9 December 2014: UN Member States launched the second round of substantive informal sessions of the preparatory process for the third International Conference on Financing for Development (FfD), with a day of panel presentations and discussions devoted to “Enabling and conducive policy environment.” Speakers addressed international monetary and financial systems and regulations to balance access to credit with financial market stability, international tax cooperation for development, and debt crisis prevention and resolution.

The meeting took place at UN Headquarters in New York, US, on 9 December 2014, convened by the co-facilitators for the FfD preparatory process, Geir Pedersen of Norway, and George Talbot of Guyana.

Tarisa Watanagase, Alliance for Financial Inclusion (AFI), discussed the role of central banks in maintaining financial stability. She outlined lessons learned from central banks and supervisors as well as issues for further consideration, including the need for policy makers to be prepared to “take away the punch bowl when needed,” stressing the importance of political will to take action. Rupert Thorne, Financial Stability Board, focused on financial reforms and their effects on financing for development. He outlined priorities to consider, including: making banks more resilient; ending “too big to fail;” transforming shadow banking into resilient sources; and making derivative markets safer.

Athanasios Arvanitis, International Monetary Fund (IMF), noted that cross-border lending is as important as foreign direct investment (FDI) because the interlinkages between countries are growing. He highlighted the need for a multi-layered safety net and for self insurance. Vito Tanzi, IMF, said that, in terms of fiscal capacity, developing countries could use their resources more efficiently, reduce distortive subsidies (e.g. energy consumption), and increase public revenue. Regarding tax cooperation, he recommended possible paths of solutions: reevaluation and reassessment of tax principles; restrictions on the use of debt, in place of equity development of some formula to allocate profits among national jurisdictions; making greater use of withholding taxing and of source taxation; increasing pressure on tax havens; limiting deduction for use of intellectual property, and creating a World Tax Organization.

Eric Mensah, UN Committee of Experts on International Cooperation in Tax Matters, noted the lack of funding sub-committees, which he said are central to responding to developing country needs and priorities, and added that “developing countries do not have a front seat at the table”. Ruud de Mooij, IMF, discussed spillovers, in which tax policy of one country affects the welfare of another country. He identified lessons from IMF technical assistance including the importance of capacity building and regional coordination to address spillovers, and the need to not sacrifice taxing rights too easily.

Marlies de Ruiter, Organisation for Economic Co-operation and Development (OECD), presented the Base Erosion and Profit Shifting (BEPS) Project, which aims to help governments fight corporate tax planning strategies that exploit gaps and loopholes to artificially shift profits to locations where they are subject to more favorable tax treatments. She underlined the need for: coherence of tax systems; resetting the international tax norms – tax treaties but also transfer-pricing-norms; transparency, certainty and predictability; country-by-country reporting of relevant indicators, profits, tangible assets, and revenues; moving from concentrating on developing countries to having developing countries participate in the BEPS process; and looking at global norms to make sure that there are alternatives for developing countries if necessary.

Andrew Powell, Inter-American Development Bank (IDB), introduced a score card for the current system of debt restructuring, which addresses: delay between default and final restructuring; delay before default; and problems of creditor litigation.

Richard Kozul-Wright, UN Conference on Trade and Development (UNCTAD), noted that a “significant lack” in the Bretton Woods system is a mechanism to effectively manage debt, adding that such mechanism should be built on three key principles: a temporary stand-still on payments endorsed by an independent institution; some lending barriers; and a mutually agreed restructuring process under the auspices of an independent institution. He further underlined that the multilateral system needs to be vigilant and vigorous when it looks at the threats that developing countries face when they seek to join international markets.

Richard Gitlin, President, Richard Gitlin and Company, LLC, highlighted the need for a Sovereign Debt Forum, an independent organization with creditors, governments, IMF and others to improve coherence among various international discussions. Such a forum would provide a neutral, informal place for governments to discuss emerging problems, with globally qualified facilitators, and offer independent reviews on IMF debt sustainability analyses.

Discussing the presentations, UN Member States and panelists stressed the need to ensure prudent rules and to avoid restricting flows. Some asked why countries with strong policies and institutions “are the ones who caused the international financial crisis.” They outlined the importance of liquidity insurance, and called for the multilateral and the international financial systems to operate efficiently, also stressing the need for committing to all agreements made in Monterrey. Others noted insufficient progress to avoid additional international financial crisis, and the need for every country to create sufficient reserves to protect itself.

Some Member States requested: enhancing the global financial safety nets; an equitable representation of developing countries in international financial institutions (IFIs); transparency and proper regulation of the financial sector; international governance and mutual accountability; coherence in domestic policy-making for the achievement of the Sustainable Development Goals (SDGs); and reconciling the policy of increasing tax revenue with the issue of FDI.

Some supported strong financial reform, financial inclusion, debt crisis prevention and resolution, and a mechanism for debt restructuring. Others highlighted the importance of: debt sustainability for developed and developing countries; national central banks; reducing support to fossil fuel use; consolidating financial intermediaries in national economies; supporting entrepreneurship; and investing in infrastructure; capacity building support for developing counties to expand the tax basis.

The second round of informal substantive sessions will continue until 12 December. [IISD RS Sources] [Webpage for FfD Preparatory Process] [IISD RS Coverage of First Round of Substantive Informal Sessions]