Some time ago, I was invited to a seminar in Buenos Aires, Argentina, to share suggestions regarding development funding. All the participants, except for myself, came from Latin America. The seminar's goal was to find alternative means of development funding for Latin America. The construction of Banco del Sur (The Bank of the South) is an example of this. This funding organisation offers development assistance with conditionalities that suit developing countries better than those set out by the World Bank and IMF.

When Asia plunged into crisis in 1998, Japan and a few other Asian countries suggested the creation of a funding organisation, such as an Asian Monetary Fund. However, this proposal was never realised as it was rejected by the United States. This suggestion has been brought up once more in the current crisis. China, with the biggest monetary fund, might be expected to lead the way in the establishment of such an organisation. Aside from money, the following issues are considered to be an integral part of development funding.

Six years ago, in Monterrey, Mexico, hundreds of world leaders reached an agreement regarding development funding. This agreement focused on issues regarding trade, development aid, investment, payment of overseas debt, mobilisation of national resources and the reshaping of the international monetary architecture. In summary, the agreement addressed important matters related to development funding micro, small and medium scale enterprises (UMKM) in the countries receiving aid. Moreover, levels of commitment to development aid have been low amongst rich countries.

Data from the OECD shows that many countries fail to fulfil their promise to contribute 0.7 percent of their GDP. A political resolution is necessary to bring about improved qualitative and quantitative aid, as is an investigation into how large the funds transferred from the north to the south actually are. This should include the settling of overseas debt, which is considered to account for the majority of fund transfers from the poor southern countries to the rich northern ones.

Efforts to reduce overseas debt have not met the targets agreed on in Monterrey, where it was decided that 0.7 percent of rich countries' GDP's would be allocated to aid poor countries. . Moreover, the Millennium Declaration included an agreement to cancel the overseas debt of the poorest developing countries. For Indonesia, the duty of repaying internal and external debt through instalments still holds the country's funds hostage. In the country's 2009 State Budget Plan (RAPBN), which was delivered by President Susilo Bambang Yudhoyono recently, debt instalments now account for 15 percent of Indonesia's total budget. Of this US $ 59,000,00,000 is for the actual debt and US $ 110,000,000,000 is for the interest. The Government's debt currently stands at US $ 1,300,000,000,000, which exceeds the country's national budget of US $ 1,222,000,000,000.

For this reason it is necessary to find a comprehensive solution so that inherited debt will not be a burden for this generation or the next. There is a possibility of making a bilateral or multilateral request for a reduction from the creditors of overseas debt. As many past debts did not reach their targets, it is necessary for the Government to take wise precautions regarding overseas debt, in particular in terms of sum obligation. This is especially important if these banks have now switched hands. At the very least, the steps taken should profit the country and reduce debt.

Lastly, the Monterrey agreement mentioned that it is compulsory for developing countries to be included in standard setting bodies, which set the standards and codes of practice for the economy. The standards used in the global economy will affect developing countries when the world falls into crisis. In reality, the weaker the economy, the worse the effects of the crisis will be.

The implementation of these standards and codes will not be of any relevance if the Monterrey agreement is maintained and its implementation towards developing countries is carried out on a voluntary basis. However, in reality these standards and codes are consistently used by the IMF and the World Bank as conditionalities for aid.

In order to achieve the MDGs, developing countries are advised to decrease their dependence on external funding by increasing internal resources. In order to do this, fiscal reformation is needed, along with other instruments that can decrease the effects of the economic crisis. These instruments include an elective tax regime for transnational companies, ending corruption, avoiding capital flight and retrieving funds that have been stolen by corrupt officials and which have been deposited in other countries.

In terms of international trade, a change in the methods use to negotiate with the WTO is needed. Trade liberalisation must occur faster and should meet development needs. At the same time, developed countries must be requested to stop all farm export subsidies. The European Union, for example, has promised to stop all farm export subsidies by the year 2013, as a result of negotiations with the WTO. This is a step that should be implemented immediately and that should be adopted by other developed countries.
The role of the IMF and its involvement in the formulation of trade policies must change.  Meanwhile, the aid effectiveness agenda in OECD countries still uses the World Bank evaluations of the eligibility of organisations and a country's policy. This requires faster liberalisation as a measurement of good policy and good governance. It is assumed that this is responsible for ruining the markets and micro, small and medium scale enterprises (UMKM) in the countries receiving aid. Moreover, levels of commitment to development aid have been low amongst rich countries.

Data from the OECD shows that many countries fail to fulfil their promise to contribute 0.7 percent of their GDP. A political resolution is necessary to bring about improved qualitative and quantitative aid, as is an investigation into how large the funds transferred from the north to the south actually are. This should include the settling of overseas debt, which is considered to account for the majority of fund transfers from the poor southern countries to the rich northern ones.

Efforts to reduce overseas debt have not met the targets agreed on in Monterrey, where it was decided that 0.7 percent of rich countries' GDP's would be allocated to aid poor countries. Moreover, the Millennium Declaration included an agreement to cancel the overseas debt of the poorest developing countries. For Indonesia, the duty of repaying internal and external debt through instalments still holds the country's funds hostage. In the country's 2009 State Budget Plan (RAPBN), which was delivered by President Susilo Bambang Yudhoyono recently, debt instalments now account for 15 percent of Indonesia's total budget. Of this US $ 59,000,00,000 is for the actual debt and US $ 110,000,000,000 is for the interest. The Government's debt currently stands at US $ 1,300,000,000,000, which exceeds the country's national budget of US $ 1,222,000,000,000.

For this reason it is necessary to find a comprehensive solution so that inherited debt will not be a burden for this generation or the next. There is a possibility of making a bilateral or multilateral request for a reduction from the creditors of overseas debt. As many past debts did not reach their targets, it is necessary for the Government to take wise precautions regarding overseas debt, in particular in terms of sum obligation. This is especially important if these banks have now switched hands. At the very least, the steps taken should profit the country and reduce debt.

Lastly, the Monterrey agreement mentioned that it is compulsory for developing countries to be included in standard setting bodies, which set the standards and codes of practice for the economy. The standards used in the global economy will affect developing countries when the world falls into crisis. In reality, the weaker the economy, the worse the effects of the crisis will be.

The implementation of these standards and codes will not be of any relevance if the Monterrey agreement is maintained and its implementation towards developing countries is carried out on a voluntary basis. However, in reality these standards and codes are consistently used by the IMF and the World Bank as conditionalities for aid.

 

Ivan A. Hadar - National Project Coordinator.