Addis Ababa summit falls short of addressing financing for development

Added 24 Jul 2015
The Addis Ababa summit on Financing for Development became a platform to reenergise the debate on the injustice and shortcomings of today’s global financial system. But the summit fell short of providing solutions and the only key decision was to have a yearly follow-up meeting. Rather than a grand finale, the summit became the first step on the road to financing for development. The strong push for change, which civil society and developing countries mobilised in the lead up to Addis Ababa, must continue and grow in the future. 
Civil society organisations (CSOs) who gathered in Addis Ababa responded to the disappointing outcome by organising a large banner demonstration in the corridors of the conference venue, with the message ‘See you in New York’ – to show governments that the campaigns will not stop until the system is changed to serve development purposes. Many of the issues raised will remain on CSOs’ agendas, particularly in relation to tax, private finance, aid and debt. The global cooperation among CSOs which was formed in Addis Ababa, and the resounding public awareness and critique of Addis Ababa’s shortcomings, are perhaps the most important outcomes of the conference.

A global body to stop international tax dodging
Responding to the fact that they are losing hundreds of billions of dollars a year due to the broken global tax system, developing countries went to Addis Ababa demanding a seat at the global tax standards decision making table. They asked for a new UN agency to stop international tax dodging and illicit financial flows, which would take over global decision making powers from the OECD – also known as the rich country’s club - where more than 100 developing countries are excluded from the decision making process. 

The discussion about the ‘Global Tax Body’ became very heated and was the last outstanding agenda item. However, the developed countries, led by the UK, France and the US, managed to delete all references to the tax body and thus maintain the status quo in which the OECD is the only intergovernmental body for negotiating global tax standards. This outcome was not only tragic for developing countries, who had to accept that global tax standards will continue to be decided in a closed room where they are not welcome. It was in fact tragic for everyone, because, as more than 50 years of OECD controlled decision making has shown, a global tax system where more than half of the world’s countries are excluded from decision making will never be effective. Until the world’s governments start cooperating globally to solve the broken tax system, multinational corporations will continue dodging taxes on an industrial scale. Luckily, the global pressure for change seems to have reached a level where it will not be possible to keep this issue off the agenda. More than 180.000 people signed an Avaaz petition calling for the global tax body, and the Group of 77, which includes more than 130 developing countries, finished the conference by underlining that they will keep pushing for this issue. Therefore, the eyes are now turning towards the 2016 follow-up meeting as the next natural target of the campaign.

Private finance embraced without regulation
Also when it comes to engaging private finance for development, the Addis Ababa outcome falls short of addressing some of the critical challenges. Private finance was embraced as a central tool to finance many development projects, and mechanisms for ‘leveraging’ international private capital flows to developing countries were endorsed, even though they do not have a great track record and the standards to ensure that companies comply with human rights remain non-binding guidelines. An overreliance on foreign private capital flows can be problematic as these flows have significant risks attached, which need to be carefully managed to maximise benefits in the public interest. The need to address these risks has been underscored by Eurodad, academics – for instance, it is worth watching the statement delivered by Joseph Stiglitz during one of the roundtables organised in parallel to the official conference – and developing countries’ governments.
The outcome also failed to address, through strong safeguards, the many problems associated with public private partnerships (PPPs), which are highlighted in Eurodad’s recent report What lies beneath?. Among other things, these partnerships often leave the risks with the developing country partner while the private partner receives the lion’s share of the profits, and can thus become a driver of financial problems and increasing debt levels in developing countries. Much more needs to be done to expose the true cost of PPPs and increase the accountability and transparency of PPPs. As part of the follow up process, the UN should play a convening role to hold inclusive, open and transparent discussions on developing a set of comprehensive and development focused-principles and criteria for the use and assessment of PPPs. 

No concrete answers to debt crisis
Another area where the official conference outcome failed to provide solutions is on debt. While several countries are already in debt crises and many suffer from high debt burdens, no concrete debt relief initiatives were agreed, and instead the agreement only includes vague references to principles for sovereign debt restructuring. There was therefore not much progress on developing a multilateral debt restructuring framework that is still missing and badly needed to prevent and manage future debt crises.

Ironically, the escalation of the Greek crisis, which dominated the news throughout the summit, served as a stark reminder of how harmful unresolved debt crises are for development. However, since the Addis Ababa summit failed to provide solutions, this job must now be done by the UN General Assembly and its Debt Restructuring Committee, which will meet in late July in New York.

Falling levels of development assistance
Although the discussion on official development assistance (ODA) didn’t take up much space at the Addis Ababa summit, recent developments did not provide a very cheery backdrop for the conference. The least developed countries had asked for a timetable to ensure the fulfilment of old commitments to provide 0.7% of GNI as ODA, and 0.15-0.20% of the ODA to the least developed countries. The African countries called for all existing ODA commitments to be fulfilled by 2018, and for the ODA target to be increased to 1% of GNI by 2020. They also called for 50% of all ODA to be delivered to the least developed countries. 

Unfortunately, none of these proposals were supported by the EU, when they decided their joint position on the issue, which says that ODA commitments should be fulfilled within the timeline of the post-2015 agenda. That would most likely mean by 2030, which is also the deadline for fulfilling the new Sustainable Development Goals, and thus civil society highlighted that there is a risk the financing will not arrive before the deadline. Meanwhile, the Finnish government recently announced a 43% cut of the country’s ODA and the Danish government has announced that the Danish aid will be cut from 0.85% of GNI to 0.7% - a cut of around 15%.

While ODA still plays a very important role for the least developed countries, the Addis Ababa summit clearly illustrated that all developing countries must put all efforts into mobilising additional funds from other more reliable sources. This is a key reason why the push for a reform of the global financial system, and the calls for real solutions to tackle international tax dodging and the risks attached to private finance and debt crises, are sure to continue long after the end of the Addis Ababa summit.