One of the limitations of the current international financial system is the relative inability to provide desired levels of international finance for development, says a report by the United Nations Conference on Trade and Development (UNCTAD) published today (6 October).
UNCTAD’s Trade and Development Report 2015, calls for radical reform of the international monetary and financial system to meet the demands of the new sustainable development era.
Alex Izurieta, senior economist in the Division on Globalization and Development Strategies of the organisation, told reporters in Brussels that financial instability remained a problem, and that despite abundant and even “incredible” liquidity, developing countries were struggling to access financing.
Official Development Assistance (ODA) continues to play a critical role in resource mobilisation, particularly for poorer and more vulnerable developing countries, the report says. Izurieta argued that what was needed was more specialised public institutions, more support for development banks, and that ODA needed to be supported.
However, the report notes that the trends in ODA are not encouraging, and that even though it has increased in the last decade, it was on average at 0.29% of the aggregate donor GNI in 2014, well below the desired level of 0.7%.
Public and private partnerships to a certain extent may help the financing of development projects, but Izurieta said that as a rule they were not generating more funding.
The report is quite sceptical on innovative financing schemes like blending of funds. “Discussions appear to ignore the long history of blended finance and have therefore avoided asking the questions “By whom, how and for what purposes?”, the report says.
“Private international finance markets tend to underinvest in key projects in developing countries”, the report also says, mentioning the “dangerous consequences for financial stability” of hedge funds.
These conclusions appear in sharp contrast with recent EU Commission statements.
In the broader context, the report stresses that the world economy remains vulnerable to the vagaries of money and finance. In spite of the various measures adopted after the crisis, these have failed to get to the grips with the systemic frailties and fragilities of a financialised world, the 190-page report states.
Developed countries need to combine monetary expansion with fiscal expansion, while developing countries need to build on regional and international initiatives with the aim of reducing the need of foreign exchange accumulation.
“If the developing countries have ways of exchanging in their own currency, they don’t need to accumulate reserves denominated in the currencies of the developed countries”, Izurieta said.
The UNCTAD official argued the need for an internationally-accepted mechanism to regulate debt. The report advocates that legal decision-making in debt restructuring cases should be governed by a body of international law agreed in advance, as part of an international debt workout mechanism.
Asked by EurActiv if the new Sustainable Development Goals (SDGs) would make any difference in the methodology of UNCTAD reporting, Izurieta said that work would continue in the same way.
“If we had been successful with the Millennium Development Goals, we probably would not have to decide on post-MDGs, and the truth is that success has been very limited. The new framework tries to develop the former, it’s a continuity of the same”, the UN official said.
Asked about the incidence of the big international free trade deals such as the Transatlantic Trade and Investment Partnership (TTIP), Izurieta said that the world didn’t have such treaties until 2005-2007, but the volume of trade had been growing at the rate of 11-12, even 13%.