Reports about the Third International Conference on Financing for Development (FfD) have lamented the end of globally-expanding official development assistance (ODA), questioned the faith in profit-led public investments, and asked if philanthropic foundations would selectively deliver on public responsibilities. But the deliberations in Addis Ababa also opened up a potential space for UN-led conversations among relevant policymakers and other stakeholders about these and other aspects of financing for development.
During the final UN preparatory meeting for the 13-16 July FfD Conference in Addis Ababa, some delegates in New York acted like their predecessors who prepared the first FfD Conference in 2002 at Monterrey, Mexico, worrying that they might fail to make the initiative succeed. They cared because of something special in the international economic forum that was FfD. If nothing more, the Addis Ababa Action Agenda (AAAA) may have rescued that July forum from a near-death experience.
One challenge in negotiating the outcome in Addis was to confront the objective of the EU and certain other countries of merging FfD into another track of international policy discussions. The world’s foreign ministries had decided to devise a set of sustainable development goals (SDGs) to succeed the Millennium Development Goals (MDGs). Unable to agree on the new goals (or much else) at the Rio+20 Conference in June 2012, UN member states instead created an Open Working Group in the General Assembly which agreed to a first draft of SDGs in 2014. They also decided to monitor their implementation through a “high-level political forum” (HLPF). The EU wanted monitoring of whatever would be agreed in the FfD track in Addis Ababa to fall directly under the HLPF.
The problem or advantage with this approach—depending on one’s perspective—is that FfD had created a global substantive as well as political forum for discussion of finance, aid, trade and their coherence to which governments send representatives from relevant ministries and in which the International Monetary Fund (IMF), World Bank, and World Trade Organization (WTO) participated, along with civil society and business. The HLPF would be more political and less technical than FfD; it would not likely address such FfD issues as the norms of international banking regulations. Proponents of this approach thought it desirable to keep those “systemic” issues off the UN agenda.
In the end, a compromise was struck between the EU’s proposal and that of the Group of 77 and China to create a formal FfD Commission to take charge of the follow-up. Each year there will be multi-stakeholder FfD meetings in the Economic and Social Council (ECOSOC) for up to five days to address the outcomes agreed in Addis as well as the means of implementation (MoI) for the post-2015 development agenda to be finalized at the September 2015 World Summit in New York. Not only will the scope of Addis broaden the policy content of the MoI follow-up, but the technical level of some of the MoI reviews may be deeper within the FfD process than they would otherwise have been.
Post-Monterrey: FfD Unravels
Steps to implement each of the pledges made at Monterrey have been taken, but the journey has been incomplete at best. Most disappointing, Monterrey failed to construct an effective, standing global coherence forum at the UN. FfD meetings slipped into numbing routine with lower and lower-level participation. The 2002 “Monterrey moment” had passed.
Then in November 2008, responding to the worst financial and economic calamity since the Great Depression, an upgraded Group of 20 (G20) took control of global policy making. In less than five months, it adopted a comprehensive program for global economic recovery and financial regulatory reform. However, the pragmatic, multi-ministerial, multi-institutional, and multi-stakeholder approach of FfD still had its champions. A second conference planned for Doha at the end of 2008 took place two weeks after the G20 leaders met in Washington, D.C. Proponents had in mind a “Bretton Woods II,” a notion rejected by the major powers. The G20 had already adopted a systemic reform agenda with input from the largest developing countries. FfD was irrelevant if not dead.
Addis "Consensus" on Financing
Press accounts of the AAAA and civil society assessments have complained that no policy changes were agreed, no significant additional funds were pledged, no trade concessions were promised, and no relaxation made of OECD (and G20) control over international tax cooperation norms as on how to tax multinational corporations.
The message brought by Western negotiators to Addis was the end of expanding volumes of ODA, a development already visible in donor aid statistics. The future would see more of what used to be aid-funded development and anti-poverty projects and programs financed instead in combination with private, for-profit funds in “blended” arrangements or in cooperation with rich foundations or by private investment. Anyone hoping for a return to robust aid and an expansive view of the economic role of the state in development had to be disappointed.
Observers should not have been surprised, however. The Rio+20 Conference in 2012 had deadlocked on financing as well as on defining the SDGs. Moreover, the OECD and its Development Assistance Committee of donor governments have been working in recent years to broaden the concept of development cooperation to include activities excluded from the traditional (and the recently updated) definition of ODA. The new concept, “total official support for sustainable development” (TOSSD), would include export credits and other private funds mobilized by guarantees or other official interventions, etc. It would be measured and monitored by the OECD.
In fact, the huge volume of infrastructure and other investment needed in developing countries to deliver sustainable development requires mobilization of largely private financial resources. This is not new. Traditionally, infrastructure investment has been undertaken by domestic or international public authorities for everything from municipal sewerage systems to vast World Bank-funded dams. Estimates are that the global savings rate is adequate to the future financing task, although the funds are now largely invested elsewhere. However, the new approach to mobilizing necessary funds differs from the traditional one in adding more intense collaboration between the official and private sectors and more profit opportunity than merely the interest paid on bonds or bank loans. For example, it includes a scaling up of “public private partnerships,” which have a checkered history in being able to deliver public services effectively or at acceptable cost. Addis promised increased official cooperation to facilitate project design and matching investors to investment projects. It left open the question of ensuring social oversight of the investors.
Sustainable development will require the substantial expansion of regular government expenditure in developing countries as well as increased investment. Most of these expenditures are financed through domestic taxation, supplemented in the poorest countries by bilateral and multilateral ODA. With less growth expected in ODA, more domestic tax revenues will be essential. Developing country governments are aware of this imperative, and most have scope to increase their “tax take.” AAAA promised more international cooperation on taxes to assist in such efforts, both to catch and discourage tax cheats and to raise more revenue from taxpayers, albeit within the context of the tax standards developed in OECD.
This picture, however, is incomplete as it omits reference to widening cracks in the global system. WTO negotiations initiated just before Monterrey have produced very little; and the major economies have instead turned to forging trade and investment agreements among limited numbers of countries as the more effective way to advance the interests of their firms and investors. Meanwhile, China has been pursuing its own strategy of expanding trade and financial relations with the rest of the developing world, including its new Silk Road Initiative that links Asia and Europe and its Asian Infrastructure Investment Bank that will finance some of the necessary infrastructure. International initiatives by Brazil, India, and other governed aid, trade, and financial institutions. Perhaps the future of international cooperation is less settled than the Addis document might make it seem.
Rebirth After Addis?
Two agreements in the AAAA that were not headline material may offer opportunities for frank international policy debate about a more heterogeneous world. One concerns a new “technology facilitation mechanism” to promote information about and policy discussions of the development and dissemination of technologies in developing countries. The other pertains to keeping FfD alive by adapting the new approach to intergovernmental discussions within ECOSOC noted above. The challenge will be to turn these initiatives into confidence-inspiring forums. The first such meetings should be scheduled for 2016 in New York.
FfD follow-up, in particular, requires a fresh start that leads back toward the informality and openness of Monterrey. The Addis agenda all but begs policymakers to flesh out its more than 100 policy statements. In light of the priority accorded to private financing, one policy matter seems especially urgent as the focus for the first follow-up meetings: “We will work toward harmonizing the various initiatives on sustainable business and financing, identifying gaps, including in relation to gender equality, and strengthening the mechanisms and incentives for compliance” (para. 37). The AAAA acknowledges that multiple initiatives already aim to define economically, socially, and environmentally responsible corporate behavior, including the human rights responsibilities of business and government oversight of the private sector. It could be useful to firms seeking to behave responsibly to have a common set of guidelines. Governments dealing with firms that operate in multiple jurisdictions may wish to decide what those guidelines should be.
While the AAAA does not specify how to allocate the up-to-five FfD days at ECOSOC, it provides an important opportunity to structure in-depth discussions. For example, ECOSOC could devote four days to the selected focus in two separate sessions and the fifth day to the overall review also mandated in Addis. The initial two days could be held back-to-back with the IMF/World Bank spring meetings, and the second two days could be held together with the overall review back-to-back with the IMF/World Bank Annual Meetings in the fall. Both occasions could provide opportunities to engage finance and development ministry officials, who would be nearby in Washington.
If the topic were announced in October 2015 (and annually thereafter at that time), it would give governments, international organizations, and other stakeholders a year to prepare. The spring session could comprise a day of expert hearings and a day of the original FfD round tables (that is, closed and frank) to highlight potential areas of agreement and disagreement. The UN Secretariat, drawing on the discussions and assisted by relevant partners and expertise, could then prepare a draft proposal for consideration at the fall session. The Addis conference also mandated that the annual set of meetings end with an intergovernmental statement, which in this case could include a first draft of agreed guidelines.
Nothing of this sort exists at this moment. Addis officially recognizes its need. Why not try it?
Barry Herman is Visiting Senior Fellow at the Graduate Program in International Affairs at the Milano School of International Affairs, Management and Urban Policy, The New School. Since his retirement after 30 years from the United Nations, he has continued his development research and advocacy efforts for a number of non-governmental organizations including on the initiating boards of Social Justice in Global Development and of Global Integrity.
Photo: Secretary-General Ban Ki-moon arrives in Addis Ababa for the Third International Conference on Financing for Development, 12 July 2015. UN Photo/Eskinder Debebe