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WORLD: Finding Funding for LDCs Amidst Global Financial Crisis

BRUSSELS, Apr 15 2011 (IPS) - Representatives of the world’s poorest nations are preparing to assemble a new “programme of action” to reduce grinding poverty. Among proposals that could emerge from the U.N. Least Developed Countries Conference in Istanbul next month is a global tax on financial transactions that would generate billions of dollars a year for development assistance.

“We will recommit the international community to continue to extend support to the 48 least developed countries around the world for the next decade,” said Cheick Sidi Diarra, a United Nations high representative who will lead the conference.

Development assistance to the world’s poorest nations hit a record 122.4 billion dollars in 2008, just as the financial crisis slammed the United States, Europe and other major contributors. Diarra commended donors for the rise in aid but said fresh support is needed to sustain progress in areas such as primary education and improved water supplies.

“The donor countries have done what they could during the decade, especially in 2008 before the [financial] crisis,” Diarra said in a telephone interview from New York. But aid levels are falling well short of commitments, he said, and around half of development aid in recent years has been spent on just two countries: Iraq and Afghanistan.

Building on Brussels

LDCs are classified by the U.N. as those with an annual per-capita income below 745 dollars as well as high rates of illiteracy and child mortality, economic volatility and weak agricultural output.

The Brussels Programme and other poverty-reduction efforts have yielded limited success.

Only three nations - Maldives, Botswana and Cape Verde - have moved out of the category since 1970, according to the U.N., while several countries, including Somalia and Haiti, have grown more desperate.  U.N. High Representative Cheick Sidi Diarra said inadequate aid is part of the problem, but not the only reason.

"There is also an issue of governance, mismanagement of resource, lack of skills, but all this has to be corrected in context of the governance priorities that we are going to set for ourselves in Istanbul," he said.

Today 33 African nations and 14 Asian and Pacific countries fall into the LDC category. In the Americas, Haiti is alone in the category.

In Africa, they are Angola, Benin, Burkina Faso, Burundi, Central African Republic, Chad, Comoros, Democratic Republic of Congo, Djibouti, Equatorial Guinea, Eritrea, Ethiopia, Gambia, Guinea, Guinea-Bissau, Lesotho, Liberia, Madagascar, Malawi, Mali, Mauritania, Mozambique, Niger, Rwanda, Sao Tome and Principe, Senegal, Sierra Leone, Somalia, Sudan, Togo, Uganda, Tanzania, and Zambia.

The Asian and Pacific nations are Afghanistan, Bangladesh, Bhutan, Cambodia, Kiribati, Lao Peoples Democratic Republic, Myanmar, Nepal, Samoa, Salomon Islands, Timor-Leste, Tuvalu, Vanuatu, and Yemen.

A decade ago, the first LDC conference, held in Brussels, set out a programme to reduce poverty and improve economic opportunity in poor and vulnerable nations. It established guiding principles including better trade opportunities, protecting the environment, improving governance, and promoting transparency to encourage private investment.

A year later in Monterrey, Mexico, leading donor countries pledged to work toward providing the equivalent of 0.7 percent of GNP to development assistance – in 2009, total ODA amounted to less than half of this.

The U.N. has estimated that up to 60 billion dollars is needed annually for the poorest countries if they are to achieve poverty-reduction targets, known at the Millennium Development Goals, by 2015.

The timing of a fresh cash call is unfortunate.

The global financial crisis that followed the collapse of the U.S. housing market has forced many donor countries to scale back development assistance.

Natural disasters have also taken precedence. The Asian Development Bank and World Bank estimated that last year’s flooding in Pakistan alone caused as much as 10.8 billion dollars in damage and could take years to repair, while donors have provided nearly 4 billion dollars in aid to Haiti since its earthquake in early 2010.

Leaders in Japan – typically the most generous donor after the United States – estimate the Mar. 11 earthquake and tsunami caused 300 billion dollars in damage and warn of austere times ahead.

New sources of finance

The four-day conference that begins on May 9 is expected to address calls for more cash, better governance, and improved investment and trade opportunities for the next decade.

Given such challenges, finding alternative sources of development funding could take a prominent place on the LDC  Conference agenda.

One option is financial transactions taxes, or FTTs, which have been considered in the past as an alternative ways to finance U.N. operations and humanitarian assistance. Taxes on cash transfers were promoted at an LDC ministerial meeting in Lisbon last October. Prominent figures in finance, including the economist Joseph Stiglitz and the financier Warren Buffett, have argued that such taxes would generate revenue while dampening speculative trading in currencies or financial products.

Civil society organisations meeting in New York to prepare for the Istanbul conference agreed earlier this month to press for sweeping debt relief.

“[LDCs] spend over $6 billion every year on debt servicing,” said Arjan Karaki, head of the LDC Watch, a Kathmandu-based organisation. “In many LDCs, more money is spent on debt servicing than on essential services like health care, drinking water and energy,” Karaki said in a statement.

The U.N.’s Diarra acknowledged that there are major financing challenges ahead, and said the Istanbul meeting should seek to improve investment and trade opportunities, drawing on efforts such as the EU’s Cotonou Agreement and “Everything But Arms” initiative that promote economic partnerships with developing countries.

Diarra added that leaders in LDC countries also have a responsibility to commit to “more transparent rule, rules that are respectful of human rights, and more respectful of private property, and also protect the foreign investment and local investment as well.”

Civil society groups are also preparing appeals in the area of human rights and social protections, although more controversial proposals calling on nations to cut military spending and funnel the money into aid are unlikely to be on the official agenda.

“We want solutions that are consensual and agreeable for everybody,” Diarra said.

Some 6,000 government, civil society and business participants are expected to attend the LDC meeting in Istanbul.

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