NEW YORK/BRUSSELS, Jul 06 (IPS) – A message that was repeated throughout last month’s summit about a so-called “New Global Funding Compactwas that developing countries urgently needed massive funding to address the climate and biodiversity emergency. And there are not enough in the public coffers.
Unfortunately, the false narrative that the only way to fill this void is to “mobilize” more private finance has also persisted. The result Paris Agenda for People and the Planet said, “the response to global challenges will depend on increased private capital flows”. This should be achieved largely by reorganizing the role of the Multilateral Development Banks (MDBs).
Last December, the World Bank Group (WBG), the largest MDB, launched its so-called process of “evolution”, with the support of G7 governments. This forced the institution to work on increasing its lending by increasing its dependence on the financial market.
Stubborn reliance on private capital as savior seems to be rooted in capitalist realism. It is thought unlikely that the public sector will provide the scale of finance needed to address the climate and development crisis.
Private capital, which can be raised with public funds, securitized and replicated, is favored as a pragmatic choice. However, while the funding gap Achieving the Sustainable Development Goals is real, the neat narrative that backs private capital masks two empirical realities.
First, the lack of political will in rich countries to meet the agreed commitments of 0.7% of gross national income in development aid made in 1970 in the USA100 billion dollars per year climate finance agreed in 2009.
Second, the continued systemic flight of wealth from developing countries to rich countries. Since 1982, developing countries as a whole have transferred about$4.2 trillion interest payments to global creditors based in the north, far exceeding aid flows and concessional loans over the same period.
In addition, tax-related illicit financial flows cost countries hundreds of billions of dollars in lost tax revenue every year. Debt service runs out by about 25% of total government spending across developing countries, diverting both climate and funding away from the SDGs (Sustainable Development Goals).
The lure of private financing
Last month, in a new attempt to “mobilize” private capital, the WBG launched the Private Sector Investment Laba partnership with the private sector that aims to “rapidly develop solutions that tackle the barriers that prevent private sector investment”.
Moreover, he announced “a expanded toolbox for Crisis Preparedness, Response and Recovery”, which includes the provision of “new types of insurance” to support private sector projects. This follows a not-so-new pattern articulated in the Draft roadmap for WBG evolution released in April
While the WBG is about to broaden its mandate to incorporate “sustainability” considerations, the approach is still rooted in a heady cocktail of risk reduction instruments such as risk guarantees, blended finance and first-loss positions by governments, and adjusting national regulatory frameworks to create a business-friendly environment.
The objective is as singular as the solution: to make the investment more profitable for the private sector. The (optimistic) logic: “incentivizing” private capital will “attract” economic growth and climate, biodiversity and development finance. This presupposes that it is possible to assimilate commercial objectives and the general interest, which is not always the case, without creating financial barriers which hinder access to public services, such as user fees.
It also ignores that risks are transferred from private to public actors, further increasing debt vulnerabilities and the development dilemma posed by prioritizing private benefits over distributional goals and government sovereignty. State.
In ongoing discussions Regarding the roadmap, it remains to be seen whether the WBG will incorporate enough provisions into its plans to guarantee the beneficiary state’s right to regulate in the public interest for a rights-based economy that upholds justice. distributive. That is, economic, climate and gender equity.
The largest coalition of developing countries at the United Nations (known as the “Group of 77”), representing 134 nations, has for many years called for reform of the international tax, debt and debt architecture. finance.
These calls, enshrined in resolutions adopted by the UN General Assembly, include the establishment of a multilateral legal framework that would comprehensively address unsustainable and illegitimate debt, including through debt restructuring and cancellation, and an agreement on a United Nations tax treaty with equitable participation of developing countries to combat tax abuses by multinational corporations and other illicit financial flows.
As stated last month in calls from several developing countriesa reform agenda should not be limited to simply swelling the coffers of MDBs – via financial innovation techniques – but rather include governance reform that significantly increases the voice and vote of developing countries in the making macroeconomic decision-making, which is the litmus test for legitimate and democratic decisions. economic governance.
Moreover, for many members of civil society, for the WBG to credibly “evolve” it must also seek to independently assess the development impact of its policy prescriptions for developing countries over the last decades. Civil society organizations repeat it in official comments on the development roadmap submitted to the Bank this week.
The way in which the mythology of the private financier is interpreted dangerously omits the concrete reforms for historical economic justice and state sovereignty that the countries of the South demand. This disjunction calls for a lucid questioning of the attractiveness of private finance. This is the difference between new forms of extraction and the move towards redistributive justice.
Bhumika Muchhala is a political economist and senior adviser to the Third World Network and Maria Jose Romero is Head of Policy and Advocacy at the European Network on Debt and Development (Eurodad)
IPS United Nations Office
© Inter Press Service (2023) — All rights reservedOriginal source: Inter Press Service