1 00:00:00,200 --> 00:00:04,320 Speaker 1: Welcome to zero I am Akshatrati this week the mysterious 2 00:00:04,360 --> 00:00:18,120 Speaker 1: Beauty of development packs. It has been a wild couple 3 00:00:18,120 --> 00:00:21,800 Speaker 1: of months in the world of development finance. Since January. 4 00:00:22,120 --> 00:00:25,239 Speaker 1: One by one we've seen countries pull back from their 5 00:00:25,280 --> 00:00:29,840 Speaker 1: aid commitments. The US, the UK, the Netherlands, France. The 6 00:00:29,920 --> 00:00:34,520 Speaker 1: list keeps growing. This comes just a few months after 7 00:00:34,640 --> 00:00:37,520 Speaker 1: Rich countries agreed to ramp up climate spending at COP 8 00:00:37,560 --> 00:00:41,519 Speaker 1: twenty nine. The headline target was three hundred billion dollars 9 00:00:41,680 --> 00:00:45,479 Speaker 1: a year by twenty thirty five, tripling the previous commitment 10 00:00:45,560 --> 00:00:47,760 Speaker 1: of one hundred billion dollars, which is supposed to be 11 00:00:47,800 --> 00:00:52,479 Speaker 1: reached by twenty twenty. Now these new commitments are in 12 00:00:52,600 --> 00:00:56,960 Speaker 1: serious doubt. What isn't under question is the need for 13 00:00:57,000 --> 00:01:00,600 Speaker 1: that money. Developing countries still require trillion of dollars a 14 00:01:00,680 --> 00:01:05,000 Speaker 1: year to transition to clean energy and build climate resilient infrastructure. 15 00:01:05,840 --> 00:01:08,320 Speaker 1: So where will the money come from? That's the question 16 00:01:08,400 --> 00:01:11,320 Speaker 1: we'll explore in this episode of Moving Money. We are 17 00:01:11,360 --> 00:01:14,720 Speaker 1: welcoming back avinash Parsod, special advisor on Climate risks to 18 00:01:14,760 --> 00:01:17,760 Speaker 1: the President of the Inter American Development Bank and former 19 00:01:17,840 --> 00:01:22,280 Speaker 1: economic advisor to Barbados Prime Minister Mia Mottley. Last week 20 00:01:22,319 --> 00:01:25,520 Speaker 1: we explored how to reshape the global financial order for 21 00:01:25,560 --> 00:01:29,360 Speaker 1: the climate era. Today we'll explore the role of multilateral 22 00:01:29,440 --> 00:01:34,240 Speaker 1: development banks, or MDBs. The World Bank is the best 23 00:01:34,319 --> 00:01:38,919 Speaker 1: known MDB, but there are many others. Collectively, they funnel 24 00:01:39,000 --> 00:01:41,680 Speaker 1: hundreds of billions of dollars a year to poorer countries 25 00:01:41,760 --> 00:01:45,160 Speaker 1: around the world, much of which goes to climate projects. 26 00:01:45,720 --> 00:01:48,480 Speaker 1: Our conversation was recorded at Coptery nine in Baku, but 27 00:01:48,600 --> 00:01:51,960 Speaker 1: remains as relevant as it was then, perhaps even more 28 00:01:52,000 --> 00:01:57,280 Speaker 1: so as President Trump doubles down on US isolationism. We 29 00:01:57,320 --> 00:01:59,760 Speaker 1: sat down to talk about how MDBs can be used 30 00:01:59,760 --> 00:02:02,640 Speaker 1: to move move more money to developing countries, what they 31 00:02:02,680 --> 00:02:05,240 Speaker 1: can do better, and who will fill the gap if 32 00:02:05,240 --> 00:02:09,600 Speaker 1: the US WU draws from these MDBs. Avinash is a 33 00:02:09,639 --> 00:02:13,800 Speaker 1: special advisor to an MDB. That makes him, unsurprisingly a 34 00:02:13,880 --> 00:02:18,320 Speaker 1: supporter of their work, but he's not just an MDB insider. 35 00:02:18,760 --> 00:02:20,920 Speaker 1: He's come to that role after a long career as 36 00:02:20,960 --> 00:02:23,600 Speaker 1: a banker on Wall Street in New York and in 37 00:02:23,639 --> 00:02:26,240 Speaker 1: the City of London. He's also been an advisor on 38 00:02:26,360 --> 00:02:30,720 Speaker 1: economic issues to a developing country government, so his insights 39 00:02:30,760 --> 00:02:34,320 Speaker 1: come from seeing all sides of the financial system. As 40 00:02:34,360 --> 00:02:36,760 Speaker 1: you'll hear in our conversation, he's come to the view 41 00:02:36,800 --> 00:02:40,639 Speaker 1: that MDBs play a crucial role in the global financial system, 42 00:02:41,040 --> 00:02:44,800 Speaker 1: and one that becomes more important in the volatile times ahead. 43 00:02:47,840 --> 00:02:51,320 Speaker 1: Hi Avinash, welcome back for another episode of Moving Money. 44 00:02:51,440 --> 00:02:51,800 Speaker 2: Thank you. 45 00:02:52,200 --> 00:02:56,040 Speaker 1: Today we're going to talk about multilateral development banks, things 46 00:02:56,080 --> 00:02:58,640 Speaker 1: like Worldbank, which most people think have an idea of, 47 00:02:59,120 --> 00:03:02,720 Speaker 1: but also so many other development banks, one that you 48 00:03:02,800 --> 00:03:06,680 Speaker 1: work for, Inter American Development Bank, Asian Development Bank, African 49 00:03:06,720 --> 00:03:10,280 Speaker 1: Development Bank. The fact that they have development in them 50 00:03:10,480 --> 00:03:14,359 Speaker 1: makes them seem like good banks. What are MDBs? 51 00:03:14,600 --> 00:03:17,000 Speaker 3: You know? Actually, when I think we first spoke, I 52 00:03:17,240 --> 00:03:21,360 Speaker 3: was part of the Bridgetown Initiative, one of the architects 53 00:03:21,360 --> 00:03:25,960 Speaker 3: of that for international financial reform, and in doing that work, 54 00:03:26,040 --> 00:03:30,320 Speaker 3: I realized that the multilateral development banks have a very 55 00:03:30,360 --> 00:03:33,680 Speaker 3: critical role to play, which is why I joined one. 56 00:03:34,200 --> 00:03:40,320 Speaker 3: Now I think it's actually, and excuse the potential perversity, 57 00:03:40,440 --> 00:03:44,560 Speaker 3: but actually a thing of beauty that the center of 58 00:03:44,600 --> 00:03:49,080 Speaker 3: the global financial system are a handful of Triple A 59 00:03:49,280 --> 00:03:54,080 Speaker 3: rated institutions, which are development banks, which means they're not 60 00:03:54,280 --> 00:03:55,240 Speaker 3: for profit. 61 00:03:55,240 --> 00:03:58,360 Speaker 1: And rating just gives them this credit rating which allows 62 00:03:58,400 --> 00:04:02,280 Speaker 1: them to go to private investors, and they will invest 63 00:04:02,280 --> 00:04:04,640 Speaker 1: in this thing because they are guaranteed a return. 64 00:04:04,840 --> 00:04:08,040 Speaker 3: Did you say, just gives them? It's such a powerful thing. 65 00:04:08,440 --> 00:04:11,400 Speaker 3: So what a development bank can do, and this is 66 00:04:11,480 --> 00:04:15,119 Speaker 3: very different from say a climate fund or development fund. 67 00:04:15,400 --> 00:04:18,240 Speaker 3: You put a dollar into a development fund, you get 68 00:04:18,480 --> 00:04:22,080 Speaker 3: a dollar out. You put a dollar of capital into 69 00:04:22,160 --> 00:04:25,840 Speaker 3: a multilateral develoment bank and you can get eight dollars out. 70 00:04:26,120 --> 00:04:29,599 Speaker 3: Now how does that happen? So capital, what is capital? 71 00:04:29,680 --> 00:04:33,560 Speaker 3: Capital is loss absorbing. So I go into the marketplace. 72 00:04:33,839 --> 00:04:38,000 Speaker 3: The British governments give me a pound of capital. I 73 00:04:38,040 --> 00:04:40,279 Speaker 3: go into the marketplace. I say to the marketplace, I've 74 00:04:40,279 --> 00:04:43,560 Speaker 3: got a pound of capital. I can lose this pound. 75 00:04:43,600 --> 00:04:45,560 Speaker 3: I don't need to pay it back to anybody. I 76 00:04:45,560 --> 00:04:48,280 Speaker 3: can lose this pound, and as a result, can I 77 00:04:48,400 --> 00:04:52,279 Speaker 3: borrow money from you. So it's like my first loss. 78 00:04:52,320 --> 00:04:54,560 Speaker 3: I've got the ability to do first loss. And therefore 79 00:04:54,560 --> 00:04:57,480 Speaker 3: the market says, oh, I don't mind lending you seven 80 00:04:57,560 --> 00:05:01,400 Speaker 3: or eight pounds knowing that, but if you run into trouble, 81 00:05:01,800 --> 00:05:05,800 Speaker 3: the first pound to suffer is not my pound, it's 82 00:05:05,880 --> 00:05:07,360 Speaker 3: the British government's pound. 83 00:05:07,400 --> 00:05:07,919 Speaker 2: The capital. 84 00:05:08,520 --> 00:05:12,440 Speaker 3: So when we go to the marketplace, with a pound 85 00:05:12,640 --> 00:05:17,080 Speaker 3: of capital, I could therefore borrow seven pounds. That seven 86 00:05:17,120 --> 00:05:19,880 Speaker 3: pounds is comfortable because it knows if there's a loss, 87 00:05:20,400 --> 00:05:26,200 Speaker 3: their money isn't touched until the first pound is gone. 88 00:05:26,520 --> 00:05:29,400 Speaker 1: So how big is the MDB system when it comes 89 00:05:29,400 --> 00:05:32,560 Speaker 1: to a total amount of lending relative to say, private lending? 90 00:05:32,839 --> 00:05:33,159 Speaker 2: Tiny? 91 00:05:33,680 --> 00:05:36,400 Speaker 3: So I think I began by saying that it's beautiful 92 00:05:36,640 --> 00:05:40,359 Speaker 3: that they the middle of the system is not for 93 00:05:40,480 --> 00:05:44,120 Speaker 3: profit triple A development banks. The ugly bit is they're 94 00:05:44,160 --> 00:05:46,960 Speaker 3: really really tiny, and we need to make them much bigger, 95 00:05:47,000 --> 00:05:51,080 Speaker 3: at least three times bigger. And at the moment development 96 00:05:51,080 --> 00:05:56,000 Speaker 3: banks are lending in the order of around two hundred 97 00:05:56,320 --> 00:05:59,480 Speaker 3: billion dollars a year. We need them to be lending 98 00:06:01,480 --> 00:06:05,320 Speaker 3: three times that amount, with a big chunk on climate, 99 00:06:05,880 --> 00:06:09,080 Speaker 3: maybe half on climate. So they need to be lending 100 00:06:09,240 --> 00:06:12,560 Speaker 3: six hundred billion dollars a year and three hundred billion 101 00:06:12,680 --> 00:06:15,720 Speaker 3: perhaps on climate. And private lending is in the trillions 102 00:06:15,760 --> 00:06:18,240 Speaker 3: of dollars. I'm assuming tens of trillions of dollars on 103 00:06:18,240 --> 00:06:23,279 Speaker 3: an annual basis, So private lending is around one hundred 104 00:06:23,360 --> 00:06:25,680 Speaker 3: trillion dollars. Yes, But the point is that we have 105 00:06:25,720 --> 00:06:30,000 Speaker 3: a very financialized system with lots of assets and debt 106 00:06:30,480 --> 00:06:34,240 Speaker 3: far in excess of the national income. Those assets and 107 00:06:34,320 --> 00:06:38,920 Speaker 3: debts are recycled and shuffled around and lent and bought. 108 00:06:39,200 --> 00:06:43,560 Speaker 3: The development banks therefore, as a proportion of that do 109 00:06:43,800 --> 00:06:45,040 Speaker 3: a fairly modest amount. 110 00:06:45,080 --> 00:06:48,160 Speaker 1: But what are development banks? How do they exactly work? 111 00:06:48,200 --> 00:06:50,960 Speaker 1: What is the structure of a development bank? That makes 112 00:06:51,000 --> 00:06:51,960 Speaker 1: them a thing of beauty? 113 00:06:52,279 --> 00:06:54,880 Speaker 3: What makes me a thing of beauty is that you 114 00:06:54,920 --> 00:06:57,840 Speaker 3: can put some money into a develoment bank and much 115 00:06:57,839 --> 00:07:01,520 Speaker 3: more money can come out. Their main job is to 116 00:07:01,560 --> 00:07:05,160 Speaker 3: give you a loan. Because they are not for profit institution, 117 00:07:06,240 --> 00:07:09,280 Speaker 3: they try to give you a cheap loan and they 118 00:07:09,279 --> 00:07:12,040 Speaker 3: try to make it as long term as possible. They're 119 00:07:12,080 --> 00:07:15,760 Speaker 3: not trying to maximize the profitability. 120 00:07:15,120 --> 00:07:15,760 Speaker 2: Of this loan. 121 00:07:16,400 --> 00:07:20,960 Speaker 3: Now, what makes them not for profit is that they're shareholders. 122 00:07:21,200 --> 00:07:25,520 Speaker 3: Are governments who again are not looking to make money 123 00:07:25,800 --> 00:07:26,720 Speaker 3: from their investment. 124 00:07:26,840 --> 00:07:30,800 Speaker 1: And these are rich governments mostly right, it's America, it's Britain, 125 00:07:30,920 --> 00:07:33,800 Speaker 1: it's the G seven countries. They have about half of 126 00:07:33,880 --> 00:07:36,400 Speaker 1: the shareholding and most development banks when we looked at 127 00:07:36,440 --> 00:07:37,400 Speaker 1: their numbers. 128 00:07:37,080 --> 00:07:39,520 Speaker 3: Actually that you said half, I mean half is not most. 129 00:07:39,560 --> 00:07:43,280 Speaker 3: Half is actually quite small. So One of the interesting 130 00:07:43,400 --> 00:07:47,120 Speaker 3: things about the development banks is it is the one 131 00:07:47,160 --> 00:07:52,280 Speaker 3: of the broadest ownership structures, so the third biggest shareholder 132 00:07:52,720 --> 00:07:56,520 Speaker 3: in many of the development banks, as China, India has 133 00:07:56,560 --> 00:07:59,440 Speaker 3: a bigger shareholding in the World Bank than a G 134 00:07:59,520 --> 00:08:03,880 Speaker 3: seven Italy then in had a future seven countries Italy 135 00:08:04,000 --> 00:08:07,280 Speaker 3: and Canada, so it's actually fairly broad. But they were 136 00:08:07,320 --> 00:08:08,880 Speaker 3: set up by the rich. 137 00:08:08,720 --> 00:08:12,080 Speaker 1: Countries, right and to me, when we think about development 138 00:08:12,120 --> 00:08:15,880 Speaker 1: banks in that context, one way to think about it 139 00:08:15,960 --> 00:08:20,640 Speaker 1: is these are mostly colonial powers that were forced to 140 00:08:21,120 --> 00:08:24,920 Speaker 1: eventually give up their colonies and realize that if they 141 00:08:24,920 --> 00:08:27,520 Speaker 1: wanted to remain in a world that remains peaceful, they 142 00:08:27,560 --> 00:08:30,240 Speaker 1: need to ensure these colonies that they extracted so much 143 00:08:30,280 --> 00:08:33,880 Speaker 1: value from do develop on their own. That will require 144 00:08:33,920 --> 00:08:36,840 Speaker 1: them to have some capital, and we better create a 145 00:08:36,880 --> 00:08:41,240 Speaker 1: system that allows some development money to go to these places. 146 00:08:41,600 --> 00:08:43,560 Speaker 1: And you can control that a little bit so that 147 00:08:43,840 --> 00:08:46,280 Speaker 1: no way, they are not colonies anymore, but at least 148 00:08:46,280 --> 00:08:48,960 Speaker 1: we have some control over how much money they can get. 149 00:08:49,080 --> 00:08:52,360 Speaker 3: You're revealing so much about yourself actually in this description, 150 00:08:52,760 --> 00:08:57,400 Speaker 3: because you know the way the rowbag was established was 151 00:08:57,679 --> 00:09:02,240 Speaker 3: the European reconstruction after the War it wasn't actually about 152 00:09:03,080 --> 00:09:07,520 Speaker 3: economic development and the empires. Like the IMF, the IMF's 153 00:09:07,559 --> 00:09:11,640 Speaker 3: remit was not about conditionality on poor countries. It was 154 00:09:11,640 --> 00:09:16,200 Speaker 3: about managing a global system of fixed exchange rates. So, 155 00:09:17,600 --> 00:09:20,679 Speaker 3: in fact, what's quite innovative about these institutions is how 156 00:09:20,720 --> 00:09:26,719 Speaker 3: they've actually repurposed themselves as their original purpose disappeared. You know, 157 00:09:27,120 --> 00:09:29,800 Speaker 3: it's a story of all institutions. They were set up 158 00:09:29,800 --> 00:09:33,800 Speaker 3: to do something, they achieved it, and they reinvented themselves 159 00:09:33,840 --> 00:09:35,920 Speaker 3: to do something else so they could stay along. So 160 00:09:36,280 --> 00:09:38,960 Speaker 3: now are these institutions if you look at the shareholders, 161 00:09:39,000 --> 00:09:43,360 Speaker 3: and I recommend any listener have just google the shareholdings 162 00:09:43,400 --> 00:09:47,120 Speaker 3: of the World Bank. It is an amazingly mixed structure. 163 00:09:47,320 --> 00:09:51,080 Speaker 3: Russia is a major shareholder, Iran is a major shareholder 164 00:09:51,120 --> 00:09:53,680 Speaker 3: of the World Bank. It's not as broad as it 165 00:09:53,720 --> 00:09:56,920 Speaker 3: could be, but it is surprisingly broad, which is why 166 00:09:56,960 --> 00:10:01,600 Speaker 3: I think it's role in climate finance helps to move 167 00:10:01,760 --> 00:10:05,080 Speaker 3: us along this process of which we do need a 168 00:10:05,200 --> 00:10:07,440 Speaker 3: global response to a global problem. 169 00:10:07,800 --> 00:10:11,960 Speaker 1: Why are they involved in climate The name is development, 170 00:10:12,040 --> 00:10:15,959 Speaker 1: and I understand climate change can affect development. Is that 171 00:10:15,960 --> 00:10:17,760 Speaker 1: the link climate. 172 00:10:17,559 --> 00:10:20,880 Speaker 3: Is one of the biggest threats to poverty. We're seeing 173 00:10:20,920 --> 00:10:23,559 Speaker 3: a tremendous number of people being pushed into poverty by 174 00:10:23,600 --> 00:10:28,080 Speaker 3: climatic events. I was born in the Caribbean Akshatt and 175 00:10:28,120 --> 00:10:32,360 Speaker 3: we often think about these hurricanes, and the same hurricane 176 00:10:32,400 --> 00:10:35,800 Speaker 3: went over Grenada and almost a third of the population 177 00:10:35,920 --> 00:10:39,320 Speaker 3: is homeless. The exact same hurricane goes over Caymans. In fact, 178 00:10:39,320 --> 00:10:44,080 Speaker 3: Camans is probably underwater at one point and very little 179 00:10:44,400 --> 00:10:49,200 Speaker 3: damage is done because of differences in development. So climate 180 00:10:49,320 --> 00:10:52,120 Speaker 3: vulnerability has a lot to do with levels of development, 181 00:10:52,520 --> 00:11:01,120 Speaker 3: but also the energy transition is probably the biggest best development. 182 00:11:00,600 --> 00:11:02,760 Speaker 2: Strategy for many developing countries. 183 00:11:03,240 --> 00:11:07,040 Speaker 3: So we've just done this work which shows that we're Latin, 184 00:11:07,040 --> 00:11:10,760 Speaker 3: American and Caribbean to reach net zero. The net economic 185 00:11:10,800 --> 00:11:14,760 Speaker 3: benefits will be fifty percent of GDP, and a big 186 00:11:14,840 --> 00:11:18,560 Speaker 3: chunk of that comes from the savings of electrification. You've 187 00:11:18,559 --> 00:11:22,160 Speaker 3: taught me a lot about the power of electrification. A 188 00:11:22,200 --> 00:11:26,120 Speaker 3: big chunk comes now from the fact that renewables are cheap, 189 00:11:26,280 --> 00:11:30,360 Speaker 3: there's fuel savings, and an even bigger chunk comes from 190 00:11:30,440 --> 00:11:33,920 Speaker 3: something that people don't realize. Fossil fuels are really bad. 191 00:11:33,760 --> 00:11:34,360 Speaker 2: For your health. 192 00:11:34,840 --> 00:11:37,600 Speaker 3: More people are dying from air pollution that dying from 193 00:11:37,640 --> 00:11:42,280 Speaker 3: climate change. About four point seven trillion dollars is spent 194 00:11:42,440 --> 00:11:48,959 Speaker 3: on health to manage the repercussions of pollution. So if 195 00:11:48,960 --> 00:11:51,679 Speaker 3: we were to get to net zero, we will have 196 00:11:51,720 --> 00:11:55,520 Speaker 3: a huge positive economic benefit and the development banks should 197 00:11:55,559 --> 00:11:57,160 Speaker 3: therefore be playing a role in that. 198 00:11:57,360 --> 00:12:01,320 Speaker 1: So in this reinventioned story from Europe in reconstruction to 199 00:12:02,080 --> 00:12:05,959 Speaker 1: reducing poverty, is this now a new phase of reinvention? 200 00:12:06,320 --> 00:12:09,160 Speaker 3: There is a reinvention, and I think it's a function 201 00:12:09,400 --> 00:12:13,839 Speaker 3: firstly of the fact that climate has now become, as 202 00:12:13,840 --> 00:12:18,400 Speaker 3: a result of it in action, become this global force 203 00:12:18,800 --> 00:12:22,079 Speaker 3: that is having a huge impact on poverty. It's also 204 00:12:22,640 --> 00:12:25,880 Speaker 3: a global public good. Very hard for us to manage 205 00:12:25,920 --> 00:12:29,640 Speaker 3: climate individually. So the World Bank is part of it. 206 00:12:29,679 --> 00:12:32,319 Speaker 3: Of this reinvention, you might say, it began to change 207 00:12:32,320 --> 00:12:35,400 Speaker 3: its strap line. It's not just about eliminating poverty, it's 208 00:12:35,440 --> 00:12:38,480 Speaker 3: about doing it in a livable world, and I think 209 00:12:38,679 --> 00:12:43,240 Speaker 3: that's good and important. I think a recognition that development 210 00:12:43,320 --> 00:12:46,679 Speaker 3: isn't all about climate is also important. The development banks 211 00:12:46,679 --> 00:12:51,679 Speaker 3: are committing themselves to fifty percent of their lending is 212 00:12:51,840 --> 00:12:56,439 Speaker 3: climate related climate positive, which I think is a good 213 00:12:56,480 --> 00:13:00,959 Speaker 3: and reasonable number. It's I say reasonable because the scale 214 00:13:01,000 --> 00:13:02,920 Speaker 3: of the task what we need to do, but it's 215 00:13:02,960 --> 00:13:06,120 Speaker 3: not one hundred percent, and it shouldn't be one hundred percent. Okay, 216 00:13:06,200 --> 00:13:09,000 Speaker 3: So if you're going to triple the lending on development 217 00:13:09,000 --> 00:13:13,400 Speaker 3: banks a lot of that supporting climate work, how exactly 218 00:13:13,760 --> 00:13:17,120 Speaker 3: do you get there? Because that will require these shareholders 219 00:13:17,200 --> 00:13:19,160 Speaker 3: to actually put more money into the system. 220 00:13:19,240 --> 00:13:19,600 Speaker 2: Correct. 221 00:13:19,800 --> 00:13:23,600 Speaker 3: It's one of those wonderful issues where as you begin 222 00:13:23,720 --> 00:13:28,040 Speaker 3: to delve into it, it gets more and more complicated. 223 00:13:28,160 --> 00:13:29,679 Speaker 1: Okay, let's break it down. 224 00:13:30,360 --> 00:13:33,160 Speaker 3: Well, let's begin at the topic where it's simple, which is, 225 00:13:33,840 --> 00:13:37,240 Speaker 3: you know, you get out a multiple of what you 226 00:13:37,280 --> 00:13:39,720 Speaker 3: put in. And if they want to do a lot more, 227 00:13:39,720 --> 00:13:42,560 Speaker 3: they've got to put in some money. So the multil 228 00:13:42,559 --> 00:13:47,280 Speaker 3: actual development banks at COPP made a announcement that if 229 00:13:47,480 --> 00:13:52,559 Speaker 3: you know, business as usual, no new shareholder support, they 230 00:13:52,559 --> 00:13:56,760 Speaker 3: could probably lend around one hundred and twenty billion dollars 231 00:13:56,800 --> 00:14:00,160 Speaker 3: per year on climate by twenty thirty. 232 00:14:00,080 --> 00:14:02,760 Speaker 1: Right, and that would be roughly double or one and 233 00:14:02,800 --> 00:14:04,120 Speaker 1: a half times what they're doing now. 234 00:14:04,320 --> 00:14:08,480 Speaker 3: What they're doing now is not very far short of 235 00:14:08,480 --> 00:14:14,200 Speaker 3: that number. It's more like seventy five billion dollars today, 236 00:14:14,679 --> 00:14:17,640 Speaker 3: and the ability to be much higher is clearly limited 237 00:14:17,720 --> 00:14:22,080 Speaker 3: by not having new resources, but there are things devin 238 00:14:22,160 --> 00:14:24,880 Speaker 3: banks can do. There's been a whole push around what's 239 00:14:24,880 --> 00:14:30,240 Speaker 3: called the cafe reform, the Capital Adequacy Framework reform. So 240 00:14:31,480 --> 00:14:36,400 Speaker 3: what is the ratio of capital to lending? Can we 241 00:14:36,480 --> 00:14:39,520 Speaker 3: change that ratio and lend a bit more with existing capital? 242 00:14:40,640 --> 00:14:44,960 Speaker 3: Can we do something that was an idea of much 243 00:14:45,280 --> 00:14:48,600 Speaker 3: led by the UK or what's called portfolio guarantees. So 244 00:14:48,680 --> 00:14:52,040 Speaker 3: the develop banks might pull together a portfolio of the 245 00:14:52,080 --> 00:14:57,200 Speaker 3: loans they've got and say to a donor interested in climate, say, well, 246 00:14:57,240 --> 00:15:02,240 Speaker 3: here's ten loans that we lent for climate resilience. Would 247 00:15:02,320 --> 00:15:06,440 Speaker 3: you guarantee the portfolio, not any individual loan, But the 248 00:15:06,560 --> 00:15:11,000 Speaker 3: portfolio doesn't lose money, and that guarantee is unlikely to 249 00:15:11,000 --> 00:15:13,600 Speaker 3: be hit that the whole portfolio loses money, but it 250 00:15:13,640 --> 00:15:16,280 Speaker 3: allows the development bank to reduce the amount of capital 251 00:15:16,320 --> 00:15:19,120 Speaker 3: it puts in and use that capital somewhere else. And 252 00:15:19,200 --> 00:15:21,640 Speaker 3: then more so, the whole things they can do with 253 00:15:21,680 --> 00:15:24,720 Speaker 3: the existing money being clever with it. Pulling the lever 254 00:15:25,080 --> 00:15:28,680 Speaker 3: is the metaphor users squeezing the lemon, that the lemon 255 00:15:28,720 --> 00:15:31,400 Speaker 3: can be squeezed a bit more. But there comes a 256 00:15:31,480 --> 00:15:34,040 Speaker 3: point where you've squeezed or you can for my lemon, 257 00:15:34,120 --> 00:15:35,880 Speaker 3: and so then you need new money. So if you 258 00:15:35,920 --> 00:15:38,120 Speaker 3: think about it in the multiplier terms, it's sort of 259 00:15:38,440 --> 00:15:42,680 Speaker 3: one pound in six or seven pounds out initially, and 260 00:15:42,720 --> 00:15:45,960 Speaker 3: then you do these lemon squeezing activities and you get 261 00:15:46,360 --> 00:15:48,880 Speaker 3: eight pounds maybe nine pounds out of. 262 00:15:49,360 --> 00:15:50,160 Speaker 2: That's exactly right. 263 00:15:50,240 --> 00:15:55,000 Speaker 3: Yes, I don't need to explain anymore now, okay, So okay, 264 00:15:55,040 --> 00:15:57,720 Speaker 3: So now we've got that level of complexity. Level, let's 265 00:15:57,720 --> 00:16:02,440 Speaker 3: add another layer of complexity, so adaptation, climate adaptation of 266 00:16:02,520 --> 00:16:06,840 Speaker 3: building stronger sea walls, better flood defenses, better drainage systems. 267 00:16:07,320 --> 00:16:10,280 Speaker 3: It's not that easy to get the private sector involved 268 00:16:10,320 --> 00:16:13,400 Speaker 3: in that because, yeah, they're no returns to be made. 269 00:16:13,400 --> 00:16:15,920 Speaker 3: There's savings to be had, but no returns to be made. 270 00:16:16,160 --> 00:16:20,480 Speaker 3: But mitigation investing in a solar farm or wind turbines, 271 00:16:20,600 --> 00:16:26,320 Speaker 3: hydroelectric power today, nuclears coming back in those things, you 272 00:16:26,360 --> 00:16:30,040 Speaker 3: could probably co invest with the private sector. The banks 273 00:16:30,040 --> 00:16:32,520 Speaker 3: have what's called B loans. You know that they'll they'll 274 00:16:32,560 --> 00:16:35,080 Speaker 3: do a loan and then they'll have another part of 275 00:16:35,120 --> 00:16:39,560 Speaker 3: the loan which has almost exact same terms the maturity, 276 00:16:39,080 --> 00:16:42,280 Speaker 3: the interest rate, and the private sector. 277 00:16:42,000 --> 00:16:42,480 Speaker 2: May fund that. 278 00:16:42,800 --> 00:16:45,360 Speaker 1: Right, So the A loan is the development banks loan 279 00:16:45,440 --> 00:16:47,480 Speaker 1: and the B loan is the private sector in matching. 280 00:16:47,800 --> 00:16:48,320 Speaker 2: That's right. 281 00:16:48,480 --> 00:16:52,680 Speaker 3: So that is another way in which they can expand 282 00:16:52,720 --> 00:16:55,440 Speaker 3: a bit of leverage, but only for mitigation. So once 283 00:16:55,440 --> 00:16:58,200 Speaker 3: we've got say the one to eight ratio, half of 284 00:16:58,240 --> 00:17:03,080 Speaker 3: that one to eight could be done for adaptation adaptation loans, 285 00:17:03,320 --> 00:17:08,040 Speaker 3: the other half could be on mitigation loans. So I've 286 00:17:08,040 --> 00:17:12,240 Speaker 3: got now one to eight, but by mitigation loans could 287 00:17:12,240 --> 00:17:20,280 Speaker 3: be blended with private sector loans, right, one to sixteen. Right, 288 00:17:20,440 --> 00:17:24,280 Speaker 3: I could match whatever my lending on the on the 289 00:17:24,320 --> 00:17:27,000 Speaker 3: development bank with lending on the private sector. 290 00:17:27,200 --> 00:17:30,359 Speaker 1: Now you're starting to talk like NASA talks about investing 291 00:17:30,400 --> 00:17:34,639 Speaker 1: in one dollar and getting fifty dollars a return for 292 00:17:34,760 --> 00:17:37,840 Speaker 1: the US economy because rockets are cool. 293 00:17:38,920 --> 00:17:43,159 Speaker 3: Yes, So on mitigation, maybe a dollar of capital can 294 00:17:43,280 --> 00:17:47,639 Speaker 3: end up with sixteen dollars of lending on mitigation. But 295 00:17:47,800 --> 00:17:51,159 Speaker 3: whilst adaptations want to eight and that therefore that means 296 00:17:51,200 --> 00:17:56,280 Speaker 3: that if the shareholders of development banks put in say 297 00:17:56,400 --> 00:18:00,520 Speaker 3: ten billion dollars of capital every year, we could probably 298 00:18:00,600 --> 00:18:05,040 Speaker 3: expand about the debt banks lend by over one hundred 299 00:18:05,080 --> 00:18:10,960 Speaker 3: billion a year lend directly themselves or mobilized directly with 300 00:18:11,000 --> 00:18:11,800 Speaker 3: the private sector. 301 00:18:11,960 --> 00:18:14,600 Speaker 1: So this idea that was talked about at COP twenty 302 00:18:14,680 --> 00:18:18,160 Speaker 1: nine around a new collective quantified goal on finance, which 303 00:18:18,200 --> 00:18:20,920 Speaker 1: is supposed to be rich countries helping poor countries do 304 00:18:21,080 --> 00:18:24,560 Speaker 1: mitigation and adaptation. There were these layers of onion, the 305 00:18:24,600 --> 00:18:27,080 Speaker 1: first being direct money being given from a government to 306 00:18:27,080 --> 00:18:31,199 Speaker 1: another government, the second layer being multilateral development banks lending more, 307 00:18:31,240 --> 00:18:35,720 Speaker 1: and then the third being investors come in. Now already 308 00:18:36,200 --> 00:18:40,800 Speaker 1: the explanation you've given to me is that MDBs are 309 00:18:40,800 --> 00:18:45,760 Speaker 1: really already mobilizing private sector because the lending that MDBs 310 00:18:45,800 --> 00:18:48,560 Speaker 1: are able to make is because they're able to go 311 00:18:48,960 --> 00:18:54,560 Speaker 1: and create bonds and borrow from private markets which consider 312 00:18:54,640 --> 00:18:57,920 Speaker 1: the MDBs to be a credit worthy lender to give 313 00:18:57,960 --> 00:18:59,800 Speaker 1: money to, and then they use that money and give 314 00:18:59,840 --> 00:19:00,640 Speaker 1: it to somebody else. 315 00:19:00,880 --> 00:19:03,040 Speaker 3: That's a great point that many people don't get. The 316 00:19:03,080 --> 00:19:06,200 Speaker 3: way an MDB works is mobilizing private sector money. 317 00:19:06,200 --> 00:19:08,800 Speaker 2: The donor the government. 318 00:19:08,440 --> 00:19:11,719 Speaker 3: Has put up one and a dollar of capital, and 319 00:19:11,760 --> 00:19:15,240 Speaker 3: I've used that dollar of capital to get seven or 320 00:19:15,280 --> 00:19:17,480 Speaker 3: eight dollars of private sector money. 321 00:19:17,480 --> 00:19:19,080 Speaker 2: I've already mobilized private. 322 00:19:18,840 --> 00:19:25,600 Speaker 1: Sector after the break, Avinash wants to see much more 323 00:19:25,640 --> 00:19:29,520 Speaker 1: money going to development banks. But what happens if President 324 00:19:29,560 --> 00:19:32,679 Speaker 1: Trump polds back And by the way, if you've been 325 00:19:32,760 --> 00:19:34,800 Speaker 1: enjoying this episode, please take a moment to rate and 326 00:19:34,840 --> 00:19:38,040 Speaker 1: review the show on Apple Podcasts and Spotify. It helps 327 00:19:38,080 --> 00:19:50,360 Speaker 1: other listeners find the show. There are lots of criticisms 328 00:19:50,359 --> 00:19:53,000 Speaker 1: of MDBs that come up. One is that because they 329 00:19:53,040 --> 00:19:56,160 Speaker 1: have to keep their Triple A status, they're quite conservative 330 00:19:56,520 --> 00:19:59,760 Speaker 1: that they lend to projects, but they do a lot 331 00:20:00,080 --> 00:20:02,520 Speaker 1: of work on those projects. It takes our long time 332 00:20:02,560 --> 00:20:05,840 Speaker 1: to get those loans. They make sure that they're going 333 00:20:05,880 --> 00:20:08,239 Speaker 1: to get their return because if they don't, then you know, 334 00:20:08,280 --> 00:20:13,160 Speaker 1: their Triple A status is at risk. In a world 335 00:20:13,200 --> 00:20:14,919 Speaker 1: where we're going to have to do this very quickly 336 00:20:15,400 --> 00:20:18,920 Speaker 1: and we're expanding this lending, how is the MDB going 337 00:20:18,960 --> 00:20:19,720 Speaker 1: to be prepared? 338 00:20:20,040 --> 00:20:21,280 Speaker 2: I think that's an important point. 339 00:20:21,960 --> 00:20:26,800 Speaker 3: However, I would say there is beauty in the leverage 340 00:20:27,480 --> 00:20:32,040 Speaker 3: of the one dollar capital leading to eight dollars of lending, 341 00:20:32,560 --> 00:20:35,640 Speaker 3: and that is only really possible with the triple A status, 342 00:20:36,000 --> 00:20:39,880 Speaker 3: so that we should maintain that leverage, try to make 343 00:20:39,920 --> 00:20:43,240 Speaker 3: them as efficient as they can. But I think there's 344 00:20:43,280 --> 00:20:47,560 Speaker 3: efficiency and results, so caution, and the caution is linked 345 00:20:47,600 --> 00:20:50,159 Speaker 3: to the credit rating, so that is not going to 346 00:20:50,240 --> 00:20:54,320 Speaker 3: change dramatically. But I think what you're saying is that 347 00:20:54,400 --> 00:20:55,520 Speaker 3: the MDBs. 348 00:20:55,080 --> 00:20:55,920 Speaker 2: Can't do everything. 349 00:20:56,200 --> 00:20:59,480 Speaker 3: They will need to be a form of higher risk 350 00:20:59,520 --> 00:21:03,360 Speaker 3: taking that probably has to be funded separately. So there's 351 00:21:03,400 --> 00:21:06,639 Speaker 3: something called project preparation facility. You know that the most 352 00:21:06,880 --> 00:21:10,040 Speaker 3: risky dollar in any project is the first dollar. It's 353 00:21:10,080 --> 00:21:14,000 Speaker 3: the feasibility because you may determine that it's not feasible, 354 00:21:14,320 --> 00:21:17,720 Speaker 3: in which case you've lost that dollar. So there's much 355 00:21:17,760 --> 00:21:23,080 Speaker 3: talk about the MDB's doing more project feasibility, and maybe 356 00:21:23,200 --> 00:21:25,600 Speaker 3: that needs to be separately funded because that's very risky. 357 00:21:25,680 --> 00:21:27,040 Speaker 3: That's one of the reason why they don't do it. 358 00:21:27,080 --> 00:21:29,840 Speaker 3: The MDBs often complain in that they say we've got 359 00:21:29,880 --> 00:21:33,080 Speaker 3: money to lend. Actually, all this talk about giving us 360 00:21:33,119 --> 00:21:35,840 Speaker 3: more money, we've got money to lend, we don't have projects. 361 00:21:37,000 --> 00:21:40,080 Speaker 3: And the fact that there aren't projects in countries with 362 00:21:40,359 --> 00:21:43,280 Speaker 3: huge amounts of potential is because there's not a lot 363 00:21:43,320 --> 00:21:46,520 Speaker 3: of money invested in project preparation. There's a lot of 364 00:21:46,560 --> 00:21:49,520 Speaker 3: work being done on solar and of course some of 365 00:21:49,560 --> 00:21:52,800 Speaker 3: the poorest countries in the world have the most amazing 366 00:21:53,000 --> 00:21:57,320 Speaker 3: solar resources, but projects aren't there. Is that because there 367 00:21:57,359 --> 00:21:58,800 Speaker 3: aren't really good projects? 368 00:21:58,920 --> 00:22:00,000 Speaker 2: No, we haven't got them. 369 00:22:00,119 --> 00:22:01,879 Speaker 3: Need to invest in the feasibility. 370 00:22:02,119 --> 00:22:02,280 Speaker 2: Well. 371 00:22:02,320 --> 00:22:06,840 Speaker 1: Another criticism that private sector branks make is that MDBs 372 00:22:06,880 --> 00:22:08,000 Speaker 1: sort of are secretive. 373 00:22:08,080 --> 00:22:08,560 Speaker 2: They do not. 374 00:22:08,760 --> 00:22:13,160 Speaker 1: Share the loan portfolios that they've given out over the years, 375 00:22:13,320 --> 00:22:16,320 Speaker 1: and if they did, you know, private sector could take 376 00:22:16,359 --> 00:22:19,919 Speaker 1: that information and be like, actually, building this project in 377 00:22:19,960 --> 00:22:23,760 Speaker 1: Ghana was very good. We didn't suffer any losses as 378 00:22:23,760 --> 00:22:27,040 Speaker 1: a result. We don't need the MDBs. We are private 379 00:22:27,040 --> 00:22:29,520 Speaker 1: sector banks. As long as we know we can make 380 00:22:29,560 --> 00:22:32,200 Speaker 1: a return on a project, we'll just go there ourselves. 381 00:22:32,760 --> 00:22:35,320 Speaker 1: And that would mobilize a lot of private capitals. It's 382 00:22:36,040 --> 00:22:37,119 Speaker 1: share the information. 383 00:22:37,200 --> 00:22:38,720 Speaker 2: It's a nice narrative, you know. 384 00:22:38,760 --> 00:22:41,960 Speaker 3: The reality is the private sector is not as much 385 00:22:42,080 --> 00:22:44,040 Speaker 3: of a risk taker as it would like to think 386 00:22:44,080 --> 00:22:47,720 Speaker 3: of itself. As often the risk taking is done by government, 387 00:22:47,800 --> 00:22:53,720 Speaker 3: whether it is Tesla or many of these other big investments. 388 00:22:53,840 --> 00:22:57,560 Speaker 3: Government has to put up the first dollars. But it's 389 00:22:57,560 --> 00:23:02,280 Speaker 3: a valid argument in the past, but MDBs have jointly 390 00:23:02,440 --> 00:23:06,199 Speaker 3: produced a database of their investments and loans and how 391 00:23:06,200 --> 00:23:09,840 Speaker 3: they performed, so there's lots of information, and information sends 392 00:23:09,880 --> 00:23:15,080 Speaker 3: a strong signal that investing in companies in developing countries 393 00:23:15,359 --> 00:23:18,840 Speaker 3: is fairly low risk. The other thing I've learned actually, 394 00:23:18,800 --> 00:23:24,040 Speaker 3: I learned this from speaking to the sustainability person at 395 00:23:24,040 --> 00:23:26,959 Speaker 3: a major oil company about what they were investing in. 396 00:23:27,560 --> 00:23:33,200 Speaker 3: And they were investing in these very speculative things, particular 397 00:23:33,320 --> 00:23:37,119 Speaker 3: types of hydrogen. And I was saying to him, but 398 00:23:38,000 --> 00:23:41,720 Speaker 3: sol and wind is out there, it works, it's cheap, 399 00:23:41,760 --> 00:23:43,280 Speaker 3: and he looked at me and said, yeah, there's not 400 00:23:44,160 --> 00:23:47,679 Speaker 3: enough return for us from that. So, you know, we 401 00:23:47,760 --> 00:23:52,040 Speaker 3: used to think that the problem was that the renewables 402 00:23:52,240 --> 00:23:56,679 Speaker 3: weren't profitable. That's not the problem for start. They're profitable today. 403 00:23:57,160 --> 00:24:01,199 Speaker 3: It's they're not more profitable than other things. That's the 404 00:24:01,240 --> 00:24:02,239 Speaker 3: problem we need to deal with. 405 00:24:02,720 --> 00:24:05,280 Speaker 1: We have the CEO of Exonmobile come on a climate 406 00:24:05,320 --> 00:24:09,119 Speaker 1: podcast this one, and he made the case that you know, 407 00:24:09,240 --> 00:24:14,280 Speaker 1: Exonmobile doesn't have any expertise in delivering electrons. It does 408 00:24:14,320 --> 00:24:19,920 Speaker 1: have expertise in moving molecules and delivering molecules, whereas when 409 00:24:19,960 --> 00:24:24,000 Speaker 1: it comes to renewables, they've never built renewables before. And 410 00:24:24,119 --> 00:24:27,080 Speaker 1: if the profit is lower anyway, why should they invest 411 00:24:27,119 --> 00:24:28,040 Speaker 1: in those projects. 412 00:24:28,160 --> 00:24:33,080 Speaker 3: You know, I think that that's a wonderfully actually political 413 00:24:33,119 --> 00:24:36,560 Speaker 3: point dressed up as a technical point, because the reality 414 00:24:36,800 --> 00:24:41,080 Speaker 3: is that the problem with renewables is the barriers to 415 00:24:41,320 --> 00:24:44,199 Speaker 3: entry are very low. While so if you look at 416 00:24:44,200 --> 00:24:49,720 Speaker 3: the oil industry, they have found ways of limiting and 417 00:24:49,760 --> 00:24:54,080 Speaker 3: restricting supply. They can do that and as a result 418 00:24:54,200 --> 00:24:59,840 Speaker 3: they can get higher profitability. So one of the things 419 00:24:59,840 --> 00:25:02,399 Speaker 3: is occurred to me in this space, working in this space, 420 00:25:02,880 --> 00:25:05,480 Speaker 3: is we actually need that we have a different industry structure. 421 00:25:06,240 --> 00:25:10,000 Speaker 3: We can't expect an industry or a market that is 422 00:25:10,200 --> 00:25:15,560 Speaker 3: based around restricting supply and generating super profits to be 423 00:25:16,680 --> 00:25:21,400 Speaker 3: finding this whole thing very exciting because anyone can put 424 00:25:21,400 --> 00:25:22,560 Speaker 3: a solar panel. 425 00:25:22,320 --> 00:25:23,000 Speaker 2: On their roof. 426 00:25:23,560 --> 00:25:26,840 Speaker 3: So either we find ways of restricting it, which I 427 00:25:26,880 --> 00:25:30,239 Speaker 3: think would be a mistake, or we find ways of 428 00:25:30,280 --> 00:25:31,200 Speaker 3: developing out. 429 00:25:31,040 --> 00:25:32,400 Speaker 2: A different industry structure. 430 00:25:32,560 --> 00:25:37,840 Speaker 3: We have a once in a lifetime generational shift. It's massive, 431 00:25:38,160 --> 00:25:41,520 Speaker 3: it's another revolution, and we can do it in a 432 00:25:41,600 --> 00:25:46,960 Speaker 3: good way in terms of societal development and justice and equity, 433 00:25:47,080 --> 00:25:48,360 Speaker 3: or we could do it in a bad way. It's 434 00:25:48,359 --> 00:25:51,200 Speaker 3: not the tech doesn't tell us which way to do it, 435 00:25:51,560 --> 00:25:53,639 Speaker 3: and we need to think about doing it in a 436 00:25:53,680 --> 00:25:55,520 Speaker 3: way that is as democratic as possible. 437 00:25:55,760 --> 00:25:58,439 Speaker 1: One other criticism of the MDB's that comes up is 438 00:25:58,480 --> 00:26:03,760 Speaker 1: that they're pushing an agenda from rich countries. Many call 439 00:26:03,840 --> 00:26:08,160 Speaker 1: it the neoliberal agenda, because they will end up supporting 440 00:26:08,160 --> 00:26:11,520 Speaker 1: these developing countries through lending. Maybe some of these developing 441 00:26:11,560 --> 00:26:15,120 Speaker 1: countries aren't able to pay those loans back, and then 442 00:26:15,240 --> 00:26:17,840 Speaker 1: comes in the IMF for the World Bank and says, 443 00:26:18,080 --> 00:26:20,280 Speaker 1: you have to pay this back. We can help you 444 00:26:20,320 --> 00:26:22,240 Speaker 1: pay it back. Here are the things that you need 445 00:26:22,280 --> 00:26:26,200 Speaker 1: to do. Typically those things are open up your markets, 446 00:26:26,560 --> 00:26:30,560 Speaker 1: reduce the amount of public spending you're doing on social activities. 447 00:26:30,960 --> 00:26:31,480 Speaker 2: And it's a. 448 00:26:31,600 --> 00:26:36,440 Speaker 1: Very hands on approach that sometimes MDBs can end up taking, 449 00:26:36,840 --> 00:26:40,600 Speaker 1: which from developing country perspective can be very annoying, can 450 00:26:40,640 --> 00:26:41,719 Speaker 1: be quite colonial. 451 00:26:42,080 --> 00:26:46,159 Speaker 3: I think it's a fair criticism that many of the 452 00:26:46,160 --> 00:26:51,919 Speaker 3: people in development banks their fundamental sort of starting point 453 00:26:52,200 --> 00:26:54,600 Speaker 3: is that the problem here is that the countries have 454 00:26:55,160 --> 00:26:58,800 Speaker 3: the wrong ideas and the wrong policies, and that we're 455 00:26:58,840 --> 00:27:03,480 Speaker 3: here to correct their policies, and that there's a belief 456 00:27:03,480 --> 00:27:06,640 Speaker 3: And I say this both as a development bank professional 457 00:27:06,680 --> 00:27:10,760 Speaker 3: and an economist. Is often a belief in economics that 458 00:27:11,000 --> 00:27:14,679 Speaker 3: comes out of theories that we teach but may not 459 00:27:14,880 --> 00:27:18,840 Speaker 3: be very road tested in terms of what actually happens. 460 00:27:18,520 --> 00:27:19,000 Speaker 1: On the ground. 461 00:27:19,359 --> 00:27:22,679 Speaker 3: But it's equally fair to say that most developing country officials, 462 00:27:22,680 --> 00:27:24,640 Speaker 3: and I say that as having been one of those too, 463 00:27:25,560 --> 00:27:28,480 Speaker 3: also start off a position of believing that the only 464 00:27:28,560 --> 00:27:32,119 Speaker 3: problem is they don't have enough money, and the truth 465 00:27:32,200 --> 00:27:33,880 Speaker 3: is probably somewhere in between the two. 466 00:27:34,480 --> 00:27:38,320 Speaker 1: One of the instruments that could be used through development 467 00:27:38,359 --> 00:27:42,000 Speaker 1: backed support but really bring in private players at a 468 00:27:42,080 --> 00:27:46,200 Speaker 1: large scale and mobilized capital, is to use something called 469 00:27:46,320 --> 00:27:50,520 Speaker 1: a debt for nature swap. Now, simply it means a 470 00:27:50,560 --> 00:27:55,080 Speaker 1: country like Barbados, which has plenty of debt, will go 471 00:27:55,160 --> 00:27:59,080 Speaker 1: to investors and say, take some of our debt off 472 00:27:59,080 --> 00:28:02,600 Speaker 1: our books, and instead of us paying you money, we'll 473 00:28:02,640 --> 00:28:06,200 Speaker 1: try and protect this ocean, which will be pretty beneficial 474 00:28:06,320 --> 00:28:08,600 Speaker 1: to the rest of the world and to us, and 475 00:28:08,640 --> 00:28:11,800 Speaker 1: that will help our economy grow faster and be more resilient, 476 00:28:11,960 --> 00:28:15,399 Speaker 1: and thus we will be a better country that you 477 00:28:15,440 --> 00:28:17,960 Speaker 1: can continue to lend to. Well, isn't it all good 478 00:28:17,960 --> 00:28:18,479 Speaker 1: for business? 479 00:28:18,520 --> 00:28:19,040 Speaker 2: Almost? 480 00:28:19,600 --> 00:28:21,960 Speaker 3: And to be fair to you, actually, it's an industry 481 00:28:22,000 --> 00:28:27,159 Speaker 3: where it's every new debt for nature swap is different, 482 00:28:28,480 --> 00:28:30,400 Speaker 3: so it's hard to kind of pin it down a bit. 483 00:28:31,000 --> 00:28:36,320 Speaker 3: But within ten years it's gone from being exotic to 484 00:28:36,680 --> 00:28:41,040 Speaker 3: being seen as a panaceer. And I hate panaceas. So 485 00:28:41,440 --> 00:28:44,520 Speaker 3: I'm spending most of our time here and. 486 00:28:44,440 --> 00:28:46,840 Speaker 1: I hate telling you he hate exotic too, because you 487 00:28:46,880 --> 00:28:48,800 Speaker 1: want scalable, trillion dollar instruments. 488 00:28:48,960 --> 00:28:52,480 Speaker 2: Yes, exactly, I'm just a hater. No, I think that. 489 00:28:53,480 --> 00:28:55,800 Speaker 3: I think the challenge is now people thinking that the 490 00:28:55,920 --> 00:28:57,760 Speaker 3: debt for nature swaps will solve everything. 491 00:28:58,200 --> 00:28:59,080 Speaker 2: So even though we're. 492 00:28:58,920 --> 00:29:02,360 Speaker 3: Doing we're doing most of them, we're also coutioning people 493 00:29:02,360 --> 00:29:04,320 Speaker 3: at the same time, which is a slightly odd feeling. 494 00:29:05,240 --> 00:29:10,000 Speaker 3: So today the latest debtfinature swap is one where a 495 00:29:10,080 --> 00:29:15,280 Speaker 3: country has a pocket of high youding debt. It's very 496 00:29:15,280 --> 00:29:19,240 Speaker 3: important that the country is not completely debt laden. So 497 00:29:19,680 --> 00:29:22,240 Speaker 3: you've got a pocket of high youding debt. Maybe you 498 00:29:22,400 --> 00:29:24,840 Speaker 3: issued some debt some time ago, maybe you've got a 499 00:29:24,880 --> 00:29:27,680 Speaker 3: loan with somebody that was doing something specific and it's 500 00:29:27,720 --> 00:29:30,880 Speaker 3: quite high youuding, and so a developm bank will come 501 00:29:30,880 --> 00:29:32,479 Speaker 3: along and say, well, you know what, I'm going to 502 00:29:33,360 --> 00:29:37,320 Speaker 3: allow you to use my triple A credit rating to 503 00:29:37,480 --> 00:29:40,840 Speaker 3: guarantee a new bond that you're going to issue. 504 00:29:41,080 --> 00:29:42,120 Speaker 2: So you could borrow. 505 00:29:41,840 --> 00:29:44,560 Speaker 3: At five percent, and you've got some debt out there 506 00:29:44,640 --> 00:29:48,240 Speaker 3: yielding nine percent, and you use a five percent bond 507 00:29:48,760 --> 00:29:53,680 Speaker 3: to repurchase the nine percent bond, and so you've now 508 00:29:53,760 --> 00:29:57,360 Speaker 3: saved yourself four percentage points of interest rate. But I'm 509 00:29:57,440 --> 00:30:00,000 Speaker 3: saying to you, the Demand bank is saying to you, 510 00:30:00,600 --> 00:30:04,360 Speaker 3: we're only doing this putting our credit rating on your debt, 511 00:30:04,720 --> 00:30:10,400 Speaker 3: stretching our credit to you. If you use those savings 512 00:30:10,880 --> 00:30:14,840 Speaker 3: in a particular way. We want a significant part to 513 00:30:14,920 --> 00:30:19,320 Speaker 3: be used for a climate or a nature purpose. We 514 00:30:19,440 --> 00:30:23,320 Speaker 3: just did a one point six billion dollar debt swap 515 00:30:23,320 --> 00:30:28,400 Speaker 3: in Ecuador where massive conservation in the Galapagos was being 516 00:30:28,440 --> 00:30:31,600 Speaker 3: funded by the debt swap. We did one in Barbados 517 00:30:31,640 --> 00:30:35,520 Speaker 3: where we funded marine conservation. So the in the first 518 00:30:35,560 --> 00:30:39,320 Speaker 3: Barbados debt swap, they were saving about four million dollars 519 00:30:39,440 --> 00:30:42,960 Speaker 3: every year. And because I remember being a little bit 520 00:30:43,000 --> 00:30:46,040 Speaker 3: skeptical at the beginning, thinking four million dollars, because as 521 00:30:46,040 --> 00:30:48,920 Speaker 3: you say, actually, I keep on thinking will this move 522 00:30:48,960 --> 00:30:52,520 Speaker 3: the needle. In the second one, we found a way 523 00:30:52,560 --> 00:30:55,959 Speaker 3: of taking that ten years of four million dollars and 524 00:30:56,080 --> 00:31:01,520 Speaker 3: basically capitalizing it. So up from in the second one 525 00:31:01,960 --> 00:31:04,800 Speaker 3: is going to be a massive investment of perhaps one 526 00:31:04,840 --> 00:31:07,000 Speaker 3: hundred million dollars for which they could do a big 527 00:31:07,000 --> 00:31:11,840 Speaker 3: infrastructure investment, and they're basically redoing their waste management system 528 00:31:11,880 --> 00:31:14,000 Speaker 3: on the south coast of the island. It's going to 529 00:31:14,040 --> 00:31:17,760 Speaker 3: protect the water quality, it's going to protect the coral reef. 530 00:31:18,080 --> 00:31:20,800 Speaker 3: It's going to allow this water to be reused for irrigation. 531 00:31:20,960 --> 00:31:24,880 Speaker 3: It's a very water short country and that is all 532 00:31:24,920 --> 00:31:25,720 Speaker 3: possible with this. 533 00:31:25,880 --> 00:31:26,760 Speaker 2: New death swap. 534 00:31:27,280 --> 00:31:30,880 Speaker 1: The US is the largest shareholder in most MDB's around 535 00:31:30,880 --> 00:31:35,440 Speaker 1: the world. If under a Donald Trump presidency, the US says, 536 00:31:35,600 --> 00:31:37,600 Speaker 1: we don't care so much about the world anymore. We 537 00:31:37,680 --> 00:31:39,520 Speaker 1: have so many problems we have to deal at home. 538 00:31:40,280 --> 00:31:43,280 Speaker 1: We've been giving these tens of billions of dollars every year, 539 00:31:43,560 --> 00:31:47,560 Speaker 1: hundreds of billions. We can apply that to Middle America 540 00:31:48,120 --> 00:31:51,600 Speaker 1: and re energize and put America first and starts to 541 00:31:52,000 --> 00:31:54,840 Speaker 1: not contribute as much to MDBs or reduce as its 542 00:31:54,960 --> 00:31:58,680 Speaker 1: shareholding in the MDBs. Doesn't that pose a risk for 543 00:31:58,760 --> 00:32:01,800 Speaker 1: how much lending and how much more money MDBs can 544 00:32:01,840 --> 00:32:04,040 Speaker 1: give out, which is the mandate that they are going 545 00:32:04,120 --> 00:32:06,520 Speaker 1: to have to deal with to increase climate finance. 546 00:32:06,800 --> 00:32:11,040 Speaker 3: So the World Bank is the one of the largest 547 00:32:11,040 --> 00:32:16,560 Speaker 3: development banks. The US has a sixteen percent shareholding, therefore 548 00:32:16,640 --> 00:32:21,000 Speaker 3: plays an important role. I think that in the future 549 00:32:21,320 --> 00:32:25,880 Speaker 3: shareholdings should relate to money put in, and I think 550 00:32:25,920 --> 00:32:28,320 Speaker 3: that that's a way in which some of the large 551 00:32:28,400 --> 00:32:33,640 Speaker 3: middle income countries can have a greater shareholding. If anything, 552 00:32:33,640 --> 00:32:36,479 Speaker 3: if you look at the shareholdings at the moment, the 553 00:32:36,520 --> 00:32:41,240 Speaker 3: countries that are disproportionately positioned are the middle income emerging markets. 554 00:32:41,320 --> 00:32:45,040 Speaker 3: China shares is too low, India shares is too low 555 00:32:45,120 --> 00:32:48,640 Speaker 3: relative to where they are in the world economy. 556 00:32:49,320 --> 00:32:59,520 Speaker 1: Thank you having USh, Thank you very much. Thank you 557 00:32:59,520 --> 00:33:00,000 Speaker 1: for listening. 558 00:33:00,160 --> 00:33:00,400 Speaker 2: Zero. 559 00:33:01,000 --> 00:33:03,920 Speaker 1: Join us next week for another episode of Moving Money, 560 00:33:04,200 --> 00:33:06,600 Speaker 1: where we'll be discussing the role of the private sector. 561 00:33:07,400 --> 00:33:17,960 Speaker 1: And now for the sound of the week. That is 562 00:33:18,040 --> 00:33:20,640 Speaker 1: one of many sounds you may hear at a wastewater 563 00:33:20,800 --> 00:33:24,000 Speaker 1: treatment facility. If you like this episode, please take a 564 00:33:24,040 --> 00:33:26,160 Speaker 1: moment to rate and review the show on Apple Podcasts 565 00:33:26,160 --> 00:33:29,560 Speaker 1: and Spotify. Share this episode with a friend or someone 566 00:33:29,600 --> 00:33:32,840 Speaker 1: who thinks banks are beautiful. You can get in touch 567 00:33:32,840 --> 00:33:35,600 Speaker 1: at zero port at Bloomberg dot Net. This episode was 568 00:33:35,600 --> 00:33:38,840 Speaker 1: produced by Oscar Boyd. Bloomberg's head a podcast is Sage 569 00:33:38,840 --> 00:33:41,840 Speaker 1: Bowman and head of Talk is Brendan Nuna. Our theme 570 00:33:41,920 --> 00:33:45,520 Speaker 1: music is composed by Wonderly Special thanks to Mighta le Rau, 571 00:33:45,760 --> 00:33:51,320 Speaker 1: Samersadi Mosses, Andem, Blake Maples, and Shawan Wagner I am Akshadrati. 572 00:33:51,680 --> 00:34:04,360 Speaker 1: Back next week for another episode of Moving Money