09.02.2015 | Eurodad

UN Financing for Development negotiations picking up speed

by Tove Maria Ryding

Despite snowstorm warnings and ice-cold temperatures in New York, the Financing for Development (FfD) negotiations managed to pick up speed when governments convened for the first drafting session at the end of January. They are currently negotiating the outcome of the upcoming Addis Ababa Conference on Financing for Development, which will take place on July 13-16 this year, and is planned as a key milestone ahead of the Post-2015 Summit and the UNFCCC Climate Conference later this year.

An Elements paper formed the basis for the January session, and was followed by a comprehensive response from a large group of civil society organizations following the FfD negotiations. Earlier this week, the European Commission also released a Communication on the issue, to which Eurodad has developed a response.

Tax cooperation – EU opening up to developing countries

For years, developing countries have called for a change in international tax processes. Instead of having the OECD – also known as the “Rich Man’s Club” – deciding international tax standards, developing countries have asked for a UN process where they have a seat at the table and participate on an equal footing. During the January FfD negotiations, this call was once again included in the statement of the Group of 77 (G77) and China – a coalition of more than 130 developing country – and in the statement of the African Group which called for the Addis Ababa outcome to “Strengthen the role of the UN in promoting international cooperation on tax matters, including setting up an intergovernmental tax body, as demanded several times by many developing countries.”

For many years this call has been rejected by developed countries, who insist on keeping the global tax discussion in the OECD. Therefore, it is refreshing news that during the FfD negotiations in late January the EU showed a new openness by encouraging further discussion of the implications of a new UN tax body noting that “cost-benefit analysis should be conducted before any decision can be taken. We would also need to have more clarity on what would be the exact mandate of such committee.” Unfortunately, the same openness was not included in the Communication from the European Commission, which didn’t include any references to the issue. As highlighted in the Eurodad response, the Communication instead called for all countries to implement the standards developed by OECD, in spite of the fact that these standards are not designed to work for least-developed countries, and in some cases they can actually damage these countries (this is the case, for example, with double tax treaties).

The African Group added a call for “country-by-country reporting for transnational corporation, that is made public and accessible to developing countries’ tax administrations and local civil society” – an idea that also has very broad support among civil society organisations.

Private finance – quality matters

The discussion on private finance provided a good basis for the forthcoming negotiations and highlighted some contentious issues. There was an overwhelming acknowledgment coming from the G77 and China and other developing countries that “public funding should always take precedence over private financing” and that “these two concepts cannot be put on equal footing” as “private finances are profit driven.” After several interventions it was clear that a large group of developing countries insist on discussing not only quantity, but also quality of foreign direct investment. As Eurodad has repeated several times, government regulation is key to promote the quality of private flows. In the words of Bangladesh “without international regulation and assistance, private sector financing, although important, will not be able to play a substantive role.” These remarks are in line with the CSO response to the Elements paper and Eurodad’s intervention during the session.

However, many developed countries – included the European Union – put forward a different approach. According to the EU, “there is a case for international action and strong partnerships to leverage additional private finance - DFIs, blended finance platforms, deploying equity, loans and guarantees can mobilise private sector finance and incentivise long-term investment in critical infrastructure sectors in developing countries.” The EU especially highlighted the potential of blending – which combines grants with loans and equity from public and private sources – “to catalyse public and private investments in partner countries.” Nothing was mentioned of the many risks that blending mechanisms entail as outlined in the last European Court of Auditors report on the effectiveness of EU blending facilities. The only voice of caution came from Serbia, which is on its road to EU membership: “it is important to avoid the scenario where the public sector and tax payers bear the main risk. We have to secure that blending mechanisms meet development objectives that they are transparent, accountable and that they are not a waste of scarce ODA resources.”

The Elements paper recognises, “it is important to learn from the successes and failures of the past, and in particular, avoid maintaining risk in the public sector while guaranteeing high returns to the private partner.” The question is how we can do that. Eurodad stressed in its intervention that “we need a Southern-led review of existing practices for using public institutions and resources to leverage international private finance. This review should address the contribution to sustainable development of these flows, and generate concrete proposals for change.”

Difficult debt discussions

The UN debt negotiations are currently running on two separate tracks – one under the Financing for Development negotiations and one under the UN General Assembly, following from the adoption of a resolution which Argentina put forward last year. Although the need for a debt workout mechanism was acknowledged in the Monterrey Consensus in 2002, some developed countries have repeatedly refused to engage in negotiations about this mechanism. The FfD session in January was no exception, and both the US and EU tried to keep the focus of the negotiations solely on the need to prevent future debt build-up, rather than address the sad and obvious fact that a growing number of countries are already facing debt crises.

Last month’s elections in Greece have also served as a clear reminder that even inside Europe, attempts to ignore the debt crisis have failed. In the UN, developing countries made sure that the debt workout mechanism will remain an issue on the FfD negotiating table. The African Group of countries, in particular, stressed the “need to establish an international debt resolution mechanism to guarantee, a just and equivalent treatment for creditors and debtors” while Argentina recalled the importance of the current UN debt negotiation as “a process that can feed our discussion and represents a unique opportunity to discuss debt issues in the most democratic way possible.” Eurodad also made an intervention to remind governments that the FfD negotiations should also include debt audits and a process for cancellation of illegitimate and unsustainable debt. The UN debt negotiations following from UN General Assembly Resolution A/68/L.57/Rev.1 are continuing in New York this week, and will then continue in April and throughout the spring.

The road to Addis Ababa

It is clear that major roadblocks will have to be overcome before negotiations reach Addis Ababa. The list of what governments can agree on is short and the list of challenges is long. Developing countries have made it clear that solid solutions to the challenge of financing development will have to be found before any meaningful agreement on a new set of sustainable development goals (SDGs) can be reached. Without means to ensure implementation, SDGs would remain nothing but wishful thinking.