Interview with British minister Paul Boateng

Paul Boateng is a senior British cabinet minister and Chief Secretary of the Treasury. During a whistle stop tour of Ethiopia, he told IRIN how a new British initiative - the International Finance Facility - may be the key for cash-strapped developing countries to meet the UN Millennium Development Goals. QUESTION: What is the International Finance Facility? ANSWER: The IFF is a means by which the developed world, the richest nations, will make long term legally binding commitments to annual payments for the purposes of development aid. On the basis of these commitments, the facility would leverage immediate additional resources for aid by issuing bonds in the international capital markets. Q: How does the system work? A: Nations A, B, C, D make a legally binding commitment to deliver X over a 30-year period. Upon that basis, bonds are issued in the international capital markets that raise immediately a level of assistance that is greater than the individual commitments of the countries. The donor countries make long term commitments to provide streams of annual payments so the facility then has a future expected income stream. You can then borrow against that future expected income stream upfront to raise additional resources. It is a loan backed up by the commitments of these major nations to continue to make these payments on an annual basis beyond the 2015 period [date for meeting Goals] to 2030. Because the IFF relies on the income streams from donor countries, it is able to disperse funds mainly in grant form which is crucial given that you are targeting low income countries. Q: Is the system affected by market fluctuations, say for example if the stock market crashes? A: International capital markets are affected by market fluctuations. But this steady commitment helps iron out the impact of fluctuation in any event and also because there is a steady flow of aid, most of which is in the form of grants, it helps the recipient countries themselves survive the impact of external shocks. If you take the case of Ethiopia, what are the external shocks that have effected Ethiopia’s economy - the price of coffee and the strength of the euro, both of which have had a damaging effect on Ethiopia and the sustainability of its own debt level. Q: What must developing countries do to secure the additional aid? A: There must be an element of reciprocity in this. So developing countries, just as they are required to do at the moment, have to put in place policies so that the money will be used effectively, so that their policies guarantee stability, tackle corruption - those same conditions that exist at the moment. What is not envisaged is any new set of conditions. There has to be reciprocity. This is what civil society themselves say. This is what poorer people in the world say - ‘Look here we expect our government to use this aid effectively.’ ... This is a two way street. Q: When will the initiative be up and running? A: We are working very hard to ensure that it is operational as soon as is practicable and feasible but this is a continuing process. I can’t give you a date, that is not the way we approach these issues. We take it stage by stage... We look for a further step forward at [the G-8 summit in] Evian; we look for a positive report in September. It is steady progress. Q: Who will run the facility? A: It is a proposal, but we would envisage a separate international entity so it would have some independence. The governance would be limited primarily to the financial management of the facility. We wouldn’t be looking to create a whole new agency. You would have some sort of governance that took account of participating countries' views and not just the donor countries represented as well. Q: What is wrong with the current system? A: Rather than what’s wrong with the current system let me tell you what the advantages of the IFF are. A front-loading system, which means you get the money upfront ... It provides scale, a level and volume of resource that enables more effective joining up of a critical mass of aid around health, around education and other anti-poverty programmes. It provides predictable and stable aid flows. It helps overcome the vagaries of politics and of development aid at the moment... It would be a great mistake to see this as an alternative to the successful conclusion of Doha [WTO conference in 2001], an alternative to the steps that need to be taken in order to promote good governance, closer and better relationships with civil society and NGOs...It is an important part of the process of leveraging in more resources upfront.