The changing face of global development finance

Choike.org

The Financing for Development (FfD) process, led by the United Nations (UN), was launched within the context of the Asian crisis in the 1990s. In 1997-1998, the UN General Assembly agreed to convene an International Conference on Financing for Development which was finally held in March 2002 in Monterrey, Mexico.

The Conference was characterised by the active participation of the World Bank (WB), the International Monetary Fund (IMF) and the World Trade Organisation (WTO). The United Nations Conference on Trade and Development (UNCTD), the United Nations Development Programme (UNDP), the five regional commissions and other bodies within the UN system, as well as representatives of civil society and the private sector also participated in the Conference and its preparatory process.

Monterrey encompassed a significant variety of financing for development-related issues that are of concern to civil society, such as debt relief and financial crises, the Official Development Assistance (ODA), foreign direct investment and the relationship between international trade and development. It also included systemic issues such as the governance of international financial institutions and the representation and relative power enjoyed by developing countries in those institutions.

The Conference was carried out on the basis of a clear aim: to halve world poverty by 2015, as set forth in the Millennium Development Goals (MDGs) approved in the Millennium Summit (September 2000). The then UN Secretary-General, Kofi Annan, said that without progress in the area of financial resources towards poor countries, the goals universally agreed to by the 147 Heads of State and 191 nations taking part in that Summit were in jeopardy.

The formal outcome of the Conference was the “Monterrey Consensus”, implicitly supported by the fifty Heads of State that participated in the event. Developing countries committed themselves to introduce sound economic and social policies, improve governance, eradicate corruption and create a domestic regulatory environment aimed at the development of the private business sector. On the other hand, industrialised countries pledged to take measures to provide the financial resources that might be required, in addition to the mobilisation of domestic resources in developing countries, to meet the MDGs. These measures included a pledge to strive to provide official development assistance equal to at least 0.7% of each developed country’s gross domestic product, to improve market access for developing country exports, to complete the development dimension of the Doha round of the WTO, to provide debt relief in order to prevent debt service from becoming an obstacle to development, to facilitate the impact of foreign direct investment on development through greater technology transfer, and to improve the international financial architecture in order to predict and prevent financial crises.

Multilateral development agencies, for their part, celebrated the end of “aid fatigue” and welcomed the announcement made by the European Union and the United States regarding the increase of their development cooperation budgets. However, in spite of the increase in ODA, it still falls far short of the amount required to achieve the MDGs.

Weaknesses, limitations and opportunities

Civil society organisations gathered at the Global Social Forum – parallel to the Monterrey Conference – with the participation of thousands of representatives, criticised the outcome of the Conference, claiming it endorsed “neo-liberal” economic policies and made no progress in “systemic issues”. Although it was acknowledged that the Conference represented an unprecedented effort to build a consensus among multiple stakeholders, it was also stated that the Monterrey Consensus was not a finished product but rather a point of departure. And that the credibility of the follow-up process would depend on its ability to overcome the rhetoric of the Consensus with specific proposals that would make the availability of development resources effective.

According to John Foster, researcher at the North-South Institute in Canada, who has followed the UN’s FfD process since 2000, this process “has obvious weaknesses and limitations. However it offers opportunities for engagement which are not present elsewhere, particularly for those who are concerned with governance, democracy and transparency, with how the different parts of the system work either for or against development. It can also be a forum in which new proposals are put forward and support built.”

A major weakness of the Monterrey Consensus is that it has a very weak follow-up mechanism, due largely to the extreme reluctance of some large developed countries to give a high profile to finance work at the UN. The follow-up currently comprises a one annual dialogue session between UN members and the secretariat heads of the IMF, World Bank and WTO; and a three-day High-level Dialogue on FfD every two years.

A new world conference on FfD is scheduled to take place from 29 November to 2 December 2008 in Doha (Qatar), aiming at reviewing the implementation of Monterrey’s decisions and determining the new initiatives that would be necessary to meet the increasingly compromised MDGs. Since 2002, an outstanding change has been noticed in terms of the discourse on FfD and the international architecture of development cooperation. For instance, the Paris Ministerial Conference on Innovative Development Financing Mechanisms – convened by French President Jacques Chirac in February 2006 – saw progress on issues such as ODA, the levies on international transactions and air tickets, and the search for additional funds for health care and, specifically, the struggle against HIV/AIDS.

The political challenge faced by governments lies in achieving specific agreements at the Doha Conference well beyond the minimum Monterrey Consensus.