12.11.2014 | Society for International Development

UN Financing for Development negotiations

What outcomes should be agreed in Addis Ababa in 2015?

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Executive Summary

2015 will be a landmark year for the global fight against poverty and for equitable and sustainable development, with three crucial summits in just six months. A central issue for all three summits is concrete proposals for reforms to international financial and trade systems so that they support the achievement of global sustainable development goals. Such reforms should be based on the right to development for all countries and ensuring economic and social rights for all. There are sufficient funds available to achieve human rights for all, end poverty and to achieve global sustainable development goals: but political decisions to change structures and systems are needed to make this possible. On these issues, the Third UN Conference on Financing for Development (FfD) in Addis Ababa in July will play a critical role.

This paper summarises our recommendations for concrete changes that could be made in Addis, under the six headings of the Monterrey Consensus, with a seventh chapter on other important issues:

1: Mobilizing domestic financial resources. Truly global cooperation is central to solving the problem of illicit financial flows and effectively combatting international tax avoidance and evasion. The lack of a common agenda for international cooperation in tax matters is costing all governments vast amounts of resources, which could have been allocated to sustainable development. Current global tax standards are being developed behind closed doors at the OECD while excluding 80% of the world’s countries from the decision-making processes. Our key recommendations are:

  • Establish a new intergovernmental body on international cooperation in tax matters and provide the resources necessary to allow the body to operate effectively.
  • Ensure a comprehensive mandate for the new intergovernmental tax body, including base erosion and profit shifting, tax and investment treaties, tax incentives, taxation of extractive industries, beneficial ownership transparency, country by country reporting, and automatic exchange of information for tax purposes.

2: Foreign direct investment and other international private flows. A much more balanced approach to private international finance is needed, recognising risks and the need for developing countries to manage flows carefully. There are two different categories of concerns. On the one hand, there are macroeconomic risks associated with these flows, such as the volatility of short-term financial flows. On the other hand, there are concerns in relation to the content and terms of longer term investment, especially Foreign Direct Investment (FDI). Our key recommendations are:

  • Recognise capital account regulation as a fundamental policy tool for all countries and remove from all trade and investment agreements any obstacles to these important policies.
  • Spell out the significant problems with using public institutions and resources to leverage international private finance.

3: International trade. Trade policy should allow developing countries to have policy space, including the ability to focus on impacts on unemployment, vulnerable people, gender equality and sustainable development, and should not promote liberalisation as an end in itself. International trade plays an important role in development, and trade policies are an important tool that developing countries can use to support the growth of domestic industries with greater added value, not just as commodity producers. However the current trade regime has pushed developing countries to open their markets, both through the World Trade Organisation (WTO) and through regional and bilateral trade and investment treaties, which reduces their policy space to address their development needs while doing little to address rich-country trade-distorting policies. We recommend:

  • A comprehensive review of all trade agreements and investment treaties to identify all areas where they may limit developing countries’ ability to prevent and manage crises, regulate capital flows, protect the right to livelihoods and decent jobs, enforce fair taxation, deliver essential public services and ensure sustainable development.
  • A review of all intellectual property rights regimes that have been introduced in developing countries through Free Trade Agreements, to identify any adverse impacts on public health, the environment and technology development, among other areas.

4: Official Development Assistance (ODA) and other international public support for development. Strengthened commitments to improving the quality and quantity of ODA are needed, with much firmer follow up mechanisms, as are new and additional sources of public finance. ODA remains a critical resource, particularly for the poorest countries, but its value has been severely undermined by failures of rich countries to meet the UN target to provide 0.7% of their Gross National Income (GNI) as ODA and lack of progress on the Paris/Accra/Busan commitments on aid effectiveness to stop the bad practices that significantly undermine ODA. Innovative public financing mechanisms can provide much needed additional resources. Our key recommendations are:

  • Set binding timetables to meet commitments to provide 0.7% of GNI as ODA.
  • Ensure ODA represents genuine transfers, including by ending aid tying, removing in-donor costs and debt relief, providing the majority in the form of grants, and reforming concessional lending by reflecting the real cost of loans to partner countries.
  • Implement a levy on financial transactions carried out by finance firms and use the revenue to finance sustainable development.

5: External debt. The recent UNGA resolution* that mandates the “establishment of a multilateral legal framework for sovereign debt restructuring processes” is a critically important opportunity to put in place effective international mechanisms for preventing and resolving future crises: it must not be wasted. Debt crises risk wiping out the global development progress made over decades. Even in countries that do not suffer from an acute debt crisis, debt service competes with development spending for limited public resources. Despite promises made at Monterrey, the architecture for debt crisis prevention and management has not been developed. Debt crises continue to be addressed too late and too slowly. Our key recommendations are:

  • Reaffirm the commitment to agree to a multilateral legal framework for sovereign debt restructuring processes in a neutral forum and ensure it: is comprehensive; is based on a human needs approach; holds creditors and debtors to account for irresponsible behaviour; and gives all stakeholders the right to be heard.
  • In order to scrutinize existing debt along responsible financing standards, including examining the legitimacy of the debt, independent debt audits should be commissioned, with commitments to cancelling debt found to be illegitimate.

6: Systemic issues: effective, inclusive global governance and monetary system reform. The system of global economic governance is in urgent need of overhaul to give developing countries a fair and equitable seat at the decision-making table at all international organisations and financial institutions, strengthen transparency and accountability, and to tackle key international problems, while respecting developing countries’ policy space. While the shift from the G8 to the G20 as the focus of global economic discussion signalled a change in power dynamics, the G20 is proving inadequate and ineffective at global coordination, while legitimate UN bodies do not have the mandate or resources to coordinate effectively in this area. The international monetary system is built on an unsustainable role for the US dollar, which needs to be gradually replaced as the world’s reserve currency, while at the same time building additional stability into the system by increasing the reserve assets available to developing countries. We recommend:

  • Set up a process to set up a Global Economic Coordination Council at the UN to provide leadership on economic issues.
  • Issue $250 billion in new Special Drawing Rights (SDRs) annually, with the majority going to developing countries.

7: Other important issues. We highlight four in particular that require additional attention:

  • The UN should take seriously the need for better approaches to measuring progress that go beyond short-term economic indicators such as GDP to include measures of social and environmental wellbeing, and emphasise how significant inequality, including gender inequality, can be.
  • By developing an initiative on responsible financing standards, the UN could pull together and strengthen the various existing initiatives and proposals, and help ensure that standards are properly implemented.
  • Given the growing recognition that all forms of development financing have specific threats and opportunities for women's rights, this vital agenda must be fully integrated into FfD.
  • Develop the agenda, begun at the 2009 UNGA conference, for reform of financial regulation and the financial sector.

* UNGA Resolution A/RES/68/304 (2014)