'Monterrey has revived developmental focus'

Interview with Nitin Desai, U.N. Under Secretary-General for Economic and Social Affairs.

Between the fierce critique mounted by Cuban President Fidel Castro and the reiteration of traditional nostrums by United States President George Bush, the Monterrey conference on Finance for Development (Frontline, April 12, 2002), seemed to have achieved little by way of initiating a new paradigm in international cooperation for development. United Nations Secretary-General Kofi Annan seemed to reflect the accumulated scepticism of decades of broken promises by the rich nations when he pronounced the conference a success for the additional aid commitments it had succeeded in eliciting. But this verdict, he warned, would be quickly reversed were the rich countries to default on the promises made. Nitin Desai, U.N. Under Secretary-General for Economic and Social Affairs, was one of the principal organisers of the conference. A former Chief Economic Adviser to the Union Ministry of Finance, Desai spoke to Sukumar Muralidharan both before and after the conference on its aims and achievements. Excerpts:

Could you explain what the Monterrey conference has basically achieved?

What we were trying to do is to place developing country concerns at the centre of world financial discussions, just as in Doha, the basic goal was to place developing country concerns at the centre of the world trade agenda.

There has been some concern during the last two decades over the privatisation of international financial flows and endemic instability in the world system to which developing countries are especially susceptible. How has the Monterrey conference dealt with these issues?

In some ways this conference really took off because of the Asian financial crisis. Everybody realised then that we had talked about these issues without really finding any answers. So what do we have here: first, there is far more explicit language in the Monterrey Consensus on the role that the IMF will have to play in crisis management. Second, for the first time we have an agreement by all countries to at least look at the possibilities of what we call the "managed workout of sovereign debt".

Suppose we have an Argentina type of situation, what happens right now is that the crisis hits you when the default is imminent. The "managed workout of sovereign debt" means that you can start anticipating this some time in advance, and allow for some temporary moratoria on repayments till a package is worked out. This means that you can have a better sharing of the burden between public and private creditors and finally, you can have a more balanced outcome between the creditors and the debtors.

A large part of the developing world is already on structural adjustment programmes in which financial sector reforms are a major priority. The results have not been very distinguished. Is there a change in philosophy now that the Monterrey is going to bring in?

Because Monterrey is not just about finance but mainly about development, the focus there is as much on issues such as what sort of financial sector will help to increase savings rate and improve the flow of investment to priority sectors. The point that we have been trying to stress is that the goal of financial sector reforms must be development. What does it do to the savings rate, to investment, to access to credit? This includes discussions on matters such as micro-credit and what we need to do to stimulate new types of savings institutions. It could well be that we need stronger instruments, and in certain cases new instruments for achieving our development goals.

"Aid fatigue" is very much a reality because the overall Overseas Development Assistance flows are now at the lowest level ever in proportion to world income. So obviously there is a lack of consensus on what should be the appropriate level of ODA flows, and what should be the responsibilities and obligations on the side of the donors and recipients.

Basically, now everybody is lining up for what we call the Millennium Development Goals, which came out of the Millennium Summit of the U.N. These include halving absolute poverty by 2015, reducing infant mortality by two-thirds, and a whole series of essentially poverty-related goals. And there is increasing acceptance that development assistance should be mobilised around these goals. Then there is an acceptance that these goals cannot be achieved without additional assistance. For instance, (the U.K. Chancellor of the Exchequer) Gordon Brown has explicitly called for $50 billion extra ODA. And he is a G-7 (Group of Seven) Finance Minister, not a Development Cooperation Minister. The Secretary General of the U.N. has also called for a similar goal. Now I cannot say that we have an agreement on the quantum or the timing of the increase. The language in the Monterrey Consensus is very broad. But I am hopeful that it will lead to some significant increase in the flow of concessional assistance. The two major announcements from U.S. and the European Union will lead to an increase in ODA of about $12 billion by 2006. And I would also like to add that we have some excellent language in the Monterrey Consensus on what I call aid quality: untying of aid, better coordination and a whole series of actions to basically improve value for the programme countries.

Does this represent a major departure from what is known as the Washington Consensus about the liberalisation of the financial structure?

If you look at it yes. There is, first, a strong commitment on preserving the social commitment of development, particularly the anti-poverty dimension. Second, there is a strong focus on development as the goal of reform and change - more precisely, on savings, investment and growth as the goal. Third, there is much more explicit language on balancing the interests of debtors and creditors. Fourth, there is a great deal there, in a section called "staying engaged", on what we need to do to increase the voice of developing countries and organisations such as the U.N. in global economic policy-making. And most important of all, you know, here is a case where we are trying to address the policy coherence issue by getting the U.N., which is very strong on social and environmental issues, the World Bank, which is very involved in development finance, the IMF, which is very involved in macro-management, and the WTO, which is involved in trade, working together.

There is in certain industrial countries a tremendous resistance to raising the level of ODA. Would you say that the fiscal situation in the U.S., for instance, is conducive to a renewal of aid commitments?

I think we have succeeded in changing the outlook for aid. The approval of the Monterrey Consensus will allow us to press for further increases to meet the millennium development goals. People have started recognising the importance of aid if we are to reach these goals. And the social objectives reflected in these goals are essential to what I would describe as a more peaceful world.

Some of the issues dealt with at the conference, such as addressing the quantity and quality of development aid, or corruption, would go beyond what is known as the border paradigm and require actual legislative changes and political action within countries. How would these be dealt with?

There is a commitment there on finalising a global convention on corruption and it also includes language that talks about the repatriation of money which has gone out. These are international matters because you really are going to need global cooperation. We also have to recognise here that you cannot separate domestic and international matters so rigidly because in a situation of porous borders, what really happens globally is a result of what may be happening domestically. We also cannot separate different areas of work: such as development, macro-finance, stability and trade. Part of the importance of this conference is that it is bringing all these issues together.

How much of this would involve the need to unlearn some of the principles that have dominated the discourse over the last two decades, or would you say that it is just a question of building on agreed principles?

The process is already under way. Some of the things we have been talking about - for example, the whole stance on the protection of social expenditures - had started even earlier. I would date that to the Asian crisis. There was then a realisation that we cannot approach crisis management without in some ways protecting the social dimension of development. And now the chances are that the IMF would want to know that social expenditures are being protected, which is a very important change in its body language. And I think there are many new things: for example, the whole proposal on the managed workout of sovereign debt is really new.

So there has been a recognition at Monterrey that the effects of structural adjustment over the last decade and more have been pretty adverse for development goals...

I must point out that "structural adjustment" has disappeared from the vocabulary of the institutions because the focus is very much on what we need to do in order help countries to reach the millennium goals. Structural adjustment had the whole atmospherics of retrenchment and of cutting back of public policy, whereas the millennium goals, given their nature, cannot be achieved without public spending and without concessional aid. Our real challenge is to see how we can enhance fiscal capacity, how we can enhance the capacity of countries to spend more on education, health, rural development - without which the millennium goals would be unattainable.

In a situation of economic reforms we have had several countries suffering an erosion of fiscal capacity. And the promise made, of the government retrenching only from inessential areas in order to direct its attention to the real core areas of social welfare, has not really been fulfilled. So what we are talking about now in the context of the millennium goals is a vast increase in tax effort. And this would apply even to the industrialised countries, which would need to increase taxes merely to meet extra ODA commitments.

As far as fiscal capacity is concerned there are many issues here. There is tax administration, for instance. There is language there (in the Monterrey declaration), which also talks about tax cooperation. Then there is the issue of double taxation, which is an international issue and does impact on fiscal capacity. So it is not as if fiscal capacity questions are entirely domestic. You are right to the extent that the key issues are domestic. Not just the quantum of tax revenue but also where that quantum is available, and to whom it is available. One of the key points we have emphasised is: please do not assume that one size fits all. Conditions differ so much from country to country, that any standardised prescription on what constitutes sound fiscal policy would be a mistake. Our approach is much more supportive than prescriptive.

By way of summing up: back in the 1970s we had this whole debate about the New International Economic Order, which was, for various reasons, thrown off-track, not the least of these being the 1980 debt crisis and the shift of emphasis to stabilisation and structural adjustment. Does Monterrey represent in a sense the resurrection of the concerns that were articulated in that debate or is it a different dimension altogether?

I think the genealogy of Monterrey is very different. One is the recognition that came from the late-1990s crisis that we did not really have an answer to this instability. The second impetus came from the declaration of the millennium development goals and the very strong commitment to mobilise around these. And a third was that throughout the 1990s, the U.N. had had these conferences, which had outlined ambitious programmes for social development, environmental management, and so on. Everybody recognised that these programmes were in the global interest.

But where was the support for them? So, if today we have a developmental focus being revived both in Doha and in Monterrey, the reason this has happened is because the U.N. has been working steadily to place developmental issues higher on the policy agenda.