Addressing macro economy and financing for development

Second Committee focused on macroeconomic policy questions and issues on financing for development at meetings in New York on 10 and 13 October

Considering macroeconomic policy questions and sub-items on international financial system and development and external debt sustainability and development, the Director of DESA’s Financing for Development Office (FfDO) introduced the Report of the Secretary-General on “International financial system and development”. The Chief of the Debt and Development Finance Branch of UNCTAD’s Division of Globalization and Development Strategies, introduced the Report of the Secretary-General on “External debt sustainability and development”. A total of 30 countries and one specialized agency addressed the Committee.

Global economic and financial fragilities and their impact on development

Many delegations pointed to the increasing risk of a renewed global economic downturn and rising financial instabilities. They expressed concerns over the possible adverse impact on emerging economies and developing countries and called for a more rapid concerted response by the international community. In particular, the need to prevent contagion from sovereign debt problems in advanced economies, especially in the euro area, was stressed. The importance of promoting economic policy coordination, implementing growth-oriented policies, addressing global imbalances and volatile capital flows, and fulfilling ODA commitments was underscored. Concerns over high commodity price volatility, partly caused by financial speculation, were also expressed. Several delegations emphasized the central role of the UN in global economic governance.

Reform of the international financial system

Many delegations underscored that deficiencies in the international financial system and architecture were a major cause of the ongoing financial and economic crisis. The continuing need for significant reforms of the international monetary and financial system was underscored. There was also a proposal to develop a Pact on Global Regulation of the financial sector and advocacy for greater involvement of developing countries, including LDCs, in international standard-setting bodies in financial regulation and supervision.

The role of regional and sub-regional monetary and financial cooperation was also emphasized by some countries. A few countries called for a continuation of the Ad Hoc Open-ended Working Group of the General Assembly to follow up on the issues contained in the Outcome of the Conference on the World Financial and Economic Crisis and Its Impact on Development. Member States were also urged to consider the conversion of the Committee of Experts on International Cooperation in Tax Matters to an intergovernmental body of ECOSOC.

Governance reform at the Bretton Woods institutions

A few delegations welcomed the recent governance reforms at the IMF and the World Bank. However, a number of them called for further reforms of the mandates, scope and governance structures of the Bretton Woods institutions to reflect current economic realities and ensure full voice and participation of developing countries, including LDCs. It was for instance noted that LDCs were not recognized as a special category by the Bretton Woods institutions. Delegations also called for open, transparent and merit-based selection procedures for heads and senior management of the IMF and the World Bank.

External debt sustainability and development

Delegations from developing countries stated that debt sustainability remained a critical challenge. While developing countries recognized the benefits of debt relief initiatives such as HIPC and MDRI for some countries, others remained at high risk of debt distress. LDCs and others called once again for additional debt relief, including full cancellation of multilateral and bilateral debts. Developing countries called for sovereign debt restructuring and resolution mechanisms that would take into account the multiple dimensions of debt sustainability and the role that debt sustainability played in the achievement of the IADGs, including the MDGs.

It was also noted that significant success had been achieved over the last decade on debt-related commitments, most notably through the Enhanced HIPC Initiative, the MDRI and the joint World Bank-IMF Debt Sustainability Framework. At the same time it was underscored that the international community should enhance its efforts on debt relief.

Debating follow-up and implementation of the 2002 International Conference on Financing for Development and the 2008 Review Conference

On 13 October, the Second Committee focused on the Follow-up to and implementation of the outcome of the 2002 International Conference on Financing for Development and the 2008 Review Conference. The Director of FfDO/DESA introduced the Report of the Secretary-General on “Follow-up to and implementation of the Monterrey Consensus and Doha Declaration on Financing for Development”. A total of 22 countries addressed the Committee.

Many delegations called for the full implementation of the commitments and agreements contained in the Monterrey Consensus and Doha Declaration on Financing for Development. It was pointed out that aid delivery fell short of commitments and net ODA/GNI targets of many larger donors remained below the UN target of 0.7%. Emphasis was also given to the need to enhance aid effectiveness and to align development assistance with the national priorities and needs of developing countries.

Many delegations referred to the positive contribution that innovative mechanisms of finance can make in mobilizing additional resources for development, while also emphasizing that these should not substitute or negatively affect the level of traditional resources for development. Many speakers pointed out that such financing should be disbursed in accordance with the national priorities of developing countries, while one group of countries also stressed the need for further deliberations and analyses on the potential positive and negative implications to developing countries of these schemes. It was pointed out that Special Drawing Rights (SDRs) constituted an important source of financing for development.

Several speakers stressed the importance of having a universal, rules-based, open, non-discriminatory and equitable multilateral trading system that would contribute to growth, sustainable development and employment. There were also calls for all countries to refrain from protectionist measures. Delegations also referred to the need for the international community to fulfill all commitments contained in the 2005 Hong Kong Ministerial Declaration of the World Trade Organization in favor of LDCs.

Call for reform and greater participation of developing countries

A number of countries spoke of the need for reform of existing international economic and financial systems, and for ensuring greater participation of developing countries in decision making and norm setting processes. There was a call for reforming the mandates, scope and governance of the BWIs, while appreciation was also expressed about the ongoing reforms in these organizations. Reference was also made to the need for better coordination, both between international organizations and between macroeconomic policy objectives and other areas of global governance.

Many delegations stressed the need for an effective and enhanced follow up mechanism for the Financing for Development process. Specific reference was also made to the need to seriously consider the long-standing proposal to create a functional commission on financing for development. There was also support for upgrading the Committee of Experts on International Cooperation in Tax Matters to an intergovernmental body of ECOSOC. Many delegations also emphasized the importance of the forthcoming fifth High-level Dialogue on Financing for Development in New York on 7-8 December.

Innovative mechanisms of financing for development

The Committee also held a separate meeting on innovative mechanisms of financing for development and the Director of FfDO/DESA introduced the Report of the Secretary-General on “Innovative mechanisms of financing for development”. A total of 20 countries addressed the Committee and many stressed the growing importance of raising additional resources through innovative mechanisms of financing for development in the context of the current global economic situation and the approaching MDG deadline of 2015. Several delegations advocated for the extension of innovative mechanisms beyond health and climate change to other areas, such as education, food security, sanitation and other MDGs.

Many speakers emphasized that funding from these mechanisms should be predictable, stable and effective. They also emphasized that innovative financing should be “additional” to traditional sources of development finance. Concerns were expressed over a considerable part of innovative financing being reported as ODA.

Several delegations called for developing an internationally uniform definition of innovative financing to provide the reference point for standardized reporting and accounting. Some delegations noted that the application process for funds was often complex and put additional burden on recipient countries and that countries with weaker institutional capacities failed to benefit from the innovative financing proceeds.

Many delegates stressed that the growing role of innovative mechanisms of financing for development should not weaken donors’ commitment to the UN target of 0.7 per cent of GDI and 0.20 per cent to LDCs, and that the implications of innovative financing for aid architecture and aid effectiveness required continued attention.

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