a.m. on Friday, 11 March, to conclude its high-level meeting with the Bretton Woods Institutions, the World Trade Organization and the United Nations Conference on Trade and Development (UNCTAD).
The Economic and Social Council convened this morning its annual special high-level meeting with the Bretton Woods Institutions, the World Trade Organization and the United Nations Conference on Trade and Development (UNCTAD). Built around the theme “Coherence, coordination and cooperation on Financing for Development”, the two-day meeting will include four informal thematic debates in addition to its plenary.
Today’s thematic debates will include expert presentations and will focus on: “Financial support for development efforts of Least Developed Countries: development finance, including innovative mechanisms, aid for trade and debt relief” and “Financial support for development efforts of Middle-Income Countries: development cooperation, trade, capital flows, policy space and reserve system”.
Opening the meeting, LAZAROUS KAPAMBWE (Zambia), President of the Economic and Social Council, said the 54-member body had become a major forum to enhance coherence, coordination and cooperation in the context of the implementation of the 2002 Monterrey Consensus and its 2008 follow-up Doha Declaration on Financing for Development. Introduced for the first time last year, the high-level meeting’s strengthened format should encourage truly dynamic and interactive discussions and promote an open exchange of views and experiences between Government representatives and major institutional stakeholders.
“Today’s meeting takes place at a critical time when the recovery of the world economy from the global financial and economic crisis seems to be losing much of its momentum,” he said. The fragile and uneven recovery had also been challenged by recent upward trends in food and energy prices, alongside continuing challenges posed by climate change and natural disasters.
In the absence of effective policy coordination and cooperation among Governments around the world, there was a real risk of a new global recession, he argued. Such a downturn would add to the already immense human cost of the crisis, seriously setting back development efforts of many developing countries, which were still in the process of trying to alleviate the severe economic and social impact of the recent global economic slump. Their efforts were further hampered by immense development challenges, including attaining the Millennium Development Goals by 2015.
Outlining the four themes for the meeting’s thematic debates, he highlighted the Secretary-General’s note on coherence, coordination and cooperation on financing for development (document E/2011/74), which provided background information and pointed questions to stimulate the discussions of the next two days.
Continuing, he said accelerating progress in building a global partnership for development was crucial to overcoming the setbacks made in many areas of development and achieving the Millennium Goals by 2015. Among other things, that concerted effort required all countries meet the development financing commitments made in the Monterrey Consensus and Doha Declaration, including those relating to aid, trade and external debt. More effective coordination of policies at the national, regional and global levels was also needed.
Stressing that the recent economic crisis had exposed flaws in global economic governance, he underlined important actions taken within the United Nations to mitigate the impact of the crises on development. The “Group of 20” (G-20) was seen by many as the key player in coordinating timely economic decisions among the world’s biggest economic actors. Yet, in contrast to the United Nations system, which provided a universal forum, the limited membership of the G-20 excluded more than one third of the world’s people and 85 per cent of its countries. It was time to enhance the engagement of the G-20 with the United Nations, he stressed.
At the same time, consideration must be given to proposed reforms to strengthen coordination, coherence and cooperation within the United Nations system, he said. The international community must also maintain its financial support for development efforts of least developed countries, which had been hit particularly hard by the confluence of global crises. Lower export earnings, reduced investment and remittance flows, along with higher food prices, had jeopardized development gains and thrown millions more into poverty.
“The global partnership for development calls for actions on both fronts,” he said, stressing that for the least developed countries to improve their productive capacity and diversify their exports, the support of developed countries would be critical. To that end, official development assistance commitments must be fulfilled, technical assistance provided and movement towards a more equitable and universal trading system made.
Turning to the development efforts of middle-income countries, he said those nations also needed support, not least since they are home for more than 60 per cent of the world’s poor. They continued to face development challenges posed by excessive short-term capital inflows, debt sustainability, poverty and inequality, financial vulnerabilities, insufficient infrastructure and trade restrictions. Stronger cooperation between them and the United Nations system with middle-income countries was needed to more effectively align country priorities and development strategies. That effort should be complemented by increased South-South and triangular cooperation.
With the international community facing a tremendous challenge to promote an agreed action agenda to accelerate progress towards achieving the Millennium Goals by 2015, he underlined the meeting as a major opportunity to further momentum in that direction.
LUIS MANUEL PIANTINI MUNNIGH (Dominican Republic), President of the Trade and Development Board of the United Nations Conference on Trade and Development (UNCTAD), said that recent political and economic events underscored the reality that fundamental change was immanent and that the old assumptions, which at one time might have seemed unassailable, were flawed. It was now evident that the “boom times” before the global crises among the least developed countries were largely driven by external factors related to a pattern of global expansion that was unsustainable, and a pattern of national expansion that was not inclusive. More than a third of the increase in investment was due to changes in inventories and did not involve a genuine expansion of productive capital.
On average, he said, three main export products of those countries accounted for three quarters of total exports, while in eight countries that proportion was higher than 95 per cent. At the same time, the agricultural production and exports of least developed countries had stagnated, with a simultaneous 167 per cent jump in food import bills from 2002 to 2008, with the continuous increase in commodity prices threatening another food crisis, which could occur in concert with surging oil prices. All those factors were creating renewed risk of a double-dip recession.
To overcome those risks, international trade remained key for growth and development, he said, particularly South-South trade, which had grown 50 per cent faster than North-South trade between 1996 and 2009. It was essential that the multilateral trading system addressed development priorities, with an important step being the delivery of promises of the Doha Round of World Trade Organization talks. Access to international markets must remain open and protectionism must be resisted.
In addition, he said that constraints faced by developing countries in expanding trade should be effectively addressed by building up productive capacities and competitiveness, improving access to trade finance, further reducing tariff and non-tariff barriers affecting their exports, and avoiding technical and non-technical barriers. Deliberate, comprehensive and integrated growth strategies were needed to rebalance economies and build economic and trade resilience and realize sustained development.
The State was of great importance in providing a domestic environment conducive to development and filling infrastructure gaps, he continued. Public investment must be embedded in a coherent national development framework that took into account social progress and public entitlement, not just economic profitability. Public investment alone could not meet critical needs, so it was essential for Governments to leverage private investment for development purposes through public-private partnerships and other means, for investment not only in infrastructure, but also agriculture, climate change mitigation and adaptation, education, health and research and development. The importance of the public sector could not be over-emphasized, he stressed.
Regarding foreign direct investment, he said overall global flows remained stagnant at an estimated $1.122 billion. Yet, flows to developing and transitional economies had recovered last year, rising 10 per cent, and for the first time represented more than half of global foreign direct investment flows. South-South flows had been growing at perhaps 20 per cent per year, and the value of cross-border mergers and acquisitions doubled. However, while Latin America and South, East and South-East Asia had all experienced strong growth in foreign direct investment inflows, West Asia and Africa continued to see declines, and many transitional economies had seen only a moderate increase, and gross fixed capital formation had stagnated. He commented that investment flows needed to contribute to build productive capacity and promote transfer of technology to catalyze sustainable development.
Efforts at the national level must be complemented by a fundamental evolution in development thinking at the global level. He said that recent years had seen a “casino economy”, with a speculation-driven financial sector divorced from the real economy. A new global partnership for development must be harnessed for development. Debates in UNCTAD had converged on the desirability of a collaborative approach. For that purpose, he urged all States and groups to engage constructively in the preparations for the fourth United Nations Conference on the Least Developed Countries and help articulate related ideas at the thirteenth United Nations Conference on Trade and Development, in Doha, Qatar, in 2012.
An inclusive approach to development that dispersed benefits more widely and a focus on employment and quality of life were needed to articulate an approach that sought to provide a minimum level of prosperity as opposed to one that sought to establish a tolerable level of poverty. For those purposes, he said, better international support mechanisms, reforms of global economic regimes and enhanced South-South cooperation were needed.
He said that there was agreement on the importance of addressing development holistically and in avoiding one-size-fits all approaches. The one place that could effectively address and enhance unity of results through diversity of approach and strengthened multilateralism was the United Nations. Providing political guidance and elaborating mechanisms to negotiate technical matters would perhaps be the global community’s most important task in the near future, to engender a world post-2015 that could experience an age of prosperity.
Thematic Debate 1
Moderated by the Mr. KAPAMBWE, the first thematic debate of the Council’s special high-level meeting focused on “Financial support for development efforts of Least Developed Countries: development finance, including innovative mechanisms, aid for trade and debt relief”.
It featured presentations by Charles Gore, Head, Policy Analysis and Research Branch, Division for Least Developed Countries, Africa and Special Programmes, UNCTAD, on the Least Developed Countries Report 2010: Towards a New International Development Architecture for LDCs and Shishir Priyadarshi, Director, Trade and Development Division, World Trade Organization, on “Support for Development Efforts of LDCs, including through Aid for Trade”.
Kicking off the debate, Mr. GORE said he hoped to address four questions. First: Was there still a case for international support for least developed countries? Second: Were existing support measures specifically targeted at [those] countries adequate? UNCTAD’s analysis suggested they were not, he said, leading him to the third question: What would new international support architecture look like? Finally: What would the finance pillar for that architecture be?
He said that alongside the “too big to fail” syndrome was a “too small to matter” mindset, which arose partly because some countries were seen as being systemically irrelevant. This was, he argued, the wrong view — not least because the least developed countries would be home to 1 billion people by 2017. Because those countries tended to be quite small, they were eclipsed in global poverty reduction analyses by large countries, which tended to stand out.
But the least developed countries must not be “off the map”, he said, suggesting that efforts to support them must be part of a shift away from focusing only on the world’s poorest countries. Indeed, the least developed countries would not even be able to get on the development ladder if middle-income countries could not move up it. To make the least developed countries matter, a broader solution was needed.
The sense that nothing more needed to be done for the least developed countries might also arise, he said, from an analysis of their past and current economic growth, which just before the global recession was on the upswing and had proved fairly resilient through the crisis. Nevertheless, the economic profile of these countries was still diverging from other developing countries, with weak development of productive capacities, slow poverty reduction and failure to achieve the Millennium Development Goals. While 1994 was, with the start of real growth in gross domestic product (GDP) per capita, a clear turning point in the long-term performance of the least developed countries, that success was shared by other developing, as well as developed countries. Moreover, that growth had occurred at a lower rate, thereby jeopardizing its categorization as a success.
Further noting that the least developed countries were also seriously off-target for meeting poverty reduction goals, he suggested that among their main problems was a lack of growth of productive employment opportunities for the increasing number of workers entering the labour force.
Analyzing current international support for the least developed countries, he said there had been three different eras. The first, a State-led development model, was ideologically sidelined with the introduction of structural adjustment programmes. The second, which was centred around the Paris Programme of Action for Least Developed Countries, had seen asymmetrical implementation, failing rates of real aid per capita and very little debt relief. The third, which included more effective partnerships, had engendered more growth, economic reforms and improved governance, but had only partly recognized the least developed countries as a category. Where it was specific to least developed countries, international support had been largely symbolic rather than practical.
He said that with the Brussels Programme of Action, over the last decade the specific measures had a number of common failings, including in their designs, which were exclusionary; a lack of accession to the World Trade Organization; gaps in development benefits due to inertia in existing practices; and a lack of follow-through to the overwhelming number of case studies. Aid targets also went unmet. Against that backdrop, the one area of optimism was in the United Nations system, which prioritized least developed countries and showed an increasing share of in-country expenditures on operational activities, including in peacekeeping operations.
While partnerships had been improved under the Brussels Programme of Action, current thinking was that it was now time to introduce new least developed countries-specific support mechanisms. Yet that too would fail if a more holistic view was not taken. Such a view was not limited to an exclusive focus on aid architecture either. It must encompass trade, technology, commodities and climate change, which together added up to a new international development architecture. One aspect of this was analyzing how the least developed country category was used — as it was in the World Trade Organization, climate change and United Nations systems, but not the Bretton Woods institutions.
In terms of the finance pillar, therefore, the first priority was to increase aid in line with existing commitments, he said. Least developed countries could secure extra finance to meet their most pressing needs, including in areas like electrification, where aid could make a difference. Innovative sources of finance must also be sought, while aid effectiveness should be improved. The key to success in the latter area was country ownership, which should be accomplished through, among other things, in-country computer and management systems. State capabilities should also be targeted by financial support, so that countries could develop and implement their own internal infrastructure.
He said that while aid was being used in grand form to support social sector improvements, it should instead be used “catalytically” to leverage other sources of finances, including through private sector development. Debt relief was also part of the picture.
Concluding, he highlighted the report’s cover, which included a picture from a Haitian artist, which was intended to highlight the current moment of momentous change in development thinking. Indeed, the global financial and economic crisis could be thought of as a catastrophic event on the level of an earthquake, such as the one that devastated Haiti, that while causing a number of widespread problems, also offered the chance for a new beginning.
Mr. PRIYADARSHI, Director of the World Trade Organization, speaking on behalf of Director-General Pascal Lamy, said that things had become better than what they were two years ago, with trade having grown more than 13 per cent in 2010 measured in volume terms. Such growth was not expected to continue, however, with global expansion predicted to slow in 2011. With 11 per cent of world population, the 48 least developed countries only contributed around one per cent of global trade in goods and half of one per cent of trade in commercial services, making them dependent on limited products and markets.
Building a strong and sustainable trading future for the least developed countries could be structured around two complementary tracks — one being trade policy, market openness and integration into the multilateral trading system embodied by the World Trade Organization. That track prioritized an early and development-oriented outcome of the Doha Development Round trade talks. Issues in those talks especially important to the least developed countries included duty- and quota-free market access, simple and flexible preferential rules of origin, a sustainable solution to the cotton issue, trade-related technical assistance and the adoption of the services waiver enabling the extension of preferential and favourable treatment to the services and serviced providers of those countries.
The diversity of members and consensus-based decision making had slowed the process, but the current Round had more to offer the least developed countries than any of the previous discussions, he commented. He said that the next two months were critical in the talks under way in Geneva, although delegations were not yet negotiating as if it was “a final lap.” Successfully concluded talks could be one of the best deliverables to take forward to the upcoming Istanbul Fourth United Nations Conference on the Least Developed Countries.
The other track for building a strong trading future for the least developed countries was the strengthening of their trade-related capacity through Aid for Trade and other means to make them more competitive, he said. In that area, donor budgets were under extreme pressure, and it must be shown that aid for trade was working on the ground. That was a priority of the next Aid for Trade conference scheduled for July. Case studies were being collected for the purpose of showing what worked best in that regard. The importance of innovative financing and of using official development assistance (ODA) as leverage for additional domestic and foreign investment was also becoming more and more an important complement to official flows, he said.
Ensuring that those different sources of financial flows to the least developed countries remained mutually supportive and did not create burdens for their administrations was critical, as was the need to ensure policy coherence of development aid interventions, he said. With the successful conclusion of the Doha Round and with the provision of adequate and sustainable Aid for Trade flows, the international community would be on the road to truly assisting developing countries, especially the least developed among them, turn trading opportunities into development gains, he concluded.
Invited to participate in an interactive discussion by Mr. KAPAMBWE, who hoped the debate would “shine some light on the dark side of the moon”, representatives of Member States, United Nations agencies and civil society groups highlighted the particular situation of the least developed countries and a number of renewed efforts to boost their economic growth, target aid efforts more effectively and better couple outside support with in-country development.
Saying that much more than in other developing countries, progress in the least developed countries had been inadequate or unsustainable, Nepal’s representative stressed that the problem was clear: 70 per cent of the population of all the least developed countries were living of less than $2 a day. In that context, international support must be targeted, comprehensive to have an effect on the ground, flexible and forward-looking. Those countries were willing to do more, but they were asking the international community, including the world financial institutions to do more, too.
A representative of non-governmental organizations said the label “least developed countries” was increasingly becoming a stigma, and it was important to return to the label’s original intention, which was to help identify the weakest links in the financial system and direct analysis and support to them. He argued, however, that there was no danger of focusing too much on the least developed countries at the expense of the middle-income countries. He also called for a system that was transparent and participatory.
More effective and targeted interactions were urgently needed, a representative of the business sector said. The “devil was in the details”, she argued, proposing that specific action was needed to mobilize the domestic private sector in the least developed countries. To that end, funds for business development must be provided, while infrastructure projects should be completed. Risk mitigation tools could also provide the means for leveraging limited official development assistance to mobilize the in-country financial support. More performance benchmarks should be developed to better reveal what was really being done, and what was not.
Other speakers highlighted agriculture infrastructure reform, technology transfer, rules-based and predictable financing support and innovative financing, among other things. Several underlined the role of trade, including the conclusion of the Doha round of trade negotiations, and the need to curb illicit financial flows. One delegate asked for more information on the status of proposals to reform the international development architectures.
Responding, Mr. GORE said that over the last ten years UNCTAD had been arguing for a focus on production and not just achievement of the Millennium Development Goals, which was not sustainable without increased capabilities in production. Correspondingly, the least developed countries should be looked at in terms of their potential, as well as their needs. There had been some progress in that perspective. He thanked the private-sector representative for her proposals in that light.
In regard to the categorization of the least developed countries, he said it was a structural concept based on low income, weak human resources and high vulnerability, as well as a propensity to be stuck in underdevelopment. That category overlapped with fragile States, but those countries were in fact, considered a “governance” category. Various analyses for the upcoming Istanbul conference showed less support for least developed countries than was necessary. He added that more inflows were necessary but also stressed that the domestic enterprise sector was also key, as was domestic resource mobilization.
As the floor was opened for further comments and questions, a representative of the Business Council for the United Nations noted that corporate philanthropy was an important part of the equation. Morocco’s representative said that he was struck by Mr. Gore’s chart, which showed the vulnerability of the least developed countries and their slow recovery, indicating long-term and social-fabric dangers. He asked how the countries could emerge in an unfavourable economic environment, stressing that the international context had to always be considered. The vulnerability issue was important when considering ODA, Egypt’s representative maintained, speaking of innovative sources of financing.
Also focusing on innovative sources of financing, other civil society representatives stressed the sums that could be gained by applying a financial transactions tax, by stemming the loss of tax revenues by stopping income flight from least developed countries and by the use of International Monetary Fund (IMF) reserves. The representative of the Republic of Korea pledged his country’s commitment to the development of the least developed countries and Brazil’s representative asked the panel to comment on mechanisms that could facilitate transition out of the least developed country category. Spain’s representative asked where aid fit into the South-South trade scenario. ODA that assisted trade was most helpful, Zambia’s representative said, asking what UNCTAD could do to encourage investors to enter into partnerships in Africa.
Mutual accountability of donors and recipients was broached by Indonesia’s representative, who also asked about factors that should be taken into consideration when it came to accession to the World Trade Organization. France’s representative said it was important to focus on the quality of aid provided rather than just quantity. The specificities of the least developed countries had to be considered in that light.
In regard to the category of least developed countries, Mr. PRIYADARSHI responded that having a clearly defined group in the World Trade Organization had had positive results in a number of ways, through the provision of flexibilities and exemptions. Other countries were calling for special classifications so they could similarly benefit. He was glad, however, that the issue of graduation was raised in that context, because some countries had resisted leaving the category. That was why a transitional strategy was needed.
He stressed again that job creation — in the context of broad economic growth and trade — was needed for sustained development, while aid was also crucial. There was no question that more needed to be done to help the least developed countries in that context, but the countries needed also to ensure that their needs were expressed in a prioritized manner. He allowed that free trade and membership in the World Trade Organization were not cure-alls; increasing supply-side capacity and other measures were needed at the same time.
Providing his own summary of the discussion’s common themes, Mr. GORE said several speakers had highlighted an integrated approach that at least embraced finance and trade and should also include technology. Development finance effectiveness, not just aid effectiveness, was critical. Trade mattered and was critical to sustainable development in least developed countries. The employment challenge must be met, while the debt problem needed a renewed focus. He suggested that, among other things, those areas provided a basis for consensus.
For his part, he considered the target that 50 percent of the countries currently listed on the least developed countries list would exit that category in the next few years to be very ambitious. Due to the way the United Nations operated, the transition process was partly political and the criteria for inclusion were different from the graduation criteria. He suggested that those least developed countries that had recently graduated felt the “Southernness” of their removal.
Turning to innovative finance, he said the financial transaction tax was not as crucial as the commodity problem. According to studies by the World Bank on uses of innovative finance, he said they were used much more in middle-income countries, implying more effort should go to looking at the least developed countries context. Looking at innovative uses for development financing — not just sources — was a practical way to approach the problem.
On aid management policies, he said they were already being used in some least developed countries and at the minimum included information systems to monitor aid coming in. They could also function in a peer-review system, which would go far towards enhancing aid effectiveness. Overall, he considered them to be a “potent” and operational mechanism to increase country leadership in aid.
He said there was a dilemma in the fact that while donor countries wanted to enhance aid results through results-based analysis, better short-term results were possible outside the least developed countries, where patient and a long-term horizon was essential. The new international development architecture was being applied beyond least developed countries and outside South-South cooperation, and it was his view that northern donor flows and South-South flows could be harmonized through in-country systems.
“No one should doubt that we’ve come to an end of an era in aid development,” he said. There would be new thinking, including out of an upcoming conference on aid effectiveness and, among other things, it would be important to see how South-South cooperation fit in.
Also participating in the interactive discussion were representatives of Argentina (on behalf of the Group of 77 developing countries and China), as were representatives of the European Union, the Food and Agriculture Organization (FAO) and an Executive Director of the World Bank from the Russian Federation.
Remarks by the Secretary-General
Addressing the high-level meeting in the afternoon, Secretary-General BAN KI-MOON said with the world still reeling from the financial and economic crisis, the times were challenging. The path to recovery had been slow, fragile and uneven. Rising debt levels, growing inequality and social exclusion were real concerns, while devastating natural disasters and the impacts of climate change continued to jeopardize development gains.
“We must respond to these challenges by charting a course of truly sustainable and equitable development,” he said, urging the Council and the representatives of the international financial institutions to make the most of the 2012 United Nations Conference on Sustainable Development in Rio de Janeiro, Brazil, which would take an integrated approach to those challenges.
Recent price spikes in food and energy risked erasing the progress achieved in lifting millions out of poverty over the last decade, with the food situation proving particularly precarious. At the same time, the still unfolding events in North Africa and the Middle East had once again highlighted the nexus between poverty, unemployment, inequality and stability, he said. Those historic events further underscored how critical inclusive, democratic and honest government was in the quest of social justice and human dignity.
Turning to the current meeting’s four themes — the Millennium Development Goals, least developed countries, middle-income countries and global economic governance — he said progress on the Goals had been uneven. More investment was needed in job creation, food security, health, clean energy, infrastructure creation and climate adaptation.
Last year’s high-level General Assembly meeting on the Millennium Development Goals underlined the need to strengthen the global development partnership, which was about more than aid, but also called for debt relief, access to essential medicines and technology, including information and communications technologies. Also required was an open trading system that did not put developing country goods and services at a disadvantage, and in that context he called for a successful conclusion to the Doha round of negotiations. “Aid for Trade is vital, but will do little good if global markets are blocked or intrinsically unfair,” he stressed.
The partnership for development also emphasized mutual accountability, he continued, reporting that the United Nations system was making good progress on developing the Integrated Implementation Framework to help uphold its commitments. “I count on all other partners to uphold their end of the bargain,” he said.
Turning to the least developed countries, which continued to confront significant levels of poverty, he urged all nations to participate at the highest level at the upcoming fourth United Nations Conference on the Least Developed Countries.
He further noted that the middle-income countries, which did not always attract the attention they should, had actually led the global economic recovery to date. Their impressive performance followed decades of admirable efforts to diversify exports and gain higher market share for high-technology goods. Nevertheless, they still faced rising inequality, the persistence of extreme poverty and a lack of adequate social security systems and further efforts were needed to improve their safety nets and economic security.
To strengthen the role of the United Nations in global economic governance, he stressed that the comparative advantage of the relevant institutions must be identified and the Organization’s own bodies made more efficient, effective and representative. More coherence was needed and more partnerships forged. More must be also accomplished with scarce resources, while the Organization was strengthened from within.
“In a volatile and changing world, we must not disappoint the many millions of people who look to us, and our Organization, for help and reassurance,” he said. “Let us respond to the full spectrum of their aspirations — economic, social, environmental, [and] democratic.”
Thematic Debate 2
The Council then heard two presentations on the theme of its afternoon discussions: “Financial support for development efforts of Middle-Income Countries: development cooperation, trade, capital flows, policy space and reserve system”.
Briefing the Council on the upcoming 2011 report of the Millennium Development Goals Gap Task Force was Robert Vos, Director of Development Policy and Analysis Division for the United Nations Department of Economic and Social Affairs. Providing an overview on lessons learned from the recent economic crisis for reform of the international financial system was Detlef Kotte, Head of the Macroeconomic and Development Policies Branch for UNCTAD’s Division on Globalization and Development Strategies.
Mr. VOS said that global commitments to the Millennium Development Goals had been reaffirmed at the General Assembly’s 2010 High-Level Plenary on the status of the Goals. Nonetheless, it was becoming increasingly critical to ensure the coherence of those commitments with other agendas, including global sustainable development. Other related outcomes of the Summit had been the call for improved accountability and follow-up through the Economic and Social Council and it’s Development Cooperation Forum, as well as for strengthening the monitoring system in that area.
There was an estimated global shortfall in the area of aid commitments on the order of $20 billion for total official development assistance, said Mr. Vos, and a gap of some $16 billion for Africa. That total deficit would more than double by the year 2015, he said. In that vein, the 2011 focus of the Millennium Development Goals Gap Task Force — created by the Secretary-General to monitor Millennium Development Goal 8 on the global partnership for development — would include an update on the effects of the economic crisis and an examination of policy coherence, among other issues.
In the area of establishing coherence with other agendas, several key issues remained unresolved. Those included the modalities of aid, or the question of more earmarking and more vertical funding versus the need for more budget support; the issue of additional aid for food security and climate funds; the issue of accountability and adequacy, in particular non-delivery on commitments; and the question of alignment with other sources of financing and sustainable global rebalancing.
With regard to trade, the High-Level Plenary had made several recommendations, including the intensification of efforts to conclude the Doha Development Round of trade negotiations. A large gap remained in providing duty-free access to developing countries and least-developed countries relative to duty-free quota-free targets, said Mr. Vos. Agricultural subsidies in developed countries remained high — an estimated $387 billion in 2009.
Additionally, Aid for Trade continued to increase, to a record level of $40 billion in 2009. In terms of coherence, it was important to note that aid for trade mainly benefited middle-income countries, with only about 25 per cent going to least developed countries. He also noted that Aid for Trade strategies were not always fully linked to sustainable national development strategies, and that more work was needed to connect them to such strategies in a productive way.
Mr. KOTTE, speaking on new challenges for international economic governance and development strategies, said that global demand was likely to grow slowly compared to the 2000s, given slower growth in the United States and insufficient acceleration of demand growth in other countries, despite changes in China. Europe and Japan were relying on exports for growth and much of Chinese demand would be met by internal production. In such a scenario, not all countries could rely on exports simultaneously. Therefore, growth and development would have to rely more on expansion of domestic demand, which required domestic investment. Improved access to investment finance was needed for that purpose.
Higher domestic consumption, he said, required faster wage growth in line with productivity growth, if the Southeast Asian model was to be followed. For that purpose, the financial sector had to be further developed in most of the least developed countries, along with increased regulation and supervision. Dismantling all obstacles to cross-border private capital flows was not the best recipe for accelerating fixed investment. Surging capital inflows were a potential source of instability.
The excessive reliance on exports for growth had often depended on low wages, but not all economies could create employment on that basis, he said. Wage share of the global economy had declined because of the low-wage competition. An income policy that could strengthen domestic demand and at the same time control inflation was needed.
The international system should encourage, in that context, active capital account management, and develop multilateral rules for exchange rate management to reduce volatility and avoid mismanagement, he said. A new reserve medium could also be considered for purposes of stability, and to avoid the need to accumulate large currency reserves. A multilaterally-agreed framework for the management of flexible exchange rates was a related proposal, which could keep real rates at a level that was sustainable with a current-account position, to avoid speculative spirals.
When the panel turned to the floor for questions and comments, several representatives noted the particular challenges of middle-income countries despite their weathering of the financial crisis through financial discipline. They had also had a particular role in international cooperation for development, they pointed out. Similarly, Peru’s representative wondered if domestic demand could be enough to generate growth in middle-income countries. The representative of Bangladesh commended the focus on middle-income countries, seeing synergy in that regard with activities on least developed countries.
Civil society representatives urged reform of the currency reserve system to redress imbalances between developed and developing countries and warned of one-size fits all approaches. A representative of the International Chamber of Commerce stressed the need for a partnership between all actors in financing for development, as well as the need for enabling environments within States to encourage investment. She also called for progress in free trade talks.
A representative of the International Labour Organization (ILO) spoke of the need for the international financing institutions to focus on financing of smaller enterprises that generated jobs. More focus on productive employment was needed in general, he said, with benefits being part of a growth strategy. In addition a representative of the World Bank asked about debt management and the right policy mix between domestic demand and structural change of the economy, in relation to industrial policy.
Responding, Mr. VOS agreed there was a need for defining middle-income countries more precisely and work was ongoing in that area. Similarly, it was still difficult to define the scope of South-South cooperation, though its growing importance was being recognized, as was the need to consider how such cooperation could be made more effective for development. He stressed that ODA needed to be tied into broader development strategies, not just particular programmes. In response to the World Bank representative, he explained that debt relief was separated from ODA for specific reasons. Mechanisms for debt relief had reduced the “moral hazards” of such relief.
Mr. KOTTE said he could not agree more with the importance of South-South cooperation, particularly regional trade and cooperation between middle-income countries for promoting regional industrialization. Such cooperation should go beyond trade liberalization to infrastructure projects and other mutual efforts. In response to the comments on reserves, he reiterated that most of the accumulation had occurred in an effort to stabilize rates and the issue of the cost of accumulation was a complex one.
In regard to other questions, he said that domestic development could be financed by domestic means, including by central banks, making them less dependent on capital inflows. He also spoke of the need for industrial policy as a means to direct development in a certain direction and guide structural change. Of course, integrating into the world economy should be a complement to domestic growth, he said in response to related comments. There was no formula for the right level of reserves, he added, speaking of the complexity of interventions in that regard.
In a second round of questions, delegations continued to focus on the crucial role of middle-income countries in the global economy. The representative of Egypt said that such countries were in the “twilight zone” between developed and developing countries and millions of people living in them remained in poverty. African and Asian nations were particularly affected in that regard and should be assisted with reducing their debt.
Highlighting the recent challenge of capital inflow into middle-income countries, the representative of Brazil noted that his country faced major issues in that regard, including the overvaluation of its currency. In response, The Government had adopted a number of capital control measures. It would welcome a study by UNCTAD and the Department of Economic and Social Affairs into such measures.
The representative of Belarus noted the importance of guaranteeing free trade as a foundation for the growth of middle-income countries, and said that it was not admissible to adopt “politically-motivated” obstacles to free trade. He asked the panellists to clarify measures that might lead to realizing the full economic potential of middle-income countries. Iran’s representative asked for clarification on the panellists’ comments about on domestic demand, in particular with regard to middle-income countries. Regarding the inflationary pressure that might follow an increase in domestic demand, the representative urged the Council to hold a meeting dedicated to the challenges that middle-income countries might face in that regard.
The representative of China pointed out that middle-income countries still faced severe and daunting challenges in poverty eradication and other key areas. He agreed with Mr. Vos that domestic demand was essential for trade, but said that the current economic environment was not conducive for exports from such countries. The majority of middle-income countries worried that the development of a “green economy” would lead to “green protectionism” in trade, blocking exports from those countries. He asked the panellists for insights into ways to deal with the inflow of international capital into middle-income countries.
Regarding the issue of a “transparent, independent sovereign debt workout mechanism,” the representative of Ecuador asked the panellists about the specific barriers to the creation of such a mechanism. He suggested that regional mechanisms might be one solution to that critical need.
A representative of civil society noted that such a mechanism should be impartial and fair, with an independent authority making decisions about the claims of all parties. She suggested the establishment of an expert group to bring such a mechanism forward. A representative of the business sector noted the importance of harnessing the power of the private sector in weathering the current economic climate.
Responding, Mr. VOS said the questions on trade were, in many cases, linked. On the stalled Doha Round of trade negotiations, he said there were concerns over the degree of policy space available to the developing countries once that round was completed. That was also true in the areas of industrial policy and intellectual property. Another difficulty was the structure: it was a package deal and agreements had to be in place in every area before the round was finalized. Further, countries with preferential bilateral agreements were worried they might lose out in the broader framework.
He believed a green economy could potentially become a new form of protectionism, which, he added, was one of the emerging issues in the Doha Round that must be addressed. Another key issue was financing for industrial policies aimed at further establishing the green economy.
On debt, he agreed there was a need for a fair, transparent, impartial global debt mechanism, which would, in turn, provide a framework to address individual cases. This would certainly be important for middle-income countries. More thought should also be given in that context to the Heavily Indebted Poor Countries (HIPC) Debt Initiative, as well as for debtor countries outside the Paris Club. It was also difficult to incorporate the debt accumulation of countries making strides in achieving the Millennium Development Goals.
With respect to financing through multilateral development banks, he said there was a greater scope if countries pooled their reserves, highlighting the benefits of such a system over the current “health-insurance system”, whereby countries insured themselves. He reiterated the need to better define and monitor South-South cooperation, suggesting that the development banks might play a key role in that regard.
Next, Mr. KOTTE said he had been stymied in formulating a full answer to several questions, including Morocco’s question on the best policies and the question from Belarus on how to make the middle-income countries strong in the global economic system. Nevertheless, higher capital accumulation was important, if not essential, for industrial development. Among the key macroeconomic variables in that context were the exchange rate, which defined a country’s competitiveness internationally, as well as domestically, and the interest rate, which was the key component in investment questions. Stable and expanding demand from domestic or international sources was important, but interest rates that were excessively high particularly affected fixed capital formation.
Wages determined domestic consumption, and over the last 30 years, the focus had been on the cost element of wages rather than the demand element. He suggested rethinking that approach to wages; while keeping inflation low was important, an income policy linking wage increases to productivity gains was not inflationary. It allowed monetary policy to provide more favourable conditions for investment. Coordination was most important in exchange rate management and in an exchange rate system. Yet there was no such functional system today, leading to currency crises, among other problems.
He stressed that he was not arguing against capital account liberalization. But there were situations where completely uncontrolled capital movements were disruptive. In situations where the disruption was unrelated to a country’s capital accumulation, the domestic financial bodies should be able to regulate those flows. Those were critical components in a workable system and should not be confused with ideology, he added. Further, foreign capital flows were necessary if import flows could not be financed through export flows.
On the question of poverty in middle-income countries, he said a wages-income policy was important in generating domestic demand and reducing poverty. He highlighted successful policies in this area in Argentina, among other countries.
Also participating in the discussion were the representatives of Mexico, Chile, Argentina, Spain, Morocco, Venezuela and the United Republic of Tanzania.
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