1. ODA-Debt-Tax-Private Finance The coherent approach to development finance
Presentation by Eurodad staff
at the Eurodad-Glopolis
International Conference 2013

2. Where are we coming from?
1989: Like-minded European NGOs start to work on the Third World debt crisis
 HIPC/MDRI debt relief initiatives
2005: Eurodad drafts first EU AidWatch report
 MDGs: EU decision to reach 0.7, Gleneagles G8 Summit, Paris Declaration
2007: Capital flight and tax justice on the agenda
 Outflows exceed inflows; public sector deprived from resources
2010: The private turn of development finance
Private flows increasingly dwarf public flows
2013: Sovereign debt crises in Europe …
Eurodad was originally founded as network of NGOs and campaigns that worked or was working on the Third World debt crisis. Which erupted in the 1980s and was largely a consequence of the petrodollar-recycling, private lending by Western banks from the late 1970s. With the HIPC/MDRI debt relief initiatives – that were ill-designed in our view - the debt crisis was somewhat defused by 2005.
The Millennium Development Goals and „Make Poverty History“ cmapaigns triggered the „ODA“-boom of the mid 2000s-decade. In 2005, when the EU set out a roadmap to reach 0.7% by 2015, and the interim 0.56% by 2010, the DAC donors agreed on the Paris aid effectiveness on aid effectiveness, and the G8 pledged to double aid to Africa, Eurodad drafted the first EU AidWatch report. To hold donors to account for commitments made and push for stronger commitments.
We had started as a network campaigning for debt cancellation because we had realized that poor countries losse more money from debt service than they gain from aid. There was another financial flow for which this holds. Capital flight largely driven by tax evasion.

4. The larger picture: Financial flows to developing countries
Sources: UNDESA–private & financial , World Bank - remittances, OECD – ODA , GFI – illicit
Private flows: South & East Asia = 314bn, Africa 51 bn
5% FDI to LDCs (2010)
Increasing share of private flows = South South e.g. major emerging economies 28% FDI (2010)

5. ODA in context ODA and Debt:
ODA is needed to promote responsible financing standards in order to ensure effective development outcomes
Trend since 2007 to deliver more ODA loans rather than grants drives up debt levels.
ODA that is officially provided for “poverty eradication” de facto refinances debt service rather than development projects
ODA and private finance:
Increased focus to use ODA as a catalytic agent to foster growth within developing countries through channeling funds to the private sector
Donors and international institutions are increasingly supporting public-private partnerships
ODA, Tax and domestic resource mobilisation:
Public Financial Management (PFM) is at the forefront of development discussions in terms of how to effectively mobilise domestic resources for development purposes
Donors are looking to scale up technical assistance to developing countries in order to increase capacity of PFM

6. ODA and the crisis How ODA contributes to crises:
Scale catalytic role of ODA
Divert ODA from meeting gaps in public finance
How do we contribute to a solution: :
Ensure quality of ODA and implementation of aid effectiveness principles
Implement smart procurement policies to support domestic firms

7. Private Finance in context
Implications of private finance for ODA, DEBT and TAX
ODA is being used to leverage private finance
New forms of private sector support potentially increase indebtedness of developing countries (blending mechanisms, PPPs)
DFI lending ends up in companies based in tax havens

8. Private Finance and the crisis
Leveraging private finance is extremely problematic:
Follows the market
Who is leveraging who?
Huge opportunity cost
Private finance should comply with responsible financing standards:
If well regulated, investments in the private sector could become a truly development tool
DFIs need to engage exclusively in pro-poor and equitable investments
Efforts should be put in promoting the type of financial sector that works for development
Need for reclaiming the developmental role of the state

9. Tax and capital flight in context
Tax and ODA Domestic resources, and capacity
Tax and private finance
Development finance institutions
Tax and debt
Domestic resources, austerity and conditionality

10. Tax and capital fligh II
Tax / capital flight and the crisis
Tax and capital fligh II
How tax havens contributed to the crisis:
Secrecy
Allow business to get around domestic regulations
Race to the bottom
How do we contribute to a solution:
Transparency
Share information
Turn the spiral: Race to the top

11. Debt (cancellation) in context
Debt and Tax
Tax evasion leads to high borrowing needs
Debt service burdens eat up tax income
Debt and ODA
Conditionality attached to ODA loans increases vulnerability
Debt crises void out development progress made with ODA
Debt and private flows
Unregulated private lending and borrowing boom caused this crisis and quite predictably the coming one too
Debt crisis has dismantled the state and opens floodgates for private sector to take over former public services (PPPs)

12. Debt and the crisis How debt contributed to the crisis:
(Private) borrowing boom caused the crisis
Public side not shielded well from bail-outs and contagion
How do we contribute to a solution:
Responsible financing standards for both private and public finance, the latter including ODA, had contributed to crisis prevention
Fair and transparent debt workout mechanism are now urgently needed to do away with debt overhangs and free up public finance for financing public goods and development
Debt audits contribute to fair burden-sharing in debt workout as they can identify illegitimate debt which is repudiated first

13. From Policy to Action: Key Opportunities