Development is about far more than providing aid. Many policies in other areas can affect poorer people across the world. Accepting this, the European Union has committed to ensure that policies such as fisheries, energy and trade do not undermine its development pledges. This Policy Coherence for Development approach was launched in 2005 as part of the European Consensus on Development. Now the European Commission has published a progress report, and NGOs have published their own analysis urging extending and strengthening the process. This among other issues will be discussed at this week's European Development Days in Stockholm.
The PCD review published by the European Commission in late September says that its framework “allows for a systematic exploration of the effects that EU policies other than aid might have on development and on the achievement of the MDGs”. This is to be achieved by consultation between different ministries and branches of the Commission and by impact assessments that can be triggered to assess policies’ likely results on development countries. The European Commission claims that these are “powerful mechanisms to promote PCD”. However the report also acknowledges several obstacles. They include:
a “lack of awareness of development issues” by other ministries;
a “difficulty of providing evidence about the ultimate impact of non development policies on poverty in developing countries”, and;
a “lack of political will and the limited priority given to world poverty reduction”.
A new CSO report Spotlight on Policy Coherence shows that the current PCD mechanism has serious deficiencies and loopholes. The new report by the European Confederation of Development NGOs (CONCORD) says this is because there is “no robust legal mechanism” nor “any complaints procedure open to governments, civil society organisations and local communities”. The EC also states that it plans to reduce the number of policy areas covered by its coherence mandate. Justin Kilcullen, president of CONCORD and chief executive of Trocaire, a Eurodad member, comments “the Commission appears to be moving away from the broader PCD agenda to a set of political priorities with which they feel more comfortable”.
A chapter by Eurodad and its members Glopolis and CNCD argues that the opposite should be the case. It proposes a more comprehensive approach that tackles the financial and economic policies that triggered the current crisis. The massive worldwide impacts of financial deregulation and inadequate economic policies are now plain for all to see. Several estimates show that an additional 50-100 million people will be pushed below the poverty line during the crisis. Yet the EU coherence framework entirely omits the financial and economic policies which cause instability and massive financial outflows from developing countries.
A European Commission communication which accompanies the PCD report states that “new developments make it necessary to rethink our approach to PCD” due to the “growing impact of internal policies in external relations” and “growing non-ODA financial flows to developing countries”. Despite this so-called “Whole of the Union” approach the EU overlooks the links between financial policies and development impacts. European public and private banks can seriously impact developing country economies, depriving developing countries of fiscal resources. For example, recent research by Eurodad shows that the European Investment Bank supports projects led by private equity funds using tax havens to minimise tax paid in the South. Yet, this is not addressed in the draft EU directive that is supposed to regulate private equity companies.
Similarly speculation has played an important role in the rise and fall of food, oil and other commodity prices in recent years. Hedge funds have very actively invested in commodity markets, driving prices up and artificially inflating the market. This behaviour has had dramatic consequences for poor countries. UNCTAD in its recent Least Developed Countries Report finds that price hikes between 2007 and the middle of 2008 resulted in an additional 100 million people having inadequate access to food. UNCTAD found that the positions held by finance companies such as hedge funds became “so large that they can significantly influence prices and create speculative bubbles, with extremely detrimental effects”. The Financial Times this month agreed that “the circumstantial evidence for a connection between increasing financial market involvement and last year’s [commodities] boom and bust is strong”. But again, when it comes to regulate derivatives markets and hedge funds European governments are failing to look at their implications for development.
The Commission’s PCD progress report concedes that at present “diverging interests can make it difficult at times to ensure consistent [European] Council messages”. These clashes of interests are nowhere clearer than in the massive finance lobby mobilisation that is seeking to dilute proposed EU directives on hedge funds, derivatives and other financial instruments. The PCD consultation and impact assessment framework counts for very little by comparison with well-resourced and vocal European special interest groups.
Coherence requires looking at the outflows: the EC communication rightly states that “ Official Development Assistance (ODA) must be complemented by other financial sources”. Additional resources beyond ODA are certainly needed, but this is only one side of the coin. It is also essential to stop the huge outflows that developing countries lose each year. As highlighted in the Spotlight on Policy Coherence report, illicit capital outflows from developing countries represent some $1 trillion per year, a figure that is growing at around 18% per year.
Half of the 70 tax havens around the world are in Europe or European overseas dependencies, and Europe-based secrecy jurisdictions account together for at least 70% of tax haven-related activities in the world. Over 65% of these illicit flows are driven by transnational corporations’ tax evasion and tax avoidance schemes and transfer mis-pricing through the misuse of internal financial transactions.
Tax havens are also helping feed a race to the bottom in tax policy, which prevents both developed and developing countries from investing in public services, social protection and human welfare. Tax losses as a result of these practices dwarf the €50bn European ODA that poor countries receive annually. Yet, the EU coherence framework fails to address this crucial challenge.
The current global crisis has shown that developing countries’ economies are not decoupled from the financial markets in the North. It has also shown that secrecy and lack of regulation provided by tax havens allow hazardous behaviours and massive tax evasion. The EU should include these aspects in its policy coherence for development approach.
The new Spotlight report recommends extending, not reducing the Policy Coherence for Development approach. This should include measures to address speculation on food, and to clamp down on tax evasion. Governments and citizens in Asia, Africa and Latin America know that this financial and economic crisis was started and transmitted due to misguided European and North American policies. They will continue to demand – at the G20, United Nations and indeed at this week’s European Development Days – that they be changed. Until they are there is little hope that any policy coherence for development approach will be taken seriously.
Spotlight on Policy Coherence, CONCORD, 2009
Dangerous Derivatives at the heart of the financial crisis, Eurodad and members, 2008
Speculation undermines the right to food, Eurodad and members, 2008
Policy Coherence for Development - Establishing the policy framework for a whole–of–the-Union approach, European Commission, 2009.
EU 2009 Report On Policy Coherence For Development, European Commission, 2009
The Least Developed Countries Report 2009, UNCTAD, 2009