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Jubilee Research Briefing on the International Financing Facility
The UK Chancellor Gordon Brown has proposed a new scheme to double aid flows from $50bn to $100bn in order to meet the internationally agreed Millennium Development Goals (MDGs.) The proposed 'International Financing Facility' would enable donor countries to borrow from the international capital markets in order to provide large increases in aid flows between now and 2015. The money borrowed in this way would be paid back up to around 2032 by the donor country out of its long term aid budget.
According to the UK Treasury the IFF 'could also be used to help fund further debt relief for existing debts, which for some poor and indebted countries is a valuable instrument to help achieve the millennium development goals.'
Jubilee Research strongly welcomes some aspects of the proposal, including:
- The recognition that further debt relief is needed to meet the Millennium Development Goals (MDGs.) This point, which has been frequently made by HIPC Finance Ministers, African Governments, the UN, and NGOs, has until now been given relatively short shrift by the UK Government.
- The recognition that meeting the internationally agreed MDGs will require substantial increases in resources, and that rich countries have an obligation to provide such resources;
- The commitment to long term, stable and predictable aid flows, and improved donor co-ordination, making it easier for poor countries to implement long term strategies and ensuring that they will be able to meet the recurrent costs of investments in poverty reduction;
- The acceptance that the bulk of the funding should go to countries in form of grants rather than loans, in order to prevent the build up of unsustainable debt burdens.
However, Jubilee Research has some concerns about the IFF as it currently stands
These include:
- The outlook for aid flows after 2015. According to the proposal, an increasing share of the aid budget after 2015 will be used to repay the IFF rather than going to poor countries. However, even if the MDGs are met, Jubilee Research believes that substantial volumes of aid will still be necessary. This is particularly true given that the AIDS pandemic in Africa looks set to continue to wreak havoc for many years to come. Furthermore, as climate change continues the effects of climatic disasters on many poor countries are likely to increase substantially.
- The IFF will also put in place conditions on liberalisation on trade and investment. Under the IFF each developing country would need to commit to the Doha development agenda, which involves 'a sequenced opening up of markets to global trade.' This is despite the very limited evidence that trade liberalisation benefits growth and poverty reduction in poor countries and the substantial evidence that it can be harmful.
- More broadly, the IFF seems set to reinforce the current system of aid delivery whereby countries must be on track with their IMF programmes in order to receive aid from other donors. This effectively gives the IMF, with its neo-liberal view of the world, monopoly power to impose its deflationary macroeconomic policies on developing countries. The IFF states explicitly that no country which is in arrears to the IMF will be able to receive funds from the
IFF.
- The IFF, in appearing to provide 'the answer' to the problems of meetings the MDGs by 2015, may detract attention away from the need for fundamental changes in the global economy, including in the control over and disciplining of international capital flows and the reversal of inequalities within the global trading system.
For more information on in the International Financing Facility, see
http://www.hm-treasury.gov.uk/documents/international_issues/int_gnd_intfinance.cfm
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