Brief report by Katarina Sehm Patomäki and Marko Ulvila of a dialogue on new financial mechanisms that took place on Wednesday, 17 November 2004 at the Parliament of Finland

Background

In January 2004, in Geneva, the Presidents of Brazil, France, Chile, together with the Secretary-General of the United Nations, started an action program aimed at identifying innovative sources of financing. A technical group was set up to explore new sources of finance, such as taxation on certain sales of arms, taxes on financial transactions, voluntary and socially responsible investments and environmental taxation. The British proposal to establish an International Financial Facility was also under consideration by the Group.

In this context, President Luiz Inácio Lula da Silva of Brazil invited world leaders to a meeting, on September 20th in New York, to discuss the findings of the technical group and other contributions from governments and institutions, in the form of Action Against Hunger and Poverty. The ultimate objective of the meeting was to galvanize political support for the implementation of viable financing mechanisms, in an attempt to reach a consensus on possible avenues for effectively reaching the Millennium Development Goals by 2015. In the meeting also the policy briefing 'New Sources of Development Finance' by the WIDER institute was presented. The Summit in New York gathered an impressive participation of head of states, including the President of Finland, Tarja Halonen.

In Finland, the government has earlier this year adopted a new development policy, which aims at reaching the UN Millennium Development Goals (UN MDGs) through action by all policy sectors, thus stretching beyond development cooperation.

The initiative on Action Against Hunger and Poverty takes the debate on development finance forward and therefore deserves close examination and support.

Presentation

Marko Ulvila from NIGD (the Network Institute for Global Democratisation) opened and facilitated the dialogue. He pointed out to the recent developments in the debate on development financing by recalling the preparations and outcomes of the Monterrey conference on Financing for Development and emergence of fresh interest in new finance mechanisms. Besides the Brazilian initiative WIDER and OECD have made studies of the topic and focussed on similar initiatives.

Ambassador of Brazil in Finland Luiz Henrique Pereira da Fonseca made an introductory presentation of the Action Against Hunger and Poverty initiated by president Luiz Inácio Lula da Silva of Brazil. Ambassador Fonseca explained the personal experience of hunger and poverty of president Lula and his keen interest to change the situation in Brazil and globally. Lula has initiated a zero-hunger campaign to provide food security to the some 40 million Brazilians living in poverty (www.fomezero.gov.br).
On the international arena president Lula felt that poor countries should and need to be assisted to reach the MDGs, and the Action Against Hunger and Poverty-initiative was created in early 2004. In September the technical working group presented its report to the Summit in New York. It covered taxation of financial transactions and arms trade, an international financial facility, tax evasion, remittance's benefits, voluntary contributions and socially responsible investing. The September Summit was encouraging and the next steps are to mobilise political support in the preparation of the UN high-level meeting on the MGDs to be held in September 2005. See Ambassador Fonseca’s full speech

Rosa Meriläinen from the Finnish Parliament Group for Global Issues commented on the presentation by stating the importance of initiatives from the South in the current century to correct global power imbalances. She suggested the use of the Finnish EU presidency in the second half of 2006 to be used to advance the MDGs and related finance structures.

Kepa’s (the Service Centre for Development Cooperation) director Ville Luukkanen pointed to the dichotomy and contradictions in the domestic debates and policies regarding global issues. The recent report 'Finland in the global economy' by the office of the government’s cabinet, chose to ignore issues such as poverty and the environment and failed to provide a formula that could be also a model for developing countries.

Heikki Patomäki from NIGD (the Network Institute for Global Democratisation) focussed on the Currency Transaction Tax (CTT) element in the Brazilian initiative. He suggested a more ambitious and also practical formula to advance the tax that would address the systemic problems in the current international finance regime. The regime could be started by a coalition of the willing – rather than through universal agreement – that would create a separate, democratically governed institution for administering the tax.

Taisto Huimasalo from the Ministry for Foreign Affairs of Finland explained about the engagement of the government of Finland regarding issues of global development finance. He mentioned that some of the initiatives mentioned in the reports of the AAHP, Finland has already been supporting, some are under study and work is done also on some that are not included in the recent report, such as the UK initiative to bilaterally pay off multilateral debt of partner countries. The Helsinki Process and the follow-up of the ILO commission's report ‘A Fair Globalization’ on social dimensions of globalisation are some of the anchors of the debate and future action.

Representing the UNU World Institute for Development Economics Research (UNU WIDER), George Mavrotas introduced the process and content of the major study on new sources of development finance directed by professor A.B. Atkinson. The policy brief was published in September and the book released in New York earlier this week, on 15 November. It contains assessments of proposals around environmental taxes, the Tobin tax, a global lottery etc. In the study, the focus has been on the feasibility of the initiatives.

Inkeri Hirvensalo from the Ministry of Finance of Finland noted the good cooperation with the Foreign Ministry on issues of global development finance. She also referred to the conclusions of numerous World Bank reports that economic growth is a precondition for development. She continued by saying that at the moment the Ministry of Finance is going through and analysing various initiatives regarding international finance issues.

In the discussion the role of economic growth came up and several participants pointed out that the neo-liberal policies are not the only ones to obtain growth and that growth by the agency of the poor themselves brings more benefits. Also, it was suggested that competition between nations in practice means little more than tax competition. Such a spiral of tax competition leads to less tax and less tax incomes for the governments.

In his concluding remarks, Marko Ulvila highlighted three points that had emerged from the dialogue. First, the perspective of the hungry and the poor into the issued of global development finance as highlighted in the presentation of ambassador Fonseca and endorsed by several participants would provide a resource for clarity and growing political will. Second, the need for favourable domestic solutions both in the North and South is of great importance. Third, besides working on new finance mechanisms also the old ones need to be improved and past failures especially of international lending need to be corrected. Marko Ulvila concluded by noting that the next major landmark is the UN MDG Summit in September 2005 in New York and there is a need and scope for expanding and deepening the dialogue on new finance mechanisms.

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The dialogue was jointly organised by the Network Institute for Global Democratisation (NIGD) and the Finnish Parliament Group for Global Issues

Resources available on the Internet:

- Action Against Hunger and Poverty, initiated by Brazilian President Luiz Inácio Lula da Silva, see www.mre.gov.br/ingles/politica_externa/temas_agenda/acfp/index.asp

- OECD Development Centre Policy Brief 24: Innovative approaches to funding the Millenium Development Goals by Helmut Reisen, see www.oecd.org/dev

- UNU-WIDER study on New Sources of Development Finance: Funding the Millennium Development Goals, see www.wider.unu.edu

- A Fair Globalization: Creating Opportunities for All, by the World Commission on the Social Dimension of Globalization, see www.ilo.org/wcsdg

- A Draft Treaty for a Currency Transactions Tax, by Lieven A Denys and Heikki Patomäki, NIGD Discussion Paper 1/2002, see NIGD (Network Institute for Global Democratization), see nigd/ctt