D+C Development and Cooperation (No. 4, July/August 2002, p. 4-5, 26)

Despite all gloomy predictions that Monterrey would not achieve anything, particularly since the final document - titled Monterrey Consensus - had already been finalised beforehand in New York, the UN International Conference on Financing for Development certainly made progress. There were concrete new commitments by the industrialised nations on ODA increases and by the developing countries on good governance, and on both sides a new partnership to combat poverty as the main task of securing peace in the 21st century.

It was for the first time that a world conference focused on the entire spectrum of mobilising financial resources for development. The final document covers six broad policy areas:

• mobilisation of domestic financial resources;
• mobilisation of international resources: foreign direct investment (FDI) and other private flows;
• international trade as the engine of economic development;
• increasing international financial and technical cooperation;
• external debt;
• systemic issues: enhancing the coherence and consistency of the international monetary, financial and trading systems; and, in addition,
• the follow-up process.

The goal of this comprehensive, holistic approach was to provide an impulse for a coherent policy framework. This focus on greater coherence gave the conference its inner momentum.

Corresponding to the comprehensive approach in regard to the subjects of the conference, the participants, too, included all interest groups (‘multi-stakeholder approach’). Besides the governments of UN member states and top officials of international organisations, many representatives of national parliaments, commerce and industry and NGOs took part in the conference. New for a UN conference was the active participation of the World Bank, the International Monetary Fund (IMF) and the World Trade Organisation (WTO). Tying them in early during the preparatory process contributed to the conference’s success in two ways. First, the different discussion and negotiation cultures of the UN (New York) and Bretton Woods Institutions (Washington) came closer to each other. Second, for the first time a UN conference dealt in detail with subjects which come under the areas of responsibility of the Bretton Woods Institutions and also adopted them in the final document. This meeting of minds is a crucial precondition for greater coherency.

Monterrey was more than a place where governments and international organisations presented their official positions in formal statements. It was also an open marketplace for exchanging new, still unofficial, ideas, concepts and strategies. Almost all aspects of financing development were the subject of lively debates in about 70 parallel events organised by non-governmental groups of all sorts. They did not restrict themselves to criticism and demands, but offered in many cases constructive approaches to solutions. How much the NGOs are called for in developmental lobbying was made clear by a remark by Horst Köhler, IMF Managing Director, in his speech to the plenary session. "I would challenge civil society organisations to devote as much energy and attention to a worldwide campaign to increase aid and trading opportunities for poor countries as they have to the successful effort on debt relief."

Global development partnership
as 21st century security policy

Monterrey was the first international developmental conference since September 11, 2001. There, and subsequently at the forthcoming Rio +10 Conference in Johannesburg, "the developing countries are viewing the approaches and engagement of the rich nations as an indicator of whether we have any idea of their perspective on the problems of security and terrorism", Chris Patten, EU Foreign Affairs Commissioner, wrote in the German weekly "Die Zeit". Monterrey made clear that fighting poverty must be the main goal of an effective security policy. Even US President George W. Bush acknowledged the priority of the developmental tasks in security policy and securing peace when he said in the plenary: "We will challenge the poverty and hopelessness and lack of education and failed governments that too often allow conditions that terrorists can seize and try to turn to their advantage."

A fair development partnership includes greater participation by the developing countries in international decision-making processes on economic and finance issues. The Monterrey Consensus recognises this in principle; but it makes no clear statement on the necessary institutional reforms. The Zedillo Report’s proposal for the creation of a ‘Global Council’ is not mentioned in the final document. But, as German Development Minister Heidemarie Wieczorek-Zeul emphasised, the proposal remains on the agenda for a socially and developmentally acceptable designing of the globalisation process. French President Jacques Chirac also expressly took up the subject by calling for the establishment of an "Economic and Social Security Council".

Steps towards the 0.7 per cent goal

Monterrey was not, nor was it intended to be, an ‘ODA pledging conference’, since official development assistance (ODA) is only one element in the system of financing development. But for still too many developing countries (particularly those that attract no significant FDI inflow and have only a low volume of exports) ODA continues to be the main source of external capital inflow. Thus, the developing countries considered a substantial increase in ODA an indispensable proof of the industrialised countries’ willingness to deliver their contribution to achieving the development goals of the UN Millennium Declaration. In the run-up to the Conference the World Bank had calculated that achieving the poverty goal - i. e. halving the number of people living in absolute poverty by 2015 - required a doubling of the current annual ODA level. In this respect, Monterrey delivered more than many people had expected.

The Monterrey Consensus confirms the target of providing 0.7 per cent of the gross national income (GNI) unconditionally, and above all without US reservations. A tangible result is that shortly before Monterrey the EU member states - which provide more than 50 per cent of all ODA - committed themselves in the European Council to increasing their current average ODA of 0.33 per cent to 0.39 per cent of the GNI by 2006. Member states whose contribution is lower than the present EU average, such as Germany’s with 0.27 per cent, are to aim at achieving at least 0.33 per cent by 2006. Expressed in absolute figures, which in the final analysis count for more than abstract percentages, this means the EU’s total ODA will increase from a current US$ 25 billion to US$ 32 billion by that deadline.

This decision had a very positive impact on the course of the conference. President Bush said he would urge Congress to increase the US ‘core development assistance’ by 50 per cent over the next three budget years. This would mean an increase by the end of that period of US$ 5 billion per year, or, put another way, a rise from 0.1 per cent of GDP to a (still meagre) 0.15 per cent. Many details have remained open, but it is clear that the allocation of funding is to be based on one-sided conditionalities set by the US. Canadian Prime Minister Jean Chrétien announced that his country would increase its development assistance budget by 8 per cent per year.

The list of pledges of increased development assistance goes on. However, what is decisive is that there is has been a positive change in the trend of ODA towards an increase - faster and more extensive than was to be expected. As World Bank President James Wolfensohn remarked in the New York Times: "Two weeks ago, no one was even thinking about an increase. Today, the United States and the EU are prepared to write cheques." This positive development would not have taken place without the dynamism of the Monterrey Conference.

Besides the ODA increases, boosting the efficiency of development cooperation played an important role in the discussions. The Monterrey Consensus contains a number of recommendations on this point. These include

• greater harmonisation of operational procedures of bilateral and multilateral donors,
• more flexibility in ODA disbursement and delivery,
• further untying of aid,
• more flexible forms of cooperation including budget support,
• better predictability of funds allocation, and
• assistance based on the recipient countries’ own development planning (ownership).

The call for increased delivery of development assistance in the form of budget assistance was given prominent support in the person of IMF chief Horst Köhler.

Openness for fresh
subjects and ideas

All persons involved in the Monterrey process share the understanding that the Conference is only a "stopover" in an ongoing discussion on development financing. The final document is open to the taking-up of fresh subjects. The Monterrey Consensus expressly provides for further examination of innovative sources of financing (on the basis of the study commissioned by UN Secretary-General Kofi Annan, which unfortunately was not available in time for the Monterrey Conference). Several concrete proposals which will play a big role in the international discussions are on the table. These include:

• a special classification of global public goods; however, a convincing definition and linkage with a financing mechanism are still to be worked out;
• a tax on speculative foreign exchange transactions (Tobin Tax); the feasibility study commissioned by the German Ministry for Economic Cooperation and Development (BMZ) and presented in Monterrey has helped to make the debate less polemical;
• the proposal of the German Federal government’s Advisory Council on Global Change (WBGU) to levy user charges on air and sea traffic and earmark the revenue for global climate and marine protection in developing countries;
• the allocation of IMF Special Drawing Rights for development purposes, as - although disputed - mentioned in the Monterrey Consensus and supported by French President Chirac;
• securing the sustainability of debt relief for the poorest developing countries in the context of the HIPC initiative;
• the proposal of the IMF’s First Deputy Managing Director, Anne Krueger, on a new sovereign debt restructuring mechanism for developing countries with medium-level income, aimed at, among other things, establishing a co-liability of private creditors;
• a US proposal that World Bank support for the poorest developing countries should be provided not only as soft IDA loans but also increasingly as non-repayable grants - which also is disputed; and
• the idea of Finnish President Tarja Halonen for a ‘global lottery’ as a contribution to development financing.

Mobilising domestic financial
resources, more trade
and foreign direct investment

Rightly, the first three chapters of the Monterrey Consensus deal with the mobilisation of domestic financial resources, FDI and international trade. That underlines their importance as primary sources of development financing. The final document emphasises the developing countries’ self-responsibility for their social and economic development by highlighting the significance of the internal framework conditions for achieving sustainable economic growth and reducing poverty throughout the entire document. Good governance, combating corruption, the rule of law, respect for human rights, a market-oriented economic policy, and macroeconomic stability are named explicitly as core elements of framework conditions conducive to development. They are at the same time essential preconditions for attracting greater foreign and domestic investment. No other final document of a major UN conference has spelled out so clearly and comprehensively what good governance means. There was no controversial debate on these issues, which indicates a pleasing shift in thinking by the developing countries.

The results of the 4th WTO Ministerial Conference in Doha were generally appreciated as positive in Monterrey. The Monterrey Consensus calls for a full implementation of the ‘Doha Development Agenda’, including increased trade-related technical assistance. Further trade liberalisation must pay off for the developing countries. Where they have exportable products they must be given fair trading opportunities, and where that is not the case new trading opportunities must be opened to them by assisting them in overcoming the ‘supply side constraints’. Greater coherence of development and trade policy in the OECD countries is key in supporting the developing countries’ efforts to increase and diversify their exports. Enhancing market access and dismantling trade-distorting measures must not omit sectors in which developing countries have export potential. Above all, as provided for in the Doha ministerial declaration, all forms of subsidies for agricultural exports must be phased out.

The challenge for development policy is to contribute to the poorest developing countries having a better share of the positive effects of the globalisation process. Although the developing countries’ trade volumes and the FDI inflow has increased markedly in recent years, only the more advanced developing countries have benefited. The LDCs continue to be marginalised. About 20 per cent of the worldwide FDI flow into the developing countries. But with less than 0.4 per cent of global investment inflows and only 2 per cent of FDI inflows to developing countries, the LDCs account for merely a minimal share. The LDCs’ exports of goods and services also make up only about 0.5 per cent of worldwide exports, or 1.5 per cent of the exports of all developing countries. The Action Programme adopted at the LDC III Conference in Brussels in May 2001 is shows - for the LDCs and donors alike - what has to be done to address the major economic problems of these countries. Trade or development assistance is not an alternative, as WTO Director-General Mike Moore formulated in the International Herald Tribune, "The sterile debate about trade or aid enrages poorer countries, many of which get neither. We need both."

Optimistic outlook

Monterrey has sent a signal of a new consensus on the goal of eliminating poverty and the internal and external action needed to achieve that. The Conference goes beyond merely demanding increased finance transfers to the developing countries, and outlines a coherent political framework which overcomes the neoliberal Washington Consensus. The United Nations Millennium Declaration of September 2000 is the road map.

The positive course of the Conference in Monterrey is also an important signal for the World Summit on Sustainable Development in Johannesburg (August 26-September 4) at which a ‘global deal’ is to be agreed. But Monterrey was not merely a whistle-stop on the way to Johannesburg. Its cross-sectoral, holistic approach to development financing points beyond Johannesburg.

The thinking inspired by Monterrey can be taken up and deepened in the follow-up process. The Monterrey Consensus calls for maintaining the holistic approach, and - under the aegis of the UN - building bridges between the development, finance and trade institutions and their respective policy areas. The precise terms of a follow-up conference to review the implementation of the Monterrey Consensus are to be decided by 2005 at the latest.

The criteria for a medium-term assessment of the Monterrey Consensus will be whether good governance in the developing countries, more and more efficient development assistance, generous debt relief, and a coherent political environment which the developing countries have actively helped to shape has resulted in an improvement of the economic and investment climate and a greater share in world trade, thus delivering higher growth rates and a significant reduction of poverty.

Dr Michael Hofmann is Director-General (Global and sectoral tasks; European and multilateral development cooperation);
Dr Rolf Drescher is Deputy Head of Division (Globalisation; trade and investment) in the German Ministry for Economic Cooperation and Development (BMZ). The views expressed in this article are the authors’ personal views.