Economic and Social Council

 Distr. GENERAL
7 June 1993
ORIGINAL: ENGLISH

Commission on Sustainable Development
First session
14-25 June 1993
Item 7 of the provisional agenda*

        INITIAL FINANCIAL COMMITMENTS, FINANCIAL FLOWS AND ARRANGEMENTS TO
        GIVE EFFECT TO THE DECISIONS OF THE UNITED NATIONS CONFERENCE ON
        ENVIRONMENT AND DEVELOPMENT FROM ALL AVAILABLE FUNDING SOURCES
        AND MECHANISMS, INCLUDING THOSE REFERRED TO IN PARAGRAPH 33.14
                                   OF AGENDA 21

                          Report of the Secretary-General

                                      SUMMARY

     The implementation of the sustainable development programmes of
Agenda 21 will require the provision to developing countries of new and
additional financial resources.  In response to the request of the General
Assembly in its resolution 47/191, the present report provides information
on initial financial commitments, financial flows and arrangements to give
effect to the decisions of the United Nations Conference on Environment
and Development from all available funding sources and mechanisms.  

     The report analyses the agreement for the tenth replenishment of the
International Development Association (IDA).  It then turns to the Global
Environment Facility (GEF) and discusses various issues related to its
restructuring and the need for its replenishment.  The report also
addresses the matter of a number of recent developments with regard to the
complex issue of enhancing the flow of official and private capital to
developing countries.  Recent developments with regard to debt relief are
also discussed.

     The report concludes with an assessment of the progress made so far
with regard to funding for Agenda 21 and makes a number of suggestions
related to the future work of the Commission on Sustainable Development in
this important area.
_________________________

     *    E/CN.17/1993/4.

                                     CONTENTS

                                                              Paragraphs

INTRODUCTION ...............................................    1 - 3 

  I.  TENTH REPLENISHMENT OF THE INTERNATIONAL DEVELOPMENT
      ASSOCIATION (IDA) ....................................    4 - 9 

 II.  GLOBAL ENVIRONMENT FACILITY (GEF):  RESTRUCTURING AND
      REPLENISHMENT ........................................   10 - 39

      A.  Restructuring of the GEF .........................   17 - 28 

      B.  Replenishment of the GEF .........................   29 - 39 

III.  OFFICIAL AND PRIVATE CAPITAL FLOWS ...................   40 - 47

 IV.  DEBT RELIEF ..........................................   48 - 53

  V.  CONCLUSIONS AND RECOMMENDATIONS ......................   54 - 61


                                   INTRODUCTION

1.   The General Assembly, in its resolution 47/191, requested the
Secretary-General, inter alia, to prepare, for the first substantive session
of the Commission on Sustainable Development, reports containing information
and proposals, as appropriate, on issues including initial financial
commitments, financial flows and arrangements to give effect to the
decisions of the United Nations Conference on Environment and Development
from all available funding sources and mechanisms.  The present report is
submitted in response to that request.

2.   Chapter 33 of Agenda 21  had specified that funding for Agenda 21
and other outcomes of the Conference should be provided in a way that
maximized the availability of new and additional resources and used all
available funding sources and mechanisms, and had enumerated in that regard: 
(a) the multilateral development banks and funds, including the
International Development Association (IDA), regional and subregional
development banks, and the Global Environment Facility (GEF); (b) the
relevant specialized agencies, other United Nations bodies and other
international organizations; (c) multilateral institutions for capacity-
building and technical cooperation; (d) bilateral assistance programmes;
(e) debt relief; and (f) private funding (through non-governmental
organizations).  The chapter had also specified that investment should be
encouraged and innovative financing explored.  This report presents
information on these funding mechanisms; however, information relevant to
activities of specialized agencies, other United Nations bodies and
multilateral institutions for capacity-building and technical cooperation is
presented in other reports that are being submitted simultaneously.  (See
documents E/CN.17/1993/8 and E/CN.17/1993/10, as well as relevant parts of
the report of the Governing Council of the United Nations Development
Programme (UNDP) on its fortieth session.)

3.   Regarding private funding, activities of the non-governmental
organizations, investment and innovative financing specifically relevant for
Agenda 21 objectives, the complexity of the issues and the lack of
centralized sources of information did not permit systematic information
collection.  Regarding regional and subregional development banks,
information received was insufficient for the purpose of analysis within
this report.

            I.  TENTH REPLENISHMENT OF THE INTERNATIONAL DEVELOPMENT
                ASSOCIATION (IDA) 

4.   By the end of June 1993, the resources made available to the
International Development Association (IDA) during its ninth replenishment
will have been committed.  The process for the tenth replenishment concluded
with the following agreement:  to provide IDA, for the period from
1 July 1993 to 30 June 1996, with a tenth replenishment in the amount of
SDR 13 billion (13 billion in special drawing rights).  When combined with
advance commitments against future repayments by IDA borrowers, this will
permit a commitment authority of SDR 15.5 billion.  This amount is likely to
be further augmented by transfer from the net income of the International
Bank for Reconstruction and Development (IBRD) approved by the IBRD Board of
Governors.  The replenishment will enhance IDA's capacity to respond to
Agenda 21.

5.   For the coming period, it has been decided that IDA will continue its
support to economic development in the poorest countries through a continued
focus on poverty reduction, economic adjustment and growth, and
environmental protection and improvement.  These three areas are entirely
consistent with the priorities of Agenda 21.

6.   Regarding poverty reduction, country poverty assessments are to be
prepared for all major IDA recipients by the end of 1994 with the
involvement of Governments, and those assessments will be integrated into
IDA's country assistance strategies and considered at consultative group and
aid consortium meetings.  In this context, social sector expenditures would
be protected and social safety nets for those most vulnerable would be
organized within the economic adjustment process, and IDA is encouraged to
include specific poverty reduction measures in the design of adjustment
programmes whenever feasible.  Such poverty interventions are specially
important in countries that are making the transition to a more
market-oriented economy.  IDA's poverty focus will be sharpened, with
emphasis on social sector lending and poverty-targeted investments.  Poverty
reduction is to be monitored through the use of appropriate indicators and
the results of poverty reduction policies are to be assessed.  Special
importance is to be given to the areas of women in development and
population planning as keys to the effectiveness of poverty reduction
programmes.  Support for family planning and social services for women are
to be expanded, including education for girls.  Support to population
programmes and family planning is to be further increased, as high rates of
population growth represent a central challenge to the sustainability of
development efforts, and limit the range of choices available to the
population of the poorest countries.

7.   Regarding economic adjustment and growth, the basic agenda is to
combine policy reforms with institutional capacity-building, while, as noted
above, building in social safety nets.  Further emphasis is indicated on the
reduction of non-development-related public expenditures, including military
expenditures; the promotion of investments; the reduction of the constraint
imposed by debt servicing on adjusting countries (through concessional
treatment of official debt and use of the Debt Reduction Facility to fund
the buyback of commercial debt); and the stimulation of private investment
through increased infrastructure lending and assistance in developing
supportive legal, regulatory and incentive frameworks, as well as on good
governance in the implementation of sound economic policies.

8.   Regarding environmental sustainability, policies and programmes for
poverty reduction, mentioned above, constitute a first component of IDA's
strategy.  Policies, institution-building and investments targeted to
environmental protection and improvement, which constitute the second
component of the strategy, are being intensified through IDA's activities. 
Borrowers are being assisted in preparing environmental action plans (EAPs)
through a participative process to promote national consensus around the
plans:  EAPs are to be integrated into the policy dialogue and country
assistance strategies.  Environmental assessments are being carried out
early in the project design cycle, and borrowers are required to consult
with groups and non-governmental organizations affected by the environmental
impact of the project.  Efforts are being made to improve data sheets and
make them more uniform.  In the area of forestry, forestry investments are
required to be part of a borrower's strategy for sustainable use and
conservation of forest resources, and commercial logging in primary moist
tropical forests is no longer funded.  The focus is now on assistance to
Governments for institution-building for sustainable forest management.  New
directives provide clearer guidance on projects involving indigenous people,
involuntary resettlement and agricultural management, and policy papers are
being issued regarding water resources, energy and various aspects of
agriculture.  The involvement of non-governmental organizations in the
design and implementation of projects, particularly those with substantive
environmental impact, is being substantially increased.  The establishment
of a small projects facility, to focus on environmental initiatives and on
outreach to groups such as non-governmental organizations and
micro-enterprises, is being envisaged.

9.   In the implementation of the activities outlined above, the share of
resources allocated to adjustment lending is not to exceed 30 per cent, so
that the emphasis on poverty reduction and the protection of the natural
resource base can be maintained.  The importance of coordination of IDA
activities with bilateral support and the International Monetary Fund's
Enhanced Structural Adjustment Facility is stressed.

               II.  GLOBAL ENVIRONMENT FACILITY:  RESTRUCTURING AND
                    REPLENISHMENT 

10.  The purpose of the Global Environment Facility (GEF) is to provide
additional grant and concessional funding of the agreed incremental costs
for achieving agreed global environmental benefits.  It finances activities
in four focal areas:  global warming, biological diversity, ozone depletion
and international waters.  The first three areas are covered by
international conventions.

11.  The GEF was established for a three-year pilot phase by resolution No.
91-5 of IBRD (March 1991).  Its establishment was subsequently endorsed by
the Governing Councils of UNDP and the United Nations Environment Programme
(UNEP) (May 1991).  Operating procedures were agreed by the executive heads
of these three bodies, known as the Implementing Agencies (October 1991).

12.  During its pilot phase, the GEF has been functioning under the
collective policy guidance of its Participants, namely States that have
contributed to the Facility or expressed the intention to do so.  At each of
their regular meetings, GEF Participants review and broadly endorse
successive "tranches" of a work programme prepared jointly by the
Implementing Agencies and submitted to the meeting by its Chairman.  In
connection with this programme review, Participants may comment on specific
projects in the work programme.

13.  The GEF Participants are supported in their functions of policy
guidance and programme review by a Scientific and Technical Advisory Panel
(STAP), composed of 16 independent members.  The STAP has drawn up criteria
for eligibility and priorities for projects in the GEF work programme.  The
STAP also reviews individual projects submitted by the Implementing Agencies
and offers advice on the subject of their conformity with its criteria and
priorities.

14.  Projects in the GEF work programme remain the responsibility of the
Implementing Agencies concerned.  This responsibility is allocated according
to an agreed division of labour by type of project.  The three Agencies,
together with the GEF Administrator, make up the Implementation Committee,
which approves the inclusion of projects in the GEF work programme.  

15.  The Chairman of the GEF Participants' Meetings plays a key facilitating
role in the GEF system, supported by the GEF Administrator and his staff.

16.  The resources available to the three-year pilot phase of the GEF
amounted to some US$ 880 million in the core fund and $350 million in
bilateral financing arrangements, totalling US$ 1,230 million.  An initial
guideline was given by the GEF Participants concerning the allocation of
core funds among the four focal areas.  The GEF work programme, as it stood
in December 1992 at the time of the submission of the fourth tranche of
projects, contained 96 projects worth some US$ 700 million.

                           A.  Restructuring of the GEF

17.  Agenda 21, the United Nations Framework Convention on Climate Change
(A/AC.237/18 (Part II/Add.1), the Convention on Biological Diversity and the
document entitled "The pilot phase and beyond", agreed by the GEF
Participants, all call for a restructuring of the GEF and recommend,
regarding its governance, universal participation; a transparent and
democratic system of decision-making; a broad, balanced and equitable
representation of developing and developed countries in governance and
guidance of the Facility; and a system guaranteeing a balanced and equitable
representation of the interests of developing countries and giving due
weight to the funding efforts of donor countries.  The primacy of each
Convention with respect to decisions on policy and programme priorities,
eligibility criteria and guidelines for project formulation regarding
activities in its respective area is recognized.

18.  The process initiated by these policy orientations led to the
formulation of comprehensive proposals that are to be discussed at the fifth
Participants' Meeting, to be held in Beijing, China, from 26 to 28 June
1993.

19.  At the centre of the proposals is both the goal of balancing the
plurality of interests inherent in universal participation, and the need for
giving due weight to donors' funding efforts, in a process that is
transparent, balanced and equitable.

20.  The main components of the restructuring concern: 

     (a)  Establishment of a Participants Assembly (PA) and the modalities of
its deliberations and decision-making;

     (b)  Formal links to be established between the Conferences of the
Parties (COPs) of the Conventions, and the PA.

21.  As in the past, subject to the outcome of the ongoing independent
evaluation of the pilot phase, the work of the PA will be facilitated by a
Chairperson supported by a secretariat composed of staff from all three
Implementing Agencies.  The PA will be assisted in its work by the advice of
a Scientific and Technical Advisory Panel (STAP).  The STAP will be
restructured and reconstituted to broaden its cross-disciplinary 
capabilities.  The heads of the Implementing Agencies will meet periodically
to review institutional strategy and discuss means to facilitate inter-
agency collaboration.  The Implementation Committee (IC), consisting of
agency coordinators and other senior staff, will continue to focus on
internal policy, programme planning, and work programme formulation. 
Projects will be executed by Governments, agencies of the United Nations
system, non-governmental organizations, the private sector, and partnerships
among any of these parties.

22.  The Participants' Assembly (PA) will act as the governing body of the
GEF.  It will be restructured to accommodate universal participation with no
pre-set membership fee, and it will function under a constituency system
aiming at efficient and effective deliberations.  Decision-making in the PA
will be primarily by consensus.  An agreed voting system will be instituted
in order to resolve issues on which consensus cannot be reached.

23.  A number of principles have been agreed that are to guide PA
decision-making, including:

     (a)  Equitable and balanced representation;

     (b)  Transparent procedures;

     (c)  Simplicity and flexibility;

     (d)  Universal participation.

24.  The PA will be established on a constituency basis so as to facilitate
deliberations.  This will require agreement among groups of Participants. 
It is anticipated that some 30 constituencies will be formed.  The following
distribution is envisaged:

     (a)  At least 15 (50 per cent) of the constituencies would be
represented by developing countries in the PA;

     (b)  The balance of representatives in the PA would be drawn from
developed countries, countries with economies in transition, and other
countries.

25.  The following factors may be taken into account in identifying
representatives of constituencies to participate in the PA on behalf of
those constituencies:

     (a)  Regional and geographical balance as well as climate, biodiversity,
resource endowment and economic structures;

     (b)  Potential impact on the global environment;

     (c)  Vulnerability to impacts of global change;

     (d)  Size of economies (gross domestic product) (GDP)) and level of
funding made available to the GEF.

26.  Participants' Assembly meetings in which all countries will be expected
to attend are also being given consideration.

27.  Decisions will, in principle, be taken by consensus.  When consensus
cannot be achieved, even after various actions that the GEF Chairperson may
be authorized to pursue, it will be necessary to organize a vote.

28.  Voting would be distinct from constituency membership.  Regarding the
voting system, in addition to options previously envisaged for the case in
which no consensus emerged, a new option is proposed for the consideration
of the last restructuring meeting, namely, a double majority system, whereby
decisions would require both a majority of all countries participating in
the GEF and one based on all financial contributions to the GEF core fund. 
The majority could differ depending upon the type of decision to be voted
upon.

                           B.  Replenishment of the GEF

29.  Most of the funding made available to the GEF for its pilot phase is
expected to be fully committed by June 1994.  Potential donors agreed at a
meeting held in Rome in March 1993 to work towards completing replenishment
negotiations by December 1993, provided that the GEF is appropriately
restructured and the evaluation of the pilot phase completed.

30.  The first formal replenishment meeting was scheduled to take place in
Beijing, China, on 25 May 1993.  Important aspects of the replenishment have
yet to be resolved, in particular its size and the period over which the
resources will be used.  The objective of the new GEF programme is in large
part to serve the United Nations Framework Convention on Climate Change and
the Convention on Biological Diversity.  There is therefore a need to
coordinate its mandate and use of funds, with entry into force of the
conventions of the COPs that are to decide on policies, programme priorities
and eligibility criteria for financial mechanisms in relation to the
conventions.  The first meeting of the COPs is expected to occur in 1995.

31.  A proposal submitted to the Beijing Participants' Meeting recommended
that the new programme (GEF II) begin in July 1994 and that its operations
be divided into two stages.

32.  The first stage would be a transitional one, covering the period prior
to the convening of the COPs some time in 1995.  During this stage, GEF
commitment levels would remain at around the average for the pilot phase. 
Some time after the conventions have entered into force, the GEF II would
enter its second stage, when most of the funds would be committed.  GEF
operations would then be guided by the COPs.  In terms of size, a range of
SDR 2-3 billion, equivalent to US$ 2.8 billion-US$ 4.2 billion, is currently
proposed for consideration by donors.  The time-period would be three to
five years, depending on whether the replenishment was closer to SDR 2
billion or SDR 3 billion.

33.  Since the conventions will not yet be in force and the COPs will not
yet have met, some flexibility will need to be built into the replenishment
decisions to allow the GEF to respond to priorities as they are set by the
conventions.

34.  This phasing would allow the GEF to maintain the momentum of the pilot
phase, while enabling the bulk of the funds from the replenishment to be
committed only after the COPs entered into force.  At the same time, it
would allow for the preliminary preparation of projects and activities
before the GEF entered its second stage.  Preparation of technical
assistance and investment projects must begin well before stage two, in
light of the intensive 12- to 18-month project preparation period.  The
initial funding decisions in GEF II will be taken on projects that have been
prepared during the pilot phase.  Project preparation will take into account
any guidance emanating from the interim bodies of the conventions during the
first stage of GEF II.

35.  GEF II resources would continue to support the four focal areas
currently funded by the pilot phase:  global warming, biodiversity,
international waters, and ozone depletion.  To the extent that they related
to these four areas, land degradation issues, primarily those of
desertification and deforestation, would be eligible for financing.

36.  The replenishment of the GEF should enable it to:

     (a)  Support the United Nations Framework Convention on Climate Change
and the Convention on Biological Diversity, as well as, in a complementary
role, the Montreal Protocol on Substances that Deplete the Ozone Layer;

     (b)  Assist in building up capacities of developing countries to deal
with policy and programme matters arising out of those countries' commitment
to the Conventions;

     (c)  Play a continuing role in facilitating the introduction of new
environmentally sound technologies in the developing world; 

     (d)  Achieve the scale and management capacity to contribute effectively
to the solution of the global environmental problems that the GEF is
assigned to address.

37.  GEF II would finance four broad types of activities based on the
objectives of the Convention on Biological Diversity and the United Nations
Framework Convention on Climate Change and the obligations deriving
therefrom, as well as from lessons learned from the pilot phase; accepted
knowledge and scientific expertise from UNEP and advisory panels about how
to effectively address the four global environmental problems; and pending
guidance from the COPs.  These activities would include:  capacity-building;
national studies, strategies, and inventories; innovative projects; and
investment projects.  In addition, the Small Grants Programme could be used
to support innovative approaches designed by local communities and
non-governmental organizations.

38.  Together, these four types of activities represent a comprehensive,
efficient way to strengthen a country's capacity to develop and implement
its strategy for meeting convention objectives.  Some funds could also be
allocated for applying relevant, new scientific research to GEF activities,
particularly to improve the scientific underpinnings of GEF project
selection and design.

39.  The mix of these activities could vary across the global objectives. 
The bulk of the funds could be expected to be used to support the objectives
of climate change and biodiversity.  For ozone layer protection, the GEF
could fund capacity-building efforts and investments only in signatory
countries that are ineligible for funding from the Interim Multilateral Fund
for the Implementation of the Montreal Protocol.  In the area of
international waters, GEF II could provide some support to countries that
are already committed, through existing global or regional agreements and
initiatives, to improving management of this vital resource.

                   III.  OFFICIAL AND PRIVATE CAPITAL FLOWS 

40.  The adequacy of external capital flows is a major external factor
affecting the development prospects of developing countries.  Official flows
are an important supplement to private capital flows.

41.  Although estimates of the flow of official development assistance (ODA)
in 1993 are not yet available, no sharp break in the trend of recent years
is expected, at least not yet.  Under that trend, the total value of ODA
rose in dollar terms, reaching an estimated $60 billion in 1992.  The amount
fluctuated, however, in real terms.

42.  Underlying this long-run trend has been a pattern of flows from donor
countries in the 1980s that may now be changing.  Under that pattern, ODA
from member countries of the Development Assistance Committee (DAC) of the
Organisation for Economic Cooperation and Development grew by 2.4 per cent a
year on average, while concessional economic assistance by Arab donor
countries fell, followed by declining flows from the former centrally
planned economies as well.  The capacity of the latter two groups to provide
ODA is now considered to be quite limited.  Aid from Arab donors is expected
to remain significant, but to decline further, while for the time being the
economies in transition have a much-reduced capacity with respect to major
aid programmes.

43.  The outlook for the growth of aid from industrialized countries is
bleak. The situation is one of constrained supply and increased demand for
funds.  The constraints on supply emanate from budgetary problems of a
number of key donors and, to some extent, from weakening support for aid on
the part of national parliaments.  The increased demand for funds stems from
new challenges that require concessional assistance to low-income countries,
including expanded efforts to protect the environment.  Moreover, there are
several new claimants to concessional resources.

44.  Despite this increased demand for ODA, many bilateral donors have cut
back on their aid programmes in response to budgetary pressures.  This has
caused a further shortfall with respect to target ODA flows of 0.7 per cent
of gross national product (GNP) re-endorsed at the United Nations Conference
on Environment and Development.  Amid current trends, there is no real
prospect that the target will be reached in a reasonable period.

45.  A number of Governments have indicated an increase in resources
available within their ODA for activities relevant to sustainable
development and environmental programmes.  In this context, the decision by
the European Community and its member States to commit an amount of $3
billion in European currency units (ECUs) for activities in implementation
of Agenda 21 should be mentioned.

46.  Private flows are crucial to the development efforts of middle-income
countries and of growing importance in a number of low-income countries as
well.  There has been a large increase in flows of private capital to
developing countries in recent years.  At $37 billion in 1992, foreign
direct investment flows to developing countries were about 75 per cent above
the level of 1990.  Private portfolio flows, which had averaged less than $6
billion a year in the period between 1982-1988, were estimated at $34
billion in 1992.  It is interesting to note that private flows have changed,
in terms of composition, from debt to equity financing and shifted from bank
to non-bank sources in recent years.  Non-bank sources have accounted for
virtually all the recent growth in financial flows to developing countries.

47.  These developments have benefited countries that are creditworthy. 
Some 10 countries received over 70 per cent of foreign direct investment
flows in 1991, and the increase in private portfolio flows is highly
concentrated in a few countries in Latin America and East Asia.  Numerous
middle-income and lower-middle-income countries find that their access to
private external finance is limited.

                                 IV.  DEBT RELIEF

48.  The debt crisis that began over a decade ago is no longer a problem for
commercial banks, and developing-country debt no longer constitutes a
systemic threat to the international banking system.  The crisis is also
less of a problem for several middle-income borrowers that have benefited
from debt-restructuring operations and lower interest rates.  Nevertheless,
these countries remain vulnerable to adverse developments in their external
economic environment.  External viability remains a problem, however, for
many low-income and lower-middle-income countries.  The difficulties of
moving from a centrally planned economy to a market-based one have also led
to major debt problems in the successor States of the former Union of Soviet
Socialist Republics and in some East European countries.

49.  With regard to debt reduction, a number of recent developments are
noteworthy, particularly the agreement of December 1992 between Argentina
and its commercial banks, supported by World Bank loan commitments of $750
million, that will help achieve a commercial debt reduction in the amount of
about $11 billion, which is 37 per cent of the face value of the eligible
principal debt and the past interest due to the commercial banks.  In
another important development, the Philippines and its commercial-bank
creditors arrived at an agreement in December 1992 on the second phase of
the commercial-bank part of its overall external debt reduction strategy. 
About $4.4 billion was eliminated or converted.  Equally significant was
Brazil's agreement with its commercial-bank creditors.  By March 1993,
creditors representing 97 per cent of Brazil's outstanding commercial bank
debt had decided to participate in its debt-rescheduling programme.

50.  In this context, it is important to note that the World Bank strategy
dealing with countries with protracted arrears has been successfully
implemented in the case of Peru.  Three adjustment loans totalling $1.15
billion were signed in December 1992.  Some $900 million were disbursed in
March 1993 under these loans, after the Government cleared its arrears with
the World Bank.  The World Bank has now resumed its normal lending
relationship with Peru.

51.  Significant progress has also been made under Paris Club auspices with
regard to a number of low-income countries, including agreements involving
enhanced Toronto terms.

52.  Operations within the IDA Debt Reduction Facility have increased
sharply.  They have been co-financed with a number of bilateral donors. 
Four operations totalling about $35 million have been completed with Guyana,
Mozambique, the Niger and Uganda at an average cost of US$ 0.12 per dollar
of debt.  The operations have extinguished 89 per cent of the commercial
debt of these countries.

53.  A portion of IDA reflows has been used under the "fifth-dimension"
programme to provide supplementary adjustment credits to countries that are
currently IDA-only borrowers and have outstanding IBRD debt.  Through annual
allocations (in proportion to interest payments due to IBRD), the
supplementary IDA credits have helped ease the debt-service burden of
eligible IDA-only borrowers undertaking adjustment programmes.  Between
fiscal year 1989 and fiscal year 1992, some SDR 400 million were allocated
for this purpose.  For the current fiscal year supplementary IDA credits
totalling SDR 121 million, or 70 per cent of interest payments due to IBRD
from the beneficiary countries, have been approved.  In addition, a number
of bilateral donors are providing parallel financing in support of the
fifth-dimension programme.

                        V.  CONCLUSIONS AND RECOMMENDATIONS

54.  There have been a number of individual positive developments regarding
the funding of Agenda 21.  These include the following:

     (a)  The replenishment of IDA, in spite of the lack of consensus on an
"Earth increment", is substantial and will enable this institution to pursue
the objectives of Agenda 21;

     (b)  The process of restructuring and replenishing the GEF is under way
and, it is hoped, will be satisfactorily completed by the end of the year. 
An update after the forthcoming Beijing meeting will be provided to the
Commission on Sustainable Development;

     (c)  The World Bank and regional banks are intensifying their activities
in the area of sustainable development;

     (d)  Positive debt-relief agreements were concluded in a few cases;

     (e)  A number of bilateral donors have announced increases in funding
available for environmental activities;

     (f)  The commitment of 3 billion ECUs for activities for the
implementation of Agenda 21 constitutes a favourable step. 

55.  The general response so far observed to the recommendations of the
United Nations Conference on Environment and Development regarding funding
is, however, not encouraging, that is to say:

     (a)  Many bilateral donors have cut back on their aid programmes in
response to budgetary pressures, causing a further shortfall with respect to
target ODA flows of 0.7 per cent of GNP.  This raises questions regarding
the additionality of funds available for environmental programmes.  The
trend should be reversed as soon as possible;

     (b)  Many low-income and lower-middle-income countries still have an
unsustainable debt burden and require urgent additional measures regarding
debt relief.  In particular, low-income countries need to benefit to an
increased extent from enhanced Toronto terms;

     (c)  Further progress needs to be made to increase effectiveness in the
use of funds and the mobilization of domestic financial resources;

     (d)  While a number of donors have committed resources for the UNDP
initiative for sustainable development (Capacity 21), aggregate funds
available to it remain well below requirements;

     (e)  Agencies within the United Nations system are being given
increasing mandates, but the resources made available to them are stagnating
and their budgets are constrained by a zero-growth rule that makes their
functioning increasingly difficult.

56.  The Commission on Sustainable Development has a number of functions
that involve the review and monitoring of information to be provided by
Governments as well as intergovernmental and non-governmental organizations
regarding the implementation of Agenda 21, and the provision of funding for
that purpose, as well as progress towards the target of 0.7 per cent of GNP
of developed countries for ODA.  The modalities for providing information to
the Commission and the format in which information is to be provided are
therefore of critical importance for the fulfilment of these functions.

57.  The Commission may wish to consider this issue with a view to deciding
on the modalities and format of communications of the above-mentioned
entities.  As a basis for discussion, it is suggested that the main elements
of communications should include ODA as a percentage of GNP, debt relief,
aid priorities, main activities related to sustainable development, and
specific support to environmental conventions.  (The addendum to this report
presenting information provided by Governments is organized accordingly.)

58.  The data systems used for collecting information on the flow of finance
classify that flow in a manner that makes difficult its correlation with the
programme structure of Agenda 21.  The Commission could consider inviting
countries that provide finance, and coordinating organizations (like the
Development Assistance Committee of OECD) that collect information, to
redesign their classificatory schemes so as to make possible the assessment
of the flow of development finance in relation to specific Agenda 21
clusters.

59.  Discussions about the adequacy of the flow of development finance are
often conducted without reference to any assessment of needs.  Assessment at
an overall macroeconomic level (for example, in relation to the 0.7 per cent
target) is useful for monitoring purposes; but in order to influence the
processes where specific commitments are made, it is necessary to conduct
this exercise at a more disaggregated level.  Country-level assessments of
this nature are prepared for round-table meetings and meetings of aid
consortia.  Global or regional assessments, across countries for specific
issues (for example, freshwater or forests), that evaluate availability of
finance in relation to objectives are prepared in some cases mainly by
funding organizations.  The financial mechanisms linked to certain global
conventions are issue-oriented, global in nature and involve a broader
process that includes recipient countries in the dialogue.

60.  The Commission on Sustainable Development may wish to consider the
establishment of appropriate mechanisms to make agreed assessments of
availability, need and related policy matters in relation to the financial
requirements of the different parts of Agenda 21.  Such agreed assessments
at the issue level could guide the further discussions of the Commission and
provide a suitable and common basis for further action by bilateral and
multilateral funding organizations.  They would provide a basis for
discussion on replenishment of specific facilities, for setting of
priorities for aid programmes and for monitoring of financial matters by the
Commission on Sustainable Development.  Specific pledges and commitments
would continue to be made in the discussions between funding organizations
and individual recipients.

61.  One possibility that the Commission may wish to consider is the
establishment of a series of ad hoc groups oriented around the Agenda 21
clusters approved for the work programme.  Each group could consist of
professional experts named partly by countries, and partly by international
financial institutions and concerned specialized agencies.  The groups
should be compact and professional in their orientation.  Their objective
would be to prepare a report (separately for each of the clusters into which
Agenda 21 has been grouped for the purposes of the work programme) on needs,
adequacy of existing flows and mechanisms and related policy matters.  It
must of course be understood that the process of securing commitments for
Agenda 21 activities would continue to operate in the normal way even while
the ad hoc groups were in process. 

                                       Notes

Date last posted: 1 December 1999 12:20:30
Comments and suggestions: DESA/DSD