Innovative financing for development
New York, October 13, 2010
France, speaking in her national capacity, supports the speech delivered by Spain on behalf of the presidency of the Leading Group on innovative financing, of which France is the Permanent Secretary.
My delegation would firstly like to thank the President and the Office of the Second Committee for organizing this event, which is the result of resolution 65/146, adopted for the first time last year. The report presented to us today reflects the huge amount of work carried out by the DESA [Department of Economic and Social Affairs], which my delegation would like to commend.
The issue of innovative financing for development, addressed for the first time in Monterrey in 2002, was born out of two observations. The first observation relates to the capacity of Official Development Assistance, or ODA, (which amounts to $129 billion) to achieve the objectives set at the international level. Limited in terms of volume, traditional ODA also poses qualitative questions: it fluctuates significantly from one year to the next, for example according to changes in government. Lastly, it is highly fragmented: according to the OECD there are more than 4,000 development agreements…
The second observation relates to the limitations of the market economy and private flows – both commercial and investment flows. Financial flows essentially benefit certain profitable and volatile sectors and certain countries, as we have seen again recently with the financial crisis.
At the same time, the international commitments in support of greater international solidarity (such as the MDGs, for example), the promotion of growth and the increasing need to protect global public goods (for example, adaptation to climate change), require a greater volume of capital flows that are more stable, more predictable and more sustainable.
Consequently, there is a place for mechanisms that make it possible to compensate for the failures of the market economy and traditional ODA. These mechanisms aim to respond to the major challenges of our time, whether with respect to food security, education or even healthcare.
These financing mechanisms are innovative for three reasons:
the first reason relates to the type of funding and the way in which it is collected: this funding is more stable and more predictable than ODA;
secondly, I stress that this funding is on top of ODA;
thirdly, this financing depends on globalized activities: the idea is that certain sectors (for example, transport, finance, tourism and communications) have benefited significantly from globalization and could in return contribute to development.
Final point: the governance of innovative financing. This doesn’t fall within the usual North-South relations but is part of a multilateral management strategy, through partnerships with private financing organizations or operators in the field.
There are currently five major categories of financing for development, generating $5 billion between them.
Market mechanisms (auctioning of resources with quotas and use of a fraction of such resources for development: e.g. CO2 auctioning as currently practiced in Germany).
Guarantee mechanisms: the International Finance Facility for Immunization (IFFIm), advance market commitments (AMCs) or guarantees of future purchase. We can also include pilot AMC funding for a new pneumococcal disease vaccine. These mechanisms influence the way resources are allocated over time (IFFIm) or create economic incentives (AMCs).
“Citizen” or voluntary contributions from individuals, companies and consumers. We can also include in this category policies aiming to lower the costs of migrants’ remittances and to optimize their use for development. Taxes based on globalized activities, set up in a coordinated way by a group of countries and whose use is jointly managed (financial transaction tax, air-ticket solidarity levy etc.).
Debt-management mechanisms: these include the so-called “debt to health” and “debt to nature” mechanisms, as well as initiatives aiming to take greater account of external shocks affecting developing countries.
Mr President, why do we need a financial transaction tax [FTT]?
Among the various existing options and mechanisms, the Leading Group found that the FTT was a particularly effective financing mechanism.
Financial transactions increased sevenfold between 2000 and 2007: currency transactions alone now amount to an estimated $4,000 billion. A tax of 0.005% on every monetary transaction of more than $1,000 would make it possible to generate more than $30 billion per year.
Many studies and analyses now demonstrate the technical feasibility of an FTT. More than 40 countries have already implemented a tax on financial transactions in one form or another. The question is therefore not so much one of technical feasibility but more a question of international coordination with the voluntary countries.
This tax also has a major ethical dimension. The finance sector is an economic sector that has particularly benefited from globalization but which is now subject to less tax than other economic sectors. As President Sarkozy recently reaffirmed, “when you purchase real estate no one objects to paying tax at the time of the transaction. When you purchase personal property or consumer goods no one objects to paying tax at the time of the transaction. Why is it that the only transactions that are never subject to tax are financial transactions?”
The question that arises is how to justify to the general public that one of the most “globalized” sectors doesn’t contribute in any way to international solidarity. Furthermore, given that these globalized activities would be adversely affected by greater economic and social instability as a result of a deterioration of the situation in developing countries, it’s not economically unreasonable to expect them to contribute to development financing. The goal of the FTT is therefore not to hinder the growth of these activities but to benefit from it.
As you know, the French government has been campaigning for this FTT for a long time, within the Leading Group as well as at the United Nations, the European Union and the G20. You have undoubtedly heard that the European Commission has proposed a draft directive on this topic to the European countries. In this draft directive, the European Commission estimates that the funding generated would amount to between €30 billion and €50 billion per year. The introduction of an FTT at the European level would represent a crucial step toward achieving a global consensus on the issue in a way that doesn’t have an impact on European competitiveness. Further discussions over the next few months will therefore be strategic in nature and we need to constantly bear in mind that these funds must be able to finance development. But we can already move forward without waiting for all of the countries to agree on an FTT: a declaration by the Leading Group calling for a financial transaction tax was signed by Japan, Brazil, Norway, Mali, Benin, Burkina Faso, Congo, Guinea, Mauritania, Senegal, Togo and this week by Ethiopia, through Prime Minister Meles Zenawi.
I would like to add that the FTT is a key priority in the agenda of the French G20 presidency. Announcements will be made on this at the Cannes summit.
In conclusion, France believes that even if there are several levels of action, [action at] the global level of the United Nations, which, by definition, addresses the challenges of global solidarity, remains essential. From the starting-point of Monterrey in 2002 we achieved, thanks to Brazil, a resolution on innovative financing in 2010. The UN has a key role to play in this issue; it must make proposals and help us respond collectively to the global challenges that we face:
financing for climate change adaptation, financing for the MDGs and perhaps soon the “Sustainable Development Goals”. The UN shouldn’t just mobilize in support of these causes; it must also provide us with the means to finance our collective commitments in a credible manner.
Thank you for your attention./.