20 November 2014
Governments Discuss Global Context for FfD, Public and Private Finance
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UN Member States have concluded a series of substantive informal sessions of the preparatory process for the third International Conference on Financing for Development (FfD).

Governments considered 'The Global Context', in a one-day discussion on 10 November 2014, followed by a three-day discussion on 'Mobilization and effective use of resources,' which addressed domestic public finance, international public finance, and private finance, on 11-13 November.

69th Session of the UNGA13 November 2014: UN Member States have concluded a series of substantive informal sessions of the preparatory process for the third International Conference on Financing for Development (FfD). Governments considered ‘The Global Context’, in a one-day discussion on 10 November 2014, followed by a three-day discussion on ‘Mobilization and effective use of resources,’ which addressed domestic public finance, international public finance, and private finance, on 11-13 November.

The sessions convened at UN Headquarters, in New York, US.

In the consultation on the Global Context, Helen Clark, UN Development Programme (UNDP) Administrator, gave a keynote address inviting Member States to think in terms of “Monterrey Plus,” stressing the need to: review progress made under the Monterrey Consensus; increase official development assistance (ODA); combat corruption and illicit financial flows; mobilize domestic resources; make trade fairer; and create peaceful and inclusive societies governed by the rule of law.

Alexander Trepelkov, UN Department of Economic and Social Affairs (DESA), said sustained and inclusive economic growth is crucial for the post-2015 development agenda, and emphasized that the conference is an opportunity to forge consensus for a new global partnership. He emphasized global issues like high unemployment among youth, the spread of economic strength across more countries than before, and the high level of innovation, especially in technology.

In panel discussions, Maged Abdelaziz, UN Special Adviser on Africa, called for: addressing the unfinished business of the Millennium Development Goals (MDGs); shaping an enhanced and predictable financing framework; taking action on Ebola; ensuring coherence between the post-2015 development agenda and the African Union (AU) Agenda 2063; building partnerships around industrialization; enhancing the responsible management of natural resources; and enhancing cooperation with the High-level Political Forum on sustainable development (HLPF) for advancing the implementation of the agenda. Pablo Fonseca Pereira dos Santos, Brazil’s Ministry of Finance, raised challenges in infrastructure, related to: large upfront costs for the private sector in the construction phase, which need to be balanced by economic returns later on; risk distribution between the public and private sectors; and adequate regulation during the performance phase.

Seán Nolan, International Monetary Fund (IMF), stressed the need for: building macroeconomic and financial resilience; improving management of capital flows and debt; technical assistance for disaster risk management; and technical assistance for the development of financial markets in developing countries. James Manyika, McKinsey Global Institute, noted three global trends: the shift between East and South (i.e. by 2025 emerging regions will be home of nearly half of the global fortune 500, with direct implications for domestic resources mobilization); prosperity rising at a much faster rate; and urbanization. He said technology has become a force for growth, but many people remain offline due to unaffordability of devices and access plans, infrastructure, incentives, and users’ capacity to take advantage of technology. Shari Spiegel, DESA, highlighted that financing for development is not just about financing flows, but also about policy frameworks and development frameworks. She stressed the need to finance global public goods.

Opening the consultation on Domestic Public Finance, Benedict Clements, IMF, said tax reform should prioritize: strengthening administration to reduce non-compliance; building effective real estate and personal income taxes; addressing international avoidance opportunities; scaling back wasteful tax incentives; building credible extractive industry tax regimes giving a reasonable share of rents; establishing an energy price that reflects national damages to environment; and deepening experience sharing and development. Luis Maria Capellano, Argentina’s Ministry of Economy and Finance, noted that domestic public finance should be built on efficiency (optimal resource allocation) and equity (equitable redistribution). Pekka Ruuhonen, Director General of Tax Administration, Finland, said that how taxes are administered influences compliance and revenue, and that even poor tax systems can collect 50% of the revenue yield, while well administered taxation systems can reach 80%.

Alvin Mosioma, Tax Justice Network Africa, said OECD nations get 30-35% of gross domestic product (GDP) as tax revenue, while Middle Income Countries (MICs) get only 20%, and the Least Developed Countries (LDCs) 15%. Among the causes, he said: policies in Africa are skewed to taxing labor rather than profit; the level of the statutory corporate tax rate, through an endemic usage of tax incentives, causes the erosion of the tax base; and illicit financial flows. He highlighted the need for: widening the tax base; formalizing informal employment; reviewing tax incentives; harmonizing taxation at the regional level; increased investment in governments’ capacity to collect; and transparency at the national and international levels.

Vinicius Pinheiro, International Labour Organization (ILO), noted that by mobilizing even 1% of the GDP, governments can build solid social protection floors. William Dorotinsky, World Bank, stressed the need to think outside the box to address corruption, such as by combining law and information and communication technologies (ICTs).

Yoganath Sharma Poudel, Ministry of Finance, Nepal, mentioned policies for women’s empowerment: tax rebates, property ownership, women entrepreneurship development, and strategies to reduce violence against women. Rainer Kattel, Tallinn University of Technology, said governments should use public procurement to develop domestic value chains and domestic productive capacity. He noted two types of procuring innovations: creating new technological solutions and markets for these solutions and procure R&D intensive solutions; and diffusing new/ existing technological solutions and enhancing markets and competitiveness.

Opening the consultation on International Public Finance, Erik Solheim, OECD-DAC, identified four issues on the use of ODA to be addressed by the FfD Conference: ODA should increase more and shift from LDCs to MICs, while respecting the promise of .15-.2% of GDP going to LDCs; strategic deployment of ODA to assist nations with domestic resource mobilization; devising a long-term legal framework for long-term private investment perspectives; and using ODA for targeted policies for women, indigenous, minorities, and other groups that need targeted approaches.

Harpinder Collacott, Development Initiatives, underlined that it is vital that ODA target people instead of countries. Dorothy Mwanyika, Tanzania’s Ministry of Finance, said the ODA process has become more complex through the introduction of conditionality. Everyone would like to support sectors, she said, but governments prefer general budget support to keep national ownership on the use of resources.

Noting the threats posed by climate change to sustainable development, Smita Nakhooda, Overseas Development Institute (ODI), said mitigation finance should not be taken out of development assistance budgets. Joachim von Amsberg, World Bank, suggested that multilateral banks can be “leveraging machines” for ODA.

Gargee Ghosh, Bill and Melinda Gates Foundation, suggested: targeting ODA to the most basic use for the poor; improving aid by creating structures to support MICs; helping countries get on their own to 20% of taxes to GDP; developing incentives for the private sector to help the public sector; and finding ways to support R&D for development. Speaking about the financial transaction tax (FTT) which will be implemented by 11 EU countries in 2016, Rodney Schmidt, Policy and Evaluation Consultant, said the carbon tax will have a greater effect on improving behaviors and economic markets than FTT.

Introducing a panel discussion, Navid Hanif, DESA, noted that South-South Cooperation usually consists of grants, concessional loans, and technology transfer, going mostly to infrastructure, health and the social sector. He mentioned that because of its demand-driven and untied character, paired with high predictability and fast delivery, it is far more effective than traditional development cooperation. Benefits include mutual learning, capacity development, and human resources development.

Opening the consultation on Private and Blended Finance, Leora Klapper, World Bank, underlined the role of the state as regulator and supervisor through regulation, direct interventions, competition policy in finance, and promotion of financial infrastructure/ technology (credit information).

Claire Walsh, J-PAL, MIT, said savings products have more positive effects on welfare than basic micro-credit, and added that electronic payments can reduce leakages and user transaction costs in social welfare programs. Peter Graves, World Council of Credit Unions, explored three policy recommendations for lesser developed countries: develop comprehensive plans for financial inclusion, including credit unions (SACCOs); develop regulatory supervision and examination requirements, including accurate accounting requirements; and establish regulatory (reserve) requirements.

Dilip Ratha, World Bank, suggested reducing remittances costs through relaxing regulations for small remittances, abolishing exclusive partnerships with post offices, and creating a non-profit remittances platform. James Zhan, UN Conference on Trade and Development (UNCTAD), noted the need for policy coherence and synergies – trade and investment – and cautioned governments against replacing domestic monopoly with foreign monopoly.

Magnus Erikkson, AP4, stressed: the importance of synchronizing investment periods with evaluation periods; the need for listed financial products that are transparent and governed by law in order for pension funds to invest in developing countries; and the need for “healthy and educated citizens” and good infrastructure to attract FDI. Georg Kell, UN Global Compact, said businesses increasingly understand that long-term financial success depends on environment, social aspects and good governance; as business has gone global while government stays local, the risk-benefit ratio implies companies being part of the solution.

Elliott Harris, UN Environment Programme (UNEP), noted that governments can play a critical role in shifting the risk/ return rate, through: public procurement/ investment; influencing the public mentality; shifting the patterns of incentives and disincentives; increasing the transparency of information; and creating bankable sustainable projects. Steve Waygood, Aviva, identified five ways to change the behavior of capital markets that invest in short-term investments undermining long-term sustainable development: getting the prices in the system correct (internalizing externalities); getting the incentives in the system correct; ensuring the transparency of intermediaries; a revolution in financial literacy; and creating a capital raising plan for the planet.

Among the delegations that took the floor, LDCs stressed the need for: preferential, concessional and most favorable treatment for their access to markets, finance, technologies, know-how and other resources; differential and flexible treatment in undertaking international commitments; 50% share of ODA; aid for trade; full debt cancellation; an international investment support center; a technology bank dedicated to LDCs; productive use of remittances; and international support for domestic capital market development. Small island developing States (SIDS) said ODA is traveling through too many “middlemen” and called for streamlining mechanisms for financing so it reaches targeted communities. She called for appropriate marine technology transfer on mutually agreed terms, and fair and equitable returns for the exploitation of the fisheries.

The Group of 77 and China (G77/China) said international cooperation should include a balanced mobilization of national resources, but with concentration on the international resources. On ODA, he noted that the “deadlines may expire but the commitment will not expire,” adding that South-South cooperation is only a complement, not a substitute to North-South cooperation. The EU stressed the need to shift from aid effectiveness to development effectiveness, and for policy coherence at the global, regional and national levels – noting that national tax and financial rules do not match the international nature of the global economy. He further underlined the need for sound institutions and an enabling environment.

The US identified four priorities: sustained and robust ODA, strategically directed to where it has the greatest impact; domestic resource mobilization; innovation in public and private finance, both domestic and international; and science, technology and innovation. Switzerland said it perceives the upcoming FfD conference as the Financing for “Sustainable” Development Conference.

The next substantive informal session will take place on 9-12 December 2014 in New York, US, on the topic of ‘Enabling environment, systemic issues, follow-up process and learning from partnerships.’ [IISD RS Sources] [FfD Website]

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