By IPS Correspondents
BERLIN, Sep 12 1999 (IPS)

Development can no longer be seen as a state-led process of accelerating the economic progress in poorer ‘developing’ lands so as to narrow the gap between them and the ‘developed’ North, a group of experts meeting here agreed.

“While the challenge of catching up remains and has in some cases even become more urgent than five decades ago, it is widely recognised that development does not follow a straight line from lower to higher levels of growth,” argues Inge Kaul of the United Nations Development Programme (UNDP).

Kaul, who heads the UNDP office of development studies (ODS), participated in a conference of the German Peace and Development Foundation (SEF) jointly with the UNDP last week (Sep 8 and 9).

The gathering, joined by some 120 development experts from around the globe, was addressed among others by the German deputy minister for Economic Cooperation, Uschi Eid, and Zepherin Diabre, UNDP’s associate administrator.

The two-day gathering focussed on the ‘Global Capital Flows, Development Financing and the Future of Development Policy’.

Setting the tone, UNDP associate administrator Diabre recalled the two reports of the North-South Commission, headed by late Willy Brandt, a Nobel laureate and a former chancellor of the then West Germany.

The need for transfer of resources from the North to the South remains as pressing as it was nearly two decades ago, when the Brandt Commission’s two reports were published, Diabre said.

Eid instead pleaded with the participants to recognise the need for austerity measures such as those recently introduced by the ‘red-green’ coalition government in Germany, comprising the Social Democratic (SPD) and Green parties..

The measures are aimed at reducing Germany’s expenditures by chopping social items such as unemployment and pension benefits as well as strimming taxes on business with the aim of encouraging investments and job creation.

Not surprisingly, international development aid was one of the first hit by the centre-left government’s new financial policy.

Germany’s official development assistance (ODA) has declined from 4.23 billion to 3.91 billion dollars last year. An additional cut of some 300 million dolars is expected next year. As a result, also German contributions to the UNDP are being reduced.

Beyond the German aid cuts – which come hand in hand with ODA being slashed by all the donor nations – the participants did not devote much attention to the future of development policy.

Development economist and former SPD member of the German parliament Ingomar Hauchler stressed that the issue was more that providing aid money to the countries of the South, regretting that everyone in the meeting appeared to take the cuts as a fait accompli.

Hauchler was not wide off the mark. Though, there was a general agreement among the participants that in the face of current trends of economic globalisation, new ways needed be found for the quickly drying-up development financing.

Aware of this, the U.N. General Assembly had convened a high- level meeting on development finance for the year 2001 and the preparatory process was under way, Kaul pointed out.

In her view, aid may need to change in two important ways: one, by adopting a more incentive-oriented approach to development cooperation, and by focussing more clearly on economic governance, and especially on making private and public finance work for sustainable human development.

There was a general agreement that the solution did not lie in imposing measures such as capital controls, or cutting back development expectations to economic growth alone.

Ideas about a new financial architecture compatible with a sustainable human development need be worked out, it was felt. Some atempted to go beyond the feeling and tried to define it.

According to UNDP’s Kaul, a new architecture would have to take into account six points:

– development finance is not just a means of paying for development but also a system, composed of financial markets and the public finance institutions, including aid.

– the system of finance itself requires development in order to better serve the overall development process.

– improved development finance is, in large measure, an issue of economic governance, creating embedded markets and public finance institutions capable of ‘joggling’ market orientation and global interdependence with sustainable human development concerns.

– aid effectiveness – and hence sustainable human development – could be enhanced, if aid was focussed on strengthening the financial system of developing countries.

– aid in particular and international development cooperation in general could be further improved by switching their activities increasingly from paying directly for development to providing development incentives.

– to design such a paradigm of finance for development, it would be important to combine and integrate a number of diverse literature which have been so far quite separate: Money and finance, microfinance, development economics and other development disciplines, environmental economics and public goods and public finance.

The goal of these and other related steps, the UNDP official told participants, was to achieve a better match between finance and development by bringing the efficiency gains of well functioning financial markets and intermediation to bear on development.

Giving a different perspective, UNDP’s representative in Indonesia, Ravi Rajan said the Indonesian economic crisis held out several lessons for the future of development assistance and government policy for recovery.

“It highlights how even the most successful of developing countries can find themselves at the vortext of a financial whirpool which can undermine over three decades of growth and development,” explained Rajan.

In his view, without a significant change in the global financial system, developing countries will be unable to effectively neutralise the impact of large private capital flows.

It is essential therefore to find ways of becoming more resilient to the adverse impacts of similar crises in the future. Here the structure of a country’s institutions can make the greatest difference.

“In fact it is countries which are able to best manage the latent distrbutional conflicts generated by severe crises that are best able to maintain sustainable development paths,” added Rajan drawing up on Nobel laureate Amartya Sen.

Rajan challenged the widespread view in the donor countries that conditionality should be attached to aid. “There are no universal models of good governance and institutional reform,” he said.

“By their very nature, conditionality to enforce processes is not only likely to be ineffective but might also be counterproductive, if perceived to be an instrument of external coercion or economic interests.” (

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