Fifth High-level Dialogue on Financing for Development - Newsletter November 2011

Fifth High-Level Dialogue on Financing for Development New York (7–8 December 2011) Newsletter November 2011 OverviewIn this Issue In accordance with General Assembly resolution 65/314 of 12 SeptemberItem 1 Overview 1Item 2 Plenary Meetings 3 2011 (A/RES/65/314), the fifth High-level Dialogue on Financing for De-Item 3 Round Table 1 5 velopment will be held on Wednesday, 7, and Thursday, 8 December 2011,Item 4 Round Table 2 7 at United Nations Headquarters. The overall theme of the Dialogue willItem 5 Round Table 3 9 be “The Monterrey Consensus and Doha Declaration on Financing forItem 6 Informal Dialogue 11 Development: Status of implementation and tasks ahead”. Plenary meetings The Dialogue will include four plenary meetings. Three plenary meetings will be held on Wednesday, 7 December 2011, from 10 a.m. to 1 p.m. and from 3 to 6 p.m., and on Thursday, 8 December 2011, from 10 a.m. to 1 p.m., in the General Assembly Hall. A short closing plenary meeting will be held on Thursday, 8 December, at 5.45 p.m. in Conference Room 4 (NLB). During the plenary meetings, ministers and high-level officials, as well as executive heads of major institutional stakeholders will make formal statements. Round tables On Thursday, 8 December, three interactive multi-stakeholder round tables will be held in parallel from 10 a.m. to 1 p.m. on the following themes: Round table 1: The reform of the international monetary and financial system and its implications for development (Conference Room 2 (NLB)); Round table 2: The impact of the world financial and economic crisis on foreign direct investment and other private flows, external debt For further Information and international trade (ECOSOC Chamber (NLB)); and Round table 3: The role of financial and technical development co- Please refer to the Financing for De- operation, including innovative sources of development finance, in lever- velopment Web site at www.un.org/ aging the mobilization of domestic and international financial resources esa/ffd/hld/HLD2011/index.htm. for development (Conference Room 4 (NLB)). Financing for Development Office, 2 U.N. Plaza (DC2-2170), New York, N.Y. 10017 Email: ffdoffice@un.org, Fax: 212-963-0443, Website: www.un.org/esa/ffd

Each round table will be open to participation by Background documentationrepresentatives of all Member States; 10 representatives • General Assembly resolution 65/314 on “Modali-of observers, relevant entities of the United Nations sys- ties for the fifth High-level Dialogue on Financing fortem and other accredited intergovernmental organiza- Development” (A/RES/65/314)tions; 3 representatives of accredited civil society orga- • Note by the Secretary-General on “Proposed or-nizations; and 3 representatives of accredited business ganization of work of the fifth High-level Dialogue onsector entities. Financing for Development” (A/65/897) • Report of the Secretary-General on “Follow-upInformal interactive dialogue to and implementation of the Monterrey Consensus and Doha Declaration on Financing for Development”An informal interactive dialogue will be held on Thurs- (A/66/329)day, 8 December, from 3 to 5.45 p.m., on the theme “The • Report of the Secretary-General on “Innovativelink between financing for development and achieving mechanisms of financing for development” (A/66/334)the internationally agreed development goals, including • Report of the Secretary-General on “Internationalthe Millennium Development Goals”, in Conference financial system and development” (A/66/167)Room 4 (NLB). The informal interactive dialogue will • Report of the Secretary-General on “External debtbe open to participation by representatives of all Mem- sustainability and development” (A/66/164)ber States; 15 representatives of observers, relevant enti- • Report of the Secretary-General on “Internationalties of the United Nations system and other accredited trade and development” (A/66/185)intergovernmental organizations; 5 representatives of ac- • Note by the Secretary-General on “World com-credited civil society organizations; and 5 representatives modity trends and prospects” (A/66/207)of accredited business sector entities. • Summary by the President of the Economic and Social Council of the special high-level meeting of theMedia arrangements Council with the Bretton Woods institutions, the World Trade Organization and the United Nations Confer-The plenary meetings and the informal interactive dia- ence on Trade and Development (New York, 10 and 11logue, as well as press conferences, will be broadcast live March 2011) (A/66/75–E/2011/87)into the media area and webcast live and on demand. In • MDG Gap Task Force Report 2011 “The Globaladdition, press releases on plenary meetings and other Partnership for Development: Time to Deliver”events will be provided, as appropriate. A programmeof special media briefings and press conferences will be Global Economic Outlookannounced. World Economic Situation and Prospects 2012 warns that two years after anaemic and uneven recovery from theSide events global financial crisis, the world economy is teetering on the brink of another major economic downturn. TheA series of side events will be organized by interested greatest immediate challenges are the continued jobs cri-Member States and accredited non-State stakeholders. A sis and the declining prospects for economic growth, es-calendar of those events is posted at http://www.un.org/ pecially in the developed countries. Particularly, the sov-esa/ffd/hld/HLD2011/CalendarSidevents.pdf ereign debt crisis in a number of European economies, threatens to aggravate the still fragile banking sector inOutcome the region and may trigger renewed financial turbulence worldwide. In the potential scenario that problems inThe Dialogue will result in a summary by the President major developed countries would trigger a double-dipof the General Assembly which will be issued as an of- recession, developing countries, which had reboundedficial document. strongly from the global recession of 2009, would be hit hard through trade and financial channels.2

Fifth High-Level Dialogue on Financing for DevelopmentPlenary meetings below pre-crisis levels. In the absence of significant progress in multilateral trade negotiations, a wide range of“The Monterrey Consensus and Doha Decla- tariff and non-tariff protectionist measures continue to limit the development potential of international trade,ration on Financing for Development: status especially for LDCs. The share of LDCs in global tradeof implementation and tasks ahead” has remained constant at 0.33 per cent (excluding oil) since 2002. In this context, LDCs have called for anThe 2002 Monterrey Consensus and 2008 Doha Dec- “early harvest” on the implementation of the duty-freelaration on Financing for Development contain agree- and quota-free access for all products originating fromments on principles, guidelines, policies and actions all LDCs. On a positive note, recent increases of aid forin six major thematic areas: mobilization of domestic trade directed towards LDCs have been encouraging.financial resources, private capital flows, international Yet, the distribution of aid for trade remains skewed,trade, official development assistance, external debt and as two thirds of the assistance goes to only ten LDCs.reform of the international monetary, financial and trad- The 2011 Istanbul Programme of Action called on de-ing systems in support of development. velopment partners to implement effective trade-related Given the bleak world economic outlook, domes- technical assistance and capacity-building to LDCs ontic resource mobilization for financing poverty eradi- a priority basis.cation and expanding employment opportunities re- In 2010, net official development assistancemain priority items on national development agendas. (ODA) from OECD/DAC member countries reached aHowever, there are concerns about growth prospects record level of $128.7 billion, representing 0.32 per centof developing countries, including the risk of spillovers of their combined gross national income (GNI). How-from developed countries, rising domestic inflation, ex- ever, net ODA/GNI ratios of many large donors remaincessive capital inflows, exchange rate misalignment and below the United Nations target of 0.7 per cent, whilecommodity price volatility. In addition, substantial re- only five countries (Denmark, Luxembourg, the Neth-sources, both domestic and external, will be needed for erlands, Norway and Sweden) exceed that target. More-the transition towards a green economy, as well as to ad- over, the Group of Eight did not deliver on its promisedress climate change, invest in food security and reduce at Gleneagles to increase aid to Africa by $25 billion (ineconomic vulnerability to external shocks. 2004 prices). The delivery gap in 2010 was estimated Net private capital flows to developing countries at $18 billion (or $15 billion in 2004 prices). ODA toare estimated to have risen from $325 billion in 2009 LDCs reached $37 billion raising their share to 0.10to $392 billion in 2010. However, there have been in- per cent of donors aggregate GNI, which was still welldications of a recent decline in portfolio equity flows to below the United Nations target of 0.15-0.20 per cent.developing countries which, in turn, have led to a sharp There is a need to strengthen monitoring, evaluation anddepreciation in most of the leading emerging market accountability mechanisms of development cooperation,currencies. Despite some diversification, the distribution a central priority for both the follow-up to the Fourthof investment flows remains uneven, particularly among High-Level Forum on Aid Effectiveness in Busan andthe least developed countries (LDCs). South-South in- the outcome to the next ECOSOC Development Coop-vestment flows have also increased, particularly those eration Forum.from emerging market economies. Despite its potential Thanks to a recovery in growth and exports, exter-contribution to development, the surge in foreign capital nal debt indicators improved in many developing coun-may make the domestic financial sector more vulnerable. tries in 2010, despite considerable divergence across re- After a deep decline in 2009, world trade rebound- gions. However, high public debt-to-GDP ratios in manyed by almost 12 per cent in 2010. Developing countries developing countries can be a cause for concern. Therehave been leading the recovery in international trade, is a growing risk of spillover effects from the Europeanwhile trade by developed economies continues to teeter debt crisis and other risk factors, such as volatile energy Financing for Development Office, 2 U.N. Plaza (DC2-2170), New York, N.Y. 10017 3 Email: ffdoffice@un.org, Fax: 212-963-0443, Website: www.un.org/esa/ffd

and food prices and exchange-rate instability, which cient space for national policies in support of structuralcould significantly affect the outlook for debt sustain- change and growth in developing countries?ability of countries with external vulnerabilities. Debt • What measures are needed to ensure the achieve-problems often occur due to natural disasters, interna- ment of United Nations aid targets despite fiscal consoli-tional financial volatility and other exogenous shocks, dation and fragile economic recovery in donor countries?despite good policies and debt management. Structural What role can the United Nations play in strengtheningvulnerabilities to external shocks can therefore be as im- international cooperation in this area?portant as policy and institutional quality. Further tech- • How can the debt crisis in the euro area be con-nical work at the inter-agency level could play a useful tained and its impact on emerging economy and devel-role in enhancing the analysis and effectiveness of exist- oping countries be minimized? What can be done toing debt sustainability frameworks. help middle-income developing countries reduce their The international community has continued its debt burden, including by providing additional reliefefforts to reform the international monetary and fi- and restructuring?nancial system. Key areas include financial regulation • How can the United Nations, the Bretton Woodsand supervision, multilateral surveillance and macro- institutions and the World Trade Organization more ef-economic policy coordination, sovereign debt, global fi- fectively coordinate their actions so as to increase the co-nancial safety nets and the international reserve system. herence and consistency of the international monetary,Further steps have also been taken by the Bretton Woods financial and trading systems in support of development?institutions to improve their governance structuresthrough shifts in voting power to developing and transi-tion countries. In addition, it is critical that macroeco-nomic policy coordination be sustained, strengthenedand institutionalized on the multilateral agenda. Thereis a need for stronger institutional linkages between in-formal limited-membership bodies like the G-20 anduniversal international organizations, such as the UnitedNations. Clearer procedures, greater coordination andmore coherent policies would help ensure complemen-tarity of efforts between the G-20, the United Nations,the Bretton Woods institutions and other multilateralorganizations.Proposed questions:• What are the challenges and constraints to domes-tic resource mobilization in developing countries? Whatcan be done to expand and support employment cre-ation and infrastructure investment as part of nationaldevelopment strategies in times of crisis?• What types of macroeconomic policies in devel-oped and developing countries promote foreign directinvestment and other private capital flows for develop-ment? What are the benefits and concerns related tocapital inflows to developing countries?• What scope is there in the renewed effort to con-clude the Doha Round for advancing a developmentagenda in world trade? How can progress in multilat-eral trade negotiations and in setting multilateral rulesand regulations be reconciled with the need for suffi-4

Fifth High-Level Dialogue on Financing for DevelopmentRound table 1: “The reform of the in- strengthen surveillance and early-warning mechanisms. In particular, more attention needs to be paid toternational monetary and financial financial sector issues and cross-border spillover effects.system and its implications for develop- The IMF has taken steps to improve methods and cover-ment” age of its multilateral surveillance activities, including through new spillover reports for the world’s five largestThe international community has taken measures to economies, which stressed the importance of financialaddress systemic impediments to financing for develop- channels for transmitting global shocks.ment. Despite these reform efforts, some deficiencies of Economic policy coordination within the G-20the international monetary and financial system contin- during the financial crisis was instrumental in avertingue to give rise to global instabilities and hamper resource an even more serious downturn and in setting the stagemobilization and crisis resilience in developing coun- for recovery. It is critical that macroeconomic policytries. There is a need to further reform and strengthen coordination be sustained, strengthened and institu-the international monetary and financial system in sup- tionalized on the multilateral agenda. The Action Planport of development. for Growth and Jobs, adopted by the G-20 summit in Key reform areas are financial regulation and su- Cannes in November 2011, contains a number of ac-pervision, multilateral surveillance and macroeconomic tions and indicators, including those on fiscal consoli-policy coordination, sovereign debt, global and regional dation, aiming at strengthening international economicfinancial safety nets and the international reserve sys- policy coordination. The G-20 as an informal groupingtem. Moreover, international financial institutions have needs to forge stronger institutional linkages with non-taken steps to redress imbalances in terms of voice and member States and universal international bodies, inrepresentation of developing countries. particular the United Nations. There is also a need to A major step in the process of reforming financial ensure complementarity of policy coordination effortsregulation is the introduction of the Basel III frame- between the United Nations, IMF, G-20 and other mul-work for bank capital and liquidity regulation. The new tilateral stakeholders.rules provide for higher minimum capital requirements, The debate on capital flows has focused on thebetter risk capture, a stricter definition of eligible capi- question of how to respond to potentially destabilizingtal elements and larger liquidity buffers. Along with the capital inflows and which policy instruments to choose.traditional microprudential approaches focused on the In designing policy responses, recipient countries havelevel of the individual bank, Basel III also attempts to a range of tools at their disposal. Policy options includestrengthen system-wide oversight and macroprudential exchange rate, monetary, fiscal and macroprudentialpolicy framework. Given considerable scope and flex- policies and other forms of capital account regulations,ibility in the national implementation of the Basel III such as capital controls. Despite possible multilateral re-rules, the challenge lies in transforming the Basel III percussions of such policy instruments, there is largelyframework into a set of national regulations and practic- a lack of international rules or guidelines on this issue.es, which are consistent across countries and which are G-20 leaders called on the Financial Stability Board,not providing regulatory loopholes that might weaken IMF and the Bank for International Settlements to dothe overall impact of the framework. Important interna- further work on tools to mitigate the impact of excessivetional efforts are also under way regarding the oversight capital flows. The IMF has started to work on a frame-and regulation of systemically important financial insti- work to help countries deal with large capital inflows.tutions and the shadow banking system. Concerns related to developed country sovereign The recent crisis and the current financial turmoil debt have become an important source of instability forhave demonstrated that, in a highly interdependent the global financial system. Sovereign debt and bank-world economy, external shocks are swiftly transmit- ing risks, mostly in the euro area, have continued to riseted around the globe. Consequently, there is a need to further. There is a need to pursue fiscal consolidation in Financing for Development Office, 2 U.N. Plaza (DC2-2170), New York, N.Y. 10017 5 Email: ffdoffice@un.org, Fax: 212-963-0443, Website: www.un.org/esa/ffd

major advanced economies over the medium and long the composition of the SDR basket, regular issuancesterm. However, measures to ensure medium-term fiscal of SDRs, and the use of SDRs in private commercial orsustainability should be internationally coordinated and financial transactions and as a unit of account.well timed so as not to damage recovery prospects. Pre- Both IMF and the World Bank have taken steps tomature fiscal austerity measures in response to high lev- redress imbalances in governance structures and to in-els of fiscal deficit and public debt weaken growth and crease the voice and representation of developing coun-job prospects and increase the risk of falling back into re- tries. While recent measures represent important prog-cession. To address sovereign debt crisis in Europe, assis- ress, there are calls to continue efforts to enhance thetance measures have been agreed on, complemented by governance structure of the Bretton Woods institutions.IMF facilities. Increasing attention is also on strength- There are also calls for a swift implementation of theening fiscal integration in the euro zone. In addition, 2010 quota and governance reform of the IMF. In addi-potential measures to strengthen the crisis resilience of tion, a comprehensive review of the current IMF quotathe financial sector have received increased attention, in- formula is scheduled to be completed by January 2013.cluding calls for recapitalizing banks and for increasing Many developing countries believe that any changes totransparency and accountability of the banking sector. the formula should lead to an increase in quota shares ofOne factor compromising international financial stabil- emerging economies and developing countries.ity is the absence of an international framework for sov-ereign debt restructuring. Such a mechanism is a critical Proposed questions:element for the stability of the international financialsystem. However, thus far there has been no progress on • What steps should be taken to bolster both na-this issue. tional and international supervision and regulation of fi- An effective global financial safety net is an im- nancial markets? What should be the role of the Unitedportant backstop for the prevention of economic and Nations system in this effort?financial instability. Currently, countries rely on a hy- • How can the toolkit for multilateral surveillancebrid system combining reserve accumulation, bilateral and early warning be further improved?agreements, and regional and multilateral mechanisms. • What should be the modalities of engagement be-In 2010, the IMF enhanced its Flexible Credit Line and tween the United Nations and informal groups of lim-established a Precautionary Credit Line. In November ited composition, such as the G-20?2011, the Fund announced a Precautionary and Liquid- • How can capital-account policies and other poli-ity Line to replace the Precautionary Credit Line to pro- cies affecting capital flows be made more effective in re-vide increased and more flexible short-term liquidity to sponding to capital surges and reversals? Should there becountries with strong policies and fundamentals facing global “rules of the game” for cross-border capital flows?exogenous shocks. Resources available to IMF to carry How can the adverse impact of the sovereign debt crisisout its lending activities increased significantly. There are on development be contained?proposals to set up a permanent multilateral mechanism • How can multilateral funding for liquidity supportto provide liquidity in systemic crises, in conjunction and external adjustment be further enhanced?with bilateral and regional liquidity support arrange-ments. Indeed, there is a need for large liquidity buffers • What path should the reform of the internationalto deal with fast and sizeable capital market swings. reserve system take? Which alternative reserve currency arrangements have the greatest feasibility? There are proposals to reform the internationalreserve system through a strengthened role for special • What measures are needed to further enhancedrawing rights (SDRs). Recent SDR allocations helped the voice and participation of developing countries andto supplement international reserves in response to the countries with economies in transition in internationalworld financial and economic crisis. A gradual move economic decision-making and norm-setting?over the coming years towards a system that combinesincreased use of SDRs with a range of nationally sup-plied reserve assets is viewed as the most feasible scenar-io. Possible measures in this regard include broadening6

Fifth High-Level Dialogue on Financing for DevelopmentRound table 2: “The impact of the ing the global crisis. Companies from developing and transition economies, especially Brazil, China, Indiaworld financial and economic crisis and Russia, have been increasingly important investors.on foreign direct investment and other Their share in global FDI outflows rose from 15 per centprivate flows, external debt and interna- in 2007 to 28 per cent in 2010. Over 70 per cent of their investments are directed towards other developing andtional trade” transition economies. Moreover, the scope for beneficialThe severe impact of the world financial and economic linkages and technology absorption arising from South-crisis on developing countries took place through a sharp South FDI is increased by the fact that the technologycontraction in private capital flows and trade. Its effect and skills of developing-country TNCs are often closerwas compounded by a resulting deterioration in external to those used by firms in host countries. Greater consid-debt indicators. While the past couple of years have seen eration needs to be given by policymakers at all levelsan improvement in these conditions, the legacy of the to exploring the possibilities for supporting South-Southcrisis continues to impact on private capital flows, trade investment flows, particularly those with a positive de-and external debt and may pose serious consequences for velopment impact, including in the context of South-development. South cooperation and collaboration among developing- country institutions. Net private capital flows to developing and emerg-ing countries increased to about $575 billion in 2011, up Both portfolio flows and cross-border bank lendingby about $90 billion from 2010 levels. The recovery in underwent a recovery in the aftermath of crisis but arecapital inflows from their precipitous decline during the susceptible to a renewed downturn due to continuingglobal financial crisis continued until the middle of 2011 problems with economic fundamentals in some leadingbut suffered a strong setback with the sharp deteriora- economies. Net inflows of portfolio equity to developingtion in global financial markets in the third quarter of countries declined sharply in 2011, by estimated 35 perthe year. This was owing to a sharp decline in short-term cent from 2010 levels, in vivid proof of the high volatil-portfolio equity flows to developing countries, as a result ity these flows tend to be subjected to. This has, in turn,of concerns over the sustainability of public finances in led to a sharp depreciation in most of the leading emerg-Europe which led to a general ‘flight to safety’. ing market currencies. Portfolio bond flows to developing countries are also vulnerable to a sharp shift in senti- Foreign direct investment (FDI) is a major com- ment. Cross-border bank flows to developing countriesponent of private capital flows to developing countries. are also susceptible to significant downside risks, sinceThe crisis negatively impacted on FDI flows to develop- the continued financial difficulties facing the financialing countries through reducing the access to finance for sector make bank lending vulnerable to any renewedinvesting firms, as well as by affecting investors’ confi- downturn in the global economy. In 2011, bank lendingdence as a result of gloomy economic prospects and mar- has recovered to only about 20 per cent of its pre-crisisket conditions. In 2009-2010, FDI resumed growing, level, as international banks headquartered in developedin line with improved economic prospects in develop- countries continued to struggle in the aftermath of theing markets. However, future investment to developing financial crisis.countries may be adversely affected in the event of a re-newed slowdown in the global economy. Moreover, pri- The increasing volatility and vulnerability of pri-vate capital flows to developing countries may be more vate capital flows both during the crisis, and in its after-footloose than in the past, given the growing proportion math, has rendered important the adoption of measuresof short-term and volatile flows. to mitigate their potential destabilizing impact. In addition to appropriate prudential regulation and measures FDI from developing countries, including South- that restrict the impact of excessive capital inflows onSouth FDI, has been less volatile than that from devel- the domestic economy, greater consideration should beoped countries, and has indeed been more resilient dur- given to the use of restrictions on international capital Financing for Development Office, 2 U.N. Plaza (DC2-2170), New York, N.Y. 10017 7 Email: ffdoffice@un.org, Fax: 212-963-0443, Website: www.un.org/esa/ffd

mobility, such as international taxes or national capital about debt sustainability, which could be adversely af-controls, as a means of reducing the risk of recurrent fected by spill-over effects from the European debt crisiscrises. Moreover, better designed exchange rate systems and other risk factors, such as volatile energy and foodbased on the principle of constant and sustainable real prices and exchange-rate instability. The effectiveness ofexchange rates of all countries could further reduce the debt sustainability frameworks need to be re-examinedscope for speculative capital flows. through further work at the inter-agency level. Efforts The world financial and economic crisis led to a are also needed to design instruments and institutionalsharp contraction in world trade. After declining steeply mechanisms to better deal with debt distress.in 2009, world trade rebounded by almost 12 per centin 2010 and is expected to grow by about 7 per cent Proposed questions:in both 2011 and 2012. Developing countries have • What are effective ways to facilitate the flow of in-been leading the recovery, while trade by developed ternational private capital, particularly long-term invest-economies continues to teeter below pre-crisis levels. ment, to developing countries?As a result, the share of developing countries in globaltrade increased from about one third to more than 40 • How can foreign direct investment policies beper cent between 2008 and 2010. However, since mid- more successfully integrated in a coherent manner with2010 world trade growth has lost steam and the short- policies on trade, domestic investment and other govern-term outlook is clouded by a number of significant risk ment policies to achieve development objectives?factors, including rising prices for food, energy and • What national and international measures can beother primary products, high levels of unemployment taken to increase the stability of private capital flows toand debt crises in developed economies. middle-income countries and to mitigate the impact of The global crisis has also distracted some of the at- financial volatility on their economies?tention of policymakers from the Doha Round of mul- • How can the conclusion of the Doha Round oftilateral trade negotiation, which was launched almost a multilateral trade negotiations be expedited and thedecade ago by the World Trade Organization (WTO). potential benefits of the Doha Development Agenda beIt remains imperative for countries to arrive at a success- realized?ful and development-oriented conclusion to the Doha • How can international cooperation ensure debtRound of multilateral trade negotiations. At the Cannes sustainability of developing countries and foster con-Summit, G-20 leaders reiterated support for the Doha sideration of enhanced and fair approaches to sovereignDevelopment Agenda mandate and stressed the need for debt restructuring mechanisms?fresh, credible approaches to furthering trade negotia- • What can be done to help middle-income devel-tions, including issues of concern for the Least Devel- oping countries reduce their debt burden, including byoped Countries. providing additional relief and restructuring? The recovery in external debt indicators from thenegative impact of the global economic and financialcrisis has been uneven. The ratio of external debt toGDP decreased from 23.7 per cent in 2009 to 21.6 percent in 2010. Estimates for the ratio of external debtservice to exports of goods and services for 2010 alsoshow a return to pre-crisis levels for all income groups,reaching 6.5 per cent in low-income countries, 19 percent in lower-middle-income countries and 35 per centin upper-middle-income countries. However, there isconsiderable divergence across regions and countries.Some countries have found it more difficult to emergefrom the recession or are still coping with large fiscaldeficits, especially given the additional shocks of high-er food and energy prices. There also remain concerns8

Fifth High-Level Dialogue on Financing for DevelopmentRound table 3: “The role of financial projected increase in ODA (1 per cent per year in real terms) is lagging behind the population growth.and technical development cooperation, In 2009, the top ten ODA recipients received oneincluding innovative sources of devel- fourths of all aid, as was the case in 2000. This trendopment finance, in leveraging the mo- suggests that aid concentration persists despite the factbilization of domestic and international that favoured aid recipients change over time. There is a case to be made for more equitable and needs based allo-financial resources for development” cation of aid. The sectoral distribution of ODA has also been highly unbalanced. Over the past decade, the shareAid remains an important source for financing develop- of sector-allocable ODA from DAC donors devoted toment as a large number of developing countries cannot social infrastructure and services has grown from 50 toaccess other sources of finance. In 2010, the delivery of 60 per cent, while the share directed towards economicofficial development assistance (ODA) reached a record infrastructure and services has gone down from 26 tolevel of $128.7 billion or 0.32 per cent of OECD/DAC 20 per cent. The agricultural sector received just 5.3 permembers’ combined gross national income (GNI). How- cent of sector-allocable aid in 2009, although it is likelyever, global aid delivery remains far below the United to increase in coming years. While aid is not the onlyNations target of 0.7 per cent measured as net ODA/ source of funding productive investment, the contribu-GNI ratio, with only five donor countries (Denmark, tion of aid-financed, productivity-enhancing public in-Luxembourg, the Netherlands, Norway and Sweden) vestment in developing countries continues to be essen-meeting that target. tial, especially in LDCs. Moreover, ODA falls $19 billion short of donor Despite progress since Monterrey, the contribu-commitments pledged for 2010 at the 2005 Gleneagles tion of innovative financing mechanisms is still mod-G8 Summit. The shortfall in aid to Africa is even larger est. Based on OECD classification, innovative financ-in percentage terms. Africa has so far received an ad- ing mechanisms contributed $ 5.5 billion during theditional $11 billion, compared to the $25 billion prom- period 2002-2010 to development finance for the healthised at Gleneagles. ODA to the least developed countries sector and $31 billion for climate change and environ-(LDCs) reached $37 billion or 0.10 per cent of donors’ ment, the latter mostly from carbon emissions trading.aggregate GNI. Again, this is still well below the United Innovative financing should supplement and not be aNations target of 0.15-0.20 per cent. substitute for traditional sources of financing. However, Recognizing these critical shortfalls in ODA deliv- of the $5.5 billion raised for the health sector $5.3 bil-ery, the September 2010 MDG Summit reiterated the lion were accounted as ODA and only $0.2 billion wereimportance of fulfilling all ODA commitments and en- attributed to non-government contributions. Yet, evencouraged donors to establish specific timetables. Like- these non-ODA resources may be eventually reportedwise, the May 2011 Istanbul Programme of Action for as ODA when they are disbursed by DAC multilateralLDCs called upon donor countries to implement at least donors. These resources are pooled with other resourcestheir minimum ODA targets for LDCs by 2015. The and delivered through three public-private partnerships:2011 DAC Recommendation on Good Pledging Prac- two vertical funds – the Global Alliance for Vaccina-tice, advised its members to ensure clarity by specifying tion and Immunization (GAVI) and the Global Fund toall parameters relevant to the assessment of their pledges. Fight AIDS, Tuberculosis and Malaria (GFATM) – andNevertheless, most donors plan to increase aid over the one international drug-purchasing facility (UNITAID).coming three years at a sharply reduced pace, given the For climate change and environment, most of the $31fragile recovery in developed countries and the possibil- billion raised, represent private financial and investmentity of double-dip recession in Europe. The ongoing fiscal flows, and are classified as non-ODA.crises in Greece, Italy, Ireland and Spain have already Innovative financing should be further exploredtranslated into significant drops in their ODA. Aid to and, where appropriate, expanded to complement tradi-Africa is likely to decline in per capita terms, since the Financing for Development Office, 2 U.N. Plaza (DC2-2170), New York, N.Y. 10017 9 Email: ffdoffice@un.org, Fax: 212-963-0443, Website: www.un.org/esa/ffd

tional ODA. Delivery mechanisms and the allocation of all stakeholders can play to support development. It wasaid flows need to be strengthened so that such resources agreed to work towards selective and relevant set of indi-can be provided on a stable, predictable and voluntary cators and targets through which to monitor progress onbasis. Harmonization of fragmented monitoring and a rolling basis by June 2012.evaluation mechanisms is needed to reduce transaction The Busan outcome document recognized thatcosts. There is also a need for independent monitoring South-South cooperation differed from North-Southand evaluation at the international level to assess deliv- cooperation in its nature, modalities and responsibilitiesery, allocation and impact of innovative financing on and countries providing South-South cooperation were adevelopment. In this context, South-South cooperation part of the development agenda in which they participat-has helped to fill certain gaps in assistance provided by ed on the basis of common goals and shared principles. ItNorthern donors, particularly in the area of infrastruc- was accepted that the Busan outcome document wouldture, and has been seen as relatively predictable, more be a point of reference for them on a voluntary basis.flexible and responsive to national priorities. Donors also committed themselves to the Interna- There have been renewed calls for improving exist- tional Aid Transparency Initiative, adherence to whiching global monitoring and evaluation mechanisms and would allow development assistance to be comparedexploring new modalities, such as international peer re- across countries. They also pledged to reduce the pro-views. The 2011 Survey on Monitoring the Paris Decla- liferation of multilateral channels by the end of 2012,ration on Aid Effectiveness showed substantial variation make greater use of country-led coordination by 2013across donors and partner countries and confirmed that, and to provide regular rolling three- to five-year indica-for those indicators where the responsibility for change tive forward expenditure and implementation plans towas primarily with developing country governments, developing countries.progress had been significant. For example, significant The ECOSOC Development Cooperation Forumimprovements were made in the quality of planning, as provides an important opportunity to review and ad-well as financial and results management systems in a dress the issues of global partnership for development,number of recipient countries. In the meantime, the lack including the coherence of national and internationalof progress in some areas that depend largely on donors, aid efforts.such as untying aid and working with other donors,shows the need for sustained and accelerated efforts by Proposed questions:donor countries. The UN Results Report, submitted by UNDG to • What additional actions need to be taken to ensurethe Fourth High Level Dialogue on Aid Effectiveness that the international community meets aid commit-in Busan, found that the existing indicator framework ments and delivers stable, predictable, durable and morewas ill-fitted to assess the contribution of multilateral equitable aid flows?organizations, such as the United Nations and develop- • What does development effectiveness mean inment banks, and suggested that a new global monitor- practice? What steps need to be taken to ensure the al-ing framework could take the form of a global peer re- location of aid to social and productive sectors and alignview mechanism on mutual accountability carried out them with national development strategies?in countries at regular intervals, facilitated by the United • What steps can be taken to realize the full poten-Nations by virtue of its extensive country presence. tial of innovative financing and ensure that innovative The participants at Busan HLF-IV recognized that sources of development finance are additional, stable,the progress since Monterrey had been uneven and nei- and predictable and aligned with national developmentther fast nor fast reaching enough and reaffirmed their strategies? How can innovative financing mechanismsrespective commitments and the implementation in full be streamlined with the existing aid architecture?of the actions agreed in Monterrey. They noted the in- • What are the next steps in improving mutual ac-creasingly complex architecture for development co-op- countability for international development cooperation?eration and proposed a new global development partner- What will be the new issues to be discussed in the ECO-ship for effective development cooperation that would SOC Development Cooperation Forum to enhance de-embrace diversity and recognize the distinct roles that velopment effectiveness?10

Fifth High-Level Dialogue on Financing for DevelopmentInformal interactive dialogue to medicines and information and communication tech- nologies, their costs remain prohibitive in many develop-“The link between financing for development ing countries. Both present a hindrance to development.and achieving the internationally agreed At the same time, new challenges have emerged over the last decade, which require concerted global ac-development goals, including the Millennium tion, including the impact of the world financial andDevelopment Goals” economic crisis, additional costs of climate change miti- gation and adaptation and damage to the Earth’s en-Achieving the internationally agreed development goals, vironment, new forms of economic cooperation, priceincluding the Millennium Development Goals (MDGs), volatility in international markets of key commodi-requires strengthening of the global partnership for de- ties, expanding economic cooperation and the grow-velopment, as embodied in Goal 8 of the MDGs, the ing needs for reconstruction and development of post-2002 Monterrey Consensus, the 2002 Johannesburg conflict countries. The United Nations’ World EconomicPlan of Implementation and the 2005 World Summit and Social Survey, 2011 estimates that incremental greenOutcome. This compact between developing and devel- investment of about 3 per cent of world gross productoped countries, which stresses mutual responsibilities in (about $1.9 trillion in 2010) would be required to over-the quest for development goals was reaffirmed in the come poverty, increase food production and to eradicate2008 Doha Declaration on Financing for Development hunger without degrading land and water resources, andand the 2010 MDG Summit Outcome. avert the climate change catastrophe. Progress towards the achievement of the MDGs is The upcoming Rio+20 Summit provides a uniquemonitored by the United Nations system through the opportunity to face some of these pressing challenges inMillennium Development Goals Report and the MDG a collaborative manner. With global population expect-Gap Task Force Report. Both have issued a mixed report ed to reach 9 billion by 2050, the challenge lies in bal-card. The MDGs have helped to lift millions of people ancing productive economic expansion with human andout of poverty, save lives and increase primary school en- natural capital that is its foundation. In the aftermath ofrollment. They have reduced maternal deaths, expanded the world financial and economic crisis, exacerbated byopportunities for women, increased access to clean water food and fuel price volatility and climate change needs,and freed many people from deadly and debilitating dis- this challenge remains as daunting as ever. In this con-ease. At the same time, the record shows slow progress text, the UN Conference on Sustainable Developmentin empowering women and girls, promoting sustainable (Rio +20) will focus on two themes: a green economydevelopment, and protecting the most vulnerable from in the context of sustainable development and povertythe devastating effects of multiple crises, be they con- eradication and an institutional framework for sustain-flicts, natural disasters or volatility in prices for food and able development, with three primary objectives: to re-energy. new political commitment for sustainable development; In terms of MDG 8, the international community assess progress and implementation gaps; and addressfalls short on three fronts. First, even as ODA reached new and emerging challenges.record levels in 2010, donor Governments intend to The fulfillment of these objectives requires greaterincrease spending more slowly during 2011-2013. It is global coordination and collaboration. In this regard,unclear how this will accord with pledges to raise aid the General Assembly recognized the need for inclu-levels towards the United Nations target of 0.7 per cent sive, transparent and effective multilateral approaches toof national income by 2015. Second, despite intense ne- managing global challenges and reaffirmed the centralgotiations at the World Trade Organization to deliver on role of the United Nations in ongoing efforts to findthe Doha Development Agenda, the Round has not suc- common solutions to such challenges. This would implycessfully concluded, even a decade after it began. Third, enhanced coordination, cooperation, coherence and ef-although there have been major efforts to increase access fective policymaking across the entire United Nations Financing for Development Office, 2 U.N. Plaza (DC2-2170), New York, N.Y. 10017 11 Email: ffdoffice@un.org, Fax: 212-963-0443, Website: www.un.org/esa/ffd

system, as called for in the report of the Secretary-Gen- • What actions need to be taken to arrive at a moreeral on “Global economic governance and development” inclusive, transparent and effective global economic(A/66/506). governance? How can the role of the United Nations be The fourth High-Level Forum on Aid Effectiveness strengthened in global governance?adopted the “Busan Partnership for Effective Develop-ment Cooperation”, which is rooted in shared principlesto achieve common goals in development cooperation.The Forum outcome document calls for mutual account-ability, and accountability to the intended beneficiariesof development cooperation, as well as to respective citi-zens, organizations, constituents and shareholders. The implementation of internationally agreed de-velopment goals also calls for advancing the United Na-tions development agenda beyond 2015. The report ofthe Secretary-General (A/66/126) conveys four mainmessages. First, the discussion of the post-2015 develop-ment agenda should start with a thorough evaluation ofthe MDGs. This will assess what has worked and whatneeds improvement. Second, sustainable developmentmust be at the centre of any post-2015 UN developmentagenda. Third, there are new development challengesthat need further reflection: issues such as inequality,climate change, food and energy security, environmen-tal degradation, demographic trends, peace and security,respect for human rights and good governance. Fourth,new challenges could be addressed by more fully by op-erationalizing the values and principles contained in theMillennium Declaration, which remain as relevant asever.Proposed questions:• How can the international community, includingthe United Nations system, respond to new challengesand emerging issues in a more coordinated and effectivemanner?• What is the interrelationship between the Rio+20-Summit and the Financing for Development process?What would help ensure that these two processes mutu-ally reinforce each other?• How can we ensure greater coherence among thenoticeably disjointed multilateral architectures for envi-ronment, technology transfer, trade, aid and finance soas to facilitate green growth and environmental sustain-ability?• How can the Financing for Development processhelp shape the post-2015 UN development agenda?12

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Fifth High-level Dialogue on Financing for Development - Newsletter November 2011

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