Alternative funding for development
NEW SOURCES OF DEVELOPMENT FINANCE — UNU-WIDER Studies in Development Economics: A. B. Atkinson — Editor; Oxford University Press, YMCA Library Building, Jai Singh Road, New Delhi-110001. £ 21.95
THIS STUDY prepared by the World Institute for Development Economics (WIDER) at Helsinki and the U.N. University seeks to explore alternative sources of financing to the official development assistance (ODA) in order to meet the challenges of the Millennium Development Goals (MDGs), since ODA has been inadequate.
The main goals are to eradicate extreme poverty and hunger, achieve universal primary education, reduce child mortality, combat HIV/AIDS, malaria and other diseases, and empower women. There are 12 papers containing discussion essentially on seven proposals on the alternatives sources.
Seven proposals
The editor, Atkinson has estimated the gap in meeting the MDGs as a minimum of $.50 billion a year up to 2015. Atkinson has provided an account of the overarching issues and towards the end a way forward while dealing with the writers' views on the proposals.
In addition there are two general and somewhat utopian pieces by J. A. Mirrlees and R. Boadway providing a public finance perspective.
Let us take up the seven main proposals. Sandmo argues in favour of global environmental tax to control climate externalities and to utilise the receipts from such a tax (estimated to be at least $. 50 billion) at rates much lower than the proposals on the table now, exclusively for global development.
Sandmo believes that this would be politically acceptable. The problem with this idea is that all developed countries irrespective of their public finance positions have to agree to such a tax on a global basis.
There is also no reason why the tax receipts should not be used for the global good of sustainable development rather than for the limited purpose of meeting the MDGs.
Machiko Nissanke considers the imposition of a Tobin-like tax on cross border currency transactions as technically feasible and revenue giving (estimated at $. 17 to 35 billion even at very low rates of 1 to 2 basis points). Nissanke favors a global rather than region-centric (such as the European Union) implementation of the tax.
However, as Atkinson has rightly pointed out, the final distributional effect and the effects on real transaction of the tax cannot be easily predicted. Besides, political acceptability is one of doubt.
U.K. proposal for IFF
Ernest Aryeetey's treatment about the development-focussed Special Drawing Rights (SDRs) allocation of $ 25-30 billion on the lines of the contributions of George Soros and Joseph Stiglitz is not realistic at all. It is also not new— it has been in the literature in the 1970s and 1980s. The problem with the proposal is that it ignores the content and spirit of the International Monetary Fund's (IMF) Articles of Agreement and the effects that it would have on the world economy. For this reason, this proposal would just not take off.
George Mavrotas' discussion of the U.K. proposal for the International Finance Facility (IFF) is useful in that the donor countries purchase bonds issued in the international capital markets to ensure that the funds so gained would be disbursed through bilateral and multilateral aid-delivery agencies including the World Bank.
Through the Facility, it would be possible to double the existing ODA but the success of the proposal depends on the number of donor countries that would sign up and make commitments to outflows.
Yet, it is a promising proposal that could be made workable through suitable adjustments. The IMF and the World Bank would have to have pressurised to consider the proposal seriously and suggest any adjustments that would be acceptable to the membership at large.
Incentive for action
The proposals for private donations by John Micklewright and Anna Wright and remittances by emigrants by Andres Solimano would succeed only if there are sufficient incentives for individual actions.
But these are not proposals per se especially since no one is certain as to how large would be the flow of funds and how the flows could be linked to development.
The proposals for a global lottery and a global premium bond by Tony Addison and Abdur Chowdhury, seemingly creative, entail ethical, distributional and government domestic debt management issues, even if the costs of administering the lotteries are minimised with the use of the current Information and Communication Technology (ICT) revolution, and linked with specific purposes, such as promotion of education.
The study is excellent in terms of the delineation of technical details and analysis of the proposals. It has a European flavour— one wonders whether one is missing the U.S. or Canadian viewpoints.
Its main and indeed critical message is that unless there is international economic cooperation the MDGs cannot be realised. Stretching the logic, such cooperation is necessary for promoting global good.
Once this is accepted and striven for, one would have cause to believe that there would be universal peace and ready acceptance of democratic principles throughout the world.
A. VASUDEVAN
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