[ Development finance ]
“Internationally coordinated tax regimes”
Ahead of the UN’s Financing for Development Review Conference in Doha, Antonio Tujan Jr. of the IBON Foundation, a non-governmental organisation based in Manila, assessed donors’ track record in an interview with Hans Dembowski. He demands more policy space for the governments of developing countries, and urges donors to expand debt relief.
[ Interview with Antonio Tujan Jr. ]
It is important that donors build on what has been achieved so far in terms of aid effectiveness in the Paris Declaration and the Accra Agenda for Action. In Doha, they should call for monitorable targets – for untying aid and streamlining conditions, for example. That is the way to ensure progress and to measure it. Unlike in the AAA, donors should commit to untying aid to all countries and with respect to all aid modalities – including food aid and technical assistance. Moreover, we need the highest standards of openness and transparency, including timely and meaningful dissemination of information about disbursements. A policy for automatic and full disclosure of relevant information would make sense. Moreover, donors need to act on debt relief.
But hasn’t that topic been dealt with already?
Well, I would like to see donors expand debt relief to highly indebted countries, including middle-income countries in danger of fiscal collapse. Developing-country governments need fiscal space to foster economic growth and fight poverty. Many middle-income countries such as Indonesia and the Philippines face severe restraints due to their debt burden. We’ve seen Washington design a bailout worth $ 700 billion for the financial sector in the USA. It’s obvious money can be made available, so what about coming to the rescue of poor countries?
The Monterrey Consensus recognised that “creditors and debtors share responsibility for unsustainable debt burdens”. What will be on the agenda in Doha?
So far, the Doha draft acknowledges that existing international debt resolution mechanisms, “cannot guarantee just treatment of creditors and debtors”. It then emphasises the need to “guarantee equivalent treatment of all creditors”. What about the debtors? Don’t countries with similar debt profiles and development challenges deserve equal treatment too? We need an internationally agreed, impartial, fair and transparent debt-resolution mechanism.
How do you assess progress made in terms of reforming the global aid architecture.
The High-Level-Forum process initiated by the OECD with its most recent summit in Accra has been positive, but it has reached its political and institutional limits. Donors must strive towards an equitable, inclusive and multilateral architecture. In my view, the emerging UN Development Cooperation Forum has great potential.
What should be done on corruption?
The United Nations Anti-Corruption Convention can play an active role in addressing this matter and the flight of public monies. The Convention ought to be ratified by all countries and implemented at the national level as soon as possible. The Conference of Parties to the Convention must set up an effective system of monitoring, to assess whether states are effectively fulfilling their commitments.
With regard to Monterrey, what is the donors’ greatest shortcoming?
Donor governments did not live up to the commitments made in 2002. Last year, aid levels went down again, after rising for a while. There has been progress on debt relief, but, as discussed already, it is still insufficient. Moreover, donor governments and multilateral bodies have not taken the steps needed to make the global financial and economic system more development-friendly. More aid and less debt must go along with more policy space in developing countries. Instead of enabling poor countries to design and implement sensible policies, the rich nations keep pushing trade and investment liberalisation. The Doha Conference should therefore revisit the importance of “Special and Differential Treatment” in trade and financial policies and boost the policy space available to developing-country governments.
What should governments of developing countries do?
I believe they should
– commit to improving their capacity to draft and implement counter-cyclical macroeconomic policies,
– improve domestic resource generation,
– continue to push for more debt relief, more ODA and more aid effectiveness and
– improve and strengthen financial regulations.
The last point should be a no-brainer in the current financial crisis that is shaking the world economy. And crisis, of course, is the time when counter-cyclical macroeconomics matter most.
To what extent can poor countries mobilise the resources they need domestically?
Each country has the responsibility to draft and implement national development strategies, set priorities and mobilise domestic resources. However there is a number of challenges. For instance, regulatory and fiscal authorities in many countries lack the capacities to act efficiently…
…and there are different approaches to raising taxes.
Yes, indeed. Capital gains and resource extraction should be taxed more heavily than labour. Low-wage workers and the poor need to be exempt from taxes. A progressive tax-system must also be gender sensitive, taking account of the differential holdings of assets and rents between men and women. On the other hand, tax exemptions for transnational investors in special economic zones are counterproductive. Corporate tax regimes should be internationally co-ordinated. Accordingly, transparent international accounting standards for transnational corporations on a country-by-country basis are also needed. Governmental capacity to implement an effective tax regime must not be limited by conditionalities attached to aid, loans or trade agreements.
Does foreign direct investment (FDI) serve developmental purposes?
To some extent, yes. FDI can boost economic growth. It often goes along with technology transfers, human-capital formation, more competitive companies, worldmarket integration and a better investment climate in general. Moreover, beyond strictly economic benefits, FDI may help improve environmental and social conditions in the host country by, for example, transferring up-to-date technologies and leading to more socially-responsible management. But bear in mind that FDI does not automatically provide such benefits. There has to be strong political leadership, otherwise the drawbacks of FDI can easily outweigh the advantages.
What are you thinking of?
There can be quite a few drawbacks. For instance, a country’s balance of payments can deteriorate as profits are repatriated – unless that outflow is compensated by additional FDI. Often, FDI has no positive linkages with local communities. Especially in the extractive and heavy industries, FDI tends to lead to negative environmental impacts. Moreover, there can be social disruptions due to accelerated commercialisation. In many cases, FDI means tougher competition for local businesses and thus a loss of jobs in that sector. Finally, FDI can promote dependence on transnational corporations, which in turn, means that country foregoes benefits and loses sovereignty. In the end, FDI – and foreign investment in general – should not be given too much credence in development finance. The main impulse for investors will always be to turn to countries which provide reasonable returns at reasonable risk. FDI, therefore, has only really helped a handful of countries so far, mostly in Asia and Latin America.
Is economic growth at the heart of development?
It matters, but it is not everything. In order to foster decent work for everyone, governments must ensure adequate levels of public spending in fields like infrastructure, social security and human-capital development.
How do development finance and climate change interrelate?
There are crucial links. Climate change affects agricultural and industrial strategies, we will need technology transfers. Clean energy must be made available, and there has to be compensation for climate-related damages. Developing countries must get additional funds.
What role should innovative financing instruments play?
First of all, they must not impinge on key elements of development – such as ownership, alignment, additionality and so on. That said, entirely new mechanisms and instruments – debt-for-nature swaps, for instance – may certainly make sense. Moreover, well-established financial vehicles such as bonds or investments funds can also be geared to development purposes.
What about taxing international transactions or air travel?
Levies on currency transactions and international flows of finance may not be too popular currently, but it would be technically feasible. This could be a way to tax new wealth and to distribute the world’s wealth more fairly. In a similar sense, it would make sense to tax airplane tickets.
Antonio Tujan Jr.
is international director of the non-governmental IBON Foundation in Manila.
»» atujan@ibon.org
D+C, 2008/11, Tribune, Page 432-433
