Supporting developing countries in coping with the crisis
The international financial crisis poses a threat to global stability. The European Union (EU) supports an approach to development aid with the aim of stimulating economic growth, combating poverty and respecting the environment.
Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions of 8 April 2009 - Supporting developing countries in coping with the crisis [COM(2009) 160 final - Not published in the Official Journal].
Developing countries are particularly vulnerable to the effects of the international financial crisis. Development policies have improved their economic situation, but their resilience capacity remains limited.
Their monetary and budgetary policies are particularly constrained by inflation peaks, exchange rate volatility, deteriorating external balances, rising food prices and increasing energy costs. The European Union (EU) has chosen to support the countries that are most vulnerable to the effects of the crisis as a priority. These countries may be identified by combining several criteria corresponding to the main channels by which the crisis has been spread to developing countries, in particular:
- dependence on export revenues and the degree of integration into world trade;
- dependence on international financial flows and transfers;
- capacity to react in response to the crisis.
The EU provides the largest portion of Official Development Aid (ODA), almost EUR 50 billion or 59 % of ODA overall. Its contribution is increasing, but Member States should nevertheless commit to add a further EUR 20 billion of aid in order to meet their objectives set for 2010 (0.56 % of Gross Domestic Income).
This increase in ODA is essential for participating in economic recovery and meeting the Millennium Development Goals (MDGs). Aid must be supplemented by the use and mobilisation of other development resources and instruments. This is the case for export credits, investment guarantees, technology transfer and innovative development funding mechanisms (e.g. voluntary solidarity levies, such as the airline tax applied by some Member States).
The Commission recommends that Member States adopt counter-cyclical development policies consisting of:
- adapting 2009 and 2010 strategies and programmes, and re-directing EIB loans to key sectors in order to eliminate the crisis and boost economic activity (infrastructures, energy, activities related to climate change, green growth and the financial sector);
- accelerating payment and making advances on aid commitments and budgetary support for all countries, in particular for those in a situation of emergency;
- giving macro-economic assistance, for ENP countries, accession and pre-accession countries, in cooperation with the IMF.
The fragmentation of agencies and bilateral or multilateral donors, and the lack of stability and predictability of funding have a high cost. It would be possible to make gains in effectiveness each year, which could translate into billions of euros allocated to supporting reforms, projects and action. The EU has adopted a European programme for aid effectiveness and a Code of Conduct on the Division of Labour. In 2008, it committed to the Accra Agenda for Action and plays an essential role in rationalising international development aid architecture.
The Commission proposes to accelerate the implementation of these programmes, as well as the application of the Commission Recommendations aimed at ensuring maximum impact for EU aid.
In order to combat the social effects of the crisis and to contribute to the MDGs, particular support must be given to social protection systems and labour markets. Thus in 2009 and 2010, almost EUR 500 million will be committed under the European Development Fund (EDF), in order to protect public spending in essential sectors. This funding is to be implemented through:
- the FLEX system which allows export losses to be compensated for according to the years preceding the crisis;
- the additional and temporary "vulnerability FLEX" system, established expressly to respond more quickly and in a targeted way to the crisis in the most vulnerable countries.
Growth and employment are also promoted by the funding of infrastructures (EU-Africa Trust Fund), through support for agriculture and the creation of links between places of production and sale, by means of measures to foster private trade and the increase of credit facilities (in particular, the EIB’s investment facility, the Facility for Euro-Mediterranean Investment and Partnership (FEMIP), and the ENP investment facility for Eastern Europe).
The support provided by the EU in the context of the crisis also includes measures adopted to meet the food crisis (particularly the Food Facility with a budget of EUR 1 billion) which persists in many countries.
Recovery strategies take into account objectives for sustainable development and tackling climate change, including in the Least Developed Countries (LDCs).
Sustainable economic development necessitates the strengthening of economic and financial governance, including tax governance. Fighting corruption and the introduction of a healthy macro-economic and regulatory environment should be the key elements in political dialogue between the EU and its partner countries.
The EU should also work towards a better balance of the global governance system (particularly within the United Nations, the International Monetary Fund (IMF) and the World Bank), in order to make these authorities more complementary and to ensure greater representation for developing countries.