SUSTAINABLE DEVELOPMENT FINANCING: INTERNATIONAL DIMENSIONS José Antonio Ocampo

31/10/2014
SUSTAINABLE DEVELOPMENT
FINANCING: INTERNATIONAL
DIMENSIONS
José Antonio Ocampo
Professor, Columbia University
ESCAP, October 31, 2014
MAJOR CHALLENGES
 Global slowdown, which may be long-term in
character + new major global imbalances in
place. Both are now affecting the
emerging/developing world.
 Major social advance in recent decades
(including achievement in MDGs), but many
pending issues, notably rising inequality and
major gaps in social protection.
 Major global environmental challenges,
particularly risks associated with climate
change.
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31/10/2014
NO REGION HAS AVOIDED
THE GLOBAL SLOWDOWN
World economic growth
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
World
Developed economies
China
East Asia, excluding China
2003‐07
South Asia
2007‐13
Western Asia
2009‐13
Africa
South America
Mexico and Central America
Economies in transition
WORLD TRADE HAS EXPERIENCED A
STRONGER SLOWDOWN
World GDP and export growth
8.0%
7.4%
7.3%
7.0%
Expors
6.0%
5.0%
4.8%
GDP
3.7%
4.0%
3.2%
3.1%
3.0%
2.4% 2.2%
2.0%
1.0%
0.0%
1950‐74
1974‐86
1986‐2007
2007‐13
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31/10/2014
GLOBAL PAYMENTS ADJUSTMENTS
ARE FORCING EMERGING ECONOMIES
TO GENERATE DEFICITS
Current account imbalances (billion dollars)
600
400
United States
European Union
200
Japan
Oil exporting countries
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
0
China
Other Asian emerging
economies
-200
Other emerging and
developing countries
-400
-600
-800
BROAD-BASED DETERIORATION IN INCOME
DISTRIBUTION IN THE THE LAST THREE
DECADES OF THE TWENTIETH CENTURY
Percentage of population of 85 countries
World
Developing
countries
Transition
economies
OECD
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
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31/10/2014
THE SITUATION IMPROVED SOMEWHAT IN THE
FIRST DECADE OF THE TWENTY-FIRST CENTURY
Percentage of population of 114 countries
World
Developing
countries
Transition
economies
OECD
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
POSSIBLE RESPONSES
 Encourage new long-term investments, particularly
in infrastructure, and science and technology.
 Major national actions to provide basic social
services and protection, and to reduce inequalities.
Progressive fiscal policies are the key.
 There may be synergies between the former two,
notably the capacity to induce domestic market
dynamics. But this demands new forms of
cooperation, particularly to avoid tax competition
and tax evasion/avoidance.
 Take seriously the challenge of providing and
financing global public goods.
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31/10/2014
FINANCIAL ACTORS AND INSTRUMENTS
 Official development assistance, including
rising South-South cooperation.
 Multilateral Development Banks and new
multilateral environmental funds.
 The missing element: financing of global public
goods, possibly through binding rules on
national financing of global public goods.
 Private financing: FDI and debt/portfolio flows.
 Private philanthropy.
OFFICIAL DEVELOPMENT ASSISTANCE
 Continues to be essential for most low-income
countries but persistent debate on effectiveness
and respect for national autonomy.
 Recovery after Monterrey, but recent slowdown/
stagnation.
 Major advance with Paris Declaration and the
Busan Partnership.
 The new actor: South-South cooperation, but
unclear magnitude and lack of clear standards.
 Multiplication of actors, with no mechanisms of
coordination (the best: ECOCOC’s DCF)
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A HISTORY OF UNFULFILLED TARGETS,
BUT RECOVERY AFTER MONTERREY
ODA (% of GNI)
0.70
OECD‐DAC
European Union
0.60
USA
0.50
0.40
0.30
0.20
0.10
1960
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
0.00
RECOVERY FOLLOWED BY
STAGNATION
Main components of ODA
160
140
120
100
80
60
40
20
0
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
Net debt relief grants
Humanitarian aid
Multilateral ODA
Bilateral development projects, programmes and technical co-operation
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31/10/2014
MDBs: BASIC ROLE
 Access to long-term financing at reasonable
terms to countries or sectors that have no
adequate access to private markets.
 Counter-cyclical function.
 Contribution to the analysis of development
processes (“knowledge banks”)
 Lending and non-lending related technical
assistance
 Major gaps: infrastructure financing and
contribution to the provision of global and
regional public goods.
 Major concerns: conditionality and debate on
access by middle-income countries.
THE NEED FOR A DENSER SYSTEM
 World Bank Group
 Preference for low-income countries/regions.
 Major issue: governance structure
 Blocking of its growth by some major members.
 Regional banks
 Strong sense of ownership, but more limited capacity.
 Significant difference in regional coverage
 Two models: recycling of surpluses (Arab model,
perhaps AIIB) vs. true cooperatives (LAC).
 Interregional banks: Islamic, now BRICS (also with
initial governance issues).
 A few sub-regional ones, particularly in LAC.
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31/10/2014
UNEVEN REGIONAL COVERAGE OF MDBs
Multilateral Development Banks, Assets by Region, 2010
(% of GDP in each region)
9.00%
8.00%
7.00%
6.00%
5.00%
4.00%
3.00%
2.00%
1.00%
0.00%
EU-15
Rest of
Europe
Developing
SubWorld
Saharan
Africa
World Bank Group
Middle
East Asia South Asia
East and and Pacific
North
Africa
Regional Development Banks
Central
Asia
Argentina,
Brazil and
Mexico
Rest of
Latin
America
and the
Caribbean
Sub- and Inter-Regional Banks
THE WORLD BANK HAS THE GREATER
COUNTER-CYCLICAL CAPACITY,
BUT IT IS BEING BLOCKED FROM GROWING
Lending by Multilateral Development Banks, 2004-2012 (Million dollars)
2004
2005
2006
2007
2008
2009
2010
2011
2012
DISBURSEMENTS
World Bank/IBRD
10,109
9,722
11,833
11,055
10,490
18,564
28,855
21,879
19,777
World Bank/IDA
6,936
8,950
8,910
8,579
9,160
9,219
11,460
10,282
11,061
International Finance Corporation (IFC)
3,152
3,456
4,428
5,841
7,539
5,640
6,793
6,715
7,981
20,197
22,128
25,171
25,475
27,189
33,423
47,108
38,876
38,819
Subtotal World Bank Group
African Development Bank
2,042
1,842
1,863
2,553
2,866
6,402
3,867
4,873
5,193
Asian Development Bank
3,559
4,745
5,758
6,852
8,515
10,581
7,976
8,266
8,592
European Bank for Reconstruction and Development
4,596
2,859
4,768
5,611
7,317
7,649
7,950
9,320
7,711
Inter-American Development Bank
3,768
4,899
6,088
6,725
7,149
11,424
10,341
7,898
6,883
13,965
14,345
18,477
21,741
25,848
36,056
30,133
30,357
28,379
34,162
36,473
43,648
47,216
53,037
69,479
77,241
69,233
67,198
Subtotal regional banks
TOTAL
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31/10/2014
PRIVATE EXTERNAL FINANCING
 FDI is more stable (but it has become more
volatile as it has been “financiarized”)
 Bank financing is most volatile, with portfolio
flows in between.
 With the development of domestic bond
markets, increasing portfolio flows into them.
 Massive self-insurance (reserve accumulation)
has made lending more attractive.
 And search for yield has attracted lending to
countries considered riskier.
 Major challenge: volatility has always been
costly… and has not disappeared!
RELATIVE STABILITY OF FDI FLOWS,
VOLATILITY OF FINANCIAL FLOWS
250
Net capital inflows to EM10 (Billion dollars)
FDI
200
Financial flows
150
100
50
0
‐50
‐100
‐150
‐200
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31/10/2014
BUT OVERALL FINANCIAL FLOWS
HAVE BECOME LESS VOLATILE
Emerging economies: Bond risk spreads and yields, 1998‐2014
22.0
20.0
18.0
16.0
Spreads
14.0
Yields
12.0
10.0
8.0
6.0
4.0
2.0
9/1/2014
4/1/2014
6/1/2013
11/1/2013
1/1/2013
8/1/2012
3/1/2012
5/1/2011
10/1/2011
7/1/2010
12/1/2010
2/1/2010
9/1/2009
4/1/2009
6/1/2008
11/1/2008
1/1/2008
8/1/2007
3/1/2007
5/1/2006
10/1/2006
7/1/2005
12/1/2005
2/1/2005
9/1/2004
4/1/2004
6/1/2003
11/1/2003
1/1/2003
8/1/2002
3/1/2002
5/1/2001
10/1/2001
7/1/2000
12/1/2000
2/1/2000
9/1/1999
4/1/1999
6/1/1998
11/1/1998
1/1/1998
0.0
LINKS BETWEEN EXTERNAL AND
DOMESTIC FINANCING
 At a macroeconomic level, risks of current
account deficits, which countries may not want.
 For this reason, other forms of financing may be
better –e.g., cheaper technology.
The major issue: trade-off between currency and
maturity mismatches.
 Access to international finance by private
agents is very asymmetrical (only large firms).
 For all those reasons, there is no substitute for
domestic financial development.
 And private financing can at most complement
the public sector in its traditional role.
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31/10/2014
SUSTAINABLE DEVELOPMENT
FINANCING: INTERNATIONAL
DIMENSIONS
José Antonio Ocampo
Professor, Columbia University
ESCAP, October 31, 2014
11