The third International Conference on Financing For Development in Addis Ababa.
The location, Addis Ababa. The third International Conference on Financing For Development last week was rich with symbolism. Ethiopia is the only African country that was never colonized, and is known as the political capital of Africa. The country is also getting global attention for its progress on both social and economic fronts.
There were 5,000 high level delegates from around the world at the conference. Heads of states and ministers of finance, foreign affairs and development, and representatives of multilateral institutions, of NGOs, the public and private sector.
It is a crucial time for global development efforts to eradicate poverty and hunger. An agreement here would be supportive of the post 2015 Sustainable Development Goals, which are to be adopted by heads of state at New York in September. For the first time, ambitious goals and targets have been set for both developing and developed countries.
Later in Paris, in December this year, heads of state are expected to reach a global climate agreement up to 2030.
The Sustainable Development Goals or SDGs need commitments of trillions of dollars while official foreign aid currently amounts to around 160 billion dollars a year.
The Financing for Development or the FFD process is not about making pledges of money. It's an opportunity to talk about systemic issues in the global financial system, which are hindering developing countries from mobilising resources for their own development. These issues pertain to the rules of borrowing money, of managing debt and the lack of policy coherence in the global architecture of trade, finance and technology.
In all these issues there is a divide between the Global North and Global South.
So far the focus has been on foreign aid by rich countries as a key tool for achieving global development. But this has been unsuccessful.
According to Ajay K Jha, Director, Centre for Community Economics and Development Consultants Society, "The whole effort on the part of the rich countries is how to avoid giving more money for overseas development assistance or ODA. Forty years ago they had committed to providing 0.7 per cent of the gross national income to developing and poor countries. But only five countries have met that commitment till now. Out of the 70-odd high income countries only 20-odd countries are providing ODA."
Rich countries now want developing countries to raise more of their own resources and increase their GDP to tax ratio. But they have failed to address the unfair rules of international trade that prevent developing countries from doing so.
Take for instance bilateral investment treaties, which are designed to protect foreign investors. These have, on occasion, threatened the policy space of countries, for instance on standards to protect health, the environment and labour. Recently India has been sued for crores of rupees by several multi-national firms with cases going to an international arbitration system that exists in a grey area.
Ranja Sengupta, Senior Researcher at the Third World Network, said, "If you remember this 2G case when the licenses of some of these companies were cancelled because the minister was corrupt and of course the company was also corrupt as they had paid bribes to get those contracts. But when the judiciary took the decision to cancel those contracts, many of them sued the Government of India, saying that under the investment treaty I was supposed to make so much profit. The problem is that the mandate for these arbitration cases is only the investment treaty, not your national law. In the Vodafone tax case, Vodafone had also threatened to sue them by using the investment treaty. But I think they've reached an out-of-court settlement. You can see that it is freezing policy regulation because governments will be scared of facing these law suits in international courts where they don't what's happening. And they'll be losing. And when they lose money it goes from our social expenditure."
For years, technology facilitation has been a thorny issue. Developing countries cannot have effective industrial and agricultural policies as intellectual property rights block off access to environmentally sound technology.
Adds Ranja, "You know technology is blocked by really high standards of intellectual property rights. It's the big companies that hold the patents and the big companies are all in the West. So they hold 90 per cent of the world's intellectual property rights. So, unless technology is available at really cheap rates or free to the developing countries, how will they ever kind of catch up? They never want to discuss technology because there are big multinationals who control these technology. They do not want to make it available cheap to developing countries. They are not that development conscious."
India championed the cause of developing countries at the negotiations for the SDGs and the FFD process. It made a breakthrough as countries agreed to a technology facilitation mechanism at the conference.
However, at the top of the agenda at Addis Ababa was the demand by G 77 and China, a grouping of 137 countries, for an intergovernmental body on tax reforms within the UN. Everybody, they said, should have a seat at the table.
The body would deal with issues like tax dodging, transfer pricing by multinational corporations and the role of tax havens.
A strong international tax regime is crucial for eradicating poverty. The message resonated at the Stop the Bleeding campaign attended by former South African president, Thabo Mbeki. Studies show Africa loses nearly 50 billion dollars a year in illicit money flows and tax evasion. The irony is that this is more than the total development aid received by it.
Currently the Organisation for Economic Cooperation and Development or OECD, a group of 34 rich countries, decide the tax rules which are detrimental to developing countries
Pooja Rangaprasad, who is the Policy Coordinator at the Financial Transparency Coalition, said, "There's a real need you know of robust global tax cooperation and for countries to really cooperate to fix these loopholes. At the moment those sorts of conversations on tax norms and standards happens in the OECD, which is really a club of rich countries. And what G77 and China have been saying in this FFD process and earlier, this is the conversation which needs to happen in the UN."
But the rich countries do not want to create a new institution.
According to David Hallam, UK Envoy, Post-2015 Development Goals, the setting up of a big UN institution was not the right answer to the problem. He said, "There is a really good collaboration going on. We need to make sure that the collaboration continues and developing countries are able to properly participate in it. But I will be more convinced if this was a real issue. If the demand is coming from the poorest countries of the world who stand to benefit eventually. We have got the demand from a couple of emerging powers, but we're not getting this from Africa, we're not getting this from the least developing countries. What I don't want to do is to slow down the good work that is going on. This new institution is not going to add any value. It doesn't comes with any particular expertise."
At the conference, the rich countries launched the Tax Inspectors without Borders to build capacity of tax inspectors in developing countries, but it was seen as a diversionary tactic.
Pooja said, " It's a patronising initiative. Considering all the scandals in Europe and UK about Starbucks, Google and Amazon and so on not paying taxes, the OECD tax administration are themselves struggling to tax multinational corporations. So, I think some of us are wondering what capacity or skills there is to transfer to developing countries when they themselves are struggling."
At Addis Ababa, the negotiations for a tax body under the UN went up to the wire, but the OECD did not give up its dominance of the global tax agenda.
It undermined the global efforts to stop tax avoidance and democratize the space for financial cooperation.
What is interesting is that the multinationals belong to OECD countries.
Says Alvin Mosioma, Executive Director at the Tax Justice Network, Africa," India was the last bastion, all our hopes were vested on India to hold, but they buckled down. It was understandable, if all other countries were not willing, it has to buckle down."
There was pressure on some of the developing countries to toe the line as they were in bilateral trade talks with the rich countries.
An intergovernmental tax body could have been a game changer in the development narrative. But many demands by developing countries have been continuously denied.
The Addis Ababa outcome document was of compromise, once again highlighting the rich-poor divide.
There will be no new body but the existing UN committee on tax, which is a body of experts, will have a fairer representation of developing countries.
The FFD process is not about finding money for development. It is about politics, about retaining and controlling interests in the global arena.
Disappointed, Indian leaders sought to put on a brave face.
Jayant Sinha, Minister of State For Finance, India, said," The nature of global negotiations is one incremental step at a time and a very important incremental step was taken at this conference. There are many many aspects that are included in this document. The common but differentiated responsibilities, the technology facilitation mechanism, the commitment to ODA and, along with that, we think significant progress even on the tax matter. The fact that there is such unity and solidarity in this issue within the G77, the pressure we were able to bring to bear on the rich countries and the very clear step that we have taken to strengthen the committee on tax matters within the UN system. I think they are very important steps as far as global tax policy is concerned. We will have a global tax body one day. The story has just begun as far as this is concerned."
Despite the rich countries' rhetoric on global partnership, the words were not translated into reality.
India's struggle for equity between countries on the global stage has drawn praise from activists.
Amitabh Behar, Executive Director, National Foundation For India, said, "We are pretty happy with the leadership role taken by the Indian Government, because it has raised a lot of fundamental questions of inequity in the global governance architecture However, we also believe that India should go a couple of steps ahead and not only look at equity among nations but also start focusing on it within nations."
According to them, there is a south within the global south and the global north. It is the primary responsibility of each country to reduce inequities within their country. Money raised should be spent on those who most need it.
Take for instance these snapshots of social sector schemes at home.
In Biswan, a backward block in Sitapur district, Uttar Pradesh, a community health centre that handles 450 deliveries a year. Yet maternal and child health care is compromised when centres like this one are ill equipped to manage complications that might arise during child birth.
Dr Ashish Shukla, Medical Officer, Community Health Centre, Biswan, UP, said, "We do not have specialists here. The anaesthetist is not available. There are blood transfusion problems. So, sometimes, like, if we have some complications, we need to have to shift the patient to a better facility. I think the government should employ specialists. They should give more training to the people in the field. They are giving it, but they need more training, they need more motivation and perks for the field staff."
Quality of care issues are being recognized but it has a long way to go.
In the Capital, New Delhi, an anganwadi centre functioning out of a pokey room in a slum. Under the ICDS or Integrated Child Development Services, centres like this one provide food and preschool education. They also monitor the nutritional and health status of children under six years of age and of their mothers.
There are 24 children here, but not enough toys to go around.
Vaijanti Sharma, an aganwadi worker in Delhi, said, "We should get more toys and stationery items like slates and chalks. Children are very happy with these kinds of things and they enjoy writing."
This girl is one of many in the slums who do not have the choice of going to school. They take care of their siblings when their mothers go to work.
The salaries paid to anganwadi workers are meagre.
Says Vaijanti, "My salary is very low. Its just Rs 5,000. What can you get in Rs 5,000?
There's a lot of work at the centre. If we put in this kind of time and energy in some other work, we'd get more money. We are well educated.
We have to conduct population surveys and carry out immunization drives."
Instead of quality standards being improved, the ICDS budget has suffered cuts of up to 50 per cent. The Central Government, however, claims more money is being transferred to the states under the 14th Finance Commission. The states are now responsible for rolling out the schemes.
Jayant Sinha, Minister of State, Finance, India, said," We have transferred an extra 1,35,000 crore to the states. The states have to decide their priorities.
You have elected governments in all these different states, who are very responsible governments. Our states are the size of African countries. We have a 100 million people in Bihar. Its the size of Ethiopia. Our governing philosophy is federalism. Why should Delhi be deciding these things."
Since there was no transition planning, there is confusion on the ground. State departments often don't know about the cuts and the fact that the state Budgets have to compensate for it. Two years after the National Food Security Act or NFSA was passed, only 11 of 29 states have implemented the Act.
Dipa Sinha, co-convener, Right to Food campaign, said, "According to the Government's data, 11 states of the country are now NFSA compliant. But if you look at even those 11 states, they are only doing the PDS entitlement part of the Food Security Act. The Food Security Act also provides meals for young children, school going children, pregnant mothers, universal maternity entitlements. None of these has being talked about and it has not been implemented. For example, universal maternity entitlement is supposed to be under a scheme that the Central Government has to design. Even that has not been done, whereas the Act says that within a year, the implementation should have been completed.
Adds Biraj Patnaik, Principal Adviser to SC Commissioners, Right to Food case," Under the new scheme of things there were some programmes which the Government said that we will fund them 100%, and there were some programmes which they said okay let the states bear the expenditure. So the programme I am listing out is health, education and employment, the critical programmes for the social sector of which the National Security Act is also a part of. Hundred per cent centrally sponsored means if you don't fund these programmes, then money is not going to go. Second, why should we expect the states to prioritize these programmes if the Central Government doesn't give the money. So I don't think this argument works at all. And in any case if you look at the net transfers and what the government has to spend on the programme, the money transferred is much less. So obviously the message which has gone down to the states is just go on and build roads and create infrastructure, give tax breaks. This is what the government in India will support you for. Social welfare schemes are not going to be supported any more with the same enthusiasm that they were and I think it's a real tragedy. I see that welfare architecture being dismantled now without a new scheme of things being put in its place, other than slogans. So in a sense governance got reduced to a model of television and no vision if I may say that."
While the Indian government's priorities are the same as the global goals, the concern is that the development agenda should not be all agenda and no action.