United Nations

BANGKOK, 8 August (United Nations Information Services) --  Sound domestic macroeconomic management and transparent governance have to be complemented by transparency in the operations of global financial market operators such as hedge funds and investment banks.

This was one of the key observations made at the four-day High-Level Regional Consultative Meeting on Financing for Development.  The meeting, held in Jakarta from 2-5 August, was attended by delegates from over 37 countries in the region.

Long-term economic prospects of the region are bright given the strong longer-term fundamentals in the East Asian economies, the meeting's report stated.  However there was concern that foreign private capital was most likely to bypass the low income and least-developed countries.

Foreign direct investment (FDI) would be most desirable for low income nations, in particular given these countries limited absorptive capacity for portfolio investment and commercial bank loans, the delegates agreed.

The United Nations Economic and Social Commission for Asia and the Pacific (ESCAP), the United Nations Conference on Trade and Development (UNCTAD) and the Asian Development Bank (ADB) organized the meeting.

Executive Secretary of ESCAP, Kim Hak-Su, said the meeting was a good start to the process of gaining consensus and collaboration by countries and United Nations organizations and financial institutions on the issues.  "The meeting has come up with some clear regional perspectives and actionable proposals."

Delegates agreed that the mobilization of domestic resources was a central issue in economic development and national efforts to mobilize resources needed to be supported by a conductive external environment.

Adverse developments in prices of exports, sharp fluctuations in exchange rates and instability in the international financial system could severely constrain such efforts, delegates warned.  There was also a need to successfully manage the flows of foreign capital at the national level to prevent financial distresses or crises.

Delegates proposed that countries create a quasi-judicial court of regulation that could examine and evaluate government regulations and "order a repeal or revision if an appeal by the regulated is found to be justified".

On Government revenue raising, delegates felt that although there were possibilities to increase tax revenues, attention should be paid to better enforcement and efficiency.  It was also equally important to develop a culture of tax compliance which could be fostered by the perception of the government as being honest and fair.

On the question of managing domestic financial markets there was a need for further capacity-building in the financial system, both for government regulators and financial institutions, especially for better credit analysis, proper risk management and enforcing the discipline of disclosure.

The role of small and medium enterprises (SMEs) will become increasingly important, the delegates noted.  The need for financing their development could be addressed through venture capital funds, second boards of stock markets, official loan assets and commercial credit reference agencies which can collect information on their debt exposure.

Other areas for regional cooperation that were agreed:

-- Coordination and harmonization of tax policies to avoid unnecessary competition to provide tax incentives for investment.

-- A proposed region-wide clearing system for bond markets to overcome the problems associated with small bond markets.

-- A region-wide mechanism for cooperation on capacity-building for the financial sector for both regulators and financial institutions focused on meeting international norms of behaviour.

Delegates urged a transparent and democratic forum with improved representation and participation of developing countries in the international arena.  The International Monetary Fund (IMF) remained the appropriate forum but there was wide agreement on the need to review IMF quotas.

The meeting's report expressed the need for an international bankruptcy procedure.  Private debt, it should be ensured, must not become government debt, one delegate said.

The meeting was the first of a series of five regional consultations in preparation for a global meeting on Financing for Development to be held next year.  The Financing for Development meeting was authorized by General Assembly resolution A/54/196 to involve policy-makers at the ministerial level or higher in consideration of national, international and systemic issues relating to the availability of adequate resources to meet world development needs.

 Interest in a global meeting on development finances crystallized and gathered momentum in the United Nations in the aftermath of financial contagion in 1997 and 1998.  Concern with the heavy burden of external debt on poor countries, growing disparities between the rich and the poor world wide, declining levels of development assistance and growing evidence of disruptive as well as positive features of economic globalization and liberalization were among the motivating factors in calling for the meeting.