The Road to Addis Ababa

Added 23/Sep/14
In July 2015, the international community will have the chance to change the future of finance development. Governments, civil society, trade unions and other actors will meet for the third UN conference on Financing for Development (Ffd) in Addis Ababa (Ethiopia) to take concrete decisions for the future of development and how to finance it. In the run-up to this crucial meeting, two major reports have been released which are intended to inform the upcoming debates. We have had a report from the Intergovernmental Committee of Experts on Sustainable Development Finance (ICESDF) and one from the Open Working Group (OWG) – a 30-member group nominated by the UN General Assembly to decide on the Sustainable Development Goals. Both reports should feed into future action. Disappointingly, both lack ambition and fail to present specific recommendations, something that CSOs - many in developing countries - and other actors have been calling for some time.   

In this article, we analyse both of these reports, taking into consideration Eurodad’s main priorities and the key issues at stake. Together with the Synthesis Report of the UN Secretary General (UNSG), these three documents will constitute the basis of the negotiations at the third UN Financing for Development (FfD) conference, making the road to Addis Ababa both an opportunity and a challenge - one that all who care about development finance should take on. 

Financing for Development and the United Nations

Achieving development has always been one of the priorities of the UN since its inception. However the UN has historically played second fiddle to the International Financial Institutions (IFIs) on finance and economic issues. 

The first FfD conference in Monterrey (Mexico) in 2002 produced the Monterrey Consensus. It introduced six “leading actions” (the “Monterrey Chapters”) that have shaped the FfD process and been at the centre of the development agenda since then. These were (i) Mobilising domestic financial resources for development, (ii) mobilising international resources for development: FDI and other private flows, (iii) international trade as an engine for development, (iv) increasing international financial and technical cooperation for development (v) external debt, and (vi) systemic issues: enhancing coherence and consistency of the international monetary, financial and trading systems in support of development. 

From this moment onwards the FfD process has allowed the UN to play a more central role and has helped push forward important agendas. This first conference was followed by a second one in Doha (Qatar) in 2008.

ICESDF and OWG Reports

The ICESDF provides a good analysis by experts of current development, social and environmental financial needs and identifies many important issues. In parallel, the OWG had during its negotiations the ‘Means of Implementation’ as one of its main issues. This was the section in which the clash between developing and developed countries was clear, as an analysis by the Third World Network has pointed out.

Analytical Framework
The first important remark by the ICESDF is that “in assessing financing needs, it is pertinent to appreciate that the costs of inaction are even larger than the costs of action”. This is further highlighted by quantifying the financial need (eradication of poverty $66 billion annually or annual infrastructure requirements of $5 to $7 trillion annually) and by affirming that “Financing needs differ across countries and regions (…) with specific need in LDCs, SIDS or LLDCs”. 

The analytical framework of the ICESDF is based on “arranging” financial sources into five categories: domestic public, domestic private, international public, international private and blending. One of the percepts that has guided its analysis is “ensure country ownership and leadership in implementing national sustainable development strategies”, a point that the OWG also highlights in target 17.15, with a call to “respect each country’s policy space and leadership to establish and implement policies for poverty eradication and sustainable development”. 

On tax issues, the ICESDF rightly analyses that “Ending harmful tax competition needs to be based on cooperation between competing countries (…) in a regional or international forum” (para 66), and especially that “The UN, with its universal membership and legitimacy, could be a catalyst for further strengthening international cooperation” (para 161). However no concrete proposal relative to the creation of a truly intergovernmental body on tax matters is included. In the OWG there is no mention of illicit financial flows, tax evasion or tax avoidance. Instead there is a vague target to “strengthen domestic resource mobilization (…) improve domestic capacity for tax” (17.1). 

The ICESDF highlights the problem of debt by stating that “Creditors share responsibility with the sovereign debtor to prevent and resolve debt crises” (para 82) and “Discussions on how to improve the framework for sovereign debt restructuring (…) are taking place in various forums”. The OWG report targets “Attaining long-term debt sustainability (…) and address the external debt of HIPC to reduce debt distress” (17.4). There is no recommendation to establish an intergovernmental process to produce a fair, independent and transparent debt workout mechanism for sovereign debts in either report.

Private Financing and Blending
On private finance and blending – two of the issues that are going to be on the top of the agenda of donor countries - the ICESDF report is a mixed picture, but there are some good points worth pulling out. It recognises that “National Development Banks can play an important role” (para 84); “to limit excessive volatility (…) regulations can be enacted in conjunction with capital account management to deter ‘hot money’” (para 100). On blending it acknowledges the risks of a blunt promotion of this mechanism “Blended finance between the public and for-profit private sector is less well suited to contribute to the provision of basic development needs that do not offer economic return” (para 136). However there is no more ambitious reference to capital controls (basically the need for the removal from all trade and investment agreements of any constriction to their implementation) and, most importantly, there is no mention to better examine costs and benefits of FDI and other private inflows at the national level by using the UNCTAD’s “common set of principles for investment in SDGs”. 

Financing Standards
Linked with the above point, the inclusion of the use of financing standards is also present in both reports, but without any concrete measures. Although the OWG has a more ambitious approach, this omission is a missed opportunity.  While the ICESDF limits its analysis to “Policymakers could consider creating regulatory frameworks” (para 108) and “the international community could consider a further elaboration of standards for investment” (para 153), the OWG opens a door to a further improvement on the issue in both targets 2.c “Adopt measures to ensure the proper functioning of food commodity markets and their derivatives (…) in order to help limit extreme food price volatility” and 10.5 where its target is to “Improve regulation and monitoring of global financial markets and institutions and strengthen implementation of such regulations” (10.5).

In both reports the ODA 0.7% commitment is reaffirmed. However although they recognise that developed countries should implement fully their ODA commitments, and the LDC target of 0.15-0.2 of GNI (ICESDF para 112 – OWG target 17.2), no clear follow-up mechanism is mentioned such as the establishment of binding timetables for donors.

Public Procurement
On procurement the ICESDF positively recognises that “authorities may wish to align their procurement policies with national sustainable development strategies” (para 73), but it does not address the need to assess barriers to implementing such policies.

IFI Reform
Finally one of the main issues in the international agenda in recent years has been the reform of IFIs. The ICESDF states that “A further review of the governance regimes of the IFIs is necessary (…) to make them more democratic and representative” (para 148). No mention, though, of the 2010 IMF compromise to reform their quotas by 2014. 

Final Remarks

This analysis of the reports highlights where they lack the ambition to propose specific measures. The ICESDF has a good analysis of the “status quo”, raising issues to be considered by governments during the FfD negotiations, while the OWG - even though it has 17 goals - is extremely vague in terms of finance. Both processes demonstrate the current level of disagreement between governments - or even between “blocks” - and the lack of will of developed countries to accept changes that would have a structural impact.  

The upcoming UNSG Synthesis Report could be an opportunity to address the “weaknesses” of both the ICESDF and the OWG. In that sense, the report “Follow-up and implementation of the Monterrey Consensus and Doha Declaration on FfD” released last August by the UNSG includes a positive recommendation on debt – probably influenced by the recent events in Argentina. Specifically it affirms that “The international community should make serious efforts to work towards a framework for timely, orderly and fair restructurings of sovereign debt" (para 44) and "A timely reform of the architecture for debt restructuring is needed" (para 55).

The UN FfD conference appears in the 2015 international agenda just before the Post-2015 Summit (September in New York, US) and the Climate Change Conference (December in Paris, France), a strategy that the G77 subtly advocated for during the last UN High-Level Dialogue in 2013 perhaps in order to highlight the “hierarchy”  of funding commitments in any development debate. In all three processes – FfD, post-2015 and climate change - the big issue at stake is how to achieve the funding needed to reach specific goals.  The FfD conference will thus be one of the most relevant events in the 2015 agenda and a huge opportunity to tackle structural issues such as unsustainable debt, tax avoidance, ODA commitments, IFIs reform, the role of private finance and the role of the UN in the development agenda. They are issues that are central to Eurodad’s mission and its work in upcoming months and they are issues that many governments, CSOs, trade unions and citizens hope will be properly addressed with clear actions next July.