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Financing for Development and
Sustainable DevelopmentBy Claudia Saladin
Senior Attorney, Center for International Environmental Law
Washington DC and Geneva
April 1, 1999Panel presentation in support of the Work of the Ad Hoc Open-ended Working Group on Financing for Development. This second meeting was conveinged to address the final four of eight elements identified in the "index report" prepared by the Secretariat (A/53/470): 5) Trade and financing for development; 6) Innovative sources of financing; 7) Governance of the international monetary, financial, and trade systems; 8) Interrelationship between major elements and other special topics.
IntroductionIt is my great pleasure to address you here today on behalf of CIEL, the Center for International Environmental Law, a non-governmental organization with offices in Washington DC and Geneva. I would like to thank the Ad Hoc Open-ended Working Group on Financing for Development for the opportunity to speak with you today about the important topic of financing for development. I would also like to thank the Working Group for the opportunity you have afforded for dialogue with non-governmental organizations.
The topics on today's agenda - financing for development and trade, innovative source of financing, governance of the international monetary, financial and trade systems, and the interrelationship between major elements - are all extremely important and complex. It would be impossible to do them justice in a 10 minute talk. Therefore, I will only attempt to outline some of the issues I hope the working group and the high level meeting on financing for development will consider.
Sustainable Development
I would like to preface my remarks by saying that I believe discussions of development, should be combined with discussions about environment. Development and environment are partners in a common endeavor: sustainable development. In the Rio Declaration, nations stated that "[t]he right to development must be fulfilled so as to equitably meet developmental and environmental needs of present and future generations." Nations stated further that "[i]n order to achieve sustainable development, environmental protection shall constitute an integral part of the development process and cannot be considered in isolation from it." Thus environmental protection and development are linked. Any discussion of financing for development should focus on promoting the goals of sustainable development, including the notions of equity and environmental protection which are inextricable linked to sustainable development.
Participation and Transparency
Another important component of sustainable development embodied in the Rio Declaration and Agenda 21 is public participation. International practice of public participation has been inconsistent. In the environmental and social arena civil society is afforded considerable rights of participation. In fora where global financial decisions are made - such as the International Monetary Fund (IMF), World Trade Organization (WTO), and the negotiations on the multilateral agreement on investment (MAI) - civil society has, by and large, been excluded.
These international economic fora are becoming increasingly important in the day-to-day lives of people around the world. Particularly in developing countries, international financial institutions can profoundly affect national macro-economic policies, governance structures, as well as development priorities and projects. Despite the profound reach of these organizations into the lives of ordinary citizens, civil society is still largely excluded from most of these institutions' operations. If the international finance institutions are given the power to dictate and constrain domestic policy making and to develop international policies that override domestic policy decisions, it is crucial that they institutionalize and guarantee a genuine and substantive role for civil society in their decision-making processes.
Having made these prefatory remarks, the main issues that I would like to address today are the linkages between sustainable development and international trade policy, international investment policy, and international financial institutions.
Linkages between International Trade Policy and Sustainable Development
In terms of the linkages between international trade policy and sustainable development, I would like a high level meeting on financing for sustainable development to examine how economic liberalization affects social and environmental systems and ask whether international trade policy promotes environmental protection and sustainable development by both increasing wealth and equitably sharing it. Many argue that as wealth increases, so too does the demand and capacity for environmental protection. The relationship is not always so clear, however.
First, wealth and environmental damage may in reality be positively linked. OECD consumers, for example, undoubtedly do far more damage to the global environment than do people in non-OECD countries. While wealth may create the capacity for environmental protection, wealth also drives consumption, which has profound impacts on the global environment. Second, even if there is a positive relationship between wealth creation and environmental protection, liberal trade may not promote an equitable distribution of wealth that promotes sustainable development. Incomes around the world are diverging; while markets may produce wealth, they are not very good at distributing it.
Our national systems of government have the role of redistributing wealth to create a just and equitable society. There is no guarantee, however, that global markets will ensure a distribution of wealth that creates a just world society. A discussion of financing for development should include consideration of the extent to which international trade rules, and the expansion of economic liberalization beyond the traditional trade in goods, prevent countries from regulating their domestic economies in a way that ensures that wealth produced in their national markets stays at home and can be used for domestic sustainable development goals.
Investment Policy and Sustainable Development
Financing for development has often meant policy changes that promote foreign direct investment. Often this has meant creating legal and regulatory environments that are good for corporations, but not necessarily good for social policy, development policy, local communities, or the environment. Proposed international investment rules - such as the multilateral agreement on investment (MAI) - provide rights for investors in order to promote foreign direct investment, without imposing corresponding obligations on investors, and without taking account of environment or development concerns. The challenge in financing for sustainable development is to promote policy that harnesses foreign direct investment to contribute to domestically determined sustainable development policy.
The deregulatory model of international investment liberalization can undermine efforts to promote sustainable development, rather than promoting financing for sustainable development. There are several reasons for this.
First, rules in investment agreements on expropriation or "measures tantamount to expropriation" may lead to challenges by corporation to legitimate government regulation in the public interest to promote sustainable development.
Second, investment rules prohibiting performance requirements - such as local hiring rules, or technology transfer provisions - limit the ability of countries to set the terms on which they will grant corporations access to their natural resources, including terms that promote sustainable development.
Third, promoting foreign direct investment as a means to financing sustainable development, presents difficulties in establishing appropriate benefits sharing arrangements, especially where investment is done by the private sector. Without appropriate benefits sharing arrangements, foreign firms will be able to exploit the resources of the host country and then take the profits home. If host countries are unable to regulate to ensure that a reasonable portion of the wealth produced stays in their countries, then investment will not necessarily result in financing for development.
Linkages between International Financial Institutions and Sustainable Development
The challenge presented by international financial institutions and sustainable development is first to ensure the transparency of these institutions. Second, it is to ensure that these institutions, especially where they are supporting development projects, are accountable to local people, particularly project-affected peoples. Finally, there is a need to ensure global policy coherence between the policies of international financial institutions and other international policy goals. For example, there is an inconsistency where governments have adopted the Kyoto Protocol, pledging to reduce greenhouse gas emissions, while at the same time multilateral development banks are investing heavily in power sector projects, which increase greenhouse gas emissions.
Conclusion
In conclusion, I would like to stress the need for global policy coherence in addressing the important issue of financing for sustainable development. The various policies at stake in financing for sustainable development - trade policy, investment policy, development policy and environmental policy, to name a few - cannot be considered in isolation from one another. UN agencies, international treaty bodies - including those of multilateral environmental agreements - international financial institutions, the World Trade Organization, and regional trading regimes should cooperate to ensure that in promoting financing for sustainable development these bodies work in concert. Discussions in investment and trade fora, for example, typically involve officials from trade and finance ministries whose expertise is not sustainable development or environmental protection. Moreover, these institutions are not representative of all the interests at stake in creating sustainable development policy and are often secretive and closed to civil society. Therefore, I believe it is critically important for the United Nations to take a leadership role in the international dialogue on financing for sustainable development, because of its global membership, and broad policy focus.
Thank you again for this opportunity to address you and thank you for your attention.
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