Background Release

FIRST INTERNATIONAL CONFERENCE ON FINANCING FOR DEVELOPMENT

TO BE HELD IN MONTERREY, 18 - 22 MARCH

Trade Liberalization, External Debt,

Development Assistance, Private Investment among Key Issues to Be Addressed

In an effort to mobilize crucial resources to boost economic growth and to fulfil internationally agreed development goals, the International Conference on Financing for Development will convene in Monterrey, Mexico, from 18 to 22 March.

The Monterrey Conference, Secretary-General Kofi Annan has stated, offers the best chance in years to “unlock the financial resources that are so desperately needed for development”.  Without progress in the area of financial resources, he said, the goals agreed to by heads of State and government at the Millennium Summit –- such as halving extreme poverty by 2015 –- were in jeopardy.

Monterrey is the culmination of a process, which began over two years ago with the adoption of General Assembly resolution 54/196 of December 1999.  The Conference is mandated to promote international cooperation in six key areas -- mobilizing domestic resources, increasing private international investment, strengthening official development assistance (ODA), increasing market access and ensuring fair trade, solving the debt burden, and improving the coherence of global and regional financial structures and promoting fair representation of developing countries in global decision-making.

An unprecedented feature of the financing for development process is the participation of the World Bank, the International Monetary Fund (IMF) and the World Trade Organization (WTO), along with members of the United Nations system and representatives of the civil society and the business sector.  The Conference itself will consist of round tables, a ministerial segment and a two-day high-level summit.  Related events include a civil society organized Global Forum and an International Business Forum in addition to numerous side events.

Following intensive negotiations, countries reached agreement on a wide range of issues that paved the way for the Conference.  By the terms of the “Monterrey Consensus”, the outcome document to be adopted at the conclusion of the Conference, Member States resolve to address the challenges of financing for development around the world, particularly in developing countries.  Their goal is to eradicate poverty, achieve sustained economic growth and promote sustainable development as they advance to a fully inclusive and equitable global economic system.

The resource implications of reaching the development goals are considerable, but not unachievable.  A high-level panel, appointed by the Secretary-General and chaired by former Mexican President Ernesto Zedillo, estimated in June 2001 that in addition to the current level of development assistance –- about $50 billion, a 30-year low in relation to total world income

-- an estimated $50 billion per year is needed.

Official development assistance (ODA) is one of the most important issues to be discussed in Monterrey.  On average, ODA as a percentage of donor countries’ gross national product (GNP) was already falling when the international community first adopted in 1970 the target of contributing 0.7 per cent of GNP.  Official development assistance remains particularly crucial for the 49 least developed countries -– all of which have per capita gross domestic product (GDP) of less than $900.

The decline in ODA in the 1990s has been attributed to several issues, such as fiscal deficits in donor countries, loss of motivation after the cold war and bigger flows of private capital to developing countries.  Another factor has been doubts about the effectiveness of ODA-supported programmes and projects.  Considerable progress has been made in recent years in understanding the preconditions for aid effectiveness.  Basically, it should reduce poverty and rely on policies that recipient countries' governments and civil societies helped to formulate and in which they feel a sense of ownership. 

Studies show that aid can have a direct impact on poverty when it is targeted to programmes such as those for children, nutrition and emergency relief.  More importantly, aid can play an important supportive role in countries where the domestic environment is conducive to reform.  This underscores the importance of a national commitment to the reform process.  Rather than conditioning assistance on the visions and priorities of donors, it is increasingly accepted that domestic-initiated reform efforts are key.

According to the World Bank and the IMF, reaching the development goals will also require a sound policy and governance framework within developing countries; availability of external financing on favourable terms; and reduction of the obstacles that block access of developing countries to the markets of the world’s richest economies.

In recent years, and particularly since the WTO Ministerial Meeting held in Doha, Qatar, in November 2001, increasing attention is being paid to the high barriers to the exports of many developing countries, which cost them $130 billion a year.  Although Monterrey is not a trade negotiation forum, the WTO is one of the main Conference partners.  It will provide a forum in which trade measures could be discussed in relation to other financial aspects of development and can help build support for a fairer and more open global trading system. 

Tariffs and import restrictions in many developed economies tend to be comparatively high for agricultural and other labour-intensive goods that many developing countries can export competitively.  In some product categories, not only do developing-country exporters have to be efficient, but they also have to compete against developed-country producers that enjoy high levels of subsidies, especially farmers.

The expansion of market access for developing country exports needs to be complemented by a concerted effort to ensure that all countries, especially those that face special challenges, are in a position to benefit from liberalization.  A recent study estimated that removing all trade barriers could bring a potential gain to developing countries of about $130 billion a year -- dwarfing the estimated $50 billion extra in ODA needed annually to reach the Millennium Development Goals set for 2015.

The importance of financial and technical support, including debt relief, to both middle- and low-income highly indebted developing countries has been under discussion in preparations for Monterrey.  The Conference was expected to build consensus on the means to finally eliminate debt traps.  Some countries have become overwhelmed by debt, crippling their capacity to meet the needs of their citizens and to sustain economic growth. 

Participants have called for greater flexibility in policy actions from multilateral institutions such as the IMF and the World Bank, and for prompt debt relief for least developed countries, small island and landlocked countries and other poor nations that have been struck by natural disaster, suffered severe terms-of-trade shocks, or are emerging from conflict.  So as not to divert resources from financing for development, representatives of developing countries have also maintained that debt relief needs to be complemented by increased ODA, mainly in the form of grants and highly concessional loans.

The current financial crisis in Argentina, as well as the contagions of 1997-1998, had made the need for preventive measures clearer than ever before.  The costs of crisis, especially to developing and transition economies, were substantial.  In preparation for the Conference, the United Nations and its partners, especially the World Bank, IMF and WTO, had examined ways that stakeholders in the international economic system can better deal with such difficulties.

In that regard, two ideas have been promoted by developing countries during the preparations for Monterrey.  One is to improve surveillance over all economies, including and especially those of the major industrialized countries, which have a disproportionately high impact on global trends.  The second is that the international and multilateral bodies that set standards for financial systems and provide early warnings of potential crises should include a relevant representation of developing countries. 

Monterrey Consensus

The draft outcome is divided into three sections -- confronting the challenges of financing for development:  a global response; leading actions; and staying engaged.  The heads of State and government gathered in Monterrey would, as their first step, mobilize financial resources and achieve the national and international economic conditions needed to fulfil internationally agreed development goals, including those contained in the Millennium Declaration to reduce poverty and improve social conditions.

The terrorist attacks of 11 September 2001 exacerbated the global economic slowdown.  It has now become all the more urgent to enhance collaboration among all stakeholders to promote sustained economic growth and address the long-term challenges of financing for development.

While the role of national policies and the primary responsibility for each country's own economic and social development is emphasized, the text recognizes that domestic economies are now interwoven with the global economic system, and national development efforts need to be supported by an enabling international environment.

The draft organizes its consideration of leading actions in the following way:  mobilizing domestic financial resources for development; mobilizing international resources for development/foreign direct investment and other private flows; international trade as an engine for development; increasing international financial and technical cooperation for development; external debt; and addressing systemic issues.

To ensure that world trade supports development for all, the text also calls on leaders to implement the commitments made in Doha to address the marginalization of the least developed countries in international trade and commit themselves to enhancing the role of regional and subregional arrangements and free trade areas.  They will also call on developed countries to work towards the objective of duty-free and quota-free access for all least developed-country exports.

In addition, leaders will urge developed countries, that have not yet done so, to make concrete efforts towards reaching the target of 0.7 per cent of GNP as ODA to developing countries, and 0.15 to 0.2 per cent to least developed countries.  At the same time, recipient and donor countries, as well as international institutions, should strive to make ODA more effective. 

On the issue of external debt, the text states that external debt relief can free up resources, which can then be directed towards development efforts.  Therefore, debt relief measures should be pursued vigorously and expeditiously.  Speedy, effective and full implementation of the enhanced Heavily Indebted Poor Countries (HIPC) Initiative is critical.  Leaders also encourage exploring innovative mechanisms to comprehensively address debt problems of developing countries, including middle-income and transition countries.

International efforts under way to reform the international financial architecture need to be sustained with greater transparency and the effective participation of developing and transition countries, according to the text.  The multilateral financial institutions, particularly the IMF, need to continue to give high priority to the identification and prevention of potential crises and to strengthen the underpinnings of international financial stability.  In that regard, the text stresses the need for the Fund to further strengthen its surveillance activities of all economies, with particular attention to short-term capital flows and their impact.

A first priority, according to the text, is to find pragmatic and innovative ways to further enhance the effective participation of developing and transition economies in international dialogues and decision-making processes.  One way to do that is for the WTO to ensure that any consultation is representative of its full

membership and that participation is based on clear, simple and objective criteria.

Further, leaders commit themselves to keeping fully engaged, nationally, regionally and internationally, to ensuring proper follow-up to the implementation of agreements and commitments reached at the Conference, and to continuing to build bridges between development, finance and trade organizations and initiatives.  They request the Secretary-General to submit an annual report on follow-up efforts and call for a follow-up international conference to review the implementation of the Consensus, the modalities of which will be decided no later than 2005.

* *** *