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The State of ODA: Budget Constraints?

Towards the MDG+5 Summit

This statement, made at the NGO Hearings of the General Assembly in June 2005, addresses the state of Official Development Assistance (ODA) on the eve of the Millennium +5 Summit. While rich nations claim that increasing ODA is impossible due to budgetary constraints, Jens Martens points out that global arms spending topped $1 trillion last year. He also criticizes the proposed International Finance Facility (IFF) because it does not incorporate the voices of poor countries, and he concludes that the only feasible way of implementing the IFF is in combination with global taxes as a means for refinancing.

* Year 35 of 0.7 target
I am speaking on behalf of Global Policy Forum and the international Social Watch network. The year 2005 marks the 35th anniversary of the non-implementation of the target calling for rich countries to devote 0.7 % of their GNP as Official Development Assistance (ODA). This is not an anniversary that we want to celebrate, as many countries are further behind their commitments than they were 35 years ago.

Those Governments who fall short of the target often argue that they face severe budget constraints and for this reason have difficulties in fulfilling their commitments. But, last year military expenditures increased to more than 1 trillion US$, while ODA flows remained only at about 78 billion US$. In the light of these trends, we cannot accept the argument of “budget constraints”. The gap between military expenditures and ODA is a scandal – and we will not hesitate to call it a scandal.

In May 2005, the European Union adopted a binding timetable to increase ODA in average to 0.56 % by 2010 and 0.7 percent by 2015. We welcome this decision and ask other countries to follow the example of the EU. But now, Governments must move from commitment to concrete budget allocations. This must mean “fresh money” for development assistance, not accounting tricks such as adding debt relief figures to the ODA total. A few Governments even propose broadening the definition of ODA to help them reach the target. It would be extremely counterproductive and misleading if Governments try to fulfill their commitments, not by providing the necessary additional resources but by simply changing definitions!

* IFF doesn't mean additional money
One of the most prominent proposals for new financing instruments is the idea of an International Finance Facility (IFF). In general, we welcome every initiative to mobilize additional resources for development and to make ODA flows more stable and predictable. But the IFF proposal raises a lot of concerns and questions. In particular, we are concerned about lack of involvement of developing countries in the proposed decision making structure of the IFF, as well as the lack of civil society participation, and the problem of additional conditionalities, imposed to meet the interests of the donor countries.

But above all, the IFF doesn’t intend to raise additional money but aims only to “frontload” ODA. Through the IFF, Governments could mobilize up to 500 billion US$ in the next 10 to 15 years, but they would have to repay afterwards 720 billion US$ or even more to investors on the international financial markets. Without refinancing mechanisms, this would lead to a sharp decrease in ODA flows after the year 2015.

But, even if the Millennium Development Goals (MDGs) have been achieved by this date, hundreds of millions of people will still be living in extreme poverty. If the net flows of ODA decrease by then, these people will suffer most. Therefore, we can support the IFF proposal only – if at all – if it is combined with specific means of refinancing, particularly in the form of international taxes or user fees.

* Weak language on innovative financial instruments
This is one of many reasons why we ask governments to make progress on innovative financial instruments. There is an urgent need of more predictable and reliable financial flows, not only in order to finance development, but also to strengthen the funding basis of the United Nations and the provision of Global Public Goods.

Many good proposals are on the table. The proposed taxes and fees would not only provide additional resources, but also help to stabilize financial markets and reduce negative effects on the environment. Therefore, we call on Governments to establish internationally coordinated taxes and user fees, particularly a currency transaction tax, a carbon tax, and a tax on air travel.

We regret that the draft outcome document of the GA President is extremely weak in this regard. In paragraph 14 Governments shall only – and I quote
“take note with interest of international efforts, contributions and discussions aimed at identifying innovative and additional sources of financing for development.”
This language fails to improve on the vague decisions of the Copenhagen Summit for Social Development on this issue, taken ten years ago.

The Major Event in September 2005 provides a unique opportunity to make progress in our joint effort to mobilize the necessary means to end poverty and promote sustainable development. Therefore, it would be very disappointing, if Governments could not do more than just “take note with interest” (to quote again).The time is long past for Governments to discuss and take note. In September, Governments must decide, and they must take action.

(Posted: 3 July 2005)

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