BACKGROUND

Since the Rio Summit and Earth Summit 2 in 1997, direct foreign investment, commercial bank lending and bond lending have grown significantly.

Over the last decade, net flows from private/commercial sources of funding increased from approximately $25 billion to over $227 billion in 1998. This includes:

• direct corporate investment from DAC countries, which grew from $38.1 billion in 1992 to $105.3 billion in 1997, before falling back to $58 billion in 1998 due to the South East Asian Financial crisis;
• commercial bank lending, which rose from $16.3 billion in 1992 to $60.1 billion in 1997, again falling back because of the financial crisis in South East Asia to $25.1 billion;
• and bond lending, which rose from $11.1 billion in 1992 to $30.2 billion in 1995 (see Table 1)

Almost three-quarters of the direct corporate investments were made in only 12 countries (1), and there is no reason to suppose that this investment would have been made to promote the objectives of Agenda 21 - although some Northern governments have indicated that this was the case during negotiations in the UN Commission on Sustainable Development from 1993-1997.

Table 1: Net Capital flows to Developing Countries (US $ Billions)

Table 2: Net private capital flows to low income countries (US$ billions)

Within a proper framework FDI can contribute positively to sustainable development with needed capital, technology and knowledge. However issues of unjust distribution with and between countries must also be addressed. People’s access to capital is crucial for productive and job generating activities. Community based sustainable development economic development activities should be strengthened. At the same time it is important that people are not forced into commercializing their economic life before they are prepared to do so. This is particularly important to vulnerable, marginalized and under-represented Peoples and communities.

Despite its patchy nature, existing evidence points to the need to question all assumptions of the beneficial impact of micro-finance programs. It is necessary to mainstream gender and empowerment concerns throughout all activities of micro-finance programs.

Problems in relation to micro-finance programs include:

• lack of transparency in the management of private capital flows
• concentration of private capital flow in the hands of a few
• high interest rates and service charges to cover costs of delivery
• reducing staff and staff costs through a narrow focus on micro-finance
• reducing complimentary services
• use of ‘voluntary contributions’ of clients and groups to identify eligible borrowers to ensure repayment
• failure to incorporate empowerment indicators

Note is made of the fact that the total private flow is 227 billion and there is a very small private flow to low income countries of only 15.2 billion.

For some of the countries of Sub Saharan Africa international aid continues to be the main external income and where FDI plays no part.

THE WAY FORWARD

The CSD should reaffirm its support of the Multi-Stakeholder review of Voluntary Initiatives and Agreements; and:

• call for the strengthening of the environmental and social legislation and institutions by 2002, to ensure that FDI is consistent with sustainable development and encourage capital flows to vulnerable, marginalized and under-represented Peoples and communities;
• request the World Bank with UNCTAD and UNEP produce a review for 2002 to see what impact international investment agreements have on undermining countries' ability to regulate investment based on environmental and social criteria;
• require UNEP to produce a review of industry Environmental Reports by 2002, looking in particular at how they have incorporated environmental management systems that internalize Rio agreements into business operations;
• require DESA to produce guidelines by 2002 on how FDI can have stricter scrutiny to prevent abuse of all funds and corrupt practices throughout the world at both national and international levels, including the issue of tied aid;
• call on the General Assembly for the establishment of a stronger global regulatory framework for international capital flows, in particular on speculative financial transactions, which can severely disrupt national economies and societies. This should be set up by no later than 2005.
• UNEP to produce an online database by 2002 of environmentally sound technologies available covering the sectoral chapters of Agenda 21. Consideration should be given to strategies enabling stakeholders in all countries to access the information.
• UNEP to review the impact of their Financial Services initiative for 2002.
• request UNDP to conduct a review by 2002, of all micro-finance programs with a focus on empowerment, the maintenance of cultural integrity and gender mainstreaming. This should be done in collaboration with all stakeholders, particularly women’s NGOs and representatives of vulnerable, marginalised and under-represented Peoples and communities.

• reform taxation to encourage ecologically and socially responsible behavior;
• eliminate environmentally damaging subsidies in a socially equitable manner;
• have a stronger focus on ecologically and socially responsible budget disbursements.