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UN conference: World leaders adopt “Monterrey Consensus” to fight poverty, ensure sustainable development

Author(s):
International Monetary Fund. External Relations Dept.
Published Date:
January 2002
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Monterrey’s unprecedented gathering, under UN auspices, of international organizations, heads of state or government, ministers, and leaders of civil society organizations and businesses reflected the heightened urgency, renewed momentum, and potent mix of ideals and pragmatism now injected into the fight against poverty. The conference was not, as UN Secretary-General Kofi Annan reminded participants, about abstractions but about the fate of “millions upon millions of individual men, women, and children.”

On March 22, the 51 heads of state or government, along with ministers of finance, trade, development, and foreign affairs, committed themselves to eradicating poverty, achieving sustained economic growth, and promoting sustainable development to move the world toward “a fully inclusive and equitable global economic system.” The Monterrey Consensus had been negotiated by UN member states before the conference, reflecting consultations with civil society organizations, businesses, the IMF, the World Bank, and other agencies.

As IMF Managing Director Horst Köhler told delegates, there was encouragement to be drawn from the “unprecedented degree of agreement about what is required to overcome world poverty. The Monterrey Consensus defines the right priorities. It makes clear that nothing will work without good governance, respect for the rule of law, and policies and institutions that unlock the creative energies of the people and promote investment—including foreign direct investment. It also recognizes that when poor countries are ready to live up to these responsibilities, the international community should provide faster, stronger, and more comprehensive support.”

Indeed, the consensus called for a new partnership between developed and developing countries—one that simultaneously recognizes that “each country has primary responsibility for its own economic and social development” and that “domestic economies are interwoven with the global economic system” to such an extent that trade and investment now offer powerful means to aid countries in the fight against poverty. The leaders also underscored that peace and development are mutually reinforcing; they committed themselves to promoting national and global economic systems that are just, equitable, democratic, participatory, transparent, accountable, and inclusive.

A few national leaders and some nongovernmental organizations were disappointed that the conference had not proposed outright debt cancellation; the use of innovative sources of finance, such as SDRs; and various forms of international taxation, including a tax designed to discourage short-term capital movements. Some also felt that the broad question of global governance—notably, developing country representation in international dialogues and decision-making processes, including with respect to such institutions as the IMF, the World Bank, and the Bank for International Settlements—had not been adequately addressed. And a few participants regretted that the consensus did not tackle the issue of global public goods.

Shared responsibilities

In a roundtable cochaired by Köhler and South African President Thabo Mbeki, conference delegates agreed that the underlying theme of the conference was a belief in shared responsibilities and mutual commitment. This echoed the internationally supported “two-pillar” approach of self-help and help for self-help.

Developing countries must lay the foundation for their own development and poverty eradication. This means taking the initiative to mobilize domestic resources, pursue appropriate policies, improve governance, invest in needed economic and social infrastructure, and strengthen domestic financial systems. It also means taking steps to attract inflows of productive capital—including a transparent, stable, and predictable investment climate; sound macroeconomic policies; and sound institutions that permit businesses, both domestic and foreign, to operate efficiently and profitably, with maximum development impact.

But determined efforts on the part of developing countries must be matched by greater international resources for development. The consensus thus calls on international institutions to increase their support through export credits, cofinancing, venture capital, risk guarantees, and other means to boost contact and cooperation between enterprises in developed and developing countries. It supports new public-private financing mechanisms and underscores the need to sustain sufficient and stable private flows to developing and transition countries, design measures to increase the transparency of financial flows, and lessen the volatility of short-term capital flows. It also cites the need for more careful attention to currency and liquidity risks, calling for enhanced regulation and supervision of financial institutions and orderly and well-sequenced liberalization of capital flows.

The link between responsibility and international support was emphasized for countries in crisis as well. President Eduardo Duhalde of Argentina noted that his country was struggling with its worst-ever recession but was determined to replace the old order with a new system rooted in a firm macroeconomic foundation that featured a balanced public budget, a single currency, a floating exchange rate, and progressive elimination of financing and payment restrictions. In that way, the country hoped to build a competitive market economy and return to a path of growth and integration with the world. That transformation, he stressed, would need the understanding and cooperation of the international community.

The next step for proceeding with the Monterrey Consensus, delegates agreed, was to build within their own countries the public support needed to translate this collective vision into individual country action. Köhler noted that the international financial institutions have an important role to play in reinforcing the momentum for reform and in building consensus. He cited the poverty reduction strategy paper (PRSP) approach as the basic framework for partnership with poor countries and noted that the IMF had correspondingly refocused and streamlined conditionality to create greater scope for national ownership of policies. He also suggested that the international community’s support be based on four priorities: trade, aid, debt relief, and capacity building.

Trade

The consensus points to international trade as a key engine for development—what Köhler calls the most important avenue for self-help because it generates income and reduces aid dependency in poor countries, creating a win-win situation for all. Member states reaffirmed their commitment to trade liberalization, stressing its role in promoting economic growth, employment, and development.

To draw full benefits from trade, however, industrial countries must address their own trade-distorting sub-sidies—particularly in agriculture—and antidumping measures. Developing and transition countries, for their part, must establish appropriate institutions and policies and follow through on their vow to reduce barriers to trade among themselves. Köhler said that he shared the World Trade Organization’s desire to make Doha the start of a true “Development Round.”

Aid

The consensus recognizes that a substantial increase in official development assistance and other resources will be required if developing countries are to meet the Millennium Development Goals—including halving global poverty by 2015 and ensuring universal primary education. Leaders urged developed countries that have not yet done so to make concrete efforts to increase aid toward the target of 0.7 percent of GNP. Recipient and donor countries, with the help of international institutions, resolved to make development assistance more effective.

How much aid would be enough sparked some of the conference’s liveliest debates. U.S. President George W. Bush reaffirmed his country’s commitment to bring hope and opportunity to the world’s poorest people and called for a new “compact for development,” defined by greater accountability for rich and poor nations alike. He cited hope as an answer to terror and opportunity as a fundamental right to human dignity. He announced that over the next three budget years, the United States would boost its core development assistance by 50 percent and dedicate these resources to a new Millennium Challenge Account devoted to projects in nations that govern justly, invest in their people, and encourage economic freedom.

French President Jacques Chirac said he wanted to see a new wind of generosity and hope blowing in Monterrey. Now that the world is no longer frozen in hostile blocs, it could, he said, set about accomplishing its common destiny. “What can be done against terrorism can surely be done against poverty,” he added, proposing that the world seize this moment to work together to reach the target aid goal of0.7 percent of GNP, create an economic and social security council, fulfill the Kyoto objectives, and establish a World Environment Organization. The European Union announced that member states collectively would set an interim target for themselves of 0.39 percent of GNP by 2006.

President Hugo Chávez Frías of Venezuela, speaking for the Group of 77 developing countries and China, called on global leaders to recognize, in the most profound way, that the world is “upside down”—a situation that can be reversed only with greater aid. Rwanda’s Minister for Finance and Economic Planning, Donald Kaberuka, said aid must play a catalytic role, for countries will grow out of poverty only by participating fully in world trade and investment.

Shaukat Aziz, Pakistan’s Finance Minister, stressed that aid should not be a permanent crutch, but a means to allow recipient countries to stand on their own feet. He also underscored the need to make fighting corruption a high priority on the global agenda. In particular, while the war against corruption should be globally coordinated, laundered money shouldn’t find a safe haven anywhere. His statement reflects the silent revolution that is taking place with respect to addressing corruption, a taboo subject in UN conferences and national dialogues of the past. One of the lesser-noticed aspects of the Monterrey Consensus is an urgent call for a UN convention against corruption “in all its aspects.”

Reducing debt

The consensus sees external debt relief as a means of freeing up resources that could be redirected to development efforts. It urges vigorous and expeditious pursuit of debt-relief measures, including within the Paris and London Clubs, and cites as critical the speedy and full implementation of the enhanced Heavily Indebted Poor Countries (HIPC) Initiative. While pledging full support for ongoing debt-relief efforts, Köhler noted that the ability to lend and borrow is an important element of financing for development: “trust that contracts will be honored is essential for a modern economy and a stable international financial system,” he said.

Leaders also encouraged exploration of innovative mechanisms to address the whole range of debt problems, including those of middle-income and transition countries. While they welcomed the debate on IMF management’s proposal for a sovereign debt restructuring mechanism, they noted an urgent need to better define the roles of the IMF and private creditors in financial crises to resolve unsustainable debt situations in a faster, more orderly, and less costly manner.

Capacity building

Köhler noted that “slow progress in the reforms needed to fight poverty often reflects a lack of institutional capacity rather than of political will.” That is why the IMF recently opened regional technical assistance centers in the Pacific and the Caribbean. And that is why he is proposing to set up regional centers in Africa in the IMF’s core areas of responsibility, as part of its support for the New Partnership for Africa’s Development—itself an example of the “two-pillar” approach. The consensus calls for reinforcing national efforts in capacity building in developing and transition countries “in such areas as institutional infrastructure, human resource development, public finance, mortgage finance, financial regulation and supervision, basic education in particular, public administration, social and gender budget policies, early warning and crisis prevention, and debt management.”

A silent revolution is taking place with respect to addressing corruption, a taboo subject in UN conferences and national dialogues of the past.

Dialogue and monitoring

Of course, making pledges isn’t new for the international community, so this time leaders took extra steps to ensure the implementation of agreements and commitments reached in Monterrey. They called for continued dialogue and a follow-up international conference to review progress on implementation, with the modalities to be set no later than 2005. The challenge now, Köhler told delegates, will be to “transform this consensus into concrete action, with a sense of urgency” and “to develop a comprehensive and transparent system to monitor progress toward the Millennium Development Goals.” He called for more clearly identifying the responsibilities of poor countries and their development partners. He also said that he wouldn’t hesitate to subject the IMF to the scrutiny of such a monitoring system, “provided that it did not produce bureaucracy and would apply equally to all the parties involved.”

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