Bridging interests, Bridging peoples. (Development Watch).

In mid-March, more than 50 heads of State, over 200 government Ministers and hundreds of leaders from civil society and the private sector gathered in Monterrey, Mexico for the International Conference on Financing for Development. This summit-level meeting addressed a daunting array of issues, including the role of domestic financial resources, private capital flows, international trade, development assistance and debt relief. It also tackled broad systemic issues related to governance of the international monetary, financial and trading systems. In August 2002, the World Summit for Sustainable Development (WSSD) will open in Johannesburg, South Africa, with the task of assessing progress in the ten years since the Rio "Earth Summit" and agreeing to a bold plan of action for putting sustainable development into practice worldwide.

Given the important links between the issues addressed in Monterrey and those to be discussed in Johannesburg, it is disappointing that preparations for the two events proceeded over the last few years on largely separate tracks. Although the Financing for Development Conference process shied away from discussing the "sustainable" part of the development agenda, it was nonetheless an important milestone on the road to the WSSD. The challenge of the coming months will be to build on some of the modest achievements of Monterrey to deliver tangible results in Johannesburg.

The 1992 Earth Summit attempted to bridge the interests of countries of the North and the South in forging a sustainable development path through what is sometimes called the Rio bargain. Its essence was that industrial and developing countries would agree to implement a range of environmental provisions contained in Agenda 21 and other Rio documents, with industrial countries providing substantial financial resources to help others accomplish this. This financing was to come from a range of sources, including increased foreign aid, debt relief and improved market access for developing-country exports. Apart from generating resources to implement Agenda 21 commitments, Governments saw these steps as important in combating poverty and improving living standards in the developing world. Ten years later, frustration is running high in many quarters over a perceived failure of industrial countries to uphold their end of this bargain.

At the same time, the strength of the anti-globalization protest movement in recent years has focused public attention on the importance of addressing persistent inequities between the North and the South. As the Johannesburg Summit approaches, many observers are hoping that it will provide a platform for reinvigorating and updating the Rio bargain to form a Johannesburg Global Deal.

Agenda 21 put a price tag on its own implementation in developing countries of over $600 billion annually, $475 billion of which was expected to be generated from domestic resources and $125 billion to come as foreign aid. The aid sum was widely viewed as unrealistic at the time, as it amounted to twice the overall level of spending on foreign aid then. But northern Governments nonetheless agreed to strive to meet it, in part by reaffirming the commitments of many donor countries to contribute 0.7 per cent of their gross national product (GNP) annually to development assistance.

But in the decade since Rio, aid spending has declined substantially rather than increased. According to the Organisation for Economic Co-operation and Development figures, official development assistance (ODA) amounted to $54 billion in 2000, down from $73 billion in 1992. Aid spending as a share of GNP also declined, from 0.33 per cent in 1992 to 0.22 per cent in 2000. But spending levels vary greatly by individual donor country. In relative terms, Denmark leads the list, contributing over i per cent of its GNP in aid, with the Netherlands, Sweden and Norway close behind. The United States ranks as the least generous donor by this measure, spending just 0.1 per cent of its national income. But in absolute terms the United States is the world's second largest donor, following Japan. Several conditions are thought to have contributed to the decline in aid spending over the last decade, including the end of the cold war, large fiscal deficits in donor countries during the early to mid- 1990s and the growth of private capital flows into many parts of the developing world. An additional factor has been the growing skepticism from many quarters about the effectiveness of development aid in addressing poverty and other critical social and environmental challenges, particularly in countries beset by corruption.

Despite the shortcomings of many foreign aid programmes, there can be little doubt that the overall decline in aid spending over the last decade has made it more difficult to adequately fund key environmental and social programmes. The UN Environment Programme (UNEP) and the Global Environment Facility (GEF) are cases in point.

UNEP has been struggling to maintain its annual budget of roughly $100 million, while GEF annual spending has hovered at some $300 million annually. In comparison the United States Environmental Protection Agency had a budget of $7.8 billion in 2000, while the United States military budget was over $300 billion, and global military expenditures added up to more than $750 billion. Programmes aimed at reducing poverty and other pressing social problems are also starved for cash. In 2001, UN Secretary-General Kofi Annan called on donor nations to contribute $7 billion to $10 billion a year to a global fund to finance prevention and treatment programmes for AIDS, tuberculosis and malaria--three of the world's major killers. Nine months later, the fund had attracted only $2 billion in pledges, and less than half of that is expected to be delivered in 2002.

In September 2000, world leaders gathered in New York for the UN Millennium Summit, where they adopted a set of aggressive social goals for 2015, including: halving the share of the world's people living in extreme poverty, suffering from hunger and lacking access to clean drinking water; reducing maternal mortality by three quarters; and cutting child mortality by two thirds. Some $50 billion in additional aid spending will be needed to meet these targets, according to a report prepared for Secretary-General Annan as an input into the Monterrey Conference. If all donor countries were to meet the 0.7-per cent goal, an additional $100 billion in annual spending could be raised, more than enough to cover these costs. In this context, the commitments made at Monterrey by the United States and the European Union to boost spending on foreign aid were small but important steps forward. At the same time, it must be acknowledged that the overall decline in aid spending comes at a time when questions are being raised from many quarters about the record and role of ODA. The World Bank and the International Monetary Fund (IMF), in particular, have been heavily criticized in recent years for the impact of their economic policy advice.

Structural adjustment loans, in which recipient countries agree to implement specified policies in exchange for access to large cash infusions, have come under particular fire. The policies commonly include slashing government budgets, opening up to trade and foreign investment, and privatizing government-owned enterprises. Critics maintain that these have often exacerbated poverty and environmental destruction. The last few years have also increased perceptions that World Bank and IMF lending is inextricably linked with the persistent problem of Third World indebtedness, as these institutions concentrate on making loans rather than grants.

Despite pledges made in Agenda 21 to reduce debt and an energetic campaign for debt cancellation by NGOs, the total debt burden in developing and former Eastern bloc countries has climbed 34 per cent since the Earth Summit, reaching $2.5 trillion in 2000 (see chart below). In some heavily indebted countries, such as Zambia, debt-service payments now consume as much as 40 per cent of total government expenditures. These excessive interest payments are siphoning away resources that could otherwise be spent on much-needed social and environmental programmes, from HIV prevention and treatment to access to clean water and sanitation.

One development not anticipated at Rio was the rapid growth of private capital flows to some parts of the developing world. In 1992, private capital flows to developing and former Eastern bloc nations added up to $115.7 billion, more than 60 per cent of the funds flowing into the developing world. These funds climbed rapidly over the next five years, peaking at $315 billion in 1997-88 per cent of the total. They then declined precipitously in the wake of the Asian financial crisis, rebounded somewhat, and declined again in 2001 in the face of an uncertain world economic and political outlook. The general category of "private flows" covers several different kinds of finance. In 2000, private investment by multinational corporations (foreign direct investment, or FDI) accounted for nearly 70 per cent of the total, while stock and bond transactions made up most of the remaining 30 per cent.

The impact of private capital on sustainable development is a debated topic. On the positive side, FDI and stock market investments do not need to be repaid, unlike World Bank loans or commercial bank lending and bond offerings. FDI infusions, in particular, can provide needed investment capital and also facilitate technology transfer. For example, joint ventures with western companies have helped China to become the world's largest producer of efficient compact fluorescent light bulbs, and India to become a major wind power producer. They can also be a significant source of local employment. But critics argue that international corporations can threaten the viability of locally-owned businesses, and drain capital out of the country as profits are repatriated.

Apart from aid, debt reduction and private capital, another potentially lucrative source of income for developing countries is the removal of trade barriers to their exports. Agenda 21 called for industrial countries to grant greater market access for developing-country products in the context of the negotiations then under way on the Uruguay Round of trade talks. But many of the World Trade Organization's (WTO) rules have had the effect of prying open the emerging markets of the developing world to exports from industrial countries, while leaving intact large barriers to the entry of developing-country products into northern markets. Economists estimate that reducing remaining trade barriers could lead to income gains for developing countries in the range of $130 billion a year, although there is no guarantee that this money would be channelled to social or environmental programmes. At the WTO ministerial meeting in Doha, Qatar in November 2001, Governments agreed to an ambitious programme of future trade n egotiations. It remains unclear whether these upcoming talks will address fundamental North-South imbalances in the global trading system or if, as many NGOs believe, the currently fashionable rhetoric about a "development round" is largely a smokescreen for business as usual at the WTO.

Other ways to generate financial resources for sustainable development and to pay for "global public goods", such as peace and environmental stability, are also being discussed in the wake of Monterrey and in the run-up to Johannesburg.

These options include the possibility of small taxes on the use of the global commons. Levies on international air travel or on emissions of carbon dioxide, for instance, would help countries meet the goals and targets of the Kyoto Protocol, while also raising substantial sums that could be used to finance investments in meeting broader sustainable and human development goals.

One notable feature of the Monterrey preparations was the joint presence of the World Bank, IMF. WTO and the United Nations at the international financial negotiating table. In the past, the United Nations had been marginalized from the corridors of international economic power. One of the underlying goals of the Conference was to infuse some of the environmental and social values that the United Nations embodies into the narrower economic world view that tends to prevail in the other institutions.

The growing power of global economic institutions such as the WTO, juxtaposed against the relative weakness of international institutions charged with environmental protection and social welfare, is leading to a persistent imbalance in today's emerging structures of global governance. But collaborative action at the international level is essential if we are to successfully address the debilitating environmental and social trends that are undermining prospects for a livable and secure world.

The time has come to forge a new global bargain to protect the ecological integrity of the planet and improve the quality of life of the more than 6 billion people who currently inhabit it.

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RELATED ARTICLE: Monterrey Consensus

While the "Monterrey Consensus" emphasizes the role of national policies and the primary responsibility for each country's own economic and social development, it recognizes that domestic economies are interwoven with the global economic system, and national development efforts need to be supported by an enabling international environment. It commits leaders to join forces through a strengthened multilateralism, in recognition of the potential of the UN system for fostering worldwide cooperation, and to consolidate the global economic system around the principles of equity, participation, ownership, transparency and accountability. A central challenge is to attract direct investment flows to a much larger number of developing and transition countries; therefore, countries need to continue efforts for a transparent, stable and predictable investment climate, embedded in sound macroeconomic policies and institutions that allow businesses, both domestic and international, to operate efficiently and profitably, a nd with maximum development impact.

While Governments provide the framework within which businesses operate, businesses have a responsibility to engage as reliable and consistent partners in the development process. Commitment is reaffirmed for trade liberalization and ensuring that trade plays its full part in promoting economic growth, employment and development for all. The Consensus recognizes the urgent need to enhance coherence, governance and consistency of the international monetary, financial and trading systems, and stresses the need for the International Monetary Fund to further strengthen its surveillance activities of all economies, with particular attention to short-term capital flows and their impact. Pragmatic and innovative ways must be found to further enhance the effective participation of developing and transition economies in international dialogues and decision-making processes. One way to do that is for the WTO to ensure that any consultation is representative of its full membership, and participation is based on clear, s imple and objective criteria.

Hilary French is Director of the Global Governance Project at the Worldwatch Institute in Washington, D.C., a non-profit research organization that focuses on international environmental and development issues. She is co-author and Project Director of the Institute's State of the world 2002 report, on which this article is based.