From 2-6 December 2013 at UN Headquarters in New York, the Intergovernmental Committee of Experts on Sustainable Development Financing (ICESDF) began substantive discussions on its mandate originating from Rio+20 to propose “options on an effective sustainable development financing strategy to facilitate the mobilization of resources and their effective use in achieving sustainable development objectives.” The ICESDF will submit its report to the General Assembly by September 2014.
The 30 expert members of the ICESDF were nominated by the five regional groups of UN Member States. So far, the meetings of the Committee are closed to other Member States and non-state actors. On 5 December, however, the Committee engaged in a discussion with Member States and representatives from civil society, the private sector, and other Major Groups in a half-day interactive multi-stakeholder session organized by UN-DESA in cooperation with UN-NGLS. The meeting had two components:
- An update on the work of the Committee followed by questions/comments from the floor;
- Panel presentations from non-state actors followed by statements from the floor.
1. Update on the work of the Committee
The two co-chairs of the ICESDF, Pertti Majanen (Finland) and Mansur Muhtar (Nigeria) introduced the work of the Committee to date. In late August, the Committee held its first session to develop its work programme and decided to organize its work around three thematic clusters, with co-facilitators identified for each cluster. These clusters are:
- “Assessing financing needs, mapping of current flows and emerging trends, and the impact of domestic and international environments” Facilitated by Reginald Darius, Saint Lucia, and Liz Ditchburn, UK-
- “Mobilisation of resources and their effective use” Facilitated by Nathan Dal Bon, Australia; Francisco Gaetani, Brazil; Zou Ji, China; Norbert Kloppenburg, Germany; and Joseph Enyimu, Uganda
- “Institutional arrangements, policy coherence, synergies and governance issues Facilitated by André Lohayo Djamba, Democratic Republic of the Congo; Tonis Saar, Estonia; and Amjad Mahmood, Pakistan
Ambassador Majanen explained that the Committee intends to advance consecutively from one thematic cluster to the next; as of this meeting, the Committee had focused on thematic cluster 1 and would concentrate on cluster 2 for the remainder of the week.
Communication and outreach
Ambassador Majanen said that outreach is “critical to the success of the Committee’s work, in the spirit of the Rio+20 outcome document, which states that its work should be carried out ‘in open and broad consultation with relevant international and regional financial institutions and other relevant stakeholders.’” In response to civil society concerns about the closed nature of the ICESDF meetings (already voiced during its first session in August), Ambassador Majanen indicated, “We are fully aware of expectations of relevant stakeholders that the work of the Committee will be transparent and open to their inputs.” He added, however, that following discussion on the matter the previous day, the Committee had concluded that it will keep the current format of conducting its substantive work mainly in closed plenary sessions, “but with a very strong commitment to continue the wide multi-stakeholder dialogue.”
A series of outreach efforts are planned in the regions, Ambassador Majanen announced, including one in mid-January in Santiago, Chile with the UN Economic Commission for Latin America and the Caribbean (ECLAC) and another in Addis Ababa in the spring, organized by the UN Economic Commission for Africa (ECA). He also announced a “comprehensive and extensive” outreach event to be held in Helsinki, Finland from 3-4 April. This event will focus on the subject of “decoding public-private partnerships.”
Ambassador Majanen further noted that the Committee will continue to issue open calls for inputs from all stakeholders as the work of the Committee progresses. Contributions can be uploaded directly onto the Committee’s website, under Stakeholder Inputs.
Finally, Ambassador Majanen announced the creation of a steering committee of non-state actors, composed of eight members - four nominated by the Rio+20 Major Groups and four nominated by the Financing for Development constituency. The functions of the steering committee are to interface with the ICESDF, notably by: 1) nominating speakers for multi-stakeholder events such as this one; 2) co-chairing these multi-stakeholder events; and 3) disseminating calls for inputs.
For more information on the steering committee of non-state actors and an overview of the ICESDF structure of work, see UN-NGLS Post-2015 Primer Series #3.
Update on Thematic Cluster 1
The co-facilitators of thematic cluster 1 (Assessing financing needs, mapping of current flows and emerging trends, and the impact of domestic and international environments) provided an update on the Committee’s discussions to date. Regarding assessing financial needs, they indicated that the technical papers by the UN Task Team and the contributions received from stakeholders following their call for inputs greatly contributed to their analysis and deliberations. (These documents are available here, under UN System Inputs and Stakeholder Inputs respectively.) Quantification of financial needs with any level of precision has proven to be quite challenging, the co-facilitators continued; going forward, they will be looking at orders of magnitude in terms of quantifying these needs, enriching those where possible with qualitative and sectoral information.
In terms of mapping existing financial flows, the co-facilitators explained that they are taking a comprehensive approach, looking at the full range of international and domestic public and private flows. According to the figures provided by the UN Task Team, the level of global savings would be sufficient to meet sustainable development needs, but these savings are not accessible or directed at financing the types of investments needed to achieve sustainable development at this stage. The co-facilitators posited that domestic resources will ultimately enable countries to finance development, recognizing current differences in capacities. They said that in a number of developing countries, domestic resources far outweigh Official Development Assistance (ODA), but ODA remains very critical, especially for low-income countries and Small Island Developing States. The co-facilitators noted with concern that while ODA rose from 2000-2008, it has been falling since 2010, following the 2008 financial crisis.
The co-facilitators of thematic cluster 1 also observed that South-South flows had been increasing in recent years, but these should be seen as complements and not substitutes to ODA, and developed countries’ commitments to ODA should be maintained. It was added that there were “issues of accountability frameworks” and recording of South-South flows that need to be addressed.
The Committee further examined potential complementarities between public and private finance and explored changes that “might unlock the sort of private flows that are currently not getting to the right places.” The co-facilitators noted in this regard that private sector flows are a growing element of overall international financial flows, but these are not reaching the poorest countries and have tended, in terms of historical patterns, to be volatile and short-term. They said the Committee is concerned not only with inflows but also with outflows of private finance in developing countries. In addition, they identified a key problem of private domestic finance in developing countries, especially Least Developed Countries (LDCs): this financing tends to be dominated by commercial bank financing, the short-term nature of which makes it “not ideally suited for development financing.”
In relation to “the impact of domestic and international environments,” the Committee is concerned with a number of issues, including the instability of international private finance and large fluctuations in the world economy more generally, as well as high levels of debt faced by a number of countries. On the domestic front, the Committee has addressed how to create a conducive environment to enable financial flows to reach desired objectives (including by eliminating subsidies that undermine sustainable development) and how to use resources more effectively and ensure that they reach the right places.
The co-facilitators said this analysis would help to identify blockages and opportunities that ultimately lead to increased mobilization and more effective use of finance - subjects that will be discussed under thematic cluster 2.
As thematic clusters 2 and 3 had barely begun their work at the time of this event, the co-facilitators of these clusters provided only very brief exposés.
Interactive discussion with the floor
A number of speakers from governments, UN institutions, civil society, and the private sector interacted with Committee members on the basis of this briefing. Issues raised included:
- The absence of any reference to the role of international rating agencies on the ability of national governments to raise affordable credit (which the UK co-facilitator of thematic cluster 1 later said would be incorporated in discussions on the impact of the “international environment”);
- Emphasis on the fact that the work of the Committee is framed in relation to both the Rio+20 and Financing for Development follow-up processes;
- Emphasis on the notion of “co-responsibility” of the international community in mobilizing resources;
- The need to look at ways to unlock resources not only at national and global levels, but also through working with UN Regional Commissions, such as ECA on the issue of illicit outflows in Africa (estimated over US$50 billion annually between 2000 and 2009), which for example could finance the infrastructure gap in Africa; or the large cash reserves in Asia that are not put to productive use. > How to improve the quality of domestic and international private investments on sustainable development in social, economic, and environmental terms, and in relation to poverty eradication;
- Encouraging the Committee to think “out of the box” in terms of looking at innovative sources of finance;
- Concerns by both governments and non-state actors about the closed nature of the Committee’s deliberations; and the proposal by Tunisia, supported by CSOs, to at least webcast its substantive sessions.
2. Panel presentations by non-state actors
The second part of the multi-stakeholder dialogue consisted of three panel presentations by non-state actors, followed by interventions from the floor. The first panel presentation was by Barbara Samuels, Executive Director and Founder of the Global Clearinghouse for Development Finance, and Vice Chair of the United Nations Business Steering Committee on Financing for Development, speaking on behalf of the Financing for Development private sector constituency. Ms. Samuels said that while UN discussions are placing increasing emphasis on the role of the private sector in financing sustainable development in the light of limited public funds, not enough attention is placed in these debates on how projects concretely come about on the ground. Financing comes only at the end of a project development process, and if the project is “bankable,” the financing will follow, she asserted. The availability of finance is not what is missing, she insisted, but the on-the-ground expertise to support governments and enterprises to develop projects and make them financially viable.
Ms. Samuels cited the role that technology can play in this regard: “Private sector companies have developed highly efficient water pumps and applications of solar power for irrigation and food storage. If these technologies could be used to irrigate land and store foods in the vast parts of the world where there is not an adequate economic power source, then it would be a game changer for the local communities as well as for global food security. As a result, farmers would be able to access finance needed to grow and provide greater amounts of food to local, regional, and global markets.”
Ms. Samuels also emphasized the role of “financial engineering” in overcoming systemic impediments to sustainable development financing, such as the fact that in many developing countries, bank financing is limited to maturities of 3-5 years, rendering many critical development projects unviable. In her view, “no government intervention can change the need for banks to manage their assets and liabilities in a responsible manner, even though the result is limited loan maturities that render critical development projects such as energy and related projects unbankable.” However, “experts in financial engineering can develop ‘take out facilities’ provided by pension funds and other institutional investors that can ensure the longer-term financing needed for project financial viability.”
Ms. Samuels also called for less “rigid” public procurement policies and concluded that the ICESDF does not need to “reinvent the wheel”: she proposed that the Committee hold expert-based informal sessions to focus on concrete innovative solutions.
The second panel presenter was Aldo Caliari, Director of the Rethinking Bretton Woods Project at the Center of Concern, speaking on behalf of the civil society and Major Groups’ Financial and Trade Issues cluster. In outlining priorities for the Committee’s work, Mr. Caliari said the top item should be financial regulation because of the impact that the financial sector has had on the real economy in recent years. Citing a recent McKinsey report, he noted that in the years prior to the global financial crisis, only a quarter of the “financial depth” of the economy (which captures the size of the financial sector relative to the rest of the economy) was funding non-financial firms, “which means that we have a lot of finance for the sake of finance.” He called for the need to move “from finance-driven development to the opposite: to sustainable development-finance.”
Specific regulatory measures were outlined in a statement that the Financial and Trade Issues cluster prepared for the Open Working Group on Sustainable Development Goals. These included measures such as preventing financial institutions from becoming so large that they cannot fail without bringing down the entire economy; reporting requirements on the so-called “shadow banking” system to assess what real value it is creating; and regulating food and commodity derivatives markets and preventing the extension of such markets into other areas of nature, such as biodiversity, water, and ecosystems.
Mr. Caliari stressed aspects of long-standing proposals for international monetary reforms that could serve sustainable development financing, such as limiting exchange rate volatility (which hampers investments, especially trade-related investments); a credible system for coordination among trade surplus and deficit countries to prevent recessionary adjustments to global imbalances; the transition to a supranational reserve currency; and the active use of cross-border capital flows management measures to reduce the volatility and short-termism of international private financial flows.
Other recommendations from the Finance and Trade Issues cluster that Mr. Caliari emphasized include: stepping up inter-governmental cooperation on tax matters that is “urgently needed” to close tax havens and secrecy jurisdictions, as well as an international agreement on the automatic exchange of tax information; more democratic governance of international financial institutions; an independent and fair debt workout mechanism; and a thorough review of the “hidden” fiscal and debt consequences that can lie behind ill-conceived public-private partnerships for financing infrastructure.
The third panellist was Bhumika Muchhala, speaking on behalf of Third World Network and the Women’s Major Group. Ms. Muchhala said that the financing needs in developing countries today – as a result of the fallout of the crisis – are in the order of trillions of dollars per year, noting that at the same time there are vast amounts of unused global savings, especially those sitting in Central Bank reserves. “This first and foremost points to the need for financial system reform, but also to address systemic issues such as global imbalances in order to reallocate savings to development needs,” she argued.
Ms. Muchhala noted with concern the decline of ODA, which according to the OECD dropped 12.8% in real terms in 2012 – the largest fall since the 1997 East Asian financial crisis. A sustainable development strategy must reaffirm developed countries’ 0.7% ODA commitments and call for a turnaround from its recent decline. South-South cooperation, she added, is not a substitute for North-South cooperation. Likewise, new and innovative sources of financing should not substitute for ODA but be additional. In this regard, Ms. Muchhala highlighted financial transactions taxes and the issuing of Special Drawing Rights (SDRs) for development needs. SDRs should be issued on the basis of needs rather than IMF members’ quotas, she elaborated, and should be allowed to be used for development purposes rather than staying in the foreign exchange reserves of Central Banks – as happened with the issuance of SDRs in the fall-out of the global crisis in August 2009.
Regarding public-private partnerships, Ms. Muchhala stressed the importance of ensuring that private sector financing does not transfer risk from the private to the public sector. “This leads to the privatization of profits and the socialization of costs,” she warned, calling for “institutional mechanisms to ensure ex-ante regulation and enforcement, especially safeguards and regulations to protect the economic and social rights of people.” She also called for a review of international investment treaties that may prevent these types of regulatory measures and rights-based policies and laws “that should form the backbone of sustainable development financing and the post-2015 development agenda more broadly.”
Ms. Muchhala concluded with a call to change the current macroeconomic frameworks that favour austerity towards fiscal and monetary policies that support public expenditure in social sectors, in particular to expand the provision of care and social services to alleviate the burden of unpaid care work especially carried out by women; support wealth redistribution; and provide affordable credit to low-income borrowers. Finally, she recommended that 20% of aggregate ODA should be directed to support gender equality and women’s empowerment by 2015, following the 2007 expert group meeting on financing gender equality and the empowerment of women.
Interventions from the floor
A number of interventions from the floor were made by non-state actors from civil society, the private sector and other Major Groups.
Nerea Craviotto, representing the Association for Women’s Rights in Development (AWID) and speaking on behalf of the Women’s Major Group, said fiscal and tax justice should be at core of the Committee’s work. Her recommendations included: the cancellation of all illegitimate debt of southern countries; an end to austerity policies; reversing the race to the bottom in taxation, labour, and environmental standards to attract foreign direct investment (FDI); and a strengthened role of human rights frameworks in fiscal decision-making, drawing especially on the Covenant on Economic, Social and Cultural Rights and women’s rights frameworks. She also expressed solidarity with India and other countries that were defending the right to food security at the WTO ministerial conference happening at the same time in Bali.
Matt Simonds, representing the International Trade Union Confederation (ITUC) and speaking on behalf of the Workers and Trade Unions Major Group, noted that the bulk of FDI in developing countries goes to sectors such as primary and extractive sectors that offer little in terms of job creation. Investment in infrastructure and manufacturing, he said, remains below the levels necessary to create sufficient jobs and allow countries to diversify beyond natural resource-based economies. Mr. Simonds further noted that there appears to be correlation between FDI and wage inequality, with significant evidence to suggest that the correlation is not simply coincidental. This is made worse, he said, by the fact that many investing entities fail to uphold core labour standards, respect the environment, or pay taxes. His recommendations included: ensuring the same degree of policy space for developing countries that industrialized countries enjoyed for their own development, to incubate domestic industries and markets; consulting with stakeholders in the shaping of policy; complementing capacity-building to collect taxes with accountable business practice where companies and high net worth individuals pay their fair share of taxes; and avoiding the repackaging of aid into sustainable development and climate finance without additionality, or to practice “double-counting.”
Jean Letitia Saldanha, representing Coopération Internationale pour le Développement et la Solidarité (CIDSE), stressed the importance of tackling tax avoidance and evasion, which she said is estimated at some US$800 billion a year. She echoed Mr. Caliari’s view that while the OECD has made very significant efforts to tackle these problems, its initiatives suffer from inherent weaknesses due to the lack of developing countries’ participation and ownership. Going forward, these issues have to be tackled in a space that gives equal voice and decision-making capacity to all countries, Ms. Saldanha concluded.
Louise Kantrow, Permanent Representative to the UN of International Chamber of Commerce (ICC), asserted that “creating an enabling environment for enterprises of all sizes and sectors to create jobs and pursue technological innovation and cooperation, coupled with sound governance and policies to reduce barriers to international trade and FDI, opens the most important route out of poverty and paves the way to sustainable development.” She noted that in 2012, FDI to Africa increased by 5% to US$50 billion. While acknowledging that this growth was driven partly by FDI in extractive industries, Ms. Kantrow said that investment in consumer-oriented manufacturing and service industry is also expanding. She also suggested that “the business case for development is based on the understanding that business and social value are inextricably linked” and that increasingly “companies all over the world, of every size, realize that their future competitiveness depends in part on their ability to address the needs of local economies and key stakeholders.” Ms. Kantrow further called for the use of monitoring systems such as the Extractive Industries Transparency Initiative to promote social, environmental, and corporate responsibility.
Aliye Celik, Representative to the United Nations at United Cities and Local Governments (UCLG), called for a fresh look at financing local authorities. She said that there is a significant imbalance between new responsibilities placed on local governments, notably to deliver basic services, and resources available to implement them. This, she said, is expressed in low ratios of local expenses to (national) public expenditure.
Daniel Pieper, representing ACT Alliance, noted that taxation was not included in the MDGs and should be in the new framework. He echoed calls from the panel in favour of monitoring and regulatory frameworks for public-private partnerships, and said the Committee could draw lessons from the climate finance negotiations within the UNFCCC.
Veronica Brand, Secretary of the NGO Committee on Financing for Development, argued that privatization of provision of essential goods and services “is really incompatible on meeting the MDGs.” She also expressed concern that “grassroots consultation and involvement are often bypassed because of vested interests in favour of large infrastructure projects.” She denounced current austerity measures, which “mostly proved to be self-defeating in achieving fiscal and debt sustainability” and have instead “widened the gap and made the goal of an inclusive form of development more elusive.” She also called for the design and implementation of supportive financial mechanisms for the establishment of social protection floors that are effective and equitable as well as economically and financially viable, in line with ILO Recommendation 202.
A final speaker recommended that the Committee study Chapter 28 of Agenda 21, which contains costing estimates that still have yet to be implemented 20 years after the agreement of Agenda 21.
The co-chairs thanked the participants and speakers for a very enriching discussion, which only served to underline the value and necessity for having these regular dialogues as the Committee continues its work.
Photo credit: IISD.