United Nations E/2004/50

Economic and Social Council Distr.: General

8 April 2004

Original: English

Special high-level meeting

26 April 2004

Coherence, coordination and cooperation in the context of

the implementation of the Monterrey Consensus
Note by the Secretary General*

Summary
The present note provides background information and raises a number of
questions (highlighted in bold type) for consideration at the 2004 special high-level
meeting of the Economic and Social Council with the international financial and
trade institutions in relation to the three themes selected to focus this year’s
discussion: (a) impact of private investment and trade-related issues on financing for
development; (b) the role of multilateral institutions in reaching the Millennium
Development Goals; and (c) debt sustainability and debt relief. The first theme
covers the following three sub-themes: investment climate and sustained economic
growth, including the role of the private sector; external capital flows, including
foreign direct investment; and trade-related issues. The second theme also covers
three indicated sub-themes: monitoring the Millennium Development Goals; the
poverty reduction strategy paper process and other development tools; and financing
the Millennium Development Goals, including new and innovative sources. The
section on the third theme, debt sustainability, is divided into two sub-sections: one
related to heavily indebted poor countries and one addressing issues relating to
middle-income and other countries not included in the category of heavily indebted
poor countries.

* The present note has benefited from consultations with staff of the major institutional
stakeholders in the financing for development process and other relevant agencies of the United
Nations system. Responsibility for the contents of the note, however, rests solely with the United
Nations Secretariat. The note was submitted for processing on 8 April 2004, due to the fact that
the specific issues on which the Economic and Social Council would focus the meeting had not
been selected before the middle of March 2004.

04-30537 (E) 220404

*0430537*
E/2004/50

I. Introduction
1. Many of the concerns highlighted at the special high-level meeting of the
Economic and Social Council with the Bretton Woods institutions and the World
Trade Organization in April 2003 are still present today, in 2004, although to
differing degrees of intensity. The global economic outlook has improved, despite
the dampening effect on confidence of recurring threats to global peace and security.
An acceleration of growth in all regions of the world is expected in the current year.1
On the economic front, the challenge could be considered to be three-fold:
(a) to maintain the growth and development momentum while ensuring that all
countries, in particular low-income countries, grow at a satisfactory pace; (b) to
unwind global imbalances in a way that does not cause serious disruption in either
developed or developing countries; and (c) to ensure rapid implementation of the
domestic and international actions agreed to in the Monterrey Consensus, adopted at
the International Conference on Financing for Development in 2002, in order to
achieve sustained development worldwide. In fact, at key multilateral forums in the
last 12 months, the international community has emphasized the political will that is
required for the rapid implementation of the “leading actions” agreed to in the
Consensus.
2. The Monterrey Consensus embodies the main orientations for domestic and
international policies and institutional reforms required for long-term and equitable
development. A coherent implementation of the Consensus is critical to promote
both mobilization of domestic resources and net financial transfers to developing
countries, to increase productive investments and to enhance social
programmes. The note by the Secretary-General for last year’s special high-level
meeting (E/2003/50) identified eight areas in which enhanced coherence among the
key leading actions of the Monterrey Consensus was essential to improved
outcomes: (a) a shared vision of development by national and international
authorities at country and regional levels; (b) national efforts complemented by
international efforts; (c) increased international financial flows accompanied by
enhanced and more predictable access for exports; (d) enhanced market access for
exports accompanied by the development of domestic production capacities;
(e) increased private flows accompanied by measures that make the flows more
stable than in the past; (f) volume and effectiveness of official development
assistance (ODA) to be enhanced simultaneously; (g) design of national and
international policies, including debt restructuring, taking full account of possible
long-term as well as short-term consequences; and (h) improved and more
democratic governance at the national level complemented by strengthened and
democratic governance at the international level.
3. Today, two years after the International Conference on Financing for
Development strengthening support for development efforts at both national and
global levels remains a key task of the international community. Developing
countries have made significant efforts in the main areas outlined in the leading
actions of the Monterrey Consensus, including “Mobilizing domestic financial
resources for development”.2 Recent multilateral assessments show an improved
trend in developing country policies, particularly in four major areas: economic
management, including macroeconomic and structural policies; measures and
programmes for human resources development and social inclusion; policies for
environmental sustainability; and enhanced public management and institutional

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development for improved governance.3 While not every country has made
sufficient progress, and while in a few countries efforts have been scant or the lack
of political will or special interests have prevented required reforms, evidence is
strong that in many developing countries positive steps have been taken in the
direction agreed to in the Consensus.
4. The complementary efforts by industrial countries have generally been uneven,
as reflected in the following sections of the present note. Official development
assistance (ODA), on the whole, has increased and progress has been achieved
towards better donor coordination. Nevertheless, a large gap remains before the
estimated levels required to achieve the Millennium Development Goals in 2015 can
be attained. On the multilateral trade front, after the setback at the fifth Ministerial
Conference of the World Trade Organization, held at Cancún, Mexico, from 10 to 14
September 2003. 4 The negotiations under the Doha Work Programme have resumed
in 2004. As discussed later, a coherent approach to sustained development and
poverty reduction requires simultaneous advances in public and private financial
resource availability and access to trade.
5. Strengthened cooperation and coordination efforts are also required for
improved global governance. A smooth unwinding of global imbalances requires
coherent macroeconomic policies among major industrial economies. Lack of
coherence can lead to outcomes that are in fact worse for those countries, as well as
for developing countries. Insufficient cooperation and coordination could also lead
to a sudden loss of confidence of main economic agents, an escalation in real
interest rates and increased volatility of exchange rates among reserve currencies.
Not only would international trade and growth dynamics be affected adversely, but
global financial instability would also increase, with negative effects on
development. Thus, it is critical that the major industrial economies, in formulating
policy, take into account the eventual consequences of their decisions on all
countries, including developing countries. 5 In the summary of the special high-level
meeting of 14 April 2003, the President of the Economic and Social Council
underlined that strengthened participation of developing countries in decision-
making processes on economic policies, particularly in the international financial
institutions, was an issue of central concern (see A/58/77-E/2003/62). Later, in
October 2003, in his summary of the High-level Dialogue on Financing for
Development, the President of the General Assembly presented the main views of
the participants regarding steps to improve global economic governance, including
greater use of the United Nations (A/58/555, para. 39).
6. The concerns set out in the above paragraph have led the members of the
Group of Eight to widen their consultations on some of the issues on its agenda with
a selected number of developing countries. Within the Bretton Woods institutions,
the issue of voice and participation of developing countries has become part of the
agenda for the deliberations of the Executive Boards, the International Monetary and
Financial Committee and the Development Committee of the International Monetary
Fund (IMF). The subjects under discussion cover measures to enhance the voice and
to achieve more effective participation of developing countries and countries with
economies in transition in the work and decision-making in IMF and the World
Bank. In this regard, the aforementioned committees, at their meetings in Dubai in
September 2003, decided to continue efforts on these issues. The Boards of
Executive Directors were asked to report on all aspects of the issue of giving voice
to developing countries at the 2004 annual meetings. The Development Committee

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also agreed to consider a road map on procedures and next steps at its 2004 spring
meeting. 6
7. What follows is an analysis and review of the three themes chosen for
discussion in the round tables at the meeting on 26 April 2004. Since areas (a) and
(h) of the eight areas requiring enhanced coherence, identified in paragraph 2 above,
have been covered in the Introduction, the remaining six will be considered jointly
with the corresponding subjects addressed in more detail in the following three
sections.

II. Theme 1: Impact of private investment and trade-related

issues on financing for development
Investment climate and sustained economic growth, including the
role of the private sector

8. Domestic resources were recognized in the Monterrey Consensus as the main

source of financing for development in developing countries and countries with
economies in transition. In this regard, sound fiscal management, judicious use of
public resources and policies that facilitate domestic savings and the mobilization of
private investment by promoting entrepreneurship and the development of the
private sector are critical in economic and employment growth and poverty
reduction. The importance of this linkage was stressed at the High-level Dialogue on
Financing for Development 7 and underscored by the Commission on the Private
Sector and Development in its recent report to the Secretary-General.8
9. The experience of developing countries indicates that for economic growth to
benefit the entire population, the development of small and medium-sized
enterprises is a fundamental component of private sector growth. At the same time,
continued efforts are needed to implement employment and social policies that
support poverty eradication, enhanced social protection, gender equality and fair
income distribution. To that end, coherence and coordination in economic and social
development policies, as embodied in national development strategies, is essential.
10. National efforts have been made in a significant number of countries in
different areas of institutional reform aimed at creating an enabling environment for
domestic as well as foreign private investment, but these efforts need to be sustained
and enhanced. 9 Measures to improve governance include: increased transparency
and accountability; strengthened anti-corruption legislation and implementation;
measures to combat money-laundering and tax evasion; rule of law; an impartial
judiciary; well-defined property rights; and effective regulatory systems. Enhancing
official oversight of corporate governance and adherence to accounting and auditing
standards protect both investor rights and the public interest and are integral to
strengthening the functioning of the private sector. Widening and solidifying
national participatory decision-making processes contribute to mobilizing broad-
based domestic political support for enabling policies and fostering a strong
democratic and inclusive policy-making system. In addition, continued progress in
ending conflict and building peace and security is essential for providing a
supportive environment for private investment.

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11. Institutional reform is a long-term process, dealing with a wide-range of policy

areas. Past experience suggests that, in order to achieve results, developing and
transition economies may need to prioritize and sequence their reform policies, as
developed countries have done, based on their capacity, specific circumstances and
goals.
12. The adoption of the United Nations Convention against Corruption in
December 2003, which provides a new set of standards and measures to promote
international cooperation and, inter alia, recognizes the importance of repatriating
national assets lost through corruption, is an example of recent efforts in
international and regional cooperation to improve governance. The peer review
mechanism on economic and political governance within the New Partnership for
Africa’s Development was made operational in February 2004; the challenge is to
achieve more broad-based participation, in addition to the current 16 participating
countries in this mechanism, to maximize its effectiveness.
13. Experience in both developed and developing countries underscores the
importance of sustained economic growth and stability to private investment. While
significant progress has been made in improving macroeconomic stability in
countries with developing and transition economies in the last decade, they continue
to remain vulnerable to shocks from the global economy. To mitigate the effects of
external shocks, and to promote stability in economic growth and social and
infrastructure expenditure over the economic cycle, the need for these countries to
implement macroeconomic policies based on a medium term time frame that enables
them to use counter-cyclical macroeconomic policies is increasingly recognized.
This promotes the coherence between short-term and long-term policies to foster
sustained economic growth. But further effort is needed in many countries in
macroeconomic policy reform, public debt management, reform in the tax code and
administration and the formulation and implementation of medium-term fiscal
frameworks for public expenditures. For their part, major industrialized countries
have an important role to play in improving policy coherence and coordination to
promote global economic growth and stability. In this regard, they must consider the
impact of their policies on developing countries, as discussed above.
14. An enabling environment for investment and private sector development are
also supported by the strengthening of physical infrastructure, including information
and communication technologies (ICT) and the development of human resources. In
many countries, these expenditures have declined in the recent global economic
downturn or following specific financial crises. Therefore, the above-mentioned
fiscal management reform and the mobilization of additional investment in these
areas are urgently needed.
15. In addition, the importance of a sound and effective financial system to the
development process is well proven. There is growing recognition that inclusive
financial systems that are accessible to small and medium-sized enterprises,
microenterprises, the rural population, women and the poor are conducive to broad-
based private productive activities. Many countries have continued their efforts in
financial regulatory reform to strengthen this sector. Further assessment and reform
of the regulatory system and financial policies with a view to reducing barriers to
financing for many segments of the population will contribute to building an
inclusive system. The crucial role that commercial and specialized financial
institutions, including development banks, housing banks, credit unions, pension

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funds and insurance companies, can play in financial sector development and private
sector development in all countries, within an appropriate regulatory, prudential and
supervisory framework, must be kept in mind.
16. Development experience indicates that a system of fair and transparent rules
on competition among firms and on taxation and reduced barriers to the
establishment of new firms, in particular small and medium-sized enterprises, foster
the development of the private sector. A reassessment of the regulatory and tax
systems of developing and transition countries aimed at “levelling the playing field”
can greatly improve the investment climate. Facilitating the development of
ancillary business services can complement these efforts by supporting the
operations of small and medium-sized enterprises and improving their access to
financing.
17. At the same time, coherent and coordinated support from developed countries
and multilateral organizations is critical to the policy efforts of countries with
developing and transition economies. Financial and technical assistance in capacity-
building in the relevant policy areas in these countries provide critical support for
domestic policy reform and implementation. One good basis for further efforts in
this area is the poverty reduction strategy paper process. In addition, increased
export access to developed country markets improves prospects for growth of the
private sector. Promotion of technology and skills transfer from industrialized
countries through investment and trade is of high importance for the development of
a diversified and technologically dynamic private sector. Moreover, experience in
the last decades suggests that more streamlined conditionalities of multilateral
organizations and other donors, multilateral agreements fully supportive of national
development strategies and more flexibility for counter-cyclical national
macroeconomic policies are also needed.10 Donor flexibility in this regard may be
necessary for low income countries.

Questions

18. What more can be done to stimulate increased public and private savings
in developing countries? What approaches can be used to address the
increasing needs of public expenditures in education, health and infrastructure
while increasing private investment in productive sectors? How can national
development strategies and poverty reduction strategy papers focus more
attention on the Millennium Development Goals and on the coherence of
macroeconomic policies and general development policies? Should there be
more space for expanding multilateral lending in a counter-cyclical context?
How can multilateral agreements in trade, finance and other areas ensure that
developing countries have adequate policy space to improve technology and
skills, enhance the dynamism of their private sector and accelerate economic
growth?

External private capital flows, including foreign direct investment

19. The Monterrey Consensus emphasizes the vital complementary role of private
international capital flows, particularly foreign direct investment, in financing for
development. The importance of national and international efforts to increase these

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flows to countries with developing and transition economies while reducing their
volatility and enhancing their development impact was reaffirmed at the High-level
Dialogue on Financing for Development and by the General Assembly in its fifty-
eighth session. 11
20. Private capital flows to developing countries have declined sharply since the
late 1990s. Although they have shown signs of some recovery during the past year,
they remain considerably below average levels registered during the first half of the
1990s. Short-term capital flows have been volatile and pro-cyclical. Foreign direct
investment (FDI) has been essentially the only source of net private inflows to these
countries since the Asian financial crisis. After declining strongly in 2002, FDI in
developing countries stabilized and is expected to rebound in 2004, although it
remains very low or negligible in many developing countries.
21. National policies that create an enabling environment for domestic private
investment are also conducive to international private capital flows. The
aforementioned national policies in this regard have yielded results in improving the
investment climate in countries with developing and transition economies, although
sustained efforts are essential. There have been increasing efforts in information
collection and dissemination by both the public and private sectors aimed at
improving the quality and availability of relevant information for investors, which
can significantly contribute to reducing risk. In addition, bilateral investment
treaties, which have an important role to play in reducing political and legal risks
involved in investing in these countries, have grown steadily and embody more
comprehensive obligations that can have more far-reaching impact. Bilateral double
taxation treaties have also increased and are important instruments in helping to
reduce undue tax burdens on investors while allocating taxes between home and host
country governments. Both types of treaties can enhance the attractiveness of a host
country to foreign investors if complemented by favourable economic and
institutional conditions.
22. As discussed above, the macroeconomic policies of major industrialized
countries have a direct effect on global economic growth and stability and on capital
flows to countries with developing and transition economies. International measures,
including cooperation and partnerships involving donor and recipient countries, the
private sector and multilateral organizations, are also important in promoting
investment flows. The Cotonou Agreement between the European Community and
its member States and the members of the African, Caribbean and Pacific Group of
States sets out a comprehensive set of home country measures, detailing provisions
related to investment promotion, investment finance and support and investment
guarantees. International financial institutions and developed countries have
mechanisms for mitigating the risk of investing in developing and transition
economies, including the provision of officially supported export credits,
arrangement of risk guarantees and funding of feasibility studies, which have been
effective, to varying degrees, in helping to promote external capital flows to these
countries. A review of these measures, with a view to shedding light on the relative
effectiveness of different measures, could help to identify areas of greater emphasis
and innovative approaches. 12
23. Regional and bilateral arrangements promoting integration in trade and
financial cooperation have been found to help attract external capital flows. Such
arrangements have increased substantially in the last several years, and it is

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important that they be coherent with multilateral agreements. As some middle-

income countries have become significant international investors, these agreements
can help to expand their potential as important sources of foreign direct investment
in developing and transition economies. Furthermore, international support, through
financial and technical assistance, for regional development initiatives, such as the
New Partnership for Africa’s Development and other regional efforts, can also help
to bolster external capital flows to developing regions.
24. In addition to increasing FDI flows to developing economies, there is general
agreement that it is also important to ensure that the resulting development benefits
are maximized. In his report on the implementation of the Monterrey Consensus
(A/58/216), the Secretary-General stressed that national policies should provide
incentives to FDI that maximizes technology transfer and improves the domestic
value added of exports, in particular the creation of new jobs. Efforts have been
made by some home country Governments in this connection, but continued efforts
are needed. Further analysis of existing and additional proactive measures in home
and host countries would help to identify coherent and effective measures in this
regard, taking into account, inter alia, their budget costs. With the growing number
and scope of the above-mentioned investment and double taxation treaties, parties to
these agreements can also pay greater attention to their development dimensions.
Moreover, consultations between international or regional financial organizations,
Governments and the private sector in both home and host countries have been used
to exchange views on policies and private sector expectation. This mechanism can
be used more intensively to help attract private capital flows to developing countries
and strengthen their development impact.
25. Remittances from workers to their home countries, which have increased
substantially in the last few years, becoming the second largest source of financial
inflow to developing countries after FDI, are nearly 40 per cent greater than all
official development assistance (ODA). They are also more evenly distributed
among recipient countries than private capital flows, more stable and may possibly
be counter-cyclical. Recognizing the importance of remittances as a source of
finance, developing countries, at the Doha negotiations, have raised the priority they
place on the issue of temporary movement of natural persons (mode 4 in the
definition of services trade and modes of supply of the World Trade Organization) to
supply services (see para. 32 below). As remittances provide resources for
consumption as well as investment in small and medium-sized enterprises or
microenterprises, increasing efforts have been made in developing countries and in
cooperation with developed countries to reduce the cost of remittances and to
channel funds to development-oriented investments. International agreements on
facilitating legal, long-term migration can also enhance the flow of remittances to
developing countries.

Questions

26. How can the provision of information for potential investors in developing
countries be strengthened? How should the official sector better mitigate the
risks facing private investors in developing countries? What additional
measures can be undertaken in home and host countries to attract FDI that will
enhance technology transfer, spill over to domestic industry and improve the
domestic value added of exports? How effective have public/private

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partnerships been as a mechanism for the provision of investment in developing

economies? Many business associations, civil society and other entities and
stakeholder groups have proposed corporate social responsibility guidelines to
address the role of domestic and foreign enterprises in contributing to attaining
development, social and environmental objectives. Should the diverse approach
of these codes of conduct or principles be integrated into a coherent set of
guidelines and standards? How can international cooperation in finance and
trade be made coherent in promoting worker remittances to spur investment?

Trade-related issues

27. The Monterrey Consensus recognizes the potential of international trade as an

engine for development and that, in order to harness this potential, it is imperative to
achieve a multilateral agreement on trade liberalization that benefits all countries,
taking into account the needs and interests of developing countries. The Doha work
programme includes, inter alia, negotiations on agriculture, services, market access
for non-agricultural products, trade-related aspects of intellectual property rights,
World Trade Organization rules, a set of development-related issues, in particular
special and differential treatment, and implementation issues and concerns.
Importantly, it was agreed to seek to place the needs and interests of developing
countries at the heart of the work programme. In agriculture, for example, members
committed themselves to comprehensive negotiations aimed at substantial
improvements in market access, reduction of, with a view to phasing out, all forms
of export subsidies and substantial reduction of trade-distorting domestic support.
The Doha negotiations, therefore, present a challenge to developed countries to
implement trade policies that are coherent with development policies by increasing
market access for developing country exports to complement their need for
increased capital inflows.
28. After the impasse in the negotiations on the Doha agenda at the fifth
Ministerial Conference of the World Trade Organization in Cancún in September
2003, there was an agreement on the urgent need for the negotiations to be resumed.
Accordingly, the negotiating bodies on agriculture and market access for non-
agricultural products met in March 2004 and other negotiating bodies have also
commenced work. On agriculture and market access for non-agricultural products
there are suggestions that frameworks be established by mid-2004 to facilitate
further detailed efforts at advancing the negotiations and the promotion of
modalities for commitments. There is recognition that restoring the stalled Doha
round and bringing about its successful conclusion requires exertion of political
will, good faith, cooperation and compromise by all parties. The processes and
decision-making framework also need to be inclusive, transparent and democratic.
At Cancún, the developing countries demanded that their views be taken into
consideration in the negotiation process, as reflected in the formation of issue-based
alliances, including the Group of 20 and the Asian, Caribbean and Pacific
States/African Union/least developed countries group. In this regard, the
marginalization of the least developed countries, landlocked countries and small
economies, including small island developing States, in world trade underscores the
importance of addressing their particular needs.
29. There is a widespread view that agriculture negotiations need to progress
before negotiations on market access for manufactured goods and services and other

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issues can move ahead. To enhance benefits of development, trade agreements need
to be consistent with the capacities and development objectives of developing
countries and provide for special and differential treatment as mandated in the Doha
Declaration. The European Union’s offer to eliminate subsidies on products of
interest to developing countries and the recent United States proposal to eliminate
agricultural export subsidies by a certain date and substantially decrease and
harmonize levels of trade-distorting domestic support offer prospects for progress in
this area.
30. Many developing countries, including the least developed countries, depend
heavily on a few commodities that are subject to large fluctuations in demand, as
well as to decline in long-term prices. This places importance on addressing the
issue of commodities, including the Cotton Initiative of some African countries.13
Because of the volatility of world markets, efforts have been made to assist
developing countries in the use of risk management, financial instruments and
export diversification programmes to mitigate shortfalls in export earnings, and
these efforts should be continued. However, there is still no adequate solution to the
problem in sight and relevant international commodity-related counter-cyclical
financing facilities are also lacking. 14
31. Most developing countries have indicated they are not yet convinced of the
potential gains to them from the World Trade Organization disciplines on the
“Singapore issues”, which could give rise to significant implementation costs and
would divert resources and political attention away from more important issues. The
willingness of the European Union to remove competition and investment from
negotiations and the recent United States suggestion to focus negotiations only on
trade facilitation open a new avenue for consultations.
32. Securing increased participation of developing countries in international trade
in services is becoming increasingly important from both a development and a trade
perspective. The potential contribution of temporary movement of natural persons
(mode 4) in the services agreement to supply services has been identified by
developing countries as crucial to the expansion of their export earnings and to
poverty reduction. This suggests that constraints on the temporary movement of
service suppliers need to be addressed in the negotiations through a specific
commercially meaningful commitment. Outsourcing of services through cross-
border mode of supply (mode 1 in the definition of services trade and modes of
supply of the World Trade Organization) is an increasingly important area of interest
to developing countries.
33. The challenge for developing countries remains how to integrate into the world
economy on terms coherent with their development priorities. Central to this is the
need to identify development strategies and national policies that enhance their
capacity to benefit from trade liberalization and increased market access. The Trade
Integration Mechanism proposed by IMF and the strengthening of its capacity to
provide support to countries experiencing exogenous shocks are aimed at facilitating
this process. In addition, the implementation of trade liberalization involves
considerable adjustment, which entails short-term economic and social costs for all
countries. Therefore, in developing countries, proper sequencing of commitments
and synergy of national policies, including those aimed at diversification of exports
into higher value added products and increasing competitiveness, need to be
supported by adequate financial and technical assistance to build capacity and social

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safety nets. The Integrated Framework for Trade-Related Technical Assistance to

least developed countries and the Joint Integrated Technical Assistance Programme
launched by the International Trade Centre, UNCTAD and the World Trade
Organization are examples of such support. International technical assistance in
institutional and capacity-building appropriate for other developing countries is also
needed.
34. Almost all members of the World Trade Organization currently participate in
or are actively negotiating regional or bilateral trade agreements, and the pace has
accelerated since the launch of the Doha negotiations. Such efforts can be beneficial
in terms of trade liberalization and development when they are coherent with the
multilateral trading system. Therefore, many countries and multilateral authorities
have underscored the importance that these agreements be building blocks, and not
stumbling blocks, to a fully multilateral trading system.

Questions

35. How can the forthcoming negotiations of the World Trade Organization
and the eleventh session of UNCTAD contribute to a successful conclusion of
the Doha development agenda? How can the trade policy reviews of the World
Trade Organization contribute to enhancing the coherence of member policies
with domestic and global development objectives, including those contained in
the Monterrey Consensus, and attaining the Millennium Development Goals?
Given the vulnerability of many developing countries to volatility in
international trade and financial flows, what combination of increased official
balance of payments financing and specific trade measures could mitigate
instability in these countries? Should international financial mechanisms used
to mitigate the temporary financial distress of low-income commodity-
dependent countries during cyclical downturns be reconsidered? How can the
coherence of bilateral and regional trading arrangements with the multilateral
system be ensured?

III. Theme 2: Role of multilateral institutions in reaching the

Millennium Development Goals
Monitoring the Millennium Development Goals

36. Monitoring progress towards the Millennium Development Goals has received
increased attention in the past two years, with greater emphasis being given to the
mutual responsibilities and accountability involved in achieving the Goals. Since the
adoption of the Millennium Declaration, the Monterrey Consensus and the
Johannesburg Programme of Implementation, the international community has
established defined responsibilities for reporting on progress towards the
Millennium Development Goals. For his part, the Secretary-General is required to
report annually to the General Assembly on the implementation of the Millennium
Declaration, including global and regional progress towards achievement of the
Goals. 15 In order to fulfil this responsibility, 48 well-defined and accepted indicators
were established to monitor progress. Data pertaining to each indicator are collected
by the specialized agency or organization concerned. Such data conform to the

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international standards established by the agency or organization, to a common

regional classification and, where available, to a common base year of 1990. This
framework of targets and indicators was accepted by the General Assembly and
serves as the basis for a Millennium Indicator Database, which is maintained by the
Statistics Division of the Department of Economic and Social Affairs.16 A summary
of these data, showing, wherever possible, each indicator by region and for the base
and latest year, is contained in the annexes to the reports of the Secretary-General
referred to above.
37. For their part, the World Bank and IMF, with the assistance of other agencies,
are monitoring progress in implementing the national and international policies and
actions deemed necessary for the achievement of the Millennium Development
Goals. This assessment of progress in policy will be reflected in an annual Global
Monitoring Report, to be produced each spring. The first such report will be
considered by the Development Committee in April 2004, immediately prior to the
meeting of the Economic and Social Council.
38. There has also been a major effort to conduct similar work on the Millennium
Development Goals at the country level, primarily through the preparation of reports
by interested countries with developing and transition economies. This work has
been supported by the United Nations Development Programme (UNDP) and the
United Nations country teams and financed through the Millennium Trust Fund. As
of the end of January 2004, 58 reports17 covering 51 countries had been prepared
and another 32 reports were expected in the first quarter of 2004. Of the 51
countries, 18 are least developed countries and 7 are low-income countries, but the
reporting effort is now more concentrated on the more disadvantaged countries.
Reporting at the country level has proven to be a useful tool for raising public
awareness of trends, disparities and progress towards the Goals and, by involving
the participation of all stakeholders, for helping Governments to translate the
Millennium Development Goals into national priorities and locally relevant
visions. 18
39. As a result of the increased data-collection effort, it has become apparent that
there are gaps in the international statistical system in some relevant areas and that,
even where data and data standards are well-defined, there is inadequate statistical
capacity in many developing countries and countries with economies in transition to
collect and assemble the necessary data. The monitoring has also served to underline
the interrelationship and interdependency between the goals and the actions
necessary to achieve them as well as between the various data being assembled for
monitoring purposes. The adoption of the Millennium Development Goals has
therefore brought increased international attention to overcoming statistical
weaknesses at both the national and international levels and improved statistical
cooperation within national Governments and among the multitude of international
agencies involved in monitoring progress towards the achievement of the Goals.
40. Recognizing the need for statistical capacity-building and improved statistical
literacy in developing countries, based on wider coverage of data, improved
accessibility to information and strengthened skills in data analysis, a global action
plan proposed by the World Bank was agreed at the second International Roundtable
on Managing for Development results, held in Marrakesh, Morocco, on 4 and 5
February 2004. The plan recommends six sets of actions aimed at achieving tangible
and sustainable improvements in national and international statistical capacity.19 The

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annual incremental cost of implementing these actions has been estimated at $115 to
120 million for national statistical systems, with an additional $24 to 28 million a
year required to improve the international system. The plan also notes that external
financing is necessary for many poor countries.
41. The Monterrey Consensus recognized that stronger actions by developing
countries must be supported by developed countries in a global development
partnership if the Millennium Development Goals are to be achieved. However, in
contrast with the results to be achieved by the developing countries, there is no time
frame for the targets set for the developed countries and, apart from the global
monitoring being undertaken under the leadership of the United Nations, little
monitoring of progress in developed countries. To fill this vacuum, developed
countries have begun to issue reports assessing their own national efforts to fulfil
their commitments in relation to Millennium Development Goal 8. The first report,
issued by Denmark, assesses a wide range of areas, including the quantity and
quality of aid, harmonization of aid (in the context of the Rome Declaration on
Harmonization of February 2003), agricultural subsidies, debt relief and access of
developing countries to modern technologies. 20 A number of other developed
countries are considering the issuance of similar reports.

Questions

42. How may the Millennium Development Goals country reports be used to
promote deeper understanding of the long-term benefits of development and
poverty reduction policies by the general public in both developed and
developing countries? How can current international and national efforts in
assessing coherence and harmonization of developed country policies be
coordinated to strengthen monitoring and assessment of their efforts to fulfil
their commitments to Goal 8? Since education of women is critical to long-term
development and a significant number of countries are lagging in attainment of
the Millennium Development Goals in education, what more can be done at the
national and international levels to accelerate progress? How can multilateral
institutions enhance coordination and cooperation in their statistical capacity-
building efforts to maximize their effectiveness and contribute to overall
capacity-building in decision-making in key policy areas in developing
countries and transition economies?

Poverty reduction strategy papers and other development tools

43. A shared vision of development by national and international authorities at the

country and regional levels is key to coherent policy formulation and international
cooperation efforts. While there has been a significant convergence of views on
several of the principal elements, objectives and policy directions that constitute the
desired development strategy, there has also been an increasing recognition of the
importance of effective ownership and of the fact that countries with different
structural conditions can take diverse yet still successful approaches to achieving
sustained development. In low-income countries, where the main policy objective is
poverty reduction, the poverty reduction strategy papers have become a key strategic
and implementation vehicle to reach the Millennium Development Goals.

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44. Translating the Millennium Development Goal targets into action requires an
operational framework at the national level. For the poorest developing countries,
the poverty reduction strategy papers play a critical role in bringing together
national policies and international support for their efforts towards achieving the
Goals. While there is greater recognition of the importance of country specificity
and diversity in development priorities, more and more poverty reduction strategy
papers try to focus on the achievement of the Goals. In addition, international
financial institutions and other multilateral development organizations increasingly
use the strategy papers as a decision-making tool, including being increasingly taken
into account in the formulation of the United Nations country assessments and
development assistance frameworks and influencing the design of the World Bank’s
country assistance strategies and decisions relating to the provision of development
assistance and debt relief from multilateral and bilateral institutions.
45. An increasing number of developing countries have begun to prepare and
implement poverty reduction strategy papers (as of end-January 2004, out of the 35
countries which had completed and were implementing strategy papers and the 18
countries which had prepared interim papers, 30 were from Africa). The strategy
papers are gradually reflecting broader country ownership, as evidenced by the
involvement of a wider array of stakeholders and stronger focus on national policies
towards the achievement of the Millennium Development Goals and economic
growth.
46. Notwithstanding these gains, challenges remain in the preparation of poverty
reduction strategy papers. Continued attention is needed on integrating the poverty
reduction strategy paper process with existing decision-making processes,
particularly the budget, and expanding the involvement of sectoral ministries and
representative bodies such as parliaments. The links of country strategies to the
Millennium Development Goals should be deepened and the financial, policy and
institutional constraints to the achievement of medium-term development goals need
to be addressed. Furthermore, the pace of progress in aligning donor support with
country strategies has to be accelerated. In particular, enhancing country ownership
involves fully incorporating country development priorities in poverty reduction
strategy papers, including the prioritization of the main objectives in the papers. In
addition, supporting capacity-building, such as in data collection and analysis, is
needed to enable the preparation of truly country-driven strategies.
47. The United Nations common country assessment is the instrument used by the
United Nations system to analyse the national development situation and identify
key development issues, while focusing them on the achievement of the Millennium
Development Goals. The United Nations Development Assistance Framework
(UNDAF) is the common strategic framework for the operational activities of the
United Nations system at the country level. It provides an integrated, coherent
response to national priorities and needs within the framework of the Development
Goals and other commitments. The common country assessment and UNDAF have
been mainly responsible in assisting developing countries in capacity-building
activities, including help in the preparation of the poverty reduction strategy papers
and Millennium Development Goal reports.21 At present, there is not yet enough
evaluation activity at the country level by the United Nations system as a whole.
Steps are being taken to increase such activity.22

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48. Parallel to the United Nations common country assessment is the World Bank’s
country assistance strategy. The strategy is central vehicle for the Bank’s Board of
Executive Directors to review assistance strategy for borrowers of the International
Bank for Reconstruction and Development (IBRD) and the International
Development Association (IDA) in order to maximize impact on poverty reduction.
Since the country assistance strategy provides the framework for the World Bank’s
involvement in a country, the international community welcomes the increasing
involvement of stakeholders in its preparation and urges their further alignment with
the country’s national strategy. Eventually, multilateral donors hope to shift the aid
paradigm to provide all assistance in the form of budget support for a
comprehensive, country-owned development strategy. The poverty reduction
strategy paper process, the High-level Forum on Aid Harmonization in Rome and
the second roundtable on development results in Marrakesh converge around this
ultimate objective.
49. The New Partnership for Africa’s Development, a strategic framework for
addressing the challenges confronting African countries, including endemic poverty
and bringing countries on a path of sustainable growth and development, prioritizes
the development issues of the region. The peer review mechanism within the New
Partnership, discussed earlier, aims to monitor country performance in the field of
economic management, human rights, corruption and democracy in the context of
attaining the Development Goals. The recognized need within the New Partnership
for a strengthened framework of partnership between Africa and its development
partners has led to the establishment of the African Forum for Envisioning Africa,
which will focus on strategic and political issues related to the implementation of
the programme of action of the New Partnership. The Forum has identified four
priorities for action: peace and security; HIV/AIDS; education; and economic
growth and wealth creation; all leading to the achievement of the Millennium
Development Goals.
50. The Tokyo International Conference on African Development, a multilateral
initiative focused on promoting sustainable economic growth and reducing poverty
in Africa, held its third conference in Tokyo in September-October 2003, at which it
called on the international community to support Africa’s development in a spirit of
partnership.23 In the tenth anniversary declaration, adopted at the conference,
participants declared that the ultimate goal of the conference was to promote
ownership by African countries of their development processes and partnership with
the international community in the implementation of their national strategies for
development.

Questions

51. How can the assessments and experiences of the various multilateral
development institutions be more effectively shared and used in improving the
formulation and implementation of existing development instruments? What
can be done to further integrate the Millennium Development Goals and the
objectives of the poverty reduction strategy papers into the national policy
priorities, as reflected in the budget? How can each donor’s development
cooperation tools, such as UNDAF, and the country assistance strategy, be
effectively aligned with the recipient country’s national development strategy?
Since recent studies indicate that excessive use of conditionalities remains

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counterproductive for both donors and recipient countries, what efforts can be
made by all donors to coordinate and streamline conditionalities? How can the
international community strengthen recipient initiatives such as the New
Partnership for Africa’s Development, and thus help developing countries meet
their agreements reached in Monterrey?

Financing the Millennium Development Goals, including new and

innovative sources

52. As pointed out in last year’s note (E/2003/50), increased coherence in

achieving the Monterrey Consensus objectives requires that both the volume and
effectiveness of ODA be enhanced simultaneously. The outcome of the High-level
Forum on Harmonization, held in Rome on 24 and 25 February 2003, led to the
creation of the OECD Development Assistance Committee Working Party on Aid
Effectiveness and Donor Practices to, inter alia, facilitate the harmonization and
alignment of donor practices with country strategies. Various national action plans
on harmonization have been given a boost as a result of the High-level Forum.
These issues were also the focus of the second International Roundtable on
Managing for Development Results in Marrakesh in February 2004, which was
convened by the five major multilateral development banks in collaboration with the
Development Assistance Committee. The Roundtable agreed on a set of core
principles governing development partners in their development cooperation
programmes. Aid effectiveness is also being addressed at the regional level. The
European Commission, for instance, recently put forward proposals aimed at
expediting progress on the pledge made at the European Union Barcelona Summit in
March 2002 to achieve closer coordination of policies and harmonization of aid
procedures. 24 The Economic Commission for Africa is engaged in a joint effort with
the Development Assistance Committee in creating an institutional framework for
mutual accountability between Africa and its partners. An important function of this
alliance is to conduct joint African/OECD reviews of the impact of partner country
policies on Africa’s development cooperation programmes.25
53. As selectivity is increased in the provision of aid, based on the recipient
country’s commitment to sound policies, the special needs of countries in or
emerging from conflict need to be taken into account. To address the needs of
especially vulnerable countries, the World Bank established the Post Conflict Fund
in 1997 to support the transition of countries from conflict, and the Trust Fund for
Low Income Countries Under Stress to, inter alia, help poor countries ineligible for
IDA funds to strengthen their institutions and build capacity for the delivery of
social services. For these groups of countries, timely, adequate and predictable
assistance is critical to remove institutional capacity limitations and to facilitate the
rebuilding effort. Moreover, aid selectivity could improve if it is complemented by
an examination of the overall aid and trade policies of donor countries in order to
ascertain that they are not inimical to the interests of the developing countries.
54. After many years of decline, ODA levels are rising. As several major donors
began to deliver on their Monterrey pledges, ODA reached $58 billion in 2002, and
is projected to rise to $77 billion in 2006, a 32 per cent rise in real terms based on
pledges made by donors. 26 The share of ODA to Gross National Income (GNI) is
forecast to rise from 0.23 per cent to 0.29 per cent during the same period. However,
it is widely agreed that attainment of the Millennium Development Goals will

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require inter alia, a more substantial increase in international resource flows to

developing countries, estimated, at a minimum, to be in the order of a doubling of
present levels of ODA flows. Also, particularly for many of the poorer countries
where the challenge is most acute, most, if not all, of these flows will have to be on
a grant or very highly concessional basis. In this regard, it is important that the
provision of assistance for peace and security purposes, such as the war on terrorism
and the rebuilding efforts in war-affected zones, does not crowd out regular
development aid.
55. As indicated above, while some individual countries may substantially increase
their ODA over the next several years, circumstances do not augur well for reaching
the total volume deemed necessary in the medium and longer term. Many developed
countries already face severe fiscal constraints and additional demands are likely to
increase these pressures over the longer term. The task is, therefore, not only to
mobilize resources to meet the immediate need to accelerate progress towards the
attainment of the Millennium Development Goals, but also to formulate a strategy
that will ensure the predictable and necessary flow of resources over the long-term.
In this connection, it should be recalled that, even if the Goals were to be
universally attained by the target date, they would reflect only partial achievement
of the overall development task. Poverty may be reduced by half, but it will remain
a global challenge; success in the other areas will also be far from complete, and a
sustained flow of financial resources will continue to be required in this context.
56. Recognizing this, there has been increased analysis and discussion in various
arenas, including within a number of Governments and regional bodies, of a wide
variety of possible new ways and means of increasing the supply of international
financial resources for development. Debate and study of an international finance
facility proposed by the United Kingdom is ongoing. Other ideas range from some
that are completely new to others that have a long vintage and from those that focus
on mobilizing additional public resources to those aimed at obtaining support from
the private sector, including individuals. The most recent initiatives include a special
fund jointly proposed by the Governments of France and Brazil aimed at mobilizing
financing through innovative means, including selective forms of taxation, to help
reduce hunger and poverty.
57. The General Assembly, having discussed innovative sources of finance on
various occasions in the past, contributed to increasing the debate on this matter
when, as a result of the five-year review of the World Summit for Social
Development, it adopted resolution S-24/2, calling for “a rigorous analysis of the
advantages, disadvantages and other implications of proposals for developing new
and innovative sources of funding, both public and private, for dedication to social
development and poverty eradication programmes”. Paragraph 44 of the Monterrey
Consensus also calls for the consideration of possible innovative sources of finance
in the appropriate forums. The Secretariat subsequently commissioned the World
Institute for Development Economics Research (WIDER) to undertake this study,
which is now nearing completion. At its fifty-eighth session, the General Assembly
called for the study to be presented to its fifty-ninth session.
58. Few of the specific proposals under discussion have been subjected to
intergovernmental debate. However, bearing in mind the need for additional
financial resources for development and the additional analytical material becoming
available, it would be opportune to initiate such debate with a sense of urgency since

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most of the proposals, even if they found acceptance, would take several years to
become reality. The fifty-ninth session of the General Assembly would be a starting
point for discussion, but these matters could also be pursued, as appropriate, within
the Bretton Woods institutions and in future meetings between the Economic and
Social Council and the institutions.
59. In this context, it should also be mentioned that there have recently been
important proposals by groups of middle income countries, including the Rio Group
initiative aimed at examining the urgent adoption of “flexible and innovative
financial mechanisms” to facilitate increased public and private investments.27 Most
middle income countries have set priorities for policies and investments that are
aimed at poverty reduction by helping poor people contribute to, and benefit from,
economic growth. Social spending has been increased and has become better
targeted. Nevertheless, poverty has risen in a number of these countries owing to
disappointingly low economic growth and persistent inequality. There is, therefore,
widespread agreement that it is imperative to explore what should be done at the
national and international levels to achieve sustained economic growth and poverty
eradication in such countries.
60. Because of their vulnerability to volatile capital flows, middle income
countries also need special international support to meet the Millennium
Development Goals, in particular, effective financing mechanisms that can be
activated quickly to help protect poverty reduction expenditures and maintain
ongoing reforms in the event of external shock or major changes in a country’s
condition. In May 2002, the World Bank introduced its “deferred drawdown option”,
to protect core structural programmes should a country face reduced access to
international financial markets. Several countries have already arranged deferred
drawdown option facilities.

Questions

61. How can multilateral and bilateral development policies ensure that
official assistance for the most vulnerable countries is sustained to help them
work towards attaining the Millennium Development Goals as selectivity in aid
provision is increased as a means to enhance effectiveness? How can the
international community ensure that reconstruction and rebuilding relief is
additional to regular development assistance? How can bilateral and
multilateral donors balance the need for enhancing aid effectiveness with
helping low-income countries under stress to meet the Millennium
Development Goals? How can multilateral organizations facilitate the
international debate and expedite progress on the formulation and
implementation of new and innovative sources of financing? How can existing
financing mechanisms for low-income countries be adapted or new mechanisms
formulated to meet the needs of middle-income countries?

IV. Theme 3: Debt sustainability and debt relief

62. The Monterrey Consensus recognizes external borrowing as an important
source of financing that can help developing countries grow faster and counter the
impact of economic shocks. However, excessive accumulation of debt could bring

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about just the opposite results. This concerns both countries with emerging
economies and low-income countries. The international community has thus sought
to strengthen its understanding of debt sustainability and the policies and measures
that would help borrowing countries service their debts during difficult periods
without an unrealistically large contraction in national income and expenditure. This
reflects the sentiment expressed in the Monterrey Consensus when it called for
bearing in mind the impact on progress towards achievement of the development
goals contained in the Millennium Declaration in future reviews of debt
sustainability.

Heavily Indebted Poor Countries Initiative

63. The Heavily Indebted Poor Countries Initiative has been criticized as being
slow in bringing countries to their “decision points” and then to their “completion
points”. As of March 2004, and almost five years after the Initiative was enhanced,
only 27 heavily indebted poor countries out of the 38 countries potentially eligible
for assistance under the Initiative have reached a “decision point” and are receiving
debt relief. Of the 27 countries, 10 have reached “completion point”, the point at
which full debt relief has been accorded.3
64. The delays in reaching the “decision point” have been attributed to problems in
preparing the poverty reduction strategy papers and meeting fiscal targets and in the
evaluations of international financial institutions of the success of the heavily
indebted poor countries in establishing a track record of implementing sound
economic policies. Reaching this phase has been especially challenging for countries
in conflict or emerging from conflict. With the Heavily Indebted Poor Countries
Initiative set to expire by the end of 2004, there is concern that some countries may
not benefit from the programme. In this regard, options concerning extension of the
date of expiration of the Initiative are being studied and the staff of both the World
Bank and IMF will present their recommendations to their respective Boards by
September 2004.
65. It has been evident that, despite reaching “completion point”, some countries
have not achieved debt sustainability. It is also generally accepted that the inability
of these countries to achieve debt sustainability results from unrealistic assumptions
that went into the calculation of how much relief the countries needed in order to
reach a sustainable debt level, including interest rates, export volumes and economic
growth. In some cases, there have been problems in policy implementation.
66. The need for additional debt relief beyond the Heavily Indebted Poor
Countries Initiative was reaffirmed by some creditor governments in October 2003,
at the United Nations High-level Dialogue on Financing for Development, when
they agreed to revisit the issue of “topping up”, a mechanism to provide additional
debt relief to heavily indebted poor countries that continue to have unsustainable
debt situations. Participants at the dialogue noted, however, that these proposals
were only part of the solution and that, for many low-income countries, maintaining
debt sustainability required significantly increased financial assistance in the form
of grants.
67. Grant finance, which was on the decline in the 1990s, seems to be on the
rebound. 3 The thirteenth replenishment of IDA (IDA13 programme) provided for a
much larger share of assistance in the form of grants to eligible countries and

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initiatives such as the new Global Fund to Fight AIDS, Tuberculosis and Malaria.
The international community should ensure that the trend of increasing provision of
grant assistance continues.28
68. It has also been suggested that the Heavily Indebted Poor Countries Initiative
should include a wider framework of measures to overcome external and natural
disaster shocks, including rapidly available contingency financing by the
international financial institutions, based on annual reassessments of debt
sustainability and policy adequacy.29
69. Looking beyond the Heavily Indebted Poor Countries Initiative process, IMF
is finalizing an analytical framework for assessing debt sustainability in low-income
countries. For this group of countries, separate guidelines are deemed necessary
because their debt is mainly official. Its purpose is different — to guide lending
decisions of bilateral official donors and multilateral institutions as well as to
provide policy advice to the borrowing countries.

Questions

70. Are debt-servicing obligations hindering the ability of many developing

countries to meet the Millennium Development Goals? Should growth-oriented
policies in the development strategies of heavily indebted poor countries and
other low-income countries receive greater emphasis in the context of debt
sustainability? What are the main difficulties in establishing a framework for
assessing debt sustainability of low-income countries? Is the donor community
ready to provide adequate additional debt relief to those low-income countries
that are unable to achieve debt sustainability upon exiting from the Heavily
Indebted Poor Countries Initiative programme?

Middle-income developing countries

71. In 2002, IMF introduced a new analytical framework for assessing both fiscal
and external debt sustainability in countries with significant access to international
financial markets. 30 This framework is now being applied in the context of
surveillance and use of IMF resources. It can also guide debtors and creditors in
their discussions on how much debt reduction is required in order to reach a
manageable pattern of repayments over time. It does not take explicit account of the
social impact of debt servicing, although this could be addressed in a parallel public
expenditure review.
72. The identification of the debt levels at which difficulties may emerge in any
particular country is an extremely difficult exercise. Many countries with emerging
economies got into serious trouble at levels of debt indicators that were equivalent
or even significantly lower than those in many developed countries. One of the
major reasons for that seems to be the much greater volatility of debt service relative
to the capacity to pay in developing countries. But it is also likely that traditional
indicators of debt sustainability do not fully capture all the factors that have a
bearing on debt-servicing capacity, such as the type of expenditure that is financed
by external borrowing and the trade structure of a country. It, therefore, appears
necessary to assess all relevant factors in individual countries and to establish a

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closer link between debt management, fiscal and macroeconomic policies and
development strategies.
73. Unlike developed countries, most countries with emerging market economies
cannot borrow abroad in their own currencies, irrespective of quality of policies or
strength of institutions. 31 Therefore, movements in the exchange rate can seriously
affect the domestic burden of debt service. It may be that this factor is a much more
important source of uncertainty than the volatility associated with fluctuations in
income. In addition, interest rates on emerging market debt are not only much
higher, but are also subject to large fluctuations as markets change their assessments
of the riskiness of a country’s debt. The debt burden of developing countries can
thus rise suddenly and sharply. This can occur even if a country’s macroeconomic
policies are sound.
74. Along with further improvement of sustainability analysis, it is important that
the international community assists debtor countries in better monitoring their
evolving debt-servicing obligations and managing their payments during volatile
periods. This entails prudent debt management, sound reserves policy and access to
international liquidity. Many developing countries, with the support of the
international community, are working on building capacity in sovereign debt
management. Technical and financial assistance in this area is being provided by
various international institutions, including UNCTAD, IMF, the World Bank and the
Commonwealth Secretariat. 32
75. There is also a need for international precautionary financing facilities capable
of providing prompt and sufficient financial support for countries that face potential
financial crises. The contingent credit line, introduced by IMF in 1999, was intended
to achieve this objective. However, the facility was never used and expired in
November 2003. IMF is exploring other ways to achieve the same objectives. It is
vital that any new facility or instrument have the capacity to respond quickly to
financial needs of member countries that have sound policies but are nevertheless
challenged by the actions of the globally integrated capital markets.
76. With regard to the extreme volatility of debt service, there have been proposals
to issue debt instruments whose debt service obligations fluctuate with the capacity
of countries to pay, including GDP-indexed bonds.33 There is also some interest in
exploring financing arrangements that include guarantee schemes and other
mechanisms to reduce the cost of debt during crisis periods. Another proposal to
modify debt contracts is the promotion by the international community of
internationally traded local-currency debt obligations of developing countries.
77. A more long-term strategy is to foster the development of domestic currency
bond markets. The development of these markets has the potential to reduce the
exposure of countries with emerging economies to maturity and exchange rate
mismatches and to the risks of any sudden halt in access to foreign capital markets.
In some cases, enhanced regional cooperation may accelerate the development of
bond markets by combining relatively small national markets into a deeper regional
one.
78. Along with preventive measures, it is necessary to have an agreed international
strategy for dealing with the unsustainable debts of low-income and middle-income
countries that are not classified as heavily indebted poor countries. The policy
intention here has been to insert more clarity and certainty in the process for

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resolving unsustainable debt situations. Over the past several years, there has been a
vigorous and constructive debate on ways to address this problem. The debate has
been instrumental in developing a better understanding of the issues involved and
advancing work in a number of areas to improve restructuring arrangements. In
particular, significant progress has been made in the design and use of collective
action clauses in bond contracts.34
79. Since collective action clauses address only one aspect of debt, efforts are also
under way to improve the overall process of sovereign debt restructuring in the
event of a debt crisis, with particular emphasis on how to strengthen the exchange of
information between a government debtor and its creditors and to ensure
comparability in the treatment of different creditors and overall adequacy of relief
when the restructuring involves a large and diverse group of creditors. In one
approach, discussions have begun between a number of emerging market countries
and representatives of the private sector on a voluntary code of conduct, which
would broadly stipulate the roles that key parties would be expected to play in
resolving a debt crisis. At its meeting in October 2003, the finance ministers and
central bank governors of the Group of Twenty encouraged issuers and market
participants to engage in further discussions of the issue, with the members of the
Group participating on a voluntary basis. 35
80. In this regard, the Paris Club of government creditors has agreed to reform its
practices. In October 2003, representatives of the creditor countries agreed on a new
approach to deal with countries in debt difficulties that are not covered by the
Heavily Indebted Poor Countries Initiative, as requested by the Finance Ministers of
the Group of Eight at their meeting in May 2003. According to this approach, the
Paris Club will, in exceptional circumstances, break from its traditional practice of
applying standard terms for particular classes of debtor governments in order to
better tailor its response to the specific financial situation of the country in crisis
with the aim of achieving lasting debt sustainability. The new approach also calls for
better coordination between the Paris Club and private creditors to assure
comparability of treatment of their respective claims.36
81. The efforts by IMF to develop a statutory approach, including the Sovereign
Debt Restructuring Mechanism proposal, to the comprehensive treatment of the debt
of a country in crisis did not win enough support to advance further. Most debtor
governments and their private creditors were not satisfied with the proposal. The
IMF International Monetary and Financial Committee, as well as the participants in
the High-level Dialogue on Financing for Development, signalling that much
remained to be done, emphasized the importance of further work on issues of
general relevance to the orderly resolution of financial crises.37
82. In December 2003, in its resolution 58/230, the General Assembly encouraged
the formation of multi-stakeholder dialogues on policy matters related to the
implementation of the Monterrey Consensus. The exploration in such an informal
forum of main unresolved debt policy issues may help identify proposals that could
gain political support, build momentum towards consensus and facilitate their
implementation in the appropriate forums.

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Questions

83. Has the new framework for assessing debt sustainability in countries with
emerging economies been able to better inform policy decisions in a better
fashion? What are the major unresolved issues? What are the prospects for
developing precautionary financial mechanisms to achieve the objectives of the
contingency credit line initiative of IMF? What other debt policy instruments
and financing mechanisms should be promoted? What are the major remaining
gaps in the international sovereign debt restructuring framework? How should
these gaps be addressed?

Notes
1
See World Economic Situation and Prospects 2004 (United Nations publication, Sales No.
E.04.II.C.2). Forecasts made after 11 March 2004 still envisage gross domestic product (GDP)
growth in all regions to be significantly above 2003 growth figures.
2
See Report of the International Conference on Financing for Development, Monterrey, Mexico,
18-22 March 2003 (United Nations publication, Sales No. E.02.II.A.7), chap. I, resolution 1,
annex, paras. 10-19; see also A/58/216.
3
See World Bank and International Monetary Fund, Global Monitoring Report 2004: Policies and
Actions for Achieving the MDGs, part II, Developing Country Policies. Also, regarding the
investment climate, see UNCTAD, World Investment Report 2003: FDI Policies for
Development: National and International Perspectives (United Nations publication, Sales No.
E.03.II.D.8).
4
For an assessment of the outcome of the fifth Ministerial Conference, see TD/B/50/8.
5
Partly in recognition of this, the Organisation for Economic Cooperation and Development
(OECD) has been working on a “horizontal project” on policy cooperation for development,
which looks at the impact of a broad range of developed country policies on developing
countries, and is also paying increasing attention to issues of policy coherence in its
Development Assistance Committee (DAC) peer reviews.
6
It is noteworthy that, in respect to the question of voice and participation of developing
countries in the Bretton Woods institutions, the Consultative Meeting of African Governors of
the Bretton Woods institutions met in Johannesburg, South Africa, on 12 March 2004, to address
such issues. In their communiqué of the meeting, they presented proposals in key related areas:
quota formulae, basic votes, voting power in the International Development Association and the
number of chairs representing sub-Saharan Africa.
7
A/58/555.
8
See United Nations Development Programme, Unleashing Entrepreneurship: Making Business
Work for the Poor, report of the Commission on the Private Sector and Development to the
Secretary-General of the United Nations, 1 March 2004, chap. I.
9
See the World Bank and the International Monetary Fund, Global Monitoring Report 2004, part
II, Developing Country Policies.
10
For a discussion of counter-cyclical macroeconomic policies, see A/58/216, paras. 15-22. Such
policies should be consistent with, inter alia, the appropriate fiscal and debt sustainability
criteria.
11
See General Assembly resolution 58/202.
12
This aspect was amply covered at the informal meetings with the business sector, held on 24
March 2004, and in a related business sector workshop on mobilizing private sector investment
in developing countries, held on 23 March 2004.

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13
At a World Trade Organization workshop, convened in March 2004 in Benin, on the
development aspects of the Cotton Initiative, follow-up actions in delivery mechanisms for
cotton-specific financial and technical assistance were agreed upon.
14
Recommendations to address the commodity issue were made by the Eminent Persons Group
Meeting on Commodity Issues convened by UNCTAD (see TD/B/50/11) and also featured
prominently in the Financing for Development Hearings with Civil Society, held on 22 March
2004.
15
The two reports to date are A/57/270 and A/58/323.
16
See http://unstats.un.org/unsd/mi/mi_goals.asp.
17
Five countries have produced two reports and one country has published its third consecutive
annual report.
18
On the relationship between the Millennium Development Goals and the poverty reduction
strategy papers, see the United Nations Development Group and the World Bank, “How do the
Millennium Development Goals relate to the poverty reduction strategy paper”, April 2003.
19
For detail, visit http://www.managingfordevelopmentresults.org/2ndRoundtable.html.
20
Ministry of Foreign Affairs, Denmark, “2015: Denmark’s first reporting on Goal 8”, 2003.
21
As of January 2003, 44 least developed countries (LDCs), 31 landlocked developing countries
and 14 small island developing States have completed common country assessments; 36 least
developed countries, 19 landlocked developing countries and 14 small island developing States
have completed UNDAF. For more information, see www.un.org/special-
rep/ohrlls/ohrlls/cca_undaf_prsp.htm.
22
See E/2003/64. Further study of the issue is expected to continue in the context of the 2004
triennial comprehensive policy review and its expected follow-up, and should rely on
collaboration with the Inter-Agency Working Group on Evaluation.
23
For more information on the Tokyo International Conference on African Development, see
www.ticad.net.
24
See Commission of the European Communities, “Communication from the Commission to the
Council and the European Parliament: translating the Monterrey Consensus into practice: the
contribution by the European Union”, 5 March 2004, Brussels (COM (2004) 150).
25
Concerns about the poor prospects of many sub-Saharan countries in attaining the Millennium
Development Goals have also resulted in a Commission for Africa launched by the United
Kingdom. Its aim is to advance internationally agreed development goals in the region. The
high-level commission, in collaboration with the United Nations, the World Bank and the
academic community, building on the work of the New Partnership for Africa’s Development,
will assess conditions and development policies in African countries in priority areas, including
trade, governance, economic policy, aid, debt relief, health and environment and conflict
resolution.
26
The European Union report states that member States are firmly on schedule to reach or even
exceed their target to collectively increase their average ODA from 0.33 per cent of GNI to 0.39
per cent of GNI in 2006. It is estimated that European Union ODA will increase every year to
equal 0.42 per cent of its GNI by 2006. See also “Commission acts to boost efficiency of EU
development aid through better coordination and harmonization” (COM (2004) 150). At the
International Conference on Financing for Development, the United States also pledged to raise
ODA by $5 billion a year by 2006, a 50 per cent increase in core development assistance,
through the establishment of the Millennium Challenge Account (MCA). In January 2004,
Congress signed into law the Millennium Challenge Corporation (MCC), and in February an
interim chief executive officer was agreed by the MCC Board. In May, the Board will meet to
select the countries eligible for MCA assistance.
27
See seventeenth Summit of the Rio Group, Cusco Consensus, Cusco, Peru, 23-24 May 2003, and
thirteenth Iberoamerican Summit, Santa Cruz de la Sierra, Bolivia, 13-15 November 2003.

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28
Some quarters in the international community have expressed concern over the proliferation of
such specialized vertical funds, including the potential for such funds to undermine the
implementation of a balanced sector-wide approach, as well as the concern that these funds are
less conducive to realizing cross-sectoral synergies than the more horizontal funding
approaches.
29
See A/58/290, para. 30.
30
“IMF Discusses Assessments of Sustainability”, Public Information Notice (PIN) No. 02/69, 11
July 2002.
31
For a discussion of this phenomenon see, for instance, Barry Eichengreen, Ricardo Hausmann
and Ugo Panizza, “Currency mismatches, debt intolerance and original sin: why they are not the
same and why it matters”, National Bureau of Economic Research Working Paper No. 10036,
October 2003.
32
For more details, see A/58/290, para. 39.
33
See, for instance, Morris Goldstein, “Debt Sustainability, Brazil, and the IMF”, Working Paper
No. WP 03-1, Institute for International Economics, February 2003.
34
For a discussion of collective action clauses, see World Economic and Social Survey 2003
(United Nations publication, Sales No. E.03.II.C.1).
35
“Morelia Communiqué”, fifth meeting of Finance Ministers and Central Bank Governors of the
Group of 20, Morelia, Mexico, 26-27 October 2003.
36
For a more detailed description of the new approach, see World Economic Situation and
Prospects 2004 (United Nations publication, Sales No. E.04.11.C.2).
37
See A/58/555, paras. 32-35.

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