Joint memorandum submitted by the Department
for International Development and Her Majesty's Treasury
HOW SUCCESSFUL
HAS THE
UN FINANCING FOR
DEVELOPMENT SUMMIT
BEEN, AND
WHAT CAN
WE LEARN
FROM THE
PROCESSES LEADING
UP TO
THE SUMMIT?
1. The UN Conference on Financing for Development
was a major success and potentially represents a turning point
in the global fight against world poverty. The key reasons for
the success were:
(a) Monterrey became the first UN Conference
to achieve concrete and specific increases in ODA. The EU and
US announcements on aid levels will lead to additional aid flows
of $12 billion a year from 2006 and potentially cumulatively $30
billion before then;
(b) The Monterrey Consensus document—which
sets out a balanced agenda of partnership and mutual accountability—was
formally adopted by UN members; particularly welcome are the commitments
to good governance and the rule of law;
(c) The international commitment to the Millennium
Development Goals (MDGs) was strengthened; and the significant
participation of the IMF and the World Bank meant that this was
a good example of the UN and the Bretton Woods institutions collaborating
effectively towards shared objectives;
(d) There was high level government attendance
from developing countries and developed countries, including key
members of the US administration, and there was a good atmosphere
for debate;
(e) The business sector and Non-Governmental
Organisation (NGO) sector participated fully.
2. The objective of the Financing for Development
Process and the final Conference in Monterrey was to analyse how
domestic and international finance could be mobilised more effectively
for development, so ensuring greater progress towards the achievement
of the MDGs. The key areas considered were domestic resources,
international private resources, trade, overseas development assistance,
debt relief and the international financial architecture. UK objectives
were to:
— Focus FfD on poverty elimination;
— Promote developing country actions
to create an enabling environment for poverty reduction;
— Press for significant increases in
aid to achieve the Millennium Development Goals;
— Press for measures to increase aid
effectiveness, including harmonisation of donor practices and
procedures, untying, greater use of budget support and the targeting
of aid by policy and poverty criteria;
— Strengthen the voice of developing
countries in the international financial architecture.
These objectives were broadly met, through the
long negotiations on the Monterrey text that took place in the
Preparatory Committee Meetings in New York, and UK government
interventions in the EU, which secured the agreement to increase
aid volumes.
3. The Financing for Development outcome
was shaped through four UN Preparatory Committees, which moved
from consideration of inputs—such as the Zedillo Report—to
negotiation of the outcome document. The UK is represented in
UN negotiations by the EU Presidency. Therefore there were a series
of EU co-ordination meetings to establish the EU line. The UK
was influential in shaping the EU strategy. DFID produced a UK
strategy paper at a very early stage in the process.
4. The UK was able to co-ordinate effectively
across government departments, benefiting significantly from the
close working relationship between the Chancellor and the International
Development Secretary. A Whitehall official steering group was
established to develop and agree UK policy, with representation
from all Departments with an interest in FfD (DFID, HMT, FCO,
DEFRA, DTI, IR, ECGD and DWP). Meetings were held regularly, and
proved an effective mechanism for developing policy and identifying
areas where Whitehall discussion was required. There were frequent
meetings between DFID, HMT and FCO officials: the close involvement
of HMT throughout the process helped the UK to establish an influential
position within the EU. Ultimately it was the close working relationship
between DFID and HMT with the support of FCO which enabled the
UK to gain agreement on the proposal to raise EU aid volumes;
first with the Secretary of State for International Development's
work with others at the Development Council to set up the process
that led to a commitment to increased quantity and quality of
aid at Monterrey; second with the Chancellor's interventions at
ECOFIN on 5 March; and third with FCO support at the following
General Affairs Council, leaving the final decision to be made
by Heads at the Barcelona Council.
5. The FfD outcomes document—the Monterrey
Consensus—was negotiated in advance of the Conference, and
signed by those who attended. We consider it to be a good document.
It clearly sets out the partnership between developed and developing
countries to achieve the MDGs, with developing countries committing
to good governance and to creating an enabling environment, and
developed nations agreeing to support these efforts better through
actions on trade, debt relief, ODA and reform of the international
financial architecture. The Monterrey Consensus meets many of
the UK's objectives, though we would have preferred stronger commitments
in some areas; for example on aid effectiveness. The Secretary
of State pushed very hard on this issue, with support from the
Chancellor of the Exchequer, and the issue was taken up by the
DFID negotiating team in New York. However, resistance from other
countries meant that we were unable to make as much progress as
we would have wished.
6. The Monterrey Consensus provides a good
basis for further action in a variety of fora. For example, trade
will be tackled within the Doha Development Agenda; debt relief
within HIPC; aid effectiveness within OECD DAC; and reforms to
the international financial architecture within the World Bank
and IMF. The NEPAD process is a specific example of a mechanism
through which developing countries can make concrete their commitment
to good governance and poverty reduction.
7. Most of the concrete business of the
Monterrey Conference was achieved before it started. This enabled
world leaders to attend the final summit in the knowledge that
a successful document was already on the table. This helped contribute
positively to the atmosphere for debate. During the preparatory
process, one of the key debates concerned the overall effectiveness
of ODA, and the case for increases in its volume. The Treasury
and DFID produced a joint paper setting out "The Case for
Aid" which the UK delegation launched with a press conference.
The paper was well-received and circulated widely at Monterrey.
8. The centrepiece of the EU package of
commitments for Monterrey is an undertaking to raise the EU average
ODA/ GNI ratio from 0.33 per cent to 0.39 per cent by 2006—which
will equate to an extra $7 billion dollars p.a. Other elements
are to take concrete steps to harmonise procedures by 2004; to
discuss the scope for further aid untying; to increase levels
of trade related technical assistance; to work on identifying
global public goods; to consider the case for innovative sources
of financing; to press for a stronger voice for developing countries
in international economic decision-making; and to work to ensure
debt sustainability.
9. The agreement to increase aid volume
was based on a UK proposal—initially proposed by the Chancellor
at a meeting of Economic and Finance Ministers, and taken forward
by the Spanish Presidency. The UK will press for EU discussions
following Monterrey to encourage the specific national commitments
required to ensure that the 0.39 per cent average is reached.
The US also made a commitment to increase its level of ODA, in
advance of the Monterrey conference. The commitment amounts to
an increase in aid of $10 billion over three years ($1.3 billion
in 2004, $3.7 billion in 2005 and $5 billion in 2006). The US
also committed to maintaining this increased level of aid in cash
terms from 2006 onwards. Together, the EU and US statements provided
an important new element in the overall package of proposals,
and helped to ensure the success of the conference.
10. In summary, the Monterrey Consensus
document represents an important step forward in international
consensus on how to mobilise finance to achieve the MDGs. It contains
important recognition by developing countries of their responsibilities
for setting an enabling policy environment; and it contains commitments
by donors to make stronger efforts to assist them. The EU and
US ODA commitments represent a historic reversal in the 20-year
decline in ODA levels. Monterrey was the first UN Conference to
achieve commitments to concrete and specific increases in ODA.
11. It is now a matter of taking forward
the agenda from Monterrey, at the UN and the Bretton Woods institutions,
through the G7 Meetings in Halifax and G8 in Kananaskis, at the
World Summit on Sustainable Development in Johannesburg and the
Commonwealth Finance Ministers' Meeting in London. We will seek
to ensure that no developing country genuinely committed to good
governance, economic reform and poverty reduction, will be denied
the chance to achieve the Millennium Development Goals through
lack of finance.
WHAT PROGRESS
IS BEING
MADE BY
THE UK AND
OTHER GOVERNMENTS
IN MOVING
TOWARDS MEETING
THE TARGET
OF PROVIDING
0.7 PER CENT
OF GROSS
NATIONAL INCOME
IN OFFICIAL
DEVELOPMENT ASSISTANCE?
12. The UK is determined to be at the forefront
in the fight against global poverty. We are committed to the target
of raising ODA to 0.7 per cent of national income. We will contribute
positively to raising the EU average by significantly raising
the amount of our ODA, and by raising its share in national income,
in our next spending round covering the years up to 2005-06. We
will also work to ensure aid effectiveness both in the UK and
in the EU.
13. The UN target of providing 0.7 per cent
of Gross National Income (GNI) as Official Development Assistance
(ODA) was endorsed by the 1970 UN General Assembly. Figures for
Official Development Assistance are compiled by the OECD Development
Assistance Committee (DAC) by calendar year on the basis of reporting
from member countries. During the 1980s and early 1990s the UK's
ODA/GNI ratio declined from 0.51 per cent in 1979. In 1997, the
Government White Paper "Eliminating World Poverty: A Challenge
for the 21st Century", committed the Government to reversing
this decline. It also confirmed the Government's commitment to
the 0.7 per cent target. Figure 1 shows the ODA/GNI ratio since
1997, including the provisional figure for 2001.
Figure 1: ODA/GNI figures for 1997 to
2001. (From Statistics on International Development 1996/97—2000/01
except 2001 figure)
| Year | ODA/GNI ratio
|
| 1997 | 0.26 |
| 1998 | 0.27 |
| 1999 | 0.24 |
| 2000 | 0.32 |
| 2001 (provisional) | 0.32
|
| |
14. The White Paper on "Eliminating World Poverty:
Making Globalisation Work for the Poor", published in 2000,
committed the Government to ensuring that the ODA/GNI ratio reached
0.33 per cent by 2003-04 and to making further progress towards
the 0.7 per cent UN target. The Government is committed to significantly
raising the amount of our development assistance, and its share
in national income, in the current spending round. The outcome
of this spending round will be announced later this year and will
cover the years up to 2005-06.
15. During the 1980s and early 1990s the average ODA/GNI
ratio for DAC donors fell steadily. Figure 2 shows the average
ODA/GNI ratio from 1976 to 2000. Since 1997 there has been some
sign that the decline in ODA has reversed or at least halted.
In 2000, a fall in ODA volume of 0.4 per cent over the previous
year combined with economic growth averaging 3.7 per cent across
DAC members pushed the DAC average ODA/GNI ratio down from 0.24
per cent to 0.22 per cent.
16. The ODA/GNI ratios of individual DAC members in 2000
are shown in Figure 3 along with weighted averages for all DAC
members and for European Union countries. Data for ODA/GNI ratio
and ODA volume of DAC donors from 1996 to 2000 are shown in Figure
4. In 2000, Luxembourg joined Denmark, Netherlands, Sweden and
Norway as countries which meet the UN 0.7 per cent target.
17. A number of countries have made commitments to increase
either their ODA volume or their ODA/GNI ratio. Most of these
were made during the run up to the Financing for Development conference.
The Swiss Government have committed to reaching an ODA/GNI ratio
of 0.4 per cent by 2010. The Norwegians have committed to reach
1.00 per cent by 2005. The following EU countries have made individual
public commitments to increase their ODA/GNI ratios:
| Belgium: | 0.7 per cent by 2010
|
| Finland: | 0.4 per cent by 2007
|
| France: | committed to keeping its ODA/GNI ratio above EU average
|
| Greece: | 0.33 per cent by 2006
|
| Ireland: | 0.45 per cent by 2002 and 0.7 per cent by 2007
|
| Italy: | 0.25 per cent by 2006
|
| Luxembourg: | 1.00 per cent by 2005
|
| Portugal: | 0.36 per cent by 2006
|
| Sweden: | 1.00 per cent by 2006
|
| |
18. The Japanese government has not made any commitments
to increase or maintain either its ODA/GNI ratio or its ODA volume.
The outlook on ODA in the 2001 DAC Development Co-operation Report
states that: "In the largest donor, Japan, ODA is expected
to fall as a result of overall efforts to reduce the budget deficit".
However, the Japanese government has given assurances that aid
to Africa will be protected. Denmark has also announced that it
will reduce from 1.00 per cent to 0.7 per cent.
Figure 4: ODA/GNI ratio and ODA volume for DAC donors
from 1996 to 2000
| | per cent GNI
| | | $ Million
| | |
| 1996 | 1997
| 1998 | 1999 |
2000 | 1996 | 1997
| 1998 | 1999 |
2000 | |
| Australia | 0.27 | 0.27
| 0.27 | 0.26 | 0.27
| 1 074 | 1 061 | 960
| 982 | 987 |
|
| Austria | 0.24 | 0.26
| 0.22 | 0.26 | 0.23
| 557 | 527 | 456
| 527 | 423 |
|
| Belgium | 0.34 | 0.31
| 0.35 | 0.30 | 0.36
| 913 | 764 | 883
| 760 | 820 |
|
| Canada | 0.32 | 0.34
| 0.30 | 0.28 | 0.25
| 1,795 | 2,045 | 1,707
| 1,706 | 1,744 |
|
| Denmark | 1.04 | 0.97
| 0.99 | 1.01 | 1.06
| 1,772 | 1,637 | 1,704
| 1,733 | 1,664 |
|
| Finland | 0.34 | 0.33
| 0.32 | 0.33 | 0.31
| 408 | 379 | 396
| 416 | 371 |
|
| France | 0.48 | 0.45
| 0.40 | 0.39 | 0.32
| 7,451 | 6,307 | 5,742
| 5,639 | 4,105 |
|
| Germany | 0.32 | 0.28
| 0.26 | 0.26 | 0.27
| 7,601 | 5,857 | 5,581
| 5,515 | 5,030 |
|
| Greece | 0.15 | 0.14
| 0.15 | 0.15 | 0.20
| 184 | 173 | 179
| 194 | 226 |
|
| Ireland | 0.31 | 0.31
| 0.30 | 0.31 | 0.30
| 179 | 187 | 199
| 245 | 235 |
|
| Italy | 0.20 | 0.11
| 0.20 | 0.15 | 0.13
| 2,416 | 1,266 | 2,278
| 1,806 | 1,376 |
|
| Japan | 0.20 | 0.21
| 0.27 | 0.34 | 0.28
| 9,439 | 9,358 | 10,640
| 15,323 | 13,508 |
|
| Luxembourg | 0.44 | 0.55
| 0.65 | 0.66 | 0.71
| 82 | 95 | 112
| 119 | 127 |
|
| Netherlands | 0.81 | 0.81
| 0.80 | 0.79 | 0.84
| 3,246 | 2,947 | 3,042
| 3,134 | 3,135 |
|
| New Zealand | 0.21 | 0.26
| 0.27 | 0.27 | 0.25
| 122 | 154 | 130
| 134 | 113 |
|
| Norway | 0.84 | 0.85
| 0.90 | 0.90 | 0.80
| 1,311 | 1,306 | 1,321
| 1,370 | 1,264 |
|
| Portugal | 0.21 | 0.25
| 0.24 | 0.26 | 0.26
| 218 | 250 | 259
| 276 | 271 |
|
| Spain | 0.22 | 0.24
| 0.24 | 0.23 | 0.22
| 1,251 | 1,234 | 1,376
| 1,363 | 1,195 |
|
| Sweden | 0.84 | 0.79
| 0.72 | 0.70 | 0.80
| 1,999 | 1,731 | 1,573
| 1,630 | 1,799 |
|
| Switzerland | 0.34 | 0.34
| 0.32 | 0.35 | 0.34
| 1 026 | 911 | 898
| 984 | 890 |
|
| United Kingdom | 0.27 | 0.26
| 0.27 | 0.24 | 0.32
| 3,199 | 3,433 | 3,864
| 3,426 | 4 501 |
|
| United States | 0.12 | 0.09
| 0.10 | 0.10 | 0.10
| 9,377 | 6,878 | 8,786
| 9,145 | 9,955 |
|
| TOTAL DAC | 0.25
| 0.22 | 0.23 |
0.24 | 0.22 | 55,622
| 48,497 | 52,084
| 56,428 | 53,737
| |
| EU Members | 0.37 | 0.33
| 0.33 | 0.32 | 0.32
| 31,476 | 26,785 | 27,641
| 26,784 | 25,277 |
|
| | |
| | | |
| | | |
|
19. The pledges for increased and more effective aid
from donors are very welcome, and we will continue to press for
them to be sustained and for further progress. The report prepared
for Financing for Development by Ernesto Zedillo concludes that
if we are to succeed in achieving the Millennium Development Goals—that
include halving the proportion of those living on less than a
dollar a day, reducing child mortality by two-thirds and building
a better future for children all over the world by ensuring that
every child has the chance to start and complete a primary education—there
will be required each year until 2015 an extra $50 billion a year
in aid. It requires unprecedented action by the developed world.
In his speeches in New York and Washington in November and December
last year, the Chancellor indicated how this might be achieved.
He proposed that we could move faster to increase flows to the
poorest countries by leveraging more money from the private sector.
If a broad package could generate additional resources—for
say 30 years or more—then this could be leveraged up by
borrowing from the markets provided this was supported by appropriate
guarantees/security. He suggested that in this way the international
community could meet the challenge of providing the additional
$50 billion a year that is required.
20. Existing levels of ODA could have much more impact
if they were spent more effectively. The World Bank's recent report
"Measuring IDA's effectiveness" estimated that IDA is
50 per cent more efficient in the task of poverty reduction than
the typical bilateral aid programme, because it is targeted on
countries with large numbers of poor people and with sound policies.
If all aid was targeted in the same way, this could have an equivalent
impact to an increase of up to 23 billion dollars in aid volume.
The World Bank has estimated that untied aid is up to 25 per cent
more effective in achieving poverty reduction than tied aid. If
all aid was untied, this could have an equivalent impact to an
increase of up to 5 billion dollars in aid volume.
HOW DESIRABLE
AND REALISTIC
ARE PROPOSALS
FOR "NOVEL
FORMS" OF
FINANCING DEVELOPMENT,
INCLUDING CURRENCY
TRANSACTIONS TAXES?
21. We recognise that we need to raise a very significant
amount of additional finance for development to achieve the Millennium
Development Goals. Therefore we believe that it is important that
the international community looks openly and carefully at all
proposals that might deliver such finance.
International Currency Tax (Tobin Tax)
22. The proponents of the Tobin tax argue that it would
promote financial stability by discouraging short-term speculative
capital flows, while at the same time generating potentially large
revenues—perhaps as much as £14 billion per year at
a tax rate of 0.01 per cent on the value of the transaction. There
are however potential difficulties with the introduction of a
Tobin tax. There are doubts over the extent—if any—to
which it may help prevent financial crises, and concerns that—by
reducing market liquidity and preventing economic adjustment—it
may actually make matters worse.
23. There is also considerable uncertainty over the ease
with which such a tax could be collected. There are concerns over
the scope for evasion, even if agreement on the imposition of
the tax was reached between the G7 states. However, recent developments
in technology, including the increasingly integrated foreign exchange
settlements system, have allayed some of these concerns. It remains
the case, however, that there is little support amongst national
governments for the introduction of such a tax, which will require
near-universal support in order for it to be implemented effectively.
SDR Allocations
24. The SDR is an international reserve asset used to
supplement members' existing reserve assets. The UK supports the
implementation of the proposed Fourth Amendment to the IMF Articles,
which would allocate SDRs on a one-off basis, to allow all members
to participate in the SDR system on an equitable basis. The proposal
requires an 85 per cent majority of the IMF voting power to complete
ratification, which in turn requires a positive vote by the US
Congress.
WHAT ARE
THE PROSPECTS
OF DEVELOPING
COUNTRIES DOMESTICALLY
GENERATING SUFFICIENT
FINANCE FOR
DEVELOPMENT? TO
WHAT EXTENT
WOULD THESE
PROSPECTS BE
INCREASED BY
COUNTRIES PRACTISING
GOOD GOVERNANCE
AND PROMOTING
THE RULE
OF LAW?
25. It is only likely to be possible for developing countries
to generate domestically a small share of the additional $50 billion
of funds required to meet the MDGs. The World Bank estimate that
if poorly performing countries raised their savings rates and
efficiency of investment to the average levels achieved in countries
with good policies, then this would reduce their funding requirements
by some $7 billion (from $22 billion to $15 billion).
26. Globalisation is changing the context in which governments
interact with private investors. Although foreign private investment
in developing countries has risen significantly over the last
couple of decades or so, much of this investment is concentrated
in a small number of large countries. Many of the poorest countries
including those in Sub Saharan Africa have not succeeded in attracting
significant amounts of foreign or local private savings and investment
sufficient to sustain high rates of economic growth.
27. DFID has identified seven key capabilities required
for modern effective states and the achievement of poverty reduction.
One of these is to "provide macroeconomic stability and to
facilitate investment and trade". Governments have a critical
role to play in creating the right enabling environment to promote
both local and foreign private sector investment.
28. Certain core functions of the state that affect the
business climate include operating predictably with a transparent
framework of laws and rules; maintaining a sound, non-distortionary
policy environment, including macro-economic stability; and guaranteeing
effective basic social services and infrastructure. Business surveys
undertaken to identify the constraints to private sector investment
have shown that where the Government lacks credibility in its
core functions, private investment, both local and foreign, lags
behind that of other countries.
29. These surveys indicate that these conditions have
often not been provided in poorer countries in the past. In particular,
where crime is rife, or where there are unpredictable changes
in laws and policies, insecurity of property, unreliable judiciary
or unstable governments, and where businessmen are required to
conduct regular and protracted negotiations with public officials
to run their businesses, this provides a major disincentive to
the private sector to invest. Business surveys show that corruption
is a major deterrent to private investment. Surveys also highlight
that overly complex or inappropriate systems of regulations, high
taxes, poor public infrastructure and misguided public investment
policies are also a significant deterrent to private savings and
investment.
30. Different factors may bear on domestic and foreign
investment in different country contexts, such as middle income
countries, poor countries and countries in conflict. More needs
to be done by donors and others to understand the political constraints
to reforms to promote local and foreign investment. Building up
the key public institutions to support market based development
and creating a stable, predictable, sound policy environment is
crucial. Governments and donors can learn lessons from what has
worked and what has failed.
31. Governments need to embark on a clear comprehensive
agenda to build up the capability of the State to improve the
enabling environment for private sector investment. This includes:
— Making Government itself bound by effective rules
and restraints and subject to more transparent and accountable
checks and balances to include: rooting out corruption, cutting
back on the discretionary power of public officials, making public
spending and investment policies more effective, and making Governments
more open and responsive to the needs of the private sector.
— Implementing and enforcing a sound legal framework
which provides adequate protection and support to the private
sector including the ability to enforce contracts, resist arbitrary
seizure of assets and to seek redress against unlawful practices.
— Reforming State Owned Enterprises particularly
those that supply key goods and services to the private sector
critical for its success such as power, transport, and other supporting
infrastructure.
— Creating the right regulatory environment for
the private sector which strikes a balance between creating competitive
incentives for private investment and the need to spread the benefits
of growth equitably.
— Investing in people through effective education,
training and health programmes to enhance the productivity of
the local labour force.
32. Developing country governments are likely to require
a significant amount of support from donors and others to successfully
implement policies and programmes to improve the enabling environment
for private investment.
Department for International Development and HM Treasury
April 2002
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