UN delegates who had the chance to participate in the side-event on innovative financing at the UN Summit on the Millennium Development Goals on 21 September will remember this weird and magical moment for quite a long time.
The UN’s HiFi system had broken down and panelists promoted several innovative mechanisms to finance development in an old school kind of way, crying just like vendors in a crowded marketplace.
This incident reminded of those power cuts which regularly take place in African cities (known in French as “délestage”). That had somehow a positive consequence. It forced the audience to remain very quiet and to pay attention to speakers. So much the better. Because innovative financing is certainly the future of development. Oxfam advocates for the implementation of innovative financing which will help raise high, predictable and sustainable revenues for development in the South and for the mitigation of the impact of climate change. But – and that’s a key element which cannot be questioned – new mechanisms to fight poverty must not be a substitute for existing "traditional" development aid, which remains a relevant and decisive source of finance, even though it’s not innovative.
How a Financial Transaction Tax can reduce poverty
The financial transaction tax (or FTT) is, among all possible innovative financing programs presented at the UN Summit, the most ambitious and coherent one. It has many advantages.
First, through an FTT, the financial sector would take its responsibilities in fighting poverty, which seems the least this sector should be doing, given the impact of the credit crunch on the poorest countries. If rates were set correctly, a levy on all financial transactions would have a positive side-effect in preventing speculation and gambling.
Second, even at a very low rate of 0.05%, an FTT would raise huge revenues – no less than $400 billion annually. Part of this amount would fill the gap in financing key public policies such as the fight against diseases, health systems strengthening, access to safe drinking water; agricultural development and mitigation of the impact of climate change (and so on and so forth).
Last but not least, this side-event has undoubtedly demonstrated that an FTT is quite feasible. Feasible almost overnight, when it comes to currency transactions. Feasible in the short term when it comes to the vast majority of financial transactions, including bonds and stocks. The word “possible” was pronounced at least twenty times during this three-hour long session! I enjoyed it!
When and with whom?
Now the question is no longer why or how to implement a Financial Transaction Tax, but rather when and with whom. The experts suggest to start right now with a currency transaction levy on the four major currencies – yen, euro, dollar, pound – and to build a system of tax collection on all other financial transactions.
The idea of an FTT is now strongly supported in Europe by Mr Zapatero (Spain), Mr Sarkozy (France) and Mr Michel (Belgium). Other member countries of the G20 have not made any clear statements yet. But they cannot remain silent very long. A global deal on the financial sector and its role in mobilizing additional resources for development must be set in 2011. That’s why Oxfam will push for an agreement on this critical issue within the European Union and at the next G20 Summits in South Korea and in France.