A menu lacking in courage – Report of the expert committee on development financing misses brilliant opportunity

Development Policy,Inclusive Economy05 Sep 2014Saskia Hollander, Arne Bartelsman

The report of the Intergovernmental Committee of Experts on Sustainable Development Financing, launched on 8 August 2014, has missed an important opportunity to accomplish a breakthrough on the pressing questions of development finance. Dominated by old-fashioned modes of finance, the report lacks boldness in addressing innovative measures. In addition, the decision to provide only a menu of policy options implies that controversial issues regarding prioritization and division of responsibilities remain unresolved. This could delay the formulation of the Sustainable Development Goals.

It was a promising idea. A committee of 30 carefully selected experts, including economists, policy advisors and government officials, would together develop a clear-cut strategy on sustainable development financing (see box). The strategy would take not only old modes of development financing into account, but would also involve frequently suggested innovative modes of financing, such as tax reform, overseas remittances and managing financial flows. By discussing these issues outside the domain of political negotiation, the experts had the freedom to address sensitive issues like the division of responsibilities and financial priorities and to offer advice free of political interests and electoral pressures.

Furthermore, leaving the question of finance to a separate committee of experts would give country representatives in the Open Working Group (OWG) the chance to debate what the Sustainable Development Goals (SDGs) should look like, without the question of financing hanging over their heads like a sword of Damocles. Typically, when the G77 and China presented a common statement shortly before OWG 12 on the means of implementation of each of the proposed goals, European countries were quick to point out that such questions were up to the committee, raising expectations of its role even higher. However, one year and five sessions after its launch, the committee has released a report without groundbreaking implications.

The Committee

The report of the Intergovernmental Committee of Experts on Sustainable Development Financing is the outcome of five multi-day sessions that took place between August 2013 and August 2014. The committee performed its work alongside the Open Working Group (OWG) on Sustainable Development Goals (SDGs) which, between March 2013 and July 2014, crafted a proposal for the SDGs. The committee, consisting of 30 members nominated by UN regional groups on the basis of equal geographical representation, was tasked to develop options for ‘a sustainable development financing strategy to facilitate the mobilization of resources and their effective use in achieving sustainable development objectives’ (as mandated by Rio+20). Its recently published report serves as input for the post-2015 negotiations in the UN General Assembly starting in September this year and the high-level conference on sustainable development financing which will take place in Addis Ababa in July 2015.

A shopping list of options

The report, which will serve as input for the post-2015 negotiations at the UN General Assembly (UNGA) starting in September this year and the high-level conference on sustainable development financing in Addis Ababa in July 2015, falls far short of its expectations. Providing a finance strategy implies making clear political choices as to which goals should be prioritized and which are financially the most feasible. Yet the committee has not done anything approaching this. Rather, the report provides a non-committal menu of policy options that enables policy-makers to ‘shop’ between different modes of finance, thereby evading important political questions.

This is disappointing, as these are the single most important questions surrounding finance. As Jonathan Glennie wrote in an article in the Guardian. ‘the world does not need another list of financial problems and solutions, another meta-analysis of the situation. It needs priorities.’ Such a prioritized plan of action, where financial decisions are made on the basis of a clear identification of the most important issues and their achievability, is as important as the goal-setting itself. Glennie argues that, like the SDGs, such financial choices should be framed in terms of goals as well, including a 15-year timeframe and monitoring mechanisms. Yet this was clearly never the aspiration of the committee.

Old-fashioned development thinking

The committee has also failed to analyze innovative modes of development financing, choosing instead to map out already existing financial resources. The report focuses strongly on the topics that were part of the Monterrey Consensus. This is not necessarily a bad thing. The Monterrey conference was attended by over 50 heads of states and 200 ministers of finance, providing a good starting point for further thinking about development finance. However, the Monterrey Consensus also dates back to 2002 and reflects the then-dominant way of thinking about development (in terms of a focus on international trade as an engine for development, official development assistance and external debt management). This way of thinking is now criticized as Western-dominated and not inclusive. The report is very lean on providing recommendations on innovative financial sources. In addition, as Felix Dodds concludes, the report has an overly static national focus. It makes little reference to the potential of regional and local financing measures and their implications. Moreover, by not analysing how countries in different stages of economic and/or human development could receive different levels and kinds of assistance, the report does not provide room to take account of cross-country complexities and differences.

No answers to the ‘how’

Even when the report mentions issues that would challenge existing national and international power structures (such as curbing illicit financial flows, fighting tax evasion and reforming international financial institutions), its recommendations remain vague and the question of ‘how’ is left to national policy-makers. Typically, calls for a fairer trade system do not reach further than a general appeal that ‘countries should correct and prevent trade restrictions and distortions in world agricultural markets, including by the parallel elimination of all forms of agricultural export subsidies and all export measures with equivalent’ (paragraph 72). Missing are concrete recommendations on how to eliminate these subsidies and how to do so in a way that further aids global sustainable development. Similarly, stating that “a further review of the governance regimes of the IFIs is necessary to update their decision-making process, modus operandi and priorities, and to make them more democratic and representative” (paragraph 148) does not lay out any kind of vision on how these reforms ought to be given shape and what this means in practice. Given the general nature of these calls, more time and space could have been given to other elements of the finance debate that are largely absent from the report.

While the report recognizes, for example, that overseas remittances represent an important source of international financial flows, only two paragraphs deal with the issue explicitly. Moreover, in terms of recommendations, the language goes no further than urging policy-makers and international financial institutions to “explore innovative approaches to incentivize investment of remittances in productive activities, including through issuance of diaspora bonds”. Certainly, in the OWG, migration proved to be a politically sensitive issue. Yet in the OWG’s outcome report target 10.c states ‘by 2030, reduce to less than 3% the transaction costs of migrant remittances and eliminate remittance corridors with costs higher than 5%’. It is a missed opportunity that, given its a-political character, the committee did not outline ways in which this target can be reached.

Trust in corporate goodwill

Clear instructions and recommendations are also lacking when it comes to the involvement of the private sector. All in all, the report radiates a general trust in the goodwill of corporations, framed in terms of ‘new global partnerships’ between government authorities and the private sector. While the report makes many references to corporate responsibility (see for example paragraph 48 on on corporate reporting), it does not outline regulations and mechanisms for corporate accountability. For example, although the report recognizes foreign direct investment (FDI) as an important source of sustainable development financing, it does not outline the regulations required to make sure that FDI does not impact negatively on countries’ development. By simply stating that governments should “require all companies, including foreign investors, to meet the core labor standards of the International Labor Organization, and encourage EESG reporting” (paragraph 125), a large amount of trust is put in the private sector, while not setting out any mechanisms to hold corporations accountable for bad practices.

Evading the question of responsibility

Perhaps most importantly, the report provides no further insight into the distribution of financial responsibilities between developed and developing countries, and the role of emerging economies and middle-income countries in this respect. This is important, as the impact of emerging economies on the new balance of power in the development community generates tensions when it comes to the issue of finance. Reference is often made – in this report, too – to the principle of common but differentiated responsibility, but there is no consensus on its practical implications. While middle-income countries and emerging economies continue to emphasize the need for financial assistance, the North – experiencing financial setbacks itself – expects these countries to back up their increasing participation in the process with a financial commitment (in other words: put their money where their mouths are). In addition, the long time horizon of the process implies that today’s middle-income countries may eventually be powerful economies, meaning that just dividing up responsibilities now is not enough either.

Given the tensions that this is creating, an innovative strategy developed in an a-political arena of experts could have been an excellent starting point. Moreover, development specialists around the world have shown it is indeed possible. In an interesting piece written for The Broker, Jonathan Glennie reversed current thinking on financing the post-2015 agenda by encouraging ‘developing countries’ (although, as Glennie pointed out, all countries can be seen as ‘developing’) to take a leading role in committing resources, as this would be of high symbolic value.

Missed opportunity

Glennie’s piece is an example of an ambitious effort to put into practice the consensus that the international community should move away from the classic North-South divide. Therefore, it is especially disappointing that the committee did not come up with such innovative thinking. Since the question of responsibility does not feature in the committee’s report and was also intentionally left out of the OWG sessions, the question that remains is where these important decisions will be made. Without any clear guidance by the committee, much will be expected from the General Assembly and the high-level conference on development finance. The latter will however not take place until July 2015 and there is a risk that, until there is clarity surrounding these issues, some countries will be reluctant to commit to ambitious (and thus potentially expensive) SDGs.

Now it has been released, some may welcome the committee’s report as a valuable menu of available policies to attract finance for development that can now be used to move forward. In addition, the attempt to quantify the exact need for development finance (in other words: how much is this going to cost us?) is a good start in making the finance discussion more concrete. However, for a document that, together with the outcome document of the OWG, is seen as core input for the UNGA negotiations, it falls far too short. It is disappointing to read that the committee only had a one-day meeting with the OWG during the entire process, and one cannot help feeling that more synergy between the two processes could have helped a lot in this respect. As a result, the whole post-2015 process could experience a delay. Given the current momentum surrounding the SDGs, this would be a disastrous outcome. And who is to blame? Perhaps not the committee, whose mandate was to develop ‘a sustainable development financing strategy to facilitate the mobilization of resources and their effective use in achieving sustainable development objectives.’ Nevertheless, in its current form, the exercise of the committee seems somewhat futile, and a waste of valuable time and momentum.