Transparency and Partnership: Transitioning Arab Economies

Transparency and Partnership in the Transitioning Economies of the Arab Spring

Remarks

Jose W. Fernandez
Assistant Secretary, Bureau of Economic and Business Affairs

Middle East and North Africa "Better Governance and Fair Tax Systems" Conference

Tunis, Tunisia

May 30, 2012

I would first like to thank the Tunisian Finance Ministry and the International Tax Dialogue (ITD) for sponsoring this impressive conference in cooperation with the U.S. Department of State.

It’s ironic that I’m speaking at a tax conference. Tax has not always been my strong suit. In law school, I barely scraped by to pass my tax law course. Ironically, I then went on to become an international tax lawyer.

Nevertheless, I am very happy to be here today. In all seriousness, my perspective has changed greatly as a public servant. The U.S. government and its partners want to work with government officials and private sectors with the goal of boosting the means to pay for programs that promote good governance, and transparency. Only by collecting the necessary funds can governments pay and provide the services, like education, security, and health care, that citizens throughout the world have come to expect.

What brings us together today? The reality is every country -- including the United States -- is faced with a three-fold challenge: 1) strengthening good governance practices; 2) enhancing citizen confidence in democratic institutions; and 3) generating greater domestic revenues to finance social and economic development programs that promote economic growth and prosperity.

Economic governance programs require transparent, predicable and continuous funding to be effective. Nonetheless, funding is often irregular, jeopardized by poor tax administration or inadequate collections -- especially in challenging economic and financial times. In some cases, funds are lost to inefficiencies and graft.

We want to work with newly-elected governments, in North Africa and the Middle East, as they try to meet their developmental objectives. We also want to support governance and development programs to foster government accountability for how public resources are utilized. At the same time, we want to ensure the longevity and success of these government initiatives. So that is a long way of saying that the U.S. wants to help developing countries mobilize their own resources to meet their development needs Because when a country can fund its own development, it will also own it.

I would like to utilize this closing opportunity to discuss two of the ways that the United States is encouraging better governance and fair tax systems in the region. The first is an initiative called Domestic Finance for Development—or DF4D—and the other is the work that we have done under the Deauville Partnership.

DF4D

While general development assistance from the U.S. to countries around the world in the last few years has actually gone up, there is a growing need for technical assistance to help countries in the region fund their own economic independence. With such economic independence, countries can break free of relying on external assistance and international aid.

There is also a growing demand from developing countries to enhance their own fiscal management capabilities to ensure that public investments are made in an effective, equitable and transparent manner.

At the State Department, Secretary Clinton believes that enhancing the ability of countries to mobilize their own internal resources is critical for sustainable development.

From these needs and demands, Domestic Finances for Development, or, as we fondly call it, DF4D, was born.

DF4D revolves around three critical themes: 1) tax administration, 2) fiscal transparency, and 3) anti-corruption. We just spoke about the theme of tax administration and the need for countries to mobilize their own resources for domestic development. The second issue of transparency is based on the idea that no country can ask its citizens to pay more taxes without having an honest and open conversation about how those funds will be spent. Need to create a partnership between the government and its citizens. And finally, governments around the world who ask their citizens to pay more MUST convince them that those funds won’t be siphoned off into private bank accounts or for personal gain.

At the State Department and USAID, we are working with our partners to make this DF4D concept a part of our work in several countries. Through these agencies, DF4D is already implementing tax administration pilot programs in El Salvador, Honduras, and Kyrgyzstan.

We are working to create innovative partnerships with emerging market countries like Brazil which have made considerable progress in improving fiscal transparency and catalyzing greater revenue mobilization.

One of my favorite examples of how better tax administration, improved fiscal transparency, and how a concerted effort to fight bribery and corruption turned a city around, is the example of Medellin, in Colombia. As many of you know, Medellin used to be one of the most dangerous cities in the world and home of Pablo Escobar. Then the citizens of Medellin elected a new mayor, Sergio Fajardo. Mayor Fajardo, in a matter of years, turned the city into one of the best examples anywhere of economic development and innovative urban planning.

When asked how he did this, he was pretty straight forward. He said “We did this through taxes. We improved the city’s ability to collect taxes so more people are paying their taxes. We improved transparency in the system and when businesses were convinced we weren’t stealing from them, and they knew we would use their money effectively, they paid. And businesses now support us because they see how much it can help them.”

DF4D seeks to foster this kind of transformation in other countries, using a variety of diplomatic, policy, and technical interventions to foster good governance, transparency, and fair taxation.

Encouraging Better Governance and Fairer Tax Systems in Region

DF4D is also working through the Deauville Partnership with Arab Countries in Transition. This includes G-8 countries and regional partners to support transition states, including Egypt, Tunisia, Jordan, Morocco and Libya. The Deauville Partnership seeks to help these countries get their economies back on track and support their democratic transitions.

The Partnership’s open governance and participation agenda will focus on a variety of initiatives. These initiatives are designed to foster rule of law, enhance citizen confidence in democratic institutions, and combat impunity. Addressing these factors is crucial to attracting investment, fostering local economic development and job creation, fighting corruption, and increasing revenue mobilization. These factors, in turn, will serve to maximize economic growth.

The Deauville Partnership’s open governance action plan builds upon President Obama’s leadership in the G-8 Summit. Over the next 12 months, we will partner with Tunisia, Libya, Morocco, Jordan and Egypt in several areas:

First, we will foster civic participation in newly-democratic states. To meet local demands for greater transparency and civic participation, the Partnership will cooperate with the OECD to help transition countries achieve eligibility into the Open Government Partnership (OGP). As you have seen at this conference, the OECD has good expertise in these issues and has been working closely with many countries in the region for several years. The Open Government Partnership (OGP) is a diverse coalition of governments and other stakeholders who have pledged to embrace open government principles.

Second, we are working on a number of anti-corruption initiatives. These include pursuing the adoption or enhancement of systems for disclosure of assets of appropriate officials, whistleblower protection, and conflicts of interest. It also includes ensuring that they are consistent with international best practices, and that they are applied in practice, not just written down on paper.

Financial Services Advisory Corps (FSAC)

Third, under the umbrella of the Deauville Partnership and DF4D, we are working to create a Financial Services Advisory Corps, or FSAC. This group will consist of volunteer experts from the public and private sectors who will provide technical assistance to transition countries in developing public financial management sectors that are strong, transparent and accessible.

This volunteer corps will train public servants in two areas: First, to better protect public finances from fraud and tax evasion; and second, to equip reforming countries to better generate and channel domestic revenues towards public investments that facilitate enabling business environments.

The United States commits to a financial contribution in the FSAC program. We will encourage Deauville partner countries, regional partners and other OECD-members to contribute and participate in this new program as well.

This program will be the Middle East and North African Chapter of a larger multinational initiative entitled “Tax Advisors without Borders” Program (TAWP). Pascal will provide more details on the Tax Advisors without Borders Program -- so I don’t want to steal his thunder.

What I do want to say is that the Tax Advisors without Borders Program could not have happened without the insight and ingenuity of our civil society partners -- who introduced this idea years ago.

TAWP was the brainchild of leaders from the Tax Justice Network, the African Tax Administration Forum (ATAF) and the Inter-American Center of Tax Administrations (CIAT). Their suggestions planted the seed. And we listened. I commend the OECD for their leadership in turning this idea into a reality.

I would like to ask any representatives from those groups to stand and be recognized at this time.

Conclusion

In closing, I would like to reiterate that we focused this conference on good governance and fair tax systems because we wanted to stress the importance of three things: first, empowering democratic transitions; second, cultivating more enabling business environments; and finally, ensuring economic independence in the Middle East and North Africa.

President Obama and our Deauville Partnership Leaders recognized this conference as a first of many opportunities for us to work together to turn the courage of a fruit vendor in Tunisia into economic reforms that promote a more enabling business environment for all. Mohamed Bouazizi made the ultimate sacrifice in protest of the state-sponsored corruption and economic marginalization that jeopardized his livelihood. With your help, let us honor him by cultivating an environment where Tunisian micro-entrepreneurs like him can thrive, and where transparency and open governance are the norm for all Tunisians.

Thank you.

ENDS

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