Select Committee on International Development Fifth Report


The United Nations Conference on Financing for Development: From preparations   to outcomes

  1. We welcome the improved coordination between the various international organisations and feel that such efforts are crucial if there is to be policy coherence as regards international development. The appropriate response to greater coordination between the International Financial Institutions and the more democratic United Nations is to strengthen the voice of developing countries in all fora, rather than to decry such coordination (paragraph 8).
  2. We commend the Government on its active role during the Financing for Development process, and trust that it will endeavour to inject international discussions and actions to meet the Millennium Development Goals (MDGs) with a sense of urgency (paragraph 11).
  3. We share some of the disappointment which critics of the conference have voiced, but are keen to maintain the momentum gained at Monterrey rather than dwell on what might have been (paragraph 13).
  4. We warmly welcome the aid increases announced by the EU and the USA. But, the success of the summit must ultimately be assessed in terms of its contribution to meeting the MDG targets. As such, it is too early to judge the summit's success. Thus far, little has been achieved and nothing has been implemented. If the Monterrey Summit is to be seen as a turning point rather than a talking shop, the international community must implement quickly the agreements reached, and use them as a starting point for a concerted international effort to eliminate poverty (paragraph 15).

    Resource flows: The big picture

  6. Financing for development must be considered in the round; the focus should not be solely on aid. Non-aid flows of resources are crucial for developing countries' prospects of meeting the MDG targets (paragraph 25).
  7. If developing countries are to escape poverty they must take responsibility for their own development. Developing countries will need to establish policy environments, and local banking and financial systems, to both retain and mobilise domestic resources, and to attract and retain international resources (paragraph 20).
  8. Developing countries must show that they are taking strong measures to tackle corruption and money laundering so that countries' resources benefit all the people rather than corrupt elites. Developed countries must rigorously enforce their own anti-corruption laws and insist that financial transactions by firms with developing countries are open and transparent (paragraph 21).
  9. The current situation in which Northern governments advocate trade liberalisation whilst themselves engaging in agricultural protectionism is a disgrace, and puts at risk not only the Doha trade round, but also the MDGs. The developed countries must act now to eliminate agricultural subsidies and to enable developing countries to sell their products in Northern markets. We urge the Government to do its utmost to bring such changes about. We will be monitoring progress very closely (paragraph 26).
  10. We remain supportive of the Heavily Indebted Poor Countries (HIPC) process, but recognise that there are serious problems which require addressing, particularly as regards the speed of the process, the linking of debt relief to development needs, and the likelihood of countries exiting HIPC with sustainable debt burdens. The HIPC process must also be flexible enough to cope with the diversity of circumstances which developing countries face, including those which are emerging from conflict (paragraph 33).
  11. Debt relief must provide additional real resources, and must never be provided at the expense of other official development assistance (ODA) flows (paragraph 36).
  12. There are various flows of financial resources, any of which might be tapped by developing countries, but only aid can be truly focussed on poverty reduction. We are glad that DFID, the Treasury and the Government are so supportive of aid, and encourage them to continue to push the case for aid in both domestic and international fora (paragraph 38).

    Innovative sources of finance for development

  14. We share with many advocates of currency transactions taxes (CTTs) the view that exchange rate volatility contributes to poverty and hinders development, and we too wish to see more financial resources available for development. Many taxes—taxes on smoking, motoring, pollution—have two apparently contradictory purposes. This is not a significant criticism of CTTs, but the question remains as to whether a CTT is the best way, either of reducing speculation or of raising revenue. If we are to be persuaded fully, further investigation into issues of feasibility and practicality will be needed (paragraph 46).
  15. In our view it is imperative that generating the political will to finance development remains the central focus, and that the choice of methods by which to collect funds remains a secondary consideration (paragraph 46).
  16. We are supportive of the Government's position on special drawing rights (SDRs). If the fourth amendment were ratified it would provide a welcome one-off increase in global liquidity, and might provide some resources for development. We encourage the Government to continue to press this case (paragraph 51).
  17. We recognise the problems associated with proposals to use SDRs to finance development, but consider that there might be a limited role for SDRs, perhaps as part of an International Development Trust Fund (paragraph 51).
  18. There is a funding gap which can only be filled by substantial North-South resource transfers. Such resource transfers will only be possible if sympathetic Northern governments show real political leadership, both in persuading other countries, and in securing domestic public support for the necessary resource transfers (paragraph 55).
  19. Official development assistance: Volumes

  20. If the MDG targets are to be met, there must be a massive increase in aid flows to developing countries. Making aid more effective is crucial too, but there is universal agreement that aid volumes will have to increase substantially (paragraph 56).
  21. As far as the UK is concerned, recent years have seen welcome increases in aid contributions, from US$3.2 billion in 1997 to US$4.5 billion in 2000, raising the UK's contribution from 0.26 to 0.32 percent of Gross National Income (GNI), and bringing the UK level with France in these terms. In the recent spending review, the Chancellor announced that UK aid will rise to 0.4 percent of GNI by 2006. This increase, whilst leaving the UK well short of its 0.7 percent commitment, will lift it well above the current OECD/DAC average of 0.22 percent, enable it to meet and exceed the EU target of 0.39 percent by 2006, and reinforce the UK's position as the most generous G7 donor in ODA/GNI terms (paragraph 59).
  22. We recommend that the Government follow the example of Belgium and Ireland in setting a date—a date which is sufficiently in advance of the 2015 MDGs' deadline—for reaching 0.7 percent, and a timetable for hitting that target (paragraph 62).

    Official development assistance: Effectiveness

  24. The estimated poverty-reduction productivity of ODA nearly tripled during the 1990s (paragraph 63).
  25. We believe strongly that there need not be a tension between aid volume and aid effectiveness, and that improvements in aid effectiveness are essential if increases in aid volume are to be generated. As such, we are firmly of the view that donors and recipients of aid must work together to improve the effectiveness of aid. (paragraph 64).
  26. The good recipient

  27. Developing countries—their governments, but also civil society, business and the media—have the primary responsibility for ensuring that aid is used effectively. The ineffective use of aid or the diversion of aid into the pockets of elites pushes the poor deeper into poverty and robs them of the assistance provided to them. (paragraph 65).
  28. The pre-requisite for poverty reduction and the effective use of aid is the commitment of the recipient government to poverty reduction (paragraph 66).
  29. The good donor

  30. We recommend that DFID, considers adopting a target for its aid allocation to basic social services, encourages its fellow DAC members to increase their allocations in line with the 20/20 Initiative, and, continues to encourage the recipients of its aid to prioritise spending on universal access to basic social services. (paragraph 67).
  31. We applaud the Government's actions in untying UK aid, and encourage the Government to continue its efforts to persuade its more recalcitrant European partners to untie their aid too (paragraph 69).
  32. Ideally, and subject to an assessment of the risks involved and the requirement of accountability, aid is best provided through direct budget support. (paragraph 70).
  33. The choice of aid instruments—as well as the allocation of aid and the selection of development interventions in general—must take account of country specifics rather than follow a preset formula (paragraph 70).
  34. Aid as investment

  35. Aid should be conceptualised as investment. However, careful attention does need to be paid: first, to the allocation criteria which drive aid/investment decisions; second, to the implications for countries which are seen as offering low rates of return; and, third, to the nature of the conditions which investors might attach to aid flows (paragraph 71).
  36. It would be helpful if DFID made explicit its underlying model of the ways in which aid is effective and its aid allocation criteria, and encouraged other donors to do the same. Such transparency is fundamental to any notion of a shared and jointly-owned development partnership, and would provide developing countries with the information necessary to—if they so wish—improve their performance in terms of the criteria (paragraph 75).
  37. Aid resources must not be squandered in countries which lack the commitment to development and poverty reduction. In addition, aid must not be used to prop up governments that are not furthering the interests of their people. This must not mean that we forget such countries, or, more specifically, the millions of poor people who live in such countries. Rather, the nature of donor engagement with such countries—countries which the World Bank labels Low-Income Countries Under Stress or LICUS—ought to be different (paragraph 76).
  38. Donors have a right and a responsibility to ensure that aid is used effectively, that recipient countries are committed to poverty reduction, and that appropriate policies are in place. However, we recognise that the external imposition of conditions can undermine local ownership and accountability. Conditionality, in some form, is sure to continue, but it needs to be practised flexibly so that countries are treated on a case-by-case basis, rather than in a one-size-fits-all manner, and so that local ownership and accountability are not undermined (paragraph 79).

    Development partnerships and burden-sharing

  40. Attaining the MDG targets will require a change in the relationship between donors and recipients, and the construction of development partnerships which allow for sufficient ownership at the local level, including in the production and implementation of Poverty Reduction Strategy Papers (paragraph 81).
  41. Partnerships are not a panacea for international development, but they do offer a way forward. The Committee is keen to play its role in the construction of a global partnership for development. Indeed we believe that parliaments and parliamentarians—in the developed world, the developing world, and in collaboration with each other—have important roles to play in helping to ensure that development partners live up to their promises, and that global partnerships are translated into national and local legislation and local action. We urge DFID, along with networks such the Commonwealth Parliamentary Association, the Inter-Parliamentary Union, and the Parliamentary Network on the World Bank to help build the capacity of developing countries' parliaments to play their role in scrutinising decision-making and spending on their side of the emerging global development partnership (paragraph 92).
  42. Persuading the USA to engage seriously with international development issues, to support rather than undermine an emerging multilateralism, and to share the burden of financing development, remains a challenge (paragraph 94).
  43. We recognise the importance of engaging with the USA, as regards the Millennium Challenge Accounts, and in relation to its development-related activities in general (paragraph 99).
  44. DFID should seek to influence the establishment of the USA's Millennium Challenge Accounts to ensure that they are informed by up to date development thinking, focussed on poverty reduction, and do not neglect poor and poorly-governed countries, for instance in sub-Saharan Africa (paragraph 99).


  46. The case for aid is powerful. It is our strong belief that the Government could and should make the case for aid and international development even more strongly than it currently does, in international fora, to our EU partners, and to the electorate (paragraph 102).


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Prepared 24 July 2002