Private Sector

Background

An economic future for whom? The Cascade/MFD and recovery

25 March 2021 | Minutes

Moderator:  Jennifer del Rosario-Malonzo, Executive Director, IBON International
Panelist 1:  Maria Jose Romero, Policy and Advocacy Manager, Development Finance, European Network on Debt and Development
Panelist 2:  Beverly Longid, Coordinator, International Indigenous Peoples Movement for Self-Determination and Liberation
Panelist 3:  Jason Braganza, Executive Director, African Forum and Network on Debt and Development
Panelist 4:  Henry Morales, Coordinator for Latin America and the Caribbean / Member of the Comité Directivo Reality of Aid Network (RoA) / La Red Latinoamericana por Justicia Económica y Social (LATINDADD)
Discussant:  Joergen Frotzler, Alternate Executive Director of the Nordic Baltic Constituency, World Bank Group.

1.       Maria Jose Romero, Policy and Advocacy Manager, Development Finance, European Network on Debt and Development

Eurodad has conducted research to understand the Bank’s response to the crisis. The World is experiencing a deep recession with dramatic consequences.

The Maximising Finance for Development (MFD/Cascade) approach, which was launched in 2017, builds on previous World Bank work and places private investment at the centre of development.

The World Bank’s Covid-19 pandemic programmes have three elements: Relief, restructure and resilient reconstruction.

The Bank’s programmes count on $160 billion in resources to mid-2021. The World Bank’s responses maintain a strong focus on the private vs. public sector and on finance over real sectors. These trends are not in line with calls for support to public system and informal sectors.

Despite addressing the health emergency aspect of the crises, the World Bank has persistently pushed for the inclusion of the private sector, particularly through public-private-partnerships (PPPs), as a key component of its strategy.  Beyond the emergency response, the Bank has, through the IFC – its private sector arm – supported the tourism sector and wealthy foreign clients along with companies in tax havens, and private health sector. This type of programming is not well aligned with efforts to ensure a just and equitable recovery and fail to meet the needs of the real economy and most vulnerable.

As an example, the World Bank is working to develop PPP framework in Somalia, which privileges the private sector.

The IFC’s programming suffers from poor transparency and stakeholder engagement. The lack of transparency is particularly problematic in the light of the IFC’s substantial support to the financial sector.

The reality is that the crisis is being used to deepen the multiple crises that have their origins in the reliance on private solutions.

A call for action:

The World Bank must restore the balance between the public and private sectors, support debt relief, provide grants over loans, and re-evaluate the cascade approach to all its actions are guided by a Human Rights framework.

2.       Beverly Longid, Coordinator, International Indigenous Peoples Movement for Self-Determination and Liberation

Will provide an indigenous perspective.  Unfortunately, the experiences do not leave much room for optimism as it reflects a history of violence, lack of respect and discrimination. This includes 1976 World Bank support for a damn project in the Philippines that submerged villages without consultation. While popular protests led to a cancellation of the project, the costs were extremely high, as the military government ensured retribution against protesters.

These disturbing dynamics continue in various countries such as Peru, Bolivia and Nepal today.

Many projects supported by International Financial Institutions are part of national plans, but do not respond to the needs of the most vulnerable, particularly indigenous populations. These projects tend to lack respect for land ownership frameworks and self-determination of Indigenous Peoples. Free Prior and Informed Consent must be respected but often is not.

The pandemic has worsened the situation. Of the $15 billion in 27 World Bank loans, and $1.4 billion from the World Bank to support disaster response – IBON found only 8% has gone to healthcare. Where has the remainder of the funds gone? World Bank resources continue to support militarised responses.

Benefits do not cascade to the people on the ground, particularly for indigenous peoples.

3.       Jason Braganza, Executive Director, African Forum and Network on Debt and Development

The current system continues to exacerbate pre-existing concerns. The pandemic must be considered within the context of a deepening debt crisis- much of it private within a complex landscape.

The irony remains that the main propagators of debt are being cajoled to undertake more debt. Projections for the African economic for 2021, show that women-headed households are likely to comprise majority of poor on the continent.

The African continent is still obsessed by mega infrastructure projects, financed through debt and reliant on user fees. Questions must be asked. To what extent are these loans generating the income necessary to ensuring the sustainability of their financing and to support domestic resource mobilisation? The private sector is operating very aggressively through tax havens and tax avoidance, for example. These dynamics perpetuate cycle of dependency – putting profits before people.

The Global Financial Crisis of 2008 and the Covid-19 pandemic have shown the soft underbelly of international architecture.

4.       Joergen Frotzler, Alternate Executive Director of the Nordic Baltic Constituency, World Bank Group.

The executive board has been working with management on many of the issues noted above, as there are some shared concerns. Panellist is a Swedish national and an IDA deputy involved in IDA18 process.

We are in a deep crisis, although the health consequences thus far seem concentrated in high and middle-income countries. That said, low-income countries are suffering greatly from the economic impacts of the pandemic.

The Paris Agreement requires considerable investments in renewables. The Sustainable Development Agenda (SDGs) agenda has been set back considerably and little time remains to achieve the 2030 agenda.

The financing needs of low and middle-income countries are widening.  Disagrees with negative approach to private sector involvement. Overseas Development Assistance (ODA) will never suffice. We must therefore find sustainable ways to mobilise private capital where suited. Encouraging management to focus on additional private investment, but also focused on progressive domestic resource mobilisation, including wealth tax. The executive board remains concerned about IFC investments in companies in tax havens. Much resistance to this. The executive board would like to see the use of intermediary jurisdictions only when it makes good business sense, other wise all companies should be domiciled, and taxes paid in the country.

What constitutes good private sector investment? What is the role of private sector investment in health and education?  It must be focused on universal access. Should not enable elites. Affordability and access are imperative.

Maria Jose Romero:

It is clear that ODA is not sufficient in the current context. That said, many governments are not meeting their obligations and the quality of ODA is deteriorating.

Illicit financial flows and tax avoidance deprive countries of resources. Of course, there is a need to mobilise private resources, however this requires clear parametres to ensure private investments contribute to the public good. There is an urgent need for guidance from national actors. In many cases, on the contrary the World Bank uses its resources and technical assistance to promote approaches that do not benefit local populations and local businesses.

Question: What is required to enable a people-first approach (moderator)

5.       Henry Morales, Coordinator for Latin America and the Caribbean / Member of the Comité Directivo Reality of Aid Network (RoA) / La Red Latinoamericana por Justicia Económica y Social (LATINDADD)

The situation in Latin America is dire with the continent still suffering from decades of erosion in public services and decreases in state legitimacy. The pandemic has hit the poorest, including Indigenous Peoples hardest and a private sector-first approach is not sustainable, as the public sector in the end is left to take on the risk of private investors while the social services continued to decline.

There is a need for a radical restructure of the global financial architecture, with a strong focus on debt relief and local or regional solutions.  The continuation of the current model is not an option as the focus on private sector-led development actually undermines domestic resource mobilisation capacity as resources are extracted by multinational companies and investors.

Beverly Longid:

Agreed. Noted that it would be better if we had better taxation and domestic resource mobilisation framework, but the truth is otherwise, as countries adopt tax holidays and other incentives to attract foreign investment.

There is a need for paradigm shift in understanding of development and of Indigenous People’s human rights. All IFI activities should be based on a robust human rights framework and should focus on FPIC.

Need for mutual trust and aspirations that also enable contribution of Indigenous People’s to national development plans.

Undeniable that many human rights violations are linked to development projects. The World Bank must condemn these violations and reconsider activities in sensitive areas with investments in companies and perhaps governments. It should withdraw funds in the absence of FPIC.

Jason Braganza:

Yes, it is true, there is a finite amount of resources. The recommendation is not to exclude private sector, but rather to develop a new ideology of social multiplier and contributor to local tax base. There seems a contradiction between the focus on private sector investment and progressive taxation as businesses will reflexively turn to lower taxes.

The question of who delivers essential services is extremely important, as private sector delivery could undermine access and also local tax base in a nefarious cycle.

Africa suffers from high tax losses perpetrated by the very actors the World Bank considers essential to the development process.

Joergen Frotzler (Nordic ED) response to recommendations:

Agrees that the approach should be human rights and people centred. Would like Bank to operate based on a human rights framework, however this is difficult. In Fragile, Conflict-Affected and Violent settings (FCVs) participation is indeed central to the strategy. The executive boards would like to ensure the Bank does not harm those already marginalised.

Working on improving accountability mechanisms, including at the Compliance Advisor Ombudsman, the IFCs, independent accountability mechanism.

Regarding the recalibration of public-private participation: The World Bank is working on both. Nordics consider some sectors such as water treatment, energy production, transport as good targets for private sector investments and perhaps not so much education and health.

Agrees that countries require good policy governance framework to support tax revenues. Agrees on tax havens and progressive tax systems, subsidies must be considered. There is much to consider on both the revenue and expenditure sides of the fiscal scale.

Do not share the view that we can do without the private sector. Sees quite a lot of interest from institutional investors such as pensions funds, which are keen to support sustainable investments.

Moderator clarified that CSOs are not against private sector as such, but want the World Bank to more clearly acknowledge the tensions that exist between private and public interests.

Q: Does the executive director acknowledge the tension between the need to attract reluctant private investor through de-risking or private investments and the public good. Tax policies in Ireland clearly show the threat of a ‘race to the bottom’ and the power imbalances between investors and states, particularly in the global South. What conclusions does the executive director draw from about the developmental role of the private sector in the light of its unwillingness to participate in the G20’s debt suspension initiative?

Joergen Frotzler (Nordic ED):

Agrees that there is a tension and conflict between private and public interests. The question about the balance of subsidies required is central and difficult. Sweden has experienced the issue when guarantee risks materialise. Must not subsidise private investment unnecessarily. DSSI a different matter.

The responsibility remains on the state to ensure that borrowing is made for positive development outcomes. The World Bank can assist countries to undertake these assessment vis-à-vis financing modalities.

Moderator: What could be the role of CSOs in supporting policy development at the local level?

Henry Morales:

Indigenous peoples have different ideas of development and different priorities and vulnerabilities that cannot be easily reflected in current models used by many states or the World Bank. It is essential that indigenous communities are key actors in developing their own plans and ideas. The World Bank must support this process.

Beverly Longid:

In addition to what Henry mentioned about the need to strengthen the systems of consultation available toindigenous communities’, perhaps there is also a need for the World Bank to visit and monitor the conditions after the pandemic.

Maria Jose Romero:

Calls on executive board members to push strongly to ensure extreme caution on IFC investments in essential services. This approach must be reconsidered, particularly in the light of the crisis. How can the IFC ensure it supports those most in need. We are concerned about the focus of IFC investments in large international conglomerates.

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