*EPF114 03/18/2002
Monterrey Conference to Seek Financing for Development
(Responsibility of poor countries high on agenda) (1190)

By Andrzej Zwaniecki
Washington File Staff Writer

Monterrey, Mexico -- Fifty-four heads of state and governments and 300 ministers from around the world gathering in Monterrey, Mexico, will consider a global financial action plan aimed at lifting underdeveloped countries out of poverty and launching them on a way to sustainable development.

The week-long Financing for Development (FfD) conference starting March 18 brings together government officials, businesspeople and non-governmental organizations, as well as representatives of multilateral financial and trade institutions. They are to focus on ways of using all available financial resources to reach a set of ambitious development goals.

These goals, specified in the United Nations (UN) Millennium Declaration, include cutting poverty and hunger in half by 2015, achieving universal primary education, and reversing the spread of HIV/AIDS.

Speaking in London in February, UN Secretary General Kofi Annan urged participants of the FfD conference to agree on a strong and coherent action plan. He warned that several of the development targets might be missed because of "fragmented and piecemeal" approaches to development and "inadequate" funding.

The World Bank said that 65 countries would not meet the internationally agreed development goals without additional outside help. The level and type of assistance necessary to achieve these targets is expected to be the focus of the Monterrey meeting.

During the FfD preparatory process, a consensus emerged that developing countries themselves have primary responsibility for their own economic and social development. It was agreed that underdeveloped countries could create the environment essential for encouraging local entrepreneurship, tapping domestic capital, and attracting foreign investment by pursuing sound macroeconomic and free-market policies.

All parties seem also to agree that trade and investment are primary engines of economic growth. This is reflected in the final document, the Monterrey Consensus, the text of which was approved weeks in advance of the conference.

By building on the momentum created in Doha during the World Trade Organization meeting, the FfD conference will seek to structure new global trade negotiations in a way that brings more benefits to the poorest countries. Benefits from expanded trade and foreign investment far exceed official financial assistance, according to the World Bank.

Liberalization of trade in agricultural products is especially important because it carries a promise of economic growth fueled by $150,000 million in additional income for developing countries, according to the Bank's estimates.

Horst Kohler, managing director of the International Monetary Fund (IMF), said, "The true test of the credibility of wealthy nation's efforts to combat poverty lies in their willingness to open up their own markets and phase-out trade-distorting subsidies in areas where developing countries have a comparative advantage."

While official development aid (ODA) has an important role to play in sustainable development, its exact size and impact is being debated. As ODA has been increasingly replaced by private money, its proportion of all capital flows to the developing world has fallen from 70 percent in 1969 to 20 percent today.

But multilateral institutions have said that more ODA is needed if the international community wants to reach its development goals. These institutions have urged industrialized countries to increase their contributions to the World Bank's concessional lending affiliate, the International Development Association (IDA), and to boost overall aid flows from 0.2 to 0.7 percent of their respective gross national product (GNP).

The UN and the Bank estimate that rich countries would need to double the over $50,000 million they spend annually on development to achieve these international development goals.

Shortly before the conference, the European Union countries pledged to increase their ODA to 0.39 percent of their respective GNPs, according to press reports.

But U.S. Under Secretary of State Alan Larson said in March that no one really knows how much money is needed to win the war on poverty and called the Bank's estimates "arbitrary."

A number of industrial countries also argue that the World Bank's approach is misdirected and that both industrial and developing countries need to focus more on improving the quality and the effectiveness of the assistance than on aid levels.

The United States remains the largest single donor of ODA. On March 14, President Bush proposed a $5,000 million increase in U.S. development assistance spread over three years. This fund, he said, would be used to reward the poorest countries that follow sound policies to promote growth and development.

The Bush administration is not unsympathetic to the need for increased contributions to IDA either. During a February 7 Congressional hearing, Under Secretary of Treasury John Taylor said that the United States was willing to increase the U.S. contribution by 18 percent over three years from $850 million if certain performance benchmarks are met for education, health care, and other areas.

U.S. Treasury Secretary Paul O'Neill and other U.S. officials believe that foreign assistance must be seen as a tool enabling countries to participate fully and effectively in the global economy rather than as a substitute for other investment flows.

"The bottom line isn't how much money we are throwing into this, the bottom line is how much development we're getting out of it," Larson said February 2.

U.S. officials pointed out that unlocking "dead capital" in developing countries -- local resources hidden or unused due to the lack of financial infrastructure and business opportunities -- could bring close to $2 million million, more than either ODA or foreign investment.

The Bush Administration has also pressed the IDA to change the form of financial assistance it provides to poor countries by converting 50 percent of its concessional loans into grants. U.S. officials contended that heaping additional debt on already heavily indebted countries does not make sense.

Most European donor-countries, however, do not support the grant initiative, arguing that it would drastically reduce the pool of money available to poor countries in the future.

U.S. officials counter that even the World Bank's own estimates indicate that changing a half of loans into grants would not affect the amount of money available through IDA within next 20-30 years.

Participants of the FfD conference will be under pressure to do more to reduce the debt burden of the poorest countries. In 1999 the IMF and the World Bank launched a Heavily Indebted Poor Countries (HIPIC) initiative that combined substantial debt reduction with policy reforms ensuring that the money freed by debt relief will be used for development. Advocates of poor countries say that this initiative does not go far enough and is too restrictive.

However, the FfD conference is unlikely to chart a detailed course on global financial action. Instead, the "great value of Monterrey ... will be in showing that there is a political commitment to development and to a strategy of development that is based on partnership and on using all of the resources and inputs there are available in the most effective way," Larson told representatives of non-governmental organizations March 8.

In addition to heads of state and ministerial plenary sessions and round tables, the Monterrey meeting will feature international business and parliamentarian fora as well as a summit by the NGO community.

(The Washington File is a product of the Office of International Information Programs, U.S. Department of State. Web site: http://usinfo.state.gov)

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