27.05.2015 | Eurodad

Private investment dominates, systemic issues ignored as EU Ministers discuss the future of development finance

EU Ministers met on May 26 to finalise the EU’s position ahead of the crucial UN Financing for Development (FFD) summit in Addis Ababa. The EU position reveals that the Ministers prefer to promote a controversial and problematic reliance on private finance rather than tackling crucial systemic issues such as the need for global tax reform. The council conclusions can be found here.

The FfD summit, which will take place in July, will decide how to finance international development over the next decade.

The EU position promotes public-private-partnerships and the use of public funds to subsidise or ‘leverage’ private investment (known as ‘blending’), but includes no strong references to the many risks that such investments pose or to the need for nationally-owned development strategies to drive them.

The position flew in the face of recommendations from the European Parliament last week, which called for the European Commission to “evaluate the mechanism of blending loans and grants, particularly in terms of development and financial additionality, transparency and accountability.”

María José Romero, Policy and Advocacy Manager at the European Network on Debt and Development (Eurodad), says: “The EU’s continued and uncritical focus on private finance is extremely worrying. There is a serious lack of evidence that the existing investments are reducing poverty in any significant way or are helping to develop the poorest countries. Companies are mainly attracted to middle income countries where they can make profits.”

“The Ministers have also ignored repeated calls for a strong regulatory framework to protect human rights.”

Another issue under discussion during the meeting were the existing aid commitments.

Romero says: “In addition to delivering the amount of aid that has been promised with concrete timetables, it is also vital that the EU makes a commitment to untie all aid, removing practices that are designed to promote the corporate interests of donor countries.”

Ministers also failed to answer a call from developing countries to create a global tax process where all nations have a seat at the table. Under the current system the OECD and G20 – which excludes more than 100 developing countries - make all decisions about international tax standards.

Tove Maria Ryding, head of Tax Justice and Financing for Development at Eurodad, states: “We hope that EU ministers will soon come out in support of a new global UN initiative to combat tax dodging. It will look strange if the European Union, which prides itself on being democratic, defends the right of an exclusive club of countries to decide the global tax standards behind closed doors. No government will be able to combat tax havens and ensure fair taxation unless all governments work together.”

Ryding also stresses the importance of the FFD summit. She adds: “The EU is absolutely central for any global agreement, and unless the ministers become more ambitious, there is a very real risk that the international negotiations will collapse. This would not only be a missed opportunity to repair the broken financial system and mobilise the funding we need to end poverty. It could also cost us the new sustainable development goals as well as the climate treaty, which is supposed to be adopted at the end of the year.”