Financing for Development PrepCom
Thursday, 17 January 2002
Morning Session 10:00 – 1:00 pm

After two general presentations not relating directly to the facilitator’s draft document, this session covered part or all of three different chapters of the text – ODA (paragraphs 37-40), Debt (entire chapter), and Systemic Issues (paragraphs 46-49).

General Comments by the Deputy Foreign Minister of Georgia:
Georgia places great importance to FfD. Sustainable development is key to poverty eradication. Developing countries and countries in transition see trade, free access to markets, and the elimination of external debt as key to poverty eradication. External debt is of special concern – debt servicing is higher than the debt itself and we need to collectively find a durable solution to this issue. Georgia’s debt service is now 25% of its total revenue so this severely limits country’s ability to pay for social reform (pensions, etc.). Debt reduction is not just for crisis resolution, but needs to build greater stability. Countries must create an enabling environment for savings and investment in order to mobilize both domestic and foreign resources. IFIs are an essential part of the international development structure and they must contribute to social and sustainable development by focusing more on poverty eradication, strengthening international cooperation, and safeguarding developing countries from instability. UNDP’s role should be increased and countries must strengthen their local capacity for national development policies. He underscored the role of the UN in promoting both security and financial development and stressed that stability and prosperity are linked.

General Comments by the Executive Secretary of the Economic Commission for ECLAC:
Presented conclusions of the interregional meeting on FfD, held in Mexico on 14-15 January. Domestic resources are the main source of financing for development, and they should be a combination of public and private sources. The banking sector is key for mobilizing domestic resources, but the sector is weak in many regions. The private sector needs to be involved in guarantee funds and other entities designed to reduce credit risk. Regional development banks are critical for long-term capital.

FDI is important but spillover benefits to local firms is not automatic so local linkage programs are needed. Also, FDI policies must be consistent with national development strategies and governments should avoid incentive-based competition for FDI.

Debt sustainability analysis should  be based on the resources required to achieve the UN Millennium Declaration targets. Debt relief should be used for poverty eradication and should not detract from ODA. The eligibility criteria for the HIPC Initiative should be more flexible. Debt workout procedures that address the interests of both the creditors and debtors is needed, especially since debt effects many middle-income countries as well. ECLAC would welcome an international institution set up to assist in arranging workouts. In cases of external crises, debt workouts should be in addition to emergency financing – not in place of it. IFIs should establish multilateral rules and collective action clauses.

The amount ODA should be increased to the agreed 0.7% goal and ODA flows should be predictable and stable. Coordination between aid agencies should be improved. Financing from multilateral development banks should be focused on development needs, specialized technical assistance, and the provision of global public goods. Any conditionality should respect the right of developing countries to design their own appropriate structural reform programs. Experience shows that regional and subregional financial institutions can be very effective and should be promoted as central players in the international financial architecture.

ODA – Para 37 (global public goods financing)

G77+China (Venezuela): This is an important paragraph. Financing of Global Public Goods (GPGs) must be in addition to other types of financing. There must be public-private cooperation. Propose to end the para after the first half.

EU (Spain): Financing of GPGs is not a separate process – it must be assessed within the context of ODA and PSRPs. GPG special funds may be desirable to mobilize public and private resources – like a global health fund. Supports a global participatory process for defining GPGs.

Japan: Propose to delete the entire para and replace it with new text. GPGs are not defined yet so its too early to include them here. Financing for GPGs is a key function of ODA – its separation from ODA could have a negative impact on ODA. Reject the proposal for a dual-track accounting system. The new text should be linked to the outcome of the UN conference on HIV/AIDS, should link sustainable use and management of resources to development assistance, and should stress the importance of education, agriculture, and the role of civil society.

Russia: Shares the approach of the EU and Japan. GPG financing is an interesting idea but its premature. Sustainable development equals economic growth and efforts to preserve the environment, improve health, etc. So sustainable development means balancing both aspects, not promoting one over the other. Propose to limit the para to the first two sentences and delete the rest.

Switzerland: GPG is of increasing importance and needs collective action. Need to focus on forward-looking, pragmatic approaches based on lessons learned. Question whether a dual-track accounting system would be good here. Propose to delete the 3^rd sentence and replace it with “it is crucial to avoid using ODA to pay for GPGs.”

US: The whole concept of GPGs is dubious and the economic analysis behind it is weak. The idea of GPGs leads to the need for global public financing, which would need contributions from both developing and industrialized countries. If developing countries can’t or won’t contribute their share, then the concept will fail anyway (same reason as Kyoto failed). Supports Japan’s proposal to delete the entire paragraph.

Sudan: The tern GPG is ambiguous and there’s no common approach. At Moneterrey, need to define GPGs (not delete or ignore them) so that we can move forward.

Republic of Korea: 1^st sentence is good because we need to define GPGs, but the rest will have to be based on the definition. Support Russia’s proposal to keep the first 2 sentences and delete the rest.

Bangladesh: Supports the G77 proposal to keep the para despite the ambiguity.

Business Sector: The issues of GPGs and public-private partnerships are linked. The private sector is willing to partner with the UN (see the Global Compact) but are not willing to be responsible for producing GPGs just because ODA isn’t doing so. Propose the creation of a multipartite mechanism for GPGs. [Co-chair cut her off and asked her to continue this poposal under Systemic Issues since it’s proposing a new structure.]

NGOs: Strongly support GPGs and dual-track accounting. But the section is weak on the environment. Propose to add additional examples of GPGs, including biodiversity, environmental protection, gender equality, knowledge for development, etc. (See NGO counter draft text for language.)

ODA – Para 38

G77+China: Propose to add: “Innovative sources of multilateral finance will not move the burden of financing to developing countries.”

EU: Doubts about restricting SGs study of innovative sources to only multilateral development financing.

Belarus: Propose to add at end of last sentence: on possible innovative sources of multilateral finance and their effective use in development.”

Sudan: Noted that the fate of the reference to GPGs in para 38 must be tied to the proposed changes to para 37.

NGOs: Regret that concrete ideas (like CCT) are not included here. How the private sector can help (ie. through trust funds set up under the auspices of the UN) must be addressed during FfD follow-up. The comments made by George Soros (on Jan 16^th) should be included here.

ODA – Para 39

G77+China: Propose to add in 1^st sentence: “multilateral and regional development banks.” Also propose to add in 2^nd sentence that multilateral development banking must provide an adequate capital base for stability.

US: Propose to change 1^st sentence “in serving the financing development needs of..”, because financing is too broad for development banks. Propose to change 2^nd sentence as follow: “They contribute to guarantee an adequate supply of finance to countries that are following sound economic policies but lack adequate access to international private capital markets, and partly offset the excessive volatility of such markets that affect countries that have access to them.” At end, propose to add: “Development banks also serve as vital sources of knowledge and expertise.”

UNDP: In reference to discussion on para 37, it should be noted that GPG is a well-established scientific concept at the international level.

ODA – Para 40

G77+China: Propose changes to last sentence as follows: “…through increased full country ownership, more focused conditionality that is respectful to national needs and interests, and closer coordination…”.  

EU: Propose to add a reference to the environment in this para.

US: Propose change to 1^st sentence: “…to adequately support sustainable long-term and mid-term economic and social development; technical assistance for capacity-building; and social protection schemes; and education and health.” In 2^nd sentence, propose to add: “and a focus on countries with sound political and economic climates.” Overall, this para needs to be strengthened. Increasing long-term resources is needed but in order to do this, a long list of concepts must be introduced.  Ones that should be included in this para are: focus on best practices and collaboration for consistency and efficiency; promote good governance in borrowers; build country capacity of borrowers to meet international standards.

Debt – Para 41

G77+China: In 1^st sentence propose to delete “Sustainable debt financing” and replace it with “External debt relief consistent with development needs and interests”. At end of 2^nd sentence, propose to add “establish effective debt tracking mechanisms”.

EU: Developing countries face not only debt problems but problems with allocating their financial resources in an equitable way. There should be domestic preconditions to any debt relief/management. Technical assistance for debt management is needed to increase the capacity of countries in debt to manage their debt and foster a cycle of responsible lending.

US: Propose to change the title of the entire chapter to simply “Debt”. Debtors and creditors must share the responsibility for not creating unsustainable debt. Sustainable debt financing (ie. credit) is a good thing so G77s proposal to only focus on debt relief is not enough.

Mexico: Propose to change last sentence as follows: “Technical assistance for prudent debt management…”.

NGOs: Propose to add a reference to gender-sensitive policies.

Debt – Para 42

G77+China: Proposed an amendment to the paragraph (submitted in writing to chair).

EU: No changes necessary.

Switzerland: Financial sustainability should be “restored and maintained”, not “provided”. Urge all bilateral creditors to participate.

US: Propose to change 1^st sentence to “the importance of providing financial sustainability revitalizing financial development for…”. Also urge all bilateral creditors to participate and urge multilateral creditors to “increase the amount of assistance provided as grants.”

Australia: Agree with the US on additions regarding bilateral debt relief, but feel that multilateral debt relief is already sufficient and so do not support any additions in that regard.

G77+China: Urge bilateral and multilaterals within the Paris Club to pursue debt relief vigorously. Also propose to add a reference to small island states, as a distinct group from HIPC countries.

Debt – Paras 43 and 44 (discussed together)

G77+China: Propose to change “Highly” to “Heavily” and to delete “as they commit to sound policies”. Add in that: The HIPC Initiative should be fully financed by additional sources. Eligibility for HIPC should be more flexible and country specific. Debt sustainability should also be evaluated based on vulnerability to volatility shocks and natural disasters. In para 44, had only minor changes to names of country groups.

EU: Need a positive circle of sustainable debt and economic growth. Must fully implement HIPC (restore debt sustainability) before adding any new measures. The EU welcomes the World Bank/IMF decision to systematically assess debt sustainability taking into account external factors like decreases in international trade or conflict situations. HIPC should continue to focus on poverty reduction and ensure that resources freed up by debt relief are used toward poverty reduction. Support the full financing of a HIPC trust fund and urge bilateral creditors to go beyond HIPC. Re para 44, any decision for international action post-catastrophe should be based on a case-by-case basis.

Russia: Russia participates in debt relief as a bilateral donor and full supports para 43 in regards to using released resources within HIPC towards economic growth and poverty reduction. But the two further steps listed are too general.

Japan: Debt relief is not the only solution. There should be increased ownership of development by developing countries, and an increase to HIPC could be negative because it could lead to increased flows of external resources into developing countries. Propose to delete 3^rd and 4^th sentences from para 43 and delete in entirety para 44.

US: Agrees with Japan. The focus should be on full financing and implementation of HIPC, but not an enhancement of it. Propose to change para44 to read in entirety: “We invite the IMF and WB to consider supplemental debt relief for countries hit by external trade shocks and natural disasters.”  

Switzerland: Should refer to “long-term sustainable levels of debt in low-income countries” because that is the real challenge. Propose to delete 3^rd sentence, because can’t enhance HIPC until there is full financing for the existing initiative. The 4^th sentence should refer to the PSRP initiative together with the Millennium Development Goals. Para 44 should have a heavy focus on post-conflict and CIS countries.

Canada: HIPC already includes flexibility to provide increased debt relief upon completion if its warranted, so no enhancement is needed.

Australia: Supports proposals of Japan, US and Canada. Also proposes to delete in entirety para 44 but is willing to consider the US language proposal for that para.

NGOs: The 1^st sentence should begin as follows: “The Highly Heavily Indebted Poor Countries (HIPC) Initiative provides a unique opportunity to does not sufficiently strengthen…”. Enhancement of HIPC is urgently needed and must be in addition to ODA flows. Propose to replace para 44 with language calling for the “whole international community to provide debt relief without regard to income level, political orientation, or the specific case.”

Azerbaijan: Propose to change the end of para 44 to read “or emerging suffering from armed conflict.”

Macedonia: Propose change at start of para 44 as follows: “…to propose initiate flexible policy actions…”. Propose to replace phrase “other low-income countries” to “middle-income countries and countries in transition”.

IMF: HIPC includes opportunities for review upon completion. The IMF is convinced that financing for the Millennium Development Goals is possible, but it shouldn’t be linked to debt reduction because the resources freed from debt reduction won’t be enough. Propose to delete para 44 because the WB/IMF have policies to deal with this already so its unnecessary.

Japan: Still prefer to delete para 44 completely, but willing to work on language with the US.

Debt – Para 45

G77+China: In 1^st sentence, propose to delete the phrase “public expenditure management”. Propose to add: “We call on donor countries to ensure that resources provided for debt relief do not detract from development resources. Resources freed from debt relief should be used for national/domestic priorities.”

EU: Agree with para 45 and the need to establish clear rules, but the para should refer to other mechanisms such as debt swaps.

Australia: Concerned with using the work “equitable” and propose to change that to “ensures burden sharing between public and private sectors”.

Russia: Shares the view of the EU to add a reference to other types of debt conversion, such as debt swaps. Debtors capacity to manage state debts must also be promoted. Para 45 is key for Russia because it is both a major creditor and a major debtor.

NGOs: Need a fair and transparent system within the framework of the UN with clear arbitration procedures.

Systemic Issues – Paras 46 and 47 (discussed together)

G77+China: Stress that coherent operation at the international level is urgently needed. Para 46 should refer to human resources. At the national level, coordination between ministries must be strengthened. In para 47, propose to change the first 2 sentences as follows: “Important international efforts are underway to reform the international financial architecture to the benefit of all. These need to be improved, facilitated and sustained.”

EU: Likes the new title of the chapter. Agrees generally with para 46 but each country is responsible for its own development so international actions should be based on national strategies. In para 47, should “ensure greater participation of all stakeholders in the design and implementation of policies”. 

US: In para 46 propose to change “sustained economic growth” to “sustainable economic growth”. In para 47, propose to change “embedded in” to “makes vital contributions to”.   

Turkey: Domestic institutions need to coordinate more. In para 46, propose to add “crisis prevention” to list of goals.

Systemic Issues – Para 48

G77+China: Propose to change 1^st sentence “…countries is conducive critical to greater global…important elements for the growth of enhanced and predictable capital flows…”. Also add that “it is vital to keep exchange rates stable and to manage volatile capital flows.”

EU: No comments.

NGOs: Express solidarity with the people in Argentina who are victims of the policies of the IMF. The situation there confirms the deformations of the current system.

Systemic Issues – Para 49

G77+China: In 2^nd sentence propose to add “…to strengthen its surveillance of all economies, including the surveillance of short-term capital flows, and to support…”. At end of para, add that the Fund should “coordinate closely with regional bodies to develop surveillance systems.”

EU: Agree with reference to the important role of the IMF regarding supervisory and surveillance systems. Need to develop these and early warning systems among the private sector as well as the IFIs.

Canada: Encourage countries to approach the IMF as early as possible with any problems.

[End of Session]