Hon. Patrick Kalifungwa, MP Deputy Minister of Finance and National Planning at the
International Conference on Financing for Development
Monterrey, Mexico 22nd. March, 2002
MR. PRESIDENT,
DISTINGUISHED HEADS OF DELEGATIONS,
FELLOW DELEGATES,
LADIES AND GENTLEMEN,
Allow me to begin by joining other delegates in congratulating you, Mr. President for convening this very important global conference on financing for development.
I would also like to commend and thank the secretary general of the United Nations, Mr. Koffi Annan for his personal commitment and unprecedented leadership to the global problem of financing development. Your leadership inspires us.
Permit me, too, to record my thanks and gratitude to the Mexican Government for according my delegation and I, a warm welcome and providing us with comfortable accommodation in this beautiful city of their great country.
Mr. President,
The holding of this conference is long overdue. There are at least three reasons why I hold this view. Firstly, in the last half century, the world has witnessed extraordinary economic and social gains in many countries. The economic well being of many of the world’s population measured by per capita incomes and life expectancy has improved significantly.
The gains witnessed at the global level have however been marked by regional disparities. While the developed countries and some developing countries have made phenomenal gains, both economically and socially, the situation in much of the developing world does not match what has been achieved at the global level.
Several of the developing countries are experiencing a regression in their economic and social well being; while others have only witnessed slow progress. Today, about one fifth of the world’s population survives on less than one dollar per day. In fact, in many of the Sub-Saharan African countries, the gains made in economic progress in the sixties have actually been reversed. This conference is faced with the challenge of mapping out strategies for putting these countries back on the path of growth and development, including the financing of this growth and development in order to make it a reality.
Secondly, the paradigm of external aid as an engine for development seems to have broken down over the last forty years for a number of countries, especially for the majority of countries in Sub-Saharan Africa. By some estimates, less than 35 percent of overseas development assistance (ODA) goes to developing countries’ financing of investment.
The larger share goes towards the administration of aid, both in the recipient and the donor country. For most developing countries, it seems that, it is what donors think that determines aid policy (and outcomes). Official development goods may not cost money, but often, under the current arrangements, they entail some loss of sovereignty on the part of the recipient country.
This loss in sovereignty explains, in part, the ineffectiveness of aid experienced in a number of Sub-Saharan African countries. These arrangements are in need of an overhaul. And this conference presents a great opportunity for achieving a consensus on how these arrangements should be structured to better serve mankind, through accelerating the economic and social progress of poor countries. Today there is an unprecedented frankness in examining the record, identifying best practices, and forging new modalities for cooperation.
Thirdly, globalization – that new phenomenon of economic and social progress — is further threatening to put the countries of Sub-Saharan Africa at the periphery of world economic activity. Their share of world trade has dropped from about 3.2 percent in 1981 to less than 1 percent by 2000. This conference offers the world at large a timely and unique occasion to examine how globalization can be made to work for the good of all mankind and how the millennium development goals might be realistically reached.
Mr. President,
Having said this, I would like to make the following six points that relate and correspond to the themes of this conference.
My first point relates to domestic resource mobilization. The question that comes to my mind is how should domestic resources be mobilized so as to engineer long-term sustainable growth and poverty reduction? It is almost a truism that developing countries need to increase gross domestic savings to at least 30 percent of GDP and gross domestic investment levels to 30 – 33 percent of GDP in order to achieve growth rates of 7 – 8 percent annually so as to have any prospect of reversing divergence between their per capita incomes and those of the developed countries. There are no other short cuts.
In Zambia, we are now convinced that for a mobilization of such proportions to be successful, it needs to go hand in hand with a renewed emphasis on modern agriculture as a basis for industrialization and poverty reduction. Agriculture must get new attention, both in development cooperation and in domestic resource allocation.
My next point almost follows from the first. In the wake of the new trade round that was launched at Doha, the commitments by developed countries to open their agricultural and textile markets to developing countries need to be correspondingly implemented.
Developed countries ought to reduce agricultural subsidies that artificially depress the prices for Africa’s agricultural produce. To do anything other than this will further marginalize the countries of Sub-Saharan Africa, and consign them to the specter of an ever-declining share of world trade and economic activity. Further, low income developing countries and small island states need to be assisted with the significant incremental administrative costs they have had to incur in coping with the implementation of the Uruguay Round agreements. These countries simply cannot cope by themselves.
It is through increased international trade that Africa will develop. Export is the means for obtaining longterm investment and finance. It is the necessary engine for growth. However for this to come about, African products need much-improved access to international markets. Africa faces too many barriers to the sale of its products internationally, especially for processed primary products where Africa may have a competitive edge. Quite clearly, a range of measures within the WTO framework and bilaterally with trading partners are required to level the playing field in some areas, and to provide for preferential treatment in others.
The third point I am making is that, private capital flows are crucially important if growth of 7 – 8 percent per annum in developing countries is going to be financed.
The bulk of that growth can only be financed by private capital flows, which can provide the long-term finance required for economic growth and poverty reduction is the private sector, both national and international.
If we hold the view that private capital flows can be harmful, then let us research into ways in which we can minimize on the downside risks associated with private capital flows and maximize on the possible benefits. In fact, over the last ten years, private capital flows have grown considerably to rival ODA flows for some developing countries. It is now beyond dispute that business and markets are the cornerstone of development. They are also the essential means of achieving a transition from ODA dependence to sustainable internally generated growth based on a vibrant and competitive private sector that plays a key role in lifting people out of poverty.
The fourth point is that overseas development assistance (ODA) has perverse incentives for the recipient country, if that country is not conscious of what role ODA should play in the economy. If a developing country gives up its vision or does not have one, someone else will supply that vision. When this happens, this is usually with disastrous consequences for the developing country. This calls for ownership and leadership of visions of development by the recipient countries of ODA. Elements of Zambia’s vision on ODA include the belief that this should be targeted to reduce poverty and that all aid resources should be channeled through the national budget system. Aid resources that are channeled outside the national budget system tend to undermine it.
It is also a truism that Africa needs not only increased resource flows but also more effective utilisation of those resources. More ODA is needed to help Africa fill its existing financing gap of approximately us$10 billion per annum if it is to meet the millennium development goals of halving poverty by 2015. (this figure excludes the estimated financing requirements to address the HIV/AIDS pandemic). Increased assistance should be targeted on countries that have a demonstrated capacity to use aid well, and should focus on priority areas.
The next requirement is stable long-term resource flows to Africa and the predictability of donor support: these are key to the success of aid and economic management. Several leading donors are moving in this direction, simplifying and harmonising their conditionalities and increasing the commitment horizons of their assistance. We applaud their efforts as they move in this direction, which is in line with the principles of the New Economic Partnership for African Development (NEPAD).
Mr. President,
A fifth point I would like to make is that for all the so-called Heavily Indebted Poor Countries (HIPCs), a rapid and sustainable exit from the debt crisis is essential. Current debt reduction initiatives need to be enhanced and speeded up, and financial assistance options need to be less reliant on loans, which have a risk of relapse into indebtedness.
As they stand, current methods do not offer a permanent solution to a lasting exit from debt. The bottom line is that under the current arrangements, resources are not being used to create productive capacity or create employment. This conference should look at the potential for new initiatives out of this quagmire of unsustainable debt.
This does not mean however that we should forget how the debt build-up came into being in the first place. Both lenders and borrowers engaged themselves in unproductive activities. There should however be an exit strategy out of debt so that this is not a permanent feature. There should be recognition that past regimes on both the lender and borrower countries did not use funds efficiently. This is what led to the debt build-up in the first instance. A move needs to be made towards higher levels of debt relief; in order to dismantle Africa’s debt, which is very small in absolute terms but very huge in relative terms.
Finally, Mr. President,
Even as this conference looks at new measures to generate resources to finance development, it should also explore modalities of how developing countries can participate more effectively and meaningfully in the development process. This calls for global good governance to be put on the agenda. Zambia therefore supports present proposals to, “invigorate the UN system as a fundamental pillar for the promotion of international co-operation to make the global economic system work for all.”
In this regard, there is need for the IMF and the World Bank — two of the most important pillars of the international monetary and financial architecture – to democratize their decision-making processes so that developing countries can fully participate in accordance with the emerging principles of good governance.
Mr. President,
Let me close by urging the conference participants not to allow the forces unleashed by this conference to die here. We believe that this conference signifies the dawn of a new era where the inhabitants of the globe did not shy away from looking at the thorny issue of how the world can be made better for all. Let there be another follow-up to this conference to be held — in the not so distant future – with at least the specific aim of measuring how far we would have gone on the path of equitable and all-encompassing development.
I thank you.