Introduction
Last week I put forward the hypothesis that a paradigm shift is underway in international best practice in the area of financing for development. Primarily for the purpose of this series, I shall demonstrate the truth in this hypothesis through reference to the linkage of financing of development best practice to the recovery of stolen public assets. This best practice is framed under one of the four standard rubrics under which financing for development is cast, namely, mobilizing domestic financial resources (particularly in developing countries) in the context of strong international cooperation (via international law, rules and regulations, policies, institutions and peer pressure). I shall demonstrate that these conferences’ results distinctly reveal the several advances in international best practice.
Monterrey consensus
The First International Conference on Financing for Development was held shortly after the 9/11 attacks on the United States .The clear aim of that conference was to devise new approaches to financing for development designed to cope with a world in deep economic, political, peace and security crises. After intense deliberations, the participating countries agreed to advances in six critical areas of development financing. These were firstly, domestic financial resource mobilization for development in rich and poor countries alike. And, as readers would have anticipated, the greatest source for that has been domestic taxation by some distance.
Secondly, the consensus declaration advocated mobilizing external financial resources especially through 1) external public assistance (ODA) from “development partners” and 2) private flows (foreign direct investment, FDI, portfolio flows and bank loans). Thirdly, the consensus promoted international trade as an engine of development, which subsequently developed into the WTO Doha Development Round of trade negotiations. Fourthly, in keeping with the growing spirit of global cooperation and the need for reduced conflict after 9/11, a great deal of attention was devoted to international financial and technical cooperation for development.
Fifthly, at the time of the First International Conference sovereign debt problems, especially in regard to external debt, were severely disrupting global growth and generating widespread macro-economic instability. Because of this the conference paid special attention to external debt matters. And, finally, concerns over macro-economic instability, in large measure related to sovereign debt matters, led to the reappraisal of the current roles of the international financial and monetary regulation and oversight bodies. This led to calls for greater “coherence and consistency of the international monetary, financial and trade system in support of development.” In the Monterrey Consensus reference was also made to the need for what the conference termed as “innovative financing” so as to be able to mobilize the means with which to meet the agreed goals and targets for the implementation of the global development agenda.
Best practice advance
Reflecting on the Monterrey Consensus I believe three unique advances to global best practice emerged. First, it succeeded in committing, at a truly global forum (comprised of almost all countries, governments, UN institutions, civil society organizations, private sector representatives) to the Tinbergen target, first proposed as far back as 1970, in which the developed countries pledged to deliver annually by 2014, 0.7 per cent of their Gross National Income (GNI) to poor countries as Official Development Assistance, ODA. The ODA would come from 1) government agencies, 2) their donations to international financial institutions, and 3) their civil society organizations.
This was indeed a notable breakthrough, particularly as the ODA pledged was to be provided on 1) generous terms, 2) with an emphasis on aid effectiveness, and 3) utilizing innovative financing mechanisms. Further, there was a later sub-commitment made by the developed economies to transfer to the least developed economies 0.15 to 0.20 of their GNI. Embarrassingly, as well publicized data reveal, the performance thus far has been very poor; some developed countries are on target but others are very far behind. By the end of 2013 the average flow had reached only 0.29 of their GNI. This flow was less than what had been attained way back in 1960, when it was 0.5 per cent. Indeed the present flow is being substantially sustained by new donors like China, India, Middle Eastern countries and wealthy private donors.
Best practice advance 2
The Monterrey Consensus also introduced the notion of innovative financing. This notion has become widely used in the international development community. It however refers to very different, if not contradictory types of financing. These have ranged from exotic boutique-like taxes (carbon taxes, HIV-Aids taxes and green taxes) to public-private partnership financing. For me the notion is useful in that it emphasizes innovation broadly, in financial products and instruments, mechanisms and practices, as well as organizations and delivery vehicles.
Best practice advance 3
Surprisingly, the first conference gave a limited, but important for its time, recognition to the role of corruption in imperilling financing for development. As we shall note in coming columns the second, and more so the third conference, shows striking advances. I quote in full para 13 of the first conference declaration to illustrate what was achieved in 2002 so that in later columns readers would note for themselves the best practice progress since then.
“Fighting corruption at all levels is a priority. Corruption is a serious barrier to effective resource mobilization and allocation, and diverts resources away from activities that are vital for poverty eradication and economic and sustainable development” Monterrey Consensus, para 1.
Next week I reveal the best practice advances at the 2008 Doha Conference.