Spain contributes €45m to the Adaptation Fund

Spain has become the first country to make a significant contribution of €45m (ca US$60m) to the United Nations Adaptation Fund. This contribution will help the ground-breaking facility set up under the Kyoto Protocol to finance climate change adaptation projects and programs in developing countries. “I am truly delighted by the Spanish contribution. The adaptation needs of developing countries are immense and require substantial financial resources. Every contribution will help strengthen the efforts and work of the Adaptation Fund, which is now fully operational and ready to finance concrete adaptation projects in developing countries. Spain has sent a strong message to the developing countries that it is serious about its commitment to help them adapt to climate change”, says Farrukh Iqbal Khan, Chairman of the Adaptation Fund Board. “I hope other developed countries would now follow suit by making contributions and thereby helping Adaptation Fund to fulfil its mandate.

Apart from its size, the contribution is noteworthy in that, in accordance with the rules of the Adaptation Fund, the money will be disbursed at the sole discretion of the Adaptation Fund Board to meet the most pressing funding needs of developing countries, without any conditions superimposed by the donor.

The Adaptation Fund is a self-standing fund established under the Kyoto Protocol of the UN Climate Change Convention, which gets its funding from a two percent share of proceeds of all Certified Emission Reductions issued under the Protocol’s Clean Development Mechanism projects and other sources of funding. The Fund is designed to finance concrete climate change adaptation projects and programs based on the needs and priorities of developing countries.

“Rich countries must follow the example of the Spanish government and channel cash for immediate adaptation needs through the UN Adaptation Fund. That’s the best way to ensure developing country ownership over adaptation planning, and will help regain much needed trust in the UN climate talks,” said Oxfam International. "We expect all governments to guarantee that longer-term climate financing will be additional to their overseas aid commitments. With such an announcement, as current holder of the rotating EU Presidency, Spain could demonstrate that the EU is serious about increasing financial support which rises to the challenge of growing climate impacts in poor countries.”

EEAS proposal is contrary to Lisbon Treaty

A recently obtained legal opinion of a UK-based law firm states that High Representative Catherine Ashton’s proposal for the set-up of the European External Action Service (EEAS) is inconsistent with the EU treaties’ provisions concerning development co-operation. A coalition of European development organisations, including Eurostep, CDSE, CONCORD and others, is urging EU member states, the European Commission and the European Parliament to reject the proposal and ask for a legal review.

The EU Treaties clearly state that “Union development cooperation policy shall have as its primary objective the reduction and, in the long term, the eradication of poverty” (Article 208, TFEU). NGOs are concerned that allowing the EEAS, under the command of the High Representative for Foreign and Security Policy, to take over some of the Commission’s responsibility for development puts this primary objective in jeopardy.

“Lawyers confirm that the proposed set-up of the EEAS, which mixes intergovernmental policy areas like foreign and security policy and common policy areas of the European Community such as development policy contradicts the EU treaties,” said Bernd Nilles, Secretary General of NGO network CIDSE. “The EEAS supports intergovernmental policy and we are deeply concerned that the common EU development budget might be used to pursue national, economic and security interests. The HR’s proposal fails to recognise this imperative as there is no indication that safeguards will be put in place to ensure that development objectives will be protected. In so doing, the proposal goes against the spirit of the Treaties.” Simon Stocker, Director of Eurostep, commented: “The EU is the largest donor in the world. The politicisation of EU aid would undermine the achievement of the Millennium Development Goals.”

The revised proposal has been discussed and approved by EU foreign ministers in Luxemburg on Monday 26 April. However, the European Parliament, which has expressed concerns over the proposal, must give its approval before it can come into effect.

IMF must help keep poor countries keep up spending

Poor countries are being forced to cut back on their economic crisis-response spending too soon, international agency Oxfam said on the eve of the Spring Meetings of IFIs, calling on the International Monetary Fund (IMF) to take steps to reverse this trend. These countries need to massively increase social spending, as the economic crisis pushes millions of people further into poverty and the Millennium Development Goals deadline approaches. Instead, budget data from 56 poor countries surveyed by Oxfam - including detailed breakdowns of social spending in just over half of these countries - shows that poor countries have had to slash education, health, agriculture and social protection spending:

* Budgets in 2010 are being cut on average by 0.2% of GDP.
* Two thirds of the countries for which social spending details are available (18 out of 24) are cutting budget allocations on one or more of the priority social sectors of education, health, agriculture and social protection.
* Education and social protection are particularly badly affected, with average spending levels in 2010 lower even than those in 2008.

Rich countries are failing to provide the support needed to prevent these cuts. Oxfam has found that the economic crisis has left 56 poor countries with a combined ‘fiscal hole’ (that is, a shortfall in budgetary revenue) of $65bn in 2009 and 2010. Despite promises by the G20 and donor countries to help poor nations survive the crisis, just 13% of this revenue gap has been filled by grants. Given this failure by the international community, poor countries were forced to resort to expensive domestic borrowing to finance spending in 2009; now they are cutting spending prematurely to avoid a new debt crisis. This comes on the heels of the OECD’s report that development aid fell $3.5bn in 2009, and World Bank calculations that 50,000 more children in Sub-Saharan African countries may have died last year because of the financial crisis.

Oxfam also called for a change in IMF rules so that it can give grants, funded by gold sales, to finance a massive increase in poor countries’ health and education spending. At present, the IMF’s Articles of Agreement only permit it to give loans. “The IMF and G20 also need to endorse Financial Transaction Tax which, at rates of around 0.05% per currency transaction, would raise hundreds of billions of dollars annually. Otherwise, this poor country fiscal gap risks becoming a black hole into which the education, health and future prospects of the world’s poorest will disappear,” said Oxfam in Washington DC.

IMF: Swinging back to capital controls

In response to the IMF's recent recognition of the positive potential for capital controls, the Center for Economic and Policy Research (CEPR) on the eve of the Spring Meetings in Washington released a paper that indicates that capital controls can play an important role in developing countries by helping to insulate them from some of the harmful effects of volatile and short-term capital flows. In a February paper, the IMF concluded that "there may be circumstances in which capital controls are a legitimate component of the policy response to surges in capital inflows." The Fund's Global Financial Stability Report released last week was less sanguine about capital controls, but the net result is that the IMF appears more open to supporting capital controls than in the past.

The CEPR paper, Capital Controls and Monetary Policy in Developing Countries, written by CEPR economist Jose Antonio Cordero and Juan Antonio Montecino, looks at both the theoretical and empirical literature on capital controls. Short-term capital flows may be very volatile; they react quickly to sudden changes in investors' moods, external events, and to perceptions of governments' macroeconomic policy decisions. In 2007 net debt flows to the developing world were more than 6.5 times as large as they were in 2003; yet, in 2008 these flows were at less than half their 2007 level. Short-term debt flows, which almost quadrupled between 2003 and 2007, turned negative in 2008.

A surge of capital inflows, especially short-term and/or speculative inflows, can cause the domestic currency to appreciate. This can reduce competitiveness in the country's tradable goods sector, slow economic growth, and harm economic development by increasing the volatility and hence uncertainty of international prices. Capital flows can also cause enormous damage when they are reversed, with large capital outflows leading to a financial crisis. This was a major cause of the Asian financial crisis of 1997-1999, and also harmed many countries in 2008-2009.

The paper concludes that capital controls can provide an alternative to an inflation-targeting with floating exchange rate regime, or a "hard peg" fixed exchange rate regime (which has been shown to have other severe disadvantages, as in Argentina, Brazil, and Russia in the 1990s). With capital controls, it may be possible for the government to maintain a more stable and competitive exchange rate while keeping inflation in check. The authors look at controls on capital inflows in Malaysia (1989-1995), Colombia (1993-1998), Chile (1989-1998), and Brazil (1992-1998). They also consider the case of Malaysia's controls on outflows in 1998-2001.

Trade union statement to G20 Labour Ministers

As forecasts warn of a continuing rise in unemployment on top of the additional 34 million people worldwide who have become unemployed due to the economic crisis, trade union leaders from the G20 countries will urge for more action on jobs when they meet with G20 Labour and Employment Ministers on 19 April in Washington DC. The union delegation will present Ministers with a Global Unions statement, Beating the Jobs Crisis, setting out the steps which G20 governments need to take. The Statement calls for measures across six main areas, to:

* Maintain fiscal stimulus and focus on job creation: there must be no exit from fiscal stimulus until adequate growth levels have been attained, the danger of a further slump averted and there is self-sustaining recovery in jobs. The size, duration, coordination and targeting of stimulus packages must maximise creation of decent jobs including ‘green’ jobs;

* Strengthen social protection: existing social protection measures must be increased, including extending the level and period of unemployment benefits and supporting youth through determined government action. Globally, a social protection floor for all needs to be ensured;

* Provide support for the UN Millennium Development Goals (MDGs): G20 governments should agree on an Action Plan to implement the G20 Pittsburgh commitment to achieving the MDGs. Decent work needs to be placed at the heart of development assistance, and in low income countries, strategies for the creation of quality employment based on policies of sustainable industrialisation have to be put in place;

* Support a just transition towards a low carbon economy: proposals need to be developed to ensure that the job creation potential of mitigating climate change is maximised;

* Help build a sustainable labour market model: measures are required to combat labour market, income and gender inequalities, and these need to be at the centre of the post-crisis policy framework; and,

* Re-skill and upgrade the global workforce: the G20 skills strategy must build quality skills and employment, through a new surge in vocational education and training that engages the trade unions and employers, makes lifelong learning a reality for all and focuses, in particular, on prioritising skills for ‘green’ jobs.

The Labour and Employment Ministers conference is being held as follow up action to the Pittsburgh G20 leaders’ meeting in September 2009, and is due to make recommendations to the G20 leaders’ meeting in Toronto in June. “In Pittsburgh G20 leaders said that they would put quality employment at the heart of the recovery but we don’t see this happening yet – the signs are that workers will have to pay for bailing out the bankers through public expenditure cuts, job insecurity and wage reductions. Governments have to urgently refocus their action to create decent jobs. If they don’t, the risk of a social explosion is likely to become a reality,” said ITUC General Secretary Guy Ryder.

The union delegation will also be calling on the G20 to continue focusing on employment issues beyond the Washington meeting, for example through a task force which would include trade union involvement. Through the ITUC Regional Organisation for the Americas, TUCA, the trade union movement is also putting its case to G20 member-countries Brazil, China, India and Russia, whose leaders are meeting in Brasilia on 16 April.

How to get a climate deal back on track?

As UN climate negotiators head back to Bonn to find a way forward after the controversial December 2009 UN Climate Change Conference in Copenhagen, the International Forum on Globalization (IFG) is releasing a report to call attention to some of the more notable results of the summit, to reinforce the reasons why a UN climate process is so critical, and to point to some possible ways forward to success at Cancun in November 2010. IFG's new report, Safe Passage to Cancun - Getting a UN Climate Deal Back on Track, summarizes the main messages from a recent public event in Washington DC providing analysis and perspectives on the outcomes of Copenhagen.

The Copenhagen Accord’s emission cuts amount to maybe only half of what science says is needed to avoid climate catastrophe. Cancun must achieve more than “climate anarchy,” where each country does only what it desires, free from any comprehensive framework of agreed rights and responsibilities. Any agreements allowing such high temperature increases are irresponsible, non-governance of our global commons; we need better. New, bold and cooperative measures will be needed to drive complex global solutions. Fortunately, the opportunities to re-imagine and re-create our collective trajectory are truly rich. Such perspectives are especially urgent for informing the United States climate policy community, general public, and politicians alike, if we are to bridge the North-South gap in search of global climate solutions.

The main messages emerging from the report include:
* Nations must set a science-based global carbon budget, then fairly share the remaining atmospheric space.
* Climate finance governed by climate authorities is a litmus test for North-South trust building.
* Technology cooperation needs intensified engagement to drive smart innovation farther and faster.
* Indigenous peoples’ issues are gaining ground but still need to consolidate protections for their rights.
* Leaving behind the US—until it gets its act together—could help the rest of the world move ahead.