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close this bookHabitat Debate - Vol. 4 - No. 3 - 1998 - Urban Finance (HABITAT, 1998, 61 p.)
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According to current projections, more than three billion people - one half of the world's population - will live in urban areas by the turn of the century. The most serious problems confronting cities and towns include inadequate financial resources for basic services provision, lack of employment opportunities, spreading homelessness, expansion of squatter settlements, increased poverty and a widening gap between the rich and poor.

Although many countries, particularly developing countries, lack the legal, institutional, financial, technological and human resources to respond to rapid urbanization, many local authorities are taking on these challenges with open, accountable and effective leadership. This process has been further strengthened by the growing trend towards decentralization, which has dramatically altered the role and function of local authorities. In today's world, local authorities, as opposed to central governments, are playing an increasingly important role in international politics and finance as cities take centre-stage in a globalized world.

Decentralization implies that the responsibility of managing cities and towns lies primarily with local authorities. However, in many developing countries, the move towards decentralization has not led to a corresponding increase in local authorities' revenue base, rendering local authorities powerless when it comes to implementation. This is partly due to the fact that national governments are unable to channel or re-allocate finance to local authorities as their budgets are already strained. Inefficiencies in the legal and administrative machinery and corruption have further eroded the financial capacity of local authorities. As a result, urban service provision is deteriorating, if not completely absent, in many cities and towns, especially in developing countries.

To combat the problem of lack of finance, local authorities are looking into alternative ways to generate revenue, cut costs and make urban service provision more efficient. To achieve this, many are privatizing urban services or forging public-private partnerships. The Habitat Agenda, adopted by the world's governments in June 1996, encourages national and local governments to establish “enabling structures that facilitate independent initiative and creativity and that encourage a wide range of partnerships, including partnership with the private sector”. (Paragraph 18)

However, while privatization or commercialization of urban services is being lauded as the solution to the problems of urban finance, local authorities must ensure that the poorest and most vulnerable groups do not “fall through the cracks” because they are unable to pay for services that have been privatized. The responsibility of ensuring equitable access for people living in poverty through transparent and targeted subsidies remains the responsiblity of governments - both national and local - and necessitates improvements in local finance generation and management.

In this issue of Habitat Debate, we look at the various ways in which local authorities can privatize “in the public interest”, so that market forces do not completely determine the nature, quality and quantity of services provided, especially to the urban poor. A special sub-theme in this issue is that of corruption within municipalities: what it is and what can be done about it. This issue also examines innovative microcredit and housing finance solutions among the urban poor. As stated in the Habitat Agenda, the financial empowerment of the urban poor is the basis of civic engagement, and should be promoted.

The Habitat Agenda places a lot of importance on the issue of urban and housing finance. Rightly so, because the implementation of the Habitat Agenda is virtually impossible unless local authorities and urban residents themselves - the key players in the implementation of the Habitat Agenda - are empowered legally and financially to improve their living conditions.

Klaus Toepfer
Ag. Executive Director
UNCHS (Habitat)