The proposal presented by Pedro Sánchez to the United Nations last September has finally succeeded and Spain will host the IV International Conference on Financing for Development in 2025. It will be a unique opportunity to demonstrate whether the country has sufficient initiative and leadership capacity to promote agreements of global importance.
The results of the previous conferences are not clear. To celebrate the first, the resistance of some countries that did not welcome these problems and left the more controlled framework of the Bretton Woods institutions – the World Bank and the International Monetary Fund (IMF) – had to be overcome for the good of the United Nations. The aim seemed justified: to establish a financing framework for the recently adopted Millennium Agenda. The conference finally took place in Monterrey (Mexico) in March 2002. In advance, a commission prepared a valuable document to guide the debates. Achievements included adopting a comprehensive approach to funding sources without limiting the conference to international aid, as some intended.
The second conference, held in Doha in 2008, had significantly less impact as countries were more concerned about the impact of the emerging crisis than about making new commitments. The panorama changes in 2015, when the third conference is convened in Addis Ababa, with the aim of supporting a new agenda, much more ambitious than the previous one: 2030 for sustainable development. In this case too, there was previously an inspiring technical document. The conference reaffirmed the comprehensive approach to financing for development and emphasized the need to involve private actors and explore the possibilities of public-private partnerships and blended financing.
It is now up to Spain to influence the content of this new appointment. The timing is important: two-thirds of the way along the planned path, we are far from achieving the goals of the 2030 Agenda. If we want to correct course, we must resort to new institutional arrangements to mobilize more resources and capacities up to now. This is not terrain suitable for improvisation. Experience shows that the chances of success increase when agreements are preceded by a study that sets the path and shows the strategic approaches through which the event will be recognized in the future.
Multilateral development banking today represents an institutional resource that is underutilized.
Without setting myself this task, a first aim of the meeting should be to activate those resource mobilization mechanisms that are currently not being sufficiently used. This is the case, for example, with special drawing rights, an important source of liquidity for the international economy, created by the IMF in the late 1960s. As the international economy progresses, it makes sense for this asset to grow through sequential emissions (last in 2021); and it is a reasonable option that part of this financing can be used for objectives related to the provision of international public goods and the promotion of sustainable development. However, the truth is that this opportunity is rarely used. The United States' refusal has made it difficult to move forward in the past, but today there are many who are committed to making better use of this funding source in a world that needs resources to move toward inclusive and decarbonized societies.
Multilateral development banking is also an underused institutional resource today. Its declining weight in international financing reflects the growing gap between the functioning of these institutions and the current needs of countries. Multilateral banks are viewed as poorly resourced institutions, overly bureaucratized, lacking in innovation, and with limited risk tolerance. It is therefore not surprising that countries are looking for alternative financing mechanisms, either in private capital markets or from new providers (institutional funds or government providers such as China). However, multilateral banking is more necessary than ever, although to fulfill its function it should strengthen its capitalization and thoroughly review its mission and business model.
In addition to the use of partially wasted resources, the conference will also analyze how the resource gaps in developing countries can be closed. The first arises from a tax system that is plagued by regulatory gaps and in which there is no correspondence between the areas of income generation and those of tax collection. Some progress has been made in international tax cooperation under the BEPS initiative on the taxation of multinational companies proposed by the G20 and the OECD. However, developing countries rightly believe that this progress is insufficient, that the distribution of funds collected is not balanced and that the coordinating body (the OECD) is not representative. That's why last November the United Nations supported an African initiative to take a more active role in tax cooperation and overcome resistance from developed countries. The Platform for Fiscal Cooperation, which includes the United Nations, the IMF, the World Bank and the OECD, is the first result of this change.
There is an imbalance between the much better allocated funds for climate action and those aimed at climate change adaptation or biodiversity protection, even though the latter are crucial for poor countries.
The lack of an effective mechanism to deal with sovereign debt crises represents another deficiency that results in an unreasonable loss of resources for developing countries (although not only for them). The issue is relevant because, as the IMF warns, the number of countries in financial stress has increased over the last decade. The situation is probably no longer as serious as it was in the 80s, but in return the complexity of the over-indebtedness situation has increased. Public debt has lost weight in favor of private debt and new actors (institutional funds and countries such as China) have become important creditors, rendering previous coordination mechanisms (such as the Paris Club) ineffective. It is therefore necessary to look for new institutional responses that allow a quick, efficient and fair solution to such situations.
Finally, a third contribution of the conference would be to clarify the panorama and review the incentives in strategic areas whose financing is far from desirable: this is the case of the environmental chapter. On the one hand, there is an obvious imbalance between the much better resourced resources for climate action and the resources aimed at climate change adaptation or biodiversity protection, even though the latter are crucial for poor countries. On the other hand, donor activism has led to a rich architecture of funds and initiatives with overlapping mandates: for visibility reasons, a new fund was preferred to improving the endowment of an existing fund. Finally, the additionality of the resources allocated is doubtful: in many cases they are presented as new commitments, which is nothing more than a mere displacement of elements already present.
There will be many more possible topics for discussion, but progress on any of the topics mentioned here would justify the possibility of a conference; and Spain plays an important role in influencing this agenda.
Jose Antonio Alonso He is Professor of Applied Economics at the Complutense University of Madrid.
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