*{The Coffers Are Not Empty: Financing for Sustainable Development and the Role of the United Nations 

The Coffers Are Not Empty:
Financing for Sustainable Development and 
the Role of the United Nations
Jens Martens and James A. Paul
July 1998}

*{Introduction} 
Financial issues have been at the centre of the North-South debate since the 
1960s. During intergovernmental negotiations of recent decades, especially the 
world conferences from Rio 1992 to Rome 1996, the sharpest controversies 
between North and South have taken place over "means of implementation" - that 
is, money to finance the agreed programs of action. The conferences failed to 
accomplish their goals largely because governments of the North were unwilling 
to provide the essential financial means. 

Financing for development is clearly in a deep crisis - but it is a 
long-standing crisis. As early as 1969, the Pearson report noted an 
"atmosphere of decreasing interest for development assistance" in the 
industrialized countries and "signs of dejection and growing impatience" in 
the developing countries. The expert commission headed by Lester Pearson 
concluded that development assistance was in an "acute crisis". They made 
three recommendations: 
Trade measures in favour of developing countries 
Promotion of foreign direct investment in developing countries 
Increase of official development assistance (ODA) to 0.7 percent of donor 
country GNP.
 
Although these remedies were central in the North-South debate of the 
following decades, they didn't produce any substantial effect - partly because 
they were not implemented (e.g. the 0.7 target), and partly because they 
didn't succeed in improving the social and economic situation of the countries 
(e.g. the system of trade preferences of the European Union for the African, 
Caribbean and Pacific countries of the ACP Group).
 
Thirty years after the Pearson Commission published its report "Partners in 
Development", the global framework for development has changed dramatically. 
In the 1990s, economic deregulation and the end of the East-West confrontation 
led to accelerated economic globalization with a rapid increase in 
transnational flows of goods and capital. While a few economies in the South - 
mainly in Southeast Asia - profited from this trend (at least until the "Asian 
crisis" in the end of 1997), a lot of countries did not. Many, especially 
countries of Sub-Saharan Africa, failed to attract private investment and lost 
support as ODA declined. As a consequence, the gap between rich and poor 
deepened dramatically. The ratio between the income of the poorest 20 percent 
of the world's people and the top 20 percent increased from 1 to 30 in 1960, 
to 1 to 61 in 1991 and to a startling 1 to 78 in 1994. 

Most governments of the industrialized countries were not willing to 
counteract this trend by increasing their development assistance to these 
countries. On the contrary, with the end of East-West competition for spheres 
of political influence, Northern policy makers lost much of their remaining 
interest in North-South cooperation. ODA also suffered cuts due to economic 
and social problems in the OECD countries themselves and the consequent 
government budget problems. So the GNP donor share of ODA is today farther 
away from the 0.7 percent target than ever before. The commitments of the 
world conferences have been ignored. 

To minimize their own responsibilities, northern governments increasingly 
emphasize private investment as the linchpin of development. Further, they 
call on southern governments to mobilize more domestic resources. And finally, 
northern governments try to excuse their quantitative failure by emphasizing 
improved qualitative aspects of development assistance. 

Private investment, which has grown so dramatically in recent years, can play 
a crucial role in the development process and governments can adopt policies 
to promote investments. However, private investment can only have a positive 
role if it contributes to environmentally sound and socially just development. 
This result is unlikely in an unregulated environment, lacking clear 
multilateral rules. Unregulated private investment tends to serve exclusively 
the profit interests of the owners (shareholder value). It doesn't 
automatically promote sustainable development and instead often does more harm 
than good. 

Governments can also do more to mobilize domestic resources. National budgets 
contain huge potentials for savings and redistribution. Governments can make 
additional resources available for sustainable development by reforming their 
tax systems as well as by eliminating harmful subsidies and unproductive 
expenditures. This is true for all countries in North and South. The countries 
of the North could set a good example by tackling tax reforms with 
environmental and social results in mind. These have been long overdue. 
Governments can also improve their development assistance qualitatively. This 
can be done, for example, by shifting resources from prestigious but wasteful 
infrastructure projects like dams to programs for basic social services (in 
line with the 20:20 compact of the Copenhagen World Summit for Social 
Development). But improved quality cannot substitute for more quantity of 
assistance. The size of global policy challenges requires both more quality 
and more quantity. 

Public development funds will continue to be a major source of financing in 
the fight against poverty and environmental degradation and to compensate for 
the negative effects of globalization. As the pace of globalization picks up, 
we face increasing problems in safeguarding the global commons, preventing 
global currency crisis, fostering sustainable patterns of consumption and 
production and preventing intra-state and international conflicts. Challenges 
of this magnitude require concerted intergovernmental efforts and substantial 
financial resources. Blind confidence in market forces has led to failure. For 
sustainable development to succeed, public finance is necessary to sustain 
social security, public health, education, environmental protection, 
infrastructure, cultural diversity, economic stability and employment. 
This analysis leads to four core questions regarding the future of financing 
for sustainable development: 
1. What measures are needed on the global level to promote public resources of 
the magnitude required for national development programs in the South and the 
funding of international institutions?
2. What is the potential of fiscal policy to mobilize or redistribute domestic 
resources for sustainable development?
3. What kinds of multilateral regulation and standard-setting are necessary to 
assure that private investment is conducive to the goals of sustainable 
development?
4. How can the political obstacles to alternative forms of international 
financing for development be overcome? 

This short article cannot give complete answers to these complex questions. It 
rather seeks to outline the recent trends of financing for development and to 
formulate a few recommendations for further studies and activities of the 
United Nations. These comments are proposed in the context of the UN 
initiative on finance, which is supposed to lead to an International 
Conference on Financing for Development in the year 2001. 

*partie=titre Recent Trends in Financing for Development 
Growing marginalization of ODA *partie=nil 
Until 1993, official development assistance (ODA) was the main external source 
for financing development. Since then, however, its share has declined 
continuously. In 1996 ODA fell to 58.2 billion dollars . This amount is lower 
than the sixty billion dollars the countries of the South lose every year from 
agricultural subsidies and barriers to textile exports in the North . More 
dramatically, the ODA/GNP ratio reached an all-time low of 0.22 percent in 
1997. As in previous years, only four of the 29 OECD member countries - 
Denmark, Norway, Sweden and the Netherlands - exceeded the UN target of 0.7 
percent . In the light of the continued downward trend, some argue that the 
target is no longer helpful either as a realistic goal or as a political 
rallying-point. 

The reasons for the unprecedented decline of ODA have been widely discussed 
and would appear to be rooted in the political and economic shifts of the past 
decade. OECD Governments would have to shift their political priorities and 
their development paradigms quite dramatically to reverse this trend. But the 
political change in the United Kingdom in 1997 has clearly demonstrated that 
such changes are possible, even while a broad upward trend still seems 
unlikely. 

In contrast to the overall decline of ODA, the total net resource flow to the 
South grew steadily during the last decade and reached 304 billion dollars in 
1996 (see table 1). The main cause for this trend has been the tremendous 
increase of private capital flows to developing countries. With 234 billion 
dollars in 1996, private capital flows were more than six times as high as 
eight years before. But with the rise of private flows, the relative 
importance of ODA further decreased. The ODA share of the total net resource 
flows to the South dropped from 49.8 percent in 1988 to 19.2 percent in 1996, 
while the share of private flows increased in the same period from 38.1 to 
77.0 percent. As a consequence, governments and most intergovernmental 
institutions gradually lost their capacity to influence development processes 
in the South by financial means (the exceptions being the World Bank and the 
International Monetary Fund). 

The dwindling importance of ODA has also given rise to a more fundamental 
rethinking of the concept of aid. The notion of "development aid" or 
"development assistance" was always a misleading euphemism which reduced the 
cooperation between sovereign states to paternalistic relations between donors 
and recipients. Northern Governments' gradual loss of influence due to the 
decline of their financial transfer to the South could lead to a more balanced 
relationship between North and South on the intergovernmental level. (The fact 
that at the same time the southern countries' dependence on the international 
financial markets, banks, pension funds and transnational corporations of the 
North is growing steadily has to be dealt with separately).
 
To overcome the old donor-recipient dependence, forms of contractual relations 
between all countries should be established under the auspices of the United 
Nations. Required is a new contrat social between North and South which lays 
down rights and obligations of the states and guarantees a reliable and 
sufficient resource flow to the South. Some interesting considerations in this 
direction are contained in a study of Keith Griffin and Terry McKinley . They 
call for a new global safety net - a progressive income tax on the GNP of rich 
countries, the proceeds of which would be allocated to the poorer countries. 
Models for this type of compensation or equalizing adjustment already exist on 
the national and regional level. In Germany, for example, there is the concept 
of financial adjustment among the German Laender and in the European Union 
there is a compensatory structural policy. Moreover, the contractual 
relationship between the EU and the ACP countries under the Lomé Convention 
can serve - in spite of its deficiencies - as an indication of the way 
development cooperation could move in the future. The United Nations should 
undertake further analyses of the feasibility of such North-South contracts. 

*partie=titre Crisis of the Multilateral Aid and Financial Agencies *partie=nil  
As governments have cut their official development assistance, they have also 
reduced their support for multilateral funding agencies like the United 
Nations Development Programme (UNDP), and even international financial 
institutions like the Bretton Woods Institutions. In particular, UNDP was 
seriously affected by the ODA decrease in recent years. Quite a few 
governments have cut their voluntary contributions to this agency, including 
(by 1998) the United States, Germany, France and Japan. In sum, the voluntary 
contributions fell from 1178 million dollars in 1992 to about 750 million 
dollars in 1998. "UNDP's current core funding situation has become extremely 
critical", warned Administrator James Gustave Speth at the Executive Board 
meeting on June 18, 1998 . 

Voluntary funds have also been cut in the case of other UN and regional 
development agencies, including UNICEF and UNIDO, while budgets based on 
assessments have been cut back as well in such agencies as the World Health 
Organization and the International Labour Organization. Remaining funds in the 
multilateral sphere are more tightly controlled by funder governments, 
reducing the multilateral nature of the funding process. 

The United Nations' core budget - supporting the UN-Secretariat and 
intergovernmental negotiations - has also suffered severe cuts in recent 
years, with negative consequences for multilateral development planning and 
coordination. Cuts in this budget began in 1985, as the United States 
government refused to pay its regular assessment share. Ten years later, the 
UN had reached a deep financial crisis and many of its regular activities had 
come close to paralysis. The UN remains threatened and unless the United 
States Congress acts to repay the 1.5 billion dollars in current arrears, the 
world organisation could well collapse, destroying the only global institution 
capable of creating innovative approaches for development finance. 

Under these circumstances, the pledge of US billionaire Ted Turner of 1 
billion dollar over ten years in support of UN development and humanitarian 
programs, announced in October 1997, was warmly welcomed by the Secretary 
General and other officials as a new source of revenue. And Turner offered to 
find more rich individuals to help with the funding crisis. But the Turner 
millions are actually only a very small percentage of the total budget of the 
UN system (100 million dollars vs. 7-8 billion dollars or about 1.5 percent). 
Further, they move towards a model of private philanthropy, placing reliance 
on wealthy individuals for what should properly be a public function and 
responsibility. 

*partie=titre Foreign debt as obstacle to development *partie=nil  
The consequences of decreasing bi- and multilateral ODA in the 1990s are of 
minor importance compared with the dramatic debt situation of many developing 
countries. Their foreign indebtedness seriously affects their ability to 
pursue sustainable development. In theory, foreign loans could be used to 
finance environmental and social activities in the South. For example, debt 
might be used to import cutting-edge environmental technology or to finance 
industries producing solar energy panels or similar environmentally-friendly 
products. But in practice, the debt process seriously damages sustainable 
development. Huge debt-financed projects often lead directly to environmental 
degradation (roads, dams, petroleum prospecting, etc.) and enormous sums 
(sometimes half or more of a project cost) are siphoned away as corruption 
into the pockets of politicians and their private sector allies. 

Projects aimed at providing public goods such as environmental protection or 
basic social services like education, public health, clean water and 
sanitation do not directly produce a surplus for repaying debts and interests. 
As a consequence, Governments have been often forced to raise new loans just 
to meet their current obligations. This vicious circle has driven them ever 
deeper into debt. The situation often has gotten worse as a result of 
decreased raw material prices, currency devaluation, the costs of 
environmental and social damage, bad management and corruption. The result has 
been a deepening debt crisis during the past two decades, which has driven 
more than half the world's countries to the brink of bankruptcy and forced on 
them ever-more-draconian austerity policies. 

The overall foreign debt of developing countries reached an all-time high in 
1997 estimated at 2,171 billion dollars, compared to 603 billions in 1980 and 
1,444 billions in 1990 (see Table 2). While the debt situation of the 
seriously indebted middle income countries (SIMICs) temporarily eased 
recently, many of the poorer countries, most of which are in Sub-Saharan 
Africa, have continued to face dramatic problems. But even the emerging market 
economies of Latin America and South-East Asia face a highly volatile debt 
situation - as the Mexican crisis in 1994 and the Asian crisis of 1997 and 
after clearly demonstrate. Since exchange controls have been lifted, 
short-term investment funds can depart overnight and speculation against local 
currencies can easily overwhelm the capacity of central banks to defend 
exchange values. When local currencies lose a quarter or half of their value 
in a sudden "crisis of confidence," local banks collapse, businesses close and 
millions of workers are suddenly thrown into unemployment and poverty. As the 
local economy goes into a tailspin, foreign debts are suddenly far costlier to 
repay. So even the "miracle" economies enter the company of their poorer 
cousins, in a kind of debt peonage to the Northern lenders. 

In 1997 the total debt-service flow from the developing countries to northern 
Governments, commercial banks and international institutions amounted to 269.2 
billion dollars, more than four times as much as the whole ODA flow to these 
countries. If these enormous repayments were backed by productive assets, they 
would pose no problem. But the combination of gross investment errors, waste 
and corruption has resulted in assets which fall far short of sustaining the 
debt service. If these were companies, they would long ago have sunk into 
bankruptcy and the lenders would have lost their capital. But instead, the 
military and financial might of lender governments protects the dubious 
original loans, shielding the lenders from risk. So the borrowers must pay, 
however gruesome the social consequences. 

To restore the solvency of the highly indebted countries, the World Bank and 
IMF imposed Structural Adjustment Programs (SAPs) on most of them which 
further reduced their capacity to finance social and environmental programs. 
The Bank and the Fund required neoliberal policy shifts including radical cuts 
in national budgets that had damaging effects on sustainable development and 
social justice . But despite the immense adjustment burden which led to 
environmental degradation and growing social disparities, most countries' debt 
problems have not been overcome. 

Many have proposed forgiveness of these debts as an essential step towards 
sound development, making available urgently needed financial resources to the 
poorest countries. But debt forgiveness alone runs the risk of throwing more 
money into a fatally-flawed process. Would not most of the newly available 
funds, released from debt service, find their way into the pockets of corrupt 
officials and their wealthy cronies? How much of the money would be 
transferred to secret bank accounts in Switzerland, Liechtenstein or the 
Cayman Islands? 

So debt remission is necessary but not enough. There must, at the same time, 
be a major increase in the accountability of public officials, joined to a 
judicial process for recovery of stolen or corruptly-obtained funds. Some 
experts believe that if all these funds were recovered, there would no longer 
be a debt problem and possibly few debts at all. A former official in Algeria 
announced in the early 1990's that according to information at his disposal, 
Algeria's total foreign debt was matched by stolen funds in foreign accounts. 
Indonesia, the Philippines, Congo (Kinshasha) and Haiti would appear to be 
just a few of the many similar cases. 

International financial institutions and bi-lateral lenders could easily 
establish rules of accountability insuring honest use of their loan funds. 
Instead, they have chosen to look the other way, while imposing harsh 
conditions on the world's poor. The time has come to reverse this cruel double 
standard and insist on accountability as a primary condition for new lending 
and (especially) for debt remission. 

*{Billion US-dollars, unless otherwise indicated.
Source: World Bank, Global Development Finance 1998, Analysis and Summary 
Tables}
 
The World Bank and IMF launched a more traditional debt-forgiveness initiative 
for the heavily indebted poor countries (HIPC) in fall 1996. This so-called 
HIPC Initiative aims to remove the "debt overhang" of these countries and to 
ensure that their debt is reduced to "sustainable levels" . Sustainable debt 
levels are defined by the World Bank within the range of 200 to 250 percent 
for the debt-to-export-ratio (on a present value basis) and 20 to 25 percent 
for the ratio for debt service to exports. Currently 41 countries are on the 
HIPC list but until 1998 only six (Bolivia, Burkina Faso, Uganda, Guyana, Côte 
d'Ivoire and Mozambique) had been declared eligible for debt relief - after 
years of severe economic and social reforms. These countries expect to benefit 
from the HIPC Initiative. As the Ugandan Minister of Planning and Economic 
Development Richard Kaijuka stated in April 1997: "This debt relief will help 
us to put more resources into our national Poverty Eradication Plan, 
especially President Museveni's recent initiative of universal primary 
education, the provision of basic health care and improved nutrition to our 
people, and the overall enhancement of rural development." 

Many concerned NGOs have welcomed the HIPC Initiative as a first, imperfect 
step to help the poorest countries exit from the worst burdens of debt. 
Nevertheless, even setting aside the question of accountability, the 
Initiative doesn't go nearly far enough. Its criterion for a sustainable debt 
level is too narrow. Clearly, this restrictive definition is determined by the 
interests of the creditors, not by the real needs of the debtor countries and 
their people. Instead of this narrow approach, the debt level of a country 
should only be regarded as sustainable if the basic needs of the people living 
in this country are satisfied and debt-service payments don't restrict their 
ability to meet these basic needs. Comparable rules for private debtors have 
been for a long time part of national insolvency laws in many developed 
countries (for instance, debtors have a legal right to pay for their basic 
needs for shelter and food before they pay their creditors). If such 
indicators could be developed and applied, the group of countries eligible for 
debt relief would increase significantly. Simultaneously the amount of debt 
remission would be much higher than the minuscule 7.4 billion dollars of the 
current HIPC Initiative out of a debt total of 2,171 billions. The United 
Nations with its multidisciplinary scope would be the right place to develop 
the necessary sustainability indicators for debtor countries and to draw the 
conclusions for further debt remission proposals. 

*partie=titre Private investment - the deceptive hope *partie=nil 
Private capital flows to developing countries have increased dramatically 
during the past decade and outstripped ODA as major source of external 
financing. In particular the sharp rise in the amount of foreign direct 
investment (FDI) and portfolio investment has misled many governments into 
hoping that private moneys can compensate for the lack of government funding 
in the environmental and development fields. At the same time, however, the 
fact that corporate board rooms still continue to focus on short- and 
medium-term sales and profit results is studiously overlooked. The 
Secretary-General of the UN stated rightly in a report on the Rio follow up: 
"Although private capital has the potential to finance sustainable 
development, so far it has typically avoided projects whose main purpose is to 
generate environmental and social benefits." 

When corporations make decisions, environmental and social concerns play a 
secondary role at best. Marshall N. Carter, Chairman and Chief Executive 
Officer of the State Street Corporation, made the priorities very clear in a 
paper presented to the Second Committee of the UN General Assembly in May 
1998: "[...] financial practitioners have a fiduciary responsibility under 
law," he said, "to maximize return on investment for the funds entrusted to us 
by our customers." Goal-directed, coordinated action toward sustainable 
development in the South cannot be expected from private investors of the 
North. On the contrary, low wage levels, a lack of labor regulations and low 
environmental standards continue to be the preferred standards in attracting 
corporate investment. 

The advocates of free global markets try to convince critics of just the 
opposite. "Open markets matter" is the credo of a recent OECD report 
describing the economic, social and environmental benefits of trade and 
investment liberalisation. The OECD published this report in April 1998 as a 
response to the sharp opposition of citizen's groups, NGOs and trade unions 
against the currently negotiated Multilateral Agreement on Investment (MAI). 
But even the authors of this report had to confess that "the message that open 
markets lead to increased welfare in the aggregate is of little consolation to 
people whose lives may be adversely affected by change [...]" . They notice at 
least that "there exist rising public concerns in a number of industrialised 
countries over high and persistent unemployment, widening earnings and income 
disparities and the accelerating pace of change brought about by 
globalisation." The conclusion of the OECD: "It's all the more important, 
therefore, that there be effective policies in place to respond to concerns 
that the benefits of liberalisation should not be distributed too unevenly." 
In other words, the worldwide liberalisation of market access and investment 
conditions alone doesn't lead automatically to an improved quality of life for 
the majority of the people. On the contrary, many empirical studies 
demonstrate the detrimental impact of uncontrolled investment activities in 
countries without adequate environmental and social legislation. The cases of 
Shell in Nigeria, Mitsubishi in Indonesia or Nike in Vietnam are only a few of 
the many cases in point. 

From a macroeconomic perspective, the effects of short-term portfolio 
investments in the South may be even worse. It is a fantasy to imagine that 
the billions of dollars in mutual funds and pension funds worldwide could be 
mobilized to support sustainable development in the South . For this kind of 
capital is particularly speculative and volatile by nature and mainly 
interested in quick appreciation, growing profits and stable investment 
conditions - legitimate interests from the owners point of view. If there 
appear even slights signs of crisis in an economy, this capital often 
"disappears" immediately and thus greatly aggravates the emerging crisis. 
Whether the capital comes from a trade union pension fund or a fund with only 
millionaire participants is irrelevant: all tend to head for the door 
simultaneously. The Mexican "Peso Crisis" of 1994/95 is an excellent example 
of this tendency. Kavaljit Singh summarizes the lessons learned: "The Mexican 
case illustrates the dangers of over-reliance on volatile, short-term capital 
flows to finance unsustainable current account deficits. These private capital 
flows are no substitute for domestic savings and, at best, can only supplement 
domestic resources." 

But as the investment-saving gap in most countries of the South cannot be 
filled exclusively by domestic capital in the nearer future, clear rules for 
international portfolio capital flows have to be established to protect the 
economies of the South from the adverse effects of these investments - 
particularly the effects of sudden movement. Chile has established laws that 
act as a brake on such sudden capital movement by imposing a minimum time 
frame for investment - regulations of this kind should be adoppted on a global 
level, with the support of the IMF. 

Current attempts to further deregulate and liberalize portfolio investments 
through a Multilateral Agreement on Investment are moving things in the wrong 
direction and must be rejected. Similarly, to assure that FDI are conducive to 
sustainable development, a legal framework has to be established to guarantee 
binding environmental and social standards worldwide. This framework must also 
contain compensatory measures for the poorer countries. As long as the world's 
nations do not accept and implement internationally agreed environmental and 
social standards, private foreign investment will continue to be a major cause 
of environmental degradation, exploitation of labor and the crowding out of 
local industries. 

Elements of a legal framework for such standards have long existed - for 
example in the human rights instruments and the ILO conventions. However, no 
headway is being made to develop them further or to put them into concrete 
terms, as in extended producer responsibility in the social and environmental 
areas. Companies must be held responsible for working conditions in their 
plants and for the welfare of their employees just as they must be held 
responsible for the impact their products and production methods have on the 
environment. Efforts on the part of trade and industry groups to obviate 
government regulation by assuming voluntary obligations such as the ISO 
standards - which concomitantly take the wind out of the sails of calls for 
tougher measures - should not be allowed to obscure the fact that legally 
binding global regulation is needed.
 
All these elements of a new global investment regime aimed at the objectives 
of sustainable development should not be negotiated in the limited and 
business biased fora of the OECD or the WTO. Instead, the United Nations 
should take up these questions, possibly by organizing a World Conference on 
Investment for Sustainable Development with the clear objective of 
establishing binding environmental and social responsibilities for investors. 
But it must be emphasized that even the most effective private investment 
measures cannot substitute for the activities of public institutions. The 
private sector cannot and should not take over the responsibilities of the 
state. To fulfill public tasks, be it in the area of peace and security, or in 
the economic, social or environmental fields, states must be provided with the 
necessary funding on the national and international level.
 
*partie=titre Redistribution and mobilization of domestic resources *partie=nil  
Most of the international declarations and programs of action of recent years 
emphasize the need to mobilize domestic resources for social and environmental 
purposes. But when faced with calls to increase funding for sustainable 
development, the governments usually reply that their coffers are empty. A 
serious analysis of national budgets shows, however, that sufficient money 
would be available if existing public and private resources were reallocated. 
The world economy is more productive and prosperous than ever and should 
easily be able to afford the needed new spending. Both the expenditure and 
revenue side of government budgets offer many possibilities for reallocation. 
Controls on corruption also offer huge possibilities for savings.
 
Looking at the expenditure side, governments could cut very substantially 
their enormous military budgets. Reflecting the end of the cold war, worldwide 
military expenditures declined by one third between 1985 and 1995. But huge 
waste remains. Every year hundreds of billions of dollars are spent on small 
arms, land mines, weapons of mass destruction, fighter-bombers, tanks, 
artillery and a world army of more than 23 million soldiers (1995) . So there 
is a big potential for savings and an urgent need for further reallocation of 
military budgets towards social needs. 

Similarly, government budgets now contain a large number of harmful subsidies 
which offer substantial opportunities for redistribution. Governments continue 
to encourage environmentally harmful and socially inequitable production and 
consumption patterns by granting concealed and open subsidies. These subsidies 
include export subsidies for agricultural surpluses, state guaranteed export 
credits (e.g., for the construction of dams or the export of armaments), 
long-term contracts to purchase products from the armaments industry, and 
waivers on petroleum tax for certain industries. These types of subsidies not 
only harm the environment, they also absorb billions of dollars in financial 
resources which are urgently needed in the social and development fields. 
According to a study undertaken by the Institute for Research on Public 
Expenditure, 700 to 900 billion dollars are spent every year worldwide on 
subsidies in just four economic sectors (water, agriculture, energy and road 
transportation) - often with a very detrimental environmental impact. The 
study mentions these cases, among others: "Rice growers in Southeast Asia 
over-irrigate their fields, because subsidies cover most of the cost. Drivers 
in southern California continue to funnel onto congested thruways, because 
subsidies take care of more than half the cost of their daily commute. 
Uneconomical and highly polluting coal is still mined in Germany as back-door 
welfare support for the miners." Even if these subsidies were to be only 
partly dismantled, there still remain hundreds of billions of dollars that can 
be shifted to sustainable development. 

On the revenue side, new resources could be obtained by implementing an 
ecology-based and more socially responsible and egalitarian tax policy. Such a 
policy would raise taxes on corporate profits, assets, inheritance and high 
incomes and eliminate tax loopholes and other forms of tax avoidance. The 
current tax system in many countries discriminates against "labor" as a 
production factor while favoring the exploitation of natural resources. 
Consequently, the tax system must be reorganized on an ecological basis so 
that the consumption and use of resources are subject to higher taxes. In 
doing so, care must be taken to ensure that such a reform does not lead to 
inequitable redistribution. Concrete blueprints for a comprehensive ecological 
tax reform were drawn up years ago but have yet to be put into effect . These 
plans involve an energy/CO2 tax and a tax on non-renewable resources . While 
harmonized taxes on the global level would be the best solution, there remains 
the possibility of initiatives on a regional and even national level. 
Countries like Denmark and the Netherlands demonstrate this very clearly and 
their leadership may inspire wider reforms. 

*partie=titre Alternative Financial Instruments *partie=nil 
Global instruments for revenue-raising, including various taxes and fees, 
offer a major new potential source for development finance. Most proposals of 
this type involve very small taxes or fees on very large global transactions, 
yielding a large revenue while imposing a relatively light burden on any 
individual. One of the best-known proposals has been advanced by James Tobin 
of Yale University, who first proposed in 1972 a tax on currency exchange 
transactions . Tobin made his proposal in order to reduce speculation in the 
exchange markets, a goal which is even more important today than when Tobin 
first proposed it. The revenue-raising potential of the idea is enormous. With 
an estimated 1.5 trillion dollars in foreign exchange trades every business 
day in 1998, yearly trading volume is well over 350 trillion dollars. A tax of 
just one percent would yield 3.5 trillion dollars per year, more than fifty 
times the total of ODA. Even assuming a major reduction in market volume 
caused by the tax, the potential yield would remain very substantial. 
The Tobin tax has several major advantages in implementation, since the 
overwhelming majority of foreign exchange transactions are carried out by a 
small number of money center financial institutions. If their computers could 
be programmed to deduct the new tax and forward it to a collecting agency, the 
cost of collection would be virtually zero. And the process of oversight would 
be fairly simple: a team of a dozen experts, endowed with the proper 
authority, probably could do the job. 

Another major proposal calls for a global environmental tax, such as a tax on 
carbon emissions or the carbon content of fuels. This tax would be more 
complicated to administer, since it would have to be levied on tens of 
thousands of fuel producers. But there is a very compelling case for such a 
tax as an environmental policy instrument, quite apart from its 
revenue-raising potential. As a revenue device, like the Tobin tax, it could 
generate very large sums with a relatively small percentage tax, given the 
very large volume of carbon-based fuels involved. A higher tax, that would 
substantially reduce the use of carbon-based fuels, might raise an even larger 
revenue stream, at least in the short run. 

Many other proposals have been made for global revenue-raising, including fees 
for various uses of the "global commons" - use of the oceans and the 
atmosphere, parking of satellites in earth orbit, and commercial use of the 
airwaves. Taxes on international air and sea travel and on internet traffic, 
fines for environmental pollution like dumping in the oceans, and even an 
international lottery have been proposed as further approaches to global 
revenue-raising. 

Political leaders, eminent personalities and economic experts have shown 
considerable enthusiasm for these ideas. Former President Mitterand of France 
even supported the proposal for a foreign exchange tax of the Tobin type at 
the UN Social Summit in March, 1995. There have been many major conferences 
and intergovernmental consultations on the subject. And there are even new 
grassroots groups in the United States and France lobbying for such policies. 
But there remain many barriers, including strong opposition from affected 
business interests (banks are firmly opposed to the Tobin tax, for example, 
and oil companies to the carbon tax). There is also hesitation on the part of 
governments to turn even a limited taxing authority over to a multilateral 
agency, thus ceding an important element of national sovereignty. 

Opposition of this kind is strongest in the United States, where the Congress 
has passed a law forbidding the United Nations from even considering global 
tax measures. The United Nations has taken this prohibition very seriously and 
several projects to study the issue have been shelved, while intergovernmental 
discussions of the subject are now virtually taboo. But the hesitation on the 
part of governments is short-sighted. They would lose relatively little 
sovereignty, since state tax authorities would remain in control of the 
process, as in the EU. Also, the states might retain a substantial proportion 
of the revenues, easing their own revenue pressures. 

Global tax advocates must overcome serious public suspicion that such taxes 
would be imposed and spent unaccountably. There is a need to insure democratic 
oversight and control over the tax mechanism and how the resulting revenues 
will be spent. Some reformers have a technocratic conception of the tax and 
would prefer a more-or-less automatic flow of funds. But if the tax idea is to 
succeed, it must have the confidence and support of ordinary citizens. For 
this, there must be more democratic and more responsible decision-making 
bodies at the global level. 

The first global taxes will probably not be as ambitious as the Tobin or 
carbon tax proposals, with their billions of dollars of income, for they are 
vulnerable to opposition from exceptionally powerful vested interests. 
Instead, more modest proposals are likely to set the early precedents. The EU 
is moving forward with an air fuels tax, an idea that might possibly be 
extended to global application. But planning must go forward for the larger 
taxes and political backing for them must now be assembled. No solution to the 
crisis of development finance is more promising than this one. 

The Asia Crisis and a New Initiative at the UN on "Financing for Development" 
Until the spring of 1997, it seemed likely that a downward spiral of global 
public institutions, official development assistance and global development 
policy coordination would continue indefinitely. Then, the Asian crisis 
suddenly emerged. In June, a major speculative run on the baht dragged the 
booming economy of Thailand into a sudden slump. In quick succession there 
followed major currency and economic crises in Malaysia, Indonesia, and South 
Korea. Japan's once dynamic economy started to weaken dangerously. By late 
1997, it had become apparent that the entire world economic system was in 
danger. 

As a result of this dramatic new conjuncture, policy makers began to question 
the previously unassailable positions of neoliberalism and market "freedom" at 
all costs. Joseph E. Stiglitz, Senior Vice President and Chief Economist of 
the World Bank gave a dramatic lecture at the World Institute for Development 
Economics Research (WIDER) in Helsinki on January 7, 1998 stating bluntly that 
previous policies had been "misguided." He called for a new policy consensus 
that would include stronger financial regulation and other measures to 
restrain unstable markets. The problem, he said, is "not that the government 
has done too much, but that it has done too little." 

Suddenly, with the Bretton Woods Institutions admitting their mistakes, and 
financial storms breaking across the globe, influential private corporations 
and governments accepted "new approaches" to global regulation. In this 
context, governments turned back towards the United Nations, hoping that it 
could provide a platform for broad intergovernmental negotiations and as such 
that it could produce a badly-needed new consensus for action. In that spirit, 
the UN General Assembly on December 18, 1997, passed a resolution calling for 
study and preparation of a global intergovernmental conference on "Financing 
for Development" - a conference that would re-consider the entire development 
finance system. For the first time in nearly two decades, the rich countries 
seem ready to allow the United Nations to take center stage in the global 
financial arena. 

The "Financing for Development" initiative is not just another North-South 
skirmish. Rather, it is an authentic, broadly-based initiative that has the 
support of the Northern countries and of the powerful financial institutions 
as well. To the astonishment of many observers, a meeting organized by the 
Economic and Social Council (ECOSOC) at UN headquarters in April 1998 drew the 
participation of IMF Managing Director Michel Camdessus, as well as a high 
World Bank official and a number of finance ministers and other key players in 
the global financial system. As acting ECOSOC President Ambassador Fulci of 
Italy said, "the Asian crisis has resulted in great attention being given to 
the sharing of risks and benefits in times of financial turmoil." 

That unprecedented April meeting - originally planned to foster greater 
coordination between the UN and the Bretton Woods institutions - was followed 
again on July 6, 1998 with yet another high level meeting at the UN, this time 
with the participation of Camdessus, World Bank President James Wolfensohn, 
UNCTAD Secretary General Rubens Ricupero, and WTO Deputy Director General 
Anwarul Hoda. In the meantime, a series of important preparatory "briefings" 
had been held at UN headquarters to consider various aspects of the crisis and 
possible international responses to it. Never has there been such widespread 
agreement that the existing system needs to be re-cast. 

Neoliberal dogmas have melted down along with the baht, the ringgit and the 
won. But what will now be invented to take their place? Clearly, it is not 
just a matter of going back to the nostrums of Keynes, Harry Dexter White and 
the other architects of the post-war economic system. Globalization has 
created a radically different landscape and a need for far stronger and more 
effective global institutions. Global regulation, global development finance, 
even global taxation must at last be given serious consideration, in the 
framework of more accountable and democratic global institutions. These are 
the major challenges for the UN, governments and civil society in the eve of 
the 21st century. 
*{*********************************************************************************}

*{Jens Martens
Diplom-Volkswirt. Member of the Executive Board of World Economy, Ecology & 
Development Assoc. (WEED). UN Representative of WEED and Co-ordinator of the 
WEED Project Group on the United Nations. Various publications on UN reform 
and international environment and development policy. Co-author of: 
UN-williges Deutschland. Der WEED-Report zur deutschen UNO-Politik. Bonn, 
Dietz 1997. Recent publications: Kompendium der Gemeinplätze: Die „Agenda für 
Entwicklung": Chronologie eines gescheiterten Verhandlungsprozesses. In: 
Vereinte Nationen 2/1998; as co-author: Alles neu macht das MAI? Das 
Multilaterale Investitionsabkommen. Informationen - Hintergründe - Kritik. 
Bonn, WEED/Germanwatch, 1998. 
James A. Paul
Executive Director of Global Policy Forum in New York City. He also serves as 
UN Representative of the International Federation of Human Rights. He is Chair 
of the NGO Working Group on the Security Council. Author of various 
publications on UN reform and the UN financial crisis. Co-editor of the Oxford 
Companion to Politics of the World, New York , Oxford University Press, 1993. 
His most recent book (together with Susanne S. Paul): Humanity Comes of Age, 
Geneva, World Council of Churches, 1994.}