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Holistic development a casualty in Doha Review Conference on Financing for Development (December 2008)

Rethinking Bretton Woods | Fri, Dec 12, 2008

By Aldo Caliari

Holistic development a casualty in Doha Review Conference on Financing for Development  

As anticipated, from November 29 through December 2, the Review Conference on Financing for Development was held in Doha, Qatar.  There is no question that the greatest achievement in Doha was the agreement – in question up to the last minute—that the UN will convene a summit level meeting on the world financial and economic crisis and its impact on development next year.

 

Other than this, admittedly procedural, achievement, those who expected the Doha Review, after almost seven years after Monterrey, to move forward on the content of an agenda to promote an integrated and holistic approach to the different sources of finance for development are right to be disappointed. 

 

Even the recognition that the chapter on systemic issues was the one where least progress had been made since the Monterrey Consensus, was dropped in the final document (it was there in previous drafts). In spite of its professed goal to improve the consistency of the monetary, financial and trading systems in support of development, there is almost no mention of trade issues in this chapter. There is merely a general reaffirmation of the Monterrey consensus call for “strengthened coordination of the United Nations system and all other multilateral financial , trade and development institutions to support economic growth, poverty eradication and sustainable development worldwide.”

 

This is highly problematic since emerging trends show that the way trade is organized, at national and global levels, has been the main channel for the generation and amplification of financial instability, particularly for developing countries. 

 

Very important in this regard was to assess the Monterrey Consensus commitment in paragraph 54, that addressed the need for greater coordination of macroeconomic policies among leading industrial countries so as to reduce exchange rate volatility. With fluctuations of over 30 % of the values of major currencies in the period of just two months preceding the conference, and the distortive effects they had on trade everywhere, one would have expected some attention paid to the issue. But no mention whatsoever is made of the problem, much less of proposed solutions. Accordingly, the role that regional monetary cooperation could play in this regard is not addressed, either. There was, though, a recognition that “regional cooperation frameworks, such as financial and monetary arrangements” can be instrumental in fostering development and financial stability among their members.

 

Understandably in the light of the world situation, the chapter focuses a lot of attention on the turmoil in international financial markets. For instance, it talks of stable international financial markets and the “sound macroeconomic policies” they require, as well as the need to “strengthen regulatory and supervisory frameworks of financial markets. ” However, the potential that existing and ongoing negotiations on liberalization of financial services may play in disabling the capacity of countries to actually implement such sound macroeconomic policies or supervision and regulatory efforts, is simply ignored.

 

There is also a call on the Bretton Woods Institutions to “continue, within their respective mandates, to help developing countries to deal with the adverse effects of exogenous shocks, such as large fluctuations in the prices of key commodities, for example, through the reformed IMF Exogenous Shocks Facility.”  A more systemic reform of the existing mechanisms to deal with trade shocks within those institutions and, in the light of their deficiencies and the evolution of the trading system, replace or supplement them with other mechanisms outside those institutions, did not merit any attention.

The conference on the world financial and economic crisis and its impact on development called for next year, if it is to stay faithful to the examination of impacts of the crisis on development, should be urged to give central prominence to these problems.   

 

In the final day of negotiations, the chapter on Trade was the one with the greatest number of unresolved paragraphs. Particularly controversial for developed countries was language saying that “to generate the kind of economic growth , development and poverty eradication… a major reform of the international trading system is required.” This language was finally dropped. In its final shape, the chapter calls, predictably, for a conclusion of the Doha Round under the World Trade Organization (WTO). It does, however, mention that success should not only be defined by export expansion in developing countries –this could well mean no increase, or even a decrease, of income for the exporting country. Rather, a “successful” conclusion would “reinforce the potential for trade to play its due role as the engine of growth and development, and provide increased opportunities for developing countries to use trade to support development.”

 

The need to improve the operation of the multilateral trading system to better respond to the needs and interests of all developing countries, at a time that “the systemic impact of the financial crisis is affecting us all,” is also mentioned.

 

The Doha document recognizes that “the optimum pace and sequence of trade liberalization depends on the specific circumstances of each country, and hat each country will make this decision based on its own evaluation of the costs and benefits.” This is a refreshing addition that stands in contrast to the Monterrey Consensus’ outstanding promotion of trade liberalization and bears important implications for the ongoing multilateral trade talks.

 

Likewise, the  assertion that “trade liberalization must be complemented by . . . the expansion of productive capacities, the development of human resources and basic infrastructure, the absorption of technology and the implementation of adequate social safety nets” should be welcome.  An important achievement, that came not without a struggle, was the recognition that these complements are not a matter of concern only for “action and strategies” at the national level, but also will depend “to a significant extent” on international support for such measures.

 Aid for Trade is also referred to, though certainly not in any critical way. For example, it could have been mentioned that Aid for Trade is going down in real terms, in spite of commitments to the contrary. The document contains a commitment to reinforce efforts to provide technical assistance to least developed countries that request it in order to enable them to participate more effectively in the multilateral trading system, including through the effective operation of the Enhanced Integrated Framework for Trade-related Technical Assistance to Least Developed Countries. It also states “The commitments by individual donors relating to Aid for Trade should be fully implemented in a timely manner” and that Aid for Trade needs and priorities of recipient countries should be fully integrated and reflected in their national development strategies.”  An important development is the call for “United Nations specialized agencies that have a relevant mandate in this field” to help developing countries build their trade-related productive capacities. The endorsement of the work of agencies whose mandate is more related to the building of productive capacity than to the specific endorsement of trade rules and negotiations that have been agreed or are under development, was heavily fought, and is to be welcome. It helps prevent, in particular, that Aid for Trade becomes operationally or intellectually monopolized by the Bretton Woods Institutions. However, this mandate will mean little if donors do not appropriately factor it in the way they allocate their Aid for Trade contributions to multilateral institutions.   

In the chapter on domestic resources, it is important to rescue the concept of policy space which, while not present in the Monterrey Consensus, had been adopted for the first time by a North-South conference at UNCTAD XI, in Sao Paulo (Brazil), in 2004. Consistent with the relevance of the concept to all themes of the Monterrey Consensus developing countries wanted to place it in the introductory portion of the document. It also had been proposed by them specifically in the trade chapter. Both efforts were successfully opposed by the developed countries but, nonetheless, the significance of having it at all cannot be denied. Especially as the language from Sao Paulo—repeated word by word in  Doha--   does explicitly refer to “trade, investment and industrial development.” With many countries trying to improve the impact of trade on public revenue from trade, the lack of concrete commitments in this area is disheartening. But there are references to efforts to broaden the tax base and combat tax evasion, as well as the commitment to consider strengthening institutional arrangements for tax cooperation which would be important to monitor closely.

 

The chapter on investment fails to incorporate lessons learned since Monterrey, and a “more is better”, acritical approach on the role of foreign investment and public-private partnerships, as well as the “one-size-fits—all” approach to reform of investment climates, seems to have prevailed. There are numerous  textual repetitions of Monterrey Consensus that put in evidence that no attempt was made to evaluate how such policies have actually worked. But an important commitment was achieved to “strengthen national and international efforts aimed at maximizing linkages with domestic production activities, enhancing the transfer of technology and creating training opportunities for the local labour force, including women and young people.” Of course, efforts to strengthen these linkages enter into direct contradiction with existing rules on investment at multilateral, regional and bilateral levels, which should lead to their reexamination. Also of importance, against the context of this chapter, is the important reaffirmation that “every State has, and shall freely exercise full permanent sovereignty over, all its wealth, natural resources and economic activity.” Since most developing countries continue to be highly dependent on natural resources and their exports, the opening to reconsider how the wealth from trading on those resources is captured at national level, and what this means for trading and investment rules and commitments, is to be welcome.

 

In the chapter on debt, it deserves mention the agreement that “fundamental changes in debt scenarios, in the face of large exogenous shocks, including those caused by … severe terms-of-trade shocks… “ will be taken into account in the review of debt sustainability frameworks. The Monterrey Consensus contained a similar commitment but only in narrower reference to “Debt sustainability analysis at the completion point.”

 

The document also states that “enhanced market access to goods and services of export interest to debtor countries is an important factor in enhancing debt sustainability.” This is a rather unfortunate statement as, for instance, debtor countries could get a lot of market access in products of export interest but low value added, or products that they are in no position to produce. Market access is, thus, of only illusory help for improving current account balances in debtor countries. Moreover, projections and empirical evidence in the context of the WTO show that increases in market access across the board, by placing countries with very differing capacities in competition with each other for the same markets, tend to benefit some developing countries with the endowments and economies of scale to outcompete others, while the rest are detrimentally affected. The key problem for avoiding cycles of re-indebtedness are terms of trade, and this is the key concept that should have been related to debt sustainability. Nevertheless, the statement challenges an entrenched tendency to consider debt problems in isolation of trade dynamics and, in that sense, it can be considered a step forward.

 Finally, the chapter on follow up is very disappointing. As stated in a position paper endorsed by more than 55 organizations and networks over the summer, “a critical matter from the perspective of developing a holistic approach to the different sources of development cannot be done on a static basis, but requires a commitment to continued and regular dialogue across a large range of development actors.”  

The Doha outcome postpones discussion on follow-up to the ECOSOC meeting in the Spring and the General Assembly’s next session (starting September 2009).  One could be excused for thinking that there is no real urgency to try to improve what proved to be a very weak and ineffective process for follow up since Monterrey. However, the document lays some good parameters for that discussion with the acknowledgement that “a strengthened and more effective intergovernmental structures” for follow up is needed.  Also, in line with the civil society demands mentioned above, it says “It is important that the follow-up process be undertaken in an integrated fashion, including through the continued engagement of all relevant ministries, in particular ministries of development, finance, trade and foreign affairs.”

  If the implementation actually helps break the “silo” approach that has conceptually characterized the follow up since the Monterrey Summit, its full potential may be finally unleashed. To judge by the urgency and tone of the overall commitments achieved this time, however, there does not seem to be a whole lot of interest in unleashing it.