Press Releases

    Information Note 2

    14 March 2002

    Financing for Development and Eastern Europe: Recipients or Donors?

    VIENNA, 14 March (UN Information Service) – Following is the statement of Mr. Ben Slay, Director, UNDP Regional Support Centre, Bratislava to journalists at a press briefing held here this morning.

    The Millenium Summit of world leaders that met in September 2000 in New York reminded us that, despite a decade of prosperity, much of the world remains mired in abject poverty. In 1998, more than a quarter of the world’s population struggled to live on $1 a day, or less. In many Sub-Saharan African and Latin American countries, poverty grew alarmingly during the 1990s. Poverty is not unknown to the countries of Eastern Europe and the former Soviet Union, either. After stabilizing in the mid-1990s, poverty rates in the Russian Federation rose sharply after the August 1998 financial crisis. Poverty and unemployment rates have risen alarmingly in Poland during the last two years as well.

    The Millenium Summit responded to these challenges by issuing new development targets. Secretary-General Kofi Annan’s "Millenium Goals" call for 50% reductions in the numbers of the world’s citizens living in absolute poverty and experiencing abject hunger by the year 2015. Primary education is to be made universal by this time, while the spread of the AIDS pandemic is to be reversed. Rates of infant and maternal mortality are to drop by 50% and 75%, respectively. Adequate supplies of potable water are to be made available to everyone. The economic growth that will be needed to meet these targets must be of a "pro-poor" nature, focusing both on reducing inequalities and sustainable environmental practices.

    If the Millenium Summit represented to "demand side" of the world’s development challenges, the Monterrey conference -- which focuses on financing -- represents the "supply side". Four sets of issues in particular will be at the center of attention in Monterrey:

    1. Financial market reforms in developing countries, in order to better mobilize domestic savings and attract foreign savings -- especially FDI -- for development purposes.
    2. Market access for developing country exports in developed country markets. Market-oriented reforms in developing countries must be accompanied by open markets in developed countries.
    3. Reform of the international financial architecture, in order to improve global financial governance and protect developing economies from financial contagion. Removing the crushing burden of foreign debt from the world’s poorest countries is a key part of this challenge.
    4. Dramatic increases in official development assistance. The target of 0.7% of world GDP is honored in the breach; only one third of this figure actually goes to ODA.

    Some of the most hopeful development success stories during the last ten years have occurred in the transition economies of Central Europe and the Baltic states. Following the initial chaos resulting from the break up of the Soviet empire, countries like Poland, the Czech Republic, Hungary, and Estonia reported almost a decade of strong economic growth. These countries have become almost completely integrated into West European manufacturing and financial systems, and their accession to the European Union is now expected during 2004-2005.

    The Central European and Baltic countries offer some important lessons in the context of the Monterrey conference. To be sure, official assistance and other forms of financial assistance have played an important role in financing these transitions. Some $18 billion in official finance -- much of it from the EU, with large amounts from the IMF, World Bank, UNDP, and other donors -- went into these countries during the 1990s. UNDP assistance has focused on helping these countries prepare for EU accession, particularly in the areas of local government decentralization, and public administration reform.

    But these flows were dwarved by private investment: Hungary alone received nearly $25 billion in FDI alone during this time. In contrast to leading Latin American markets like Mexico and Brazil, the Central European and Baltic economies no longer rely in assistance from international financial institutions. Poland, Hungary, the Czech Republic, and Slovakia have not received IMF assistance for more than five years, and the World Bank is scaling down its lending in these countries. The Central European experience shows that development finance can not work without institutional change. And it shows that financial market conditionality is far superior to conditions attached to lending from international financial institutions.

    The Central European and Baltic states are also taking the lead in developing their own development cooperation frameworks. These countries are "graduating" from the status of recipients of development assistance: in addition to scaling back borrowing from the IMF and World Bank, the Central European and Baltic states will no longer be recipients of technical assistance from UNDP (as well as many other donors) after EU accession. Instead, these countries are now becoming "emerging donors", and with UNDP assistance they are now putting in place their own development cooperation frameworks.

    The creation of these frameworks typically involves some common patterns. These countries’ various ODA activities -- ranging from humanitarian assistance, to export promotion, and support of compatriots abroad—are prioritized. Certain funding amounts are set aside for these purposes. A single entity -- be it the MFA or a new development cooperation agency—is designated to manage these funds and implement these priorities. Last but not least, since many of these countries are very small, they must seek partnerships to leverage their development cooperation resources.

    In addition to helping the Central European countries construct their own development cooperation strategies, UNDP is also exploring new collaborative financing mechanisms. These mechanisms allow pre-accession countries to use UNDP’s financial and programmatic infrastructure to realize their development cooperation strategies. A trust fund developed by the Czech Republic allows the Czech government to channel a portion of its development cooperation assistance through UNDP to finance development projects in the Balkans and CIS countries. Cooperation between the Czech Republic and UNDP have allowed Czech assistance to support UNDP projects on local government development in Central Asia. The Czech trust fund has also financed UNDP-sponsored training programs focusing on SME development in the Balkans.

    In addition to helping meet Millenium Goal targets in the Balkans and CIS countries, this trust fund helps the Czech Republic to export its human capital and policy successes to neighboring states --many which are very much in need of both. The development of other such "East-East" cooperative arrangements for financing and promoting development in the Balkans and CIS countries is a major priority for UNDP in the coming years.

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    For more information, please contact Sandra Pralong, UNDP/RBEC Communications Officer
    at phone: (421-2) 5933 7414