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Opinion: Third FfD Conference Fails to Finance Development – Part One

Bhumika Muchhala is Policy Analyst in the Development and Finance Programme at Third World Network

Bhumika Muchhala of Third World Network. Credit: UN Photo/Paulo Filgueiras

Bhumika Muchhala of Third World Network. Credit: UN Photo/Paulo Filgueiras

ADDIS ABABA, Jul 22 2015 (IPS) - The third Financing for Development (FfD) conference in Addis Ababa concluded last Thursday, July 16, in bad faith as developed countries rejected a proposal for a global tax body and dismissed developing countries’ compromise proposal to strengthen the existing U.N. committee of tax experts.

Usually, when large conferences end after conflicts and climax in intergovernmental negotiations, there is a sense of exhilaration. This did not happen in Addis Ababa.

The hallmark failure of the 3rd FfD conference is the missed opportunity to create an intergovernmental tax body, despite the persistent push into the 11th hour by a critical mass of developed countries led by India and Brazil.

Instead, there was deep disappointment amidst developing countries and many U.N. staff and outrage amidst civil society who had been following the FfD process over the last year. But among developed countries, there was relief, at best, or complacency, at worst. As the representative of Japan said in the final plenary, many developed countries, including Japan felt a sense of relief.

As the civil society coalition on FfD stated in its reaction to the outcome document, a fundamental opportunity was lost to tackle structural injustices in the current global economic system and ensure that development finance is people-centred and protects the environment.

Not only does the Addis Ababa outcome not rise to the world’s multiple crises, including finance, climate and distribution, it lacks the necessary ambition, leadership and actions to be associated with the post-2015 development agenda.

Indeed, the outcome is wholly inadequate to support the operational Means of Implementation (MOI) for the Sustainable Development Goals (SDGs), and exposes an unbridged gap between the rhetoric of aspirations in the post-2015 development agenda and the reality of the void of actions in the Addis Ababa outcome, which does not commit to new financial resources let alone scaling up existing resources.

In light of the agreements in the Monterrey Consensus and the Doha Declaration (in the first and second FfD conferences), the Addis Ababa Action Agenda displays a retrogression from the past, which undermines the FfD mandate to address international systemic issues in macroeconomic, financial, trade, tax and monetary policies.

The hallmark failure of the 3rd FfD conference is the missed opportunity to create an intergovernmental tax body, despite the persistent push into the 11th hour by a critical mass of developed countries led by India and Brazil.

Such a global tax body, that would enable the U.N. to have a norm-setting role in tax cooperation at an equal capacity to that of the current monopoly of the OECD, would have been a meaningful advancement in global economic governance and domestic resource mobilisation.

The intransigence of developed countries against such a key step demonstrated their unwillingness to democratise global economic governance and their disregard for FfD and U.N. standards of “good governance at all levels” and “rule of law.”

The core argument of developing countries is that given the reality that they are most affected by illicit financial flows, tax evasion and avoidance and transfer mis-pricing by large corporations, they should have an equal say at an international negotiation table on tax rules.

Given the glaring absence of new financial commitments, let alone the assurance of new and additional financial resources for climate and biodiversity finance, the majority of funds needed to finance the SDGs will come out of domestic budgets.

However, ample research shows how hundreds of billions of dollars are extracted out of the corporate tax purse of developing countries, particularly in the resource-rich African continent.

This is due to the very loopholes and tricks in the international tax architecture that is defined and dominated by the OECD. A global tax body could have shifted this power imbalance and delivered some fairness to global political economic structures.

The Addis Ababa outcome legitimises the predominance of private finance through blended finance and public-private partnerships (PPPs). This is problematic precisely because it is unattached to accountability measures or binding commitments based on international human and labour rights, and environmental standards.

A fast-growing body of evidence substantiates global concern over an unconditional support for PPPs and blended financing instruments. Without a parallel recognition of the developmental role of the state and robust safeguards to enable the state to regulate in the public interest, there is a great risk that the private sector undermines rather than supports sustainable development.

The Addis outcome’s blind trust in PPPs and blended finance is premised on the notion that such arrangements will lower the risk for private investment. The outcome makes no mention of the critical importance of inclusive and sustainable industrial development for developing countries, for the objectives of supporting economic diversification, adding value to raw materials and ascending the value chain, improving economic productivity and developing modern and appropriate technologies.

Civil society had hoped that being in Addis Ababa governments would remind themselves of the African Union’s Agenda 2063 based on shared prosperity through social and economic transformation.

Similarly, there is no critical assessment of trade regimes. Instead of safeguarding policy space, the Addis outcome fails to critically assess international trade policy in order to provide alternative paths to commodity-dependence, eliminate or at least review investor-state dispute settlement clauses, and undertake human rights impact and sustainability assessments of all trade agreements to ensure their alignment with the national and extraterritorial obligations of governments.

Furthermore, the additional steps to address gender equality and women’s empowerment seem to speak more to “Gender Equality as Smart Economics” than to women and girls’ entitlement to human rights and show a strong tendency towards the instrumentalisation of women by stating that women’s empowerment is vital to enhance economic growth and productivity.

The core competencies of FfD are comprised of international systemic issues such as capital flows, external debt, trade, financialisation and the monetary system.

The ability of the U.N. to address systemic issues is routinely challenged by developed countries who argue that these issues are outside the domain of the U.N.

Power and control over systemic issues and reforms are thus kept exclusively in the rich countries’ domain of the Bretton Woods Institutions (the IMF and World Bank), the G7 and the G20.

However, not only does the U.N. have a longstanding history in substantively analysing and proposing reforms on systemic issues, it is also the only universal forum where all countries, from the smallest island nation to the poorest landlocked country, have a voice and a vote in the General Assembly.

Part Two can be read here.

Edited by Kitty Stapp

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