The basic task of the Eminent Persons Group was to propose how the institutions designed in Bretton Woods 70 years ago – the World Bank and IMF – should be adapted to today’s multipolar world faced with a number of global challenges. The report Making the Global Financial System Work for All was presented at the IMF/WB Bali meetings in October last year. The report has been welcomed by the G20 ministers, but it is still too early to say what real impact it will have.
From an NGO perspective there are of course a number of basic objections you can have to the report and its recommendations: There are hardly any references to gender, inequality, human rights or other key issues. There are hardly any women in the “Eminent Persons Group” group. And what legitimacy and accountability does the G20 have anyway?
Leaving these aspects aside for a moment, and given the fact that the report may influence strategic decisions on the global financial system, what is there more to be said about the report? I offer here some comments, from a development NGO perspective. My comments focus on the section on development impact, leaving the sections on global financial markets and on systemic issues for others to dig into. Suffice it to mention that the effort to take a systemic view is worth appreciation.
The report makes a number of important points that should be welcomed. The EPG and those charged with taking their proposals forward need to be challenged to take these points further:
1. EPG recognises the role of public finance and domestic resource mobilization – but makes no proposals on how to support it.
After stating that more investments need to be made in development, EPG writes:
Two key strategies therefore need much greater priority. First, to strengthen public finances and domestic resource mobilization. (…) The international community must also support these national efforts by closing opportunities for tax evasion and money laundering.
This is a very important statement that should be welcomed, and it raises expectations for concrete proposals. There are however none. Instead, most of the concrete proposals focus on the need to mobilise more private capital, which EPG proposes as the second of the “two key strategies”.
2. EPG calls for increased investment in “human capital” as a key development strategy. The first EPG Proposal is: “Refocus on governance capacity and human capital as a foundation for a stronger investment climate.” EPG also states that “The IFIs must also support governments in ensuring the broadest base in human capital development: providing equality of opportunity for all, regardless of gender, ethnicity and social backgrounds.”
We know that investments in health, education and social protection is absolutely crucial for poverty reduction and fulfilment of human rights. The understanding that these social investments also are key to economic dynamism, job creation and investment climate should be used to push them higher up on the list of investment priorities. Unfortunately, EPG only mentions health and education, and fails to recognize social protection as one of the crucial areas for social investments.
3. The proposal to build country platforms and adopt core standards is not new, but still useful. The idea of donor coordination is not new, as was noted in this comment from Annalisa Prizzon at ODI. It has been around since the Paris agenda, at least, and is practiced in many countries in various degrees. But the EPG may include relevant ideas about how coordination can be improved. Proposal 2 says “Build effective country platforms to mobilize all development partners to … maximize their contributions as a group, including by convergence around core standards.” The idea about core standards could be used as an entry point for advancing higher standards on environmental and social impact, and to prevent races to the bottom. However, as pointed out in a critique by Nancy Alexander and Rick Rowden, there is a risk that environmental and social safeguards and accountability mechanisms are side-stepped or de prioritized, with no consultation with civil society.
4. The proposal to “integrate activities in support of the global commons into the IFIs’ core programs” need to be far more concrete. EPG recognises that IFIs deals with global commons like the climate in an ad hoc, often unsustained approachof relying on one or another donor to one or another trust fund. So yes, the proposal to integrate activities in support of the global commons in the core activities of the development banks is welcome – but far too vague. Nancy Birdsall from Center for global development has proposed that one way of bringing the GPG to the core business would be to give MDBs a mandate to subsidize their standard loan rates to encourage countries to borrow for investments that have positive global “spillover” benefits. I would like to see a thorough analysis of that proposal.
Whereas the statements and proposals mentioned above point in the right direction, however insufficiently, the proposal to create a new asset class should be opposed. EPG emphasises the need to “de-risk countries” rather than to de-risk individual projects, a conclusion fully in line with the priority given to investments in governance capacity and human development. However, most of the recommendations focus on mobilizing private investments to individual projects. A key proposal is to build developing country infrastructure asset class that would make it possible for eg pension funds to invest in national infrastructure in developing countries. However, the potential benefits of creating such an asset class may well be exaggerated, as confirmed by Erik Berglöf, one of the authors of the report. At a seminar about the report at the Stockholm School of Economics, on December 14, he said that FDI and local capital will be far more important than equity investments which move fast and easy. You can read more here about what “creating a new asset class” means, how G20 promotes it in other ways, and why it is risky and should be resisted.
All in all, the report includes a number of conclusions and proposals that NGOs could use as an entry point in dialogue with decision makers. But there are also striking omissions and proposals that should be firmly rejected.
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