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Monitoring The UN > The UN and Sustainable Development Finance for Sustainable Development
The issue of stable and adequate funding for sustainable development has been the single greatest stumbling block towards implementing the objectives set forth in Agenda 21. In the 1990's, developing countries have been faced with massive external debts, shrinking export sector incomes and shortfalls in providing basic healthcare, education, infrastructure and even minimum nutritional requirements for growing populations. In the developed and emerging economies, the trend in recent years has been to combat national debt and increase productivity through reduced public sector spending, which more often than not, has seen donor countries move farther and farther away from reaching the Agenda 21 target of 0.7% GNP for Official Development Assistance (ODA) for least developed countries. The private sector, on the other hand, has experienced explosive growth in international capital flows with trillions of dollars moving around the globe at breakneck speeds. Unfortunately, these funds tend to be in the form of portfolio investments or 'hot money' controlled by pension, mutual and hedge fund managers who speculate on the relative worth of countries and regions and can commit or withdraw billions. For these players, the over-riding concern is protecting and increasing the funds they control, making long-term Foreign Direct Investment in real estate, equipment and people less attractive than short-term, highly liquid investments such as currencies, national bonds and commodity derivatives. The central challenge since Rio for the United Nations has been to develop frameworks and programmes in conjunction with national governments, international institutions and private investors to provide the necessary financing for sustainable development at the international, national, sub-national and regional levels. Progress to date has been less than encouraging. In the developing world, national sustainable development programmes and initiatives are forced to compete for increasingly scarce domestic resources. One of the largest and most persistent problems, especially for the Highly Indebted Poor Countries (HIPC) of Asia and Africa has been the huge proportion of national revenue required to simply service external debt loads. In recent years, falling world commodity prices have exacerbated the situation by reducing the level of foreign currency available to make debt payments. As global prices for such things as sugar, coffee, copper and gold go down, the cost of making payments to foreign creditors goes up relative to national income. In such an atmosphere, government spending for basic necessities of life becomes the number one priority with financing for sustainable development far down the priority list. Developing countries also tend to have serious structural problems which consume resources better spent on sustainable development such as inadequate macroeconomic, legal and regulatory frameworks which discourage domestic savings and investment by consumers and businesses in favour of more secure off-shore investments and accounts. Lack of confidence in domestic financial institutions and investment opportunities shrinks the pool of available funding which could be directed towards national sustainable development programmes. A further hindrance is national taxation schemes which either discourage long term investment or waste large amounts of revenue in inefficient or corrupt administration. Finally, national budgets in the developing world are still overly committed to military expenditures which consume unsustainable resource levels to cope with real or perceived national security threats. In short, policies and programmes which incorporate social and economic development and environmental protection face stiff competition for scarce domestic funds. In the industrialized and post-industrial world, financing for sustainable development faces a vastly different set of constraints. In the public sectors, governments have been hesitant to implement tougher environmental laws and regulations, fearing that such actions may serve only to discourage investment by making developing countries, which typically have less stringent labour, taxation and environmental standards, much more attractive. Furthermore, since the mid-1980's, the trend in the advanced economies of the North has been to shrink the size and role of government in order to reduce national deficits and accumulated debt. With governments becoming more streamlined and focused on reducing the size and role of government rather than building public sector machinery, the case for new or expanded administrative regimes to study, implement, monitor and enforce sustainable economic and social development has proved to be a hard sell. For economies in transition, namely those of Eastern Europe and Russia, the task of shifting attention to sustainable industrial practices and environmental protection is even more problematic. Over the past forty years, centrally planned economies stressed increased industrial production above all other considerations. As a result, today large areas in the former Eastern bloc have been rendered near uninhabitable by decades of large-scale industrial pollution. The cleanup of these sites will take decades and billions of dollars to complete, leaving little, if any funds left over for new sustainable development initiatives. In the global economic atmosphere, the United Nations as an actor has had the unenviable task of trying to forge an international consensus on the urgency of strategic, long-term and adequate financing for sustainable development. The principal UN organs concerned with issues of sustainable development-the Economic and Social Council (ECOSOC) and the UN Secretariat-have placed the issue in the spot light since 1992's Rio Conference, dedicating substantial time, money and effort to study, advocacy and coordination of sustainable development related activities. At the ground level, United Nations specialized agencies and programmes such as the World Bank (IBRD), the International Monetary Fund, regional development banks, the UN Development Programme and the UN Environmental Programme have reoriented themselves to incorporate more local or micro sustainable development strategies and programmes to deliver scarce resources to those in most dire need. At the end of the day, however, all new and existing programmes, funds, trusts and initiative are dependent upon the member states of the UN through multi and bilateral Official Development Assistance contributions and UN dues and levies. To date, all signatories to the Rio Declaration of 1992 have re-affirmed their commitment to the goals set down in that document, but have been less than willing to cede the necessary funds. Recent UN Activities on Finance for Sustainable Development The United Nations, as an institution, does not have the independent financial means to fund large-scale sustainable development programmes, initiatives and subsidies. Though various specialized agencies, programmes and funds do indeed have substantial endowments or trusts to finance activities, by and large, initiatives are subject to the ongoing donations of members states, corporations and individuals. What exactly the United Nations does to finance sustainable development can be described by five broad categories: research activities including out-reach to the private sector; training and capacity building at the regional, national and sub-national levels; technical assistance to countries on debt management issues; mobilization of international private and public capital flows for development; and the mobilization of domestic capital flows for development. The UN, in essence, plays the role of global advisor and facilitator in the field of financing for sustainable development. The Programme of Action document which evolved from the 1992 Conference on the Environment and Development (UNCED) in Rio, Agenda 21, dedicated an entire chapter (Chapter 33) to the matter of financing sustainable development. The drafters of that document outlined three broad objectives which governments and international institutions were to champion to ensure progress towards the over-all objective of the sustainable development of the world's resources. First, signatories were to dedicate themselves to establishing financial resources and mechanisms to facilitate the implementation of the Agenda 21 goals. Second, the parties pledged to provide new and additional financial resources towards sustainable development objectives which were both adequate and predictable. Third, all were to seek full use and the continued qualitative improvement of funding mechanisms for Agenda 21 implementation. From 1992 to 1997 however, serious deficiencies in the performance of signatories were identified. In January 1997, the UN General Secretary prepared a series of reports for the Commission on Sustainable Development in support of the mandated five year review of progress towards Agenda 21 objectives. One of the most important dealt with the question of Finance. The report noted that while progress was slow and that by-and-large, milestones set at Rio for financing sustainable development had not been achieved, there was some cause for optimism. Private capital flows of Foreign Direct Investment (FDI) from developed to developing countries had increased thanks in large part to the work of the Organization for Economic Cooperation and Development's (OECD) Development Assistance Committee. The report noted that the International Monetary Fund had expanded it's monitoring capabilities, especially in the highly volatile area of global portfolio investments flows. Unfortunately, all data indicated that investment, be it portfolio (stocks, bonds and other securities where investors do not exercise control over the day-to-day operations of businesses) or FDI (investments such as branch plants where foreign investors directly participate in the national economy of recipient countries through direct management of investments), tended to be concentrated in few countries with established track records of good economic performance. The issue of crushing external debt remained problematic in 1997 for the heavily indebted poor countries and in many cases, had actually become worse since Rio. Declining export sector income capacity, the main indicator of a country's ability to service or repay foreign debt and pay for imports, had risen to crisis levels requiring a rededication of aid resources and innovative debt relief mechanisms. The report went on to provide recommendations to enhance financing for sustainable development capacities at the international and country levels. It pointed out that domestic policy instruments can play a central role in attracting and mobilizing resources for sustainable development. Chief among them, incentives and disincentives to foster an investment climate which rewards environmentally sustainable practices and punishes harmful behaviour. A combination of domestic tax exemptions to reward the far-sighted and punish the wasteful was one option. The report also put forward the suggestion that governments set up national environmental funds created though the pooling of dedicated environmental taxes to fund sustainable development policies and programmes. National governments had shown some hesitance, however, to implement frameworks of environmental taxes due to perceived detrimental effects on national income due to decisions not to invest in growth domestically. Building on the specific issue of environmental taxation, the report put forward the proposition that the best way to encourage private investment in sustainable development was to put in place effective and transparent macroeconomic, legal and environmental policy frameworks which spell out, in advance, the rights and obligations of investors. Measures such as these would go a long way to relieving private investor concerns about arbitrary and sporadic application of laws and regulations which may have a profound impact on the net worth of investments. Finally the report highlighted the need for expanded international financial mechanisms to fund sustainable development. Apart from ODA, the importance of joint programmes, funded and administered by various UN programmes, agencies and associated institutions such as the World Bank's Global Environmental Facility (which targets sustainable resource utilization programmes in developing countries) was emphasized. In light of the importance placed on institutional partnerships within the United Nations system to support financing for sustainable development, the Secretary General has also presented a report dedicated to cooperative programmes and activities by the UN and the Bretton Woods institutions-principally the World Bank and the International Monetary Fund-to the United Nations Economic and Social Council's Substantive Session in July, 1998. It should be noted here that by the phrase "United Nations system", is meant the various organs, programmes, funds, specialized agencies and autonomous organizations with clear and explicit mandates to support the concept and activities of the United Nations as an international organization dedicated to the betterment of human life. In his report, entitled "A Joint Exploratory Review of Cooperation Between the UN and the Bretton Woods Institutions", the Secretary General outlined structural changes which had been recently implemented to rationalize the management activities of the principal organs of the UN to enhance sustainable development service delivery. First, all UN programmes and funds had been grouped into four functional sectors, each to be managed by a senior management group and an executive committee. All development departments were placed under a new department called the Department of Economic and Social Affairs (DESA). Within the DESA, development-centred funds and programmes were further organized into the UN Development Group. This Group and the DESA executive have created and approved a new strategic plan for the design and implementation of all development activities and initiatives called the UN Development Assistance Framework (UNDAF). The foundation of this new framework is that in future, poverty eradication will be the over-arching priority in considering and implementing sustainable development initiatives. In addition, the UNDAF formally identifies human rights as the cross-cutting theme underpinning all UN activities in the field of development assistance. Finally, the re-organization recognized the benefits of decentralizing the administration of development assistance programmes by designating a single UN official, to be called the resident coordinator, as the Secretary General's responsible representative at the country level. This official, ideally situated in-country to be responsive to the practical financial and operational requirements of programmes, plays the central role in administering and reporting on funding programmes and requirements. After detailing the reforms undertaken by the UN itself, the report described approvingly the strategic re-orientation of the World Bank and the International Monetary Fund in recent years towards long-term sustainable development financing. The World Bank, since 1997, has been analyzing and assessing its funding activities from the new perspective embodied in the World Bank Strategic Compact, which re-dedicated the Banks efforts towards establishing effective in-country partnerships with governments, communities and business to create the "enabling environment" necessary to stimulate sustainable economic and social development. To this end, the World Bank has, like the UN itself, decentralized the administration and decision-making process to give country liaisons the latitude to devise and adjust programmes to meet specific unique local circumstances. The report also noted that the International Monetary Fund was in the process of redefining its role in sustainable development. The IMF ( which has typically been viewed as the lender of last resort for countries experiencing economic crisis and the purveyor of corollary Structural Adjustment Programme (SAP) cures almost as painful as the disease itself ) was now shifting emphasis to providing short and medium term financing for capacity building. Programmes and mechanisms such as New Arrangements to Borrow and Special Drawing Rights for the developing and least developed countries can now be accessed prior to some sort of economic melt down. These funds are available to finance sustainable development initiatives at nominal rates, typically for five years without payment. As for the dreaded SAP's, the Fund's new orientation stresses three priorities: good governance; the role of civil society in development; and the importance of environmental concerns. This should be properly regarded as a sea change in IMF thinking since the 1980's and early 1990's, when the primary focus and conditions of SAP's was on slashing public sector spending and prying open comparatively closed markets to foreign imports. The Report ended by stressing the importance of building, maintaining and expanding strategic partnerships among all UN players in financing for sustainable development. These relationships, in the Secretary General's view, are to be based on the following core elements and strengths of UN players: universal values and shared commitment to multilateralism; proven capacity for global advocacy and political mobilization; the pre-eminent stature of macroeconomic, structural and global finance issues in sustainable development; resource mobilization capacity; substantial operational capacity at the regional and national levels; outstanding research and analysis experience with regards to economics and sustainable development; comprehensive networks of relationships at the regional, national and sub-national levels; and finally, extensive outreach to civil society. These were the strengths of the various UN bodies at work in sustainable development and these are to be the bedrock of future programme development and implementation activities. In recent years, the single most important factor affecting funding for sustainable development has been the ongoing turmoil in the global financial markets. The current financial crisis began in the summer of 1997 with the devaluation of the Thai currency. The spill-over effects were both immediate and long-lasting. First, the economies of the "Asian Tigers"-Indonesia, Singapore, South Korea, etc.-caught the 'Asian Flu', resulting in the erasure of economic gains made over the preceding decade. The contagion spread to South America and then in August 1998, brought about the collapse of the Russian economy. The Executive Committee of the United Nations Economic and Social Affairs Division responded to these events by tabling a report calling for increased cooperation and coordination among global financial players and reforms in international and national economic institutions to insulate the economies of developing and transitional countries from private financial pressures. The authors find that economic booms build up strong pressures on the demand for capital in developing countries that result in macroeconomic imbalances that cannot be maintained during economic contraction. This has the effect of weakening fragile financial structures and regimes such as central and private banks, current account balances and currencies. To prop up failing structures, national governments, especially in the developing world, are forced to re-direct scarce financial resources away from development projects. This worsens the social effects of the financial crisis on the poorest segments of the population. Noting that much of the damage had already been done by January 1999, the Committee suggests that the IMF could still play a significant role in stabilizing some of the worst hit developing states. The first recommendation is that the IMF should put together contingency funds for the use of countries affected by the contagion, especially developing countries in Asia and Africa largely dependent on sagging commodity prices for foreign currency. Without such funds, countries find themselves devoting an ever increasing percentage of funds to service growing trade imbalances. The report also recommends that the IMF step in earlier in crises with measures to bring debt servicing payments to a standstill for a cool-off period in order to prevent a stampede of disorderly private capital flight from affected economies due to poor economic indicators and lack of market confidence. The report reinforces the opinion of the UN that the IMF has indeed made progress but can still do more to re-orient itself from providing emergency relief to facilitating rehabilitation and development. Most recently, the Department of Economic and Social Affairs has been gearing up for a high-level consultation on financing for sustainable development, agreed upon in the General Assembly, to take place before 2001. To lay the ground work for such a meeting, where heads of state and responsible ministers will represent member countries, the Secretary General created the Ad-Hoc Open-Ended Working Group on Financing for Sustainable Development. The first organizational meeting was held from February 9 to 11, 1999. In his opening address to the group, Secretary General Kofi Anan charged the group with bringing forward "ideas that are promising but have not been adequately developed and to breathe new life into the cause of development cooperation in a way that will capture the imagination of the world community". The next formal meeting is scheduled for May 1999, with a final report due the following June. UN Players with Programmes on Financing for Sustainable Development Virtually every United Nations Programme, Fund, Agency and Commission reporting to or associated with the United Nations Economic and Social Council is involved in financing for sustainable development to some extent. In response to a request for submissions from the Secretary General in 1997 concerning coordination of sustainable development financing activities within the UN system, over twenty individual submissions were received. As far as providing direct financing for sustainable development, the key players are undoubtedly the International Bank for Reconstruction and Development (IBRD, the World Bank), the various regional development banks, the International Monetary Fund (IMF) and the International Finance Corporation (IFC). On the other hand, the programmes most involved in administering funds made available for sustainable development by lending agencies and donor countries are the United Nations Environment Programme (UNEP), the United Nations Development Programme (UNDP) and the United Nations Development Fund for Women (UNIFEM). The United Nations Secretariat, through the Department of Economic and Social Affairs provides most of the pick and shovel work with regards to research and analysis of current trends and circumstances effecting financing for sustainable development. And of course, the Commission on Sustainable Development (CSD, a functional commission of ECOSOC) devotes considerable time and energy to finance questions. Finance for Sustainable Development Links The International Bank for Reconstruction and Development (generally referred to as the World Bank), which plays a major role in program design and coordinating multilateral funding for sustainable development, maintains a sophisticated web site. Viewing options include areas on regions and countries, development topics, publication/project information, economic data, partnerships, development forums, news and events and about the World Bank Group. The site also offers user-specific viewing options such as business, NGO's/civil society, journalists, schools and job seekers. Copies of the World Bank publication Global Development Finance, a two volume annual series may also be purchased on-line. See http://www.worldbank.org. The International Monetary Fund operates a very useful site with country-specific updates on economic indicators and two on-line publications available for viewing at no cost, Finance and Development and Debt Data as well as various articles and occasional papers prepared by academics and analysts at the IMF. Other viewing options include sections on news releases, publications, fund rates and data standards. See http://www.imf.org. To view a collection of reports prepared by the UN Secretary General on the question of financing for sustainable development see http://www.un.org/esa/analysis/ffd/webmap.htm. All materials can be viewed or downloaded with a standard browser. To access the more general UN site on economic and social issues go to http://www.un.org/esa, the home of the Department of Economic and Social Affairs. The Commission on Sustainable Development can be reached through the DESA mainpage or by going to http://www.un.org/esa/sustdev. The United Nations Development Programme site contains valuable information concerning sustainable human development in general, as well as certain specific financing issues. Viewing options include: discover UNDP; focus areas; the UN system; news front; publications and documents; statistics; and jobs. See http://www.undp.org. Trade is a major source of financing for sustainable development and as such, the United Nations Conference on Trade and Development is a good source of economic data and policy/programme analysis. See http://www.unctad.org. As always, the International Institute for Sustainable Development centred in Winnipeg is a must see site for anyone doing sustainable development research. They can be reached at http://iisd1.iisd.ca. Chapter 33 of the UN's Agenda 21 "Financial Resources and Mechanisms" may also be of intrest. |
