The COVID-19 pandemic has buoyed calls for de-risking private finance to ensure that cash-strapped developing countries can finance recovery plans. This session explored the implications of the WBG promotion of private finance-led recoveries for gender equality and sustainable development, and the lessons from the pandemic for harnessing private finance for development.
Panelists:
Moderator: Stefano Prato, Director, Society for International Development (SID)
Daniela Gabor, Associate Professor in Economics, University of the West of England
María José Romero, Policy and Advocacy Manager, Eurodad
Crystal Simeoni, Director, Nawi – Afrifem Macroeconomics Collective
Richard Montgomery, Executive Director, UK, World Bank
Discussant: Jennifer del Rosario-Malonzo, Deputy Director, IBON International
Stefano Prato (SID):
Introductory remarks questioning World Bank’s appropriation of ‘Maximising Finance for Development’ term. CSOs and others have other perspectives. Look at risks and opportunities from the Bank’s ‘MFD’ perspective, but also hope to share other interpretations and related strategies of to bring about MFD from other points of view.
María José (Eurodad):
General context: Comments on deep health, economic and social impact of pandemic. Noted UNCTAD warned of a potential of a lost decade.
Strong calls to ‘Build back better’ both in terms of resources and policies.
Brief explanation of MFD: builds on pre-existing approaches, begun in 2017. Deeping the role of private sector in development through a series of strategies, including de-risking and subsidies for private sector.
$14 billion of immediate pandemic response – $8 billion in IFC funds and $6 billion between IBRD/ IDA.
Bank also has committed to the provision of $160 billion during the next 15 months
According to new report by Eurodad and SOAS, most funds have gone to the private sector. Resources used to support private sector cannot be used to support state response. 50% of companies supported are multinational companies (MNC) or majority owned by MNC. Lack of IFC transparency. Issues with development policy lending (DPL), privatisation and deregulation – including through the use of PPPs.
Crystal Simeoni (NAWI):
Health has been focused on machinery and high-tech responses in Kenya to the detriment of more basic support and structures.
Kenya suffers from high debt servicing requirements – these resources are being withdrawn from the resource basis for pandemic response. Debts and other commitments include PPP contracts.
Kenya has taken a very cautious approach to its debt rating and this impacts its capacity to respond.
Hospitals continue to suffer from inadequate material resources. There remains a lack of transparency vis-à-vis (MES) PPP hospital projects. These issues date back to structural adjustment programmes.
Daniela Gabor (UWE):
MFD must be seen from an analysis of opportunities vs. risks:
MFD agenda is an agenda of de-risking private finance of private investors.
Two pillars: public goods best delivered by quasi-public institutions. Finance pillar: MDBs will intermediate new partnership between state and private investors. Create new portfolio asset class. This requires the radical redesign of local financial systems.
Two opportunities; should public resources be used to de-risk private investment for infra: e.g. Kenya use of PPPs. New Kenyan fund for roadway, while ready to default on its debt. Opportunity for Bank to improve transparency of PPP contracts and contingent liabilities. Should de-risking through PPPs be continued?
Temporary liquidity for Global South – DSSI – no voluntary participation by private investors on which the MFD model is premised.
Letter from Institute for International Finance (IIF) – acknowledge debt concerns. Advises that states not pursue compulsory participation as this would impact need for MFD resources, as compulsory participation would impinge on eventual market access.
Richard Montgomery (WB):
Bank is conscious of the fact that the pandemic has resulted in a massive reversal on several levels.
Admits the billions to trillions have turned to one of millions to millions.
Bank is focused on private sector as principal employer. Both private and public institutions are in debt distress. Agreed on the focus on public service.
Since the crisis, IFC has been working to avert a crisis. Disagrees on the figures about primacy of IFC lending – considers that to date figure closer to 12%.
Bank is focused on the pandemic’s impact on women in textile and other informal sectors.
Climate risks – many governments are likely to focus on use of existing investments as this would be quicker, to revitalise the economy. That is an area where Bank support would be very useful. Goldman Sachs recognises the economic benefits of green transition.
Regarding transparency and implementation challenges – he recognised tension between speed and mistakes. Allows that lack of transparency is a challenge.
Looking forward:
- Banking stability – e.g. non-performing loans.
- Information sharing – this needs to be improved – focus on employment protection
- Country policy recovery strategies – this is a challenge as countries think it burdensome
Jennifer del Rosario-Malonzo (IBON):
Private sector first approach privileges private sector. The resources have been harmful to the most vulnerable through, e.g. privatisation of health, public transport.
Expansion of corporate capture of the state. The approach entrenches finance capital and environmentally damaging projects. Who benefits? Clearly private sector and particularly multinational corporations and private investor.
Despites challenges and risks, there are no data substantiating the benefits of privatisation.
Promotion of capital liberalisation has been a major factor in deterioration of debt position of developing states. Will new normal be any different?
How could the wider MFD paradigm be re-imagined? Must shift away from private sector first approach and focus on strengthening public financing. Promote agricultural and industrial sectors in developing world – through strengthening of public investment in infrastructure.
María José (Eurodad):
In response to Richard’s question of IFC’s allocation – was referring to immediate response facility – $8 of $14 billion. Most of which was in support of finance sector.
Understands that private sector must be supported to exit the crisis.
She questioned however whether the current IFC programming working – IFC has long-standing challenges reaching countries and those most in need. Commercial banking sector is not likely to reach most vulnerable.
The IEG recognised the challenges of market creation to reach the poorest.
Recommendation:
- Transparency – need for IFC to publish ultimate beneficiaries of investments
- Reconsider support for private health care providers
Crystal Simeoni (NAWI):
Gender responsive, people centred health care remains key for Africa. Care work is not recognised. MFD and PPPs suffer from the fact that important services that are not profitable will lack investment.
Kenya has high maternal mortality rates and president has focused, in a visit to Europe, on support for Nairobi central district and commuter rail to airport.
Covid offers an opportunity to rethink approaches.
Daniela Gabor (UWE):
Millions to millions is not necessarily the barometer of success. The issue is one of the language and deep structural changes. Political power of narrative is more important, as it is a much longer project.
How to best to support private businesses – interested in conversation referred to by Richard on conversations between Bank and states on nature of support to business, etc.
Will there be Green conditionalities?
Richard Montgomery (WB):
MFD – agrees that it is long-term project. Expecting worse figures to come on the impact of the pandemic on economic activity and the private sector. Sombre annual meetings. The world is nowhere near recovery. Could argue that IFC should be making more equity investments.
Agrees with Maria Jose that IEG report is quite important. IFC has since begun significant transitions in implementation of MFD.
Hates the term ‘conditionality’ as the discussions should be locally led.
Questions from the audience:
Q: Contingent liabilities:
Even in lesser crisis, liabilities may well materialise and in a pro-cyclical way. What is the sense now? New IMF paper – liabilities from bilateral treaties and investment arbitration decisions will be very difficult to restructure. Many investors are likely to use arbitration clauses to fight
Q: How to handle race to the bottom resulting from MFD approach and competition for private investment.
Q: What types of structural reforms are taking place?
Q: Support for MFD may further strengthen private sector behaviours that are at odds with human rights.
María José (Eurodad):
Kenya is a good example – as the Bank is pursuing reforms to health questions. Ecuador – promoting private sector efficiency by decreasing public sector wage bill, Indonesia trade liberalisation.
Fiscal risks of PPP are dangerously close to materialising. World Bank unit is working with governments to assess the pandemic’s impact on PPP contracts.
Thoughts on implications of financialisation and also the impact of international governance reforms on finance available for development.
Crystal Simeoni (NAWI):
MNCs continue to benefit from the system -e.g. illicit financial flows (IFF), SAPs have undermined social contract as young generation has not experienced functioning public services.
Need to address global imbalances – governance apartheid.
Q: How to ensure poor and vulnerable are not left behind – e.g. in places where regulation of private sector health care providers is very week.
Daniela Gabor (UWE):
Few prospects for a radically different MFD approach. What are the implications of ‘Green Financialisation’ – need for ‘credit enhancement’ – from IFF letter which laid bare the threats used by financial capital on consequences of pushing for compulsory debt relief participation. Lots of scope for Green Washing – how will Bank deal with these issues.
Richard Montgomery (WB)
Professor Gabor raised the right question on Green Financing, however finance is going in the right direction. Being driven by market.
World Bank is no longer financing coal – perhaps legacy projects. Discussion on gas as transition continues and requires a nuanced and country-specific approach.
Race to the Bottom is a concern – IFC is already under threat of being ‘undercut’ –
There is a real concern that current response will result in additional concentration of power. Therefore, questions about types of reforms are apt. Realise that civil society space is closing, however requires their action.
Jennifer del Rosario-Malonzo (IBON):
There remains a need for industrial policy. The focus on private sector led development has resulted in land re-concentration in Philippines
