Before identifying those priorities, we wish to make a few broad observations about our process and about the interlinkages of the substantive issues you have been considering. We also would like to take this opportunity to thank the high-level officials from the State of Nueva Leon in Mexico for briefing the Preparatory Committee about the site selected for the FfD Conference, which we are happy to now say will be held from 18 to 22 March 2002 in the City of Monterrey.

The Financing for Development process has been a unique intergovernmental exercise at the United Nations and your Co-Chairs believe we have been fortunate to be a part of it. It began more than three years ago with an agreement in the General Assembly to do something important about a crucial issue. Exactly what would be done and exactly what the issue would encompass was purposefully left vague. Since then, we have added increasing precision to the process and the content as political support for the process evolved. We have discovered new ways to bring different parts of the international community together at the United Nations to jointly deliberate on crucial problems of mutual concern. Under the FfD umbrella, we have become a coherent assemblage — one that is still evolving — of Governments and international institutions, supported importantly by civil society organizations and increasingly by the business sector. Taking a holistic and integrated approach in its discussions, this assemblage has identified numerous policy needs in the financing of development. Henceforth, it will have to focus on which policy needs to try to address by the time the FfD Conference begins in Monterrey, Mexico next March, and how to address them.

The discussions during the past week have continued to build on the broad agreement with the general thrust of the proposals contained in the major report that the Secretary-General submitted to our Committee’s last session (A/AC.257/12). The Working Paper (A/AC.257/24), which our Facilitator, Mr. Mauricio Escanero, had been requested to prepare by the General Assembly (Resolution 55/245), effectively guided our discussions. We also benefited from the many thoughtful contributions of Member Governments that were compiled and circulated by the Secretariat (A/AC.257/23 and Add. 1).

Moreover, the World Trade Organization (WTO) provided the Committee with a document called "WTO Membership Contribution to the International Conference on Financing for Development Preparatory Committee" (WTO document WT/COMTD/30, dated 1 May 2001). This document embodied a consensus text that had been prepared by the Trade and Development Committee of WTO, giving views on several of the issues that were being considered by the Prep Com. ²/ Speakers in the Prep Com welcomed the contribution of the WTO Committee and of the WTO Secretariat official who participated in the debate, and looked forward to further active WTO participation at intergovernmental and secretariat levels.

In its deliberations, the Committee also benefited from the active participation of representatives of the other two key institutional stakeholders, the International Monetary Fund (IMF) and the World Bank. Several other international organizations also participated, including the Food and Agricultural Organization of the United Nations (FAO), International Labour Organization (ILO), along with the Organization for Economic Cooperation and Development (OECD), as well as representatives from the secretariats of our own United Nations Development Programme (UNDP) and United Nations Conference on Trade and Development (UNCTAD). In addition, we have opened an important dialogue with business interlocutors, about which more will be said later. We have also benefited from the thoughtful interventions of representatives of civil society organizations and caucuses in our substantive discussions and have had the opportunity to attend numerous "side events" that they have organized as occasions for deeper discussion of critical FfD issues.

This has thus been a rich feast of substantive discussion. We also had the good fortune to begin our Session right on the heels of the Special High-level Meeting of the Economic and Social Council with the Bretton Woods institutions. We are grateful to the President of the Council for briefing us on that meeting and for bringing together finance ministers, central bank governors and other senior officials from developed and developing countries for a fruitful discussion with UN representatives on several issues which form the core of the Financing for Development process. Statements of support and engagement in FfD made at that meeting by senior national and international officials were most encouraging to your Co-Chairmen, as they showed the progress that our process has been making in raising confidence in FfD in the different ministries of our Member States.

In fact, it became clear as the substantive dialogue proceeded in this Third Prep Com Session that, as in the Second Session, many of the United Nations missions in New York had bolstered their capacity to discuss economic and financial policies with specialists from capitals. We would like to acknowledge and express appreciation to all the Governments that were able to send high-level officials and specialists to New York to participate in the deliberations. We also acknowledge the important support given to the New York missions by capitals of countries that were unable to send staff to the Prep Com.

In this regard, we want to underline how important it is that missions continue this practice and that more missions engage in it, as we move into the second part of the Third Session of the Prep Com in October. Your Co-Chairmen believe that important results can come from the Financing for Development Conference and that the next meeting will be a crucial one in determining what those results are likely to be. Every Member State has an important stake in the outcome of this process and it is very much in the interest of every State to send to the October meeting as strong a delegation as possible, to be drawn from all the ministries concerned. We wish to remind you, in this regard, that funds are available to help bring governmental experts as part of delegations of developing countries to the Preparatory Committee. We would like to encourage delegations to take advantage of this opportunity, which is being made possible by several generous contributions.

FfD works because participants are fully aware of the potential of the process. The interventions of Member States have thus continued the rich and effective standard set at our last Session. They have again helped contribute to the very positive overall tone of the meeting. It was easy to see that delegations were all seeking to find the common ground and to identify the policy ideas that were ripening for collaborative action.

This approach suits very well the goals of the FfD process. It is also a reason that we believe and hope that concerns should by now have been laid to rest about any efforts in the FfD process to infringe on the mandates of the key multilateral partners that we have invited to join us. Senior management and governmental representatives to these institutions have already contributed significantly to our process. The ambition of FfD has always been to stimulate political motivation founded on shared analysis and common views, and act on questions on which the United Nations can have a real impact.

On the initiative of the Bureau, the Committee held a separate discussion on the interlinkages among the six areas of our substantive agenda.³/   Speakers applauded this initiative and agreed that all the sub-items identified under this heading in the Working Paper of the Facilitator were important. Speakers also agreed with the sentiment in the texts of all the sub-items. Suggestions were in the nature of refinements and clarifications, as well as questions probing some of the general points that might be sharpened into concrete proposals.

The essence of a focus on interlinkages is a concern that policy makers should explicitly address three issues:

• Coherence of policies and norms with national and international goals;
• Consistency among actions of different official entities at the policy and operational level; and
• Complementarity among multiple policy mandates.

The above concerns pertain to different and sometimes overlapping ministerial responsibilities at domestic level, between national authorities in different countries, and between national authorities and international institutions, in particular involving matters of money, trade, finance and development. They pertain to effectively harmonizing private and public interests at national and international level, as well as facilitating effective interaction of government, labour, business, civil society and academia; a case in point is public/private partnerships.

From one perspective, the concern is about substantive principles. Thus, many Governments argued for the primacy of national priorities in national policy making, although it was also observed that countries whose economic policies can affect the international economic environment should take that fact into account in setting their national policies. At the same time, there seems to be a widespread sense that international standards and codes can guide national policymaking in a number of policy realms, although there may be less agreement on which realms or on how specific the norms need to be or on whether there should be one model of a conducive economic environment or more.

From another perspective, the concern is about the principles under which policy norms are created, adopted and their implementation monitored. "To be part of the solution," one speaker observed, "one needs to be part of the decision." It was argued, in this regard, that universal codes and standards should be developed through fully inclusive, accountable and open processes and with the participation of all countries. At the same time, the need to respect existing mandates and governance structures of relevant international organizations was stressed. Together these two concerns imply the need to consider modalities of more democratic participation in decision-making. In a related matter, another speaker asked how long multilateral facilitation of elaborate national consultative processes is needed when the intention is to foster indigenous policy development.

Other speakers emphasized that many policy norms cannot be given effect without the requisite human capacity. This requires both an appreciation of implementation capacity in target countries when international norms are determined and an international commitment to provide resources sufficient for necessary technical cooperation whenever new norms are adopted. There is also the matter of appropriate monitoring, which itself entails principles of transparency and accountability, and in some cases subsidiarity (e.g., global, regional, sub-regional, national monitoring).

This raises the matter of regional perspectives, which were highly valued. There was considerable interest in recent regional innovations and thus new regional institutions could be created and existing ones strengthened. This argues for the active involvement in FfD of the regional development banks, the regional commissions of the United Nations, and other regional and sub-regional bodies.

More broadly, international norms and the principles for establishing norms are determined in a host of international bodies, some specialized and some with broad mandates, some universal and some of limited membership, some purely official and some with private or mixed public/private membership. There is a general appreciation that the United Nations — because of its universality and moral authority — can be useful in bringing such bodies into dialogue with one another at the institutional and intergovernmental level. In addition, the United Nations offers established mechanisms and considerable experience in bringing representatives of civil society to the table, and increasingly private-sector interests as well. It is well placed to take a holistic approach, to think about the functioning of the international system as a whole, to take advantage of inherent heterogeneities, and to seek advances on all fronts.

With these considerations in view, we wish to share with you now our perception of the areas of convergence in the dialogue in the Preparatory Committee meeting and the policy priorities to which they seem to point. We do not claim there is consensus. To say we perceive there is a convergence among speakers on some issues is far from claiming that Member States that chose not to speak shared the views of the speakers. We will also highlight certain proposals that seemed to attract a measure of interest and that we believe might fruitfully continue to be discussed in the FfD preparatory process. Finally, we do not desist from occasionally mentioning an idea that simply struck us as particularly interesting or highly important to one or more speakers, even if it might not be ripe for agreement by March 2002.

• Interlinkages of domestic resource mobilization with an enabling environment, both domestic and international, including trade, finance, commodity prices and official development assistance and capacity building;
• The role of the private sector in domestic resource mobilization;
• The role of civil society organizations in providing financial services to low-income groups and the poor.

The discussion helped to sharpen the focus on the issues and highlighted promising areas of agreement.

Towards policy priorities

• Critical issues in the mobilization of domestic resources were identified: good governance, a sound macroeconomic framework, formulation of a medium-term fiscal framework, development of an efficient and equitable tax system, development of a well-functioning financial system, financial innovations to widen access of finance and involvement of civil society and the private sector in the provision of infrastructure, social services and ensuring access to financing for those groups usually excluded from the formal financial sector.

• Developing a focused and effective capacity building and technical assistance effort to support the critical areas in the mobilization of domestic resources, drawing on opportunities for cooperation among all countries, from the North and the South, within and across regional groupings of countries. In this regard, there were certain additional considerations:

• Determining the international support needed for special groups of developing countries in their efforts to mobilize domestic resources for development. Implications for this issue of the outcome of the forthcoming UN Conference on least developed countries in Brussels, 14-20 May 2001, can be an input to the International Conference.

• Developing the complementary role that the private sector and civil society can play with the public sector and in the provision of infrastructure and social services, as well as in developing financial innovations to widen access to financing for all segments of society. Additional considerations in this regard included:

• Exploring how public resources can be used to leverage private resources.
• Drawing on lessons learned from various groups, e.g. work on microfinance by the 27 agencies that constitute the Consultative Group to Assist the Poorest (CGAP).
• Possible private sector involvement in a roundtable on the issue of innovations in financing as a side event at the International Conference.

• Enhancing national and international efforts to combat corruption of all origins, and organize international cooperation in this area under the auspices of the United Nations, taking into account national experiences and ongoing international and regional efforts to avoid duplication.

• Coordination of the various existing mechanisms for international support to developing countries in their formulation and implementation of strategies for domestic resource mobilization to attain their development goals (including, national development plans and strategies, Poverty Reduction Strategy Papers, Comprehensive Development Frameworks, United Nations Development Assistance Frameworks, and Common Country Assessments).

There was broad consensus among speakers that foreign direct investment (FDI) and other long-term private flows can have a strong positive impact on development, including through transfer of technology, employment, national capacity building (human and institutional), diversification of the production base, development of well-functioning infrastructure, and entrepreneurial capacity.⁴/ Thus, measures to promote such flows are desirable, within an appropriate policy framework. There was also wide recognition that developed and developing countries, and also the international community, may contribute to expanding long-term private flows and extending them to all developing countries, including least developed, land-locked and small-island developing States.

• Source-country policies: there is much that home countries can do to promote private investment flows to developing countries, including opening their own markets (because investment flows are attracted by export opportunities back to the home country, as well as access to the host-country market and exports to third countries), disseminating information on investment opportunities in developing countries and providing technical assistance to developing countries to help them strengthen their capacity to better oversee these flows.
• Host-country policies: Host countries can promote long-term capital flows, including FDI, through: a stable macroeconomic environment and adequate infrastructure; domestic regulatory framework that is encouraging to investment, does not discriminate between domestic and foreign investment, and is characterized by stability, transparency and predictability; and by allowing for easy exit.
• International policies: Official development assistance (ODA) can be a catalyst for FDI to developing countries through technical assistance to increase national human and institutional capacity and support infrastructure investment. Other instruments of cooperation include investment guarantees and private/public partnerships. Multilateral development institutions, including regional banks, could take actions in support of long-term private flows at the regional level. Regional groupings can also help promote FDI.

 

Towards policy priorities

• On steps to enhance the development impact of long-term private flows, as FDI and other long-term private flows can have adverse as well as positive effects on development, warranting development of national and international policies to maximize the positive and minimize the negative impacts, the following were proposed:

• Assessments of the impact of FDI on development in developing countries should be carried out, including impact on transfer of technology, development of indigenous research, acquisitions (competition), and environmental and social effects.
• The results of the assessments should be used to devise domestic and international policies to increase development-augmenting FDI and spread it to countries that have not yet received significant inflows.
• Implications of the assessments should be drawn as well for consideration in devising codes of conduct, particularly regarding socially and environmentally responsible investment activities. They could also be compiled as an inventory of best practices.

• Involving the business sector more deeply in the FfD process. In the light of the dialogue with business interlocutors on 2 May 2001 and the part of the draft resolution pertaining to engagement with the business sector that the Prep Com has today recommended for adoption by the General Assembly, it is clear to us a consensus exists that dialogue with the business sector can be an important means for strengthening the positive role of FDI. The FfD Secretariat can have an important function, in this regard, in maintaining and expanding contacts with interlocutors for the business sector. Among the issues that should be discussed with the business sector are the following:

• Looking more closely into the issue of risk and what determines perceptions of risk;
• Examining how business could be encouraged to act in socially and environmentally responsible ways;
• Exploring ways to build on experiences in public/private partnerships, including development of appropriate "rules of engagement", and investigating the potential for public/private partnerships in general.

• Exploring the usefulness of bilateral and international investment agreements in promoting the flow of FDI and in enhancing its development impact. There has been considerable interest in such agreements and considerable controversy. In this light, many countries support holding hearings on international investment agreements to investigate them more thoroughly and in an open and participatory manner.

• Assessing volatility of international capital flows and effectiveness of policy tools to mitigate it. There has been considerable focus on the volatility of short-term capital flows, but it has also been argued that long-term flows, even FDI and portfolio investment, can become highly volatile. Several policy proposals to mitigate financial volatility may be studied, including on the relative costs and benefits of small and open stock markets in developing countries.

• Enhancing technical assistance for national capacity building with respect to policy making regarding private international flows: Among the specific foci of technical assistance in this regard are human and institutional capacity building, entrepreneurship, networking, investment promotion, tax constraints, improving corporate tax structures, business law, and better data collection, especially in least developed countries.

The discussion underlined the inescapable linkage of trade and development policy and the importance given that all countries should meet all of their trade policy commitments, including understandings agreed as "best efforts". Many speakers observed that, while they are ready to expand their exports, they do not yet enjoy sufficient access to export markets even though many of their export products are part of the "built-in agenda" of the WTO.

It was also emphasized that gaining increased market access is only valuable to developing countries if they can increase production to supply those markets. This is a development question, entailing investment in export capacity and related infrastructure. It thus involves domestic and international financial systems, and their public and private institutions. Moreover, liberalization of the trade regime of developing countries sometimes embodies substantial adjustment costs, which, as noted by the WTO membership in its paper for the Prep Com, may require appropriate international support policies and compensatory measures (para 6). It was also observed that before proposals for international trade policy changes are made, social and environmental impact assessments should be undertaken at national level, as they typically are for large investment projects. In addition, several speakers underlined the importance of stronger policies to ameliorate the negative effects of terms-of-trade losses and commodity price volatility.

Toward policy priorities

• Linking international trade negotiations to development goals: The liberalization and reform process, as noted by several speakers and as described in the paper of the WTO membership, aims to improve market access in all sectors and elaborate balanced and equitable rules for the conduct of international trade in goods and services (para 9). The WTO membership described as fundamental the principles of non-discrimination, predictability, transparency, equity and provisions for special and differential treatment (para 7), a point echoed by speakers in the Prep Com. In addition, speakers were concerned that the lifting of conventional trade barriers not be followed by imposition of new ones, even if aimed at commendable objectives. The ILO noted that it was seeking parallel progress on labour standards that should reinforce work on trade policy. More generally, the WTO membership called for the mainstreaming of trade policies into the wider framework of development and poverty reduction strategies (para 19). It was suggested that FfD might focus on bottlenecks to development and how to resolve them so that the benefits of trade liberalization would be fully realized. It was also observed that adequate growth of global effective demand was necessary to translate improved trade opportunities into increased trade itself, an issue with strong systemic aspects.

• Developing appropriate arrangements for capacity building in trade matters: Speakers in the Prep Com welcomed steps to strengthen the Integrated Framework for technical assistance for least developed countries. It is important, not only to boost the capacity of these countries to implement WTO agreements, but also to raise their ability to participate in trade negotiations. Other developing countries also have trade-related capacity-building needs. There is considerable interest in increasing trade-related technical assistance overall and better coordinating the various bilateral and multilateral assistance efforts.

• Mechanisms for managing risk in international trade: There are certain inescapable risks that countries face in international trade and most financial mechanisms for mitigating their effects are provided through the private sector. The European Union has recently adopted a "system of additional support" to help the African, Caribbean and Pacific countries with which it is associated to mitigate instability in export earnings. Speakers noted two other international initiatives:

• The Compensatory Financing Facility (CFF) of IMF provides financial assistance, usually in association with stand-by arrangements, to countries experiencing temporary export earnings shortfalls and temporary excess cereal import costs. It was suggested that the scope for use of the CFF be expanded and that it be strengthened.
• The World Bank established an international task force on commodity risk management in developing countries to explore the potential role of international cooperation in facilitating access of developing countries to market instruments to deal with intra-annual commodity price fluctuations. Speakers welcomed this initiative, although major policy aspects were still to be worked out, such as the cost of premiums to be borne by producers and whether to subsidize use of such a mechanism, at least initially. Work on the initiative should be accelerated.
• Insurance against natural disasters is generally provided by the international private sector. It has been suggested that relevant international organizations could help boost access of vulnerable countries, such as small-island developing States, to such insurance. This could be a matter for public/private partnerships.

• There is a need to proceed with the built-in agenda of the WTO.

• Developing institutional arrangements for UN/WTO dialogue: WTO observed that although there were no "organic" links between the United Nations and WTO, "strong working links" had evolved. Ideas were expressed for how the dialogue between the United Nations and WTO might be organized, building on the experience of ECOSOC and the Bretton Woods institutions.

• Acknowledgement that, even when private flows are available, ODA provides financing for activities and inputs that do not attract private flows, including, inter alia, basic infrastructure, particularly for rural populations, human resource development and environmental protection.

Towards policy priorities

• Seeking to generate strong political will in all countries to mobilize necessary ODA resources and ensure their effective use. While some delegates favoured a global outreach campaign for raising public awareness, especially in donor countries, several articulated their preference for better-targeted and cost-effective national campaigns to generate the necessary political support.

• Highlighting the important role that ODA would play in reaching the International Development Goals contained in the Declaration of the Millennium Summit, as well as serve as a catalytic agent in both directly and indirectly improving the policy environment in developing countries, in turn attracting domestic and international private flows and improving their ability to respond to opportunities for increased market access.

• Reaching agreement on performance-based approach: enhancing mutual accountability, emphasizing development outcomes and simplifying procedures.

• Focusing on measures of aid effectiveness as an important complement to increased ODA volume, and as an essential element in building public support.

• Working towards greater flexibility in aid provision, including in untying aid and increasing responsiveness to individual country circumstances; in this regard, building on recent developments, particularly the recommendation of the Development Assistance Committee of OECD (ad referendum until 11 May) to untie aid to least developed countries.

There was convergence of views on the growing importance of global public goods (GPGs) and on the following points:

• Need to agree on making a definition of GPGs. Where the issues are unambiguous, however, such as combating HIV/AIDS and other infectious diseases, early agreement should be reached on action.
• Mobilizing genuine international cooperation to generate additional resources for GPGs that are not diverted from ODA, as well as private-sector resources.
• Recognizing the existence of not just global but also of regional public goods.

 

There was general agreement that the analysis requested at Copenhagen +5 to examine innovative sources of funding be conducted, with attention to applicability and realism.

• The need to focus on prevention of external debt problems in the future. In this respect, there were calls for technical assistance by developed countries and international organizations to improve debt management in developing and least developed countries.

• Reaching debt obligations that are within the capacity of countries to service in the long term was seen as critical. There were calls for measures to ensure that the debt reductions that take place as a result of the enhanced programme for the heavily indebted poor countries (HIPCs) are sustainable over the longer term. The option within the HIPC framework to consider additional debt relief at the completion point in exceptional circumstances if exogenous factors cause fundamental changes in country circumstances that severely affect debt sustainability was mentioned. It was also recommended that post-HIPC assistance to some countries should be in the form of grants and highly concessional funds.

• Better supervision of private financial institutions, both domestic and foreign, and transparency of lending transactions, which would help to ensure more appropriate lending decisions by private creditors.

• Continuation of efforts towards strengthening surveillance capabilities of IMF and the design of early warning systems.

While there was less convergence on the following issues, some Governments wished that they be considered further:

Most participants stressed the need for broader and more effective participation of all countries in the process of setting norms, standards and rules of universal application and that global governance arrangements should adequately reflect interests and concerns of all. There was a convergence of views that increased coherence between development, trade and finance should be a priority and one of the major outcomes of the FfD process. There was also a broad agreement that the United Nations can and should provide an important forum for convening and facilitating policy dialogue on global economic, financial and development issues. Speakers welcomed the efforts of international financial institutions to become more accountable, as well as more transparent and responsive to international public concerns.

Towards policy priorities

• Strengthening systems of social protection in developing countries and better integration of social and financial issues. Exploring ways to strengthen multilateral support so that countries may better withstand economic and financial crises and adjust in a more growth and employment-oriented manner.

¹/ Joint statement of the Co-Chairmen issued on 23 February, at the conclusion of the second session of the Committee", Report of the Preparatory Committee for the High-level International Intergovernmental Even ton Financing for Development, General Assembly, Official Reords, Fifty-fifth session, Supplement No. 28A (A/55/28/Add.1), Annex I.

²/ As background information, the representative of WTO also made available WTO documents that summarized recent intergovernmental work on two areas of interest to the Prep Com, "Guidelines and procedures for the negotiations on trade in services," (S/L/93, dated 29 March 2001) and the report by the Chairman to the General Council on the Seventh Special Session of the Committee on Agriculture (G/AG/NG/7, dated 29 March 2001).

³/ Eighteen countries or groups of countries took the floor on the issue of linkages, along with five international organizations (IMF, OECD, UNDP, World Bank and WTO); a representative of the Women’s Environment and Development Organization spoke on behalf of the Interlinkages NGO Caucus.

⁴/ There were 15 speakers on behalf of Governments of countries or groups of countries; four speakers represented international organizations (IMF, OECD, UNDP and World Bank), and one non-governmental organization, the International Council on Social Welfare, spoke on behalf of the Domestic Resources NGO Caucus.

⁵/ Presented to the Joint Conference of Ministers of Finance and Ministers of Development and Planning, Algiers, 8-10 May 2001.

⁶/ There were 24 speakers on behalf of countries or groups of countries; in addition, statements were made by representatives of ILO, UNCTAD, the World Bank and one non-governmental organization, Alternativas de Capacitación y Desarrollo Comunitario, who spoke on behalf of the Foreign Investment NGO Caucus.

⁷/ There were 21 speakers on behalf of countries or groups of countries, four on behalf of international organizations (ILO, IMF, World Bank and WTO), and two non-governmental organizations (Social Watch, on behalf of the Trade NGO Caucus, and Development Alternatives with Women for a New Era).

⁸/ Statements were made by 23 countries or groups of countries, five international organizations (FAO, IMF, OECD, UNDP and World Bank), plus one non-governmental organization (Canadian Council for International Cooperation, on behalf of the ODA/CTT NGO Caucus).

⁹/ Op. cit.

¹⁰/ Statements were made on debt by 20 countries or groups of countries, IMF and two non-governmental organizations (New Economics Foundation and World Council of Churches).

¹¹/ There were 17 speakers, including 11 Governments or groups of Governments. Interventions were made by UNCTAD, ILO, IMF and three NGOs (Women’s Environment and Development Organization, on behalf of the Systemic Issues NGO Caucus; Caritas Internationalis, on behalf of Catholic International Cooperation for Development and Solidarity and Centre of Concern; and Focus on the Global South).