Press Release ECE/GEN/00/34
Geneva, 7 December 2000
UN/ECE Regional Conference on "FINANCING FOR
DEVELOPMENT"
Concludes Work
Calls for Sharing of Benefits and Burdens of
Economic Transition,
Continuation of Official Assistance, Crisis Mechanisms
A two-day conference on boosting financing for "transition"
economies in Central and Eastern Europe concluded this afternoon amid calls for continued
official assistance as a stabilizing and catalyzing agent for economic progress; for
regional mechanisms to cope with financial crises that could swamp individual countries;
and for more effective sharing of the social burdens and costs that often resulted from
drastic economic restructuring.
The session, entitled the "UN/ECE Regional Conference on Financing
for Development," was organized by the United Nations Economic Commission for Europe
(UN/ECE) in cooperation with the European Bank for Reconstruction and Development (EBRD)
and the United Nations Conference on Trade and Development (UNCTAD). One aim of the
meeting was to offer input to a High Level Intergovernmental Event on Financing for
Development to be convened next year by the United Nations General Assembly.
In closing remarks, the session's Chairman, Jorgen Bøjer of Denmark,
said, among other things, that it was important that European countries learn from each
other's experiences -- the successes and the failures -- and that is what had occurred
during the conference. He also said it was clear that good governance was vital for
transition processes to succeed; that the benefits of development had to be widely and
fairly shared throughout national populations; and that regional cooperation was vital for
helping countries enter world markets and for maintaining peace and stability.
Harald Kreid, Chairman of the ECE, remarked that there had been a
surprising amount of agreement on the major issues of transition and financing; that there
had also been noteworthy impatience expressed by many participants who were eager for the
benefits of transition to arrive. Efforts to aid transition processes needed to be
expanded and intensified, he said, and they also needed to be customized to meet the
requirements of specific countries.
Danuta Hübner, Executive Secretary of the United Nations Economic
Commission for Europe (UN/ECE), added that the economic performance of countries in
transition, even those undergoing severe difficulties, had been better recently; this
seemed to indicate that transition reforms were working, however painful they might be,
but to ensure that the growth is sustained the UN/ECE would continue its work on building
foundations of market system and development, realizing the need for progress in the area
of financing for development. One valuable outcome from a decade of transition efforts had
been a fund of lessons learned, she said; good practices that now existed could be made
available to others, and mistakes that had been identified could be avoided.
Earlier in the afternoon, the conference heard reports from the
Chairmen of four panel discussions held Wednesday afternoon and this morning on the topics
of "mobilizing financial resources for transformation and development: the domestic
dimension"; "the role of official assistance in creating the conditions for
sustainable development"; "foreign direct investment and the restructuring of
transition and emerging economies"; and "a regional perspective on global
financial issues".
Reports on panel discussions
DAVID KLEIN, Chairman of the panel debate on "a regional
perspective on global financial issues", said that among major points that had
emerged from the session were that prevention and management of financial crises was
important -- and for that, there was no substitute for effective policies and norms set up
and implemented on the national level. Governments should be taken out of business
decisions to the greatest possible extent, including by ending arrangements that
encouraged non-competitive behaviour, the panel had indicated; Governments were needed,
however, for such tasks as running effective educational systems and instituting effective
macroeconomic management.
Floating, flexible exchange-rate regimes seemed to be the trend for
countries that were successful in attracting foreign direct investment and in carrying out
effective economic transitions, Mr. Klein said. By contrast, experience had shown that
fixed exchange rates and large amounts of short-term capital investment could be an
explosive combination. Experience also had shown that regional cooperation could be
helpful for preventing and responding to financial crises, but were not a substitute for
good policies on the national level.
KRZYSZTOF NERS, Chairman of the discussion on "foreign direct
investment (FDI) and the restructuring of transition and emerging economies",
reported that as savings were limited, especially during recovery from transition periods,
capital flows had contributed significantly to the cost of financing investment and to
meeting rising investment demand; they also could improve the productivity of existing
resources. However, there was great variation in capital flows to transition countries --
the great extent of such investment had gone to but a few countries. It appeared that FDIs
came to those which had the best institutional frameworks and macroeconomic environments;
the extent of privatization also appeared to be a key factor.
One major finding of the panel session was that FDIs were often the
catalyst for extensive and positive change in transition economies, Mr. Ners said -- they
brought about improvements through transfers of technology and enhancement of corporate
culture. In more advanced transition countries, FDIs came to the technologically more
advanced sectors; in less-advanced countries, they came more to such areas as light
industry. Privatization of banking sectors appeared to be a stimulant. It had been noted,
and was worth repeating, that the world's major recipient of FDIs was the United States --
in other words, there was great competition for such investment, and transition countries
had to work hard to find the right combinations of conditions and policies to attract it.
And it was worth noting that FDIs could have negative effects, especially at high levels
of involvement in transition economies.
ARMEN MARTIROSSIAN, Chairman of the panel discussion on
"mobilizing financial resources for transformation and development: the domestic
dimension", said capital accumulation was an engine of growth, and traditionally
domestic investment had been seen as the major source of capital, but one cost of
transition had been a sharp fall in savings rates. There also had been such problems as
loss of confidence in banking systems, postponed consumption, and unfavourable age
structures, which had plagued transition economies with their ageing populations, leading
to heightened Government expenditures on pensions and to declining savings rates, as the
elderly did not accumulate savings and struggled merely to make ends meet.
Under such circumstances, foreign direct investment appeared to be
important for stimulating growth in transition economies. Nonetheless, some countries
appeared to -- and would have to -- depend largely on domestic capital for economic
growth, and were making progress despite the obstacles they faced. Carefully designed and
consistent Government economic policies were critical, and it was clear that countries
with more developed financial systems generated higher savings rates. It was also
important to develop conducive environments for small- and medium-sized enterprises, a
matter that had not received sufficient attention from Governments or the international
sector.
And CRISTIAN POPA, Chairman of the session on "the role of
official assistance in creating the conditions for sustainable development", told the
conference that one obvious conclusion of the session had been that there was no
substitute for putting one's house in order; internal reforms, well carried out, were
absolutely critical to economic transition and ultimate sustainable economic growth. If
such reforms were designed and implemented, official assistance could be useful.
It was agreed that official assistance should act as a catalyst for
stimulating private capital flows, Mr. Popa said; it should be used to aid small and
medium sized enterprises, to develop and update infrastructure, and to set up a fair,
transparent, and effective regulatory environment. Transition from official to private
sources of funding had been achieved in a number of transition countries, but phasing out
of official aid should be done carefully and with the terms set out well in advance; and
even in the more advanced transition economies there could still be a need for continued
official assistance, among other things for improving infrastructure, upgrading regulatory
institutions, and carrying out environmental programmes. One point made was that the
regulatory requirements that came with official assistance could be quite valuable in
themselves -- they helped Governments to take painful but necessary steps and helped them
to justify these measures to their populations. It was also clear that aid programmes had
to be tailored to the specific situations of recipient countries and that official aid
from different sources should be well-coordinated.
Discussion
There was a series of remarks from the floor. Speakers contended, among
other things, that land and property issues were vital for economic transition and
sustained economic growth; that multi-dimensional approaches and severe steps taken to
carry out transition had led to massive rises in unemployment, sharp drops in income, and
rising poverty rates, and that such consequences in many eastern European transition
economies had not been alleviated, at least to date, by the economic progress that had
been hoped for; that research had shown that foreign capital had contributed much less to
job creation than had been anticipated; that Governments were being discouraged in some
cases by sources of foreign capital from sufficiently regulating inflows of volatile,
short-term investment; that the social costs of transition were not being sufficiently
considered; and that populations had to be allowed to share the burdens of transition or
the stability of some nations could be threatened.
Closing statements
JORGEN BØJER, Conference Chairman and also Chairman of the Preparatory
Committee of next year's High Level Intergovernmental Event on Financing for Development,
told the meeting that it was important to learn from each other's experiences -- the
successes and the failures -- and that is what had occurred during the conference. Among
the conclusions he had drawn from the session, and which would be passed on to the High
Level Event along with a note prepared by the ECE secretariat, was that there had
been broad and effective participation in the meeting from a wide range of actors and that
a number of shared views and ideas had emerged on the overall topic of financing for
development. Broad, local ownership of development strategies was the key to the success
of development policies, and it was clear that good governance was vital for transition
processes to succeed; it was also clear that the benefits of development had to be widely
and fairly shared throughout national populations, that small- and medium-sized
enterprises had to be encouraged, and that regional cooperation was vital for helping
countries to enter world markets and for maintaining peace and stability.
Furthermore, Mr. Bøjer said, it was made apparent during the
conference that mechanisms were needed to cope effectively with financial crises and that
international help was important for setting standards and for building domestic economic
institutions and policies that would enable sustained economic growth. Official
development assistance should be tailored to the individual needs and circumstances of
recipient countries and should not be curtailed too abruptly -- such assistance continued
to play a crucial stabilizing role in transition economies.
HARALD KREID, Chairman of the ECE, said there had been a surprising
amount of agreement on the major issues of transition and financing; it also had been
encouraging to see certain hopeful examples of transition and economic progress, such as
Ireland and Estonia, and to hear from officials of those countries about how they had set
up and carried out their economic programmes. It was true that there had been suffering in
many transition processes as well; sometimes economists didn't hear the human side of
things sufficiently; and one thing that had come through during the conference had been
the impatience of many participants who were eager for the benefits of transition to
arrive. Efforts to aid transition processes needed to be expanded and intensified, and
needed to be customized to meet the requirements of specific countries.
In her concluding statement DANUTA HÜBNER, ECE Executive Secretary,
said that the economic performance in Europe had actually been better than expected, and
in case of countries with economies in transition better that at any time over the last
ten years. The factors behind this phenomenon were not only of external character, it was
also regional cooperation and progress in reforms. But to also make the long-term
prospects look good, a number of challenges must be addressed and the work on building
fundamentals, foundations of a market system and development must be carried on. To make
this process a sustained one, progress with regard to financing for development was
needed.
Ms. Hübner stressed that the meeting had reached a consensus on many
issues related to financing for development in the ECE region. Among these issues
mobilization of domestic resources was considered a key issue in transition and
development, but the need to support national efforts by a conducive and enabling
international environment was also recognized. The importance of institutional environment
for the process of financing for development and the essential role of implementation of
rules and policies already in place was stressed. The complementarity of all available
forms and sources of financing for development was underlined. Clear message here is that
everything matters, not only "how much" but also "how" and
"when" financing for development and transition is provided and used. A
constructive combination of different sources and their efficient use for development is
essential. The meeting also agreed on the importance of private flows in the region and
continuing relevance of public funds playing a catalytic role. Raising extra public funds
should not discourage enterprise efforts or savings, or otherwise distort resource
allocation.
Instead of maintaining unfair and unproductive subsidies and massive
inefficiencies in the production sphere, public resources freed by abolishing them should
be used to absorb social costs of transition and should be shifted towards social
expenditures, in particular for education and health. In this context, Ms. Hübner made
reference to the often raised issue of the role of local level with regard to financing
for development. State decentralisation reforms allow to catalyse local community to
actively participate in development and its financing. This complex process –
financing for development, to be successful must be comprehensive and consistent and well
sequenced adjusting to the changing reality in terms of the advancement of the
institutional and structural reforms and overall economic performance, as well as stage of
development.
Ms. Hübner mentioned that the meeting had agreed that close regional
and subregional cooperation with regard to financing for development to better use
available resources, to generate new ones, including innovative ones was needed, but also
the other way round - the financing for development process should be designed in such a
way so as to enhance regional cooperation and accelerate catching up and integration in
Europe.
Mrs. Hübner concluded by saying that "the change ten years ago
has made it possible for Europe to move towards a truly integrated region. This
integration process enables Europe to be stronger in the global economy. Our debate showed
that all the forms of financing for development are a powerful tool for this integration
and mutual prosperity."
For further information please contact:
Economic Analysis Division
United Nations Economic Commission for Europe (UN/ECE)
Palais des Nations
CH - 1211 Geneva 10, Switzerland
Tel: (+41 22) 917 27 18
Fax: (+41 22) 917 03 09
E-mail: [email protected]
Website: http://www.unece.org/ead/ead_h.htm