22 March 2002

World Leaders in Monterrey Agree on Development Strategy

Tapping all available resources emphasized

By Andrzej Zwaniecki
Washington File Staff Writer

Monterrey, Mexico -- Making all available development financial resources more effective is necessary to achieve "a fully inclusive and equitable global economic system," say leaders from around the world gathered in Monterrey, Mexico.

In the "Monterrey Consensus," the final communiqu��adopted March 22 at the conclusion of the "Financing for Development" conference, heads of state and government officials from 171 countries pledged to eradicate poverty and promote sustainable economic growth and development in less-developed countries.

"We must do more than just feel good about what we are doing," President Bush told delegates March 22. "We must do good."

But to achieve international development goals, the signatories of the Monterrey Consensus say a new partnership between rich and poor countries is needed.

This partnership would create circumstances for developing countries to tap their own "hidden" domestic savings and remittances, increase exports, and attract direct foreign investment and official assistance.

The communiqu��points to national pension schemes used successfully by Chile and Poland as one way to create capital markets. It also notes that remittances sent by foreign workers to their poor homelands are other sources of capital for development.

The communiqu��calls for building microfinance for small businesses to increase productivity and nurture entrepreneurs, especially in rural areas and among women.

Representatives from both developed and developing countries agreed that most new money for development must come from private sources, mostly trade and foreign direct investment.

"Trade is the most important avenue for self-help," International Monetary Fund (IMF) Managing Director Horst Kohler said in a speech the previous day.

The communiqu��also recognizes direct investment's potential for facilitating the transfer of knowledge and technology that can enhance and accelerate development. Many experts agree that biotechnology and computer technologies have the greatest potential.

And business leaders who March 22 concluded their own forum at the conference said that plans for development would only be realized with private sector investment.

Outlining some of the thirty proposals for financing development business participants brought to the conference, International Chamber of Commerce President Richard McCormick said that the governments of least developed countries must "transform these proposals from words to action."

But some developing nations are reluctant to put too much emphasis on private investment. Their leaders say official assistance is still needed to fund health, education and basic infrastructure projects that do not bring monetary returns.

This difference of perspectives has resulted in a compromise formula recognizing private international capital flows as "vital components" to national and international development efforts. Direct investment was singled out in the consensus as the most important element of these flows because it "contributes toward financing sustained economic growth over the long term."

Building on the success of the November 2001 World Trade Organization (WTO) ministerial meeting in Doha, Qatar, participants of the Monterrey conference urged WTO members to proceed with global trade negotiations placing the needs and interests of developing countries at the center.

WTO Director-General Mike Moore, who spoke at the conference March 21, said that developing countries would gain $150,000 million per year from further trade liberalization, three times more than the total official development assistance today.

The communiqu��emphasizes the importance of reducing trade barriers among developing countries. Some 70 percent of the burden on developing countries' manufactured exports results from other developing countries' trade barriers, according to the World Bank.

Less-developed countries committed themselves at the conference to creating an "enabling environment" to mobilize and effectively use financial resources through good governance, sound market-oriented polices, rule of law, and regulatory and financial transparency, reducing the risk of corruption.

Monterrey participants also agreed that less-developed countries need assistance building financial and trade capacity that will help them to participate fully in the world economic system.

Moore told delegates that donor governments have kept their word by providing the WTO with increased funding for technical assistance for developing nations. The United States has donated $500 million for these efforts.

The communiqu��recognizes that "a substantial increase in official development assistance" (ODA) and other forms of aid would be required to help the developing world to achieve their development goals.

The communiqu��masked heated debate during the meeting on ODA levels. The World Bank and IMF estimate that $40-60,000 million more in ODA is needed annually, double the current amount, to pay for basic education and infrastructure projects.

Officials and experts from some industrialized countries, including the United States, question the magnitude of these estimates. They emphasize that ODA must play a mostly complementary role helping poor countries mobilize domestic savings, increase trade and attract more investment. They point out that more effective use of aid will help pay for more projects without substantial additional increases in ODA.

Nevertheless, President Bush has pledged to increase U.S. ODA by 50 percent over three years to $15,000 million annually by the end of fiscal year 2006. The additional funds would be used to reward countries that follow sound policies, U.S. officials said.

The communiqu��encourages all countries to pursue "vigorously and expeditiously" debt relief measures because, it says, external debt relief can free resources for development projects and activities. They point to the IMF's enhanced Heavily Indebted Poor Countries initiative as a cornerstone of these efforts.

While signatories pledged to work toward the development goals spelled out in the U.N. Millennium Declaration, they did not chart a detailed course of action. Key issues related to development and trade were left to be resolved in future meetings.

Non-governmental organizations represented at the conference on several occasions expressed frustration with what they consider the "watered-down" final document.

But U.N. Secretary General Kofi Annan rejected this criticism in his March 21 statement.

"If we live up to the promise it [the Monterrey Consensus] contains, and continue working on it together, it can mark a real turning point in the lives of poor people," he said.

U.S. Under Secretary of State Alan Larson called the consensus "a strong and credible commitment."

The leaders and ministers called for a follow-up conference with the agenda decided no later than 2005. They have also requested the U.N. secretary general to prepare annual reports on development progress and follow-up efforts.