COMMISSION ON SUSTAINABLE DEVELOPMENT HOLDS HIGH-LEVEL SEGMENT ON FINANCE AND INVESTMENT

Press Release
ENV/DEV/545

COMMISSION ON SUSTAINABLE DEVELOPMENT HOLDS HIGH-LEVEL SEGMENT ON FINANCE AND INVESTMENT

Trends in sustainable development finance had fallen considerably short of the targets and expectations set during the 1992 Earth Summit, Jose Antonio Ocampo, Executive-Secretary of the Economic Commission for Latin America and the Caribbean (ECLAC), told the Commission on Sustainable Development this morning, during a high-level meeting on finance and investment.

Mr. Ocampo was one of two experts among a number of delegations who participated in this morning’s discussion, part of a two-day high-level segment of the eighth session of the Commission, which monitors implementation of Agenda 21, the plan of action adopted at the United Nations Conference on Environment and Development (UNCED) (Rio de Janeiro, 1992).

He said it was important to avoid investments addressed to sectors that made intensive use of natural resources, a trend in developing countries. The emergence of “environmentalized markets” had created some distrust and concern in developing countries. Many of them feared that the environmental dimension might give rise to new conditionalities and non-tariff barriers. It was essential that the attitude of the developing countries be proactive, rather than reactive.

Konrad Von Moltke, Director of International Environment Affairs, Dartmouth University, and Senior Fellow, International Institute for Sustainable Development told the Commission that, while private investment flows had grown exponentially over the past few years, their direction and substance were crucial to sustainable development. International financial investment must move towards sustainability. While private actors and markets had been extraordinarily creative in developing the structures of foreign direct investment, public policy, particularly international public policy, had not kept up with those developments.

Speaking on behalf of the European Union and associated States, Portugal’s Secretary of State of Land Use Planning and Nature Conservation, Pedro Silva Pereira, said that insufficient international financial flows in themselves were not the principal barrier to sustainable development. National governments had to create a predictable, stable and non-discriminatory environment, which encouraged appropriate domestic and foreign investment. Developed countries should help to build the capacity needed to create and maintain such an environment, which included good governance and sound policies.

Sustainable Development Commission - 1a - Press Release ENV/DEV/545 10th Meeting (AM) 27 April 2000

India’s Minister of Environment and Forests, T. R. Baalu, said that the challenge ahead was to ensure enhanced mobilization of external resources to recipient countries. Foreign direct investment flows were still concentrated within the developed world and among a handful of developing countries. Those flows, by definition, sought profit and so did not go to either the social or environmental sectors. Therefore, even if the quantity of foreign direct investment increased, and if it was more widely distributed among recipients, it could not be a substitute for official development assistance.

Mobilizing adequate and stable resources for implementation of sustainable development in the developing countries had not been successful, stated Kenya’s representative. Achieving sustainable development required integration of its economic, social and environmental components to stimulate sustained economic growth. Official development assistance could not and would not be replaced by private capital flows. New official development assistance should be provided in the form of grants without conditions. The external debt problems continued to adversely impede the efforts of developing countries to promote and achieve sustainable development.

Denmark’s representative stated that it was important to promote investments that supported sustainable development in all its aspects -- economic, social and environmental. The debt of a large number of the poorest countries was a drain on the resources they needed for investment in poverty alleviation and social advancement. The financing of the multilateral cost of the Heavily Indebted Poor Countries (HIPC) Debt Initiative was not yet fully in place.

Statements were also made this morning by government ministers and representatives of Nigeria (on behalf of the “Group of 77” developing countries and China), Turkey, Haiti, Democratic People's Republic of Korea, Morocco, The former Yugoslav Republic of Macedonia, Italy, United Kingdom, Honduras, Finland, Argentina, Egypt, Philippines, Japan, Guyana, Indonesia, Germany, New Zealand, Sudan, Czech Republic and Cameroon.

The Commission will meet again at 3 p.m. today to conclude its high-level segment with a discussion on trade.

Sustainable Development Commission - 3 - Press Release ENV/DEV/545 10th Meeting (AM) 27 April 2000

Commission Work Programme

The eighth session of the Commission on Sustainable Development met this morning to hold a high-level meeting on finance and investment. The Commission monitors implementation of Agenda 21, the plan of action adopted at the 1992 United Nations Conference on Environment and Development (UNCED) held in Rio de Janeiro. (For further background on the session, see Press Release ENV/DEV/536 issued on 20 April.)

For its high-level meeting, the Commission had before it the report of the Secretary-General on financial resources and mechanisms (document E/CN.17/2000/2), which reviews the progress achieved in the implementation of the objectives for financial resources and mechanisms set out in Agenda 21 and provides inputs for its consideration at the current session. Section II of the report examines recent developments and new policy approaches in external finance, with an emphasis on official development assistance (ODA) and private capital flows.

Section III turns to the discussion of domestic finance and sustainable development, focusing on the integration of environmental finance into mainstream public finance and the use of policy instruments and measures. The fourth section of the report deals with innovative mechanisms in sector finance, with an emphasis on the energy, water, transport and forestry sectors.

In the wake of the financial crisis that started in East Asia and eventually spread to many emerging economies during 1997 to 1998, there have been several significant developments in the financing of sustainable development, states the report. Although official development finance has risen from its level in 1996, that increase -— of about $15 billion -— has not been sufficient to prevent a sharp drop in the total net resource flows to developing countries in 1998. Further, due to the financial crisis, developing countries have experienced a steep decline in private financial inflows, in particular of bank lending, since 1997.

The geographical distribution of foreign direct investment inflows to developing countries is still highly skewed and private capital flows are still concentrated in a small number of countries, the report continues. In 1998, five countries received 55 per cent of all the inflows to developing countries, while less than 1 per cent of that total was shared by the 48 least developed countries.

The report states that, in assessing the future role of official development assistance (ODA), the impact of globalization on public and private flows to developing countries and the continuing debt problems of the poorer developing countries should be taken into account. With regard to private capital flows, the increasing flows to developing countries is still limited to a narrow range of recipients. The skewed distribution of those resources in favour of the more advanced developing countries has implications, particularly for efforts to advance the goals of sustainable development in the poorer countries.

It was important, the report continues, for donors and developing countries, particularly the least developed countries and other countries in sub-Saharan Africa, to improve the effectiveness of aid. This could be done, for example, by better aid coordination and management, and more efforts to deter corruption and to ensure that public sector investments do not run counter to stated environmental and social objectives of sustainable development.

It will be an important challenge, states the report, to attract more foreign investment and at the same time direct it to sustainable development activities. It is crucial that developing countries ensure that foreign direct investment contributes to sustainable development by paying due attention to its impact on environmental, social and economic goals. It is important to integrate environmental and social considerations into strategies and plans for national development, especially in those sectors having a significant environmental impact, such as transport and energy.

In the case of investments where the risk of environmental damage is significant, investors can be asked to put up performance bonds or other guarantees that remedial steps will be taken should damage occur. There should also be clear rules setting out private responsibility for damage to the environment from economic activities. Further, to promote greater transparency and public participation in ensuring environmentally sound project design and operations, there should be a supportive legal environment to enable non-governmental organizations and major stakeholders to act as constructive and independent partners.

The fast pace of globalization, states the report, the competition for foreign direct investment and the sheer size of many transnational corporations can make it difficult for a host country acting alone to set in place adequate environmental controls over incoming investment. Therefore, pressure is mounting on other stakeholders, including investors' home countries and international actors, to take a larger share of responsibility in that area.

According to the report, there is an increasing amount of experience with environmental taxes and charges in both developing and developed countries. While those instruments can improve cost-effectiveness and confer positive environmental effects, their implementation requires strong institutions in the financial and environmental sectors. A major barrier to the use of environmental taxes and charges in developing countries is the lack of institutional capacity. There are also complex tax design requirements and the mainstream public finance agencies have limited experience in dealing with the introduction of such taxes.

Private-sector investment can be effective in promoting economic growth, and can have positive social or environmental effects, the report states. It is important for governments to provide the necessary framework for sustained private investment, including macroeconomic, legal and environmental policy frameworks that are clear, credible and stable. It is important to note that not all private domestic investment will assist countries in achieving sustainable development. Also, lack of public support for environmental protection can also be a major stumbling block in encouraging private investment in sustainable development.

Also before the Commission was a note verbale dated 14 February from the Permanent Mission of Kenya to the United Nations addressed to the Secretary-General (document E/CN.17/2000/9) transmitting the Chairman’s summary of the Fifth Expert Group Meeting on Financial Issues of Agenda 21, held at Nairobi from 1 to 4 December 1999.

In addition, the Commission had before it the report of the Ad Hoc Inter- sessional Working Group on Financial Resources and Mechanisms and on Economic Growth, Trade and Investment (document E/CN.17/2000/10). The meeting, held from 22 to 25 February in New York, produced two types of documents on the two groups of issues -- possible elements for draft decisions/resolutions and the Co-Chairmen’s summaries of the discussions.

Regarding possible elements for a draft decision at the eighth session on financial resources and mechanisms, the report states that it is important that countries approach sustainable development through a holistic approach, in view of the interconnectedness of the trade, financial, environmental and social aspects of sustainable development. In general, the financing for the implementation of Agenda 21 will be met from domestic resources. Yet, for many developing countries, official development assistance is a main source of external funding, and substantial new and additional funding for sustainable development and the implementation of Agenda 21 will continue to be required.

The Commission will continue to address financial resources and mechanisms as an overarching issue. The next comprehensive discussion of the issue will take place at the 2002 review of UNCED, which will benefit from the outcome of the high- level event on financing for development, to be held in 2001. Priority areas for future work include: promotion of international finance for sustainable development; mobilization of domestic financial resources for sustainable development; exploration of innovative financial mechanisms; and improvement of institutional frameworks and promotion of public and private partnerships.

On possible elements for a draft decision on economic growth, trade and investment, the report states that there should be a balanced and integrated approach to trade and environment in pursuit of sustainable development, taking into account the economic, environmental and social aspects, as well as the different levels of development of countries without undermining the open, equitable and non-discriminatory character of the multilateral trading system or creating any disguised barriers to trade.

In particular, it continues, for developing countries and countries in transition it will be an important challenge to stimulate domestic investment and attract foreign direct investment to achieve sustainable development. At the same time, the international community should strive to avoid the risks that can be associated with the volatility of short-term private capital flows and to enhance the contribution that investments can make to sustainable development. Priorities for future work include promotion of sustainable development through trade and economic growth, making trade and environment mutually supportive, promotion of sustainable development through investment, and strengthening institutional cooperation and promotion of partnership.

The co-Chairmen's summary states that trade and investment are essential for sustained economic growth and sustainable development. Some delegations emphasized that trade and investment policies must, however, be complemented by policies that provide for high levels of environmental and social protection and enforcement of these laws at the national level. While some developing countries have benefited from globalization and trade liberalization, there is still a need to address the issue of marginalization, and to support the integration of developing countries into the world economy.

Some delegations stressed the need for effective environmental policies to maximize the contribution of trade liberalization to sustainable development, the report continues. There is also a need to consider links between trade liberalization and the social dimensions of sustainable development. Technical assistance and capacity-building initiatives in favour of developing countries must be identified. There is a need for improved coherence and coordination between donors and international organizations.

As agreed in Agenda 21, developed countries should take the lead in addressing unsustainable production and consumption patterns, taking into account the principle of common but differentiated responsibilities. Several delegations also recognized the importance of keeping the public informed and engaging in regular dialogue between governments and stakeholders.

Expert Presentations

KONRAD VON MOLTKE, Director of International Environment Affairs, Dartmouth University, and Senior Fellow, International Institute for Sustainable Development, said that private investment flows had grown exponentially over the past few years. The direction and substance of those flows were crucial to sustainable development. Investment was needed and more of it than governments could or should ever finance. It was also necessary for international financial investment to move towards sustainability. Private actors and markets had been extraordinarily creative in developing the structures of foreign direct investment. Public policy, particularly international public policy, had not kept up with those developments. International markets required international disciplines.

The key issue in that regard, he continued, had been and remained achieving the proper balance between investor rights and obligations in a non-discriminatory regime. The time had come for more creative approaches than what had been seen. It was unlikely that a global regime on those issues would be established in the near future. He believed it was undesirable to have a global regime on those issues, since the right balance would be difficult to achieve under the current global circumstances. The World Trade Organization (WTO) was the wrong place to negotiate an investment agreement.

He suggested that regional agreements, such as the North American Free Trade Agreement (NAFTA) and the Southern Common Market (MERCOSUR), be used more constructively. Also, now was the time to look at a number of key international environmental agreements and ask whether it was not time to put an investment chapter in those agreements. For example, the Framework Convention on Climate Change would benefit greatly from the addition of a protocol on investment. Similarly, a range of investment provisions could be applied to the international agreements promoting sustainable agriculture or forestry.

JOSE ANTONIO OCAMPO, Executive-Secretary of the Economic Commission for Latin America and the Caribbean, said that trends in sustainable development finance since Rio fell considerably short of the targets and expectations set during the Earth Summit in 1992. Agenda 21 had estimated the costs of implementing for financing sustainable development at $125 billion of external resources, pointing to official development assistance and $500 billion of domestic resource mobilization in the developing world. Official development assistance had declined notoriously.

Based upon trends in finance for sustainable development since Rio, several conclusions could be made, he said. With respect to international cooperation and assistance for sustainable development, the essential responsibility must arrive from national efforts. It was also recognized that sustainable development had many global dimensions, which required concerted and coordinated actions by nations and the provision of international financial transfers, especially from developed to developing countries. It was urgent that the targets under Agenda 21 be met, in particular with respect to 0.7 per cent of gross national product for official development assistance.

With respect to foreign investment, it was essential to establish clear criteria to redirect foreign investment. It was important to avoid investments addressed to sectors that made intensive use of natural resources, a trend in developing coutnries. The emergence of “environmentalized markets” had created some distrust and concern in developing countries. There were growing fears in many developing countries that the environmental dimension might give rise to new conditionalities and non-tariff barriers. Developing countries feared the imposition of protectionist measures. It was essential that the attitude of the developing countries be proactive, rather than reactive.

With respect to financing of development, greater cooperation was essential. Favourable economic instruments must be designed for environmental purposes. The strengthening of public institutions was also indispensable. With respect to public goods, negations on the Kyoto Protocol had introduced new measures. The Clean Development Mechanism allowed signatories to the Kyoto Protocol to meet their emissions targets set by the Protocol by financing cleaner development in developing countries, as an alternative to making relatively expensive emissions reductions at home. The United Nations institutions, and in particular the regional economic commissions, should stand ready to assist.

Statements

HASSAN ADAMU, Minister of Environment of Nigeria, speaking on behalf of the “Group of 77” developing countries and China, said that unless the recurrent problem of financial resources and mechanism were addressed, the implementation of Agenda 21 would not gain the desired momentum. Although the financing for its implementation was expected to be met from domestic resources, it had been obvious that the economies of developing countries, particularly the least developing countries, lacked the capacity to implement the programme of sustainable development as envisaged in Agenda 21. The international community must take decisive action to deal with the issue of official development assistance, to ensure that at least some level of progress would be reported at the review conference in 2002.

The debt burden, which was totally unsustainable, must either be written off or substantially reduced for developing countries, in particular for the least developing countries, he said. The Heavily Indebted Poor Countries (HIPC) Debt Initiative obviously had not created extensive salvation for that very marginalized group of countries, whose environmental conditions seemed to be in a disastrous state. The innovative financial mechanisms meant to support the flow of resources to developing countries were not a substitute for ODA and the required assistance expected from development partners. He called on developed countries to meet their financial commitments entered into under Agenda 21.

PEDRO SILVA PEREIRA, Secretary of State of Land Use Planning and Nature Conservation of Portugal, spoke on behalf of the European Union, Bulgaria, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, Slovakia, Slovenia, Cyprus, Malta, Turkey and Iceland. He said that domestic resources were and would remain the main source of finance for sustainable development in all countries. It was important to try to reverse the recent decline in private long-term foreign investment flows and for those flows to be spread more widely. It was crucial to have a stable, predictable and transparent investment climate, based on a multilateral framework of investment supportive of sustainable development.

Through its investments at the domestic and international levels, the private sector had a major contribution to make to development, including poverty eradication, he said. Through partnerships, the transfer of knowledge and environmentally-sound technologies, and the adoption of effective environmental management practices, such investments helped to achieve economic, environmental and social objectives. The Union believed that the quality of official development assistance, as well as its quantity, needed to be enhanced if sustainable development was to become a reality.

Insufficient international financial flows in themselves were not the principal barrier to sustainable development, he continued. National governments had to create a predictable, stable and non-discriminatory environment, which encouraged appropriate domestic and foreign investment. Expenditure and taxation policies had an important role to play in that respect. Developed countries should help to build the capacity needed to create and maintain such an environment, which included good governance and sound policies.

FEVZI AYTEKIN, Minister of Environment of Turkey, said that his country agreed with the principles of Agenda 21 and the Economic and Social Council’s decisions on sustainable development and accepted the principle of common but differentiated responsibilities in meeting the multilaterally-agreed targets. During the last 20 years, remarkable progress had been achieved in terms of organizational and legal arrangements for solving environmental problems. However, despite all the positive developments, the mission to integrate environmental issues into social and economic decisions had yet to be accomplished.

Having one of the fastest growing economies of the world, Turkey offered good opportunities to international investors, he said. The existing not-so- environmentally friendly and inefficient production patterns were expected to be replaced by new and efficient processes under the ongoing privatization programmes. A legislative framework draft bill was currently being discussed at the Turkish Grand National Assembly to financially strengthen and enable local authorities to single-handedly tackle the monetary aspects of environmental problems. Developing countries must be empowered through finance, technology transfer and capacity- building to realize international cooperation to achieve environmentally sound and socially progressive economic development.

PIERRE LELONG (Haiti) said that the essential purpose of agricultural and rural development was to improve the living conditions and food security of the worlds poorest. To that should be added the commitment by governments to reduce by half the number of people suffering from chronic malnutrition. Desertification and drought continued to be obstacles to growth and was a problem with global dimensions. The impact of desertification was more obvious in the poorest regions, particularly in Africa. He called upon governments to support implementation of the world machinery to fight drought, and encouraged agreements and partnerships in that connection to combat desertification.

He said that there had been tremendous difficulty in mobilizing domestic funds to aid poor countries. The broadest possible involvement must be considered a prerequisite. Reforms must be strengthened to create a promising macroeconomic environment. The international community must do all it could to improve the international economic environment. He was disappointed with the fall in official development assistance. The donor countries should do everything possible to achieve the international goal of 0.7 per cent gross national product for official development assistance, since the health of their economies made that goal possible.

KIM CHANG GUK (Democratic People's Republic of Korea) said that once poverty reduction had been acknowledged as one of the major goals of the new millennium, debt relief for developing countries should be the major method of reaching that goal. It was obvious that the external debt stock of developing countries had been increasing while the amount of official development assistance from developed countries had not increased since the Rio Summit. If there was a lack of political will to contribute toward global sustainable development, it was useless to repeat meetings followed by recommendations and decisions, which would remain empty words on paper.

Poverty reduction and the debt problem were inseparably linked to each other, he continued. Unless the debt problem was resolved, poverty reduction was not conceivable and there could be no talk of realizing sustainable development. To accommodate sustainable development through poverty eradication, the debt problem should be urgently resolved. It was necessary to implement measures to freeze the debt interest without any conditionality, reduce debt at a wider range and, consequently, cancel the total debt stock of developing countries. The Commission should pay special attention to solving the debt problem in conformity with the growing concern of developing countries and encourage all proposals and measures to that end.

AHMED IRAQI, Secretary of State for the Environment of Morocco, said that his country had had been undergoing drought for some time. It was a scourge that had been developing since the beginning of the century. The country was experiencing drought once every seven years. In view of the damage it had caused, the Government had devoted 6.5 per cent of its budget to deal with that matter. Also, Morocco’s King had requested the Academy of the Kingdom of Morocco to consider a new strategy to produce food security.

The wealthy societies, as well as the poor ones, were both afflicted by the problems of sustainable development, he said. The inconsistencies between civilization and the loss of nature must be recognized. Also, it must be confirmed that globalization and the laws of the market had negative impacts on the population and on the environment, particularly in Africa, which was the source of most of the world’s natural resources, yet contributed to only 1 per cent of the world economy. New mechanisms must be devised to protect that wealth and ensure sustainable development. He added that to benefit from the ten-year review, there must be a time perspective in which to consider sustainable development. He suggested the theme “struggling against poverty” for the review.

JAN TROJBORG (Denmark) said that financing for sustainable development was one of the most important challenges to consider at Rio+10. Especially in the least developed countries, there was a huge need for more financing for sustainable development. The major part of the financial resources must and would come from domestic and foreign private sources. But sufficient official development assistance for poverty eradication through sustainable development was also important. It was high time to reverse the trend in the decline in official development assistance and all industrialized countries must meet the target confirmed at Rio of 0.7 per cent of gross national product in official development assistance contributions. Since Rio, the Global Environment Facility (GEF) was playing an increasingly important role as a financial mechanism.

He said that it was important to promote investments that supported sustainable development in all its aspects -- economic, social and environmental. The debt of a large number of the poorest countries was a drain on the resources they needed for investment in poverty alleviation and social advancement. The financing of the multilateral cost of the Heavily Indebted Poor Countries (HIPC) Debt Initiative was not yet fully in place. Considerable progress, however, had been made in securing funding for the uncovered multilateral costs of the enhanced HIPC. He was seeking an additional Danish contribution of $19 million to the HIPC Trust Fund in the World Bank.

MARJAN DODOVSKI, Deputy Minister of the Environment, The former Yugoslav Republic of Macedonia, said that sustainable development required an appropriate system of financing and investment, both at the national and international level. Official development assistance was still one of the most important instruments for financing the development activities of the developing countries and countries with economies in transition. Foreign direct investment was becoming more and more of a crucial factor in the financing of the global economic growth. Each country should promote its investment possibilities, which should be in accordance with the international environmental standards.

Debt relief was a very important effort for the development of many countries, he said. Access to the developed countries markets for basic products from the developing countries and countries with economies in transition should be improved on a higher level and completely liberated, particularly in agriculture. There was a great need for urgent elimination or reduction of the subsidies, particularly agriculture export subsidies. Appropriate inclusion of all countries into the global trade network with a full membership in the World Trade Organization (WTO) was necessary in order to create real conditions for the benefits of globalization.

PIER BENEDETTO FRANCESE (Italy) said that there was no sustainable development without environmentally-sound investments, and fair and equitable trade that did not damage the environment. Effective aid to sustainable development called for a selective approach aimed at focusing the available resources on issues that had a multiplier effect, thus improving education and health, rural development, development of clean and renewable sources of energy, capacity- building and trade in equitable terms. They were all crucial factors in the fight against poverty.

Global problems called for global commitments, he said. All the development agencies and international financial institutions must be involved in endeavours to achieve sustainable development. The cancellation of debts that burden developing countries, especially the poorest ones, was necessary to put them on the path of sustainable economic growth. The debt burden was a major factor in poverty and underdevelopment. It was also necessary to establish a special partnership between the richest and the poorest countries based on the commitment on both sides to unprecedented action. That partnership should entail, among other things, the elimination by the industrial countries of all barriers, tariffs or quotas still existing towards imports from the poorest countries. The WTO should adopt, by the end of the year, a common generalized system of preferences, based on preferential treatment for all imports from those countries.

T. R. BAALU, Minister of Environment and Forests of India, said that in Rio, the international community recognized that trade could generate some of the financial resources necessary to help developing countries achieve sustainable development. It set itself the objective of promoting an open, non-discriminatory and equitable multilateral trading system that would enable all countries to improve their economic structure, and the quality of life of their people. It pledged the creation of a market structure that allowed easy access of exports from the developing world, and to stop and reverse the trend of protectionism. The developed countries should do more to eliminate export subsidies, as well as trade distorting policies that together constituted very formidable obstacles in providing market access for goods from developing countries.

In the last few years, he said, a series of economic crises in Asia had exposed the soft underbelly of the international financial system. The challenge that lay ahead was to ensure enhanced mobilization of external resources to recipient countries. Equally urgent was the need to find lasting solutions to the debt problem of the least developed countries. Also, he urged that debt relief should come from additional, concessional financing and not be at the cost of development assistance flows to other developing countries. Much more could be done to reform the international financial structure, so as to ensure enhanced participation by developing countries in decision-making.

Foreign direct investment flows, he added, were still concentrated within the developed world and among a handful of developing countries. Those flows, by definition, sought profit and so did not go to either the social or environmental sectors. Therefore, even if the quantity of foreign direct investment increased, and if it was more widely distributed among recipients, it could not be a substitute for official development assistance.

ADAM ADAWA (Kenya) said that the rapid process of economic globalization and trade liberalization since Rio had presented developing countries with opportunities and challenges that had intensified the risks and the uncertainties of the development process. The challenge of mobilizing adequate and stable resources for implementation of sustainable development in the developing countries had not been successful. The achievement of sustainable development required integration of its economic social and environmental components in order to stimulate sustained economic growth. Poverty did not necessarily lead to environmental degradation. Eradication of poverty required sound micro-economic policies at both national and international levels with a view aimed at mobilizing and providing new and additional financial resources.

Official development assistance could not and would not be replaced by private capital flows, he said. Developed countries should ensure the fulfilment of commitments to reach the agreed target of 0.7 per cent official development assistance. Moreover, new official development assistance should be provided in the form of grants without conditions. The external debt problems continued to adversely impede the efforts of developing countries to promote and achieve sustainable development. He recognized the important role of private capital flows for supporting sustainable development. National governments should facilitate sound regulatory measures designed to attract foreign investment portfolios, especially foreign direct investment, in their development process.

Dialogue

The Chairman, JUAN MAYR MALDANADO (Colombia), asked what were the mechanisms to enable investment flows, including private investment flows, to contribute favourably to sustainable development?

The representative of the United Kingdom said that it was important for the ministers gathered at the meeting to actually get down to discussing the issues and not just reading out statements. The format of the meeting needed some consideration. There was no point in going around in circles and repeating what had been stated before. With regard to foreign direct investment, there had been controversy over a multilateral agreement on investment, but some type of arrangement on international investment was necessary. The question was how to have a climate in developing countries that was more conducive to foreign investment. He agreed that the finance for development process was central to the general aim of sustainable development. The United Kingdom was increasing its official development assistance by 50 per cent over four years. At the same time, it was necessary to look at the spending habits of developing countries and their priorities.

A representative of Honduras said that the most important thing was to find answers to the problems raised by the representatives of Denmark and the United Kingdom. More time was needed to find answers to specific problems. Answers could only be found through dialogue and by addressing fundamental problems, such as poverty. To meet the commitments made at Rio, financing mechanisms must be implemented that would contribute to the process. On regional and subregional institutions, financing and participation of regional institutions was of utmost importance. The Interamerican Bank had not been invited to the meeting. That was very disappointing, since it was a principal source of financing for development. The correct mechanisms must be found to better coordinate donors and recipient countries. It was of paramount importance that new mechanisms be considered.

A representative of Finland said that the quantity of official development assistance was important. Industrialized countries should increase their amounts of official development assistance. The quality of aid, however, was also very important. The quality of the aid did not only depend on what donors were doing, but on what the recipients were doing. Well-defined national strategies for sustainable development, and strategies for development in general, were needed. It was one thing to list what foreign donors could finance, but it was another thing to have a strategy and vision for the most important and crucial needs to be addressed. To make official development assistance effective, very strong strategic thinking was needed on the part of recipients.

A representative of Argentina said that redirecting finance sources towards innovative instruments should be supported. Another environmental agreement should also be considered, by means of which resources could better be channeled and which would address specific programmes. Specific instruments could be applied before channeling resources. In reference to the statement of the representative of the United Kingdom, the internal resources of countries were very scarce and there was too little room for maneuvering for better use of resources.

The representative of Egypt said that the language being used today had been used in back in 1993 during the first session of the Commission, as well as in Rio. The issues of foreign direct assistance, official development assistance, debt relief and the fact that developed countries wanted to know what the developing countries were doing with their money were being repeated. The informal discussion among heads of delegations on such issues was extremely important for that dialogue. Developing countries also had problems on how money was given and the conditions imposed on that assistance. No one was objecting to good governance, but what was the definition of good governance? he asked.

He also requested Mr. Moltke to expand on one of his final points. Further, he said that there was a technical and financial group convened every year on new ways and means of financing, and he wanted to know what happened to those recommendations.

MR. MOLTKE said there was a confluence of several interests, including increasing resources that promoted multilateral investment. At the same time, the international community was faced with dramatic changes in financial markets. The question to be asked was what were the public goods that needed to be protected and promoted in the midst of those changes. One obvious one was environment and sustainable development. Dealing with investment was different than dealing with trade and goods. The relationship between investment and the host county’s public interests was different than in a trade relationship. It was necessary to build on the broad international investment regime.

There were over 1,000 bilateral investment treaties, he continued. A global investment regime should not be concluded at this time. Liberalizing trade in goods was easy. Developing a structure of rules for investment was more difficult. It was necessary to link closely the structure of rights, which investors needed, with the structure of obligations. Environmental agreements offered an opportunity to advance the environment and to advance the debate on international investment.

The representative of the Philippines said that if financing for sustainable development was to be accelerated, a mechanism was needed by which finance ministers and senior officials could be more involved in the process.

A representative of Japan said that, as the major world contributor of official development assistance, Japan stressed its importance as a key factor in the financing of sustainable development. While the recent declining trend of such assistance should be reversed, in reality there was a limit to the assistance, due to certain economic situations. It was necessary to improve the efficiency of limited financial resources. Resources had to be managed more effectively. There was also a need for more dialogue with recipient countries, in order to prepare concrete development programmes. New and innovate financing mechanisms were necessary and seed money was needed to encourage private investment flows.

A representative of Guyana said that the specific question of the mechanisms needed to channel resources must be seen in a number of different ways. In Guyana, they wanted to move on, but were unable to find an appropriate mechanism. Perhaps, there was bias towards supporting huge investments. It was often difficult to secure financing for small projects. That cycle must be broken.

A representative of Indonesia said that the new official development assistance should be extended in the form of grants. Greater emphasis on dialogue and partnership would also help. On the domestic front, the importance of governments in mobilizing domestic sources of capital must be recognized. In promoting financing flows, additional conditionalities should not be imposed. The promotion of private sector participation should also be explored.

The representative of Morocco said that no one was ready to invest in a loss. The question was how to reconcile environmental protection and investment. The role of the developing countries was to create a promising economic environment; that of the developed countries was to create capacities for interaction. Agenda 21 should be the initial framework upon which to build for a new contract that would emerge from the outcome of Rio+10.

Germany’s representative said that among the conditions necessary to attract foreign investment were the rule of law, and legal and personal security for those investing. For example, increasing crime was not conducive to attracting investment. The proposal by Mr. Moltke to include an investment chapter in international environment agreements warranted further consideration and should be followed up on.

Another question that needed to be answered was how developing countries could ensure that capital did not flow away from their countries, she said. “What are African countries doing to keep capital in the continent and have it invested there and prevent it from flowing to European and other banks”? she asked. The German Government had decided to cancel all commercial debts owed by the poorest countries, which was expected to benefit almost 30 countries. She hoped that that additional bilateral debt relief would induce other creditor countries to take similar steps.

India’s representative said that foreign direct investment was commercial assistance and could not be a substitute for official development assistance. Foreign direct investment could not flow to poverty alleviation projects. In Rio, developed countries had agreed to contribute 0.7 per cent of their gross national product, but that figure had dwindled year after year. “Did this mean that Rio+10 would be a futile endeavour”? he asked. He further asked why developed countries gave lip service to technology transfer, which was generally not affordable for developing countries.

Mr. OCAMPO said that there was no question that foreign direct investment, as well as capital flows and aid for development, played important roles in economic growth and in poverty alleviation. He fully shared the view expressed by the delegate of India. There were two different sources of flow involved. The question was how flows could contribute to mechanisms for sustainable development.

The role of foreign direct investment was more limited and had two effects, he said. The first was the ability to introduce clean technology. Foreign direct investment needed to have greater requirements from a technical point of view. The second was the effect of sectoral concentration of direct investment. Foreign direct investment did need to be an essential consideration of the agreement on climate change. The issue at hand was the need for an international flow of resources. There had to be a flow of resources on the international level.

The representative of the International Fund for Agricultural Development said that the Rio process had established an innovative financial mechanism. It had also established global mechanisms. He considered himself a part of those financial mechanisms. The United Nations Environment Programme (UNEP) was also a financial mechanism. The International Fund was the mechanism to deal with agricultural development. "Why should you talk so much about innovative new things, and not the mechanisms you had established”? he asked.

The representative of New Zealand said that New Zealand placed emphasis on development policies to enhance official development assistance flows. Official development assistance was seed money to encourage investors to explore development in countries. There had also been an increase in emphasis on policy dialogue, partnerships, regional organizations, supporting national capacities, improving project design and exploring new mechanisms of aid delivery by tapping into non- governmental organizations.

Sudan’s representative said that some basic facts about Africa had been forgotten in the debate. One was that since Rio, a number of developments, particularly political, had taken place in African countries. He drew attention to the recommendations contained in the Secretary-General’s report on Africa and asked what had been done with them. He also asked what had been done about sustainable industrial development in Africa, for which there had been no financial assistance. The HIPC Initiative had become a substitute for financial assistance to Africa. Before there could be talk of attracting investment to Africa, infrastructures in Africa must be supported.

The representative of the Czech Republic said that her country was now at a stage where it was playing the dual role of recipient and donor. In the early 1990s, it faced a number of problems in constructing its new economy and in dealing with issues, such as pollution. At that time, foreign assistance had been forthcoming but it had not been easy to use it as efficiently as possible. She emphasized that a strong national strategy was absolutely necessary for setting priorities and using foreign assistance efficiently. A country must also ensure domestic ownership of the means of production.

Now, as a donor country, she continued, Czech Republic was doing its best to increase its foreign assistance to developing countries. It was important understand the needs of the recipient country and to work hand in hand with them, to ensure successful cooperation. Better communication was also necessary between recipient and donor countries.

The representative of Cameroon said that it was obvious that since Rio, little progress had been made. While a number of actions had been identified in Agenda 21, very few of them had been carried out. That was not due to reluctance on the part of developing countries, but to a lack of funding. Most developing countries had made major efforts to protect the environment since Rio. The countries of central Africa had the second largest forest cover in the world. In March 1999, those countries had framed a declaration, which confirmed the need to protect the forest ecosystems of Central Africa. Last December, the United Nations had passed a resolution asking the international community to support those countries by establishing a funding mechanism. They were still waiting for that to happen.

Kenya’s representative said that he fully supported the statement by the International Fund for Agricultural Development. There were global mechanisms available, which could facilitate financial funding for developing countries. “Had they been implemented”? he asked. The answer was no, due to the lack of resources. While many United Nations and international programmes had been earmarked for Africa, they had not been implemented. Poverty eradication was the overriding objective of all countries, particularly developing countries. That was evident in the core commitments of the World Summit for Social Development. However, those commitments, too, had not been fully implemented. While developing countries had positive incentives to attract investment, the resources had not been forthcoming.

A representative of the World Bank said that there were some goods and services that very often did not enter the market place. The role of private sector had changed dramatically since 1992. One issue was how to deal with markets when markets did not deal with the goods that a country cared so much about. “How do you try to shape markets and shape the role of private capital flows”? he asked. That was an area of substantial interest. It was important to think about private flows in the context of public policy.

NITIN DESAI, Under-Secretary-General for Economic and Social Affairs, said that flows of official development assistance for Agenda 21 initiatives had not been adequate. Yet, the flow of assistance for the social dimension had been there. The figures showed a doubling of development assistance for the social sector. Flows for environmental protection, however, had not increased. “What was the lesson learned”? One reason why money was being received for the social sector was because the donor countries were closer to priorities of the recipient countries. They could identify clear needs, such as funding for AIDS research.

At the global level there was a need to see if general policies could be translated into performance-oriented programmes, he said. At the country level, poverty eradication must be linked up with environmental concerns. Instead of regretting the lack of response, the appropriate lesson must be learned.

Mr. OCAMPO said that the importance of combining social and environmental programmes must be emphasized. There was a need to make a distinction between global subjects of human sustainable development and those, which had to do with the possibility of eradicating poverty. With regard to matters of sustainability in an environmental framework, the essential subject was how to encourage activities that generated environmental services. The establishment of strong institutions and mechanisms was needed. Once national policies had been embarked upon, development assistance could play a specific role. Aside from national actions, world agreements at the international level needed flows of the same nature.

Mr. MOLTKE said that when faced with overwhelming problems, it was often difficult to take modest steps. In reality, however, the solution often consisted of many small steps. One of the most dramatic changes had been the emergence of a huge international investment market. The need for balance between markets and official development assistance must be urgently addressed. In one sense, the two were both complementary and competing.

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