Rethinking Bretton Woods | Fri, Aug 29, 2008
Financing for Development Review Gathering Steam
With the release of the 13-page negotiating draft outcome document (DOD) last July the preparatory process leading up to the Financing for Development Review Conference, to be held in Doha at the end of this year, enters into a new phase. The draft has been written by the two co-facilitators of the process, Ambassadors of Norway and Egypt to the UN. The main inputs that went into its drafting were a series of informal General Assembly Review Sessions held in the first semester of this year, as well as the numerous inputs provided by civil society and the private sector ( including through formal hearings with them), and regional meetings organized by the regional economic commissions of the UN. The Center of Concern has continued to play a critical role in developing, facilitating and delivering civil society inputs and advocacy events—sometimes in the fringes of the Informal Consultations--, as well as giving advice to governments and intergovernmental stakeholders.
Below are the main highlights of the draft outcome document.
Domestic resources: In a positive note, the DOD contains a commitment to broadening of the tax base and combating of tax evasion. More importantly, it recognizes that individual country efforts in this regard are bound to be of limited impact unless international cooperation in tax matters is enhanced. But somewhat in conflict with this assertion is the feeble “we will consider strengthening” the UN Committee of Experts on International Cooperation on Tax Matters. More specific mechanisms to increase and broaden the tax base that have been identified by experts do not receive mention, such as country-by-country reporting by transnational corporations, policies to harness the revenue from the exploitation of natural resources , and the need to prevent the loss of fiscal resources caused by increasing trade and investment liberalization.
Investment: In a welcome reception of the evidence gathered by numerous studies on foreign investment, the DOD emphasizes the need for it to maximize linkages with domestic production activities, transfer of technology and training of local labor force. However, its statement that “providing an enabling business environment is fundamental to fostering domestic and foreign private investment” is rather confusing. If anything, the proliferation of disparate business rankings and indicators, and their erratic correlation with actual business interest, only proves the rather elusive nature of the notion of “a” enabling business environment.
Trade: The chapter contains some rhetorical acknowledgements of the importance of policy space, and the need to pace and sequence liberalization according to the circumstances of each country. Yet, the full chapter comes across as a lost opportunity. The DOD comes out right after the last in a long series of unsuccessful attempts to bring back on track the WTO negotiations to conclude the Doha Round of multilateral trade negotiations. Developing countries consider a largely unfavorable bias against their interest remains in the framework for such negotiations. The Financing for Development process, as a process with a mandate not to promote trade liberalization, but to address the elements that could enable trade to raise revenue for development, is well-placed to assume the responsibility of examining the questions that the WTO talks have proved repeatedly incapable of addressing. Many of these questions, indeed, exceed what WTO negotiations-- focused only on market access-- can achieve. And, yet, the DOD has FFD abdicate of this responsibility and simply restate the need for a “successful, early and truly development-oriented conclusion of the Doha Round.” This language, acceptable seven years ago, is rather absurd in the light of the events that took place since the Monterrey Consensus issued its hopeful call on members to implement the outcomes of such negotiations.
Aid: The DOD states the justified concern with the decline in ODA levels of the last two years, and that such decline would have been worse if debt relief was not being counted as ODA, something that goes against the Monterrey Consensus commitment to make debt relief additional. However, this uncontrovertible shortfall calls for an added sense of urgency and concreteness regarding “innovative sources of finance, ” as opposed to a certain sense of complacency, and lack of ambition that can be appreciated in the DOD.
Debt: In the light of the hype about the “success” of the debt cancellation initiatives that are under implementation, the sobering statement that “debt service in a considerable number of low and middle-income countries is still too high” is to be welcomed. However, no link seems to be established between what is “too high” and what is the “considerable number” of countries being looked at, and the financing needs of countries to fulfill the MDGs, as called by the Monterrey Consensus. In fact, the DOD presents the World Bank/ IMF framework for establishing debt sustainability, responsible for an understatement of debt relief needs, as a contributor, rather than a hindrance, to improved debt indicators.
The DOD reaffirms the principle of joint responsibility of debtors and creditors in debt resolution. More importantly, it states the need for making this and other principles the underpinning of “international financial mechanisms for debt crises prevention and resolution.” But there are reasons for concern when the DOD identifies only the BWIs as providers of the “technical support” to “new ad hoc forums” that would chart the way forward on these mechanisms. Moreover, given experience before and after Monterrey, the DOD should go farther in clarifying what these mechanisms should look like and the process to put them in place, in a way that does not contradict the principles such forums are expected to uphold. At a minimum, it should unambiguously recognize that the current ad hoc, donor-driven mechanisms in place, do not meet such principles.
Glaringly missing among the principles are the critical role that the MDGs should play in such mechanisms and the notion of “odious and illegitimate debts.” As for this latter, in fact, it is shocking the omission to even mention the significant legal and political developments that have shaped this aspect of donor-creditor co-responsibility since Monterrey.
Systemic Issues: Despite the general recognition that “progress in addressing systemic issues since Monterrey has been limited,” the DOD language in this chapter fails to set the basis for making better than that in the years to come.
The wishful affirmation that the Bretton Woods Institutions “should be the key pillars of a strengthened international financial architecture” is out of line with the latest developments both inside and outside of such institutions, and the views taken by many of their powerful and not-so-powerful shareholders.
Acknowledging that the recent changes in IMF governance are merely “a step in the right direction”, do not prevent the DOD from calling for the World Bank to take “similar steps.” More reasons to worry offers its call for such steps to be taken also in “other entities such as the FSF and the Basel Committee,” bodies that, in light of their very different history and mandates, cannot be put in the same bag with the Bank and IMF.
The need to have a “major international conference to review the international financial and monetary architecture and global economic governance structures” is asserted in this section, but regrettably is not reinforced with more than a vague mention. But since the Monterrey Consensus was the start of a process to achieve exactly this goal seven years ago, one would have expected the Doha Review, as the first major conference since then, to be used to further flesh out some reforms, rather than kick the ball forward yet again. Indeed, there is a sense that the sort of reforms that the system requires exceed what can be achieved and agreed in the relatively short time left until the Doha event. But how will this “major international conference” fit in the proposals for a strengthened follow-up to Monterrey, of which it should arguably be part? The request that the International Monetary and Financial Committee include “this item in the agenda of its next meetings” and “make appropriate recommendations”, as if this was the proper body to map and jumpstart such discussion, seems come from some place in time several years before the Monterrey Summit was held. The proposal for a “major international conference” should be, deserves clear support, but clearly embedded in a strengthened follow up process.
In turn, the last section of the DOD disappointingly leaves the matter of a strengthened follow up process to be decided by ECOSOC in 2009. This proposal deserves the strongest opposition. Not only the lack of definition on how to strengthen the follow up signals lack of political will to move forward on the dialogue started at Monterrey. Its most dangerous aspect is that it prejudges and limits the nature of the follow up process to be agreed. Just like the Monterrey Summit, and the Doha Review, decisions on the follow up process are not a matter that concerns the UN alone, through one of its organs. They concern all stakeholders at the highest level and deserve, therefore, the support of all stakeholders at the highest level. The goals of ensuring coherence and consistency beyond the UN, essential to the Monterrey Consensus, run otherwise the risk of being defeated.
In the overall assessment, as a document that is not the final product, but only intends to serve as basis for negotiations and put the main issues on the table, there are reasons to be positive about the DOD. However, the one reason to be concerned is that, history shows, draft outcome documents usually get worse, rarely better, as they go through negotiations. The onus is now on both developing and developed country governments that will be negotiating in the next three months, to live up to the responsibility that the current times have placed upon them by sharpening the definitions of issues and proposals that are in, as well as add those that were left out. The current juncture characterized by climate change, the increase in food and oil prices and the credit crunch, is bound to increase, not diminish, the challenges. Doha offers a rare opportunity for seriously moving forward an equitable and effective agenda for financing development in the next few years. It should not be wasted.
For continued updates on the FFD Conference please stay tuned through the Rethinking Bretton Woods Project’s listserv (signup information available at www.coc.org/projects/rbw)
For the Draft Outcome Document, please click here.
For "Trade-Finance Linkages as a Cross-Cutting Issue in the Doha FFD Review", a submission signed by more than 50 civil society organizations and networks, please click here.