Ad Hoc Expert Group Meeting “Rethinking the Role of National Development Banks” (New York, 1-2 December 2005)

1. Ad Hoc Expert Group Meeting“Rethinking the Role of National Development Banks”(New York, 1-2 December 2005) Overview: Multi-stakeholder consultations on financing for development, 2004-2005 Alexander Trepelkov, Chief, Multi-stakeholder Engagement and Outreach Branch, Financing for Development Office, UN-DESA

2. Mandate In its resolution 58/230 of 23 December 2003, the General Assembly requested the Financing for Development (FfD) Office: • “to organize workshops and multi-stakeholder consultations … to examine issues related to the mobilization of resources for financing development and poverty eradication” and • “to convene activities involving various stakeholders … to promote best practices and exchange information on the implementation of the commitments made and agreements reached at the International Conference on Financing for Development”. In response, the FfD Office, in cooperation with major institutional and non-institutional stakeholders in the follow-up process to the Monterrey Conference, launched a series of multi-stakeholder consultations, including experts from the official and private sectors, as well as academia and civil society, to examine selected issues on which informal and expert-level discussions by multiple stakeholders might facilitate policy debates in international forums.

3. Process The 2004-2005 consultation process comprised a total of 21 meetings. • The Financing for Development Office organized consultations on: (i)building inclusive financial sectors for development; and (ii)sovereign debt for sustained development. • The World Economic Forum conducted another set of consultations on: (iii)understanding how public-private partnerships can improve the reach and effectiveness of development assistance; and (iv)improving the climate for private investment through leveraging multilateral development banks and aid agencies to catalyze private investment and through bringing financial governance capacity building to scale. • The New Rules for Global Finance Coalition organized meetings on: (v)selected issues related to enhancing the coherence and consistency of the international financial, monetary and trading systems in support of development.

4. Outcome • Report of the Secretary-General, entitled “Multi-stakeholder consultations on financing for development”, which was issued as an addendum to the annual report on the “Follow-up to and implementation of the outcome of the International Conference on Financing for Development” (A/60/289/Add.1), outlined the basic modalities, main findings and substantive outcomes of those consultations. • Additional information is available on the Financing for Development website: www.un.org/esa/ffd.

5. Building inclusive financial sectors for development • In the context of the International Year of Microcredit, 2005, UN-DESA and UNCDF undertook to produce a “Blue Book” on “Building inclusive financial sectors for development” to serve as a reference point for national multi-stakeholder discussions in developing countries to help governments shape strategies towards inclusive financial sectors. That volume is in an advanced state of preparation. It was launched at the United Nations International Forum on Building Inclusive Financial Sectors (New York, 7-9 November 2005). • The “Blue Book” seeks to identify the key constraints to financial inclusion focusing on impediments at the level of the customer, the retail financial institutions, the financial markets, the policy and legal environment, and the regulatory and supervisory environment. In each case, the Book points to areas in which strategic policy choices are likely to make the biggest difference to the future development of inclusive financial sectors. Finally, the Book offers a series of strategic options. • The “Blue Book” is not a Blue Print. The relevant stakeholders in each country should engage in their own consultative process to identify and address country-specific issues. It is most important to increase understanding of the key options facing countries, rather than offering a single solution. Domestic stakeholders may develop their own country-specific “blue books” consistent with their national development strategies.

6. Sovereign debt for sustained development • The FfD Office, in consultation with major stakeholders (UNCTAD, IMF and the World Bank), prepared an issues paper “Strategic issues in managing sovereign debt for sustained development” focusing on three main areas: (i) how to make the concept of “debt sustainability” operational; (ii) how to manage sovereign debt for policy coherence; and (iii) practical ways to contain risk and reduce uncertainty. • There was a convergence of views across stakeholder groups on two broad points: (i) the absence of agreement on the concept of debt sustainability; and (ii) the need for an improved mechanism to achieve cooperative debt workouts from crises. • In follow-up, the FfD Office is cooperating with UNDP to assess the relationship between debt sustainability and the achievement of MDGs in HIPCs and other critically indebted countries, with the objective of providing an operational definition of development-oriented debt sustainability.

7. Public-private partnerships to improve the reach and effectiveness of development assistance • The World Economic Forum examined the status and promise of public-private partnerships (PPPs) in three areas: basic education, health and water and sanitation. • The general findings of the consultations were threefold. First, participants stressedthat PPPs had a significant role to play in achieving the MDGs. In particular, there was increasing recognition that development challenges require new approaches and partnerships that draw on the expertise of the private sector. Second, the deliberations pointed to evidence of increasing amounts of private resources being directed to development-oriented PPPs. Third, many participants called on the official and private sectors to better integrate PPPs into the structuring and delivery of aid programmes, and to work towards scaling-up their use and strengthen their implementation. • The cross-cutting and sector-specific recommendations have been elaborated by the World Economic Forum in its report “Building on the Monterrey Consensus: The Growing Role of Public-Private Partnerships in Mobilizing Resources for Development”.

8. Improving the climate for private investment • The World Economic Forum also explored ways of improving the climate for private investment by leveraging multilateral development banks and aid agencies to catalyse private investment and bringing financial governance capacity building to scale. • While global capital markets could help meet the huge financing needs of developing countries for infrastructure, they are unlikely to provide the necessary finance without more targeted official sector support to cover unacceptable risks and uncertainties. There is considerable unused capacity in the multilateral development banks that could fund more official development finance without an increase in their capital. • Recommendations were made on how to unlock this “trapped capital” in both private and public institutions, including the following points: (i) strengthen the risk mitigation products offered by official sector agencies; (ii) provide financial and technical assistance to project development capacities; (iii) improve financial governance, including the quality of legal and regulatory systems, transparency, information, accounting standards, and performance standards across a range of private and public institutions; and (iv) implement institutional changes within development agencies.

9. Systemic issues • The New Rules for Global Finance Coalition considered selected systemic issues from the Monterrey Consensus focusing on the structural features of the international monetary, financial and trading systems, the potential vulnerabilities they posed for developing countries, and the institutional design of the international financial architecture. The discussions generated many concrete proposals in the following areas: • As for financial crisis prevention, participants proposed mechanisms to make financial systems more resilient to the fluctuations of the financial cycle, including counter-cyclical prudential regulation, capital controls, strengthened local currency markets, and market-based instruments to hedge against commodity price fluctuations. • With regard to crisis resolution, the consultations explored possible modalities of an efficient and equitable debt workout mechanism. Speakers also highlighted the fact that in a crisis situation affected countries needed quick and extensive funding in order to facilitate the negotiation of a longer-term solution. Another concern was how low-income countries could adequately protect themselves against external shocks. • The debate on how to secure viable sources of domestic finance focused on tackling capital flight, improving international tax cooperation and finding an appropriate policy mix for supporting the productive economy. • Lastly, the dialogues addressed the issue of enhancing the voice and participation of developing countries in economic policy-making and standard-setting bodies.

10. Next steps • The 2004-2005 series of multi-stakeholder consultations on financing for development have generated a number of interesting ideas and promising proposals. A possible next step would be to continue to explore the existing topical areas and viable recommendations, with a view to effecting their implementation. • In addition, a new series of consultations, to be initiated in 2006-2007, might be merited by the many other policy areas covered by the Monterrey Consensus. The themes of these consultations may include: (i) improving the regulation of financial sectors; (ii) rethinking the role of national development banks; and (iii) securing the financing of basic services, in particular in the water, sanitation and energy sectors. • The General Assembly, at its current session, may wish to provide further guidance in this regard.