The relationship between democratic governability, equity and economic growth, and, in turn, between these dimensions and financing for development is arousing increasing interest. The Consensus of Monterrey, the best developed version of the international consensus in this area, stressed the responsibility of each country to guarantee suitable conditions for financing development, but also stressed the essential role of international cooperation.

International cooperation is a vital support mechanism for national efforts and a tool for compensating the imbalances caused by factors exogenous to national decisions. In relation to democratic governability, it ranges over at least five closely-related areas, providing: support for building democratic institutions; financing for integrated development strategies, complementing national resources; concessional financing, with clearly defined objectives; a contribution to managing economic cycles and effective anti-cyclical macroeconomic policies; and support for overcoming problems of high indebtedness.

Within this framework, significant support programmes for consolidating democratic institutions are being run by the IDB and other multilateral banks, providing financing for processes such as judicial reform, parliamentary modernizations, stronger supervisory bodies and improved record-keeping on individuals. In relation to integrated development strategies, the multilateral bodies must take into account the complementary nature of their financing, which must thus be subject to the political processes and social participation mechanisms of the beneficiary countries.

With regard to concessional financing, and in line with the commitments made at Monterrey, the trend in official development aid over the past 15 years must be reversed. In Latin America, the consolidation of medium income democracies continues to need support and international cooperation given their

vulnerability, particularly to financial crises and destabilizing capital movements, and it is essential that this be recognized.

The experience of pronounced financial cycles underlines the importance of the mechanisms created by the multilateral financial organizations to compensate for the effects of sharp shifts in the capital account and the contagiousness of financial crises. The international financial bodies should not only promote the design of anticyclical macroeconomic policies but also provide financing for such purposes. One of the most vital political decisions the Group of Rio should take is to give firm support to consolidating the existing subregional multilateral development banks, and the Latin American Reserve Fund (Fondo Latinoamericano de Reservas).

To reduce the risks of external financing, debt issues can usefully be encouraged to include contingency clauses linked to cyclical movements of GDP and/or commodity prices or terms of trade.

The multilateral institutions must be asked, finally, to continue seeking viable solutions to the problems of high indebtedness. Such solutions must go beyond the collective action clauses that Latin American countries have begun to use in new bond issues, and specifically should seek to resolve satisfactorily the problem of high risk sovereign debt. In the case of collective action clauses, it is essential that these be universally adopted and that the Group of Seven countries employ them in all debt issues, to avoid the mechanism being transformed into a new form of discrimination against developing countries in the private capital markets.