Innovative Financing

Susan George

May 2006

Innovative Financing
Susan George
Key Dialogue 4: Development Finance
Helsinki Conference Website, 8 September 2005

Economic growth has slowed and living standards for the majority have suffered in the face of rising unemployment and poverty in much of the developing world. At the same time there has been a decline in the volume of official development aid (ODA) relative to the rising demand from poor countries. It is, therefore, imperative that new and innovative ways of mobilising public and private sources of finance for development must be sought to complement efforts at increasing official aid. Many governments, NGOs, UN agencies and think-tanks have been actively exploring and promoting new sources for development. The Key Dialogue will discuss how to take selected initiatives further and how to build such a multi-stakeholder action that increases urgently needed financial flows into the developing countries.

Helsinki Key Dialogue Everyone knows that more development funds are needed in order to reach and go beyond the Millennium Development Goals. Few believe they can come entirely from the development assistance contributions of individual countries. The long established, often re-asserted goal of 0.7 percent of GNP of rich nations is unlikely to be attained, at least not in time to save millions of victims from starvation, disease, death in childbirth and the other afflictions of poverty. Some argue that huge problems would remain unsolved even at 0.7 percent. So how can we make up for the shortfall?

One idea which has travelled the ideological distance from utopia to practicality in only five years is the taxing of financial [mostly currency] transactions. Presidents Chirac and Lula da Silva of France and Brazil along with Prime Ministers Zapatero of Spain and Lagos of Chile took this proposal to the United Nations in September 2004 where it was
countersigned by over one hundred heads of government. Other international taxation schemes could be envisaged on anything from airplane fares to armaments. Equally feasible, given the political will, would be a unitary profits tax on transnational corporations.

At present, according to the UN, net international transfers heavily favour the North to which the South supplies around $200 billion annually which is over and above the sum of the aid it receives. Much of this outflow is debt service. Despite decades of activism and gestures from some governments, the debt crisis still festers and drains the 52 poorest countries
of some USD$28.000 every minute. Surely it is time to go beyond the timid measures taken to date to stop this tragic loss of resources. Reforms of trade practices, particularly Northern agricultural subsidies, would also benefit Southern producers immeasurably.

Meanwhile, Southern workers in the North officially remit to their families in
their home countries USD$93 billion a year whilst the total -including unofficial North to South remittances - are estimated at USD$200-300 billion yearly. Migrant workers' hard earned wages sent home thus dwarf Official Development Assistance which recently came to USD$61 billion. Huge percentages of these transfers are skimmed off by Northern banking establishments which need
closer regulation to increase the amount of money actually reaching the people for whom it is intended. Another littlenoticed potential source of financing lies in the off-shore fiscal paradises where wealthy individuals and corporations, from North and South, stash their money
to avoid taxation.

Material for discussion is not lacking! This Key Dialogue will focus on the various financing possibilities and the practical and political means for implementing them.

Susan George at Helsinki 2005 Conference

Key Dialogue 4. Interview with Susan George

"More aid is clearly needed and just as clearly, the individual country target of 0.7 percent, even if attained, could not do the entire job. This is why we need much more serious commitment to international taxation, debt cancellation, a moratorium on privatisation and reclaiming of public services by the public. A genuine crackdown on tax havens would do more to fill the coffers of governments in both North and South than perhaps any other measure, as well as to help strangle international crime and terrorism", says Susan George, facilitator at the key dialogue on New Methods of Mobilising Resources.

Session Summary
Key Dialogue 4. New Methods of Mobilising Resources: Innovative Means for Development Finance

The aim of the dialogue on innovative means for development finance was to see what prospects exist for innovative means, what new types of financing are available for development finance, and where the international community lies within the many ongoing political processes. Bringing together experts from different parts of world, specialised in different matters, the dialogue was a showcase of "multi-stakeholderism". Even though there were several views on details, all the panellists agreed on that innovative means are not only a complex and controversial issue but also on that it is now time to start moving from the planning phase to more concrete actions and implementation.

The dialogue was chaired by Susan George, political scientist and member of the Helsinki Group. The other panellists included Oscar de Rojas (director of the United Nations Department of Economic and Social Affairs), Jacques Cossart (from Scientific Council ATTAC France), Herbert Oberhänsli (from Nestlé), Mauricio Gómez Lacayo (Vice Minister for Economic Relations and Cooperation) of Nicaragua), Carlos Tiburcio de Oliveira (Senior Adviser to President Lula da Silva of Brazil) and Miguel Rossetto (Minister of Agrarian Reform of Brazil).

In her opening statement, Susan George noted that during the past 30 years, there has been lot of discussion on the new, innovative means for development finance - it would now be time to move towards taking concrete steps. From her point of view, the innovative means for development finance have stepped in as it has been seen that the traditional financing is not sufficiently stable and regular.

Oscar de Rojas went briefly through the history of innovative means and concentrated on the political aspect of the discussion concerning them. He emphasised that even though this is a very controversial and sensitive topic, it is nevertheless on the present UN agenda - something that would have been hard to imagine 15 years ago. Reflecting the latest discussions from New York regarding the coming Major Event, de Rojas stated that no matter what happens in the Major Event, innovative means will stay on the global agenda.

Herbert Oberhänsli contributed to the discussion with his expertise from the private sector. He stated that there are three things that could be done: firstly, to develop the local private sector; secondly, to use resources that have not been previously used; and thirdly, to think about reshuffling of the resources.

In his opening statement, Jacques Cossart underlined the importance of creating the global public goods. In addition, he pointed out the difference between different actors: the advantages and disadvantages of the innovative means may differ depending on whether the actor is a state, an NGO or an individual.

Carlos Tiburcio de Oliveira briefed the audience about a research centre that aims at bringing more concreteness into the different ideas related to the Helsinki Process, including innovative means of financing development. Miguel Rossetto started his statement by noting that there is a close link between the innovative means for finance and the UN reform agenda. In order to be able to globally achieve the Millennium Development Goals (MDGs), the global community also needs new methods. Rossetto also drew attention to the importance of the coming WTO negotiations in Hong Kong in December 2005.

After the opening round, there were several questions from the audience, starting from the problematic relationship between debt relief and official development aid (ODA) and ending with concrete examples of success stories related to the innovative means of financing. The topic of innovative means was given more substance as the panellists commented on the questions.

In his closing statement, Mauricio Gómez Lacayo summarised the discussion by concluding that we need "multi-stakeholderism" not only at the global level but also at the local level. He proposed that the states should perhaps find solutions from the private sector, when struggling with insufficient resources. By redistributing and channelling the resources more efficiently, the global community could make significant achievements. He finally stated that the key to a better future is not only in the quantity of cooperation but also in its quality.