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UNCTAD Policy Brief No. 20G/2011: Towards a New International Development Architecture for LDCs

Policy brief by UNCTAD, 2011

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This policy brief describes the rationale behind establishing a new International Development Architecture (NIDA) for LDCs, the structure of the NIDA, and how it should be implemented.

N° 20/G, May 2011


Least deveLoped countries series
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The Rationale for NIDA
The idea that ‘the least developed amongst the developing
countries’ might require special international assistance
to support their development was first proposed in the
Prebisch Report at the UNCTAD quadrennial conference
held in 1964. Afterwards, and over a number of years, the
criteria for identifying countries as least developed were
defined and refined, and are now based on three major
dimensions - low income, weak human assets and high
levels of economic vulnerability. Countries entering the
group also have to have less than 75 million people.
The reasons for identifying LDCs in the first place was that
these types of countries face special constraints, handicaps
and vulnerabilities that are difficult for them to deal with
on their own and will therefore leave them increasingly
marginalized in the global economy, and increasingly the
epi-centre of extreme poverty and complex humanitarian
emergencies in the world. The evidence presented in
earlier Policy briefs show that there is still a case for special
support for LDCs.
However, UNCTAD’s assessment of how these measures
worked during the 2000s shows that, in spite of important
momentum to improve partnerships during the Brussels
Programme of Action, the LDC-specific support measures
have had symbolic rather than practical development
effects. NIDA is a holistic and coherent approach to
enhance the partnership for development and to move
beyond ‘business as usual’ during the coming decade.


Limits in implementing LDC-specific aid
commitments
One of the major areas in which the LDC-specific support
measures of the 2000s lagged was with respect to aid,
including both the quantity and quality of aid and also
aid for key priorities such as trade and climate change
adaptation.
Certainly there has been significant progress in quantitative
terms. Net ODA inflows to LDCs declined in the 1990s but
doubled in real terms during the 2000s. However, the
scale of aid from OECD DAC donors was nevertheless
below their commitments to provide 0.15 or 0.20% of
their GNI to LDCs. This target was not only inscribed in
the Brussels Programme of Action but also a target in the
Global Partnership for Development intended to achieve
the MDGS.
The aggregate ratio of ODA to GNI for DAC members
increased from 0.05% in 2000 to 0.09% in 2008. The
increase in the 2000s actually represented only a return to
the same level of aid as in 1990. The actual aid amount
in 2008 represented a shortfall of $23.6 billion and the
cumulative shortfall in aid flows to the LDCs over the period


2000–2008 in relation to the lower aid target of 0.15% was
equivalent to 51% of the GNI of the LDCs as a group in
2008.
Obviously the quality of aid is as important as the quantity
and in this regard an important decision in Brussels
was to untie aid. But here too there is a mixed picture.
Although donors have made rapid progress in the formal
untying of their aid by removing legal and administrative
impediments to the procurement of goods and services
outside the donors’ own markets, the de facto tying of
aid continues to be widespread. The reasons for the de
facto tying include: i) donor regulations; ii) lack of local
capacity; iii) local and regional contractors being unable to
compete internationally; iv) unequal access to information;
v) potential risk aversion at donors’ headquarters; and vi)
pressure for speedy implementation.
Aid for trade is an important priority for LDCs, and one
of the most important special measures for LDCs is the
Integrated Framework for Trade-related Cooperation (IF),
which was first established in 1997, upgraded in 2001 and
enhanced in 2009. All but two LDCs now participate in the
Enhanced Integrated Framework (EIF). There is consensus
that this has the potential to become an effective tool for
delivering trade-related technical assistance. However, the
first 12 years of the IF showed that this special international
support mechanism involved high transaction costs for
LDCs and was ineffective in generating more resources for
aid for trade in LDCs. The aid for trade commitments (using
the OECD DAC definition) has risen more rapidly in other
developing countries than in LDCs despite a dedicated
mechanism for trade-related capacity building. LDCs’
share of total aid for trade disbursements to all developing
countries fell slightly from 32% in 2002-2003 to 28% in
2007-2009. In aggregate, $52 million has been allocated to
LDCs through the IF/EIF process since 2000, on average
amounting to a little more than $1 million per country. This
is grossly inadequate.
Aid for climate change adaptation is also important. The
LDC Fund (LDCF) was established in 2001 to help LDCs
identify priority activities that respond to their urgent and
immediate needs with regard to adapting to climate change
and to obtain financing to support the activities they have
identified. By June 2010, the LDCF had funded 36 projects
in 32 LDCs, allocating $126 million in total with an average
project size of $3.5 million. The level of the Fund’s financing
for implementing priority adaptation projects is inadequate,
given the scale of the adaptation challenge which LDCs
face, rising from an estimated $4 billion to $17 billion per
annum by 2030. The Fund is dependent on the voluntary
contributions of developed countries and therefore the
security of funding is not reliable enough to enable its


Towards a New
International Development
Architecture for LDCs
UNCTAD’s Least Developed Countries Report 2010 has called for a New International Development
Architecture (NIDA) for LDCs. What is the rationale for NIDA? What is it? How can it be implemented?




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own under-utililized assets and creative potential, to enable domestic
ownership of their development strategies, and to catalyze their own
agency. It sees LDCs in terms of potential rather than simply humanitarian
needs.
The design of NIDA is intended to enable a shift to new, more inclusive
and sustainable development paths in LDCs, based on the development
of productive capacities, the associated expansion of productive
employment and an improvement in the well-being of all their people. This
will be best achieved by giving the state a stronger development role and
building developmental state capacities which can harness the energies
of the private sector to achieve national development objectives.
In general, the basic principles for the design of the NIDA are to:
• Enable new, more inclusive development paths in LDCs based on


development of productive capacities.
• Foster and support country ownership of national development


strategies and enhance the space for development policy.
• Facilitate strategic integration into the global economy in line with


development needs and capacities, including a better balance between
external and domestic sources of demand.


• Redress the balance between markets and the State in such a way
that the State plays a more significant role in guiding, coordinating and
stimulating the private sector.


• Promote greater domestic resource mobilization with a view to reducing
aid dependence over the medium and long-term.


• Promote greater policy coherence between trade, finance, technology,
commodities, and climate change mitigation, as well as between global
eocnomic regimes and special international support measures.


• Support South-South development cooperation as a complement to
North-South cooperation and in a way which is not restrictive.


• Foster a greater voice for and representation of LDCs in the global
system of governance.


Implementation of NIDA
The LDC Report 2010 contains a large agenda for action in each of the five
key pillars of NIDA. Some of the proposed measures, such as the early
harvest for LDCs emerging from the Doha negotiations, innovative uses
of aid to increase innovation or periodic fora in which LDCs exchange
experiences on aid management policies, are immediately actionable.
Others, such measures to reduce commodity price volatility, are more
aspirational. But taken together NIDA offers a vision of an enhanced
global partnership for the LDCs which can i) reverse the marginalization of
the LDCs in the global economy and help them in their catching up efforts;
ii) support a pattern of accelerated eocnomic growth that would improve
the general welfare of and well-being of all people in LDCs; and iii) help
LDCs graduate from LDC status.
It is significant that LDCs themselves have identified the graduation of
increasing numbers of LDCs from LDC status as their overriding goal for
the coming decade. This in effect means that they see special international
assistance as an essential input in their own efforts to develop and
graduate from needing such assistance in the future. Their concern for
graduation is a powerful message to the international community precisely
because graduation implies graduation from the need for special support.
It is this transformation, using support now to enable empowerment and
independence from support in the future, which NIDA would deliver.


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administration to plan a comprehensive programme of implementation of
adaptation needs for all LDCs. As most LDCs cannot afford to meet the
baseline development costs, LDCF commitments of finance towards the
additional costs are often inadequate in relation to the scale and urgency
of their needs.


The contours and content of NIDA
NIDA seeks to go beyond the limitation of current LDC-specific international
support measures through an aid-plus approach.
NIDA is an aid-plus approach in the sense that it recognizes that
development aid is still of critical importance to the LDCs. But it is based
on the belief that it is now necessary to have a more integrated approach
which recognizes various dimensions of global interdependence affecting
economic development and poverty reduction in the LDCs. Thus NIDA
has five major pillars:
1. Finance, including not simply traditional development aid and debt


relief but also measures to promote domestic resource mobilization,
private capital flows, particularly FDI, and innovative sources of finance.


2. Trade, including in particular, changes in the international trade regime
under the WTO, aid for trade and empowering LDCs to adopt strategic
trade policies.


3. Commodities, including measures to reduce the extent and impact of
commodity price volatility and also to help LDCs manage and make
more from the natural resource rents.


4. Technology, including reforms to encourage technology transfer and
the ability of LDCs themselves to acquire and use technology, as well
as a more development-friendly IPR regime.


5. Climate change adaptation and mitigation, including more effective
integration of climate change adaptation into national development
programmes, developing renewable energy projects, including through
the CDM, and constructive engagement in reducing emissions from
deforestation and forest degradation.


For each of these pillars, NIDA seeks to improve and enhance the working
of existing LDC-specific international support measures such as the TRIPS
Article 66.2, which states that ‘Developed country members [of WTO]
shall provide incentives to enterprises and institutions in their territories for
the purpose of promoting and encouraging technology transfer to least-
developed country members in order to enable them to create a sound
and viable technological base’.
But the NIDA also recognizes that the special international support
measures for LDCs work within a broader architecture of global economic
regimes. Thus there is a need for broader reforms in areas which affect
development and poverty reduction, for example in relation to ownership,
conditionality and the working of the aid and debt relief, as well renewed
attention to an international commodity policy.
Finally enhanced South-South development cooperation is an important
component of NIDA. However it is essential to recognize that South-
South cooperation is a complement to North-South cooperation and not
intended to reduce its creative potential.


The philosophy and principles NIDA
The basic philosophy behind NIDA is that there is a need for new models.
The underlying approach is not simply a matter of getting away from the
fallacy of one-size-fits-all. NIDA seeks to empower LDCs to harness their




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