Doha, Qatar - Small countries also have to count in the implementation of solutions to the financial and economic crisis. That was one of the messages that Guatemala's Minister of Finance , Juan Alberto Fuentes Knight, said Sunday in Doha, Qatar, during the follow-up International Conference on Financing for Development.
The Minister stressed that this conference a follow up to the earlier event in Monterrey, Mexico in 2002, and it allows small economies such as Guatemala to play an important role in the concerted reaction of the international community to the problems that affect everyone. In fact, Guatemala was designated as one of the 25 vice presidencies of the conference, which were chosen from among the 191 UN member countries participating in this meeting.
While the progress achieved since that meeting in Mexico has been slow in some areas over the past six years, it also reached important goals. The Minister of Finance indicated that the process that began in Monterrey helped build bridges between the different actors involved in financing development:
- A climate of cooperation was created among developing countries and developed countries.
- Among the area's economic ministries, central banks, ministries of Foreign Affairs and Cooperation;
- Among the United Nations (UN) and the multilateral financial agencies, and between them and regional bodies that deal with financing, and
- With civil society and the business sector.
Fuentes Knight highlighted how the universal membership of the UN provides legitimacy to the process, as well as the ability to introduce consistency in the agenda of financial, economic, social, environmental and political issues. "This is another way of saying that, given the magnitude of the problems we face, we should all close ranks to tackle them in a coherent and comprehensive manner," said the minister.
Tax policy and tax legislation
The meeting participants agreed that a more effective tax collection, and the modernization of the tax laws, can help to increase resources to the neediest sectors, especially in small economies. According to the minister, fiscal policy can work in two ways: (1) as a source for the mobilization of domestic resources to finance investment in a development strategy, and (2) as one of the few tools available for effective policy during a cyclical downturn in the global economy.
"Small economies like ours have very limited capacity due to the cyclical decline in tax revenues, which usually accompanies the recessionary periods, reducing its scope," said Fuentes Knight during his speech.
If the levels of international cooperation is maintained and increased during recessionary periods, added the Minister, it can also help to mitigate the effects of the economic contraction in two ways: (1) combating global deflation, which is the result of the Global financial crisis, and (2) allowing small developing economies to play a anti- cyclical role.
The approach in Doha to enhance the role of the Committee of Experts on International Cooperation in Tax Matters under the umbrella of the United Nations is justified, according to the Fuentes Knight, to coordinate fiscal policies, learning from best practices in the tax area and the extension of cooperation to more domains such as the double taxation.
While some representatives of the private sector in Guatemala are calling for the reduction of taxes in times of crisis, as in other developed countries, the Minister argued that the measure is possible in these countries because they have a tax burden that is double than that of Guatemala.
Hence the proposal of the 2009-2011 Fiscal Modernization Plan, to expand the amount of revenue, to reduce corruption and tax evasion, and making a more equitable system in which the taxpayer pays according to the income it receives. The plan involves no tax increase, but keeps the tax burden at 12% when IETAAP disappears in January 2009 and recover some revenue reductions earlier (as royalties and tax airfares).
The tax liability and accountability
The need for a more participatory approach to development, incorporating civil society and the business sector in this process, was also addressed by Fuentes Knight. Although the minister invoked the social and environmental responsibility and accountability as contributors to the tax authorities of these sectors, he also stressed the right of civil society and business sector to demand accountability and transparency in the public sector.
In Doha, the signatory countries of the United Nations Convention against Corruption (including Guatemala) will be urged to support the Initiative for the Recovery of Stolen Property (STAR by its acronym in English).
The minister also stressed the role of public-private partnerships for investment in human capital, better education and health services, and greater employment generation. In addition, he called for the strengthening of the commitments made in Monterrey, and a response to new challenges to strengthen multilateral action.
Participant at the conference in Doha, Qatar, involved UN officials, representatives of member countries, heads of state or government, ministers of finance and finance officials from the World Bank, International Monetary Fund and the World Labor Organization, as well as society civil and private sector.
Photo: Presidential Press Office
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