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Speech by Angel Gurría, OECD Secretary-General at the Second International Business Forum on Financing for Development (ICC)
Doha, 28 November 2008
Ladies and gentlemen,
We come to Doha during an unprecedented global economic crisis. We thought we had a state of the art global financial system, deep, competitive and innovative, that was spreading investment and distributing risk around the world. It turned out that innovation and risk-taking had gone too far, in the US housing market, and in the complex structured financial instruments parked off balance sheets and sold around the world. Lack of trust then propagated through the global financial system, like a viral disease which magnified the problem.
The impact of the spectacular malfunctioning of the financial markets is now being transmitted to the real economy. Countries and families around the world are already feeling the pain and there is more to come.
On the other hand, as one of our Delegates said recently “a crisis is a terrible thing to waste”. Indeed the collective response to the crisis and the emergence of the “L20” offer a very important potential for global economic governance.
The Monterrey Consensus was a major achievement of global economic cooperation. It laid out shared responsibilities for both developed and developing countries, for governments and the private sector. A global commitment to policy coherence for development was reached.
Since Monterrey, there has been significant progress in the developing world in respect of the quality of economic governance. Higher growth and greater international engagement by developing countries added strength to the global economy. Foreign direct investment has boomed, remittances have mushroomed, commodities have been in high demand, China, India and other emerging economies have become growth leaders with global impact, and there has been a steep improvement in the economic performance of a wide range of African countries. Trade has flourished, developing country debt has been substantially reduced and aid flows have continued to rise, if more slowly than promised.
The principles and agendas coming out of Monterrey must remain a beacon in this time of repair and reconstruction of the global economic system. There are lagging agendas which have to be confronted – speeding up achievement of the MDGs, getting the Doha Round done, following through on the Paris and Accra aid reform action plans. There are also the mega challenges of climate change, of structurally rising food prices, of conflict and fragile states which are more urgent than ever. And inequality is on the rise and thus has to be the subject of focussed policy attention.
We at the OECD are ready to play our part in this emerging system of global economic governance. We are after all the Organisation for Economic Cooperation and Development. We live in a world where issues have multiple stakeholders and multiple policy dimensions. Our best practice approach and our peer review and peer learning working methods are well suited to this kind of world.
We have developed a Strategic Response to the crisis with two key strands:
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First, Finance, Competition and Governance. This work will seek to align regulations and incentives in the financial sector to improve oversight and risk management among market operators. Policy issues related to transparency, including tax, corporate governance and competition will play a prominent role. Deliverables will include inputs for the review and improvement of national policies and better policy coordination at the international level.
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Second, the restoration of sustainable economic growth. We will try to ensure that such recovery is based on low-carbon paths to growth and that it offers protection to the most vulnerable.
We will also analyze an exit strategy to unwind the recent public interventions in the financial markets.
This week the OECD delivered three important undertakings by its members in support of the G20 Action Plan.
First, we have secured a pledge in the OECD Group on Export Credits, supported also by Brazil, Estonia, Israel, Romania and Russia to maintain official support for this type of loan. The trade credit markets have been freezing up at an alarming rate, threatening to shut down normal trade flows. Guaranteed export credits and loans are absolutely critical to oil the wheels of the global economy.
Second, we have secured an Aid Pledge by OECD members who belong to the Development Assistance Committee (DAC), where they reaffirm their aid commitments and agree to maintain aid flows in line with these commitments. This responds to a request which the Chair of the Development Assistance Committee and I made in a letter to OECD Heads of State and Government at the end of October.
Third, in the interest of strengthening the contribution that open markets can make to a dynamic recovery of the global economy, OECD countries have unanimously endorsed the commitments regarding trade agreed at the Washington Summit .
The G20 leaders’ meeting is thus already generating concrete responses. Of potentially the greatest consequence is the progress being made in Geneva towards the conclusion of the Doha Development Round. Think of all the positive implications that this would have for developing countries. The G20 leaders have made the difference here, with their commitment to be personally involved if negotiations stall again.
As we move the OECD Strategic Response forward, we will build on our extensive interaction with around 70 developing countries.
We are presently negotiating the membership in the OECD of Chile, Estonia, Israel, the Russian Federation and Slovenia. We have also an enhanced engagement with Brazil, India, Indonesia, China and South Africa with a view to possible membership. At our Ministerial Meeting last June, we had Ministers from these 10 countries around the table, contributing actively to our discussions on an agenda that included climate change and food prices. And we work with these countries on expert and peer reviews ranging from broad macro-economic policies to environmental performance; from agriculture to governance; from taxes to education.
And of course we have extensive cooperation with the United Nations, and other international economic organisations like IMF, the World Bank, the regional development banks, the ILO, the WTO, the UNDP, FAO and others.
The new multilateralism that is needed for global economic governance in the 21st century is coming into shape. We at the OECD are excited about the challenges and opportunities that will open up as this new system emerges, and are ready to play an active role.
Let me now address the key issues of how the private sector and governments can work together to keep the growth and development process on track.
With the Monterrey Consensus, business and private investment came to be recognised as a crucial part of the solution to development challenges.
Good economic governance in commodity exporting countries will be decisive in how they can harness those export revenues and turn them into their own growth stories. Investors are looking for an environment in which they can apply their resources and their skills to contribute to the creation of wealth which is equitably shared with the host countries and their local communities. Enlightened policies on investment, on taxation, on fighting corruption, on aid effectiveness, including aid for trade, are key elements in the pursuit of growth for developing countries.
This equation profoundly influenced the thinking about investment policy at the OECD and inspired one of our most direct contributions to the Monterrey Consensus, the Policy Framework for Investment, or PFI as it is known.
Let me revisit two specific areas in which good global economic governance is urgently needed – taxation and development aid.
On the face of it, taxation and domestic resource mobilization might seem to be low on the list of today’s priorities. Yet even in these difficult times, there are three compelling reasons for putting taxation towards the top of the global governance agenda.
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Tax provides the long term financial platform for sustainable development, and is the lifeblood of state services;
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Tax strengthens democracy through the development of accountability between state, business and citizens;
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Tax, coupled with economic growth is the antidote to long term aid dependency.
Of course, how and from whom tax is raised matters, not just how much. A broad-based, fair and transparent system with wide social consensus is critical to good governance, it establishes a platform for poverty alleviation, and helps tackle corruption.
Regional efforts to improve the domestic resource mobilisation landscape, like the African Tax Administration Forum (ATAF), must be supported as well as other home grown solutions.
But an effective tax system that allows developing nations to graduate from aid must be fair and transparent -- a system that is built on mutual trust. For this, we must all work to strengthen anti-corruption efforts to minimise tax evasion. We can no longer turn a blind eye to the massive loss of revenue through the diversion of public and private funds to third countries.
Good governance in the field of development aid is vital if aid is to be effective in countries where domestic savings and domestic capacity are low. For many years, aid delivery has been unpredictable, used up local capacity rather than generated it, and came with an impossible proliferation of conditions and reporting requirements from each donor. The Paris Declaration on Aid Effectiveness of 2005 and now the Accra Agenda for Action of September 2008 provide new rules to address these problems. This work was directly inspired by the Monterrey Consensus itself with its emphasis on aid effectiveness.
Ladies and Gentlemen,
The Monterrey Consensus has proven to be a forward-looking valid policy package including an important role for the private sector.
The current crisis complicates the delivery on the consensus and heightens the sense of urgency. It also demonstrates that the ingredients remain valid and the actors were well defined:
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Donors must do more, their aid must be predictable and they must rely on partner country systems.
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Partner countries must improve their transparency and governance, mobilize their domestic resources and improve the investment conditions.
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The private sector must continue to be a partner in the creation of wealth and its equitable sharing with the host countries.
The most recent experience of coordination at the global level in response to the financial and economic crisis bodes well for maintaining the commitments of the Monterrey Consensus. The OECD will monitor closely that this is the case.
Thank you.
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