WEBVTT - Development Futures: Reforming the Multilateral Development Banks 0:00:05.570 --> 0:00:08.239 Hello and welcome to Development Futures, a podcast brought to 0:00:08.240 --> 0:00:11.840 you by the Indo-Pacific Development Center here at the Lowy Institute. 0:00:12.440 --> 0:00:15.650 My name is Alexander Dayan, the deputy director of the center, 0:00:15.650 --> 0:00:19.070 and I am your host for this episode. In this podcast, 0:00:19.070 --> 0:00:22.010 our researchers and some of the world's leading experts discuss 0:00:22.010 --> 0:00:25.400 fresh policy insights and ideas on the most pressing development 0:00:25.400 --> 0:00:29.360 issues in the world today. In this episode, we will 0:00:29.360 --> 0:00:32.450 be talking about the future of the multilateral development banks, 0:00:32.510 --> 0:00:39.690 often referred to as the MDGs. More than a year ago, 0:00:39.690 --> 0:00:42.690 the MDGs embarked on an ambitious reform agenda for them 0:00:42.690 --> 0:00:46.530 to tackle the pressing dual challenge of climate change and development. 0:00:47.010 --> 0:00:51.120 Items on the agenda involve improving MDB governance structures, objectives 0:00:51.120 --> 0:00:55.170 and targets, and creating new financial instruments to mobilise public 0:00:55.170 --> 0:00:59.640 and private capital for climate and development investments. And this week, 0:00:59.640 --> 0:01:02.850 finance ministers and other officials from around the world are 0:01:02.850 --> 0:01:05.970 in Marrakesh for the world Bank and IMF annual meetings, 0:01:06.030 --> 0:01:08.399 where a lot of attention is put on the reform 0:01:08.400 --> 0:01:11.880 efforts in the work. So to discuss those, I am 0:01:11.880 --> 0:01:14.820 joined by Clemens Landers, a senior policy fellow at the 0:01:14.819 --> 0:01:18.360 center for Global Development who focuses on multilateral development banks 0:01:18.360 --> 0:01:23.310 and sustainable development finance. Clemens previously worked at the US 0:01:23.310 --> 0:01:26.520 Treasury on US engagement with the NBS and also at 0:01:26.520 --> 0:01:28.770 the world Bank. So she's basically one of the best 0:01:28.770 --> 0:01:32.100 persons to discuss those issues. I had the pleasure of 0:01:32.100 --> 0:01:34.679 meeting Clemens a few months ago, when my colleague, Roland 0:01:34.680 --> 0:01:37.710 Rajan and I presented our work on development finance at 0:01:37.709 --> 0:01:40.920 CGD in Washington. And since that time, we've had the 0:01:40.920 --> 0:01:43.590 idea of having her as a guest on our new podcast. 0:01:43.740 --> 0:01:47.640 And I'm thrilled that this has finally become a reality. So, Clemens, 0:01:47.760 --> 0:01:49.650 thank you very much for taking the time to have 0:01:49.650 --> 0:01:50.320 a chat today. 0:01:50.340 --> 0:01:52.890 Well, thank you, Alexander, and I'm so pleased to be here. 0:01:52.950 --> 0:01:55.050 First, I would like to look at the big picture 0:01:55.050 --> 0:01:58.470 and ask you the following questions. What do we mean 0:01:58.470 --> 0:02:01.920 when we talk about MDB reforms generally? I mean, what 0:02:01.920 --> 0:02:05.790 are the primary topics of discussion concerning those reforms and 0:02:05.790 --> 0:02:08.520 in the context of the world Bank, IMF annual meeting 0:02:08.520 --> 0:02:10.890 is happening as we speak. What do you think is 0:02:10.889 --> 0:02:13.919 being discussed precisely on that specific topic? 0:02:14.520 --> 0:02:17.700 Yeah. Well, you're right to point out that there's been 0:02:17.700 --> 0:02:21.990 a really strong spotlight on the MDGs since for the 0:02:21.990 --> 0:02:25.440 past year and the world Bank in particular about a 0:02:25.440 --> 0:02:29.669 year ago, actually, Secretary Janet Yellen, the US Treasury secretary, 0:02:29.669 --> 0:02:34.110 made a speech around what is now called MDB evolution, 0:02:34.440 --> 0:02:37.200 really focused on the fact that it was time for 0:02:37.200 --> 0:02:41.250 for some major changes within the system, with a particular 0:02:41.250 --> 0:02:43.860 focus on the world Bank. And she made she made 0:02:43.860 --> 0:02:45.090 the speech about a year ago at the center for 0:02:45.090 --> 0:02:49.800 Global Development. And this is really created an enormous amount 0:02:49.800 --> 0:02:54.450 of momentum, an enormous amount of political momentum around around reform. 0:02:54.450 --> 0:02:57.060 And there's been especially a lot of a lot of 0:02:57.060 --> 0:02:59.669 focus on the world Bank, which is which has been 0:03:00.000 --> 0:03:02.130 in a lot of ways accelerated by the fact that 0:03:02.130 --> 0:03:07.010 the world Bank also has a new, new president, AJ Banga. Um, 0:03:07.830 --> 0:03:11.730 so so what is meant and what what really drove 0:03:12.660 --> 0:03:17.520 drove the US Treasury secretary to, to start this whole process, 0:03:17.520 --> 0:03:22.109 I think was, was, was was really several things. Um, one, 0:03:22.110 --> 0:03:27.900 of course, was the Covid crisis really radically changed the 0:03:27.900 --> 0:03:32.580 global economic landscape. Um, we really saw a lot of 0:03:32.580 --> 0:03:39.900 countries really struggling to access capital markets and external financing. 0:03:39.900 --> 0:03:44.610 And the MDGs were really seen to be the global 0:03:44.610 --> 0:03:49.820 safety net. But their their response to Covid was was uneven. 0:03:49.830 --> 0:03:52.950 There's there's there's quite a bit of literature out there 0:03:52.950 --> 0:03:55.800 and including from from the center for Global Development just 0:03:55.800 --> 0:04:00.420 around you know, some for some countries, you know, disbursements, 0:04:00.420 --> 0:04:05.280 you know, weren't moving particularly fast. The institution for some 0:04:05.280 --> 0:04:07.590 countries was very good on the crisis response and for 0:04:07.590 --> 0:04:11.310 others was less good. And there's also a sense that 0:04:11.310 --> 0:04:15.060 that that the world Bank in particular slightly missed the 0:04:15.060 --> 0:04:18.990 boat on things like Covax, which was a multilateral funding 0:04:18.990 --> 0:04:22.800 for for vaccinations and simply because its own internal rules 0:04:22.800 --> 0:04:27.210 and procedures were too complicated for, for, for to participate. 0:04:27.210 --> 0:04:30.870 And it eventually actually did end up participating. But but 0:04:30.870 --> 0:04:34.229 just this feeling that that the world Bank really wasn't 0:04:34.230 --> 0:04:36.480 equipped for the challenges of the day, and if it 0:04:36.480 --> 0:04:39.000 was kind of missing the boat on the Covid crisis, 0:04:39.000 --> 0:04:41.790 what did that really say about the World Bank's response 0:04:41.790 --> 0:04:43.830 to the climate crisis, which in a lot of ways 0:04:43.830 --> 0:04:47.789 is like a slower, slower brewing Covid crisis, but equally 0:04:47.790 --> 0:04:52.410 as as existential in its nature? Um, and against that backdrop, 0:04:52.800 --> 0:04:56.520 there was also a lot of political changes afoot. Notably, 0:04:56.640 --> 0:04:58.530 you know, I've mentioned the United States quite a bit. 0:04:58.529 --> 0:05:00.210 You can see maybe a little bit of my Washington 0:05:00.210 --> 0:05:03.599 bias as I, as I sit here. But, you know, 0:05:03.600 --> 0:05:07.170 there were big changes in the US political landscape with 0:05:07.170 --> 0:05:11.279 with the election of Joe Biden and really, really sharp 0:05:11.279 --> 0:05:15.929 turn on in terms of foreign policy and economic policy priorities. 0:05:15.930 --> 0:05:19.710 And notably, you had you had an administration that was 0:05:19.710 --> 0:05:22.109 that was after the Trump administration that was coming in 0:05:22.110 --> 0:05:27.270 that really wanted to signal that it was multilateral, um, 0:05:27.420 --> 0:05:31.859 that that it was focused on international issues like foreign 0:05:31.860 --> 0:05:35.339 assistance and that it was also going to embrace the 0:05:35.339 --> 0:05:39.570 climate agenda. And so in a lot of ways, this 0:05:39.570 --> 0:05:42.330 really created a in a lot of ways, the stars 0:05:42.330 --> 0:05:45.029 were aligned for really big focus and a really big 0:05:45.210 --> 0:05:50.220 rethink of of the world Bank and the other MDGs 0:05:50.220 --> 0:05:54.370 by association. So what is what is what is kind 0:05:54.370 --> 0:05:57.490 of the meat? Meat on the bones here. You know, 0:05:57.550 --> 0:05:59.560 think it's a couple of different things, but in a 0:05:59.560 --> 0:06:02.040 lot of ways think, you know, you can this, this, 0:06:02.040 --> 0:06:04.029 this evolution. And we can talk about it a little 0:06:04.029 --> 0:06:06.610 bit further means a lot of different things to a 0:06:06.610 --> 0:06:11.680 lot of different shareholders. And there's not necessarily complete agreement 0:06:12.010 --> 0:06:16.060 amongst shareholders on on where the evolution and reform agenda 0:06:16.060 --> 0:06:18.880 should be, should be headed. But think a couple of 0:06:18.880 --> 0:06:22.089 areas where there is broad consensus and think this is 0:06:22.089 --> 0:06:25.330 the easiest and the hardest is the system is too small. 0:06:25.420 --> 0:06:29.049 The to the extent that the system is, is the 0:06:29.050 --> 0:06:31.870 global safety net and needs to be the source and 0:06:32.110 --> 0:06:35.200 should be the source of a lot of public global investment. 0:06:36.150 --> 0:06:41.760 These together, institutions that are together providing 100, $200 billion 0:06:41.760 --> 0:06:43.740 a year in financing. And that really is a drop 0:06:43.740 --> 0:06:47.010 bucket in the bucket compared to the climate and development 0:06:47.010 --> 0:06:51.990 challenges that a lot of low and middle income countries face. 0:06:52.890 --> 0:06:55.680 So that's that's one piece. The second piece is really 0:06:55.680 --> 0:07:00.390 thinking about how the these institutions can be more flexible 0:07:01.200 --> 0:07:07.950 and in particular, more readily to readily engaged on climate 0:07:07.950 --> 0:07:12.120 finance issues. And that kind of points to one of 0:07:12.120 --> 0:07:14.670 the complexities in these institutions models is that they're really 0:07:14.670 --> 0:07:18.060 demand driven institutions. It's not that the world Bank goes 0:07:18.060 --> 0:07:20.250 to a country and says, we want to invest in 0:07:20.250 --> 0:07:23.920 this project to the contrary, and this is really the 0:07:24.000 --> 0:07:27.360 kind of heart and soul of what distinguishes an MDB 0:07:27.360 --> 0:07:30.600 from a bilateral aid agency, for instance, is is it 0:07:30.600 --> 0:07:33.300 really is the country that originates the project and says, 0:07:33.300 --> 0:07:35.790 this is what we want to borrow for. So if 0:07:35.790 --> 0:07:38.460 there's this, this increasing realization that we live in a 0:07:38.460 --> 0:07:42.540 world where there are all these existential threats, you really 0:07:42.540 --> 0:07:46.410 want to think about how you're incentivizing countries to borrow 0:07:46.800 --> 0:07:54.810 to mitigate these existential threats, whether that's climate pandemic, you know, fragility, 0:07:55.770 --> 0:07:58.340 you know, kind of what's been put under this rubric of, 0:07:58.350 --> 0:08:01.410 of global public goods. And then the third piece, you know, 0:08:01.410 --> 0:08:03.960 and think this is getting a little bit less of 0:08:03.960 --> 0:08:07.440 a focus, but think remains incredibly important, is there is 0:08:07.440 --> 0:08:11.790 this unfinished business of development there? You know, we are 0:08:11.790 --> 0:08:14.640 nowhere out of the woods in terms of, you know, 0:08:15.000 --> 0:08:18.570 eradicating poverty, you know, think, you know, a couple of 0:08:18.570 --> 0:08:22.619 weeks ago, we had the Unga in New York. It 0:08:22.620 --> 0:08:25.920 was very clear how off track the international community is 0:08:25.920 --> 0:08:30.210 on pretty much every single SDG. So just as you're 0:08:30.330 --> 0:08:34.290 reinventing new missions for these institutions, you also have to 0:08:34.650 --> 0:08:37.020 ensure that they're staying in the course on their on 0:08:37.020 --> 0:08:42.630 their original ones. So, you know, that's a lot. So 0:08:42.630 --> 0:08:47.010 what is getting discussed in Marrakesh. And I really do 0:08:47.010 --> 0:08:50.010 want to emphasize think Marrakesh is really kind of the 0:08:50.460 --> 0:08:54.540 beginning and not the end point. One is, you know, these, again, 0:08:54.570 --> 0:08:56.970 are meetings that are particularly focused on the world Bank 0:08:56.970 --> 0:09:01.710 and not the broader system. One is that shareholders in 0:09:01.710 --> 0:09:06.780 the institution have endorsed a larger perspective on what the 0:09:06.780 --> 0:09:12.540 World Bank's mission is. So after many, many months of wordsmithing, 0:09:12.840 --> 0:09:17.040 they've decided to add the bank's original mandate. And the 0:09:17.040 --> 0:09:20.520 mandate is the twin goals of of eradicating poverty and 0:09:20.520 --> 0:09:23.670 boosting shared prosperity. They've they've they've agreed to add to 0:09:23.670 --> 0:09:27.030 a livable planet. So finance ministers who are shareholders in 0:09:27.030 --> 0:09:32.010 the institution are going to be formally endorsing this new mandate. 0:09:32.370 --> 0:09:36.270 So that's the big ticket item. But for many think 0:09:36.270 --> 0:09:38.939 that that simply isn't isn't going to be enough. It's 0:09:38.960 --> 0:09:42.330 it's the opening salvo in a reform process. But but 0:09:42.330 --> 0:09:46.020 a new mandate is in and of itself, not a 0:09:46.020 --> 0:09:46.980 reform agenda. 0:09:48.210 --> 0:09:51.540 Okay, well, putting aside this new mandate, then what do 0:09:51.540 --> 0:09:55.050 you view as the low hanging fruit of the reform agenda? 0:09:55.830 --> 0:09:58.710 I mean, what changes to the development banks do you 0:09:58.710 --> 0:10:02.010 think will be the simplest to implement with the highest impact? 0:10:02.610 --> 0:10:05.340 Well, think maybe maybe kind of going back to the 0:10:05.340 --> 0:10:08.700 financing side. I mean, think one of one of the 0:10:08.700 --> 0:10:14.250 lower hanging fruit is the fact that there was recently 0:10:14.460 --> 0:10:17.850 a report on this is going to sound very dry. 0:10:17.850 --> 0:10:20.850 So listeners, bear with me because I'll make this fun. 0:10:21.300 --> 0:10:26.010 But there was recently a report called the The Calf Report, which, 0:10:26.010 --> 0:10:30.150 which reviewed the capital adequacy frameworks of these institutions. And 0:10:30.150 --> 0:10:34.440 it basically found that most multilateral development banks manage their 0:10:34.440 --> 0:10:39.510 finances very conservatively. And because they manage their finances so conservatively, 0:10:39.510 --> 0:10:44.250 they're potentially holding back a lot of development finance. So 0:10:44.250 --> 0:10:48.240 one of the the interesting perspective that the authors of 0:10:48.240 --> 0:10:50.700 this report took was there were a few small changes 0:10:50.700 --> 0:10:55.920 that these banks can make, changing how they provision for loans, 0:10:55.920 --> 0:11:00.030 changing what's known as their equity to loan ratios, changing 0:11:00.030 --> 0:11:02.490 how they view something called callable capital, which I promise 0:11:02.490 --> 0:11:06.929 I won't get into. But a couple of things like this, 0:11:07.410 --> 0:11:10.440 actually not a couple of pretty sturdy list of things 0:11:10.440 --> 0:11:13.760 could be enough to really unlock quite a bit of financing. 0:11:13.770 --> 0:11:16.830 And so in a lot of ways, you know, this 0:11:16.830 --> 0:11:21.030 calf review and a lot of these findings are very 0:11:21.030 --> 0:11:25.950 easy ways of really increasing the amount of headroom that 0:11:25.950 --> 0:11:29.370 the multilateral development banks can be, then providing as loans 0:11:29.370 --> 0:11:33.240 to their client countries without necessarily having to go to 0:11:33.240 --> 0:11:37.260 shareholders to ask for more cash. The bigger difficulties in 0:11:37.260 --> 0:11:40.560 this reform agenda is everyone wants the institutions to do 0:11:40.559 --> 0:11:44.069 more and to change. But as you know, you know 0:11:44.070 --> 0:11:47.130 very well and everyone in the development finance space knows 0:11:47.130 --> 0:11:50.880 very well this is not a particularly this is not 0:11:50.880 --> 0:11:56.069 a particularly glorious time for general the generosity of bilateral 0:11:56.070 --> 0:12:00.630 donors to especially to multilateral institutions. So, so this, this, 0:12:00.630 --> 0:12:02.790 this capital adequacy review is kind of the way it's 0:12:02.790 --> 0:12:04.560 often described as the bank is, is a way of 0:12:04.559 --> 0:12:07.320 squeezing a little bit more out of the lemon and, 0:12:07.320 --> 0:12:10.050 and think in a lot of ways the institutions really 0:12:10.050 --> 0:12:12.510 have embraced these mean for some it's been a little 0:12:12.540 --> 0:12:15.449 bit too slow to embrace these reforms, but they have 0:12:15.450 --> 0:12:18.540 embraced these reforms and have put forward some pretty, you know, 0:12:18.540 --> 0:12:24.720 not enormous but good consequential new headroom numbers. I think 0:12:24.720 --> 0:12:28.380 the world Bank put out said that, that by implementing 0:12:28.380 --> 0:12:30.170 some of these reforms that could generate an extra 100 0:12:30.170 --> 0:12:33.660 billion over the next ten years. So some, some pretty 0:12:33.660 --> 0:12:39.420 good ambitious numbers linked to the agenda. So, you know, 0:12:39.420 --> 0:12:42.179 and so hopefully that's something that, you know, the the 0:12:42.179 --> 0:12:44.520 momentum on on that side will continue. 0:12:44.880 --> 0:12:47.280 Well very good. Now I would like to talk to 0:12:47.280 --> 0:12:50.189 you about the global public goods or the JRPGs that 0:12:50.190 --> 0:12:54.420 you mentioned earlier. So for our listeners, global public goods 0:12:54.420 --> 0:12:57.690 are goods and resources that benefit everyone. They are non 0:12:57.690 --> 0:13:00.719 excludable so no one can be excluded from using them. 0:13:00.720 --> 0:13:03.809 And they are non rivalrous, meaning that using them doesn't 0:13:03.809 --> 0:13:08.160 actually reduce their availability to others. Example of JRPGs include 0:13:08.160 --> 0:13:13.939 climate change mitigation, communicable disease prevention and global peace and security. Um, 0:13:14.080 --> 0:13:16.329 and the global public goods are, in my mind, at 0:13:16.330 --> 0:13:20.350 the centre of the MDB reform agenda, as the MDGs 0:13:20.350 --> 0:13:23.500 are under pressure to expand and adapt to address global needs, 0:13:23.500 --> 0:13:28.000 including through the provision of those global public goods. Now, 0:13:28.000 --> 0:13:32.200 the problem is that for some developing countries, borrowing for 0:13:32.200 --> 0:13:35.559 GPG programs at the domestic level can be challenging due 0:13:35.559 --> 0:13:40.870 to fiscal constraints, for instance, or different national priorities. And 0:13:40.870 --> 0:13:43.720 so to make these loans more appealing to these countries. 0:13:43.809 --> 0:13:47.110 Institutions like the world Bank may need to actually sweeten 0:13:47.110 --> 0:13:53.110 the deal, often involving subsidies, which translates into increased grant funding. 0:13:53.380 --> 0:13:56.410 But given the limited budget of organisations like the world 0:13:56.410 --> 0:14:01.270 Bank and other MDGs, allocating more grants for climate and 0:14:01.270 --> 0:14:05.830 similar global public goods could actually result in reduced grant 0:14:05.830 --> 0:14:10.120 funding available for other developmental issues. So my question to 0:14:10.120 --> 0:14:13.570 you is this is there a trade off between financing 0:14:13.570 --> 0:14:16.510 for climate and financing for development? 0:14:17.080 --> 0:14:19.630 Yeah. No. Thank you for this question. It's I think 0:14:19.630 --> 0:14:22.390 this question really just cuts right to the heart of 0:14:22.390 --> 0:14:25.600 the matter and right into the really where a lot 0:14:25.600 --> 0:14:27.790 of the the traffic jam is right now in a 0:14:27.790 --> 0:14:30.550 lot of ways, in terms of the reform agenda and 0:14:30.550 --> 0:14:33.340 in particular, I was making, you know, earlier this point 0:14:33.340 --> 0:14:37.960 around the fact that these organisations are demand driven organisations. 0:14:38.470 --> 0:14:41.710 So the question then becomes, well, how do you incentivise 0:14:41.710 --> 0:14:45.280 countries to want to do things differently and to borrow 0:14:45.280 --> 0:14:49.350 for different kinds of programs? But as you said, the 0:14:49.720 --> 0:14:51.970 it's hard to get countries to want to borrow for 0:14:51.980 --> 0:14:58.540 JPGs because you are basically taking out resources. Borrowing money 0:14:58.540 --> 0:15:03.190 for a project that does not necessarily generate or generally 0:15:03.190 --> 0:15:06.810 does not generate a cash flow. And for which you 0:15:06.810 --> 0:15:09.750 as a as a nation, may not be capturing the 0:15:09.750 --> 0:15:13.820 benefits of the project. And so there's a really core, 0:15:13.830 --> 0:15:19.080 really systemic change here in thinking and in models that 0:15:19.080 --> 0:15:21.840 the MDGs need to embrace if they're going to move 0:15:21.840 --> 0:15:26.000 towards this agenda. But as you also pointed out and 0:15:26.010 --> 0:15:29.550 think this is another element of real tension and negotiation 0:15:29.550 --> 0:15:34.500 and debate right now, is that the logical path towards 0:15:34.500 --> 0:15:39.150 financing more JRPGs is therefore not necessarily to finance them 0:15:39.150 --> 0:15:45.359 through loans, but to really use grants much more systematically, 0:15:45.420 --> 0:15:49.020 either to concessional loans to cheapen the terms of the 0:15:49.020 --> 0:15:52.440 loans or actually just pure grants to finance some of 0:15:52.440 --> 0:15:57.870 these projects. And then that creates a real trade off, 0:15:58.080 --> 0:16:01.650 because if you need to fundraise for grants and you're 0:16:01.650 --> 0:16:05.100 also needing to fundraise for your concessional lending windows for 0:16:05.100 --> 0:16:08.880 your for course countries, you create a trade off when 0:16:08.880 --> 0:16:11.550 a donor says, okay, well, do I give my dollar 0:16:11.550 --> 0:16:14.250 to help fight poverty in the lowest income countries? Or 0:16:14.250 --> 0:16:20.700 do I give my dollar to finance global public good 0:16:21.060 --> 0:16:25.530 that benefits everyone equally? And there's also an added element 0:16:25.530 --> 0:16:28.170 in the politics of climate change. Come in. Here is 0:16:28.170 --> 0:16:30.900 a lot of countries are saying to the rich countries 0:16:31.140 --> 0:16:35.070 at these institutions, as you're imposing this global public good 0:16:35.460 --> 0:16:39.480 agenda on us, but you, because of how you grew 0:16:39.480 --> 0:16:43.830 and how you prospered, created the global public bad that 0:16:43.830 --> 0:16:47.400 now you are using development resources to try to mitigate. 0:16:47.550 --> 0:16:51.090 And so there's there we're currently in a moment where 0:16:51.090 --> 0:16:55.920 there's a tremendous amount of debate, but also, I would 0:16:55.920 --> 0:17:01.920 say distrust within the system around, you know, the intentions 0:17:01.920 --> 0:17:04.500 of a lot of the advanced economies that are that 0:17:04.500 --> 0:17:06.720 are really pushing for these reforms of saying, you know, 0:17:06.720 --> 0:17:10.919 you're you're really using a dollars towards purposes that really 0:17:10.920 --> 0:17:16.140 aren't necessarily particularly aid related. They're very self-interested. So as 0:17:16.140 --> 0:17:19.890 a result, you know, there really isn't right now a 0:17:19.890 --> 0:17:24.780 very clear offer for how it is that these institutions 0:17:24.780 --> 0:17:29.790 will finance JRPGs. The has a small fund on its 0:17:29.790 --> 0:17:32.820 balance sheet called the fund, which was set up a 0:17:32.820 --> 0:17:37.230 couple of, I think, in 2018. And it's financed mainly 0:17:37.230 --> 0:17:40.560 through through net income. So that's the profit that the 0:17:40.560 --> 0:17:44.369 organization makes. Some of its profit goes into financing this fund. 0:17:44.369 --> 0:17:46.859 But it's it's very small. Think it's not more than 0:17:46.859 --> 0:17:51.180 100 $100 million has gone into this. There are some 0:17:51.180 --> 0:17:56.580 proposals out there to create an entirely new window that 0:17:56.580 --> 0:18:03.119 would be completely financed, separate from the again, but by donors, 0:18:03.119 --> 0:18:06.689 and that those proposals create that new window, invite the 0:18:06.690 --> 0:18:10.680 kind of criticism that I that I presented earlier. Um, 0:18:10.859 --> 0:18:13.950 and then there are there is some interest in, in, 0:18:14.550 --> 0:18:18.209 in figuring out some other slightly more innovative quote unquote 0:18:18.210 --> 0:18:25.020 mechanisms to fund JRPGs. Um, you know, through, you know, guarantees, 0:18:25.020 --> 0:18:27.449 maybe things like debt for nature swaps. I'm again, a 0:18:27.450 --> 0:18:31.380 little bit more skeptical of the financial innovation around some 0:18:31.380 --> 0:18:34.110 of these things because I kind of, you know, you 0:18:34.109 --> 0:18:35.760 kind of have to go back to, you know, at 0:18:35.760 --> 0:18:38.430 its core, what is it? You know, it really is 0:18:38.430 --> 0:18:41.520 something where there's not a cash flow associated with it. 0:18:41.520 --> 0:18:44.970 I don't necessarily think, for instance, a solar farm in 0:18:44.970 --> 0:18:47.250 its pure sense of the terms is a global public good. 0:18:47.280 --> 0:18:50.910 I mean, that's a project that's economically viable generally with 0:18:50.910 --> 0:18:54.450 a cash flow that creates a return. I think much 0:18:54.450 --> 0:18:57.750 more of a is like telling a country, don't, you know, 0:18:57.750 --> 0:19:02.310 preserve your preserve your rainforest. Um, you know, there's not 0:19:02.310 --> 0:19:04.770 a cash flow really that's associated with that. But the 0:19:04.770 --> 0:19:12.210 benefits of us, the world having the Amazon rainforest are tremendous. Um, so, 0:19:12.210 --> 0:19:14.669 you know, think right now this is, you know, and 0:19:14.670 --> 0:19:16.169 this is why said this question is the heart of 0:19:16.170 --> 0:19:18.330 the matter is this is one of the impasses that 0:19:18.330 --> 0:19:22.260 we currently find ourselves in, on, on, on this kind 0:19:22.260 --> 0:19:25.500 of broader reform agenda around JRPGs. And, you know, it 0:19:25.500 --> 0:19:29.010 will be interesting to see where this comes out. But 0:19:29.010 --> 0:19:34.260 part of where this I don't see a successful road 0:19:34.590 --> 0:19:40.890 towards a focused MDB without much more grant resources. And 0:19:40.890 --> 0:19:43.650 I struggle with whether or not that is a politically 0:19:43.650 --> 0:19:46.620 realistic proposition in the day and age in which we are. 0:19:46.740 --> 0:19:49.470 All right. Well, just to rebound on this example of 0:19:49.470 --> 0:19:52.890 the solar farm, you mentioned that you don't necessarily see 0:19:52.890 --> 0:19:55.229 it as a global public good, but actually, don't you 0:19:55.230 --> 0:19:58.770 think it really depends on where this project is being implemented? 0:19:59.790 --> 0:20:02.429 For instance, you know, a small solar farm in the 0:20:02.430 --> 0:20:05.250 Pacific might not necessarily have a similar impact to. A 0:20:05.250 --> 0:20:09.180 large scale one in Indonesia. Indonesia is a much larger 0:20:09.180 --> 0:20:13.190 theater emitter than Fiji. So what underlies the argument that 0:20:13.200 --> 0:20:16.859 a solar farm in Indonesia isn't necessarily considered a global 0:20:16.859 --> 0:20:20.850 public good, despite its potential to significantly reduce global emissions? 0:20:21.590 --> 0:20:25.699 Yeah. Mean think think. It has components, especially if you 0:20:25.700 --> 0:20:30.080 can say the solar farm, you know, displaced a dirtier 0:20:30.350 --> 0:20:34.010 form of energy and think you can say there there 0:20:34.010 --> 0:20:38.570 are aspects that investment, but think in the purest term 0:20:38.570 --> 0:20:44.000 of the sense of what A is, I, I don't 0:20:44.000 --> 0:20:47.090 think it fully enters that box. And, and in particular, 0:20:47.090 --> 0:20:51.380 when you're thinking about this framework of, you know, grant financing, 0:20:51.380 --> 0:20:55.010 there are a lot of countries that borrow from the 0:20:55.010 --> 0:20:59.720 world Bank for solar. Let's stay with this example where 0:20:59.720 --> 0:21:04.280 these are very economically viable investments for the country. Now 0:21:04.280 --> 0:21:06.650 they have the added benefit. And this is the added 0:21:06.650 --> 0:21:10.490 benefit of renewables, of being good for the world. Right. 0:21:11.030 --> 0:21:17.490 But they are also economically. The country also reaps the 0:21:17.490 --> 0:21:21.929 economic advantage of that project and think this in a 0:21:21.930 --> 0:21:24.030 lot of ways. And this is this is, you know, 0:21:24.030 --> 0:21:26.430 you know, an interesting point you make is, is one 0:21:26.430 --> 0:21:29.280 of the approaches the bank is, is trying to take 0:21:29.280 --> 0:21:32.220 of kind of saying, you know, there aren't that many 0:21:32.220 --> 0:21:38.760 projects that in their purest, pure sense, RPGs. So let's 0:21:38.760 --> 0:21:42.030 think of ways that we can do a national project. 0:21:43.060 --> 0:21:47.710 And include a type component. So I'm going to wade 0:21:47.710 --> 0:21:51.010 into territory in which I'm not an expert. But, you know, 0:21:51.190 --> 0:21:54.100 my health colleagues would say, you know, you could think 0:21:54.100 --> 0:21:55.960 about this in the health sector of, you know, if 0:21:55.960 --> 0:21:59.800 the world Bank is doing a big health sector investment 0:21:59.800 --> 0:22:04.180 in a country to also have a component on that that's, 0:22:04.180 --> 0:22:08.290 you know, prevention focused, or maybe it's a prevention focused 0:22:08.290 --> 0:22:11.680 component that's linking into some sort of a regional prevent 0:22:11.680 --> 0:22:16.000 supervision network. And so you then have had this, this 0:22:16.000 --> 0:22:20.680 project that has strong national benefits and for which that 0:22:20.680 --> 0:22:23.169 makes absolute sense for the country to kind of finance 0:22:23.170 --> 0:22:25.750 and use its Ida allocation or its world Bank allocation 0:22:25.750 --> 0:22:29.380 to borrow from. But there's also a little layer of 0:22:29.380 --> 0:22:33.880 this project on top that has a regional or a 0:22:33.880 --> 0:22:41.139 slightly more global component, and that sits much more naturally 0:22:41.350 --> 0:22:45.159 within the world Bank MDB type model. 0:22:46.020 --> 0:22:49.080 Well. Well that's interesting. You know, at the institute, we 0:22:49.080 --> 0:22:51.780 do have some projects tracing what we call climate development 0:22:51.780 --> 0:22:55.020 finance in Southeast Asia and in the Pacific. And what 0:22:55.020 --> 0:22:58.230 we found is that sometimes what constitutes a climate adaptation 0:22:58.230 --> 0:23:01.440 and mitigation projects can actually vary from one development partners 0:23:01.440 --> 0:23:04.950 to the next. There's quite a bit of inconsistency which 0:23:04.950 --> 0:23:09.179 makes the quantification of climate development finance challenging. And so 0:23:09.180 --> 0:23:10.830 listening to you make me think that, you know, we 0:23:10.830 --> 0:23:14.100 might face the same problems with global public goods in 0:23:14.100 --> 0:23:16.770 the future. And so I really hope that standards of 0:23:16.770 --> 0:23:19.800 transparency will be improved across the board in the future. 0:23:19.800 --> 0:23:24.210 But that's that's another issue. Look, earlier you talked about 0:23:24.210 --> 0:23:27.450 the fact that the world Bank and other MDGs are 0:23:27.450 --> 0:23:31.440 demand driven. But what we've seen is that for many countries, 0:23:31.560 --> 0:23:35.070 borrowing for from MDGs can be a complex and actually 0:23:35.070 --> 0:23:40.830 resource intensive exercise which sometimes discourage borrowers. For instance, infrastructure 0:23:40.830 --> 0:23:43.020 lending can be complex to navigate. You know, MDB is 0:23:43.020 --> 0:23:47.340 applying stringent environmental and social safeguards, which, you know, play 0:23:47.340 --> 0:23:51.540 a critical role in protecting vulnerable groups and environments. But 0:23:51.540 --> 0:23:55.740 they often fail to provide the time and financial resources needed. 0:23:55.859 --> 0:24:00.060 So how can we improve the demand for MDB financing, 0:24:00.060 --> 0:24:03.020 making them more cost effective with maybe less red tape, 0:24:03.030 --> 0:24:06.360 but at the same time ensuring the high quality of 0:24:06.359 --> 0:24:07.139 those funding? 0:24:08.160 --> 0:24:11.170 Yeah. This is this is a fascinating question and I. 0:24:12.070 --> 0:24:15.129 I think you're seeing this, this play out in a 0:24:15.130 --> 0:24:19.910 lot of different contexts. A lot of countries prefer to 0:24:19.910 --> 0:24:25.280 go to China to borrow for infrastructure projects, though, that 0:24:25.280 --> 0:24:30.310 type of borrowing seems to be going down. But they're faster, 0:24:30.320 --> 0:24:34.280 less strings attached. For a country know you're operating in 0:24:34.280 --> 0:24:37.429 real time and and you you want to have a 0:24:37.430 --> 0:24:42.050 project built not in geological time, but in real, actual 0:24:42.050 --> 0:24:47.510 human time. And, you know, another another example of this is, 0:24:47.510 --> 0:24:51.080 you know, we especially, you know, during Covid saw a 0:24:51.080 --> 0:24:56.060 lot of countries going to the bond markets for emergency financing, 0:24:56.060 --> 0:24:59.359 even if, you know, spreads were, you know, 300 basis 0:24:59.359 --> 0:25:01.669 points over what they could have been getting from the 0:25:01.670 --> 0:25:05.120 world Bank. And again, it's, you know, that's just faster money. 0:25:05.119 --> 0:25:08.359 And countries seem very much it's, you know, with certain 0:25:08.359 --> 0:25:10.879 countries at certain moments in time, seem very willing to 0:25:10.880 --> 0:25:15.740 pay extra for faster money with fewer strings attached. I 0:25:15.740 --> 0:25:19.550 think this is actually a problem that is not gone unnoticed. 0:25:20.430 --> 0:25:23.580 And it was interesting. AJ Banga, who was the new 0:25:23.580 --> 0:25:26.970 president of the world Bank, was recently at the Council 0:25:26.970 --> 0:25:30.290 for Foreign Relations, which is another US based think tank. 0:25:30.300 --> 0:25:33.350 And at the end someone asked him what? What are 0:25:33.390 --> 0:25:35.760 what is your big priority for the institution? And one 0:25:35.760 --> 0:25:37.080 of the things he said is I want to fix 0:25:37.080 --> 0:25:41.490 the plumbing, which doesn't sound particularly glorious until you really 0:25:41.490 --> 0:25:45.930 actually think, you know, moving, moving things forward and faster 0:25:45.930 --> 0:25:51.120 is is in itself a really important part of development. 0:25:52.230 --> 0:25:56.750 And the organization in a lot of ways, especially, you know, 0:25:56.760 --> 0:25:59.159 especially the world Bank is under a lot of pressure 0:25:59.160 --> 0:26:05.190 to adhere to very strong safeguard standards and standards, which are, 0:26:05.190 --> 0:26:08.550 you know, obviously important and obviously kind of how part, 0:26:08.550 --> 0:26:10.949 you know, part and parcel of the model that the 0:26:10.950 --> 0:26:15.090 world Bank offers that differs from China and may make 0:26:15.090 --> 0:26:17.970 world Bank financing more sustainable than China financing over the 0:26:17.970 --> 0:26:22.619 longer term, that's a whole different podcast, but you really 0:26:22.619 --> 0:26:24.149 need to think of a way of how do you 0:26:24.150 --> 0:26:28.770 reconcile these high standards with moving, moving forward faster, because 0:26:28.770 --> 0:26:32.790 this is clearly part of what client countries are demanding 0:26:32.790 --> 0:26:35.520 from the institution. And it's and it's quite frankly, I 0:26:35.580 --> 0:26:38.430 think it's very encouraging to have a world Bank president who's, 0:26:38.430 --> 0:26:43.500 who's talking about this early on in the presidency. We'll see. 0:26:43.500 --> 0:26:46.200 You know, a lot of this, you know, is going 0:26:46.200 --> 0:26:49.770 to be very political to unlock. But, you know, there's 0:26:50.280 --> 0:26:52.169 I think this is you know, you were asking a 0:26:52.170 --> 0:26:54.090 little bit earlier about low hanging fruit. I do think 0:26:54.090 --> 0:26:56.940 there are there are elements here of that that that 0:26:56.940 --> 0:26:59.580 just can be advanced a lot faster. And I'll just 0:26:59.580 --> 0:27:05.609 say one one more thing. Um, during during the Covid crisis, 0:27:06.119 --> 0:27:08.550 a colleague and I did did a little bit of 0:27:08.550 --> 0:27:11.550 a piece of research on world Bank budget support operations 0:27:11.550 --> 0:27:15.960 and budgets. World. The MDGs basically provide two main kinds 0:27:15.960 --> 0:27:20.880 of programs. One is projects based financing and the other 0:27:20.880 --> 0:27:24.780 one is just unrestricted financing for a country's country's budget. 0:27:24.780 --> 0:27:28.830 And budget support tends to have policy conditionality. And we 0:27:28.830 --> 0:27:32.160 went through all the different budget support operations during Covid 0:27:32.160 --> 0:27:36.000 and found that operations were full of policy conditionality that 0:27:36.000 --> 0:27:38.910 had nothing to do with the Covid crisis. And that 0:27:38.910 --> 0:27:43.380 just seems like an enormous, again, missed opportunity, right? I mean, 0:27:43.380 --> 0:27:48.810 you don't you don't want to be forcing countries to 0:27:48.810 --> 0:27:53.400 do all of these complicated things in an emergency. The 0:27:53.400 --> 0:27:58.680 complicated things are for another moment in time. So again, 0:27:58.770 --> 0:28:00.629 think this, this kind of thing needs to be part 0:28:00.630 --> 0:28:02.520 of the rethink of the plumbing. 0:28:03.119 --> 0:28:05.880 Okay. Well just to rebound on this comments on on 0:28:05.880 --> 0:28:09.480 budget support. During the pandemic, we've seen a resurgence of 0:28:09.480 --> 0:28:12.600 the use of direct budget support in the Pacific as 0:28:12.600 --> 0:28:16.050 a swift way for development partners to provide emergency financing 0:28:16.050 --> 0:28:18.629 to those countries in the in the region at a 0:28:18.630 --> 0:28:22.170 time where international borders were closed and travel was restricted. 0:28:22.770 --> 0:28:25.770 And now today, most Pacific Island countries are actually facing 0:28:25.770 --> 0:28:29.760 high risk of distress, according to the IMF. Yet our 0:28:29.760 --> 0:28:31.950 analysis of early numbers show that the use of budget 0:28:31.950 --> 0:28:33.930 support is here to stay. So how do we make 0:28:33.930 --> 0:28:36.990 sure that we continue to use budget support, which actually 0:28:36.990 --> 0:28:41.070 provides quick and in the case of the Pacific, concessional financing, 0:28:41.250 --> 0:28:44.910 while also considering the debt sustainability issue in the Pacific, 0:28:44.910 --> 0:28:46.770 but also in the broader developing world. 0:28:47.870 --> 0:28:52.310 Yeah. No. And that's a very. It's very timely question to. 0:28:52.370 --> 0:28:56.300 Mean one of the things about how the world Bank 0:28:56.300 --> 0:29:00.830 and MDPs provide financing to lower income countries. And this is, 0:29:00.830 --> 0:29:04.580 I think, one of their real strengths and why they're very, 0:29:06.350 --> 0:29:09.290 very reliable partner for a lot of these countries is 0:29:09.290 --> 0:29:14.080 when these countries enter into what's called high distress. All 0:29:14.080 --> 0:29:18.820 of their loans automatically switch to grants. So the idea 0:29:18.820 --> 0:29:23.590 behind this is that the MDB should not be contributing 0:29:23.620 --> 0:29:30.160 to the country's debt distressed position. One of the weaknesses here, though, 0:29:30.160 --> 0:29:36.040 is that doesn't mean even though Ida can start providing 0:29:36.040 --> 0:29:40.420 as grants which come with a cost because grants at 0:29:40.420 --> 0:29:42.130 the end of the day do decrease the amount of 0:29:42.130 --> 0:29:45.640 volume over time that you can obtain. It doesn't necessarily 0:29:45.640 --> 0:29:49.120 mean that the country has to pursue grant financing from 0:29:49.120 --> 0:29:54.250 all of their creditors. So it creates this, this, this 0:29:54.250 --> 0:29:59.350 strange situation sometimes where a country is simultaneously getting its 0:29:59.350 --> 0:30:01.720 money from Ida in the form of grants, but also, 0:30:01.720 --> 0:30:07.920 you know, issuing Eurobond Eurobonds that, you know, 10%. And 0:30:07.980 --> 0:30:10.630 and and I do think this is this is something 0:30:10.630 --> 0:30:13.510 where there is an opportunity for, for a little bit 0:30:13.510 --> 0:30:16.690 of a rethink is, is, you know, what is what 0:30:16.690 --> 0:30:20.890 is Ida's role and not just itself being responsible lender. 0:30:21.970 --> 0:30:25.870 But have helped a bit of encouraging countries to kind of, 0:30:25.870 --> 0:30:29.980 once they've flipped into that high debt distress territory where, 0:30:29.980 --> 0:30:34.660 you know, their debt is no longer on a sustainable path. 0:30:35.080 --> 0:30:37.750 How does that also change their relationship with with the 0:30:38.230 --> 0:30:41.230 rest of the creditors? And and this isn't really fully 0:30:41.230 --> 0:30:45.970 something that has been been worked out. The institutions have, 0:30:45.970 --> 0:30:48.550 you know, both the IMF and world Bank have rules 0:30:48.550 --> 0:30:51.340 that are supposed to limit how much non-concessional debt a 0:30:51.340 --> 0:30:55.090 country can take out. They also have little carrots and 0:30:55.090 --> 0:30:58.420 sticks that can either penalize a country if it goes 0:30:58.420 --> 0:31:02.680 beyond its non-concessional lending headroom. But think these carrots and 0:31:03.070 --> 0:31:08.710 sticks in particular are actually pretty. Not not necessarily as 0:31:08.710 --> 0:31:12.700 as effective as as they could be. But, you know, 0:31:12.700 --> 0:31:15.700 in a lot of ways, I do think, you know, 0:31:16.420 --> 0:31:18.880 we are, you know, in terms of debt, really seeing 0:31:18.880 --> 0:31:23.110 a breakdown in terms of how creditors cooperate and in 0:31:23.110 --> 0:31:25.510 terms of multilateralism. And one of the things that I, 0:31:25.510 --> 0:31:30.250 you know, would really love to see amongst major creditors, 0:31:30.250 --> 0:31:33.070 especially like let's put the commercial creditors aside because this 0:31:33.070 --> 0:31:35.560 isn't going to happen, but, you know, official creditors, so 0:31:35.560 --> 0:31:40.180 multilateral and bilateral is just an agreement to follow the 0:31:40.180 --> 0:31:42.610 Ida rules. Once a country has gone into high levels 0:31:42.610 --> 0:31:45.370 of debt distress, the automatic rule is that should be 0:31:45.370 --> 0:31:46.530 triggering grants. 0:31:46.540 --> 0:31:49.750 Well, that's a great idea actually, and would definitely help 0:31:49.750 --> 0:31:53.560 making the current high debt situation in developing countries more manageable. Thanks. 0:31:53.560 --> 0:31:58.540 Thanks for sharing. Now, you mentioned China in your previous answer. 0:31:58.540 --> 0:32:00.880 And so I'd like to ask you about the impact 0:32:00.880 --> 0:32:05.560 of the US-China competition in the context of reforms. Both 0:32:05.560 --> 0:32:08.590 countries compete not only economically but also in the area 0:32:08.590 --> 0:32:11.920 of development finance. In the world Bank, for instance, the 0:32:11.920 --> 0:32:15.850 United States is the largest shareholders in China is the 0:32:15.850 --> 0:32:18.550 rising number two, but also the major borrowers and in 0:32:18.550 --> 0:32:23.230 turn the largest voice for the bank's borrowers. And so 0:32:23.230 --> 0:32:26.650 the deteriorating bilateral relationship between the United States and China 0:32:26.650 --> 0:32:30.180 poses a threat to the governance of the bank. In 0:32:30.180 --> 0:32:35.070 this context, do you think the US-China competition make makes 0:32:35.070 --> 0:32:39.390 the broader MDB reforms impossible? And if this is the case, 0:32:39.390 --> 0:32:42.300 what action should be taken by both parties to address 0:32:42.300 --> 0:32:43.680 the situation effectively? 0:32:44.130 --> 0:32:48.640 Yeah, that's that's a. That's an intense question, and I'm 0:32:48.640 --> 0:32:51.459 going to answer you very bluntly, is I think the 0:32:51.460 --> 0:32:56.680 biggest risk for a successful reform agenda is actually the 0:32:56.680 --> 0:33:00.940 state of the relationship. As you said, the bilateral relationship 0:33:01.030 --> 0:33:07.160 is not good. And in previous iterations of the relationship 0:33:08.030 --> 0:33:12.650 when it had been better. US-China cooperation were really an 0:33:12.650 --> 0:33:17.180 important motor, especially for the world Bank. And and you 0:33:17.180 --> 0:33:24.880 really saw China. Especially in the context of of Ida replenishment. 0:33:24.890 --> 0:33:29.450 China really stepping up increasingly as a more and more 0:33:29.450 --> 0:33:33.620 important source of grant financing for for a lot of 0:33:33.620 --> 0:33:37.730 the concessional windows. So so there really did seem to 0:33:37.730 --> 0:33:40.370 be on the part of a willingness. And this was 0:33:40.370 --> 0:33:43.580 this was much more prevalent under the Obama administration, a 0:33:43.580 --> 0:33:48.740 willingness to bring China into these international institutions. And then 0:33:48.740 --> 0:33:53.630 China wanted to act as a good participant in these institutions. 0:33:53.630 --> 0:33:56.990 And and that, you know, was was, I think, a 0:33:56.990 --> 0:34:01.640 really important motor for the world, frankly, that has stopped. 0:34:02.060 --> 0:34:06.800 The two countries are not seeking cooperation and coordination on 0:34:06.800 --> 0:34:10.850 on reform the way they were there. That level of 0:34:10.850 --> 0:34:14.600 partnership just does not seem to be there anymore and 0:34:14.630 --> 0:34:18.770 think that is that is a big risk for the institutions, frankly, 0:34:18.770 --> 0:34:21.020 think it's a big risk for the world. You know, 0:34:21.020 --> 0:34:22.880 I mean, we are talking about global public goods and 0:34:22.880 --> 0:34:25.819 climate change and all of these things that require collective action. 0:34:25.820 --> 0:34:28.759 And if the two largest global economies don't see eye 0:34:28.790 --> 0:34:32.359 to eye on these issues or aren't willing to cooperate 0:34:32.360 --> 0:34:34.850 on them, I just don't see how we can hope 0:34:34.850 --> 0:34:38.149 to really solve them in the swift and effective way 0:34:38.150 --> 0:34:42.169 we need to. Now, more specifically on on the world 0:34:42.170 --> 0:34:46.010 Bank side, one of the issues that I was mentioning 0:34:46.010 --> 0:34:50.180 earlier was, was funding and how important thought funding was. 0:34:51.130 --> 0:34:54.910 So the historically world Bank and this is the so 0:34:54.910 --> 0:34:57.189 that part of the world Bank that lends to middle 0:34:57.190 --> 0:35:00.760 income countries is funded through capital increases. And generally what 0:35:00.760 --> 0:35:04.360 happens is during a capital increase, there's there's a shareholder realignment. 0:35:04.360 --> 0:35:07.810 So you look at a country's shareholding and then you decide, okay, 0:35:07.810 --> 0:35:10.930 based on the World Bank's shareholding formula, or are they overweight, 0:35:10.930 --> 0:35:15.609 underweight and the latest shareholding exercise that has shown that 0:35:15.610 --> 0:35:19.239 China's China is really underweight at the world Bank, it's 0:35:19.239 --> 0:35:21.640 currently the third largest shareholder. It should be the second 0:35:21.640 --> 0:35:24.460 largest shareholder, which would allow it, which would actually allow 0:35:24.460 --> 0:35:28.569 it to overtake Japan. So there's huge there's huge geopolitical 0:35:28.570 --> 0:35:33.410 implications here. I think one of the reasons for which 0:35:33.410 --> 0:35:36.170 the US has been reluctant to pursue a capital increase 0:35:36.170 --> 0:35:40.920 negotiation in the context of this reform agenda. So it 0:35:41.000 --> 0:35:45.380 has really been reluctant to talk about financing or growing 0:35:45.380 --> 0:35:49.040 the institution through a capital increase. Is is because they're 0:35:49.040 --> 0:35:53.030 afraid of this can of worms that a shareholder realignment 0:35:53.060 --> 0:35:57.229 opens up. And I think that's I think that's frankly, 0:35:57.560 --> 0:36:00.590 you know, very unfortunate. I think it's very unfortunate for, 0:36:00.590 --> 0:36:03.650 for the institution because I do think, you know, there 0:36:03.650 --> 0:36:05.120 are a lot of different you know, we talked about 0:36:05.120 --> 0:36:07.070 the CAF reforms and we you know, there are a 0:36:07.070 --> 0:36:09.500 lot of different ways that you can grow a balance sheet. 0:36:09.500 --> 0:36:13.430 But the most tried and trusted in effective way is 0:36:13.430 --> 0:36:16.759 through capital. So, you know, and so think in a 0:36:16.760 --> 0:36:19.430 lot of ways that leaves the organization at a little 0:36:19.430 --> 0:36:22.910 bit of an impasse, because there's not unity of vision 0:36:22.910 --> 0:36:27.169 amongst China and the United States towards where these negotiations 0:36:27.170 --> 0:36:29.330 and where the reform agenda should be heading in terms 0:36:29.330 --> 0:36:33.680 of policy. But there's also a huge disunity in terms 0:36:33.680 --> 0:36:38.840 of how do you financially grow the organization. And that 0:36:38.840 --> 0:36:41.540 just unity, as I was saying, is, you know, there's 0:36:41.540 --> 0:36:46.400 a lot of geo complex geopolitical linkages there. So I, 0:36:46.400 --> 0:36:49.490 I am not optimistic on on this front. 0:36:50.469 --> 0:36:52.930 All right. Well, now I would like to talk about 0:36:52.930 --> 0:36:56.560 the billions to trillions concept. The billions to trillions concept 0:36:56.560 --> 0:36:59.800 was first introduced at the third International Conference on Financing 0:36:59.800 --> 0:37:03.400 for Development in Addis Ababa in 2015. The idea is 0:37:03.400 --> 0:37:07.060 basically that billions of multilateral finance and official development assistance 0:37:07.060 --> 0:37:10.779 should be used to mobilize trillions of private investments for 0:37:10.780 --> 0:37:14.650 climate and development. But even though AJ Banga, the new 0:37:14.650 --> 0:37:18.130 world Bank president, seems to be very enthusiastic about encouraging 0:37:18.130 --> 0:37:22.180 private capital to contribute to development, progress in that regard 0:37:22.180 --> 0:37:25.299 has been limited so far. So what are your thoughts 0:37:25.300 --> 0:37:28.480 on the potential for this to happen, and what strategies 0:37:28.480 --> 0:37:30.520 can be employed to achieve this? 0:37:31.210 --> 0:37:34.750 Yeah, the built in the billions to trillions agenda. You know, 0:37:34.750 --> 0:37:37.150 one of one of the ideas animating that was really, 0:37:37.150 --> 0:37:42.740 you know, $1. In development finance and public finance can 0:37:42.739 --> 0:37:47.299 mobilise about $10 in private finance, which is just an 0:37:47.300 --> 0:37:52.250 enormous ratio. The latest numbers that I've seen is at 0:37:52.250 --> 0:37:55.850 best we're on. We're at 1 to 1. More generally 0:37:55.910 --> 0:37:59.430 think it's about 1 to 0.7. So so the billions 0:37:59.430 --> 0:38:03.859 to trillions agenda has not has not materialised. And there 0:38:03.860 --> 0:38:05.690 isn't a lot of focus on it. It's been it's 0:38:05.690 --> 0:38:11.450 been re renamed as private capital mobilisation now. And it's 0:38:11.450 --> 0:38:14.630 very clearly a priority of of of the new world 0:38:14.630 --> 0:38:19.210 Bank president. He's created a lab focus specifically on this 0:38:19.239 --> 0:38:23.960 this issue with a lot of eminent private sector representatives. 0:38:24.950 --> 0:38:29.810 You know. I'm of two minds, frankly, on this gender. 0:38:30.170 --> 0:38:33.170 I think, you know, from a political perspective. Think the billions, 0:38:33.170 --> 0:38:36.200 trillions agenda was a little bit of a of a 0:38:36.200 --> 0:38:39.560 donor agenda saying, you know, we need all this money 0:38:39.830 --> 0:38:43.549 for the world. There are huge challenges, but we aren't 0:38:43.550 --> 0:38:47.480 really fully going to pay for it. And ergo, let's 0:38:47.480 --> 0:38:52.610 kind of create this, you know, self-fulfilling prophecy that our 0:38:52.610 --> 0:38:56.180 dollars can really stretch and bring in, bring in all 0:38:56.180 --> 0:38:57.380 of this private capital. 0:38:58.540 --> 0:38:59.259 And. 0:39:00.020 --> 0:39:01.940 And I think that in a lot of ways has 0:39:01.940 --> 0:39:04.880 done a lot of damage, because a lot of countries, 0:39:04.880 --> 0:39:06.980 you know, especially a lot of developing countries, kind of 0:39:06.980 --> 0:39:10.290 look back and say. Where is it? Where did it come? 0:39:10.290 --> 0:39:14.610 Where what? What happened? And and so, you know, think 0:39:14.610 --> 0:39:19.320 part of the let's call billions of trillions 2.0 private 0:39:19.320 --> 0:39:23.330 capital mobilization. Sorry for the acronym. Is to really think 0:39:23.330 --> 0:39:27.320 about this in the context of much more anchored targets. 0:39:27.989 --> 0:39:31.969 I think that 1 to 10 ratio is a little bit. 0:39:32.790 --> 0:39:37.500 You know, unrealistic. So let's ground this conversation in more 0:39:37.500 --> 0:39:42.089 realistic terms. So think that's that's a first start. And 0:39:42.090 --> 0:39:45.629 you know of course you know you know think there's 0:39:45.630 --> 0:39:47.489 a big actually. And this allows me to say this 0:39:47.489 --> 0:39:49.500 is think, you know, one of one of the pieces 0:39:49.500 --> 0:39:51.690 that's a little bit overlooked when you look at some 0:39:51.690 --> 0:39:54.299 of the literature that's come out around the evolution roadmap, 0:39:54.300 --> 0:39:57.000 is there's not so much discussion of the IFC and 0:39:57.000 --> 0:40:00.330 of Miga, and these are the private sector financing arms 0:40:00.510 --> 0:40:04.820 of the world Bank. But there's also an interesting question 0:40:04.820 --> 0:40:08.960 about financing instruments. We've been talking throughout this entire conversation 0:40:08.960 --> 0:40:12.440 about loans and grants, but there are other kinds of 0:40:12.440 --> 0:40:16.580 instruments that these MDGs provide, for instance, guarantees. And when 0:40:16.580 --> 0:40:21.500 you go back to the articles of agreement of, of the, 0:40:22.010 --> 0:40:25.700 for instance, the international Bank for Reconstruction and Development, they 0:40:25.700 --> 0:40:28.520 were really intended to be an institution that was mainly 0:40:28.520 --> 0:40:35.180 providing guarantees, and guarantees are much more effective at leveraging 0:40:35.390 --> 0:40:39.710 private finance than loans are. So one of the points 0:40:39.710 --> 0:40:41.810 that I'm really making is that, you know, if you 0:40:41.810 --> 0:40:45.589 really want to kind of focus on, you know, getting 0:40:45.590 --> 0:40:49.100 more private capital in, it really does require changing a 0:40:49.100 --> 0:40:52.489 lot of the instrument mix that these institutions are using. 0:40:52.790 --> 0:40:55.970 And I really do think move a little bit more 0:40:55.969 --> 0:41:00.920 towards guarantee financing through guarantees could be a very appealing 0:41:00.920 --> 0:41:03.200 one for a lot of the different client countries of 0:41:03.200 --> 0:41:06.890 the bank. The second thing, though, that I will say is, 0:41:06.890 --> 0:41:10.129 you know, one of the other really big shifts that 0:41:10.130 --> 0:41:15.890 we've had over over the past several years is, you know, 0:41:15.890 --> 0:41:18.680 we're now in a very high interest rate global environment. 0:41:19.219 --> 0:41:23.930 And I do wonder, it was, you know, during a 0:41:23.930 --> 0:41:26.990 time of benign interest rates when investors were starving for 0:41:26.989 --> 0:41:30.589 yield and really looking for investments in emerging markets and 0:41:30.590 --> 0:41:33.350 low income countries, you know, and this was a time 0:41:33.350 --> 0:41:36.590 when interest rates were low. Now there's a whole change 0:41:36.590 --> 0:41:39.410 in kind of global risk appetite with interest rates going up. 0:41:39.410 --> 0:41:42.710 And it really that search for yield changes. Investors can 0:41:42.710 --> 0:41:46.160 stay you know in advanced economies and get that yield. 0:41:46.370 --> 0:41:48.290 You know that really can change a lot of the 0:41:48.290 --> 0:41:52.009 equation to around around the billions of trillions agenda and 0:41:52.010 --> 0:41:54.530 around private capital mobilization. And if we couldn't do it 0:41:54.530 --> 0:41:58.070 in a benign interest rate environment, the higher interest rate environment, 0:41:58.070 --> 0:42:01.609 I think, also makes it that much more complicated. And 0:42:01.610 --> 0:42:04.940 just one more point on this. This is also an 0:42:04.940 --> 0:42:08.509 interesting conversation because it does link back to some of 0:42:08.510 --> 0:42:11.030 the conversation that we were talking had, were having earlier 0:42:11.030 --> 0:42:15.710 around global public goods. And in particular, you know, if 0:42:15.710 --> 0:42:18.500 you want to use your concessional financing or your grant 0:42:18.500 --> 0:42:22.009 financing to bring in private capital, is that the best 0:42:22.010 --> 0:42:25.759 use of your money? Is it is it really on 0:42:25.760 --> 0:42:29.690 private sector investments, or is it on the public sector side? And, 0:42:29.690 --> 0:42:31.970 you know, a lot of a lot of criticism of 0:42:31.969 --> 0:42:34.130 the billions of trillions, it's you're using a lot of 0:42:34.130 --> 0:42:39.380 development finance to de-risk and ultimately subsidize private sector, taking 0:42:39.380 --> 0:42:41.180 a lot of the putting a lot of the risk 0:42:41.180 --> 0:42:45.350 on the public sector, but not the upside and putting, 0:42:45.350 --> 0:42:48.469 you know, really de-risking the private sector. So so this 0:42:48.469 --> 0:42:52.820 is this is really turned into quite a complicated, ferocious 0:42:52.820 --> 0:42:54.830 debate in a lot of ways and can say it's 0:42:55.219 --> 0:42:57.890 in particular, we do not have a unified view on this. 0:42:57.890 --> 0:43:00.290 And this is one of the topics in development finance 0:43:00.290 --> 0:43:04.070 where we are often internally most most in disagreement. 0:43:04.670 --> 0:43:07.520 All right. Well, look, I hope this, this Lowy Institute 0:43:07.520 --> 0:43:11.690 podcast will not contribute to additional disagreement at committee. I 0:43:11.690 --> 0:43:14.299 have two last questions for you. For the first one, 0:43:14.300 --> 0:43:16.190 I would like to take a step back and look 0:43:16.190 --> 0:43:19.100 at the MDB reforms overall. Do you think the current 0:43:19.430 --> 0:43:22.219 reforms go far enough, and if not, what else needs 0:43:22.219 --> 0:43:22.880 to be done? 0:43:23.330 --> 0:43:25.939 Look, I mean, as it as it stands right now, 0:43:26.120 --> 0:43:30.420 I don't think that the institutions have done enough. I 0:43:30.420 --> 0:43:33.110 don't think shareholders have done enough. I think there's this 0:43:33.110 --> 0:43:35.690 is this is a little bit more of a marathon 0:43:35.690 --> 0:43:40.370 than a sprint. And and again, you know, I really 0:43:40.370 --> 0:43:42.920 do repeat myself here, but I really think part of 0:43:42.920 --> 0:43:45.230 this is I think these institutions need to be a 0:43:45.230 --> 0:43:48.560 lot bigger. I think these are this is the global 0:43:48.560 --> 0:43:52.520 safety net. We need a bigger global safety net. And 0:43:52.520 --> 0:43:56.060 there was a lot of. Speed bumps to growing these. 0:43:56.080 --> 0:43:59.620 These organizations and think until there's there's an agreement on 0:43:59.620 --> 0:44:02.770 on what big or how to get these organizations bigger. 0:44:02.770 --> 0:44:06.630 We're going to be at an impasse around the reform agenda. 0:44:06.640 --> 0:44:09.100 And that makes me very, very concerned. 0:44:09.400 --> 0:44:11.290 Okay. Well, that's actually a very good segment to my 0:44:11.290 --> 0:44:14.740 last question. So in this podcast, we'd like to conclude 0:44:14.739 --> 0:44:17.500 by asking our guests for their big ideas on the 0:44:17.500 --> 0:44:19.900 topic that we've covered in the show. I would like 0:44:19.900 --> 0:44:22.239 to ask you this. What is your big ideas for 0:44:22.239 --> 0:44:25.420 reshaping the multilateral development banks and making them more efficient 0:44:25.420 --> 0:44:29.319 and better tailored for tackling global challenges in supporting sustainable development? 0:44:29.469 --> 0:44:32.500 Well, you know, think we've touched on all aspects of 0:44:32.500 --> 0:44:34.030 this in a lot of ways. So I'm going to 0:44:34.030 --> 0:44:39.070 give you a slightly provocative answer. I mean, think, you know, 0:44:39.340 --> 0:44:45.820 faster institutions, bigger institutions, more agile institutions, institutions that can 0:44:45.820 --> 0:44:49.270 finance different kinds of projects, but that are also still 0:44:49.270 --> 0:44:53.739 focused on the poorest of the poor and really on development. 0:44:54.010 --> 0:44:55.450 I think we need all of that. And I think 0:44:55.450 --> 0:45:00.009 there's there's right now, because of the year of focus, 0:45:00.010 --> 0:45:02.290 we are not at a time where there's a dearth 0:45:02.590 --> 0:45:05.440 of good ideas. I don't think that there's ever been 0:45:05.440 --> 0:45:07.930 so much written about the multilateral development banks than there 0:45:07.930 --> 0:45:10.180 has in the past years, whether it's by the institutions, 0:45:10.180 --> 0:45:15.850 by by the governments that are shareholders, by, you know, 0:45:15.850 --> 0:45:20.860 think tanks, some think tanks. So my wish for the 0:45:20.860 --> 0:45:26.080 world is I think and and and this is you know, 0:45:26.469 --> 0:45:29.799 this is inspired by, by a suggestion of a former colleague, 0:45:29.800 --> 0:45:33.010 you know, was kind of making slyly on Twitter is 0:45:33.010 --> 0:45:35.890 I think we need an international moratorium for a year 0:45:36.010 --> 0:45:40.180 on all of these high level global convenings and think 0:45:40.180 --> 0:45:44.470 we need to start getting some work done. This year 0:45:44.469 --> 0:45:51.460 has been frenetic, uh, traveling from capital to capital. When 0:45:51.460 --> 0:45:54.609 you look at the declarations and the statements that are 0:45:54.610 --> 0:45:58.660 coming out of these summits, they are very mushy. They 0:45:58.660 --> 0:46:01.480 are both promising the world and promising the moon and 0:46:01.480 --> 0:46:07.899 promising the universe without really anything concrete behind them. And 0:46:07.900 --> 0:46:11.080 I think it's time to start talking a little bit 0:46:11.080 --> 0:46:14.830 less and doing a little bit more, because we are 0:46:14.830 --> 0:46:18.280 really inhabiting this time where we have some very lofty 0:46:18.280 --> 0:46:22.510 rhetoric out there and not a huge amount to show 0:46:22.510 --> 0:46:26.830 for it. So I would like us all to get 0:46:26.830 --> 0:46:27.400 to work. 0:46:28.150 --> 0:46:30.399 Yeah, well, that's actually a great idea. And you could 0:46:30.400 --> 0:46:33.280 also argue that such a moratorium would also drastically reduce 0:46:33.280 --> 0:46:36.010 the carbon footprint of NDB. So overall, it'd be very 0:46:36.010 --> 0:46:36.790 good for the planet. 0:46:37.000 --> 0:46:39.640 There are there are many good externalities that could come 0:46:39.640 --> 0:46:41.890 from this. We can start by doing it for six 0:46:41.890 --> 0:46:43.810 months and then see how that goes. 0:46:44.290 --> 0:46:47.400 Well, this is all what we have time for today, Clémence. 0:46:47.410 --> 0:46:49.570 Merci book. We thank you very much for sharing your 0:46:49.570 --> 0:46:52.600 thoughts on those topics. This this was really fascinating. 0:46:52.600 --> 0:46:54.400 My pleasure. This was a wonderful conversation. 0:46:54.400 --> 0:46:57.370 You've been listening to Development Features, a podcast from the 0:46:57.370 --> 0:47:01.089 Indo-Pacific Development Center at the Lowy Institute, hosted by institute 0:47:01.090 --> 0:47:04.569 experts and produced by my colleague Josh Goodwin. Development futures 0:47:04.570 --> 0:47:07.960 is part of the Lowy Institute Podcast Network. Find all 0:47:07.960 --> 0:47:15.040 our podcast series on our website. Lowe institute.org/publications. Thanks for listening.