Outline of the presentation “The MDG’s and the financial crisis: some policy recommendations” Tobias Kahler The main transmission channels of how the global financial and economic crisis is affecting developing countries are a decrease in exports to and remittances from developed countries, a slowdown or even withdrawal of Foreign Direct Investments as well as difficult access to loans. The input of Mr. Kahler will focus on an assessment of the possibility to reach the MDGs as well as on the required policy responses. Areas of focus will be the 1) need for ODA-increases as countercyclical investment and more effective spending of aid, 2) the fight against corruption as well as tax evasion 3) a development oriented trade deal and 4) developing countries representation in international fora and 5) a few suggestions for adjustments to the market-based structure of international economic relations Progress towards the MDG’s is measured in the MDG Report, which is compiled by a wide range of UN- and Bretton Woods organizations. The MDG Report 2008 is based on data sets of 2006 and 2007, so it reflects the situation at the midpoint. Only in 2009 and in part 2010 will we have consolidated statistics of the effect of the financial crisis on the 18 indicators of the MDGs. The MDG report 2008 has shown some key successes, but confirmed that greater efforts are required in many areas. The successes include that the overarching goal of reducing absolute poverty by half is within reach for the world as a whole; in all but two regions, primary school enrolment is at least 90 per cent; Malaria prevention is expanding, with widespread increases in insecticide-treated net use among children under five in subSaharan Africa: in 16 out of 20 countries, use has at least tripled since around 2000. The incidence of tuberculosis is expected to be halted and begin to decline before the target date of 2015. Greater efforts are needed because more than 500,000 prospective mothers in developing countries die annually in childbirth or of complications from pregnancy; and the mortality of children under 5, although below 10 million for the first time in 2007 is still far too high. The economic downturn might influence the probability of reaching the MDGs negatively but this is far from certain. Many of the MDGs concern areas where governments play an essential role: education, health, water and sanitation etc. To put it bluntly: why should the school enrolment in developing countries depend on the state of the world economy if it does not in the developed world. Research by UNDP suggests that if donor governments were to support recipient governments to the extend they promised in Gleneagles the majority of MDGs could still be met including in Africa. In the past we have seen cuts in ODA in times where donors faced financial crises. This was the case with Japanese ODA in the aftermath of the Asian crisis. By the lack of a banking crises there is no precedent for Germany (or other EU donors// US). Germany did not cut ODA levels during the first or second oil crises. However, ODA went down significantly after the “economic shock” of reunification. The Data report 2008 shows, that the G8, which accounts for more than two thirds of global ODA, had collectively fulfilled 13.8% of the Gleneagles commitments by 2007. This is disappointing as they are at midpoint towards the target year 2010.
Whereas the obvious threat is for countries to fall further behind their ODA-commitments, there have been notable efforts to prevent this. In the opening remarks of the FFD Doha summit on 29 November 2008 the Secretary General urged donors to ensure that economic rescue packages must not stop at the borders of rich countries. He thereby points at the countercyclical role of ODA. In times of a recession (or the threat thereof) ODA can function as an economic stimulus. This would mean that ODA has to be increased not in spite of but due to the crisis. Secondly, DAC-donors have signed up to the OECD Aid pledge1. This economic stimulus could be reinforced by complementing traditional ODA flows with contributions from new donors such as the Gulf states or China and by strengthening and establishing innovative financing mechanisms. In addition, as the expected economic downturn will lead to scarcer public revenues, each dollar must be spent as effectively as possible. Aid should increasingly be disbursed by making use of country systems, which would strengthen local Public Financial Management capacities. Moreover, aid has to become more transparent. The Paris Declaration and the more recent Accra Agenda for Action offer a proven multistakeholder process to advance these efforts. But Mr. Kahler argues that ODA is far from the only response to the crisis and to ensure further progress towards the MDGs. A second measure is the fight against corruption and tax evasion. Corruption and capital flight are global problems that can only be tackled on a global scale. Existing structure and processes in this area need to be strengthened. The international community should pay particular attention to the Extractive Industries Transparency Initiative (EITI). It is important to ensure that developed countries take the necessary steps to implement the EITI along with developing countries. Developed countries should implement measures to increase transparency of their companies, such as the development of international and national accounting standards for the extractive industries which require a country-by-country breakdown of company payments to all foreign governments among others as a condition of listing with financial market regulatory authorities. In addition, those signatory countries that have not already done so need to urgently ratify the United Nations Convention against corruption (UNCAC). Capital flight is a large obstacle towards raising more public resources for development. According to estimates by Global Finance International, capital flight costs developing countries between $500 and $800 billion annually, mainly as commercial actors seek to avoid taxes. This problem should be addressed by consolidating existing tax cooperation initiatives as well as agreeing to new measures to strengthen tax collection and deter tax avoidance in developing countries. In addition, as the mobility of capital has greatly increased, tax authorities need to be enabled to cooperate more closely. An increased exchange of information and sharing of best practices of tax authorities can contribute to improve transparency. Development partners should also take measures to strengthen the Stolen Asset Recovery Initiative (StAR) which contributes to building capacity in developing
In a letter to several heads of state of 28 October 2008, the Secretary-General of the OECD has urged members of the OECD-DAC to not repeat the mistakes made following the recession of the early 1990s when many OECD governments let aid efforts decline. He suggested refraining from any budgetary action that is inconsistent with such commitments.
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countries to recover assets and stem new outflows, working with major financial centers to lower barriers to recovery of stolen assets as well as to detect and prevent their concealment Thirdly, in order to create opportunities for African countries to trade their way out of poverty, a comprehensive approach to trade and development policy that will “make trade work for Africa” is needed. Such a deal should boost African access to trading partner markets by giving duty and quota free access to all sub-Saharan African countries, not only LDCs. It should streamline rules of origin requirements, specifically by setting the African value component of all goods at 10% as recommended by the World Bank and Commission for Africa. In addition, it should allow flexibility for African countries to determine the best way to coordinate trade policy with economic development and poverty reduction strategies. Another component should encourage and support development of intra-regional trade. Moreover, developed countries should abolish their export and farm subsidies, giving priority to those that have the greatest impact on Africa’s ability to compete - such as cotton, rice, fruits and vegetables as well as scale up ‘aid for trade’ funding with particular focus on Africa’s export challenges. Fourthly, as the international architecture evolves, African countries must be included. It is encouraging that the FFD Doha conference agreed on a conference at the higest level under UN-auspices to discuss the financial crisis and its impact on development. But beyond that, the AU should have a seat at the G20 and Africa’s say in international financial institutions needs to be strengthened A final set of measures are sometimes discussed as “creative capitalism”. Western liberal democratic capitalism can agree creative proposals through which it can burnish its credentials in the eyes of the world community: • Commit to an ambitious agenda on carbon finance for development, to compensate those impacted by climate change with additional finances through auctioning of emissions if certificates or carbon taxes. Allocating of portion of sovereign wealth funds towards infrastructure investments in well governed lower income African countries (1% or more) Offering a systemic solution for state insolvency through an orderly debt work out mechanism
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