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DEVELOPMENT: Poor Hit by Recession and Tax Havens

David Cronin

BRUSSELS, Oct 27 2008 (IPS) - With signs of a recession preoccupying policy-makers in industrialised countries, prospects for the success of an international conference on providing finance to the world’s poor do not appear high.

The United Nations sponsored event, beginning next month in the Qatari capital Doha, comes at a time when many governments, particularly in Europe, are reassessing commitments they have made to improve the lot of the most vulnerable.

Some of the European Union’s largest member states have recently deemed the EU’s plans to combat climate change, a phenomenon that affects poor countries disproportionately, too costly given the changing economic circumstances. Foreign aid budgets, already shrinking, are likely to suffer because of the same rationale.

Although the EU has been credited by many anti-poverty activists with playing a constructive role during a related conference on improving the effectiveness of development aid in Accra, Ghana, in September, the same campaigners feel that the bloc’s preparations for Doha leave much to be desired.

“The Europeans are not getting their act together here in Brussels,” said Nuria Molina from the European Network on Debt and Development (EURODAD). “Unless Europe takes a leadership role, we are not going to have the success that is needed in the midst of a financial crisis. They have a moral duty to play this role.”

One of the most contentious issues on the Doha agenda concerns how taxation regimes in Europe are depriving poor countries of sorely needed resources.

A new report by the Centre for Research on Multinational Corporations (known by its Dutch acronym SOMO) in Amsterdam notes that revenue generated from tax accounted for just 13 percent of national income in countries classified as low-income in 2000. By contrast, the average level for industrialised countries belonging to the 30-member Organisation for Economic Cooperation and Development (OECD) was 36 percent.

Estimates for the amount of money that poor countries lose as a result of capital flight – the expatriation of taxable revenue – vary from 350 billion dollars to 500 billion dollars per year, several times more than what those countries receive in development aid. A large amount of this ‘hot money’, as it is sometimes called, ends up in tax havens either on EU territory or on territories answerable to its member states. Such havens include the City of London, the Cayman Islands, the Channel Islands, Cyprus and Luxembourg.

To remedy this situation, anti-poverty campaigners are demanding a crackdown against these tax havens, as well as the establishment of robust international accountancy standards that require major firms to report precisely how much they earn in every country where they operate, and what they do with the sums involved.

These calls are being resisted by treasury officials in Britain, who are eager not to subject the City of London to rigorous controls.

“Closing down tax havens is a European responsibility,” said Molina. “Many of the tax havens are in European jurisdictions.”

How to find innovative approaches to fund-raising for development will be another key issue for the Doha conference.

Philippe Douste-Blazy, the UN’s deputy general secretary, said that several initiatives have proven their effectiveness in recent years. These include a British-backed scheme to use the capital markets to generate finance for developing vaccines against AIDS, tuberculosis and malaria, and a separate programme sponsored by France, Brazil and Chile to put a tax on air travel. The challenge now is to go further, he wrote in French newspaper Le Monde, in order “not only to change the volume but the nature of aid for development.”

Anti-poverty activists are adamant that fresh sources of aid must not be a substitute for the aid that rich country governments have already agreed to release from their national coffers. Just four of the EU’s 27 countries – Sweden, the Netherlands, Luxembourg and Denmark – have honoured a decades-old international objective of allocating at least 0.7 percent of their national incomes to development assistance.

Alexandre Polack, head of European policy with ActionAid, said that both Germany and Britain are reluctant to agree that new money for fighting poverty should be additional to what the EU has already undertaken to provide. “It is disappointing you have quite conservative views from two key countries,” he said.

Polack is also urging that at least half of the revenue accruing from the EU’s emissions trading system – under which permits to release greenhouse gases are bought and sold – should go to help poor countries deal with climate change.

Karen Fogg, a senior European Commission official, said that the EU will be “going into Doha with a strong commitment to keep its aid levels as foreseen. At least that is what we hope. We cannot yet anticipate what will happen as a result of the financial crisis.”

But Antonio Vigilante, a director at the UN’s Brussels office, said he is dismayed by the weak stance of rich countries on issues relating to global poverty. “I had a look at some of the documents being negotiated for Doha and I thought they were a joke,” he said. “But they are for real. I just hope someone will have the courage to say we will redouble our efforts.”