2009/06/24

High hopes for development financing forum

Molly Slothower
MediaGlobal

As the current financial and economic crisis deepens, developing countries and many non-governmental organizations [NGOs] are calling for immediate action from the international community to help poorer countries recover from the crisis.

24 June 2009 [MEDIAGLOBAL]: As the current financial and economic crisis deepens, developing countries and many non-governmental organizations [NGOs] are calling for immediate action from the international community to help poorer countries recover from the crisis.

This week’s Conference on World Financial and Economic Crisis and its Impact on Development, held at the United Nations Headquarters in New York, is the first opportunity that developing countries and many NGOs have had to be at the table with representatives of the G-20 to discuss the current crisis and its impact on their countries.

To prepare for the high-level global Conference, NGOs and developing countries have been working towards a consensus position on what should be done.

“Developing countries need new financing. [On this point] everybody agrees. The World Bank, International Monetary Fund, G-20, and so forth [all agree],” said Martin Khor, Executive Director of the South Centre, a Geneva-based Intergovernmental Organization of developing countries, at the UN Headquarters earlier this week.

The developing world is faced with finance shortfalls that are estimated to be between 1 trillion and 2 trillion dollars, brought on by a financial crisis for which the countries argue they were not responsible.

There is a serious threat that a new debt crisis will erase the gains developing countries have made in paying back what they owe. This could set development progress back a decade or more. According to the International Monetary Fund, there are 29 low-income countries whose reserves will completely empty, leaving them with no payments available for imports.

The finance shortage that developing countries are up against comes from a failure of donor countries to pay much of the aid money they promised, as well as a global liquidity shortage that has stopped exports and remittances from bringing money into poorer countries’ borders.

“Civil society is framing this not just as a financial crisis and not just an economic crisis, but a crisis of global development,” said Bhumika Muchhala of the Third World Network, an independent, international network of organizations involved with development issues.

Muchhala spoke at a press conference regarding the Civil Society Forum in New York, a forum convened to allow NGO leaders representing the Global South to agree on proposals to bring to this week’s Conference.

Many issues remain controversial, even within the group of NGOs at the Civil Society Forum. Both ideas for immediate solutions to the crisis, as well as long-term questions such as whether or how the major financial institutions should be replaced or merely improved, remain up in the air. But participants agreed on some positions that they feel would help developing countries survive the global crisis.

An issue that remains controversial is the idea that there should be a freeze on foreign debt repayment and interest for developing countries, allowing countries to focus on their own needs rather than repaying loans.

On the other hand, the need for developing countries to have the policy space to respond to the crisis was virtually universally agreed on by the Forum’s NGO participants, as well as developing countries. Often, these governments are tied by conditions set forth by loans from the International Monetary Fund and the World Bank, which predefine what policies they may pursue, if they take out loans.

The IMF has mostly removed conditionalities that require certain policies when loans are taken out for middle-income countries, but still requires much of developed countries. Governments’ hands are also tied by strings attached to foreign aid, and by trade agreements.

“There is an agreed draft outcome document [of the larger Conference] that…requests changes in the conditionality currently of the [IMF and World Bank],” said Roberto Bissio, Executive Director of the Third World Institute, to MediaGlobal.

“We want this conference to recognize the right of developing countries to take similar counter-cyclical policies that developed countries are able to do [that developing countries are often barred from by IMF agreements],” Khor said. “And if there are barriers, then we should endeavor to remove those barriers so they have the policy space to do what should be done during a recession.”

As the Conference works towards a final document, many are commenting that it is a stop forward for these issues to be considered at all.

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