Rebranding or reshaping the global financial architecture? MDBs reform, Bridgetown Initiative and the New Global Financing Pact: Key webinar takeaways
The world finds itself in a polycrisis with three proposals on the table: the Evolution Roadmap of the World Bank Group; the Bridgetown Initiative; and the Summit for a New Global Financing Pact, which takes place in Paris next week. To explore each of these initiatives further, Eurodad and partners organised a webinar which featured three experts who give their points of view: Daniela Gabor, Professor of Economics and Macrofinance at UWE Bristol, Liane Schalatek, Vice-Director of Boell Foundation North America and Mariama Williams,Director of the Institute of Law and Economics (ILE).
As Jean Saldanha, Eurodad’s Director, laid out in the introduction, the Covid-19 pandemic was a “make or break moment”. Many had hoped that it would become a portal to a new, more equitable world. Instead, we now find ourselves in a polycrisis with three “solutions” on the table: reforms of MDBs, and in particular the Evolution Roadmap of the World Bank; the Bridgetown Initiative; and the Summit for a New Global Finance Pact. But are each of these initiatives simply a rebranding exercise or will they truly reshape global financial architecture?
On 23 May, Eurodad, together with Bretton Woods Project, Debt Justice, Latindadd, CNCD 11.11.11, Christian Aid and Feminist Action Nexus, hosted its second webinar from the series dedicated to the exploration of the current changes in the global financial architecture titled: "Rebranding or reshaping the global financial architecture? MDBs reform, Bridgetown Initiative and the New Global Financing Pact."
The webinar featured three experts: Daniela Gabor (Professor of Economics and Macrofinance at UWE Bristol), Liane Schalatek (Vice-Director of Boell Foundation North America), and Mariama Williams (Director of the Institute of Law and Economics (ILE) in Jamaica, principal consultant at the Integrated Policy Research Institute - IPRI).
Firstly, the webinar focused on the World Bank Group (WBG) Evolution Roadmap - the plan that the institution has set out for itself. This is in response to a request from shareholders during the 2022 Annual Meetings for a plan for how the WBG will respond to the current deteriorating global economic context. It should include enhancing its focus on ‘global public goods’, particularly climate change.
Secondly, the Bridgetown initiative, led by Barbados and its Prime Minister Mia Mottley, aims to increase the resources available to address cost of living, debt and climate crises. It includes proposals to provide emergency liquidity, expand multilateral lending to global south governments by US$1 trillion, activate private sector savings for climate mitigation, and fund reconstruction after climate disasters through new multilateral mechanisms, amongst other proposals. The initiative constitutes a call for collective action to form a coalition of like-minded leaders.
Lastly, the Summit for a New Global Finance Pact is an event that will be hosted by French president Emmanuel Macron this month (June). The summit, convened as a response to Mottley’s Bridgetown Initiative, aims to shape a new financing ‘toolbox’ to address climate challenges and the Sustainable Development Goals (SDGs). It is particularly focused on ‘leveraging’ private finance.
Key issues on the table
Daniela Gabor started the discussion by laying out her thesis about the ‘Wall Street consensus’, defined as "an elaborate effort to reorganise development interventions around selling development finance to the market." She stated that banks are expanding their balance sheets to escort private investors into climate initiatives but that they should "not only [be] offering carrots for private lenders but also sticks." Gabor urged both scholars and CSOs to study the changes, for example the World Bank’s commitment to align all its financing operations with the goals of the Paris Agreement in its Climate Change Action Plan 2021-2025n, in greater detail. Prof. Gabor also called on CSOs to push multilateral development banks (MDBs) to end derisking in social infrastructure so that health, education and biodiversity would not be considered an asset. What Gabor concluded is that there needs to be a new reimagining of all of the proposals on the table so that they move away from the financial market.
Building on that, Mariama Williams stressed that the expansion of the World Bank’s role in climate action is extremely problematic given the little transparency, low quality climate finance and high interest rates involved. The Roadmap can be viewed as an institutional-level reform, not a transformative approach to multilateral governance. As Williams explained: "There is a debt crisis and the space to restructure debt is very small and complex - and new finance is [just] going to mount on debt. This is not going to change with bond financing, it is just going to push the can down the road." This is especially worrying as the 52 countries which are home to the poorest populations are suffering from severe debt and are spending 20 per cent and upwards of government revenues on debt servicing.
There is a debt crisis and the space to restructure debt is very small and complex - and new finance is [just] going to mount on debt. This is not going to change with bond financing, it is just going to push the can down the road.
Mariama Williams, Director of the Institute of Law and Economics
Adding to this, Liane Schalatek pointed out that the more climate finance is allocated through MDBs, the less it will go to the UNFCCC-led institutions despite the lack of equal positioning of the developing countries at MDBs’ negotiating tables. And yet, MDBs in climate finance are here to stay. They are already core implementers of climate finance under the UNFCCC, which means now this institution is also moving further away from its mandate through what Schalatek called the "Wallstreetification” of climate finance provision, which is taking the discussion away from basic equity principles. Overall, many of these initiatives seem to have finance innovation as an outcome and a goal, rather than human rights and gender responsive climate action for which finance is needed.
In discussing the Bridgetown Initiative, Mariama Williams went on to say that it "fits in within [..] a neoliberal Wall Street consensus paradigm" and what’s most concerning is "that some of what's been talked about is taking us away from climate justice." She stressed the need for more multilateral discussions around force majeure clauses, as the current case by case assessment limits the number of eligible countries for climate financing. This serves the interest of the global north in turn because it limits its responsibilities. Daniela Gabor pointed out that the Bridgetown Initiative might just be repackaging existing ideas.
All speakers agreed that the upcoming Paris summit lacks legitimacy. Prof. Gabor added that it is current geopolitical struggles that best frame and explain the summit and the attention it has received from many countries. Schalatek summarised the numerous shortcomings despite its connection to the Bridgetown Agenda, including limited space for CSO involvement and an astonishing lack of global south representation. This begs the question of how accountability will be ensured. Overall, this summit is following the trend of de-risking and pushing for private sector lending and investments, ‘painted in green’, in a clear alignment with the Wall Street consensus.
To answer the question in the webinar title: "Rebranding or reshaping the global financial architecture?" - the speakers agreed that there is definitely a rebranding happening and a deepening of existing trends of financialisation and derisking from the private sector. All of the proposals are aligned with the neoliberal paradigm and help deepen the Wall Street Consensus, particularly by promoting de-risking of private sector investment and lending. The expansion of the World Bank presents a moral hazard for both climate finance and development finance due to the very nature of financial institutions. The World Bank and IMF should not be viewed as pro-development. Historically, they have used financial instruments like debt to control developing countries and there is no sign of this ending as yet.
Watch the recording of the event below.
If you cannot see the embedded video, click here to watch on YouTube