The conference was opened by Mrs. Danuta Hübner, Executive Secretary,
Economic Commission for Europe. She emphasized that the main objective of the consultation
was to exchange views and experiences in attracting public and private flows to the
transition economies and in using them effectively for development. The meeting was also
expected to provide regional perspectives on issues related to governance in monetary and
financial systems at the global level. She recalled that this meeting was part of the
preparatory process towards the High Level Intergovernmental Event to be held in 2002.
Mr. Jørgen Bøjer, Chairman, Preparatory Committee of the High-level
International Intergovernmental Event on Financing for Development, Denmark, was elected
Chairman of the meeting. Mr. Bøjer provided details about the preparations for the High
Level Global Event pointing inter alia to the participation of other Regional Commissions,
other bodies of the United Nations, the International Monetary Fund and the World Bank as
well as entities from civil society and the business community.
The meeting was conducted through a series of panel discussions on five
specific themes related to the general problem of financing for development.
This report is based on the views expressed and the suggestions made by
panellists, member states, NGOs, and representatives of the private business sector. It
reflects lessons drawn from experience in the region and presents conclusions that might
be usefully taken up in the preparations for the High Level Intergovernmental Event. The
following is not a text agreed by ECE member governments but a report of the proceedings
prepared by the UNECE secretariat.
Financing the Process of Transformation and Development in the ECE Transition Economies
The Plenary Session raised some important points which were taken up in
more detail in the subsequent Special Sessions. It was emphasized that Europe is unique
for its wide disparities in levels of economic development across countries. Transition
economies have a much lower level of real income per capita than west European countries,
but there are also large disparities in the level of economic development among the
transition economies themselves. This underlined the importance of the issues related to
Financing for Development in Europe. A major goal of economic policies is to achieve
sustained economic growth and a significant reduction of income disparities between East
and West. But experience shows that the process of catching up will take considerable time
and that it will require massive restructuring of these economies. This points to the need
for huge investments in physical and human capital which will have to be financed mainly
from domestic resources.
It was stressed that many transition economies face chronic economic
and social problems which are essentially those of underdevelopment. These include very
low (by international standards) average levels of real per capita income, widespread
poverty, inadequate health care systems, widening income and social differentiation, etc.
The problems of transition, however, are in addition to those of development, and on top
of both are the economic and political consequences of an unprecedented transformational
depression as well as numerous conflicts and even wars in some parts of the region. This
is a highly complex mixture of problems which has exposed these economies and their
populations to excessively high levels of strain and suffering.
Western donors noted that economic development and its financing
remains a crucial issue and that the process towards the high-level meeting is therefore a
very good occasion to single out the key factors for economic development and poverty
reduction. They emphasized that domestic factors, especially consistent reform policies
designed to achieve broadly based economic and social progress, are of prime importance
for the transition process and the process of economic development in general. Development
aid has to be seen as a catalyst that facilitates/supports domestic efforts. Attention
should be paid to measures designed to increase the efficiency of assistance, including
improved coordination among donor countries and International Financial Institutions. It
was emphasized that efforts should be made by developed countries to meet as soon as
possible the objective to raise the level of official development assistance to 0.7 per
cent of their GDP. In view of the heterogeneity of levels of development and the
associated diversity of problems there is a need to tailor both official assistance and
debt relief to the specific needs and circumstances of individual countries. It was also
noted that enhanced market access for developing countries’ exports was a cornerstone
for supporting their economic growth.
Strategies
It was pointed out that there is no universal recipe for economic
development and catching up with the more developed economies. This depends on a host of
factors, the relative importance of which is difficult to quantify. It is therefore
difficult to emulate successful development strategies adopted in countries such as
Ireland. More generally, the key factor is the domestic absorptive capacity, which, in
turn, depends on factors such as effective institutions, macroeconomic stability,
structural reforms, close integration with the international division of labour and the
quality of human capital.
It was also noted that coherent and consistent reform policies are a
conditio sine qua non for successful development. The "old" enterprise sector
should face a hard budget constraint and there should be a conducive environment for the
creation of new firms, especially small and medium-sized enterprises.
Fixed investment and FDI
Fixed investment is the carrier of technical change and is therefore at
the heart of the process of creating competitive economic structures in the transition
countries. The direction of causality between investment and economic growth is difficult
to establish and is best thought of as a mutually reinforcing process. There were concerns
that a lack of fixed investment and disappointing rates of economic growth could lead to a
loss of human capital in the transition economies, either because of a deterioration of
skills associated with high and persistent unemployment or outward migration.
Foreign direct investment can play an important catalytic role in the
transition process: not only is it a source of funds for financing external deficits but
also of new technology and know-how.
Domestic and external financing
It was noted that transition economies differ widely with regard to
their external financing problems. The bulk of domestic investment is, in any case, almost
always financed internally.
In the leading EU accession candidate countries the main challenge is
the savings-investment imbalance. Low domestic savings (partly reflecting demographic
factors) contrast with very high investment needs. These partly reflect the need to meet
the high standards of the acquis communautaire in the fields of energy, environment and
transport. But in these countries (foreign) private capital is increasingly available,
thus reducing the need for official bilateral and multilateral assistance.
In contrast, in the less developed transition economies the domestic
savings base is weak and financial intermediation underdeveloped. Governments face an
inadequate domestic revenue base which does not even allow them to fulfil their basic
"night-watchman" role. Private capital inflows are forthcoming only to a limited
extent. These countries continue to rely strongly on official assistance, a main priority
of which should be the financing of public infrastructure projects.
Role of official assistance
It was emphasized that western official assistance is essential for the
transition process to succeed and to create the basis for a sustained process of economic
development. But it was stressed that official assistance can only complement domestic
efforts. Western donors, however, should remind themselves that a successful outcome of
the transition process is in their self-interest as this will help to ensure the long-term
economic and political stability of Europe as a whole. This was one of the lessons to be
learned from the Marshall Plan, which represented a realistic and farsighted appraisal of
what was required to ensure economic recovery and political stability in western Europe
after the Second World War.
SESSION I
MOBILIZING FINANCIAL RESOURCES FOR TRANSFORMATION
AND DEVELOPMENT – THE DOMESTIC DIMENSION
Issues in Domestic Resources Mobilization during Economic
Transformation
Mobilizing domestic resources has been important for growth since
the time of the industrial revolution, as much of the domestic investment that propelled
this growth was financed through domestically generated savings. The same is true today,
but countries in the eastern region of the ECE are facing exceptionally large social and
economic costs associated with economic transformation. Despite an increase in savings
during the second half of the 1990s, there appears to be a significant gap between the
demand for investment and the availability of domestic resources in the region.
The savings-investment nexus and inadequate financial intermediation
It was reported at the Session that, according to a recent study
made by the ECE secretariat, there is a strong correlation between savings and investment
rates across the transition economies. But the role of savings in economic growth is
ambiguous in economic theory. Higher savings can translate into higher investment, which,
in turn, leads to higher growth, but higher growth can also stimulate savings (reverse
causality). Nevertheless, the high savings and investment ratios observed in most of the
countries undergoing economic transformation contrast with a relatively high variance in
their economic growth rates.
Most of the participants agreed that missing or ineffective
institutions appear to be a major reason why domestic savings are not always channelled
into investment. Poor regulatory frameworks hinder the development of financial markets,
which, in turn, restrain the mobilization of domestic savings. Poor governance of the
banking sector can also hinder investment. The development of real estate markets can make
an important contribution to the improvement of intermediation but these require
well-defined property rights. Ineffective financial institutions can lead to a lack of
confidence of households and firms thus enlarging the financial gap.
The development of financial systems and capital markets in the
transition economies was therefore considered to be very important for the mobilization of
private savings. There is strong evidence that countries with more developed financial
systems channel more savings into investment. Hence the acceleration of financial reforms
in the transition economies is likely to stimulate private savings and, consequently,
contribute to higher rates of economic growth. In the meantime, if there is a surplus of
savings but ineffectual or missing institutions, then the international financial
institutions should step in and mobilize local funds for investment.
In addition, there was agreement that the macroeconomic environment
also plays an important role in closing the financial gap. Sound macroeconomic policies
must be in place for the savings rate to increase and consistent external and internal
policies can also help channel domestic savings to investment.
There was also some concern among participants that the region had an
unfavourable age structure, that is, an increasing proportion of elderly persons with a
low savings propensity. This has important implications for social security. As the
population ages, government expenditures for pensions tend to rise as a percentage of GDP.
This will, ceteris paribus, lead to lower national savings rates. There is also evidence
that people do not save in the prime of their life as suggested by the life-cycle
hypothesis.
Finance for SMEs
It was considered important to ensure a conducive environment for
the financing of SMEs. Foreign bank loans are typically channelled toward the more
profitable sectors which, in general, do not include SMEs. Despite support for SMEs by the
international lending institutions, local banks do not provide support for SMEs because of
missing institutions, poor governance, or lack of competence. Nevertheless, SMEs are
thriving in some countries because the bulk of their investments is self-financed.
Public-private partnerships
Governments and official institutions can mobilize local private
resources to finance commercially viable infrastructure ventures. The direct effects
include the utilization of the local labour force, the mobilization of other local
resources, the sharing of risk between government and the private sector, and the use of
local professional advice (legal, technical, etc.).
Revenue for social development
There was concern that the current need for domestic resources for
economic restructuring might hinder social development in the region; in fact, social
problems had to be handled simultaneously with economic ones. Social development was seen
as a human investment (in education, health and social services) that not only improves
the social welfare of society but also increases the human capital needed to sustain
economic growth. In western Europe, the state, private sector and civil society all
provide social welfare, but in the transition economies the role of the state has
diminished, the private sector is only just emerging (but providing only for those who can
pay), while civil society is not yet ready to accept such responsibility.
Concluding observations
External financing, such as foreign direct investment (FDI),
appears to be an important factor for stimulating growth. This may reflect the fact that
it is a type of investment that also brings technology and new organizational methods. But
empirical research in this area is still limited and existing modelling frameworks are not
adequate to establish the scale of these benefits or the conditions which are most likely
to give rise to them?
However, in general, it can be expected that the transition economies
will follow the traditional path of primary reliance on their domestic savings as the main
source of financing future development and growth. Hence domestic policy must play a very
important role in mobilizing private savings and investment.
SESSION II
ROLE OF OFFICIAL ASSISTANCE IN CREATING THE CONDITIONS
FOR SUSTAINABLE DEVELOPMENT
The discussion in this session focussed on
how official financial institutions could help to create the conditions for sustainable
economic growth in the transition economies. At various times during the past decade these
economies have been faced with the simultaneous tasks of macroeconomic stabilization and
systemic and structural reform. These tasks have required considerable resources which, at
least early in the transition, could not generally be mobilized internally or from private
foreign investors. Bilateral and multilateral institutions, including the
specially-created and transition-oriented EBRD, have sought to fill the gap.
Participants agreed that the global supply of official finance
(including, especially, official development assistance (ODA)) is limited and that the
financing needs of the transition economies would have to be met increasingly from private
sources. In fact, due to the improving investment climate in many transition economies,
the private sector now represents the major share of capital inflows. As for official
funds, it was repeatedly noted that they should act as a catalyst for the development of
the private sector and the mobilization of private capital. A number of delegations from
countries with transition economies underlined the importance of official assistance in
the early phases of the transition process, which had helped them to achieve macroeconomic
stabilization and put them on the path to economic recovery. In addition to providing
badly needed funds, arrangements with official institutions helped to generate confidence
among the investor community. However, it was also stressed that official assistance
should be viewed as temporary, and that in the longer-term it is not a substitute for
domestic adjustment, restructuring and the mobilization of local savings. Even as foreign
capital inflows increase, domestic savings are expected to provide the bulk of development
resources.
Regional heterogeneity and the continuing needs for assistance
A major theme was the heterogeneity of the transition countries and
their future requirements for official assistance. These large differences are reflected,
inter alia, in the levels of income (seven countries are eligible for IMF Poverty
Reduction and Growth Arrangements), progress toward stabilization, the stage of economic
reform, and the degree of access to the international capital markets. There was a
consensus that while the need for official assistance has generally diminished, it still
has an important role to play in the transition. However, tailoring it to countries’
changing needs and sectoral developments remains a challenge.
As countries progress toward a more advanced stage of reform, their
circumstances and financial needs change and evolve. In the middle-income, advanced
transition economies, which have generally been successful in attracting various types of
private capital, the IFIs are to continue to foster systemic reforms, finance
infrastructure and help, inter alia, with environmental cleanup and training. It should be
borne in mind that access to the international capital markets does not currently
guarantee maturities of the duration required for projects with long gestation periods. In
the case of the less advanced reforming countries, relatively larger volumes of the more
traditional assistance – for economic development, macroeconomic stabilization and
structural reform –are still required.
Governments suggested that:
-
Official assistance should be additional to any funds forthcoming
from the private sector. Public funds should not displace private funds.
-
Official assistance should not be withdrawn too quickly since this
could endanger other domestic programmes.
-
Potential recourse to IFIs as a source of emergency stand-by
assistance should be maintained.
-
One delegation proposed that the developed countries fulfil their
commitment to devote 0.7 per cent of their GDP to providing ODA.
-
A proposal was made to provide debt relief to several low-income
transition economies which appear to have unsustainable debt burdens.
Assistance for sustainable economic growth
In addition to providing resources, there was consensus on the
proposition that the IFIs should promote policies and long-lasting market reforms which
would set the stage for sustainable economic growth. Their classic function of
infrastructure financing and its positive externalities were mentioned. However,
discussion focussed on the fact that the leverage provided by official funds should be
used to maximize its "transition impact". Mechanisms or policies which could be
used to this end include the judicious application of conditionality, closer interaction
between IFIs and the private sector, and the strengthening of market supporting
institutions:
-
A number of recipient governments noted the benefits accruing to them
from conditionality(i.e. the terms attached to IFI resources). These benefits –
deriving from IFI help with policy and project design, technical assistance, monitoring
compliance with programme parameters, etc – were often viewed as or more important
than the availability of funds.
-
IFIs should continue work on improving banking, financial, legal and
regulatory institutions, but it was also important to recognize and address the important
political obstacles that have prevented effective action in the past.
-
The ability of the IFIs to mobilize private funds by lending their
name to projects and sharing risks with the private sector was considered a major asset.
IFIs can take the lead in projects, regions and countries where the private sector is
reluctant to enter.
-
The involvement of IFIs in projects can provide the basis for the
improvement of corporate governance in the host economy.
Another beneficial commitment mechanism singled out by recipient
countries was the pre-accession negotiation process with the EU. This was regarded as a
blueprint for structural reforms and was considered to supply a crucial motivation for
internal adjustments and the introduction of structural measures, such as privatization
and deregulation, as well as enhancing their sustainability. The pre-accession programmes
have been financed by various EU funds and technical assistance.
The IFIs have been instrumental in supporting the development of SMEs
through loans, equity participation and policy advice. Aside from their key role in
economic recovery – an observation made by some speakers – the role of SMEs in
the development of civil society and open markets was seen as essential for the evolution
of an efficient market system.
Governments suggested that:
-
The effectiveness of conditionality can be further increased if more
efforts are made to customize it to country specific circumstances. Where it isn’t
already practised, a policy dialogue between donor and recipient is desirable.
-
Competition among IFIs and other official donors to soften
conditionality should be avoided since it is likely to result in the postponement of
necessary reforms with long-term negative consequences for the recipient countries.
-
Competition between donors can lead to excessive and sub-optimal
grant elements which also reduce the aid available for other recipients.
-
Public private partnerships (PPPs) should be further explored as a
means of mobilizing finance and sharing risk, but some governments warned that they are
not a panacea.
Coordination of aid and regional issues
Several issues relating to aid coordination by donors and the need for
measures to enhance regional ties were raised in the debate.
Although some progress has been made in the coordination of assistance
between donors (multilateral and bilateral), participants felt that further improvements
were desirable. Coordination is difficult because of the differing objectives of multiple
donors, donors’ differing assessments of country needs, and differing national aid
preferences. However, one discussant noted that the lack of experience in the area of aid
administration meant that the transition economies sometimes had difficulties in using aid
efficiently. Another drew attention to the fact that disbursement of aid has often been
delayed.
More effective regional cooperation could bring benefits to certain
areas in the ECE region. This is especially true of trade and infrastructure because
economic relations under the former economic system were shaped by governments rather than
by market forces and comparative advantage. In this area, too, some progress has been made
but it was agreed that more needs to be done. Many of the countries in south east Europe
provide the latest challenge for such a new approach.
SESSION III
FDI AND THE RESTRUCTURING OF TRANSITION
AND EMERGING ECONOMIES
FDI was regarded as a major source of funds
in closing the financing gaps of the transition economies. However, FDI inflows into the
transition economies have been relatively weak (with a few exceptions) and highly
differentiated across countries. The major impediments to a faster growth of FDI in the
transition economies are the lack of or weak implementation of necessary policies
(which may have been already passed by legislatures) and the rather low responsiveness of domestic agents (weak capacity of a society to adjust to the new market environment).
The current situation in the transition economies reveals several
important patterns of FDI and its impact:
- The distribution of the FDI stock accumulated during the last ten
years among the recipient countries is rather diversified. In terms of the total stock,
the bulk of the FDI is concentrated in 4-5 transition economies. While Russia is included
in this list, it ranks nearly last in terms of FDI per capita.
- FDI inflows as a percentage of the stock of fixed capital in the
transition economies also vary but less considerably, but even in the most successful
countries it is less than 10 per cent of the total stock, indicating that even in these
countries FDI is not the main source of capital formation.
- The observed performance in the manufacturing sector reveals higher
productivity, stronger export orientation, and a high rate of reinvestment capacity in the
firms with foreign participation. There is also strong evidence of an increasing gap
between the performance of foreign and domestic enterprises within the same industry and
also within the same country.
- A side effect of foreign take-overs (in particular, by transnational
corporations), which sometimes has a negative impact on public opinion, has been the
conversion of independent domestic companies into subsidiaries of foreign concerns which
implies a certain loss of sovereignty in decision making and entry into a different sphere
of competition (mainly within the MNC distribution networks).
- Government policies related to FDI differ among recipient countries
in a number of ways. These include: methods of privatization (scope and terms), national
treatment (incentives for FDI or non-discriminatory); potential bias towards big
investors, hence FDI; incentives for start-ups or greenfield investments. However,
investment promotion (both domestic and foreign) in the transition economies often faces
budgetary constraints due to the low levels of public revenue.
During the session, considerable attention was devoted to public policy
issues, in particular those related to FDI. The central question was which policies were
more efficient in attracting FDI and, in particular, what should be the role of
incentives, if any, in stimulating inward investment. There was consensus among the
participants that the keys to success are: 1) consistent and coherent economic policies;
and 2) a generally favourable environment for business investment (both foreign and
domestic). Policies aimed at providing selective incentives to foreign investors created
distortions in the economy and were not considered efficient in terms of social welfare in
the long run.
The success stories among the transition economies are mostly in
countries that have managed to provide a stable environment (both economically and
politically) and to maintain consistent, transparent and predictable policies. In turn,
micro-level success stories indicate the importance of co-operation and policy consistency
between the different levels of governments: general, local and municipal. In contrast,
the inflow of FDI has been much smaller in countries and regions featured by political and
economic instability, crime and corruption, a weak judiciary, and poor infrastructure.
The experience of some west European countries in instigating FDI-led
growth could also be instructive for the transition economies. Thus Ireland’s
experience shows that an individual country can do a lot to attract FDI, and not only
because it could offer relatively easy access to a large market (EU membership), cheap
skilled labour and tax incentives, but also by consistently delivering on policy
commitments (the same policies were pursued over several decades) and by providing
supplementary support through related policies (such as education and training, and the
development of necessary skills) to make those investments long-lasting.
One word of caution for the transition economies was that they should
take note of the fact that local businesses may not always be interested in promoting FDI
as this will increase the competitive pressure they have to face. And when public
governance is weak, such interest groups may create serious obstacles to the inflow of
FDI. Cartel agreements among local firms and directed against firms with foreign
participation are also common in some countries.
The transition economies that aspire to EU membership must also
gradually harmonize their investment related policies with those in the EU. Thus, the
latter excludes the granting of special privileges to foreign investors or, for that
matter, to any selected group of businesses. Therefore some of the special incentives that
are in place in some countries (such as duty-free zones, tax holidays and the like) will
need to be gradually phased out.
It was pointed out during the discussion that while most of the
attention has been focused on the policies of the recipient countries, there has been
considerably less debate on the policies related to outward investment in the countries of
origin: there are considerable divergencies among these which may also create distortions.
It was felt that there is a need for more cooperation and exchange of information in this
field in order to achieve greater uniformity and cohesion.
Internationally agreed trade-related policies and rules, in particular
in the context of the WTO, also have an important impact on FDI, but in terms of policies
strictly related to inward and outward investment, progress has been limited. Within the
WTO-led negotiations, there have been some attempts during the last three years to unify
the international rules that apply to FDI (and to some extent to portfolio investments by
foreign agents), and there are some internationally agreed rules on trade in services
which partially cover aspects related to foreign investment.
Another issue which was debated during the meeting was that of the
spillover effects and backward linkages of FDI. It was pointed out that these spillovers
are widely considered to be positive (diffusion of new technologies, know-how, managerial
skills) but some participants stressed that they can also be negative (the emergence of a
dual economy with enclaves of high productivity surrounded by unrestructured sectors of
the economy). Policy should aim at maximizing the positive spillovers and minimizing the
negative ones. Participants considered that the international community could also do more
in this respect by maintaining a regular dialogue between governments, the private sector,
NGOs and other bodies and by actively disseminating information about best practices and
success stories. It was suggested that the business community should be involved in
discussions during the preparatory phase of the High Level Meeting for Finance for
Development and be invited to participate in it.
SESSION IV
A REGIONAL PERSPECTIVE ON GLOBAL FINANCIAL ISSUES
The benefits derived from the mobilization of scarce financial
resources – via international capital flowing to the most productive uses – have
contributed to economic growth and increased standards of living in all regions of the
world.
But the recent financial crises in Asia and Russia have also shown that
international capital movements are inherently instable and can trigger severe financial
(banking, currency, debt) crises with attendant severe economic and social costs. In view
of their strong dependence on foreign capital, developing countries and transition
economies are especially vulnerable to the excessive volatility of such flows. Efforts to
mitigate or prevent such financial crises should therefore be at the top of the policy
agenda. This is the more urgent because such crises reflect the impact of both policy
failures and market failures.
While there is no general agreement as to the future international
financial architecture, there is, nevertheless, a general acceptance of the clear
responsibility of domestic policy makers to create a sound legal and regulatory framework
for the optimal working of markets. International reform efforts are important but are no
substitute for sound domestic economic policies.
Codes and Standards
Codes and standards for improving the quality and timeliness of
information concerning major macroeconomic variables and the reporting of financial and
non-financial firms were regarded as a necessary condition for allowing more rational
decision-making by lenders and investors. It was noted that standards such as the
IMF’s SDDS can help central banks to identify data needs. Increased transparency
should also allow markets to exercise greater discipline over policy-makers and strengthen
policy surveillance by the International Financial Institutions. Progress in this area has
been uneven. It was noted that less progress has been made in the financial reporting of
banks and other financial institutions than in the public sector. It was emphasized,
however, that global standards and codes should not become straightjackets but rather
serve as broad guidelines which should allow for the diversity of countries in terms of
development level, history, culture etc.
Financial regulation and supervision
The strengthening and restructuring of the financial sector will not be
possible without a coherent national regulatory framework. Regulatory reform is therefore
a necessary condition for reducing the probability of financial crises and, when they
occur, limiting their adverse effects. It was also stressed that there is scope for
improving the coordination between national regulatory authorities, particularly in the
area of data exchange. There was a consensus that a global regulatory institution (World
Financial Authority) is unlikely to be more effective than the coordinated efforts of
national authorities in applying global standards.
Conditionality
The overriding principle of IFI’s assistance, including in the
field of finance, must be "country-ownership". Conditionality is an essential
part of concessional lending, but the nature of conditionality should be reviewed in the
context of prevailing domestic economic fundamentals, which will differ across countries.
It was noted in this context that conditionality is an important indicator for private
investors and lenders.
Capital account liberalization
It was acknowledged that "boom-bust cycles" in short-term
capital flows can create serious problems for macroeconomic management and financial
supervision in the transition economies and other emerging markets. It was suggested that
controls on private short-term capital flows may be necessary for reducing excessive
volatility and thus ensuring greater stability of the financial system. Such controls
should be market-based instruments (e.g. taxes, minimum reserve requirements) and are best
seen as complementary to regulatory reform and supervision as well as to increased
transparency regarding the activities of governments, financial institutions, and private
enterprises.
Some participants believed capital controls to be measures to which
resort should only be made in case of emergency; others regarded them as essential for
economies with fragile financial systems. In any case, capital account liberalization
should only occur as the culmination of a carefully sequenced process of economic reforms
and strengthening of domestic financial institutions.
Exchange rate arrangements
The general view was that exchange rate régimes cannot be discussed
independently of the underlying capital account régime. Any recommendations for exchange
rate régimes have to take into account the economic conditions in each individual
country. Given that these differ, the appropriate régime will also differ across
countries.
Between the extremes of freely floating exchange rates on the one hand
and strictly fixed exchange rates on the other there exists a range of intermediate
solutions which may fit the specific circumstances of individual countries.
It was noted that the instability of freely floating exchange rates can
have severe macroeconomic costs in the event of major misalignments. In a region with
relatively strong mutual trade links among its constituent economies, an arrangement which
aims to limit exchange rate fluctuations (such as the ERM in western Europe) may be
useful, but it will also require policies to promote real convergence among its members.
It was also suggested that the choice of a particular exchange rate and
capital account régime should not become part of the IMF’s conditionality.
CONCLUSION: Closing Plenary Session
At the Closing Plenary Session, the Chairman of
the Conference presented his conclusions which were subsequently distributed by him to the
Member States.
The Chairmen of the Special Sessions reported briefly on the
discussions of their respective subjects along the lines given above. The Executive
Secretary of ECE made a closing statement in which she emphasized that the transition
economies in the ECE region had now had a decade of experience in dealing with the
problems of financing their development and this meeting had provided an opportunity to
draw lessons from success stories and from mistakes.
Among the many issues on which she concluded there was general
agreement is the importance of mobilizing domestic resources for development and
also the need to support national efforts with a conducive and enabling international
environment. The key role of effective institutions was repeatedly emphasized as was the
importance of implementing agreed rules and policies. The complementarity of all the
various forms of finance was stressed and while agreeing on the importance of private
investment the continuing relevance of public funds in playing a catalytic role was also
underlined. Another important theme was the need to deal with the social costs of
transition, not only on grounds of social justice but also to avoid social discontent
undermining the transition process itself. Reducing government expenditure on unproductive
subsidies to inefficient enterprises was obviously necessary, but the resources released
could be productively used to support well targeted social expenditure. The important role
of the local level with regard to financing for development was stressed and that state
decentralization reforms can be seen as a catalyst for a larger active participation of
the local community in regional development projects. In this context the necessity to
generate new and innovative forms of financing was also emphasized. Another point on which
there was agreement was the need for close regional and sub-regional cooperation as a
means of optimizing the use of limited resources. The positive role of conditionality was
also recognized but it was stressed that donors and recipients should enter into a
constructive dialogue so that eventually conditionality would be subsumed into an
effective partnership. The Executive Secretary also highlighted the considerable diversity
of Europe which in turn underlined the need for partnerships between all the actors
involved, from governments to private enterprises and NGOs, etc., and the importance of
maintaining a dialogue on all the issues affecting the economic and social development of
the region. In this perspective this Regional Conference on Financing for Development had
made a constructive and significant contribution.
UNECE Conference
FINANCING FOR DEVELOPMENT
Programme
Opening Plenary Session: Financing the Process of Transformation and
Development in the
ECE Transition Economies: What are the Main Problems?
Welcome address: Danuta Hübner, Executive Secretary, United Nations Economic
Commission for Europe (UNECE)
Chair of the Session: Jørgen Bøjer, Chairman, Preparatory Committee of the High-level
International Intergovernmental Event on Financing for Development
Panel Discussion: Ignacio Garrido, Vice-Governor, Council of Europe Development Bank
Lambe Arnaudov, Deputy Minister for Economy, Former Yugoslav
Republic of Macedonia
Willem Buiter, Chief Economist, European Bank for Reconstruction and
Development (EBRD)
Danuta Hübner, Executive Secretary, United Nations Economic Commission
for Europe (UNECE)
Harald Kreid, Chairman, United Nations Economic Commission for Europe
Marcelo Selowsky, Chief Economist for the Europe and Central Asia
Region, The World Bank
Michael Tutty, Vice-President, European Investment Bank (EIB)
Alexei Ulyukaev, First Deputy Minister of Finance, Russian Federation
Special Session I: Mobilizing Financial Resources for Transformation and Development
– The Domestic Dimension
Chair of the Session: Armen Martirossian, Deputy Minister of Foreign Affairs, Armenia
Introductory Speaker: Péter Ákos Bod, Professor, Budapest University of Economics,
Hungary, Former President of the National Bank of Hungary
Discussion Leaders: Winfried Braumann, Managing Director, FGG,
Austria
Christopher Clement-Davis, UNECE BOT Group
Rumen Dobrinsky, Acting Chief, Transition Economies Section, Economic
Analysis Division, Economic Commission for Europe (UNECE)
Arif Erden, Deputy Director General, General Directorate of Foreign
Economic Relations, Undersecretariat of Treasury, Turkey
Robert Hall, Chairman, UNECE Real Estate Advisory Group
Velimir Rajkovic, Assistant Minister for Finance, Croatia
Nigel Tarling, Director of Programmes, International Council on Social
Welfare
Adalbert Winkler, Chief Economist, German Consulting Company
in Financial Sector Development, Germany
Olexander S. Yaremenko, Adviser to the Prime Minister, Ukraine
Special Session II: Role of Official Assistance in Creating the Conditions for
Sustainable Development
Chair of the Session2:Cristian Popa, Deputy Governor, National Bank of
Romania
Introductory Speaker: Marie Lavigne, Professor, University of Pau, France
Discussion Leaders: Manuel Pedro Baganha, Secretary of State of Treasure and
Finance, Portugal
Urs Breiter, Minister, Deputy Head, Division for the Cooperation with
Eastern Europe and CIS, Swiss Agency for Development and
Cooperation, Swiss Foreign Ministry, Switzerland
Christopher Hurst, Head of Division, Chief Economist’s Department,
European Investment Bank (EIB)
Hans Peter Lankes, Director of Transition Strategy, European Bank for Reconstruction
and Development (EBRD)
Bertrand de Largentaye, Head of Unit, Directorate General External
Relations, European Commission
Krzysztof Ners, Deputy Minister of Finance, Poland
Marcelo Selowsky, Chief Economist for the Europe and Central
Asia Region, The World Bank
Emirlan Toromyrzaev, First Deputy Minister of Finance, Kyrgyzstan
Roberts Zile, Minister of Special Assignments for Cooperation with
International Financial Institutions, Latvia
Special Session III: FDI
and the Restructuring of Transition and Emerging Economies
Chair of the Session 2: Krzysztof Ners, Deputy Minister of Finance, Poland
Introductory Speaker:Gabor Hunya, The Vienna Institute for International Economic
Studies (WIIW)
Discussion Leaders: Rolf Alter, Co-Chair of Investment Compact Project Team of the
Stability Pact, Organisation for Economic Cooperation and
Development (OECD)
Richard Eglin, Director of the Trade and Finance Division, WTO
John Fitzgerald, Research Professor, Economic and Social Research
Institute, Dublin
Jonathan Harris, President, Royal Institute of Chartered Surveyors,
United Kingdom
Eugenijus Maldeikis, Minister of Economy, Lithuania
Aleksei Moiseichikov, Ambassador on Special Commissions, Belarus
Signe Ratso, Deputy Secretary General, Ministry of Economic
Affairs, Estonia
Karl Sauvant, Chief, International Investment, Transnationals and
Technology Flows Branch, Division on Investment Technology
and Enterprise Development, United Nations Conference on Trade
and Development (UNCTAD)
Joseph Smolik, Chief, International Economic Relations Section
Economic Analysis Division, United Nations Economic
Commission for Europe (UNECE)
Vassili N. Takas, Co-Chairman, Business Advisory Council of
South East European Cooperative Initiative, Greece
Ralf Zeppernick, Director in the Foreign Trade Division, Ministry
of Economy, Germany
Special Session IV: A
Regional Perspective on Global Financial Issues
Chair of the Session 2: David Klein, Governor, Central Bank, Israel
Introductory Speaker: Yilmaz Akyüz, Acting Director, Division of Globalization and
Development Strategies, United Nations Conference on Trade and Development (UNCTAD)
Discussion Leaders: Gunter Baer, Secretary General, Bank of International Settlements,
(BIS)
Andrew Cornford, Macro-Economic and Development Policies Branch,
United Nations Conference on Trade and Development (UNCTAD)
Daniel Daianu, Former Minister of Finance, Romania, National
Coordinator of Romania for the OSCE Economic Forum
Heiner Flassbeck, Macro-Economic and Development Policies
Branch, United Nations Conference on Trade and Development
(UNCTAD); Former Deputy Minister of Finance, Germany
Reinhard Munzberg, Special Representative to the United Nations,
International Monetary Fund (IMF)
Mosmir Mrak, Professor of Economics, Ljubljana, Slovenia
Muravei Radev, Minister of Finance, Bulgaria
Alexei Ulyukaev, First Deputy Minister of Finance, Russian Federation
Closing Plenary Session
Chair of the Session2: Jørgen Bøjer, Chairman, Preparatory Committee of
the High-level
International Intergovernmental Event on Financing for Development
Reports from the Special Sessions:
SSI Armen Martirossian, Deputy Minister of Foreign Affairs, Armenia
SSII Cristian Popa, Deputy Governor, National Bank of Romania
SSIII Krzysztof Ners, Deputy Minister of Finance, Poland
SSIV David Klein, Governor, Central Bank, Israel
Final Discussion
Closing Remarks:
Jørgen Bøjer, Chairman, Preparatory Committee of the High-level
International Intergovernmental Event on Financing for Development,Harold Kreid, Chairman, United Nations Economic Commission for Europe (UNECE)
Danuta Hübner, Executive Secretary, United Nations Economic Commission for Europe
(UNECE)
________
1 Nominated and elected as the Chair of the Conference
2 Nominated and elected as Vice-chair of the Conference
********
For further information please contact:
Economic Analysis Division
United Nations Economic Commission for Europe (UNECE)
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