- Jon Sward, Bretton Woods Project
- Maria Jose Romero, European Network on Debt and Development
- Luiz Vieira, Bretton Woods Project
- Kamal Ramburuth, Institute for Economic Justice
Jon: Despite several attempts and numerous invitations, we have been unable to get the Bank’s participation. This is quite disappointing given the importance of the Evolution discussion currently happening.
Some of you may be wondering what’s the cascade of what we speak. According to the World Bank’s 2016 document this is explained as followed: In order to maximise the scarcity of public resources the cascade seeks to mobilise commercial finance, enabled by unstreamed reforms where necessary. To address market failures and other constraints to private sector investment at country and sectorial levels where risks remain high the priority will be to apply guarantees and risk sharing in the instruments. Only where market solutions are not possible through sectorial reforms and risk mitigation will official and public resources be applied.
In our view the Evolution Roadmap double down these efforts to incentivise private finance in the development space. There’s long research that proves this approach may be unsuitable for many of these countries, especially with regards to development initiatives that would benefit the poor.
It’s clear in the Roadmap documents and recent discussions that this includes a potential expanding role for international financial corporations or IFC and MIGA, and derisking private sector investments in developing countries as well as renewed efforts to create markets and build investable projects pipelines.
There is plenty of evidence to explain that World Bank recent support to PPPs has negative development or physical impact by excluding many people through unequal access, affordability and distribution. The concerns that the Bank’s approach assumes that incentivising private finance fails to acknowledge that the type of projects designed to attract profit-seeking private investors to generate quick returns, may not match the public interest and national or local priorities, or indeed support green economic transformation in Bank client countries.
While we feel the private sector can and must play a key role in resolving global challenges, we feel this tension is unresolved in the recent Development Committee paper.
What we heard in the Roadmap Forum yesterday is that the Bank is seeking to pursue this approach further.
As part of the consultation process for the Evolution, 76 groups and individuals called for the Bank to commission an external and independent review of the WBG development effectiveness as part of the Evolution Roadmap, including a dedicated analysis of the development effectiveness of Bank’s programs to today, and its promotion of the Cascade and PPPs in an open process with academics, CSOs and grassroots organisation, particularly from the Global South.
Maria Jose: My remarks are the results of work we’ve done to critically analyse the Evolution Roadmap process and its focus. We have engaged in the process since the very beginning, using the opportunities, dialogues and the consultation process.
The main message we would like to send today is that in our perspective the Evolution Roadmap is about reinforcing deepening strategies that were already in place and not about the fundamental reforms that need to happen to address the development and climate crisis from the right perspective, and ultimately to make the Bank fit for purpose.
The central driver of the Bank’s approach places the private sector as key promoter of development and a key provider of finance, mainly through financial engineering and centers the Bank as a facilitator of private capital mobilisation, an approach that has failed. It has not provided the trillion of finances promised years ago. It was redoubled in 2017. Now the WB comes with the same approach.
I want to make a strong call for putting the public at the core of WB’s effort to support global public goods.
First, it is very welcomed to see that in the latest version the Bank is thinking about a new vision for its work, with references to global public goods, incorporating climate consideration and sense of urgency, which is also welcomed. But there’re concerns with the approach to actually deliver on this mission and vision:
- There’re not mentions of governance reform in the Evolution Roadmap. The Bank is governed in an undemocratic way. One chair represents more than 22 countries. This roadmap is far from being transformative, in practice, it does not address the sources of the problems that developing countries are now facing, and that are part of this inequal international financial architecture.
- There are no references to the debt crisis and the role the Bank is going to play to support countries to deal with the current debt crisis.
- There’s no concrete commitment to phasing out support for fossil fuels. We heard yesterday that this is not part of the main messages.
In the last version there are key changes in language: It does not mention the word cascade or the maximising finance for development. The language has changed but, in essence, it still presents strong focus in that direction. Leveraging private sector finance is embedded in the roadmap. For instance, it is the most operationalised part of the roadmap. Private investment is part of the new scorecard. The WB is going to measure its operations according to the amount of money they mobilise (increasing finance as a success as part of the scorecard). No new money is at the table from the shareholders at this point.
The launch of the Private Sector Investment Lab, which places the Bank at the center of global capital mobilisation is another example of all this. The Bank’s push for leveraging finance for development shows the failure of the Bank’s shareholders to ensure a more equitable international financial architecture. The continuation of the private finance push is a continuation of a delusion that we can solve the current global problems without mobilising additional resources.
Banga mentioned in the town hall that we cannot rely on public finance, but we need to push back on that.
For instance, regarding illicit finance flows, countries are losing millions due to this and practices by international financial corporations that allow them not to pay taxes where they operate.
Rather than an evolution the private finance promotion shows the focus of the WB in a flawed development paradigm that assumes that incentivising private sector investments is inherently a positive solution.
We identified several risks, including the risk of creating unsustainable debt or increasing debt crisis risks, but also the fact of having social services in the hands of private providers. Research shows that many World Bank projects private sector-led have proven detrimental to provision of education and health. We are concerned these solutions are still on the table and part of the Evolution the Bank is suggesting.
We welcomed IFC divestment from for-profit school chain Bridge, but practices like this (divesting) are not present in the Evolution. There’s a need to consider what is the Bank’s approach on services provision.
2 key recommendations from us:
- Related to the process: As the Bank argues it’s very well placed to address the climate crisis it should acknowledge the role and responsibility it has played in the current climate crisis. It’s unacceptable there’s no willingness in the Bank for an external independent review that provides robust analysis and evidence of the impact of Bank’s policies and practices on the ground. We’ve been calling or this external review.
- Related to substance: We call on the Bank to put the public at the core of its effort to support global public goods. Private sector can and must play an important role in the transformation of economy, but this has to be guided by public policies and an active role of the state in regulating in the public interest.
We need to remove the private profit as essential to the delivery of public services and make sure private is not at the core of the Bank’s evolution roadmap. We need to emphasise that PPPs and blended finance do not be involved in basic social services, including health and education. This needs to be explicitly outlined in the roadmap. We really need to remove the profit driver as the central motive for the design and deliver of basic public goods (water, transport, sanitation, etc).
It’s imperative that the Roadmap is reviewed and that financial engineering is not at the core of practises that will guide the role of the Bank in the future.
Jon: Luiz is going to speak a bit more about the knowledge Bank component of this and how that related to a call for an independent evaluation.
Luiz: When Axel van Trotsenburg spoke yesterday at the Roadmap Forum he spoke in many occasions on the fact that this is a knowledge Bank.
The World Bank now recognises there’s a crisis of development. However, they intend to explain this crisis in terms of exogenous shocks, like the pandemic, the war in Ukraine, etc. There’s a vast amount of literature out there showing a very different argument. For instance, showing that the current crisis predates the time of Covid.
We have the highest levels of inequality in centuries, rivalling the levels of inequality in the 19th century, before the industrial revolution. We have all the trends towards increased social political instability and yet the Bank has been focusing the discussion on how proud they are to be focused on outcomes, and that the scorecard will be streamlined.
The question that comes to mind is then, what were they doing prior to this? How do you decide what has and hasn’t worked?
The UNCTAD Commodity Report shows that commodity dependency has not improved, it has actually exacerbated.
There is a contradiction in the documents. The Bank says they have been pivotal in acting in development, but then they say there’s a crisis of development. So I wonder, where is the knowledge base for this? The Bank has not substantiated the proposed approach with any literature review or any evidence that proves the approach they’re trying to embed is right.
This is the main reason why we’re calling for an independent evaluation. By an independent evaluation we mean independent from the Bank, perhaps sitting within the UN and composed by experts, CSOs … that could really provide us with a benchmark.
We are not anti-private sector, we just think the private sector has a very specific role to play. The private sector has a very specific incentive, profit, and we think the private sector is not a developmental actor. Private sector is not going to focus on development, they would always look for economic benefit. For instance, why is the private sector doing ESG? Because there’s economic benefit to it.
This drive for private sector development and the idea that there’s not enough public money is misleading.
What must be done to attract this private investment? The idea of derisking, it’s not actually that, it’s shifting the risk from one actor to the other. Countries provide companies with their special economic zones, in which their own laws do not apply. You’re eroding state sovereignty to attract investment. On the other side, you have bilateral trade agreements. Countries are forced to sign agreements that allow private sector – these development actors – to sue them when they legislate in the public interest, taking this money away from public expenditure (like education and health).
It’s not an ideological debate, as Maria Jose said.
Another troubling aspect is that the Bank is also very focused on what they called streamlining process. I had a discussion a while ago when a person from the Bank mentioned that they need to streamline process to get the money out the door quicker. There are processes that cannot be streamlined. For instance: We feel accountability mechanisms are under thread just for the sake of rushing. Accountability processes take time.
Another request to the Bank is about development effectiveness. The Bank does not have a human rights mandate. When they talk about development impact, in many parts of the World Bank development impact, one of the development criteria is how much private sector investment has been leveraged, which is problematic, as it implies that private sector involvement implies development outcomes. Give the levels of inequality the idea to use GDP indicators and such as guide is problematic. It’s time for the World Bank at the 75th anniversary of the Universal Declaration of Human Rights that they join the UN system and embed human rights in their structure and develop a human rights policy that underpins all its activities and the ex-ante impact assessment of its development impact.
Jon: Turning to a more general discussion and wider discussion to a more grounded country example. Kamal is going to explain a bit more on the just economic transition, and the role the World Bank is playing within that and how it relates to the discussion on private sector derisking we’ve been having.
Kamal: The Global South are all asking for JETPs deals. They are hugely problematic as they adopt the cascade approach. It is a way to derisking the private sector. As it has been mentioned before, there is not such thing as derisking, they are international partnerships with big Global North countries that are taking the risk from all these investments and shifting it to small development countries. We’re concerned because, one, it’s not going to be just, and two, it’s not going to lead to development.
The WB is playing a role in this JETP for two reasons:
- Because they’re taking this approach to derisking.
- Because development banks, including the WB, are being used to channel the bilateral finance from the Global North countries.
Looking at the case of South Africa.
JETPs are mostly loans, not even at concessional rates. We do not know the rate, if anyone knows, please let us know. In my country no one is telling us. If there’s anything just about this deal is not the rates, it’s definitely not the fact that risks are shifted from the Global North countries that struck this the deal with South Africa.
The power relation between these countries is actually quite related to the power relations happening now on the debt issue in African countries.
The derisking approach is highly problematic for reasons like:
- Blended finance: Mixing of concessional and market rates, but again, we do not know how much what concessional rates these are. More debt into a debt crisis that Africa is already facing.
- Demand guarantees: They are very problematic because the price of renewal energy production is decreasing quite rapidly. We risk using an approach that will lock us into something we will not be able to pay in a few years from now.
- Contracts locking: They are not countries signed between states and legal entities. They are not South African contracts. Even while South African contracts are difficult to renegotiate itself, these need to be arbitrated in international arbitration processes, with laws that aren’t even ours. There’s a huge question here about what’s the social contract is between the states.
Will the JETP be “just”?
JETPs are not going to be just because they’re de risking, because most is loans and because they’re negotiated in foreign currency, which makes them more expensive (as strong currency are protected by the Fund, and given that as countries sore in debt their currency devaluates), and on the grant concepts – only 4 per cent of these deals are grant, and all goes into knowledge goods.
The most disturbing part about the JETP is that it will not lead to development. Only 1 per cent of what has been channelled it will be for diversification and go to the development of manufacturing of goods (such as solar, etc). Less than 1 per cent goes to skills development. Less than 1 per cent goes to diversification of our economies.
Without all this JETP is unlikely to be just. JETPs will be a transition without justice and will be death without our development.
Questions and answers
Tim, BU Global Development Policy Center: 2 critics at play: 1. WB ideological attachment to market approach solutions and, 2. to major Bank shareholders (such as private finance as the way for big shareholders not to need to put on more money) and to what extent taking out private finance is a convenient way to say that there will be money for investment without putting out new public money or tax reforms that could bring more public money. I would like to hear whether you think that’s a clear distinction and whether our advocacy strategies will need to differentiate to tackle these two different issues.
Luiz: This takes us to the topic of transformation of the economic system. They’re interrelated. Governance in the WB is very skewed and favours the Global North. For a long time, not so much now, the “knowledge bank” was staffed by people from Global North. There is this ideological issue in the Bank. It’s impossible to understand what’s happening without understanding the financialisaton of the global economy. The Global North is generating less profits, it’s all about speculation. It has become more profitable to invest in real state than in industrial production, for example. The idea is to create assets classes, to securitise these assets that are then going to be traded in financial markets. You hollow up the state and you provide opportunities for the private to invest. You cannot understand this without understanding inequality.
Maria Jose: There’s a distinction there to be made. When it comes to the critic of wealthy WB shareholders and putting the emphasis on using the Bank to leverage private finance instead to deliver on their commitments, here our call is: First and foremost, developed countries need to honour their 0,7 commitment on official development assistance. They are doing half of what they should be doing. The quality of ODI is decreasing, because some of these are being used to subsidise private investment. Problem number 2, climate finance. They should be asking the Bank to deliver on their climate finance. Regarding the role of the Bank, they should be looking at the Bank as an instrument to help developing countries with strategies that are not private sector led. When it comes to IDA21 replenishment: IDA private sector window is being used to leverage private sector resources in low-income countries.
There’re many talks about a bigger Bank and a better Bank. A better bank does not necessarily mean a bigger Bank – a better means a more accountable, more transparent, better governed. There’re lots of talks about what’s coming but we do not see many changes. Many groups are calling for a new Bretton Woods Institutions, but this is not what we see nowadays. There are no bigger changes.
We want an approach that talks about better access to public services.
Kamal: I think to a logic state the BWIs are institutions with large shareholders, and those are the ones that would direct them. There’s large responsibility there and the market-led approach in an inequal global development affect certain countries through the extraction of resources from the developing world (cheap materials, for example). The international financial architecture serves these big shareholders within the Bank and the Fund. There’s causality there. There is still huge need for development finance at low interest rates. We still need finance, it’s super important.
Representative from the Center for Economic and Social Rights: Thank you for coordinating this civil society submission on the Roadmap. In relation to the submission, CSOs demands were completely ignored by the Bank. Also WBG & IMF have received lots of recommendation from UN human rights experts and trade bodies for many years. None of them have been taking by the Bank and none of them have even been questioned. Additionally, this continuous narrative we’ve been hearing, also from Banga, that the money is not there and the only way you can get it is by somehow seduce the private sector to take that money, and that anyone who questions that is told that we do not understand. What do you think about these answers we keep getting from the Bank?
Kamal: Just to mention the fact that there’re allocative green credit policies that national governments can undertake. At the same time the Bank was imposing SAPs on the Global South the Asian tigers were developing, and the strategy was to have interest rates below the growth rates. The states in these countries intervened as much as they could to reduce these interest rates and they did it in a number of ways. Like indirect allocated policies, which kind of favours certain sectors and consciously offered certain sectors that wanted to industrialise favourable terms. We could do the same for the ecology transition.
Senior advisor to one of World Bank board members (speaking in personal capacity): I agree that private sector is motivated by making more money. If we are arguing for more public money, we’re actually implying more taxes for the people in these poor countries. How realistic is that expectation? It is extremely important to stop illicit financial flows. The World Bank cannot stop IFF by itself. How can IFF be controlled without controlling intermediate and destination countries? Do you have any thoughts? Is there any work being done on this? Are there any specific recommendations?
Luiz: I do not agree with your premises on taxes. There are many ways to raise taxation and increase income without targeting the poor. Instead of taxing income, why do we not tax wealth? Why are we not working on transaction taxes eliminating part of the problem that countries suffer, eliminating capital outflows, for example? There’re many ways to restructure the tax system.
Maria Jose: Discussions about a UN tax convention, with growing support from developing countries, particularly from African countries, where illicit financial flows can be addressed. It’s about a tax system that is progressive, taxing the wealth and the rich but also about having a UN and neutral space to talk about tax. Now discussions on taxes are happening between rich countries clubs. We hope to have a discussion at the UN level, perhaps in a FfD4 about the reform of the current financial architecture.
Kamal: A human rights approach is very important to guide what the Bank is doing. There’s a correlation between the SDGs and human rights. They are very much aligned and human rights is something very basic, something that the Bank should never undermine.
Daniel Willis, Recourse: We see that these are not only investments that go to the private sector, they also hold decision making responsibility. We see a huge amount of problems in the investments we look at. We’re seeing in energy and climate related investments is that in many cases where IFC started to move away from coal, fossil, clients, it is still working with the same partners or commercial banks. Trying to change the narrative but supposedly taking the money for green projects but on the other side they are also still funding the core of the problem. There is a huge need to still track all this finance and make sure it’s accountable and look where the money is flowing.
We heard a lot this week about the need for a better, stronger, bigger bank. What are some of the methods we can take to make sure the Bank is accountable to make sure affected communities are not casted aside by the need for faster investment. How do we protect the effectiveness of engagement?
Kamal: Social movements in countries have a big role to play in their local legislation. Example: Two years ago in Argentina, Martin Guzman passed a law that requires all IMF loans to be approved by Congress to be able to have a previous analysis to see how these affect human rights, women rights, how can these after sustainability… and once this is presented to Parliament, the parliament decides. In international financial architecture it is hard to take things into account.
Luiz: I think a human rights policy could be the framing of better enabling projects to address the impact in communities as well as better transparency, via for example, parliamentary oversight.
Emma Burgisser (Christian Aid): How you see the Bank’s spreading and influencing their thinking to the rest of development finance world like MDBs, other regional Development Banks and how far we see this rhetoric and approach going… The Fund has not gotten until very recently to the same type of approach, but now we see that in the RST. Wondering if you could explain how this is spreading beyond the Bank.
Kamal: they influence others quite heavily. Even though there’s a new lending explosion from other institutions like the Asian Development Bank, or the New Development Bank. Even when they say that they are different in the type of lending they facilitate, etc. if you look for example at the staff, there’s lots of exchange and they collaborate in many projects. In the rhetorical of the NDB for example they’re starting to talk more and more about private sector leverage.
Maria Jose: the Bank has been playing this leadership role for quite some time. Other development financial institutions, like the EU Development Bank, are following the same model and using the same resources.
Subsidising private sector investment through technical assistance, protection of loans and guarantees and other solutions are not per-se a bad thing. We are not against subsidising private investment. But we are red flagging that the scale of the approach and the projects for what the private sector is being incentivised, using Global North based companies or not even being driven or at the service of a development strategy that is accountable to the local groups. It’s fair to ask subsidising private sector under what conditions? Who’s in the driver’s seat? Who’s under this type of private provision? It’s not about the technique itself, it’s about how this is being approached. In some settings we are also opening new discussions on what sustainable infrastructure policy means. It’s not a bad thing promoting infrastructure projects, but promoting them from the mine to the port, that is at the service of subtraction of natural resources is very problematic.
Luiz: Regarding staff incentives that’s something also that’s been left aside the roadmap discussion. There’s this big push for MDBs to work more closely together. If there’s a FfD4 conference I think the shareholders will want to have the MDBs sharing the same voice at the UN.
Rodolfo Lahoy (IBON): Unfortunate there are no colleagues from Bank here. I think the Bank is one of the most ideological actors out there. Along the way this is all about what the model of the Bank is, and the economic assumptions being made here. Refusal to engage and acknowledge responsibility for climate crisis for example is frustrating organisations in the Global South. It refuses to even recognise that t hare are systematically harms happening, to begin with. This is why one of the question from the Global South is whether the Bank is fit for purpose and will be able to deliver development in the future. Where do you think is the stress when it comes to tactics these days? I know we all know there’s nothing new in the Bank’s reform. There are two strands here: One asking for the Bank to really focus on what’s needed to be better instead of what it’s saying and the other parallel tactic saying that the Bank needs to first acknowledge what its responsibility is for the crisis we are all are in. Between these two parallels, do you think there should be stress on one over the other? or should they be equal as we move forward? Shall we try to push for a better Bank or shall we focus on historical accountability?
Maria Jose: I do not see very evident dilemma in our tactics because I think there’s not hope of getting any better without addressing the problems from the past.
Luiz: I agree with Maria Jose that we should work with both simultaneously.
Pranita (Action Aid): Regarding tactics. There’s a blame game happening between IMF and WB and then blaming governments for things don’t working. In a session today with Ajay they said 2 things: Countries need more knowledge than resources (countries do not know the solution so the Bank needs to come in and show them); the second was that governments need to create an enabling environment and then exit. Has the panel heard anything that would give us hope in terms of tactics moving forward? Where do we go from here?
Luiz: It’s becoming more difficult to make the shareholders to support the current system. There are many regional banks, some of them created by governments frustrated with the Bank, but they all use the same model. The North versus South is still very present, but we also have elites that work in a global level. We have a multilateral system that works with states, but there are very influential power non-state actors that also have power to influence states and multilateral system. We need a deeper analysis. The new banks’ development model do not show a drastic departure from the Bank’s model.
Jon: I think the general point of stress is that after years of discussions within the Bank and the evolution discussion, there are a variety of feelings about where we are but it’s fair to say that this is not a transformation and lots of shareholders are feeling that and fearing that this is not leading to transformational change. There is a new mission and vision, but the inability to change leaves the institution a bit vulnerable in term of being able to change at the moment.