7 The UN and the multilateral financial institutions

Photo: UN Photo/Joao Araujo.

In recent years, multilateral organizations have devoted more attention to fair distribution. Countries with very different interests and ideologies are trying to agree on a common set of norms and standards for a policy that promotes development. The UN agencies and the multilateral financial institutions include fair distribution in the development debate in different ways.

The multilateral financial institutions1 are primarily influential in relation to the economic aspects of distribution. Economists now acknowledge that growth alone, even over time, is not enough to eradicate poverty.

The UN derives legitimacy from its universal membership. In combination with the UN’s universal mandate and rights-based approach, this makes the UN a suitable arena for the debate on fair distribution. This applies both to negotiations between states and to the UN agencies’ expert advice to individual countries. The UN plays a key role in developing international norms and standards and in helping member states to implement them.

7.1 Inclusive growth and the multilateral financial institutions

Photo: The World Bank/Arne Hoel.

The World Bank has revitalised its focus on poverty as a result of President Kim’s clear goal of eradicating poverty by “bending the arc of history,” and to ensure that the Bank promotes “shared prosperity”.2 This concept incorporates the goal of inclusive green growth as well as job creation and fair distribution. The approach will also encompass countries that are emerging from the low-income category.

President Kim’s message in the World Bank’s annual report for 2012 is that the Bank is in a unique position to intensify its efforts to promote inclusive and sustainable growth and social development. The development of cost-efficient social safety nets is the individual measure he emphasises as being particularly important. Women’s contribution to inclusive growth based on equal opportunities is highlighted in the Bank’s WDR 2012: Gender Equality and Development.

Inclusive growth has traditionally focused more on productive employment than on the redistribution of income, and the concept attempts to merge poverty and growth analyses while also making the analyses country-specific. Inclusion has traditionally been about growth and the eradication of poverty, but the financial institutions are increasingly realising that it is also about social cohesion.They have acknowledged to varying degrees that equality of opportunity is not enough to even out the large and often growing income disparities in a country. It is important that equality of opportunity is followed up by less inequality in terms of income and resources.

The development of the concept of inclusive growth was partly driven by international debate, by boards consisting of representatives of developing countries and industrialised countries, and through gathering experience. Many countries, and not least the developing countries, are sceptical about including redistribution in the debate on inclusive growth.

The multilateral development banks are concerned with distribution between countries, within countries and between different groups (ethnic groups, gender, urban/rural). Several of the banks are researching the effects of budgetary policy on income disparities, and are looking at the effect of taxes and transfers in individual countries. The World Bank, the Inter-American Development Bank (IDB) and the Asian Development Bank all point out that progressive taxes alone have not produced the best redistributive effect in Latin America and Asia. They confirm that certain types of transfers, for example cash transfers from the state to households, have positive effects in most countries, cf. Chapter 6.

Social protection is emphasised as an important instrument for reducing inequality and poverty and contributing to inclusive growth. The development of social protection, with an emphasis on safety nets, is viewed as a long-term effort that must be integrated into the policy dialogue. So far, efforts in this area have often been linked to crises and short-term projects. The multilateral development banks are now looking at targeted social safety nets as one of several means of ensuring inclusive growth and as a supplement to basic health and educational services.

Inclusive and sustainable growth and regional integration are the main topics addressed in the long-term strategies of both the African Development Bank and the Asian Development Bank. They focus on giving people an opportunity to participate in economic activities and guaranteeing access to social services such as health and education. In addition, the development of social safety nets, investments in active labour market policies and guidelines, insurance, welfare schemes, child benefit and crisis management will also help to identify and assist the most vulnerable groups. The IDB’s main goal is to reduce poverty and inequality and to achieve sustainable growth in the region by the end of the next decade.

The World Bank and other financial institutions have much stricter lending terms for middle-income countries, and the grant element of loans lapses when these countries are no longer categorised as low-income countries. A more gradual transition from one category of lending terms to another is being considered in order to counteract the negative effect the transition can have on marginalised groups in a country. The Government is positive to a more gradual and flexible transition. This must be conditional on the country in question pursuing an active distributive policy, however. This issue will be on the agenda of the boards of the multilateral development banks and in replenishment negotiations in the time ahead.

All the multilateral development banks have their own strategies and programmes for ensuring equal rights for women and giving them an opportunity to contribute to and benefit from economic growth. Norway is a driving force in the banks’ work on women’s rights and gender equality. The African Development Bank needs to accelerate progress in its gender work, and Norway and the constituency is following up this issue closely in the replenishment negotiations.

All the banks lack an explicit taxation policy strategy. However, this does not mean that they are not working on the issue. For example, the Asian Development Bank is cooperating with the Philippines on taxes and measures to limit capital flight. The World Bank focuses on tax issues in its analytical work and provides advice to individual countries. The IMF is the institution that contributes most to capacity-building and advice on tax matters, however.

The IMF’s main mandate is to promote stability and growth in the world economy through cooperation on macroeconomic policy. In recent years, distributive effects and social safety nets have become an important part of the organisation’s analyses and advice. The IMF has been criticised for taking too narrow an approach and failing to address issues relating to distribution and poverty. In her speech at the IMF annual meeting in October 2012, Christine Lagarde, Managing Director of the IMF, emphasised the need for a “new kind of economic growth” that is not simply the fallout from unfettered globalisation. It must also be inclusive. Lagarde envisions a world with less inequality. The Government supports this approach.

In 2011, the IMF carried out a study of the effect of income distribution on the stability of economic growth, and found a positive correlation between low income inequality and the duration of periods of economic upturn.3 In 2011, the IMF’s board decided to include income distribution and employment in their analyses to a greater extent than before. Distributive effects and social safety nets are included in the advice given and requirements set in connection with individual countries’ programmes with the IMF. Countries that request financial assistance from the IMF must prepare a Poverty Reduction Strategy Paper (PRSP), outlining how they plan to combat poverty.

The statistics indicate that the IMF’s increased focus on social conditions has had an effect on how countries in crisis prioritise. From 2002 to 2011, social spending in countries that receive IMF loans has increased on average, both as a percentage of overall public expenditure and of GDP.

Photo: (both photos) UN Photo/Mark Garten.

What does Norway do?

Norway actively supports inclusive growth having a central place in the activities of the multilateral development banks and the IMF. The boards of the financial institutions work continuously on this issue, and it is also included in negotiations for the replenishment of the World Bank and the African Development Bank’s funds for the poorest countries. For example, Norway plans to increase its contribution to these funds if the banks adopt a clearer distributive policy. Norwegian input in multilateral forums is adapted to the mandate of the individual institution.

In the current negotiations in the World Bank about results frameworks, Norway will argue for the inclusion of operational indicators of inclusive growth. In connection with the approval of lending to countries, we ensure that the banks have an explicit focus on poverty. We argue in favour of increasing the focus on gender equality. Taxation and illicit financial flows are also issues that we consistently raise.

Norway also supports individual measures, particularly in knowledge creation and the testing of new instruments, for example in relation to governance, anti-corruption work, women and gender equality, social safety nets, the environment and the finance sector. Norway has been working for many years to improve access to health services and education through the multilateral development banks. We also support these institutions’ work on energy and natural resource management. More countries now want to cooperate with Norway on natural resource management, including the negotiation and renegotiation of contracts in the mining and petroleum industries.

The World Bank has drawn on Norwegian support in developing a number of analytical tools and strategies.4 Norway has for many years played a prominent role in relation to the issue of women’s economic and social development, and this work has produced visible and concrete results in recent years. We will continue to follow up this agenda, also from a distribution perspective.

The World Bank is developing a new tool for assessing countries’ taxation policies, among other things in order to identify the optimum level of taxes and transfers. Together with the other countries in our Nordic-Baltic constituency, Norway is a natural dialogue partner for the banks on tax-related matters, including the taxation of natural resources. Lessons can be learnt from our own social model, but it will be even more important to contribute to South-South learning and to the banks communicating best practice in discussions about distribution.

Together with the World Bank, Norway has contributed to the development of social safety nets in many countries, and this cooperation will continue. During the past decade, we have collaborated with the Bank on the social sector and the environment in particular in order to ensure that the Bank further develops its analytical tools and includes these aspects in relevant strategies and lending instruments. Inclusive growth was a research and pilot topic in this cooperation in 2012. We involve Norwegian institutions in our professional cooperation with the World Bank. Civil society organisations play an important role in monitoring and advocacy efforts in connection with the work of the international financial institutions.

In relation to the IMF, Norway, through the Nordic-Baltic Constituency, has pressed for greater focus on fair distribution and the social consequences of loan programmes. Norway has long advocated simplification of the terms and conditions – the conditionality – attached to the IMF’s loan schemes. Previously, these requirements have been both extensive and detailed, including requirements relating to social conditions. In some cases, they have exceeded the IMF’s area of expertise and failed to take adequate account of the local context. This has limited the borrowing countries’ ownership of the economic reforms that are to be implemented. The problem has been particularly evident in the IMF’s lending to low-income countries. Based on the organisation’s mandate and competence, the Government wishes to avoid the IMF’s work in low-income countries being characterised by long-term development funding. Such activities should be the domain of the World Bank and the regional development banks.

Norway is concerned with ensuring that the IMF’s work is grounded in professional assessments, not ideological considerations. We wish to share experience of our social model, which has resulted in sound growth, low unemployment rates and fair distribution.

The sum of our professional dialogue with the development banks and the IMF and our financial support for political priority areas makes a good starting point for raising development policy issues. These efforts sometimes coincide with our priorities in individual partner countries, while at other times they are an alternative arena with a great potential to influence developments.

7.2 The UN and fair distribution

The UN is a negotiating arena for achieving international agreement on the preconditions for and goals of development. The most important way in which the UN influences fair distribution is therefore through the role it plays in the development of international norms and standards.

The outcome document of the International Conference on Financing for Development in Monterrey in 2002 stated that each country is responsible for its own economic and social development. In the Monterrey Consensus and the subsequent Doha Declaration (2008), it was agreed that financial reforms are necessary to increase the mobilisation of domestic resources in order to reduce social inequality.

The Government will work to ensure that any future debate in the UN on Financing for Development will focus to an even greater extent on alternatives to aid, even though aid will continue to be important. The Government will therefore endeavour to ensure that these issues are high on the agenda at any future high-level meetings on Financing for Development. The Convention against Corruption, cf. Section 3.3, and the UN Committee of Experts on International Cooperation in Tax Matters, cf. Chapter 8, will also be important instruments in future efforts.

Norms, standards and guidelines for individual areas and sectors that are important in relation to fair distribution within countries are also developed under the auspices of the UN.

The UN's operational activities aimed at promoting inclusive growth

The various UN actors base their work at country level on international norms and standards. These norms and standards are binding on the member countries that adopt them. The most important thing is that the UN organisations contribute to capacity-building, so that countries can apply international norms, standards and guidelines when developing policies and systems to ensure inclusive growth.

The rights-based approach must mean that, within their respective mandates, the organisations must contribute to the development of national policies and systems that target the whole population. Based on an analysis of the situation in the individual country, the UN agencies must also help to ensure that women and disadvantaged groups, for example minorities, people with disabilities, children and young people, are not excluded. The job of the UN agencies therefore also includes helping countries to develop policies and measures targeting particular groups. Norway will work to ensure that these priorities are reflected in the strategic plans of the UN’s specialised agencies, funds and programmes.

UNDP is a priority partner in the implementation of Norwegian development policy. The organisation is in a unique position in the UN system to contribute to inclusive growth and fair distribution in member states. Because of its leading role in the UN development system, UNDP can also help to ensure that the various UN agencies act in a coordinated and uniform manner in their efforts to promote fair distribution.

Photo: UNDP South Sudan/Brian Sokol.

UNDP’s approach is that social justice, inclusion and effective poverty reduction depend on a country’s ability to deliver public goods and social services, market regulation for the common good and statutory access to economic goods and opportunities. UNDP provides expert assistance to the authorities to enable them to draw up and implement development strategies that focus, among other things, on inclusive growth, and to strengthen institutions and their capacity to govern and manage on the basis of human rights, democratic governance, transparency and civic participation.

In order to ensure progress towards achieving the MDGs, UNDP emphasises the need to address the growing income disparities and to develop measures to promote inclusive growth, productivity, employment and the redistribution of goods and income. UNDP is involved in many programmes in developing countries that support the development of policies aimed at increasing employment and developing social welfare schemes.

UNDP helps countries to hold democratic elections and develop public institutions, and contributes to strengthening countries’ judicial systems and people’s access to them. The organisation works to promote increased transparency and democratic accountability as regards the use of public funds.

The Government will work to ensure that UNDP, in its next strategic plan (2014-2017), places greater emphasis on advisory services and capacity development to enable the authorities to formulate a coherent policy and development plans that focus on fair distribution, sustainable development and democratic governance.

Unicef, the United Nations Population Fund (UNFPA) and the United Nations Entity for Gender Equality and the Empowerment of Women (UN Women) also have important roles to play in the efforts to promote fair distribution. These organisations’ work is based on children’s rights, women’s rights and people’s right to sexual and reproductive health and family planning, respectively. They help countries to develop national policies and systems that ensure universal services and help to combat discrimination. The Government will work to ensure that this is clearly enshrined in these organisations’ new strategic plans (2014-2017).

Unicef emphasises that expanding the provision of social services and social protection is not enough to reach the most vulnerable segments of the population. Targeted efforts are required to increase demand for these services. The Government will work to ensure that Unicef’s next strategic plan emphasises the development of national policies and systems for service provision that target all children.

The multilateral forums are negotiating arenas where common positions must be negotiated between many countries with conflicting interests, and it can be demanding to win approval for Norway’s policy. Our views can have a greater impact if we enter into alliances. Experience shows that it is easier to win support for a new policy if several countries unite behind each other’s views. The Government will therefore take the initiative for more extensive and long-term cooperation with selected countries with a view to forming a “group of friends” to champion fair distribution in various international forums. Including low- and middle-income countries as well as donors will be emphasised. The most important arenas for cooperation will be the World Bank, the regional development banks, the UN and the work on the Post-2015 Development Agenda. Norway shall be a driving force in the group of friends. The Government will allocate resources to implement this initiative.

Source Human Development Report 2013.

The UN's role in the development and dissemination of knowledge

Several UN agencies publish annual reports that are part of the basis for debates on global development policy priorities as well as national policy development.

Through its annual Human Development Report (HDR) and Human Development Index, UNDP has, since 1990, contributed to highlighting how well the countries of the world are faring in three fundamental aspects of human development: life expectancy, education and standard of living. The ranking is adjusted for inequality, and thereby indicates the extent to which a country’s development is affected by inequality.

UNDP’s HDR for 2013 states that economic growth alone is not enough to secure progress in human development.5 The report highlights four policy areas that are important in relation to ensuring progress: enhancing equity, including gender equality, a strengthening of democracy and citizen participation, greater resilience in relation to environmental pressures and policies to promote employment. When adjusted for income inequality, countries’ Human Development Index scores drop by an average of 23%. Figures from the UN also show that countries with low inequality consistently demonstrate greater progress in achieving the MDGs than countries with higher inequality.6

Unicef publishes an annual State of the World’s Children report, and UNFPA publishes a corresponding State of World Population report. Information about the size and composition of the population and data on living conditions are necessary if a country’s authorities are to succeed in developing policies and plans to promote inclusive growth and fair distribution. The UN plays an important role by assisting countries in conducting censuses, developing statistical databases and making use of population data analyses in the development of national policy.

The Government will:

• work for the integration of inclusive growth into the multilateral financial institutions’ results frameworks, lending schemes and policy discussions with the authorities in developing countries

• promote inclusive green growth, with an emphasis on fair distribution, in the UN and the multilateral financial institutions

• invite selected countries to form a group of friends to champion fair distribution in the multilateral arenas

• systematically highlight taxation as a redistributive policy tool

• seek to ensure that the new strategic plans of UN organisations emphasise helping developing countries to draw up policies and systems that include the whole population

• seek to ensure that national responsibility for poverty reduction is a key theme for a possible new international conference on Financing for Development

• increase support for civil society actors, both in Norway and in developing countries, that are engaged in the development banks’ and the IMF’s work on fair distribution.