In a rousing opening address the night before the roundtables began, Michel Camdessus, former IMF Managing Director and one of UN Secretary-General Kofi Annan’s two special envoys to the Monterrey conference, categorically declared that the conference “must be a success.” Anything less, he warned, would undermine the growing sense of solidarity spawned by the New Partnership for African Development and the international community’s response to the September 11 terrorist attacks.
But while the roundtable participants agreed that the Monterrey conference will provide a unique opportunity for world leaders to take a comprehensive look at all sources of development finance—domestic as well as external, public as well as private, aid as well as trade, and investment as well as debt relief—there was a wide range of opinion on where the finance should come from. Perhaps the liveliest debate centered on the relative importance of increasing the quantity versus the quality of overseas development assistance (ODA) and the role of private capital.
Financier-philanthropist George Soros launched the debate by outlining his vision of a new mechanism that, he argued, would better deliver and coordinate assistance, while allowing the burden to be shared more equitably. Rich countries would effectively donate $18 billion to a trust fund set up for poor countries needing assistance. This onetime donation would come out of developed country allocations of a $27 billion special issue of SDRs authorized by the IMF in 1997. As Soros envisages the scheme, the IMF would designate an impartial jury of technical experts on the ground in poor countries—independent of the IMF and its member governments—to provide quality control by selecting and vetting acceptable projects as candidates for assistance. Donors would still have the final say on how funds are used, however, choosing from among projects on the final list. A trial run of this mechanism could focus on projects in three critical areas: health, education, and strengthening of legal systems.
One hang-up, however, is that the onetime SDR allocation has the approval of 72 percent of the IMF membership, but is still shy of the 85 percent approval that would give the allocation effect. For this reason, Soros called on U.S. President George Bush to ask Congress to approve the special SDR issue, warning that Monterrey otherwise could end up a “nonevent or an outright flop.”
Nobel Laureate Joseph Stiglitz lauded Soros’s proposal as a “concrete measure that could be a real achievement.” Calling for a system that “doesn’t depend on the vagaries of national parliaments,” he agreed that Soros had devised one way to provide new liquidity to undo the downward bias in global demand caused by poor countries having to set aside increasing amounts of reserves in the face of global instability. But this global liquidity should be available in a much more general way, he declared, and should not necessarily be dependent on the IMF. He outlined two alternatives to do this. One would devote revenues from the “efficient management” of global natural resources—for example, from the oceans and seabed—to funding global public goods. The second would shift some of what he referred to as the disproportionately large burden of risk faced by developing countries borrowing on international markets. The international community, perhaps through the multilateral institutions, would assume more of this risk. Like Soros, Stiglitz cautioned that the new proposals should not undermine the commitment to debt relief and more ODA—and he challenged those questioning whether aid has been well spent to look at the record.
What role for private capital?
But U.S. Secretary of the Treasury Paul O’Neill, backed by Alan Larsen, U.S. Secretary of State for Economic and Business Affairs, argued that the focus should be on using existing aid more effectively and policy reforms to attract private capital to poor countries, rather than on raising ODA contributions.
O’Neill called for a review of current aid flows rather than an emphasis on “magic numbers”—the setting of numerical targets for countries’ aid contributions. This was basically a restatement of the U.S. administration’s insistence during the Monterrey planning sessions in January that language for the preparatory document omit mention of the UN’s three-decade-old target of raising ODA to 0.7 percent of developed countries’ gross national income. While summing up the administration’s position as taking an interest in specifying the “kinds of things that would be eligible for grants,” O’Neill declared that the charitable spirit that does exist in the United States “will not be real until we can do a better job of getting better value for money spent.” For example, he said, the numbers of children who can read, write, and compute—rather than the numbers attending school—are more important for measuring gains in education quality, given that student-teacher ratios may be as high as 150 to 1.
This vision of development assistance immediately met with some strong objections from a number of participants, led by Soros, who denounced the current U.S. aid contribution—at 1\10 of 1 percent of gross output—as “unconscionable” Similarly, Gun-Britt Andersson, Sweden’s State Secretary for Development Cooperation, remarked that the developed countries “just don’t deliver,” despite promising for the last 30 years to share their wealth.
Asked by David Beckmann, President of Bread for the World, to describe those policies that would help Africa reduce poverty, O’Neill responded “we cannot even get close with charity.” Noting that private capital flows to China last year—on the level of $45 billion—matched total aid flows globally, he stressed the need for private capital to play a far greater role in development assistance. While conceding that it wasn’t easy for a poor country “to get into that kind of position,” he nonetheless felt that capital would flow to countries that enforced the rule of law and contracts and that did not tolerate corruption.
Camdessus urges major powers to resist siren calls
In his keynote address, Camdessus noted that the millennium had begun with tremendous challenges and horror, but also with elements of hope—such as the pledges in New York to eradicate poverty and the planting of the seeds of a global partnership in Genoa. He urged the international community to give full support to the Monterrey conference—in the name of partnership, peace, good governance, and development financing.
Partnership. “The name of the game is partnership” between industrial and developing countries, Camdessus said, urging heads of government to get to work on a broad collaborative agenda that would put the needs of the poor on the front burner of world attention. In this context, he took the media to task for devoting undue attention to the “lamentable attitude” of police in Genoa, which kept the public in the dark about a policy statement in which African leaders called for a new, more pragmatic partnership with industrial countries. This extraordinary statement, Camdessus said, constitutes a new way of doing business, reflecting a readiness to embrace prudent fiscal and monetary policies and appropriate exchange rate policies.
Peace. With the successful conclusion of military operations in Afghanistan—post September 11—phase two in the campaign against terrorism for “America and its allies” calls for a coordinated effort to address “violence at its very roots all around the world” in the form of mass poverty and hopelessness. The new phase “will require global solidarity in the broadest possible coalition for development,” he maintained. Monterrey provides an ideal venue for discussing the “extraordinary opportunities for constructive change, and we should not miss that opportunity.”
Governance. Throughout Africa, Camdessus said, there is a strong political will to conduct the business of government and politics in a new—more participatory, transparent, and honest—way. The underlying cause of this shift is the desire of African leaders and their peoples to take “primary responsibility for the future” into their own hands. Industrial countries have ample reason to celebrate this attitudinal shift; they also have a major responsibility to help ensure a successful transition to good governance by providing substantial technical assistance in institutional capacity building, with judicial reform as the key priority.
Financing. The most important outcome at Monterrey, Camdessus said, must be a renewed commitment by industrial countries to make good on their pledge to provide $50 billion a year in overseas development assistance (ODA). Reaching this numerical target would significantly enhance future development prospects by promoting a greater sense of mutual accountability between donors and recipients; broaden the membership of”good performers” in the developing world; and, over time, help establish a system of regional surveillance among developing countries. Alluding to Odysseus, who successfully resisted the songs of the sirens by tying himself to the mast of his boat, Camdessus exhorted the industrial countries to resist siren calls for reducing foreign assistance and remain bound to their ODA pledges.
Similarly, Larsen recommended further efforts to put in place policies that strengthen developing countries’ financial markets and encourage more diversified trade and investment flows—particularly foreign direct investment. Describing development assistance as nonetheless “terribly important” in helping poor countries tap into these larger private capital flows, he mentioned that the United States has been directing a bigger portion of its aid money to trade and to building investment capacity, as well as to agriculture, education, and health. Larsen also said that the United States had presented a proposal that would increase funding to the World Bank’s International Development Association (IDA) by 18 percent—provided certain performance benchmarks can be met and the Bank distributes up to half of its IDA assistance as grants rather than loans.
Roberto Zahler, former governor of the Central Bank of Chile, and Francisco Gil-Diaz, Mexico’s Secretary of Treasury, also spoke out strongly in favor of a bigger role for private capital, given the limits to ODA flows. Zahler, in particular, urged solutions that would mobilize finance domestically. Observing that high economic growth rates are usually linked with high saving rates, Zahler called for more clear-cut information on the determinants of domestic saving and further analysis to distinguish structural reforms that work from those that do not. Here, he saw the IMF and other multilateral financial institutions making a contribution. For his part, Gil-Diaz called for an improvement in the transparency of nongovernmental organizations (NGOs) and the information available on them—particularly to identify those that provide microcredit effectively.
But Ugandan Finance Minister Gerald Ssendaula pointed out that his own country has been unable to attract large amounts of private capital in spite of having done all that is “humanly possible” to open and reform the economy. For developing countries to duplicate China’s experience with private capital, he said, they must first put in place basic infrastructure.
Pressed by C. Fred Bergsten, Institute for International Economics Director, about his expectations of the “bottom line” results to come out of Monterrey, O’Neill responded that the conference should resolve to increase incomes and measure progress on a five-year basis. He advised the conference participants to find ways to somehow combine the efforts of the private sector and NGOs to “lead to the private flow of investment capital so that it begins to create a perpetual motion machine of economic development.”