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FINANCIAL RESOURCES AND MECHANISMS:

On Wednesday, 18 May, Working Group I discussed financial resources and mechanisms (Chapter 33 of Agenda 21). At its first session, the CSD established an intersessional ad hoc open-ended working group on finance. The report of the intersessional working group (E/CN.17/1994/10) was presented to Working Group I by Dr. Lin See-Yan. He recommended that delegates: strengthen the capacity of international financial institutions; draw up a matrix of the optimal mix of instruments for each of the sectoral clusters; and allow the intersessional working group to continue. Other reports presented to the Group included: a report of the Secretary-General, "Financial resources and mechanism for sustainable development: overview of current issues and developments" (E/CN.17/ISWG.II/1994/2), and a report of the intersessional workshop on finance co-sponsored by Malaysia and Japan.

During the opening discussion, general questions of the level and efficiency of financing revealed distinct North-South differences. The G-77 and China expressed concern that while developing countries had joined the global partnership for sustainable development on the explicit understanding that additional resources would be provided, this aid has not been forthcoming. Japan and the Nordic countries were sympathetic, noting that they had kept their funding levels high and calling for renewed efforts to close the gap between the goal of 0.7% of GNP and present levels of official development assistance (ODA). The EU, the US and Australia called for increased efficiency in the use of aid, which is to be achieved in part through reformed national policies and improved macroeconomic conditions. Germany called for increased public and private savings, sound pricing policies and the removal of subsidies. The G-77 and China, however, were concerned that the call for reordering priorities or greater efficiency in the use of aid is an attempt to divert attention from the issue of primary importance -- the provision of aid.

The developed nations looked positively on other financing mechanisms. The GEF and its recent restructuring and replenishment were the subjects of praise from all delegates. Japan suggested that the GEF play a more important role as the financial mechanism to fund Agenda 21 activities. Colombia, India, and others commented that the GEF is an important mechanism, within its limited scope. The EU highlighted the benefits that are expected to come from the completion of the Uruguay Round, and also noted that foreign direct investment (FDI) flows are at record levels, due in part to the increased attractiveness of developing countries for investment. India noted that trade liberalization and other measures will take time, while immediate concerns should be addressed by this Group. Morocco pointed out that some African nations will suffer from the Uruguay Round decisions and that African nations are not among the significant recipients of FDI.

Tradeable permits, emission taxes and air travel taxes were among the innovative financing methods mentioned during Wednesday's discussion. Egypt tabled a proposal for a panel of experts to study these innovative financing methods. Brazil and several other developing countries voiced concern about the incomplete information on these methods, noting the need to examine them closely. Pakistan proposed that emission taxes be levied on non-renewable resources, and Japan agreed that this method would be promising in the long-run. Venezuela cautioned the delegates that the burden of implementation should not fall on energy producing nations.

The Chair attempted to reconcile these positions and recommendations in a draft text. The paragraph-by- paragraph discussion on the Chair's first draft text took most of Friday, 20 May. The G-77 and China took issue with the reference to "insufficient provision of new and additional financial resources," because this implies that there are additional resources. India called for a time frame of two or three years by which the target of 0.7% of GNP for ODA will be reached. The EU noted that references to time frames would revive discussions that are not appropriate.

There was considerable disagreement on the importance of adequate national policies. The G-77 and China proposed deleting the references to the need for adequate national policies, replacing it with wording that indicates that such calls are attempts to divert attention away from the provision of new and additional financial resources. The US, Canada, the EU and Japan preferred the original text. France said the G-77 and China proposal changes the nature of the document and impedes any attempt to reach consensus unless the text is to explicitly note each side's understanding of the issue. The G-77 and China said they could compromise as long as the political commitment to Agenda 21 and the Rio agreements do not fade.

The finance text that was adopted calls for the following: the Secretariat should consider the feasibility, socio- economic consequences, impact on environment and administrative arrangements of innovative financial mechanisms; the usefulness of a matrix of policy options and financial instruments is noted, although no specific recommendations are identified; the ad hoc open-ended working group on finance is to involve experts, use lessons learned, encourage the formation of informal expert groups, prepare case studies and monitor financial flows; and the CSD notes that it is committed to generating public support and participation. [Return to start of article]