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Key Issues at WSSD: Poverty and Development Financing
Resources Needed For Health, Progress in Poorest Countries
Part FOUR in a series of background resources for journalists. Click here for more information
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August 23, 2002 - Today’s $40 trillion global economy is characterized by dramatic developmental differences and stark contrast among the world’s 6.2 billion inhabitants. That is why issues associated with poverty and resources for development are likely to be central points of friction at the WSSD. In the decade since the 1992 UN Conference on Environment and Development, the gap between rich and poor has widened and the anticipated “peace dividend” coming out of the Cold War has failed to materialize – in fact, official development assistance is less than it was in 1993.
Development History
Organized international development efforts began in earnest in the 1960s. After several decades of progress, tough questions began to be asked about the purposes, strategies and results of development assistance. It was said that more targeted development efforts were needed, focused on key issues and strategies with demonstrated records of success. Developing countries, holding out hope for increased resource flows, were given the message that if concrete development strategies were created, increase resource flows would soon follow.
In turn, this led to the convening of a series of major global conferences in the 1990s – aimed at developing concrete, consensus strategies on key development issues. Beginning with the Children’s Summit in 1990, the series of meetings included the Rio Earth Summit in 1992, the Vienna Human Rights Conference in 1993, the International Conference on Population and Development held in Cairo in 1994, the Fourth World Conference on Women in Beijing in 1995, the World Summit on Sustainable Development held in Copenhagen in 1995, the Habitat (or Cities) Conference held in 1996 and several other associated conferences. Each of these meetings produced a very concrete action plan for the future. And at each of these meetings, developing countries pushed hard to encourage concrete financial commitments from developed countries.
Ultimately, neither the conference documents nor the budgets of developed countries ever produced the kinds of financial resources necessary to systematically promote development. Instead, developed countries have touted the greater potential of trade and direct investment – noting the foreign direct investment has quadrupled in the past decade to approximately $800 billion, dwarfing official development assistance, which now totals only $50 billion. However, it has been pointed out that foreign direct investment is highly selective, with just 15 countries accounting for 85 % of all investment, and the poorest countries in Africa, for example, accounting for 5% or less.
To learn more about development and poverty, click here.
Development New Hope for Progress
Recently, there have been some encouraging signs on the development front, such as the successful Doha meeting of the WTO, which agreed on a new “development” round of trade negotiations, and the Monterrey Conference on Financing for Development, which signaled a new commitment from donor nations for development assistance (with pledges by the US and the EU to increase development assistance by about $5 billion each).
Moreover, overall poverty in developing countries has declined from 30% to 23%, and in real numbers there are only 1.2 billion people in absolute poverty today, versus 1.3 billion 10 years ago (despite the fact that the global population grew by almost 1 billion). More than 500 million people have gained access to sanitation, and after factoring in population growth, there are 50 million fewer people without access to sanitation than there were a decade ago. Eighty percent of people in developing countries now have access to improved water. Enrollment in primary education has eclipsed 90% and literacy is up around the world. Under-five mortality has been reduced appreciably in the past decade. Life expectancy has been lifted globally. And global fertility rates have been reduced by 50% in the past 40 years.
A World of Disparity
Despite the progress of recent decades, the world remains characterized by stark – and growing – disparities.
Demographically stable, wealthy developed nations are the driving force behind environmental change. Developed nations release most harmful emissions impacting the environment and generate the most waste. With 20 percent of the population, developed nations account for 86 percent of private consumption.
In contrast, the poorest 20 percent of global population account for 1.3 percent of private consumption. A child born in the developed world is likely to have an ecological impact equivalent to more than 30 children born in developed countries. But poverty can also effect the environment. Absent the technology, knowledge and rights needed to achieve sustainable development, poor people in search of food, fuel and water significantly impact natural resources.
Three billion people life on less than $2 per day. More than one billion people lack access to clean water, and almost two billion do not have basic sanitation. Two billion people do not have access to modern energy services. Basic health is elusive as well: 800 million people are chronically malnourished and two billion people lack food security (access to safe and nutritious food needed to maintain a healthy life). Food production will need to double in the coming decades in order to keep pace with population growth and human requirements.
For more information about population, poverty and the environment, click here.
Poverty and Gender
Poverty’s face is feminine. Women account for as much as 70 percent of the world’s poor. Traditional women’s work – caring for children, cooking, household chores, tending to livestock and subsistence crops – goes unpaid. And women are particularly impacted when poverty and resource degradation combine, forcing greater effort and more time spent collecting resources like wood and water.
Women also are denied many opportunities that might help them contribute more to economic progress. The gender gap in education is one example, with females accounting for 60 percent of kids out of school. Another is the lack of certain rights – to own and/or inherit land, to acquire credit – essential for conservation and opportunity. Finally, women bear special burdens associated with health, especially related to child-bearing. Pregnancy is the greatest threat to the health of reproductive age women in developing countries.
To learn more about women and poverty, click here.
Resources for the Future
At the International Conference on Financing for Development, governments agreed that focus was warranted in several key areas to marshal resources for development:
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Mobilizing domestic financial resources;
- Mobilizing international resources -- foreign direct investment;
- Promoting international trade;
- Debt relief and preventing developing countries from falling into the debt trap;
- Increasing official development assistance.
Mobilizing Domestic Financial Resources
The development agenda in any given country can be fostered in part through good governance – creating a framework and financial fundamentals that allow countries to mobilize resources internally and to attract foreign investment. Steps that can be taken include fostering democratic institutions, strengthening policy and regulatory frameworks as well as the rule of law, fighting corruption, sound macroeconomic policy, equitable and efficient tax systems, investments in key infrastructure – both economic (e.g. roads) and social (e.g. education, health, social security).
For more on domestic resources for development, click here.
Foreign Investment for Progress
Foreign Direct Investment can also play a key role in development. In the past decade, foreign investment has increased to more than $800 billion, from $200 billion. However, a large percentage of these capital flows are for short-term capital, which can place at risk countries lacking sound financial systems. Mobilizing international resources depends on many of the same strategies that are needed to mobilize domestic resources – good governance, the rule of law, etc. In addition, it requires policies that are fair to foreign investors (e.g. avoids double taxation or exorbitant restrictions on the repatriation of profits).
Additional information about investment for economic progress can be found here.
Trade and Development
In the past 50 years, there have been 8 separate major “rounds” of international trade negotiations. All of these efforts have been aimed at reducing tariffs and other barriers to international trade. As a result, average tariff levels have been reduced to 6%, from 40% some 50 years ago. In general, these efforts have been wonderfully successful and the volume of international trade has increased exponentially (and average of 6.2% each year) – hence the era of globalization. However, the fact is that most of these efforts have benefited the most fortunate nations, and developing nations have not done so well. For example, it is estimated that current barriers to trade cost developing countries upwards of $130 billion each year.
Developing countries face special obstacles in trade. Most of them are heavily dependent on exports of primary commodities such as food, fuel and minerals (not refined, value-added products), and dependent on finished products. Commodities are highly vulnerable to market fluctuations. Seemingly subtle decreases in commodity prices can be devastating for countries living on the edge of fiscal stability. Developing countries are trying (and are being encouraged) to diversify exports (50 developing countries rely on 3 or fewer exports for more than 50% of export earnings) and to move into value-added manufacturing. Unfortunately, domestic constituencies in developed countries argue for protectionist policies that discourage progress in developing countries. Moreover, developing countries cannot compete with some of the extensive subsidies provided in developed countries. It is estimated that OECD agricultural subsidies totaled $361 billion in 1999, making it hard for LDC agricultural products to compete.
At last fall’s Doha meeting of the World Trade Organization, nations agreed to launch a “development round” of trade negotiations, aimed at reducing agricultural subsidies, improving access for non-agricultural products, eliminating tariffs and reducing abuses of anti-dumping laws.
There also have been some encouraging regional and national initiatives. For example, the EU has agreed to cut by 2004 all quota and tariff restrictions on “everything but arms” from the 49 poorest countries. In the United States, Congress passed the African Growth and Opportunity Act, which gives the most preferential trade benefits to 34 sub-Saharan African countries.
For more about trade and development, click here.
Debt Relief
Borrowing from the International Development Banks can help nations obtain the capital needed for key economic and social investments, which in turn can help to mobilize private investment.
Unfortunately, some nations have borrowed – and been encouraged to borrow – more than was sensible and saddled them with massive debt payments that consumed a significant share of domestic resources. The crisis of debt emerged fully in the 1980s, when recession in the industrialized nations curtailed the ability of developing nations to export products, limiting foreign exchange earnings and the ability of poor countries to meet debt payments. Rising interest rates, which increased the payments on debts, has exacerbated the squeeze on resources to pay them. For example, two-thirds of 49 LDC’s had debt-to-GDP ratios of greater than 50%.
In response to the debt crisis, the developed countries came up with the Brady Plan (named for the George H.W. Bush’s Treasury Secretary, Nicholas Brady), which reduced the debt burden for middle income countries. The Brady Plan did not absolve countries of debt, but rather relaxed (stretched out) terms of payment.
The Brady plan did not address the debt crisis surrounding some of the poorest countries. By 1998, LDC debt payments (not the amount of debt due) reached $4.4 billion – this for countries whose total exports totaled only about $40 billion.
In response to the debt crisis of the least developed countries, the international community adopted a debt relief plan for “Highly Indebted Poor Countries” (HIPC), which recognized the need for deep cuts in debt (not just debt payments), including, for the first time, debt owed to the IMF, World Bank and other international financial institutions. The first round of the HIPC was launched in 1996. A second round – “broader, deeper, faster” – was launched in 1999. Twenty-four of 42 eligible countries have passed the necessary benchmarks and should receive $36 billion in debt service relief. The second round of HIPC was intended to cut the debt stock of poor countries by 50% and the payments by 33%.
For additional resources about debt and development, click here.
Increasing official development assistance
Unfortunately, levels of development assistance have been steadily decreasing over the past thirty years as a percentage of GNP. In 1970, the international community adopted the target of contributing 0.7% of GNP to development assistance. (Only five countries – Denmark, Luxembourg, the Netherlands, Norway and Sweden – have ever achieved the target, and have continued to do so in recent years.) In 2000, however, the average ODA of the 22 member countries of the Organization for Economic Cooperation and Development’s Development Assistance Committee was 0.22% of their GNP. Even excluding the United States, which has never committed itself to the 0.7% target, the average was only 0.33%.
In real terms, ODA has declined from an early 1990s high of $58 billion to about $50 billion today. Adjusted for inflation, the decline in ODA is even more stark.
The main factors cited as reasons for the decline of aid include persisting doubts about the effectiveness of ODA-supported programs and larger flows of private capital to developing countries. But most private capital flows to only a handful of nations. For example, in 1998, ODA accounted for 84% of total resource flows to 48 of the world’s least developed countries, and in the same year, those countries received less than 4% of long-term capital inflows going to all developing countries.
Studies show that aid can have a direct impact on poverty when it is targeted to programs such as those for children, health, nutrition and emergency relief. Over the last 30 years, for example, average life expectancy worldwide has risen from 60 to 70 years; the infant mortality rate has dropped from 100 to 50 per thousand live births; the share of rural families with access to safe water has grown more than fivefold; and the adult literacy rate rose from slightly over 60% to nearly 80%.
Additional information about development assistance can be found here.
Investing in Health, Fostering Sustainable Development
Where residents of wealthy nations enjoy life expectancy of close to 80 years, those in developing nations are expected to live closer to 50 years. Women in the poorest countries face a risk of dying in pregnancy that is 600 times greater than those in industrialized nations. Something as basic as sanitary conditions and a skilled attendant at childbirth are a faraway wish for most of the world’s poor.
Investments in health, including reproductive health, are central to sustainable development. The majority of the Millennium Development Goals adopted in 2000 are related to basic and reproductive health. These include investments in education; child survival and maternal health; and stemming the global HIV/AIDS epidemic. Basic health makes better parents, more productive workers and more successful stewards of natural resources.
Improved reproductive health services will help lower fertility, temporarily lower dependency ratios and raise the relative size of the workforce. Decades of social and economic research have demonstrated that investments in reproductive health are among the most cost-effective for development.
At the International Conference on Population and Development (ICPD) in 1994, nations agreed on the costs of a package of reproductive health and related programs. Key goals include: reductions in maternal and child mortality; universal access to family planning and reproductive health services; universal basic education and elimination of the education gender gap; adoption of major international human rights instruments; and increased international development assistance.
ICPD Resource Estimates
The ICPD developed detailed estimates of resources needed to provide universal family planning and reproductive health services. The “core” services include: contraceptive commodities; information, education and communication; training and capacity-building; data collection and basic research; routine prenatal, safe delivery and post-natal care; diagnosis and treatment of sexually transmitted infections; and prevention of infertility.
The ICPD estimated that implementation in developing countries would require a total of US $17 billion by 2000, $18.5 billion by 2005, $20.5 billion by 2010, and $21.7 billion by 2015. Two-thirds of these totals were to come from national resources, and one third from international donors.
Progress to Date
The 2000 total spending on comprehensive family planning and reproductive health in developing countries was US $6 billion shy of the amount pledged at the ICPD for the year 2000. Developing countries are two-thirds of the way toward meeting their target, providing $8.6 billion in 2000. Donor nations are providing substantially less than half ($2.2 billion) of the $5.7 billion they pledged for 2000.
In 2000, total spending for the comprehensive family planning and reproductive health components of the ICPD Programme of Action was estimated at US just over $11 billion. Funding from U.S. foundations for international population activities increased from $100 million in 1995 to more than $500 million in 2000.
For more about the ICPD and resource flows, click here.
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