World leaders urged to reform global finances to help poor

As world leaders and finance ministers meet this weekend to discuss funding for poorer countries, two leading development agencies are calling for major reforms of the global financial system to give the war on poverty new momentum.

Christian Aid and ActionAid are concerned that the present financial crisis will be used by rich countries as an excuse to renege on aid commitments to the developing world.

The crisis, they say, should instead be seen as a rare opportunity for root and branch reform of the financial system that would benefit both rich countries and poor countries alike.

In particular, they want the Doha Financing for Development conference, which opens in Qatar on Saturday, to agree the need for new banking and accounting regulations to stop tax dodging by transnational corporations and other businesses. The agencies warn that such activities "deprive the developing world of billions of dollars of badly needed revenue each year".

They also want to see countries take steps towards ending the banking secrecy offered by tax havens and the upgrading of the UN Committee of Experts on International Co-Operation in Tax Matters into an intergovernmental body to implement the other regulations.

The demands are contained in two reports launched by the organisations on Thursday, 'The Morning After the Night Before:The Impact of the Financial Crisis on the Developing World', from Christian Aid, and ActionAid’s 'Hole in the Pocket: Why Unpaid Taxes are the Missing Link in Development Finance'.

Christian Aid has calculated that tax revenue lost to poorer countries annually through evasion amounts to US$160bn. If used according to current spending patterns, the money could save the lives of 350,000 children under the age of five each year.

ActionAid says the situation for developing countries is likely to deteriorate rapidly as the financial crisis bites ever deeper. It estimates that more than US$400 billion worth of growth could disappear by 2010.

"The turmoil now engulfing the world’s wealthier economies can be traced directly back to the same factors that have undermined the developing world for years, condemning poor countries to a cycle of poverty," said Christian Aid’s policy manager Alex Cobham.

"In rich countries, lax banking and accounting regulations, and tax havens offering banking secrecy, led to a massive credit boom which has now ended in disaster. In poor countries, the same factors have for years enabled many transnational corporations and other businesses to minimise, avoid or even illegally evade altogether paying the tax revenues that the developing world so badly needs."

Anna Thomas Head of Economic and Social Development at ActionAid said: "For every pound that arrives in poor countries in aid, five pounds is removed illicitly out of the desire to evade tax.

"We work with people who have no schools for their children, no doctors and nurses when they are ill, and who don’t have enough to eat. The tax payable on capital illicitly removed would pay for services that we take for granted in the UK.

"Doha is a window of opportunity to allow poor countries to have a say in international tax regulation."

Both Christian Aid and ActionAid say upgrading the UN Committee of Experts on International Co-Operation in Tax Matters into an intergovernmental body would help end the secrecy tax havens offer.

The move is supported by more than 70 of the world’s poorest countries, but the UK Government has lobbied against it. Some 30 of the world’s 70-plus tax havens are Commonwealth countries, Crown Dependencies or British Overseas Territories.

Further UK support for havens was "apparent", the aid agencies said, when it exempted its Overseas Territories and Crown Dependencies from the UN Convention against Corruption which it signed in 2006.

This weekend’s Doha conference is to assess the progress made towards realising the 2002 Monterrey Consensus on Financing for Development, which signposted how public and private funds could be used to help poor countries.

The consensus was reached in 2002 in Monterrey, Mexico between more than 50 heads of state and 200 ministers of finance, foreign affairs development and trade, as well as heads of UN organisations, the IMF, the World Bank and World Trade Organisation.

The aid agencies said that "worrying indications" have emerged from pre-Doha negotiations taking place in New York that rich countries may block progressive measures on tax to the extent that the conference actually weakens the consensus.